Solazyme Inc (SZYM), Amyris Inc (AMRS): Does This Biotech IPO Belong in Your Portfolio?

You are probably well aware that the market has been on a tear this year. Look closer and you’ll notice that the biotech industry is doing an even better job returning value to shareholders.

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Couple the two together and you come to one inevitable conclusion: It’s time for an avalanche of initial public offerings! It makes sense for companies to go public when the market is hot because they can raise the most capital for operations and, of course, for early investors to cash out. There are quite a few to choose from, but we will start by looking at synthetic biology company Intrexon.

Scientific detour
What the heck is synthetic biology? The field combines biological sciences with engineering. If DNA is viewed as a building block for all life, then genes from one organism can be transferred into another, giving it completely new capabilities and functions (and, yes, glow-in-the-dark bunnies). Scientists can even create entirely new organisms from scratch!

Currently, companies employing synthetic biology at an industrial scale are primarily chasing high-value chemicals and cosmetics. Solazyme Inc (NASDAQ:SZYM) has developed the ability to control fatty acid chain length, saturation, and functional group positioning with its novel heterotrophic algae platform. The company is commercializing chemicals and nutritional oils with large partners such as Sasol and Mitsui and offers a quickly growing cosmetic line named Algenist.

Solazyme Inc (NASDAQ:SZYM) controls fatty acid characteristics by controlling the biological processes of its algae. Investors only see the end result. Source: Solazyme 1Q13 presentation.

Similarly, Amyris Inc (NASDAQ:AMRS) is using its novel yeast to produce renewable hydrocarbons such as farnesene, which can be processed into everything from fuels to synthetic rubbers to cosmetics. In fact, the company is one of the world’s largest suppliers of squalane, a rare emollient used in personal care products.

To my understanding, Solazyme Inc (NASDAQ:SZYM) and Amyris Inc (NASDAQ:AMRS) currently tinker with their organisms in house, but Intrexon could enable a quicker, cheaper option for future work. That could be great considering that most platforms take at least seven years to commercialize, according to DARPA. Think of Intrexon as a technology enabler for the entire industry.