Amyris Inc (AMRS) 2012 Q2 法說會逐字稿

Welcome to the Amyris second quarter 2012 conference call. This call is being webcast live on the Events and Presentations page of the Investors' section of Amyris' website at www.amyris.com. This call and the accompanying slides are the property of Amyris, and any recording, reproduction or transmission of this call without the expressed written consent of Amyris is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investors section of Amyris' website.

I would now like to turn the call over to Joel Velasco, Senior Vice President, External Relations.

Good afternoon. Thank you for joining us to discuss highlights of Amyris' recent progress and outlook. With me today are John Melo, Chief Executive Officer; and Steve Mills, Chief Financial Officer.

On the call today and on this webcast you will 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 or in the supplemental materials which are available on the Company's website at investors.amyris.com.

We will also provide certain forward-looking statements about events and circumstances that have not yet occurred, including projections of Amyris' operating activities in 2012 and beyond. Actual outcomes and results may differ materially from these 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 website at www.sec.gov. Please refer to these filings for detailed discussions of relevant risks and uncertainties. The Company undertakes no responsibility to update the information in this call. 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 website.

I would now turn the call over to John Melo.

Good afternoon, and thank you for joining us for our quarterly update. During the second quarter, we continued to make progress on our technology development, our industrial scale production and the execution of our commercialization plans, consistent with the strategy outlined earlier this year. I will first share what we've accomplished this past quarter, and then provide some additional context for what we will be doing in the upcoming months.

Amyris' first large scale plant located in Brazil at Paraiso remains on track and on budget. Paraiso will be mechanically complete this week with initial commissioning already started. We deliberately narrowed our current contract manufacturing operations, CMOs, from 3 to 1 CMO, Tate & Lyle in Decatur, Illinois. We transferred our trained operators from Biomin, our Brazilian CMO to support commissioning and operations at Paraiso. We had stable and reliable operations with no failed runs and performance at scale that is statistically indistinguishable from our large scale performance.

We have made improvements to our cost structure, both through OpEx reductions as well as efficiency gains. We are in the final stages of the plant closure of our ethanol trading business, which will reduce our top line revenue and offer more transparency into our renewables business as Steve will describe later on this call.

Shipments to our customers remain on track across our two current commercial products. Renewable diesel and squalane and we are seeing strong interest in other farnesene applications. We have reached an agreement with Total on a revised structure and up to an incremental $82 million of funding, three-year funding program for farnesene research and development. We have simplified our joint collaboration to focus on renewable jet fuel and diesel from Biofene while giving Amyris governance over the research program and Total, predictability and security in funding our joint fuels efforts.

Finally, we are in active discussion with several other companies with the potential to receive additional funding in the coming quarters. In today's call, I will review our progress in these areas as well as provide you with an update on our business strategy and funding opportunities.

As we outlined in our previous call, we have focused our current production operations on one contract manufacturing operation. As we prepare to bring online Amyris' own industrial scale farnesene production facility at Paraiso. We have met three main milestones during the past quarter as a result of our focused approach on technology and manufacturing operations. First, we narrowed our current CMO production platform to the Tate & Lyle facility in Decatur, Illinois. In May, we paused our production at Antibioticos in Spain and transitioned our staff at Biomin in Piracicaba Brazil to prepare for commissioning of Paraiso.

During the quarter we produced approximately 810,000 liters of farnesene from these CMOs, bringing our year-to-date production to over 1.7 million liters. Over the last 12 months, we have produced approximately 2.5 million liters of farnesene, building inventory to meet near-term customer demand, particularly as we consolidate our CMO operations in Illinois and commission our plant in Brazil. As a result, we will have lower production volumes in the remainder of the year while growing our sales from inventory.

Second, as we noted in our press release today, Amyris' farnesene production facility at Paraiso will be mechanically completed this week and commissioning has started. We remain on track and on budget. For those following along the webcast presentation, you can see some of the before and after photos from Paraiso.

Third, we will complete commissioning in the second half of this year and begin commercial production in early 2013 at Paraiso. Utilizing our experience from operating with multiple feedstocks and three CMOs over the last year as well as our two pilot facilities in California and Brazil, we have significantly reduced costs, thanks to improvements in our production processes ranging from optimizing feedstock streams to modifying our process parameters to increase our production process efficiencies. In short, we expect that implementing these process improvements, deploying our ever-improving strengths at scale and maintaining robust operations at our two production facilities will result in reductions of our cost of production, further expanding the range of markets we can target.

