Bloomberg News

Novozymes Says Biofuel Tie-Ups May Extend to Demonstration Plant

March 29, 2012

Novozymes A/S (NZYMB), the world’s largest maker of enzymes, is considering broader partnerships in cellulosic ethanol projects to promote its technology as competition in the industry stiffens, an executive said.

The Danish maker of enzymes used in brewing, detergents and biofuel may get involved in pilot or demonstration plants if there was an “appealing reason,” Peder Holk Nielsen, who oversees Novozymes’s enzymes business, said in an interview. Talks with potential partners are under way, covering various levels of cooperation, Nielsen said, declining to give details.

Novozymes is looking to go beyond customer rebates as more companies enter the field. DuPont Co. (DD:US) bought Danisco for $7.1 billion last year, expanding into the market of enzymes that let washing machines clean at lower temperatures, or help extract cellulose from crop residues in second-generation biofuel. Royal DSM NV (DSM) announced a venture with Novozymes customer Poet LLC in January, securing an enzyme contract in the process.

“We have been working with people around the world on other models,” Nielsen said in the March 27 interview. “We have a whole register of things we’re ready to do. But we will not get involved in the manufacture of ethanol for the sake of it. It’s not our line of business.”

DSM took a financial stake in a $250 million biofuel project with Poet, and the Heerlen, Netherlands-based company is seeking more such tie-ups. Novozymes declined as much as 3.6 percent on the day the partnership was announced.

Still in the Game

Novozymes, which spends about 14 percent of sales on research, aims to maintain a competitive edge to retain clients like Poet as larger diversified chemical makers and startup companies enter the enzyme market.

Novozymes has a “firm” supply contract with Poet for the project, irrespective of DSM’s involvement, said 55-year-old Nielsen, who was appointed head of enzymes in 2007. The current contract between Novozymes and Poet extends to 2017, and by then it will no longer be mandatory that DSM remains the sole supplier to the joint venture, according to research by ABG Sundal Collier.

DSM Chief Executive Officer Feike Sijbesma said in February that Poet’s existing contract with Novozymes will be “respected” and then phased out, with DSM supplying both the enzymes and yeast for the Emmetsburg, Iowa facility. The intention then is to license the technology to other ethanol producers, and Poet’s other plants, he said.

Biofuel Talks

Novozymes is working with more than 50 companies which are at various stages of development, Nielsen said. While some need cash, others just need the latest enzymes, and the level of involvement with Novozymes varies from just contact to “deep collaborative efforts,” he said.

The executive declined to comment on the potential of partnering with Valero Energy Corp. (VLO:US), cited as the best candidate for Novozymes by DNB Markets analyst Rune Dahl.

Enzyme makers are seeking to help jump-start the cellulosic ethanol market. The U.S. Environmental Protection (1065) Agency sets annual mandates for the amount of biofuel that must be blended into gasoline, and has had to reduce the target for the past two years because of a lack of commercial production of the fuel.

The Danish company predicts small growth in the U.S. corn ethanol market this year. Its revenue stream will be bolstered by new products entering the market that increase the yield from crops.

“With the way we view the world today, we wouldn’t play it the same as DSM has with Poet,” Nielsen said. “There will always be competition and the best technology will always win. DSM have bought an entrance ticket with their joint venture with Poet. Now they have to prove they have the technology.”

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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