Amyris Inc (AMRS) 2011 Q2 法說會逐字稿

Good day and welcome to Amyris's second quarter 2011 earnings conference call. This call is being webcast live on the events and presentations page of the investors section of Amyris's website at www.Amyris.com. This call is property of Amyris, and any recording, reproduction or transmission of this call without the expressed written consent of Amyris is strictly prohibited. You may listen to the webcast replay of this call by going to the investor section of Amyris' website.

As a reminder, today's call is being recorded. I would now like to turn the call over to Erica Mannion, Investor Relations for Amyris. Please go ahead.

Good afternoon. Thank you for joining us to discuss Amyris's financial and operating results. With me today are John Melo, Chief Executive Officer; Jery Hilleman, Chief Financial Officer. We have prepared a PowerPoint slide presentation to accompany the presentation, which you can find in the investor section of our website under events and presentation.

On the call today we will provide certain forward-looking statements about events and circumstances that have not yet occurred. Actual outcomes and results may differ materially from those contained in these statements due to a number of risks and uncertainties, including those provided in the Company's recent SEC filings, available on the SEC's website at www.SEC.gov. Please refer to these filings for a detailed discussion of the relevant risks and uncertainties. The Company undertakes no responsibility to update this information in the conference call.

The press release distributed today that announced the Company's results is available on the Company's website at www.amyris.com, in the investors section under financial press releases. The current report on Form 8-K furnished with respect to our press release is available on the Company's website in the investors section under SEC filings and on the SEC's website.

You will also hear discussions of non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is contained in the press release distributed today and available on the Company's website.

Finally, I would like to let you know that Amyris will be hosting an analyst day in New York on September 12. We will be webcasting this event, and we will provide presentation materials on our website.

Now I would like to turn the call over to John Melo.

Thank you, Erica, and good afternoon, everyone. At Amyris we strive to execute on our key milestones while finding incremental ways to accelerate growth. Our accomplishments this quarter illustrate our commitment to this principle. We delivered on commercial production, customer expansion and a step-up opportunity for our diesel business. We have commercial production underway at Biomin and Antibioticos, chemical finishing at Glycotech and in Brazil, and construction at Paraiso and Sao Martinho, Amyris's joint venture, remains on schedule.

We added four new customer agreements during the quarter, including with Kuraray for Biofene polymers, Wilmar for Biofene surfactants, Sao Paulo Trans for diesel and Rio bus fleets for initial diesel testing. In addition, we are expanding our relationship with Cosan where we are operational in our joint venture Novvi, following a substantial period of diligence and preparation; and with Firmenich where we are initiating a second product program in the flavors and fragrances market and adding a third.

Together, these agreements represent over $1.5 billion in annual revenue potential and a potential we would expect to realize fully in the 2014 to 2015 time line, and we expect to start initial delivery against this demand in 2012.

Finally, we have been pursued by a number of companies to further expand our business and accelerate the commercialization of our farnesene renewable diesel, also known as cane diesel, in Brazil. These strategic discussions have culminated in our entering into a term sheet with Total to expand our current collaboration and form a joint venture to scale and commercialize our No Compromise Renewable Diesel. In addition to providing a path to fund to scale up of our diesel, this arrangement provides non-equity funding for our R&D of farnesene to diesel.

These achievements, combined with our overall progress, continue to underpin what we described during our IPO as the three strategic pillars of our plan to deliver the leading integrated renewable chemical and fuels company, a technology platform that enables us to deliver no-compromise molecules into our 6 vertical markets, access to the lowest-cost, largest-scale sustainable feedstock and a commercial platform integrating collaboration and product supply agreements supporting rapid scale-up and time to free cash flow.

As a result of our achievements, the following key drivers of value have changed since our IPO. First, we have doubled our strain engineering and screening throughput, resulting in our ability to accomplish in three months what in 2008 required 18 months. We are not stopping here. We expect to increase our throughput a further 2X, enabling us to reduce time to achievement from three months to six weeks. This means that we expect to have a strain making a product for testing faster than anyone in our industry. This success is resulting in expansion of our existing collaborations and leading to new product agreements such as those with Total and Firmenich.

