Solazyme's Not-So-Puzzling Rebranding
Solazyme undergoes Focus Reassignment Surgery and re-emerges as TerraVia. Industrials to spin off, nutrition the focus now.
The what, the why, and the “why now?”
In California, Solazyme (SZYM) said that it is now focusing exclusively on food, nutrition and specialty ingredients, renaming the company TerraVia. Having elevated CEO and co-founder Jonathan Wolfson to the Executive Chairman post, the company says it is on the hunt for a food-business CEO, and has raised $28M from a group of foodie investors including Glenhill Capital, VMG Partners, PowerPlant Ventures, ARTIS Ventures, Simon Equities and several influential food industry CEOs.
Leaving many observers feeling like Caitlyn Jenner’s golf buddies at Sherwood Country Club. Supportive but perhaps a little confused.
The products, technology and market opportunities in industrial markets including fuels, industrial oils, and the oilfield/Encapso business will be spun-off. The company stated: “Moving forward, these initiatives will be grouped together as “Solazyme Industrials” and will not be part of TerraVia’s refined focus. Solazyme believes these businesses have tremendous opportunity to develop into large and profitable entities, while improving the lives of people and the planet. The Company will be pursuing strategic alternatives over the next 12-18 months to unlock the value created. Solazyme’s objective is to identify partners who have the operational capabilities needed to realize the potential of those businesses.”
The TerraVia Business going forward
TerraVia’s portfolio of ingredients and products include: Specialty Food Ingredients, including the AlgaVia Whole Algae ingredients (lipid rich powder and protein) and AlgaWise Algae Oils (cooking and high stability oils). Consumer Food Products, including Thrive Culinary Algae Oil, Animal Nutrition Ingredients, a new area for the Company, and Specialty Personal Care Ingredients, including AlgaPur Oils.
There are two ways to tell the tale. We’ll visit the dark side first, and then focus on the path forward for the newly-minted TerraVia.
The Dark Side of the Story
Let’s face facts. We have a CEO search rather than a new CEO, plus a re-branding of the company without the kind of signature deal that usually propels companies to venture into the risky area of re-branding. And, we have a jettisoning of two of the four legs of the corporate stool.
The circumstances are screaming that the Monday afternoon’s Q4 earnings announcement will make it plain that Solazyme’s growth and growth prospects in certain sectors have stalled short of cash positive — just as the nutritional prospects have materially brightened. Clearly fuels are in that basket. We’ll have to see what the fate of Algenist is, and how the company will handle the pressing topic of securing orders for its commercial-scale plant in Brazil.
On the industrials side, it would come as no surprise that there’s the exhaustion powered by $30-$40 oil and crashing rig counts that doomed Encapso and made Solazyme’s fuels unaffordable except in boutique quantities. On the nutrition side, a name-brand group of White Knights have come along, and have targeted the company to get a hold of its powerful technology and applications in the foodie space. For sure, the investors are buying in at considerable premium to the stock’s moving average. Very encouraging.
Back to the sunny uplands of algae’s promise and Solazyme’s powerful technology
If you’ve been on Neptune for the past decade or so, let me state for your benefit that the world could use help on nutrition, with a population set to increase some 4 billion this century. That’s 3.8 quadrillion calories per year, more than we consume right now. Assuming that the developing world, by the way, doesn’t increase its caloric intake.
Think of that as 2 billion tons of the edible parts of a salmon, per year, additional. And that’s excluding any pets you might bring along. And excluding the food you plan to feed to the salmon. And the waste part of the fish, and the food that gets wasted through spoilage and so on.
Did I mention that the global fish catch last year was 90 million tons, the whole she-bang? And, that we’re currently alarmed over fish depletion rates. And, that we’d like our calories to be healthier, please. Which means making the healthy calories better tasting, and you’ll appreciate the challenge thereof if you’ve ever tried to sell the idea of broccoli to a five-year old with an ice cream in her hand.
