“Its not voodoo anymore,” said Claus Bollschweiler, a trained biologist who heads up BASFs research into hydrophobin proteins derived from fungi. “This is a good investment.”

Engineering acids and substances from cells is the nascent part of a biotech chemical industry thats fueled by demand for bioethanol and set to grow in sales by one-half to 153 billion euros ($227 billion) between 2007 and 2012, McKinsey & Co. estimates. The migration from food, fuels and drugs to basic industrial chemicals is a potential lifeline for BASF and rivals that have struggled to compete with oil-rich Middle East peers.

Bollschweilers lab is a dot on the landscape of BASFs Ludwigshafen headquarters, a 4 square-mile complex dominated by interconnecting pipes, chimneys and plants. The hydrophobins hes researching can be used for shoe waterproofing or cosmetics that are easier to apply. A venture with bakery ingredients supplier CSM NV to ferment succinic acid will start next year.

Reality

Bollschweilers efforts underscore the fallout from volatile crude costs that threaten to return to near $100 a barrel by 2012, according to a Bloomberg analyst survey, forcing chemicals suppliers to seek alternative sources of production.

Sales from industrial biotech-derived chemicals totaled about 230 million euros in 2008, only a fraction of BASFs 62 billion euros in total revenue. The worlds largest chemical company has spent 135 million euros to research bio-chemicals over three years. Total research spending will be about 1.35 billion euros this year, BASF said in May.

DSM, based in Heerlen, the Netherlands, has closed traditional chemical factories for biotech sites, responding to demands from companies like Walmart who seek more environmentally friendly materials. Procter & Gamble Co., the largest consumer-goods company, is looking for bio-based compounds for diapers to replace acrylics.

DSMs new succinic acid is produced by the fermentation of glucose in large stainless steel vats, avoiding the need for a cracker that breaks oil and gas down into components like naptha thats used in plastics and adhesives. The biotech version may cut energy use by 40 percent as well as reduce carbon dioxide emissions, the company said.

Takeovers

“This is no longer just a promise,” Volkert Claassen, head of DSMs unit developing the acid, said in an interview. “Its reality. Two years ago we made the strategic decision to sell our chemical production route for succinic acid. We will be one of the front runners. Companies close to the consumer are driving this change.”

Crude approached almost $80 a barrel last week on optimism demand will increase amid improved prospects for a U.S. recovery. Thats an impetus to the so-called white biotech industry. The label contrasts with red biotech for medicinal applications, and green biotech for gene-modified seeds.

Price Issue

With oil at $65 a barrel, Novozymes A/Ss enzyme-based acrylic acid in the U.S. is competitive with oil-based equivalents, said Thomas Schaefer, the Bagsvaerd, Denmark-based companys senior research director. If made in lower-cost Brazil, it would be competitive with oil at $45.

“As a strategist or top manager, you have to think what you will offer in 10 years that is not a commodity and not in complete competition with rivals because then it is a price issue,” said Harald Gruber, a Silvia Quandt Bank analyst based in Frankfurt. “Some day in the future, fossil fuels will become scarce. The oil price will again increase.”

DuPont Co. is looking to broaden its bio-chemical range after creating propanediol by fermenting corn sugar and adding it to fabrics that make carpets and clothes more stain resistant, said biomaterials head John Ranieri. The Wilmington, Delaware-based companys product pipeline includes thermoplastic elastomers, a rubber-plastic cross used in tubing and hoses.

More Complex, Better

“Four or five years ago, we would have said we are just looking for new specialties products,” Ranieri said in an interview. “Now its different, we are looking at all.”

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The letter was signed by nearly 50 groups representing about 1.7 million members, from the Environmental Working Group and Friends of the Earth to the American Nurses Association and Physicians for Social Responsibility.

Johnson & Johnson spokesman Bill Price said, “The trace levels of certain compounds that were noted by the Campaign for Safe Cosmetics can result from processes that make our products gentle for babies and safe from bacteria growth. Many regulatory agencies around the world consider these trace levels safe.”

