AMYRIS, INC. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. These discussions contain forward-looking statements reflecting our current expectations that involve risks and uncertainties which are subject to safe harbors under the Securities Act of 1933, as amended (the Securities Act), and the Securities Exchange Act of 1934 (the Exchange Act). These forward-looking statements include, but are not limited to, statements concerning our strategy of achieving a significant reduction in net cash outflows during the remainder of 2021 and 2022, aspects of our future operations, our future financial position, expectations for our future revenues, margins and projected costs, expectations regarding demand and acceptance for our technologies and products, introductions of new products, growth opportunities and trends in the market in which we operate, prospects and plans and objectives of management. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q, in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 (the 2020 Form 10-K) and in our other filings with theSecurities and Exchange Commission . We do not assume any obligation to update any forward-looking statements.
Overview
As a leading synthetic biotechnology company active in theClean Health and Beauty markets through our consumer brands and a top supplier of sustainable and natural ingredients, we apply our proprietary Lab-to-Market biotechnology platform to engineer, manufacture and market high performance, natural and sustainably sourced products. We do so with the use of computational tools, strain construction tools, screening and analytics tools, and advanced lab automation and data integration. Our biotechnology platform enables us to rapidly engineer microbes and use them as catalysts to metabolize renewable, plant-sourced sugars into high-value ingredients that we manufacture at industrial scale. Through the combination of our biotechnology platform and our industrial fermentation process, we have successfully developed, produced and commercialized thirteen distinct molecules used in formulations by thousands of leading global brands. We believe that synthetic biology represents a third industrial revolution, bringing together biology and engineering to generate new, more sustainable materials to meet the growing global demand for bio-based replacements of petroleum-based and traditional animal- or plant-derived ingredients. We continue to generate demand for our current portfolio of products through an extensive go-to-market network provided by our partners that are the leading companies in our target markets. Via our partnership model, our partners invest in the development of molecules to take it from the lab to commercial scale and use their extensive marketing and sales capabilities to sell our ingredients and formulations to their customers. We capture long-term revenue both through the production and sale of our molecules to our partners and through royalty revenues from our partners' product sales to their customers. We have also successfully formulated our unique, natural and sustainably-sourced ingredients into wholly-owned consumer brands, including Biossance® our clean beauty skincare brand, Pipette®, our baby and mother care brand, and PurecaneTM, our alternative sweetener brand. We are marketing our brands directly to consumers via our ecommerce platforms, in brick-and-mortar stores, and online via various retail partners. We were founded in 2003 in theSan Francisco Bay area by a group of scientists from theUniversity of California ,Berkeley . Through a grant in 2005 from theBill & Melinda Gates Foundation , we developed technology capable of creating microbial strains that produce artemisinic acid, a precursor of artemisinin, an anti-malarial drug. We produced a renewable farnesene brand, Biofene®, a long-chain, branched hydrocarbon molecule that we manufacture through fermentation using engineered microbes. Our farnesene derivatives are sold in hundreds of products as nutraceuticals, skincare products, fragrances, solvents, polymers, and lubricant ingredients. In 2014, we began manufacturing additional molecules for the Flavor & Fragrance industry; in 2015, we began investing to expand our capabilities to other small molecule chemical classes via our collaboration with theDefense Advanced Research Projects Agency (DARPA); and in 2016, we expanded into proteins. We then made the strategic decision to transition our business model from low margin commodity markets to higher margin specialty ingredients markets. We began the transition by first commercializing and supplying farnesene-derived squalane as a cosmetic ingredient to formulators and distributors. We also entered into collaboration and supply agreements for the development and commercialization of molecules within the Flavor & Fragrance and Clean Beauty 37