I will now discuss some highlights pertaining to customer acceptance and sales over the past quarter and how they relate to our expectations for the future. First on fuels. We have met key milestones on diesel as well as on jet, which represent two large long-term market opportunities that require strong engagement with suppliers and customers. We continue to produce and sell renewable diesel in niche Brazilian markets such as public bus fleets in Sao Paulo and Rio.

Due to the outstanding performance of our fuel, the Brazilian fuels regulator ANP recently approved the expanded use of our renewable diesel to an additional 135 buses from the 180 already in place in Sao Paulo. We will begin delivering these additional volumes in the second half of this year. As we announced in mid-June, we successfully tested our renewable jet fuel in a passenger plane. We are now focused on the lengthy ASTM certification process for our jet fuel and are encouraged by the success of our demonstration flights and above all by the engagement of our existing partners, who are eager to have our farnesene-derived jet fuel in the market.

We are in advanced discussions with Azul Airlines for an off take agreement for delivery, following regulatory and certification approvals, which we hope will be completed in 18 to 24 months. Again, in both diesel and jet, we see opportunities in the coming years. The customer acceptance and approvals we have already achieved has been tremendous and validates our underlying strategy of being an integrated renewable fuels company.

And as we announced this morning, Amyris will continue building its fuel business in Brazil and may later add this to the global joint venture with Total. Turning to our higher-value products. Let me provide you with an update on squalane, our best-in-class cosmetic emollient. Customer market response to our NEOSSANCE Squalane continues to be excellent and there is a recognized differentiation of our product relative to shark or olive oil derived squalane.

Here are some highlights, during the second quarter, we initiated shipments to Centerchem, our U.S. distributor. With the addition of the U.S. distributor, we now have global distribution reach for cosmetics. Working with our Japanese partner, Nikko, we continue to identify new opportunities for our high-quality squalane, such as in apparel and hair care products.

In addition to new applications, our squalane is now coded with three of the top cosmetic companies in the world. Coding means that Amyris' squalane is among the limited number of ingredients that will be used in future formulations with these companies.

Finally, we have received positive feedback for two new farnesene-based cosmetic products that we plan market introduction next year. This is consistent with our strategy to have one to two new cosmetic products launched each year. In addition to expanding [its] diesel and squalane sales, we are entering new markets with high-value products, which as we described in our past calls includes using farnesene as a building block chemical for liquid rubber and oxygen scavengers as well as bringing to market our first fragrance oil.

Let me provide you some highlights regarding these opportunities. We have produced and delivered a sizable test quantity of our fragrance oil and have met our obligations to our partner, Firmenich. Various perfumers are in final stages of evaluating the oil security and quality and we are getting ready for production. This first molecule serves as the proof point that we can have a disruptive impact in the fragrance ingredients segment. Working with Kuraray, our Japanese partner for liquid polymers, we have made considerable progress in increasing the market opportunities for liquid farnesene rubber, LFR. Major tire manufacturers have told us that this is one of the most interesting monomer innovations in the last 50 years. Six of the 12 leading global tire manufacturers are currently testing liquid farnesene in their rubber formulations. Initial reaction from manufacturers is that liquid farnesene rubber provides a differentiated performance by reducing rolling resistance, which improves fuel economy without reduction in tire wear. Our action scavenger molecule for use in PET applications is being developed in partnership with Grupo Energy and remains on track.

Finally, as part of our relationship with Total, we expect to ship farnesene in 2013 for certain farnesene-derived products Total seeks to commercialize. The feedback and interest we continue to receive from our customers and partners is encouraging and continues to validate the strong attractiveness of our no-compromise products, high performance, cost-effective, renewable products that have a positive impact in enabling sustainable growth without subsidies. Our plans for commercialization remain on track. In the past quarter, we executed on the plan we outlined to you earlier in the year. We deliberately narrowed our contract manufacturing operations, are on track with completion and commissioning of Paraiso, have reduced production costs, and are successfully pursuing our highest value market opportunities. We are confident because of the progress we have made and customer acceptance of our superior technology and our demonstrated ability to manufacture at scale.

