Stock of US biotech firm Zymergen falls 76% on product sales warning

HOUSTON (ICIS)–Shares of the US industrial biotech firm Zymergen fell by 76% on Wednesday after the company warned that it does not expect to earn any revenue from product sales in 2021 and any product sales in 2022 would be insignificant.

The company’s CEO, Josh Hoffman, agreed to step down immediately and leave the board of directors. Meanwhile, Zymergen warned that its main product’s target market – foldable electronic displays – could be smaller than expected.

Several key target customers of Zymergen ran into issues implementing the company’s bio-based polyimide film, Hyaline, into their manufacturing processes, Zymergen said.

Hyaline is the first standalone product of Zymergen’s to be sold commercially. The company co-created the polyimide with its development partner, Sumitomo Chemical.

Zymergen described the technical issues as ones that are typical of new product and process development. When Zymergen announced the bio-based polyimide in April 2020, it said that it had never been manufactured before at any scale.

Zymergen said it has made significant progress towards addressing the issues and it does not believe that there are any intrinsic technical issues with Hyaline.

However, the company said the issue has caused a delay in its commercial ramp.

“Zymergen recently became aware of issues with its commercial product pipeline that will impact the company’s delivery timeline and revenue projections,” it said. “Accordingly, the company no longer expects product revenue in 2021 and expects product revenue to be immaterial in 2022.”

Moreover, the company is reviewing data, which indicate that the total addressable market for foldable displays could be smaller than expected and grow slower. This could impact the company’s sales forecast.

Zymergen said it will re-examine its target markets and either confirm its earlier forecasts or modify them.

Meanwhile, it “is working to strengthen its commercial team to ensure the reliability and robustness of the sales pipeline qualification and forecast processes”, the company said.

Jay Flatley will serve as acting CEO while the board searches for a permanent replacement. Flatley was previously the CEO of Illumina.

“The board has formed dedicated committees, including a strategic oversight committee, and is working with outside experts to conduct an in-depth review of the company’s operational, financial, product and commercialisation efforts to facilitate the development of an updated strategic plan for Zymergen,” Flatley said.

“The underlying promise of our business and technology is sound, and I am proud of the work our teams are doing across the organisation,” he said. “We are confident in Zymergen’s opportunities and prospects, although it will take longer to accomplish our goals than previously expected.”

Q2 ESTIMATE
For the second quarter, Zymergen expects to report sales of $5m-6m, all related to research-and-development service agreements and collaboration revenue. Total cost and operating expenses were $100m-105m.

As of 30 June, the company had $588m in cash.

Zymergen said it is now working on a cost-cutting plan to bring expenses in line with its new revenue expectations.

Zymergen’s stock closed at $8.25, down by $26.58 or 76%.

The company publicly listed its shares earlier this year. The shares were priced at $31.00 and reached $46.38 on 30 April.

PROMISE, CHALLENGE OF BIOTECH
Zymergen illustrates the promise and the challenges of industrial biotechnology.

It is among a group of companies that are combining the tools of genetic engineering with machine learning and automated labs to develop strains of micro-organisms that ferment sugars to produce new chemicals outside of the traditional building blocks of petrochemicals.

These bio-based intermediates can be used to make new materials or existing ones at lower cost.

Reaching the large scale of petrochemical producers was one of the challenges facing the industry.

New materials also have to be tested and qualified for applications.