Shares of synthetic biology pioneer Amyris Inc (NASDAQ:AMRS) closed Tuesday down 5% and opened today down as much as 8% on news that an investor was bringing a lawsuit against the company with Milberg LLP. Cue the parade of law firms initiating their own class action lawsuits for their piece of the pie. While I do think Amyris Inc (NASDAQ:AMRS) management got a little ahead of itself in early projections, I also think this lawsuit is baseless.
The lawsuit claims that Amyris Inc (NASDAQ:AMRS) and management violated the Securities and Exchange Act of 1934 between April 29, 2011 and Feb. 8, 2012. The company is accused of “making false and misleading statements regarding its ability to sustain commercial production of Biofene.” Biofene is the company’s renewable form of farnesene, a building-block molecule that can be refined into thousands of value-added chemicals including high-value squalane for cosmetics. And, of course, the share price dropped considerably (otherwise, there would be no lawsuit).
On May 5, 2011, the company released its production timeline, which turned out to be the biggest mistake it ever made. Management claimed that it would produce 6-9 million liters of Biofene in 2011 and 40-50 million liters in 2012. After running into contamination, scalability, and separation issues, actual production volumes totaled much less than that.
Those projections sure look laughable now, but at the time Amyris Inc (NASDAQ:AMRS) had a healthy stable of production facilities online or under construction. Third-party manufacturers were producing Biofene in North Carolina, Spain, Brazil, and elsewhere. The company was also building its own commercial-scale facilities in Sao Paulo, Brazil: one in Brotas (currently operating) and one with Usina Sao Martinho (construction on hold).
Couple the challenge of scaling an industrial biotech platform — remember, this industry is walking into the unknown — with less than efficient financial operations and you get the current state of affairs. Contract manufacturers were axed to save money and the facility at Brotas seems to have been scaled down from its ambitious targets. The biorefinery employs six 200,000 liter bioreactors — fewer than the 240,000 liter tanks operated at some contract sites. My crude calculations show this facility will likely produce just 15 million liters of nameplate capacity each year.
The financial situation at Amyris Inc (NASDAQ:AMRS) is less than enviable. Whereas fellow industrial biotech company Solazyme Inc (NASDAQ:SZYM) has hit every major milestone and had no problem raising funds, Amyris has had to take the more dilutive route for shareholders. Still, large commercial partners Total and Cosan Limited(USA) (NYSE:CZZ) haven’t backed down in their support of the company. Total upped its investment in Amyris during several rough patches in the past year after incurring significant paper losses on the roughly 20% stake in the company. Total even has its own webpage for the partnership, which speaks to its long-term vision for Amyris’ platform, especially in renewable diesel.