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Is Bioamber Inc (BIOA) a Good Long-Term Investment?

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Sustainable chemicals company Bioamber Inc (NYSE:BIOA) had a relatively quiet IPO in May. That could be attributed to the lack of enthusiasm surrounding industrial biotech companies in the last year, all of which have fallen dramatically from their overhyped IPO prices or the fact that the company is (gasp) not targeting biofuels in any way (that is actually a positive, but it comes with less fanfare). Whatever the reason, several investors I have spoken to who are interested in the industry had no idea that Bioamber Inc (NYSE:BIOA) even existed. Ouch. So let’s walk through a crash course on the company and see if it represents a good long-term investment.

What does BioAmber do?
Bioamber Inc (NYSE:BIOA) has licensed an initial yeast strain from Cargrill, a genetic pathway from Celexion, and process technologies from Du Pont. Throw it all together and you get some scary potential. The company is focused on developing efficient microbial pathways for C6 building block molecules, or molecules that contain six carbon atoms. The company’s first target is bio-succinic acid, which represents a $10 billion market for polyesters, plastics, and spandex.

Source: BioAmber S1 filing.

After accounting for additional precursor molecules in development such as adipic acid, caprolactam, and HMDA (all important for nylon fibers), the company’s total market opportunity rises to more than $30 billion. That may not seem like a grand total, but companies are intrigued by the its carbon-neutral process for producing these dirty chemicals. One day, the carpet in your house may be produced by chemicals supplied by corn-fed microbes at Bioamber Inc (NYSE:BIOA). Crazy, huh?

What are the opportunities?
Aside from the $30 billion market opportunity noted above, BioAmber offers investors a streamlined play in industrial biotech. The company is building its first commercial-scale facility for bio-succinic acid production in Canada with partner Mitsui. The facility will have a nameplate capacity of 30,000 metric tons — with an option to upgrade to 50,000 metric tons — and is on schedule for commissioning and start-up in 2014. The two partners are planning two additional commercial-scale facilities in the next three to four years.

Bioamber Inc (NYSE:BIOA) has more than 19 customers lined up to buy commercial quantities of bio-succinic acid, including global giants such as Mitsubishi Chemical, LANXESS, Faurecia, and NatureWorks. Some are locked in to buy 75%-100% of their succinic acid needs from the company. Cha-ching!

That is an amazing feat for any developmental stage company, but it pales in comparison to another accomplishment. BioAmber has operated in 350,000 liter bioreactors — the largest in the industry — at its demonstration-scale facility in France since January 2010. To put that in perspective, take a look at how it stacks up to peers:

Company Largest Bioreactors Continuously
Operated to Date
BioAmber 350,000 liters
Solazyme Inc (NASDAQ:SZYM) 128,000 liters
Amyris Inc (NASDAQ:AMRS) 250,000 liters
LS9 135,000 liters
Genomatica 240,000 liters

Source: Company news releases.

Additionally, Bioamber Inc (NYSE:BIOA) offers investors a huge opportunity by taking the road less traveled. By not targeting molecules with fuel applications, the company won’t be immersed in the controversy surrounding biofuels. That is a smart move for a lot of reasons. The low margins and high volumes required to become a force in the fuel industry make it a nearly impossible target for developmental-stage industrial biotech companies — as Amyris found out before correcting course last year.

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