Will the biotech bubble burst?

A big question mark hangs over the flagship of Estonia's promising wood chemicals industry.

Various pieces of information have led to the suspicion that wood industrialist Raul Kirjanen does not seem to have a profitable opportunity to build a large wood chemicals factory in either Estonia or Latvia. This is due to the patent issue, the production costs and the dark clouds that have appeared over the entire bio-production. Kirjanen himself continues to insist that his plans are sound.

The key European patent that underpins Fibenol's product development, covering the process for extracting lignin and wood sugars from hardwood, has been revoked, and in the US the patent has essentially been abandoned. Despite documentation and confirmation from a European patent attorney, Fibenol and Kirjanen do not see any intellectual property problems.

The revocation of the patent puts a damper on the prospect of mass production, i.e. the prospect of a large factory. Any chemical plant could produce lignin and/or wood sugars if it wanted to, and buying them in bulk would only make sense at a very low price.

In addition, the 'biofuel bubble' has burst in Europe and the European Court of Auditors has given a devastating assessment of the attempt to escape oil dependency in this way. Dark clouds have also gathered over the development of wood chemistry - there is too little wood, and it grows too slowly, to replace oil. However, the parties involved continue to reaffirm their plans for global domination.

«In the world of patents, in addition to those who actually do business with new technologies, there are others who keep filing new and new patent applications to impress investors and get as much grant money as possible, and then close up shop when the money stops flowing,» a patent consulting expert told Postimees.

He was referring to the aforementioned biofuels bubble, where green fuels, as they are legally known, have brought in huge sums of money for clever applicants, but the end of the money flow has led to a bust. At the end of last year, Swiss chemical giant Clariant closed down a newly-opened factory in Romania that produced bioethanol from straw sugar, officially because the production was not economically viable.

48 million flew into the sky

The European Union contributed 48 million euros to the construction of the Clariant plant. According to Keit Pentus-Rosimannus, a member of the European Court of Auditors, the 430 million euros spent on biofuels appears to have been wasted because the use of biofuels has only increased Europe's energy dependency and its dependence on raw materials from Asia. Legally green biofuels are incapable of adapting to climate change and reducing environmental impact because they simply cannot be produced without using land and soil.

Clariant added economic futility to the mix (Clariant produced lignin and sugars from straw). With some of Clariant's patents, related to straw processing techniques, Clariant itself has withdrawn those, according to public patent information, from the process of further patent protection.

«The problem with the Clariant plant was that the technology didn't really work, whereas Fibenol's technology works very well,» claims Kirjanen, whose company also produces sugars from biomass, using wood instead of straw.

Wood sugars are produced from cellulose using expensive enzymes. In order to be economically viable, the price of wood sugar should be comparable to, for example, regular sugar, molasses and glucose, which can be mass-produced from the starch in cereals. In addition, Fibenol's press requires the sprayed substance to ferment in a tank for three days, negating the price advantage of the initial rapid production that takes place in seconds. Scientists associated with Fibenol have mentioned a scientific breakthrough that will reduce the price, but nothing relevant can be found in the patent applications, and when something is invented with public money, it often comes with a requirement for free use.

Competitor: Solution lacks novelty and inventive step

Fibenol has received almost €30 million in funding for the construction of a pilot plant and product development. The basis for the product development is the so-called sunburst process: wood is chipped into fine pieces, the mixture is heated, acid is added, pressure is increased, vacuumed, neutralised and treated with an enzyme (see figure). The products are lignin, five- and six-membered sugars and cellulose with a fine structure.

This process has been patented by Sarad Parekh (India) and Carl P. Felice.

The European Patent Office (EPO) revoked this European patent in April 2022. European patent attorney Margus Sarap explained that wood giant UPM Kymmene challenged the patent on the grounds that the technical solution protected lacked novelty and inventive step. Sarap said that the EPO found a significant infringement: the scope of protection of the granted patent exceeded the scope of protection presented in the original application. «When the EPO revokes a patent, it also affects the EP patent enforced in the member states, i.e. the patent protection becomes invalid, i.e. the pre-patent situation is restored,» Sarap said. «Now, anyone in Estonia could freely produce these sugars from biomass and then, for example, ethanol according to the technical solution described in the application.»

Raul Kirjanen FOTO: Photo: Sander Ilvest

Kirjanen: The patent was not revoked!

«The patent has not been revoked, but there is a dispute about a patent in Europe as to whether it is sufficiently innovative,» Kirjanen explained. «This has been challenged by our wonderful competitor, and this is a normal process in the patent world. We have submitted our arguments on this appeal and the final decision should be clear next year. The dispute only concerns Europe (elsewhere in the world the patent is in force and valid) and we also have other patents in our portfolio that protect our technological solution. We are therefore confident in our intellectual property strategy».

