Amyris: Out of the doghouse, but can the stock rally continue?

February 27, 2014 |

AmyrisAmyris’ recovery from the doghouse of 2012 is nearly complete, but analysts are cautioning that the huge run-up in the share price may reflect some irrational exuberance.

We investigate what’s up with the Barons of Biofene.

If you are a devotee of the Biofuels Digest Index, you’ll note that yesterday it reached a 28-month high of 76.27 — with Amyris jumping 26.39 percent in a single day to $4.55. Then up again in today’s trading to $4.79.

What exactly is going on at Amyris — and what does that mean for the advanced biofuels and chemicals sector? We’ll look at the results.

The Q4 results that sparked a gigantic two-day rally in the stock

The company’s headline in their Q4 and year-end results was “Record Renewable Product Sales, Continued Lower Operating Costs, and Strong Collaboration Inflows.”

Here’s the data: revenues for Q4 of $15.4M, compared to $5.9M for Q4 2012. Cost of products sold was $12.1M, compared with $5.4M for Q4 2012. Net loss (on a non-GAAP basis), was $19.6M compared to a loss of $26.1M in Q4 2012.

For 2013, revenues for 2013 of $41.1M, compared to $73.7M for 2012. Cost of products sold was $12.1M, compared with $5.4M for 2012. Net loss (on a non-GAAP basis), was $130.5M compared to a loss of $205.1M in 2012.

Business highlights for 2013

Increased renewable product revenues 46% to $15.8 million on a GAAP basis. The increase was due to continued sales growth for Neossance Squalane globally and Diesel de Cana in Brazil. Completed first year of operations at the farnesene production facility in Brotas, São Paulo, Brazil. Doubled total farnesene volume produced compared to 2012 and approached the $4 per liter farnesene production cash cost target. Produced the first renewable fragrance oil for Firmenich.

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Outlook for 2014

The company is projecting “total cash inflows”, which include revenues from renewable product sales and inflows from collaborations, in the range of $100 to $115 million for 2014 — and to double sales of renewable products over 2013 and achieve positive cash margin from products in the range of $10 to $15 million in 2014 and (b) to maintain collaboration inflows in the range of $60 to $70 million.

Amyris’ take

“In 2013, we proved that our technology can produce and we can sell multiple renewable hydrocarbon molecules at industrial scale. We successfully scaled and operated our farnesene plant and shipped our first batches of a new fragrance oil, our second commercial molecule. We achieved a nearly 50% increase in renewable product revenues, significantly improved our adjusted gross margin, and continued to validate the strength of our research and development pipeline with funding from our collaboration partners,” said John Melo, Amyris President & CEO.

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“Looking ahead, our robust collaboration and product pipeline, continued production cost improvements, and strong demand from our customers for our high performance products underpin our plans to achieve our targets of becoming cash flow positive from operations during 2014 and profitable during 2015,” Melo concluded.

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The analysts’ take

Pavel Molchanov, Raymond James:

After a period of retooling while in the “overpromise and underdeliver” penalty box, 2013 was Amyris’ first year with operations truly in commercial mode, and the current outlook for 2014 is encouraging. There is visible commercialization progress, but cash burn remains high, and reliance on R&D revenue makes quarterly results very choppy.

Our first take on 2014: steady as she goes. The 50 million liter Brotas plant in Brazil made its first farnesene shipment in 1Q13 and is running with no major mishaps, though production ramp-up has been slower than expected. Recall, the initial 2013 sales guidance (last May) was $30-40 million, reduced in August to $25-30 million, and again in November to $19-22 million. We continue to project cash margin turning positive in 1H14, followed by GAAP gross margin in 2H14.

The question mark is Total. Like us, many Amyris investors watched with curiosity as the stock spiked up 87% in the second half of December, before giving back most of those gains year-to-date. The December 5 news about the long-awaited finalization of the fuels JV with Total seems to have played a role too. Now comes the hard part.

Valuation. DCF value of $3.84/share. The shares are currently at 94% of DCF, and given the slim near-term visibility on financial metrics, we wouldn’t be buyers.

Rob Stone and James Medvedeff at Cowen & Co:

The Q4:13 loss (non-GAAP) was 31% wider than St. on 17% lower revenue. We adjust estimates modestly, and see less cash burn on higher-ASP niche products. However, a long road to profits, potential dilution from recent financings, and large partner share of the early economics may cap the shares.

