A $152 million return on innovation

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Novomer Inc.’s bet on sustainability has led to a $152 million payoff. The materials science company, whose Rochester innovation facility fuels its progress, was recently acquired by Danimer Scientific in an all-cash deal that by dollar value would rank among the biggest locally in recent memory.

The transaction took place at the end of July and closed last month. Novomer employs 20 people at its Innovation Center on Buell Road. Employment at the company is expected to double—Danimer plans to add 20 staff members, documents filed with the Securities and Exchange Commission show. 

Novomer began with the aim to provide cost-effective and efficiently produced polymers and chemicals from renewable feedstocks as an alternative to high-volume commodity materials made from petroleum. The company has been developing proprietary catalysts and process technology to create chemical intermediates for more than a decade. 

“One of the story lines you’ll see is that along the way we really balanced the sale of equity for investment and non-dilutive funding. And it’s that combination that allowed us to develop the technology to the point where it was and ultimately (to) be sold,” reflects Tony Eisenhut, former executive chairman of Novomer (whose journey with company ended following the sale) and managing director and co-founder of KensaGroup, which develops startups with distinct intellectual property platforms.

In a conference call on the acquisition, Novomer CEO Jeff Uhrig said the company began to shift its strategy when it saw a demand for compostable polymers. Novomer began to produce its p(3HP) product for such applications, stirring market interest and, eventually, attracting Danimer’s attention.

Known for its ability to create more sustainable and natural ways to manufacture plastic products, Danimer went public late last year through a special purpose acquisition company and is in growth mode. Its biopolymers are found in applications such as fibers, films, additives and filaments that render them biodegradable and compostable. With Novomer’s p(3HP) and Danimer’s Nodax, the Georgia-based company eyes technical, operational and financial benefits for the business and its customers.

“The strategic rationale and benefits for our customers are clearly extremely compelling,” said CEO Stephen Croskrey in July. “A key point here is that we expect that Novomer’s simplified manufacturing and operational processes will accelerate our ability to scale our production capabilities and do so at a much lower cost than we had previously forecasted.”

Building a business

Cornell University spinoff, Novomer’s technology was developed by Geoffrey Coates, a widely known polymer chemist, and other researchers who were focused on making plastics from carbon dioxide, a raw material and by-product of farming processes and oil industries. In 2004, Novomer was co-founded by Coates, a professor at Cornell, and Cornell alums Scott Allen and Eisenhut. The company spent several years honing and refining catalytic processes to synthesize new polymers. Allen, who was Coates’ graduate student at one time, served as vice president of the business; Eisenhut was founding CEO and chairman, and Coates filled the role of chief scientific officer. 

With Eisenhut’s ability to draw in investors to the technology, the company successfully raised funds necessary to bring sustainable chemistry to fruition. Novomer started out in Ithaca, moved to Rochester, expanded to Boston and now has a pilot plant for such technologies at Buell Road, Eisenhut says.

“The first value proposition was being able to do the earliest stage work in an incubator setting at Cornell so we can leverage the infrastructure and equipment that was in place to get to that first proof of concept level,” he says. “And then with that in hand, we set out to find some of that early non-dilutive funding.”

The first investment came from Rochester-based Excell Partners in 2006.

“In those early days Rochester did not have a well-developed ecosystem and Excell did not have a formal process in place to conduct due diligence,” recalls Theresa Mazzullo, CEO of Excell. “However, we did have strong relationships within the universities and the communities across Upstate New York. It was the reputation of the team and the strength of the technologies coming out of Cornell that made Novomer a good investment for Excell.”

Eisenhut says of all the money raised, Excell’s process was the most efficient.

“We used that cash infusion to get to the next milestone, which funded work that was proof of concept that allowed us to get a couple of (National Science Foundation) contracts for grants, which allowed us to get to the proof of concept that allowed for that first Series A funding,” he says.

By 2007, Novomer had successfully raised $6.5 million in a Series A investment.

“I’d like to say that we were geniuses and we had this mapped out and we were on the perfect path, but the reality was that if you go back to 2006—oil at $100-plus a barrel, clean tech being soup du jour—the investments had primarily been in wind and solar,” Eisenhut says. “So, funds were looking for a different clean tech investment opportunity. And so, our timing was perfect. We had competitive tension in the Series A, and that really worked out well for the amount of capital we raised, and the valuation.”