-------------------------------------------------------------------------------- markets. We partner with our customers to create sustainable, high performing, low-cost molecules that replace an ingredient in their supply chains. We commercially scale and manufacture those molecules. Our revenue is generated from research and development collaboration programs, grants, renewable product sales, and license and royalty revenues from our renewable product portfolios. All of our non-government partnerships include commercial terms for the supply of molecules we produce at commercial scale. The first molecule to generate revenue for us outside of farnesene was a fragrance molecule launched in 2015. Since the launch, this and additional fragrance molecules have continued to generate sales year over year. Our partners for these molecules are indicating continued strong growth due to their cost advantaged position, high purity of our molecules and our sustainable production method. In 2019, we commercially produced and shipped our Reb M product that is an alternative sweetener and sugar replacement for food and beverages. In 2020, we added a total of six new ingredients to our portfolio. We have a pipeline that can deliver an estimated two to three new molecules each year over the coming years. Our time to market for molecules has decreased from seven years to less than a year for our most recent molecule, mainly due to our ability to leverage our biotechnology platform with proprietary computational tools, strain construction tools, screening and analytics tools, and advanced lab automation and data integration. Our state-of-the-art infrastructure includes industry-leading strain engineering and lab automation located inEmeryville, California , pilot-scale production facilities inEmeryville, California andCampinas, Brazil , and a commercial-scale production facility inLeland, North Carolina (owned and operated by our Aprinnova joint venture). We are able to use a wide variety of feedstocks for production but have focused on sourcing Brazilian sugarcane for our large-scale production because of its renewability, low cost and relative price stability. We are constructing a new purpose-built, large-scale specialty ingredients facility inBrazil , which we anticipate will allow for the manufacture of up to five products concurrently, including both our specialty ingredients portfolio and our alternative sweetener product. We expect to commission the facility and begin production during the first quarter of 2022. Until then, we continue to manufacture our products at manufacturing sites inBrazil , theU.S. andEurope .
Sales and Revenue
We recognize revenue from consumer and ingredient product sales, license fees and royalties, and collaborations and grants.
We have research and development collaboration arrangements for which we receive payments from our collaboration partners, which includeDARPA , Koninklijke DSM N.V. (DSM),Firmenich SA (Firmenich),Givaudan International SA (Givaudan), Yifan Pharmaceutical Co. Ltd. (Yifan) and others. Some of our collaboration arrangements provide for advance payments to us in consideration for grants of exclusivity or research efforts that we will perform. Our collaboration agreements, which may require us to achieve milestones prior to receiving payments, are expected to contribute revenues from product sales and royalties if and when they are commercialized. See Note 10, "Revenue Recognition" in Part II, Item 8 of the 2020 Form 10-K for additional information.
We have several other collaboration molecules in our development pipeline with partners including DSM, Givaudan, Firmenich and Yifan that we expect will contribute revenues from product sales and royalties if and when they are commercialized.
