ITEM 1. BUSINESS
Overview
Amyris, Inc. (the Company or Amyris) is a leading
industrial biotechnology company that applies its technology platform to engineer, manufacture and sell high performance, natural, sustainably sourced products
into the Health & Wellness, Clean Skincare, and Flavors & Fragrances markets. Our proven technology platform enables us
to rapidly engineer microbes and use them as catalysts to metabolize renewable, plant-sourced sugars into large volume, high-value
ingredients. Our biotechnology platform and industrial fermentation process replace existing complex and expensive manufacturing
processes. We have successfully used our technology to develop and produce five distinct molecules at commercial volumes.
We believe that industrial synthetic biology represents a third industrial revolution, bringing together biology
and engineering to generate new, more sustainable materials to meet the growing global demand for bio-based replacements for petroleum-based
and traditional animal- or plant-derived ingredients. We continue to build demand for our current portfolio of products through
an extensive sales network provided by our collaboration partners that represent the world's leading companies for our target market
sectors. We also have a small group of direct sales and distributors who support our Clean Skincare market. With our partnership
model, our partners invest in the development of each molecule to bring it from the lab to commercial scale and use their extensive
sales force to sell our ingredients and formulations to their customers as part of their core business. We capture long-term revenue
both through the production and sale of the molecule to our partners and through royalty revenues (previously referred to as value
share) from our partners' product sales to their customers.
We were founded in 2003 in the San Francisco Bay
area by a group of scientists from the University of California, Berkeley. Our first major milestone came in 2005 when, through
a grant from the Bill & Melinda Gates Foundation, we developed technology capable of creating microbial strains that produce
artemisinic acid, which is a precursor of artemisinin, an effective anti-malarial drug. In 2008, we granted royalty-free licenses
to allow Sanofi-Aventis to produce artemisinic acid using our technology. Building on our success with artemisinic acid, in 2007
we began applying our technology platform to develop, manufacture and sell sustainable alternatives to a broad range of markets.
We focused our initial development efforts
primarily on the production of Biofene®, our brand of renewable farnesene, a long-chain, branched hydrocarbon molecule that
we manufacture through fermentation using engineered microbes. Our farnesene derivatives are sold in hundreds of products as nutraceuticals,
skincare products, fragrances, solvents, polymers, and lubricant ingredients. The commercialization of farnesene pushed us to create
a more cost efficient, faster and accurate development process in the lab and drive manufacturing costs down. This investment has
enabled our technology platform to rapidly develop microbial strains and commercialize target molecules. In 2014, we began manufacturing
additional molecules for the Flavors & Fragrances industry; in 2015 we began investing to expand our capabilities to other
small molecule chemical classes beyond terpenes via our collaboration with the Defense Advanced Research Projects Agency (DARPA),
and in 2016 we expanded into proteins.
We have invested over $500 million in infrastructure
and technology to create microbes that produce molecules from sugar or other feedstocks at commercial scale. This platform has
been used to design, build, optimize, and upscale strains producing five distinct molecules, leading to more than 15 commercial
ingredients used in over 600 consumer products. Our time to market for molecules has decreased from seven years to less than a
year for our most recent molecule, mainly due to our ability to leverage the technology platform we have built.
Our technology platform has been in active use since 2008 and has been integrated with our commercial production
since 2011, creating an organism development process that we believe makes us an industry leader in the successful scale-up and
commercialization of biotech-produced ingredients. The key performance characteristics of our platform that we believe differentiate
us include our proprietary computational tools, strain construction tools, screening and analytics tools, and advanced lab automation
and data integration. Having this fully integrated with our large scale manufacturing process and capability enables us to always
engineer with the end specification and requirements guiding our technology. Our state-of-the-art infrastructure includes industry-leading
strain engineering and lab automation located in Emeryville, California, pilot scale production facilities in Emeryville, California
and Campinas, Brazil, a demonstration-scale facility in Campinas, Brazil and a commercial-scale production facility in Leland,
North Carolina, which is owned and operated by our Aprinnova joint venture to convert our Biofene into squalane and other final
products.
We are able to use a wide variety of feedstocks for
production, but have focused on accessing Brazilian sugarcane for our large-scale production because of its renewability, low cost
and relative price stability. We have also successfully used other feedstocks such as sugar beets, corn dextrose, sweet sorghum
and cellulosic sugars at various manufacturing facilities.
Several years ago, we made the strategic decision to transition our business model from collaborating and
commercializing molecules in low margin commodity markets to higher margin specialty markets. We began the transition by first
commercializing and supplying farnesene-derived squalene as a cosmetic ingredient sold to formulators and distributors. We also
entered into collaboration and supply agreements for the development and commercialization of molecules within the Flavors &
Fragrances and Cosmetic Ingredients where we utilize our strain generation technology to develop molecules that meet our customers'
rigorous specifications.
During this transition, we solidified the business
model of partnering with our customers to create sustainable, high performing, low-cost molecules that replace an ingredient in
their supply chain, commercially scale and manufacture those molecules, and share in the profits earned by our customers once our
customer sells its product into these specialty markets. These three steps constitute our collaboration revenues, renewable product
revenues, and royalty revenues (previously referred to as value share revenues).
During 2017, we completed several development agreements
with DSM and others for new products such as Vitamin A, a human nutrition molecule and others. We plan to bring two to three new
molecules a year to commercial production.
In the first half of 2017, management made the decision to monetize the use for one of our lower margin
molecules, farnesene, in certain fields of use (e.g., the human and animal health
and nutrition field) while retaining any associated royalties. We began discussions with our partners and ultimately made the decision
to license farnesene to DSM for use in these fields, which we announced in November 2017. During the discussions with DSM, management
also made the decision to sell to DSM our manufacturing facility, Brotas 1, which we completed on December 28, 2017.
Brotas 1 was built to batch manufacture one commodity
product at a time (originally for high-volume production of biofuels, a business the Company has exited), which is an inefficient
manufacturing process that is not suited for the high margin specialty markets in which we operate today. We currently manufacture
five specialty products and will be increasing the number of specialty products we manufacture by two to three products a year.
The inefficiencies we experienced included having to idle the facility for two weeks at a time to prepare for the next product
batch manufacture. These inefficiencies caused our cost of goods sold to be significantly higher. With the sale of Brotas 1, we
expect that our gross margins will markedly improve from the reduction in manufacturing costs caused by these inefficiencies.
Additionally, we currently are constructing our Brotas 2 facility, which will allow for the manufacture of five products concurrently
and over 10 different products annually. Concurrent with the sale of Brotas 1, we contracted with DSM for the use of Brotas 1
to manufacture products for us to fulfill our product supply commitments to our customers until Brotas 2 is completed in 2019.
In addition, in 2019, we plan to resume construction of a production facility in Pradópolis, Brazil that we partially built
prior to 2013. This facility would support production of our alternative sweetener products.
As discussed above, on December 28, 2017, we completed the sale of Amyris Brasil, which operated our Brotas
1 production facility, to DSM and concurrently entered into a series of commercial agreements and a credit agreement with DSM.
At closing, we received $33.0 million in cash for the capital stock of Amyris Brasil, which is subject to certain post-closing
working capital adjustments and reimbursements from DSM contingent on DSM’s utilization of certain Brazilian tax benefits
it acquired with its purchase of Amyris Brasil. We used $12.6 million of the cash proceeds received to repay certain indebtedness
of Amyris Brasil. The total fair value of the consideration in connection with the sales agreement for Amyris Brasil was $56.9
million and resulted in a pretax gain of $5.7 million from continuing operations.
Concurrent with the sale of Amyris Brasil, we entered into a series of commercial agreements with DSM including
(i) a license agreement to DSM of its farnesene product for DSM to use in the Vitamin E, lubricant, and Flavors & Fragrances
specialty markets; (ii) a value share agreement that DSM will pay specified royalties representing a portion of the profit on the
sale of Vitamin E produced from farnesene under the Nenter Supply Agreement assigned to DSM; (iii) a performance agreement to perform
research and development to optimize farnesene for production and sale of farnesene products; and (iv) a transition services agreement
where we provide finance, legal, logistics, and human resource services to support the Brotas 1 facility under DSM ownership for
a six-month period with a DSM option to extend for six additional months. At closing, DSM paid to us a nonrefundable license fee
of $27.5 million and a nonrefundable minimum royalty revenue payment (previously referred to as value share) of $15.0 million.
DSM will also pay the Company nonrefundable minimum royalty amounts in 2018 and 2019. The future nonrefundable minimum annual royalty
payments were determined to be fixed and determinable with a fair value of $17.8 million, and were included as part of the total
arrangement consideration subject to allocation of this overall multiple-element divestiture transaction. See Note 10, “Significant
Revenue Agreements”, for a full listing and details of agreements entered into with DSM. Additionally, we entered into a
$25.0 million credit agreement with DSM that we used to repay all outstanding amounts under the Guanfu Note (see Note 4, “Debt”).
Technology
We have developed innovative microbial engineering
and screening technologies that allow us to transform the way microbes metabolize sugars. Specifically, we engineer microbes, such
as yeast, and use them as catalysts to convert sugar, through fermentation, into high-value molecules. In 2015, we were awarded
an investment by The Defense Advanced Research Projects Agency (DARPA) to expand the capabilities of our technology platform beyond
terpenoids. The investment has resulted in us developing an integrated platform with artificial intelligence that will speed up
the development and commercialization of small molecules across 15 different chemical classes. We have also developed our technology
to be able to produce large molecules, such as proteins.
We devote substantial resources to our research
and development efforts. As of December 31, 2017, our research and development organization included 158 employees, 109 of
whom held Ph.D.s. We have invested more than $500 million to date in our research and development capabilities that has resulted
in an almost 6X improvement in speed to market and 24X improvement in cost of manufacturing. These achievements are due to the
leading strain engineering and upscaling/commercialization capabilities we have developed from our investment.
Strain Engineering
Companies and researchers around the world are
continuously learning how the complex biological processes in organisms work. Because there is so much that is still unknown, the
best method for development of commercially viable strains is to test as many hypotheses as accurately and quickly as possible
to accelerate the learning curve.
We have developed a high-throughput strain engineering
system that is currently capable of producing and screening more than 100,000 yeast strains per month, which enables us to achieve
an approximately 95% lower cost per strain than we achieved in 2009. We generated more than 360,000 unique strains in 2017, surpassing
6.3 million unique strains created since our inception, with each strain testing for improved production of the target molecules.
In addition, through our lab-scale and pilot-plant fermentation operations, and our proprietary analytical tools, we are now able
to predict, with high reliability, the performance of candidate strains at industrial scale.
