BioAmber: Fingers Crossed

by Debra Fiakas CFA

Plastic is everywhere  –  our homes and offices, the cars we drive, our personal items, food containers and even our dental fillings.  Plastic is also toxic.  Dioxins, BPA (bisphenol A) and PCBs (polychlorinated biphenyl), both of which are critical chemicals in plastics, have been identified as endocrine disruptors, upsetting hormonal balance, triggering the growth of tumors and interfering with sexual development in fetuses.

Even people who deliberately avoid plastics are exposed to the toxicity.  For example, we ingest BPA when eating fish that lived in waters contaminated with plastics.  Remember that ‘island’ of plastic the size of Texas floating in the Pacific Ocean?  It is showing up in bits and pieces on your plate.

Thus it seems the need to replace plastic with renewable materials is of dire importance.  This is why BioAmber (BIOA:  NYSE) has remained on the list of companies to watch.  Bio-succinic acid and butanediol are BioAmber’s specialty.   Both are intermediate chemicals that are used widely to make final products such as polymer fibers for clothes, food, surfactants, resins, lacquers, coatings, and detergents.   Bio-succinic acid alone represents a $4 billion market opportunity, while bioplastics and elastomers offer another $5.5 billion in demand.
Unfortunately, even with outsized markets the biochemical business has been challenging.  Significant innovation is required to create a drop-in renewable substitute for low-cost petroleum-based biochemicals.  BioAmber is striving to be cost competitive with petroleum-based succinic acid even at crude oil prices as low as $30 per barrel.   The BioAmber process involves fermentation of sugars using specialized yeasts licensed from Cargill.  The company has applied its expertise and knowhow of industrial scale biotechnology to reduce the required sugar input, thereby reducing the overall cost of production. 

Nonetheless, in five years, the company has yet to achieve profitability, although revenue has been building.  In 2015, the company reported $2.2 million in total sales and a net loss of $41.2 million.  When the company reports financial results for the June 2016, on August 9th no one expects profits even if sales activity has increased.

Late last year BioAmber did start commercial operations in its Sarnia, Ontario facility, which has capacity to produce 30,000 metric tons of bio-succinic acid each year.  Two years ago Vinmar, a distributor based in Houston, Texas, signed an off-take agreement for 10,000 metric tons per year for 15 years.  Vinmar is apparently so keen on BioAmber’s potential, it  has signed additional off-take agreements totaling 300,000 metric tons for more bio-succinic acid as well as other bio-based industrial chemicals that could be produced at plants now still in the planning stages.

In the meantime, BioAmber operations need cash.  Over $32 million is cash was needed to support operations during 2015, a dramatic increase over previous years.  BioAmber uses a combination of stock and debt to finance its product development and commercialization activities.  By the end of March 2016, the company had raised a total of $259 million in equity capital since inception in 2008, and had $40 million in debt on the balance sheet. 

In the first three months of 2016, BioAmber and one of its subsidiaries both issued shares, raising another $29.5 million in new capital.  At the end of March 2016, the last time the company reported asset figures there was only $14.1 million in total cash left on the balance sheet.  Going through cash at that pace, shareholders must have their fingers cross that commercial success is just around the corner.  Personally, I am hoping for plastic-free fish.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.