World's Largest Chemical Company Makes a Splash in Enzymes

It was only a matter of time. Last month BASF (NASDAQOTH: BASFY  ) , the world's largest chemical company, announced three separate developments that will thrust it from being a mediocre player in industrial enzymes to a dominant force. BASF acquired Henkel's detergent enzyme technology, licensed the C1 biotechnology platform from Dyadic, and befriended Direvo Industrial Biotechnology from Germany for a next-generation animal feed enzyme.

The company will now compete more readily with industry leaders Novozymes from Novo Nordisk (NYSE: NVO  ) and Genencor from DuPont (NYSE: DD  ) . However, the biggest effects could be felt at Codexis (NASDAQ: CDXS  ) , which has also licensed the cutting-edge host organism from Dyadic. Will BASF's push into industrial enzymes, specifically using the C1 platform, vindicate Codexis or shove it out of the way?

Why Dyadic?
There are numerous advantages to the C1 platform that make it an easy choice. First is the host organism itself, the fungus Chrysosporium lucknowense, for which the platform is named. (Fungi are responsible for breaking down cellulose in nature, thus making them optimal commercialization targets.) Novozymes and Genencor utilize Trichoderma fungi and both feel entitled to enzymes developed from the microbes. Simply Google "Genencor Novozymes lawsuit" to see the pile of legal battles fought over their similar technology platforms in the past decade.  

These little guys are enabling the first commercial-scale production of cellulosic chemicals across the world. Source: Wikimedia Commons

Dyadic's novel host organism is openly licensed, which has thus far skirted costly courtroom appearances. Additionally, the enzymes produced from its spores have demonstrated superior performance at wider ranges of pH and temperatures. It is also equipped with better genomic tools and -- as if it couldn't get better -- has shorter filaments, which yield significant benefits for large-scale commercial production of enzymes (less viscous, better flow). 

Dyadic also lets licensees produce enzymes wherever they want, whereas Novozymes and Genencor insist on shipping bags of enzymes to customers on a contract basis. That is particularly bad news in the enzyme business, where enzyme activity and efficiency can be greatly impaired the longer a product sits on the shelf (or in a rail car). No wonder Dyadic has courted world-class companies such as Codexis, Abengoa, Sanofi-Pastuer, and BASF for applications in biofuels, pharmaceutical intermediates, animal health, nutrition, biopharmaceutical production, paper products, and more.

How does this affect Codexis?
Codexis was among the first companies to license the C1 platform and has turned the potential into performance -- likely turning others onto the possibilities. The company has dramatically improved efficiency and lowered manufacturing costs since developing its first strain for CodeXyme cellulase enzyme production in early 2009.

Source: Codexis Presentation at World Biofuels Conference

Despite all of the progress Codexis has yet to find a commercial partner for its cellulase enzymes since being dropped by Shell last year (10 months and counting now). Does BASF's dash to the C1 platform somehow vindicate Codexis' ambitious goals? I suppose one could see it that way, but I wouldn't get too excited. The company is developing enzymes for animal and human nutrition "among other markets". So while the move may once again prove the industrial importance of the C1 platform, it is unclear if developing cellulase enzymes for the economic production of bio-based chemicals is a goal.

What if it is?

In the worst case scenario, Codexis and BASF would be competitors. Given that the world's largest chemical company has a market cap over 1,000 times larger than the developmental stage industrial biotech firm, I'm in no mood to party. There may be some good news. BASF has a massive financial reach, but Codexis got this far on the budget of one of the largest oil companies in the world -- not that of a tiny start-up. So it won't be easy to leap into the lead. Besides, directed evolution -- the biologic tool used to develop enzymes -- only works so fast.

In the best case scenario, BASF could tap Codexis as a partner or force another company to make such a move. The company isn't a major player in fuels, but it did invest $30 million in Renmatix early last year for its thermocatalytic platform for producing cellulosic sugars. It wouldn't necessarily make sense to develop its own biocatalytic process when Codexis is already 4.5 years ahead of a base strain, unless Dyadic provides an enhanced base strain to work with. 

Foolish bottom line
Having the most mature platform in the industry is the biggest selling point Codexis management has at the bargaining table with potential partners. Can it lure in BASF? It would certainly help the company's prospects, but I wouldn't speculate. There are plenty of fuel-focused companies that seem to be a better fit at this point, although there a bigger opportunities in high-value specialty chemicals. Unfortunately, the waiting game continues for investors.

