ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk.
You should carefully consider the risks and uncertainties described below, together with all of the other information set forth
in this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition or future results. If any
of the following risks actually occurs, our business, financial condition, results of operations and future prospects could be
materially and adversely harmed. The trading price of our common stock could decline due to any of these risks, and, as a result,
you may lose all or part of your investment.
Risks Related to Our Business
We have incurred losses to date, anticipate continuing to
incur losses in the future, and may never achieve or sustain profitability.
We have incurred significant losses in each year since our inception and believe that we will continue to
incur losses and negative cash flow from operations into at least 2017. As of June 30, 2016, we had an accumulated deficit of $1,066.0
million and had cash, cash equivalents and short term investments of $2.5 million. We have significant outstanding debt and contractual
obligations related to capital and operating leases, as well as purchase commitments of $1.4 million. As of June 30, 2016, our
debt totaled $181.4 million, net of discount and issuance cost of $44.7 million, of which $80.0 million is classified as current.
Our debt service obligations over the next twelve months are significant, including approximately $21.0 million of anticipated
interest payments (excluding interest paid in kind by adding to outstanding principal) and may include potential early conversion
payments of up to approximately $13.7 million (assuming all note holders convert) under our outstanding convertible promissory
notes sold on October 20, 2015 pursuant to Rule 144A of the Securities Act (or the "2015 144A Notes"). Furthermore, our
debt agreements contain various financial and operating covenants, including restrictions on business that could cause us to be
at risk of defaults. We expect to incur additional costs and expenses related to the continued development and expansion of our
business, including construction and operation of our manufacturing facilities, contract manufacturing, research and development
operations, and operation of our pilot plants and demonstration facility. There can be no assurance that we will ever achieve or
sustain profitability on a quarterly or annual basis.
Our unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2016
have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. We have incurred significant losses since our inception and we expect that we
will continue to incur losses as we aim to successfully execute our business plan and will be dependent on additional public or
private financings, collaborations or licensing arrangements with strategic partners, or through additional credit lines or other
debt financing sources to fund continuing operations. Based on our cash balances, recurring losses since inception and our existing
capital resources to fund our planned operations for a twelve month period, there is substantial doubt about our ability to continue
as a going concern. Our operating plan for 2016 contemplates a significant reduction in our net cash outflows resulting from (i)
revenue growth from sales of existing and new products with positive gross margins, (ii) reduced production costs as a result of
manufacturing and technical developments, (iii) increased cash inflows from collaborations, (iv) reduced operating expenses, (v)
access to various financing commitments, and (vi) strategic asset divestments. In addition, as noted below, for our 2016 operating
plan, we are dependent on funding from sources that are not subject to existing commitments. We will need to obtain additional
funding from equity or debt financings, which may require us to agree to burdensome covenants, grant further security interests
in our assets, enter into collaboration and licensing arrangements that require us to relinquish commercial rights, or grant licenses
on terms that are not favorable. No assurance can be given at this time as to whether we will be able to achieve our expense reduction
or fundraising objectives, regardless of the terms. If we are unable to raise additional financing, or if other expected sources
of funding are delayed or not received, our ability to continue as a going concern would be jeopardized and we may be forced to
delay, scale back or eliminate some of our general and administrative, research and development, or production activities or other
operations and reduce investment in new product and commercial development efforts in an effort to provide sufficient funds to
continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals would
be adversely affected. In addition, if we are unable to continue as a going concern, we may be unable to meet our obligations under
our existing debt facilities, which could result in an acceleration of our obligation to repay all amounts outstanding under those
facilities, and we may be forced to liquidate our assets. In such a scenario, the values we receive for our assets in liquidation
or dissolution could be significantly lower than the values reflected in our financial statements.
Our financial statements do not include any
adjustments that might result from the outcome of this uncertainty, which could have a material adverse effect on our financial
condition and cause investors to suffer the loss of all or a substantial portion of their investment.
We have limited experience producing our products at commercial
scale and may not be able to commercialize our products to the extent necessary to sustain and grow our current business.
To commercialize our products, we must be successful
in using our yeast strains to produce target molecules at commercial scale and at a commercially viable cost. If we cannot achieve
commercially-viable production economics for enough products to support our business plan, including through establishing and maintaining
sufficient production scale and volume, we will be unable to achieve a sustainable integrated renewable products business. Virtually
all of our production capacity is through a purpose-built, large-scale production plant in Brotas, Brazil. This plant commenced
operations in 2013, and scaling and running the plant has been, and continues to be, a time-consuming, costly, uncertain and expensive
process. Given our limited experience commissioning and operating our own manufacturing facilities and our limited financial resources,
we cannot be sure that we will be successful in achieving production economics that allow us to meet our plans for commercialization
of various products we intend to offer. In addition, until recently we have only produced Biofene at the Brotas plant. Our attempts
to scale production of new molecules at the plant are subject to uncertainty and risk. For example, even to the extent we successfully
complete product development in our laboratories and pilot and demonstration facilities, and at contract manufacturing facilities,
we may be unable to translate such success to large-scale, purpose-built plants. If this occurs, our ability to commercialize our
technology will be adversely affected and we may be unable to produce and sell any significant volumes of our products. Also, with
respect to products that we are able to bring to market, we may not be able to lower the cost of production, which would adversely
affect our ability to sell such products profitably.
We will require significant inflows of cash from financing
and collaboration transactions to fund our anticipated operations and to service our debt obligations and may not be able to obtain
such financing and collaboration funding on favorable terms, if at all.
Our planned 2016 and 2017 working capital needs,
our planned operating and capital expenditures for 2016 and 2017, and our ability to service our outstanding debt obligations are
dependent on significant inflows of cash from existing and new collaboration partners and cash contribution from growth in renewable
product sales. We will continue to need to fund our research and development and related activities and to provide working capital
to fund production, storage, distribution and other aspects of our business. Some of our anticipated financing sources, such as
research and development collaborations, are subject to the risk that we cannot meet milestones, that the collaborations may end
prematurely for reasons that may be outside of our control (including technical infeasibility of the project or a collaborator's
right to terminate without cause), or the collaborations are not yet subject to definitive agreements or mandatory funding commitments
and, if needed, we may not be able to secure additional types of financing in a timely manner or on reasonable terms, if at all.
The inability to generate sufficient cash flow, as described above, could have an adverse effect on our ability to continue with
our business plans and our status as a going concern.
If we are unable to raise additional financing,
or if other expected sources of funding are delayed or not received, our ability to continue as a going concern would be jeopardized
and we would take the following actions to support our liquidity needs through the remainder of 2016 and into 2017:
|
•
|
Effect significant headcount reductions, particularly with respect to employees not connected to critical or contracted activities
across all functions of the Company, including employees involved in general and administrative, research and development, and
production activities.
|
|
•
|
Shift focus to existing products and customers with significantly reduced investment in new product and commercial development
efforts.
|
|
•
|
Reduce production activity at our Brotas manufacturing facility to levels only sufficient to satisfy volumes required for product
revenues forecast from existing products and customers.
|
|
•
|
Reduce expenditures for third party contractors, including consultants, professional advisors and other vendors.
|
|
•
|
Reduce or delay uncommitted capital expenditures, including non-essential facility and lab equipment, and information technology
projects.
|
|
•
|
Closely monitor the Company's working capital position with customers and suppliers, as well as suspend operations at pilot
plants and demonstration facilities.
|
Implementing this plan could have a negative
impact on our ability to continue our business as currently contemplated, including, without limitation, delays or failures in
our ability to:
|
•
|
Achieve planned production levels;
|
|
•
|
Develop and commercialize products within planned timelines or at planned scales; and
|
|
•
|
Continue other core activities.
|
Furthermore, any inability to scale-back operations
as necessary, and any unexpected liquidity needs, could create pressure to implement more severe measures. Such measures could
have an adverse effect on our ability to meet contractual requirements, including obligations to maintain manufacturing operations,
and increase the severity of the consequences described above.
Future revenues are difficult to predict, and our failure
to predict revenue accurately may cause our results to be below our expectations or those of analysts or investors and could result
in our stock price declining.
Our revenues are comprised of product revenues
and grants and collaborations revenues. We generate the substantial majority of our product revenues from sales to distributors
or collaborators and only a small portion from direct sales. Our collaboration and distribution agreements do not include any
specific purchase obligations. The sales volume of our products in any given period has been difficult to predict. A significant
portion of our product sales is dependent upon the interest and ability of third party distributors to create demand for, and
generate sales of, such products to end-users. For example, if such distributors are unsuccessful in creating pull-through demand
for our products with their customers, such distributors may purchase less of our products from us than we expect. In addition,
many of our new and novel products are intended to be a component of other companies’ products; therefore, sales of our
products may be contingent on our collaborators’ and/or customers’ timely and successful development and commercialization
of end-use products that incorporate our products. Furthermore, we have begun to market and sell some of our products directly
to end-consumers, initially in the cosmetics and industrial cleaning markets. Because we have no prior experience in marketing
and selling directly to consumers, it is difficult to predict how successful our efforts will be and we may not achieve the product
sales we expect to achieve in the timeline we anticipate (if at all).
In addition, we have entered into research and
development collaboration arrangements pursuant to which we receive payments from our collaborators. Some of such collaboration
arrangements include advance payments in consideration for grants of exclusivity or research efforts to be performed by us. It
has in the past been difficult for us to know with certainty when we will sign a new collaboration arrangement. As a result, achievement
of our quarterly and annual goals, expressed in part via a non-GAAP financial measure that we refer to as cash revenue inflows
consisting of GAAP product revenues plus cash payments from collaborations and grants, has been difficult to predict with certainty.
Once a collaboration agreement has been signed, receipt of payments and/or recognition of related revenues may depend on our achievement
of milestones. In addition, a portion of the revenue we report each quarter results from the recognition of deferred revenue from
advance payments we have received from these collaborators during previous quarters. Since our business model depends in part on
collaboration agreements with advance payments that we recognize over time, it may also be difficult for us to rapidly increase
our revenues through additional collaborations in any period, as revenue from such new collaborations will often be recognized
over multiple quarters or years.
These factors have made it difficult to predict
future revenues and have resulted in our revenues being below our previously announced guidance or analysts’ estimates. We
continue to face these risks in the future, which may cause our stock price to decline.
A limited number of distributors, customers and collaboration
partners account for a significant portion of our revenue, and the loss of major distributors, customers or collaboration partners
could harm our operating results.
Our revenues have varied significantly from
quarter to quarter and are dependent on sales to, and collaborations with, a limited number of distributors, customers and/or collaboration
partners. We cannot be certain that distributors, customers and/or collaboration partners that have accounted for significant revenue
in past periods, individually or as a group, will continue to generate similar revenue in any future period. If we fail to renew
with, or if we lose a major distributor, customer or collaborator or group of distributors, customers or collaborators, our revenue
could decline if we are unable to replace the lost revenue with revenue from other sources.
Our existing financing arrangements may cause significant
risks to our stockholders and may impact our ability to pursue certain transactions and operate our business.
As of June 30, 2016, our debt totaled $181.4
million, net of discount and issuance costs of $44.7 million, of which $80.0 million is classified as current. Our cash balance
is substantially less than the principal amount of our outstanding debt, and we will be required to generate cash from operations
or raise additional working capital through future financings or sales of assets to enable us to repay this indebtedness as it
becomes due. There can be no assurance that we will be able to do so.
In addition, we have agreed to significant covenants
in connection with our debt financing transactions. For example, our loan facility with Stegodon Corporation (or “Stegodon”),
as assignee of Hercules Capital, Inc. requires us to maintain unrestricted, unencumbered cash in defined U.S. bank accounts
in an amount equal to at least 50% of the principal amount outstanding under this facility. We have received a waiver from Stegodon
of compliance with such covenant through October 31, 2016. We will also be required to pay an approximately 10% end of term charge
under such facility. The Stegodon loan facility also includes customary events of default, including failure to pay amounts due,
breaches of covenants and warranties, material adverse effect events, certain cross defaults and judgments, and insolvency. A failure
to comply with the covenants and other provisions of our debt instruments, including any failure to make a payment when required
would generally result in events of default under such instruments, which could permit acceleration of such indebtedness and could
result in a material adverse effect events on us. If such indebtedness is accelerated, it would generally also constitute an event
of default under our other outstanding indebtedness, permitting acceleration of such other outstanding indebtedness. Any required
repayment of our indebtedness as a result of acceleration or otherwise would lower our current cash on hand such that we would
not have those funds available for use in our business or for payment of other outstanding indebtedness.