Those dollars helped Novomer reach the next level of development. Despite a tough fundraising climate in 2008 and 2009, the company was able to secure more money. There were federal grants for technology advancements, and Novomer capitalized on its technological prowess. It was able to secure a Department of Energy grant worth more than $20 million to scale up its polyol chemistry, Eisenhut says. In the years that followed, strategic investments helped the company put together roughly $22 million to launch commercialization.

In 2016, Novomer decided to sell a portion of its business—carbon dioxide technology—to Saudi Aramco, a public petroleum and natural gas company based in Dhahran, Saudi Arabia. The transaction, valued at close to $100 million, involved Novomer’s Converge product line and associated operations and technologies. Also a sustainable alternative to petroleum-based polyols, the technology covered a range of applications, from automobile seats to insulation panels, Saudi Aramco said at the time. For the Middle Eastern company, it was a path toward future growth. For Novomer, it allowed the company to sharpen its focus. The company already had a presence at Kodak Park and in Boston, but it needed a new location to move forward with its carbon monoxide technology to create chemicals at lower costs.

With the help of a supportive landlord, and using proceeds from the sale, Novomer was able to build a state-of-the-art facility at Buell Road near the Rochester airport, Eisenhut says. The company brought in Uhrig as CEO in 2019 with a plan to eventually partner with a larger company to take Novomer’s technology to the next level.

“(We were) looking to hire someone who had the credentials to take the company further than I ever could,” Eisenhut says. “Jeff had been tracking the technology and thought the opportunities were significant just because of the chemistry and the quality of the chemistry.”

A technological complement

Novomer doubled down on perfecting its catalyst technology to enable high yield, selectivity, and create less waste. Uhrig worked with Coates to hone development efforts. Market dynamics, Eisenhut says, were in the company’s favor. Concerns over global plastic waste were front and center and degradable plastics packaging became important. 

“When it comes to biodegradable packaging solutions, Novomer, at least in our opinion, is the most cost-effective technology solution out there that actually will enable the use of biodegradable plastics, because of not only their function, but (also) because of the price point with which they can be brought to market,” Eisenhut says.

Novomer’s technology uses materials that are low cost and widely available in regions around the world.
(Image: Novomer)

The star in Novomer’s portfolio is p(3HP), sold under the brand name Rinnovo. It is Novomer’s sustainable solution to acrylic acid, commonly used in the production of paints, coatings, detergents and sealants, for instance. Novomer produces glacial acrylic acid, or GAA, from plant-based and renewable feedstocks. Through a thermocatalytic process, it creates Rinnovo, which is hydrophobic, stable under ambient conditions, transportable in a variety of standard containers, storable for extended periods of time, and requires no special handling, the company says.

“Our process technology is commonly referred to as a thermocatalytic technology,” Uhrig told analysts. “Thermocatalytic technologies often have the advantage of high economy of scale, high process yields and consistent product quality. Our technology, which we refer to as Novo22, has the further advantage of utilizing carbon monoxide and ethylene oxide as the primary feedstock, both of which are low cost and widely available in multiple regions across the world. Both feedstocks can be sourced from renewable or non-renewable sources, giving our customers optionality based on their individual goals and mandates.”

A key benefit of this route, Novomer states, is that p(3HP) may be readily converted to GAA on demand, producing GAA with greater than 99.9 percent purity. When used in the production of superabsorbent polymers (in high demand), GAA made from p(3HP) has shown improvements in retention capacity and absorbency speed.

“The Novomer technology can be scaled to very high capacity and utilize a portion of the capacity to supply the acrylic acid market. This enables high economies of scale not afforded to many other polymer platforms,” Uhrig told analysts, adding that it will be possible to collect p(3HP) polymers post-use and upcycle into a highly valuable chemical in acrylic acid. 

Danimer, which has been on a similar journey to staunch environmental waste, has Nodax. It is custom formulated to create different types of plastic resins for many uses. Based on the grade produced, Nodax can be highly crystalline or amorphous with a varying range of melting points, including for applications needing heat tolerance, says Phil Van Trump, chief and science technology officer at Danimer Scientific. Nodax can be used in various applications that include injection molding, fibers, films, sheet, profile extrusion and coatings for products like straws, cutlery, flexible food packaging and bottles. Many well-known brands like Nestle, Bacardi and Walmart use Danimer Scientific to meet their environmental, social and corporate governance commitments.

