Investors looking to get into industrial biotechnology should keep a watchful eye on renewable oils manufacturer Solazyme Inc (NASDAQ:SZYM). The developmental stage company has some pretty big ambitions and, should its goals be realized, is in for some eye-popping growth. Looking for some more specific reasons to keep Solazyme on your watchlist? Here are three opportunities for investors taking the long-term approach to the company.
1. Diverse target markets
Today the word “oil” is associated with crude oil, petrochemicals, and fuels. However, oils reach into a broader range of everyday life. When you hear the word “oil” you should think not just about fuels, but about foods, lubricants, fragrances, and body lotions, too (just to name a few). Investors of Solazyme Inc (NASDAQ:SZYM) will get to enjoy next-generation alternative fuels — including blendstocks and drop-ins — as well as specialty chemicals, personal care products, and nutritional products.
The diverse range of chemicals that can be manufactured on the company’s platform will one day help to distribute risk across various unrelated customers, partnerships, markets, and continents. There are far too many spooky examples of over-dependence in the history of investing to name just one, but know that Solazyme Inc (NASDAQ:SZYM) is aiming for diversity and stabilization. Volatility in any one market or with any one partner will not necessarily spell disaster for the company or shareholders.
2. Financially strong
In what could be considered a rarity in the industrial biotechnology industry, Solazyme Inc (NASDAQ:SZYM) is actually leaps and bounds ahead of peers when it comes to its balance sheet. It had $239 million in cash and short-term investments at the end of March, which will go a long way toward commercializing products and biorefineries in the next two years. The company expects operating expenses to fall between $115 million and $120 million in 2013, so that war chest will disappear pretty quickly.
Solazyme will continue to be compared with industry pioneer Amyris Inc (NASDAQ:AMRS), as both push into uncharted waters for commercial scale bio-based chemicals production. From a product standpoint the comparison is not very far off. The two companies are commercializing multiple products in similarly diverse markets: Amyris Inc (NASDAQ:AMRS) with building block molecules, Solazyme Inc (NASDAQ:SZYM) with tailored oils. However, the latter has managed a much healthier balance sheet and burn rate to date.
It will be a costly and unprofitable next several years for the company, but it will not have to dilute investors at nearly the same rate as other bio-based chemical producers. You would be hard pressed to find similar financial health in other companies in the developmental stage, especially in this capital-intensive industry.
3. Can you say “growth”?
Solazyme will jump from 1,820 metric tons of renewable oil capacity (from its demonstration facility in Peoria) now to over 125,000 metric tons before mid-2014.
|Biorefinery||Nameplate Capacity||Commissioning||Product by…|
|Peoria (product development)||1,820 metric tons||Active||(test quantities)|
|Solazyme Roquette Nutritionals||5,000 metric tons||June 2013||2H13|
|Solazyme Bunge||100,000 metric tons||2H13||4Q13|
|ADM/Clinton||20,000 metric tons||Early 2014||Early 2014|