Investors may already be tired of the green movement. Keeping up with government subsidies for biofuels, wind turbines, and solar manufacturers can be an exhausting task. One day nuclear energy consumption is poised to grow at a torrid pace and the next countries avoid it like the plague. A recent report by Bloomberg New Energy Finance estimates that global investment in new green energy projects fell by 11% last year. Is the world committed to renewables or not?
Let me propose an alternative investment strategy for greening your portfolio: bioreactors. It seems that the term biotechnology gets applied to everything lately, but then again perhaps that is owed to the field's potential to transform almost every sector of the economy. Let's explore just three bioreactor specific applications.
Bioreactor 10,000 B.C.
You may overlook beer production for its simplicity. How can something I can do in my bathtub be considered a bioreactor? Well, as long as a bioreactor is defined as a precision-controlled vessel that supports a microbial environment you'll just have to accept it. And as long as beer remains the world's favorite beverage you'll be happy to acknowledge the industry as a prime investment candidate.
Boston Beer (NYSE:SAM) is a great company for its passion, relationship with shareholders (held its IPO through the mail), and brand recognition. Despite making up just 1% of the American beer market, the company is the largest American-owned brewer and the leader in craft brewing. Although shares have experienced quite a run-up recently and now trade at over eight times book value, Boston Beer sits with a market cap under $2 billion – pocket lint for trigger-happy Anheuser-Busch InBev (NYSE:BUD).
Anheuser-Bush is a neat bioreactor play for several reasons. In addition to gracing the top of the industry's leaderboard, the company also has reduced water usage at its facilities worldwide by 19% in the last three years. The $144 billion company offers Budweiser, Michelob, Shock Top, Stella Artois, Landshark, Bass, Beck's, and other brands. It also maintains a 47.7% stranglehold on the United States market.
Treat your genes not your pain
The fastest growing market for bioreactors in the last few years has been biopharmaceuticals, or biologics. I recently wrote about the state of the industry, which generated $53 billion in 2011 from the top 10 drugs alone. As big pharma races to replace small molecule revenue lost to generic competition, biologics are poised to continue their awesome growth.
Roche (NASDAQOTH:RHHBY), which I didn't cover in my recent article, is another great example of the transition from small molecules to biologics. The company's subsidiary, Genentech, has 20 biologic drugs in phase 2 or higher, compared to just nine small molecules. Growth is imminent, but investors should know that biologics face stiffer regulation. Unlike small molecules, a biologic will not be approved by the FDA until its manufacturing process is also approved. This may impede innovation, but it also creates a moat for companies with leading biomanufacturing capacity.
Fuels and chemicals
The riskiest plays in bioreactors remain to be companies with platforms targeting large-scale fuel and chemical production. Every day in research labs around the world grad students coax a host microbe into producing any number of useful products. So why is it so darn difficult to make it work at a bigger level? These experiments work well in clean flasks and well-controlled environments maintained by maniac professors, but it turns out that larger-scale fuel production often goes hand-in-hand with the word "dirty." A stable bioreactor – and therefore bioprocess – cannot operate under such conditions.
One company bridging the gap between low-value fuels and high-value chemicals is Gevo (NASDAQ:GEVO). The company retrofits ethanol (two carbon) biorefineries with its proprietary isobutanol (four carbon) production technology. Doubling the amount of carbon supercharges the product pipelines of ethanol producers and allows for more attractive margins and partnerships. Last year Gevo suffered several drawbacks in isobutanol yield, patent litigation, and financing woes that provided plenty of shocks to share prices. Nonetheless, numerous markets and offtake agreements await the company should it achieve enhanced process metrics in 2013.
Foolish bottom line
These are just three of the possible applications for bioreactors that investors can tap for their portfolios. As always, there are risks implied with each – from fierce competition for market share in beer manufacturing to overnight failures of bioprocess platforms. While I acknowledge these drawbacks I am convinced bioreactors will have a great hand in the future. If you believe in the world's eventual transition to a bioeconomy, then you'll be sure to make room for bioreactors in your portfolio.
Fool contributor Maxx Chatskohas no position in any stocks mentioned. Check out his personal portfolio or follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and emerging technologies.
The Motley Fool recommends Boston Beer. The Motley Fool owns shares of Boston Beer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.