SOURCE: Lux Research

Lux Research

March 23, 2010 08:00 ET

Biofuel Companies at the Crossroads: Partner or Perish

As Biofuel Technologies Mature From Basic Science Toward Commercial Scale-Up, Developers Must Find Corporate Partners or Leave the Dance Floor, Says Lux Research

BOSTON, MA--(Marketwire - March 23, 2010) -  Biofuels have narrowed their cost and performance gap to petroleum with help from academic labs and venture partners. But a final and significantly more daunting hurdle now confronts biofuel developers: Competing on scale with the multi-trillion dollar petroleum industry. Clearing that hurdle will take enormous injections of cash, engineering support, and help in developing distribution channels -- all resources that corporate partners are better equipped to provide. Developers and corporations that hope to own a share of the biofuels market over the long run will need to form smart partnerships today, according to the latest report from Lux Research.

The report, titled "Aligning Contribution: Partnering Strategies in Biofuels and Biochemicals," analyzes criteria by which developers and corporations measure prospective partnerships, based on thirty in-depth confidential interviews with biofuel developers and prospective corporate buyers. It provides parties on either side of the table with guidance on how to proceed.

"Developers cannot hope to commercialize their technologies without buyers, and buyers will not have access to innovations without tech developers," said Samhitha Udupa, a Research Associate at Lux Research, and the report's lead author. "But there's often a disconnect on how to value innovations. Developers believe their product flexibility, unit cost projections, and company's maturity are key to driving value, while corporations find these factors unimportant."

The report identifies four different partnership models, including:

  • Symbiosis. This partnership occurs when technology developers bring and share (to a practical degree) a demonstrably superior innovation to the partnership while corporations contribute heavily to synergistic applications, and tout their partner to others in the field.
  • Predator/prey. In this relationship, a hopeful developer aims to vertically integrate for added value, while a predatory corporation injects a little cash and reaps the public benefits of ties to the developer.
  • Parasite/host. Here, developers take the corporation's name and money, but hand over little more than patents, drawing resources out of the corporation while returning little value.
  • Peaceful coexistence. In this outcome, developers and corporations employ a "wait and see" attitude with each other, as both sides see the relationship as little more than an exchange of goods.

"Achieving scale -- on the order of $100 million per biofuel plant -- is a significant impediment to the success -- and even the survival of technology developers," said Udupa. "As more developers approach this stage in their development, it will be harder for them all to survive, and harder for prospective buyers to distinguish the potential winners."

"Aligning Contribution: Partnering Strategies in Biofuels and Biochemicals," is part of the Lux Biosciences Intelligence service. Clients subscribing to this service receive ongoing research on market and technology trends, continuous technology scouting reports and proprietary data points in the weekly Lux Research Biosciences Journal, and on-demand inquiry with Lux Research analysts.

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