Amyris Hasn't Even Begun To Be Overbought. (NASDAQ:AMRS) | Seeking Alpha


Feb. 23, 2021 8:01 AM ET AMRS


Summary

  • Amyris (AMRS) is up 588% over the past three months.

  • There is still value to be had when compared to peers.

  • New opportunities for Biossance and Pipette, New consumer brands, vitamins, jet fuel, base oils and Monoclonal Antibodies will begin to make contributions in 2021 and thus Amyris is still very extremely underpriced.

Amyris (AMRS) is a synthetic biology company that produces molecules via fermentation using Brazilian sugar. As of close on 2/19/21 Amyris was trading at $16.20 and is up 588% over the past three months. That is 10.32x of a $400M revenue projection for 2021. Twist Biosciences, another growth stock in the synthetic biology space currently trades at 66x 2022 revenues. For most who have held the stock for the past year, they are aware that this price increase was a long-time coming. Amyris has never gotten a fair pricing on its platform, and it still isn’t. Amyris is getting the lowest multiple of any of its peers. Evogene (EVGN), Berkely Lights (BLI), Twist Biosciences (TWST) and Codexis (CDXS) are all getting much higher multiples on revenue than Amyris. Just using this methodology, Amyris is undervalued anywhere from 23% to 189%. TickerMarket CapEst. 2021 RevMultipleAMRS4.13B400M10.32EVGN338M5M-10M33.80BLI4.73B100M-150M31.53TWST7.63B150M-200M38.15CDXS1.64B75M-100M16.40 Why does Amyris deserve the same kind of multiple as its peers? First, they will be growing their consumer brands at 50%-100% YoY between now and 2025. Management has a stated goal of getting consumer brands to generate $500M in recurring revenue by then. They proved with Biossance and Pipette that the consumer brands can earn equity much faster than the multiple the market has set on clean beauty brands (which seems to be between 7x and 10x based on more recent acquisitions). Amyris also has a plan to grow their clean beauty consumer segment of their business which I will discuss further down. Second, the ingredients business has continued to expand. Amyris expects to bring 5-6 new molecules online in 2021. CEO John Melo has stated they expect around $160M of ingredients revenue this year. Which is 100%+ growth YoY. Third, Amyris has been sowing seeds that will be ready to harvest in the coming years. Their Joint venture Novvi, a potential JV with Raizen, a Monoclonal Antibodies platform, and the scaling of a vitamins deal with Yifan and many other items are all on the horizon. Critics may look at the Balance Sheet, Margin or operating losses and write Amyris off. However, Amyris' balance sheet woes should end here in 2021 as $80M of the $175M debt will be converted and an additional $60M+ in cash should come in via warrant exercise. The closing of two strategic deals in the first quarter should also infuse $200M in up front payments, with potential long-term royalties and milestones to come. These two transactions should de-risk this investment and completely flip the balance sheet. The operating losses should also come to an end here in 2021 as Amyris can now develop molecules at a speed that will allow them to monetize lower performing molecules and refine their portfolio. Amyris has had a positive product margin every single quarter this year and has secured all governmental authorizations to build a new factory in 2021 that will increase the margin on ingredient sales by 30%. Amyris is fully funded at this point, and any type of offering would simply be to fuel growth, not for survival. Consumer Brands Biossance Biossance is Amyris' clean beauty workhorse. It is believed that Biossance did over $45M in revenue in 2020. This is based off of order number data as well as anticipated sales through Sephora. Biossance continues to grow at a rapid pace, and CEO John Melo has already stated that he expects Biossance to do $100M in 2021. So far in Q1 2021 they are pacing for nearly 1,000 sales a day just through their own online channel. The same time period 1 year ago they were only putting up 600 orders per day. That puts them at a 65% order growth YoY just through their own website. Growth YoY: 65%Q1-2021DateOrderPer Day in PeriodTuesday, February 16, 2021777,908991Wednesday, December 30, 2020730,331Q1-2020Sunday, February 16, 2020393,395598Monday, December 30, 2019364,670 So what is new with Biossance? They will enter the Chinese Market this year on TMall with SuperOrdinary (the same company who helps to market Drunk Elephant). Assuming they can keep up this same growth YoY, Sephora retail gets back to pre-covid results in brick and mortar, it is a pretty safe assumption that Biossance can do $80M before including any Amazon sales and sales in China. $100M is certainly not out of the question. Going into 2022 and 2023, what to watch is Sephora entering Kohl’s. By 2023, Biossance is likely to be in 850 Kohl’s locations. This alone should allow you to pencil in 20% YoY growth the next two years. Biossance still has a lot of potential left before it starts to see sales plateau. Pipette Now let's talk about Pipette. This is Amyris’ baby brand, and one that they did a wonderful job with in 2020 to turn the Covid crisis into a brand that is exploding. Pipette is said to have done $10M in 2020 and growth