In its first day of trading, Codexis, the biofuels maker backed by oil giant Royal Dutch Shell, fared better than most of the other firms debuting on the stock market Thursday.
The company’s shares closed up 2 percent at $13.26 after pricing its initial public offering at the bottom of its expected range Wednesday, The Associated Press reported.
The Redwood City, Calif. company sold 6 million shares to initial investors for $13 apiece, raising $78 million in its I.P.O. It had been expected to price shares at $13 to $15 each.
The company’s small bump in its first day of trading came amid a glut of market debuts Thursday, many of which closed down or flat....MORE
And from Greentech:
The Tangled Codexis WebCodexis is hoping that its IPO will break the biofuel industry losing streak and signal its ascendancy as a biofuels shining star. Management claims it has a four-pronged business model with significant upside and limited risk. And the CEO has a British accent!
Management is quick to point out that it's a biotech company participating in the biofuel market. Not a biofuel company messing around with biotechnology and falling into the valley of death trap. Codexis argues that a partnership with Shell, a big patent portfolio and savvy genetic engineering are the underpinnings of its super business model. But for now, it's a story, not a proven model. And the story is an optimistic version of how a tangled partnership web will play out.
Four Leaf Business Model Clover
Codexis claims to have a four part business model. First, it does some initial screening of naturally occurring enzymes that have promise for making drugs or biofuels. This quick work is part of the sales process. Consider this a biotech proposal. Once a promising enzyme is identified, Codexis creates a research and development partnership to create what it calls a "super enzyme," a genetically engineered molecular worker bee that performs a desired task, like turning sugar into fuel, but holds up to nasty temperature and pH extremes like no natural enzyme can.
In general, there's limited upside in contract R&D arrangements, but they provide the day-to-day funding to sustain operations and eke out profits. Its current R&D contract with Shell accounts for 76 percent of its 2009 revenues, but it expires in 2012. The third and fourth parts of the Codexis business model are where it says it has big upside: royalties on product made (i.e. a price per gallon), plus sales of its super enzymes which act as biocatalysts.
Codexis is positioning as a pharmaceutical biotech company that is moving into the large-scale world of biofuels. It plans to parlay the model it perfected with drug companies like Merck into a big win with Shell. But there are key differences between drugs and biofuels. A painful lesson that hotshot biotech venture capitalists have learned in recent years as their advanced biofuel biotech "plays" have become advanced biorefinery money pits.
The Brutal Economics of Biofuels
The upside in the Codexis business model assumes that Shell goes into large-scale production with one or several of the super enzymes in the works. But the economics of biofuels are far more brutal than pharmaceuticals. One gallon of fuel typically fetches around the same amount as a tiny pill - or less. A lot of really smart people have been spending a lot of time and money trying to economically produce advanced biofuels. It takes a lot more than a killer microbe or super enzyme to hit it big. You need to be able to churn out huge volumes of fuel cheaply - even after accounting for feedstock cost, the cost of capital and operations overhead. That's where biofuels and biotech depart. Codexis plans to sidestep these problems through its partnership with Shell. Codexis plans to keep a tight balance sheet and build a beautiful income statement with big partner royalties and the sale of super enzymes made with contract manufacturer equipment - not it's own....MUCH MORE
