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Welcome to the Amyris Second Quarter 2020 Financial Results Conference Call. This call is being webcast live on the Events page of the Investors section of Amyris' Web site at amyris.com. This call is the property of Amyris and any recording, reproduction, or transmission of this call without the express 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' Web site.
I would now like to turn the call over to Peter DeNardo, Senior Director of Investor Relations and Corporate Communications. Please go ahead.
Thank you, Melinda. Good morning, and thank you for joining us today. With me today are John Melo, President and Chief Executive Officer; Han Kieftenbeld, Chief Financial Officer; and Eduardo Alvarez, Chief Operating Officer.
Please note that on this call, you will hear discussions of non-GAAP financial measures, including gross margin figures. Reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is contained in the summary financial information slides of the accompanying presentation or the news release distributed today, which is available at investors.amyris.com. The current report on Form 8-K furnished with respect to our press release is also available on our Web site as well as on the SEC's Web site at sec.gov.
During this call, we will make forward-looking statements about events and circumstances that have not yet occurred, including projections of Amyris's operating activities and their anticipated financial impact on our business and financial results for 2020 and beyond. These statements are based on management's current expectations and actual results and future events may differ materially due to risks and uncertainties, including those detailed from time to time in filings Amyris makes with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Amyris disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the Amyris SEC filings for detailed discussion of the relevant risks and uncertainties.
Before we begin today, again, I'd like to note that included in our webcast is a slide presentation we will refer to in today's presentation. I'll now turn the call over to John Melo. John?
Thank you, Peter. Good morning, everyone and thank you for joining us today. Let me reference Slide 3. With me today, I have Eduardo Alvarez, our Chief Operating Officer, who will share operational performance highlights and key steps we’ve taken to reduce our cost of goods sold. And then we have Han Kieftenbeld, our CFO, who review our financial results, as well as our outlook for the full year of 2020.
Let me start by providing key highlights of our business and strategic activities during the quarter. I'm on Slide 4 for Q2 highlights. Before I cover second quarter highlights, let me comment that our business and our people have shown strong resilience during these unprecedented times. Keeping everyone safe has been our number one priority, while continuing to grow revenue and improve our operational performance. COVID has added many challenges to our business and our partners, but it's also provided many opportunities that we have not planned for. We are learning to adapt quickly to these unpredictable times.
Our consumer brands delivered record revenue in the quarter. And for the first time, we're equal in size to our ingredients portfolio. Lower consumer revenue from Sephora store closures was mitigated by consumers transitioning online supported by our digital readiness to service them and also the amazing pivot by our partner Sephora to move their business online to sephora.com. We expect second half consumer revenue to more than double versus the first half of this year. This shift in our portfolio will continue with significantly larger, sustainable and predictable product revenue relative to our collaboration programs and revenue.
Q2 margin was impacted by sales mix and lower collaboration revenue, and costs for the scale of the new products in our ingredients portfolio. During the quarter, we had about $2.7 million of product revenue, impacted by COVID that will be realized in the second half. This was driven by operating challenges at our CMO, our contract manufacturer in Italy, during the month of April campaign for one of our key flavor ingredients. We also had about $2 million of revenue in the quarter that's affected by timing from our collaborations. We expect this to be realized in the second half of the year. Other than these two impacts, one timing, one COVID, we really had a strong quarter.
Cash operating expenses for the second quarter were the lowest in five quarters with lower G&A and R&D expense of $6.5 million compared to the second quarter of last year. This is partly reinvested in the robust growth of our consumer brands where we are delivering $11 of sales for every advertising dollar invested through the Biossance brands.
We continue to focus on operating economics relative to newer ingredients and our newer brands. Also, we are on schedule with the construction of our specialty ingredients plant in Brazil, with full commissioning expected during the fourth quarter of 2021. In the second quarter, we raised $200 million from a private placement with high quality investors of which 70% were new to the company and 90% with a healthcare biotechnology or long orientation. This was the largest race in the history of the company.
Before I move on to the next slide, I want to thank our new and existing investors for their support in helping us execute this financing to further grow our business. The financing and other activities during the year-to-date also allowed us to reduce total debt and the cost of servicing net debt, which Han will detail further.
