Overview

BioAmber (BIOA) is an industrial biotechnology company producing renewable chemicals. The company's proprietary technology platform combines industrial biotechnology and chemical catalysis to convert biobased feedstocks into renewable chemicals that are cost-competitive replacements for petroleum-derived chemicals and are used in a wide variety of everyday products including plastics, resins, paints, food additives and personal care products. The company currently sell its first product, bio-succinic acid, to customers in a variety of chemical markets. The company produce bio-succinic acid at its facility in Sarnia, Ontario.

Succinic acid can be used to manufacture a wide variety of products used every day, including plastics, food additives and personal care products, and can also be used as a building block for a number of derivative chemicals. The company believe that its low-cost production capability and its development of bio-succinic derived products including 1,4 BDO and THF, which are used to produce polyesters, plastics, spandex and other products, will provide it with access to a more than US$8 billion market opportunity.

Prior to the completion of its Sarnia facility, the company manufactured its bio-succinic acid at a large-scale demonstration facility in Pomacle, France for five years, under a toll manufacturing arrangement pursuant to which the company compensated a third party, including for labor costs and the cost of producing its product. The company shipped commercial quantities to customers, such as shipments of one ton super sacks and container loads. The company and its customers used the products produced at the facility as part of its efforts to validate and optimize its process and to continue to refine and improve its bio-succinic acid to meet its customers’ specifications. In preparation for transitioning its production from its Pomacle facility to its Sarnia facility, the company accumulated a reserve inventory of its product, which was produced at a higher cost per MT of succinic acid than that expected cost of production at its Sarnia facility.

BioAmber is working to expand its accessible markets and product portfolio. BioAmber has entered into strategic relationships with several leading companies, such as its multi-year agreements with PTTMCC Biochem for bio-succinic acid and Vinmar for bio-succinic acid, 1,4 BDO and THF. BioAmber has also entered into agreements with other companies for the supply of bio-succinic acid.

BioAmber has entered into technology partnerships to lower its production costs, expand its product portfolio and broaden its biochemical production platform. For example, the company entered into a technology partnership with Cargill, Inc., or Cargill, through which the company exclusively license a proprietary yeast organism for use in its fermentation process to produce its products. The company refer to the yeast organism that BioAmber has licensed from Cargill as “our yeast.” BioAmber has also established other technology licenses and collaborations, including with Johnson Matthey Davy Technologies, or Davy, for the conversion of its succinic acid into 1,4 BDO and THF.

The company's business strategy is to leverage the value of its technology by building and operating production facilities around the world. Depending on its access to capital and third-party demand for its technology, the company may also enter into technology licenses on an opportunistic basis.

The company's facility in Sarnia, Ontario has a nameplate capacity of 30,000 metric tons of bio-succinic acid per year. The company started commercial scale production at its Sarnia facility in October 2015 and ramp-up to full production capacity is expected towards the end of 2018.

On May 9, 2013, the company raised net proceeds of $71.7 million from the initial public offering of its equity securities. In July 2014, the company completed a secondary public offering and issued 3,220,000 shares of common stock, at a public offering price of $12.00 per share, for a total of approximately $36.0 million in net proceeds, after deducting underwriting discounts and commissions and expenses payable by it. On May 6, 2015, the company completed the closing of a secondary public offering and issued 3,900,000 shares of common stock, at an offering price to the public of $9.00 per share, for a total of approximately $32.8 million in net proceeds, after deducting underwriting discounts and commissions and expenses payable by it. On January 21, 2016, the company completed the closing of a follow-on public offering and issued 2,600,000 shares of common stock, at an offering price to the public of $5.00 per share, for a total of approximately $11.9 million in net proceeds, after deducting underwriting discounts and commissions and expenses payable by it.

On December 29, 2016, the company completed the closing of another follow-on public offering and issued 1,748,750 shares of common stock, at an offering price to the public of $4.00 per share. In addition, in connection with this offering, the company issued the Special Warrant at an issue price of $8,896,796. On the same date, the company issued a special warrant to purchase an aggregate of 2,224,199 shares of common stock, for a total of $4.00 per underlying share. The gross proceeds of $8.9 million, before commission and expenses payable by it were held in escrow until they were released in accordance with the terms of the warrants in connection with their exercise or deemed exercise, the conditions for which were set forth in the warrants. The deemed exercise occurred on April 28, 2017, following the issuance of a receipt for its final prospectus qualifying the underlying shares by the British Columbia Securities Commission.

