Should Amyris Investors Fear Intrexon's Farnesene?

When a company commercializes a building-block molecule with dozens, if not hundreds, of potential commercial uses, competition is bound to arrive sooner or later. When it comes to farnesene production, that competition may show up sooner than Amyris (NASDAQ: AMRS  ) investors would like. Synthetic biology leader Intrexon (NYSE: XON  ) recently announced production of farnesene from methane in lab demonstrations. The ultimate goal is to capitalize on the country's growing stockpiles of cheap natural gas and efficient next-generation industrial processes for separating syngas to develop an alternative carbon source to sugar's current dominance as a feedstock.

Competition and molecular overlap is cropping up across the industrial biotechnology sector of the synthetic biology industry. While molecules and products may be considered more valuable when lacking quality competition, some markets are so large that multiple suppliers -- and partners such as Total (NYSE: TOT  ) -- will be necessary to ensure synthetic biology reaches its full potential. Should Amyris investors fear Intrexon?

Farnesene's market potential is a big deal
Amyris has spent hundreds of millions of dollars to develop and commercialize molecules in the isoprenoid pathway. That includes anti-malarial drug compound artemisinic acid; isoprene (natural rubber) being developed with Michelin; muconic acid; numerous flavor, fragrance, and cosmetic molecules; and farnesene.

As it turns out, there are many uses for the 15 carbon atoms in one farnesene molecule. For instance, Amyris and Total can convert farnesene into farnesane for use in diesel and jet fuel, while other partners can use it to develop industrial lubricants. Amyris can convert farnesene into cosmetic molecules such as the high-value molecule squalane, which is essentially two farnesene molecules bonded together. Flavors and fragrances can even be derived from farnesene -- something that Japanese flavor and fragrance company Takasago seeks to do.

Nearly all of the performance materials, cosmetics, fuels, and lubricant categories above are derived from farnesene. Source: Amyris.

Therefore, it should be no surprise that other companies are trying to produce farnesene. Amyris has bolted to a big lead in development, but Intrexon thinks it can serve the markets with a radically different approach.

Intrexon's bold plans
In April Intrexon announced the creation of Intrexon Energy Partners, or IEP, to develop and commercialize high-value fuels and chemicals from natural-gas feedstocks (although Intrexon only needs the methane component). How do you do that? The company is engineering a suite of methanotrophs, or organisms that consume methane, to convert methane into higher-value chemicals. Isobutanol was the first commercial target announced, but investors can now add farnesene to the list.

I'm not convinced the economics support using natural gas as a feedstock (its price has increased 20% in the last year alone!), but production could be optimized biologically or by instead using syngas from industrial processes. Producing it at costs economical for fuel production will be especially challenging. Consider that Amyris and Total produce farnesene at a cost just south of $3.50 per liter. While that number will fall considerably as strains are improved with Total's deep pockets and larger facilities are utilized, commodity fuel production will remain a challenge for the foreseeable future. Other applications, such as lubricants, rubber additives, and cosmetics, can be profitably produced today.

Intrexon could utilize cheap methane from industrial syngas just as easily as that from natural gas. Source: UOP Honeywell.

However, Intrexon isn't necessarily targeting Amyris. When Amyris is courting sugar producers to sweeten the prospects of its commercial deployment and add production capacity, Intrexon will be convincing natural-gas suppliers and syngas producers of the benefits of its platform. Sure, the two companies will share the intermediate and end markets for farnesene, but they won't compete for carbon -- the most important input and the largest determination of cost of a final product. Instead, Intrexon will compete with less efficient gas-to-liquid processes.

What does it mean for Amyris?
If Intrexon does eventually commercialize a methanotrophic platform for producing farnesene from methane, I don't see it having any effect on the development plans of Amyris and Total. While the two companies are targeting the same molecule, they are aiming for drastically different sources of carbon. Both will sell farnesene into the same intermediate and end markets, but it is much too early to begin comparing production costs: Amyris has yet to optimize its process or move to a larger facility and Intrexon is still at lab scale. It is also worth considering that multiple farnesene producers makes for a bigger, more developed market, which helps all players. For now, this is something investors will want to keep an eye on, but it shouldn't affect your investing decision just yet. 

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3016573, ~/Articles/ArticleHandler.aspx, 8/31/2015 11:59:57 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Maxx Chatsko

Maxx has been a contributor to since 2013. He's currently a graduate student at Carnegie Mellon University merging synthetic biology with materials science & engineering. His primary coverage for TMF includes renewable energy, renewable fuels, and synthetic biology. Follow him on Twitter to keep pace with developments with engineering biology.

Today's Market

updated 2 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 3:59 PM
AMRS $1.81 Up +0.12 +7.10%
TOT $46.40 Up +0.31 +0.67%
Total (ADR) CAPS Rating: *****
XON $44.50 Down -2.25 -4.81%