Edited Transcript of AMRS.OQ earnings conference call or presentation 6-Aug-20 1:00pm GMT

EMERYVILLE Aug 18, 2020 (Thomson StreetEvents) — Edited Transcript of Amyris Inc earnings conference call or presentation Thursday, August 6, 2020 at 1:00:00pm GMT Amyris, Inc. – COO Amyris, Inc. – CFO * John G. Melo Amyris, Inc. – President, CEO & Director Amyris, Inc. – Senior Director of IR […]

EMERYVILLE Aug 18, 2020 (Thomson StreetEvents) — Edited Transcript of Amyris Inc earnings conference call or presentation Thursday, August 6, 2020 at 1:00:00pm GMT

Amyris, Inc. – COO

Amyris, Inc. – CFO

* John G. Melo

Amyris, Inc. – President, CEO & Director

Amyris, Inc. – Senior Director of IR & Corporate Communications

H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst

Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst

Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director

Please stand by. Welcome to the Amyris Second Quarter 2020 Financial Results Conference Call. This call is being webcast live on the Events page of the Investors section of the Amyris’ website at amyris.com. This call is the property of Amyris and any recording, reproduction or transmission of this call without the expressed written consent of Amyris is strictly prohibited. As a reminder, today’s call is being recorded. You may listen to a webcast replay of this call by going to the Investors section of Amyris’ website.

I would now like to turn the call over to Peter DeNardo, Senior Director of Investor Relations and Corporate Communications.

Peter DeNardo, Amyris, Inc. – Senior Director of IR & Corporate Communications [2]

Thank you, Melinda. Good morning, and thank you for joining us today. With me today are John Melo, President and Chief Executive Officer; Han Kieftenbeld, Chief Financial Officer; and Eduardo Alvarez, Chief Operating Officer.

Please note that on this call, you will hear discussions of non-GAAP financial measures, including gross margin figures. Reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is contained in the summary financial information slides of the accompanying presentation or the news release distributed today, which is available at investors.amyris.com. The current report on Form 8-K furnished with respect to our press release is also available on our website as well as on the SEC’s website at sec.gov.

During this call, we will make forward-looking statements about events and circumstances that have not yet occurred, including projections of Amyris’ operating activities and their anticipated financial impact on our business and financial results for 2020 and beyond. These statements are based on management’s current expectations, and actual results and future events may differ materially due to risks and uncertainties, including those detailed from time to time in filings Amyris makes with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Amyris disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events or otherwise. Please refer to the Amyris SEC filings for a detailed discussion of the relevant risks and uncertainties.

Before we begin today, I’d like to note that included in our webcast is a slide presentation we will refer to in today’s presentation.

I’ll now turn the call over to John Melo. John?

John G. Melo, Amyris, Inc. – President, CEO & Director [3]

——————————————————————————–

Thanks, Peter. Good morning, everyone, and thank you for joining us today. Let me reference Slide 3. With me today, I have Eduardo Alvarez, our Chief Operating Officer, who will share operational performance highlights and key steps we’ve taken to reduce our cost of goods sold. And then we have Han Kieftenbeld, our CFO, who’ll review our financial results as well as our outlook for the full year 2020.

Let me start by providing key highlights of our business and strategic activities during the quarter. I’m on Slide 4 for Q2 highlights. Before I cover second quarter highlights, let me comment that our business and our people have shown strong resilience during these unprecedented times. Keeping everyone safe has been our #1 priority, while continuing to grow revenue and improve our operational performance. COVID has added many challenges to our business and our partners, but it’s also provided many opportunities that we had not planned for. We are learning to adapt quickly to these unpredictable times. Our consumer brands delivered record revenue in the quarter, and for the first time, were equal in size to our ingredients portfolio.

Lower consumer revenue from Sephora store closures was mitigated by consumers transitioning online, supported by our digital readiness to service them and also the amazing pivot by our partner, Sephora, to move their business online to sephora.com. We expect second half consumer revenue to more than double versus the first half of this year. This shift in our portfolio will continue with significantly larger sustainable and predictable product revenue relative to our collaboration programs and revenue.

Q2 margin was impacted by sales mix and lower collaboration revenue and costs for the scale-up of new products in our ingredients portfolio. During the quarter, we had about $2.7 million of product revenue impacted by COVID that will be realized in the second half. This was driven by operating challenges at our CMO, our contract manufacturer in Italy, during the month of April campaign for one of our key flavor ingredients. We also had about $2 million of revenue in the quarter that’s affected by timing from our collaborations. We expect this to be realized in the second half of the year. Other than these 2 impacts, one timing, one COVID, as — we really had a strong quarter.

Cash operating expenses for the second quarter were the lowest in 5 quarters, with lower G&A and R&D expense of $6.5 million compared to the second quarter of last year. This is partly reinvested in the robust growth of our consumer brands where we are delivering $11 of sales for every advertising dollar invested through the Biossance brand. We continue to focus on operating economics relative to newer ingredients and our newer brands. Also, we are on schedule with the construction of our specialty ingredients plant in Brazil with full commissioning expected during the fourth quarter of 2021.

In the second quarter, we raised $200 million from a private placement with high-quality investors, of which 70% were new to the company and 90% with a health care, biotechnology or long orientation. This was the largest raise in the history of the company.

Before I move on to the next slide, I want to thank our new and existing investors for their support in helping us execute this financing to further grow our business. The financing and other activities during the year-to-date also allowed us to reduce total debt and the cost of servicing that debt, which Han will detail further.

Please turn to Slide 5. Our revenue for the quarter was 87% from product sales and 13% from technology collaborations. We expect the shift in our portfolio to continue due to continued acceleration in demand for our consumer-branded products. In the second quarter of 2019, we had $41 million of nonrecurring income from the sale of our Vitamin E royalty agreement to DSM. Excluding this onetime income, recurring revenue of $30 million grew 36% over — year-over-year and 23% quarter-over-quarter. This was driven by strong trends in our Consumer & Ingredients business, which delivered revenue of $26 million or more than double the prior year period.

Consumer revenue delivered a record quarter and tripled year-over-year, driven by strong online sales and our rapid adaptability of harnessing and optimizing our online sales platform. We believe higher online purchasing activity is here to stay, and we’re continuing to maximize conversions and deliver a better customer experience through product orientation, product education, content and improvement in the overall online experience for the consumer. Based on what we are seeing, we believe the consumer business has the potential to exceed $75 million in revenue for 2020 compared to around $17 million in 2019.