Upscaling and Commercialization
The riskiest part of commercializing biotechnology
is often the scale up and manufacturing due to the perceived unpredictability of biotechnology at different scales. We have built
scale up capabilities and manufacturing as our advantage by heavily investing in prediction models and analytics to quickly ascertain
how a strain’s behavior at one scale will translate in another scale and also by successfully scaling up and manufacturing
five distinct molecules to date. The results of our advantage are accelerated speed to market, lower overall development costs,
and a significantly lower risk profile for any project we undertake.
A strain must be improved to increase the level
of efficiency of production, and tested for performance in larger-volume facilities, before it is implemented at commercial-scale
manufacturing facilities. Our unique infrastructure to support this scale-up process includes lab-scale fermenters (0.5 to 2 liter),
operating pilot plants in our facilities in Emeryville, California and Campinas, Brazil (300 liters), two 5,000-liter fermenters
in our Campinas demonstration facility and five years’ experience owning and operating our 1,200,000-liter production facility
in Brotas, Brazil. Each of these stages mimic the conditions found in larger scale fermentation so that our findings may translate
predictably from lab scale to pilot and ultimately to commercial scale. Our infrastructure is so accurate that we can go straight
from lab scale to commercial scale for our fermentations. Typically, the only reason we ever invest in the pilot scale step is
to produce enough product to accurately test our downstream processing since our fermentation process is already robust.
The complexities that can arise at industrial
scale manufacturing are significant and it takes an experienced team to not only address issues as they arise, but to also have
the foresight to prevent issues from arising. With five years of experience operating our production facility in Brotas, Brazil
that we designed, we have been able to develop a world-class manufacturing team. This team has successfully brought on line a production facility and scaled up and manufactured five molecules that are currently used in thousands of consumer
goods products around the world. Our effort also expands into continued strain and process improvements to ensure our manufacturing
is robust and the most cost advantaged.
Product Markets and Partnerships
There are three market areas that are our primary
focus and key to our growth: Health & Wellness, Clean Skincare and Flavors & Fragrances. All of these markets embody our
core competencies of sustainably providing clean ingredients in markets where we can be the most impactful, not only from a growth
and revenue standpoint, but also for healthier living.
We believe that our leadership in biotechnology
is demonstrated by collaboration partners, who come to us to access our platform and industrial fermentation expertise. Together
we seek to reduce environmental impact, enhance performance, reduce supply and price volatility, and improve profit margins. Our
partners include Flavors & Fragrances companies such as Firmenich S.A. (Firmenich) and Givaudan International, SA (Givaudan), and nutraceutical
companies such as DSM. Our work has also been funded by the U.S. government, including the Department of Energy (DOE) and DARPA,
to develop technologies and processes capable of improving the ability to utilize biotechnology for the production of a broader
range of molecules.
Health & Wellness
Our Health & Wellness focus includes alternative
sweeteners, nutraceuticals, such as vitamins, and food ingredients. As consumers continue to demand higher nutritional performance,
cleaner labels and convenience from their food, the demand for specific ingredients that are often difficult and expensive to procure
will continue to grow. Animal farming is also being impacted by the growing demand for protein and the need to change farming practices,
such as reducing antibiotic use. Our technology can be employed to provide affordable access to these desired ingredients for both
human and animal health. To date, product revenue in this area has been from a derivative made from our Biofene® product by
our partner. In 2018, we plan to run at commercial scale our first developed molecule, a superior, alternative, non-nutritive sweetener.
During 2015, we announced the signings of our
first ingredient supply agreement and collaboration agreement for the global nutraceuticals market. Under the supply agreement,
we source Biofene to our partner, which is then further processed into a nutraceutical product. In 2016, we made the first large
scale shipments of Biofene to our partner, who successfully produced and sold a nutraceutical product to its customers. In 2017,
we expanded our collaborations in nutraceuticals to two vitamins and a human nutrition ingredient. We have also made significant
progress in our alternative sweetener project and plan to initiate commercial scale runs in 2018.
Flavors & Fragrances
Our technology enables us to cost-effectively
produce natural oils and aroma chemicals that are commonly used in the Flavors & Fragrances market. Many of the natural ingredients
used in the Flavors & Fragrances market are expensive because there is limited supply and the synthetic alternatives require
complex chemical conversions. We offer Flavors & Fragrances companies a natural route to procure these high-value ingredients
without sacrificing cost or quality. To date, we have successfully brought three Flavors & Fragrances ingredients to market
with our collaboration partners. We also have several other ingredients under development.
In late 2013, we commenced commercial production
of our first Flavors & Fragrances ingredient for a range of applications, from perfumes to laundry detergent, which is marketed
by a collaboration partner which is a global Flavors & Fragrances leader. In 2014, we completed our first production campaign
of this ingredient and shipped it to this collaboration partner. In late 2015, we commenced production and initial sales of our
second Flavors & Fragrances ingredient to the same collaboration partner. In 2017, we successfully completed our first commercial
scale production and shipped our third Flavors & Fragrances ingredient to our partner.
We are currently working to develop and commercialize a variety of Flavors & Fragrances ingredients that
are either direct fermentation products or derivatives of fermentation products.
Clean Skincare
Our Clean Skincare focus
includes skincare and cosmetic ingredients we develop and commercialize with our partners and our branded Biossance
TM
and Neossance product lines. In 2017, we successfully brought our first cosmetic ingredient to market with our collaboration partner
and have several other ingredients currently under development. Our Biossance
TM
and Neossance products are discussed
further in the
Amyris-branded Product Markets
section.
In 2016, Amyris entered into a partnership in
the field of cosmetic actives and completed the engineering of a yeast strain that can produce the first target in this space at
significantly reduced cost. In 2017, we successfully launched the product with our partner. This will enable our partner to expand
the market for this molecule into new applications and products. The speed to market for this ingredient reinforces the value proposition
and strength of the Amyris technology platform and Amyris’s ability to scale up products for our partners.
Amyris-branded Product Markets
Through basic chemical finishing steps, we are
able to convert our farnesene into squalane, which is used today as a premium emollient in Health & Wellness and Clean Skincare
products. We believe that our squalane offers performance attributes equal or superior to those of squalane derived from conventional
sources. The ingredient traditionally has been manufactured from olive oil or extracted from deep-sea shark liver oil, which requires
that the shark be killed in order to harvest its liver oil. The relatively high price and unstable supply of squalane in the past
meant that its use was generally limited to luxury products or small quantities in mass-market product formulations. With
our ability to produce a reliable supply of low-cost squalane that eliminates the need to harvest shark liver oil, we offer this
ingredient at a price that we believe will drive increasing adoption by formulators. In addition to squalane, we offer a second,
lower-cost emollient, hemisqualane, for the cosmetics market. In December 2016, we formed a joint venture for our business-to-business
sales of Neossance squalane and hemisqualane with Nikko Chemicals Co., Ltd. (Nikko), in which we hold a 50% interest. See
below under “Joint Ventures” for more information regarding our Aprinnova joint venture. The joint venture currently
has supply agreements with several regional distributors, including those with locations in Japan, South Korea, Europe, Brazil
and North America, and, in some cases, directly with cosmetics formulators, which we transferred to the joint venture during the
formation process.
In addition, in 2015
we launched our own consumer brand, Biossance
TM
skincare products, featuring our Biofene-derived squalane. Under our
Biossance
TM
brand, we market and sell our products directly to retailers and consumers. Biossance
TM
was initially
sold solely through our ecommerce branded website and in 2016, we expanded the product line to include an expansive line of high-performance
skincare products and opened up sales through Home Shopping Network (HSN). In October 2016, we announced our Biossance
TM
product line would begin to be carried at Sephora in 2017. In February 2017, we launched a full squalane-based consumer cosmetic
line at participating Sephora stores and Sephora online. All of the products are based on Amyris’s commitment to No Compromise
TM
.
Since the launch, sales have grown, and with Sephora’s partnership, we are looking to expand to more stores.
Manufacturing
Until December 2017, we owned and operated a
large-scale production facility located in Brotas, Brazil. In December 2017, we sold the facility to a unit of DSM Nutritional
Products Ltd (together with its affiliates, DSM) and entered into a supply agreement with DSM for us to purchase output from the
facility. See Note 13, “Divestiture” in “Notes to Consolidated Financial Statements” included in this Annual
Report on Form 10-K for more information regarding our December 2017 transaction with DSM.
In February 2017, we broke ground on a second purpose-built, large-scale production facility that is adjacent
to the first Brotas facility and which we will own and operate. We intend to complete construction of this facility in late 2019.
In addition, in 2019, we plan to resume construction of a production facility in Pradópolis, Brazil that we partially built
prior to 2013. This facility will support production of our alternative sweetener products.
For many of our products, we perform additional
distillation or chemical finishing steps to convert initial target molecules into other finished products, such as renewable squalane.
We have agreements with several facilities in the U.S. and Brazil to perform these downstream steps for such products. We may enter
into additional agreements with other facilities for finishing services and to access flexible production capacity and an array
of other services as we develop additional products. In December 2016, we purchased a manufacturing facility in Leland, North Carolina,
which had been previously operated by Glycotech Inc. (Glycotech) to convert our Biofene into squalane and other final products.
We subsequently contributed that facility to our Aprinnova joint venture. See below under “Joint Ventures” for more
information regarding our Aprinnova joint venture.
Joint Ventures
Total Amyris BioSolutions B.V.
We have entered into a series of agreements
since 2011 to establish a research and development program and form a joint venture with Total to produce and commercialize Biofene-based
diesel and jet fuels. We formed such joint venture, Total Amyris BioSolutions B.V. (TAB), in November 2013. With an exception for
our fuels business in Brazil, the collaboration and joint venture established the exclusive means for us to develop, produce and
commercialize fuels from Biofene. We granted TAB exclusive licenses under certain of our intellectual property to make and sell
joint venture products. We also granted TAB, in the event of a buy-out of our interest in the joint venture by Total (which Total
is entitled to do under certain circumstances described below), a non-exclusive license to optimize or engineer yeast strains used
by us to produce farnesene for the joint venture’s diesel and jet fuels. As a result of these licenses, Amyris generally
no longer has an independent right to make or sell Biofene fuels outside of Brazil without the approval of TAB.
Our agreements with Total relating to our fuels
collaboration created a convertible debt financing structure for funding the research and development program. The collaboration
agreements contemplated $105.0 million in financing (R&D Notes) for the program, for which Total completed funding in January
2015.
In July 2015, we entered into a Letter Agreement
with Total (as amended in February 2016, the TAB Letter Agreement) regarding the restructuring of the ownership and rights of TAB
(the Restructuring), and on March 21, 2016, we, Total and TAB closed the Restructuring and entered into the Restructuring Agreements,
including the Jet Fuel Agreement and the EU Diesel Fuel Agreement.