Secondly, we have added over $2 billion in annual revenue potential to our collective collaboration and product agreements since we IPOed the Company.

Third, we have added the potential to fund the scale up production of our renewable diesel without dilution to our current shareholders. We anticipate creating a new joint venture with Total with a potential target of over $1 billion in revenue in the 2015 to 2016 window and expect to reach initial renewable diesel production at competitive economics around 2013-2014.

Fourth, the ASP of the Amyris product portfolio at scale increases to $3 to $4 a liter from the IPO target of $2 a liter. This is the result of increased customer demand for our chemical applications and the expected transfer of diesel production to the Amyris/Total diesel joint venture.

Finally, during the fourth quarter we expect to generate approximately $10 a liter or $37 a gallon in cash margin from our most profitable product application and $1 a liter or $3.70 a gallon from our Brazil niche diesel production. This outlook for the fourth quarter is consistent with prior guidance of $3.70 a liter cash production cost.

I would now like to cover these highlights in further detail. First, our first commercial plant at Biomin has started up and is producing farnesene. In our first month of production we delivered 99% of our target production volume and are ramping up quickly. Our initial start-up went well and without surprises. Our yeast, our processes and our equipment performed as expected.

As we ramp up production at the site, we plan to use the Biofene we produce to make squalane for sale to cosmetics customers, and diesel for delivery starting this quarter to the Sao Paulo Transit Authority. After a successful start-up our team at Biomin is going through a steep learning curve as we learn to adapt in order to streamline our production environment. We are fortunate to have a very experienced team that has been working together for some time, starting at our Campinas demo plant.

Beyond Biomin, we have now started operations at our second plant in Spain, Antibioticos, and that is also going well. Our third plant, at Tate & Lyle, is nearing completion and should be commissioned this month. We are also engaged in the design and construction of our plant at Paraiso. This facility is designed to convert 1 million tonnes of cane to Biofene using six 200,000-liter fermenters, more than doubling our fermentation capacity globally.

As the photos in our supplemental materials show, we have already established the plant design and started construction. We are moving at an accelerated rate on this project by adapting the Biomin designs to this larger operation, and we are now acquiring long lead equipment. The 200,000-liter design has become our basic and core design, which is exactly the same tank configuration we are using at our contract manufacturing facilities.

Finally, the largest production facility we have underway is our joint venture with Sao Martinho. This project remains on schedule for start-up mid-2012 and continues also on budget. Our key project deliverables this year are to complete equipment purchases, finish the foundation work and begin fermenter installation.

While we are ramping up production of Biofene on three continents, our team in Emeryville is expanding our product platform by working on C10 molecules for polymers, fragrances and fuel, and C5 isoprene for tires and polymers. These molecules fit well with our current activities and business model. They arise from the same synthetic biology platform and pathways, have common scale-up and production processes and serve with the same large customers we are targeting within our defined six vertical markets. So we are using all of our core platform, focused on the single activity of engineering our yeast to make products that go to the same customers we are selling our core applications.

For the C5 isoprene partners, we have executed one term sheet and now are working on the related final agreements, which address both near-term research funding and product off-take. As we ramp production and expand our customer base, we have also mapped out how to effectively optimize supply and demand to maximize the earning potential of our supply chain. The illustration in our presentation shows how we expect to match our production sites with our customers. CMOs offer geographic and application flexibility. For example, the smaller fermenters at Antibioticos are very suited to smaller, specialized molecular production such as for flavors and fragrances, while Tate & Lyle fits in well with our lubricants and base oil production, and Biomin with squalane and fuels for sale in Brazil.