If we are at any time unable to generate sufficient
cash flow from operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms
of the instruments relating to the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing.
There can be no assurance that we will be able to successfully renegotiate such terms, that any such refinancing would be possible
or that any additional financing could be obtained on terms that are favorable or acceptable to us. Any debt financing that is
available could cause us to incur substantial costs and subject us to covenants that significantly restrict our ability to conduct
our business. If we seek to complete additional equity financings, the interests of existing equity holders may be diluted.
In addition, the covenants in our debt agreements
materially limit our ability to take certain actions, including our ability to incur indebtedness, pay dividends, make certain
investments and other payments, undertake certain mergers and consolidations, and encumber and dispose of assets. For example,
the purchase agreement for convertible notes that we sold in separate closings in October 2013 and January 2014, which we refer
to as the Tranche Notes, requires us to obtain the consent of a majority of the purchasers of these notes before completing any
change-of-control transaction, or purchasing assets in one transaction or a series of related transactions in an amount greater
than $20.0 million, in each case while the Tranche Notes are outstanding. The holders of the Tranche Notes also have pro rata rights
to invest in, and under which they could cancel up to the full amount of their outstanding Tranche Notes to pay for, equity securities
that we issue in certain financings, which could delay or prevent us from completing such financings.
Our substantial leverage could adversely affect our ability to fulfill our obligations
under our existing indebtedness and may place us at a competitive disadvantage in our industry.
We continue to have substantial debt outstanding
and we may incur additional indebtedness from time to time to finance working capital, product development efforts, strategic acquisitions,
investments and alliances, capital expenditures or other general corporate purposes, subject to the restrictions contained in our
existing indebtedness and in any other agreements under which we incur indebtedness. Our significant indebtedness and debt service
requirements could adversely affect our ability to operate our business and may limit our ability to take advantage of potential
business opportunities. For example, our high level of indebtedness presents the following risks:
|
•
|
we will be required to use a substantial portion of our cash flow from operations to pay principal
and interest on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures,
product development efforts, acquisitions, investments and strategic alliances and other general corporate requirements;
|
|
•
|
our substantial leverage increases our vulnerability to economic downturns and adverse competitive
and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged;
|
|
•
|
our debt service obligations could limit our flexibility in planning for, or reacting to, changes
in our business and our industry and could limit our ability to pursue other business opportunities, borrow more money for operations
or capital in the future and implement our business strategies;
|
|
•
|
our level of indebtedness and the covenants within our debt instruments may restrict us from raising
additional financing on satisfactory terms to fund working capital, capital expenditures, product development efforts, strategic
acquisitions, investments and alliances, and other general corporate requirements; and
|
|
•
|
our substantial leverage may make it difficult for us to attract additional financing when needed.
|
If we are at any time unable to generate sufficient
cash flow from operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms
of the instruments relating to the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing.
There can be no assurance that we will be able to successfully renegotiate such terms, that any such refinancing would be possible
or that any additional financing could be obtained on terms that are favorable or acceptable to us.
A failure to comply with the covenants and other
provisions of our debt instruments, including any failure to make a payment when required, could result in events of default under
such instruments, and which could permit acceleration of such indebtedness. If such indebtedness is accelerated, it could also
constitute an event of default under our other outstanding indebtedness, permitting acceleration of such other outstanding indebtedness.
Any required repayment of our indebtedness as a result of acceleration or otherwise would lower our current cash on hand such that
we would not have those funds available for use in our business or for payment of other outstanding indebtedness.
Our GAAP operating results could fluctuate substantially due to the accounting
for the early conversion payment features of outstanding convertible promissory notes.
Several of our outstanding convertible debt
instruments are accounted for under Accounting Standards Codification 815, Derivatives and Hedging (or “ASC 815”) as
an embedded derivative. For instance, with respect to the 2015 144A Notes, if the holders elect convert their 2015 144A Notes,
such converting holders will receive an early conversion payment equal to the present value of the remaining scheduled payments
of interest that would have been made on the 2015 144A Notes being converted from the earlier of the date that is three years after
the date we receive such notice of conversion and the maturity of the 2015 144A Notes. Our 6.50% Convertible Senior Notes due 2019
(or the “2014 144A Notes”) contain a similar early conversion payment feature, provided that the last reported sale
price of our common stock for 20 or more trading days (whether or not consecutive) in a period of 30 consecutive trading days ending
within five trading days immediately prior to the date we receive a notice of such election to convert exceeds the conversion price
in effect on each such trading day. The early conversion payment features of the 2014 144A Notes and the 2015 144A Notes are accounted
for under ASC 815 as embedded derivatives. ASC 815 requires companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments according to certain criteria. The fair value of the derivative
is remeasured to fair value at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair
value of the derivative being charged to earnings (loss). We have determined that we must bifurcate and account for the early conversion
payment features of the 2014 144A Notes and the 2015 144A Notes, as well as certain other features of our other convertible debt
instruments, as embedded derivatives in accordance with ASC 815. We have recorded these embedded derivative liabilities as non-current
liabilities on our consolidated balance sheet with a corresponding debt discount at the date of issuance that is netted against
the principal amount of the 2014 144A Notes, the 2015 144A Notes or other convertible debt instrument, as applicable. The derivative
liabilities are remeasured to fair value at each balance sheet date, with a resulting non-cash gain or loss related to the change
in the fair value of the derivative liabilities being recorded in other income or loss. There is no current observable market for
this type of derivative and, as such, we determine the fair value of the embedded derivatives using the binomial lattice model.
The valuation model uses the stock price, conversion price, maturity date, risk-free interest rate, estimated stock volatility
and estimated credit spread. Changes in the inputs for these valuation models may have a significant impact on the estimated fair
value of the embedded derivative liabilities. For example, an increase in the Company's stock price results in an increase in the
estimated fair value of the embedded derivative liabilities. The embedded derivative liabilities may have, on a GAAP basis, a substantial
effect on our balance sheet from quarter to quarter and it is difficult to predict the effect on our future GAAP financial results,
since valuation of these embedded derivative liabilities are based on factors largely outside of our control and may have a negative
impact on our earnings and balance sheet.
If our major production facilities do not successfully commence
or scale up operations, our customer relationships, business and results of operations may be adversely affected.
A substantial component of our planned production
capacity in the near and long term depends on successful operations at our large-scale production plant in Brazil. We are currently
operating our first purpose-built, large-scale production plant in Brotas, Brazil and may complete construction of certain other
facilities in the coming years. Delays or problems in the construction, start-up or operation of these facilities will cause delays
in our ramp-up of production and hamper our ability to reduce our production costs. Delays in construction can occur due to a variety
of factors, including regulatory requirements and our ability to fund construction and commissioning costs. For example, in 2012
we determined it was necessary to delay further construction of our large-scale manufacturing facility with São Martinho
in order to focus on the construction and commissioning of our Brotas facility. We have since permanently ceased construction of
the São Martinho facility, and expect to need to identify additional production capacity as early as 2017 based on anticipated
volume requirements. Once our large-scale production facilities are built, we must successfully commission them and they must perform
as we have designed them. If we encounter significant delays, cost overruns, engineering issues, contamination problems, equipment
or raw material supply constraints, unexpected equipment maintenance requirements, safety issues, work stoppages or other serious
challenges in bringing these facilities online and operating them at commercial scale, we may be unable to produce our initial
renewable products in the time frame we have planned. Industrial scale fermentation is an emerging field and it is difficult to
predict the effects of scaling up production to commercial scale, which involves various risks to the quality and consistency of
our molecules. In addition, in order to produce molecules at our plant at Brotas, we have been and will be required to perform
thorough transition activities, and modify the design of the plant. Any modifications to the production plant could cause complications
in the operations of the plant, which could result in delays or failures in production. We may also need to continue to use contract
manufacturing sources more than we expect (e.g., if the modifications to the Brotas plant are not successful or have a negative
impact on the plant's operations), which would reduce our anticipated gross margins and may prevent us from accessing certain markets
for our products. Further, if our efforts to increase (or commence, as the case may be) production at these facilities are not
successful, other mill owners in Brazil or elsewhere may decide not to work with us to develop additional production facilities,
demand more favorable terms or delay their commitment to invest capital in our production.
Our reliance on the large-scale production plant in Brotas, Brazil subjects us
to execution and economic risks.
Our decision to focus our efforts for production
capacity on the manufacturing facility in Brotas, Brazil means that we have limited manufacturing sources for our products in 2016
and beyond. Accordingly, any failure to establish operations at that plant could have a significant negative impact on our business,
including our ability to achieve commercial viability for our products. With the facility in Brotas, Brazil, we are, for the first
time, operating a commercial fermentation and separation facility ourselves. We may face unexpected difficulties associated with
the operation of the plant. For example, we have in the past, at certain contract manufacturing facilities and at the Brotas facility,
encountered delays and difficulties in ramping up production based on contamination in the production process, problems with plant
utilities, lack of automation and related human error, issues arising from process modifications to reduce costs and adjust product
specifications or transition to producing new molecules, and other similar challenges. We cannot be certain that we will be able
to remedy all of such challenges quickly or effectively enough to achieve commercially viable near-term production costs and volumes.
To the extent we secure collaboration arrangements
with new or existing partners, we may be required to make significant capital investments at our existing or new facilities in
order to produce molecules or other products for such collaborations. Any failure or difficulties in establishing, building up
or retooling our operations for these new collaboration arrangements could have a significant negative impact on our business,
including our ability to achieve commercial viability for our products, lead to the inability to meet our contractual obligations
and could cause us to allocate capital, personnel and other resources from our organization which could adversely affect our business
and reputation.
As part of our arrangement to build the plant
in Brotas, Brazil we have an agreement with Tonon Bioenergia S.A. (or “Tonon”) to purchase from Tonon sugarcane juice
corresponding to a certain number of tons of sugarcane per year, along with specified water and vapor volumes. Until this annual
volume is reached, we are restricted from purchasing sugarcane juice for processing in the facility from any third party, subject
to limited exceptions, unless we pay the premium to Tonon that we would have paid if we bought the juice from them. As such, we
will be relying on Tonon to supply such juice and utilities on a timely basis, in the volumes we need, and at competitive prices.
If a third party can offer superior prices and Tonon does not consent to our purchasing from such third party, we would be required
to pay Tonon the applicable premium, which would have a negative impact on our production cost. Furthermore, we agreed to pay a
price for the juice that is based on the lower of the cost of two other products produced by Tonon using such juice, plus a premium.
Tonon may not want to sell sugarcane juice to us if the price of one of the other products is substantially higher than the one
setting the price for the juice we purchase. While the agreement provides that Tonon would have to pay a penalty to us if it fails
to supply the agreed-upon volume of juice for a given month, the penalty may not be enough to compensate us for the increased cost
if third-party suppliers do not offer competitive prices. Also, if the prices of the other products produced by Tonon increase,
we could be forced to pay those increased prices for production without a related increase in the price at which we can sell our
products, reducing or eliminating any margins we can otherwise achieve. If in the future these supply terms no longer provide a
viable economic structure for the operation in Brotas, Brazil we may be required to renegotiate our agreement, which could result
in manufacturing disruptions and delays. In December 2015, Tonon filed for bankruptcy protection in Brazil. If Tonon is unable
to supply sugarcane juice, water and steam in accordance with our agreement, we may not be able to obtain substitute supplies from
third parties in necessary quantities or at favorable prices, or at all. In such event, our ability to manufacture our products
in a timely or cost-effective manner, or at all, would be negatively affected, which would have a material adverse effect on our
business.
Furthermore, as we continue to scale up production
of our products, both through contract manufacturers and at our large-scale production plant in Brotas, Brazil, we may be required
to store increasing amounts of our products for varying periods of time and under differing temperatures or other conditions that
cannot be easily controlled, which may lead to a decrease in the quality of our products and their utility profiles and could adversely
affect their value. If our stored products degrade in quality, we may suffer losses in inventory and incur additional costs in
order to further refine our stored products or we may need to make new capital investments in shipping, improved storage or sales
channels and related logistics.
Loss or termination of contract manufacturing relationships could harm our ability
to meet our production goals.