to $20M is expected in 2021. It is really hard to analyze Pipette orders YoY as they had a boom in March. This was due to the hand sanitizer shortage which cause a spike in order numbers. However, as of the last order update you can estimate about $900k just through Pipette’s website alone this quarter which is almost what they did in Q4. When accounting for seasonality, this is a big step forward for the brand. So what is new with Pipette? They will be entering 600 Target stores, CVS, Nordstrom, Anthropologie, Kehe and Bed Bath and Beyond. When it is all said and done, Pipette will be in over 1,000 brick and mortar stores and if Biossance is proof of anything, Pipette will perform well. Pipette is also performing well on Amazon. Their Baby Shampoo/Body Wash is up to #18 in the “Baby Shampoo” category as well as #60 in the “Baby Body Wash” category. Finally, Pipette was selected by Alibaba for “Accelerated entry into China” for this past Singles’ Day, boding well for entry into China in the future. Amyris management has said multiple times now that Pipette is well ahead of where Biossance was at this same stage of the game. And there is certainly plenty of upside left for Pipette. Between an additional 1,200 Target stores they can enter, and the potential to get into China soon, Pipette could catch Biossance quicker than anyone ever would have guessed. Beauty B2B The B2B joint venture that Amryis sells it’s other products in via wholesale is named Aprinnova. It is a JV with Nikko Chemicals. While revenue is not fully disclosed for Aprinnova in the financial statements, the contribution can roughly be extrapolated (and backed up by management's claims from the beginning of the year). I believe Aprinnova to have done anywhere from $20M to $30M selling squalane, hemisqualane, sunscreen and an antiperspirant in 2020. So what is new with Aprinnova? In 2021, at least two new products will become available. The first is a product called “Biosilica” which is a silica replacement made from repurposed sugarcane ashes. This will be used in color cosmetics and makeup. The other product is likely to be at least one cannabinoid for beauty use alone. There is also a possibility that they will be adding an ethanol made specifically for the beauty industry. Expect Amyris R&D to continue innovating, which means you should expect Aprinnova to contribute $100M a year in revenue by 2025. New Beauty Brands The last several months Amyris announced that it will be creating two new brands, as well as acquiring two others. Management is hoping to grow each of these brands to be a recurring $100M line of the business by 2025, but even if they make it to half of that, that is pretty phenomenal growth and proof that Biossance and Pipette were more than just luck. I believe this also puts a lot of pressure on Pipette to perform in Target. If Pipette is able to perform well enough, then the four new brands may be ableto ride coattails into Target and other major retailers. The two new brands being created will revolve around two celebrities that they have used as partners in the past. The first will be a color cosmetics brand that will be developed with Rosie Huntington-Whitely and her brand “Rose Inc.” I expect this to brand to be used to drive more sales of squalane, hemisqualane and the new biosilica. That is one of the great things about Amyris’ business model with the brands and B2B. They use the brands to push sales of the ingredient B2B. The addition of this brand makes a lot of sense, as there isn’t going to be any cannibalism of sales, and it is likely to help grow the ingredients business as well. The second new brand is in development with celebrity partner and Biossance advocate Jonathan Van Ness (JVN). This will be a haircare brand, which will also fit very nicely with the portfolio of brands, as Amyris doesn’t currently have any haircare products for adults. It is yet to be seen if any new ingredient will be created for this brand, but it is safe to assume that squalane will be the main feature here. It was a shock to most Amyris shareholders when they heard that Amyris had acquired the brand “Terasana.” According to management, the plan is to use this as an acne treatment brand. They recently released a PR that had shown superior clinical trial results using two of Amyris’ fermented products. I expect them to push this product into CVS early, as well as try to get it into China, the largest market for acne treatments in the world. Finally, a PR is expected almost any day regarding the newest purchase of a brand. This brand is another high-end luxury clean beauty brand. It is said to be sourcing premium ingredients from the Amazon Rainforest. On the most recent investor presentation, it sounded like they will be replacing ingredients sourced from Amazon with their own in-house fermented ingredients. The fear with this brand would be any sort of cannibalization from Biossance, but until we really know what brand and what the go to market strategy is for this brand, I am not going to assume anything. If Amyris can even be close to as successful with growing these four brands as they were with Biossance, Melo’s estimate of $500M in consumer revenue by 2025 is not out of the question at all. New Molecules in 2021 Melo has