We envision Paraiso to plying principally Novvi in the short-term and Kuraray, and Sao Martinho Amyris supplying Proctor & Gamble, M&G and other polymer customers. We are looking to add at least one additional mill for 2013 production. This mill would bring our committed feedstock to 15 million tonnes of cane crush, enough to produce over 700 million liters at target production efficiency. It is our plan to add this additional mill this year and demonstrate continuing improvement to the economics based on increased demand for our production model in Brazil.

For 2011 we are producing solely in the CMOs and expect to sell the Biofene produced there in the form of squalane, lubricants and diesel in certain Brazilian niche markets. Our customer demand for squalane is growing with 180 metric tonnes of immediate demand indicated by five large customers and an additional 100 metric tonnes under evaluation with one of the largest multinational cosmetic customers. We expect to start filling this demand this quarter. We also will start selling diesel to the Sao Paulo bus fleet.

During the fourth quarter we are looking to start selling FENE-based base oils and have letters of intent signed or in process with several leading global lubricant companies.

The final accomplishment we are highlighting today is our recent term sheet with Total for production and commercialization of diesel. We see this as a powerful validation of our technology platform and diesel economics. Total has worked with us now for a year and confirmed the opportunity through a better understanding of our diesel product and our core technology. The expansion of our relationship results in the addition of farnesene development for diesel to our existing technology collaboration with Total, which has the potential to bring in at least $100 million in development funding through 2013, as well as capital to fund scale-up of diesel production through the formation of an Amyris/Total joint venture company.

We expect the joint venture company to become one of the world's leading renewable diesel suppliers, leveraging Amyris's technology and access to low-cost feedstock with Total's access to capital and leading European diesel marketing and supply chain. We expect to sign the JV definitive agreements by year end and will share further details at that time.

Before I turn the call over to Jery, I would like to highlight our most important near-term deliverables. First, we expect to be operating this quarter at three fermentation production facilities on three continents with three feedstock sources. We expect these three CMOs to produce at a 30-million-liter run rate by the end of 2011, and for our five production facilities together to produce over 200 million liters a year, once we achieve target production efficiency. We plan to finish farnesene for cosmetics globally, lubricants in the US and diesel in Brazil.

Our current customer agreements represent a total of approximately $2.5 billion in revenue potential, represented by Novvi, M&G, P&G, Kuraray, the Sao Paulo and Rio bus fleets, Firmenich, Givaudan, Soliance and the many distributors in our cosmetics business as well as Wilmar and Shell. We will continue growing our customer base through the end of the year.

We expect to complete our renewable diesel joint venture agreement with Total and the definitive agreements with our first isoprene partner. We intend to add an agreement for an additional 2 million tonnes of annual crush, increasing our total feedstock access from 13 million tonnes to 15 million tonnes crush. We plan to again double our strain engineering and screening throughput, reducing our time from initial strain to product for testing from 18 months in 2008 to six weeks by the end of this year.

Finally, based on the anticipated funding from current and expected partners, we expect our net OpEx cash burn to decreased significantly as we move into the second half of 2011, keeping us on track to achieve our goal of positive cash flow from operations in 2012.

Our leading position and access to low-cost, scalable feedstock and our commercial platform are underpinned by the world's leading industrial synthetic biology platform for engineering and scaling yeast as the production workhorse of the renewable chemicals and fuels industry. We are executing on our plan and working with our partners to expand our impact.

Let me now turn the call over to Jery to discuss our financials.

Thank you, John, and good afternoon. Turning to our financial results and outlook, we booked our first Amyris product revenue this quarter, albeit a nominal amount. Our outlook for what we can produce this year remains unchanged at 6 million to 9 million liters, and we expect to sell our final -- and we will set our final production volume based on our assessment of our Q4 2011 and Q1 2012 deliverables and our inventory needs to assure customers that we are building a reliable source of supply.

Our cash Biofene production costs and our target volume remain at $3.70 a liter, and we expect our Brazil production costs to come in below this target. Our ASP outlook remains unchanged at $6 to $7 a liter, supported by the pricing we are seeing for squalane, lubricants and the Brazil diesel.

