Amyris Is Giving the "Hippie Perfume Molecule" a Synthetic Biology Makeover

For the first time in history, patchouli oil will be produced by yeast instead of a plant. Can Amyris cash in on the opportunity?

Apr 24, 2014 at 11:15AM

 Images

The patchouli plant, grown for centuries in tropical Asia for use in perfumes, is due for a makeover. Source: Wikimedia Commons / Vieux jardin botanique de Göttingen.

Patchouli is fun to say and more fun to spray. While Urban Dictionary associates the fragrance oil extracted from the leaves of the exotic scented plant with hippie perfume used to mask the scent of the unbathed (among other things), patchouli oil has far more industrial importance in personal-care markets than the humorous definition would lead you to believe. You may find its scent throughout your home in laundry detergents, air fresheners, baby wipes, and more. The oil was even incorporated into a Masters of the Universe action figure sold by Mattel in 1985.

Despite its industrial potential, patchouli oil -- and the broader flavors and fragrances industry -- faces the same problems that plague the market for squalane, a high-value emollient used throughout the cosmetic industry. Current agricultural methods used to produce the molecule result in unreliable, unsustainable, and inconsistent quality of its supply. That's why synthetic biology pioneer Amyris (NASDAQ:AMRS) and Firmenich, the largest flavor and fragrance company, have developed a novel bioprocess for producing large, quality volumes of patchouli oil from yeast.

Ripe for disruption
Patchouli is natively grown by farmers in the tropical regions of Asia, but it was introduced to Europe through trade conducted on the Silk Road. Cultivation methods haven't changed much over the centuries and still follow the same general path to monetization: Farmers grow the crop, harvest the leaves, dry them, and extract patchouli oil at an approximately 3.5% yield. The leaves can be sold before or after being dried, but the selling price captured deteriorates for each additional processing step. For instance, long-term contracts for dried leaves can fetch about $300-$350 per metric ton, but purified patchouli oil can fetch $50 per kilogram.

In other words, it pays to be as close to the end of cultivation process -- extraction -- as possible. The agricultural approach takes six months from planting to the first harvest of leaves, not including drying and extraction. Good news: Amyris has replaced the lengthy cultivation and extraction process with a single manufacturing process that produces pure, high-quality patchouli oil in about two weeks.

The future of flavors and fragrances
Amyris has set some pretty ambitious goals within the flavors and fragrances industry. In all, the company has 22 molecules under contract with the world's leading companies, which could generate roughly $1 billion in revenue by 2020. The opportunity (selling price and volume) varies for each molecule, but the aggregate potential is huge. Take a look at the opportunity presented by six of the 22 molecules currently under contract and their expected market introduction date:

G

Amyris estimates; not drawn to scale. Source: Amyris.

How does product development work? Firmenich paid Amyris to engineer an organism to produce economical volumes of patchouli oil and scale production at its facility in Brotas, Brazil. Once produced in bulk later this year, Firmenich will pay Amyris for production costs plus a predetermined premium, and both will share in the differential from the market price. The contract structure works because the synthetic biology platform has enabled the lowest production costs for patchouli oil in the world. However, Amyris is incentivized to optimize production metrics to increase its profits from the contract -- as well as future contracts -- which could generate 60%-70% gross margins, according to CEO John Melo.

Foolish bottom line
Amyris' platform (based on the isoprenoid metabolic pathway) can target about $1 billion of the $6 billion annual market for flavors and fragrances, which is growing at a CAGR of 5% annually. Despite partnerships and development agreements with the world's leading flavor and fragrance companies, it's important to keep your expectations in check. There are several synthetic biology start-ups and organism companies targeting flavor and fragrance molecules that lie outside of Amyris' platform. A few synthetic chemical producers are beginning to develop processes for creating the high-value molecules, too. There is bound to be overlap (and thus competition for Amyris), but then again, novel production systems that offer reliable supply should lead to a global expansion of the market opportunity for each molecule.

A successful launch of patchouli oil in 2014 would add to the developmental flexibility of Amyris and could allow it to develop additional molecules more quickly. However, while successfully producing one molecule out of 22 contracted molecules does not guarantee success across the platform, it would certainly bring the company one step closer to profitability. Investors are still quite some time away from learning if the company will hit its goal of $1 billion in revenue from its current pipeline of molecules (not including tire applications). Whether or not that occurs, I believe there is plenty of room for growth from the base of $15.8 million in product revenue generated in 2013.

Is Amyris poised for incredible growth?
I believe so, but the risks should factor heavily into your decision. If they're too much, perhaps you should lean on the investing wisdom of David Gardner. Just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Maxx Chatsko owns shares of Amyris. Check out his personal portfolio, his CAPS page, his previous writing for The Motley Fool, or his work for SynBioBeta to keep up with developments in the synthetic biology industry.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers