Amyris Is Setting Up For A Monster Run
Dec. 17, 2020 5:43 PM ET|25 comments | About: Amyris, Inc. (AMRS)
Summary
Amyris has multiple major transactions around the corner.
The political and market environment favor the company greatly.
The current bull run is reminiscent of the 2017-2018 one, in which the share price grew over 4X.
I have been writing about Amyris (AMRS) for four years and following the company for six. I've seen it all - bull runs, bear runs, big deals, big flops. The only thing that has been a constant is the pace of R&D - Amyris has been continuously developing and scaling new molecules every year. After listening to the recent investor presentation, I am eerily reminded of the company's state in Fall 2017, which was the precursor to a bull run that took the shares from just over $2 to a hair under $9 in one year.
In this article, I will explain the similarities (as well as the notable differences) between now and Fall 2017, and explain why I believe that Amyris is setting up for a monster run.
Similarities
Big Deals Afoot
Amyris is currently in the final stages of negotiating 3 major transactions, expecting to net the company over $450M. The first one is expected to close in December and provide $30M cash upfront this quarter. The total amount of upfront cash expected from these transactions between now and the end of the first half of 2021 is over $200M. In 2017-2018, the bull run was enabled by the large DSM deal. The stock went on a tear when the terms of the deals became public. When the current 3 deals close, I expect the stock to appreciate significantly on each one. Moreover, $200M is enough to fund the company in perpetuity. I believe that the days of raising dilutive funding for Amyris are over. Finally, the deals are important because (even though it shouldn't) revenue timing matters a lot to the market. Early 2020 had unusually few one-time transactions for Amyris (as did early 2017). That means that YoY revenue growth in early 2021 will be incredibly high.
Pipeline Expansion
2017 was the year when the market first began to believe that Amyris is more than a one-trick pony. Before that, the company was largely seen as a producer of farnesene, with some other minor molecules being largely insignificant for the company. An appreciation of how the company's platform can produce hundreds of molecules first appeared in 2017 and made a lot of investors notice the stock. Today, it is becoming obvious that Amyris can produce more than just small molecules. It can also produce proteins, like collagen, monoclonal antibodies, and mRNA (which is the molecule type enabling both Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) vaccines). The TAM for the company has never looked better.
Record Short Positions
Short interest at the beginning of the bull run in 2017 was at a then-unprecedented level of 3M shares. Currently, the open short positions are near an all-time high, clocking in 23.5M shares short on an average daily volume of 3M. As this current run gathers momentum, shorts will have to cover, further fueling the run I expect.
John Doerr Buying Shares
John Doerr, the company's largest investor, and one of the first investors in both Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG), was buying up shares in 2017 leading to the run-up, and he is doing the same thing now.
Differences
Market Environment
The market environment of 2017 was drastically different than that of today. The Federal Reserve was hiking interest rates, and there were broad expectations of the business cycle slowly turning. Currently, the QE has become unlimited, and multiple expansion for growth companies is unprecedented. There is no limit in sight to valuations based on TAM instead of earnings. And with a technology platform that lets Amyris produce hundreds of valuable organic molecules, the TAM for this company defies imagination.
Asset Base
After the 2017 deal, the asset base for Amyris was a little bit questionable. It sold a large chunk of its business and was left with early-stage products. Currently, it is expected to sell molecules that are not central to its business model. It will retain Biossance, its crown jewel, which based on current revenue multiples is worth around $800M (close to the market cap of the company). If the growth pace continues unabated (which has been the case so far, in defiance of the skeptics), Biossance will be a multi-billion dollar brand on its own by the end of next year. Purecane today is about where Biossance was in 2017 and will likely be the next major growth driver for the company.
Political Environment
In 2017, the political environment was not good for Amyris. Sustainability, reducing reliance on petrochemicals, and supporting green companies were not priorities of the Trump administration. They likely will be for the Biden administration, and we can fully expect Amyris to get some large government contracts over the next few years. It is also well-known that generals prepare for the last war, and this makes me think that there will be a huge boom of government investment in vaccine research and production after COVID. Amyris, with its ability to produce mRNA and adjuvants, will likely be a beneficiary of that.
What To Watch For?
The stock has had a few spikes over the last couple of years, and it generally failed to break the critical $4.75/share level.
That will be the target I'll be watching most closely. Should the stock get comfortably above $4.75/share in its current run (the stock has almost doubled in the last month), I fully expect the bull run to continue at least until the resistance of the 2018 high of $9/share. As always, my long-term thesis on the company involves a complete reevaluation of the multiples the company deserves by Wall Street, and in the end, I expect the stock to be a winner for decades.
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