Our ingredients business delivered around $47 million in revenue for 2019, and we’re on track right now for about $95 million in 2020. We are very pleased with our consistent growth rate from our ingredients business with a significant acceleration of growth from our consumer activity, especially as we have entered a phase where most consumers are now working and shopping from home.

Within our consumer-branded business, Biossance sales were up 132%, with our dot-com business inside Biossance increasing 6x and the Pipette baby and family care brand experiencing 10x sales growth over the first quarter of this year. This illustrates the performance of our product line, customer receptivity to our clean skincare offering and the adeptness of our team in navigating through COVID to convert customers to e-commerce platforms.

We also made similar inroads in online sales for our Pipette baby and family clean skincare brands and our Purecane direct-to-consumer sweetener line. The consumer business overall excelled year-over-year and is on track to deliver over $50 million in the second half, with gross margins of over 60%.

The Biossance brand is delivering around 70%, 7-0, 70% gross margin, while Pipette and Purecane are around 55% gross margin. We have historically doubled our consumer revenue in the second half versus the first half. And this year, we have the benefit of a full half of hand sanitizer sales versus only a couple of months at constrained capacity in the first half of this year.

Our 3 most critical metrics for the consumer business also performed very well in the quarter. Our consumer traffic was around 1 million consumers a month through our owned websites. This compares to about 200,000 consumers monthly in the second quarter of 2019. Our return on advertising dollars spend or a metric called [ROAS] was around $11 per Biossance. That’s over $11 of sales for every dollar of advertising spend, and our consumer loyalty continued to improve. We gained more loyal customers in the quarter than any quarter in our history.

Based on the continued consumer love for our products and brands, we expect our consumer revenue to continue more than doubling year-on-year. This would result in around $160 million of 2021 consumer revenue, just shy of what we expect for 2021 ingredient revenue. 96% of our product sales are in clean skincare, sustainable health, flavors and personal care and household cleaning. Each of these segments are benefiting from the current COVID-19 environment. The remaining 4% of our business is in aroma ingredients for use in perfumes, and this activity has seen a significant drop in demand during this period.

For ingredient sales, which were up 56% year-on-year, excluding one-offs, squalane continued to be the largest revenue contributor in the second quarter with sales up 31%. Our second biggest revenue contributor was our zero-calorie natural sweetener from sugarcane, Reb M, where we sold out all of our production. And the other key contributors were sclareol for fragrances as well as cleaning products and farnesene and farnesene derivatives, which are also used in cleaning products. This is expected to be a record year for squalane and a solid year for Reb M as it continues to scale.

We now have 6 platform ingredients in our portfolio that each can deliver over $10 million in annual revenue. With our vaccine adjuvant, our new flavor and our new skincare ingredient, we are adding 3 new platform ingredients to our portfolio this year that each are capable of delivering $10 million in annual revenue.

Based on current demand and our production capacity, we expect over $70 million of second half ingredient sales. These are predominantly or mostly sold at this point, and we’re really focused on the production of these ingredients and managing our supply chain to deliver these to our customers.

Let me now provide some color on our portfolio characteristics. Please turn to Slide 6. Our portfolio is comprised of Collaboration & Grants and Consumer & Ingredients revenue. The quarter-to-quarter revenue from collaborations is choppy and dependent on R&D milestone delivery. To underline the variability of collaboration revenue, over 6 quarters, we hit a high of $15 million and a low of $2 million. Even though there was that much variability in the revenue recognized, the work being performed, the collaboration contracts that we have, number of partners, number of products, were predominantly unchanged during this period, meaning that the real variability is really based on how revenue recognition happens quarter-over-quarter based on milestone delivery for our partnerships. This source of revenue operates at 100% gross margin. So any volatility in revenue from quarter-to-quarter has a notable impact on quarterly profit delivery. That’s the benefit of significantly increasing our product sales at the rate that we’re increasing at so that, that choppiness no longer has a direct negative impact on any quarterly profit delivery.

Our Consumer & Ingredients product portfolio growth is sustainable and predictable and will continue doubling year-over-year, while collaboration revenue remains flat and choppy based on contract signing and revenue accounting for the milestone delivery. This is consistent what we’ve expected before, and we expect the same level going forward with some years exceeding this level of revenue based on onetime licensing opportunities.

We’ve analyzed our product portfolio into 2 categories: scale-up products and growth products. The scale up of new ingredients has an impact on quarterly margin, as you can see from the slide. For the second quarter, about $7 million of total Consumer & Ingredients revenue of $26 million was from scale-up products, which carry unfavorable margin economics at the present time until they reach their full scale. These are products where we are in the first 18 months of commercialization, and we are involving the strain for fermentation and the downstream process to deliver our target cost of goods. Scale-up products impacted second quarter gross margin by around $3 million negative. Each of our ingredients has reached our target margin within 18 to 24 months of commercialization.

Our target margin for the consumer business is 60% to 70%, which we are realizing currently. And for the ingredient business, it’s 40% to 50%. At maturity, our consumer portfolio delivers around a 30% adjusted EBITDA, and the ingredients portfolio, about a 35% adjusted EBITDA. The consumer business has much better gross margins and much higher cost to serve, while the ingredient business has lower gross margins and a much lower cost to serve.

Growth includes more mature brands and ingredients operating at predictable margins and include a more established consumer brands, Clean Beauty, and certain flavors and fragrance ingredients. Growth products delivered $7 million of additional revenue in the quarter compared to prior year and also delivered additional gross profit of $7 million due to improved unit costs. The overall message is that the different parts of our portfolio carry different characteristics as it relates to predictability, margin economics and expected growth.

Let’s move on to Slide 7. We are executing well against the 4 strategic priorities we set out at the beginning of the year to maintain healthy growth with a focus on achieving profitability and sustained cash generation.

Let me highlight a few items around these 4 strategic priorities. First, high-growth consumer brands, where we’ve built the fastest-growing brands in their respective categories and have launched a leading hand sanitizer product line that is expected to continue gaining share and delivering strong revenue and margin. The hand sanitizer delivered a 40% gross margin in its first few months and is expected to deliver better than a 50% gross margin for the remainder of the year with our significantly improved cost of goods at our new Brazilian production partner.

Secondly, scientific and commercial collaborations where we fund our R&D and have entered into 2 significant partnerships during the quarter, including what we believe to be one of the leading RNA platforms for vaccines.