COVID-19 Business Update
We have been closely monitoring the impact of the global COVID-19 pandemic on
all aspects of our business, including how it has and will impact our employees,
partners, supply chain, and distribution network. Before the start of the
pandemic in early 2020, we developed a comprehensive response strategy including
establishing a cross-functional COVID-19 task force and implementing business
continuity plans to manage the impact of the COVID-19 pandemic on our employees
and our business. As the pandemic has progressed, we have applied recommended
public health recommendations designed to prevent the spread of COVID-19 and
have been focused on the health and welfare of our employees. These
recommendations to mitigate the spread of COVID-19 infection across our
businesses have included additional sanitation and cleaning procedures in our
laboratories and other facilities, on-site COVID-19 testing, temperature and
symptom confirmations, instituting remote working when possible, and
implementing social distancing and staggered worktime requirements for our
employees who must work on-site. Throughout this period, we have successfully
managed to sustain ongoing critical production campaigns and infrastructure
while keeping our employee population healthy with no evidence of disease
transmission within our onsite operations. See "Risk Factors - Business and
Operational Risks - The COVID-19 pandemic has impacted our business and results
of operations and could have a material adverse effect on our business, results
of operations and financial condition in the future" in Part I, Item 1A of our
2020 Form 10-K.
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Critical Accounting Policies and Estimates
Management's discussion and analysis of results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in theU.S. (U.S. GAAP). We believe that the critical accounting policies described in this section are those that significantly impact our financial condition and results of operations and require the most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Because of this uncertainty, actual results may vary from these estimates. Our most critical accounting estimates include: •Recognition of revenue including arrangements with multiple performance obligations; •Valuation and allocation of fair value to various elements of complex related party transactions; •The valuation of freestanding and embedded derivatives, which impacts gains or losses on such derivatives, the carrying value of debt, interest expense and deemed dividends; •The valuation of debt for which we have elected fair value accounting; and •The valuation of goodwill, intangible assets and contingent consideration generated through business acquisitions. For a more detailed discussion of our critical accounting estimates and policies, see Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" in Part II, Item 8 of our 2020 Form 10-K and Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Recently Issued Accounting Pronouncements
Refer to Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Accounting Pronouncements Issued but Not Yet Adopted
Refer to Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Results of Operations
Revenue
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2021 2020 2021 2020
Revenue
Renewable products $ 37,172 $ 25,188 $ 65,351 $ 43,042
Licenses and royalties 11,000 990 154,800 6,151
Collaborations and grants 4,144 3,827 9,024 9,942
Total revenue $ 52,316 $ 30,005 $ 229,175 $ 59,135 Three months ended
Total revenue increased by 74% to$52.3 million for the three months endedJune 30, 2021 compared to the same period in 2020. The increase was comprised of a$12.0 million increase in renewable products revenue, a$10.0 million increase in license revenue and a$0.3 million increase in collaborations and grants revenue during the three months endedJune 30, 2021 . Renewable products revenue increased by 48% to$37.2 million for the three months endedJune 30, 2021 compared to the same period in 2020, primarily driven by increased sales in our Biossance consumer product line toSephora , certain fragrance ingredients and RebM to PureCircle. Licenses and royalties revenue increased by$10.0 million for the three months endedJune 30, 2021 compared to the same period in 2020, due to the sale of a$10 million intellectual property license of our RebM technology to PureCircle, as described in Note 10, "Revenue Recognition". 39
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Collaborations and grants revenue increased by 8% to
Six months ended
Total revenue increased by 288% to$229.2 million for the six months endedJune 30, 2021 compared to the same period in 2020. The increase was comprised of a$22.3 million increase in renewable products revenue, a$148.6 million increase in licenses and royalties revenue, and a$0.9 million decrease in collaborations and grants revenue. Total revenue for the six months endedJune 30, 2021 included$143.6 million of license revenue from the sale of flavors and fragrances intellectual property to DSM and$10.0 million of license revenue from the sale of RebM related intellectual property to PureCircle, as described in Note 10, "Revenue Recognition" and Note 11, "Related Party Transactions". Renewable products revenue increased by 52% to$65.4 million for the six months endedJune 30, 2021 compared to the same period in 2020, primarily driven by our consumer product lines. Licenses and royalties revenue increased significantly to$154.8 million for the six months endedJune 30, 2021 compared to the same period in 2020, primarily due to the sale of a$143.6 million intellectual property license of our flavors and fragrances technology to DSM and$10.0 million of license revenue from the sale of RebM related intellectual property to PureCircle. Collaborations and grants revenue decreased by 9% to$9.0 million for the six months endedJune 30, 2021 compared to the same period in 2020, mainly due to decreased collaboration revenue from Yifan.
Costs and Operating Expenses
Costs and operating expenses were as follows:
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2021 2020 2021 2020
Cost of products sold $ 30,421 $ 23,098 $ 53,080 $ 34,888
Research and development 22,424 16,965 45,756 34,091
Sales, general and administrative 54,340 30,503 92,262 62,517
Total cost and operating expenses
Included in costs and operating expenses were the following amounts of non-cash stock-based compensation expense:
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2021 2020 2021 2020
Cost of products sold $ 73 $ - $ 137 $ -
Research and development 1,318 781 $ 2,380 $ 1,846
Sales, general and administrative 7,355 2,150 10,511 4,589
Total stock-based compensation expense
$ 13,028 $ 6,435 Cost of Products Sold Cost of products sold includes the costs of raw materials, labor and overhead, amounts paid to contract manufacturers, inventory write-downs resulting from applying lower of cost or net realizable value inventory adjustments, and costs related to production scale-up. Due to our product mix of higher-margin, higher-volume consumer products and lower-margin, large-batch fermentation ingredients products, our cost of products sold may not change proportionately with changes in renewable product revenue in any given period. Cost of products sold increased by 32% to$30.4 million for the three months endedJune 30, 2021 compared to the same period in 2020, primarily due to a 48% increase in renewable products revenue, driven by a significant increase in sales volume of our consumer products. For the six months endedJune 30, 2021 , cost of products sold increased by 52% to$53.1 million compared to the same period in 2020, primarily due to a 52% increase in renewable products revenue, driven by significant increases in sales volumes of both our consumer and ingredients products. 40
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Research and Development Expenses
Research and development expenses increased by 32% and 34% to$22.4 million and$45.8 million for the three and six months endedJune 30, 2021 , respectively, compared to the same periods in 2020, primarily due to increases in outside services related to our new squalane adjuvant project and employee compensation.