As we have focused on building and commissioning
our own plant and improving our production economics, we have reduced our use of contract manufacturing and have terminated relationships
with some of our contract manufacturing partners. The failure to have multiple available supply options for farnesene or other
target molecules could create a risk for us if a single source or a limited number of sources of manufacturing runs into operational
issues. In addition, if we are unable to secure the services of contract manufacturers when and as needed, we may lose customer
opportunities and the growth of our business may be impaired. We cannot be sure that contract manufacturers will be available when
we need their services, that they will be willing to dedicate a portion of their capacity to our projects, or that we will be able
to reach acceptable price and other terms with them for the provision of their production services. If we shift priorities and
adjust anticipated production levels (or cease production altogether) at contract manufacturing facilities, such adjustments or
cessations could also result in disputes or otherwise harm our business relationships with contract manufacturers. In addition,
reducing or stopping production at one facility while increasing or starting up production at another facility generally results
in significant losses of production efficiency, which can persist for significant periods of time. Also, in order for production
to commence under our contract manufacturing arrangements, we generally must provide equipment, and we cannot be assured that such
equipment can be ordered or installed on a timely basis, at acceptable costs, or at all. Further, in order to establish new manufacturing
facilities, we need to transfer our yeast strains and production processes from lab to commercial plants controlled by third parties,
which may pose technical or operational challenges that delay production or increase our costs.
Our use of contract manufacturers exposes us to risks relating
to costs, contractual terms and logistics.
While we have commenced commercial production
at the Brotas, Brazil plant, we continue to commercially produce, process and manufacture some specialty molecules through the
use of contract manufacturers, and we anticipate that we will continue to use contract manufacturers for the foreseeable future
for chemical conversion and production of end-products and, to mitigate cost and volume risks at our large-scale production facilities,
for production of Biofene and other fermentation target compounds. Establishing and operating contract manufacturing facilities
requires us to make significant capital expenditures, which reduces our cash and places such capital at risk. Also, contract manufacturing
agreements may contain terms that commit us to pay for capital expenditures and other costs incurred or expected to be earned by
the plant operators and owners, which can result in contractual liability and losses for us even if we terminate a particular contract
manufacturing arrangement or decide to reduce or stop production under such an arrangement.
The locations of contract manufacturers can
pose additional cost, logistics and feedstock challenges. If production capacity is available at a plant that is remote from usable
chemical finishing or distribution facilities, or from customers, we will be required to incur additional expenses in shipping
products to other locations. Such costs could include shipping costs, compliance with export and import controls, tariffs and additional
taxes, among others. In addition, we may be required to use feedstock from a particular region for a given production facility.
The feedstock available in a particular region may not be the least expensive or most effective feedstock for production, which
could significantly raise our overall production cost or reduce our product's quality until we are able to optimize the supply
chain.
If we are unable to reduce our production costs, we may not
be able to produce our products at competitive prices and our ability to grow our business will be limited.
In order to be competitive in the markets we
are targeting, our products must have superior qualities or be competitively priced relative to alternatives available in the market.
Currently, our costs of production are not low enough to allow us to offer some of our planned products at competitive prices relative
to alternatives available in the market. Our production costs depend on many factors that could have a negative effect on our ability
to offer our planned products at competitive prices, including, in particular, our ability to establish and maintain sufficient
production scale and volume, and feedstock cost. For example, see "
We have limited experience producing our products at
commercial scale and may not be able to commercialize our products to the extent necessary to sustain and grow our current business,
"
"
Our manufacturing operations require sugar feedstock, energy and steam, and the inability to obtain such feedstock, energy
and steam in sufficient quantities or in a timely manner, or at reasonable prices, may limit our ability to produce products profitably
or at all,
" and "
The price of sugarcane and other feedstocks can be volatile as a result of changes in industry
policy and may increase the cost of production of our products.
"
We face financial risk associated with scaling
up production to reduce our production costs. To reduce per-unit production costs, we must increase production to achieve economies
of scale and to be able to sell our products with positive margins. However, if we do not sell production output in a timely manner
or in sufficient volumes, our investment in production will harm our cash position and generate losses. Additionally, we may incur
added costs in storage and we may face issues related to the decrease in quality of our stored products, which could adversely
affect the value of such products. Since achieving competitive product prices generally requires increased production volumes and
our manufacturing operations and cash flows from sales are in their early stages, we have had to produce and sell products at a
loss in the past, and may continue to do so as we build our business. If we are unable to achieve adequate revenues from a combination
of product sales and other sources, we may not be able to invest in production and we may not be able to pursue our business plans.
Key factors beyond production scale and feedstock
cost that impact our production costs include yield, productivity, separation efficiency and chemical process efficiency. Yield
refers to the amount of the desired molecule that can be produced from a fixed amount of feedstock. Productivity represents the
rate at which our product is produced by a given yeast strain. Separation efficiency refers to the amount of desired product produced
in the fermentation process that we are able to extract and the time that it takes to do so. Chemical process efficiency refers
to the cost and yield for the chemical finishing steps that convert our target molecule into a desired product. In order to successfully
enter transportation fuels and certain chemical markets, we must produce those products at significantly lower costs, which will
require both substantially higher yields than we have achieved to date and other significant improvements in production efficiency,
including in productivity and in separation and chemical process efficiencies. There can be no assurance that we will be able to
make these improvements or reduce our production costs sufficiently to offer our planned products at competitive prices, and any
such failure could have a material adverse impact on our business and prospects.
Our ability to establish substantial commercial sales of our
products is subject to many risks, any of which could prevent or delay revenue growth and adversely impact our customer relationships,
business and results of operations.
There can be no assurance that our products
will be approved or accepted by customers, that customers will choose our products over competing products, or that we will be
able to sell our products profitably at prices and with features sufficient to establish demand. The markets we have entered first
are primarily those for specialty chemical products used by large consumer products or specialty chemical companies. In entering
these markets, we have sold and we intend to sell our products as alternatives to chemicals currently in use, and in some cases
the chemicals that we seek to replace have been used for many years. The potential customers for our molecules generally have well
developed manufacturing processes and arrangements with suppliers of the chemical components of their products and may have a resistance
to changing these processes and components. These potential customers frequently impose lengthy and complex product qualification
procedures on their suppliers, influenced by consumer preference, manufacturing considerations such as process changes and capital
and other costs associated with transitioning to alternative components, supplier operating history, established business relationships
and agreements, regulatory issues, product liability and other factors, many of which are unknown to, or not well understood by,
us. Satisfying these processes may take many months or years. Additionally, we may be subject to product safety testing and may
be required to meet certain regulatory and/or product safety standards. Meeting these standards can be a time consuming and expensive
process, and we may invest substantial time and resources into such qualification efforts without ultimately securing approval.
If we are unable to convince these potential customers (and the consumers who purchase products containing such chemicals) that
our products are comparable to the chemicals that they currently use or that the use of our products is otherwise to their benefits,
we will not be successful in entering these markets and our business will be adversely affected.
We expect to face competition for our specialty chemical and
transportation fuels products from providers of petroleum-based products and from other companies seeking to provide alternatives
to these products, and if we cannot compete effectively against these companies or products we may not be successful in bringing
our products to market or further growing our business after we do so.
We expect that our renewable products will compete
with both the traditional, largely petroleum-based specialty chemical and fuels products that are currently being used in our target
markets and with the alternatives to these existing products that established enterprises and new companies are seeking to produce.
In the specialty chemical markets that we are
initially entering, and in other chemical markets that we may seek to enter in the future, we will compete primarily with the established
providers of chemicals currently used in products in these markets. Producers of these incumbent products include global oil companies,
large international chemical companies and companies specializing in specific products, such as squalane or essential oils. We
may also compete in one or more of these markets with products that are offered as alternatives to the traditional petroleum-based
or other traditional products being offered in these markets.
In the transportation fuels market, we expect
to compete with independent and integrated oil refiners, advanced biofuels companies and biodiesel companies. Refiners compete
with us by selling traditional fuel products and some are also pursuing hydrocarbon fuel production using non-renewable feedstocks,
such as natural gas and coal, as well as processes using renewable feedstocks, such as vegetable oil and biomass. We also expect
to compete with companies that are developing the capacity to produce diesel and other transportation fuels from renewable resources
in other ways. These include advanced biofuels companies using specific enzymes that they have developed to convert cellulosic
biomass, which is non-food plant material such as wood chips, corn stalks and sugarcane bagasse, into fermentable sugars. Similar
to us, some companies are seeking to use engineered microbes, such as yeast, bacteria and algae, to convert sugars, in some cases
from cellulosic biomass and in others from more refined sugar sources, into renewable diesel and other fuels. Biodiesel companies
convert vegetable oils and animal oils into diesel fuel and some are seeking to produce diesel and other transportation fuels using
thermochemical methods to convert biomass into renewable fuels.
With the emergence of many new companies seeking
to produce chemicals and fuels from alternative sources, we may face increasing competition from alternative fuels and chemicals
companies. As they emerge, some of these companies may be able to establish production capacity and commercial partnerships to
compete with us. If we are unable to establish production and sales channels that allow us to offer comparable products at attractive
prices, we may not be able to compete effectively with these companies.
We believe the primary competitive factors in
both the chemicals and fuels markets are:
|
•
|
product performance and other measures of quality;
|
|
•
|
infrastructure compatibility of products;
|
|
•
|
dependability of supply.
|
The oil companies, large chemical companies
and well-established agricultural products companies with whom we compete are much larger than us, have, in many cases, well developed
distribution systems and networks for their products, have valuable historical relationships with the potential customers we are
seeking to serve and have much more extensive sales and marketing programs in place to promote their products. In order to be successful,
we must convince customers that our products are at least as effective as the traditional products they are seeking to replace
and we must provide our products on a cost basis that does not greatly exceed these traditional products and other available alternatives.
Some of our competitors may use their influence to impede the development and acceptance of renewable products of the type that
we are seeking to produce.
We believe that for our chemical products to
succeed in the market, we must demonstrate that our products are comparable alternatives to existing products and to any alternative
products that are being developed for the same markets based on some combination of product cost, availability, performance, and
consumer preference characteristics. With respect to our diesel and other transportation fuels products, we believe that our product
must perform as effectively as petroleum-based fuel, or alternative fuels, and be available on a cost basis that does not greatly
exceed these traditional products and other available alternatives. In addition, with the wide range of renewable fuels products
under development, we must be successful in reaching potential customers and convincing them that ours are effective and reliable
alternatives.
Our relationship with our strategic partner, Total, and certain
rights we have granted to Total and other existing stockholders in relation to our future securities offerings have substantial
impacts on our company.
We have a license, development, research and
collaboration agreement with Total, under which we may develop, produce and commercialize products with Total. Under this agreement,
Total has a right of first negotiation with respect to certain exclusive commercialization arrangements that we would propose to
enter into with third parties, as well as the right to purchase any of our products on terms not less favorable than those offered
to or received by us from third parties in any market where Total or its affiliates have a significant market position. These rights
might inhibit potential strategic partners or potential customers from entering into negotiations with us about future business
opportunities. Total also has the right to terminate this agreement if we undergo a sale or change of control to certain entities,
which could discourage a potential acquirer from making an offer to acquire us.
Under certain other agreements with Total related
to its original investment in our capital stock, for as long as Total owns 10% of our voting securities, it has rights to an exclusive
negotiation period if our Board of Directors decides to sell our company. Total also has the right to designate one director to
serve on our Board of Directors. Also, in connection with Total’s investments, our certificate of incorporation includes
a provision that excludes Total from prohibitions on business combinations between Amyris and an “interested stockholder.”
These provisions could have the effect of discouraging potential acquirers from making offers to acquire us, and give Total more
access to Amyris than other stockholders if Total decides to pursue an acquisition.
Additionally, in connection with subsequent
investments by Total in Amyris, we granted Total, among other investors, a right of first investment if we propose to sell securities
in a private placement financing transaction. With these rights, Total and other investors may subscribe for a portion of any new
private placement financing and require us to comply with certain notice periods, which could discourage other investors from participating
in, or cause delays in our ability to close, such a financing. Further, under the purchase agreement for the Tranche Notes, Total
and other holders of Tranche Notes have the right to pay for any securities purchased in connection with an exercise of their right
of first investment by cancelling all or a portion of their outstanding Tranche Notes. To the extent Total or other investors exercise
these rights, it will reduce the cash proceeds we may realize from the relevant financing.
Our jet fuels joint venture with
Total limits our ability to independently develop and commercialize farnesene- and farnesane-based jet fuels.
In July 2012 and December 2013, we entered into
a series of agreements with Total to establish a research and development program regarding farnesene-based diesel and jet fuels
and to form a joint venture, Total Amyris BioSolutions B.V., or TAB, to produce and commercialize such products worldwide.