Thirdly, supply chain optimization, where we are managing production across multiple sites while our new plant is under construction. The new plant is expected to start in the fourth quarter of 2021. The start of this plant is expected to deliver around a 1,000 basis point improvement to our gross margin and deliver an 18- to 24-month return on the capital employed.

Having this plant operational is estimated to be worth around $20 million in gross profit dollars based on our 2021 revenue forecast. Some investors have asked whether I’m willing to sleep at the site until the plant is built. And I can tell you that the team and I are doing whatever it takes to get this plant built and operational by the fourth quarter of 2021. This is the most critical deliverable to meet our customer needs and to continue improving our financial performance.

Lastly, around our strategic — our 4 strategic initiatives, improving the balance sheet, earnings and positive operating cash flow. We solidified our balance sheet during the second quarter. We expect a significant improvement in our adjusted EBITDA during this quarter. And we expect to turn adjusted EBITDA positive in the fourth quarter based on our current performance and outlook.

Now let me turn to scientific partnerships. One area we are particularly excited about in helping to address COVID is our recent partnership with the Infectious Disease Research Institute, or IDRI. IDRI has significant expertise in taking a comprehensive approach to combat infectious diseases and cancer, combining the high-quality biotech — high-quality science of a research organization with the product development capabilities of a biotech company to create vaccines and therapeutics.

I want to point out something important about the binding term sheet we signed that we believe will lead to a definitive agreement in short order. The agreement adds IDRI’s RNA vaccine technology platform, coupled with their nanolipid carrier IP, to our portfolio by giving us an exclusive license and rights to it. We did this because we believe, based on our 2 years of extensive work with IDRI, developing our vaccine adjuvant, early animal testing results and a review by an independent expert indicates that this can be the most effective RNA platform for potential vaccines, starting with a COVID-19 indication. And we also have rights to utilize the platform for other indications, including cancer, where an RNA therapeutic can be utilized.

According to experts, the efficacy and scalability of IDRI’s RNA solution, coupled with our adjuvant, have key advantage by possibly needing 1,000x less RNA to be manufactured and used in a single vaccine. So a lower dosage of RNA, utilizing lower-cost nanoparticles as the delivery mechanism to place RNA on the surface with a self-generation attribute. The potential benefits are much lower cost, better efficacy, enhanced supply chain scalability and the mitigation of manufacturing bottlenecks that other candidate COVID-19 vaccines are likely to face. We have reviewed much of the data from current vaccine trials and believe there will be a critical need for a second-generation technology that is much more effective and lower cost.

Early tests in mice have identified that much lower use of RNA results in a very high-efficacy treatment that results in much lower toxicity than other RNA vaccines currently in trials. We expect first human testing around the middle of 2021 with the potential to scale and deploy in 2022, assuming the trials are successful. Our view is simple. There will be a need for a second-generation vaccine, and it’s a vaccine that’s not just for the 1 billion people in rich countries, it’s for the 7 billion people in the world that need to be treated to avoid COVID-19. At a relatively low cash outlay from Amyris with several go or no-go steps along the way as we review available data to derisk our investment, the program calls for IDRI to utilize its existing novel nanolipid carriers and RNA technology through a Phase I clinical trial. The first target is COVID, but we have optionality on other RNA therapeutic candidates.

The adjuvant is independent to the RNA vaccine platform agreement with IDRI. We are in process of commercializing the adjuvant and expect first commercial revenue this year from several other large pharmaceutical companies. Our goal is to be the leading supplier of squalene adjuvant to the market. The real message here is a novel RNA vaccine platform that we have added to our portfolio. We will keep you updated on our progress of the accelerated development program, and we’ll likely hold a separate investor conference later in the quarter to update you on the details of the vaccine platform.

Now let me turn to Eduardo. Eduardo?

——————————————————————————–

Eduardo Alvarez, Amyris, Inc. – COO [4]

——————————————————————————–

Yes. Thank you, John, and good morning, everyone. Please turn to Slide 8. Let me start with an update of — on our pandemic response. As John mentioned, we continue to apply strict controls and to monitor the pandemic very carefully. We have had 3 confirmed cases, all were for employees who were working from home, and none of the cases affected other employees. These 3 employees have all recovered, and we are thankful for their quick return to good health.

We continue to work with our production team and partners to develop site-specific approaches to implement on-site activities carefully. These protocols adjust for local regulation, the type of work being performed and in the individual circumstances of our employees. Here is an update of where we are.

At Emeryville, our on-site presence is about 50% or about 100 employees and focuses mostly on our lab activity and our pilot plant. At our production sites in Leland, North Carolina, and in Brazil, we already are at 100% of full operation.

Now let me transition to our production performance. As John mentioned, our product revenue for the second quarter was $26 million or 111% growth compared to the second quarter of 2019. Second quarter Consumer & Ingredients product revenue represented 87% of our reported revenue. This is in alignment with our stated strategy to bring — to strengthen our recurring product revenue. In the second quarter, we delivered 6 products, which comprised of 871 tons of finished products. This was 19% higher volume than expectations.

Now let me go deeper into our unit cost performance. As John mentioned, we’ll separate the comments between our growth, established products and our scale-up activities to reflect our dynamic portfolio and to provide additional transparency and delineation.

Let me start with the growth of mature products. I’m happy to report continued success in our squalene production at our Leland, North Carolina plant. The second quarter represented the third consecutive quarter of record production at that site. In fact, our year-to-date production of squalene is 60% higher than what we have produced in the first half of 2019. Our team is also focusing on improving our unit costs for that product. We have delivered 20% unit cost when compared to the average unit cost of squalene in 2019.

Another established product is farnesene. Farnesene is sourced from our strategic partner, DSM. And our farnesene supply has benefit from excellent production controls, Brazilian sugar prices and exchange rate factors. Farnesene is a cream ingredient to 4 of the growth mature products we delivered in Q2, and it was critical to deliver all of these products at or below our unit COGS targets.

In terms of our scale-up products, let me talk a bit more about Reb M. As I mentioned in the first quarter comments, we successfully implemented a new purification process for our Reb M in the second quarter. This new process is simpler and much more scalable. It included 2 new unit operations that initially resulted in a 20% lower-than-target yield during the start-up of the campaign. By the end of the campaign, our teams had optimized the process, and we’re running it as planned. We did face a corresponding increase in our unit costs during the scale-up phase. However, the new process successfully doubled production output and the resulting product excelled in quality and profile.

