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New CEO sees catalysts for growth at Genencor

Genencor International Inc. is poised to be a growth engine for its parent Danisco A/S, its new Rochester-based CEO says.
Tjerk de Ruiter, who started in his new role Nov. 1, predicts Genencor, including its Rochester site, will play a critical role in Danisco’s future, as it applies biotechnology in renewable energy, food and beverage, textiles and other areas. Genencor develops enzymes for those markets.
It has been at least seven years since Genencor had its CEO based here. Thomas Mitchell, who took over as its third CEO in 1992, moved to Genencor’s offices in Palo Alto, Calif., in 1999.
“(Danisco is) shifting from being very acquisitive to more focusing on organic growth,” de Ruiter said. “A good part of that organic growth has to come from the bioingredients sector. … Genencor is a big part of that.
“So we believe we are going to be the growth engine for Danisco and to achieve that it is all about finding new applications for our products.”
De Ruiter replaces Robert Mayer, executive vice president and executive board member at Danisco who had stepped in after Genencor chairman and CEO Jean-
Jacques Bienaime resigned from the firm in late April 2005. Bienaime had replaced Mitchell in 2002.
Based in Copenhagen, Denmark, Danisco in January 2005 acquired Genencor for roughly $615 million, including a $419 million payment to fellow Genencor stakeholder Eastman Chemical Co.
Following a companywide reorganization last September, Genencor now is part of Danisco’s bioingredients division, which falls under its ingredients business. The biotech firm’s local facility, which employs some 150 staffers, functions as its business headquarters. It also houses other key executives-Genencor veterans-like Thomas Pekich, executive vice president for bioproducts, and Carole Cobb, executive vice president for supply.
“Now that our head office is in Copenhagen, Rochester really became the more logical place because it puts it right between (Copenhagen and Palo Alto) and allows us to communicate in the right time zones,” de Ruiter said.
And, Rochester’s flexible production facility has put it in a prominent position within Danisco.
“Let’s not forget, Rochester is really the starting place of Genencor and has always been a key place in our organization,” de Ruiter said.

A bigger company

Danisco does not report sales separately for Genencor. In 2004-Genencor’s last earnings report before its acquisition by Danisco-the company reported revenues increased 7 percent to $410.4 million. Net income was $18.9 million, or 31 cents a share. Product revenues for 2004 set a company record at $389.8 million.
In the first half of the 2006-2007 fiscal year, the bioingredients business, including Genencor, posted roughly $461 million in revenues, up from some $436.4 million a year ago.
De Ruiter said Genencor now is a bigger firm than when it was acquired. The reorganization brought Danisco’s enzymes business in food and beverage and animal nutrition to the company. The animal nutrition business is based in the United Kingdom. The firm’s other sites include a new production facility in Wuxi, China, slated to open this quarter, plants in Argentina, Finland and Belgium, in addition to other facilities in the United States. Genencor employs a total of 1,475 staffers worldwide.
“As of September last year, we said, ‘OK, now it’s really time to build an enzyme company,'” de Ruiter said. “We actually put the different enzymes from the Danisco side under the wings of Genencor.”
The Danisco takeover, however, also brought the divestment of Genencor’s health care business. The action, announced in August 2005, affected 13 local jobs and 53 positions companywide.
The divestiture also has left Genencor looking for a use for its multimillion-dollar therapeutics production center located behind its existing site at 1700 Lexington Ave. The company in 2002 had decided to build a facility to produce pharmaceutical grade materials for pre-clinical and clinical studies related to drug candidates for cancer and other diseases.
“It was really built for the health care business … the real value is for health care applications,” de Ruiter said, adding that if the company were to use it today for any other purpose it would destroy some of that value.

Positives of the merger

Pekich, who heads the firm’s bioproducts division, said being a part of Danisco brings a number of positives-despite the downsizing and the sale of the health care unit. For starters, it adds financial stability and resources to Genencor, he said.
“Secondly, I think now we have a clear focus and a clear mandate that our business direction is in the industrial, consumer and (agriculture) market spaces,” Pekich said. “While health care certainly had a lot of direction, it also had some diversion, if you will, of focus and direction for the company … we now have a constancy of purpose ahead of us.”
Danisco employs 10,600 people worldwide. In addition to its role as a large supplier of food ingredients and industrial bioproducts, the company is one of the largest sugar producers in Europe. In the first half of fiscal 2006-2007, Danisco posted roughly $1.8 billion in total revenues.
It became involved with Genencor in the 1990s, with Eastman Chemical. Genencor was formed as a joint venture between Genentech Inc. and Corning Inc. in 1982. Five years later, Eastman Kodak Co. acquired a 25 percent stake in the company.
A joint venture between Cultor Ltd. and Kodak in the industrial biotech area in 1990 led to the acquisition of Genencor. After the spinoff of Eastman Chemical three years later, Kodak transferred its stake in Genencor. Danisco acquired Cultor in the late 1990s to become a significant stakeholder in the biotech firm. Until January 2005, Eastman Chemical and Danisco each owned roughly 42 percent of Genencor’s stock.
“Genencor has been an excellent acquisition for Danisco because it made a very good fit,” de Ruiter said. “Danisco had started a lot of work in the area of biotechnology but really never had the critical mass to succeed and I think Genencor brings that critical mass in two areas, specifically R&D and the production capabilities.”
De Ruiter’s history with Danisco also stems from an acquisition. A former Cultor executive, the Netherlands native joined Danisco in 1998 and has held leadership positions at the firm, including senior vice president of global sales and marketing, chief operating officer for cultures, specialties and flavors, and president of Danisco USA. In 2004 he was named to Danisco’s executive committee.
“He is a young, dynamic leader, well-respected within Danisco. I think he has a very solid vision of where he wants to take the business, the biotechnology business,” said Pekich, who expects de Ruiter’s global business acumen to help Genencor, as the majority of its business is outside the United States.

