When Wall Street learned in early May that Amyris (AMRS -16.48%) had successfully walked another tightrope and paid off $87 million in convertible debt, shares of the synthetic biology pioneer soared despite the fact that it needs significant new capital to keep the lights on. When the company followed up that news by teasing a new consumer brand in the high-value personal-care genre and two new board members with experience growing such brands, shareholders could hear the sound of crickets if they listened closely enough. Analysts might have that backwards.
To be fair, the reactions on Wall Street aren't difficult to interpret. Short-sellers were forced to cover their positions when Amyris strung together multiple last-minute transactions to avoid a barrage of dilution. Meanwhile, management hasn't coherently communicated the importance of consumer brands for the business.
That said, the recent announcement that the Pipette baby brand of personal-care products will launch in August 2019 suggests an opportunity is forming to clearly define the long-term strategy. Will management seize it?
The boring, but profitable, world of consumer brands
Industrial biotech companies rely on genetic engineering and fermentation to manufacture chemicals ranging from ethanol to animal-free protein to cosmetics. Most have historically decided to hitch their business models on business-to-business (B2B) supply agreements, but that hasn't worked out very well. Despite the lack of success, many keep trying, determined to find the chemical ingredients that will make the business model work. Perhaps cultured cannabinoids will be the products investors have been waiting for, or maybe it'll be animal-free protein.
The irony to the endless search for products that will allow highly engineered microbes to live up to the hype sooner rather than later is that consumer brands have already demonstrated a high rate of success. Solazyme might have been the first with its Algenist cosmetic brand, which launched in 2011 and grew annual sales to $24.4 million -- at a gross margin of 68% -- by the end of 2014.
It eventually sold the assets to go all in on its large-scale manufacturing efforts in Brazil and went bankrupt shortly thereafter. But companies are increasingly, albeit slowly, learning that Solazyme was onto something.
Amyris eventually followed in the footsteps of its peer, diverting some of its B2B moisturizer ingredient supply into its own portfolio of cosmetic products under the Biossance brand in 2015. Today the products are sold in over 1,000 retail locations in the Americas and directly to consumers through the brand's website.
Biossance products have won multiple industry awards and have gained traction among consumers drawn to simple, natural ingredients and sustainable packaging. Case in point: The only other sources of the brand's flagship ingredient, the moisturizer squalane, are blue shark livers and ultra-refined olive oil.
Will "clean beauty" help Amyris turn itself around?
Unfortunately, investors don't know much about the financial performance of Biossance, although stitching together several public statements provides some clues. If the brand achieved the 300% year-over-year growth expected in 2018, then it had annual revenue of at least $6 million. That's far behind the level achieved by Algenist at the three-year mark, but with an expanded retail footprint in place, Amyris expects the brand to continue growing at a healthy clip while expanding gross margins.
Equally important, Amyris has signaled it will be increasing investments in its personal-care consumer brands. The Pipette baby brand will launch in the second half of 2019, while products aimed vaguely at "men" and "hair care" could hit the market in 2020. The business also added two entrepreneurs with experience building consumer brands, including 1-800-Flowers, to its board of directors in late May. Two board members focused on bulk chemical markets stepped down to make room.
Considering Amyris has never consistently manufactured a full lineup of its B2B chemicals at a profitable margin and has a troubling history of overpromising and underdelivering on its B2B portfolio, investors should hope that management seizes the opportunity to focus significantly more bandwidth on consumer brands -- even if that means downsizing elsewhere. Recent moves are a promising start, but there's a long way to go, especially after the business reported an operating loss of $120 million in 2018.