On January 27, 2017, the company completed the closing of a follow-on public offering and issued 3,684,212 shares of common stock, together with warrants to purchase up to 1,842,106 shares of common stock with an initial exercise price of $5.50 per share of common stock (the “2017 Warrants”), at a public offering price of $4.75 per fixed combination consisting of one share of common stock and associated 2017 Warrant to purchase one-half share of common stock. The company also granted the Underwriters a 30-day option to purchase up to an additional 552,632 shares of common stock and/or 2017 Warrants to purchase 276,316 shares of common stock at the public offering price, which they exercised in full on January 27, 2017. The net proceeds from this offering (including the exercise in full of the option to purchase additional shares and 2017 Warrants, but assuming no exercise of the 2017 Warrants) was approximately $18.6 million, after deducting underwriting discounts and estimated offering expenses payable by it.

On February 17, 2017, Jean-Francois Huc stepped down as its President and CEO, and also resigned as a member of its Board of Directors effective May 12, 2017, and the company appointed Fabrice Orecchioni, its COO, as President effective on February 20, 2017. On May 11, 2017, George F.J. Gosbee also informed the Board of Directors that he had decided to resign as a director of the Company, and from each of the board committees on which he served, effective immediately. Mr. Gosbee was replaced by Robert Frost on May 12, 2017. In addition, on March 28, 2017, Mario Saucier resigned as its Chief Financial Officer, and on May 12, 2017, the company appointed Mario Settino as its Chief Financial Officer

On May 3, 2017, its common shares started trading on the Toronto Stock Exchange (TSX) under the trading symbol BIOA.

On August 1, 2017, the company purchased Mitsui’s entire interest in BioAmber Sarnia, refer to section “Additional Recent Developments” below for details.

Sarnia Facility

The company's first commercial-scale facility is on land the company own and is located within a bio-industrial park in Sarnia, Ontario. The site is co-located in a large petrochemical hub with existing infrastructure that facilitates access to utilities and certain raw materials and finished product shipment, including steam, electricity, cooling water and water treatment. The facility has a nameplate capacity of 30,000 MTs of bio-succinic acid per year and the company started commercial scale production in October 2015.

The plant has received ISO 9001 (for its quality management system), ISO 14001 (for its environmental management system, OHSAS 18001 (for its health and safety management system) and FSSC 22000 certification (for its food safety management system). These certifications were granted by accredited certification bodies following audits of the Sarnia plant in the fourth quarter of 2015.

In November 2011, the company entered into a joint venture agreement with Mitsui to finance and build and operate its facility in Sarnia, Ontario through BioAmber Sarnia, a joint venture 70% owned by it and 30% owned by Mitsui. On February 15, 2016, we, together with its subsidiaries BioAmber International and BioAmber Sarnia, entered into Second Amended JV Agreement with Mitsui pursuant to which Mitsui provided BioAmber Sarnia an additional capital contribution for an aggregate amount of CAD$25 million, which increased Mitsui’s share ownership to approximately 40%. BioAmber has retained effective operational control of BioAmber Sarnia. On March 31, 2017, BioAmber Inc. provided with additional capital contributions for an aggregate amount of CAD$8 million, which decreased Mitsui ownership to approximately 39%. On August 1, 2017, the company purchased Mitsui’s entire interest in BioAmber Sarnia, refer to section “Additional Recent Developments” below for details.

The total construction cost of its facility in Sarnia was approximately $141.5 million, funded through capital contributions from it and Mitsui, interest free and low-interest loans and governmental grants.

Additional Planned Manufacturing Facilities

The company plan to build a second integrated manufacturing facility that will have to produce approximately 200,000 MTs per year of bio-succinic acid and then transform a majority of the bio-succinic acid into 70,000 MTs per year of bio-based 1,4 BDO and 24,000 MTs per year of THF, along with 60,000 MTs per year of crystalline succinic acid. BioAmber has signed a 15 year offtake agreement with Vinmar for 100% of the BDO and THF output. BioAmber has also signed an offtake agreement with Vinmar for a portion of the bio-based succinic acid production. The annual volume of the offtake agreement will be agreed between the parties prior to the financial close of the plant. Vinmar plans to take a 10% equity stake in the plant. BioAmber is actively seeking other minority equity partners for this facility, as well as government support in the form of low interest loans or loan guarantees.