mentioned up to six new molecules in 2021. I will focusing on just HMOs and Cannabinoids. The remaining new ingredients are squalene (mentioned more below), retinol, ethanol, and Biosillica (mentioned above). HMOs Human Milk Oligosaccharides (HMOs) are molecules found in breast milk. There are over 200 of them. In 2017, Amyris and DSM signed a deal to develop at least 8 of them. The deal was worth up to $14M in milestone payments, and as of Q3 Amyris has recognized $9M of the deal. They have also obtained FDA GRAS (Generally regarded as safe) status on one of the HMOs, 2’fl. HMOs may be one of the best opportunities Amyris currently has in its portfolio that has yet to record real product revenue. The HMO market is expected to reach $71B by 2025, and Amyris has a link to the top supplier of infant formula in the world, Nestle. In 2020, DSM bought Glycom who was the supplier of HMOs to Nestle for their infant formula. It is all but a foregone conclusion that Amyris will be behind the supplying of 2’fl as well as the remaining 7 HMOs that Amyris recently filed a patent for in the very near future. Why the expected boom in infant formula? Here is why. The composition of current baby formulas is going to change drastically over the next decade as new HMOs can be created using synthetic biology and other advances take place. If baby formula can continue make strides to get to even 75% of what mother’s milk is, you will see a compounding effect take place where more mothers use formula, and some mothers use formula sooner than they would have otherwise. Amyris (and Nestle and DSM by extension) will be first movers in this next wave of HMOs and they already contain massive brand power and market share. I think a conservative estimate would be Amyris receiving $100M of yearly recurring revenue by 2025. DSM just purchased Glycom for 10x sales a year ago, meaning that is another $1B business to be expected by 2025. And I believe there is quite a bit of upside from there, as Nestle did $100M of HMO branded infant sales in 2020 just themselves according to their most recent earnings call. Below is a video created by Nestle talking about the importance of HMOs for infants. Cannabinoids Cannabinoids are probably one of the biggest drags on this stock. Yes, I said that right. Amyris really has been held back by cannabinoids, and here is why. In 2019, Amyris signed an agreement with a company named Lavvan. This agreement was to develop several cannabinoids and was supposed to be nearly $200M in milestone payments for development and then additional royalties on top of that. Fast forward to June 2020, Amyris was hit with a lawsuit from Lavvan for $881M for supposedly breaking the agreement. I am not a lawyer, so I am not going to speculate on the potential outcome. Simply, I am just going to assume that Amyris will come out the other end of this, maintaining the right to produce cannabinoids themselves. It may come at a cost, but the big picture is Amyris maintaining the rights to produce for themselves. Therefore, I believe cannabinoids may be the largest opportunity that the market is not pricing into Amyris’ stock. Amyris will be able to produce CBD, CBG, THC and basically any other cannabinoid that consumers may want by the end of 2022. They have already scaled up CBG and CBD. They sold CBG at scale for around $1k/kg. The next run is going to be three tons, and capacity is really not an issue. Barring an unlikely ruling that Amyris loses all IP rights to cannabinoids they developed, I believe we will see Amyris doing well over $100M a year in cannabinoid sales by 2025. The video below is an explanation of how Amyris will produce cannabinoids and disrupt the industry: On the Horizon Reb-M and Potential JV with Raizen Reb-M is a molecule found in the stevia plant that is sweeter and has a better aftertaste than Reb-A which is what is typically extracted from the stevia plant. Essentially, Reb-M is going to be the new gold standard as costs come down. Amyris really hasn’t even begun to scratch the surface with where Reb-M is going to go. Currently, they have been scaling up and refining the production process to bring down costs as low as possible. It is speculated that Amyris will be building a new plant and signing a deal with Raizen to create a joint venture dedicated to the Reb-M sweetener. The good news is that even if Raizen opts out of the Joint Venture, Amyris still will hold the rights to build a sweetener facility on the utility subsidized Raizen property if they choose to do so. Fuels and Base Oils Novvi Novvi is a very exciting opportunity for Amyris, but one that is largely unknown to investors. Novvi is a joint venture that was originally developed with Cosan that was started in 2011. Eventually Chevron bought into the joint venture and is believed to now be the majority stakeholder. Novvi leverages Amyris’ patented fermentation-based production method, and combines it with Chevron’s ISODEOWAXING to bring to market an extremely high viscosity index lubricant that still performs at an extremely high level. Novvi will specifically be making Group III base oils out of a 25,000 metric ton capacity facility in Deer Park, TX. What are Group III base oils? These are ultra-refined base oils that are usually higher in