Our GAAP OpEx is rising quarter over quarter, reflecting a quarterly increase in stock-based expense of $4 million, $2 million of nonrecurring start-up OpEx and $4 million from growth in hiring and outside expenses. However, as John mentioned and as we indicated on the last call, we intend to offset this OpEx growth through incremental partner funding. Toward that objective, we expect to benefit from funding under our anticipated diesel agreement with Total, effective in August, and from an isoprene collaboration starting in the fourth quarter.

As a result, we expect to see a decline in our net cash burn from OpEx. Net cash used in operations for the first half of the year was $47.8 million. We expect this cash burn to decrease going forward as we expand partner funding. As a result, our outlook for net cash burn from operations for the second half of 2011 is $22 million to $32 million, or approximately $70 million to $80 million for the year.

Our CapEx spending was $17 million in the quarter or $31 million total for the first half of the year. Our outlook for full-year CapEx spend for 2011 is in the range of $75 million to $90 million, based on our decision to move forward with construction at Paraiso. We continue to have several options on how to use and finance this facility, including the option for Novvi to own the facility for the production of farnesene for base oil markets.

Our emerging 2012 CapEx outlook falls in the range of $60 million to $70 million. We expect to offset this cumulative CapEx at Biomin, Sao Martinho Amyris and Paraiso, with approximately $50 million to $60 million in project financing debt from Brazilian sources, which is already in process.

Based on these outlook metrics, together with our expectation that we will produce 40 million to 50 million liters next year at our target gross margin, we continue to believe that we have enough cash on hand to achieve positive cash flow from operations in 2012.

Looking forward, John has detailed our overall value-creating milestones. The milestones most critical to the achievement of our near-term financials include starting up our third production facility and keeping Paraiso and Sao Martinho projects on track, selling squalane and diesel in the third quarter and adding lubricants sales in the fourth quarter and completing our expanded agreement with Total and with an isoprene partner.

Now, before we open the floor to Q&A I'm going to turn this back to John for one additional comment.

As we talk about change and transformation at Amyris, there is one other transition to touch on today concerning Jery. Jery joined Amyris four years ago as one of our first 100 employees. Many of you know her well and are aware of her many accomplishments and contributions to Amyris.

However, as many companies grow, change is inevitable, and one of those changes is that Jery will transition out of Amyris in mid-to late 2012. That timing is dependent on when we find her successor, and we appreciate having a process to ensure a smooth passing of the baton. This evolution results from a combination of Jery's personal priorities and the changing needs of Amyris as we transition from a technology developer to industrial scale-up Company.

I am confident that Jery will continue to bring her full efforts to Amyris through this transition period. I wanted to take advantage of the opportunity of having you on the call to thank Jery personally for her outstanding contribution. She is a great and trusted partner of mine and has been fundamental in the formation of our Company and the evolution of our Company since joining us and since my meeting her at the end of 2007.

As I've told her many times, I hope her departure is late in 2012. I think she hopes it's mid-2012, and we are working well together as a team to kick off the search and identify a person to come in for the next stage of the growth in our Company. So I wanted to let you all know that and also, again -- Jery, would you like to add any comments to that?

Thank you, John, for your kind remarks. I would just like to reinforce everything he's said by adding my personal assurance that I remain fully committed to Amyris and look forward to helping the Company find a fantastic CFO to help lead the next stage as we ramp up our international production and supply. We are on track to have a very exciting 2011 and 2012, and I really continue to look forward to being a part of that.

We are at the point now in the call where we would like to open the floor for questions from the dial-in line. For those of you participating via webcast, we welcome you to contact us directly with any further questions. We greatly appreciate your interest in Amyris.

Anthony, could you please prompt the question now?

(Operator instructions) Smitti Srethapramote, Morgan Stanley.

