Is This Synthetic Biology Pioneer on the right track?

Is This Synthetic Biology Pioneer on the right track? ...

The liquidity bubble of 2021 included many trendy favorites. That included Amyris (AMRS), a synthetic biology pioneer that has made numerous head-turning discoveries in the lab.

The industrial biotech business genetically engineer microbes to create useful chemicals, such as cosmetic or food additives. One strain is capable of producing cannabinoid ingredients, which are more commonly associated with cannabis plants. Others create fragrance ingredients, including well-known scents such as patchouli.

Although the potential of the technology platform is tremendous, the reality of Amyris has been much more concerning. It has missed almost every annual guidance deadline dating back to at least 2014, over one dozen hyped ingredients are no longer in use, and three previous manufacturing facilities have been sold or shuttered.

Importantly, the company has never consistently produced products at commercial scale for a profit.Management expects a new manufacturing facility to do this. Will this time be different?Second-quarter 2022 operating results suggest a successful scale-up will not resolve all the company's problems.

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A New Quarter, Same Old Results

Amyris has provided one shining element in its second-quarter 2022 operating results: consumer income.

Amyris produces ingredients for other businesses, or B2B, and for its own branded consumer goods. Each of these must be reported in three separate categories product income, licenses and royalties, and grants and collaborations, but product revenues are both the driving force of both B2B and consumer ingredients.

Misery is also the driving force of progress and misery. Sadly, misery has a fairly good record.

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Amyris raised a record $42.2 million in quarterly consumer product revenue in the second half of 2022. The growth was attributed to the introduction of six new consumer brands in the second half of 2021, which means they did not contribute to financial performance in the second half of 2021. That made for a more accurate year-over-year comparison.

Amyris hasn't been very focused or efficient with new product launches. The business has never been profitable. That's not going to change anytime soon, especially when each new product launch is drowning the income statement in more red ink rather than less.

Consider a few disturbing statistics from Q2 2022:

Tightening financial conditions put an already fragile business at risk. Shareholders have received a 776 percent increase in the number of shares outstanding in the last five years, but more might be on the way as investors become more suspicious of money-losing businesses.

Is It Possible to Resurrect a Poor Track Record with New Promises?

The new Barra Bonita manufacturing facility that just opened its doors will serve Wall Street and investors better, but the company's poor track record with the Brotas 1, Brotas 2, and Pradopolis manufacturing facilities, all of which were sold or nixed, doesn't inspire much confidence in the company's latest promises.

The biomanufacturing facility has begun operations, and is now undergoing commissioning. From there, engineers can begin ramping up production quantities until the facility is nameplate capacity. There will be more flaws discovered during ramp up that need to be addressed. Barra Bonita may take up to 12 months to fully operate as planned.

Compared to batch facilities at Barra Bonita in the past, there are certainly advantages to maintaining a continuous manufacturing facility. The problem is the organization's inefficiency. Even if Amyris manufactures ingredients at the high margins promised to investors, it will be impossible to cover the $153 million in quarterly operating expenses.

The synthetic biology pioneer needs to refocus its consumer brands' geographic footprint, significantly reduce SG&A expenses, and likely reduce headcount in order to maximize its survival against the coming economic downturn. As in, tightening financial conditions may be what ultimately leads the company to bankruptcy.

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