In July 2015, we entered into a Letter Agreement
with Total regarding the restructuring of the ownership and rights of TAB, pursuant to which, among other things, the parties agreed
to enter into an Amended & Restated Jet Fuel License Agreement between us and TAB, or the Jet Fuel Agreement. We entered into
the Jet Fuel Agreement with TAB on March 21, 2016.
Under the Jet Fuel Agreement, (a) we granted TAB exclusive (co-exclusive in Brazil), world-wide, royalty-free
rights to produce and commercialize farnesene- or farnesane-based jet fuel, (b) we granted TAB the option, until March 1, 2018,
to purchase our Brazil jet fuel business at a price based on the fair value of the commercial assets and on our investment in other
related assets, (c) we granted TAB the right to purchase farnesene or farnesane for its jet fuel business from us on a “most-favored”
pricing basis and (d) all rights to farnesene- or farnesane-based diesel fuel previously granted to TAB by us reverted back to
us. As a result of Jet Fuel Agreement, we generally no longer have an independent right to make or sell farnesene- or farnesane-based
jet fuels outside of Brazil without the approval of TAB.
If, for any reason, TAB is not fully supported, or is not successful, and TAB does not allow us to pursue
farnesene-based jet fuels independently, this joint venture arrangement could impair our ability to develop and commercialize such
jet fuels, which could have a material adverse effect on our business and long term prospects. For example, this arrangement could
adversely affect our ability to enter or expand in the jet fuel market on terms that would otherwise be more favorable to us independently
or with third parties.
Our diesel fuels license to Total limits our ability to independently develop and commercialize farnesene-
and farnesane-based diesel fuels in the European Union.
Upon all farnesene- or farnesane-based diesel
fuel rights reverting back to us pursuant to the Jet Fuel Agreement, we granted to Total, pursuant to a License Agreement regarding
Diesel Fuel in the European Union, or the EU, dated March 21, 2016, between us and Total, (a) an exclusive, royalty-free license
to offer for sale and sell farnesene- or farnesane-based diesel fuel in the EU, (b) the non-exclusive right to make farnesene
or farnesane anywhere in the world, but Total must (i) use such farnesene or farnesane to produce only diesel fuel to offer for
sale or sell in the EU and (ii) pay us a to-be-negotiated, commercially reasonable, “most-favored” basis royalty and
(c) the right to purchase farnesene or farnesane for its EU diesel fuel business from us on a “most-favored” pricing
basis. As a result of the License Agreement regarding Diesel Fuel in the European Union, we generally no longer have an independent
right to sell farnesene- or farnesane-based diesel fuels in the EU without the approval of Total. If, for any reason, Total were
not successful in selling farnesene- or farnesane-based diesel fuels in the EU and did not allow us to independently pursue selling
farnesene- or farnesane-based diesel fuels there, this arrangement could impair our ability to develop and commercialize such
diesel fuels in the EU, which could have a material adverse effect on our business and long term prospects.
We have limited control over our jet fuels joint venture with
Total.
As part of the restructuring of TAB in March 2016 as described above, we sold a portion of our interest in
TAB to Total, giving Total an aggregate ownership stake of 75% of TAB and us an aggregate ownership stake of 25% of TAB. As a result,
we do not have the right or power to direct the management or policies of TAB, and Total may take action with TAB contrary to our
instructions or requests and against our policies and objectives. If Total or TAB acts contrary to our interest, it could harm
our brand, business, results of operations and financial condition. Furthermore, if we were to experience a change of control or
fail to make any required capital contribution to TAB, Total has a right to buy out our interest in TAB at fair market value. If
Total were to exercise these rights, we would, in effect, relinquish our economic rights to the intellectual property we have exclusively
licensed to TAB, and our ability to seek future revenue from farnesene- or farnesane-based jet fuel outside of Brazil would be
adversely affected (or completely prevented). This could significantly reduce the value of our product offerings and have a material
adverse effect on our ability to grow our business in the future.
Our relationship with Ginkgo Bioworks, Inc. exposes
us to financial and commercial risks.
In June 2016, we entered into an Initial Strategic Partnership Agreement with Ginkgo Bioworks, Inc. (or “Ginkgo”),
pursuant to which we licensed certain intellectual property to Ginkgo in exchange for a license fee and royalty, and to pursue
the negotiation and execution of a definitive partnership agreement setting forth the terms of a long-term commercial partnership
and collaboration arrangement between us and Ginkgo. Under such partnership, the parties would collaborate to develop, manufacture
and sell commercial products and would share in the value of such products. See Note 8, “Significant Agreements” and
Note 18, “Subsequent Events” to our unaudited consolidated financial statements included in this report for additional
information regarding our relationship with Ginkgo.
In connection with the execution of the Initial
Strategic Partnership Agreement, Stegodon Corporation (or “Stegodon”), an affiliate of Ginkgo and the lender and administrative
agent under our Senior Secured Loan Facility, agreed to waive compliance with the covenant in our Senior Secured Loan Facility
requiring us to maintain unrestricted, unencumbered cash in defined U.S. bank accounts in an amount equal to at least 50% of the
principal amount outstanding under the Senior Secured Loan Facility (or the “Minimum Cash Covenant”) and any required
amortization payments under the Senior Secured Loan Facility through October 31, 2016. In addition, pursuant to the Initial Strategic
Partnership Agreement, in connection with the execution of the definitive partnership agreement, Ginkgo would cause Stegodon Corporation
to agree to amend the Senior Secured Loan Facility to (i) extend the maturity date of all outstanding loans under the Senior Secured
Loan Facility to June 30, 2019, (ii) waive any required amortization payments under the Senior Secured Loan Facility until June
30, 2019 and (iii) waive all cash covenants under the Senior Secured Loan Facility (including the Minimum Cash Covenant) until
June 30, 2019.
There can be no assurance that we and Ginkgo
will reach final agreement regarding the definitive partnership agreement, that the terms of such agreement as finally negotiated
will be favorable to us or the same as those contemplated in the Initial Strategic Partnership Agreement, and any failure to consummate
the definitive partnership agreement on favorable terms or at all may have a material adverse effect on our business and operations.
In addition, if the parties do not enter into the definitive partnership agreement, then unless we obtain further deferments or
waivers, previously deferred amortization payments under our Senior Secured Loan Facility will become due on November 1, 2016 and
the existing waiver of our compliance with the Minimum Cash Covenant will expire on November 1, 2016. If we are unable to make
such amortization payments or are unable to comply with such covenant, our ability to continue with our business plans would be
adversely affected. Even if we do enter into the definitive partnership agreement with Ginkgo, there can be no assurances that
the partnership will be successful, and the partnership may prevent us from pursuing other business opportunities in the future.
If we do not meet technical, development and commercial milestones
in our collaboration agreements, our future revenue and financial results will be adversely impacted.
We have entered into a number of agreements
regarding the further development of certain of our products and, in some cases, for ultimate sale of certain products to the customer
under the agreement. None of these agreements affirmatively obligates the other party to purchase specific quantities of any products
at this time, and most contain important conditions that must be satisfied before additional research and development funding or
product purchases would occur. These conditions include research and development milestones and technical specifications that must
be achieved to the satisfaction of our collaborators, which we cannot be certain we will achieve. If we do not achieve these contractual
milestones, our revenues and financial results will be adversely affected.
We are subject to risks related to our reliance on collaboration
arrangements to fund development and commercialization of our products and the success of such products is uncertain.
For most product markets we are trying to address,
we either have or are seeking collaboration partners to fund the research and development, commercialization and production efforts
required for the target products. Typically we provide limited exclusive rights and revenue sharing with respect to the production
and sale of particular types of products in specific markets in exchange for such up-front funding. These exclusivity, revenue-sharing
and other similar terms limit our ability to commercialize our products and technology, and may impact the size of our business
or our profitability in ways that we do not currently envision. In addition, revenues from these types of relationships are a key
part of our cash plan for 2016 and beyond. If we fail to collect expected collaboration revenues, or to identify and add sufficient
additional collaborations to fund our planned operations, we may be unable to fund our operations or pursue development and commercialization
of our planned products. To achieve our collaboration revenue targets from year to year, we may be forced to enter into agreements
that contain less favorable terms. As part of our current and future collaboration arrangements, we may be required to make significant
capital investments at our existing or new facilities in order to produce molecules or other products for such collaborations.
Any failure or difficulties in establishing, building up or retooling our operations for these collaboration arrangements could
have a significant negative impact on our business, including our ability to achieve commercial viability for our products, lead
to the inability to meet our contractual obligations and could cause us to allocate capital, personnel and other resources from
our organization which could adversely affect our business and reputation.
With respect to pharmaceutical collaborations,
our experience in this industry is limited, so we may have difficulty identifying and securing collaboration partners and customers
for pharmaceutical applications of our products and services. Furthermore, our success in pharmaceuticals depends primarily upon
our ability to identify and validate new small molecule compounds of pharmaceutical interest (including through the use of our
discovery platform), and identify, test, develop and commercialize such compounds. Our research efforts may initially show promise
in discovering potential new therapeutic candidates, yet fail to yield viable product candidates for clinical development for a
number of reasons, including:
|
•
|
because our research methodology, including our screening technology, may not successfully identify
medically relevant product candidates;
|
|
•
|
we may identify and select from our discovery platform novel, untested classes of product candidates
for the particular disease indication we are pursuing, which may be challenging to validate because of the novelty of the product
candidates or we may fail to validate at all after further research work;
|
|
•
|
our product candidates may cause adverse effects in patients or subjects, even after successful
initial toxicology studies, which may make the product candidates unmarketable;
|
|
•
|
our product candidates may not demonstrate a meaningful benefit to patients or subjects; and
|
|
•
|
collaboration partners may change their development profiles or plans for potential product candidates
or abandon a therapeutic area or the development of a partnered product.
|
Research programs to identify new product targets
and candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential
discovery efforts, programs or product candidates that ultimately prove to be unsuccessful.
Our manufacturing operations require sugar feedstock, energy
and steam, and the inability to obtain such feedstock, energy and steam in sufficient quantities or in a timely manner, or at reasonable
prices, may limit our ability to produce our products profitably, or at all.
We anticipate that the production of our products
will require large volumes of feedstock. We have relied on a mixture of feedstock sources for use at our contract manufacturing
operations, including cane sugar, corn-based dextrose and beet molasses. For our large-scale production facilities in Brazil, we
are relying primarily on Brazilian sugarcane. We cannot predict the future availability or price of these various feedstocks, nor
can we be sure that our mill partners, which we expect to supply the sugarcane feedstock necessary to produce our products in Brazil,
will be able to supply it in sufficient quantities or in a timely manner. For example, in December 2015, Tonon, one of our suppliers
of sugarcane juice, filed for bankruptcy protection in Brazil, which may adversely affect its ability to supply us with sugarcane
juice in the future. Furthermore, to the extent we are required to rely on sugar feedstock other than Brazilian sugarcane, the
cost of such feedstock may be higher than we expect, increasing our anticipated production costs. Feedstock crop yields and sugar
content depend on weather conditions, such as rainfall and temperature. Weather conditions have historically caused volatility
in the ethanol and sugar industries by causing crop failures or reduced harvests. Excessive rainfall can adversely affect the supply
of sugarcane and other sugar feedstock available for the production of our products by reducing the sucrose content and limiting
growers' ability to harvest. Crop disease and pestilence can also occur from time to time and can adversely affect feedstock growth,
potentially rendering useless or unusable all or a substantial portion of affected harvests. With respect to sugarcane, our initial
primary feedstock, seasonal availability and price, the limited amount of time during which it keeps its sugar content after harvest,
and the fact that sugarcane is not itself a traded commodity, increases these risks and limits our ability to substitute supply
in the event of such an occurrence. If production of sugarcane or any other feedstock we may use to produce our products is adversely
affected by these or other conditions, our production will be impaired, and our business will be adversely affected.
Additionally, our facility in Brotas Brazil
depends on large quantities of energy and steam to operate. We have a supply agreement with Cogeração de Energia
Elétrica Rhodia Brotas S.A. pursuant to which we receive energy and steam in sufficient amounts to meet our current needs.
However, we cannot predict the future availability or price of energy and steam. If, for whatever reason, we must purchase energy
or steam from a different supplier, the cost of such energy and steam may be higher than we expect, increasing our anticipated
production costs. Droughts or other weather conditions or natural disasters in Brazil may also affect energy and steam production,
cost and availability and, therefore, may adversely affect our production. If the supply and access to energy or steam is adversely
affected by these or other conditions, our production will be impaired, and our business will be adversely affected.
