TerraVia in the Wilderness Years

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Over at our sister publication Nuu, we reported this week that TerraVia got a “generally recognized as safe” OK from the FDA for its long-awaited algae butter.

It’s a palm-free, non-hydrogenated, vegan solution for bakery, spreads and confectionery applications. Algae Butter will be produced by the TerraVia and Bunge joint venture, SB Oils, and marketed in the U.S. by Bunge North America.

Quick melting with a clean taste, it works just a little like renewable jet fuel when it comes to replacing the incumbent — Algae Butter can reduce saturated fat by up to 50 percent in most applications.

“The food industry has been searching for a replacement for palm and hydrogenated vegetable oils that maintains quality, taste and functionality and also meets their rigorous criteria for sustainable sourcing,” said Mark Brooks, Senior Vice President, TerraVia. “We believe Algae butter is a game changer for the structuring fats industry in terms of sustainability and nutrition.”

While butter doesn’t exactly rival gasoline as a market — it’s pretty substantial, when you get down to it. The global market is something like $4.4 billion – a demand of around 10 million tons and a price point around $4400 per ton. Giving TerraVia a shot at $2.2B of that — and at a price point that dwarfs some of the company’s targets from its Solazyme days — the world of $360 per ton crude petroleum, for example.

“We make oils” said the prospectus for the old Solazyme when it completed its celebrated IPO five years ago, pledging to transform the market for oils through the power of algae to make them. The company has subsequently ratcheted its focus down to speciality ingredients and nutrition — but that’s been typical of almost every algae-based venture, most of which long abandoned the fuels and big chemicals markets in a search for price points that were more reachable in the near-term.

TerraVia has not disclosed in recent years its production cost for algae oils — but $4400 per ton is, surely, a tempting and high-margin target.

TerraVia’s rough month

It’s been rough going for TerraVia in recent weeks.

The company announced a painful round of layoffs — 25 percent of the company’s workforce, which had already been substantially reduced in the past two years. And the company suspended operations at its Peoria, Illinois demonstration-scale facility, and said it was seeking “strategic opportunities to partner its AlgaVia® line of products” — which of course could range from a joint venture to an outright sale of the brands (while retaining perhaps a manufacturing contract).

The company reported Q4 revenues of $4.8M and $18.5M for 2016 as a whole, compared to $5.4M and $22.9M for the comparable periods in 2015. Losses for the quarter reached $27.1M and $101.6M — sharply narrowed from a loss of $34.7M in Q4 2015 and $141.4M for 2015 as a whole.

But the momentum the company is detailing in releases is not yet translating into financial results — that’s for sure. The good news? The results were in line with the painful corporate guidance in the Q3 call with investors and analysts. The bad news? The company’s auditors inserted a “going concern” notice into the company’s 2016 annual report.

They never tell you that after the Valley of Death comes the Wilderness, and TerraVia has entered its Wilderness Years. Moses emerged from a similar ordeal with a renewed vision which propelled him into eternal fame — between then and now, many companies and individuals have been so tested and now it is the turn of TerraVia.

The Slaughter of the Debt-holders

It wouldn’t be the advanced bioeconomy these days without a company undertaking a solemn and ritual Slaughter of the Debt-holders or the Investors. In TerraVia’s case, ti’s the debt-holders. It’s about the only thing about the company that’s not vegan — the slaughter, that is.

Specifically, TerraVia Holdings is currently in negotiations with significant holders of its 2018 Notes and the 2019 Notes about a potential restructuring of the Company’s funded debt. The Company has retained Rothschild Inc. and Davis Polk & Wardwell LLP to advise on the potential restructuring. However, no agreements have been reached.

TerraVia’s DHA

Elsewhere TerraVia, Bunge and BioMar Group expanded their distribution agreement for AlgaPrime DHA – a native, whole algae specialty feed ingredient high in omega-3 DHA – making the product commercially available at scale to salmon farmers and other participants in the aquaculture industry.