I was wondering if you can go into more details about the recently announced term sheet with Total Gas and Power. What attracted Total to sign the term sheet? And you mentioned that the definitive agreements would likely be signed by the end of the year. What milestones, if any, would you be to achieve before Total enters into definitive agreements?

Smitti, good afternoon or good evening for you, thank you for the question. I'd say there are no milestones to achieve. They are fully committed. What needs to be done is there is a lot of drafting and a lot of work to be done, including basic negotiation of the terms to get to a definitive agreement on the joint venture structure.

For the collaboration element, it's really making amendments to the current collaboration agreement to add farnesene to diesel because that was excluded in the original relationship with Total. Total's original relationship was shareholding, collaboration for new applications. And then those applications, like jet, would turn into joint venture companies as the way we commercialize.

What has happened since we formulated and started our initial collaboration is a couple of things. First of all, I think Total has done extensive work with many technology companies in the sector and, I think, has drawn a conclusion that when it comes to the diesel technology in our product, they believe they have a winner. And it's a winner that's already a company they have a shareholding in and a partnership with, and they felt it would be the best way to scale up and meet diesel needs, which is the second part of it.

Total has concluded that looking at the European demand, looking at European requirements for renewable products and looking at their current European footprint, that it makes a lot of sense now to actually go further and aggressively build a renewable platform, a bio-based platform for diesel production.

They are also -- and I want to be very careful here. They are also very committed to production and partnering for sales in the Brazilian market. So, as we look at our joint venture company, the joint venture company will be global. In the first instance, it will be supplying two markets with large volumes, the Brazilian market and the European market. And part of how we will be doing that is, through the joint venture company we are already actually and very active negotiations for acquiring significant production facilities in cane for a combination of a greenfield and a brownfield expansion to meet the demands of the joint venture Company, again, for both Brazilian and European end markets for renewable diesel.

Got it. And you mentioned that Total would be responsible for potentially funding up to roughly $100 million of CapEx up to 2013. What percent of the total JV's CapEx would that represent?

A great clarification question -- let me draw a distinction. The $100 million, and it's actually $100 million or more, is the amount of collaboration payments that comes into Amyris directly, not the joint venture funding.

So it's OpEx.

It's OpEx, and it's to cover the development of where we are now to the 24% to 27% yield for our strains to effectively work in diesel at the target economics that both of us intend to achieve. So they are making this additional commitment in light of what they've seen with the technology platform and their visibility at this 24% to 26.5%, 27% yield.

Secondly -- so that's kind of one part of this. And that starts happening, as Jery mentioned, as soon as August. And we expect to have the amendments complete in September or the existing collaboration. And that is extending the existing collaboration, and the final checkpoint there is both of us, Total and us, working together to complete those amendments.

There's a second piece of this, which is a formation of a new joint venture company. What I will say to you is what Total has made public so far, which is that they're committing $1.5 billion to $2 billion of CapEx for scaling up their bio-based materials, bio-based products, of which diesel is core to that. And Amyris is the technology and underpinning, and the joint venture Company is the vehicle for that investment.

Got it, okay, great, thank you for the clarification.

Mark Wienkes, Goldman Sachs.

Just wondering, does the lower expected operating expenses as a result of that collaboration and other potential deals that you mentioned -- does that free up capital to be allocated toward maybe owning more of your own mill capacity? Or is it just for more cushion, or is there any interest in adding new chemical building blocks akin to farnesene?

Mark, good evening. The way to think of this is, we are actually maintaining our capital-light scale up in Amyris for chemicals. We see significant interest in the Brazilian sector. Our negotiations in expansion there is going very well. We want to continue down this path; it works for us.

On the other hand, for diesel, diesel, because of the margin structure in diesel and the capital intensity, we really need to be fully integrated and I don't see that as the best use for Amyris's current shareholder capital. So, in a way, we are separating that and putting the capital requirements for scaling up diesel, which will mean exactly some of the points you made -- growing faster, building, being fully integrated, owning all the assets inside the Amyris/Total joint venture -- where, on the other side, in Amyris as you see it today, that will continue to be a capital-like scale-up through partnerships.