The price of sugarcane and other feedstocks can be volatile
as a result of changes in industry policy and may increase the cost of production of our products.
In Brazil, Conselho dos Produtores de Cana,
Açúcar e Álcool (Council of Sugarcane, Sugar and Ethanol Producers or Consecana), an industry association
of producers of sugarcane, sugar and ethanol, sets market terms and prices for general supply, lease and partnership agreements
for sugarcane. If Consecana makes changes to such terms and prices, this could result in higher sugarcane prices and/or a significant
decrease in the volume of sugarcane available for the production of our products. Furthermore, if Consecana were to cease to be
involved in this process, such prices and terms could become more volatile. Similar principles apply to pricing of other feedstocks
as well. Any of these events could adversely affect our business and results of operations.
Our large-scale commercial production capacity is centered
in Brazil, and our business will be adversely affected if we do not operate effectively in that country.
For the foreseeable future, we will be subject
to risks associated with the concentration of essential product sourcing and operations in Brazil. The Brazilian government has
changed in the past, and may change in the future, monetary, taxation, credit, tariff, labor and other policies to influence the
course of Brazil's economy. For example, the government's actions to control inflation have at times involved setting wage and
price controls, adjusting interest rates, imposing taxes and exchange controls and limiting imports into Brazil. We have no control
over, and cannot predict what policies or actions the Brazilian government may take in the future. Our business, financial performance
and prospects may be adversely affected by, among others, the following factors:
|
•
|
delays or failures in securing licenses, permits or other governmental approvals necessary to build
and operate facilities and use our yeast strains to produce products;
|
|
•
|
rapid consolidation in the sugar and ethanol industries in Brazil, which could result in a decrease in competition;
|
|
•
|
political, economic, diplomatic or social instability in or affecting Brazil;
|
|
•
|
changing interest rates;
|
|
•
|
tax burden and policies;
|
|
•
|
effects of changes in currency exchange rates;
|
|
•
|
any changes in currency exchange policy that lead to the imposition of exchange controls or restrictions
on remittances abroad;
|
|
•
|
land reform or nationalization movements;
|
|
•
|
changes in labor related policies;
|
|
•
|
export or import restrictions that limit our ability to move our products out of Brazil or interfere
with the import of essential materials into Brazil;
|
|
•
|
changes in, or interpretations of foreign regulations that may adversely affect our ability to
sell our products or repatriate profits to the United States;
|
|
•
|
tariffs, trade protection measures and other regulatory requirements;
|
|
•
|
compliance with United States and foreign laws that regulate the conduct of business abroad;
|
|
•
|
compliance with anti-corruption laws recently enacted in Brazil;
|
|
•
|
an inability, or reduced ability, to protect our intellectual property in Brazil including any
effect of compulsory licensing imposed by government action; and
|
|
•
|
difficulties and costs of staffing and managing foreign operations.
|
We cannot predict whether the current or future
Brazilian government will implement changes to existing policies on taxation, exchange controls, monetary strategy, labor relations,
social security and the like, nor can we estimate the impact of any such changes on the Brazilian economy or our operations.
Brazil’s economy has recently experienced
quarters of slow or negative gross domestic product growth and has experienced high inflation and a growing fiscal deficit of its
federal government accounts. In addition, in recent months, major corruption scandals involving members of the executive, state-controlled
enterprises and large private sector companies have been disclosed and are the subject of ongoing investigation by federal authorities.
The final outcome of these investigations and their impact on the Brazilian economy is not yet known.
Our international operations expose us to the risk of fluctuation
in currency exchange rates and rates of foreign inflation, which could adversely affect our results of operations.
We currently incur significant costs and expenses
in Brazilian real and may in the future incur additional expenses in foreign currencies and derive a portion of our revenues in
the local currencies of customers throughout the world. As a result, our revenues and results of operations are subject to foreign
exchange fluctuations, which we may not be able to manage successfully. During the past few decades, the Brazilian currency in
particular has faced frequent and substantial exchange rate fluctuations in relation to the United States dollar and other foreign
currencies. There can be no assurance that the Brazilian real will not significantly appreciate or depreciate against the United
States dollar in the future. We also bear the risk that the rate of inflation in the foreign countries where we incur costs and
expenses or the decline in value of the United States dollar compared to those foreign currencies will increase our costs as expressed
in United States dollars. For example, future measures by the Central Bank of Brazil to control inflation, including interest rate
adjustments, intervention in the foreign exchange market and actions to fix the value of the real, may weaken the United States
dollar in Brazil. Whether in Brazil or otherwise, we may not be able to adjust the prices of our products to offset the effects
of inflation or foreign currency appreciation on our cost structure, which could increase our costs and reduce our net operating
margins. If we do not successfully manage these risks through hedging or other mechanisms, our revenues and results of operations
could be adversely affected.
Our use of genetically-modified feedstocks and yeast strains
to produce our products subjects us to risks of regulatory limitations and rejection of our products.
The use of genetically modified microorganisms
(or “GMMs”), such as our yeast strains, is subject to laws and regulations in many countries, some of which are new
and some of which are still evolving. Public attitudes about the safety and environmental hazards of, and ethical concerns over,
genetic research and GMMs could influence public acceptance of our technology and products. In the United States, the Environmental
Protection Agency (or “EPA”), regulates the commercial use of GMMs as well as potential products produced from the
GMMs. Various states or local governments within the United States could choose to regulate products made with GMMs as well. While
the strain of genetically modified yeast that we currently use for the development and anticipate using for the commercial production
of our target molecules,
S. cerevisiae
, is eligible for exemption from EPA review because it is recognized as posing a low
risk, we must satisfy certain criteria to achieve this exemption, including but not limited to use of compliant containment structures
and safety procedures, and we cannot be sure that we will meet such criteria in a timely manner, or at all. If exemption of
S.
cerevisiae
is not obtained, our business may be substantially harmed. In addition to
S. cerevisiae
, we may seek to use
different GMMs in the future that will require EPA approval. If approval of different GMMs is not secured, our ability to grow
our business could be adversely affected.
In Brazil, GMMs are regulated by the National
Biosafety Technical Commission (or “CTNBio”). We have obtained approval from CTNBio to use GMMs in a contained environment
in our Campinas facilities for research and development purposes as well as at a contract manufacturing facility in Brazil. In
addition, we have obtained initial commercial approval from CTNBio for one of our current yeast strains. As we continue to develop
new yeast strains and deploy our technology at new production facilities in Brazil, we will be required to obtain further approvals
from CTNBio in order to use these strains in commercial production in Brazil. We may not be able to obtain approvals from relevant
Brazilian authorities on a timely basis, or at all, and if we do not, our ability to produce our products in Brazil would be impaired,
which would adversely affect our results of operations and financial condition.
In addition to our production operations in
the United States and Brazil, we have been party to contract manufacturing agreements with parties in other production locations
around the world, including Europe. The use of GMM technology is strictly regulated in the European Union, which has established
various directives for member states regarding regulation of the use of such technology, including notification processes for contained
use of such technology. We expect to encounter GMM regulations in most, if not all, of the countries in which we may seek to establish
production capabilities and/or conduct sales to customers or end-use consumers, and the scope and nature of these regulations will
likely be different from country to country. If we cannot meet the applicable requirements in other countries in which we intend
to produce products using our yeast strains, or if it takes longer than anticipated to obtain such approvals, our business could
be adversely affected. Furthermore, there are various non-governmental and quasi-governmental organizations that review and certify
products with respect to the determination of whether products can be classified as “natural” or other similar classifications.
While the certification from such non-governmental and quasi-governmental organizations is generally not mandatory, some of our
current or prospective customers or distributors may require that we meet the standards set by such organizations as a condition
precedent to purchasing or distributing our products. We cannot be certain that we will be able to satisfy the standards of such
organizations, and any delay or failure to do so could harm our ability to sell or distribute some or all of our products to certain
customers and prospective customers, which could have a negative impact on our business.
We may not be able to obtain regulatory approval for the sale
of our renewable products.
Our renewable chemical products may be subject
to government regulation in our target markets. In the United States, the EPA administers the Toxic Substances Control Act (or
“TSCA”), which regulates the commercial registration, distribution, and use of many chemicals. Before an entity can
manufacture or distribute a new chemical subject to TSCA, it must file a Pre-Manufacture Notice (or “PMN”) to add the
chemical to a product. The EPA has 90 days to review the filing but may request additional data which significantly extends the
timeline for approval. As a result we may not receive EPA approval to list future molecules as expeditiously as we would like in
order to make on the TSCA registry, resulting in delays or significant increases in testing requirements. A similar program exists
in the European Union, called REACH. Under this program, chemicals imported or manufactured in the European Union in certain quantities
must be registered with the European Chemicals Agency, and this process could cause delays or significant costs. To the extent
that other geographies in which we are selling (or may seek to sell) our products, such as Brazil and various countries in Asia,
may rely on TSCA or REACH (or similar laws and programs) for chemical registration in their geographies, delays with the United
States or European authorities, or any relevant local authorities in such other geographies, may subsequently delay entry into
these markets as well. In addition, some of our Biofene-derived products are sold for the cosmetics market, and some countries
may impose additional regulatory requirements or permits for such uses, which could impair, delay or prevent sales of our products
in those markets.
Our diesel and jet fuel is subject to regulation
by various government agencies, including the EPA, and the California Air Resources Board (or “CARB”) in the United
States and Agência Nacional do Petróleo, Gas Natural e Biocombustíveis (or “ANP”), in Brazil. To
date, we have obtained registration with the EPA for the use of our diesel fuel in the United States at a 35% blend rate with petroleum
diesel. Farnesane is also listed on the TSCA inventory. In addition, ANP has authorized the use our diesel fuel at blend rates
of 10% and 30% for specific transportation fleets. In Europe, we obtained REACH registration for importing/manufacturing less than
1,000 metric tons of farnesane (for use as diesel and jet fuel) per year and are pursuing data validation to maintain registration.
Registration with each of these bodies is required for the import, sale and use of our fuels within their respective jurisdictions.
Jet fuel (aviation turbine fuel) validation and specifications are subject to the ASTM International industry consensus process
and the Brazilian ANP national adoption process. Any failure to achieve required validation and certifications for our jet fuel
could impair or delay our plans to introduce a jet fuel product in Brazil, which could have a material adverse impact on our renewable
product revenues for the year.
In addition, for us to achieve full access to the United States fuels market for our
fuel products, we will need to obtain EPA and CARB (and potentially other state agencies) certifications for our feedstock pathway
and production facilities, including certification of a feedstock lifecycle analysis relating to greenhouse gas emissions. Any
delay in obtaining these additional certifications could impair our ability to sell our renewable fuels to refiners, importers,
blenders and other parties that produce transportation fuels as they comply with federal and state requirements to include certified
renewable fuels in their products.
We expect to encounter regulations in most,
if not all, of the countries in which we may seek to sell our renewable chemical and fuel products (and our customers may encounter
similar regulations in selling end use products to consumers), and we cannot assure you that we (or our customers) will be able
to obtain necessary approvals in a timely manner or at all. If our chemical and fuel products do not meet applicable regulatory
requirements in a particular country or at all, then we (or our customers) may not be able to commercialize our products and our
business will be adversely affected.
Changes in government regulations, including subsidies and
economic incentives, could have a material adverse effect upon our business.
The market for renewable fuels is heavily influenced
by foreign, federal, state and local government regulations and policies. Changes to existing or adoption of new domestic or foreign
federal, state and local legislative initiatives that impact the production, distribution or sale of renewable fuels may harm our
renewable fuels business. In the United States and in a number of other countries, regulations and policies encouraging production
and use of alternative fuels have been modified in the past and may be modified again in the future. Any reduction in mandated
requirements for fuel alternatives and additives to gasoline or diesel may cause demand for biofuels to decline and deter investment
in the research and development of renewable fuels. The market uncertainty regarding this and future standards and policies may
also affect our ability to develop new renewable products or to license our technologies to third parties and to sell products
to our end customers. Any inability to address these requirements and any regulatory or policy changes could have a material adverse
effect on our business, financial condition and results of operations.
Concerns associated with renewable fuels, including
land usage, national security interests and food crop usage, continue to receive legislative, industry and public attention. This
attention could result in future legislation, regulation and/or administrative action that could adversely affect our business.
Any inability to address these requirements and any regulatory or policy changes could have a material adverse effect on our business,
financial condition and results of operations.