Please turn to Slide 5. Our revenue for the quarter was 87% from product sales and 13% from technology collaborations. We expect the shift in our portfolio to continue due to continued acceleration in demand for our consumer branded products. In the second quarter of 2019, we had $41 million of non-recurring income from the sale of our Vitamin E royalty agreements to DSM. Excluding this one-time income, recurring revenue of $30 million grew 36% over year-over-year and 23% quarter-over-quarter. This was driven by strong trends in our consumer and ingredients business, which delivered revenue of $26 million or more than double the prior year period.
Consumer revenue delivered a record quarter and tripled year-over-year, driven by strong online sales and our rapid adaptability of harnessing and optimizing our online sales platform. We believe higher online purchasing activity is here to stay, and we're continuing to maximize convergence and deliver better customer experience through product orientation, product education, content and improvement in the overall online experience for the consumer.
Based on what we are seeing, we believe the consumer business has the potential to exceed $75 million in revenue for 2020 compared to around $72 million in 2019. Our ingredients business delivered around $47 million in revenue for 2019. We're on track right now for about $95 million in 2020. We are very pleased with our consistent growth rate from our ingredients business with a significant acceleration of growth from our consumer activity, especially as we have entered a phase where most consumers are now working and shopping from home.
Within our consumer branded business, Biossance sales were up 132% with our dot.com business inside Biossance increasing 6 times and the Pipette baby and family care brand experiencing 10 times sales growth over the first quarter of this year. This illustrates the performance of our product line, customer receptivity to our clean skincare offering and the adeptness of our team in navigating through COVID to convert customers to e-commerce platforms.
We also made similar inroads in online sales for our Pipette baby and family clean skincare brand, and our Purecane direct-to-consumer sweetener line. The consumer business overall excelled year-over-year and is on track to deliver over $50 million in the second half with gross margins of over 60%. The Biossance brand is delivering around 70% gross margin while Pipette and Purecane are around 55% gross margin. We have historically doubled our consumer revenue in the second half versus the first half. And this year, we have the benefit of a full half of hand sanitizer sales versus only a couple of months at constrained capacity in the first half of this year.
Our three most critical metrics for the consumer business also performed very well in the quarter. Our consumer traffic was around 1 million consumers a month through our owned Web sites. This compares to about 200,000 consumers monthly in the second quarter of 2019. Our return on advertising dollar spend or a metric called ROAS, was around $11 for Biossance. That's over $11 of sales for every dollar of advertising spent and our consumer loyalty continues to improve. We gain more loyal customers in the quarter than any quarter in our history.
Based on the continued consumer love for our products and brands, we expect our consumer revenue to continue more than doubling year-on-year. This would result in around $160 million of 2021 consumer revenue, just shy of what we expect for 2021 ingredient revenue. 96% of our product sales are in clean skincare, sustainable health, flavors and personal care and household cleaning. Each of these segments are benefiting from the current COVID-19 environment. The remaining 4% of our business is in aroma ingredients for use in perfumes, and this activity has seen a significant drop in demand, during this period.
For ingredient sales, which were up 56% year-on-year excluding one-offs, Squalane continue to be the largest revenue contributor in the second quarter with sales up 31%. Our second biggest revenue contributor was our zero calorie natural sweetener from sugarcane Reb M where we sold out all of our production. And the other key contributors were [17.03] [Indiscernible] for fragrances, as well as cleaning products and Farnesene and Farnesene derivatives, which were also used in cleaning products.
This was expected to be a record year for Squalane and a solid year for Reb M as it continues to scale. We now have six platform ingredients in our portfolio that each can deliver over $10 million in annual annual revenue. With our vaccine adjuvant, our new flavor and our you skincare ingredient, we are adding three new platform ingredients to our portfolio this year that each are capable of delivering $10 million in annual revenue. Based on current demand and our production capacity, we expect over $70 million of second half ingredient sales. These are predominantly or mostly sold at this point, and we're really focused on the production of these ingredients and managing our supply chain to deliver these to our customers.
