Solayzyme shifts focus to lower-volume, higher-value products

By Katie Fletcher | November 06, 2014

Solazyme Inc. recently released third quarter earnings, anticipating total revenue for the year just north of $60 million, up more than 50 percent from 2013. Revenue of $17.6 million in the third quarter was up 65 percent from the third quarter of last year. According to Tyler Painter, Solazyme CFO, “excluding a license fee back in 2010, this was the highest revenue quarter on record.”

This growth was driven primarily by product revenues in the quarter of $11.6 million, an increase of 140 percent year-on-year. Further breaking it down, consumer products revenues were $6.8 million for the quarter, up 41 percent year-on-year. Painter indicated this increase was driven by Algenist momentum from expanded distribution with Ulta and Space NK and Bloomingdales. The balance of product revenue was comprised of Solazyme’s ingredients and intermediates sales totaling $4.8 million in the quarter, a 62 percent increase in comparison to second quarter. Delivery of oil to anchor customers, increasing traction of industrial oils and products, and a fuels blend program drove this increase.

Overall, Jonathan Wolfson, co-founder of Solazyme, said the company has been successful with a powerful technology platform resulting in valuable products, three commercial manufacturing facilities, deep partnerships, a strong balance sheet, and proven products in a number of commercial markets with many more to come. “We’ve assembled almost all of the major puzzle pieces for success,” Wolfson said.

Solazyme leadership mentioned the company’s strategic shift in how the company will move forward multiple times on the call. “A shift away from focusing on maximizing volumes at our current facilities and instead moving to a focus on selling high-margin products and maximizing returns on our capacity investments,” Wolfson said. “A key element of this shift is that we're reducing emphasis on specific oils and markets where our oils are often used as enhanced replacement oils.”

Wolfson said this does not mean the company is ceasing production of these oils, but for now will not be baseloading plants with these products, instead, focusing production on select opportunities on anchor customers like Unilever and strategic distributors who are reselling Solazyme products.

The company believes the shift away from maximizing volumes will help better manage capital as it scales its business, ensure Solazyme generates the best returns on manufacturing assets and better position the company to capture the value of disruptive technology, specifically higher-margin products. “The key strategic shifts we have discussed today are intended to enable us to tightly manage our cash as we balance investment to build our high-value commercial markets with responsibly ramping our production capacity,” Painter said.

Both the Clinton and Galva Iowa facilities continue to operate well with large-scale commercial equipment. These facilities have enabled Solazyme to leverage outstanding, preexisting facilities and great operating partners in ADM and ANP, Wolfson said.

Peter Licari, Solazyme chief technology officer, said at Clinton/Galva they’ve produced over 1,000 metric tons of product at the plants in each of the last two quarters while managing additional complexity by continuing to produce multiple products. “We've also shipped product from these facilities to over 30 customers through the end of the third quarter,” Licari said.

The joint venture with Bunge has resulted in the Moema facility in Brazil. The company mentioned some operational challenges with Moema based on initial plant process and equipment optimization. “We're making good progress at Moema, but as we've said many times, Moema is a "first of its kind" plant, and as such, it's had some "first of its kind" challenges,” Licari said.

The company shared important achievements at Moema with all key unit operations installed and working. Solazyme has produced its encapsulated oil product, Encapso, lauric oil and an oleic oil, and has run three different strains. They’ve also shipped multiple truckloads of product to four different customers from Moema. Licari said, the upstream process works well and as expected, running all five of the plant's 625,000-liter fermenters, including running all four of the production fermenters at the same time. “This is the hardest part to get right in starting up an industrial fermentation facility,” Licari said.

The downstream process is where Moema still needs work. “Specifically, we are focusing on some correctable issues with the conveyance system,” Licari said.

On the commercial side, Algenist delivered 41 percent year-on-year growth in the quarter. Solazyme made first commercial deliveries to Unilever under their 10,000-metric-ton supply agreement. In July, Solazyme expanded their partnership with AkzoNobel to include funded joint development in surface chemistry and set terms of a five-year 10,000-metric-ton supply agreement.

Solazyme mentioned confidence in its strategic focus and alignment with the markets its operates in today, as well as current manufacturing capacity and capital position. “And in fact, we've never been more enthusiastic about Solazyme's ultimate potential,” Wolfson said. “We think that's beginning to be demonstrated particularly in the production progress at Clinton/Galva, the upstream successes at Moema, the commercial momentum we are now beginning to build and the breadth and potential of our technology.”