white biotech mckinsey feb 2009

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Dr. Jens Riese, Principal

Leader of Global Biosystems Practice,McKinsey & Company

Press briefingFebruary, 2009

White BiotechnologyWhite Biotechnology


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Industrial biotech- the next S-curve in biotechnology

Marketpenetration

TimeToday

Whitebiotech-nology

Red biotech

Greenbiotech

Industrial applications today

Bio-feedstock

Replacement ofoil and gas withbiomass

Bio-processes

Replacementof chemicalsynthesisby fermentationor biocatalysis

Bio-products

Products with newcharacteristics(e.g., biopolymers,enzymes, nutrition/health ingredients)


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White biotech sales are expected to further grow significantly and increase

their share of chemicals production

Sales chemical industry

2012**

* Top-down estimate based on industry interviews and industry reports

** Estimated future chemical industry sales excluding B2C sales in pharma and personal care (estimation of 2.5%

chemicals industry growth)

Source: SRI, F.O. Licht, Frost and Sullivan, Press clippings, McKinsey

EUR billions

100% = EUR 1,800 billion

Growing share of chiral API* Moderate growth in new products/services

Continuation of current strong growth inbiofuels

Mid term price pressure due to low price of

crude oil

Strong growth in nat. rubber, botanicals andPUFAs, moderate growth in hydrocolloids

Increase share of oleo surfactants butdecreasing prices

Introduction and growth of new biopolymers

and bio-based bulk chemicals expected,enzymes growth with customer markets,

biologics grow with 9%*

2007 basis

2007 - 12

growthAssumptions

Bio-dependent

sales 2007Segment

46

34

54

31

14

7

2

21

7

99

Traditional

bio-based

chemicals

14

65

60

Biofuels

Chemicals by

enzymatic

processes

153

5

Chemicals byfermentation

Total sales

white biotech

91

White

biotech

9


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Growth is driven by advantages along all 3 dimensions

of sustainability

Less emissions Less energy Less resource depletion

New jobs Broad technological capabilities

Lower cost Lower risk Higher sales

and margins

PeoplePeople

PlanetPlanet ProfitProfit

Source: Source


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Example bioethanol*

Bio-based chemical products offer advantages for the carbon footprint

and other environmental criteria

* Conventional view excluding land use changes

Source: McKinsey analysis

1010

80

100

Crude-

based

gasoline

Corn

ethanol

Sugar

cane

ethanol

LC

ethanol

-20%

-90% -90%

Reduced environmental impact of bio-basedproducts has resulted in a surge of industrial

biotechnology

Reduced GHG footprint compared to fossil-

based feedstocks

Reduced energy consumption during

production processes (e.g., through use of

enzymes)

Reduced environmental impact (''green''

solvents, reduced water consumption,

degradable by-products, etc.)

Renewable raw materials

True benefits remain to be assessed for eachindividual compound, depending on

Type of raw material (e.g., sugar cane vs.corn)

Origin of raw material (e.g., production on

agricultural land vs. deforestation)

Agricultural techniques (e.g., fertilization,

irrigation, use of pesticides)

Rationale


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Alternative feedstocks provide a mechanism

to hedge the exposure of chemical companies to oil price increases

* Fossil cost based on a correlation of historic price with crude oil; the correlation is not statistically perfect (R2 of

0.9) and has no predictive value

** Bio-routes based on cost estimate of chemical conversion of ethanol,*** Assuming backward integration into sugar cane in Brazil

Source: SRI; PEP; CMAI; McKinsey

0

50

100

150

200

250

300

350

400

20 40 60 80 100 120 140 160

140 (5y max)

100 (5y avg)

55 (5y min)

655y avg

Sensit ivity and risk analysis

USD/ton sugar*** Fossil route cheaper*

USD/barrel

crude oil305y min

1455y max

Bio-route

cheaper**

Current prices

Bio-route cheaper

Equivalence line

5y variance

Fossil route cheaper

DISGUISED CLIENT EXAMPLE


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Regulatory support across the globe helps

the increasing use of bio-based chemicals

* Resulting, e.g., in the DSM/Roquette partnership to produce fermented succinic acid based on starch in France** Billion gallons per year corresponds to ~ 190 million tons of bioethanol and 40 million tons of biodiesel

Source: McKinsey analysis

Governments have strongly pushedthe use of renewables throughmandates, subsidies and grants

Major focus has been on thetransportation fuel sector but DOE

and the European Commission are

pushing for renewable chemicals as

well Chinese government (NDRC) is

supporting development of bio-

based chemicals from an energy

security point of view

New US President wants to double

share of renewables in 3 years

EUR 90 million grant from French Indus-

trial Innovation Agency to promote IBT*

Global mandates for biofuels of ~ 65 bgy**

bioethanol and 12 bgy of biodiesel in 2020

EC 7th framework programme for

sustainable non-food products andprocesses (EUR 700m)

DOE grant to DSM, Abengoa, Los Alamos

Laboratory and Sandia National

Laboratory for an extensive enzyme

development program


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Also existing polymers can become bio by using bio-based monomers

or intermediates

Polymer Biotechnology inroad

Sales 2007

USD billion

Soy-based polyols

Maleic anhydride from succinic acid

Caprolactam from fermentation

Butadiene from succinic acid

Acrylonitrile from 3HP

Adipic acid from fermented succinic acid

Acrylamide from 3HP

Butadiene from succinic acid

Polyurethane

Unsaturated polyester resins

Nylon 6

ABS*

Polyacrylamide**

Polybutadiene

Acrylic fibers

Nylon 6.6

~27

~13

~13

~11

~7

~6

~5

~5

* Acrylonitrile-Butadiene-Styrene Resins

** Excludes superabsorbent applications

Source: SRI; CMAI; Tecnon; McKinsey analysis


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A new Value Chain is emerging with lots of places to play

Source: McKinsey

Enablers

FinancingLogistics Technology Equipment

Value chain

Feedstock provision Feedstock processing Primary conversion Secondary conversion

Grain/seed milling Biomass pre-treat-ment

and enzymatic conversion

Fermentation Chemical conversion Enzymatic conversion

Polymerization Downstream processing Complex chemical

synthesis

Farming Storage Distribution

Products (examples)

Corn

Soy

Energy

crops

Straw,stover

Oil

Protein

Sugar

Lignin

Ethanol

Vitamins

Platform

chemicals

BiodieselBio-polymers

Fine

chemicals

Specialtychemicals

End-

markets

examples

Food Feed Energy

Food Feed Energy

Transportation Pharma Food/feed Cosmetics

Automotive Electronics Consumer goods Pharmaceuticals

Farming Storage Distribution

Product examples

Potentially integrated

in biorefineries

SIMPLIFIED


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white biotech mckinsey feb 2009

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