As a result of the Jet Fuel Agreement, we generally
no longer have an independent right to make or sell, without the approval of TAB, farnesene- or farnesane-based jet fuels outside
of Brazil. TAB elected not to exercise its option to purchase our Brazil jet fuel business, and such option is now expired.
As a result of the EU Diesel Fuel Agreement,
we generally no longer have an independent right to make or sell, without the approval of Total, farnesene- or farnesane-based
diesel fuels in the EU.
In addition, as part of the closing of
the Restructuring and pursuant to the TAB Letter Agreement, on March 21, 2016, we sold to Total one half of our ownership
stake in TAB (giving Total an aggregate ownership stake of 75% of TAB and giving us an aggregate ownership stake of 25% of
TAB) in exchange for Total canceling (i) $1.3 million of R&D Notes, plus all paid-in-kind and accrued interest under
all outstanding R&D Notes (including all such interest that was outstanding as of July 29, 2015) and (ii) a note in
the principal amount of €50,000, plus accrued interest, issued to Total in connection with the original TAB
capitalization. To satisfy its purchase obligation above, Total surrendered to us the remaining R&D Note of $5.0 million
in principal amount, and we executed and delivered to Total a new R&D Note, containing substantially similar terms and
conditions other than it is unsecured and its payment terms are severed from TAB’s business performance, in the
principal amount of $3.7 million. See Note 4, “Debt” and Note 18, “Subsequent Events” in “Notes
to Consolidated Financial Statements” included in this Annual Report on Form 10-K for additional details regarding such
R&D Note.
As a result of, and in order to reflect, the
changes to the ownership structure of TAB described above, on March 21, 2016, (a) we, Total and TAB entered into an Amended and
Restated Shareholders’ Agreement and filed a Deed of Amendment of Articles of Association of TAB and (b) we and Total terminated
the Amended and Restated Master Framework Agreement, dated December 2, 2013 and amended on April 1, 2015, between us and Total.
Novvi LLC
In June 2011, we entered into joint venture agreements
with Cosan US. Inc. (Cosan U.S. and, together with its affiliates, Cosan) related to the formation of a joint venture to focus
on the worldwide development, production and commercialization of base oils made from Biofene for the automotive, commercial and
industrial lubricants markets. In September 2011, we formed Novvi, an entity that was initially jointly owned by Cosan U.S. and
us. In connection with the formation of Novvi, we entered into an IP License Agreement with Novvi (as amended, the Novvi IP License
Agreement) and both the Company and Cosan U.S. granted Novvi certain rights of first refusal with respect to alternative base oil
and additive technologies that may be acquired by the Company or Cosan U.S. during the term of the IP License Agreement, which
was 20 years. In March 2013, we entered into additional agreements with Cosan U.S. to (i) expand our base oils joint venture with
Cosan to also include additives and lubricants and (ii) operate the joint venture exclusively through Novvi, and amended the Novvi
IP License Agreement to reflect such additional agreements. Under these agreements, Amyris and Cosan U.S. each owned 50% of Novvi,
and each shared equally in any costs and any profits ultimately realized by the joint venture. In 2014, 2015 and 2016, we and Cosan
U.S. purchased additional membership units in Novvi in exchange for cash and/or forgiveness of existing receivables, and made certain
loans to Novvi in an aggregate amount of $8.3 million. Following such transactions, Amyris and Cosan U.S. continued to each own
50% of Novvi.
In July 2016, American Refining Group, Inc. (ARG)
agreed to make a capital contribution of up to $10.0 million in cash to Novvi, subject to certain conditions, in exchange for a
one third ownership stake in Novvi. In connection with such investment, we and Cosan U.S. also agreed to make certain contributions
to Novvi (including the forgiveness of outstanding loans and existing receivables) in exchange for receiving additional membership
units in Novvi. Following the ARG investment, which was fully funded as of March 31, 2017, and the contributions of us and Cosan
U.S., each of Novvi’s three members (i.e., ARG, Amyris and Cosan U.S.) owned one third of Novvi. In July 2016, the Novvi
joint venture documents and the Novvi IP License Agreement were amended in order to reflect the ARG investment in Novvi and related
transactions, and Amyris and Novvi entered into a Renewable Farnesene Supply Agreement (the Novvi Supply Agreement) relating to
the supply of farnesene by Amyris to Novvi in connection with the joint venture.
In November 2016, Chevron U.S.A. Inc. (Chevron)
made a capital contribution of $1.0 million in cash to Novvi in exchange for a 3% ownership stake in Novvi, which reduced the ownership
interests of Amyris, Cosan U.S. and ARG pro rata. In connection with its investment in Novvi, Chevron was granted certain rights
to purchase additional units in Novvi as well as the right to purchase up to its pro rata share of additional membership units
that Novvi may, from time to time, propose to sell or issue.
In October 2017, H&R Group US, Inc. (H&R)
made a capital contribution of $10.0 million in cash to Novvi in exchange for a 24.4% ownership stake in Novvi, which reduced the
ownership interests of Amyris, Cosan U.S., ARG and Chevron pro rata. As a result of such investment, each of Amyris, Cosan U.S.,
ARG and H&R owned 24.4% of Novvi, with Chevron owning the remaining 2.4%. In October 2017, the Novvi joint venture documents
and the Novvi IP License Agreement were amended in order to reflect the H&R investment in Novvi and related transactions.
In December 2017, we assigned the Novvi Supply
Agreement to DSM as part of the purchase and sale of our Brotas facility. See Note 13, “Divestiture” in “Notes
to Consolidated Financial Statements” included in this Annual Report on Form 10-K for more information regarding our December
2017 transaction with DSM.
Aprinnova, LLC
In December 2016, we entered into joint venture
agreements with Nikko related to the formation of a joint venture to focus on the worldwide commercialization of our Neossance
cosmetic ingredients business. In December 2016, we formed the joint venture under the name Neossance, LLC, and later changed the
name to Aprinnova, LLC (the Aprinnova JV), which is jointly owned by us and Nikko. Pursuant to the joint venture agreements, we
contributed certain assets to the Aprinnova JV, including certain intellectual property and other commercial assets relating to
our Neossance cosmetic ingredients business, as well as the production facility in Leland, North Carolina and related assets purchased
by us from Glycotech in December 2016. We also agreed to provide the Aprinnova JV with licenses to certain intellectual property
necessary to make and sell products associated with the Neossance business (the Aprinnova JV Products). At the closing of the formation
of the joint venture, Nikko purchased a 50% interest in the Aprinnova JV in exchange for an initial payment of $10.0 million and
the profits, if any, distributed from the Aprinnova JV to Nikko as a member in cash during the three year period following December
12, 2016, up to a maximum of $10.0 million. In addition, as part of the formation of the Aprinnova JV, we and Nikko agreed to make
certain working capital loans to Aprinnova JV and we further agreed to execute a supply agreement to supply farnesene to the Aprinnova
JV, to purchase all of our requirements for the Aprinnova JV Products from the Aprinnova JV, to transfer all of our customers for
the Aprinnova JV Products to the Aprinnova JV, to guarantee a maximum production cost for certain Aprinnova JV Products, and to
bear any cost of production above such guaranteed costs.
Product Distribution and Sales
We distribute and sell our products directly
to distributors or collaborators, or through joint ventures, depending on the market. For most of our products, we sell directly
to our collaboration partners, except for our consumer care products, which we sell to distributors and formulators (other than
our Biossance™ brand, which we sell directly to retailers and consumers). Generally, our collaboration agreements include
commercial terms, and sales are contingent upon achievement of technical and commercial milestones.
For the year ended December 31, 2017,
revenue from 10%-or-more customers and from all other customers was as follows:
|
|
Renewable
products
|
|
Licenses and
royalties
|
|
Grants and
collaborations
|
|
Total
Revenue
|
|
% of Total
Revenue
|
DSM
|
|
$
|
—
|
|
|
$
|
57,972
|
|
|
$
|
1,679
|
|
|
$
|
59,651
|
|
|
|
41.6
|
%
|
Firmenich
|
|
|
9,621
|
|
|
|
1,199
|
|
|
|
5,803
|
|
|
|
16,623
|
|
|
|
11.6
|
%
|
Nenter & Co., Inc.
|
|
|
12,057
|
|
|
|
2,633
|
|
|
|
—
|
|
|
|
14,690
|
|
|
|
10.2
|
%
|
All other customers
|
|
|
20,692
|
|
|
|
2,673
|
|
|
|
29,116
|
|
|
|
52,481
|
|
|
|
36.6
|
%
|
Total revenue
|
|
$
|
42,370
|
|
|
$
|
64,477
|
|
|
$
|
36,598
|
|
|
$
|
143,445
|
|
|
|
100.0
|
%
|
Intellectual Property
Our success depends in large part upon our ability
to obtain and maintain proprietary protection for our products and technologies, and to operate without infringing on the proprietary
rights of others. We seek to avoid the latter by monitoring patents and publications in our product areas and technologies to be
aware of developments that may affect our business, and to the extent we identify such developments, evaluate and take appropriate
courses of action. With respect to the former, our policy is to protect our proprietary position by, among other methods, filing
for patent applications on inventions that are important to the development and conduct of our business with the U.S. Patent and
Trademark Office (the USPTO), and its foreign counterparts.
As of December 31, 2017, we had 474 issued
U.S. and foreign patents and 315 pending U.S. and foreign patent applications that are owned or co-owned by or licensed to us.
We also use other forms of protection (such as trademark, copyright, and trade secret) to protect our intellectual property, particularly
where we do not believe patent protection is appropriate or obtainable. We aim to take advantage of all of the intellectual property
rights that are available to us and believe that this comprehensive approach provides us with a strong proprietary position.
Patents extend for varying periods according
to the date of patent filing or grant and the legal term of patents in various countries where patent protection is obtained. The
actual protection afforded by patents, which can vary from country to country, depends on the type of patent, the scope of its
coverage and the availability of legal remedies in the country. See “
Risk Factors - Risks Related to Our Business - Our
proprietary rights may not adequately protect our technologies and product candidates
.”
We also protect our proprietary information by
requiring our employees, consultants, contractors and other advisers to execute nondisclosure and assignment of invention agreements
upon commencement of their respective employment or engagement. Agreements with our employees also prevent them from bringing the
proprietary rights of third parties to us. In addition, we also require confidentiality or material transfer agreements from third
parties that receive our confidential data or materials.
Trademarks
Amyris, the Amyris logo,
Biofene, Biossance
TM
and No Compromise are trademarks or registered trademarks of Amyris, Inc. This report also contains
trademarks and trade names of other businesses that are the property of their respective holders.
Competition
We expect that our renewable products will compete
with products produced from traditional sources as well as from alternative production methods that established enterprises and
new companies are seeking to develop and commercialize.
