Baseball, the Trade Deadline, and the Industrial Bioeconomy

May 16, 2016 |

BD TS 051716 smEvery July in American baseball a quiet shake-up occurs around what’s known as the trade deadline.  Right at the trade deadline, players rosters come under the microscope. Are we getting enough home runs from the right fielder? Could we find a cheaper options for first base?

At that time, some teams are in the hunt for the World Series; they’re buyers. Ready to add high-impact, high-reward players to the roster — with big payoffs for teams that can put runs on the board and pitch shutouts down the stretch.

Some teams are sellers. They reduce costs, go lean, and hunker down in a case of “wait’ll next year”.

In industrial biotechnology, the calendar tells us it’s May but it might as well be July, because we’re seeing much of the same thing. A whole bunch of companies shaking up their product rosters to chase higher value markets, while in the “bread and butter” markets like fuels and commodity chemicals, it’s more of a case of going lean, lightweighting the cost structure, pivoting to lower-cost materials, and a case of “wait’ll next year” when oil prices are expected to recover or new opportunities emerge in sectors from proteins to pharma.

Pivot, pivot, pivot, pivot — that’s the tale we see in the quarterly results just announced by Gevo, Dyadic, Aemetis and Amyris.

Hunker down? More or less, that’s Gevo and Dyadic. Dyadic sold off its industrial biotechnology platform to DuPont for $75M, then licensed it back for a proposed entry into pharma biosimilars we expect to hear more and more and more about as the year progresses. Meanwhile, the company’s gone debt-free and is sitting on a $68M pile of cash.

Over at Gevo, hunker down takes the form of producing mostly ethanol while leaning the cost structure for producing isobutanol, and making hydrocarbons down in Texas at demo-scale. The company has big plans for marine and aviation fuels based on isobutanol, and hydrocarbons such as p-xylene — but it’s not going to be a big financial story this year.

Bulk up. Meanwhile, Aemetis and Amyris are pivoting sharply towards higher-value markets, investing to chase the big paydays in cellulosic fuels and higher-value farnesene applications, respectively. Aemetis has been in 1st generation ethanol and India-based biodiesel, now moving into cellulosic ethanol with the acquisition of Edeniq — and ,licenses for aviation fuel with ARA and for waste-carbon fuels via a LanzaTech license.

And then, there’s Amyris, where they have repositioned farnesene more towards the personal care and health markets in the past year. The payoff? Amyris says they’ve raised enough capital to be self-sufficient on a go forward basis — and they expect to cross the $100 million annual sales volume threshold this year.

At Gevo

Gevo reported a Q1 loss of $3.6 million, compared with $7.3 million for Q1 2015, on revenues of $6.3M.. Revemues were up 6% over Q1 2015, primarily on the ethanol side. Gevo ended the first quarter with cash and cash equivalents of $8.7 million.

Resuming isobutanol shipping. However, the production highlight was the shipment of the first railcar of finished isobutanol since the restart of production of isobutanol in March, following completion of the capital improvement projects undertaken at Luverne to decrease the cost of isobutanol production.  Since March, Gevo has produced approximately 50 thousand gallons of isobutanol. In addition, Gevo’s iDGs, or the distiller grains produced as part of the isobutanol process, are being blended with the distiller grains coming from the ethanol side of the plant, and being sold on par with traditional ethanol distiller grains.

“Our isobutanol production guidance remains on track in terms of gallons,” said Gevo CEO Pat Gruber.

The railcar is being sent to a terminal owned by CW Petroleum Corp. in Dayton, TX, where it is expected to be delivered to retailers throughout Texas and sold primarily for marine and off-road specialty gasoline blendstock applications.

Alaska test. Gevo also announced that Alaska Airlines is scheduled to fly the first-ever commercial airline flight using Gevo’s renewable alcohol to jet fuel (ATJ) in the first half of June 2016.  The specific flight route is still being determined, however it is anticipated that the flight will depart from Alaska Airlines’ hub in Seattle–Tacoma International Airport. This follows the news announced in April that ASTM International had completed its process of approving a revision of ASTM D7566 (Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons) to include alcohol to jet synthetic paraffinic kerosene (ATJ-SPK) derived from renewable isobutanol.

At Dyadic

Dyadic reported a net loss of $0.9M on revenues of $0.1M. Revenue primarily reflects two ongoing R&D biopharmaceutical projects, Sanofi and ZAPI, as Dyadic’s focus shifts to leveraging C1 technology to develop and manufacture biopharmaceuticals. The company reported “ongoing discussions with several large and small biotech and pharmaceutical companies working to identify how our C1 technology can add value to their research and commercial plans” and “internally funded C1 research programs to express insulin and ranibizumab, a biosimilar version of Lucentis”.