Let me now turn the call over to Steve Mills for a brief overview of our financial results before some closing comments. Steve?

Thank you, John, and good afternoon everyone. From a financial perspective, our second-quarter results reflect the impact of the activities that John just described and these results are consistent with the strategy that we outlined for you earlier this year. Highlights for the quarter include the wind down Amyris Fuels or AFL, our ethanol and gasoline trading business, the reduction of our CMO sites from three to one, the progress of our Paraiso construction project and our reduction in operating expenses.

Total revenue for the quarter was $19.3 million, down from $32 million in the second quarter of 2011 and down from $29.5 million last quarter. This decline in revenue was virtually all due to the planned wind down of AFL. We will report the last AFL sales revenue in Q3, and we estimate that the AFL revenue number for the third quarter to be slightly less than $2 million. Excluding AFL, our revenues, which include the sales of Amyris' renewable products as well as the revenue from collaborations and grants was $6 million. This number compares to $4.2 million of non-AFL revenue in last year's second quarter and $5.6 million in the first quarter of this year. For the second quarter of the year the weighted average selling price of our renewable products was $8.08 per liter. This average selling price reflects our focus on producing and selling higher ASP products until additional volumes become available when Paraiso starts up.

Our cost of products sold also declined for the quarter, principally due to the cost associated with the lower AFL sales volumes. This decrease was partially offset by the costs related to the year-over-year increase in renewable product sales. On a sequential quarter basis, renewable cost of products were down significantly, reflecting our planned reduction of production volumes as we reduced the number of CMOs down to one during the quarter.

During the quarter we continued to take steps to lower our operating expenses. Excluding the impact of non-cash stock-based expenses, our combined R&D and SG&A expenses were down 16% from last year's second quarter, due primarily to lower consulting and outside services, and were also down 13% from our first quarter due principally to lower personnel-related costs.

Turning to the balance sheet, our cash balance at the end of June stood at approximately $67 million. During the quarter, we received $4 million of new equity from a group of current shareholders and $26 million of debt funding in Brazil related to our Paraiso project. For cash outflows for the quarter, about $24 million was used for capital expenditures for the quarter principally at Paraiso, we paid down $10 million of debt obligations, and $29 million was used to support operating activities. Looking forward, we expect the pace of capital expenditures to slow down significantly in the last six months of the year, as we finish up Paraiso. We estimate CapEx for the rest of the year to be in the $20 million range.

Now, I'll turn the call back to John.

Thank you, Steve. Before we take your questions, I'd like to provide an update on our strategy and funding. As I said to you earlier this year, Amyris remains committed to deliver on profitable predictable production. We have and will continue to drive technology and operations improvements to reduce production costs. We have and will deliberately continue to optimize our expense profile and seek to accelerate our product revenue growth, especially in higher average selling price applications in cosmetics and polymers, which are supported by the over 60 patents we have already received, plus our nearly 300 pending US and foreign patent applications. With our current patent portfolio, success with four commercial no-compromise products, a strong pipeline of new products to commercialize industrial global manufacturing operations and a leading bioengineering platform, we continue to attract the world's leading companies as partners and collaborators.

Earlier this year, we also said that we would have to secure additional funding to get us to cash flow positive by the end of 2014. Today, we took another major step in that direction. We completed the expansion of our relationship with Total, which is providing an additional $30 million in the third quarter and up to another $52 million over the next two years. As noted earlier and in more detail in our press release and regulatory filings, we have strengthened our relationship with Total, which remains focused on technology development and commercialization of our fuels.

So what's different regarding the Total relationship? We simplify the structure with a three year, up to $82 million program, intended for both diesel and jet fuel from farnesene. The first $15 million has reached us today, another $15 million in September with subsequent tranches in mid-2013 and 2014. A joint venture will be formed following the completion of the R&D work on fuels.

Amyris will have greater autonomy regarding the governance of the farnesene research program, while leveraging Total's expertise in particular areas such as downstream technology. Also, the agreement encourages Amyris to pursue its renewable jet and diesel business in Brazil prior to formation of our joint venture for fuels. We achieved greater predictability and funding from Total, which reaffirm its commitment of Amyris' best-in-class technology. And Total now has security with clearer go/no-go decisions for options in commercializing fuels. We agreed to a structure that allows Total to commercialize some farnesene-derived products outside the joint venture through a non-exclusive arrangement where Amyris supplies farnesene to Total.