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Read/Post Comments (8) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 07, 2013, at 10:19 AM, funfundvierzig wrote:

    Powerful and intensely-focussed BASF is circa three times the size of the much shrunken DuPont Company. No doubt BASF will begin to be a formidable competitor in industrial enzymes to DuPont which has recently dismembered and subsumed enzyme-maker Danisco within its highly hierarchical conglomerate bureaucracy. ...funfun..

  • Report this Comment On June 07, 2013, at 6:02 PM, nomofunfun wrote:

    BASF is a bunch of bloated, beer-guzzling Germans - not likely that they will figure out something like enzymes. DuPont was wise to get into this business, as it has the Midas touch with specialties. Danisco was not SUBSUMED like some paid Monsanto-loving shills would have you believe. It will have paid off the purchase price in 2-3 more years. I'm just glad superior-managed DuPont is in the enzyme business. Imagine if Monsanto would polluting even more of our food supply?

  • Report this Comment On June 07, 2013, at 6:57 PM, funfundvierzig wrote:

    Obviously there is a not an insignificant amount of sensitivity in the DuPont Management camp relating to DuPont's now fully subjugated and dismembered Danisco subsidiary. Fact is much of the talent which fueled the growth and profitability of Danisco prior to its subsumption into DuPont has left the building. In turn, DuPont's history of mistreating and mismanaging acquisitions is legendary.

    Take Pioneer Hi-Bred International, for example. Once the largest and leading seed enterprise on the globe for decades, after its subsumption into the DuPont bureaucracy and rule by agriculturally ignorant overlords in Wilmington, Delaware, Pioneer fumbled and stumbled. It quickly was surpassed by a brilliantly managed, intensely-focussed outfit in St. Louis, Missouri. Monsanto has reigned ever since as the largest and most innovative seed corporation in the world. Second-place and second-rate is the lagging DuPont Company. ...funfun..

  • Report this Comment On June 07, 2013, at 7:04 PM, susan400 wrote:

    Wrong, Monsanto had the patents on GMO etc, tid up long before DD bought Pioneer.

  • Report this Comment On June 07, 2013, at 7:09 PM, funfundvierzig wrote:

    Two additional points:

    1. Germans have known about enzymes and additives for centuries. Beer-brewing and cheese making are outstanding examples. Now its is highly technical industrial enzymes they will be researching and producing.

    2. Ms. Kullman, DuPont Chieftess actually bid against herself and ended up paying circa $7 billion for Danisco. We hardly believe the purchase price will be paid off in two years, or even three! Such incredible cash flow...Nein!

    Finally, what ever happened to that magic bug Danisco supposedly possessed and cited as a big reason for its purchase by DuPont? The magic bug which could gobble up corn cobs and spit out commercial quantities of corn cob "gasoline"?

    ...funfun..

  • Report this Comment On June 07, 2013, at 7:14 PM, funfundvierzig wrote:

    susan400,

    The Monsanto seed enterprise you know today was not even in existence when DuPont bosses began grabbing Pioneer Hi-Bred in 1998.

    The new Monsanto, the seed outfit, was incorporated in 2000.

    ...funfun..

  • Report this Comment On June 08, 2013, at 10:18 AM, nomofunfun wrote:

    Susan,

    Please be on the lookout for a former DuPont chemist who is now a paid Monsanto operative. He pots lies against his former employer and glosses over any crimes committed by Monsanto, which are legion. I forget his name, but he used to post his smears on Yahoo until Yahoo finally had him silenced.

    Hopefully, this Monsanto operative is apprehended soon, as Monsanto has a lot of explaining to do as to why it secretly planted BANNED GMO wheat in fields in Oregon and elsewhere and now pretends that it's sabotage!

    You can be sure that DuPont/Pioneer only sells WHOLESOME seeds, not tainted with Frankenfoods. Great company to work for and outstanding products too. Hard not to be proud of DuPont.

  • Report this Comment On June 08, 2013, at 4:35 PM, funfundvierzig wrote:

    The undersigned has absolutely no connection or affiliation with Monsanto, other than being a MON shareholder. Nor have we ever been a "DuPont chemist", as the hostile heckler above dishonestly insinuates.

    We have no connection with any corporation, NGO, law firm, PR firm, government regulator, charity, university, undsoweiter. We post and opine solely as an individual retail investor. We have a long position in MON, SYT, DOW, and both long and short positions in DD.

    As a matter of record, we have been systematically targeted, monitored, harassed, cursed, and libeled by hecklers at various internet sites, many of whom have openly disclosed, even proudly bragged they are representatives of DuPont, working as DuPont employees or bonus-paid DuPont Managers. Why the vindictive retaliation? We dare to disregard the party-line of DuPont and question the quality and performance of DuPont leadership.

    funfundvierzig...funfun..

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