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Myriant Technologies Looks Beyond Biofuels at Growing Chemicals Business

Xconomy Boston — 

Stephen Gatto focused much his career during the previous decade on the biofuels industry. But today, he’s betting on specialty chemicals as the highest-growth market for his Quincy, MA-based company’s fermentation technology.

Myriant Technologies is aiming to raise $60 million in a round of equity financing in the coming months, Gatto told Xconomy. The funding would help finance construction of the firm’s planned bio-chemical plant in Port of Lake Providence, LA. The plant, which is supported by a $50 million U.S. Department of Energy grant, will produce succinic acid in a fermentation process that uses plants as feedstock rather than gases or petrochemicals. It’s slated to begin producing the acid—which most people have never heard of but factors into goods like plastics, stretch fabrics, and perfumes—in 2011.

“This first plant will provide a significant earnings profile and revenue platform for the business going forward,” said Gatto, who is chairman and chief executive of Myriant. Myriant was spun off from Quincy-based BioEnergy International, which operates an ethanol plant in Pennsylvania, in June 2009 to apply BioEnergy’s fermentation technology to the specialty chemicals sector.

Myriant’s new round of financing will come from both previous investors and new backers, Gatto said. The firm’s existing investors include the Stamford, CT, hedge funds Plainfield Asset Management and Camulos Capital, Houston-based NGP Capital Resources, and Itera, a global holding company. Gatto declined to reveal the names of the new investors.

While I’ve heard CEOs talk up big financing deals that never bore fruit, it seems unlikely that will be the case with Gatto. Why? Bio-chemicals, meaning those chemicals made in sustainable processes, offer a lucrative opportunity to apply fermentation technologies like Myriant’s, especially when the products can be sold at prices that are competitive with petroleum-based chemicals. Gatto says his firm’s succinic acid will be priced as such.

Last week, Cambridge, MA-based Verenium (NASDAQ:VRNM) jumped out of the cellulosic biofuels game, selling its assets in that business to British Petroleum (NYSE:BP) for $98.3 million, while holding onto its specialty enzymes unit that provides bio-engineered enzymes used by makers of animal health products, food ingredients, and various industrial goods. Wall Street seemed to love Verenium’s decision, given the bump in its stock price in the hours following the deal’s announcement.

With a similar strategy in mind at BioEnergy, Myriant was formed last year. Gatto, who founded BioEnergy in 2004, said that BioEnergy transferred all intellectual property related to bio-chemicals to Myriant in the spin-off last June. BioEnergy is now primarily set up as an operator of an ethanol plant in Clearfield, PA. And though Gatto is still technically chief executive of BioEnergy, his primary focus is Myriant and day-to-day management of BioEnergy is done in Clearfield, said Sam McConnell, Myriant’s senior vice president of development.

There’s good reason for Myriant and Verenium to focus outside of the biofuels market. In an interview in May, Lux Research analyst Mark Bünger told me that such firms would be better off pursuing niche chemicals, food ingredients, or other industrial markets outside the seemingly overcrowded ethanol arena. “We don’t need lots and lots and lots of more ethanol for a long time,” Bünger said at the time.

Myriant has developed proprietary microbes, using bioengineering techniques to optimize their ability to convert plant-based materials into chemicals. For its succinic acid, the firm uses an engineered microbe based on E. coli bacteria. (The company has licensed a similar microbe to Purac, a leading food ingredients maker, for producing a form of lactic acid.) The initial feedstock for the facility in Louisiana will be sorghum, a plant that is rich in sugars that are a key ingredient in its fermentation process.

Succinic acid is typically made in a process that relies on butane gas (the same stuff used to fuel Zippo lighters and cooking torches).

Myriant has already sold out the initial capacity of the Louisiana plant, which will churn out 30 million pounds of succinic acid per year to start, McConnell said. The firm will likely expand the plant, which has garnered a $10 million grant from the Port of Lake Providence, after its completed.

The company is running up against several big competitors in the niche market for bio-based succinic acid. Last month, Royal DSM, the chemical company based in the Netherlands, announced its formation of a joint venture with France’s Roquette to produce bio-based succinic acid. Other major players in this market include the German chemical giant BASF and France-based ARD.

Yet Myriant is working on bringing other bio-based chemicals to the market in the coming years, Gatto said. But first things first: Let’s see whether the company can close its big round of financing. Stay tuned.