By the end of the second quarter, we had sold out all of our available production, and our B2B clients were very pleased with that product. We continue to have tremendous market success and traction as we shared in the June announcement regarding our North American partnership with AB Mauri as an example.

Our success with Reb M has also extended to our end consumers, and let me share some results. Our e-commerce traffic for Purecane delivered record growth in the second quarter. For example, our volume and orders for our bakery product doubled during each month in that quarter, and that momentum continued to accelerate into July. Purecane, in fact, ranks in the top tier of our — of Amazon’s natural low-calorie sweetener category, and we continue to receive the highest ratings above 4.5 stars from our consumers. Simply said, our consumers love Purecane and our Reb M.

Another scale of product I would like to discuss is our hand sanitizer activity. In the second quarter, we scaled this new product line and established additional production locations that added resilience to our scale-up. We now have the ability to produce up to 1.5 million units a month. And our U.S. production facility for the hand sanitizer is in Brazil, which, as John mentioned, we’ll ensure we have improved the unit cost in the next phase of our hand sanitizer growth. We have a winning formula with excellent feedback and the traction from our Pipette and Biossance hand sanitizer products. Now the focus is on execution excellence, lowering our total supply costs and driving sales through each of — one of our channels.

In summary, our unit cost performance reflects both continued delivery on our growth, mature products, but also a focused careful investment on the cost of the scale-up activities.

Now let me close by looking ahead at our priorities for the second half of 2020. Our first priority is to complete 2 new scale-up campaigns, both starting in Q3. First, we’re scaling our 10th ingredient, an ingredient we mentioned in our fourth quarter update in 2019. This is a natural leading ingredient. And our next campaign is in Brazil. It will be a campaign 8x as large as the previous one. We are on track to delivering a leading natural flavor with 99% purity produced through sustainable fermentation. We also remain on track to deliver our fairest large-scale cannabinoid campaign, and we will begin fermentation in 2 weeks.

Our second priority for the second half is to deliver on the remaining production plan, and we are confident that we will deliver the growth, product quality and cost performance for all the sectors and products for the remaining of the year.

Finally, let me share an update on the construction for our Brazil plant. We are in the critical phase of civil construction. And during the second quarter, we successfully completed the tie-ins to the infrastructure services for the plant and procured all of the long lead items, including the fermenters. The plant remains on track for commissioning at the start of the fourth quarter of 2021.

I want to recognize the incredible dedication and commitment of our operations and production teams. We are very thankful for everyone’s continued help and are excited to deliver an excellent second half of the year.

Now let me turn the call over to Han. Han?

——————————————————————————–

Hermanus Kieftenbeld, Amyris, Inc. – CFO [5]

——————————————————————————–

Thank you, Eduardo, and good morning, everyone. Before I review the details of our Q2 financial performance, I would like to thank our new and existing investors for their support and participation in our recent funding. They see the value in our science-driven technology platform and our ability to commercialize synthetic biology to disrupt and grow within multiple markets.

Let me now turn our Q2 financial results at a high level, and then further discuss certain details. Let’s turn to Slide 9. Let me start by highlighting that Q2 of 2019 included a significant nonrecurring item of $41 million, which was 100% accretive to revenue, gross margin, net income and EBITDA. This item represented income from a Vitamin E transaction the company completed in Q2 of 2019. To help the year-on-year comparisons, I will exclude this nonrecurring item from the analysis.

Here are the key takeaways regarding the quarter. Product revenue growth continues to outpace collaboration revenue as expected. We had our strongest quarter yet for consumer revenue. Scale up of products is key to future success, but comes at a near-term cost, resulting in unfavorable margin economics until at scale. As John commented, we expect to see greater margin stability once we get our integrated site in Brazil up and running.

Gross margin was 36% of sales, and this was a result of sales mix driven by below-average collaboration revenue of $4 million, which is 100% accretive to margin contribution, and also scale-up costs related to new products in our portfolio. Revenue and margins for scale-up products are not predictable as yet and feature unfavorable margin economics until at scale.

Cash operating expense of $43 million was the lowest in the 5 sequential quarters. Lower G&A and R&D expense were partly reinvested in supporting the growth of our consumer brands. When adjusting for the Vitamin E nonrecurring item, adjusted EBITDA was up by $3 million or 8% versus the prior year quarter. We also significantly improved our balance sheet. We lowered debt from $297 million by $121 million or 40% since the start of the year, and we project second half 2020 cash debt servicing cost to be down from $42 million to $11 million.

We completed the $200 million PIPE in early June. This raise was the largest with the simplest structure in the history of the company.

Let’s now turn to Slide 10 to take a closer look at the sales revenue by category. This slide provides a presentation of our sales revenue that provides color on our direct-to-consumer brands, Biossance, Pipette and Purecane, as well as our business-to-business ingredients with our strategic partners into health and wellness, flavor and fragrance end markets. By this comparison, our revenue is broken down between Consumer & Ingredients and Collaboration & Grants, which is revenue from R&D partnership programs.

As you will see, 87% of our revenue came from Consumer & Ingredients, broken down in 43% from consumer and 44% from ingredients, respectively. The remaining 13% of total sales was from Collaboration & Grants revenue.

Q2 revenue was $30 million with product sales at the highest level in several quarters. Recurring revenue grew 36% year-on-year and 23% quarter-on-quarter. Consumer & Ingredients revenue of $26 million doubled versus the prior year quarter when excluding the aforementioned nonrecurring item. Consumer revenue tripled and set a new record with consumers shifting to online shopping driven by COVID.

Collaboration revenue of $4 million in the quarter, which is 100% accretive to margin, tends to be somewhat choppy. For perspective, let me add that over the past 6 quarters, we experienced a high of $15 million and a low of $2 million.

Let’s move on to Slide 11 and talk about sales revenue and gross margin. Q2 recurring revenue, excluding a $41 million one-off, as mentioned before, was up $8 million or 36%. Within this metric, $14 million of growth came from Consumer & Ingredients, with about $9 million of that directly related to consumer revenue, partly offset by $6 million in lower collaboration.

In particular, recurring Consumer & Ingredients revenue of $26 million for the quarter was up $14 million or 111% year-over-year, of which price was minus $3 million or 27% and volume mix was a positive $17 million or a plus 138%. Collaboration & Grants revenue declined 60% year-on-year due to the timing on program milestone completions. Gross margin was 36% of revenue, and this was a result of sales mix driven by below average collaboration revenue and also scale-up costs related to new products in our portfolio.

