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    AMRS   US03236M2008

AMYRIS, INC.

(AMRS)
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AMYRIS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/07/2021 | 05:22pm EDT
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 in 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 ended December 31, 2020 (the 2020 Form 10-K) and in our
other filings with the Securities and Exchange Commission. We do not assume any
obligation to update any forward-looking statements.

Overview


As a leading synthetic biotechnology company active in the Clean 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 the San Francisco Bay area by a group of scientists
from the University of California, Berkeley. Through a grant in 2005 from the
Bill & 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 the Defense
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


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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 in Emeryville, California,
pilot-scale production facilities in Emeryville, California and Campinas,
Brazil, and a commercial-scale production facility in Leland, 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 in Brazil, 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. In
September 2019, we obtained the necessary permits and broke ground for this
facility and we expect construction to be completed by the end of 2021. During
construction, we continue to manufacture our products at manufacturing sites in
Brazil, the U.S. and Europe.

Sales and Revenue

We recognize revenue from consumer and ingredient product sales, license fees and royalties, and grants and collaborations.


We have research and development collaboration arrangements for which we receive
payments from our collaboration partners, which include DARPA, 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


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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.

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 the U.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; and
•The valuation of debt for which we have elected fair value accounting.

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.

Results of Operations

Revenue
                                            Three Months Ended March 31,
         (In thousands)                           2021                 2020
         Revenue
         Renewable products           $         28,179              $ 17,854
         Licenses and royalties                143,800                

5,161

         Grants and collaborations               4,880                
6,115
         Total revenue                $        176,859              $ 29,130



Total revenue increased by 507% to $176.9 million for the three months ended
March 31, 2021 compared to the same period in 2020. The increase was the
primarily the result of $143.6 million of license revenue from the sale of
flavor and fragrance (F&F) intellectual property licenses and the assignment of
certain F&F supply agreements to DSM during the three months ended March 31,
2021 (see Note 9, "Revenue Recognition"), combined with a $10.3 million increase
in renewable products revenue.

Renewable products revenue increased by 58% to $28.2 million for the three months ended March 31, 2021 compared to the same period in 2020, primarily driven by increased sales in our consumer product lines.


Licenses and royalties revenue increased by $138.6 million for the three months
ended March 31, 2021 compared to the same period in 2020, due to the sale of
flavor and fragrance (F&F) intellectual property licenses and the assignment of
certain F&F supply agreements to DSM, as described in Note 9, "Revenue
Recognition".

Grants and collaborations revenue decreased by 20% to $4.9 million for the three months ended March 31, 2021 compared to the same period in 2020, related to decreases from our customers DSM and Yifan.

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Costs and Operating Expenses
                                                Three Months Ended March 31,
      (In thousands)                                  2021                 2020

Cost and operating expenses

      Cost of products sold               $        22,659               $

11,790

      Research and development                     23,332                

17,126

      Sales, general and administrative            37,922                

32,014

      Total cost and operating expenses   $        83,913               $
60,930



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. Because of our product mix, our cost of products
sold does not change proportionately with changes in renewable product revenue.

Cost of products sold increased by 92% to $22.7 million for the three months
ended March 31, 2021 compared to the same period in 2020, primarily due to a 58%
increase in total product revenue and $3.6 million of incremental costs related
to raw materials price variances, inventory rework costs and manufacturing
capacity fee adjustments related to our RebM ingredients product.

Research and Development Expenses

Research and development expenses increased by 36% to $23.3 million for the three months ended March 31, 2021 compared to the same period 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 18% to $37.9 million for
the three months ended March 31, 2021 compared to the same period in 2020,
primarily due to increases in selling, marketing and employee compensation costs
related to our consumer product lines.

Other Expense, Net
                                                               Three Months Ended March 31,
(In thousands)                                                   2021                2020
Other income (expense):
Interest expense                                                    (5,813)            (15,002)

(Loss) gain from change in fair value of derivative instruments

                                                        (22,745)              3,282
Loss from change in fair value of debt                            (326,785)            (16,503)
Loss upon extinguishment of debt                                   (27,313)            (27,319)
Other (expense) income, net                                           (678)                  4
Total other expense, net                                 $        (383,334)   $        (55,538)



Total other expense, net was $383.3 million in 2021, compared to total other
expense of $55.5 million in 2020. The $327.8 million change was primarily
comprised of a $310.3 million increase in loss from change in fair value of debt
and a $26.0 million change from a gain to a loss in change in fair value of
derivative instruments, partly offset by a $9.2 million decrease in interest
expense.

The increase in loss from change in fair value of debt was primarily due to a
significant increase (209%) in our stock price relative to a $3.00 and $3.50
conversion price of the two debt instruments measured under the fair value
option during the three months ended March 31, 2021.



