By:
Clermond Jean, AIM student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
• BioAmber, Inc. (NYSE:BIOA) is an industrial biotechnology company
which produces sustainable chemicals. The firm combines chemical catalysis with
industrialized biotechnology to convert renewable feedstock into sustainable
chemicals with widespread application ranging from plasticizers to food additives
and resins
• BioAmber continues to
gradually ramp and optimize commercial production at Sarnia, Canada.
• The average selling
price for Q4 2015 was above the $2,000 / MT guidance, despite low oil prices;
• After 4Q15 Mitsui
invested $CDN25MM (US$18.8MM) in the Sarnia joint venture.
• Bio-SA sales were
~$1.1MM in the period including first shipments to key off-taker PTTMCC Biochem
in Thailand.
For BioAmber the road
towards translating environmental sustainability into profitability has been
anything but a smooth ride. Over the past year, BioAmber stock price has been
in a tailspin downward due to a variety of factors including: suppressed energy
prices and a need for additional capital. The current stock price for BioAmber
is almost half the value it was when coverage was initiated on the company. Nevertheless,
during this same time period, BioAmber has begun commercial production at their
Sarnia facility and secured several strategic partnerships that better position
the company for future success.
BioAmber’s products have
faced pricing pressure as a result of low oil prices. Although BioAmber’s
supply contracts have selling prices decoupled from oil, the Company has
reduced their selling price for certain customers to have them more align with
petro-based counterparts. Furthermore, there is no guarantee BioAmber’s
customers will not seek lower prices when they renegotiate their contracts, prices
are currently set based on the value the company’s biosuccinic offers. However,
in their fourth quarter earnings call, CEO Jean-Francois Huc noted that
BioAmber could be exposed to softening demand for its products if oil prices
were to stay in the $30-40 per-barrel range for an extended time.
Nevertheless,
BioAmber has also had two equity offerings over the past year raising $35.1MM
(May 2015) and $11.8MM (January 2016) in net proceeds. Both of the offerings led
to a significant decline in the Company’s share price. Proceeds from the
offerings were used to reimburse $12.5MM of corporate debt that it has
with Tennenbaum Capital Partners to remove a restriction it had on the use
of $15MM of cash. Proceeds will also be used to finance construction of a
new facility that is expected to open in 2018.
BioAmber has begun
commercial production at their Sarnia facility, achieving several milestones in
their commercialization stage. Their Sarnia facility has been performing well
and the bio-succinic acid produced has met the quality standards set in 2015. Over
100 companies have qualified the bio-succinic acid produced in Sarnia and more
than 100 additional companies are currently at various stages of assessment and
qualification. After the end of the quarter, the Sarnia facility obtained
several important quality management certifications. The average selling price
for 4Q15 was above the $2,000 / MT guidance, despite low oil prices.
BioAmber
has also forged several strategic partnerships with other companies that will
further promote its growth. Mitsui & Co. have invested $CDN25MM in
the Sarnia joint venture, increasing its equity stake from 30% to 40%
and committing to play a bigger role in commercialization of the facility. Other
strategic partnerships include technology licensing and off-take agreements in
order to also support their Sarnia facility. BioAmber has signed take-or-pay
agreements with both Vinmar and PTTMCC that represent sales volumes of over
15,000 metric tons of succinic-acid in 2016 and 2017. BioAmber has also signed
a number of other supply agreements with non-binding volume commitments that
collectively exceed the available capacity in the plant. These strategic
partnerships coupled with new supply agreements shows a bright road ahead for
BioAmber.
What
has the stock done lately?
Past
Year Performance: Over the past year, this stock has
performed terribly. In 2015, the stock traded as high as $10.98, versus $4.74
on 4/25/2016. (In 2015, the stock retreated significantly from its high, and by
the end of the year was at $6.18). For the 52 weeks ending 4/25/2016, the stock
of this company was down 59.5% to $4.74. During the past 13 weeks, the stock
has risen modestly to 11.8%. Bioamber Inc is trading at 2.41 times book value.
1
Year Stock Chart vs. Benchmark from FactSet here
Source:
FactSet
My
Takeaway
Over the past year,
BioAmber has experienced a lot of the ups and downs as they have begun
transitioning from their demo-phase to commercial production. Nonetheless,
management at BioAmber have developed a strong plan to achieve success in their
commercialization stage, making strategic decisions that better poise the
company for long-term success. I continue to believe BioAmber is a long-term
play for shareholders and that they stand to become an industry giant in the
fast growing industrialized biotechnology industry. In the short term, I
believe BioAmber’s focus on a long-term growth strategy will hamper the
performance of their shares. I believe that although the original drivers of
the Company’s growth remain intact, the market will continue to undervalue the
company until the pathway towards profitability becomes clearer.
1
Month Stock Chart from FactSet here (optional)
Source:
FactSet
