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IPO in the Works for Sustainable Chemical Company

GENOMATICA INC.

CEO: Christophe Schilling.

Revenue: $726,000 in 2010; $887,000 in 2009.

Net loss: $14 million in 2010; $9 million in 2009.

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No. of local employees: 69.

Investors: Waste Management, Mitsubishi Chemical, Alloy Ventures, Bright Capital, TPG Biotech and others.

Headquarters: Sorrento Valley.

Year founded: 2000.

Company description: Converts renewable feedstocks into chemicals used in various consumer products.

Key factors for success: Genomatica benefits from a push by manufacturers to use sustainable chemicals in their products.

The momentum keeps building for Genomatica Inc., a San Diego biotech company that makes plant-based versions of chemicals that are used in everyday products.

On Aug. 24, the company filed plans for an initial public offering of up to $100 million of common stock, with plans to list on Nasdaq under the symbol GENO. Proceeds would go toward research and development, capital expenditures, capital contributions for joint ventures, working capital and other general corporate purposes, according to the filing with the Securities and Exchange Commission.

Genomatica said it selected Morgan Stanley, J.P. Morgan and Jefferies to be the lead underwriters on the deal. Terms and timing for the offering have yet to be announced.

The IPO news came on the heels of Genomatica’s announcement the week before that it had reached a major company milestone by successfully producing “pound quantities” of the chemical butadiene using renewable feedstocks. Global demand for the chemical — an important ingredient in products such as tires, carpeting and household latex — is forecasted to be more than 20 billion pounds in 2011, or approximately $40 billion, the company said.

Earlier this summer, Genomatica was awarded the U.S. Environmental Protection Agency’s Presidential Green Chemistry Challenge Award for eco-friendly technologies that have broad application. The award recognized both the breadth of Genomatica’s potential industry impact and the steady commercialization path for the company’s first product, Bio-BDO, a chemical with a $4 billion market worldwide. In the past, the EPA award has gone to industry heavyweights such as Dow Chemical Co., BASF and DuPont, noted Genomatica CEO Christophe Schilling.

Genomatica’s Bio-BDO, when produced at commercial scale, will be less expensive, require about 60 percent less energy to produce, and generate 70 percent less carbon dioxide emissions than conventional BDO made from natural gas, the company said.

Funded By Venture Capital

Thus far in Genomatica’s history, which began in the research laboratories of UC San Diego, the company has been funded entirely by venture capital; it has raised a total of $84 million from sources including Waste Management, Mitsubishi Chemical and TPG Biotech.

Now, as it seeks to tap the public market for funds, it will face a whole new level of investor scrutiny.

“Genomatica is following the footsteps of several other recently public companies specializing in the conversion of food and nonfood resources into energy and chemicals,” Renaissance Capital, a global IPO investment adviser and research firm based in Greenwich, Conn., said in its Aug. 24 IPO update.

Renaissance cited other renewable chemical companies such as KiOR Inc., Solazyme Inc., Amyris Inc. and Gevo Inc., “which have been received by investors with mixed results.” Renaissance referred to Genomatica as “relatively risky,” noting that even established companies may flounder in the current choppy markets. The firm said Genomatica will be hoping that recent investor interest in bio-based petroleum “will outweigh lower risk tolerance.”

Genomatica’s Schilling and other company representatives declined to comment on its IPO prospects, citing the ongoing registration period. But in the IPO filing, the company clearly outlined its risks, including the fact that it has yet to commercialize its chemicals. Genomatica also has never turned a profit and generates scant revenues — $726,000 in 2010.

But Jim Lane, founder and editor of Biofuels Digest, an industry publication based in Miami, said Genomatica has massive potential to succeed. In his analysis of the IPO filing, he noted that chemical customers are increasingly seeking to move their supply chain to renewable sources. As long as Genomatica can produce its chemicals on a grand scale, as it expects to do, the company could reasonably achieve $2 billion to $3 billion in annual sales from its two core products, he wrote.

“Genomatica is either going to be one of the most over-valued companies in history (if they fail), or the most under-valued companies in history (if they succeed),” Lane wrote in his summary.

On the Local Radar Screen

In San Diego, Genomatica has been on the radar screen of local industry experts such as Joseph Panetta, president and CEO of the regional life sciences trade group Biocom. In June, he told the San Diego Business Journal that when it comes to IPO candidates, he’s keeping an eye on privately held firms such as Genomatica whose impact in the industrial biotech space “could potentially dwarf” what biopharmaceuticals can accomplish in the drug market.

According to the 2010 California Industrial Biotechnology Workforce Survey, the sector grew 19 percent between 2009 and 2010. And during the past five years, it grew 50 percent, according to a study for Biocom and BayBio.

“We believe this will help transform the supply chain and make thousands of products more sustainable,” Schilling said in a June company statement.

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