It was only a matter of time before activist groups came knocking on synthetic biology's door to complain about the assumed similarities to biotech crops produced by companies such as Monsanto (NYSE: MON ) . The host organisms of each platform are, after all, genetically modified organisms. An initial wave of misinformation from activist groups targeted the food ingredients manufacturer Evolva, but went largely unnoticed by the general public or investing community. The company's process for creating vanillin was claimed to potentially harbor unknown health risks stemming from the production process (even though all genetic material is removed from the final product, which is identical to vanillin grown through agricultural means), to be unsustainable (even though 95% of vanillin sold commercially is synthesized from petroleum), and to be unnatural (though if creating something from a living thing isn't natural, then I don't know what is!). Now, activist groups such as ETC Group, Friends of the Earth, Food & Water Watch, Organic Consumers Association, and others have thrown their fury in a different direction.
Renewable oils manufacturer Solazyme (NASDAQ: SZYM ) and one of its customers, Ecover, the owner of the Method cleaning brand, were attacked with a host of claims similar to those slung at Evolva. The production process was claimed to potentially harbor unknown health risks (again, all genetic material is removed from the final product), to be largely unregulated (it's heavily regulated by multiple institutions in the United States and Brazil), to be spawned from a scary process in a laboratory (meaning industrial fermentation), and to be unsustainable (the algal oil in question is more sustainable and of higher quality than the palm-derived oil it replaces).
The company's feedstock supplier was even indirectly caught in the fearmongering, even though the Orinduiva mill supplying Solazyme's Moema, Brazil, facility is certified by Bonsucro, a third-party organization sponsored by the World Wildlife Fund that promotes sustainable sourcing and harvesting of sugarcane. Unfortunately, this is surely just the beginning of the attack on synthetic biology. What does it mean for investors? Allow me to provide some background information, which will lay the foundation for an in-depth myth-busting article early next week that corrects the misinformation.
Several events have occurred in the past month that together resulted in the situation today. The biggest hit to Solazyme came from an article published in The New York Times questioning the use of "biofuels tools in consumer products" (an article that has since had one correction posted). Several more blog posts on other activist websites have been published spreading the misinformation I've mentioned about Ecover's laundry detergent and Solazyme's algal oils (I've reached out to all authors to correct errors and offer an open dialogue, but no one has accepted my offer).
Fast-forward one month. Activist groups sent an open letter to Ecover's CEO demanding that the company discontinue its use of renewable algal oils produced by Solazyme, going so far as to call them a "false solution" to sustainability.
Organizations that support the responsible use of biotechnology have responded to the misinformation with several posts, but this is surely only the beginning. Like it or not, Solazyme and synthetic biology will fall victim to the same wild accusations flung at Monsanto. I've explained why blanket terms, such as GMOs, simplify the discussion regarding the use of modern biotechnology tools related to biotech crops and therefore impede the consumer's ability to make a fact-based decision. Be wary of the same grouping of multiple technologies in the conversation regarding synthetic biology.
What does it mean for investors?
This is something investors should be aware of, but I don't think fearmongering will have much of an effect on Solazyme. Facts tend to win in the end. From a developmental standpoint, sugar producers in Brazil, the United States, China, and Europe have expressed interest in entering higher-value markets. Synthetic biology allows feedstock suppliers to convert sugar, a commodity, into flavors, fragrances, cosmetics, high-value oils, and other more valuable products. That bodes well for continued, long-term growth at Solazyme once it proves it can reliably produce at commercial scale. In fact, the company is already in talks with potential feedstock partners that represent an annual renewable oil capacity of over 1 million MT, which represents an estimated $2 billion in annual revenue.
In the near term, Solazyme is on track to have 122,000 metric tons of annual renewable oil capacity by the end of 2015, compared with less than 2,000 MT at the beginning of 2014. That will result in an explosion of revenue (although it will be less than what Wall Street expects at the moment) and the ability to further validate its technology. The company may not be profitable until the end of 2015 on a quarterly basis, and not until 2016 on an annual basis, but I believe long-term investors will be rewarded handsomely.
To illustrate the importance and value of Solazyme's approach and how the multiple industries it serves will respond, simply consult the long-term growth chart for Monsanto, which has received much harsher criticism to date.
Fearmongering is no match for creating real, tangible value -- something that Solazyme and synthetic biology are poised to deliver. Better yet, the same synthetic biology platform can serve multiple, unrelated markets that greatly exceed the value of the agricultural industry. Monsanto's growth may be an underestimation of what awaits far-reaching companies such as Solazyme.
Foolish bottom line
Are there valid risks and concerns with synthetic biology? Absolutely, but risks and concerns are not something that affect only synthetic biology. All technologies come with risks and rewards. Many institutions exist to protect consumers by mitigating those risks (they can never be completely eliminated) and are regulating the use of Solazyme's technology as we speak. The industry is open to discussing more modern regulations that adequately mitigate these risks, but activist groups aren't interested in anything that allows safe biotech products onto the market.
This is a complicated issue, but it doesn't have to be. Early next week, I'll debunk myths reported by activist groups accusing Solazyme, its feedstock supplier, and Ecover of offering unsustainable or unsafe products. The takeaway is that Solazyme investors shouldn't be affected by the actions of activist groups.
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