Based on current estimates and assumptions, the company expect this second North American manufacturing facility to have construction costs of approximately $500 million, and the plant would be in operation in 2021. BioAmber is seeking to finance 70% of the capital cost through project level debt. In the fall of 2016 the company announced an important milestone in its application for a $360 million loan guarantee from the U.S. Department of Energy (U.S. DOE). The U.S. DOE’s Loan Program Office (LPO) administers a four phase process under the Title XVII Innovative Clean Energy Projects loan guarantee program. This program finances innovative renewable energy and efficient energy projects. The company had successfully completed the first two phases of the process and were selected for the next phase in which BioAmber has engaged the LPO in the negotiation of terms and conditions of the potential loan guarantee, and BioAmber has been working with the LPO to validate the engineering, environmental, market and financial information that the company had submitted in the previous phases. The company completed the first two phases of this process under the Obama administration. There can be no assurance that the Trump administration will continue this program. The company do not expect further clarity until the fall of 2017. Accordingly, there can be no assurance that the company will be able to secure the U.S. DOE loan guarantee or, if BioAmber is able to secure the U.S. DOE loan guarantee, that the plant will be fully operational in 2021, given the delays. BioAmber has also been engaged with Canadian federal and provincial agencies in a similar process to secure low interest loans to build the plant in Sarnia Ontario, rather than the U.S. The company's discussions with Canadian federal and provincial agencies are being impacted by their desire to see improved financial performance at its Sarnia facility. There can be no assurance that the company will be successful in securing low interest loans from Canadian federal or provincial agencies.

On December 16, 2016, the company entered into a non-binding letter of intent with CJ Cheiljedang Corporation (“CJCJ”). Until December 31, 2017, the company and CJ Cheiljedang Corporation have entered into an exclusivity period in which the company may not discuss, evaluate or enter into binding or non-binding agreements with any third parties in connection with a retrofit of an existing fermentation facility to produce bio-succinic acid using its low pH technology or to build new bio-succinic acid capacity in China or South Korea. Similarly, CJ Cheiljedang Corporation may not discuss, evaluate or enter into binding or non-binding agreements in connection with the research, development, manufacture or marketing of bio-succinic acid. Under the terms of the agreement, the company and CJCJ plan to establish a joint venture in China to produce up to 36,000 metric tons of bio-succinic acid annually and commercialize the output in Asia.

The letter contemplates the retrofitting of an existing CJCJ fermentation facility with its succinic acid technology. CJCJ would incur all capital costs required to retrofit its fermentation facility, including the capital needed during plant commissioning and startup, and production is expected to begin in the second quarter of 2018. The joint venture could subsequently expand production capacity through debottlenecking and/or additional investment. CJCJ is expected to own 65% of the JV and BioAmber is expected to own 35%. The JV would pay it a technology access fee for its bio-succinic acid technology, and pay CJCJ a tolling fee for producing bio-succinic acid on its behalf. The joint venture is subject to certain conditions, including technical and commercial due diligence, with the definitive agreements expected to be signed by November 2017. There is no guarantee that BioAmber is able to enter into definitive agreements for this collaboration on the terms contemplated in the letter of intent or at all.

Performance Drivers

The company expect that the fundamental drivers of its results of operations going forward will be the following:

