Be Here Now: The Origin Materials version as the company shifts to nearer-term products

Origin Materials announced 30 percent reduction in force earlier today. For several months, since the disclosure of long timelines for Origin’s first commercial OM2 project amidst soaring costs for debt and equity, observers had already surmised that Origin was going to be unable to realize its ambitions without a leaner organization, and a re-think of the company’s near-term plan.

The question for this billion dollar SPAC darling was — how viable would the plan be?

The backstory

The Origin delay originated in two events — the supply-chain crisis and inflation spike which has substantially increased the cost of components and construction materials arounds the world, and the resulting inflation fight that central banks have been waging via interest rate hikes that have been strangling the development and deployment of projects. 

So, spikes and hikes, the Terrible Twinned Horsemen of Soaring Capex.

The strategy forward

The focus is shifting from products from longer-range, larger-capex projects to products that can be produced fast and light to generate cash — that, combined with the savings from reduction in force, gets the company to viability in, ahem, The New Reality.

It’s a common story in the bioeconomy — the pivot from bigger projects to smaller. Mascoma went from big cellulosic ethanol ambitions to a stupendous advanced yeast technology.  Amyris pivoted from larger ambitions in fuels and chemicals to a series of lighter product lines in the personal care space. Solazyme pivoted to small nutrition from its ambitions in fuels and chemicals. Plenty of other examples.

What’s different

The difference here today is twofold. 

First of all, we think that Origin has, through luck or ingenuity, reached the pivot point faster and healthier than we’ve seen other companies get to this decision point before. The company has $190 million in cash, no debt. These moves to reduce burn, while deep, are surgical, and it is going to look to many in the space that  Origin has caught the cancer in time.

The second difference is more philosophical. The industry perhaps need to look back over the past 30 years and see a litany of pure-play companies with large-scale capex projects based on a single, transformative molecule — Solazyme’s algae oil, Amyris’ biofene, Origin’s CMF, Mascoma’s ethanol, Joule’s hydrocarbon — and wonder if the story of chemical and fuels companies was ever written that way in days gone by. 

As Origin Materials co-CEO John Bissell told The Digest today, “if you look back historically, companies always had meaning amounts of cash flow to develop platforms, the pure-play, committed, burn the boats approach is new in the past 30 years or so. The giant-cap project wasn’t going as fast as we had wanted it to, cash is king, we have to get the organization into near-term cash generation, we have to invest in the near-term, and perhaps that’s the way it should be.”

With this, we heard theTerrific Two Horsemen of Soaring Prospects, cash and now.  

Discoveries out of application development

It’s in some ways a result of a devil that’s been in the details of green chemistry companies and products. Tragically, not every green chemistry company has invested smartly in application development. We’ve often heard the bells tolling, “too little, too late.” That’s something Origin did right. 

And out of app development — whaddya know, turns out that in the caps and closures product segment you don’t have to make the new polymer starting from FDCA, which needed CMF as a starting point. It could be made from existing resources. No need to make CMF in batch mode at OM1 at high cost, no need to wait until OM2 arrived to make it affordably and abundantly.

So, you get the idea, Means smaller lines, faster to develop, single digit millions to build a manufacturing line, revenues this year. That sounds more like Cash and Now than Spikes and Hikes. So, good. 

Looking further down the road

As the Zen Master advises us, we’ll see. We’ll see if Origin has reduced cost and workforce with enough surgical precision to execute rapidly on cash, now projects without failing to support cheaper, later development. And I suspect we’ll have to wait and see if the chlorine in CMF can be safely removed to the levels tolerated by customers for the kind of prices, when we get to detailed engineering, that were projected through high-level analysis. That may well prove critical in getting the costs down, and everyone needs to work on, at every company in the sector, getting the costs down.

Details on the reduction in force

Origin expects the workforce changes to be largely completed today, November 20, 2023. The Company anticipates that it will incur approximately $2.7 million in restructuring charges in connection with the roughly 30% workforce reduction, consisting of cash expenditures for employee separation costs of approximately $0.5 million and non-cash expenses for the accelerated vesting of certain equity awards of approximately $2.2 million.

Reaction from the stakeholders

“Consistent with our previously announced focus on near-term revenue opportunities and cash management as we commercialize the business and deploy our technology platform, we have taken action to reduce certain expenses and reallocate resources,” said John Bissell, Co-Founder and Co-CEO of Origin Materials. “The changes we are implementing support our plan to execute priority initiatives representing high-margin, near-term opportunities, while deferring some research programs with strong, but longer-term economic impacts. We believe these actions will substantially extend our cash resources while maintaining momentum with our partners, who are committed to bringing Origin’s technology to market. This was a difficult decision that involves parting ways with many talented team members who have committed themselves to our mission. We are deeply appreciative of their contributions to Origin and will do our best to support them in future endeavors.”

The Bottom Line

For plot twists and improbable turns the bioeconomy resembles the old silent movie serial The Perils of Pauline. In this case, perhaps, the Perils of Chlorine. 

But let’s take heart, no matter how tightly Pauline was bound to the railroad tracks, she found a way out, and that’s the bioeconomy’s story, finding a way to win despite the pitfalls, the pratfalls, and more extraordinary events than you could find in the Fall of the House of Usher or the Rise of the Dutch Republic.

The good news here. The shift to cash and now. We applaud it. Questions about the long-term will be answered in the long-term. Getting the cash burn down, building products that generate cash soon, that should be focus of every bioeconomy company and especially the early-stage ones. We would have liked to see it in 2020, but we’ll take it in 2023 and be glad for it.