DuPont Looking to Displace Fossil Fuels as Building Blocks of Chemicals New York Times 02/28/2006 Author: Claudia H. Deutsch c. 2006 New York Times Company Nestled away in a small room on DuPont's 150-acre research center in Wilmington, Del., robotic arms fill tiny tubes with gelatinous material that was extracted from corn and soybean plants. Other metallic arms will soon dip and measure and deconstruct each sample, spewing forth a list of its attributes and traits. Only a fistful -- maybe one of every 50 -- will move on to the fermentation lab, a few buildings away. There, researchers will see how the samples react to different mixtures of air, glucose and microbes. Down the hall, other researchers will tinker with the microbes themselves. All of them are chasing the same holy grail: bio-based substances that can replace oil and gas as building blocks for chemicals. "We figure out what works in theory, and then we see what works in practice," Alexander D. Kopatsis, a research associate, said. E. I. du Pont de Nemours & Company, unlike most chemical companies, has moved the quest for bio-based raw materials off the wish list and onto the to-do agenda. The company has allocated nearly 10 percent of its $1.3 billion research budget to extracting ingredients from carbohydrates -- things that grow and can be infinitely replaced -- rather than from hydrocarbons, which are mined or drilled and readily depleted. DuPont already makes 10 percent of its products from nonpetrochemical substances, and Charles O. Holliday Jr., DuPont's chief executive, expects to increase that to 25 percent by 2010. By then, he says, such products will yield the equivalent of $3 billion in revenue in current dollars. The way Mr. Holliday sees it, so-called industrial biotechnology can solve myriad problems. It can insulate DuPont from the relentless rise in gas and oil prices. It can win kudos from environmentalists and shareholders who worry about the harmful effect of extracting and burning oil. It can play well in Washington, particularly since a quest for alternate energy sources was a crucial point in President Bush's State of the Union message. But during a nearly two-hour conversation in his spacious office above the Hotel DuPont, Mr. Holliday stressed his real motive in pushing for bio-based materials: his belief that they yield better products. He notes, for example, that the corn-based propane diol, a product used in carpet fibers that DuPont will begin selling this spring, offers better dye absorption and stain resistance than the petrochemical version DuPont now sells. "We're using biology to solve problems that chemistry can't," he said. It is not just bombast. DuPont is working with the Energy Department to turn corn plants -- the husks, the ears, the stems, everything -- into vehicular fuel. DuPont is close to developing plant-based hair dyes and nail polishes that will not adhere to skin, surgical bio-glues that can stanch internal bleeding and a textile fiber made from sugar that will act and feel like cotton. This spring DuPont will open a factory in Loudon, Tenn., that will make propane diol -- trademarked as Sorona -- from glucose. For now the output is earmarked for carpet fiber, but DuPont is exploring whether it can work in rigid plastics for automobile interiors or de-icing compounds for airplanes. The company has already converted many labs that once worked on pharmaceuticals or textiles -- two businesses DuPont has shed -- to now search for ingredients to replace oil and gas. Next year, it plans to cluster them all in one building and move a marketing staff in with them. "Industrial biotechnology is an area in which we can differentiate ourselves, so we're spending a lot more than any other company on it," said Thomas M. Connelly, DuPont's chief science officer. DuPont's optimism has other chemical industry executives scratching their heads. Dow Chemical pulled out of a joint venture with Cargill to make polylactic acid, a component of food packaging, from corn. Eastman Chemical sold its stake in Genencor International, a leader in industrial biotechnology. "We really do believe that industrial biotech is critical to our evolution, but the technologies of the foreseeable future just do not give the returns we expect from our research dollar," said Andrew N. Liveris, chief executive of Dow, which is looking for ways to make polyurethane from soybean oil, but has put a higher priority on extracting ingredients from coal. Friedhelm Balkenhohl, senior vice president for bio-catalysis research at the BASF Corporation, echoes that view. "Raw material change is one of our hot topics, but even 10 years from now, renewables will account for less than 10 percent of our ingredients," he said. Some companies are shrugging off bio-based ingredients entirely, and concentrating solely on using petroleum ingredients more efficiently. "I'm glad that larger companies are spending their time, talent and money in such exotic areas, because