Let me now provide some color on our portfolio characteristics. Please turn to Slide 6. Our portfolio is comprised of collaboration and grants and consumer and ingredient revenue. The quarter-to-quarter revenue from collaborations is choppy and dependent on R&D milestone delivery. Underlying the variability of collaboration revenue, over six quarters we hit a high of $15 million and a low of $2 million. Even though there was that much variability in the revenue recognized, the work being performed, the collaboration contracts that we have, number of partners, number of products, were predominantly unchanged during this period. Meaning, that the real variability is really based on how revenue recognition happens quarter-over-quarter based on milestone delivery for our partnerships.
This source of revenue operate at a 100% gross margin. So any volatility in revenue from quarter-to-quarter has a notable impact on quarterly profit delivery. That's the benefit of significantly increasing our product sales at the rate that we're increasing at so that choppiness no longer has a direct negative impact on any quarterly profit delivery.
Our consumer and ingredients product portfolio growth is sustainable and predictable, and will continue doubling year-over-year while collaboration revenue remains flat and choppy based on contract signing and revenue accounting for the milestone delivery. This is consistent with what we've expected before, and we expect the same level going forward for some years exceeding this level of revenue based on one time licensing opportunities.
We’ve analyzed our product portfolio into two categories, scale-up products and growth products. The scale-up of new ingredients has an impact on quarterly margin as you can see from the slide. For the second quarter, about $7 million of total consumer and ingredients revenue of $26 million was from scale-up products, which carry unfavorable margin economics at the present time until they reach their full scale. These are products where we are in the first 18 months of commercialization, and we are involving the strain for fermentation and the downstream process to deliver our target cost of goods.
Scale-up product impacted second quarter gross margins by around $3 million negative. Each of our ingredients has reached our target margin within 18 to 24 months of commercialization. Our target margin for the consumer business is 60% to 70%, which we are realizing currently, and for the ingredient business is 40% to 50%. At maturity, our consumer portfolio delivers around a 30% adjusted EBITDA and the ingredients portfolio about 35% adjusted EBITDA.
The consumer business has much better gross margins and much higher costs to serve, while the ingredients business has lower gross margins and a much lower cost to serve. Growth includes more mature brands and ingredients operating at predictable margins and include a more established consumer brands, Clean Beauty and certain flavors and fragrance ingredients.
Growth products delivered $7 million of additional revenue in the quarter compared to the prior year, and also delivered additional gross profit of $7 million due to improved unit costs. The overall message is that the different parts of our portfolio carry different characteristics as it relates to predictability, margin economics and expected growth.
Let's move on to Slide 7. We are executing well against the four strategic priorities we set out at the beginning of the year to maintain healthy growth with a focus on achieving profitability and sustained cash generation. Let me highlight a few items around these four strategic priorities. First, high growth consumer brands where we built the fastest growing brands in their respective categories and have launched a leading hand sanitizer product line that is expected to continue gaining share and delivering strong revenue and margin.
The hand sanitizer delivered 40% gross margin in its first few months and is expected to deliver better than 50% gross margin for the remainder of the year, with our significantly improved cost of goods at our new Brazilian production partner. Secondly, scientific and commercial collaborations where we fund our R&D and have entered into two significant partnerships during the quarter, including what we believe to be one of the leading RNA platforms for vaccines.
Thirdly, supply chain optimization where we are managing production across multiple sites, while our new plant is under construction. The new plant is expected to start in the fourth quarter of 2021. The start of this plant is expected to deliver around 1,000 basis point improvement to our gross margin and deliver an 18 to 24 month return on the capital employed. Having this plant operational is estimated to be worth around $20 million in gross profit dollars based on our 2021 revenue forecast.
Some investors have asked, whether I'm willing to sleep at the site until the plant is built. And I can tell you that the team and I are doing whatever it takes to get this plant built and operational by the fourth quarter of 2021. This is the most critical deliverable to meet our customer needs and to continue improving our financial performance.
Lastly, around our four strategic initiatives, improving the balance sheet, earnings and positive operating cash flow. We solidified our balance sheet during the second quarter. We expect a significant improvement in our adjusted EBITDA during this quarter and we expect to turn adjusted EBITDA positive in the fourth quarter based on our current performance and outlook.
