Alternative oils play Solazyme Inc (NASDAQ:SZYM) may have just gotten riskier; apparently, many investors think so. Unlike many stocks today, Solazyme Inc (NASDAQ:SZYM)’s trip to the woodshed is hinged on actual news and, unfortunately, it’s one of the market’s biggest decliners as of this writing. Today we learned that one of its partnerships will be dissolved within weeks.
Solazyme and France’s Roquette Freres will no longer work together on creating food additives. Solazyme cited “divergent views on an acceptable commercial strategy and timeline for the manufacturing and marketing of joint venture products” as the cause.
Solazyme Inc (NASDAQ:SZYM) is more than a biofuels play like fellow biofuels upstarts like Amyris Inc (NASDAQ:AMRS) and Gevo, Inc. (NASDAQ:GEVO). I purchased shares of Solazyme for the Prosocial Portfolio (I hold shares in my personal portfolio, too) not only for its impressive foray into a nascent field, but also because it had already inked some impressive partnerships. Meanwhile, its alternative oils go much further than simply trying to provide alternatives to fossil fuels. Its microalgae-derived oils can also be used in skin care and food.
The Roquette Freres deal was a clear example of that differentiation. Under the agreement, Roquette would shell out the capital for manufacturing facilities and Solazyme would have provided its cutting-edge technology. The resulting oils were supposed to increase foods’ nutritional content.
Furthermore, Roquette isn’t Solazyme Inc (NASDAQ:SZYM)’s only big partner for the nutritional additives market. It also has active partnerships or joint ventures with Unilever plc (ADR) (NYSE:UL), Bunge Ltd (NYSE:BG), and Archer Daniels Midland Company (NYSE:ADM).
Maybe investors shoudn’t freak out too badly, though. The potential for situations like this one is outlined in the company’s Form 10-K, so speed bumps aren’t particularly surprising. Solazyme’s risk factors clearly state the potential challenges due to its dependence on its partners.
Among the previously disclosed risks: Solazyme Inc (NASDAQ:SZYM)’s lack of control over how quickly its partners can move on commercialization. For example: “Further, we may have limited control over the amount or timing of resources that any partner is able or willing to devote to production and processing of our products.” That seems to echo this very situation. In addition, Solazyme Inc (NASDAQ:SZYM) got specific, stating that its relationship with Roquette might not be successful, so a dissolution wasn’t out of the question.