Amyris Hasn't Even Begun To Peak
Mar. 01, 2021 4:38 PM ETAmyris, Inc. (AMRS)21 Comments34 Likes
Summary
Amyris is up over 400% over the past three months.
Amyris still offers tremendous upside value to be had when compared to its peers on P/S.
New opportunities in 2021 offer upside that's yet to be recognized by the market.
The growth of the current portfolio is expected to continue at a 50%+ YoY rate going forward for several years.
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Amyris (AMRS) is a synthetic biology company that continues to offer enormous upside despite its recent run-up. This is because they are still getting one of the worst P/S multiples in the industry. As of the close on Feb. 26, 2021, Amyris was trading at $13.80 and is up over 400% over the past three months, yet it is still only getting a 10x P/S on a 2021 projection of $400M revenue. Amyris is getting the lowest multiple of any of its peers. Evogene (EVGN), Berkeley Lights (BLI), Twist Bioscience (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%.
Ticker Market Cap Est. 2021 Rev Multiple
AMRS 4.13B 400M 10.32
EVGN 338M 5M-10M 33.80
BLI 4.73B 100M-150M 31.53
TWST 7.63B 150M-200M 38.15
CDXS 1.64B 75M-100M 16.40
Source: Created by author using data compiled on 2/19/21
Amyris announces earnings tomorrow with analyst expectations at $70M in revenue and an EPS of (.09). My own expectations are for revenue to be over $74M and EPS to be (.14), with the poor EPS mostly being a factor of a derivative liability on the balance sheet. Essentially as the price goes up, the company will have to take on losses due to convertible debt and warrants being exercised.
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 later on in this article.
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. That 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%
Q1-2021
Date
Order
§Per Day in Period
Tuesday, February 16, 2021 777,908 991
Wednesday, December 30, 2020 730,331
Q1-2020
Sunday, February 16, 2020 393,395 598
Monday, December 30, 2019 364,670
Source: Created by author using data provided by Amyris Investors.
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-19 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
Pipette (Amyris' baby brand) is said to have done $10M in 2020 and growth to $20M is expected in 2021. As of the last order update, you can estimate about $900K just through Pipette's website alone in Q1 2021, which is slightly less than what they did in Q4 2020. When accounting for seasonality, this is a big step forward for the brand.
So what's new with Pipette?
They will be entering 600 Target stores, CVS, Nordstrom, Anthropologie, KeHE and Bed Bath & 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 Amyris sells its 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's 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 able to 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-Whiteley and her brand "Rose Inc." I expect this brand to be used to drive more sales of squalane, hemisqualane and the new biosilica. It will launch in the 2nd half of 2021, but isn't likely to be a large contributor until 2022.
Rose Inc.
Source: Beauticate
The second new brand is in development with celebrity partner and Biossance advocate Jonathan Van Ness (JVN). This will be a haircare brand also launching later in 2021 and should follow a similar story to the Huntington-Whiteley brand with regards to top line contributions.
JVNSource: Breaking Beauty Podcast
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. Timing is still a big unknown here.
Terasana
Source: Terasana
Finally, a press release was put out announcing the newest purchase of a brand, Costa Brazil. 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.
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
Management has mentioned up to six new molecules debuting in 2021. I will be focusing on just HMOs and Cannabinoids.
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 Recognized 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 to 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
Despite the hype in the broader market, Amyris really has been held back by cannabinoids due to a lawsuit from LAVVAN for $881M.
Assuming that Amyris will come out the other end of this lawsuit maintaining the right to produce cannabinoids themselves, 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. I believe Amyris to be positioned well to be doing at least $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
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 ISODEWAXING 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, Texas.
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.
Source: Exxon Mobil 2018 Base Stocks Industry Pulse Report
In October 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.
Source: 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. 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.
Living Foundries: BR-1
Another opportunity many investors are unaware of is a potential military contract for a high-density fuel. As per DARPA, the initiative of this program was as follows:
... [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.
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-19 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. This is a potential licensing play in the long term that could offer a very large yearly revenue at a very high margin.
This deal with IDRI was not purely for COVID-19, however. 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 in itself and should really be considered when investing here. Readers should also be made aware that the company has been quoted as being in talks with the U.S. Government about long-term financing, which would seemingly be similar to financing that Kodak and Ginkgo got recently.
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 its closest industry peer (which translates to 23% from an actual stock price standpoint) despite their growth.
I expect the market to correct this poor valuation sooner than later (the coming earnings report tomorrow could be what ignites the next run), and for Amyris to see another massive run-up similar to the one we've seen these past three months.
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