Now, let me turn to scientific partnerships. One area we are particularly excited about is helping to address COVID is our recent partnership with the Infectious Disease Research Institute, or IDRI. IDRI has significant expertise in taking a comprehensive approach to combat infectious diseases and cancer, combining the high quality biotech -- high-quality science of a research organization with a product development capabilities of a biotech company to create vaccines and therapeutics.
I want to point out something important about the binding term sheet we signed that we believe will lead to a definitive agreement in short order. The agreement adds, IDRI’s RNA vaccine technology platform, coupled of with their nano lipid carrier IP to our portfolio, by giving us an exclusive license and rights to it. We did this because we believe based on our two years of extensive work with IDRI developing our vaccine adjuvant for only animal testing results and a review by an independent expert indicates that this can be the most effective RNA platform for potential vaccines, starting with a COVID-19 indication. And we also have rights to utilize the platform for other indications, including cancer, where an RNA therapeutic can be utilized.
According to experts, the efficacy and scalability of IDRI’s RNA solution, coupled with our adjuvant, have key advantage by possibly needing 1,000 times less RNA to be manufactured and used in a single vaccine. So we lowered dosage of RNA, utilizing lower costs nanoparticles as a delivery mechanism to place RNA on the surface with a cell generation attribute. The potential benefits are much lower cost, better efficacy, enhanced supply chain scalability and the mitigation of manufacturing bottlenecks that other candidate COVID-19 vaccines are likely to face.
We have reviewed much of the data from current vaccine trials, and believe there will be a critical need for a second generation technology that is much more effective and lower cost. Early tests in mice have identified the much lower use of RNA results in a very high efficacy treatment that results in much lower toxicity than other RNA vaccines currently in trials. We expect first human testing around the middle of 2021 with a potential to scale and deploy in 2022 assuming the trials are successful.
Our view is simple, there will be a need for a second generation vaccine and it's a vaccine that's not just for the billion people in rich countries, it's for the 7 billion people in the world that need to be treated to avoid COVID-19. At a relatively low cash outlay from Amyris with several go or no go steps along the way as we review available data to derisk our investment, the program calls for IDRI to utilize its existing novel, nano lipid carriers and RNA technology through a Phase 1 clinical trial.
The first target is COVID but we have optionality on other RNA therapeutic candidates. The adjuvant is independent to the RNA vaccine platform agreement with IDRI. We are in process of commercializing the adjuvant and expect first commercial revenue this year from several other large pharmaceutical companies. Our goal is to be the leading supplier of Squalane adjuvant to the market. The real message here is a novel RNA vaccine platform that we have added to our portfolio. We will keep you updated on our progress of the accelerated development program, and we’ll likely hold a separate investor conference later in the quarter to update you on the details of the vaccine platform.
Now, let me turn to Eduardo. Eduardo?
Thank you, John and good morning, everyone. Please turn to Slide 8. Let me start with an update on our pandemic response. As John mentioned, we continue to apply strict controls and to monitor the pandemic very carefully. We have had three confirmed cases, all were for employees who were working from home, and none of the cases affected other employees. These three employees have all recovered and we are thankful for the week return to good health.
We continue to work with our production team and partners to develop site specific approaches to implement onsite activities carefully. These protocols adjust for local regulations, the type of work being performed and in the individual circumstances of our employees. Here's an update of where we are. At Amyris our onsite preference is about 50% or about 100 employees and focus is mostly on our lab activity and our pilot class. At our production sites in Leland, North Carolina and in Brazil, we already are at 100% of full operation.
Now, let me transition to our production performance. As John mentioned, our product revenue for the second quarter was $26 million or 111% growth compared to the second quarter of 2019. Second quarter consumer and ingredient product revenue represented 87% of our reported revenue. This is in alignment with our stated strategy to strengthen our recurring product revenue. In the second quarter, we delivered six products, which comprised of 871 tons of finished products. This was 19% higher volume than expectations.
Now, let me go deeper into our unit cost performance. As John mentioned, we'll separate the comment between our growth, established products and our scale up activities to reflect our dynamic portfolio and to provide additional transparency and delineation. Let me start with the growth in the two mature products. I'm happy to report continued success in our Squalane production at our Leland, North Carolina plant. The second quarter represented the third consecutive quarter of record production at that site. In fact, our year to date production of Squalane is 60% higher than what we have producing the first half of 2019. Our team is also focusing on improving our unit costs for that product. We have delivered 20% unit costs when compared to the average unit cost of Squalane in 2019.