price and better in performance than Group I and Group II (the most commonly used base oil currently). Group III oils are able to withstand more volatility. Essentially, this means that the oil does not thin out as much with heat or thicken as much when it is cold. Therefore, it is able to perform better under more extreme conditions, and with field efficiency being the name of the game, we are asking engines to perform in ways that require base oils that are up to that task. The Base Oil industry is one that will be around for the long-term and Group III is expected to grow over the next 10 years, based on industry trends, as are bio-based lubricants. With the industry pushing towards Group III oils in the future, I believe Novvi will be positioned to be a leader in this space. (ExxonMobil 2018 Base stocks Industry Pulse Report). In October of 2019 Amyris purchased the Cosan stake in Novvi for $10.8M, essentially putting a price tag on this Joint Venture of at least $40M. However, with production starting in August, the price tag should be up significantly. U.S. Base Oil Price Report - Lubes'N'Greases As you can see from the charts above, a metric ton of Group III Base Oil sells for approximately $1,700. That gives the Deer Park facility the ability to produce $42M worth of product per year. Assuming they want to be cost leaders, and they sell their oil for $1,200/mt, the facility has the ability to produce $30M a year. And, I certainly do not doubt that Novvi will be able to sell product. Even before Chevron they were still able to generate sales on six continents of their first generation base oil. Now, with Chevron as a parent company, there is already a built-in market for this product and a company with the capital and market knowledge to grow at a fast pace. To be conservative I am estimating that Amyris only owns about 30% of the company after buying out Cosan. With the potential sales to be generated out of the Deer Park plant being over $30M, and Chevron guiding the ship, I estimate the entire Joint Venture to be worth $300M. That gives Amyris at least a $90M asset. To proactively rebuttal criticism of the use of a 10x valuation, this business offers a very large upside and the potential for exponential growth considering the connections and capabilities of Chevron. This, in combination with Amyris “take anywhere” fermentation technology, will allow this base oil to be created all over the world, offering unmatched logistical advantages and a sustainable solution that is both environmentally friendly and cost efficient. Something that after the Covid-19 Pandemic many companies world-wide are wanting to improve. The licensing opportunities alone offer a major upside where Novvi can collect millions in 100% margin revenue without having to even worry about producing the base oils themselves. I believe Novvi to have enormous potential, and one of the reasons Amyris deserves a better multiple on their revenue. Living Foundries: BR-1 Amyris has quietly been working on a defense contracts with the U.S. government in molecule development for many years. The initial product was called the “Living Foundries: 1000 Molecules” through DARPA. While Amyris’ part of the molecule development has ended, the real benefit will start to show in the future. With this project, Amyris was able to get the initial pathways to hundreds of molecules that they will retain the IP rights to. The initiative of this program was to “seek to further refine this initial capability to significantly decrease the cost, improve the scalability, and expand the complexity of engineered systems for biomanufacturing. Efforts are focused on using automation, novel genome editing tools, and machine learning technologies to alleviate the challenges of prototyping. As a proof of concept, DARPA aims to produce 1,000 molecules and material precursors spanning a wide range of defense-relevant applications including industrial chemicals, pharmaceuticals, coatings, and adhesives that can be customized to continuously evolving DoD needs while ensuring continued leadership of the United States in the rapidly evolving field of synthetic biology.” (DARPA Website: https://www.darpa.mil/program/living-foundries ) The IP alone that was discovered during this collaboration with DARPA has enormous potential value and will give Amyris an edge in future industries as certain molecules become more prevalent in use, or further researched. What has come out of the project though, that is currently tangible, is a new fuel that is being tested by Naval Air Warfare Center Weapons Division (NAWCWD). This fuel is a high-performing, extremely high-density, low-cost biofuel. To explain why this is important, the higher the density of a fuel, the longer a plane can stay in the air OR the less weight it has to carry in order to go the same distance and therefore it can take heavier loads. This fuel is referred to as BR-1, and it is 19% more dense than typical jet fuel. Something only one other synthetic fuel has been able to do, and the military currently uses it to power cruise missiles, JP-10. JP-10 costs have ballooned to around $20 a gallon, and signs point to growth in the need for tomahawk missiles. The U.S. fires about 100 cruise missiles per year, on their 282 