This simplified path for our fuels relationship with Total partially addresses our funding needs for the next two years. We have also identified and continued to pursue additional opportunities consistent with our strategy to remain an independent and integrated renewable products company. While I cannot disclose details of these confidential discussions, I can make the following points.

We are committed to building additional relationships with major industrial partners that would be complementary to Total. We are in active discussions with several large players in the chemical space. We expect that at least one of these relationships will progress prior to end of the year. We will seek to minimize dilution by maximizing collaboration funding, debt where applicable, and structured long-term financing. What you should expect from us through the end of the year is additional funding, successful commissioning of Paraiso, a steady increase in renewable product sales from inventory on hand and a continued reduction in our cash burn.

Jonathan, would you please open the line for questions now.

(Operator Instructions) Rob Stone, Cowen & Company.

Hi, guys. My question relates to revenue recognition of the Total funding and grants and collaboration in general. So, is the funding which you are going to receive in the second half going to flow through revenue or is it being treated as if it's convertible debt?

We have not completely finalized our accounting review of this, but I am 99% sure, it will be accounted for as debt on our books.

Okay. So I know you're not giving guidance per se, but should we expect some ongoing level of grant and collaboration revenue that's absolutely (inaudible)?

Yeah. We have a variety of relationships including some new ones, including DARPA and other things that were received this quarter. So we'd expect at this point in time a similar, hopefully growing level of collaborations in grant.

Okay. Good job on expense reduction. Any comment on direction of the run rate in Q3?

We think it will continue to decline. We continue to look for optimization around here. We've reduced our head count about 10% since the beginning of the year and we continue to focus on the needs of the organization as we have it structured today.

Thank you.

You're welcome.

Thank you. Vishal Shah, Deutsche Bank. Vishal, you might have your phone on mute. We don't seem to be getting any audio from Vishal Shah. Would you like to move on to the next questioner?

Yes.

Yes, let's do that for now.

All right. Jeff Zekauskas, JPMorgan.

Good afternoon. This is Silke Kueck for Jeff. How are you?

Just fine. Thank you. How are you today?

I am doing okay. I also have a question regarding the Total agreement. My memory is that the original Total agreement had two parts. One was related to the fene development for renewable diesel inject fuel and then there was a piece that was related to other products. And my recollection was that the piece that was related to fene was something like $100 million or $105 million, something in that neighborhood. And some of that you collected already through the first half of the year. And so like it looks like at the funding component in a way related to fene really hasn't changed, but maybe the (inaudible) successful to you faster. Is that sort of like the way to think about it?

Two specific comments. The cash for focused on fene based fuels has increased with this new agreement and it's increased by actually shifting original collaboration dollars that were set in a pool, but not actually directly accessible without additional programs being named and where some of that money was being used for a different product platform for jet. And we've actually agreed to take those dollars that were unpredictable and not actually being fully pulled down. Add those with a focus on farnesene based fuels and that incremental dollar amount beyond the original fuel collaboration is about $30 million that's again beyond the $105 million that was initially dedicated to farnesene based fuels.

And just to kind of ask a follow-up, is there some additional $30 million, can I ask how much in total of the $105 million you've gotten today, because it seems the incremental funding [less this] $82 million, which seems to me that you've done collected a fair amount of money already from Total.

Approximately $45 million of the $105 million. The original $105 million.

Okay, that's helpful. Secondly, like it seems based on the average selling price it may be sold, on the order of 300,000 liters of farnesene this quarter sets just like the right order of magnitude.

Well, yes, to just give you a arithmetic with which you can see the revenue. That's not too terribly far off and of course that $8.08 is a weighted average selling price between the niche diesel that we're selling and the squalane.

So, it just mean so you probably sold a higher percentage of squalane this quarter than last quarter.

Yeah, I mean that's the weighted average selling price and that's how you have to do the calculation.

That's fair. And lastly, when do you expect to provide first products to Kuraray?

We have initial shipments for the development cycle taking place and then we expect that the volume ramp for that liquid farnesene rubber to start through 2013.

Okay, that's Helpful. Thanks very much. I'll get back into queue.

Thank you.

Vishal Shah, Deutsche Bank.

