Case 1:20-cv-07386-JPO Document 2 Filed 09/10/20 Page 1 of 87
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`LAVVAN, INC.,
`Plaintiff,
`
`v.
`AMYRIS, INC.,
`Defendant.
`
`
`
`
`No. ____________
`
`JURY TRIAL DEMANDED
`
`COMPLAINT
`
`
`LAVVAN, Inc. (“Lavvan”), brings this action against Amyris, Inc. (“Amyris”).
`
`I.
`
`INTRODUCTION
`
`“Not one partner has ever stood with us and said, We’re
`only going to do what the contract says. . . . if that ever
`happened, we would be out of business today . . . .”
`– Amyris CEO John Melo
`
`1.
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`This case seeks to remedy the predictable consequences that stem from a business
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`partner’s view that it need not concern itself with the terms of the agreement it entered, and from
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`that partner’s deliberate decision to misappropriate valuable intellectual property entrusted to it
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`under that agreement for its own gain.
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`2.
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`In 2019, Amyris addressed its short-term woes by publicly announcing that it
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`would be entering a new industry by forming a promising exclusive partnership with Lavvan and
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`securing from Lavvan a much-needed multi-million-dollar cash influx. Amyris then quickly
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`proceeded to denounce the deal’s terms privately and to try to change and frustrate—and
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`ultimately to breach—those terms, all at the expense of Lavvan and its investors. In fact, Amyris
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`has rejected the agreement’s most fundamental terms so thoroughly that Amyris evidently never
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`meant to honor the contract at all. In the course of repudiating the agreement, Amyris
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`Case 1:20-cv-07386-JPO Document 2 Filed 09/10/20 Page 2 of 87
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`misappropriated Lavvan’s trade secrets and used intellectual property licensed exclusively to
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`Lavvan to compete against, rather than collaborate with, its supposed partner.
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`3.
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`Amyris apparently saw the contract as a short-term fix for its deep and dire
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`financial troubles—as Amyris’s CEO would come to describe it, the deal was a decision for
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`Amyris to ‘cut off its arm to save its body.’ The news of Amyris’s potentially lucrative
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`partnership with Lavvan, in a rapidly growing and extremely attractive industry (biosynthetic
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`cannabinoids), would stave off investors’ worries about the company’s hundreds of millions of
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`dollars in losses, crushing debt load, and languishing stock price. But to get the deal it wanted to
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`announce, Amyris had to agree to give Lavvan exclusive rights to valuable intellectual property,
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`as well as control over decisions about how and when the partnership would commercialize its
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`collaborative research and development.
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`4.
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`As Lavvan came to learn, ceding such control threatens to expose the rotten core
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`of Amyris’s business, which has long depended on accounting schemes designed to hide massive
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`manufacturing losses Amyris quietly absorbs in the development of its products. These schemes
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`allow Amyris to portray itself as a leading player in the field of biotechnology, even while its
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`financials tell a very different story of a company that cannot seem to turn a profit.
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`5.
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`Accordingly, after having secured the benefits of Lavvan’s upfront $10 million
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`payment and the positive stock-market effects of announcing its partnership, Amyris now hopes
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`to ignore its contractual obligations, seize for itself Lavvan’s rights, and usurp for itself all of the
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`benefits of the partnership—in flagrant violation of Lavvan’s intellectual property rights and the
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`Parties’ operative agreement.
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`6.
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`All the while, Amyris continues to feed the market—and its auditors and
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`bankers—false and misleading information about the status of the partnership, its obligations and
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`Case 1:20-cv-07386-JPO Document 2 Filed 09/10/20 Page 3 of 87
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`limitations under the partnership, and the scope of the Parties’ intellectual property rights,
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`desperate to pump its stock price by maintaining a false appearance of progress. Amyris’s CEO
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`has admitted that his habit of over-promising is “like an addiction” and “something he could not
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`control.”
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`7.
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`Amyris’s flagrant violations of the fundamental terms of its agreement now
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`extend to the infringement of patents over which Lavvan holds exclusive licenses, as well as the
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`appropriation of Lavvan’s trade secrets. Amyris’s conduct has left Lavvan with no choice but to
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`seek this Court’s intervention to remedy the significant damage Lavvan and its investors have
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`suffered.