However, European patent attorney Sarap confirmed that this particular patent cannot be revived because the EPO's decision has not been appealed, nor have patents based on it been enforced in member states of the European Patent Convention.

«It would be more honest for them to say, yes, EP2836602 (the patent number for the sunburst process) was unsuccessful and is invalid,» Sarap noted. «The question remains if in some country the European patent was converted into a national patent application and then processed as such, the confusion could still exist. Of course, UPM Kymmene is monitoring the situation and can challenge the national patents individually if necessary.»

Sarap says that filing a new patent application with the same content one-to-one and obtaining a patent would not be successful. «However, they have quite a significant network of patent applications on the same subject,» he noted after reviewing the register. According to the applications, Fibenol is trying to sneak through the patent sieve by adding all sorts of gadgets to the Sweetwater process.

In the US, where the Sweetwater Sunburst process was first patented, the patent application parallel to the EP patent is in 'abandoned' status. «According to the US Patent Office's registry, this essentially means that the applicant did not respond to the examiner's request by the deadline, and the processing of this patent application has been terminated,» Sarap explained. However, he emphasised that the US patent application system allows patents at risk of failure to be kept artificially in a pending status. For example, if it is not possible to convince the examiner, a continuation or «child» application can be filed before the Patent Office decides to extend the processing. «That's how this game of applications works,» said Sarap.

UPM Kymmene's plant in the Mecca of the chemical industry is nearing completion.

The public domain status of known processes and the impossibility of patenting them is in the interests of wood chemistry developer UPM Kymmene. The company has recently started building a biorefinery in Germany, the Mecca of the European chemical industry, with plans and a budget (550 million) very similar to those of Fibenol.

«We can easily integrate into existing chemical value chains. The presence of global, sustainability-oriented brands in all our target industries supports the marketing of our production. Finally, our plant is located in a chemical park with good access to utilities and a skilled workforce,» UPM Kymmene representative Martin Ledwon told Postimees. Asked why Fibenol's patent was being challenged, he vaguely replied that UPM Kymmene takes care of its intellectual property portfolio.

Fibenol pilot plant. Photo: Dmitri Kotjuh

Millions of the public's money spinning behind the scenes

Kirjanen, who played a role in the failure of competitor Est-For's pulp mill, announced afterwards (in 2018) that he did not expect anything from the Estonian state or the State Forest Management Centre for his pilot plant.

However, he emphasised that the innovation could succeed or fail, and that was the risk the company was taking. «Our hope is that it will succeed and allow us to reach completely new value chains. This should become clear in the next three to four years,» the wood industry entrepreneur said almost six years ago.

At the time, the estimated cost of the demonstration plant was 30 to 40 million euros, to be financed by Graanul Invest itself. («Kirjanen's significantly smaller factory than the billion factory could come to Imavere», PM 8.05.2018)

When Kirjanen sold the majority stake in pellet-producing Graanul Invest (2021) for more than €370 million, according to Äripäev, the public got the impression that the businessman was actually developing wood chemistry with his own money. Many praised him as a commendable man.

The construction and development of the wood chemistry pilot plant has consumed almost as much public funding as Kirjanen had originally planned for the total cost of the demonstration plant.

Fibenol OÜ (formerly known as Graanul Biotech) has received almost €30 million in project support from the Estonian Research Agency, Enterprise Estonia (EAS), the Estonian Support Services Centre (ETK) and others, of which €3 million has yet to be paid out (see table). Peep Pitk, the development manager of Fibenol's factory, claims that some of the support money has also gone to partners (Fibenol is a lead partner in a major project).

According to Pitk, the owners of Fibenol (in addition to Kirjanen, Raul Andreson and Andres Rätsepp) have invested about 80 million euros in Fibenol. According to the financial report for the financial year 2022, the parent company had lent Fibenol almost 40 million euros by that time, but Fibenol repaid six million of that in the same year. Meanwhile, Fibenol earned only €18,520 from the sale of its products in 2022.

«Fibenol's Imavere plant could be cash-flow positive by the end of this year or early next year,» Kirjanen said when asked what would happen if Fibenol did not start earning enough in the near future to repay the loan, or if the development proved unprofitable, and whether operations would then cease.

«Fibenol is intended to be a global platform for biological material technology, making it possible to convert biological carbon into basic components from which almost all carbon-based chemicals that we as human beings need can be reconstructed,» says Kirjanen.

Politicians hope that the development at the pilot plant will lead Kirjanen to build a large factory in Estonia, which would add value to the Estonian economy, valorise wood, increase GDP and contribute millions in taxes to the state coffers.

Kirjanen has at times given hope and at other times threatened to build the factory elsewhere, such as Latvia, where he believes the economic policies are better. But so far there has been no word on where the factory will be built. «If a site is chosen, we will certainly announce it. The candidates include locations both near and far,» Kirjanen answers.

