3 Opportunities for Solazyme Investors

Investors looking to get into industrial biotechnology should keep a watchful eye on renewable oils manufacturer Solazyme (NASDAQ: SZYM  ) . The developmental stage company has some pretty big ambitions and, should its goals be realized, is in for some eye-popping growth. Looking for some more specific reasons to keep Solazyme on your watchlist? Here are three opportunities for investors taking the long-term approach to the company.

1. Diverse target markets
Today the word "oil" is associated with crude oil, petrochemicals, and fuels. However, oils reach into a broader range of everyday life. When you hear the word "oil" you should think not just about fuels, but about foods, lubricants, fragrances, and body lotions, too (just to name a few). Investors of Solazyme will get to enjoy next-generation alternative fuels -- including blendstocks and drop-ins -- as well as specialty chemicals, personal care products, and nutritional products.

The diverse range of chemicals that can be manufactured on the company's platform will one day help to distribute risk across various unrelated customers, partnerships, markets, and continents. There are far too many spooky examples of over-dependence in the history of investing to name just one, but know that Solazyme is aiming for diversity and stabilization. Volatility in any one market or with any one partner will not necessarily spell disaster for the company or shareholders. 

2. Financially strong
In what could be considered a rarity in the industrial biotechnology industry, Solazyme is actually leaps and bounds ahead of peers when it comes to its balance sheet. It had $239 million in cash and short-term investments at the end of March, which will go a long way toward commercializing products and biorefineries in the next two years. The company expects operating expenses to fall between $115 million and $120 million in 2013, so that war chest will disappear pretty quickly.

Solazyme will continue to be compared with industry pioneer Amyris (NASDAQ: AMRS  ) , as both push into uncharted waters for commercial scale bio-based chemicals production. From a product standpoint the comparison is not very far off. The two companies are commercializing multiple products in similarly diverse markets: Amyris with building block molecules, Solazyme with tailored oils. However, the latter has managed a much healthier balance sheet and burn rate to date.

It will be a costly and unprofitable next several years for the company, but it will not have to dilute investors at nearly the same rate as other bio-based chemical producers. You would be hard pressed to find similar financial health in other companies in the developmental stage, especially in this capital-intensive industry.

3. Can you say "growth"?
Solazyme will jump from 1,820 metric tons of renewable oil capacity (from its demonstration facility in Peoria) now to over 125,000 metric tons before mid-2014.

Biorefinery

Nameplate Capacity

Commissioning

Product by...

Peoria (product development)

1,820 metric tons

Active

(test quantities)

Solazyme Roquette Nutritionals

5,000 metric tons

June 2013

2H13

Solazyme Bunge

100,000 metric tons

2H13

4Q13

ADM/Clinton

20,000 metric tons

Early 2014

Early 2014

Source: Solazyme

Fast-forward to the end of 2016 and the company is planning on having 550,000 metric tons of operating capacity installed with partners, while 300,000-350,000 metric tons will belong to Solazyme. That will require a good amount of new capital and partner commitments, but it is pretty tremendous growth that is impossible to ignore. Management isn't shy about its ambitions either. They believe the company can grow revenues from $44 million in 2012 to over $1 billion with their final production capacity in place.

Foolish bottom line
Solazyme offers some interesting opportunities for investors looking to get into the growth that lies ahead in the industrial biotechnology industry. It is developing a diverse product portfolio with international partners, has had no trouble raising money with shareholders in mind, and is growing out of its shoes. The story will take years to play out and there could very well be obstacles ahead, but this is as good as it gets in the industry right now. Will you be buying this disruptive innovator? Let me know in the comments section below.

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Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 12, 2013, at 8:55 PM, lanceim59 wrote:

    Finally, a good article from MF! SZYM is definitely a game-changer, but there are a lot of competition in the Renewable Fuel industry. One of those is MNGA. Fortunately, SZYM is years ahead of them in terms of overall growth.

  • Report this Comment On June 12, 2013, at 10:57 PM, lntwo wrote:

    Here are some papers to ruminate over:

    Isoprenoid biosynthesis in eukaryotic phototrophs: A spotlight on algae

    Martin Lohra, , , Jörg Schwenderb, Jürgen E.W. Pollec 2012

    Bio-crude transcriptomics: Gene discovery and metabolic network reconstruction for the biosynthesis of the terpenome of the hydrocarbon oil-producing green alga, Botryococcus braunii race B (Showa)*

    István Molnár1,2*, David Lopez3, Jennifer H Wisecaver4, Timothy P Devarenne5, Taylor L Weiss5, Matteo Pellegrini3 and Jeremiah D Hackett2,4 2012

    Advances in microalgae engineering and synthetic biology applications for biofuel production

    Javier A Gimpel, Elizabeth A Specht, D Ryan Georgianna, Stephen P Mayfield 2013

    They all focus on phototrophic applications, but the last one addresses the need to alter carbon flux to get improved production (aka the Exxon experience).

  • Report this Comment On June 13, 2013, at 3:42 PM, csqrd wrote:

    Even though Solazyme management has been very clear that they have no short term plans to produce renewable fuels, I would just a soon people continue not to hear the message. Between people who don't understand the production ramp up planning and momentum traders, I will have accumulated roughly 40% of my retirement fund in Solazyme shares by the end of the year.

    Your point on diversified markets is spot on. The other really interesting things are their proven ability to develop targeted (higher valued) oil profiles in a short time period relative to today's capability, and the ability to produce different oil types in the same facility with the same feed stocks.

    I know that 'balanced portfolio' will choke on my concentration in this company but I have a really hard time turning down the offer to buy $100 bills maturing in 5 to 7 years, for $10. Knowing our investment timelines, and noise tolerance, is the only secret to this investment.

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