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`II. CASE OVERVIEW
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`8.
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`In March 2019, Lavvan and Amyris entered into a Research, Collaboration and
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`License Agreement (with its subsequent written amendments as of May 20, 2019, and March 11,
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`2020, the “RCL Agreement”) to biosynthetically develop rare chemicals found in cannabis
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`plants, known as cannabinoids, for commercial use.1 The RCL Agreement provided Amyris with
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`the ability to earn $300 million in milestone payments over several years as well as a profit-
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`sharing arrangement based on Lavvan’s commercial sales of these biosynthetic cannabinoids.
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`The RCL Agreement provided the framework to leverage Amyris’s intellectual property and
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`infrastructure to position Lavvan as a dominant first-to-market and lowest-cost producer of
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`biosynthetic cannabinoids in an anticipated multi-billion dollar industry.
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`9.
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`The division of labor under the RCL Agreement was straightforward: Amyris
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`would develop for Lavvan yeast strains specifically engineered to produce a series of
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`cannabinoids through fermentation, and Lavvan would have the exclusive right to then use those
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`1 A true and correct copy of the RCL Agreement is appended to this Complaint as Exhibit A.
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`3
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`yeast strains to manufacture and commercialize the cannabinoids, as well as an exclusive license
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`to all of Amyris’s intellectual property reasonably necessary to develop or produce those
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`cannabinoids. In exchange, Lavvan agreed to pay Amyris hundreds of millions of dollars in
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`milestone and profit-sharing payments, in addition to the $10 million initial influx of cash
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`Lavvan paid Amyris at the outset of their partnership. Specifically, Lavvan would pay Amyris
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`incremental “milestone payments” as Amyris reached defined developmental goals that bring the
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`cannabinoids closer to economical commercialization, as well as royalty payments based on
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`Lavvan’s commercial sales of those cannabinoids.2
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`10.
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`Lavvan and Amyris (the “Parties”) were thus embarking on a venture that would
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`disrupt the current cannabis industry, and they were poised to be the frontrunning market leaders
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`to fill the rapidly developing and high demand for these biosynthetic cannabinoids in a variety of
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`markets, including health, beauty and cosmetics, food and beverage, and pharmaceuticals.
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`Amyris announced the collaboration in February 2019 to great fanfare—and a 70% jump in its
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`stock price, adding hundreds of millions of dollars to its market capitalization. This introductory
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`announcement would prove to be the high point of the collaboration.
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`11.
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`Lavvan has more than held up its end of the deal. After signing the RCL
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`Agreement, Lavvan provided Amyris an upfront payment of $10 million. Lavvan also identified
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`an array of prospective applications, markets, and customers, including developmental targets for
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`profitable commercialization of cannabinoids based on market conditions, and proceeded to
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`assemble a world-class team, including a group that had just built a $2.5 billion cannabis
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`business that was acquired in the largest deal of its kind in the industry’s history. And as Amyris
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`2 For ease of exposition, references in this Complaint to “delivering CBD” or “delivering
`cannabinoids” refer to delivering the strain, production process, and associated IP needed to
`produce that cannabinoid (unless the context indicates otherwise).
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`reported (falsely, Lavvan later learned) that it was on schedule for its contracted developmental
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`milestones, Lavvan conducted an exhaustive search throughout the United States and Canada for
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`an appropriate fermentation facility to prepare to produce the biosynthetic cannabinoids from the
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`yeast strains Amyris was supposed to deliver, and Lavvan ultimately spent hundreds of
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`thousands of dollars contracting with a third-party manufacturer (the “Selected Manufacturer”)
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`for the initial engineering work in advance of full-scale manufacturing.3
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`12.
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`Amyris had other plans, however, and did not come close to holding up its end of
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`the deal. It has yet to reach even the first contractual developmental milestone in the RCL
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`Agreement, despite its repeated false and misleading statements to Lavvan and to the public
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`markets that Amyris was close to achieving some of those milestones many months ago. Among
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`those unfulfilled promises, in December 2019, Amyris told Lavvan it would meet the first
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`milestone by February 2020 “unless the lab burns down.” Amyris’s lab is still standing, yet half a
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`year after that promised date, Amyris still has not met the milestone. As a practical matter,
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`Amyris has quit complying with the RCL Agreement and gone in a very different direction.
