The nine month and Q3 2017 results are in for Amyris, and there’s reason for the long-suffering shareholder to take some near-Christmas cheer. YTD revenue is up more than 1/3 and product revenue has more than doubled. Guidance for year-end revenues was upped. The company has found a new deep-pocketed champion in DSM.

But there were headwinds. As Cowen & Company’s Jeffrey Osborne observed:

Amyris reported 3Q17 revenue of $24.2mn, below our estimate of $36.3mn due to lower product revenue and collaboration payments that were delayed to 4Q. Product revenue was 11.3mn, with 12.9mn coming from grants or collaboration payments. The company noted $8.3mn in collaboration payments were not recognized in revenue due to timing. Gross margin of 27.1% was well below our estimate of 57.4% due to the revenue timing impact. Reported EPS of ($0.93) was below our estimate of ($0.55).

Most intriguing are more details on its No Compromise sweetener-market entry, and news that it has sold its 40 million liter capacity Brotas production plant to DSM for $96 million, while it focuses on completing its Brotas 2 plant, where it has not yet revealed the capacity.

Osborne added:

Amyris has alluded to discussions with “very large consumer companies” regarding the sweetener product, which at the analyst day was referred to by an attendee in the Q&A as “Stevia-like”. Management viewed its “Sweetener 1” product as the company’s largest opportunity though 2021. The company expects a strong ramp in product sales in 4Q, which we believe to be driven largely by health and nutrition.

Is Amyris exiting as a supplier and focusing — in the vein of synbio companies Ginkgo and Zymergen — on developing and optimizing production organisms for deep-pocketed industrial and pharma customers?

Not yet.

The Amyris rationale: growth within funding constraints

As CEO John Melo was clear in announcing the sale, Amyris needs different production capacity to realize its current opportunities in higher-value, smaller-volume markets.

The alternative was a dilutive share issue to bring in capital to build Brotas 2 and São Martinho, or a ruinous expansion of debt which would have likely have resulted in the Barbecuing of the Shareholders at a later date, anyway.

“We are building a specialty plant at Brotas (Brotas 2) and also expect to complete our São Martinho plant to focus on sweeteners,” Melo said. “The combination of these actions provides us the manufacturing footprint to meet our current demand through the next 3-5 years and to manage this within our funding constraints.”

The DSM-Amyris deal

Deal value? Total consideration for Amyris Brasil Ltda (which owns and operates the Brotas 1 production facility), intellectual property related to farnesene and an additional value share arrangement over a 3-year period amounts to $96 million. In addition to the consideration upfront there is potential for a future value share in line with Amyris’ business model.

DSM will continue existing supply-agreements to Amyris and other parties. DSM will also supply Amyris with specialty compounds until it realizes its Brotas 2 specialties production facility. Amyris is accelerating the construction of its second facility dedicated to specialty products while maintaining the manufacturing process development and business support capability located in Campinas, Brazil.

The Amyris rate-price crisis

It’s clear that they’re, more or less, exiting the “we’re all about biofene” industrial farnesene business, and that’ll be a good thing for shareholders, for some reasons of simple math.

1. Brotas 1, which has a capacity of 40 million liters, is said to be sold out.

2. The company is generating product revenue at a run rate of around $45M per year.

One is left with two conclusions. Door #1, the global farnesene price has collapsed. Door #2, the production rate is much slower than the capacity suggests, and the company can only produce a fraction of its nameplate capacity.

We’re left to guess, because Amyris doesn’t release production numbers or price. Forecasts for company revenue have been modeled on farnesene prices of anywhere from $2.50 to $5.00 per liter. Last we had a report on production costs, it was down to $1.75 per liter — could well be that prices have come down in these weak commodity markets.

But either way, Amyris had no way to make money at its current scale, and it has been years since it has discussed building a second plant dedicated to farnesene in Brazil.

In short, a new pathway molecule was needed. Way, way up the $-per-kilo curve from fuels and everyday chemicals.

The Amyris No Compromise sweetener backstory

We reported most recently in May on developments. Key point is that Amyris sees more than $100 million from an as-yet unnamed partner to deliver more than $100 million in revenue by 2020. The company adds, sold at a lower cost than sugar without any negative taste.

The key is going to be sweetener concentration — efficacy. Stevia’s key compound, Reb A, sells for as much as $100,000 per metric ton — according to this source.

The global price is going to come down with companies like Evolva and Cargill ramping up their EverSweet business. But here are production economics that will better support Amyris for the mid-term.

The DSM rationale: operational upside

With the acquisition of the Brotas 1 facility, DSM adds a state-of-the-art biotechnology-based production site in Brazil to its global network, with abundant availability of sustainable raw materials (sugar cane), securing production capacity for its rich pipeline of sustainable and bio-based solutions. Having broad experience in operating large-scale fermentation plants, DSM will optimize the operational performance of the site.

The strategic alliance between DSM and Amyris started in May 2017 with an equity investment by DSM in Amyris, and has since been expanded with several significant product development collaborations.

“Following our equity investment in Amyris and subsequent product development cooperations, I am pleased that we can add a state-of-the-art fermentation-based production facility to our network. Our know-how in fermentation, downstream process development and large-scale manufacturing will allow us to further improve the operational performance of the facility while further strengthening our strategic alliance with Amyris,” said Chris Goppelsroeder, President & CEO of DSM Nutritional Products.

The Amyris pivot: near complete

“With the successful transition of our Company into one of the fastest growing sustainable health, nutrition and personal care ingredients businesses in the world, we are now in need of operational leadership to support our growth,” said Melo, in providing background to the hiring of former PwC structural cost expert Eduardo Alvarez as the company’s COO.

The Bottom Line

To some extent, still-emerging companies are about their parents’ desires, and for some time Total has been driving the Amyris bus and so long as the future was in fuels or industrial chemicals, that worked fine.

But nutritional opportunities aren’t really Total’s world, and we’ve heard significant rumbling that the French petrochemical giant is going through its own biotechnology evolution to focus less on building technologies and more on buying technology companies as others bring them forward.

So, consider much of this directional shift in the direction of the Good Ship Amyris to reflect the investor interest — and investors have their hands on the wheel. The global race for a next-generation sweetener is no joke and, if Amyris has practical magic to apply, then that is what we are going to see.

And, sweet those prospects are, indeed, it should be noted. Investors would be crazy to overlook the implications of Amyris’ technology should they have a consequential molecule to deliver — and with balance sheets that speak to “it’s one or the other”, we are seeing less of a pivot and more of focusing.