What the additional capital does is actually enable us to accelerate time to the final target, i.e., expanding our margin at a faster rate than we initially planned.

Makes sense. And then, just with respect to the Biomin scale-up you mentioned, what have been some of the biggest lessons learned so far from that team?

The biggest lessons learnt are operating in a production plant is different than operating in a demo plant. I can't tell you how lucky we are that we have been operating now for almost two years in that demonstration facility. But even with all that knowledge and all that experience, when you go production, it's not exactly the same. So our lessons are many small lessons -- how you turn a valve in a certain condition. Where we have one standard operating procedure written, that procedure may not be the same procedure required for every single condition. And because this is our first large-scale production facility, we are learning those conditions, and we are having to adapt and change the standard operating procedures to match the conditions in an operating environment.

So I'd say lots of small things, no big a-ha, and a lot of it just about basic operating practices at the site.

That's great, thank you.

Rob Stone, Cowen and Company.

Good afternoon, John, Jery -- lots of good stuff going on. So a couple of questions related to capacity and potential demand, one on Total. You mentioned that you and they are looking at lots of sites -- greenfield, brownfield, getting ready to scale up. Can you give us any sense of what amount of capacity might be going in for that initial 2013-2014 time frame?

Yes. Let me clarify a bit where we are with it, Rob, which is we are looking for and are in negotiations with a significant step in capacity inside the joint venture company. But all of them are -- I'd say there are two to three active negotiations for a one-step move, which would give us access to, call it 10 million or so, 10 million to 15 million in brownfield, an expansion of greenfield on top of that of another 10 million or so, so getting to about a 20 million to 30 million-ton crush base as the capacity Total is looking for. And again, not looking to do it is a bunch of small deals, but looking to do it as take one step, bring in a great operator, grow with that operator and make that growth 50-50 brownfield-greenfield, so we can contribute and have new care into the sector, not just shifting existing cane or diesel production. That is a very critical point of our model and how we are moving forward.

Everything I just described, Rob, is about the production or feedstock base. On top of that, we will be converting, and the idea today is that we would convert a couple of facilities a year to do diesel between now and 2015. So it's basically acquire the feedstock, continue producing the product that's there in brownfield, invest in greenfield so that we're giving back by expanding the cane base, and then start converting the existing assets to make diesel from that cane base between now and 2015.

Okay, so my second demand and capacity question is about the specialty chemicals customers. You talked about having $2.5 billion of demand, which exceeds your planned production. Does that mean that, even with the incremental 2 million tonnes that you expect to add this year, you would still be capacity constrained? Or where would 15 million tonnes put you versus $2.5 billion?

Right now -- and I want to clarify this, Rob, and say between now and 2013-2014 we are partnering closely with our customers and partners to scale up at a level that matches how fast we can bring on capacity. The reality is, if we maxed out the potential for all the applications, it would be significantly greater than we can produce. But we are not doing that. What we are doing is tightly coordinating with the partner. And P&G is a good example. We have had the P&G agreement now for over a year, and we -- the agreement with them is we start supplying when we start the supply, not allocating supply out of our very limited volume.

And so that is exactly what is happening with all these agreements is there is significantly more demand in each of the product applications, specifically for the big chemical applications, not necessarily in the small flavor and fragrance space. But in the large applications there is significantly more demand for farnesene into those applications and we are starting the supply of.

Then what we are doing with this incremental supply that we are bringing on is expanding the rate of share that we take from those customers as we bring that supply online.

Okay, so I'm still trying to get to a number. Out a few years, do you need more than 15 million metric tons? Would you be looking to add additional cane crush in the next few years?