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`13.
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`In fact, just months after the Parties had entered into the RCL Agreement, Amyris
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`CEO John Melo told Lavvan that Amyris had “seller’s remorse.” Historically, Amyris had
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`entered into partnerships in which it retained control over decisions about manufacturing and
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`commercialization. Lavvan deliberately negotiated a very different deal, and secured the
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`exclusive license to the intellectual property necessary to manufacture and commercialize the
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`relevant products, and control over those processes, as reflected in the RCL Agreement.
`
`
`3 Lavvan and the Selected Manufacturer entered into a Non-Disclosure Agreement under which
`the parties’ relationship is confidential. To comply with that agreement, this Complaint uses the
`term “Selected Manufacturer” to identify the third-party manufacturer Lavvan selected.
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`14. Without control over manufacturing and commercialization, Amyris would be
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`unable to implement its favored financial engineering tool: rushing an unprofitable product to
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`market when it felt it needed to boost its stock price with a public announcement, and obscuring
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`the unprofitability of the product through creative accounting such as reallocating manufacturing
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`costs to hide uneconomical production costs. As Amyris remarkably admitted to Lavvan in
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`recent months, Amyris routinely launches unprofitable products—attempting to benefit from an
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`anticipated boost to its stock price and saving the question of how to manufacture those products
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`at a rational economic price for another day.
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`15.
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`Amyris agreed to cede control over manufacturing and commercialization
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`because, when it negotiated the RCL Agreement, it desperately needed the cash influx Lavvan
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`offered in the form of an upfront $10 million payment, the anticipated cash flows from Lavvan’s
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`milestone payments, and the stock-price boost from announcing its entry into the hot, new
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`biosynthetic cannabinoid space. To obtain those benefits, Amyris agreed to Lavvan’s proposed
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`partnership, under which Amyris would leverage its development expertise to create a
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`technology package for Lavvan, and Lavvan would control the implementation of technology via
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`manufacturing and commercialization of the cannabinoids. Indeed, in a meeting with Lavvan
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`CEO Neil Closner, Amyris CEO Melo likened Amyris’s decision to enter the RCL Agreement
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`and partner with Lavvan on biosynthetic cannabinoids to ‘cutting off the arm to save the body’:
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`Amyris needed to agree to create biosynthetic cannabinoids for Lavvan and cede control over
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`commercialization and manufacturing to Lavvan in order to get Lavvan’s cash and partnership to
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`“save the body” of the company—as Amyris wanted the press release about its partnership with
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`Lavvan and entry into this space to pump its stock price and facilitate much-needed efforts to
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`raise capital. This behavior is emblematic of Amyris’s apparent corporate ethos under the
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`“leadership” of CEO John Melo—do whatever it takes to boost the stock price today, even if that
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`means trouble down the road. Indeed, this is a sufficiently regular behavioral pattern for Amyris
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`that Melo actually admitted to Lavvan CEO Neil Closner in a December 2019 meeting that Melo
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`was “exhausted” from constantly having to do what it takes to keep his company’s stock price
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`afloat.
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`16.
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`Lavvan demanded control over manufacturing in order to promise its expected
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`large-scale corporate customers the stable supply chain necessary for mass production. Lavvan
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`could not entrust Amyris with manufacturing for several reasons, including because of Amyris’s
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`precarious financial situation. Moreover, Amyris did not have familiarity with the cannabis
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`industry. Lavvan, in contrast, had significant familiarity with that field, including with respect to
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`commercialization opportunities. By entering into the RCL Agreement, Lavvan sought to exploit
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`those significant opportunities it had identified.
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`17. When it entered into the RCL Agreement, in fact, Amyris was teetering on the
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`edge of insolvency, in part a result of its apparent history of pushing out unprofitable products.
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`Amyris’s 2018 10-K (filed nearly six months late in October 2019) admitted that the company
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`had a “material weakness” in its “internal control over financial reporting,” causing repeated
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`delays and restatements. In fact, for at least seven consecutive years, Amyris was unable to
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`submit its 10-K on time, subjecting it to, among other things, NASDAQ’s delisting procedures.
