Many companies with a capacity to do so have adapted operations to help respond to the coronavirus pandemic. Fuel cell manufacturer Bloom Energy, for example, has worked with the State of California to refurbish mechanical ventilators. Sporting goods company Fanatics took fabric initially meant for official game jerseys for two baseball teams and will instead use it to manufacture hospital gowns and face masks, which it will provide at no cost.
Synthetic biology pioneer Amyris (NASDAQ:AMRS) has stepped up, too. The company has started selling a new hand sanitizer through its Pipette brand of baby care products. It's also pledged to donate products to hospitals and companies working to confront America's health crisis, including Bloom Energy.
While investors should applaud the company for prioritizing the public good, they still need to prioritize more tangible business metrics, such as profit margins.
How is Amyris responding to the coronavirus pandemic?
Amyris was one of the first companies to commercialize a synthetic biology platform. The company leverages high-throughput genetic engineering, machine learning, and robotics to engineer microbes capable of producing chemicals. Today, the main products are cosmetic ingredients, food ingredients, and niche flavors and fragrances.
On March 26, Amyris announced the launch of a new hand sanitizer aimed at addressing shortfalls caused by surging demand due to the pandemic. An estimated 30,000 units of unspecified size were expected to be available in the first weeks of production. By March 31, the company said it had $1.5 million in sales of the product and received orders for over 70,000 units of 8-ounce bottles (approximately 16,500 liters), which remain the only product size available as of April 21.
The synthetic biology pioneer pledged to donate 21,000 units of 32-ounce bottles (approximately 19,800 liters) to frontline healthcare workers. Amyris has also pledged to not price its hand sanitizer at a premium. Currently available for $5 per 8-ounce bottle, that's a reasonable price for a sanitizer from a personal care brand, although mass-market brands are sold for significantly less per ounce.
Given that most of the company's success to date has come from cosmetics and personal care markets, a hand sanitizer makes sense. But investors need to be realistic about the likely impact on the business.
No margin, no mission
It's admirable that Amyris has launched a hand sanitizer and moved to prioritize the public good, but there's a saying among public benefit companies: "No margin, no mission." The phrase is meant to serve as a reminder that money-losing companies aren't well positioned to deliver on their missions for the long haul.
Amyris isn't a public benefit company, but it has struggled to generate profits and positive returns for shareholders. The business generated a cumulative operating loss of $980 million from 2012 to 2019. The small-cap stock lost 99% of its value in that span. Last year, the company spent $1.27 to generate every $1 in product revenue.
While Amyris has pledged to increase production to 1 million units per month, it's not clear what volume that represents. Assuming an average unit sale rises to 20 ounces, that would be approximately 591,000 liters per month, which could represent perhaps $12 million in gross product revenue.
That sounds great on paper. But investors need to remain grounded. Amyris currently uses contract manufacturing for production (representing a cost) and has struggled to generate positive margins in the past. Management also has a history of overpromising and underdelivering on production and revenue guidance.
Can Amyris deliver that volume of hand sanitizer? Will it prove sustainable for the long haul? Can the business buck the trend of money-losing product sales with hand sanitizer?
It's all possible, but investors need to prioritize the health of the business before getting too carried away with claims about the market success of the company's sanitizer. Simply put, there's a long way to go before Amyris can generate sustainable and consistent operating profits. High-margin sales of hand sanitizer alone might fall short of those expectations.