Tuesday, February 10, 2015

Anellotech: Reaching for Brass ‘Bio-chemical’ Ring

One of the most recent additions to our novel index of alternative energy companies is bio-chemical developer Anellotech, Inc. (private).  Anellotech’s efforts to turn biomass into drop-in chemicals that could be complete substitutes for those derived from fossil fuel, earned the company a spot in the Alternative Chemicals Group of The Beach Boys of energy innovators.

Anellotech has set up its research bench at the Pfizer campus near Pearl Harbor, New York.  The company recently received a $750,000 grant from the State of New York economic development fund to expand its R&D presence.  That site will be used for the next year or so to perfect a proprietary process relying on catalytic fast pyrolysis (CFP) for the conversion of waste biomass like wood chips and corn stover to green aromatics like benzene, toluene and xylene (BTX).

The process begins with a heating step that turns the biomas to gas.  The gas is then converted to BTX with a sand-like catalyst.  The catalytic oxidizer works much like the catalytic converters at work in the exhaust system of our cars.  Anellotech’s corporate website is silent on the fuel source for the heating step, suggesting that is bio-chemicals could have some carbon footprint if natural gas is the start-up fuel.  Excess heat from the process is used to produce ‘green’ electricity and that could be used to a secondary energy source.

The company recently forged a development agreement with Johnson Mattley Process Technologies, a provider of industrial catalysts.  The two will be working on better catalysts for Anellotech’s CFP process.  The company has also struck an alliance with IFP Energy Nouvelles and its engineering subsidiary AXENS to figure out how to scale-up the CFP process to a commercial level.  Axens will be working on a plant design.

Anellotech is reaching for the brass ring with bio-chemicals widely used in manufacturing and industry.  Benzene is a natural component of crude oil and is one the most simple of the hydrocarbons with six carbon atoms linked together in a ring.  It is a precursor to heavy chemicals and is an important component of gasoline.  Toluene is widely used as an industrial feedstock and solvent.  Xylenes are produced by the methylation of toluene and benzene and serves as a precursor to monomers used in the production of plastic bottles and polyester cloth.  Capturing even small share of this very large market could stuff Anellotech’s cash register.

Anellotech might have some competition from Virent, which is developing a catalytic process for paraxylene, and Rivertop Renewables, a developer of an oxidation process for xylene.  However, there seems to be more than enough paraxylene demand for these three and more.  According to IOC Petrochemicals, the annual demand for paraxylene is near 2.5 million tons with an annual growth rate near 6%.

As a private company Anellotech is out of the reach of most investors.  Several of the bio-chemical companies have gone public, but none trade above $5.00 per share and languish in shallow trading activity.  In our Alternative Chemicals Group only the Dutch industrial enzymes producer Novozymes (NZM2:  Berline, NVZMY:  OTC) has achieved both business success and stock appreciation.  That said, there seems to be some promise in the bio-chemical business model.  There are strong demand trends and potential for higher profit margins than investors have observed among biofuel developers. 


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.


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