For some time, Silicon Valley has been spewing our tech endeavors aimed at the nutrition problem — from ingredients (such as flavors and flavorings) all the way to food substitutes — and yield enhancing crop technologies and crop protection systems. Companies like Modern Meadow, Beyond Meat and Impossible Foods. Given the large valuations and epic venture rounds they’ve been racking up — it’s not surprising that some industrial biotech companies are either being acquired or changing their stripes as fats as they can, to join the rush.
Evolva, for example, acquired Allylix, but not for its transformative jet fuel capabilities but for its yeast fermentation patent portfolio, more or less. Sapphire Energy re-aimed itself at the omega-3 and protein markets not long ago. Amyris maintains a fuel and industrials unit of considerable promise, but has been making its most headway in the health & beauty and flavorings world, of late.
So, there are epic reasons for Solazyme, under the TerraVia brand, to go forward in the world of developing applications in food oils, and whole algal flour, and the like. And to those who’ve been around the food ingredient business — the winds of change are blowing and Solazyme’s technology is powerful enough to make it a major player.
But the competitive advantage will not be limited to its algae-based technology. There’s a considerable customer list now built up in nutrition — some of which are newly disclosed this week, including Hormel, Utz, Enjoy Life, So Delicious, Soylent and Follow Your Heart. And over in speciality personal care ingredients, there are “major customers” not yet disclosed, alongside the multi-year relationship with Unilever.
And, TerraVia has gone through many of the hardships of scale-up in its commercial-scale facility in Brazil. The company has substantially de-risked itself. And achieved a “sector focus” with these announcements that many in the financial community have been calling for. The major task going forward is to demonstrate that these customer relationships will translate into large, multi-year commercial orders at profitable margins — that we have yet to see and analysts will be scouring the quarterly report issued Monday for the signals that orders are scaling commensurate with the opportunity.
Reaction from Fortress TerraVia
Bullish they are.
“By unlocking the power of algae, the mother of all plants and earth’s original superfood, we are bringing much-needed innovation in food and nutrition,” said outgoing CEO Jonathan Wolfson. “Our new generation of breakthrough ingredients and foods delivers on nutrition, flavor and texture all with an unparalleled sustainability profile, and these products are already beginning to penetrate a market that is demanding healthier alternatives. Over more than 13 years we have invested in developing a unique understanding and expertise around algae. Today the pieces are in place for the Company to fulfill its mission and create substantial value for customers and shareholders.”
“There are opportunities for our algae-based ingredients across every aisle of the grocery store, driven by consumer demand for clean labels and an increasing focus on plant-based foods with great taste,” said SVP and chief foodie Mark Brooks. “We are enhancing a new generation of foods that deliver better flavor and nutrition, including healthier fats and enhanced protein, fiber and micronutrients. In addition to products incorporating our ingredients on store shelves today, we are currently in active development projects with major CPG companies for new products such as salad dressings and gluten-free bakery products that are healthier and offer the taste and texture that consumers demand.”
“We are moving forward with a strong business foundation and clear vision,” said CFO Tyler Painter, Chief Financial and Operating Officer. “We have invested significant time and capital in the development of our innovation platform and large-scale manufacturing capability. We enjoy long-standing commitments from partners, led by Bunge and Unilever, who have helped bring our vision to life. Importantly, we have also learned significant lessons in scale-up and commercialization, helping to de-risk the inherent challenges in bringing disruptive products to market. These strengths combined with our refined focus, a proven suite of products and the expanded market knowledge we gain with our new investors and board member, position us well to execute on our opportunities in food, nutrition and specialty ingredients.”
The Bottom Line
The need to focus resources, we get it. The need to raise capital, we get it. The need to focus on what has momentum, we get that too.
Technology takes us in strange directions, as any foodie might know. Percy Spencer invented the microwave in 1945 by complete accident, after noticing that the chocolate in his pants melted when he passed by a magnetron. Took 20 years to perfect it, but look at the microwave now.
Despite the messy pants.