Amyris acknowledges scale-up troubles, abandons cash flow and production targets, raising new capital, changing strategy
In California, Amyris announced major changes to its financing, strategy and near-term production targets, disclosing that it has produced only 1 million liters of biofene to date at three tolling facilities, compared to a 2011 target of 9 million liters originally set in April 2011, and reduced to 1-2 million liters in an update later in the year.
Abandoning previous cash flow, production targets
In other news, the company abandoned its 2012 production target of 40-50 million liters of biofene for 2012, after reconfirming that target last year at the time it dropped its 2011 forecast down to 1-2 million liters. At the time, the company described the reduced 2011 volumes as a reflection of difficulty in start-up that would not affect its 2012 production plan.
Raising more capital
As a result, the company also abandoned its forecast on positive cash flow, and said that, in order to strengthen its finances, it has commenced raising a private equity round, of undisclosed amounts, which it “expect to close with investors who know us well.” The company said that it had also obtained up to $40 million in project finance, of which $10 million was already funded.
Difficulties reaching targeted production yields at scale
In recognizing its production difficulties, Amyris CEO John Melo said that the company had had more difficulty than expected in translating peak yields in the lab to stable and reliable production at scale.
The company said that it had increased its production rates to expected levels, at all three of its contract fermentation sites.
Focus on high-value products; high-volume through JVs
Accordingly, the company said that it had also abandoned plans to directly produce high-volume products, such as fuels, through its own commercial plants, but would focus on production of high-volume products through its joint ventures with Total and Cosan, and would focus its own commercialization efforts on high-value polymers, flavors & fragrances, cosmetics, and consumer products.
Melo said that the company was producing at Tate & Lyle and Antibioticos; he said that the company had had significant operational issues in 2011 at Biomin, but had stabilized that operation by year end. stable at end of 2011 at Biomin.
Abandoning production expansion for now at Antibioticos
In recognizing the operational challenges of translating yields in the lab to commercial-scale production, and the resulting drop in production volumes, and pressure on the company’s cash and tea, Melo said that the company would abandon plans to simultaneously expand production capacity at Antibioticos as well as establishing its new production facility at Paraiso – and instead would focus solely on completing its Paraiso facility.
Melo said that, following completion of the 50 million liter facility at Paraiso, it would focus on completing its 100M liter San Martinho project. Melo confirmed that the company would maintain its contracts for access to feedstock, and described the changes in ramp-up strategy as being conservative and prudent with cash.
Melo, who noted that he is “proud of team’s accomplishment and humbled by the challenges,” said that the company would no longer set production targets, but would instead make quarterly announcement of production volumes achieved.
Analyst Reaction: Cowen & Co, Raymond James
In a generally positive note to investors, Rob Stone and James Medvedeff of Cowen & Co wrote: “The stock will likely be depressed N-T, but we believe the L-T opportunity is unchanged. It has produced 1MM+ liters to date and is delivering to customers. Feedstock supply, collaborations, and Total R&D funding remain in place. By 2013, we believe multi-plant ramp plans could resume.”
A more sanguine Pavel Molchano at Raymond James writes: “While we had previously considered Amyris to have the most rapid timeline to profitability within the peer group, today we are suspending our rating, pending additional details on the 4Q11 call (February 27). We are providing new estimates – though, to be clear, our conviction in these new numbers is very low. Bottom line: We remain positive on Amyris’ positioning in the Gen2 biofuels space, and we don’t think that yesterday’s news permanently condemns its technology platform. That said, it will clearly take time for the growth curve to materialize – and for the stock to get out of its penalty box.”
The Bottom Line
A massive set of changes for the company, which will accordingly be announcing higher losses in 2012 than expected, and presumably in 2011 as well when it announces its full year results later this month. For sure, the changes in strategy are prudent given the company’s situation.
Critics are bound to point out that the company went to the public markets in its IPO without conducting a more thorough demonstration of its technology at sufficient scale, to eliminate the risk of problems of this magnitude happening post-IPO (and after the company had issued targets of 40-50 million liters of production in 2012).
It can be expected that the announcement will cast a pall over companies that are coming to market without demonstrations of the technology at sufficient scale, and could well have a knock-on effect on the valuation of other companies also using advanced fermentation technologies and still going through scale-up.
With Amyris, as with all early stage companies, we re-caution investors as we did in May 2011: “Use this owners guide to measure progress – analysts are using it too, to project value and set target prices. Watch the flow of announcements – is Amyris hitting its targets in terms of market entries, and timelines.”