Amyris’ “Fene Economy”

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by Debra Fiakas CFA

There are not many companies with the courage to stage an initial public offering, but renewable chemicals and materials producer Amyris, Inc. (AMRS:  Nasdaq) was undaunted.  The company sold 5.3 million shares at $16.00 earlier this month, raising $78.8 million in net proceeds. 

Amyris has done fairly well in raising capital.  In December 2009, the Department of Energy awarded Amyris a $25.0 million grant to build a pilot plant that will produce diesel and petrochemical substitutes through the fermentation of sweet sorghum.  Then Temasek Holdings invested $47.8 million into the company.

The Amyris vision is lofty  –  build a “fene economy.”  Investors might be scratching their heads over that one.  Amyris engineers microbes and has developed a molecule called farnesene.  The molecule can be the building block for a variety of products such as detergents, cosmetics, perfumes and industrial lubricants, and to transportation fuels like diesel.  The company has ubiquity in mind for farnesene-based products, replacing existing products that are derived from petroleum, plant or animal sources and that may be of lower quality or higher price.  While sweet sorghum is the feedstock for the diesel pilot project, the company plans to use Brazilian sugarcane for its ambitious farnesene production. 

Management claims commercialization is just around the corner and expects revenue streams to begin flowing in 2011.  Amyris has revenue from consulting and licensing, but development costs and other operating expenses have run high.  The company reported a net loss of $76.0 million in the twelve months ending June 2010.  For perspective we note that operations only used $45.9 million in cash during that period.

After the offering, Amyris estimates there will be approximately $294 million in cash on the balance sheet.  The company has no debt so the cash kitty is available for further research and development work.  Amyris has not been working exclusively behind the research bench.  A stable of partners has been assembled that gives Amyris access to production and distribution capabilities and expertise.  The business model allows Amyris to remain focused on what they know best  –  chemistry  –  while partners and customers figure out how best to incorporate that chemistry into marketable products.

Investor enthusiasm is running strong for the company.  AMRS price rose in the days following the offering and have remained solidly above the offering price even if investors have not been treated to a “soaring” stock price.  We would like to see some seasoning of this stock before committing large amounts of capital.  Nonetheless, the company has an interesting business model that should earn strong margins as sales ramp.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  AMRS is included in the Crystal Equity Research Beach Boys Index in the Biofuel Group.


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