Let me move to Slide 12. Revenue, excluding the nonrecurring Vitamin E royalty increased by $8 million over the second quarter of 2019. Direct gross profit of $11 million was 36% of sales, and this compared to 54% in the prior year quarter when excluding one-offs. Gross profit was $12 million for Q2 2019.

To provide insight into revenue and corresponding gross margin dynamics, we are providing a breakdown between scale-up and the growth part of our product portfolio and collaborations separately. As I mentioned previously, collaboration revenue was down $6 million. Additionally, revenue related to the scale-up part of our portfolio grew $7 million. These products are important to our future success, but we are making investments to scale and improve yields in the near term, resulting in unfavorable unit cost economics until at scale.

Thirdly, the growth part of the product portfolio also grew $7 million in revenue and delivered $7 million in gross profit. These favorable economics were due to much improved margins versus the prior year quarter, particularly with certain ingredients products.

Let’s now turn to Slide 13. Net income of 100 — of minus $104 million was adversely impacted mostly due to noncash adjustments related to fair value changes of derivatives and debt and extinguishments of debt and higher interest expense and adjustments in debt instruments. Q2 of 2020 included $49 million of these noncash charges.

Adjusted net income was minus $58 million, excluding these items and down minus $3 million when excluding one-off items. The change was mostly due to higher interest expense of $4 million.

Operating expense of $43 million were the lowest in the 5 sequential quarters and down $3 million from lower G&A and R&D expense to the tune of $6 million, partly offset by investments in marketing and sales to support our consumer brand growth.

Adjusted EBITDA was minus $36 million and improved $3 million, excluding one-offs. This improvement was mostly due to improvements in cash operating expense.

Adjusted EPS of minus $0.32 per share compared with minus $0.16 versus the prior year quarter and improved $0.28 per share when excluding last year’s nonrecurring item.

Let’s now turn to Slide 14. We continue to make strong progress on reducing our debt and our debt expense. As a reminder, during the first quarter, we reduced our overall debt by 30% from $297 million to $209 million. And during the second quarter, we made further demonstrable progress by reducing the figure down to $176 million by June 30. We paid down certain debt and also we made certain debt conversions.

Total debt during the first half of 2020 was reduced by $121 million in total or 40% relative to year-end 2019. Capital expenditure of $3 million were on par with the prior year quarter, with the investments in new Brazil plant proceeding to plan. At the end of Q2, common shares outstanding were 204.6 million, and on a fully diluted basis, 278.8 million. In light of the upcoming special shareholder meeting on August 14, let me note that the conversion of the Series E preferred will change common outstanding to 238.7 million and fully diluted shares to 312.9 million.

Now turning to our outlook on Slide 15. Our business continues to grow, and our teams have worked hard to meet demand. As John noted, we have lots of execution ahead of us through the second half and are keeping a close eye on the COVID situation and the economy. Let me point out that the current COVID situation does present uncertainties to which we do not have full visibility. Our outlook for the current year and our comments should be seen with that important context in mind.

We anticipate certain headwinds during the second half, but COVID also has presented market opportunities that we are actively pursuing. Our current assumption is that we will mitigate the headwinds by executing on these opportunities on which we expect to report more detail by the end of the third quarter.

Based on current estimates, full year sales revenue is expected to grow around 44% versus 2019 GAAP revenue of $153 million. 2019 full year sales included $49 million of nonrecurring items. We expect full year 2020 revenue to include an estimated $35 million of nonrecurring items. We, therefore, expect 2020 revenue on a recurring basis to grow approximately 80% on recurring 2019 sales of $104 million. We expect gross margin to be between 55% and 60% of revenue, obviously, based on the assumptions we made regarding sales mix and quality of revenue. And we expect adjusted EBITDA to turn positive during the fourth quarter of this year.

With that, let me turn the call back over to John.

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [6]

——————————————————————————–

Thanks, Han. A few closing comments. If you can all turn to Slide 16 before we go to Q&A. Our leadership in Clean Beauty and in natural sustainable ingredients could not be better positioned for the current time. Consumers are moving aggressively to clean and safe products from the brands they trust, and they’re doing this online. We supply many of these brands, and we have 2 of the leading brands to help consumers in this time of need.

Our ability to quickly scale what we believe are market-leading ingredients and branded products that provide exceptional performance and great value has become the hallmark of our business. With a much improved balance sheet and capital structure, we have greater flexibility to execute on growth in an area where better educated consumers are choosing products based on companies and brands that support them and the planet by omitting toxic and questionable ingredients, and we are taking advantage of this mega trend.

Our core business is doubling year-on-year, and our pipeline is focused on health with our HMO technology, vitamins and cannabinoids. These are each markets where we have the leading technology platform for the purest and best-performing ingredients that are currently in development or shortly scaling.

With COVID, we are at a historically difficult time in the world that has been challenging for all of us, and at times, unpredictable. COVID has created new opportunities in global health for synthetic biology, and we’re actively pursuing the development and launch of some new solutions. One thing our customers can count on is that we will continue to meet their needs for clean products that keep them and their families healthy and safe. We are doing our part to make the world a better place, and we thank you for your support.

Let me now turn to questions. Melinda, can we go to questions now, please?

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions) And first, we go to Colin Rusch with Oppenheimer.

——————————————————————————–

Colin William Rusch, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [2]

——————————————————————————–

I just want to make sure I’m clear on a couple of things. So one, the sales target for the year is still consistent at $220 million for the year and about 80% of that is going to be recurring sales. Am I doing that math correct?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [3]

——————————————————————————–

Correct on the $220 million, Colin. And then, Han, can you confirm the recurring piece of that at 80%?

——————————————————————————–

Hermanus Kieftenbeld, Amyris, Inc. – CFO [4]

——————————————————————————–

Yes, that is correct.

