Whitespace Opportunities in Biobased Chemicals Prepared for:
Contents Section 1 A Brief Introduction to Nexant 2 The Move to Specialty Chemicals 3 Addressing Opportunities in the Whitespace 4 Case Studies from Nexant s Upcoming Report
A Brief Introduction to Nexant
Nexant provides expertise across the energy and chemicals value chain, in traditional and renewable sectors Energy Chemicals and Clean-tech POWER GAS DOWNSTREAM OIL CHEMICALS GREEN CHEMICALS RENEWABLE ENERGY Electric Power Grid Management Software Energy Efficiency Demand Side Management Gas Market Analysis and Forecasts Gas Monetization Gas Regulation LNG & Gas Pipeline Projects Petroleum Refining Product Market Forecasts Coal to Liquids Gas to Liquids C1 Chemicals & Fertilizers Olefins Aromatics Polymers Inorganics SpecialtyChemicals Advanced Materials Syngas Biopolymers Olefins Alcohols Aromatics Sourced from Biomass, Algae, Wastes, and Biomass Gasification Solar (Thermal & PV) Wind Power Clean Coal Capture and Sequestration Fuel Cells & Nexant has completed over 3,000 client assignments in over 100 countries, and has over 600 employees
NexantThinking reports and subscription programs provide comprehensive analysis and planning tools See www.nexantthinking.com for more information
Nexant s Biorenewable Insights offerings provide regular coverage of the sector Reports are written on a 3-year rotating basis, with updates every quarter C1-C2 C3 C4, Aromatics & Other Fuels and Refining Intermediates Bio-Feedstocks Biomass Gasification Propylene BDO Jet Fuel Cellulosic Feedstocks Ethylene Acrylic Acid Butadiene Naphtha Cellulosic Sugars Methanol/DME n-butanol Isobutylene Ethanol Starchy Feedstocks Alpha Olefins and LAOs Isobutanol Succinic Acid Biodiesel Natural Oil Feedstocks Lactic Acid/PLA Polypropylene Adipic Acid Isooctene/Isooctane Biomass Pretreatment Biogas and LFG PDO and PTT Isoprene and Isoprenoids Gasoline and Reformate MSW Hydrogen Propylene Glycol BTX and PX Bio-Lubes Algae Technologies Syngas Fermentation Epichlorohydrin PEF to Replace PET Bio-Crudes Lignin Sources for Natural Rubbers See www.nexantthinking.com for more information Ammonia SAPs Caprolactam Pyrolysis Oil
The Move to Specialty Chemicals
The industrial biotechnology field is moving towards higher value molecules Bio-Based Product Relative Value Technology Status Ethanol Low Established; Cellulosic Ethanol Emerging L-Lactic Acid Low Established 1,4-BDO Medium Early-Stage Commercial Succinic Acid Medium Early-Stage Commercial Adipic Acid High In Development Para-Xylene High In Development
The strategic focus on high value drop-in molecules is driven by many different factors Higher value molecules are attractive on a margin over feedstock basis currently primarily first-generation feedstocks for reasons of technical risk and immaturity of cellulosic sugars technology Avoids market development efforts for commodity functional replacements like FDCA, PHAs or PLA Higher-value products are consumer facing and more likely to have a bio-based premium, such as with para-xylene
Moving into higher value chemicals, however, also means looking at smaller markets Interferon, diamonds, monoclonal antibodies Soil, sand
The most valuable and potentially exciting opportunities most resemble specialty chemicals As a company moves into these smaller markets, several characteristics become apparent: Markets are less transparent Number of possible product targets proliferates Significant barriers to entry may exist Product value may depend on macroscopic properties rather than molecular composition Branding, biodegradability, traceability and bio-based product premiums are more likely to be significant than in commodity chemicals
Many players have started in commodities and then moved into higher-value markets
Addressing Opportunities in the Whitespace
Nexant is looking beyond what current players are pursing What are the biotechnology products of the future? How does one decide which products to pursue? Nexant has observed the major trend of biotechnology companies moving into the specialty sector and is looking in depth at potential targets that have not been announced by any major player. This ongoing research is part of Nexant s upcoming Special Report, Whitespace Opportunities in Biobased Chemicals Nexant s research has included leveraging industry contacts and primary research among formulators, buyers and producers in various sectors Nexant is covering a variety of application areas, including: Cosmetics Flavors and Fragrances Agricultural Chemicals (including specialty pesticides, micronutrients, and livestock feed additives) Lubricants, Surfactants, and Fuel Additives Nutraceuticals
Nexant primary research indicates companies are pursuing specialties via diverse strategies There is no one formula that works Discovery of new opportunities is as much a matter of art as it of skill Some companies are working to leverage their engineering and technical competences with single platform organisms to produce specialty chemicals Some companies consider their metabolic libraries to be their core technology and select the appropriate organism for production Some companies are solely interested in very high-value components (>$5/lb) while others will consider those as low as $2/lb Capturing significant market share is as important as price Size may be a disadvantage in terms of addressable opportunities smaller companies can be more nimble in terms of being able to switch from different products and be more willing to devote the effort to addressing smaller opportunities
Case Studies from Nexant s Upcoming Report
Flavors and Fragrances: L-(+)-Tartaric Acid L-(+)-Tartaric Acid is a natural product with large applications as an acidulant, stabilizer, baking soda activator and flavor enhancer L-(+)-Tartaric Acid must be enantiomerically pure (i.e., no racemate) and sourced from non-fossil feedstocks due to its use in food L-(+)-Tartaric Acid has a remarkably inelastic demand Must be sold as a pure component Current production depends on potassium tartrate crystals extracted from wine residues Highly cyclical market due to weather affecting grapes
