Letter to Amyris Investors

Dear Amyris Investor,?

Last Monday, Amyris’ management rang the opening bell of the Nasdaq to commemorate the commissioning of their $115mm plant in Brazil. Barra Bonita is a game changer for the company and for precision fermentation more generally. Since I was fortunate to attend the event, I used the opportunity to reassess my views of the company at this crucial juncture, five months after November’s fundraise.?

Certainly, I learned some actionable items: First, Amyris should beat analyst expectations in the just-completed first quarter. Second, as part of that beat, they may begin quarterly accruals for their earnouts related to 2021’s DSM asset sale: Now expected to be at the top end of the range, the milestones will be larger than previously expected (due in large part to the rise in the price of petroleum). But what stays with me one week later are a few anecdotes that I want to share.?

Everyone should watch the 6-minute video the company released as part of the bell ringing, if you haven’t already:?Amyris Mfg Plant - Barra Bonita April 2022 - YouTube. This and some of my conversations gave me fresh vision on how I think this company is moving forward. A lot of the general market comments about this company over the past five months have felt, to me, a little like when you stare at a pointillistic painting too closely: The constant, pessimistic drum beat focused on how the company will inevitably “have to do another fundraise” misses what Amyris is actually building. I left the day more rooted in my view that what Amyris is doing is dynamic and innovative: Barra Bonita represents Amyris’ inventiveness.??

?Of course, Amyris still needs to prove it can deliver on its grand plans. But it’s unfair to say they don’t care about value creation.?In 2019, Amyris’ Consumer Revenue segment generated less than $20mm in total sales. This year, that number will be $220mm to $230mm. I hear constant vitriol borne of frustration about how they’re not doing enough to create shareholder value, but I don’t hear much about that 10-fold increase in just 3 years.?

Early in the day, Amyris’ head of R&D told me that employee attrition in his science department is less than 5 percent per annum. I asked him how is that possible; given the share price, certainly no one is sticking around just for the stock options? “Because we don’t fire people when they fail,” he immediately responded. “We encourage them to take risks and don’t want to penalize them for that.” I thought that was really interesting, because AMRS CEO John Melo is constantly criticized for his follies. To continue the pointillism metaphor, this company’s scientists are creating art (just on a scientific platform).?

I had previously known Amyris’ motto (“no compromise”) but last Monday I realized this company actually has an ethos. From Emeryville, they are attracting the kind of people that live and breathe a vision of trying to change the world for the better:

• Naomi Watts, the actor, laid bare her battle with menopause. Amyris gave her the tools and the pathway to build a brand that could (in her words) conquer the last taboo for women. Her menopause brand?Stripes?launches later this year, backed by a new (yet unnamed) “hero” ingredient created by Amyris.
• Stripes’ new molecule will be interesting, since the runaway success of the?JVN?hair brand is backed by another molecule Amyris invented: Hemisqualane. A silicone replacement for shampoo, other beauty companies have been asking Sephora where they can source their own hemisqualane. As part of that conversation, interestingly, I learned that Jonathan Van Ness chose to work with?Biossance?from 5 other competing offers. More proof that Amyris is doing something different.?
• Carbon Credits were also introduced for the first time as a potential future revenue source. As mentioned in the video, Barra Bonita is a net carbon neutral facility and the company’s Brazilian partner (Minerva) has experience in this field. As a reminder, before Tesla produced its first vehicles, it made money by selling such Carbon Credits.?

To those of us frustrated by the share price, I was encouraged to learn that in the wake of last third quarter’s miss, John Melo and CFO Han Kieftenbeld now talk every day at 7:30am PT (regardless of where John is traveling). This is important because I think having someone with a tight grip on the company’s spend also means the odds of a subsequent raise this year before Amyris reaches profitability are slim (even if cash on hand gets down to the +/- $100mm mark before the cash flow inflection point hits). They have at least two non-core asset sales they could sell first. (John, once again, said the company’s nearly 20 percent ownership stake in Chevron-backed fuel company Novvi is effectively for sale.) Eventually I think they’ll prune certain of the consumer brands, as well.??

The company’s just-released proxy shows CEO Melo has a pay strategy where if Amyris’ stock price significantly delivers he proportionately benefits. It is the most asymmetrical upside I have seen since Elon Musk’s well-reported Tesla package a few years ago. Set at a minimum of 5 times today’s share price (and tiering up from there), the incentive plan is ambitious and audacious and aligned in shareholders’ favor.?

It’s been a bumpy ride, to be sure, and I hear the cynics who say cash flow is all that matters, especially in the current environment. I agree on the importance of this company becoming self-funding as soon as possible, but I think the entire market view of Amyris is so short sighted -- focused on this month or next -- that it’s missing my main takeaway from last Monday’s event: Amyris continues to change markets, innovate scientific (and manufacturing) techniques, scale scarce resources, and make synthetic biology accessible to the masses.?

I’ll write next after the company reports earnings next month (date TBD), and until then send best wishes for a,

Happy Easter + Passover,?

Randy?

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