Solazyme, Roquette part ways

Solazyme is having a big setback today with the announcement of the termination of their microalgae joint venture with starch derivatives company Roquette. The companies said the decision to dissolve the joint venture, Solazyme Roquette Nutritionals LLC, came from separate opinions on their commercial strategy and timeline for the marketing and manufacturing of microalgae-based products.

Solazyme said on a conference call this morning that the decision was not related to any technical concerns and has in fact noted on their (very) early conference call this morning that their Phase II commissioning of their 50 ktpy plant in Lestrem, France, under the JV began on time. The Phase III project will supposedly start in 2015. The Phase I and II facilities are owned by Roquette and Solazyme said it will be up to Roquette what they will do with the facilities.

Roquette added this statement:

“Roquette has been a believer in microalgae as a raw material since 2008, and it is well positioned to independently continue with the development of non-genetically modified, innovative microalgae-sourced ingredients for nutritional applications. Roquette has invested significant resources and know-how in the commercialization of the microalgae-based food ingredients and remains committed to meeting market demands, while aligning the timing of its market launch and financial resources with its overall business objectives.”

Solazyme said it will be able to further accelerate and better position to market their microalgae-based nutritional products without the JV. Solazyme is currently building its 100 ktpy capacity in Moema, Brazil, under a JV with agribusiness firm Bunge, and another facility in Clinton, Iowa, USA, under a partnership with agribusiness firm Archer Daniels Midland (ADM). The Clinton facility is expected to have initial capacity of 20 ktpy to start in early 2014. The company plans to increase production to 100 ktpy in subsequent years.

Solazyme said the JV dissolution should have minimal impact on its 2013 revenue. It will take a couple of weeks for a formal dissolution to occur. The Solazyme-Roquette JV was formed on April 13, 2011.

Solazyme stocks went down to around 18% as of midday today. Johnson & Weaver LLP, a California-based law firm (of course!) announced it has started an investigation on whether certain officers and directors of Solazyme violated state or federal laws when communicating to shareholders about the joint venture. The law firm implied that the project might have been already in jeopardy for some time despite statements made by senior management to the contrary. The law firm also noted that management has been aggressively selling their shares in recent months.

Solazyme said the decision for the JV dissolution was made on late Friday.

Several investor analysts have lowered their estimates for the company although Jefferies analyst Lawrence Alexander reported that they expect minimal impact on Solazyme’s cash burn unless Solazyme decides to invest in its own capacity or contribute to expansions at ADM and Bunge.

“Shares will likely be range-bound until there is confirmation Bunge and ADM production launches are on track.” – Jefferies

Pacific Crest Securities noted that the JV dissolution will not impact Solazyme’s long-term opportunities, and that the company will not have problem replacing Roquette for another JV if it chooses.