Yes. The answer is, in some of our agreements we already have more than one mill as a potential, and we will be looking to continue to expand our cane base. I think we have indicated we will do another 2 million tonnes between now and the end of the year. We expect that in the first half of next year you shouldn't be surprised if we don't add more on top of that. So you can think of it as our expansion is 2 million or so at a time, and we are going to continue to add new customers from our -- or processing partners from our large pool as we move through the next two, three quarters.

Just a final housekeeping question for Jery -- could keep give us the fuels metrics, gallons of revenue and cost?

Sure. The average ASP for the quarter was $3. The gallons for ethanol were 2.1 million, and gallons for gasoline were 7.1 million, so about 77% of revenue was from blended gasoline.

And the margin on that was (inaudible)?

The product margin was negative, about negative 5% for the quarter.

Thank you.

Pavel Molchanov, Raymond James.

Thanks for taking my question, first one for John -- as you guys kind of ramp up your collaboration and you work towards commercialization with Total, how does Total think about its seven, by my count, biofuel partners? Are they working at the same pace with all of them? Are you their priority? What's that kind of competitive dynamic like?

You know, I can tell you -- first of all, our view is that Total is an outstanding partner. We have enjoyed and have learned a lot from them, and they have been extremely helpful in everything we do, including the building of our plants. They have actually deployed some of their best capital project people to Brazil.

I have to say -- and I know this will sound smug; I don't mean it to. There is no competitor in Total. The way I look at it and the way we have worked is very clear, and they have made this also pretty clear in their investor presentations. They see one platform play for their bio-based products, and it's Amyris. And they see everything else as building blocks around it.

As a matter of fact, they have actually structured most of the activity they have in that our partnership and their investment in Amyris is inside the core operating business, and a lot of their participation in other companies is in their venture arm, which is seen as a financial investment, an option rather than core in the business activity. So I think that's how I would distinguish how they see it, how they operate and how it feels being a partner with them.

Okay, that's helpful. And then a follow-up for Jery, if I may -- on the payments from Total that you expect to receive, are we going to see that on the top line essentially other revenue, or is that just going to be a negative or a reduction in your OpEx lines?

Well, we still have an asset on the balance sheet from the sale of equity to Total. It's down to a little -- about $26 million or so now. And after we continue to offset that asset with payments of $26 million from Total, then it will show in the revenue line.

Okay, so how will it flow through the income statement, for example, in the next couple of quarters?

The next couple of quarters, up until we get that $26 million of payments, it will not flow at all on the income statement. And then after that, it will come in as revenue.

Okay, understood, thanks.

Ben Kallo, Baird.

My question was on Paraiso. It sounded like, John, you had a couple different scenarios there that you guys were going to fund construction yourselves, but then possibly that the JV could own it. Could you just walk us through each -- where you stand there and what the decision-making process is like?

I will, Ben. The first thing I have to say is what is really driving us to step back and ask how we want to do this is really the return on investment on that asset. That asset, based on our current technology, the current applications and our current cost performance basically returns back our total equity capital investment in the first full year that we operate it.

So one of the uses and why we are not just jump into passing it over to Novvi as production for FENE is that it is a great return on our capital, and we are really sitting there asking ourselves, based on the real tension we have, where Novvi needs production now, they are in a process where the deals that they have in place and are negotiating for base oil require a lot of product, starting in the fourth quarter, and our desire is to get a great return on that capital and get more of the fee margin for ourselves is really why we teed it up the way we did. The negotiation -- we are debating and we're trying to figure out where can we get with it. Again, and I want to reinforce that my bias is, based on the return on that capital from an equity basis, I would prefer we keep it 100%, but I needed to put it out there that it is an option and we are negotiating actively where the outcome is.

Okay. And then, as you look at another mill, I think you said that your plans were to have another mill in operation by 2013. Is that something related to Total, or is that in addition to that?

