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$AMRS: A Less Hyped Version of $DNA?
Weekly Semi Deep-Dive
Note: this is an update on my deep dive on $DNA. I suggest reading it first, if you haven´t already, to better understand the below information.
Summary: $DNA trades at 46 times $AMRS´s price to sales ratio and this may not be entirely justified.
Tapering + Buying Opportunities ?
This week, the Fed layed out its plans to hike rates going forward and taper its bond purchasing program. I am hoping that, as a result, some of the more generously valued stocks deflate, include synthetic biology stocks, maybe yielding some buying opportunities over the coming months. As you know from my last post about $DNA, I believe that synthetic biology is going to be a key component of our economy, analogous to semiconductors today. However, I see valuations in the syn bio sector as quite inflated and specifically, I do not like $DNA´s valuation, even though I believe the company is world class. Meanwhile, I have been checking out Amyris ($AMRS), which initially seems like a less fancy, less hyped version of $DNA. Somewhat like what $FISV is to $SQ.
The Essence of $AMRS
The more I research Amyris, the more I believe it merits a deep dive. Today, however, I am going to share with you my initial thoughts on it in a condensed manner, as is customary in my semi deep-dives. Basically, $AMRS has the same properties as $DNA, in terms of its flywheel-like increasing ability to synthesize proteins, by bringing together artificial intelligence, genomics, mass spectrometry and automation. The more proteins it synthesizes, the better (quicker and cheaper) it gets at doing so. Very similar to Moore´s law, as you may have spotted.
In terms of the technology and commercial achievements, I am yet to totally figure out if $DNA is further ahead than $AMRS´s, but initially, it seems to me that there is not much of a difference between the two companies overall. However, there is a large difference in terms of valuation. $DNA has a revenue of 76.7m$ in the TTM, but has a market cap of 16b$, implying a P/S ratio north of 200. $AMRS has a revenue of 356.8m$ in the TTM and trades at a market cap of 1.54b$, implying a P/S ratio of just 4.3. $DNA´s price to sales ratio is 46.5 times larger than $AMRS´s. This is a very simplified analysis and I am yet to dive deep into $AMRS. However, if they do turn out to be similar, the above is a considerable arbitrage situation. Perhaps even better, a potentially great point of entry to capitalize on the likely multi-decade synbio invasion of our lives and economy.
Further, $DNA monetizes its platform by taking stakes in its clients´ business (royalties, equity etc) and $AMRS actually develops its own brands (mostly). Through some thought, I have come to the conclusion that I do not prefer one business model over the other. The first implies more uncertainty in terms of cashflow but less operational complexity and the second implies viceversa. What I do believe is paramount, for both companies, is their ability to produce molecules with large demand at cheaper costs than existing production alternatives and in a more sustainable manner. Cheaper and more sustainable production will drive demand- the latter given the end consumers´ growing preference for sustainably sourced products.
In this sense, $DNA has shown some traction in the market place, but $AMRS has a track record of growing revenue through time:
Whilst gross margin has been on the rise recently for $AMRS, its bottom line still seems to be struggling nonetheless. $AMRS ´s traction is due to the fact that it has found a way competitive way to produce molecules that are in high demand and then commercialize them. One of them is squalane, a very near cousing of squalene. Squalene is extracted from shark liver and is a key ingredient in moisturizing creams. Traditional squalene production is not only expensive, but very unsustainable as it requires killing plenty of sharks. Incidentally, squalene has also turned out to be a potent vaccine adjuvant and seems to be equally useful to deliver cannabinoids to the body. Amyris has built Biossance on its squalene pipeline and is currently Sephora´s fastest growing brand. There is a lot to look at here, but there are plenty of signs that $AMRS can produce relevant molecules competitively and get them out there.
A month ago or so I was reading “Only the Paranoid Survive” by Andy Grove. The book has plenty of $INTC history and I found most remarkable Grove´s stories of $INTC ´s early products. Read in today´s world, in which semiconductors are incredibly versatile and powerful, the early products Grove talks about seem totally harmless and even comical, with tiny computational power. I think that is what protein synthesis looks like today to most. Today we see $AMRS sell moisturizing cream, but in a decade´s time, I think we will see the company do a lot more.
Further, $AMRS has a pretty decent balance sheet, with a cash position of 114.9m$ and a long term debt position of 17.1m$. The company missed its Q3 estimates by a long stretch, apparently due to some raw material getting stuck in a port somewhere (supply chain shortages). I imagine this explains the jump in short term debt from 7.7.m$ last quarter to 305.2m$ in Q3. That is quite a jump and definitely something look out for going forward. However, at the same time this has produce quite a large sell off in the stock, which I think looks quite attractive.
Another thing that I will point out is that $AMRS has been trading for much longer than $DNA. This gives us greater context in terms of what we can expect the share price to do, specifically on the downside. The company is doing way better now than it has done from 2013 to 2019 and yet the share is trading lower. This may point to some potentially asymmetric returns, but I am just thinking out loud here for now. In case you are wondering, the early spike in share price is due to the fact that the market thought $AMRS was going to provide the world with synthetic fuel, which in turn was going to displace traditional fuel. IPO hypes ($DNA, cough)…
Going forward, I am going to dive deeper into $AMRS and I will aim to discern the key differences with respect to $DNA. I will be sharing my findings with you in due course. Until then, feel free to reach out to me by leaving comments. Eager to discuss the above with bright and inquisitive minds.
Until next time!
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