  • Commercialization of its products. The company commenced recognizing revenue from sales of its existing bio-succinic acid product in 2011. The company's ability to grow revenue from this product will be dependent on expanding the addressable market for succinic acid using its low-cost, bio-based alternative. The company also expect to grow its revenue base by developing new value-added applications and derivative products. For example, the company signed a supply agreement with PTTMCC Biochem in April 2014 for biodegradable plastics, and BioAmber has signed additional supply agreements in other new applications such as synthetic leather and other polyurethane applications, including coatings (polyurethane dispersions) made from bio-based succinic acid. The company also plan to develop and commercialize derivatives of succinic acid, such as BDO and THF, and to target large and established chemical markets such as adipic acid, where succinic acid can partially substitute the incumbent chemical.
  • In April 2014, the company entered into a three year supply agreement with PTTMCC Biochem, a joint venture between PTT Public Company Limited and Mitsubishi Chemical that was established to produce and sell polybutylene succinate, or PBS, a biodegradable plastic made from succinic acid and BDO. PTTMCC has constructed a PBS plant in Thailand and is currently ramping-up the plant production, which is expected to consume approximately 14,000 MTs of succinic acid per year at full capacity. This supply agreement provides that the company will exclusively supply a minimum of 80% of PTTMCC Biochem’s total bio-succinic needs until the end of 2017, with approximately 50% of the total purchases under offtake terms.
  • BioAmber has also entered into several agreements and memoranda of understanding, or MOUs, that contemplate, but do not obligate, it to supply approximately 23,000 MTs of bio-succinic acid until the end of 2019 and, as the company continue operation of its facility in Sarnia, Ontario, BioAmber is actively seeking to enter into definitive supply agreements and form new relationships with potential customers.
  • The company's revenue for future periods will be impacted by its ability to develop new applications and the speed with which BioAmber is able to bring its succinic acid derivatives to market. To accelerate this process, BioAmber has developed its sales and marketing capability and entered into distribution and joint development agreements with strategic partners.
  • BioAmber is also engaging in a collaborative process with its customers to test and optimize new applications and derivative products in order to ensure that they meet specifications in each of their potential applications. The company continue to seek to establish supply agreements and distribution agreements with strategic customers as the company expand its markets and product offerings.
  • Production capacity. The company's ability to lower its production costs and drive customer adoption of its product is dependent on its manufacturing strategy. The company expect to produce bio-succinic acid that is cost-competitive with succinic acid produced from oil priced as low as $30.00 per barrel. The company expect to further reduce costs by implementing on-going process improvements. The company intend to capitalize on its first-to-market advantage by rapidly expanding its production capacity and building additional facilities. The company's results will be impacted by the speed with which the company execute on this strategy, the capital costs and operating expenses of each of these facilities, and the price of oil and the impact it has on the price of petrochemicals its succinic acid substitutes.
  • Feedstock and other manufacturing input prices. The company use sugars that can be derived from wheat, corn, sugar cane and other feedstocks. The company intend to locate its facilities near readily available sources of sugars and other inputs, such as steam, electricity and hydrogen, in order to ensure reliable supply of cost-competitive feedstocks and utilities. While its process requires less sugar than most other renewable products and is therefore less vulnerable to sugar price increases relative to other bio-based processes, its margins will be affected by significant fluctuations in these required inputs.
  • Petroleum prices. The company expect sales of its bio-based products to be impacted by the price of petroleum. In the event that petroleum prices increase, the company may see increased demand for its products as chemical manufacturers seek lower-cost alternatives to petroleum-derived chemicals. Conversely, a long-term reduction in petroleum prices below $30.00 per barrel may result in its products being less competitive with petroleum-derived alternatives. In addition, oil prices may also impact the cost of certain feedstocks the company use in its process, which may affect its operating profits.

