3. Manufacturing cost
The most important thing guiding Solazyme to a profitable future will be manufacturing costs. While the company has targeted $1,000 per metric ton of renewable oils as an initial floor, costs will depend on several factors. First, successfully scaling the technology platform is key to reaching that target. Solazyme ran two partial tests in 500,000 liter bioreactors last year and achieved a linear yield of product, but has yet to prove commercial productivity of its microbes at such levels.
The company is attempting to replicate its heterotrophic process in 625,000-liter bioreactors. Failing to do so could affect annual capacities of biorefineries and gross margin estimates. The Clinton and Moema facilities, which represent a total of 120,000 metric tons of nameplate capacity, will initially have 500,000-liter equipment installed. In other words, Solazyme Inc (NASDAQ:SZYM) will not reach its targeted margins — even after ramp-up — at these facilities with the current infrastructure.
Second, manufacturing cost is dependent on total scale. Although the facilities coming on line between this summer and early 2014 will have nameplate capacities totaling 125,000 metric tons, it will take between 12 and 18 months to ramp production up to those levels.
Third, feedstock costs will vary between the current Archer Daniels Midland Company (NYSE:ADM) (corn, dextrose) and Bunge (sugarcane crush, sucrose) facilities. Similarly, manufacturing costs are likely to vary between products. Margins of various oil profiles will be affected by metrics such as yield, productivity, and titer (the efficiency of biological pathways is not constant between different sugars). Margins will gradually improve as scale is reached and process improvements are made, but investors won’t have a clear picture on costs anytime soon.
Foolish bottom line
Solazyme Inc (NASDAQ:SZYM) had a great 2012 and is now progressing through a critical 2013. The tremendous growth that investors are looking forward to depends on many moving parts that can be difficult to pin down. Nonetheless, the disruptive platform will continue to be de-risked as the company makes its way to commercialization. Just be sure that you don’t overlook obstacles and project completely smooth sailing ahead.
The article 3 Things to Watch at Solazyme originally appeared on Fool.com and is written by Maxx Chatsko.
Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio, his CAPS page, or follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool owns shares of Solazyme.
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