Another established product is Farnesene. Farnesene is sourced from our strategic partner DSM. And our Farnesene supply has benefited from excellent production controls, Brazilian sugar prices and exchange rate factors. Farnesene is a clean ingredients to four of the growth mature products we delivered in Q2, and it was critical to deliver all of these products at or below our unit cost targets.
In terms of our scale up products, let me talk a bit more about Reb M. As I mentioned in the first quarter comments, we successfully implemented a new purification process for our Reb M in the second quarter. This new process is simpler and much more scalable. It included two new unit operations that initially resulted in 20% lower than target yield during the startup of the campaign. By the end of the campaign, our teams had optimized the process and we’re running it as planned. We did face a corresponding increase in our unit cost during the scale up phase.
However, the new process successfully doubled production output and the resulting product excelled in quality and profile. By the end of the second quarter, we had sold out all of our available production. And our B2B clients were very pleased with the product. We continued to have tremendous market success and traction, as we shared in the June announcement regarding our North American partnership with AB Mauri, as an example.
Our success with Reb M has also extended to our end consumers. And let me share some results our e-commerce graphics for Purecane delivered record growth in the second quarter. For example, our volume and orders for our bakery products doubled during each month in that quarter and that momentum continued to accelerate into July. Purecane in fact ranks in the top tier of Amazon's natural low calorie sweetener category and we continue to receive the highest ratings above 4.5 stars from our consumers. Simply said, our consumers love Purecane and Reb M.
Another scale up product I would like to discuss is our hand sanitizer activity. In the second quarter, we scaled this new product lines and established additional production locations that added resilience to our scale-up. We now have the ability to produce up to 1.5 million units a month, and our U.S. production facility for the hand sanitizer is in Brazil, which as John mentioned, will ensure we improve the unit costs in the next phase of our hand sanitizer growth. We have a winning formula with excellent feedback and the traction from our Pipette and Biossance hand sanitizer products. Now the focus leads on execution excellence, lowering our total supply costs and driving sales through each one of our channels. In summary, our unit cost performance reflects both continued delivery on our growth, mature products but also a focused careful investment on the cost of the scale up activities.
Now, let me close by looking ahead at our priorities for the second half of 2020. Our first priority is to complete two new scale up campaigns, both starting in Q3. First, we're scaling our 10th ingredient, an ingredient we mentioned in our fourth quarter update in 2019. This is a natural leading ingredient. And our next campaign is in Brazil, it'll be a campaign 8 times as large as the previous one. We are on track to delivering a leading natural flavor with 99% purity produced through sustainable fermentation. We also remain on track to deliver our first large scale cannabinoid campaign, and we will begin fermentation in two weeks. Our second priority for the second half is to deliver on the remaining production plan. And we are confident that we will deliver the growth, product quality and cost performance for all the sectors and products for the remaining of the year.
Finally, let me share an update on the construction for our Brazil plant. We are in the critical phase of civil construction. And during the second quarter, we successfully completed the tie-ins through the infrastructure services for the plant and procured all of the long lead items, including the fermenters. The plan remains on track for commissioning at the start of the fourth quarter of 2021. I want to recognize the incredible dedication and commitment of our operations and production teams. We are very thankful for everyone's continued help and are excited to deliver an excellent second half of the year.
Now, let me turn the call over to Han. Han?
Thank you, Eduardo and good morning, everyone. Before I review the details of our Q2 financial performance, I would like to thank our new and existing investors for the support and participation in our recent funding. They see the value in our science driven technology platform and our ability to commercialize synthetic biology to disrupts and grow within multiple markets. Let me now turn our Q2 financial results at a high level and then further discuss certain details.
Let's turn to Slide 9. Let me start by highlighting our Q2 of 2019 included a significant non-recurring item of $41 million, which was 100% accretive to revenue, gross margin, net income and EBITDA. This item represented income from our Vitamin E transaction the company completed in Q2 of 2019. To help the year-on-year comparisons, I will exclude this non-recurring items from the analysis.
