Using plants as plants (2000 nr 2)

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Using plants as plants

McKinsey Quarterly

Summary:

Companies that make chemicals have been searching for new sources of growth over the past decade. The quest has prompted some chemical conglomerates to spin off their traditional chemical businesses, such as commodity and specialty chemicals, to concentrate on more profitable, noncyclical life science enterprises. But the hopes these companies had of realizing synergies among their life science businesses – especially in biotechnology, which they all use – have been largely unfulfilled.

This is not the moment, however, for chemical companies to give up on biotechnology. It still offers huge opportunities, and two trends suggest that they are worth exploring. During this century, science will continue to advance its understanding of living organisms and how to control them. At the same time, humanity’s search for sustainable resources will intensify. Using biotechnology to produce chemicals lies squarely at the intersection of these trends. Although the risks are substantial, they can be managed. Chemical companies should therefore revisit their biotechnology strategies now.

Today, the market for biotech-based basic and intermediate chemicals, fine chemicals, polymers, and specialty chemicals accounts for only 2 percent of the total chemical market, or about $25 billion in revenue. 3 But biotechnology, thanks to its cost, scale, and quality advantages, has swiftly come to dominate the product segments in which it does play a role in production: enzymes, certain organic acids, and certain vitamins. In 1994, for example, more than 95 percent of all riboflavin was still chemically synthesized along traditional lines. Today, 95 percent of it is produced by genetically enhanced fermentation at a current cost that is 50 percent lower, and with 40 percent less capital expenditure, than conventional techniques require, in factories that can turn a profit at one-tenth the scale of conventional ones.

Both the technical performance of chemicals produced today from biotechnology and much current R&D indicate that, by 2010, the price and quality of biotech-based products will make them competitive in 30 percent of the chemical market as a whole . Fine chemicals will feel the change first and most: by 2010, biotech-derived fine chemicals will have won a market share of some 60 percent thanks to their purity, ease of production, and enhanced efficacy. The next area to be affected will be some 30 percent of the market for specialty chemicals.

 

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