Health & Wellness
Many active ingredients in the nutraceutical
market are made via chemical synthesis by suppliers that have a deep chemistry knowhow and production facilities, including ingredient
suppliers. We may compete directly with these companies with respect to specific ingredients or attempt to provide customers with
more cost effective or higher performing alternatives. For food ingredients, we compete with companies that produce products from
plant and animal derived sources as well as with companies that are also developing biotechnology production solutions to produce
specific molecules.
Flavors & Fragrances
The main competition for Flavors & Fragrances
and cosmetic actives is from products derived from plant and animal sources as well as chemical synthesis. The products derived
from plant and animal sources are typically produced at a higher cost, lower purity and create a greater impact on the environment
compared to our products. Products derived from chemical synthesis are often produced at a low cost but have ramifications on sustainability
as well as non-natural sourcing. There are also companies that are working to develop products using similar technology to us.
Clean Skincare
We develop and sell active e cosmetic ingredients
and consumer products in the Clean Skincare market, creating a competitive landscape that includes ingredient suppliers as well
as consumer goods companies, such as P&G and Estee Lauder. Most skincare ingredients are derived from plant and animal sources
or created using chemical synthesis. Plant- and animal-sourced ingredients are typically higher in cost, lower in purity and have
a greater impact on the environment versus our products. Products derived from chemical synthesis are often produced at a low cost
but have ramifications on sustainability as well as non-natural sourcing. There are also companies that are working to develop
products using similar technology to us.
Competitive Factors
We believe the primary competitive factors in
our target markets are:
|
•
|
product performance and other measures of quality;
|
|
•
|
infrastructure compatibility of products;
|
|
•
|
dependability of supply.
|
We believe that, for our products to succeed
in the market, we must demonstrate that our products are comparable or better 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.
Regulatory Matters
Environmental Regulations
Our development and production processes involve
the use, generation, handling, storage, transportation and disposal of hazardous chemicals and radioactive and biological materials.
We are subject to a variety of federal, state, local and international laws, regulations and permit requirements governing the
use, generation, manufacture, transportation, storage, handling and disposal of these materials in the United States, Brazil and
other countries where we operate or may operate or sell our products in the future. These laws, regulations and permits can require
expensive fees, pollution control equipment or operational changes to limit actual or potential impact of our technology on the
environment and violation of these laws could result in significant fines, civil sanctions, permit revocation or costs from environmental
remediation. We believe we are currently in substantial compliance with applicable environmental regulations and permitting. However,
future developments including the commencement of or changes in the processes relating to commercial manufacturing of one or more
of our products, more stringent environmental regulation, policies and enforcement, the implementation of new laws and regulations
or the discovery of unknown environmental conditions may require expenditures that could have a material adverse effect on our
business, results of operations or financial condition. See “
Risk Factors - Risks Relating to Our Business - We may incur
significant costs to comply with environmental laws and regulations, and failure to comply with these laws and regulations could
expose us to significant liabilities
.”
GMM Regulations
The use of genetically-modified microorganisms
(GMMs), such as our yeast strains, is subject to laws and regulations in many countries. In the United States, the Environmental
Protection Agency (EPA) regulates the commercial use of GMMs as well as potential products produced from the GMMs. Various states
within the United States could choose to regulate products made with GMMs as well. While the strain of genetically modified yeast
that we use,
S. cerevisiae
, is eligible for exemption from EPA review because it is generally recognized as safe, we must
satisfy certain criteria to achieve this exemption, including but not limited to, use of compliant containment structures and safety
procedures. In Brazil, GMMs are regulated by the National Biosafety Technical Commission (CTNBio) under its Biosafety Law No. 11.105-2005.
We have obtained commercial approvals from CTNBio to use our GMMs in a contained environment in our Brazil facilities for research
and development purposes, in manufacturing and at contract manufacturing facilities in Brazil.
We expect to encounter GMM regulations in most
if not all of the countries in which we may seek to make our products; however, the scope and nature of these regulations will
likely vary from country to country. If we cannot meet the applicable requirements in countries in which we intend to produce our
products using our yeast strains, then our business will be adversely affected. See “
Risk Factors - Risks Related to Our
Business - 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
.”
Chemical Regulations
Our renewable products may be subject to government
regulations in our target markets. In the United States, the EPA administers the requirements of the Toxic Substances Control Act
(TSCA), which regulates the commercial registration, distribution and use of many chemicals. Before an entity can manufacture or
distribute significant volumes of a chemical, it needs to determine whether that chemical is listed in the TSCA inventory. If the
substance is listed, then manufacture or distribution can commence immediately. If not, then in most cases a “Chemical Abstracts
Service” number registration and pre-manufacture notice must be filed with the EPA, which has 90 days to review the filing.
A similar requirement exists in Europe under the Registration, Evaluation, Authorization and Restriction of Chemical Substances
(REACH) regulation. See “
Risk Factors - Risks Related to Our Business - We may not be able to obtain regulatory approval
for the sale of our renewable products
.” In 2013, the EPA registered farnesane as a new chemical substance under the
TSCA, which enables us to manufacture and sell farnesane without restriction in the United States.
Other Regulations
Certain of our current or proposed products in
the Health & Wellness, Clean Skincare, and Flavors & Fragrances markets, including alternative sweeteners, nutraceuticals,
Flavors & Fragrances ingredients, skincare ingredients and cosmetic actives, may be subject to regulation by the United State Food and Drug
Administration (the FDA), as well as similar agencies of states and foreign jurisdictions where these products are sold or proposed
to be sold. Pursuant to the Federal Food, Drug, and Cosmetic Act (the FDCA), the FDA regulates the processing, formulation, safety,
manufacture, packaging, labeling and distribution of food ingredients, vitamins, and cosmetics. Generally, in order to be marketed
and sold in the United States, a relevant product must be generally recognized as safe and not adulterated or misbranded under
the FDCA and relevant regulations issued thereunder. The FDA has broad authority to enforce the provisions of the FDCA applicable
to food ingredients, vitamins and cosmetics, including powers to issue a public warning letter to a company, to publicize information
about illegal products, to request a recall of illegal products from the market, and to request the United States Department of
Justice to initiate a seizure action, an injunction action, or a criminal prosecution in the U. S. courts. Failure to obtain requisite
approval from, or comply with the laws and regulations of, the FDA or similar agencies of states and applicable foreign jurisdictions
could prevent us from fully commercializing certain of our products. See “
Risk Factors - Risks Related to Our Business
- We may not be able to obtain regulatory approval for the sale of our renewable products
.”
In addition, our end-user
products such as our Biossance
TM
brand skincare products are subject to the regulations of the United States Federal
Trade Commission (FTC) and similar agencies of states and foreign jurisdictions where these products are sold or proposed to be
sold regarding the advertising of such products. In recent years, the FTC has instituted numerous enforcement actions against companies
for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims.
The FTC has broad authority to enforce its laws and regulations applicable to cosmetics, including the ability to institute enforcement
actions which often result in consent decrees, injunctions, and the payment of civil penalties by the companies involved. Failure
to comply with the laws and regulations of the FTC or similar agencies of states and applicable foreign jurisdictions could impair
our ability to market our end-user products.
Employees
As of December 31, 2017, we had 414 full-time
employees, of whom 325 were in the United States and 89 were in Brazil. Except for labor union representation for Brazil-based
employees based on labor code requirements in Brazil, none of our employees is represented by a labor union or is covered by a
collective bargaining agreement. We have never experienced any employment-related work stoppages and consider relations with our
employees to be good.
Corporate Information
We were originally incorporated in California
in 2003 under the name Amyris Biotechnologies, Inc. and then reincorporated in Delaware in 2010 and changed our name to Amyris,
Inc. Our principal executive offices are located at 5885 Hollis Street, Suite 100, Emeryville, California 94608, and our telephone
number is (510) 450-0761. Our common stock is listed on The NASDAQ Global Select Market under the symbol "AMRS."
Available Information
Our website address is www.amyris.com. Our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other reports filed pursuant to Sections
13(a) and 15(d) of the Securities Exchange Act of 1934 (the Exchange Act), as well as amendments thereto, are filed with the U.S.
Securities and Exchange Commission (the SEC) and are available free of charge on our website at investors.amyris.com promptly after
such reports are available on the SEC's website. We may use our investors.amyris.com website as a means of disclosing material
non-public information and of complying with our disclosure obligations under Regulation FD. The public may read and copy any materials
filed by Amyris with the SEC at the SEC's Public Reference Room located at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
The public may obtain information regarding the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
The information contained in or accessible through
our website or contained on other websites is not incorporated into this filing. Further, any references to URLs contained in this
report are intended to be inactive textual references only.
Executive Officers of the Registrant
The following table provides the names, ages
and offices of each of our executive officers as of March 30, 2018:
Name
|
|
Age
|
|
Position
|
John Melo
|
|
|
52
|
|
|
|
Director, President and Chief Executive Officer
|
|
Eduardo Alvarez
|
|
|
54
|
|
|
|
Chief Operating Officer
|
|
Kathleen Valiasek
|
|
|
54
|
|
|
|
Chief Financial Officer
|
|
Joel Cherry, Ph.D.
|
|
|
57
|
|
|
|
President of Research and Development
|
|
Nicole Kelsey
|
|
|
51
|
|
|
|
General Counsel and Secretary
|
|
John Melo
John Melo has nearly three decades of combined
experience as an entrepreneur and thought leader in the global fuels industry and technology innovation. Mr. Melo has served as
our Chief Executive Officer and a director since January 2007 and as our President since June 2008. Before joining Amyris, Mr. Melo
served in various senior executive positions at BP Plc (formerly British Petroleum), one of the world’s largest energy firms,
from 1997 to 2006, most recently as President of U.S. Fuels Operations from 2004 until December 2006, and previously as Chief Information
Officer of the refining and marketing segment from 2001 to 2003, Senior Advisor for e-business strategy to Lord Browne, BP Chief
Executive, from 2000 to 2001, and Director of Global Brand Development from 1999 to 2000. Before joining BP, Mr. Melo was
with Ernst & Young, an accounting firm, from 1996 to 1997, and a member of the management teams of several startup companies,
including Computer Aided Services, a management systems integration company, and Alldata Corporation, a provider of automobile
repair software to the automotive service industry. Mr. Melo currently serves on the board of directors of Renmatix, Inc.,
and on the board of the Industrial action of Bio and also on the board of the California Life Sciences Association. Mr. Melo was
formerly an appointed member to the U.S. section of the U.S.-Brazil CEO Forum.
Eduardo Alvarez
Eduardo Alvarez has served as our Chief Operating
Officer since October 2017. Mr. Alvarez has over 30 years of global operations experience both running and advising growth companies.
