Tuesday, February 07, 2012

Taking LS9 Seriously

In early February 2012, just the day before publication of this post, industrial biotechnology developer LS9, Inc. (private) announced the hiring of a senior operations officer.  The position is responsible for LS9’s renewable fuel plant in Okeechobee, Florida and will ultimately be oversee production at future sites.  To me the announcement is a signal to finally take LS9 seriously.  I have to confess, I have not given the start up much credence.

First, there is that self-righteous name  -  LS9.  The L stands for Life, S for Sustain and 9 represents the nine million people forecasters estimate will be around forty years from now.  The moniker gives me the impression that owners and management have an attitude or superiority, which in my experience is rarely followed by superior performance. 

Second, there is the laundry list of compounds over which LS9 claims dominion:  olefins, amines, amides, ketones, etc.  For a company that has a business model based on licensing technologies to the fuels industry, the list of basic chemicals did not impress me as fertile ground for the development of proprietary chemistries or products. 

My skeptical view is apparently not shared by string of heavy hitters from Silicon Valley and other venture capital and private equity environs.  A bevy of venture capital firms, including Flagship Ventures, Khosla Ventures, Lightspeed Ventures Partners, CTTV Investment and Chevron Technology Ventures have been providing funding for LS9 for several years.  The most recent round was completed in December 2010 and led by asset management giant Blackrock.  The Company was also able to source another $9 million through a grant from the Department of Energy awarded in July 2011.

Perhaps LS9 was able to impress these investors with some of its technology applications. In July 2010, just prior to the last round of financing, LS9 had announced the discovery of novel genes in E.coli that produce alkanes, the primary hydrocarbon components in transportation fuel.  The company explained at the time that the breakthrough would accelerate LS9’s demonstration of alkane production at pilot scale.  Earlier in 2010, LS9 had made a “birth announcement” of sorts for its new microbe that could be used to process cellulosic biomass in one-step.

Still scaling to high volume production eludes LS9.  In November 2011, the Company announced a scale up to 20,000 liters (5,283 gallons) from the 1,000 liter level.  Next target is the 50,000 liter production level for both chemicals and fuel products.  That is still only 13,209 gallons.

The new vice president of operations is probably hoping for fast progress. The plant in Okeechobee is undergoing a retrofit that is scheduled to be completed this quarter.  The fermentation vessel, where LS9’s microbe will be housed, is to have a capacity to produce 135,000 liters (35,663 gallons) of chemicals per year.  LS9 has plans to open the facility to full production by 2013.

I have added LS9, Inc. to the Alternative Chemicals Group in the Beach Boys Index.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. LS9 is included in the Alternative Chemicals Group in Crystal Equity Research’s Beach Boys Index.

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