ships. The plan is to grow the Naval fleet from 282 ships to 355 ships within the next 15 years. That would in turn require more purchases of tomahawk missiles, and these missiles require fuel. While the Navy hasn’t said they are switching to BR-1, they have switched fuels for the missiles before in the switch from JP-9 to JP-10. This is the type of innovation that can turn into a hundred million dollar per year revenue stream. Especially when you consider that Amyris also offers a logistical advantage considering their fermentation based-approach. Not only are sugar and water easily accessible anywhere in the world, they are inexpensive compared to crude oils or other rare molecules needed to produce other types of fuels. This makes transporting them less risky, and the initial investment cheaper. I am not comfortable enough to put a dollar amount on this area of the business considering the secrecy that comes with government defense contracts, but it is just another feather in the cap for Amyris for future growth. And with the new administration (and military as a whole) looking for more sustainable fuel alternatives this is something to keep an eye on. Yifan Thus far Amyris has recognized $12.8M of the $21M agreement with Yifan to develop vitamins to be sold in China and at the current revenue recognition pace, the final milestones should be completed this year in 2021. This is expected to reach $100M in annual sales and should become one of the more reliable pieces of the business once it has been completely scaled. What we don’t know from this particular endeavor yet is who will own the rights to sell vitamins outside of China or what molecule derivatives Amyris will be able to own outright for themselves afterwards. Either way, this is something to keep an eye on going into 2021 and 2022 that really doesn’t appear to be factored into the market cap. IDRI and Adjuvants Amyris has been working with IDRI since 2015 on their vaccine adjuvants, and finally, in 2020, announced a deal that Amyris would be working to help them produce a Covid vaccination. Recently, results were announced that the Amyris/IDRI vaccine was able to be stored in a refrigerator (not a deep freeze) for up to a year and a half, and at room temperature for 8 months. It is quite obvious the logistical advantages this would give us in the new age of RNA vaccines. Amyris is truly the only cruelty free provider of squalene that will be able to supply the entire world a cost-effective shark alternative at the scale needed. Once proof and efficacy have been proven with IDRI, I expect many pharmaceutical companies world-wide to be switching to Amyris squalene and integrate it with their current adjuvants. This deal with IDRI was not purely for Covid though. Amyris was also granted the rights to apply their technology to three additional indications which can be applied to any future pandemics, cancer treatments, etc. This is a large opportunity itself, and should really be considered when investing here. mABs Monoclonal antibodies are a $114B market and growing. They are used for some of the most purchased pharmaceutical drugs in the world such as Humira and Keytruda which do over $20B combined annually. What Amyris is bringing to the table is the ability to find and scale mABs in 1/6th the time of the traditional process of using the Chinese Hamster Ovary (CHO).. This turnaround will make development faster and cheaper than ever before. Amyris can do the same development of mABs in their yeast as scientists. Using this technology they will be able to go after biosimilars, generics and new drugs just simply using a platform approach. This is essentially a startup pharmaceutical biotech inside of Amyris. It will need time to mature, but Amyris management has already said that they expect to start making inroads in 2021. Graham Tanaka's article goes much further in depth about this. Conclusion I believe it to be quite obvious that Amyris is still undervalued when looking at it through two separate investment valuation methods. Using a "sum of the parts" method, you can see that Amyris has a billion dollar consumer segment, a billion dollar ingredients segment, billions of dollars in initiatives that aren't being valued at all by the market, and a platform that should objectively be worth $3B (15x revenue) alone once pending deals are finalized. The other valuation method would be comparison to peers. Amyris is not getting the same growth multiple on revenue that industry peers are getting despite having a 100% estimated growth YoY from 2020 to 2021. In fact, Amyris is getting about a 60% lower multiple than it's closest industry peer (which translates to a 23% from an actual stock price standpoint) despite their growth. I expect the market to correct this poor valuation sooner than later (the coming ER on March 2 may be what ignites the next run), and for Amyris to see another massive runup similar to the one we've seen these past three months.

This article was written by Matt Woolley Message Accountant by trade. Amyris by choice. Looking for a relationship not a fling (Long only). Growth is of mai... more

Disclosure: I am/we are long AMRS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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