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`More critically, Amyris acknowledged: “We have incurred losses to date, anticipate continuing
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`to incur losses in the future, and may never achieve or sustain profitability.” As of December 31,
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`2018, Amyris “had a negative working capital of $119.5 million and accumulated deficit of
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`$1.5 billion.” Amyris admitted the need for cash, because its cash and cash equivalents would
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`“not be sufficient to fund expected future negative cash flows” beyond September 30, 2020.
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`Amyris had lost over $200 million in 2018, and in 2019, while generating over $150 million in
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`revenue, it ended up incurring losses of over $240 million.
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`18.
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`Given the likelihood that handing Lavvan control over manufacturing and
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`commercialization would expose Amyris’s flawed business model, Amyris likely never intended
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`to honor the RCL Agreement. Once Amyris was flush with Lavvan’s investment and enjoying
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`the momentum from announcing to the market its entry into the trendy cannabinoids space
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`through its partnership with Lavvan, Amyris sought to change the deal. Amyris CEO Melo and
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`other Amyris executives began clamoring for control of manufacturing, insisting on
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`fundamentally altering the agreed-upon economic arrangement and even demanding advance
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`payment of unearned milestone amounts. At the same time, Amyris pressured Lavvan to
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`cooperate in its efforts (i) to persuade Amyris’s auditors to aggressively recognize future revenue
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`and (ii) to misstate to Amyris’s bankers (who would go on to announce a $200 million equity
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`financing a few weeks later) the activity levels of certain of the development programs. When
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`Lavvan would not capitulate to Amyris’s demands, Amyris retaliated by morphing from
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`Lavvan’s partner to its competitor. In fact, Amyris COO Eduardo Alvarez told Lavvan’s
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`president Etan Bendheim that Amyris has no qualms about ripping up its agreements if it
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`determines that they no longer ‘work’ for Amyris.
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`19.
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`Amyris CEO Melo began by threatening that—notwithstanding the Parties’ clear
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`agreement, which was fundamental to their partnership, that Amyris would not be permitted to
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`commercialize cannabinoids on its own—Amyris would take the position that it could
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`commercialize cannabinoids without Lavvan under the RCL Agreement. That is, despite the
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`contract’s express terms to the contrary, Amyris contended that it could reap all the benefits of
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`having partnered with Lavvan—including not only Lavvan’s cash payment but also the expertise
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`and insight Lavvan had provided about the market and regulatory environment—and then
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`abandon its contractual commitments to Lavvan, and steal for itself the yeast strains and
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`molecules Amyris was developing for Lavvan under the RCL Agreement, while leveraging the
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`funding provided to it by Lavvan.
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`20.
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`Soon enough, Amyris began following through on those threats. Amyris sent
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`product samples to third parties and committed both privately and publicly to manufacturing
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`cannabinoids in 2020. This misconduct is antithetical to the entire purpose of the relationship
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`embodied in the RCL Agreement, in which Amyris promised that it “
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`” the relevant intellectual property “
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`
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`,” other than for Lavvan. Despite Lavvan’s requests, Amyris has not provided any
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`valid explanation or justification for how such conduct complies with the RCL Agreement.
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`21.
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`In addition to eroding irrevocably Lavvan’s trust in Amyris as a partner, Amyris’s
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`actions have fatally undermined Lavvan’s ability to get in front of the market and demonstrably
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`hurt Lavvan’s reputation. Amyris’s public comments about its intent to produce without Lavvan
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`because of non-existent carveouts have harmed Lavvan’s credibility with investors, prospective
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`customers, and the public at large. In private, to investors, Lavvan had obviously been promoting
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`the exclusivity of the RCL Agreement. In public, Amyris is capturing all the goodwill associated
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`with working on the cutting-edge of the field without giving Lavvan its due. And as a practical
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`matter, Amyris’s slow development of the cannabinoids has eroded the head start that Lavvan
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`hoped to leverage by partnering with Amyris.
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`22.