Furthermore, the production of our products
will depend on the availability of feedstock, especially sugarcane. Agricultural production and trade flows are subject to government
policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies,
incentives and import and export restrictions on agricultural commodities and commodity products, can influence the planting of
certain crops, the location and size of crop production, whether unprocessed or processed commodity products are traded, the volume
and types of imports and exports, and the availability and competitiveness of feedstocks as raw materials. Future government
policies may adversely affect the supply of feedstocks, restrict our ability to use sugarcane or other feedstocks to produce our
products, and negatively impact our future revenues and results of operations or could encourage the use of feedstocks more advantageous
to our competitors which would put us at a commercial disadvantage.
We may incur significant costs complying with environmental
laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.
We use hazardous chemicals and radioactive and
biological materials in our business and such materials are subject to a variety of federal, state and local laws and regulations
governing the use, generation, manufacture, storage, handling and disposal of these materials in the United States and in Brazil.
Although we have implemented safety procedures for handling and disposing of these materials and related waste products in an effort
to comply with these laws and regulations, we cannot be sure that our safety measures will prevent accidental injury or contamination
from the use, storage, handling or disposal of hazardous materials. In the event of contamination or injury, we could be held liable
for any resulting damages, and any liability could exceed our insurance coverage. There can be no assurance that violations of
environmental, health and safety laws will not occur in the future as a result of human error, accident, equipment failure or other
causes. Compliance with applicable environmental laws and regulations may be expensive, and the failure to comply with past, present,
or future laws could result in the imposition of fines, third party property damage, product liability and personal injury claims,
investigation and remediation costs, the suspension of production, or a cessation of operations, and our liability may exceed our
total assets. Liability under environmental laws can be joint and several, without regard to comparative fault and may be punitive
in nature. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and
penalties associated with violations, which could impair our research, development or production efforts and harm our business.
A decline in the price of petroleum and petroleum-based products
has in the past and may in the future reduce demand for some of our renewable products and may otherwise adversely affect our business.
While many of our products do not compete with,
and do not serve as alternatives to, petroleum-based products, we anticipate that some of our renewable products, and in particular
our fuels, will be marketed as alternatives to corresponding petroleum-based products. The price of oil has fallen significantly
in recent years, and accordingly, we may be unable to produce certain of our products as cost-effective alternatives to petroleum-based
products. Declining oil prices, or the perception of a sustained or future decline in oil prices, has adversely affected the prices
or demand for such products in the past and may do so in the future. During sustained periods of lower oil prices we may be unable
to sell such products at anticipated levels, which could negatively impact our operating results.
Our financial results could vary significantly from quarter
to quarter and are difficult to predict.
Our revenues and results of operations could
vary significantly from quarter to quarter because of a variety of factors, many of which are outside of our control. As a result,
comparing our results of operations on a period-to-period basis may not be meaningful. Factors that could cause our quarterly results
of operations to fluctuate include:
|
•
|
achievement, or failure, with respect to technology, product development or manufacturing milestones
needed to allow us to enter identified markets on a cost effective basis;
|
|
•
|
delays or greater than anticipated expenses associated with the completion or commissioning of
new production facilities, or the time to ramp up and stabilize production following completion of a new production facility or
the transition to, and ramp up of, producing new molecules at our existing facilities;
|
|
•
|
impairment of assets based on shifting business priorities and working capital limitations;
|
|
•
|
disruptions in the production process at any manufacturing facility, including disruptions due
to seasonal or unexpected downtime at our facilities as a result of feedstock availability, contamination, safety or other issues
or other technical difficulties or the scheduled downtime at our facilities as a result of transitioning our equipment to the production
of different molecules;
|
|
•
|
losses of, or the inability to secure new, major customers, suppliers, distributors or collaboration partners;
|
|
•
|
losses associated with producing our products as we ramp to commercial production levels;
|
|
•
|
failure to recover value added tax (or "VAT") that we currently reflect as recoverable
in our financial statements (e.g., due to failure to meet conditions for reimbursement of VAT under local law);
|
|
•
|
the timing, size and mix of sales to customers for our products;
|
|
•
|
increases in price or decreases in availability of feedstock;
|
|
•
|
the unavailability of contract manufacturing capacity altogether or at reasonable cost;
|
|
•
|
exit costs associated with terminating contract manufacturing relationships;
|
|
•
|
fluctuations in foreign currency exchange rates;
|
|
•
|
gains or losses associated with our hedging activities;
|
|
•
|
change in the fair value of derivative instruments;
|
|
•
|
fluctuations in the price of and demand for sugar, ethanol, and petroleum-based and other products
for which our products are alternatives;
|
|
•
|
seasonal variability in production and sales of our products;
|
|
•
|
competitive pricing pressures, including decreases in average selling prices of our products;
|
|
•
|
unanticipated expenses associated with changes in governmental regulations and environmental, health,
labor and safety requirements;
|
|
•
|
reductions or changes to existing fuel and chemical regulations and policies;
|
|
•
|
departure of executives or other key management employees resulting in transition and severance costs;
|
|
•
|
our ability to use our net operating loss carryforwards to offset future taxable income;
|
|
•
|
business interruptions such as earthquakes, tsunamis and other natural disasters;
|
|
•
|
our ability to integrate businesses that we may acquire;
|
|
•
|
our ability to successfully collaborate with business venture partners;
|
|
•
|
risks associated with the international aspects of our business; and
|
|
•
|
changes in general economic, industry and market conditions, both domestically and in our foreign markets.
|
As part of our operating plan for 2016, we are
planning to reduce our operating expenses in order to conserve cash.
Due to the factors described above, among others,
the results of any quarterly or annual period may not meet our expectations or the expectations of our investors and may not be
meaningful indications of our future performance.
Loss of key personnel, including key management personnel,
and/or failure to attract and retain additional personnel could delay our product development programs and harm our research and
development efforts and our ability to meet our business objectives.
Our business involves complex, global operations
across a variety of markets and requires a management team and employee workforce that is knowledgeable in the many areas in which
we operate. As we continue to build our business, we will need to hire and retain qualified research and development, management
and other personnel to succeed. The process of hiring, training and successfully integrating qualified personnel into our operations,
in the United States, Brazil and other countries in which we may seek to operate, is a lengthy and expensive one. The market for
qualified personnel is very competitive because of the limited number of people available who have the necessary technical skills
and understanding of our technology and anticipated products, particularly in Brazil. Our failure to hire and retain qualified
personnel could impair our ability to meet our research and development and business objectives and adversely affect our results
of operations and financial condition.
The loss of any key member of our management
or key technical and operational employees, or the failure to attract or retain such employees, could prevent us from developing
and commercializing our products for our target markets and executing our business strategy. We also may not be able to attract
or retain qualified employees in the future due to the intense competition for qualified personnel among biotechnology and other
technology-based businesses, particularly in the renewable chemicals and fuels area, or due to the availability of personnel with
the qualifications or experience necessary for our business. In addition, reductions to our workforce as part of cost-saving measures,
such as those discussed above with respect to our 2016 operating plan, may make it more difficult for us to attract and retain
key employees. If we do not maintain the necessary personnel to accomplish our business objectives, we may experience staffing
constraints that will adversely affect our ability to meet the demands of our collaborators and customers in a timely fashion or
to support our internal research and development programs and operations. In particular, our product and process development programs
depend on our ability to attract and retain highly skilled technical and operational personnel. Competition for such personnel
from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms. All of
our employees are “at-will” employees, which means that either the employee or we may terminate their employment at
any time.
Growth may place significant demands on our management and
our infrastructure.
We have experienced, and expect to continue
to experience, expansion of our business as we continue to make efforts to develop and bring our products to market. We have grown
from 18 employees at the end of 2005 to 400
at June 30, 2016. Our growth and diversified operations have placed,
and may continue to place, significant demands on our management and our operational and financial infrastructure. In particular,
continued growth could strain our ability to:
|
•
|
manage multiple research and development programs;
|
|
•
|
operate multiple manufacturing facilities around the world;
|
|
•
|
develop and improve our operational, financial and management controls;
|
|
•
|
enhance our reporting systems and procedures;
|
|
•
|
recruit, train and retain highly skilled personnel;
|
|
•
|
develop and maintain our relationships with existing and potential business partners;
|
|
•
|
maintain our quality standards; and
|
|
•
|
maintain customer satisfaction.
|
Managing our growth will require significant
expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization
as it grows, our business, results of operations and financial condition would be adversely impacted.
Our proprietary rights may not adequately protect our technologies
and product candidates.
Our commercial success will depend substantially
on our ability to obtain patents and maintain adequate legal protection for our technologies and product candidates in the United
States and other countries. As of June 30, 2016, we had 441 issued United States and foreign patents and 353 pending United
States and foreign patent applications that were owned by or licensed to us. We will be able to protect our proprietary rights
from unauthorized use by third parties only to the extent that our proprietary technologies and future products are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
We apply for patents covering both our technologies
and product candidates, as we deem appropriate. However, filing, prosecuting, maintaining and defending patents on product candidates
in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries
outside the United States are less extensive than those in the United States. We may also fail to apply for patents on important
technologies or product candidates in a timely fashion, or at all. Our existing and future patents may not be sufficiently broad
to prevent others from practicing our technologies or from designing products around our patents or otherwise developing competing
products or technologies. In addition, the patent positions of companies like ours are highly uncertain and involve complex legal
and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of patent
claims has emerged to date in the United States and the landscape is expected to become even more uncertain in view of recent rule
changes by the United States Patent Office (or "USPTO"). Additional uncertainty may result from legal precedent by the
United States Federal Circuit and Supreme Court as they determine legal issues concerning the scope and construction of patent
claims and inconsistent interpretation of patent laws or from legislation enacted by the U.S. Congress. The patent situation outside
of the United States is even less predictable. As a result, the validity and enforceability of patents cannot be predicted with
certainty. Moreover, we cannot be certain whether:
|
•
|
we (or our licensors) were the first to make the inventions covered by each of our issued patents
and pending patent applications;
|
|
•
|
we (or our licensors) were the first to file patent applications for these inventions;
|
|
•
|
others will independently develop similar or alternative technologies or duplicate any of our technologies;
|
|
•
|
any of our or our licensors' patents will be valid or enforceable;
|
|
•
|
any patents issued to us (or our licensors) will provide us with any competitive advantages, or
will be challenged by third parties;
|
|
•
|
we will develop additional proprietary products or technologies that are patentable; or
|
|
•
|
the patents of others will have an adverse effect on our business.
|
We do not know whether any of our pending patent
applications or those pending patent applications that we license will result in the issuance of any patents. Even if patents are
issued, they may not be sufficient to protect our technology or product candidates. The patents we own or license and those that
may be issued in the future may be challenged, invalidated, rendered unenforceable, or circumvented, and the rights granted under
any issued patents may not provide us with proprietary protection or competitive advantages. Moreover, third parties could practice
our inventions in territories where we do not have patent protection or in territories where they could obtain a compulsory license
to our technology where patented. Such third parties may then try to import products made using our inventions into the United
States or other territories. Accordingly, we cannot ensure that any of our pending patent applications will result in issued patents,
or even if issued, predict the breadth, validity and enforceability of the claims upheld in our and other companies' patents.
Many companies have encountered significant
problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries
do not favor the enforcement of patents or other intellectual property rights, which could hinder us from preventing the infringement
of our patents or other intellectual property rights. Proceedings to enforce our patent rights in the United States or foreign
jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could
put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could
provoke third parties to assert patent infringement or other claims against us. We may not prevail in any lawsuits that we initiate
and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our
intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license from third parties.
Unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Monitoring unauthorized use of our intellectual property is difficult, and
we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in certain foreign
countries where the local laws may not protect our proprietary rights as fully as in the United States or may provide, today or
in the future, for compulsory licenses. If competitors are able to use our technology, our ability to compete effectively could
be harmed. Moreover, others may independently develop and obtain patents for technologies that are similar to, or superior to,
our technologies. If that happens, we may need to license these technologies, and we may not be able to obtain licenses on reasonable
terms, if at all, which could cause harm to our business.