they have left a wide-open field for us that we are fully exploiting," said Jeffrey M. Lipton, chief executive of the Nova Chemicals Corporation, which makes building-block chemicals like styrene and polyethylene. The skeptics do not faze Mr. Holliday. He points to the thriving business that DuPont -- and even more so, Monsanto -- has built from genetically engineered crops. "Ten years ago it didn't seem logical to go after insect-resistant crops, either," he said. "We're not betting the company on bio-based materials, but we do think they have the potential to have the same impact on us that long-chain polymers once did," he said, referring to the scientific discoveries that led to nylon. Industrial biotechnology is not a new concept, of course. As far back as the 1970's, companies experimented with turning crops and agricultural waste into fuels. In most cases, the processes were costly and polluting. Even worse, it often took more oil to transport the alternate fuels from farm to factory than was saved by eliminating petrochemicals. The economics work better today. Prices for oil and gas remain persistently high, and few industry prognosticators predict steep plunges. Moreover, fermentation technologies have improved, as has the ability to isolate and manipulate plant genes. And the growing clamor from environmentalists and environmentally conscious shareholders has given companies an added impetus to invest in "green" technologies like renewable resources. Still, of the chemical companies, DuPont seems to have the most immediate need for the advantages that industrial biotechnology can provide. In the late 1990's it paid more than $9 billion to buy the seed company Pioneer Hi-bred, a price that many analysts still insist was too high. If DuPont can use more of Pioneer's biotechnology expertise, it can perhaps allay the criticism. Moreover, DuPont's once-stellar reputation for scientific innovation has flagged of late. Although DuPont portrays itself as a new-product mill -- Mr. Holliday says that a third of last year's revenues came from products that were less than five years old -- analysts say too many of the new products represent incremental improvements. They note, for example, that DuPont's new hybrid corn seeds do yield more corn, but not enough to gain share back from Monsanto. "In the last three, four years, nothing has stood out as a really breakout product," said William R. Young, an analyst at Credit Suisse who has a neutral rating on DuPont shares. Goldman Sachs has an outperform rating on DuPont stock, yet Edlain Rodriguez, a Goldman analyst, agrees. "DuPont has always prided itself on being a science company, and it has to find a way to regain that leadership," he said. It is under severe time pressure. Like many chemical companies, DuPont's costs soared when high energy prices were made worse by Hurricanes Rita and Katrina. Teflon, one of DuPont's workhorse products, contains perfluorooctanoic acid, or PFOA, which has been linked to cancer and strokes, and which the Environmental Protection Agency has asked manufacturers to eliminate. And about 18 percent of DuPont's pretax earnings stem from sales of Cozaar and Hyzaar, two hypertension drugs it developed before it sold its pharmaceutical business to Bristol-Myers in 2002. The patents on the drugs expire in 2010, and so will DuPont's $751 million in annual royalties. Analysts are divided on DuPont's prospects. According to Thomson Financial, of the 16 analysts that follow the company, 11 rate it a buy while five rate it a hold. Shares of DuPont, which were trading in the $50 range in the first half of 2005, fell 27 cents, to $40.05 yesterday. Clearly, DuPont hopes that biochemistry will pump the stock up. "If we can make this integrated science game work, it will be ours to lose," said John Pierce, director of biochemical sciences and engineering. It will still be a hard game to play. Oil and gas remain easier to transport than solids like corn and soybeans, and do not degrade with harsh weather. Plants also vary widely in shape and composition, making it harder to control the quality of distillates made from them. "The corn crop, the sugar crop, either can be good or bad, and that makes the market inherently volatile," said David N. Weidman, chief executive of the Celanese Corporation, which has temporarily shelved a patented process for getting micro-organisms to excrete acetic acid. "We are not saying that biotechnology will never result in chemicals, but it is a long, arduous and risky road." Then, again, so is the prospect of relying on foreign oil. Albert H. Segars, professor of technology management at the Kenan-Flagler Business School at the University of North Carolina, notes that against the backdrop of political instability in so many oil-producing regions, DuPont's biotechnology strategy seems almost safe. "If a war breaks out with Iran," he said, "your biology-based fuels will look at lot better than your petro-based ones."