He is also postponing promises about the pilot plant. In October he promised Äripäev that industrial production would start in early 2024.

«By the end of 2024, the Imavere factory will be operating at full capacity and there will be a strong customer base for all products,» says Kirjanen.

In the meantime, a vigorous advertising and lobbying campaign is underway.

«Estonia could become a major exporter of wood sugar biotechnology and its own industrial applicator,» explains Professor Mart Loog of molecular systems biology at the University of Tartu in an article funded by the Estonian Research Agency, whose laboratory has also received nearly 30 million in support for developing solutions for the bioindustry. Fibenol's pilot plant supplies the lab with raw materials, and scientific research finds its application in Fibenol. Loog and Fibenol are thus closely linked. «Fibenol has the official status of a 'flagship factory' of the EU, and a large part of all European wood valorisation development goes through Fibenol. They have hundreds of partners,» praises Loog (PM 9.11.2023).

Who are these «hundreds of partners»?

Fibenol is tight-lipped about the names of the «hundreds of partners», suggesting that a fifth of the 500 are universities. According to the Sweetwoods website, Fibenol is the «lead partner» in the pan-European Sweetwoods consortium. This gives the impression that Fibenol produces and develops for its partners.

Although Fibenol promised in the Ozone programme last December that «a sunscreen from a major cosmetics company is coming soon», nothing has been heard of it. Neither Pitk nor Kirjanen mention any other company for which Fibenol would produce something.

Loog admits in the same article that since Estonia does not have a large chemical industry that could further develop the tested materials, it would mean selling technological solutions abroad on the cheap.

In his opinion, there is no great prospect of large-scale chemical production in Estonia either: transporting raw materials or products from here to other parts of the world would be difficult and expensive.

«The solution could be small-scale but high value-added production, for example by innovative start-up companies,» Loog suggested, referring to the production of artificial leather and adhesives based on wood industry residues and wood sugars.

Loog did not respond to detailed questions, citing a confidentiality agreement with Fibenol.

A recent press release of 15 February, «Fibenol and the University of Life Sciences seek novel solutions for the valorisation of lignocellulose», also only mentions invention activities with the help of funding.

«Let them finish their big factory before they go bankrupt!»

Criticism of Fibenol was fuelled by Madis Raukas, a member of the board of the Metrosert Applied Research Centre, and Kaupo Reede, head of the biorefining sector, who works for the joint EAS-Kredex establishment, which recently received 16 million euros from the government to purchase technology and equipment for a biomass refining pilot industry.

«The question is not how to make lignin from wood, but what happens next, who is the next consumer, who actually turns it into a product,» Reede said. «They will finish their big factory before they go bankrupt!" he exclaimed, then Raukas softened, «...they could go bankrupt.»

They see no prospect of large-scale production in Fibenol. «What they produce is raw material for our processes, from which we will move forward - creating new materials using bacteria, enzymes and yeasts,» Reede said. «We are broader and more expansive than Fibenol.»

Asked if they support adding lignin to already recyclable asphalt, Reede replied: «No support. This naivety is not supported by any regulatory process: it is not favoured in any government procurement, nor is it adopted by any other company.»

He also revealed how weak the development of wood chemistry is across Europe, quoting what was said at a recent specialist conference: «If Europe wants to remain competitive in biotechnology at the level of America and Asia, we need 10 billion litres of fermentation capacity by 2030.» (referring to the volume of fermentation tanks - ed.)

Kirjanen's bankruptcy announcements have not shaken him. «Developing and implementing new technology is indeed a long and costly process. I believe that the time for taking bigger risks is over, now it's necessary to work hard to reach full production in Imavere and to finish building the first full-scale production units. By that time, Fibenol will have become a global industrial company. Then it's time for the owners to get a return on their investment,» he said. «It's certainly true that the surrounding region is difficult for large investments at the moment, but that is what we are striving for.»

Kirjanen's investment focus on the US

The timber king, who has risen to become one of Estonia's most powerful business leaders, is presumably aware of the current situation. If Kirjanen's style is to keep hope alive by pushing back deadlines - he now says the big factory will be ready by 2029-2030 - then Pitk, the mill's manager, did not answer the same question.

But according to the 2022 annual report, Biofuel OÜ, in which Kirjanen is a major shareholder, has already shifted its investment focus entirely to the US, buying forest and land for real estate development and setting up new subsidiaries.

Politicians, looking for a miracle to save the Estonian economy like Pippi Longstocking looking for courage, continue to dream.

Politicians looking for a miracle to save the Estonian economy, like Pippi Longstocking looking for courage, continue to dream. Postimees has checked the list of energy-intensive factories planned in Estonia, which includes Kirjanen's big factory with a budget of 600 million and the year 2028.