Price said the New Brunswick, N.J.-based company takes concerns about its products “very seriously” and would consider meeting with the Campaign for Safe Cosmetics. He said J&J has no immediate plans to remove the two ingredients.

The chemicals in question are 1,4-dioxane, a byproduct of the manufacturing process, and the preservative formaldehyde, which is slowly released by a chemical called Quaternium-15 to kill bacteria. According to the Environmental Protection Agency, 1,4-dioxane and formaldehyde both are probable human carcinogens; formaldehyde also is a skin, eye and respiratory irritant.

“Theres really no excuse for a baby shampoo marketed as the No. 1 choice of hospitals to contain chemicals suspected of causing cancer,” Lisa Archer, the campaigns national coordinator, told The Associated Press in an interview.

Tests by an independent laboratory commissioned by the campaign, Analytical Sciences of Petaluma, Calif., found Johnsons baby shampoo had 210 parts per million of formaldehyde, and about two dozen other products out of 48 tested had similar or higher levels.

Johnsons baby shampoo also had a low level of 1,4-dioxane, a chemical banned by the European Union that was also found in three Aveeno baby wash products made by J&J, Johnsons moisture care and oatmeal baby washes, and about 25 baby and personal care products made by other companies.

Though the amounts in question are so small that many deem them safe, Dr. Sidney Wolfe, acting director of consumer group Public Citizen, said, “Generally with carcinogens, there isnt any safe level.”

The campaign notes that the two chemicals are not listed on product labels because they are contaminants, not ingredients.

The campaign released its test results in March. At that time, Dr. John Bailey, chief scientist for the Personal Care Products Council, said the “extremely low” levels of chemicals in the products tested “are not a cause for health concern.”

Last month, Sen. Kerstin Gillebrand, D-N.Y., introduced a bill directing the FDA to regulate such products made for children.

Price said that is true, adding J&J products “meet or exceed the regulatory requirements in every country where they are sold.”

However, the U.S. Food and Drug Administration does not regulate cosmetic products, said Wolfe, whose group is not involved in the campaign.

“The cosmetic industry has pounded on … Congress to keep the FDA from having any kind of authority to require (safety or testing of) cosmetic ingredients used by tens of millions, including many children” for more than three decades, he said.

He said these chemicals can be absorbed by the skin but could easily be removed from the products - at additional cost.

If the two chemicals were food additives, he noted, they would have to be tested before being sold to prove they didnt contain dangerous chemicals.

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The company earned $24 million, or 3 cents per share, compared with $941 million, or 99 cents per share, a year earlier.

Excluding charges and other one-time items, Dow earned 12 cents per share during the period.

Sales fell 39 percent to $9.09 billion from $14.82 billion a year earlier.

Analysts polled by Thomson Reuters expected a loss of 21 cents per share on revenue of $11.69 billion. Analysts typically exclude one-time items.

“Our positive earnings in this recessionary environment were the direct result of our rapid actions to reduce costs and tightly manage operations,” said Andrew Liveris, Dows chairman and chief executive officer.

Dow has already announced it was paring 9,500 jobs and shutting 20 plants.

The Midland, Mich.-based company posted a $19 million charge related to a restructuring plan announced last year. Dow also recorded a $48 million charge related to its buyout of Rohm & Haas, and a $29 million charge connected to its stake in Dow Corning.

Dow closed on its $16.5 billion acquisition of Philadelphia-based Rohm & Haas on April 1, after the first quarter ended. That means Rohms results wont be fully reported by Dow until the second quarter.

Dow used a $13 billion loan to pay for most of Rohm, and Liveris said in a conference call Thursday that he hoped to have that loan paid off by the end of 2009.

The companys first-quarter report sent company shares up 17 percent, or $2.28, to $15.79 in afternoon trading.

“To come in at an actual profit is really a heroic effort on the part of the management,” said Michael Judd, an analyst with Greenwich Consultants.

But sales in the companys performance plastics, performance chemicals, basic plastics and basic chemicals units all fell more than 30 percent.

One bright spot was Dows agriculture business, Dow AgroSciences. Sales at the segment were up and volume increased 10 percent, though prices were flat.

