Best stock to invest in – Amyris’ Mysterious Partner | Alternative Energy Stocks



Best stock to invest in

Jim Lane

In California, Amyris (AMRS)
has a new partner, described fetchingly yet with near-to-complete
vagueness as a “a leader in food ingredients and nutraceuticals”
which is roughly as helpful as describing a person as “someone who
enjoys ice cream”.

Some ice cream there is, nevertheless, in this agreement, which
will bring a short-term collaboration investment of $10 million,
an equity investment of up to $20 million at $1.40 per share, and
$100 million in annual revenue starting in 2017 connected to the
production and cost improvement of fermentation molecules. One
thing, and the only one, we discover about the identity of this
partner, is that they maintain (presumably extensive) industrial
fermentation facilities in Asia. The collaboration is subject to
completion of definitive agreements and the obtaining of required
approvals. Amyris expects this to be completed by the beginning of
December 2016.

Striking as this is, let’s make sure that we separate this from
the “expanded partnership” announced with a separate global
nutraceuticals market leader on September 30, which included the
addition of a new nutraceutical target, a credit line of up to
$25mm with a five-year maturity, an option for a $5mm strategic
investment, and a material expansion in expected revenue.

Kudos, says The Street, but we’ll wait to revise our earnings
targets

Of the agreements, Jeffrey Osborne of Cowen & Company wrote:
“We are encouraged by these recent announcements which provides
visibility into collaboration funding for the next few years in an
end market that has historically carried higher margins relative
to other end markets in the space. We are leaving our estimates
unchanged at this time given the limited amount of details
provided in the release. Amyris expects completion of the
definitive agreements and to obtain the required approvals for the
collaboration by the beginning of December 2016.”

Amyris’ John Melo was in a bullish mood as well. He said, “We’re
very pleased with the opportunity to partner with one of the
leading nutraceutical and food ingredient suppliers in the world.
Our current annual revenue run rate of over $100 million combined
with the $100 million of annual revenue we expect from this
partnership starting in 2017, should help us deliver stronger than
expected growth in 2017 and beyond.”


The Farnesene Bulls are running

By the way, InsiderFinancial.com writes:

“The thing to recognize here is that demand for farnesene is
increasing dramatically (analysts expect the market to grow more
than 27% CAGR to 2023, from its 2015 levels of 8 kilo tons in
2015) and Amyris is the only company in the world that can produce
it the scale required (we could be even stricter here and say it’s
the only company that can produce it full stop) to meet this
demand.”

If those numbers hold, that’s good news for Amyris, and investors
such as Kuraray and Total. But also let’s not overlook Intrexon.
Or even Chromatin.

Back in 2014, the lab geniuses of Chromatin announced that it had
created sorghum plants containing elevated levels of the
energy-rich compound farnesene. The milestone was supported in
part by the Department of Energy’s ARPA-E program Plants
Engineered To Replace Oil (PETRO). “We have demonstrated that
sorghum can be modified to produce significantly elevated
quantities of farnesene relative to commercial inbred sorghum
lines, a molecule that can be used to create energy-rich biofuel,”
said Chromatin CTO Ken Davenport at the time.

Keep a sharp eye on Intrexon

Over on the low-cost feedstock front, keep an eye out for
Intrexon. They tipped two summers ago that they had demonstrated
bioconversion of methane to farnesene in the lab. This was the
second product, following isobutanol, which Intrexon has upgraded
from natural gas employing its unique cellular engineering
capabilities.

Intrexon is developing microbial cell lines genetically enhanced
to convert methane to higher carbon content compounds at ambient
temperatures and pressures, thereby reducing the significant
expenditures compared to standard gas-to-liquid processes. In
theory, you get low capex — and you get access to that deliciously
low-cost feedstock, our friend methane.

The 8 Rays lighting Amyris’ Golden Lamp

In August, we highlighted 7 rays lighting Amyris’ Golden Lamp, in
our story “The
New Colossus”, here.

We’ll add the pair of nutraceutical deals and name that Ray #1.
The other 7?

#2. Gingko. Entered into an Initial Strategic
Partnership Agreement with Ginkgo Bioworks to accelerate
commercialization of bio-based ingredients and establish clear
leadership in industrial biotechnology with a combined offering
that we consider unparalleled. In connection with the agreement, a
license fee of $15 million was paid on July 25, 2016, to Amyris in
exchange for use of certain Amyris technology and the parties
agreed to pursue the negotiation and execution of a definitive
partnership agreement that includes significant value sharing. The
partnership is expected to deliver more new ingredients into the
global market over the next three years than the entire industry
has achieved in the last 10 years.

