Biofuel Seed Developer Ceres Looks To Cash In On 16 Years Of R&D

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Ceres, which uses advanced plant breeding and biotechnology to make better seeds for biofuels, is working to commercialize its products. Ceres Chief Executive Richard W. Hamilton Richard W. Hamilton, Ceres’ chief executive, says the Thousand Oaks firm’s seeds are superior to those of competitors. (Ceres Inc. / November 3, 2013) By Ronald D. White November 3, 2013, 5:22 p.m. The road to a clean biofuels future is not easily traveled. Ceres Inc. in Thousand Oaks has some highly regarded science on its side as a producer of genetically modified seeds for crops used to make biofuels. Under the motto “Growing tomorrow’s fuel today,” Ceres has used advanced plant breeding and biotechnology to make better seeds for sophisticated versions of crops such as sweet sorghum, high-biomass sorghum, switch grass and miscanthus. Started in 1997 by a UCLA professor and his corporate partners with more than $50 million in private capital, Ceres makes seeds that can be converted into a new kind of ethanol using plant fibers instead of corn kernels or sugar cane. Ceres sells seeds and provides seeds for trials to ethanol mills, including some in Brazil, and to power producers, cellulosic biofuel companies and growers. It also has its own breeding center in central Brazil and on customers’ fields, but it doesn’t refine products into biofuels. Ceres has been and remains a research-and-development company, but it has reached that crucial stage in which it is working to commercialize its products. The company, which raised $74.75 million in its initial public offering last year, has been profitable in only three years: 2003, 2005 and 2006. Richard W. Hamilton, Ceres’ president and chief executive, is looking to better days ahead with what he touts as seeds superior to those of competitors. “From a competitive standpoint, for the second year now, our portfolio of products outperformed products from other seed companies,” he said in a conference call with analysts. “This is according to feedback from mill customers where comparable or side-by-side trials were available.” He would not otherwise comment, a Ceres spokesman said, because the company was in the process of planning for its release of fiscal fourth-quarter results this month. Hamilton joined the company in 1998 as chief financial officer, rising to chief executive in 2002 to replace Walter De Logi, who remained chairman. The Latest For the third quarter, which ended May 31, Ceres reported that it lost $9.3 million, a wider loss than the $8.4 million in the year-earlier quarter. Sales, though, rose to $1.4 million from $1.1 million. The company, which has 96 employees, also said it would cut 17 positions in a cost-saving move. On a more positive note, Ceres extended a joint market development agreement with Syngenta in Brazil, where Ceres has introduced its sweet and high-biomass sorghum varieties to some of that country’s ethanol mills. Ceres is providing seed and research support to the project. Brazil’s ethanol mills operate about 200 days a year, but the use of Ceres sweet sorghum could extend mill operations an additional 60 days a year. Accomplishments The science behind Ceres seeds is highly regarded; it involves a process similar to mapping the human genome, but Ceres was mapping the cellular level of plants. Ceres has 100 U.S. patents related to its research and an additional 200 pending in the U.S. and abroad. The crops have the commercial potential to be sturdier and more productive for biofuel production, analysts said. “These traits include high drought tolerance, high sugar content, nitrogen-use efficiency and increased biomass yields, among others,” Hamilton said. The company’s seeds have given it significant strengths, particularly in comparison with similar products from much larger competitors Monsanto Co. and DuPont Co., said research analyst Caleb Dorfman at Simmons & Co. International. “Since Ceres’ hybrids both outperformed competitors’ hybrids and demonstrated that sweet sorghum can be profitable when cultivated correctly, we believe a large-scale adoption of sweet sorghum is still likely,” Dorfman said. Challenges Even so, Dorfman said in a recent note to investors, “it has been a tough road for Ceres.” He pointed to “lackluster planting and harvest” last year and noted that the “high expectations for the 2013 harvest were crushed” when ethanol mills told Ceres that they would need another year of field trials before deciding whether to proceed with commercial-scale plantings. Ceres said it needs to reduce costs and preserve cash. The company had $37.4 million in cash and marketable securities on hand at the end of the third quarter. “While we continue to believe a capital raise is necessary,” Dorfman said, “these cuts could help delay a cash infusion until market conditions are more favorable.” The company didn’t get as much as it had hoped for in its February 2012 IPO. Originally seeking as much as $23 a share, Ceres ended up going public at $13. Shares have been hovering below $1.50 after hitting a 52-week low of $1.10 last summer. It gained 2 cents, or 1.4%, to $1.48 on Friday. Analysts Despite its challenges, Ceres still attracts some attention on Wall Street. Of seven analysts who regularly cover Ceres, two regard it as undervalued and rate it as a strong buy. Another analyst rates it as a buy for the same reason. Two analysts are hedging their bets and telling investors to hold their Ceres shares. Dorfman considers Ceres “overweight,” meaning he expects the stock to outperform competitors in the coming months. Continue reading →

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