Yes, hi, thanks for taking my question. I wanted to just follow up on Total and I apologize if you've already answered this question, but are there any milestones that you have to achieve in order to get the additional funding by mid-2013 and 2014?

Thanks, Vishal. The way the milestones are structured, it's not actually, which is a big shift in the program, we had a program that was very much milestone by quarter driven. What we've gone to is a stage gate annually, that's part of an overall review and then that stage gate triggers the next year's funding.

And so it is an annual review. The program is agreed upfront and it's not specifically a set of technical milestones as much as it is an overall progress towards the goal of commercialization. And as long as there are no significant blockages or any major obstacles in the way of being able to have visibility towards commercial economic targets for fuels, we'll continue to move the program forward is the way it's currently structured.

That's very helpful. Thank you. One other question, you had mentioned last time that the [estimate] plant will be on hold, any changes to that for the timeframe as to when you want to start working on that plant?

Yes, Vishal, the way we're looking at it today is based on the success we're seeing again with the technology at scale, the Paraiso project and how well it's going. Our expectation is once Paraiso starts producing commercially and we ship out of Paraiso for a good six months sustainable production, I would expect them to turn the estimate project back on. And my expectation would be that all that timing works to mechanical completion of Sao Martinho sometime in the second half of 2014 with production out of Sao Martinho sometime in 2015.

That's great. Thank you. And then one last question, can you just maybe talk about your cash projections for the third and the fourth quarter, as that if you know what your cash flow and expectations are on a quarterly basis? And then, with the Total cash inflow, where do you think your end cash position will be without any additional funding? Thank you.

[We'll start giving] you specific guidance. As I mentioned to you earlier, we see CapEx slowing down dramatically, looking at about $20 million for the rest of the year, our operating expenses have been declining and we continued to see that trend. We have -- we're down at a one CMO and we know production levels are going to be quite a bit lower in the last half of the year, therefore fewer expenses. So we've definitely slowed the burn-down dramatically. The Total money, we're going to get $30 million in. As we look forward, we think that that we're going to need the additional funding which John described earlier and we're really trying to get ourselves in a position where we've got the majority of this behind us. So all of our focus can be on getting the business where we want it to be.

Appreciate that. Thank you very much.

You're welcome.

Thank you. Smitti Srethapramote, Morgan Stanley. Your question, please.

Yes, hi. John, a quick question on the Total agreement. Can you talk about the factors that led to the new agreement with Total, who -- why -- what was the rationale for the revision of the original terms?

Happy to do that, Smitti. Good evening. I think there were three key factors. I think one of them was I think on both parties, a bit of concern about the overhead we were adding by moving to a joint venture so quickly and a realization that we were moving to that joint venture quickly because there was an interest, significant interest on Total's part to commercialize fee-derived products and that the joint venture was a way to be able to access farnesene and move to that production quickly and a recognition that maybe there was an alternative way to do that without having the overhead of a joint venture structure so quickly. So that was one issue which was kind of a pause on why the overhead is. There are different way to solve the farnesene -- other farnesene-derived products for Total. I think the second was between both parties, I think we've kind of both lost track of what the strengths were of each partner and we started getting a bit blurred about who and how the R&D program was being managed. So we have to reset for ourselves a more effective governance structure going forward that we could both live with long term. And I think the third was really standing back and looking at our cost base and trying to find a way to focus the activity more. We started with several Total programs, two big ones, jet and diesel that were actually quite different because they were different platforms of C10 and the C15 and on recognitions by both partners that actually it's in our mutual interest to go to a focused approach, used farnesene and actually used farnesene to go to both end markets and do it by concentrating all the investment in the evolution or the development of farnesene. So I look at those as the three key drivers that really drove to us standing back and renegotiating and coming out with what I think and they think is a much better agreement for both parties and both of those in service of aligning the interest of the parties, getting to a place where the incentives are aligned and we're making the best choices together for the right direction for the Company.

Great. Thank you for that explanation. And maybe just one quick follow-up. Under the new agreement, Total has the decision or has the possibility of electing to not continue to fund the JV. Can you talk about what kind of conditions that would lead them to walk away, that would allow them to walk away going forward?