By using Novomer’s product alongside Nodax, Van Trump believes Danimer can lower its total production costs and capital expenditures per pound. Novomer’s thermocatalytic conversion process is 10 times faster than fermentation, Danimer says, offers production simplicity (fewer processing steps), and uses less energy than Danimer’s historical processes. P(3HP) has other pluses, including improved barrier properties and lower-cost non-fermented input when compared with other biodegradable polymers.

Additionally, Croskrey says, Danimer can produce an even broader range of product applications. The company says it aims to blend an average of 30 percent of Rinnovo as an input into its resins, freeing up Nodax for use across a greater volume of finished product pounds.

“Nodax will continue to be the gold standard and serve as our primary (natural polyester),” Croskrey says. “The addition of Novomer’s p(3HP) is expected to be highly complementary to Nodax but is not a replacement. It will enhance our manufacturing capabilities by enabling us to produce our final resins for customer applications more cost-efficiently.”

Both companies have powerful intellectual property arsenals. Novomer has more than 100 issued patents and more than 140 patents pending. Danimer’s pending and granted patents top 390.

“Novomer’s extensive intellectual property portfolio is a strong complement to Danimer’s existing portfolio and reinforces our intellectual capital to keep innovating and developing the solutions our current and future customers demand,” Croskrey said.

Readying for big demand

While Danimer did swing to a profit in the second quarter, it has yet to maintain that trend. In the second quarter, it posted net income of 39 cents a share compared with a loss of 6 cents a share a year ago. The company recorded a $58.7 million non-cash gain, which impacted earnings. For the six months ended June 30, Danimer posted a net loss of $55.4 million, or 64 cents a share.

Despite the costs of going public and other challenges, Danimer has been scaling to meet market demand by ramping up production facilities and hiring talent. So far, analysts have viewed the Novomer acquisition positively. 

Danimer’s scientific headquarters in Bainbridge, Ga.
(Photo: Danimer)

In a report, Greg Wadja, analyst at Seeking Alpha, writes that “Danimer has the right product and technology, at the right time.” He points to the fact that Danimer has low debt for a company building multiple factories and is financed mostly by equity. It will take a couple of years to learn if Danimer has the right tools in place for growth and for it to realize the benefits from the Novomer acquisition. Simply Wall St. forecasts Danimer’s annual earnings in the next one to three years to grow nearly 60 percent.

The move toward bioplastics is in Danimer’s favor. The global bioplastics market size was valued at $9.17 billion last year, and is expected to register a compound annual growth rate of 17.1 percent from 2021 to 2028, according to a report from Grand View Research. A growing population and urbanization coupled with the increasing awareness regarding health issues in emerging economies are likely to assist end-use industries, which in turn is expected to escalate the demand for bioplastics over the forecast period, the report states. Rising demand in the packaging industry is expected to drive demand even higher. 

Further demonstrating its commitment to biodegradable materials, Danimer last year became a U.S. Plastics Pact signatory. A consortium led by the Recycling Partnership and World Wildlife Fund, as part of the Ellen MacArthur Foundation’s global Plastics Pact network, it unites stakeholders in a vision to address plastic waste at its source by 2024.

“Reducing the environmental impact of plastic waste is one of the most critical issues facing the world, and it will take a collaborative, industrywide effort to achieve success,” Croskrey said at the time.

Power of regional collaboration

As things stand now, Rochester is likely to play a role in Danimer’s future. Coates has stayed on as a consultant and Uhrig serves as general manager and president of Danimer’s catalytic processes. For the area, Novomer is an illustration of collaboration in Upstate New York, tapping intellectual capital at universities and deploying state resources.

“I think all the parts are here, I think all the parts have been utilized by different people over the last 20 years that I’ve been doing this,” Eisenhut says. “The more efficient we can get at bringing those pieces and parts together, the more opportunities that we’re going to create. I absolutely believe it’s real.”

Viewing the region’s strengths collectively will be essential to its future, he believes. As does Mazzullo, who has long been a proponent of harnessing Upstate New York’s potential.

“From its beginning Excell has invested in one region: Upstate New York,” she says. “We know from 15 years’ experience that we are stronger together than separate. Looking to the future, I believe we can more effectively support the startups through regional collaboration by bringing our collective financial and human capital together to accelerate their growth and success.”

Smriti Jacob is Rochester Beacon managing editor.

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