Additional Recent Developments

Mitsui Share Purchase Agreement

On August 1, 2017, the company entered into a Share Purchase Agreement with Mitsui pursuant to which the company acquired Mitsui’s entire 38.9% interest in the BioAmber Sarnia joint venture, increasing its ownership stake to 100%. Pursuant to the terms of the Share Purchase Agreement, its joint venture agreement with Mitsui was terminated and, with the exception of certain obligations which survive termination, Mitsui was released from its obligations and liabilities under the joint venture agreement. Although the joint venture agreement contained a put option which would have required it to purchase Mitsui’s interest for a purchase price of 50% of Mitsui’s equity in the joint venture, pursuant to the terms of the Share Purchase Agreement, the purchase price paid by BioAmber for Mitsui’s 38.9% interest was CAD $1.00. As further consideration for Mitsui’s sale of its interest, the company also entered into an Indemnity Agreement, dated August 1, 2017, pursuant to which BioAmber and, subject to the prior consents required to be obtained from its lenders, BioAmber Sarnia, have agreed to indemnify Mitsui for any payments made by Mitsui pursuant to its guarantee of its obligations under its CAD $20.0 million commercial loan agreement with Comerica Bank, Export Development Canada and Farm Credit Canada and the other parties thereto (the “EDC Loan Agreement”) and its CAD $15.0 million loan agreement with the Minister of Economic Development and Trade of Ontario, Canada (Sustainable Jobs Innovation Fund) (the “SJIF Loan Agreement”). The company also entered into a Security Agreement, dated August 1, 2017, pursuant to which BioAmber and, subject to the prior consents required to be obtained from its lenders, BioAmber Sarnia, pledged all of their personal property as security for its obligations under the Indemnity Agreement. In addition, BioAmber has agreed with Mitsui that in the event a strategic investor acquires more than 25% of BioAmber, or any investor acquires more than 25% of BioAmber Sarnia, Mitsui will be released from all liability under its guarantee obligations for the EDC Loan Agreement and the SJIF Loan Agreement. Pursuant to the Share Purchase Agreement, the members of BioAmber Sarnia’s board of directors nominated by Mitsui will resign effective August 1, 2017.

Public Offering of Common Stock

On December 29, 2016, the company completed the closing of a follow-on public offering and issued 1,748,750 shares of common stock, at an offering price to the public of $4.00 per share. In addition, in connection with this offering, the company issued the Special Warrant at an issue price of $8,896,796 to purchase an aggregate of 2,224,199 shares of common stock, for a total of $4.00 per underlying share. The gross proceeds of $8.9 million, before commission and expenses payable by it were held in escrow until they were released in accordance with the terms of the warrants in connection with their exercise or deemed exercise, the conditions for which were set forth in the warrants. The deemed exercise occurred on April 28, 2017, following the issuance of a receipt for its final prospectus qualifying the underlying shares by the British Columbia Securities Commission. The exercise price of the 2011 Warrants and the warrants that the company issued in June 2009 were also reduced following the completion of this public offering, from $9.65 per share and $5.67 per share, respectively, to $8.97 per share and $5.47 per share, respectively. An additional 7,852 warrants at an exercise price of $8.97 and an additional 7,734 warrants at an exercise price of $5.47 per share were issued following adjustments in the number of shares underlying the warrants that were triggered by this issuance.

On January 27, 2017, the company completed the closing of a follow-on public offering and issued 3,684,212 shares of common stock, together with warrants to purchase up to 1,842,106 shares of common stock with an initial exercise price of $5.50 per share of common stock (the “2017 Warrants”), at a public offering price of $4.75 per fixed combination consisting of one share of common stock and associated 2017 Warrant to purchase one-half share of common stock. The company also granted the Underwriters a 30-day option to purchase up to an additional 552,632 shares of common stock and/or 2017 Warrants to purchase 276,316 shares of common stock at the public offering price, which they exercised in full on January 27, 2017. The net proceeds from this offering (including the exercise in full of the option to purchase additional shares and 2017 Warrants, but assuming no exercise of the 2017 Warrants) was $18.6 million, after deducting underwriting discounts and estimated offering expenses payable by it.

SDTC Grant

During the three months ended September 30, 2016, the company received the SDTC grant holdback payment of CAD$1,451,365 or $1,108,262 when converted into U.S. dollars as of September 30, 2016, following the achievement of the last SDTC milestone.

Bridging Loan

On September 9, 2016, the company entered into a CAD$25 million demand non-revolving credit facility with Bridging Finance. The proceeds were used to repay in full the outstanding principal amount of its prior loan with TCP and the remainder is used to fund general corporate expenses. This loan was fully repaid on January 27, 2017. Refer to Part II, Item 1 in this Quarterly Report on Form 10-Q for more details.

BDC Loan

On August 10, 2016, BioAmber Sarnia received the proceeds from its CAD$10 million loan between BDC and BioAmber Sarnia according to the binding letter of offer dated April 20, 2016. The proceeds was used to fund the working capital of BioAmber Sarnia’s facility and is repayable monthly from October 15, 2017 until September 15, 2022.

Tags: US:BIOA
Created by Asif Farooqui on 2019/09/30 06:34
     
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