WTF Happened to Amyris?

TLDR;

- It’s time we get to know each other better

- Picking off Amyris’s Assets.

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Before we dive into today we have to check in on a previous LBAB brand: Smile Direct Club (link to original post).

Let’s Check On This Biz: Smile Direct Club

Not surprised as this has been on my watchlist since March. But still woof.

Now let’s dive into one of the hardest DTC flameouts. Amyris’s bankruptcy.

Let’s Examine This Biz

Amyris is liquidating a family of high-performing Science-inspired Clean Beauty Shopify brands (Biossance, JVN, Pipette, etc.), after filing for Chapter 11 in August.

Trading at $0.045/share with a $17.99m Market cap (and for good reason), this company isn’t worth the bottom of the dump, and will be stripped for parts.

I’m going to try to be as polite as I can on this one (kind of), but the numbers are so outrageous you gotta wonder WTF the board was doing.

It’s a Head Scratcher™.

It makes me question whether there even was a board overseeing this company.

At $20m we could pick this up with our Fund’s couch change, but with outstanding debt in the range of $1B-$10B (I’m baffled by that range alone), it’d be more valuable to pick off the best assets.

Since each individual brand’s financials aren’t public, I’m going to take today’s newsletter in a different direction. I’m going to step in with 3 potential acquisition strategies to get the most value out of these assets.

TLDR Analysis: All I have are ?s

When a company’s Rev is -21% YoY how does…

• COGS increase +67% YoY?

• SG&A double?

• OPEX Climb to be 221% of Rev?

• Nobody say, “Hey, we’re spending too much money?”

The complete and utter hogwash of this leadership team’s statements of confidence from this March is borderline misleading investors considering they went bankrupt within 6 months.

Before I blow a pop a blood vessel, let’s get into how we save the good bizs trapped inside this Titanic Port co.

Let’s Fix This Biz

There are 3 bizs that need to be unlocked from this 1 disaster.

Independently they’re all very valuable. Together they dragged the ship down.

1) Free the Successful DTC brands.

Amyris’s problem was trying to run 4-5 different strategies under 1 biz.

The true core strength was translating Science-backed research into leading Beauty products.

They absolutely crushed this with their OG brands:

But it completely lost its way by acquiring other brands, becoming a celebrity house and all the other side quests the company went on.

My main bid would be on these high-value assets. Each is its own platform biz that can be scaled with the right resources. There might even be an opportunity to acquire the portfolio of these bizs.

But I’m concerned about acquiring a Haircare, Beauty and Babycare biz in a portfolio.

With some digging my bet is these have a lot of the same customers and strategies. Someone has to untangle what the real Ent value is here.

Takeaway:  Focus is everything. Side quests should be side hustles. Outside the main biz.

2) Divest the Celebrity House.

Half of Amyris’s brands are Celebrity-Backed. JVN From (Jonathan Van Ness from Queer Eye) is the most successful and we should put it in bucket #1 of OG Amyris brands 👆️.

The others:

• Rose: Rosie Huntington Whiteley’s Skincare brand

• Stripes: Naomi Watts’ Menopause brand.

• 4U By Tia: Tia Mowry’s Haircare brand

These could be the darling assets, but I have one major concern… The celebrities are half-assing these brands.

If these are real, authentic brands and the celebrities are actually involved in. This is a huge opportunity sitting in a resource-constrained org. In due diligence, this would be my main risk to validate/invalidate.

Based on the velocity these brands were launched (all 3 launched in ‘21 & ‘22), I highly doubt these are authentic brands vs. someone just slapping a celebrity endorsement on a new product line.

Smart tactic, but if executed poorly is incredibly expensive and could tank a company.

Which leads us to another WTF.

• Stripes is a Menopause brand, and it competes with MenoLabs (another Amyris Menopause brand).

• 4U & JVN are both Haircare brands.

• Rose & Biossance are both Beauty/Cosmetics brands.

I don’t know each product line/customer base well enough if they’re competing or not. But the lack of clarity is also the problem.

During COVID, the company tried to clone their playbook and just slapped celebrities on dupes of their existing successful brands. A True cash grab at the top of a bubble.

Takeaway: Celebrity Houses: Authentic = Asset. In-Authentic = Money Pit.

3) Become a True R&D Lab

This isn’t my area of expertise, so I wouldn’t lead this bid, but there’s a real asset buried somewhere in the basement of this P&L of an actual high-value Research lab.

I don’t know the nuance of this corp structure to know if the brands are tied to the lab assets, but if I was on the Sell team, I’d peel that off and auction it off to the highest bidder.

This company got trapped in the 2010’s DTC narrative verticalize and own everything. As we’ve now seen with the OG DTC implosion (Casper, Allbirds, Warby), this hypothesis was completely wrong.

That said, there’s an interesting opportunity here for a Biotech buyer of the R&D assets worth exploring.

1 of the reasons this company’s OPEX was 211% of Rev (WTF x10) is they spent $110m on R&D in 2022.

In theory I get it. The Science-based Beauty company needs to spend money on Science.

But in practice… Do they?

This isn’t an actual Biotech company with IP protection windows. Reverting this model back to the old school is probably the best course of action:

R&D Lab Licenses key technology to Manufacturer/Retailer.

The Licensor - Licensee model is a tried-and-tested tactic that works because it optimizes cash flow for 2 wildly differnet biz models.

1. R&D Labs are long horizon bizs - invest massive sums of cash over long horizons (10 yrs+), then capture licensing fees over similarly long periods (10 yrs+).

2. Brands take cash and cycle it through inventory on a shorter cycle (Months - Years).

Consolidating the stack to capture more margin was an interesting hypothesis, but with a Net Income at -210% of Rev I can confidently say it didn’t work.

Takeaway: Focus on 1 biz at a time. Scale is where things breaks.

Final Thought

I’m a big “Focus on the process and not the people” type of person and really trying to not blame anyone for what happened. Doing my best to give the team the benefit of the doubt, but all I keep coming back to is:

Here are a couple other headlines about the company in the past 5 years:

• Working on RNA Vaccine for COVID

• Raised money to pursue Sweeteners & CBD

I have no idea how any employee at this company explained what their company did to friends & family.

This also this isn’t some rando inexperienced team running a public company. This was (allegedly) an all-star team.

• Amyris was born out of the Gates Foundation.

• John Doerr (Sequoia investor in Google & Amazon) sat on the board.

• The ex-CEO John Melo spent a decade at BP.

The lack of disciplined spending and reasonable expectations sounds very on-brand for a Silicon Valley company.

But this is egregious.

I’m all for Corp protection and don’t think we should tar and feather biz execs when they make mistakes. But when they downright neglect their fiduciary responsibility I’m all for it.

I’m happy to be proven wrong, but how can you justify spending $800m+ on Operations for a biz that made $270m in Topline. I’d love to take that class in B-School.

Seems like a company that got too high on the hog at the top of the bubble, lost their focus and played with house money assuming someone was going to bail them out.

Which is sad. Amyris had the fundamentals to become the next 3M, but wasn’t patient enough to take the decades required to build a true conglomerate.

There are some great bizs to be saved here. Let’s find them a good home.

🧠 The Takeaways

Run 1 biz model with maniacal focus at a time. It’s too easy getting lost chasing butterflies.

1. Patience is the virtue more brands need. Hits keep on rolling and get bigger over time. Ls come from spreading yourself (And capital too thin)

2. You can’t just slap a celebrity's face on a product and expect it to sell.

3. It’s better to be Amazing at 1 thing than Great at 3 or Good at 10. That’s what partners are for.