Flavors and Fragrances: L-(+)-Tartaric Acid This molecule occupies the lower end of the spectrum in terms of price but has high potential revenues Traditional production is high cost and requires acids and bases for processing Petrochemical competitors produce racemic and off-spec product suitable only for industrial uses Biotechnology can potentially offer lower cost, greater supply reliability and lower impact while retaining advantages of traditional production Global Addressable Market Approximate World Market Price $300-$500 million with potential for additional growth at lower prices $2/lb, with high levels of volatility to up to $4- $5/lb
Flavors and Fragrances: L-(+)-Tartaric Acid Biotechnology may be able to offer a functional, identical replacement Biotechnology is ideally suited towards producing enantiomerically pure product Potential responses from current market incumbents are limited due to high fixed costs Low price and relatively small addressable market Lower value product than ascorbic acid Production cost play competitiveness depends on achieving higher titer in output Current developments in biotechnology suggest that the pathway is not yet characterized No efforts currently underway Pathway to L-(+)-tartaric acid is based on cleavage of L-ascorbic acid, but has not been fully characterized in literature this is truly a whitespace opportunity Potential synergies between production of L-(+)-tartaric acid and production of L- ascorbic acid for nutritional supplementation Process technology Platform organisms (e.g., A. niger)
Cosmetics: Beeswax (Functional Substitute) Beeswax is a natural, waxy substance produced by domesticated bees Beeswax products are composed of a mixture of various esters of long-chain fatty acids and alcohols in the C24-C35 range (alcohol) and C15-C18 range (acid) Beeswax is gaining popularity as a natural ingredient for cosmetics Although there is an element of marketing in the source of beeswax, the primary criteria for use as a beeswax substitute is functional properties
Cosmetics: Beeswax (Functional Substitute) Beeswax is primarily used in cosmetics, with minor applications in food and as a surface protectant Biotechnology can offer potential for lower cost and consistently higher quality without refining natural product There may be potential marketing advantages for environmental reasons Biotechnology-based beeswax is a potential vegan substitute for conventional types Global Addressable Market Approximate World Market Price $80-$90 million Depends on color and desired application, from $1.50-$5/lb
Cosmetics: Beeswax (Functional Substitute) Biotechnology-based beeswax would be a functional substitute rather than a perfect substitute for existing beeswax Biotechnology-based beeswax would be a functional substitute rather than a perfect substitute for existing beeswax Greater control over the composition of beeswax fatty acid and alcohol chain lengths could lead to better tailoring of products for use Long-chain fatty alcohols are a major prerequisite for production, and may have independent uses There are additional markets for vegetal waxes (jojoba, carnuba) that can extend the market, and potentially also petrolatum substitutes Some synthetic beeswax products have been made but, typically for functional markets, have not replicated all properties Efforts at developing synthetic beeswax have been made by Croda, Elevance and Koster Keunen but have not been able to match all properties or compositions Primary difficulty in synthetic beeswax production has been the consistent production of very long chain length fatty alcohols
Nexant has found through its preliminary study that target markets share certain characteristics Many of the opportunities for biotechnology entrants are already served by bio-based products that are produced using traditional methods At higher levels of value and smaller markets, functionality becomes more important than the composition of a particular product, such that all new products become drop-in replacements Many opportunities are quite small and individually represent relatively minor revenue sources Especially for small companies, there is a significant opportunity cost associated with pursuing a given opportunity many larger opportunities may pass you by Imperfect substitutes for many applications can still capture significant market share As prices increase, production cost reduction becomes less and less essential Partnership with formulators and distributors is essential for market entry
Contact info: Joshua Velson Consultant 44 S. Broadway Fl. 4 White Plains, NY 10601 +1 914 609 0341 jvelson@nexant.com
Nexant, Inc. 44 South Broadway, 4 th fl White Plains, NY 10601 Telephone: +1 914 609 0300 Facsimile: +1 914 609 0399 www.nexant.com This presentation was prepared by Nexant Limited ( Nexant ). Except where specifically stated otherwise in the presentation, the information contained herein was prepared on the basis of information that is publicly available and has not been independently verified or otherwise examined to determine its accuracy, completeness or financial feasibility. Neither NEXANT, nor any person acting on behalf of NEXANT assumes any liabilities with respect to the use of or for damages resulting from the use of any information contained in this presentation. NEXANT does not represent or warrant that any assumed conditions will come to pass. This presentation is integral and must be read in its entirety. The presentation is given on the understanding that the recipient will maintain the contents confidential except for internal use. The presentation should not be reproduced, distributed or used without first obtaining prior written consent by NEXANT. This presentation may not be relied upon by others. This notice must accompany every copy of this presentation. San Francisco New York Houston Washington London Frankfurt Bahrain Singapore Bangkok Shanghai Kuala Lumpur