Bioengineering has been a high potential market for investors since companies like Amyris (AMRS +0.00%) and Solazyme (SZYM +0.00%) went public. But, as you can see below, the road has been tough for investors. Both stocks have languished as losses continued longer than expected and growth never seemed to materialize as planned.
Both companies are trying to right the ship, cutting costs and focusing on high margin products. And now their very survival depends on execution on that new strategy.
Turning around a sinking ship
One of the problems Amyris has had is living up to its own expectations. At the beginning of this year management said it expected $100 million of revenue and through nine months the company had revenue of just $24.3 million. Big revenue inflows from fragrances and personal care products should make the fourth quarter a big one for the company, but it won't come close to hitting its original goal for the year.
That record of overpromising has plagued Amyris and makes big plans for 2016 a little hard to believe. Here are a few key milestones management has pointed out that it hopes to hit next year.
- 2016 cash burn is expected to be down $23 million to $27 million from 2015.
- Collaboration inflows are expected to be over the expected range of $50 million to $60 million in 2016.
- Renewable revenue growth in 2016 is expected to be 50% to 100%.
On top of that, management is expecting product revenue to be up dramatically from 2015. Biossance and industrial products in particular will lead the charge.
|
Demonstrated Annual Sales |
2016 Projection | |
|---|---|---|
|
Biossance |
$1 million |
$5 million-$6 million |
|
Polymers, Solvents, and Industrial Lubricants |
$3 million |
$20 million |
Source: Company earnings call.
If all of those projections are hit, Amyris could be cash flow positive next year, as management expects. But execution hasn't been as anyone in bioengineering has expected or these stocks wouldn't be down as much as they are in the last few years.
Solazyme's turnaround plan
A similar narrative is playing out at Solazyme, where promise has overshadowed performance. Last quarter, product revenue actually fell 21% to $9.1 million. That's the wrong direction for a company hoping to turn around financial operations.
New product partnerships with Unilever, BASF, and Flotek haven't started to flow in yet and products like Algenist and Thrive, where Solazyme is the product company and not just a supplier, are improving but off a very small base.
Management hasn't given 2016 guidance yet, but when an analyst asked if the company would be "stuck in this kind of $10 million to $15 million range" for product revenue the answer wasn't as bullish as most investors would hope. CEO Jonathan Wolfson pointed to 65 projects under way and potential for adoption in personal care and food, but the timeline for both is uncertain.
That leave's Solazyme's only option to cut costs, which it is doing by exiting its Clinton Galva partnership, expecting $12 million to $15 million in savings next year. But it's product execution that will save the company long-term. With losses of $92.2 million on a non-GAAP basis so far this year there needs to be far more revenue growth than cost cutting to break-even.
High potential but high risk
It's easy to see how Amyris and Solazyme have a lot of potential to grow revenues and volumes with engineered products. Both also appear to be at the point where they understand the high margin business model they'll have to use long-term to stay alive.
But neither has a good track record of executing on those growth plans and as a result they burn through more cash than expected and have to sell shares that dilute shareholders. It's a vicious cycle that won't end until both have enough ongoing revenue to fund operations. Hopefully, 2016 is the year that happens, but considering the performance Amyris and Solazyme have hitting their own growth targets I think investors have to make these companies prove their ability to make money before they get too excited about these high potential stocks.