Here are the key takeaways regarding the quarter. Product revenue growth continues to outpace collaboration revenue as expected. We had our strongest quarter yet for consumer revenue. Scale up of products is key to future success with comps at a near term costs, resulting in unfavorable margin economics until at scale. As John commented, we expect to see greater margin stability once we get our integrated site in Brazil up and running.
Gross margin was 36% of sales and this was a result of sales mix, driven by below average collaboration revenue of $4 million, which is 100% accretive to margin contribution and also scale up costs related to new products in our portfolio. Revenue and margins for scale up products are not predictable as yet and feature unfavorable margin economics until at scale. Cash operating expense of $43 million was the lowest in the five sequential quarters. Lower G&A and R&D expense were partly reinvested in supporting the growth of our consumer brands.
When adjusting for the Vitamin E non-recurring item, adjusted EBITDA was up by $3 million or 8% versus the prior year quarter. We also significantly improved our balance sheet. We lowered debt from $297 million by $121 million or 40% since the start of the year and reproject second half 2020 cash debt servicing costs to be down from $42 million to $11 million. We completed the $200 million PIPE in early June. This raise was the largest with the simplest structure in the history of the company.
Let's now turn to Slide 10 to take a closer look at the sales revenue by category. This slide provides a presentation of our sales revenue that provides color on our direct-to-consumer brands Biossance, Pipette and Purecane, as well as our business-to-business ingredients with our strategic partners into health and wellness, flavor, fragrance end markets. By this comparison, our revenue is broken down between consumer and ingredients, and collaboration and grants, which is revenue from R&D partnership programs.
As you will see, 87% of our revenue came from consumer and ingredients, broken down in 43% from consumer and 44% from ingredients respectively. The remaining 13% of total sales was from collaboration and grants revenue. Q2 revenue was $30 million with product sales at the highest level in several quarters. Recurring revenue grew 36% year-on-year and 23% quarter-on-quarter.
Consumer and ingredients revenue of $26 million doubled versus the prior quarter when excluding the aforementioned non-recurring item. Consumer revenue tripled and set a new record with consumer shifting to online shopping driven by COVID. Collaboration revenue of $4 million in the quarter, which is 100% accretive to margin, tends to be somewhat choppy. For perspective, let me add that over the past six quarters, we experienced a high of $15 million and a low of $2 million.
Let's move on to Slide 11 and talk about sales revenue and gross margin. Q2 recurring revenue, excluding the $41 million one-off as mentioned before, was up $8 million or 36%. Within this metric, $14 million of growth came from consumer and ingredients with about $9 million of that directly related to consumer revenue, partly offset by $6 million in lower collaboration. In particular, recurring consumer and ingredients revenue of $26 million for the quarter was up $14 million or 111% year-over-year, of which price was minus $3 million or 27% and volume mix was a positive $17 million or a plus 138%. Collaboration and grants revenue declined 60% year-on-year due to the timing on program milestone completions. Gross margin was 36% of revenue and this was a result of sales mix, driven by below average collaboration revenue and also, scale up costs related to new products in our portfolio.
Let me move to Slide 12. Revenue excluding the non-recurring Vitamin E royalty increased by $8 million over the second quarter of 2019. Direct gross profit of $11 million was 36% of sales and this compared to 54% in the prior quarter when excluding one-offs. Gross profit was $12 million for Q2 2019. To provide insight into revenue and corresponding gross margin dynamics, we are providing a breakdown between scale-up and the growth part of our product portfolio and collaborations separately.
As I mentioned previously, collaboration revenue was down $6 million. Additionally, revenue related to the scale-up part of our portfolio grew $7 million. These products are important to our future success but we are making investments to scale and improve yields in the near-term, resulting in unfavorable unit cost economics until at scale. Revenue to growth part of the product portfolio was $7 million in revenue and delivered $7 million in gross profit. These favorable economics were due to much improved margins versus the prior quarter, particularly with certain ingredients products.