Previously, he served as Global Operations Strategy Leader for PricewaterhouseCoopers LLP (PwC). During his tenure, Mr. Alvarez
co-led the integration of his prior company, Booz & Company, following its acquisition by PwC. In that role, he grew operations
into a global practice with $1.5 billion in revenue and 4,000 employees. Mr. Alvarez's assignments focused on delivering structural
cost improvements while also driving sustained revenue growth. His experience also includes roles at Booz Allen Hamilton, General
Electric and AT&T. Alvarez holds a Master of Business Administration from Harvard Business School, a Master of Science in Mechanical
Engineering in computer control and manufacturing from the University of California, Berkeley, and a Bachelor of Science degree
in mechanical engineering from the University of Michigan. Mr. Alvarez is a board member of The Chicago Council of Global Affairs.
Kathleen Valiasek
Kathleen Valiasek has served as our Chief Financial
Officer since January 2017. Prior to joining us, Ms. Valiasek served as Chief Executive Officer of a finance and strategic consulting
firm she founded in 1994, and in this capacity she worked closely with the senior management teams of fast-growing companies including
start-ups, venture-backed and Fortune 500 companies. Prior to this, she served in key venture capital, real estate development
and accounting roles. Ms. Valiasek holds a Bachelor of Business Administration degree from the University of Massachusetts, Amherst.
Joel Cherry, Ph.D.
Dr. Joel Cherry has served as our President
of Research and Development since July 2011 and previously as our Senior Vice President of Research Programs and Operations since
November 2008. Before joining Amyris, Dr. Cherry was Senior Director of Bioenergy Biotechnology at Novozymes, a biotechnology
company focusing on development and manufacture of industrial enzymes, from 1992 to November 2008. At Novozymes, he served in a
variety of R&D scientific and management positions, including membership in Novozymes’ International R&D Management
team, and as Principal Investigator and Director of the BioEnergy Project, a U.S. Department of Energy-funded $18 million effort
initiated in 2000. Dr. Cherry holds a Bachelor of Arts degree in Chemistry from Carleton College and a Doctor of Philosophy
degree in Biochemistry from the University of New Hampshire.
Nicole Kelsey
Nicole Kelsey has served as our General Counsel
and Secretary since August 2017. Her areas of expertise range from U.S. securities laws, to international M&A and corporate
governance. Prior to joining Amyris, she served as General Counsel and Secretary of Criteo, a global leader in commerce marketing
based in Paris, for over three years. Prior to joining Criteo, Ms. Kelsey was the senior securities lawyer for Medtronic, a global
leader in medical technology; she served as head M&A attorney for CIT Group, Inc.; was the general counsel of a private merchant
bank; and worked for the international conglomerate Vivendi. Before going in-house, Ms. Kelsey practiced with the law firms of
White & Case and Willkie, Farr & Gallagher, in Paris and New York. A Fulbright scholar, Ms. Kelsey holds a J.D. from Northwestern
University and a B.A. from The Ohio State University.
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 Annual Report on Form 10-K, including the consolidated financial statements and related notes, 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 flows from operations for at least
the next 12 months following the issuance of the financial statements. As of December 31, 2017, we had an accumulated deficit
of $1.2 billion and had cash and cash equivalents of $57.1 million. We have significant outstanding debt, a significant working
capital deficit and contractual obligations related to capital and operating leases, as well as purchase commitments of $18.3
million. As of December 31, 2017, our debt totaled $165.4 million, net of discount and issuance costs of $30.4 million, of
which $56.9 million is classified as current. Our debt service obligations over the next twelve months are significant, including
$16.9 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 $5.4 million (assuming all note holders convert) under our outstanding 9.50% Convertible
Senior Notes due 2019 (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. There can be no assurance
that we will ever achieve or sustain profitability on a quarterly or annual basis.
Our consolidated financial statements as of and for the year ended December 31, 2017 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 additional credit lines or other debt financing sources to
fund continuing operations. Based on our cash balances and recurring losses since inception, there is substantial doubt about
our ability to continue as a going concern within one year after the date that these financial statements are issued. Our operating
plans for 2018 contemplate a significant reduction in our net operating cash outflows as compared to the year ended December 31,
2017 resulting from (i) revenue growth from sales of existing and new products with positive gross margins, (ii) significantly
increased royalty streams (previously referred to as value share revenues), (iii) reduced production costs as a result of manufacturing
and technology developments, and (iv) cash inflows from grants and collaborations. In addition, as noted below, for our 2018 operating
plan, we may depend on funding from sources that are not subject to existing commitments. We may 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 value we receive for our assets in liquidation
or dissolution could be significantly lower than the value reflected in our financial statements.
Our consolidated 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 will require significant cash
inflows from the sales of renewable products, licenses and royalties, and grants and collaborations and, if needed, financings
to fund our anticipated operations and to service our debt obligations and may not be able to obtain such funding on favorable
terms, if at all.
Our planned working capital needs and operating
and capital expenditures for 2018, and our ability to service our outstanding debt obligations, are dependent on significant inflows
of cash from grants and collaborations, licenses and royalties, and product sales and, if needed, additional financing arrangements.
We will continue to need to fund our research and development and related activities and to provide working capital to fund production,
procurement, storage, distribution and other aspects of our business. Some of our anticipated funding sources, such as research
and development collaborations, are subject to the risks that we may not be able to meet milestones, or that collaborations may
end prem
aturely for reasons that may be outside of our control (including technical infeasibility
of the project or a collaborator’s right to terminate without cause). 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 funding, 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:
|
•
|
Shift focus to
existing products and customers with significantly reduced investment in new product
and commercial development efforts;
|
|
•
|
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; and
|
|
•
|
Closely monitor
the Company's working capital position with customers and suppliers, as well as suspend
operations at pilot plants.
|
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 and increase the severity
of the consequences described above.
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 December 31, 2017, our debt totaled
$165.4 million, net of discount and issuance costs of $30.4 million, of which $56.9 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, including restrictions on our ability to incur future indebtedness, and customary
events of default, including failure to pay amounts due, breaches of covenants and warranties, material adverse effect events,
certain cross defaults and judgements, 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 on us. If such indebtedness
is accelerated, it would generally also constitute an event of default under our other outstanding indebtedness, permitting acceleration
of a substantial portion of our 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 would 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, if at all. 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 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 the holders of a majority 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. In addition, certain of our existing investors, including the investors that purchased
the Tranche Notes, have pro rata rights to invest in equity securities that we issue in certain financings, which could delay or
prevent us from completing such financings. Furthermore, certain of our other outstanding securities (e.g., the Tranche Notes,
the 2015 144A Notes, and warrants issued in May and August 2017), contain anti-dilution adjustment provisions which may be triggered
by future issuances of equity or equity-linked instruments in financing transactions. If such adjustment provisions are triggered,
the conversion or exercise price of such securities will decrease and/or the number of shares issuable upon conversion or exercise
of such securities will increase. In such event, existing stockholders will be further diluted and the effective issuance price
of such equity or equity-linked instruments will be reduced, which may harm our ability to engage in future financing transactions
to fund our business.
Our substantial leverage 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 partnerships, or capital expenditures, or for other general corporate purposes, subject to the restrictions
contained in our debt agreements. 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 for 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 in 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 for other general corporate requirements; and
|
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our substantial leverage may make it difficult for us to attract additional financing when needed.
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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 collaborators
and distributors, and only a small portion from direct sales. Our collaboration, supply and distribution agreements do not usually
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,
and price volatility in the markets for such end-use products, which may include commodities, could adversely affect the demand
for our products and the margin we receive for our product sales, which could harm our financial results. While we maintain certain
clawback rights to our technology in the event our collaboration partners are unable or unwilling to commercialize the products
we create for them, we may be restricted from or unable to market or sell such products or technologies to other potential collaboration
partners, which could hinder the growth of our business. In addition, certain of our collaboration partners have the right to terminate
their agreements with us if we undergo a change of control or a sale of our business, which could discourage a potential acquirer
from making an offer to acquire us.
Further, we have in the past entered into, and
expect in the future to enter 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 and development activities 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 and receive payments thereunder. As a result, achievement of our quarterly and annual
financial goals has been difficult to forecast with certainty. Once a collaboration agreement has been signed, receipt of cash
payments and/or recognition of related revenues may depend on our achievement of research, development, production or cost milestones,
which may be difficult to predict. In addition, a portion of the advance payments we receive under our collaboration agreements
is typically classified as deferred revenue and recognized over multiple quarters or years.
Furthermore, we have begun to market and sell
some of our products directly to end-consumers, initially in the cosmetics market. Because we have little 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 on the timeline we anticipate, if at all. 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.
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:
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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;
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delays or greater than anticipated expenses associated with the completion, commissioning, acquisition or retrofitting of new
production facilities, or the time to ramp up and stabilize production at a new production facility or the transition (including
ramp up) to producing new molecules at existing facilities or with a new contract manufacturer;
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impairment of assets based on shifting business priorities and working capital limitations;
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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 technical difficulties, or
the scheduled downtime at our facilities as a result of transitioning our equipment to the production of different molecules; however, we do not currently own any manufacturing facilities, as our commercial production is performed by
third parties);
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losses of, or the inability to secure new, major customers, collaboration partners, suppliers or distributors;
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losses associated with producing our products as we ramp to commercial production levels;
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failure to recover value added tax (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);
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the timing, size and mix of product sales to customers;
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increases in price or decreases in availability of feedstock;
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the unavailability of contract manufacturing capacity altogether or at reasonable cost;
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exit costs associated with terminating contract manufacturing relationships;
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gains or losses associated with our hedging activities;
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change in the fair value of derivative instruments;
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fluctuations in the price of and demand for sugar, ethanol, petroleum-based and other products for which our products are alternatives;
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seasonal variability in production and sales of our products;
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competitive pricing pressures, including decreases in average selling prices of our products;
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unanticipated expenses or delays associated with changes in governmental regulations and environmental, health, labor and safety
requirements;
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departure of executives or other key management employees resulting in transition and severance costs;
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our ability to use our net operating loss carryforwards to offset future taxable income;
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business interruptions such as earthquakes, tsunamis and other natural disasters;
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our ability to integrate businesses that we may acquire;
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our ability to successfully collaborate with joint venture partners;
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risks associated with the international aspects of our business; and
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changes in general economic, industry and market conditions, both domestically and in our foreign markets.
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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.
A limited number of customers, collaboration partners and
distributors account for a significant portion of our revenues, and the loss of major customers, collaboration partners or distributors
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 customers, collaboration partners and/or
distributors. We cannot be certain that customers, collaboration partners and/or distributors that have accounted for significant
revenues in past periods, individually or as a group, will continue to generate similar revenues in any future period. If we fail
to renew with, or if we lose, a major customer, collaborator or distributor, or group of customers, collaborators or distributors,
our revenues could decline if we are unable to replace the lost revenues with revenues from other sources. Further, since our business
model depends in part on such collaboration agreements, 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.
