Even with IPO, Mascoma faces hurdles



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Mascoma Corp. is hoping investors will bet $100 million on its initial public offering so it can commercialize its new technology to produce ethanol,The IPO, underwritten by investment banking heavyweights Morgan Stanley, UBS Securities and Credit Suisse, will be the biggest single attempt to raise money by the biofuel company, which was started in 2005 by two Dartmouth College professors. The offering was announced on Sept. 19.The company has been successful in raising capital before and has amassed an accumulated deficit of $138 million. But by filing an initial prospectus Monday with the Securities and Exchange Commission, the company revealed many financial details that could give at least some investors pause, including a warning that the firm may not be able to continue and that more than 85 percent of its sales last year consisted of government grants.The payoff, however, could be huge.Mascoma says its genetically modified yeast and other microorganisms can simplify a two-part process to transform cellulose into fuel. The new organism not only breaks down complex sugars to simple sugars, but also transforms those sugars into fuel. Initially, the company plans to target those that are already making some 13 billion gallons of corn ethanol. The company said that its current product would shave off a penny or two a gallon, but future products could cut costs by as much as 4 percent.The company is also planning to build plants to use its products to make ethanol from non-edible materials, starting with hardwood, and then from such products as corn stover, sugarcane bagasse, palm residue, softwood, switchgrass and paper sludge.Federal policy - at least at present - has been to promote such second-generation ethanol production, since using food for fuel poses its own problems, and may actually contribute to global warming, since growing corn requires so much fuel to begin with.Under current law, the federal government is mandating that 16 billion gallons of advanced biofuels be used annually by 2022, and corn-based biofuels don't meet those advance requirements."We know of no other company that provides a comprehensive biochemical solution for the production of renewable fuels and chemicals from multiple feedstocks that covers the full spectrum of the biomass conversion process, including pretreatment, hydrolysis and fermentation," the company says.To take this technology from the drawing board of founders Lee Lynd (chief science officer) and Charles Wyman (chief development officer) - or from its showcase plant in Rome, N.Y., to large-scale commercial development, Mascoma has been borrowing and spending aggressively.The company has received gotten funding from sources as varied as General Motors, Marathon Petroleum Company, as well as cutting deals with Lynd and Wyman's employer, Dartmouth College.Most of these entities were paid in equity.Mascoma has hired a whole new executive team: William J. Brady Jr., a longtime Cabot Corp. executive, as CEO to replace Bruce Jamerson, who remains as chairman and consultant; David Akrowitz, formerly of Merck and Co., as CFO; and Stephen Kennedy from Genzyme Corporation.Akrowitz and Kennedy's compensation has not been made public yet, but Brady's totals more than $5 million, though $4.67 million of that is in options awards.The total amount of stock to be issued, the stock price, the date of the IPO, and even the ticker symbol has yet to be disclosed.One concern is that the company's project are subject to regulation by various government agencies and face extra barriers because the products are genetically modified. Another is that new customers will conduct their own test of the products, to see if the savings they product are worth the extra costs.The company hopes to build new plants in Michigan and Alberta, Canada - but they are only in the planning stages and are using light capital - third-party money. That could leave the company in a bind if those parties shift priorities.Even if Mascoma gets its plans off the ground, it could face some formidable competition, such as from companies like Dupont and others that have "substantially greater production, financial, research and development, personnel and marketing resources and patent portfolios than we do," as Mascoma noted.And there is no telling what direction federal law may take in promoting these products. For instance, the Senate recently voted to end a tax credit for "blended" fuels that would have benefited Mascoma's technology. -- BOB SANDERS Edit ModuleShow Tags