Let's now turn to Slide 13. Net income of minus $104 million was adversely impacted mostly due to non-cash adjustments related to fair value changes of derivatives and debt and extinguishment of debt, and higher interest expense and adjustments in debt instruments. Q2 of 2020 included $49 million of these non cash charges. Adjusted net income was minus $58 million, excluding these items, and are minus $3 million when excluding one off items. The change was mostly due to higher interest expense of $4 million.
Operating expense of $43 million were the lowest in the five sequential quarters and down $3 million from lower G&A and R&D expense to the tune of $6 million, partly offset by investments in marketing and sales to support our consumer brand growth. Adjusted EBITDA was minus $36 million and improved $3 million excluding one-offs. This improvement was mostly due to improvements in cash operating expense. Adjusted EPS of minus $0.32 per share compared with minus $0.16 versus the prior quarter, and improved $0.28 per share when excluding last year's non-recurring item.
Let's now turn to Slide 14. We continued to make strong progress on reducing our debt and our debt expense. As a reminder, during the first quarter, we reduced our overall debt by 30% from $297 million to $209 million. And during the second quarter, we made further demonstrable progress by reducing the figure down to $176 million by June 30th. We paid down certain debt and also we made certain debt convergence. Total debt during the first half of 2020 was reduced by $121 million in total of 40% relative to year-end 2019.
Capital expenditure of $3 million were on par with the prior year quarter with the investments in new Brazil plant proceeding to plan. At the end of Q2, common shares outstanding were $204.6 million and on a fully diluted basis, $278.8 million. In light of the upcoming special shareholder meeting on August 14, let me note that the conversion of the Series E preferred will change common outstanding to $238.7 million and fully diluted shares to $312.9 million.
Now turning to our outlook on Slide 15. Our business continues to grow and our teams have worked hard to meet demand. As John noted, we have lots of execution ahead of us through the second half and are keeping a close eye on the COVID situation and the economy. Let me point out that the current COVID situation does present uncertainties to which we do not have full visibility. Our outlook for the current year and our comments should be seen with that important context in mind.
We anticipate certain headwinds during the second half but COVID also has presented market opportunities that we are actively pursuing. Our current assumption is that we will mitigate the headwinds by executing on these opportunities on which we expect to report more detail by the end of the third quarter. Based on current estimates, full year sales revenues are expected to grow around 44% versus 2019 GAAP revenue of $153 million. 2019 full year sales included $49 million of non-recurring items. We expect full year 2020 revenue to include an estimated $35 million of non-recurring items.
We therefore expect 2020 revenue on a recurring basis to grow approximately 80% on recurring 2019 sales of $104 million. We expect gross margin to be between 55% and 60% of revenue, obviously, based on the assumptions we made regarding sales mix and quality of revenue. And we expect adjusted EBITDA to turn positive during the fourth quarter of this year.
With that, let me turn the call back over to John.
Thanks, Han. A few closing comments, if you can all turn to Slide 16 before we go to Q&A. Our leadership in Clean Beauty and the natural sustainable ingredients could not be better-positioned for the current time. Consumers are moving aggressively to clean and safe products from the brands they trust and they're doing this online. We supply many of these brands and we have two of the leading brands to help consumers in this time of need.
Our ability to quickly scale what we believe our market-leading ingredients and branded products that provide exceptional performance and great value has become the hallmark of our business. With a much-improved balance sheet and capital structure, we have greater flexibility to execute on growth in an era where better-educated consumers are choosing products based on companies and brands that support them and the planet by omitting toxic and questionable ingredients, and we are taking advantage of this mega trend.
Our core business is doubling year-on-year and our pipeline is focused on health with our HMO technology, vitamins and cannabinoids. These are each markets where we have the leading technology platform for the purest and best performing ingredients that are currently in development or shortly scaling. With COVID, we are at historically difficult time in the world that has been challenging for all of us and at times unpredictable. COVID has created new opportunities in global health for synthetic biology and we're actively pursuing the development and launch of some new solutions. One thing our customers can count on is that we will continue to meet their needs for clean products that keep them and their families healthy and safe. We are doing our part to make the world a better place and we thank you for your support.
Let me now turn to questions. Melinda, can we go to questions now, please?
Thank you [Operator Instructions]. And first we go to Colin Rusch with Oppenheimer. Please go ahead.
