Biotech firm stokes interest with public offering
Company to develop, sell proprietary seeds for biofuel operations
By MATEUSZ PERKOWSKI
A California company focused on producing seeds for renewable energy crops will try to raise up to $100 million by selling stock to the public.
Ceres Inc., of Thousand Oaks, Calif., is trying to commercialize several crops that can be used in the biomass energy industry, including proprietary varieties of sweet sorghum for ethanol production.
One goal is to extend the operating season of ethanol plants in Brazil by supplementing sugar cane, their regular feedstock, with sweet sorghum. Other dedicated energy crops that can be grown on marginal land with minimal water and fertilizer inputs, like switchgrass and miscanthus, are also in the company's pipeline.
Ceres intends to use both conventional plant breeding and biotechnology in its seed business, which the company believes is in a good position to profit from biomass energy.
Seed production hasn't traditionally been expensive but seeds are typically sold at prices that generate decent profits, the company said in a filing with the U.S. Securities and Exchange Commission.
"As a producer of proprietary seeds, we believe we are in the most attractive segment of the bioenergy value chain -- upstream from the capital intensive refining and conversion of biomass," Ceres said.
The company's plans to sell shares to the public indicates it wants to remain independent -- an unusual strategy among seed producers in recent years, said Jean Paul Chavas, an economist at the University of Wisconsin who has studied the industry.
Typically, small seed developers hope to create a desirable product or trait as a way of getting "gobbled up" by a major player like Monsanto, Chavas said.
Trying to compete independently with such behemoths is difficult but not impossible, he said.
"If they can find a good market niche, they might be able to make it," Chavas said.
At this point, though, the company's profitability has yet to materialize.
In its fiscal 2010, Ceres lost nearly $23 million while generating total revenues of less than $7 million, according to the SEC filing.
Of those total revenues, less than $300,000 was earned from sales of seed products. The bulk came from government grants and research contracts with other companies.
Since the company was founded in 1996, it has made a profit or broken even in three years. Overall, it has accumulated more than $187 million in losses during its history.
A Ceres spokesperson contacted by Capital Press said the company could not comment beyond the information in the filing due to a "quiet period" mandated by the SEC.
According to a prospectus that details its initial public offering, Ceres acknowledges that its products are in the early development stages and may never generate a sustained profit for the company.
"The markets for some of our dedicated energy crops are not well established and may take years to develop or may never develop and our growth depends on customer adoption of our dedicated energy crops," the prospectus stated.
Despite the years of losses, Ceres has been able to stay operational thanks to funds from private equity investment firms.
Part of the reason for the initial public offering is to improve liquidity -- or the ability to sell stock -- for existing investors who hold Ceres shares, the prospectus stated.
The company intends to use proceeds from the offering for seed production, research and other business costs.
It's not unusual for startup companies to lose money, Chavas said. Ceres' ability to secure funds from large investors may indicate these firms see signs of profitability down the road.
"That's what venture capital is all about," he said. "The risks are high, the payoff can be very high, but the problem is that many (startups) fail."