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`Seeking to justify its retaliatory misconduct, Amyris initiated a campaign of
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`pretextual concerns about Lavvan’s ability to make future milestone payments. Lavvan has never
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`missed a milestone payment or suggested it would be unable to make one. In fact, during
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`contract negotiations, Amyris asked Lavvan to disclose its funding sources, and Lavvan declined
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`and explained that like a typical newly formed company, Lavvan was poised to raise additional
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`funding as the project progressed and milestones were hit. In response, Amyris did not insist on
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`any such disclosures, and the final RCL Agreement does not include any specific representations
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`or warranties about Lavvan’s finances or ability to pay beyond providing proof of its ability to
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`make the initial $10 million payment. Amyris also publicly touted the hundreds of millions of
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`dollars it expected to receive from Lavvan, which it characterized as its “well-capitalized
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`partner.” In laying the groundwork for its own non-performance, breach, and misappropriation of
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`Lavvan’s intellectual property, however, Amyris suddenly purported to be concerned about
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`Lavvan’s ability to make future milestone payments (notwithstanding that Amyris never
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`achieved any milestones under the RCL Agreement). This was pure misdirection.
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`23.
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`Notwithstanding this turmoil, Amyris has studiously avoided making public
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`statements exposing the extent of troubles in its collaboration with Lavvan. The reality, however,
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`is that Amyris’s tactics have, predictably, destroyed the Parties’ working relationship. Lavvan is
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`not receiving the benefits of its investment and is losing out on its ability to enter this market as a
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`leader. Meanwhile, Amyris has been trying to extract additional money from Lavvan while using
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`Lavvan’s cash and industry expertise to independently commercialize cannabinoids
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`manufactured from the cannabinoid-producing yeast strains it made for Lavvan, violating the
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`RCL Agreement and Lavvan’s intellectual property rights. Amyris has been using its internal
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`cannabinoid dedicated resources (paid for by Lavvan’s $10 million) to pursue its own
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`competitive entry into the market while falsely claiming that it continues to work toward the
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`objectives laid out in the RCL Agreement.
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`24.
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`Lavvan has attempted to resolve these differences. It has raised its serious
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`concerns about Amyris’s conduct through emails, calls, and formal letters. In a letter dated April
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`22, 2020, after many failed attempts to remedy Amyris’s misconduct, Lavvan explained that
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`Amyris’s actions would require Lavvan to seek termination of the RCL Agreement. But in its
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`response, Amyris simply ignored Lavvan’s serious grievances. Indeed, in the face of allegations
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`that it has materially breached the RCL Agreement, Amyris has continued to reject the
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`fundamental terms of that agreement: that Amyris develops cannabinoid-producing yeast strains
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`for Lavvan, so that Lavvan can then manufacture and commercialize biosynthetic cannabinoids.
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`25.
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`On May 11, 2020, Lavvan notified Amyris of its intent to terminate the RCL
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`Agreement due to Amyris’s repeated material breaches.
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`III. PARTIES
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`26.
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`Plaintiff, Lavvan, is a Delaware corporation with its principal place of business in
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`New York, New York, and offices in Toronto, Ontario. Incorporated in 2019, Lavvan was
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`formed to commercialize high-quality cannabinoid ingredients for a range of industries,
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`including health, beauty and cosmetics, food and beverage, and pharmaceuticals.
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`27.
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`Defendant, Amyris, is a Delaware corporation with its principal place of business
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`in Emeryville, California. Amyris is a publicly traded biotechnology company that produces,
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`among other things, ingredients for cosmetics, flavors, and fragrances.
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`IV. JURISDICTION AND VENUE
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`28.
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`29.
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`This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331 and 1338.
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`Pursuant to 28 U.S.C. § 1391, venue is proper in this District because a substantial
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`part of the events or omissions giving rise to Lavvan’s claims occurred, and a substantial part of
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`property that is the subject of this action is situated, in this District. Moreover, pursuant to
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`Section 16 of the RCL Agreement—which provides that “[a]ny dispute arising out of this
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`Agreement shall be submitted exclusively to any state or Federal court located in New York
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`County, New York”—Amyris has agreed to litigate in this District. Thus, Amyris has waived the
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`application of 28 U.S.C. § 1400(b).
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`30.