Renewable energy

Part of de Ruiter’s vision is establishing Genencor as a player in renewable energy. The company’s partnership with Mascoma Corp. is key to the Cambridge, Mass., firm’s decision to build and operate, through a state grant, a $20 million cellulosic ethanol demonstration facility here.
“(Genencor is) without doubt a technical leader in the field, they’ve got proven expertise in terms of being able to create and take to market innovative, new solutions in the enzyme space,” said Colin South, president and CEO of Mascoma. “They have excellent corporate resources both in terms of the assets they have, the people they have, but also their vision for the space.
“And I think their corporate parent is another significant player in the overall cultures and enzymes area internationally and that also represents a major advantage to them.”
With the Mascoma project, Genencor will supply enzymes and will work with the company to improve its advanced enzyme products. It also plans to add capacity to its existing manufacturing facility on Lexington Avenue to supply the enzymes to the Mascoma demonstration plant here.
Mascoma has received a three-year, $14.8 million award from the state Department of Agriculture and Markets and the state Energy Research and Development Authority to build, operate and manage a 15,000-square-foot facility to complete testing of multiple feedstocks and technologies for biomass ethanol. The plant is expected to be operational by 2008, pending local permit approvals and definitive agreements among relevant parties. Genencor is slated to receive an undisclosed portion of the state grant, officials said.
Mascoma officials said it will match the state grant with some $5 million for capital expenses and $10 million for operating the plant for a minimum of three years.
The project will focus on demonstrating cellulose to ethanol technology and industrial processes. International Paper Co., Cornell University, Clarkson University and the Natural Resources Defense Council will join Mascoma and Genencor as part of a consortium supporting the project, officials said.
The plant is expected to be located at or near Genencor’s facility at Lexington Avenue. Mascoma officials said the firm expects to settle on a site within six weeks to two months.
“Part of the challenges in making cellulosic ethanol are around breaking the cellulose material down to its monomers,” South said. “That is an area where Genencor has an expertise, as do we, and we see an advantage certainly in those areas of establishing the core processing elements of our demonstration plant in the immediate vicinity of the Genencor site.”
The facility is expected to use state agricultural and forest products as biomass, including paper sludge, wood chips, switch grass and corn stover, the leaves and stalks of corn. Some 15 to 20 people will be hired as Mascoma employees to run the plant.
“I think the renewable energy project is just an example of the opportunities it might offer for a place like Rochester,” de Ruiter said. “The fact is that we’re in a new industry, we’re discovering new things as we speak every day and Rochester will play a key role in that.”
Cellulosic ethanol is attracting attention rapidly. The Department of Energy over the years has been studying different alternatives to gasoline and views cellulosic ethanol as one of them.
“It is a very large opportunity in terms of the ability to produce a product that can rapidly be used by consumers in an existing infrastructure,” South said. “The corn-ethanol business has done an exceptionally good job of establishing infrastructure and establishing market acceptance of ethanol.
“The new feedstock opportunities and the new technologies of cellulosic ethanol are going to be able to piggyback on top of that.”
He hopes that the site will become Mascoma’s center for process research in cellulosic ethanol as opposed to being simply the demonstration site for New York State.

Growth opportunities

Genencor also views the proposed demonstration facility as an opportunity for future growth.
“We made an announcement with Mascoma, but in reality there are a range of different substrates that could lead to ethanol production,” de Ruiter said. “So in my mind it is important that we find partners so we could spread the risk in other areas and make sure we become a player in that.”
He expects Genencor’s technical capabilities and its innovative nature, coupled with Danisco’s market access, to be a powerful combination. Genencor continues to explore new ideas for applications-it employs 240 research staffers at its sites in Europe and in Palo Alto, Calif. It has established a business development group focused on biotech: finding new applications for enzymes in industrial uses.
De Ruiter’s to-do list includes studying Genencor’s new businesses-food and animal nutrition-for short-term wins, applying the firms technical and production prowess. Rochester has a key role in that plan. The local site in the last six to seven months has started producing five or six different new enzymes just for food applications.
Genencor’s traditional businesses also could herald growth-from developing biological ingredients for detergents to biotech solutions for the textiles industry.
“Genencor with its technology capabilities, its innovation capabilities, its application capabilities, it’s going to be one of the leading companies that is going to bring transformation to these industries,” Pekich said. “So I’m very, very optimistic about what the future holds for Genencor.”
rbj@rbj.net / 585-546-8303

1/19/2007 (C) Rochester Business Journal

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