Amyris Sees Reward in Putting One Foot in Front of the Other in Biofuels

5/18/11Follow @xconomy

The renewable fuels business has been long on talk and short on action for a few years now. That helps explain how Emeryville, CA-based Amyris could achieve impressive financial results simply by fulfilling its promises—even if that means hitting some fairly incremental goals.

The company has seen its stock climb 72 percent, from $16 to $27.55 a share, since its IPO in September.

“We’re getting a good amount of attention. We’re a very high potential growth company at a critical point,” says Jeri Hilleman, Amyris’ chief financial officer. “We’re going from pre-commercial to the commercial stage. We’ve tried to be really clear about the milestones we’ve tried to achieve, and we’ve achieved them.”

Amyris (NASDAQ: AMRS) still has quite a way to go to complete its transformation into a fully integrated, profitable company, but it has made some strides in the past year. The company has been making progress on carrying out a business plan for converting sugar into specialty chemicals that go into things like cosmetics, plastics, and lubricants. Those products can be sold in small volumes, and at higher profit margins than the thing that gets the most attention—renewable fuel.

Amyris, even after raising about $400 million, certainly isn’t about to put the oil companies out of business anytime soon. But it did earn some important credibility points on Wall Street by showing earlier this year its renewable, yeast-based process to convert sugar into specialty chemicals in 100,000-liter and 200,000-liter fermenters. That was an important early step in a plan to put Amyris’ technology to work on true industrial scales over the next couple years, on its way to making large volumes of fuel, Hilleman says.

No doubt, others in the biofuel business are watching this company and taking cues. The company was founded in 2003 by a trio of postdoctoral fellows who worked with Jay Keasling at UC Berkeley. It started as a non-profit with a mission to come up with a cheaper and more abundant source of artemisinin, an anti-malarial drug compound that is derived from natural sources in Southeast Asia. The project has support from the Bill & Melinda Gates Foundation. But as the technology took shape on the artemisinin project, it wasn’t long before a group of blue-chip VCs—Kleiner Perkins Caufield & Byers, Khosla Ventures, and TPG Ventures—saw potential for more lucrative products to come from the technology.

Jeri Hilleman

By October 2006, as cleantech was booming, those three venture firms pumped $20 million into Amyris, named former BP executive John Melo as the CEO, and set out to use “cutting-edge tools in chemistry and biology to develop solutions for major world problems,” according to a statement at the time. John Doerr of Kleiner Perkins stated one of his oft-repeated lines: “Greentech could be the largest economic opportunity of the 21st Century.”

The rhetoric about biofuels has toned down a bit, but Amyris has a lot more experience under its belt now. The company has worked out a process in which it modifies microbes to become factories that pump out chemicals we currently get from petroleum sources. This is, without question, still a speculative business. Amyris still runs in the red, and burned through about $30 million in cash in its most recent quarter. Any dreams of capturing the largest economic opportunity of the century are still fairly far out on the horizon. But interestingly, Amyris has staked out a pretty methodical plan to start small on its way to doing something big. And its revenues have been rising—going from $30 million in the last quarter of 2010 to $37 million in the most recent quarter ended March 31.

One of the early big decisions for every biofuel company is in where it chooses to its raw material, and in Amyris’ case, the big source is sugar cane. This made sense for the company, Hilleman says, because among plants, sugar cane is an especially efficient source of sugar (duh) and there’s already a big industry of growing, collecting, processing sugar cane around the world, particularly in Brazil. Only about 1.5 percent of the land in the world that’s capable of growing sugar cane is currently used for growing cane, making it possible to scale up this source quite a bit, Hilleman says.

Amyris is mainly focused these days on producing farnasene, a specialty chemical that serves as the basis for a number of products. The business plan has been to convert the chemical into fragrances, plastics, consumer products, and lubricants—which all today depend on petrochemicals. One last product line, cosmetics, comes from Amyris’ work to come up with an alternative to form of squalane, a key moisturizing ingredient that currently comes from shark liver oil.

Amyris’ big bet, and where the execution part becomes critical, is in really making all these products. The plan is to set up joint ventures with existing suppliers of sugar cane, and co-locate with them on site, Hilleman says. Amyris is using contract manufacturers in the beginning, but is building its own manufacturing capabilities alongside a sugar-cane processing plant in Brazil. This takes capital, and the risk that goes with it, but the idea is that the reward will be greater if Amyris sticks its neck out on this kind of project, Hilleman says.

“We are the seller of the end product. We have built the company to be a product company, not a technology licensing company,” Hilleman says.

Getting the supply lines set up takes a lot of work, as does negotiating with sugar producers, but it’s really just the start. The energy and transportation market is the biggest single economic sector in the world, at about $7 trillion a year (and growing now that gas is over $4 a gallon), so a small company like Amyris, with 400 employees, is nowhere near putting a dent in that kind of market.

Nobody who was raising money five years ago, or writing headlines for that matter, would ever get too excited about “revolutionizing the production of renewable specialty chemicals,” or whatever you’d like to call Amyris’ work these days. But it’s clearly a key part of the journey for Amyris on the way to making lots of renewable fuel. Without that step, there probably wouldn’t be any way to live up to the giddy early promise that the VCs saw and invested in five years ago.

“For the next two years, our business will largely be about renewable chemicals,” Hilleman says. “It really is about execution for us.”

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  • Jerry Jeff

    I, for one, am excited about revolutionizing the production of renewable specialty chemicals. A phrase that is likely to become a cliche over the next ten years is “replacing the whole barrel of oil”, and that means coming up with new ways to make specialty and commodity chemicals–not just fuels.