In Q1 the company received a $2.1 Million Settlement, in favor of the Company, with one of the two remaining defendants in connection with its ongoing professional liability litigation, and reported cash and cash equivalents of $62.6 million as of March 31, 2016 which does not include  an additional $9.5M in escrowed funds from the DuPont transaction and proceeds from the settlements.

Dyadic CEO Mark Emalfarb said that “We are seeing greater interest in the potential of our C1 technology than initially anticipated at this stage of C1’s development for biopharmaceutical applications. We are excited about the many areas in which we believe we potentially can apply the C1 technology platform to make a significant contribution in helping to bring biologic vaccines and drugs to market faster, in greater volumes, at lower cost and with new properties to drug developers and manufacturers. We have a strong balance sheet, we are debt free, and best of all, we believe we have the potential to refine C1 to change the game on how biologic vaccines and drugs are developed, manufactured and perform.”

At Aemetis

Aemetis reported a net loss of $5.1M for Q1 2016, compared to $8.6 million for Q1 2015, on Q1 2016 revenues of $33.3M compared to $34.7M for Q1 2015. Adjusted Q1 EBITDA was $0.24M. Gross margin for the first quarter of 2016 was $2.1 million, compared to negative gross margin of $228 thousand during the first quarter of 2015.  The increase in gross margin was primarily attributable to the lower price of feedstock compared to the same period of the prior year.

The major highlight is the expected close in Q2 on its acquisition of Edeniq, a proven cellulosic ethanol technology company with about 30 installations operating at six ethanol plants.  In 2015, Edeniq generated about $20 million in revenues and about $6 million of EBITDA. Cash at the end of the first quarter of 2016 was $325,000 compared to $283,000 at the end of the fourth quarter of 2015.

“The overall ethanol market improvement we saw at the end of the first quarter, combined with the pending acquisition of Edeniq, positions Aemetis for positive margin growth in the second half of 2016,” stated CEO Eric McAfee.

At Amyris

Amyris reported Q1 2016 net loss of $15,3M on revenues of 8.8 million, compared with $7.9 million for the first quarter of 2015. The increase from Q1 2015 included product sales growth of 50% over Q1 2015 driven by continued growth in the personal care business. Approximately 92% of Q1 2016 product sales related to the personal care business, which represents stronger margins than the industrials business. Collaboration and grants revenues contributed $5.7M, flat compared to Q1 2015.

The company’s Q1 highlight without question was the signing of a 5-year biofene supply agreement with an undisclosed  nutraceuticals company with over $100 million of expected value and an expected revenue contribution of approximately $9 million in 2016, and with minimum annual purchase commitments in each of the remaining years of the agreement

The company also reported agreements for $40 million of financing year to date with existing investors, and said it was “on track to execute 2016 business plan with expected non-GAAP revenue of $90-$105 million for the year from collaborations and expanded product sales agreements with strategic partners”.

CEO John Melo commented, “The financing announced today in our SEC filings, along with proceeds from our previously announced plan for strategic asset divestments and other cash generating activities, provides us the capital to support our business plan for the year. We are successfully expanding our collaboration portfolio, executing on several significant farnesene supply agreements for disruptive applications for our partners, and growing our overall sales of high-value, No Compromise ingredients. While we still have work to do, we believe we are currently on track to deliver on our goal of becoming a self-sustaining business by the end of this year.”

Analyst reaction was tepid on Q1 but encouraging for the year. Cowen & Company’s Jeff Osborne wrote, “1Q16 results came in weaker than expected. However, the focus remains on the back half of the year. Management expects to offload $40mn-$60mn of non-core assets in back half of the year, while large contracts are expected to be announced, as well as a ramp in health and industrial products.” Osborne noted that revenues came in 20% below Street consensus, and costs of sales were almost 30% higher based on ramp-up of production.

The biggest news from Amyris in the forward guidance is the expectation that Amyris  to announce a similar sized contract in the new $20M private placement, a $5M investment from the Gates Foundation and $40-$60M expected from the sale of non-strategic assets in 2016. Management believes that these moves will give the company a sufficient amount of capital on a go forward basis.

Right now, the company is expected to generate as much as $100M in 2016 and $118M in 2017, and current share valuations are roughly 1.87 times expected sales values. A drag on the shares is a “wait and see” from investors on the pace of ramp-up and the risk of further share dilution.

Overall share movement since quarterly announcements

Market reaction has been mixed, some up, some down. Here’s the tale of the tape.

AMRS down $0.20

GEVO up $0.14

AMTX down $0.16

DYAI up $0.01


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