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The change from a gain to a loss in change in fair value of derivative instruments was primarily due to a significant increase (209%) in our stock price relative to the $2.87 exercise price of the mark to market liability warrants during the three months ended March 31, 2021. See Note 3, "Fair Value Measurement" in Part II, Item 8 of this Quarterly Report on Form 10-Q for details regarding our outstanding derivative instruments.


The decrease in interest expense was primarily due to a 33% decrease in total
debt principal owed at March 31, 2021 in comparison to March 31, 2020, and a
significant decrease in debt discount accretion.

Provision for Income Taxes


For the three months ended March 31, 2021 and 2020, we recorded provisions of
$0.1 million and $0.1 million for income taxes related to accrued interest on
uncertain tax positions.

Liquidity and Capital Resources

                                                      March 31,     

December 31,

       (In thousands)                                    2021           

2020

Working capital (working capital deficit) $ 105,115 $ (16,489)

       Cash and cash equivalents                    $    143,821   $    

30,152

       Debt and lease obligations                   $    500,441   $    282,187
       Accumulated deficit                          $ (2,377,943)  $ (2,086,692)



                                                               Three Months Ended March 31,
(In thousands)                                                                                                          2021             2020
Net cash (used in) provided by:
Operating activities                                                                                              $     108,651    $     (46,375)
Investing activities                                                                                              $      (2,493)   $      (1,040)
Financing activities                                                                                              $       7,529    $      49,663



Liquidity

Prior to the three months ended March 31, 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 of March 31, 2021, we had working
capital of $105.1 million, an accumulated deficit of $2.4 billion, and cash and
cash equivalents of $143.8 million.

As of March 31, 2021, the principal amounts due under our debt instruments
(including related party debt) totaled $114.7 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 $143.8 million as of March 31, 2021,
plus $130.7 million of net proceeds from our April 2021 public stock offering,
which together total $274.5 million, 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"
•Note 12. "Subsequent Events"



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Cash Flows during the Three Months Ended March 31, 2021 and 2020

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 grants and collaborations.


For the three months ended March 31, 2021, net cash provided by operating
activities was $108.7 million, consisting primarily of a $290.1 million net
loss, partially offset by $384.7 million of favorable non-cash adjustments that
were primarily comprised of a $326.8 million loss from change in fair value of
debt, a $27.3 million loss upon extinguishment of debt and a $22.7 million loss
from change in fair value of derivative instruments. Additionally, there was a
$14.0 million decrease in working capital.

For the three months ended March 31, 2020, net cash used in operating activities
was $46.4 million, consisting primarily of an $87.8 million net loss, partially
offset by $48.1 million of favorable non-cash adjustments that were primarily
comprised of a $27.3 million loss upon extinguishment of debt, a $16.5 million
loss from change in fair value of debt and $3.5 million of stock-based
compensation. Additionally, there was a $6.6 million net increase in working
capital balances.

Cash Flows from Investing Activities

For the three months ended March 31, 2021 and 2020, net cash used in investing activities was $2.5 million and $1.0 million, respectively, comprised of property, plant and equipment purchases.

Cash Flows from Financing Activities


For the three months ended March 31, 2021, net cash provided by financing
activities was $7.5 million, primarily comprised of $32.2 million of proceeds
from the exercise of warrants, partly offset by $23.2 million of debt principal
payments and $2.5 million of issuance costs incurred in connection with a debt
modification.

For the three months ended March 31, 2020, net cash provided by financing activities was $49.7 million, primarily comprised of $57.3 million of net proceeds from common stock issuances and deemed issuance, partly offset by $7.0 million of debt principal payments.

Off-Balance Sheet Arrangements

At March 31, 2021, we did not have any material off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Contractual Obligations

The following is a summary of our contractual obligations as of March 31, 2021:


Payable by year ending December 31,
(In thousands)                                Total        2021         2022        2023       2024       2025      Thereafter
Principal payments on debt                 $ 114,720    $ 11,231    $ 101,235    $   293    $   307    $   321    $     1,333
Interest payments on debt                     19,403       5,001       13,989        106         91         76            140
Construction costs in connection with new
production facility                           23,107      23,107            -          -          -          -              -
Marketing services commitments                19,213       4,713        3,500      3,500      3,500      4,000              -
Equity-method investment purchase
obligation                                    10,800           -       10,800          -          -          -              -
Contract termination fees                      5,311       5,311            -          -          -          -              -
Financing leases                               3,491       3,491            -          -          -          -              -
Operating leases                              16,769       5,644        7,655      3,320        150          -              -
Partnership payment obligation                11,066         658       10,408          -          -          -              -
Total                                      $ 223,880    $ 59,156    $ 147,587    $ 7,219    $ 4,048    $ 4,397    $     1,473





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