Pretty simple, Smitti. I mean again, I think both of us and I think the whole industry has started to realized that we're in the middle of it with Total. We realized the difficulty of getting to sustainable economics, especially in a very volatile environment for our commodity. But to get to sustainable economics without subsidy for fuels is a very hard road to get to and we both wanted to be clear that actually there is plenty of great opportunities for Amyris' technology without fuels and for Total and Amyris as a partner. And we wanted to create a mechanism where as long as the economics for fuels are reachable, we will have a great fuels business together. If not, we needed a mechanism to protect both parties and to give us the opportunity to continue building out our high-value business without this distraction if we can't get to the right economics for the high-volume piece of the business. So It is purely an economic test for viability of fuels long term.

Okay. Thank you.

Thank you. Mike Ritzenthaler. Your question, please.

Could you walk us through briefly the various components of your debt? I guess at a higher level, you have the bridge loan, you have the previous promissory note and now it looks like from the latest K, it's around another $25 million loan in anticipation of the [B&D], yes. So I guess this figure and now you have the convertible structure with Total for the research funding. I guess the spirit of my question is how much more does the balance sheet can take or that you're comfortable with to complete the current project slate?

That's a great question and something that we are looking at very carefully. There is two pieces that I have. One, on the BNDES funding and the Bridge Loans, the Bridge Loans were there to help us get to our more permanent financing and those Bridge Loans are going to go away and be repaid here in the third quarter. We are now in a position where the long-term BNDES funding is in place. And that's there specifically as a project financing for the priorities we plan.

So I feel like that's well matched. The convertible structure, we've got ongoing convertible with Fidelity that we put in at the beginning of the year, and the current arrangements with Total I look at more as contingent debt. We're certainly hoping at the end of the day that that will not be debt, that will get a go-decision. But in case it doesn't it for whatever reason that will turn into an alternative funding mechanism up to Total whether they -- we repay them in cash or take a convertible note. So, yes, it's a fair question.

And on the Total side that won't happen until 2017. So it's out there a bit in the future and it was negotiated (inaudible) on that. But we're very careful about the debt structure and we'll continue to look at it as we need capital money for capital construction. And to the extent we get to the place where we have a reliable production and reliable working capital levels, we may consider working capital line, but I can't see it much beyond that at this point in time.

All right. Thanks. And then, this is just a follow-up to a previous question. I guess you produced almost 1 million liters of fene in first quarter and [ether 10,000] and you're selling a couple of hundred thousand a quarter by our calculation. Is there -- are you trailing back the production just because you're running out of maybe inventory or you've produced enough to this point that you can sell for the rest of the year, [add] inventory whether that's at Glycotech or the CMOs? And are there any, like, unusual costs that go along with that that we should be aware of?

No, I think -- it's a good observation. It's the second of your options that that we purposefully [dock] the inventory up knowing that we'd only be running one CMO and that we have Paraiso up and running. We left ourselves, we think, a best cushion to make sure that Paraiso starts up and starts up well. But we are -- in fact, we're seeing increasing demand for our products, so that's the positive side. And we're just going to be delivering, for the most part, out of inventory.

Okay.

Yes, Just to build on Steve's point, the idea was, we've got a wide range of customer applications at different prices and the whole idea was to really go to the minimum level that we needed to sell to satisfy our customer needs and then give us the space to really scale up at Paraiso since it's a 100% owned site and it is our targeted lowest cost production site.

And I think the one other follow-up I'd like to make is that the unusual cost took place last quarter. And we recognized the fact that we were only going to be running the one CMO, and we took that hit there. So we are seeing this quarter and in the future quarters much lower run rates in the cost of goods.

All right. And then just one last one from me, I guess I'm (inaudible) a little bit. But what was the approximate decrease on a percentage basis in the cost of manufacturing versus last quarter or versus maybe when you started? I think that's kind of how you've talked about it in the past.

That's a good question. I guess I am just trying to make sure I've got the right -- if you are looking at it absolute dollars or unit costs --

Yes.

-- have been dropping dramatically over time. I don't know, John, if there is a --

A way to think of it is as simple like it is indexed. So a simple way to think of it is, we've dropped in half since the beginning of the year and you expect to drop in half again between now and the end of the year.

Yes. I think that's correct.

Okay. Great. Thanks, guys.

Thank you. Ben Kallo, Robert W. Baird.

Hi, guys. Thanks for taking my question. I just kind of want to add on to Mike's question there. Could you just talk maybe qualitatively about improvements you've made whether in yield or in your process to bring down those costs?