——————————————————————————–

Colin William Rusch, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [5]

——————————————————————————–

Okay. Perfect. And then in terms of visibility around those recurring sales, is that coming from Sephora and other customers? How should we think about your visibility and the sales cycle on each of those lines as we go forward?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [6]

——————————————————————————–

Well, over $90 million for the full year is in ingredients, and the majority of those ingredients are sold or we have orders in place with some of our big customers, Givaudan and Firmenich being 2 of the biggest. And then the consumer part of the revenue, again, full year consumer, will be around $75 million. And that $75 million in consumer is really based on having done about $22 million in the first half. More than doubling that in the second half, which is what we’ve done the last couple of years. And then adding to it, the current run rate that we have for the hand sanitizer business, which has been an outstanding performer in the second quarter, and we expect to benefit from the full second half of hand sanitizer.

——————————————————————————–

Colin William Rusch, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [7]

——————————————————————————–

Perfect. That’s very helpful. And then finally, on the IDRI collaboration and the adjuvant opportunity. So my understanding is that you guys are able to work with anyone from an adjuvant perspective.

And then the IDRI relationship, it really sounds like you’re buying — or you paid for a ROFR on the next several applications for additional vaccines. Can you talk just a little bit — just confirm that? And then also talk a little bit about the cycle and the development process. Obviously, these guys have a pretty robust platform, but how quickly do you think you could bring something to market and start seeing some revenue from any of those indications?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [8]

——————————————————————————–

Well, again, to separate the two. On the adjuvant, we are currently negotiating the first offtake for the adjuvant, and we expect to have 2 to 3 agreements in place through the year, of which the first could have commercial revenue before end of year. So that’s the adjuvant. And the adjuvant is in our control. It’s a technology that we developed, the ability to make squalene as an adjuvant directly from our fermentation product, which gives us the lowest cost and largest scalability for adjuvant. That’s, again, separate.

Then with IDRI, in developing the adjuvant over the last 2 years, we discovered they had a really interesting RNA technology for vaccines. And with that, they have several indications that we have interest in — very good interest in. One is an oncology indication for a therapeutic and the other is the COVID-19. And it’s not that we’re going to be the leading to market COVID-19. It’s that in everything we’re seeing in the data, the leading COVID-19 to market indications seem to have a toxicity issue that limits the amount of the dose, and therefore, leads to challenges with efficacy. We think that’s going to be a long-term issue and will require a second-generation technology to really scale and be sustainable long term. And that’s really what we’ve licensed then from IDRI, and we’re going to work with them to scale. Plus, we’re talking to several governments to jump in with us to really ensure that this is fully resourced and scaling at the fastest rate. How fast it gets to scale, Colin? I think depends on the future of COVID-19 and other respiratory diseases, right? So — because to get there fast, we need a supportive, very supportive regulatory environment which has been there during COVID, and that would have to stay in place for us to get to what we think could be commercialization some time in 2022.

——————————————————————————–

Operator [9]

——————————————————————————–

Next, we go to Amit Dayal with H.C. Wainwright.

——————————————————————————–

Amit Dayal, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst [10]

——————————————————————————–

Exciting to see you guys get into the therapeutics vertical. Just one question on sort of who’s going to be managing this process to take it to Phase I, Phase II, et cetera? Is it Amyris, and we are looking to build a team around all this? Or will IDRI be involved as well?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [11]

——————————————————————————–

Yes. We’re having IDRI actually do the development, and we’re actually in discussions with a third-party that specializes in getting through clinicals to actually drive that. We don’t have the capability to do that, and we do not expect to build it. I just want to make it really clear. Our objective here is not to build a new cost base of something we’re not specialist in. It’s actually to take the advantage technology that IDRI has, their capability on developing vaccines and therapeutics and connecting it with large sources of investment, or said differently, adding our commercialization and access to help accelerate the vaccine’s capability.

——————————————————————————–

Amit Dayal, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst [12]

——————————————————————————–

Understood. And then with respect to the adjuvant side, it looks like you’re close to probably closing some deals over here. Does that play into potentially some upside to the guidance provided today?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [13]

——————————————————————————–

We’re not — I mean, we’ve got several items that we think could be upside, but at this point, because of all the headwinds and unpredictability related to COVID, we’re keeping our guidance at $220 million. And we do have, again, several items that are not in the guidance that we’re focused on executing on.

——————————————————————————–

Amit Dayal, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst [14]

——————————————————————————–

Understood. And then what would drive pickup in sort of grants and collaboration side? Is it just you guys are facing some disruptions from executing on that front because of the pandemic situation and things are being pushed out? Or are there any other sort of drivers that are keeping some pressure over here?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [15]

——————————————————————————–

No. In the first half, it is literally a couple of million dollars that we were not able to recognize as revenue based on the timing of the milestone delivery and how revenue accounting works. We are not experiencing at this point for our core collaboration portfolio, a significant change for the year.

——————————————————————————–

Operator [16]

——————————————————————————–

Next, we go to the line of Randy Baron with Pinnacle.

——————————————————————————–

Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [17]

——————————————————————————–

Han, I have a few administrative questions for you, just cleaning up my notes, and then, John, a bigger one for you. Han, just in — as a follow-up question, how much revenue in the quarter was deferred that will get recognized in the third quarter?

——————————————————————————–

Hermanus Kieftenbeld, Amyris, Inc. – CFO [18]

——————————————————————————–

Yes. It was approximately — you’re talking specifically about collaboration revenue? I take it like that.

——————————————————————————–

Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [19]

——————————————————————————–

Well, I mean, you can include the total revenue that wasn’t booked yet.

——————————————————————————–

Hermanus Kieftenbeld, Amyris, Inc. – CFO [20]

——————————————————————————–

Yes. So it’s — John made reference to that. It’s around $2 million.

——————————————————————————–

Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [21]

——————————————————————————–

Okay. And then you said there’s 312.9 million fully diluted shares after August 14. What was the basic share number? I missed that. And is there any (inaudible) coming in there yet?

——————————————————————————–

Hermanus Kieftenbeld, Amyris, Inc. – CFO [22]

——————————————————————————–

Yes. So let me quickly go there. Just give me a second. Whilst I’m doing that, if you want to ask your broader question to John, so I can come back to you.

——————————————————————————–

Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [23]

——————————————————————————–

Sure. I mean, John, I just — I’m trying to get a handle on LAVVAN. And I may have missed kind of the update there, just generally speaking. But can you just speak in general terms on where that partnership stands? Kind of why you continue to treat them as good actors. Are other parties lined up and ready to partner with you on CBD? And then the tail end of the question, which is what would be the benefit to EBITDA if you ceased production of molecules 3 through 10?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [24]

——————————————————————————–

Quite a bit there. Quite a bit there, Randy. So let me try to take each piece. First of all, I do need to make clear that I have been restricted, I meaning the company, has been restricted by LAVVAN for making public comments regarding the partnership. So I’m going to try to do everything I can to answer your question within that restriction or order that we got from LAVVAN.

