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Solazyme Inc (SZYM): The Outlook You Should See

Solazyme IncSynthetic biology company and renewable oils manufacturer Solazyme Inc (NASDAQ:SZYM) reported earnings after the market closed on Wednesday. Investors worried about a quiet start to the year were reminded that the company remains occupied preparing its three commercial-scale facilities for operations and developing oil profiles. The waiting game isn’t quite over for investors, but management announced one major event that should keep investors happy. Here is a recap of recent developments at Solazyme Inc (NASDAQ:SZYM).

As a developmental stage company with few revenue streams, Solazyme Inc (NASDAQ:SZYM) doesn’t give investors much to look for in traditional financials. The operating results compared to the year-ago period are displayed below nonetheless.

1Q13 1Q12 % Change
Total Revenue $6.68 million $13.56 million (50.8%)
Product Revenue $4.00 million $3.996 million 0%
Cost of Product $1.45 million $1.25 million 17.0%
Total Costs $30.03 million $30.66 million (2.0%)
Net Loss $26.53 million $16.78 million 58.0%

Source: Solazyme

More important is the fact that cash on hand grew 60% to $239 million after a successful debt note offering shortly after the beginning of the year. Meanwhile, shareholders’ equity fell 10% to $164 million compared to the fourth quarter of 2012. The company’s strong financial health equates to the “no news is good news” mantra for investors.

Partnership outlook
Solazyme Inc (NASDAQ:SZYM) announced a sales agreement with AkzoNobel, a global paints and coatings company, as the first concrete off-take agreement for oils originating from the biorefinery in Moema, Brazil. The agreement will send bulk quantities of oils to AkzoNobel in 2014, with the companies beginning to develop oils for the agreement in the second half of 2013. It is important for investors to remember that the Moema facility will be operating at a restricted capacity until at least 2015, as it generally takes 12-18 months to ramp up to nameplate capacity.

Investors will be on the lookout for further, perhaps larger, customer announcements in the coming quarters. Just remember that there is plenty of time between now and mid-2015. Until then, there should be no worries from the guidance and commercialization aid Solazyme Inc (NASDAQ:SZYM) will receive from agri-giants Bunge Limited (NYSE:BG) and Archer Daniels Midland Company (NYSE:ADM).

Product commercialization outlook
The biggest announcement from Solazyme during the earnings call was the development of a new oil-tailoring capability. Below you will see a series of pictures showing a triglyceride oil, which is a glycerol backbone (grey) and three fatty acid chains (black). Controlling the structure of a triglyceride oil gives Solazyme Inc (NASDAQ:SZYM) unparalleled capabilities in biomanufacturing. For instance, the company already had the ability to control chain length of oils, which yields the highest value fatty acids.

Solazyme Inc (SZYM) Adds (More) Precision to Tailored Oil Platform

Source: Solazyme

Additionally, Solazyme Inc (NASDAQ:SZYM) already had the ability to control saturation along the fatty acid chain, which is noted by the double line (a double bonded carbon) in the picture below. This affects the functionality and specifications of tailored oils.

Solazyme Inc (SZYM) Adds (More) Precision to Tailored Oil Platform

Source: Solazyme

Now, the company has developed the ability to control the positioning of functional groups along the fatty acid chain.

Solazyme Inc (SZYM) Adds (More) Precision to Tailored Oil Platform

Source: Solazyme

Why does this new development matter? Solazyme Inc (NASDAQ:SZYM) can now eliminate trans fats in its nutritional oils, retain texture of oils without hydrogenation, and control the functionality of oils with even greater precision. Positioning does not necessarily apply to all oils in the company’s portfolio, but it will open up a new frontier for what is possible with Solazyme’s platform. This is definitely an awesome development for investors, even if it is in the early stages.

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