Building on successful joint aquaculture feed trials in 2016, over the past six months BioMar has significantly increased deliveries of commercial feed containing AlgaPrime DHA to leading salmon farmers.

Now, the global DHA market has to some extent focused on getting that vital nutrient direct to humans — DSM’s DHA ingredients for enhanced baby formula, for example, and Omega-3 supplements of the type often sold at nutritional outlets like GNC.

The TerraVia vision? Healthier food for fish, who accumulate omega-3s and ultimately we get it via healthy fish oils. So, no cutting out the middlefish here. And best news of all, this is a scalable product that will be produced out of the joint venture facility at Moema in Brazil. In many ways, the focus on cutting costs is to focus spending around scale-up activities — and here’s one. Though only a portion of the kind of activities that will lift the company towards break-even on a cash basis.

So what do we have?

The company has six active products in “food & nutrition” and one in “speciality ingredients” – the latter generally refers to the AlgaPur range of specialty personal care oils including Capric, Lauric and Oleic-based oils — and Unilever is currently AlgaPur high lauric oil in certain of its soap brands.

Two of those products under the AlgaVia brand are in the “seeking partner” shelf at the moment. Leaving the company with its DHA, it’s AlgaWise Omega-9 algae oil, the thrive Culinary Algal Oil (launched in 2015) and the afore-mentioned AlgaWise algae butter.

There is a pipeline of “additional products we expect to launch in the food, nutrition and specialty ingredients markets in 2017 and 2018” and on those really will rest the fate of the company’s painful and wrenching shift of company name from Solazyme to TerraVia. After all, AlgaPur is essentially a carryover from Solazyme days, Thrive was launched during that period as well, and since there are a half-dozen companies at least in the algae space focused on nutritionals without changing identity — in many ways it comes down, for now, to AlgaeWise. That’s the fruit, so far, of the a titanic identity shift last year and an refocusing of the brand onto nutrition.

The Bottom Line

For now, it’s a big market in butter — that’s the story we have so far for TerraVia’s survival in it’s Wilderness Years. We’ll also stand by to learn more of the new products coming to market in 2017 and 2018.

How much clock does TerraVia have? With a “going concern” warning and a debt re-org on the menu for this year, it’s far from dire but equally far from “you have lots of time”. TerraVia will have to find it’s mojo soon if it to remain independent, we suspect. 2017 appears to be the year.

Reaction from the stakeholders

“We believe AlgaPrime™ DHA will be a significant contributor to the further development of salmon products with a desirable nutritional profile. We take pride in driving the sustainability agenda of the industry and are pleased to be the first feed producer to bring this new feed ingredient to our customers while ensuring economies of scale,” said Jan Sverre Røsstad, Vice President and Head of Salmon Division at BioMar Group.

Graham Ellis, Senior Vice President, Business Development, TerraVia said, “AlgaPrime™ DHA offers a traceable and sustainable source of omega-3s. As an alternative to ingredients like fish oil and fishmeal that come from small oily fish, AlgaPrime DHA can help customers meet consumer and retailer demand for salmon with enhanced levels of omega-3s.”

“Produced at the TerraVia and Bunge joint venture production facility in Brazil using renewable energy and a native algae strain, AlgaPrime™ DHA allows for responsible industry growth. We’re producing it at a scale relevant to the market right now, and our expanded agreement with BioMar will help deliver on the potential of this business,” said Miguel Oliveira, Vice President, Global Innovation, Bunge Limited.

“We are pleased to have met our guidance provided on the Q3 earnings conference call. We ended the year with operational and commercial momentum, including the highest recorded revenue out of the SB Oils JV since its formation,” commented Tyler Painter, COO and CFO of TerraVia. “By aggressively managing our costs, focusing our commercial efforts, and engaging in strategic work with Rothschild, we are actively pursuing initiatives to maximize value for all of our stakeholders.”

http://investors.terravia.com/releasedetail.cfm?ReleaseID=1016609

http://www.businesswire.com/news/home/20170413005388/en/TerraVia%E2%80%99s-Algae-Butter-Replace-Palm-Oil-Hydrogenated