We are in process, I think, as Eduardo announced and Eduardo’s comment about our first cannabinoid is in line with regulatory requirements that we maintain and update you on what we’ve already made public. So we’ve said we would be scaling up one of our molecules. We are — one of the cannabinoids, and we are absolutely in process of doing that. We expect first production to start happening within the next couple of weeks. And we think it’s a very exciting opportunity for the market. And I think the most important thing, it’s the fastest time any cannabinoid has been scaled at the scale that we’re going to be producing at. And we will very quickly this year become, I think, the largest producer of that particular cannabinoid in the U.S. So we’re pretty excited about that.

We believe the cannabinoid opportunity continues to be as we’ve thought. Obviously, there are regulatory headwinds about the general use, especially in beverage and other items that you would consume. But the application in topical or used in skin, we still see as pretty significant. And as you can imagine, flavors and fragrances and uses in skincare are markets we know extremely well. And those are markets that have a keen interest in being able to partner for cannabinoids. So I don’t — without giving you a lot more detail, I hope that helps, and I’m happy to take a follow-up on that, Randy?

——————————————————————————–

Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [25]

——————————————————————————–

Yes. I just wanted to make sure I’m clear. The cannabinoid that you’re beginning to go to commercial on, that is or is not for LAVVAN? Or this is something for like without some specific to this, is it internal for Amyris? Or this is core part of that partnership? I’m just not clear on that.

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [26]

——————————————————————————–

Yes. There is, in the LAVVAN agreement, an area or market area that is excluded from that agreement. So we are producing for that excluded market.

——————————————————————————–

Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [27]

——————————————————————————–

Understood. And then what’s the drop-dead date when you’re going to be able to no longer be restricted to talk about it? I mean whether they pay you or not?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [28]

——————————————————————————–

It’s as long as we’re in the agreement with them, they have put a restriction in our ability to speak publicly about the relationship.

——————————————————————————–

Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [29]

——————————————————————————–

Okay. Just — and so just going back to the original agreement, I guess, from last year. When is the termination date? I mean, if they don’t pay — I get you can’t get into the details, but there is a point at which I assume there’s other parties lined up that would warrant this molecule you’ve created. So what — how should we think about the original agreement and the timing of that?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [30]

——————————————————————————–

Yes. I’m going to stay with what I said a few minutes ago, Randy, which is because there is an excluded market, our focus is working within the constraints of the agreement and actually effectively working in the market that we have the right to work in.

——————————————————————————–

Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [31]

——————————————————————————–

Okay. Then I’ll ask the last question on this and go back in queue. Do you think LAVVAN will eventually just pay?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [32]

——————————————————————————–

Do I think LAVVAN will what, Randy? Repeat that, please?

——————————————————————————–

Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [33]

——————————————————————————–

Do you think LAVVAN will eventually live up to their part of the agreement and pay? I mean you — Amyris has clearly delivered your portion. The market is suspicious that LAVVAN will not. I’m curious if Amyris, as a company, at this stage believes that LAVVAN is negotiating in good faith?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [34]

——————————————————————————–

We’ve shared with them what we’ve heard from the market, which is exactly what you just repeated, and they’ve assured us that they are going to hold their side of the agreement and are going to continue doing exactly what the letter of the agreement says. So I can only repeat for — to you what I’ve been told.

——————————————————————————–

Hermanus Kieftenbeld, Amyris, Inc. – CFO [35]

——————————————————————————–

Randy, before you leave, I just want to take your question, your original administrative question around the shares outstanding. So 204.6 million at the present time. That includes, as you know, based on the PIPE of $200 million, there is 67 million round numbers shares attached to that. Half of that in terms of common were already distributed. The other half, which is around 34 million will — won’t become available after this special shareholder meeting on August 14 coming up. And actually, if you go to Slide 14 in the deck that we shared today, there’s a couple of footnotes that actually set that out in detail. And you’ll see an increase based on that comment I just made from 204.6 million to 238.7 million, and that difference is that 34 million.

——————————————————————————–

Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [36]

——————————————————————————–

Just to finish on this share topic. On Slide 21, you have the warrant table. How much of the, call it, 2021 warrants, do you think that $92 million will have come in? Have you received more warrant cash since the end of June? Like how should we just think about warrant cash going forward?

——————————————————————————–

Hermanus Kieftenbeld, Amyris, Inc. – CFO [37]

——————————————————————————–

No. No. Since the end of June, no, because there were no warrants expiring in this time period. And the few that were there were way out of the money. The ones that are available in 2021 are mostly priced at the $2.87 level. So actually, when you catch your eye on that same slide to the left-hand side, you see $2.87 and 36.7 million warrants of cash with most of dues are in 2021 and will become available mostly actually in the first half of 2021.

——————————————————————————–

Operator [38]

——————————————————————————–

Ladies and gentlemen, we take our final question from Graham Tanaka with Tanaka Capital.

——————————————————————————–

Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [39]

——————————————————————————–

Congratulations on all your achievements. You have a lot going on. I just wanted to continue on Randy’s questions and the CBD — CBG opportunity, I’m not sure which molecule that is. But whichever that is, what is the revenue potential? And would you be entering the market as with a direct product or as an ingredient?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [40]

——————————————————————————–

Yes. Again, Graham, by the way, and thank you for being on the call. We really, in light of the restrictions we have with LAVVAN, I would prefer not to comment on any of the commercial activity or revenue impacts.

——————————————————————————–

Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [41]

——————————————————————————–

Got it. Okay. Is this — whatever the revenue might be coming in the second half, is that expected — is that included in your guidance? Or is that a potential upside?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [42]

——————————————————————————–

Again, I’d prefer not to comment, and I can tell you that what’s in the guidance is pretty well solidified.

——————————————————————————–

Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [43]

——————————————————————————–

Right. So not trying to push my look a little further. Switching to squalene as an adjuvant. Similar question. Is that potential revenue in the second half in the guidance? Or is that potential upside?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [44]

——————————————————————————–

Yes, that was a question one of the analysts, I think, asked earlier. I think our view is that a lot of the upsides we’re really keeping out of the guidance and keeping our guidance focused on the $220 million that we started the year with, especially in light of the significant uncertainties around COVID-19.