On a qualitative basis, [I mean] what I can tell you is, two key dimensions; one, it's just -- with experience, realizing what are the best conditions to maximize the strains performance, and we've now really hit that very effective; and then secondly, really getting the downstream process to run effectively so that we reduce or said differently, we improved the level of farnesene we recover. And I think in both dimensions, you can think of it as, we weren't -- we started off by not recovering all the farnesene we expected, and we were throwing away farnesene from the fermentation and the fermentation wasn't as effective as it could be.

Where we've gotten to in optimizing the processes, real clarity on how we get the most effective fermentation and the ability in understanding how we recover our target farnesene from the fermentation. And those two drivers with some improvements in the technology have been really the key drivers to the cost improvement we have on hand, what we expect to deliver for the rest of the year.

Okay. And then as it relates to Paraiso, are we still expecting a two to three-year ramp for that? And then should we see a step-down in cost production, not only because you're not using a toll manufacturer, but because of maybe some design (inaudible)?

Yes, I would just say, in general, you can expect ongoing cost improvement. We're not seeing in the foreseeable future a flat spot on cost. And then, I think on the question of the ramp, I think we're just being cautious, rightly so, of what it's going to take to get a plant up fully optimized, and what it takes to match the technology improvements to that plant's constant evolution and performance improvement.

So could be better, but we'd like to keep conservative in thinking it's going to take two to three years. And that's kind of -- it's not an Amyris issue. I mean, in a way, we ought to think about that as what it takes for fermentation to actually evolve over time to achieve its target. So -- now that's really our basis, as we look at fermentation process, we look at what it takes to implement and execute over time through improvements and get to a stabilized performance basis. And that's our basis for the two to three years.

Good. And then finally on additional funding, do you expect it to be a product specific funding and would it come in the form of some type of partnership or more in a JV form or more paid R&D?

We're not actually - [the Crystalsev] we're in the middle of pretty extensive negotiations right now. And I think you can expect, looking at the Total deal, kind of what we're very good at, which is identifying specific product opportunities, establishing extensive collaborations and ensuring that we have a long-term access to that value by partnering and how that product gets commercialized. And I think that kind of structure one that we're familiar with, works well for us, and would not be too far to see other significant deals work that way.

Great. Thanks very much guys.

Thank you. Pavel Molchanov, Raymond James.

Thanks very much. John, in respect to the Total JV, a year ago when you originally announced the relationship, I know the plan was to begin commercial production in 2013, 2014. Obviously, everything has changed since then. Realistically if there is a go-decision at a point in time, when would commercialization take place?

Well, actually, Pavel, we're commercialized today. We're selling commercial product today and Total is going to access some of that commercial production for the applications it wants to aggressively take the market outside of fuel. So what we did again, to re-emphasize my earlier point, is we actually realized that establishing a joint venture to meet immediate commercialization needs for Total was not the best or most cost-effective way to go. We actually have the commercial production, we can supply commercial product to Total, and we will be doing that.

On fuels, specifically, we have a commercial fuels business in Brazil. We'd like to keep that business independent for the time being and are happy to do that. And then the larger scale of fuels production, to supply to European market and other Total markets, is where we expect to actually bring on later. And for that, we expect to be able to get to a very competitive price for those end markets and that is the time element of this is ensuring that we can be competitive without subsidy for fuels long term and to have that visibility is going to take a few years before we decide to invest and put in the overhead of a joint venture. The basic joint venture structure, including the initial capitalization of $50 million, is retained in the current agreement with Total.

Okay. Let me try asking it slightly differently. If and when there is an agreement to move forward with a full scale JV, how long would it take from that point to get to what you would consider a commercial scale output?

From when you decide to start the JV commercial scale, 24 months.

Okay. That's helpful. Thank you.

Thank you. Colin Rusch, ThinkEquity.

Hey guys and it's Noah Kaye for Colin. First of all, congratulations on getting Paraiso mechanically complete. Just want to follow up, can you tell us a little bit about some of the hoops that you have to go through for the commissioning I guess you are doing yourself at least six months here. Talk a little bit about some of the checks that you have to cross off?

Sure, I mean, you can imagine, there is everything from ensuring the instrumentation works, ensuring that all the piping works, actually ensuring that the environment maintains a [still] condition as you flow product through it and ensuring that all the people are trained in the three shifts to be able to operate effectively. And those three things are all part of the commissioning process.

