What happened
Shares of synthetic biology pioneer Amyris (AMRS) soared over 28% today after the company announced fourth-quarter and full-year 2017 earnings. The company reported 113% revenue growth in 2017 compared to 2016, guided for up to $195 million in total revenue for 2018, and appeared to be gaining traction with its new business model that relies heavily on value-sharing agreements with customers.
However, the devil is in the details. As of 12:51 p.m. EDT, the stock had settled to a 19.7% gain.
Image source: Getty Images.
So what
Amyris has been plagued by poor management, high manufacturing costs, excessive dilution, and a lack of traction for almost every product it's tried to launch. It simply hasn't been a good investment. But Mr. Market thinks the current turnaround strategy could yield different results, as evidenced by today's stock jump and a slow and steady trek higher in the last year. Is this time really different?
There are some encouraging numbers in the report of full-year 2017 operations, but there are important details investors shouldn't overlook, either.
|
Metric |
2017 |
2016 |
Change |
|---|---|---|---|
|
Total revenue |
$143.4 million |
$67.2 million |
114% |
|
Licenses and royalties revenue |
$64.5 million |
$15.8 million |
308% |
|
Grant and collaboration revenue |
$36.6 million |
$25.8 million |
42% |
|
Product revenue |
$42.4 million |
$25.5 million |
66% |
|
Product gross profit |
($21.5 million) |
($31.2 million) |
N/A |
|
Net income |
($98.4 million) |
($97.3 million) |
N/A |
Data source: Amyris press release.
Full-year 2017 revenue rocketed 113% higher year over year, but that was only made possible by massive contributions from licenses and royalties revenue. Over time, this revenue category will report revenue received from value-share agreements. They're essentially profit-sharing arrangements allowing Amyris to capture value from the downstream sales of customers' products that contain ingredients supplied by the industrial biotech.
However, that's not what happened last year. Most of the licenses and royalties revenue reported in 2017 is non-recurring and came from one partner, DSM. Roughly $57 million of the total came in the fourth quarter alone in two separate transactions: an up-front license fee of $27.5 million and the sale of Amyris' lone manufacturing facility for $30.7 million -- not from actual product sales.
Product revenue did grow a healthy 66% from 2016 to 2017. More importantly, gross product margin trended in the right direction in that span thanks to better inventory management and a healthier product mix. The key word there is "trended." Unfortunately, Amyris spent $1.55 to generate every $1 in product revenue in 2017. That's simply not sustainable and shows that the industrial biotech pioneer is still struggling to corral manufacturing costs, although high-margin sales from its own personal care brand, Biossance, should help to improve gross margin moving forward.
Now what
At this point Wall Street is just happy to see any signs of life and progress at Amyris, which has struggled to deliver against its goals for most of its time in the market. Finally meeting its ambitious revenue guidance (a healthy beat, in fact) was seen as a positive development.
That said, the company was only able to meet guidance through two transactions that won't happen again in 2018. And the fact that management attempted to pass off those transactions as "value-share" agreements to argue that its business plan is gaining traction shouldn't sit well with investors. While the value-share business model is now becoming the norm for analytical companies in the field (also called "organism engineering" companies), it's still largely unproven and comes in a few different flavors. Amyris' may prove bitter when all is said and done.