We rely in part on trade secrets to protect our technology,
and our failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We rely on trade secrets to protect some of
our technology, particularly where we do not believe patent protection is appropriate or obtainable. However, trade secrets are
difficult to maintain and protect. Our strategy for contract manufacturing and scale-up of commercial production requires us to
share confidential information with our international business partners and other parties. Our product development collaborations
with third parties, including with Total, require us to share confidential information, including with employees of Total who are
seconded to Amyris during the term of the collaboration. While we use reasonable efforts to protect our trade secrets, our or our
business partners' employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose
our proprietary information to competitors. Enforcement of claims that a third party has illegally obtained and is using trade
secrets is expensive, time consuming and uncertain. In addition, foreign courts are sometimes less willing than United States courts
to protect trade secrets. If our competitors independently develop equivalent knowledge, methods and know-how, we would not be
able to assert our trade secrets against them.
We require new employees and consultants to
execute confidentiality agreements upon the commencement of an employment or consulting arrangement with us. We additionally require
consultants, contractors, advisors, corporate collaborators, outside scientific collaborators and other third parties that may
receive trade secret information to execute confidentiality agreements. These agreements generally require that all confidential
information developed by the individual or made known to the individual by us during the course of the individual's relationship
with us be kept confidential and not disclosed to third parties. These agreements also generally provide that inventions conceived
by the individual in the course of rendering services to us shall be our exclusive property. Nevertheless, our proprietary information
may be disclosed, or these agreements may be unenforceable or difficult to enforce. If any of our trade secrets were to be lawfully
obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they
communicate such technology or information, from using that technology or information to compete with us. Additionally, trade secret
law in Brazil differs from that in the United States which requires us to take a different approach to protecting our trade secrets
in Brazil. Some of these approaches to trade secret protection may be novel and untested under Brazilian law and we cannot guarantee
that we would prevail if our trade secrets are contested in Brazil. If any of the above risks materializes, our failure to obtain
or maintain trade secret protection could adversely affect our competitive business position.
We may not be able to fully enforce covenants not to compete
and not to solicit with our employees, and therefore we may be unable to prevent our competitors from benefiting from the expertise
of such employees.
Our proprietary information and inventions agreements
with our employees contain non-compete and non-solicitation provisions. These provisions prohibit our employees from competing
directly with our business or proposed business or working for our competitors during their term of employment, and from directly
and indirectly soliciting our employees and consultants to leave our company for any purpose. Under applicable U.S. and Brazilian
law, we may be unable to enforce these provisions. If we cannot enforce these provisions with our employees, we may be unable to
prevent our competitors from benefiting from the expertise of such employees. Even if these provisions are enforceable, they may
not adequately protect our interests. The defection of one or more of our employees to a competitor could materially adversely
affect our business, results of operations and ability to capitalize on our proprietary information.
Third parties may misappropriate our yeast strains.
Third parties, including contract manufacturers,
sugar and ethanol mill owners, other contractors and shipping agents, often have custody or control of our yeast strains. If our
yeast strains were stolen, misappropriated or reverse engineered, they could be used by other parties who may be able to reproduce
the yeast strains for their own commercial gain. If this were to occur, it would be difficult for us to challenge and prevent this
type of use, especially in countries where we have limited intellectual property protection or that do not have robust intellectual
property law regimes.
If we or one of our collaborators are sued for infringing
intellectual property rights or other proprietary rights of third parties, litigation could be costly and time consuming and could
prevent us from developing or commercializing our future products.
Our commercial success depends on our and our
collaborators’ ability to operate without infringing the patents and proprietary rights of other parties and without breaching
any agreements we have entered into with regard to our technologies and product candidates. We cannot determine with certainty
whether patents or patent applications of other parties may materially affect our ability to conduct our business. Our industry
spans several sectors, including biotechnology, renewable fuels, renewable specialty chemicals and other renewable compounds, and
is characterized by the existence of a significant number of patents and disputes regarding patent and other intellectual property
rights. Because patent applications can take several years to issue, there may currently be pending applications, unknown to us,
that may result in issued patents that cover our technologies or product candidates. We are aware of a significant number of patents
and patent applications relating to aspects of our technologies filed by, and issued to, third parties. The existence of third-party
patent applications and patents could significantly reduce the coverage of patents owned by or licensed to us and our collaborators
and limit our ability to obtain meaningful patent protection. If we wish to make, use, sell, offer to sell, or import the technology
or compound claimed in issued and unexpired patents owned by others, we will need to obtain a license from the owner, enter into
litigation to challenge the validity of the patents or incur the risk of litigation in the event that the owner asserts that we
infringe its patents. If patents containing competitive or conflicting claims are issued to third parties and these claims are
ultimately determined to be valid, we and our collaborators may be enjoined from pursing research, development, or commercialization
of products, or be required to obtain licenses to these patents, or to develop or obtain alternative technologies.
If a third-party asserts that we infringe upon
its patents or other proprietary rights, we could face a number of issues that could seriously harm our competitive position, including:
|
•
|
infringement and other intellectual property claims, which could be costly and time consuming to
litigate, whether or not the claims have merit, and which could delay getting our products to market and divert management attention
from our business;
|
|
•
|
substantial damages for past infringement, which we may have to pay if a court determines that
our product candidates or technologies infringe a third party's patent or other proprietary rights;
|
|
•
|
a court prohibiting us from selling or licensing our technologies or future products unless the
holder licenses the patent or other proprietary rights to us, which it is not required to do; and
|
|
•
|
if a license is available from a third party, such third party may require us to pay substantial
royalties or grant cross licenses to our patents or proprietary rights.
|
The industries in which we operate, and the
biotechnology industry in particular, are characterized by frequent and extensive litigation regarding patents and other intellectual
property rights. Many biotechnology companies have employed intellectual property litigation as a way to gain a competitive advantage.
If any of our competitors have filed patent applications or obtained patents that claim inventions also claimed by us, we may have
to participate in interference proceedings declared by the relevant patent regulatory agency to determine priority of invention
and, thus, the right to the patents for these inventions in the United States. These proceedings could result in substantial cost
to us even if the outcome is favorable. Even if successful, an interference proceeding may result in loss of certain claims. Our
involvement in litigation, interferences, opposition proceedings or other intellectual property proceedings inside and outside
of the United States, to defend our intellectual property rights, or as a result of alleged infringement of the rights of others,
may divert management time from focusing on business operations and could cause us to spend significant resources, all of which
could harm our business and results of operations.
Many of our employees were previously employed
at universities, biotechnology, specialty chemical or oil companies, including our competitors or potential competitors. We may
be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary
information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such
claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel and be enjoined
from certain activities. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize
our product candidates, which could severely harm our business. Even if we are successful in defending against these claims, litigation
could result in substantial costs and demand on management resources.
We may need to commence litigation to enforce our intellectual
property rights, which would divert resources and management's time and attention and the results of which would be uncertain.
Enforcement of claims that a third party is
using our proprietary rights without permission is expensive, time consuming and uncertain. Significant litigation would result
in substantial costs, even if the eventual outcome is favorable to us and would divert management's attention from our business
objectives. In addition, an adverse outcome in litigation could result in a substantial loss of our proprietary rights and we may
lose our ability to exclude others from practicing our technology or producing our product candidates.
The laws of some foreign countries do not protect
intellectual property rights to the same extent as do the laws of the United States. Many companies have encountered significant
problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain
countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,
particularly those relating to biotechnology and/or bioindustrial technologies. This could make it difficult for us to stop the
infringement of our patents or misappropriation of our other intellectual property rights. Proceedings to enforce our patent rights
in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business.
Moreover, our efforts to protect our intellectual property rights in such countries may be inadequate.
We do not have exclusive rights to intellectual property we developed under U.S.
federally funded research grants and contracts, including with DARPA and we could ultimately share or lose the rights we do have
under certain circumstances.
Some of our intellectual property rights have
been or may be developed in the course of research funded by the U.S. government, including under our agreements with DARPA. As
a result, the U.S. government may have certain rights to intellectual property embodied in our current or future products pursuant
to the Bayh-Dole Act of 1980. Government rights in certain inventions developed under a government-funded program include a non-exclusive,
non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government
has the right to require us, or an assignee or exclusive licensee to such inventions, to grant licenses to any of these inventions
to a third party if they determine that: (i) adequate steps have not been taken to commercialize the invention; (ii) government
action is necessary to meet public health or safety needs; (iii) government action is necessary to meet requirements for public
use under federal regulations; or (iv) the right to use or sell such inventions is exclusively licensed to an entity within the
U.S. and substantially manufactured outside the U.S. without the U.S. government’s prior approval. Additionally, we may be
restricted from granting exclusive licenses for the right to use or sell our inventions created pursuant to such agreements unless
the licensee agrees to additional restrictions (e.g., manufacturing substantially all of the invention in the U.S.). The U.S. government
also has the right to take title to these inventions if we fail to disclose the invention to the government and fail to file an
application to register the intellectual property within specified time limits. In addition, the U.S. government may acquire title
in any country in which a patent application is not filed within specified time limits. Additionally, certain inventions are subject
to transfer restrictions during the term of these agreements and for a period thereafter, including sales of products or components,
transfers to foreign subsidiaries for the purpose of the relevant agreements, and transfers to certain foreign third parties. If
any of our intellectual property becomes subject to any of the rights or remedies available to the U.S. government or third parties
pursuant to the Bayh-Dole Act of 1980, this could impair the value of our intellectual property and could adversely affect our
business.
Our products subject us to product-safety risks, and we may
be sued for product liability.
The design, development, production and sale
of our products involve an inherent risk of product liability claims and the associated adverse publicity. Our potential products
could be used by a wide variety of consumers with varying levels of sophistication. Although safety is a priority for us, we are
not always in control of the final uses and formulations of the products we supply or their use as ingredients. Our products could
have detrimental impacts or adverse impacts we cannot anticipate. Despite our efforts, negative publicity about Amyris, including
product safety or similar concerns, whether real or perceived, could occur, and our products could face withdrawal, recall or other
quality issues. In addition, we may be named directly in product liability suits relating to our products, even for defects resulting
from errors of our commercial partners, contract manufacturers, chemical finishers or customers or end users of our products. These
claims could be brought by various parties, including customers who are purchasing products directly from us or other users who
purchase products from our customers. We could also be named as co-parties in product liability suits that are brought against
the contract manufacturers or Brazilian sugar and ethanol mills with whom we partner to produce our products. Insurance coverage
is expensive, may be difficult to obtain and may not be available in the future on acceptable terms. We cannot be certain that
our contract manufacturers or the sugar and ethanol producers who partner with us to produce our products will have adequate insurance
coverage to cover against potential claims. Any insurance we do maintain may not provide adequate coverage against potential losses,
and if claims or losses exceed our liability insurance coverage, our business would be adversely impacted. In addition, insurance
coverage may become more expensive, which would harm our results of operations.
During the ordinary course of business, we may become subject
to lawsuits or indemnity claims, which could materially and adversely affect our business and results of operations.
From time to time, we may in the ordinary course
of business be named as a defendant in lawsuits, claims and other legal proceedings. These actions may seek, among other things,
compensation for alleged personal injury, worker's compensation, employment discrimination, breach of contract, property damages,
civil penalties and other losses of injunctive or declaratory relief. In the event that such actions or indemnities are ultimately
resolved unfavorably at amounts exceeding our accrued liability, or at material amounts, the outcome could materially and adversely
affect our reputation, business and results of operations. In addition, payments of significant amounts, even if reserved, could
adversely affect our liquidity position.
If we fail to maintain an effective system of internal controls,
we might not be able to report our financial results accurately or in a timely manner or prevent fraud; in that case, our stockholders
could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock.
Effective internal controls are necessary for
us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 requires
us and our independent registered public accounting firm to evaluate and report on our internal control over financial reporting.
The process of implementing our internal controls and complying with Section 404 is expensive and time consuming, and requires
significant attention of management. We cannot be certain that these measures will ensure that we maintain adequate controls over
our financial processes and reporting in the future. In addition, to the extent we create joint ventures or have any variable interest
entities and the financial statements of such entities are not prepared by us, we will not have direct control over their financial
statement preparation. As a result, we will, for our financial reporting, depend on what these entities report to us, which could
result in us adding monitoring and audit processes and increase the difficulty of implementing and maintaining adequate controls
over our financial processes and reporting in the future and could lead to delays in our external reporting. This may be particularly
true where we are establishing such entities with commercial partners that do not have sophisticated financial accounting processes
in place, or where we are entering into new relationships at a rapid pace, straining our integration capacity. Additionally, if
we do not receive the information from the joint venture or variable interest entity on a timely basis, this could cause delays
in our external reporting. Even if we conclude, and our independent registered public accounting firm concurs, that our internal
control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent
limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required
new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us
to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a material weakness,
the disclosure of that fact, even if quickly remedied, could reduce the market's confidence in our financial statements and harm
our stock price. In addition, failure to comply with Section 404 could subject us to a variety of administrative sanctions, including
SEC action, ineligibility for short form resale registration, the suspension or delisting of our common stock from the stock exchange
on which it is listed, and the inability of registered broker-dealers to make a market in our common stock, which would further
reduce our stock price and could harm our business.