Liveris had said as recently as April 1 that Dow was not interested in selling that business. But on Thursday, he said a joint venture, public offering or outright sale is possible.

“Given the current market for assets in the agricultural space, we have launched a vigorous evaluation process,” he said.

Dows earnings release comes the same day that BASF - the worlds largest chemicals maker - said its first-quarter net profit fell 68 percent. ExxonMobil said Thursday that earnings at its chemicals unit fell 66 percent during the same period.

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Lung tumors are the most lethal form of cancer in the U.S., spurring 161,840 deaths and 215,020 new cases in 2008, according to the American Cancer Society, based in Atlanta. While there are about 60 possible carcinogens in tobacco smoke, pinpointing byproducts, or metabolites, that may spur the malignancies may help prevention, Yuan said.

“If we can identify a smoker with a high level of metabolites, and down the road they have a higher risk of lung cancer, public health workers can get them motivated to quit smoking,” Yuan said in an April 16 telephone interview. “If they cant quit, we can do more intensive screening to find very small lung cancers that can be treated.”

Yuan analyzed varying levels of metabolites in the urine of about 500 smokers drawn from the Shanghai Cohort Study and the Singapore Chinese Health Study, funded by the U.S. National Cancer Institute in Bethesda, Maryland. Dividing smokers into those having high, medium and low levels of the two chemicals, the researchers followed lung cancer diagnoses for 10 years.

Risk Factors

Smokers with high levels of a byproduct called NNAL — a known carcinogen in lab animals — had twice the risk of getting lung cancer compared with smokers who had low levels.

People with high urine levels of cotinine, a nicotine byproduct, had three times the risk of those with low levels. Smokers with high levels of both NNAL and cotinine were 8.5 times more likely to get lung cancer than comparable smokers who had low levels of both chemicals.

The two chemicals appeared to be independent risk factors for lung cancer, even after adjusting for daily pack usage and the number of years of smoking reported by study participants, Yuan said.

The urine test isnt available for use by doctors, Yuan said. He predicted it will take three to five years to validate the test in ethnic groups around the world, refine the technology, and add other chemical carcinogens such as polycyclic aromatic hydrocarbons to the test panel.

Unanswered Questions

How and why the chemical levels excreted in urine flag cancer vulnerability arent known, Yuan said. “We are thinking smokers uptake of the tobacco carcinogens is different,” he explained. “Metabolic systems between smokers are different.”

Margaret K. Offermann, deputy national vice president for research at the cancer society, said identifying patients with the chemical markers in their urine might help in “raising the red flag” in doctors offices.

“One can read the riot act to smokers that theyre at risk,” said Offermann, who wasnt involved in the study. “I wouldnt use lower levels to reassure people its OK to puff away.”

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On Friday, Dow Chemical moved nearer to closing the deal, one that CEO Andrew Liveris has said would be an economic disaster in the current environment.

Both companies confirmed they were in direct talks, yet a Delaware court date is still scheduled for Monday if the two cant come to an agreement.

The news sent shares of both companies soaring.

Whether Rohm & Haas is worth the price tag is up for debate, but few question that it has built itself into an elite company that travels nimbly in an industry dominated by chemical giants.

So how did Rohm & Haas, which created Plexiglas and sells Morton Salt, come to be so highly valued by one of the worlds biggest chemical makers?

The company has a portfolio of chemicals used in high-end items like perfumes and hull coatings for boats. Made in small batches, specialty chemicals bring high profits and are not as susceptible to volatile commodity prices swings, like the chemicals Dow makes in huge quantities.

Rohm & Haas has meticulously honed its reputation over the past century as a business that tends to its customers.

In 1907 chemist Otto Rohm and businessman Otto Haas began selling leather-softening chemicals in Esslingen, Germany. In September 1909, Haas opened a new office in Philadelphia that would eventually split from its German parent during World War I under pressure from the U.S. government.

Haas took care of the business side, not just selling chemicals but making follow up visits to clients to make sure Rohm & Haas products performed as expected.

