This article is part of our Rising Star Portfolios series. Sean is co-manager of the Dada Portfolio.
Among other goals, the Dada Portfolio aims to give you stock ideas that you won't find anywhere else. Amyris Biotechnologies (Nasdaq: AMRS ) is a recently IPOed company with no profits and very, very negative cash flow. (Welcome to Dada!) Nonetheless, I've had an eye on the company even before its September debut, and now that the stock has almost doubled since then, it's worth a closer look.
Beer enthusiasts know the powerful effects of fermentation. Brewing yeasts take sugar and convert it into carbon dioxide and alcohol, making sure your pale ale stays frothy and potent. Not satisfied with the miracles of brew, the folks at Amyris decided to genetically modify the microorganisms to see whether they could stimulate the production of any other types of molecules that might be, ahem, more valuable to society.
Their first foray: artemisinin, an antimalarial drug. Supported by a grant from the Bill & Melinda Gates Foundation, Amyris succeeded, ultimately granting a royalty-free license to sanofi-aventis (NYSE: SNY ) that will allow the European pharmaceutical company to use its technology for large-scale market production of this lifesaving drug.
Now, the company has turned its attention to farnasene, a molecule which could end up running your next diesel-powered car. Commercially known as Biofene, Amyris's newest yeast alchemy takes Brazilian sugarcane and ferments it into a renewable and sustainable petroleum replacement with many potential applications, including diesel and jet fuel.
The technology involved here is pretty exciting, but I rarely invest in "tech" companies that are simply bleeding-edge. The best tech companies of our time have always been able to identify an underserved demand of some kind. In other words, they're consumer companies, more focused on how the technology affects the end user than on the technology itself.
That's why Amyris' "No Compromise" policy is so appealing. Amyris isn't asking for a change in consumer behavior. You won't have to stop more often for gas because their synthetic fuel is less efficient; the company says its products are just as good, if not better, than existing options in every respect.
Sadly, without a Ph.D in biomolecular chemistry, I cannot verify those claims. But the company's contract with Procter & Gamble (NYSE: PG ) to let P&G buy farnesene for use in its consumer goods; its research collaboration agreement with French oil giant Total (NYSE: TOT ) ; and its sales to Royal Dutch Shell (NYSE: RDS-A ) seem to paint a pretty convincing picture of Amyris products' legitimacy.
The bottom line
I have to say, I love the concept here. I'm convinced that the alternative energy sector will change our lives in the coming years, but none of the mainstream plays on solar or wind really make sense to me. I may be echoing Vinod Khosla, but I really believe that for alternative energy to break through, the technologies must become economically sustainable without subsidies.
It'll be a long time before Amyris will be profitable and "valuable" on a traditional discounted cash flow basis, but its business strategy of products that don't require its customers to make any trade-offs is the right one. Does that make now a good time to buy? I'd like to hear your thoughts. Leave comments below or visit the Dada Portfolio's discussion board here.