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`The RCL Agreement also has a dispute resolution clause that requires all IP-
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`related disputes to be litigated in court. Section 7.2.1 provides: “In the event that a dispute arises
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`with respect to the scope, ownership, validity, enforceability, revocation or infringement of any
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`Intellectual Property, and such dispute cannot be resolved by the management of both Parties in
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`accordance with Section 3.2.4, unless otherwise agreed by the Parties in writing, such dispute
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`will not be submitted to arbitration and either Party may initiate litigation solely in a court or
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`other tribunal of competent jurisdiction in the country of issuance, registration, application or
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`other protection, as applicable, of the item of Intellectual Property that is the subject of the
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`dispute.”4
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`31.
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`This Court has personal jurisdiction over Amyris because, as noted above, Amyris
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`has agreed to litigate in this District.
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`V. FACTUAL ALLEGATIONS
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`A. Cannabinoid Production
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`32.
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`Cannabinoids are chemicals found in cannabis plants. There are over 100 known
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`cannabinoids. The two most commercialized cannabinoids today are THC
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`(tetrahydrocannabinol), which produces a psychoactive effect, and CBD (cannabidiol), which
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`has no intoxicating elements and is rapidly growing in popularity. THC and CBD are together
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`4 In contrast, the Parties agreed that contract-related disputes “will be finally settled under the
`Rules of Arbitration of the International Chamber of Commerce (the ‘ICC Rules’)” under
`Section 7.2. Accordingly, on August 22, 2020, Lavvan commenced an arbitration against Amyris
`asserting the contract and related claims that are subject to that provision.
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`known as “major” cannabinoids. Cannabis plants also contain numerous other cannabinoids,
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`called “minor” cannabinoids. Due to the low levels of certain minor cannabinoids in the cannabis
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`plant, production of these rarer, minor cannabinoids through traditional cultivation can be
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`extremely costly or even completely uneconomic.
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`33.
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`In recent years, demand for cannabinoids has skyrocketed. Several states, and
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`even the federal government with the passage of the Improvement Act of 2018, Public Law
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`No. 115-334, 132 Stat 4490 2018 (the “Farm Bill”), have decriminalized and legitimized
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`cannabis cultivation, typically by distinguishing between “marijuana” and “hemp.” Companies
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`are still researching the many prospective applications of and uses for cannabis crops and the
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`cannabinoids found in those crops.
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`34.
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`The traditional way to produce cannabinoids is to grow cannabis plants, harvest
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`them, and extract the compounds from the plants. Several companies are engaged in this work
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`across the country. That approach, however, carries many risks. For one, a hemp crop grown to
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`produce CBD that has too much THC may be considered marijuana in certain jurisdictions, and
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`not harvestable. In addition, real-world farming conditions create impediments to commercial
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`scalability. Difficulties ensuring crop consistency, purity, and cycle time pose significant
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`challenges to creating a dependable supply chain to service large product markets such as health,
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`beauty and cosmetics, food and beverage, and pharmaceuticals. Moreover, traditional cannabis-
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`plant cultivation does not yield the rarer minor cannabinoids on a sufficiently large scale or
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`economically viable basis.
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`35.
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`If a company could skip plant cultivation and the subsequent extraction process
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`entirely, however, and instead produce cannabinoids in a lab at defined, precise purity levels and
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`with predictable consistency, reliability, repeatability, and at a fraction of the cycle time, such
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`biosynthetic cannabinoids could help meet existing demand and usher in significant additional
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`future domestic and international demand. This was precisely the plan Lavvan conceived when it
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`approached Amyris to discuss a potential venture, and precisely what Lavvan sought to do by
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`entering into the RCL Agreement.
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`36. Many potential large-scale purchasers of cannabinoids—for example,
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`pharmaceutical, cosmetic, food, or beverage companies—need cannabinoids that are consistent
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`in quality and available at sufficiently large scale from a reliable supply chain. Biosynthetic
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`cannabinoids can uniquely meet those criteria, ushering in vast new commercial possibilities for
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`large-scale corporate customers. Large, traditional companies incorporating cannabinoids into
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`new and existing products would represent a transformational shift in the cannabis industry. Such
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`companies bring unmatched expertise and resources in the areas of product development,
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`branding, distribution, and marketing, thus enabling them to immediately become major forces in
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`the growing cannabinoid market as they launch products that include cannabinoids. Lavvan has
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`had productive meetings with multiple Fortune 500 companies that have already begun
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`developing products with cannabinoids and/or expressed a strong desire to incorporate both
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`major and minor cannabinoids into their products, and are interested in biosynthetically produced
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`cannabinoids because of their product quality, reliability, and economics at scale. Indeed, Lavvan
`
`has a number of pending sample requests from these industry leaders that it has been unable to
`
`fulfill because Amyris mispresented its timing and capabilities and could not deliver the samples
`
`by Q1 2020 as required.