“Through this really interesting relationship, (Rohm & Haas) was really able to establish a reputation as a specialty chemical company that wanted to get in touch with the customer,” said Regina Lee Blaszczyk, whos history of the company, “Rohm & Haas: Innovation Through Collaboration” is due out later this year.

Haas kept the innovative products coming and in 1933, he and his team inadvertently created something that he came to trademark a few years later as Plexiglas.

While the company sold its Plexiglas business in 1998, it has consistently found new ways to bolster the product line, including its 1999 acquisition of the iconic Morton Salt brand.

“Rohm & Haas has shown it has the ability to create new molecules and get them out on the market successfully,” said Arthur A. Daemmrich, a professor at Harvard Business School. “It does so in those arenas where you have better profit margins than you do in the commodity chemicals business.”

Late in 2007 the company said it could earn as much as $6 per share in 2010 due to growth in its electronic materials and coatings businesses. That estimate came after the company posted 2006 profit of $3.32 per share.

Those profits soon caught the eye of competitors in the chemical industry, including Dow.

Dow makes commodity chemicals, the building blocks for items like T-shirts and plastic bags. Those chemicals are sold in massive quantities at razor-thin profits.

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The compounds, known as perfluorinated chemicals or PFCs, may interfere with hormones that are involved in reproduction, Fei wrote in the study. The fathers sperm quality may also be affected by the chemicals and contribute to the problem, he said.

“Animal studies have shown that these chemicals may have a variety of toxic effects on the liver, immune system and developmental and reproductive organs,” Fei said.

The researchers are the first to study the link between infertility and the presence of chemicals such as perfluorooctanoic acid and perfluorooctane sulfonate in the blood. Fertility rates have declined in developed countries in recent decades. In the U.S., 8 percent of women of child-bearing age have had an infertility-related medical visit, according to the Centers for Disease Control and Prevention.

PFCs are used to make textiles and leather resistant to water, dirt or oil. They are also found in personal care products such as nail polish, dental floss or facial moisturizer. The chemicals resist breakdown and tend to persist in the environment and in the body for decades.

3M Co., which used perfluorooctanoic acid in the fabric protector Scotchgard, funded the study and its toxicology laboratories performed the analyses. After 3M discovered the chemicals toxic properties in 2001, it stopped using PFCs.

To contact the reporter on this story: Chantal Britt at cbritt@bloomberg.net

Last Updated: January 29, 2009 04:05 EST
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Net income declined to 7.24 billion riyals ($1.92 billion) from 7.4 billion riyals a year earlier, Riyadh-based Sabic said in an e-mailed statement after market close today. The chemical maker was expected to report a 6.8 percent rise in net income to 7.9 billion riyals, according to the average of three analyst estimates compiled by Bloomberg.

The global economic crisis is curbing Sabic’s earnings after it spent $11.6 billion last year for the plastics business of General Electric Co. The purchase, the largest by a Gulf-based company, added a network of factories making resins and thermoplastic sheets used in cars, roofs and lighting, just as the auto and construction industries cut output.

“The expected global recession may lead to a decline in demand for products in most of the international markets,” Chief Executive Officer Mohamed Al-Mady said in the statement.

Sabic, which is 70 percent owned by the Saudi government, fell 10 percent to 95 riyals today. The shares have dropped 43 percent this year, giving it a market value of 285 billion riyals. BASF SE, the world’s largest chemicals producer, has slipped 51 percent.

Paring Output

Sabic has made acquisitions in the U.S. and China as it seeks to expand outside its home market. The purchases have come at a time when General Motors Corp. and Ford Motor Co. are cutting costs and paring output after each lost at least 17 percent in U.S. sales this year. Debt markets have also seized up as the U.S. housing market suffers its worst slump since the Great Depression.

Declining petrochemical prices in Asia and Europe have also curbed profit. Ethylene prices dropped 26 percent in Asia and 20 percent in Europe as of Oct. 3, year to date, while film grade polymers have declined more than 8 percent in Asia, according to Bloomberg data.

Nine-month earnings per share increased to 7.24 riyals from 6.72 riyals a year earlier, Sabic said, without providing third- quarter figures.

Source: Bloomberg