Synthetic biology pioneer Amyris (NASDAQ:AMRS) hasn't been the most investor-friendly company since its inception. Overpromising on production volumes and underestimating scale-up problems exposed a corporate cost structure that, simply put, could not be supported by a developmental industrial biotech. Investors can still question Amyris' financial standing in 2014, but management has successfully cut costs, dropped expensive third-party manufacturers, produced impactful technological enhancements, and rallied partners around its vision. The company aims to be cash flow positive this year and profitable in 2015 with its sole production facility in Brotas, Brazil.
Despite a giant run-up in shares before the end of 2013 that, by all appearances, was not based on material developments, there are several potential catalysts for investors to look forward to in 2014. A long-awaited joint venture was formed with French energy giant and renewables leader Total (NYSE:TOT), while the first flavor and fragrance molecule for Firmenich SA will be produced this year -- with similar molecules produced for International Flavors & Fragrances to follow.
Continuing to diversify its product mix will decrease potential risk associated with commodity market volatility, but all eyes are focused on the ramp up of Brotas, which will have an annual nameplate capacity of 40 million liters of the renewable hydrocarbon farnesene. The company ended 2013 running Brotas at about 15% capacity (annualized) and splitting farnesene production between renewable diesel, the high-value emollient squalane, and industrial lubricants.
There's a long road ahead before ramp up is completed in 2016, so wouldn't it be great if investors had something else to look forward to in the meantime? Investors may get their wish in 2014 if Amyris announces plans to build an additional biorefinery, although they must realize that (1) a new facility will be expensive to construct and (2) partners are still patiently waiting for production and economic milestones to be achieved at Brotas. Nonetheless, there are three potential partners to watch.
1. Total Amyris Biosolutions JV
First up is Total, which last month joined Amyris in forming the Total Amyris BioSolutions 50/50 joint venture for producing renewable diesel and/or renewable jet fuel. While Total has already invested heavily in Amyris, owning about 18% of the synthetic biology pioneer, it isn't shy about pouring large sums of money into next-generation solar and fuel projects for future growth. For that reason alone I wouldn't rule out the possibility that Amyris' second biorefinery is spawned from the JV, but farnesene production costs ($4 per liter entering 2014) need to be corralled before even premium fuel production (low sulfur diesel and jet fuel) is economical in a built for-purpose facility.
2. Michelin collaboration agreement
In September 2011, Amyris initiated a collaboration agreement with Michelin to develop a biological pathway for the production of renewable isoprene or isoprenol, also called natural rubber, which is a major component of automobile tires. Successful development and commercialization would result in the second building block molecule for Amyris' far-reaching platform, in addition to farnesene.
Amyris has not updated investors on the collaboration agreement since announcing full-year results for 2012, but the clock is ticking. The deal with Michelin terminates in March 2015, which makes this year pretty important for the future of the partnership. Any announcement of its successful completion should be accompanied by the formation of a more mature partnership or joint venture. Moreover, with Brotas focused on delivering economic production of the more versatile farnesene molecule, there wouldn't seem to be room for isoprene production at the facility. While Amyris is working with Japanese chemical giant Kuraray and major tire manufacturers to produce synthetic rubber from farnesene, a second facility will be required if isoprene production is pursued.
3. SMA Indústria Química JV
There are some big obstacles facing a production facility built with Total or Michelin, which brings investors to SMA, a seemingly forgotten joint venture formed with sugarcane supplier Usina Sao Martinho in 2010. The pair actually began construction on a biorefinery, but halted plans when Amyris started encountering its host of financial and production problems in early 2012. At last disclosure the JV was negotiating a deadline extension for commencement of commercial operations to 2016, although an agreement is not guaranteed.
While both parties want to ensure Brotas continues its trajectory toward profitable production of farnesene before putting the hard hats back on, ramping to half of nameplate capacity by the end of 2014 (the unofficial target) could tip the scale in favor of restarting construction. Given the advanced stages of development for the biorefinery and the fact that it would produce farnesene for a wide range of applications, it seems reasonable that the SMA facility would be the next capacity addition for Amyris.
An announcement of plans to build an additional biorefinery with a top partner would be a game changer for the future of Amyris and welcome news for investors. As more products and building block molecules are successfully commercialized, the need for additional production capacity will surely grow. Unfortunately, the company will need help funding daily operations in 2014 before it can devote resources to building its next biorefinery. It also seems as though management has exhausted the easiest routes for financing.
But if Amyris can get creative and leverage technical milestones expected to be achieved this year at the bargaining table, then funding capacity expansions may not be that wild of an idea. After all, additional capacity would enable patient partners and institutional investors to reap the benefits of the company's synthetic biology platform sooner than possible with Brotas alone. I continue to believe in the long-term potential of Amyris, but investors should realize that share dilution will be a reality for the foreseeable future.