Plant Operating Metrics Appear Healthy. Brotas is reportedly running at metrics similar to the lab; a second generation strain is producing above the theoretical maximum of the prior strain. Cash cost/liter was reduced from $12 at the start of 2013 to near $4.00 at year end, with best runs as low as $3.50. It is producing two molecules: farnesene with six derivative products, and a flavor/fragrance molecule.

Strong Presence in Hi-Value Niches. AMRS has achieved an 18% share in squalane, and inclusion in over 300 brands, some with multiple SKUs. The first F&F molecule (with Firmeniche) slipped from Q4 but has now shipped. We believe five partners are currently working on as many as 22 F&F molecules.

We upgrade to Market Perform (2) vs. Underperform (3) and raise our price target to $3.50 from $3.00.

Mike Ritzenthaler, Piper Jaffray

Approximately half of both the product sales and collaboration funding included in the 2014 targets and implied in the cash flow positive inflection are firm – which exposes the story to disappointments should the year not play out as management has forecasted. Nonetheless, we are encouraged by the success on the technology and liquidity fronts, but at the same time we hesitate to fully endorse the ramp at this point given substantial gaps that have materialized in the past. We are raising our price target $3 (from $2.50).

The company has demonstrated their ability to improve the technology throughout the year as product revenue ramped sequentially and operating expenses continued to show the effect of cost reduction efforts. This sets the stage for 2014: adjusted EBITDA positive in the latter part of the year and profitability in 2015.

Solidifying additional commercial relationships with new and existing partners is a key aspect of the Amyris story. AMRS is currently working with select partners in flavors and fragrances, squalane, and lubricants. Sales of renewable products are expected to be ~$40-45 million in 2014, about half of which has good visibility.

Maintain Neutral rating, raising target to $3.

The product news background

In April, International Flavors & Fragrances and Amyris announced a collaboration to develop and commercialize a specific set of renewable fragrance ingredients. Under the terms of the multi-year agreement, IFF and Amyris will jointly develop a source of key fragrance ingredients.

IFF will have exclusive rights to these renewable fragrance ingredients for applications in the flavors and fragrances field, and Amyris will have exclusive rights in other fields. IFF and Amyris will share in the economic value derived from these ingredients.

In December, São Paulo will be operating 400 city buses using Amyris Renewable Diesel, as the company continues to diversify its portfolio to include everything from biodiesel to fragrance oil. The program will also include a pilot operation in 2014 to use 100% Amyris Renewable Diesel in several city buses.

Buses in São Paulo are usually Mercedes-Benz, MAN, or Volvo and Amyris continues to work with each of the companies to expand their commercial potential. The city has a goal of 100% renewable fuels in public transportation while reducing air pollution.

Also in December, Amyris and Total announced the formation of Total Amyris BioSolutions B.V., a 50-50 joint venture that now holds exclusive rights and a license under Amyris’s intellectual property to produce and market renewable diesel and jet fuel from Amyris’s renewable farnesene. Amyris also plans to initiate sales of renewable jet fuel in Brazil once it achieves ASTM validation.

More background

Amyris: Can their renewable jet fuel ever be affordable? 

The Digest’s Take

A Biofuels Digest’s 2012 Special Editor’s Award went to Amyris, for comeback of the year. At the time, we wrote: “By now, most of the “smart set” that found itself excited about Amyris, and about advanced synthetic biofuels during the IPO fever, have moved on. They read Dan Grushkin’s “The Rise And Fall Of The Company That Was Going To Have Us All Using Biofuels” in Fast Company, wrote off Amyris and possibly the entire sector, and presumably migrated their enthusiasm to low-cost natural gas, battery technology, or tablet computers.”

But the real news out of Amyris is the company has successfull launched has successfully begun production of biofene, (renewable farnesene) at its 50 million liter industrial fermentation facility in Paraiso, Brazil. It’s a huge step in the road back to the center stage — perhaps, even, the dizzying prices that the company’s stock once commanded. If the” rise of Amyris” story was oversold, we think the “fall of Amyris” story is wildly premature.

So, we’re bullish on Amyris, which was our #1 Hottest Company in Bioenergy back in 2010. But we do look at the stock price of $4.79 and wonder if investor’s enthusiasm is getting ahead of the story, again.

Bottom line: it’ll take a long time for Amyris to really become the player it can be — but they’re making good progress again.

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