Sales, General and Administrative Expenses
Sales, general and administrative expenses increased by 78% and 48% to$54.3 million and$92.3 million for the three and six months endedJune 30, 2021 , respectively, compared to the same periods in 2020, primarily due to significant increases in sales and marketing spending, and employee compensation costs driven by headcount increases, and transaction costs related to our completed and pending brand and business acquisitions. Increases in sales and marketing costs are the result of additional expense of fulfillment and shipping due to much increased demand for our consumer products, and our steps to substantially increase brand awareness and expand retail distribution sell-through and e-commerce sales of our Biossance, Pipette and other recently introduced and upcoming consumer product lines.
Other Income (Expense), Net
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2021 2020 2021 2020
Interest expense $ (4,723) $ (20,118) $ (10,536) $ (35,120)
Gain (loss) from change in fair value of
derivative instruments 5,141 (11,779) (17,604) (8,497)
Gain (loss) from change in fair value of
debt 70,132 (14,949) (256,653) (31,452)
Gain (loss) upon extinguishment of debt 935 (22,029) (26,378) (49,348)
Other income (expense), net 28 1,497 (650) 1,501
Total other income (expense), net
Three months ended
Total other income, net was$71.5 million for the three months endedJune 30, 2021 , compared to total other expense of$67.4 million in the same period in 2020. The$138.9 million change was primarily comprised of a$85.1 million change from a loss to a gain in the change in fair value of debt and a$16.9 million change from a loss to a gain in the change in fair value of derivative instruments, all driven by the decrease in our stock price during the period resulting in a lower fair value of these underlying debt and equity instruments. See Note 3, "Fair Value Measurement" in Part I, Item 1 of this Quarterly Report on Form 10-Q for details regarding our outstanding derivative instruments. The$15.4 million decrease in interest expense is the result of significantly lower outstanding debt balances period-over-period and the elimination of penalties and fees associated with late payments incurred in the three months endedJune 30, 2020 .
Six months ended
Total other expense, net was$311.8 million for the six months endedJune 30, 2021 , compared to total other expense of$122.9 million in the same period in 2020. The$188.9 million change was primarily comprised of a$225.2 million increase in loss from change in fair value of debt and a$9.1 million increase in loss from the change in fair value of derivative instruments, all driven by a significant increase in our stock price during the period resulting in a significantly higher fair values of these underlying debt and equity instruments whose conversion and strike prices are$3.00 (convertible debt) and$2.87 (liability warrant). See Note 3, "Fair Value Measurement" in Part I, Item 1 of this Quarterly Report on Form 10-Q for details regarding our outstanding derivative instruments. The$24.6 million decrease in interest expense is the result of significantly lower outstanding debt balances period-over-period and the elimination of penalties and fees associated with late payments incurred in the six months endedJune 30, 2020 .