——————————————————————————–

Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [45]

——————————————————————————–

Okay. So it sounds like both of these might be potential upside, and you’re leaving that the way it is because of the uncertainty of potential slowdowns perhaps in the second half due to COVID? You said you just…

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [46]

——————————————————————————–

Yes, that’s exactly right. I mean, look, to put it differently, if you think about one of the impacts that we had in the second quarter, as I said, was this manufacturer in — the manufacturer in Italy, where we make one of the flavor ingredients. We never expected to be in COVID. So the way we work with a manufacturer like that is, our team goes to the site to help the manufacturer scale up and produce our product. The fact that we couldn’t do that, the manufacturer, obviously, is not as familiar with our process, did not deliver what we expected, and ended up really affecting our revenue by about $2.5 million, actually $2.7 million in the quarter off of that particular product. I mean the good news is we actually have a way to make that up because we’re now redoing that process. Obviously, Italy is now more available for us to work in, and we have access across Europe to be able to get the product produced. So the revenue for the year isn’t affected, but it definitely affected our second quarter. And it’s those kinds of uncertainties that we want to make sure we keep plenty of cushion to manage through the rest of the year, which is not — which is why we’re not embedding upsides and changing what our guidance is. We’re keeping our guidance where it’s at. We’re focused on managing all these issues, all these movements, like the example of the Italian manufacturer and making sure that we’re covered for the $220 million for the year.

——————————————————————————–

Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [47]

——————————————————————————–

Okay. That’s understood. One of the things that several of us have been wondering about is squalene as an adjuvant. How significant are the advantages? You talked about 1,000 — I think 1,000x more efficient or if you could be a little more explicit on the advantages and disadvantages versus other adjuvants like aluminums and things like that are more common historically? And to — what would be the price or value per dose of — kind of an expected dose whoever our customer — our pharmaceutical customer might be?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [48]

——————————————————————————–

Very good. So your question varies significantly by the specific vaccine itself. So every vaccine has a very different profile. What is common around squalene as an adjuvant is typically it’s used for vaccines that need to be turbocharged, that need to be much more powerful, much higher efficacy than a typical vaccine in that class. One of the most common uses, as an example, are flu vaccines for the elderly are big users of squalene as an adjuvant. So that’s the way to think of it.

For certain vaccines, squalene is the most impactful adjuvant you can use to really increase the efficacy, i.e., get better penetration and delivery of the active into the bloodstream. So that’s how to think about squalene as an adjuvant.

When you think about economics, the way we’re thinking about this is, our — the issue in the market with squalene because it’s shark source, it’s not really available, and it’s actually pretty expensive. So our value proposition is we believe we have the lowest cost source of squalene to the world. And we have the only ability to actually produce as much as possible. So one of the first orders we’re negotiating is actually a pretty significant and very high number of vaccines for a company that wants to prepare itself and it’s at a cost, and I don’t think anybody ever thought, squalene could be available for. And again, I don’t want to disclose publicly, but I can tell you it’s over 1,000 and less than 2,000 a kilo, right, somewhere in that range.

——————————————————————————–

Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [49]

——————————————————————————–

Okay. So how many grams or milligrams are used per dose? I — we just don’t know what — how much is used to make an adjuvant?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [50]

——————————————————————————–

Yes. I mean, again, it varies by how many people are going to use it and in what vaccines, right? I can tell you the size. The size of agreements we’re negotiating are typically around 10 tons each.

——————————————————————————–

Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [51]

——————————————————————————–

And on — okay. Okay. And so what percentage of the 140 vaccines, so to be so specific, but about 140 vaccines being developed currently worldwide for COVID-19. What percentage of those might be applicable as available potential markets for this squalene vaccine adjuvant as opposed to another adjuvant or a non-adjuvant vaccine?

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [52]

——————————————————————————–

Look, I can probably answer the question differently, which is of the top 10 candidates, we are — the offtake discussions we’re having involve 3 of the top 10 candidates that are currently on target for COVID.

——————————————————————————–

Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [53]

——————————————————————————–

That’s great. If I actually had one more — a chance for one more question, I just wanted to ask Han, and welcome aboard, welcome to the team. What do you — in terms of achieving the cost structure you would like to see for the second half end for 2021, how confident are you of achieving those cost reductions or limitations in order to achieve breakeven cash flow and — in this fourth quarter and profitability some time in 2021?

——————————————————————————–

Hermanus Kieftenbeld, Amyris, Inc. – CFO [54]

——————————————————————————–

Sure. Thanks, Graham. Yes, so as we just said, we’ve made some good progress. We’ve just recorded the lowest sequential — 5-quarter sequential quarter with our cash operating expense. We are continuing to look at it. Obviously, we’re dealing with a lot of new and different dynamics given COVID in terms of how we’re operating our sites, but also how our support staff is working. And we are taking a very close look at that in terms of all those dynamics. So in terms of how we’re organized, how we operate. So that is part of continuous improvement, the way we see it.

And for the second half, we have targets, particularly, we’ve demonstrated some of that already very clearly as it relates to our G&A reductions, that will be — continue to be a focus. And part of that will be an overall reduction. And part of that, obviously, will be a view to reinvest in the business, particularly as we commented today, with our go-to-market for particularly supporting the growth of our consumer brands. So that will be the balanced approach, but it’s an important discussion we have at the company, and we’ll continue to pursue those improvements in our cost base.

——————————————————————————–

Operator [55]

——————————————————————————–

We now turn to John Melo for closing remarks. Please go ahead, sir.

——————————————————————————–

John G. Melo, Amyris, Inc. – President, CEO & Director [56]

——————————————————————————–

Great. Thanks, Melinda. It’s been a long call. So I’d just like to thank the Amyris team and all of our partners for keeping everybody safe while continuing to execute on our mission. It’s been an amazing time, very unpredictable, yet just realizing significant benefit for our business during this period, both with our consumer brands and our ingredients. And again, I just want to reemphasize the great appreciation of our partners, both on the manufacturing side and then on the customer side. They’ve just been unusually supportive and working with us very carefully as we work to supply their needs and the growing consumer needs for cleaning products and products that keep them healthy and safe. So thanks, everybody. I appreciate it, and hope you all have a very good day.

——————————————————————————–

Operator [57]

——————————————————————————–

Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.

Source Article

Next Post

Want an honest election? If it isn't a ballot, don't mail it in October

Tue Aug 18 , 2020