Solazyme Files for IPO, Another Biofuel Maker (CDXS, AMRS, GEVO, VRNM)

Solazyme, Inc. has filed a Form S-1 with the SEC announcing its plans for an IPO. This is the first filing for the company and does not include any pricing or share information. Like other biofuels makers, the company makes oils that can be used in non-fuel applications, like drugs, nutritional supplements, and cosmetics.

Solazyme is different from companies like Codexis, Inc. (NASDAQ: CDXS), Amyris, Inc. (NASDAQ: AMRS), Gevo, Inc. (NASDAQ: GEVO), and Verenium Corp. (NASDAQ: VRNM), which depend on photosynthesis in algae to convert sugars to useful oils. Solazyme’s process involves fermentation of sugars then basically squeezing the oil out of the algae. In the photosynthesis process, the algae excrete oil into a pond and then the water is processed to extract the oil. Solazyme’s process is faster and cheaper.

All these companies depend on genetic modification to create enzymes to convert sugars from feedstocks like sugar cane, corn, and cellulose into oils. All the processes produce oil — the trick is to maintain a decent cost structure and then to get the process up to scale.

The only large consumer to step up to the plate for biofuels is the US government. Both the US Navy and the US Air Force have conducted tests with biofuel blends and both have declared the tests successful.

While the biofuels can reduce carbon emissions by up to 85% over petroleum-based products, the is no other benefit to the Navy and the Air Force, according to a study published by the RAND Corporation earlier this year.  RAND points out that biofuels don’t make ships or planes operate better in any way.

The other problem, of course is scale. The only process that can supply large quantities of an alternative fuel is the tried-and-true Fischer-Tropsch gas- or coal-to-liquids technology that has been around since the 1920’s.

And lower carbon emissions. Here’s what RAND says: “Fuel use in tactical systems represents less than 1 percent of U.S. energy-related emissions of greenhouse gases. The greater benefit, again, would result if early use of alternative fuels by the Defense Department were to accelerate the use of alternative fuels in the much larger civilian marketplace.”

For Solazyme and the other algae-to-oil companies, short- and medium-term returns will have to come from someplace besides fuel. And while nutritional supplements, cosmetics, and drugs are large markets, they have neither the size and scope of the energy business.

The company does have non-binding agreements to provide millions of liters of its biofuel to a variety of buyers, providing it can produce enough of the stuff. From January 2010 through February 2011, Solazyme produced 500,000 liters of oil.

The four existing biofuels companies have had mixed success, with only Amyris showing a substantial gain since it has become a public company. But with crude oil above $100/barrel, a company like Solazyme that has demonstrated some success and some ability to scale could be a best seller.

Paul Ausick

FULL Solazyme S-1 Filing Here