Melo pointed to the company’s DARPA collaboration which has
identified 400 different molecules, “all of which we can
commercialize at our discretion.” Also, 5th. Additional with
Gingko, “we are already collaborating to align R&D and take 70
products to the world’s leading brands.”

Melo said that critical to Amyris growth will be “more capacity”
and the Amyris potential to “accelerate products”. Meanwhile, “the
Brotas plant is running flat-out with farnesene production”, the
North Carolina facility too. The company has plans to double
capacity at Brotas and is speaking with potential collaborators
about potential expansions to increase capacity for 2017.

#3. Cosmetics and personal care. Announced
multi-year, multi-million-dollar collaboration in cosmetic active
ingredients with Givaudan to engineer and produce cosmetic active
targets for global commercialization by Givaudan. Amyris sees this
partnership delivering an annual run rate $50M per year

#4. Fragrance & flavors. Began
commercialization of novel fragrance product with Takasago
International Corporation. The company said that it had greatly
expanded in F&F novel fragrance ingredients, partnered with 4
of the top 5 companies, and is “on track to become one of key
suppliers.”

#5. Jet fuel. Jointly announced with Cathay
Pacific a two-year biojet agreement supporting continued strong
farnesene demand and the future of sustainable air travel; initial
flight on May 12, 2016 using the biojet blend was the longest
flight using a renewable jet fuel to date. This fuel is supplied
through the Amyris Total partnership that is dedicated to making
BioJet an industrial reality.

#6. Novvi. Announced American Refining Group’s
33.3% equity investment in Novvi LLC, a joint venture of Amyris
and Cosan S.A., enabling market access and acceleration in revenue
growth of Novvi’s high performance, sustainably sourced, renewable
lubricants.

#7. Janssen. Entered into research agreement
with commercial license option with Janssen Biotech, facilitated
by Johnson & Johnson Innovation, to use Amyris’s µPharm
platform for rapid integrated discovery and production of
therapeutic compounds thereby opening a new area of compounds
previously not accessible for new drug discovery. “We expect to
sign one more collaboration by the end of the year, ending at the
high-end of our range, to develop a library of natural and natural
like of therapeutic compounds, which nature has the potential to
provide and we have the ability to produce.”

#8. Biogen. Amyris announced a partnership with
Biogen, Inc. to develop alternative cell lines supporting
production of therapeutics, marking second major partnership in
biopharma market, which is now positioned to become Amyris’s
largest opportunity for collaborations. The Biogen partnership is
the most exciting of all,” CEO John Melo said,. With it, Amyris he
said would make “ a transformative change to biopharma where
partner would be able to employ [Amyris biotechnology] instead of
using cells from mammals. Others have attempted and failed, but we
are positioned to deliver life saving therapeutics and make them
more widely available. This could be game changing for
biopharmaceuticals, and Biogen will fully fund the development.”

Amyris – time to expand capacity?

At some stage Amyris, which is essentially sold out at Brotas,
will have to bite the bullet and expand capacity instead of
engaging in margin-munching tolling arrangements. We’ll stand by
for that.

When will the stock take off?

Two milestones to watch.

1. If Amyris reaches $100 million in revenue for 2016, that’ll be
a milestone we’d expect investors to note and re-value the company
at. Identifying at least a couple of these nutraceutical partners
wouldn’t hurt either. The company says it has hit the $100M
“annual revenue run rate” mark, so that day should not be all that
far out ahead, assuming that, when the dust has settled, these
revenues are coming in at normal margins and don’t represent
giveaway deals to sell out the production volume at the plant.

The average price-to-sales revenue ratio on NASDAQ is 3.2. That
would put Amyris around the $330M mark in terms of market cap when
it hits $100M in revenues — and the company is at $183M right now.
There’s around $100M in debt on the books, but with the NASDAQ
debt/equity average hovering around 0.65, the debt level doesn’t
appear to be a drag on share prices.

2. Break-even on operations. Fear of dilutive capital raises
appears to be on investors’ minds, especially given the potential
need to expand capacity soon. The double whammy of raising money
for a second plant and to fund continuing operations from the
first plant appears to be a factor. Can Amyris reach cash
break-even off the first production plant? We’ll probably know
when we reach the end of the year — so, somewhere between December
and February (when earnings are presumably announced), expect that
Amyris investors will substantially and upwardly revise the value
of the company, or sigh and settle in for the long-haul of
dilutive capital raises until he second plant is constructed and
the offtake is sold.

Jim Lane is editor and publisher  of Biofuels Digest where 
this article was originally published
. Biofuels Digest is the most widely
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