Biofuel maker Solazyme shares rise in Nasdaq debut

South San Francisco-based Solazyme uses algae to make oil and plans to sell fuel oil, dietary supplements and skin care products. It is the latest of a handful of companies that make fossil fuel alternatives and have sought money successfully from the U.S. capital markets.

U.S. crude oil prices have risen from under $40 per barrel in early 2009 to around $100 per barrel now. Political turmoil in the oil-rich Middle East and growing demand from developing economies threatens to keep those prices high.

"Petroleum has no place to go but up," Solazyme Chief Executive Jonathan Wolfson said in an interview on Friday.

Solazyme's shares closed at $20.71 on the Nasdaq, well above their IPO price of $18. Shares of Gevo Inc (GEVO.O) and Amyris (AMRS.O), which came public within the last year and whose businesses both also include biofuel production, closed on Friday at 32 percent and 83 percent above their respective IPO prices.

If all goes as planned, Solazyme could sell diesel fuel for $4 per gallon or less, Wolfson said. The company projects it can produce oils for the fuel market at a cost of about $3.44 per gallon, or $0.91 per liter, in a built-for-purpose commercial plant that would use sugarcane feedstock. Refining costs would add another 50 cents or so per gallon.

EARLY STAGES

For all of the enthusiasm, however, the companies are still in their early stages. Solazyme is trying to build up its commercial operations and has not yet turned a net profit.

It has business relationships with major companies including Roquette, Sephora, QVC, Bunge Global Innovation, Chevron USA and Dow Chemical Co, and received a $22 million U.S. Department of Energy grant in December 2009. But funding from third party research agreements and government grants remains a substantial portion of Solazyme's revenue.

Solazyme posted a net loss to common stockholders of $7.3 million on revenue of $7.7 million in the three months ended March 31. It expects to continue to post losses for at least a few years as it grows its business.

Going forward, its products will also have to be approved by government regulators. The sale of diesel and jet fuels in the United States is regulated by agencies such as the Environmental Protection Agency and the California Air Resources Board. So far, Solazyme has not registered any of its fuels in the United States or elsewhere.

Solazyme's chemical products and nutritional supplements are also subject to review under the EPA's Toxic Substances Control Act and U.S. Food and Drug Administration regulations.

Wolfson said the fuel registration was ongoing and he had "no reason to believe" the process would not be successful.

The company uses sugarcane as a feedstock and Wolfson said the company could mitigate the risk of currency fluctuations by selling in markets that supply feedstock -- such as Brazil -- as well as the United States.

Solazyme and its stockholders sold 10.975 million shares at $18 each in an IPO on Thursday, raising $197.55 million. They had planned to sell 9.975 million shares at $15 to $17 each.

Of the shares sold in the IPO, most came from the company, which said it would use the proceeds to fund research and development and for general purposes.

Underwriters on the IPO were led by Morgan Stanley (MS.N) and Goldman Sachs Group Inc (GS.N).

(Reporting by Clare Baldwin in New York and Peter Henderson in San Francisco; editing by Lisa Von Ahn, John Wallace, Andre Grenon and Bernard Orr)