Sure, sure. And just on the bookkeeping note, how much CapEx have you actually spent on Paraiso to-date?

We haven't given that number out specifically, but I think at one point in time I think the Company talked about this facility being [$50 million to $60 million] and that, as we said, we are on budget.

Okay. So just trying to understand here, you said that you'd be looking at maybe about $20 million of additional CapEx [at the year], most of that at Paraiso, but it's already mechanically complete. So can you kind of help us understand where that additional CapEx is going to be spent?

Well, we got to pay the bills? As you know, they don't all come in -- and we've still got some ancillary buildings and other whether it's got to do with the utility system and blending systems and there's odds and ends that add up quite quickly. And that $20 million is for -- it's Company-wide so it takes care of some of the other things that are going on in Emeryville. So part of it is a timing of payments.

When we talk about the quarter, it also talks kind of a heavy -- we are finishing up here in July. And you can appreciate, there has been a lot of focus to get it done. So we've got that piece of the pie will be part of the $20 million as well.

Actually I see, some delayed payments part of the mechanical completion. A balance sheet question, other non-current liabilities grew by almost $20 million since December. Can you tell us what's in that number?

Yes I can. That is where the Total Biofene contributions will go in. We have to recognize that as kind of a deferred revenue line, the way the deal was structured. So that as they paid us, as we mentioned earlier, they have paid us $45 million over the last nine months or so. Most of that's in that account.

Okay.

Okay.

Thank you so much.

You're welcome.

Thank you. Rob Stone, Cowen and Company.

I wanted to follow-up a little bit on the cost of Biofene production and the plan for the rest of the year. First question is how many liters approximately do you have already in inventory?

That's a good question. I know that number, but I don't have it in my -- next to me, but we've got more than enough to handle the rest of the year. It's been, as I said, we've built it up in the second quarter and we're starting to eat into it a bit.

If your production volume is going to go down significantly in the second half, and some good chunk of what you're planning to sell, you've already produced, then you should already know what it cost you to produce what you already produced. And presumably the cost isn't that much different than what you're reporting this quarter, except that finally by the fourth quarter, we'll get to see the naked bio product cost of goods sold without fuels obscuring it. So what is it on lower production volume and a good chunk that's already baked that's going to further reduce the cost by 50% by the end of the year?

(inaudible) question.

Yes, that's a different question. That answer was to what our production costs are going to be. That is exactly what it's going to be. Now what the inventory base cost is, and what that actually does for cost of goods, that's a different question, and we're not actually making that -- we're not giving any guidance on that at that point. But yes, those are two different questions, what's our COGS and then what are our production costs, and what's the profile of that cost look like.

Okay. So, let's split it into the two parts. At what point will you be comfortable actually giving this information without it being obscured by the fuels? And then the second piece is, I guess, if it's on lower volume, if the cost of incremental production is going to go down by [50%], that would have to be driven not by scale, but more increased yields and separation efficiency, is that right?

That's right. I think you hit on several points here. First of all, the fuels will go away here, the third quarter will be the last quarter we report any fuels. So that part is fine. The extent we've got existing inventory, it's been written down to market. So, those cost of goods related to sales shouldn't have much impact on our margin, reported margin. We will have -- we'll incur some fixed costs because we've got fixed cost. And then the extent we, as John pointed out, the extent that we start to ramp production up, we're expecting to have much lower unit cost.

So, I think your picture was drawn correctly. And I think as we get to the fourth quarter and approaching the New Year, all this will become much clearer, exactly what the cost structure is and how it's going to work, not just for you, but for us as well.

Can you say what the margin was on your bio-products revenues this time around, stripping out the irrelevant fuels piece?

Well certainly, we know those numbers, and we just said, it was much improved period over period, we'd rather not talk about because it's -- again, because it's a mix of fixed and variable and some other (inaudible) I don't think it's a meaningful number.

Okay. Thank you.

Okay.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to John Melo for any concluding remarks.

Thank you, Jonathan. In closing, during the past quarter, we executed on the plan we outlined to you earlier in the year. Amyris is on solid footing with proven disruptive technology for the fuels and chemicals industry, and we will continue on the path to deliver predictable and profitable production in the coming quarters. Thank you for your time today and your interest in Amyris.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.