If we do not meet technical, development and commercial milestones
in our collaboration agreements, our future revenues 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. Most of these agreements affirmatively obligate the other party to purchase specific quantities of any products,
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.
If we are not able to successfully commence, scale up or sustain
operations at existing and planned manufacturing facilities, 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 existing and potential large-scale production plants. 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 S.A. (São Martinho) in
order to focus on the construction and commissioning of the Brotas facility. We have since proposed to complete construction of
the facility to initially support production of our alternative sweetener products. In 2016 and 2017, we produced at capacity at
the Brotas facility, and therefore, we needed to identify and secure access to additional production capacity based on anticipated
volume requirements, either by constructing a new custom-built facility, acquiring an existing facility from a third party, retrofitting
an existing facility operated by a current or potential partner or increasing our use of contract manufacturing facilities. In
December 2016, we acquired a production facility in Leland, North Carolina, which facility had been previously operated by our
partner Glycotech to perform chemical conversion and production of our end-products, and which facility was subsequently transferred
to our newly-formed joint venture with Nikko, as further described in Note 7, “Variable-interest Entities and Unconsolidated
Investments” to our consolidated financial statements included in this report. In addition, in February 2017 we broke ground
on a second custom-built production facility adjacent to our existing Brotas facility. However, there can be no assurance that
we will be able to complete such facility or the proposed alternative sweetener facility on our expected timeline, if at all. In
December 2017, we sold our first purpose-built, large-scale production plant in Brotas, Brazil to DSM and concurrently entered
into a supply agreement with DSM for us to purchase output from the facility. See Note 13, “Divestiture” in “Notes
to Consolidated Financial Statements” included in this Annual Report on Form 10-K for more information.
Once our large-scale production facilities are
built, acquired or retrofitted, we must successfully commission them, if necessary, and they must perform as we expect. 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 renewable products in the time frame and at the cost we
have planned. It is difficult to predict the effects of scaling up production of industrial fermentation to commercial scale, as
it involves various risks to the quality and consistency of our molecules. In addition, in order to produce molecules at existing
and potential future plants, we have been and may in the future 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. If any of these risks occur, or if we are unable to create or obtain additional
manufacturing capacity necessary to meet existing and potential customer demand, we may need to continue to use, or increase our
use of, contract manufacturing sources, which generally entail greater cost to us to produce our products and would therefore reduce
our anticipated gross margins and may also 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, our partners 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. If we are unable to create and sustain manufacturing capacity and operations sufficient to satisfy the existing
and potential demand of our customers and partners, our business and results of operations may be adversely affected.
Loss or termination of contract manufacturing relationships could harm our ability
to meet our production goals.
In December 2017, we sold our first purpose-built,
large-scale production plant in Brotas, Brazil to DSM and concurrently entered into a supply agreement with DSM for us to purchase
output from the facility, which represents a significant portion of our expected supply needs. See Note 13, “Divestiture”
in “Notes to Consolidated Financial Statements” included in this Annual Report on Form 10-K for more information. In
addition, we rely on other contract manufacturers to produce and/or provide downstream processing of our products. 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, reliance on external sources for our 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, creating
risk of loss of sales and profitability. 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
for such operations, 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 operations at new contract manufacturing facilities, we need to transfer our yeast
strains and production processes from our labs 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.
In addition to our production contracts, we must
also commercially produce, process and manufacture farnesene and certain 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. In December 2017, we sold our first purpose-built, large-scale production plant in Brotas, Brazil to DSM and concurrently
entered into a supply agreement with DSM for us to purchase output from the facility. See Note 13, “Divestiture” in
“Notes to Consolidated Financial Statements” included in this Annual Report on Form 10-K for more information. 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 and amounts 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 such 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.
We face challenges producing our products at commercial scale
or at reduced cost and may not be able to commercialize our products to the extent necessary to make a profit or 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 products business. A significant portion of
our production capacity is through a purpose-built, large-scale production plant in Brotas, Brazil. This plant commenced operations
in 2012, and scaling and running the plant has been a technically complex process. In December 2017, we sold the Brotas facility
to DSM and concurrently entered into a supply agreement with DSM for us to purchase output from the facility. See Note 13, “Divestiture”
in “Notes to Consolidated Financial Statements” included in this Annual Report on Form 10-K for more information. In
February 2017, we broke ground on a second custom-built production facility adjacent to the existing Brotas facility and also have
plans to complete construction of an additional manufacturing facility in Pradópolis, Brazil initially focused on our alternative
sweetener products. However, there can be no assurance that we will be able to complete such facilities on our expected timeline,
if at all. Even if we are successful in completing such facilities, there can be no assurance that we will be able to scale and
operate such facilities to allow us to meet our operational goals, which could harm our ability to grow our business.
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.
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.
In addition, in order to attract potential collaboration or joint venture partners, or to meet payment milestones under existing
or future collaboration agreements, we have in the past and may in the future be required to guarantee or meet certain levels of
production costs. If we are unable to reduce our production costs to meet such guarantees or milestones, our net cash flow will
be further reduced.
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, or that we will be able to sell our products profitably at prices and with features sufficient
to establish demand. 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. 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 benefit, we will not be successful in entering these markets
and our business will be adversely affected.
The price and availability 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, it could result in higher sugarcane prices and/or a significant decrease in the volume
of sugarcane available for the production of our products. In addition, if the availability of sugarcane juice or syrup or other
feedstocks is restricted or limited due to weather conditions, land conditions or any other reason, we may not be able to manufacture
our products in a timely or cost-effective manner, or at all, which would have a material adverse effect on our business.
We expect to face competition for our products from existing
suppliers, including from price declines in petroleum and petroleum-based products, and if we cannot compete effectively against
these companies, products or prices, we may not be successful in bringing our products to market, demand for some of our renewable
products may decline, or we may be unable to further grow our business.
We expect that our renewable products will compete
with both the traditional 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 markets that we have entered, and in other
markets that we may seek to enter in the future, we will compete primarily with the established providers of ingredients currently
used in products in these markets. Producers of these incumbent products include global health and nutrition companies, large international
chemical companies and companies specializing in specific products, such as flavor or fragrance ingredients, 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 products
being offered in these markets.
With the emergence of many new companies seeking
to produce products from renewable sources, we may face increasing competition from such 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
our target markets are:
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product price;
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product performance and other measures of quality;
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sustainability; and
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dependability of supply.
The global health and nutrition companies, large
international chemical companies and companies specializing in specific products 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.
While most 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 will be marketed
as alternatives to corresponding petroleum-based products. We believe that for our renewable products to succeed in the market,
we must demonstrate that our products are comparable or better 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. 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 continue to do so. 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.
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, and our financial
results may be adversely impacted, if we fail to meet technical, development or commercial milestones in such agreements.
For most product markets we are seeking to enter,
we have 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 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, none of these agreements affirmatively obligates the other party to purchase
specific quantities of any products, 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 programs and milestones,
and technical specifications that must be achieved to the satisfaction of our collaborators. We may focus our efforts and resources
on potential discovery efforts, product targets or candidates that require substantial technical, financial and human resources
which we cannot be certain we will achieve.
Revenues from these types of relationships
are a key part of our cash plan for 2018 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.
Any failure or difficulties in establishing, building up or retooling our operations 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.
Our collaboration arrangements may restrict or prevent our future business activity
in certain markets or industries, which could harm our ability to grow our business.
As part of our collaboration arrangements in
the ordinary course of business, we may grant to our partners exclusive rights with respect to the development, production and/or
commercialization of particular products or types of products in specific markets in exchange for up-front funding and/or downstream
value sharing arrangements. These rights might inhibit potential collaboration or strategic partners or potential customers from
entering into negotiations with us about further business opportunities, and we may be restricted or prevented from engaging with
other partners or customers in those markets, which may limit our ability to grow our business.
In the past, we have had to grant concessions
to existing partners in exchange for such partners waiving or modifying their exclusive rights with respect to a particular product,
type of product or market so that we could engage with a third party with respect to such product, product type or market. There
can be no assurance that existing partners will be willing to grant waivers of or modify their exclusive rights in the future on
favorable terms, if at all. If we are unable to engage other potential partners with respect to particular product types or markets
for which we have previously granted exclusive rights, our ability to grow our business would be harmed and our results of operations
may be adversely affected.
We have limited control over our joint ventures.
We do not have the right or power to control
the management of our joint ventures, and our joint venture partners may take action contrary to our interests or objectives. If
our joint venture partners act contrary to our interest, it could harm our brand, business, results of operations and financial
condition. In addition, operating a joint venture often requires additional organizational formalities and time-consuming procedures
for sharing information and making decisions, which can divert management resources, and if a joint venture partner changes or
relationships deteriorate, our success in the joint venture may be materially adversely affected, which could harm our business.
Third parties may misappropriate our yeast strains.
Third parties, including collaborators, contract
manufacturers, 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.
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. (Ginkgo), pursuant to which we licensed certain intellectual property to Ginkgo
in exchange for a license fee and royalty, and agreed 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, and in September
2016 we executed a definitive collaboration agreement with Ginkgo setting forth the terms of a commercial partnership under which
the parties would collaborate to develop, manufacture and sell commercial products and would share in the value of such products.
In connection with the entry into such commercial agreements, we received a waiver under, and subsequently entered into an amendment
of, our senior secured credit facility, the agent and lender under which is an affiliate of Ginkgo, which amendment extended, subject
to certain conditions which were satisfied in January 2017, the maturity of the loans under the senior secured credit facility,
eliminated principal repayments under the facility prior to maturity, subject to the requirement that we apply certain monies received
by us under the collaboration agreement with Ginkgo to repay the outstanding loans under the facility, and waived the covenant
in the senior secured loan facility requiring the Company 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 facility until the maturity date. In November
2017, we amended the partnership with Ginkgo to reduce the scope of our commercial relationship, and in connection therewith we
agreed to guarantee certain minimum payments to Ginkgo under the partnership and issued a $12 million promissory note to Ginkgo.
For more details on our transactions with Ginkgo, please see Note 4, “Debt” in “Notes to Consolidated Financial
Statements” included in this Annual Report on Form 10-K.
There can be no assurance that our partnership
with Ginkgo, as amended, will be successful. In addition, negative developments in our commercial partnership with Ginkgo could
negatively affect our relationship with the agent and lender under our senior secured credit facility, an affiliate of Ginkgo,
which could adversely impact our ability to incur additional indebtedness in the future or take other actions the consent for which
would be required from the agent and lender under the facility. In such event, our financial condition and business operations
could be adversely affected.
