This article is part of our Rising Star Portfolios series. Sean is co-manager of the Dada Portfolio.
I'm taking the plunge, guys. Last week I talked about why I was considering Amyris Biotechnologies (Nasdaq: AMRS ) for the Dada Portfolio. To recap:
- Its very cool technology can transform yeast into microfactories capable of producing almost any biological molecule.
- It's already successfully produced artemisinin, an antimalarial drug.
- It's currently focused on Biofene, an alternative petroleum replacement that Amyris can produce from Brazilian sugarcane
The potential for Amyris's technology is huge. Not only does the company envision Biofene as a "No Compromise" replacement for diesel and jet fuel, but it's also signing deals with Procter & Gamble (NYSE: PG ) and other manufacturers to use Biofene in consumer products. And even beyond that fuel, Amyris has a platform technology with the potential to create many different types of target molecules that may be of value to society.
Oh, the risks!
That said, the perils here are substantial. While the company has grown revenue more than 11-fold in just the past three years, it has also never been profitable. That's not entirely unexpected, considering that this is a relatively early-stage company that's still working out the kinks in commercializing its product. We'd expect to see that figure flip around once Amyris reaches some sort of manufacturing scale in the coming years.
Still, it means that for now, the company's bleeding cash. Since 2007, it has spent almost $200 million. With the recent IPO, Amyris now sits on $259 million in net cash, a decent-sized cushion to sustain the company over the critical next few years.
So why are we buying?
Amyris is targeting 2011 and 2012 as vital milestones in its plans to begin commercially manufacturing its products. We're definitely very early to this story, but we think it's important to get our feet wet. We're looking at this from an almost venture capitalist position. The most we can lose on this position is, well, 100% -- just like any other company. But what's the most we can gain? 300, 400, 500%? That and more are possible as well.
The spectrum of potential outcomes is very wide with this stock. But that's also why we don't plan on initially putting a lot of capital at risk. Our target allocation is just $300, or about 2% of the Dada Portfolio's total investable cash by year's end. For $300, we get essentially a call option on what could be a meteoric stock, as well as a foot in the door to better watch the story and follow the industry.
Is this Foolish, or just plain foolish? Leave us a comment here or on our discussion boards, and let us know what you think.
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