`
`37.
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`The demand for cannabinoids is significant and expected to grow. CBD, one of
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`the only cannabinoids harvestable at scale from hemp plants, has already achieved widespread
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`use, including to treat neurological issues and pain. Other cannabinoids (such as CBG, CBC, and
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`
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`CBN) may provide additional benefits that cause them to become as popular or even more
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`popular than CBD. Because minor cannabinoids have not been commercially available before
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`(again, because they exist in such low concentration levels in nature), researchers are only now
`
`beginning to understand their full potential. For example, certain minor cannabinoids have
`
`antimicrobial uses; others appear to be promising treatments for acne. Each of those uses, by
`
`itself, would be multi-billion-dollar markets.
`
`38.
`
`Considering this potential, analysts have estimated that the global market for
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`cannabinoid biosynthesis will increase from $7.5 billion in 2025 to over $80 billion by 2040,
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`with an estimated present value of approximately $30 billion. The first company to
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`commercialize biosynthetic cannabinoids at scale has the opportunity to capture this lucrative
`
`market and to make a lasting impression with customers as a market-leading producer of
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`innovative and safe products with significant health benefits.
`
`39.
`
`Lavvan saw this opportunity and identified Amyris as a potential collaborator
`
`with the technology to produce cannabinoids that could be commercialized for a wide variety of
`
`uses. Amyris is a biotechnology company that uses yeast fermentation to produce certain
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`molecules. At a high level, the fermentation process is similar to brewing beer. But Amyris’s
`
`core expertise is in genetically modifying yeast strains so that instead of beer, they produce
`
`specific target compounds through fermentation. Once Amyris has developed a strain of yeast
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`that is sufficiently effective at producing the target molecule, the strains and related production
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`process can be deployed in large fermentation tanks (again, not dissimilar from beer tanks), and
`
`that fermentation process produces the molecules.
`
`40.
`
`Amyris is not the only company in this space. For example, Ginkgo Bioworks
`
`(“Gingko”), a bioengineering competitor to Amyris, has partnered with Cronos Group
`
`
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`(“Cronos”) to produce cannabinoids using fermentation. In this partnership Gingko plays a
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`similar role to Amyris and Cronos plays a similar role to Lavvan. Investment-banking equity-
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`research analysts at Raymond James have recently confirmed the estimated value of that
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`partnership to Cronos to be approximately $1.5 billion, given the anticipated market size and
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`Cronos’ expected 5% share of that market.
`
`41.
`
`By beating Ginkgo and Cronos to market, Lavvan could secure an even higher
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`market share—and an even higher value. For example, research from McKinsey & Company
`
`indicates that, in the pharmaceutical sector, the first firm to market obtains, in the long-run, a 6%
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`market-share advantage over later entrants.5 If Lavvan’s market share exceeded Cronos Group’s
`
`by six percentage points, then the analysts’ estimates imply that Lavvan’s market value would
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`exceed $3 billion.
`
`B. Lavvan Reaches Out to Amyris
`
`42.
`
`In late 2018, members of Lavvan’s founding team initiated discussions with
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`Amyris about a collaboration to develop and commercialize cannabinoids. Lavvan was familiar
`
`with fermentation-based production of molecules and had the vision of using that process to
`
`develop cannabinoids. Lavvan wanted to be the first to commercialize such cannabinoids.
`
`43.
`
`Amyris was a natural choice as a collaborator. Amyris was known as a long-time
`
`industry leader in developing unique yeast strains and fermenting molecules at a commercial
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`scale and had fitting infrastructure: Amyris had spent $1 billion developing a platform that
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`Lavvan believed it