Amyris hits the comeback trail

Jim Lane

Biofene production starts up in Paraiso, Brazil – sales expected to commence in Q1 2013 – Total, Temasek, Biolding inject fresh capital.

What’s next for biofuels’ “Comeback Kid”?

By now, most of the “smart set” that found itself excited about Amyris (AMRS), 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 Amyris is still there, and this week achieved what, for many, was the last-chance, must-hit milestone. The company’s purpose-built, 50 million liter industrial fermentation facility in Paraiso, Brazil has successfully begun production of Biofene, Amyris’s brand of renewable farnesene.

“Our own farnesene plant at Paraiso has been successfully commissioned, with initial farnesene production underway. We anticipate sales from this facility during the first quarter of 2013,” Melo concluded.”

So what exactly is farnesene, again? It’s a fragrant oil chemical – that distinctive acrid odor you detect in a Granny Smith Apple, that’s it. You also find traces of it in the hops used for some very nice Czech pilasters and Irish lager beers. It’s used as a component in its own right by manufacturers around the world.

Amyris’ storied IPO and post-IPO peril

The Amyris strategy commercialize farnesene for the chemical markets, then turn to farnesane, which you produce by adding hydrogen. Farnesane is the company’s showcase diesel molecule, and forms the basis of its breakout from a speciality pharma and chemicals maker to a fuel player, though that business will ultimately be run by Total.

In its 2010 IPO, there were partnerships announced with Bunge (BG) and Cosan (CZZ) for lubricants, Soliance for renewable cosmetics, M&G for PET production (the key ingredient in clear plastic bottles) and a series of deals with Procter & Gamble to incorporate farnesene in specialty chemical applications within P&G’s products.

Then came the expected ramp-up to 6-9 million liters of production for 2011 – and then the story changed when the company’s scale up timetable imploded and it was forced in early 2012 to pull its guidance on future production.

Back in 2010, in “Amyris: Farnesene and the pursuit of value, valuations, validation and vroom,” Biofuels Digest warned, “There are concerns about how robust the engineered yeast will prove in an industrial-scale setting. Concerns generally raised by those familiar with Amyris’s technical challenges.”

We noted that “a flurry of JVs and partnerships focused both on the chemicals and fuels markets, demonstrates that Amyris is fully embarked on an integrated strategy of flexible product lines, an impressive array of partnerships and contract manufacturing arrangements to keep the company on its “capital light” path.” But we flagged the “Major open question? Performance of the magic bug at industrial scale.”

Following the failure to achieve its stated production goals, post-IPO, the stock was crushed from a high of $33 to a low point of $1.45 – recovering in recent months to yesterday’s close of $2.64. The company restructured management, and put all its chips on getting its 50 million liter Paraiso plant up and running.

Fresh Capital Raised

Meanwhile, its key investors notably, French oil giant Total hung tough, and stayed with the vision. This week, with Biolding, Total and Temasek pumping in another $42.5 million, in acquiring another 14.2 million shares, or an additional 19 percent of the company’s equity.

Singapore’s sovereign wealth investment fund, Temasek, was the largest investor in the round, adding $15 million to their investment total, putting them behind only Total on the shareholder tote board.

The deal didn’t come cheap for Amyris by contrast, it sold 17 percent of the equity, just before the IPO, to Total for $133 million.

“Cash proceeds were $37.25 million, plus Total converted $5 million from an outstanding convertible note,” said Raymond James equity analyst Pavel Molchanov in a note to investors yesterday. “The “implied” equity sales price is $2.98, a small premium to yesterday’s closing price, though there is no getting around the fact that this is still a substantially dilutive deal.”

“A private placement with existing investors should help fund operations,” wrote Cowen & Company’s Rob Stone and James Medvedeff, “but we already model $20MM/year in funded R&D as well as $146MM additional debt to fund losses and Sao Martinho capex in 2013-15.”

But it’s a capital lifeline and as CEO John Melo noted, “We are encouraged by the continued, strong commitment from our major investors, particularly as we start up our new industrial fermentation facility for the production of our renewable hydrocarbons in Brazil.”

The new scale-up timeline

Amyris these days doesn’t offer forward production guidance although they noted that farnesene sales from Pariso were expected in Q1 2013. “We expect the plant to ramp throughout 2013 and achieve full utilization by 1Q14,” said Molchanov.

Stone and Medvedeff added, “Ramp risk remains and we model losses through 2015. [We] lifted 2014-15E shipments about 8% and 11%, but we trimmed 2013E 19% as we see a slow ramp. We estimate feedstock and operating cost may be 15-20% higher, but AMRS should still benefit from additional sales and spreading of fixed costs, particularly as initial volume is targeted at higher value end products.”

READ MORE: Captive company for Total?

The bottom line

The capital raise is dilutive, and the opening of Paraiso was expected accordingly, AMRS shares dropped yesterday on NASDAQ following the announcement.

But it’s a remarkable production milestone for the company substantially de-risking the venture as a whole and offering hope to Amyris’ investors and backers that the company is getting back to playing offense and putting points on the board after a lengthy period in which the doubters reigned.

Next steps: producing at capacity at Pariso and the big challenge moving forward moving down the cost curve so that the company continues its journey towards the long-desired markets in fuels and larger volume lubricants and chemicals.

Disclosure: None.
Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.