Biotech business zooms in on chemicals

By Elisabeth Jeffries

Date: 01/04/04

AMID the row earlier this month over the introduction of genetically modified (GM) maize into Europe, an interesting innovation in the biotechnology industry was overlooked.

Novozymes, a Danish company specializing in enzyme biotechnology, announced in February it had cracked a way to make ethanol, a biofuel, from agricultural waste (known as biomass) such as husks, kernels and grass.

Important as a technical breakthrough, this allows the creation of ethanol from cellulose in addition to corn starch and thus provides a wider range of feedstocks. It could also lead to the replacement of a chemical additive, called MTBE, that is used in gasoline.

"Every single one of our applications aims to replace chemicals," explains Per Falhoult, research and development director at Novozymes, who believes the company - which operates in many of the same end-user segments as the chemicals industry - is in direct competition with it.

Could this type of development be classed as a threat, or is it the industry's best chance to reinvent itself? The question is very much open.

Some chemicals companies have diversified into this sector and are beginning to experience their first successes. Others, in many cases operating in sectors less likely to be targeted on a large scale by biotechnology companies, have stayed on familiar ground.

"There are no opportunities for biotechnology in the commodity chemicals industry because of the global volumes needed," states Michael Eastwood, chemicals analyst at Morgan Stanley.

A good example is the enormous use of ethylene in the polymer supply chain; it is hard to envisage the embryonic biopolymers business gaining significant ground in this billion-tonne industry for a very long time because of the complexities involved in market development.

In this respect, Novozymes' use of biotechnology to replace a commodity chemical is unusual.

Eastwood's view is that biotechnology is the domain of fine-chemicals firms, who are struggling enough as it is at this early stage of the biotech life cycle.

Another investment analyst explains: "Not only do the companies have to have the technologies required, but they also need the necessary relationships in place to be fully contracted, as well as the right scale of facilities.

"It's costly to build a biotech manufacturing facility and you have to have enough contracts to utilize it in full . . . there are huge barriers to entry."

This is particularly true of speciality firms switching into biotechnology in the drugs and agrichemicals sector.

Companies such as Lonza and DSM are investing in a range of small- and large-scale facilities with varying risk levels.

Small-scale facilities in this specialized sector are a higher-risk investment because of current over-supply and are not producing good yields due to insufficient capacity utilization.

In the case of the lower risk large- scale facilities (20,000 litre vessels the size of a bathroom which can cost at least l165 million to build and monitor due to stringent drug controls), there have been successful examples of market development. And in the case of ethanol production from biomass, similar infrastructural changes need to take place, though last month's research breakthrough will in itself produce a ten-fold fall in production costs.

Chemicals companies are unlikely to choose one technology over another, but instead manage a portfolio consisting of traditional products alongside the newer bioproducts.

"Biotechnology products can either replace processes done in a more classical way in the chemicals industry or produce new processes and products," explains Frank Achtenberg, Sustainable Technologies Director at Cefic.

BASF's development of vitamin B2 is an example of a mainstream chemicals company using biotechnology to replace an existing process in a product and achieving production efficiencies in the process.

But mainstream applications in themselves are some time away: "For large-scale switches we are looking at beyond 2015," says Achtenberg.

• Elisabeth Jeffries is a business and environmental journalist.

A Dutch company, Novozymes, announced in February 2004 it had found a way to make ethanol, a biofuel from agricultural waste (biomass).