Amyris Soars On CBD Deal

Summary

• AMRS up more than 70% on huge volume.
• The catalyst is a $255M CBD deal.
• More to come from this growing company.

CBD Deal

Amyris (NASDAQ:AMRS) rose by over 70% on an unprecedented volume on February 5th because of an announcement about a major deal that was released in the morning. The deal is a partnership that is typical for Amyris - it gets fees for R&D based on milestones and then gets a percentage of sales of the product. What is unusual is the size of the deal - the R&D payments can total up to $255M, which is absolutely huge for Amyris (its fully diluted market cap is around $550M). The reason for such a large sum is that the molecules in question are Cannabinoids (active molecules in marijuana). The CBD industry is growing quickly, major companies are investing in CBD products, and industrial biotechnology, of which, Amyris is a leader, promises the cheapest way to produce CBD molecules at scale with high purity.

I do not follow the marijuana industry, so somebody else can analyze the impacts of this deal on other marijuana companies. In this article, I will focus on what this deal means for Amyris. If you are new to the company, I recommend reading an overview of it I published in June.

For those familiar with the company, I want to focus on two aspects of the deal. The first one is the collaboration payment amount. This collaboration is an order of magnitude larger than most collaborations the company has entered so far. There is no reason to think that this collaboration will stand out as the only hundred-million dollar R&D deal Amyris enters. Amyris's tech allows it to produce virtually any organic molecule. Many of those are billion-dollar markets, CBD is just extremely hot right now. Other molecules will be just as hot in the future, and companies will turn to Amyris to develop cheap ways to produce them.

This brings me to the second aspect of this deal - the most important one, in my opinion. This collaboration was inbound - the unnamed partner approached Amyris, not the other way round. This is absolutely huge for the company. It reached a $255M deal with no sales or marketing expenses. I expect that more opportunities will present themselves to Amyris this way as the company gains more and more recognition. The press generated by this deal (see Bloomberg article, for example) will undoubtedly help.

Other Developments

Amyris has been very active lately. Since my last article, the company launched its new zero-calorie sweetener, signed a $50M deal, and issued $60M in convertible notes to refinance some of the debt due later this year. Another author on Seeking Alpha called the financing "toxic." I encourage you to read his arguments, for, initially, I had similar concerns. However, now it appears that the concerns are moot - the stock price is approaching the initial conversion price of $6.32. When the stock goes higher than that, the noteholders will be incentivized to convert their notes to stock at $6.32 and not to short the stock (which was the main concern of the article). As for whether the stock is going higher - on the Q3 conference call, John Melo talked about a transformative deal in China that had the potential to double the company's revenues. That deal is separate from both the $50M deal and the CBD deal and is still in the works (though it did take a back seat for a few weeks so that the CBD deal could be done quicker). I am excited to hear more about it and expect it to have a major impact on the stock.

I am also excited about the launch of the baby skincare line and, most of all, about sweetener news. I had the opportunity to taste multiple products made with Reb M (and so did my family members who like sweets more than I do) and all of them tasted excellent. I expect Reb M to be the largest driver of growth for Amyris in the foreseeable future.

I know that the Q3 results were disappointing and turned many shareholders against the management. But look, Amyris is a growing company with many new business lines in development. Unexpected things are bound to happen for a while. Just keep in mind that some of those things will take the shape of $255M in collaboration payments.

Analyst’s Disclosure: I am/we are long AMRS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.