It's non-Total. Again, we are in active negotiation on this particular deal, so I can give you a sense of where it's headed, which is it will end up being in the structure of the partner shares the capital investment with us. It will be the first mill where we actually shift the percentage to Amyris. So in this particular case, the current negotiation is 60/40 Amyris partner, both on CapEx and return. So, basic structure, partner puts in a bit more and Amyris gets a bit more of the margin than we have in our typical deals. And a big part of it is mainly from the partner perspective, the fact that we are operating now.

It's no longer a we think you're going to operate, but we are not sure. They are looking at our operation, they are seeing our scale up, they are seeing our product portfolio. And as a result, we have been able to get a slightly better deal than we have with the others, both on our input cost as well as the margin share -- 60 Amyris/40 partner, CapEx 60 partner/40 Amyris.

Great, thank you.

(Operator instructions) Jeff Zekauskas, JPMorgan.

Can you update us on your M&G partnership or business relationship?

It's going very well. We actually have really expanded the partnership, even though we really have not talked much about it. We've expanded in that they had a research center in Sharon, Ohio, where we now are actually managing the research center and all the capability they have from an R&D perspective really in service of a common motive we have, which is to accelerate the use of FENE and PET, and the work that's happening right now is to formulate the perfect solution to maximize the amount of farnesene that we could use inside of PET.

And I want to be careful. Maximize means low end, 2%, high end 8% to 10%. And we are focused on figuring out what formulation, what performance, and then how do we get to the best price/margin optimization in the relationship with M&G?

Okay. And I want to go over some of the numbers Jery gave out earlier in the call. Did you say that in 2012, from Sao Martinho you expect to produce 40 million to 50 million liters of FENE for 1 million tonnes of crush? Or was the 40 million to 50 million liters of FENE your total production in 2012?

It was our total production for 2012. And that's really based on the expectation that Sao Martinho will come up mid-2012 and then wrap up operations. But we won't see the full year benefit of Sao Martinho in 2012.

And it also includes Paraiso coming in line -- online around mid-2012, and the three CMOs continuing production through all of 2012.

So you said that, as of the end of the year, your three CMOs had capacity of 30 million liters, a run rate capacity of 30 million liters; is that right?

That's correct.

Right.

Okay. And, order of magnitude, of the 50 million liters that you expect to sell next year, how would you divide it up into applications in just very rough terms?

2012?

Yes.

I can be very specific -- 50% lubricants and the rest divided into cosmetics, polymers and finishing off or continuing our niche diesel in Brazil.

Okay. And then, I guess, lastly -- so over the past nine months, the price of ethanol has really moved up in Brazil and the price of sugar has really moved up in Brazil. Does that affect your 2012 production economics, or are you shielded in various ways from that inflation?

Yes; I mean, actually, the way it played out, Jeff, is the price of ethanol has stabilized since the peak, which is right before the crush started. And then you are right; the sugar has gone up to 30 or north of 30 and back down to the 28. But in the way our structure is today, our agreements, that has had very little impact on our overall cost. Or, said differently, if we were to look at what our agreements are and what our current production is, we have actually -- we would see very little impact in those moves.

Okay, and then, if I can just squeeze in one last one, you said that you expect to produce bioproducts of 6 million to 9 million liters this year. How much do you expect to sell this year, in 2011?

It's actually a slightly different challenge, Jeff, in that we could easily sell all of that. The big challenge is we need to build inventory, and we actually need product for testing. So the real question we are optimizing for is, how much could we stress the limited inventory we want to manage towards? And then how do we minimize what we need to use for testing without compromising our revenue ramp?

Now I understand that, thanks very much.

Ladies and gentlemen, this does conclude today's question and answer session. I would now like to turn the conference back over to John Melo.

Let me close by saying thank you for participating in this call. And again, a huge thanks to Jery, even though I hate saying that because I hope she's on for the next six calls, actually. But we look forward to speaking with you again soon and look forward to any questions you might have as follow-up. Thank you.

Thank you.

And, once again, ladies and gentlemen, this does conclude today's conference call. We thank you all for your participation.