Certain rights we have granted to Total, DSM and other existing
stockholders, including in relation to our future securities offerings, could have substantial impacts on our company.
Under certain agreements between us and Total
related to Total’s 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. In addition, in connection with
Total’s investments in Amyris, 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.
In addition, Total, DSM and certain other investors
have the right to designate one or more directors to serve on our board of directors pursuant to agreements between us and such
investors.
In May 2017, we entered into an agreement with
DSM, which was amended and restated in August 2017, pursuant to which we agreed (i) that for as long as there is a DSM-designated
director serving on our board of directors, we will not engage in certain commercial or financial transactions or arrangements
without the consent of such director, and (ii) to provide DSM with certain exclusive negotiating rights in connection with certain
future commercial projects and arrangements. These provisions could discourage other potential partners from approaching us with
business opportunities, and could restrict, delay or prevent us from pursuing or engaging in such opportunities, which could adversely
affect our business.
Additionally, in connection with investments
in Amyris, we granted certain investors, including Total and DSM, a right of first investment if we propose to sell securities
in certain financing transactions. With these rights, such investors may subscribe for a portion of any such new 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, in certain cases such investors have the right to pay for any securities purchased
in connection with an exercise of their right of first investment by canceling all or a portion of our debt held by them. To the
extent such investors exercise these rights, it will reduce the cash proceeds we may realize from the relevant financing.
A significant portion of our operations are 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 involved interest rate adjustments.
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:
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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;
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rapid consolidation in the sugar and ethanol industries in Brazil, which could result in a decrease in competition;
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political, economic, diplomatic or social instability in or affecting Brazil;
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changing interest rates;
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tax burden and policies;
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effects of changes in currency exchange rates;
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any changes in currency exchange policy that lead to the imposition of exchange controls or restrictions on remittances abroad;
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land reform or nationalization movements;
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changes in labor related policies;
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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;
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changes in, or interpretations of foreign regulations that may adversely affect our ability to sell our products or repatriate
profits to the United States;
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tariffs, trade protection measures and other regulatory requirements;
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compliance with United States and foreign laws that regulate the conduct of business abroad;
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compliance with anti-corruption laws recently enacted in Brazil;
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an inability, or reduced ability, to protect our intellectual property in Brazil including any effect of compulsory licensing
imposed by government action; and
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difficulties and costs of staffing and managing foreign operations.
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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, until 2017, experienced high inflation and a growing fiscal
deficit of its federal government accounts. In addition, 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 and cannot be predicted with
certainty.
In addition, President Trump has made comments
suggesting that he is not supportive of certain existing international trade agreements as well as that he might take action to
restrict or tax products imported into the U.S. from foreign jurisdictions. At this time, it remains unclear what actions President
Trump will or will not take with respect to these international trade agreements or U.S. trade policy. If President Trump takes
action to withdraw from or materially modify international trade agreements or place restrictions or tariffs on products imported
from Brazil, our business, financial condition and results of operations could be adversely affected.
We maintain operations in foreign jurisdictions
other than Brazil, and may in the future expand our operations to additional foreign jurisdictions. Many, if not all of the above-mentioned
risks also apply to our operations in such jurisdictions. If any of these risks were to occur, our operations and business would
be adversely affected.
Ethical, legal and social concerns about products using genetically modified microorganisms
could limit or prevent the use of our products and technologies and could harm our business.
Our technologies and products involve the use
of genetically modified microorganisms (GMMs). Public perception about the safety of, and ethical, legal or social concerns over,
genetically engineered products, including GMMs, could affect public acceptance of our products. If we are not able to overcome
any such concerns relating to our products, our technologies may not be accepted by our customers or end-users. In addition, the
use of GMMs has in the past received negative publicity, which could lead to greater regulation or restrictions on imports of our
products. Further, there is a risk that products produced using our technologies could cause adverse health effects or other adverse
events. If our technologies and products are not accepted by our customers or their end-users due to negative publicity or lack
of public acceptance, our business could be significantly harmed.
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 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. In the United States,
the Environmental Protection Agency (EPA), regulates the commercial use of GMMs as well as potential products produced from 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 commercial production of our target molecules,
S.
cerevisiae
, is eligible for exemption from EPA review because it is generally recognized as safe, 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 (CTNBio). We have obtained approvals from CTNBio to use GMMs in a contained environment in our Brazil
facilities for research and development purposes as well as at contract manufacturing facilities in Brazil. In addition, we have
obtained initial commercial approvals from CTNBio for three of our 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 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
or sell 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 governmental, 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 governmental, non-governmental and quasi-governmental organizations
is generally not mandatory, some of our current or prospective customers, collaborators 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 (the
TSCA), which regulates the commercial registration, distribution, and use of many chemicals. Before an entity can manufacture or
distribute a new chemical subject to the 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 could significantly extend the timeline for approval.
As a result, we may not receive EPA approval to list future molecules on the TSCA registry as expeditiously as we would like, 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 entail significant costs. To the extent that other countries in which
we are producing or selling (or seeking to produce or sell) our products, such as Brazil and various countries in Asia, rely on
TSCA or REACH (or similar laws and programs) for chemical registration or regulation in their jurisdictions, delays with the United
States or European authorities, or any relevant authorities in such other countries, may 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. Also, certain
of our current or proposed products in the Health and Nutrition and Personal Care markets, including alternative sweeteners, nutraceuticals,
Flavors & Fragrances ingredients, skincare ingredients and cosmetic actives, may be subject to the approval of and regulation by the FDA, as
well as similar agencies of states and foreign jurisdictions where these products are sold or proposed to be sold.
We expect to encounter regulations in most, if
not all, of the countries in which we may seek to produce, import or sell our 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 products do not meet applicable regulatory requirements in a particular
country, then we (or our customers) may not be able to commercialize our products in such country and our business will be adversely
affected. In addition, any enforcement action taken by regulators against us or our products could cause us to suffer adverse publicity,
which could harm our reputation and our relationship with our customers and vendors.
In addition, many of our products are intended
to be a component of our collaborators’ and/or customers’ (or their customers’) end-use products. Such end-use
products may be subject to various regulations, including regulations promulgated by the EPA, the FDA, or the European Food Safety
Authority. If our company or our collaborators and customers (or their customers) are not successful in obtaining any required
regulatory approval for their end-use products that incorporate our products, or fail to comply with any applicable regulations
for such end-use products, whether due to our products or otherwise, demand for our products may decline and our revenues will
be adversely affected.
Changes in government regulations, including subsidies and
economic incentives, could have a material adverse effect on our business.
The markets where we sell our products are 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 products may harm
our business. The uncertainty regarding future standards and policies may also affect our ability to develop our 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.
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, or encourage the use of feedstocks more advantageous to our competitors, which would put us at a commercial disadvantage
and could negatively impact our future revenues and results of operations.
We may incur significant costs to comply with environmental
laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.
We use intermediate substances, 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, European Union and 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 and
those of our contractors 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. Furthermore, 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 otherwise harm our business.
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 December 31, 2017, we had 474 issued United States and foreign patents and 315 pending United
States and foreign patent applications that were owned or co-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 decisions 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:
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we (or our licensors) were the first to make the inventions covered by each of our issued patents and pending patent applications;
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we (or our licensors) were the first to file patent applications for these inventions;
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others will independently develop similar or alternative technologies or duplicate any of our technologies;
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any of our or our licensors' patents will be valid or enforceable;
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any patents issued to us (or our licensors) will provide us with any competitive advantages, or will be challenged by third
parties;
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we will develop additional proprietary products or technologies that are patentable; or
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the patents of others will have an adverse effect on our business.
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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 and Ginkgo, require us to share certain confidential information,. 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
proprietary information and inventions agreements upon the commencement of an employment or consulting arrangement with us. We
additionally require contractors, advisors, corporate collaborators, outside scientific collaborators and other third parties that
may receive trade secret information to execute such 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
If we or one of our collaborators is 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. There may be 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 may need to obtain a license from the owner, develop or
obtain alternative technologies, 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:
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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;
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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;
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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
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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.
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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
develop under U.S. federally funded research grants and contracts, including with DARPA and DOE, 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 and
DOE. 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.
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, including DARPA and DOE. 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 2018 and beyond.
If we are unable to secure such government contracts, it could harm 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 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.
We may become subject to lawsuits or indemnity claims in the
ordinary course of business, 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, indemnity claims and other legal proceedings. These actions may seek, among other
things, compensation for alleged personal injury, employment discrimination, breach of contract, property damage and other losses
or injunctive or declaratory relief. In the event that such actions, claims or proceedings are ultimately resolved unfavorably
to us 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. For more information regarding our current legal proceedings, please refer to the section entitled
“Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K.
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 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. In addition, we 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. Furthermore, reductions to our workforce as part of potential cost-saving measures, such
as those discussed above with respect to our 2018 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.
We may not be able to fully enforce covenants not to compete
with and not to solicit 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
or indirectly soliciting our employees or 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.
Our operations rely on sophisticated information technology
and equipment systems, a disruption of which could harm our operations.
We rely on various information technology and
equipment systems, some of which are dependent on services provided by third parties, to manage our technology platform and operations.
These systems provide critical data and services for internal and external users, including research and development activities,
procurement and inventory management, transaction processing, financial, commercial and operational data, human resources management,
legal and tax compliance and other processes necessary to operate and manage our business. These systems are complex and are frequently
updated as technology improves, and include software and hardware that is licensed, leased or purchased from third parties. If
our information technology and equipment systems experience breaches or other failures or disruptions, our systems and the information
contained therein could be compromised. While we have implemented security measures and disaster recovery plans designed to mitigate
the effects of any failures or disruption of these systems, such measures may not adequately prevent adverse events such as breaches
or failures from occurring or mitigate their severity if they do occur. If our information technology or equipment systems are
breached, damaged or fail to function properly due to internal errors or defects, implementation or integration issues, catastrophic
events or power outages, we may experience a material disruption in our ability to manage our business operations. Failure or disruption
of these systems could have an adverse effect on our operating results and financial condition.
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 414 full-time employees at December 31, 2017. 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:
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manage multiple research and development programs;
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operate multiple manufacturing facilities around the world;
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develop and improve our operational, financial and management controls;
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enhance our reporting systems and procedures;
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recruit, train and retain highly skilled personnel;
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develop and maintain our relationships with existing and potential business partners;
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maintain our quality standards; and
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maintain customer satisfaction.
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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.
