Tuesday, October 18, 2016

Strategic Deal Shifts Future for Amyris

Last week Amyris (AMRS:  Nasdaq) announced a major agreement with an unnamed producer of food ingredients and nutraceuticals to produce ‘fermentation molecules.’  This certainly is not the first set up in the nutraceuticals industry for Amyris.  In April 2016, the company signed a five-year $100 million agreement to supply its signature biochemical ingredient Biofene to another unnamed nutraceutical company.  Just one month ago, an existing relationship to supply Biofene to a nutraceutical producer was expanded.
Image result for farnesene image
Development took an entire decade for the company’s flagship product, a farnesene branded Biofene.  Farnesene is a set of six closely related chemical compounds that can occur naturally in many plants and most frequently in fruits.  Historically, farnesene has been used in fragrances, flavor and brewing.  Amyris and others have loaded farnesene into their wagons, because it is a hydrocarbon building block.  This is near gold in an economy that is attempting to make a shift from petroleum to a sustainable source for hydrocarbons.

Riding the tide of new and expanding relationships, Amyris is finally in a position to extract some value from its development work.  With new deals under its corporate belt, Amyris claims a $100 million annual revenue run rate.  The most recent deal is expected to layer another $100 million per year on top of the current run rate, beginning as early as 2018.  Based on the 12% average net profit margin in the specialty chemical industry, that could mean $24 million in net income or $0.10 per share. 
Thus far profits have eluded Amyris.  In the twelve months ending June 2016, the company reported a net loss of $151.3 million or $0.93 per share on $36.9 million in total sales.  The company burned up $91.3 million in cash to support operations.  At the end of June 2016, the company had only $2.5 million in cash left in the kitty.  So even though the pipeline of new market relationships is building, for the very near term investors have treated Amyris as a risky venture.
Amyris needs working capital and its customer-partners appear to be coming through.  One customer has extended a $25 million credit line and has an option for an additional $5 million investment.  The unnamed food ingredients and nutraceutical producer announced most recently is to invest $10 million in the collaboration and acquire $20 million in common stock at $1.40 per share. 
With significant new customer relationships, profitability within sight and sources of near-term capital, investors could take AMRS more seriously.  Following the most recent strategic deal the stock has climbed over 20%, but still trades well short of the $1.40 strike price in the company’s planned capital raise.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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