What: Shares of Amyris Inc. (NASDAQ:AMRS) jumped as much as 34% in early trading today after announcing a major supply agreement. But by midday on Wall Street, shares had settled to a more muted 7% gain.
So what: Amyris said it has signed a five-year Biofene supply agreement with an unnamed "global nutraceuticals company." This replaces a one-year purchase agreement announced earlier this year and is expected to add $9 million to 2016 revenue with minimum purchase commitments in subsequent years. In total, the agreement is expected to be worth more than $100 million in revenue.
Now what: These kind of agreements should be what grows Amyris' business long term and that's what investors were buying into this morning. But the company has also made promising statements about growth in the past that haven't come true.
At the end of the day, I think investors should view this announcement as an incremental positive for Amyris. But until the company proves that these contracts will drive real revenue and get to cash flow breakeven, I would be leery about betting too big on a recovery in the stock. The growth story in industrial biosciences is phenomenal, but until that story starts becoming a reality, it's still a high-risk investment.
Travis Hoium owns shares of Amyris Inc. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.