Provision for Income Taxes
For the three and six months endedJune 30, 2021 , we recorded provisions for income taxes of$0.1 million and$0.1 million . For the three and six months endedJune 30, 2020 , we recorded provisions of$0.1 million and$0.2 million . The provisions for income taxes related to accrued interest on uncertain tax positions. 41
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Liquidity and Capital Resources
June 30 ,
(In thousands) 2021 2020
Working capital (working capital deficit)
Cash and cash equivalents $ 214,424 $ 30,152
Debt and lease obligations $ 391,487 $ 282,187
Accumulated deficit $ (2,362,562) $ (2,086,692)
Six Months Ended June 30,
(In thousands) 2021 2020
Net cash provided by (used in):
Operating activities$ 30,205 $ (110,332) Investing activities$ (5,670) $ (5,494) Financing activities$ 159,238 $ 215,287 Liquidity Prior to the three months endedJune 30, 2021 , we have incurred operating losses since our inception, and we expect to incur losses and negative cash flows from operations through at least the next 12 months following the issuance of this Quarterly Report on Form 10-Q. As ofJune 30, 2021 , we had working capital of$254.4 million , an accumulated deficit of$2.4 billion , and cash and cash equivalents of$214.4 million . As ofJune 30, 2021 , the principal amounts due under our debt instruments (including related party debt) totaled$104.6 million , of which$11.3 million is classified as current. Our debt agreements contain various covenants, including certain restrictions on our business - including restrictions on additional indebtedness, material adverse effect and cross default provisions - that could cause us to be at risk of default. A failure to comply with the covenants and other provisions of our debt instruments, including any failure to make payments when required, would generally result in events of default under such instruments, which could result in the acceleration of a substantial portion of such indebtedness. Acceleration would generally also constitute an event of default under our other outstanding debt instruments, which could result in the acceleration of a substantial portion of our debt repayment obligations. Based on our cash and cash equivalents of$214.4 million as ofJune 30, 2021 , we believe that we have sufficient resources to fund our operations and capital expenditures for at least the next 12 months. For details of our debt and equity, see the following Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q: •Note 4, "Debt" •Note 5, "Mezzanine Equity" •Note 6, "Stockholders' Deficit"
Cash Flows during the Six Months Ended
Cash Flows from Operating Activities
Our primary uses of cash from operating activities are costs related to the production and sale of our products and personnel-related expenditures, offset by cash received from renewable product sales, licenses and royalties, and collaborations and grants.
For the six months endedJune 30, 2021 , net cash provided by operating activities was$30.2 million , consisting primarily of a$274.6 million net loss, partially offset by$321.9 million of favorable non-cash adjustments that were primarily comprised of a$256.7 million loss from change in fair value of debt, a$26.4 million loss upon extinguishment of debt and a$17.6 million loss from change in fair value of derivative instruments. Additionally, there was a$17.1 million decrease in working capital. For the six months endedJune 30, 2020 , net cash used in operating activities was$110.3 million , consisting primarily of a$196.2 million net loss, partially offset by$115.6 million of favorable non-cash adjustments that were primarily comprised of a$49.3 million loss upon extinguishment of debt, a$31.5 million loss from change in fair value of debt and an$8.5 million loss from change in fair value of derivative instruments. Additionally, there was a$29.7 million decrease in working capital. 42
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Cash Flows from Investing Activities
For the six months ended
Cash Flows from Financing Activities
For the six months endedJune 30, 2021 , net cash provided by financing activities was$159.2 million , primarily comprised of$130.8 million of proceeds from theApril 2021 issuance of common stock in a public offering,$44.6 million of proceeds from the exercise of warrants and$10.0 million of proceeds from the issuance of a contingently redeemable noncontrolling interest in a subsidiary, partly offset by$23.4 million of debt principal payments and$2.5 million of issuance costs incurred in connection with a debt modification.
For the six months ended
Off-Balance Sheet Arrangements
At
Contractual Obligations
The following is a summary of our contractual obligations as of
Payable by year endingDecember 31 , (In thousands) Total 2021 2022 2023 2024 2025 Thereafter Principal payments on debt$ 104,624 $ 1,135 $ 101,235 $ 293 $ 307 $ 321 $ 1,333 Interest payments on debt 17,226 2,824 13,989 106 91 76 140 Construction costs in connection with new production facility 35,943 35,943 - - - - - Marketing services commitments 16,750 1,750 3,250 3,375 3,500 3,875 1,000 Equity-method investment purchase obligation 10,800 - 10,800 - - - - Contract termination fees 1,000 1,000 - - - - - Financing leases 2,414 2,414 - - - - - Operating leases 16,994 3,802 7,922 3,609 442 285 934 Partnership payment obligation 10,847 439 10,408 - - - - Total$ 216,598 $ 49,307 $ 147,604 $ 7,383 $ 4,340 $ 4,557 $ 3,407 43
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