We have identified material weaknesses in our internal control
over financial reporting which, if not corrected, could affect the reliability of our consolidated financial statements and have
other adverse consequences.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Rule 13a-15(f) under the Exchange Act. Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404) and related
SEC rules require management to assess the effectiveness of our internal control over financial reporting. Based on the assessment
as of December 31, 2017, our management believes that our internal control over financial reporting was not effective at that
date due to a material weakness we identified. A material weakness is a deficiency, or combination of control deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected on a timely basis. The material weakness we identified relates
to (i) an insufficient number of trained resources with assigned responsibility and accountability over the design and operation
of internal controls related to complex, significant non-routine transactions as well as routine transactions and financial statement
presentation and disclosure, (ii) ineffective risk assessment processes to identify and analyze necessary changes in significant
accounting policies and practices that were responsive to changes in business operations resulting from complex, significant non-routine
transactions, implementation of new accounting standards and related disclosures, and completeness and adequacy of required disclosures,
and (iii) an ineffective information and communication process to ensure that processes and controls were effectively documented
and disseminated to enable financial personnel to effectively carry out their roles and responsibilities. See Part II, Item 9A
“Controls and Procedures” of this Annual Report on Form 10-K for additional information. If not remediated, the material
weakness could result in a material misstatement to our annual or interim consolidated financial statements that would not be prevented
or detected on a timely basis. Our management has developed, and begun to implement, a plan to remediate the material weakness.
We cannot, however, assure you that we will be able to implement the plan, or to remediate the material weakness in a timely manner.
Furthermore, during the course of re-design of existing processes and controls, implementation of additional processes and controls
and testing of the operating effectiveness of such re-designed and additional processes and controls, we may identify additional
control deficiencies that could give rise to other material weaknesses, in addition to the currently identified material weakness.
We expect the remediation plan to extend over multiple financial reporting periods in 2018. If our remedial measures are insufficient
to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal controls are
discovered or occur in the future, we may be unable to report our financial results accurately or on a timely basis, which could
cause our reported financial results to be materially misstated and result in the loss of investor confidence and adversely affect
the market price of our common stock and our ability to access the capital markets, and we could be subject to sanctions or investigations
by the NASDAQ Stock Market (NASDAQ), the SEC or other regulatory authorities.
If we fail to maintain an effective system of internal controls,
we may 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 help us to prevent fraud. 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. In particular, this may occur 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, it could cause delays in our external reporting. Even if we conclude in the future
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, which could reduce the market’s confidence in our financial
statements and harm our stock price.
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 foreign currencies mostly because of political
and economic conditions. 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 elsewhere, 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 U.S. GAAP operating results could fluctuate substantially due to the accounting
for embedded derivatives in our convertible promissory notes and convertible preferred stock.
Features in several of our outstanding
convertible debt instruments are accounted for under Accounting Standards Codification 815, Derivatives and Hedging, or ASC
815, as embedded derivatives. For instance, with respect to the 2015 144A Notes, if the holders elect to 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 through April 15, 2019, the
maturity date of the 2015 144A Notes. The early conversion payment features of 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 some of our debt instruments, including 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 discount at the date of issuance that is netted against the principal amount of 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 our stock price results in an increase in the estimated fair value of the
embedded derivative liabilities. The embedded derivative liabilities may have, on a U.S. GAAP basis, a substantial effect on
our balance sheet from quarter to quarter and it is difficult to predict the effect on our future U.S. 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. The effects of these embedded derivatives may cause our U.S. GAAP
operating results to be below expectations, which may cause our stock price to decline.
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 (the Code), a corporation that undergoes an “ownership change” is subject to limitations
on its ability to utilize its pre-ownership change net operating loss carryforwards (NOLs) to offset future taxable income. During
the three years ended December 31, 2017, changes in our share ownership resulted in a significant reduction in our NOLs. 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; if that occurs, our ability to utilize NOLs could be further limited by 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 under Section 382 of the Code.
For these reasons, we may not be able to utilize a material portion of our NOLs as of December 31, 2017, even if we attain
profitability, which could adversely affect our results of operations.
If we fail to comply with our obligations as a public company, our business may
be adversely affected.
As a public company, we incur significant legal, accounting and
other expenses in connection with our obligations under applicable securities laws, including the internal and external costs of
maintaining the system of internal controls discussed above as well as the costs of preparing and distributing periodic public
reports, including financial statements and footnotes. In addition, changing laws, rules and regulations relating to corporate
governance and public disclosure, including regulations implemented by the SEC and NASDAQ, increase our legal and financial costs,
including costs relating to monitoring, evaluating and complying with such laws, rules and regulations. These laws, rules and regulations
are subject to varying interpretations and may evolve over time as new guidance is provided by regulatory and governing bodies,
which may result in increased compliance and governance costs and the diversion of management resources. If our efforts to comply
with such laws, rules and regulations are not successful, we could be subject to fines, penalties or regulatory proceedings, which
can be time consuming and costly to litigate and could lead to negative publicity about our company. These events could also make
it more difficult for us to attract and retain qualified members of our board of directors, executive officers and other employees.
If any of these risks occur, or if these requirements divert our management’s attention from other business concerns, they
could have a material adverse effect on our business, financial condition and results of operations.
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 December 31, 2017, the reported closing price of our common stock on NASDAQ was $3.75 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:
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fluctuations in our financial results or outlook or those of companies perceived to be similar to us;
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changes in estimates of our financial results or recommendations by securities analysts;
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changes in market valuations of similar companies;
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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;
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changes in our capital structure, such as future issuances of securities or the incurrence of debt;
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announcements by us or our competitors of significant contracts, acquisitions or strategic partnerships;
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regulatory developments in the United States, Brazil, and/or other foreign countries;
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litigation involving us, our general industry or both;
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additions or departures of key personnel;
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investors’ general perception of us; and
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changes in general economic, industry and market conditions.
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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, were involved in one such lawsuit that was
dismissed in September 2017, and are currently involved in four such lawsuits, as described in more detail below under “Legal
Proceedings,” and we may be the target of this type of 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 NASDAQ, 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 NASDAQ
notifying us that we were not in compliance with the requirement of NASDAQ Listing Rule 5450(a)(1) for continued listing on The
NASDAQ Global Market (the Minimum Bid Price Listing Rule), 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 had 180 calendar days,
or until December 12, 2016, to regain compliance with the Minimum Bid Price Listing Rule. To regain compliance, the closing bid
price of our common stock had to be at least $1.00 per share for a minimum of 10 consecutive business days. On November 1, 2016,
we received a notice from NASDAQ that we had regained compliance with the Minimum Bid Price Listing Rule. Subsequently, on December
19, 2016, we received a notice from NASDAQ notifying us that we were again not in compliance with the Minimum Bid Price Listing
Rule 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 had 180 calendar days, or until June 19, 2017, to regain compliance with
the Minimum Bid Price Listing Rule. On June 5, 2017, after receiving board and stockholder approval, we amended our certificate
of incorporation to implement a 1-for-15 reverse stock split of our common stock as well as a reduction of the total number of
authorized shares of our common stock from 500,000,000 to 250,000,000. On June 20, 2017, we received a letter from NASDAQ notifying
us that we had regained compliance with the Minimum Bid Price Listing Rule as a result of the closing bid price of our common stock
being at $1.00 per share or greater for the 10 consecutive business days from June 6, 2017 to June 19, 2017. There can be no assurance
that we will maintain compliance with the Minimum Bid Price Listing Rule in the future or that our common stock will remain listed
on NASDAQ.
Any delisting of our common stock from NASDAQ
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, the 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 NASDAQ 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. 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 NASDAQ could materially adversely affect
our business, financial condition and results of operations.
The concentration of our capital stock ownership with insiders will limit the ability
of other stockholders to influence corporate matters and presents risks related to the operations of our significant stockholders.
As of December 31, 2017, the company’s
significant stockholders held an aggregate total of 51.2% of the company’s total common shares outstanding, as follows: DSM
(19%), Foris Ventures, LLC (Foris) (9.4%), Total (9.4%), Maxwell (Mauritius) Pte Ltd (Temasek) (7.2%) and Vivo Capital LLC (Vivo)
(6.2%). Furthermore, DSM, Foris, Total, Temasek and Vivo each hold convertible preferred stock, convertible promissory notes and/or
warrants, pursuant to which they may acquire additional shares of our common stock and thereby increase their ownership interest
in our company. This significant concentration of share ownership may adversely affect the trading price of our common stock because
investors often perceive disadvantages in owning stock in companies with stockholders with significant interests. Also, these stockholders,
acting together, may be able to control or significantly influence 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, and may not act in the best interests of our other stockholders. Consequently,
this concentration of ownership may have the effect of delaying or preventing a change of control, or a change in our management
or board of directors, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control
of our company, even if such actions would benefit our other stockholders.
The concentration of our capital stock ownership
also presents risks related to the operations of our significant stockholders, including their international operations. For example,
certain affiliates of Total that we do not control and that may be deemed to be our affiliates solely due to their control by Total
may be deemed to have engaged in certain transactions or dealings with the government of Iran in 2017, for which Total has provided
disclosure under Section 13(r) of the Exchange Act. Such disclosure is set forth in Exhibit 99.1 to this annual report on Form
10-K and is incorporated herein by reference. Disclosure of such activity, even if such activity is not subject to sanctions under
applicable law, and any sanctions actually imposed on Total as a result of these activities or for other violations of applicable
laws, such as anti-bribery laws, could harm our reputation and have a negative impact on our business.
In addition, certain of our significant stockholders
are also commercial partners, including DSM and Total, and have various rights in connection with their security ownership in us.
These stockholders may have interests that are different from those of our other stockholders, including with respect to our company’s
commercial transactions. While we have a related-party transactions policy that requires certain approvals of any transaction between
our company and a significant stockholder or its affiliates, there can be no assurance that our significant stockholders will act
in the best interests of our other stockholders, which could harm our results of operations and cause our stock price to decline.
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 have in place, or have agreed to file, registration
statements for the resale of certain shares of our common stock held by, or issuable to, certain of our largest stockholders. All
of our common stock sold pursuant to an offering covered by such registration statements will be freely transferable. In addition,
shares of our common stock issued or issuable under our equity incentive plans have been registered on Form S-8 registration statements
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 shares of our 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 nominate directors and take other corporate actions. These provisions include:
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a staggered board of directors;
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authorizing the board of directors to issue, without stockholder approval, preferred stock with rights senior to those of our
common stock;
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authorizing the board of directors to amend our bylaws, to increase the number of directors and to fill board vacancies until
the end of the term of the applicable class of directors;
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prohibiting stockholder action by written consent;
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limiting the liability of, and providing indemnification to, our directors and officers;
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eliminating the ability of our stockholders to call special meetings; and
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requiring advance notification of stockholder nominations and proposals.
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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 our company, 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 certificate
of incorporation, our bylaws and in our agreements with Total could discourage potential takeover attempts, reduce the price that
investors are 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.