Our ability to use our net operating loss carryforwards to
offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the Internal Revenue Code (or the “Code”), a corporation that
undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating loss
carryforwards (or “NOLs”), to offset future taxable income. If the Internal Revenue Service challenges our analysis
that our existing NOLs are not subject to limitations arising from previous ownership changes, or if we undergo an ownership change,
our ability to utilize NOLs could be limited by Section 382 of the Code. Future changes in our stock ownership, some of which are
outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize
NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize
a material portion of the NOLs carryforward as of June 30, 2016, even if we attain profitability.
Loss of, or inability to secure government contract revenues
could impair our business.
We have contracts or subcontracts with certain
governmental agencies or their contractors. Generally, these agreements, as they may be amended or modified from time to time,
have fixed terms and may be terminated, modified or be subject to recovery of payments by the government agency under certain conditions
(such as failure to comply with detailed reporting and governance processes or failure to achieve milestones). Under these agreements,
we are also subject to audits, which can result in corrective action plans and penalties up to and including termination. If these
governmental agencies terminate these agreements with us, it could reduce our revenues which could harm our business. Additionally,
we anticipate securing additional government contracts as part of our business plan for 2015 and beyond. If we are unable to secure
such government contracts, it could harm our business.
Our headquarters and other facilities are located in an active
earthquake and tsunami zone, and an earthquake or other types of natural disasters affecting us or our suppliers could cause resource
shortages and disrupt and harm our results of operations.
We conduct our primary research and development
operations in the San Francisco Bay Area in an active earthquake and tsunami zone, and certain of our suppliers conduct their operations
in the same region or in other locations that are susceptible to natural disasters. In addition, California and some of the locations
where certain of our suppliers are located have experienced shortages of water, electric power and natural gas from time to time.
The occurrence of a natural disaster, such as an earthquake, drought or flood, or localized extended outages of critical utilities
or transportation systems, or any critical resource shortages, affecting us or our suppliers could cause a significant interruption
in our business, damage or destroy our facilities, production equipment or inventory or those of our suppliers and cause us to
incur significant costs or result in limitations on the availability of our raw materials, any of which could harm our business,
financial condition and results of operations. The insurance we maintain against fires, earthquakes and other natural disasters
may not be adequate to cover our losses in any particular case.
Risks Related to Ownership of Our Common Stock
Our stock price may be volatile.
The market price of our common stock has been, and we expect it to continue to be, subject to significant
volatility, and it has declined significantly from our initial public offering price. As of June 30, 2016, the reported closing
price for our common stock on The NASDAQ Stock Market was $0.45 per share. Market prices for securities of early stage companies
have historically been particularly volatile. Such fluctuations could be in response to, among other things, the factors described
in this “Risk Factors” section, or other factors, some of which are beyond our control, such as:
|
•
|
fluctuations in our financial results or outlook or those of companies perceived to be similar to us;
|
|
•
|
changes in estimates of our financial results or recommendations by securities analysts;
|
|
•
|
changes in market valuations of similar companies;
|
|
•
|
changes in the prices of commodities associated with our business such as sugar, ethanol and petroleum
or changes in the prices of commodities that some of our products may replace, such as oil and other petroleum sourced products;
|
|
•
|
changes in our capital structure, such as future issuances of securities or the incurrence of debt;
|
|
•
|
announcements by us or our competitors of significant contracts, acquisitions or strategic alliances;
|
|
•
|
regulatory developments in the United States, Brazil, and/or other foreign countries;
|
|
•
|
litigation involving us, our general industry or both;
|
|
•
|
additions or departures of key personnel;
|
|
•
|
investors' general perception of us; and
|
|
•
|
changes in general economic, industry and market conditions.
|
Furthermore, stock markets have experienced
price and volume fluctuations that have affected, and continue to affect, the market prices of equity securities of many companies.
These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market
fluctuations, as well as general economic, political and market conditions, such as recessions, interest rate changes and international
currency fluctuations, may negatively affect the market price of our common stock.
In the past, many companies that have experienced
volatility and sustained declines in the market price of their stock have become subject to securities class action and derivative
action litigation. We were involved in two such lawsuits, which were dismissed in 2014, and we may be the target of similar litigation
in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other
business concerns, which could seriously harm our business.
If our common stock is delisted from The NASDAQ Stock Market, our business, financial condition, results
of operations and stock price could be adversely affected, and the liquidity of our stock and our ability to obtain financing could
be impaired.
On June 14, 2016, we received a notice from
The NASDAQ Stock Market LLC (or “NASDAQ”) notifying us that we are not in compliance with the requirement of NASDAQ
Listing Rule 5450(a)(1) for continued listing on the NASDAQ Global Market as a result of the closing bid price of our common stock
being below $1.00 per share for 30 consecutive business days. In accordance with NASDAQ Listing Rule 5810(c)(3)(A), we have 180
calendar days, or until December 12, 2016, to regain compliance with NASDAQ Listing Rule 5450(a)(1). To regain compliance, the
closing bid price of our common stock must be at least $1.00 per share for a minimum of 10 consecutive business days. If we do
not regain compliance during such period, we may be eligible for an additional compliance period of 180 calendar days, provided
that we meet NASDAQ’s continued listing requirement for market value of publicly held shares and all other initial listing
standards for the NASDAQ Capital Market, other than the minimum bid price requirement, and provide written notice to NASDAQ of
our intention to cure the deficiency during the second compliance period. If we do not regain compliance during the initial compliance
period and are not eligible for an additional compliance period, NASDAQ will provide notice that our common stock will be subject
to delisting from the NASDAQ Stock Market. In that event, we may appeal such determination to a hearings panel. There can be no
assurance that we will satisfy these conditions and that our common stock will remain listed on the NASDAQ Stock Market.
Any delisting of our common stock from The NASDAQ Stock Market could adversely affect our ability to attract
new investors, decrease the liquidity of our outstanding shares of common stock, reduce our flexibility to raise additional capital,
reduce the price at which our common stock trades, and increase the transaction costs inherent in trading such shares with overall
negative effects for our stockholders. In addition, delisting of our common stock could deter broker-dealers from making a market
in or otherwise seeking or generating interest in our common stock, and might deter certain institutions and persons from investing
in our securities at all. Furthermore, the delisting of our common stock from The NASDAQ Stock Market would constitute a breach
under certain of our financing agreements, including agreements governing our outstanding convertible indebtedness, which could
result in an acceleration of such indebtedness. See Note 5, “Debt” for additional details. If such indebtedness is
accelerated, it would generally also constitute an event of default under our other outstanding indebtedness, permitting acceleration
of such other outstanding indebtedness as well. For these reasons and others, the delisting of our common stock from The NASDAQ
Stock Market could adversely affect our business, financial condition and results of operations.
The concentration of our capital stock ownership with insiders will limit the ability
to influence corporate matters and presents risks related to the operations of our significant stockholders.
As of July 31, 2016:
|
•
|
our executive officers and directors and their affiliates together held more than 11% of our outstanding common
stock;
|
|
•
|
Temasek (who has a designee on our Board of Directors) held approximately 30% of our outstanding common stock;
and
|
|
•
|
Total held approximately 27% of our outstanding common stock.
|
Furthermore, Total and Temasek each hold certain of our convertible promissory notes, which are convertible into approximately
17,082,543 and 2,670,370 shares of our common stock, respectively, as of July 31, 2016. Total and Temasek also hold certain warrants
pursuant to which they may purchase shares of our common stock. This significant concentration of share ownership may adversely
affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with
controlling stockholders. Also, these stockholders, acting together, will be able to control our management and affairs and matters
requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, such
as mergers, consolidations or the sale of all or substantially all of our assets. Consequently, this concentration of ownership
may have the effect of delaying or preventing a change of control, including a merger, consolidation or other business combination
involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if
that change of control would benefit our other stockholders.
The market price of our common stock could be negatively affected by future sales
of our common stock.
If our existing stockholders, particularly our
largest stockholders, our directors, their affiliates, or our executive officers, sell a substantial number of shares of our common
stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market
that these stockholders might sell our common stock could also depress the market price of our common stock and could impair our
future ability to obtain capital, especially through an offering of equity securities.
We also have in place a registration statement
for the resale of shares of common stock held by, or issuable to, certain of our largest stockholders. All common stock sold pursuant
to an offering covered by such registration statement will be freely transferable.
Shares issuable under our equity incentive plans
have been registered on a Form S-8 registration statement and may be freely sold in the public market upon issuance, except for
shares held by affiliates who have certain restrictions on their ability to sell.
If securities or industry analysts do not publish or cease
publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock
adversely, our stock price and trading volume could decline.
The trading market for our common stock will
be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or
our competitors. If any of the analysts who cover us change their recommendation regarding our stock adversely, or provide more
favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us
were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets,
which in turn could cause our stock price or trading volume to decline.
We do not expect to declare any dividends in the foreseeable
future.
We do not anticipate declaring any cash dividends
to holders of our common stock in the foreseeable future. In addition, certain of our equipment leases and credit facilities currently
restrict our ability to pay dividends. Consequently, investors may need to rely on sales of their common stock after price appreciation,
which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should
not purchase our common stock.
Anti-takeover provisions contained in our certificate of incorporation
and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our certificate of incorporation and bylaws
contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult
for stockholders to elect directors and take other corporate actions. These provisions include:
|
•
|
a staggered board of directors;
|
|
•
|
authorizing the board of directors to issue, without stockholder approval, preferred stock with
rights senior to those of our common stock;
|
|
•
|
authorizing the board of directors to amend our bylaws and to fill board vacancies until the next
annual meeting of the stockholders;
|
|
•
|
prohibiting stockholder action by written consent;
|
|
•
|
limiting the liability of, and providing indemnification to, our directors and officers;
|
|
•
|
eliminating the ability of our stockholders to call special meetings; and
|
|
•
|
requiring advance notification of stockholder nominations and proposals.
|
Section 203 of the Delaware General Corporation
Law prohibits, subject to some exceptions, “business combinations” between a Delaware corporation and an “interested
stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation's
voting stock, for a three-year period following the date that the stockholder became an interested stockholder. We have agreed
to opt out of Section 203 through our certificate of incorporation, but our certificate of incorporation contains substantially
similar protections to our company and stockholders as those afforded under Section 203, except that we have agreed with Total
that it and its affiliates will not be deemed to be “interested stockholders” under such protections.
In addition, we have an agreement with Total,
which provides that, so long as Total holds at least 10% of our voting securities, we must inform Total of any offer to acquire
us or any decision of our Board of Directors to sell our company, and we must provide Total with information about the contemplated
transaction. In such events, Total will have an exclusive negotiating period of fifteen business days in the event the Board of
Directors authorizes us to solicit offers to buy Amyris, or five business days in the event that we receive an unsolicited offer
to purchase us. This exclusive negotiation period will be followed by an additional restricted negotiation period of ten business
days, during which we are obligated to continue to negotiate with Total and will be prohibited from entering into an agreement
with any other potential acquirer.
These and other provisions in our restated certificate
of incorporation and our restated bylaws that became effective upon the completion of our initial public offering under Delaware
law and in our agreements with Total could discourage potential takeover attempts, reduce the price that investors might be willing
to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it would
be without these provisions.
Conversion of our outstanding convertible promissory notes
or the exercise of outstanding warrants to purchase our common stock will dilute the ownership interest of existing stockholders
or may otherwise depress the market price of our common stock.
The conversion of some or all of our outstanding
convertible promissory notes or the exercise of some or all of outstanding warrants to purchase our common stock will dilute the
ownership interests of existing stockholders. In particular, the exercise of the warrants which have a $0.01 per share exercise
price will dilute the economic ownership interest of our existing stockholders. In addition, any sales in the public market of
the shares of our common stock issuable upon such conversion or exercise could adversely affect prevailing market prices of our
common stock. Furthermore, the existence of our outstanding convertible promissory notes and warrants may encourage short selling
by market participants because the anticipated conversion of such notes into, or exercise of such warrants for, shares of our common
stock could depress the market price of our common stock.