Will Codexis Cash-In on Cellulases?
Maxxwell A.R. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Today we further explore the importance of enzymes in the sustainable chemicals industry. Codexis (NASDAQ: CDXS) is currently producing CodeXyme™ cellulase enzymes, which they and partner Royal Dutch Shell (NYSE: RDS-A) are hoping can capture a significant share of the $10 billion cellulase market in 2020. There are several reasons to believe the company’s cellulase products will be successful – the most important being its licensed C1 technology.
The C1 Technology
The secret to producing the industry standard cellulase enzymes is hidden in the genetic code of Trichoderma fungi. These industrial important microbes were first discovered by American GI’s during WWII when sizeable holes were carved out of their canvas tents. As rot-fungi, they naturally produce cellulases that break down nature’s most abundant polymer: cellulose. Trichoderma enzymes have been used commercially - in industries such as textiles, pulp and paper, and animal feed - since the 1980's.
In 1996 researchers at Dyadic developed commercial-scale enzymes from Chrysosporium lucknowense, which was isolated from the alkaline soils of Eastern Europe. The fungus would become the coveted C1 platform.
Digging Deeper: The C1 Advantage
Despite being last out of the gates, the C1 platform has leapfrogged the production advancements of Trichoderma strains produced by Novo Nordisk A/S (ADR) (NYSE: NVO) spin-off Novozymes and DuPont (NYSE: DD) wholly-owned Genencor. The company’s C1 platform has made greater progress in the last three years than Novozymes and Genencor (industry “standard” enzymes) have made in the last three decades.
That impressive come-from-behind run catapulted Codexis’ CodeXyme™ cellulases to the forefront of the industry last year. While there is plenty of ground yet to gain, there are several key advantages to the C1 platform:
1) Gene-shuffling. The company has licensed “white” strains of C1, which are fungi that have had all enzyme coding genes knocked-out. That has been huge in predicting the commercial success of individual genes. For instance, if a new gene with enzyme potential is discovered it can be assessed in a “white” strain by itself. It ensures the company’s researchers (so called Gene Jockeys) will have the best data about that individual gene without interfering data from other genes/enzymes. If the gene in question looks like it has potential, it can be mixed and matched with other genes to create a cellulose molecule’s worst enemy.
2) Favorable fermentation conditions. The C1 platform can function in a wide pH and temperature range. In fact, Trichoderma enzymes Duet (Genencor) and Ctec2 (Novozymes) cannot compete with C1’s CMAX (Dyadic) at a pH of 6.5 – the most common fermentation pH in the biofuels industry. Solazyme (NASDAQ: SZYM) and LS9 are two pH 6.5 examples. Are cash-strapped sustainable chemical companies going to revamp their processes around an enzyme or buy an enzyme that works better at their conditions?
As one of the favorites in the renewable oils space, Solazyme would be wise to lease industry-leading enzymes. The sustainable chemicals industry does not need the bad press that would come from a Solazyme scale-up failure. Given the fact that the company will only have 20% of its 2015 capacity installed by the end of this year, failure or hiccups seem more than likely.
3) Increased yields. The most important characteristic of C1 occurred by mistake. Prior to strain-development C1 fungi had long filaments, resembling Trichoderma. However, a UV-induced mutation resulted in much smaller filaments and increased production of cellulase enzymes. Since filament tips are responsible for protein production, smaller filaments mean more tips per unit area, which means more protein production per cell.
4) Scale, scale, and scale. Smaller filaments are also attributed to the C1 platform’s 50-fold reduction in fermentation broth viscosity. Characteristics that are often overlooked in laboratory tests, such as viscosity, become very important as you increase scale. This is undoubtedly the key to C1’s “scale-ability” to 150,000 L, a volume which would make any sustainable chemical company salivate.
5) Insurance against patent drama. Novozymes and Genencor both feel entitled to Trichoderma strains. Are patent lawsuits on the horizon? Codexis is in the clear with an independent host microbe and plenty of biological IP and know-how to keep nosey rivals at bay.
Speaking of patent issues that lead to PR nightmares, a recent publication in Nature Biotechnology featured data supporting “the economic advantages” attributed to C1 for “biomass-based fuels”. The lead scientist on the publication was none other than Randy Berka, a Novozymes employee.
As cellulase enzymes become standard procedure for economical processing of second and third generation feedstocks, the C1 platform figures to play an integral part. Shell has backed Codexis and the C1 platform with an estimated $350-$400 million in funding. I believe the recent management shake-up at Codexis can be explained by Shell’s desire to put a “fuel guy” in the driver seat.
Given the amount of time and money invested into developing enzyme platforms, the $10 billion prize for cellulase enzymes comes down to Novozymes, Genencor, and Codexis. I’m not stamping out innovation, but it seems very unlikely that a new player will emerge with a new fungi platform in time.
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