Bioamber Looks for Growth in Bio-Succinic Acid
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Though you may have never heard of it before, succinic acid is used in a range of applications, including as a raw material for polyurethanes, coatings, adhesives, sealants, and personal care ingredients. Investing in succinic acid doesn’t sound very sexy, yet there is tremendous growth to be had in this area. A study published in May 2012 by Nexant projects that the global market for succinic acid will be 424,000 metric tons in 2016, representing a compounded annual growth rate in excess of 50% between 2010 and 2016. In 2004, the DOE identified succinic acid as one of the top value-added chemicals that can be obtained from biomass. Bioamber is a company that is looking to displace petroleum-based succinic with their own bio-succinic acid.
About Bioamber
Founded in 2008 as spin-off from DNP, Bioamber (NYSE:BIOA) was privately financed by investors that included Sofinnova Partners, Mitsui, Samsung Ventures and the Cliffton Group. On May 9, 2013, the Company completed an IPO from which they received $71.7 million in net proceeds. Investors who would have purchased the IPO on the first day of trading would have not fared too badly as they would be up around +20% to date:
The Opportunity
Historically, the high cost of producing succinic acid from petroleum feedstock limited its use to a narrow range of applications such as pharmaceuticals and food ingredients. As a result, based on 2011 estimates, the market for petroleum-based succinic acid is only approximately 51,000 metric tons per year, representing a market size of approximately $350 million. However, the expected growth rate of this market is very high. A study published in August 2012 by Roland Berger projects that the succinic acid market will grow at a compounded annual growth rate of between 25% and 30% through 2020, when the global market size is expected to be between 500,000 and 700,000 metric tons. This would bring the 2012 market value of $350 million to $3.5 billion.
Bio-Succinic Acid from Yeast
In the fall of 2013, Bioamber completed a joint development program with Cargill making their proprietary yeast ready for commercial use. Bioamber believes they can use this yeast to produce bio-succinic acid that is cost-competitive with succinic acid produced from oil priced as low as $35 per barrel and an assumed corn price of $6.50 per bushel. Bioamber has been operating a plant in France for the past 4 years that can produce 2,000 tons per year of bio-succinic acid. Using the proceeds of their IPO, the Company is now building a 50,000 ton per year capacity plant in Sarnia Ontario which is fully funded and expected to be at 100% capacity by 2017. As an additional vote of confidence from potential buyers, Bioamber already has supply agreements in place for a good portion of their planned production:
Conclusion
Bioamber will need to scale quickly. In 2013 the Company saw just $2.6 million on product revenues offset by $41.1 million in operating expenses. As of March 2014, Bioamber had around $73 million in cash on hand. Investors in Bioamber (NYSE:BIOA) will want to pay close attention to the progress made in bringing the fully-funded Sarnia plant online at 100% capacity by 2017. Based on the market size estimates mentioned earlier, this would equate to revenues of somewhere in the $350 million range.
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