Industrial Biotech at the Bottom Line

Executives with leading firms in the industrialbiotechnology sector told securities analysts and investors at the Biotechnology Industry Organization's Third Wave 2004 meeting in New York City latelast month that their biggest challenge in the years ahead will be to demonstratethat biotech methods represent a commercially viable alternative to traditionalchemical manufacturing. The meeting, BIO's second on the topic, focusedon the economics of industrial markets rather than on advances in the scienceof biotechnology.

Referred to by BIO as the "third wave"--following healthcare and agriculture applications--industrial biotechnology, a $50 billionmarket, currently impacts 5% of chemical sales, according to keynote speakerJens Riese, associate principal at McKinsey& Co. By 2010, 10 to 20% of chemicals sold will be manufacturedat least in part through biotechnology.

While several companies, such as Novozymes (see page 23), cited areas including detergents, textiles, paper,and foods where enzymes and other biotech products have made significantinroads against chemicals, other firms, such as Abengoa Bioenergy--a Spanish firm working on biomass ethanol production--spokeof plans to commercialize their first products when markets permit inthe next three to five years.

"We need to add value for our customers or there willbe no transition from chemistry to biochemistry," said Alan Shaw, chiefexecutive officer of Codexis. "Rightnow, pharmaceuticals are our softest target because the industry is high-tech."

At Genencor, onthe other hand, there is a push to move biotechnology toward other industrialuses, said Michael V. Arbige, senior vice president for technology. Thefirm, which specializes in enzyme technologies, last month announced apartnership with the Army's Edgewood Chemical Biological Center to develop enzymes to decontaminate organophosphate-basednerve agents like sarin. Genencor also announced a partnership with theU.K.'s Health Protection Agency todevelop an enzyme-based method for eliminating prions associated withbovine spongiform encephalopathy.

Arbige said the firm is exploring the use of peptidesin cosmetics, where the cost benefits are easier to demonstrate than theyare in other markets, such as polymers. The firm is also investigatingfiltration and aerospace applications, and it is exploring the use ofproteorhodopsins--photoactive materials derived from marine eubacteria--inindustrial applications. Arbige said advances in recent years, such asrepeat sequence protein techniques where DNA sequences can be changedand reactive groups added, have led to new materials.

William H. Baum, executive vice president of Diversa,said success in chemical markets means "having a robust, high-activityenzyme that is not just effective, but cost-effective." He and othersnoted the importance of customizing chemistry through biotech processes--"dialingin properties" to meet customer needs. But success in consumer productmarkets, he said, will ultimately come down to economics. "Green is nice,but it's just a feature."

Per Månsson, chief financial officer at Novozymes,holds up his company's experience with consumer products customers asproof that specialties markets can be penetrated. The business, whichwas spun off from health care firm Novo Nordisk, has experienced an average 9% annual growth between 1990and 2003, mainly selling enzymes to specialized industrial markets. "Wecome from pharma," Månsson said, "and right now we have no direwish to go back."