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After a decade of plant biotechnology development primarily in food and feed crops, Ceres Inc. has taken advantage of a surge in interest in biofuels to raise its largest investment round to date, landing $75 million in a deal led by New York-based Warburg Pincus.

The new funding will allow the Thousand Oaks, Calif.-based company to expand research in genetically modified and selectively bred plant crops, particularly in the development of specialized cellulosic crops, including switchgrass, sorghum, miscanthus, energycane and woody species for transportation fuels.

The deal brings total investment in Ceres to about $175 million, and CEO Richard Hamilton said the round was positioned as the company's final round of private capital before reaching positive cash flow, though he declined to project a timeline for profitability.

Ceres began fundraising for the new investment early this summer, working with Morgan Stanley managing director Carla Harris. Hamilton would not disclose a valuation for the company but said the round won multiple term sheets and was closed at an "attractive" price.

Previous investors Ambergate Trust, Artal Luxembourg SA, GIMV NV, H&Q Capital Management, KBC Bank & Insurance Group, Oppenheimer International Growth Fund, QuestMark Partners LP and Soros Private Equity Partners also participated in the round. Hamilton said the company most recently raised money in April 2002, when it closed a small but undisclosed equity investment from St. Louis, Mo.-based Monsanto Co. when it signed a partnership agreement with the agriculture and chemical giant.

Hamilton said Ceres is Monsanto's largest external supplier of plant biotechnology and that it has the world's largest collection of plant gene intellectual property. The company was formed in 1997 to apply technology honed in studies of the human genome to plants, and the company has focused primarily on crops for food and animal feed.

Developments over the past decade have transformed what used to be the agricultural chemicals industry into a thriving agricultural biotechnology business, creating huge opportunities for incumbent players and startups such as Ceres. Industry leaders Monsanto, Dow AgroSciences LLC and the DuPont Agriculture & Nutrition division of DuPont in the U.S. as well as Syngenta AG, the Bayer CropScience AG division of Bayer AG and BASF AG in Europe have thrown their weight fully behind new genetic technologies for creating pest- and disease-resistant crops, virtually abandoning the development of new agricultural chemicals.

There has been some resistance on the part of environmentalists to use of genetically modified organisms in food crops, but GMOs now dominate animal feed crops such as corn and soybeans, and there has been little opposition to their use in fuel crops. Indeed, Capricorn Capital of Palo Alto, Calif., which is perhaps best known for financing Al Gore's global warming movie, "An Inconvenient Truth," in February led a $22.3 million venture investment in plant gene technology developer Targeted Growth Inc.

Hamilton said Ceres was built on improving yield and reducing the need for pesticides and fertilizers in food and feed crops but that by the time the company raised its most recent institutional investment round in April 2001, it had already begun to focus on energy.
 
"We saw the progress being made in cellulose and got interested in dedicated energy crops," Hamilton said. "Sucrose is a good source of energy, and the U.S. has traditionally grown a lot of starch, but far and away the largest amount of carbohydrates is in cellulose, and even though it is relatively early technology in cellulose, that is what we have concentrated on."
 
Hamilton said Ceres will continue to develop biotech traits for corn and other row crops, and will license to other businesses outside of energy, including fine chemicals for fiber. He said that he expects that the burgeoning cellulosic energy industry will produce a variety of new polymers just as the petrochemical industry has.
 
Warburg Pincus managing director Chansoo Joung said the firm was drawn to the promise of cellulosic biofuels for transportation, and that Ceres' research background and history of licensing agreements position it well for leadership in the industry.

Ceres had legal work on closing the round from Danielle Carbone of Shearman & Sterling LLP in New York.

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