So I just want to make sure I'm clear on a couple of things. So one, the sales target for the year is still consistent at $220 million for the year and about 80% of that is going to be recurring sales. Am I doing that math correct?
Correct on the $220 million, Colin, by the way, good morning. And then Han, can you confirm the recurring piece of that at 80%?
Yes, that is correct.
And then in terms of visibility around those recurring sales. Is that coming from Sephora and other customers? How should we think about your visibility in the sales cycle on each of those lines as we go forward?
So over $90 million for the full year is isn't ingredients, and the majority of those ingredients are sold or we have orders in place with some of our big customers, Givaudan and Farnesene being two of the biggest. And then the consumer part of the revenue, again, full year consumer will be around $75 million and that $75 million in consumer is really based on having done about $22 million in the first half, more than doubling that in the second half, which is what we've done in the last couple of years and then adding to it the current run rate that we have for the hand sanitizer business, which has been an outstanding performer in the second quarter and we expect to benefit from the full second half of hand sanitizer 30%.
And then finally on the IDRI collaboration and the adjuvant opportunity. So my understanding is that you guys are able to work with any one from an adjuvant perspective. And then the IDRI relationship, it really sounds like you're fine, you paid for a ROFR the next several applications for additional vaccines. Can you talk just a little bit and just confirm that, and also talk a little bit about the cycle on the development process. Obviously, these guys have a pretty robust platform. But how quickly do you think you could bring something to market and start seeing some revenue from any of those indications?
Well, again, separate the two on the adjuvant. We are currently negotiating the first off take for the adjuvant and we expect to have two to three agreements in place through the year, which the first could have commercial revenue before end of year, so that's the adjuvant. And the adjuvant is in our control, it's a technology that we developed, the ability to make Squalane as an adjuvant directly from our fermentation products. This gives us the lowest cost and largest scale ability for adjuvant, that's again separate.
Then with IDRI in developing the adjuvant over the last two years, we discovered they had a really interesting RNA technology for vaccines. And with that, they had several indications that we have interest in, very good interest in. One is an oncology indication for a therapeutic and the other is the COVID-19. And it's not that we're going to be the leading to market COVID-19, it's that in everything we're seeing in the data. The leading COVID-19 to market indications seem to have a toxicity issue that limits the amount of the dose and therefore, leads to challenges with efficacy.
We think that's going to be a long-term issue, and will require a second generation technology to really scale and be sustainable long-term. And that's really what we've licensed then from IDRI and we're going to work with them to scale. Plus we're talking to several governments to jump in with us to really ensure that this is fully resourced and scaling at the fastest rate. How fast it gets the scale, Colin, I think depends on the future of COVID-19 and other respiratory diseases, because to get there fast we need a supportive, very supportive regulatory environment, which has been there during COVID and that would have to stay in place for us to get to what we think could be commercialization sometime in 2022.
Next we go to Amit Dayal with H.C. Wainwright. Please go ahead.
Exciting to see you guys get into the therapeutics vertical. Just one question on, sort of who's going to be managing this process to take it to phase one, phase two, et cetera? Is it Amyris and we are looking to build a team around all this, or will IDRI be enrolled as well?
We're having IDRI actually do the development and we're actually in discussions with a third-party that specializes in getting through clinicals to actually drive that. We don't have the capability to do that, and we do not expect to build. I just want to make it really clear. Our objective here is not to build a new cost base, it’s something we're not specialist in. It's actually to take the advantaged technology that IDRI has. Their capability on developing vaccines and therapeutics and connecting it with large sources of investment or said differently, adding our commercialization and access to help to accelerate the vaccine's capability.
And then with respect to the adjuvant side, it look like you are close to, probably closing some deals over here. Does that play into potentially some upside through the guidance provided today?
We're not. I mean, we've got several items that we think could be upside. But at this point, because of all the headwinds and unpredictability related to COVID, we're keeping our guidance at $220million, and we do have again several items that are not in the guidance that we're focused on executing on.
And then, what would drive -- on grants and collaboration side, is it just you guys are facing some disruptions from executing on that front, because of the pandemic situation and things are being pushed out, or are there any other sort of drivers that are keeping some pressure over here?
In the first half, it was literally a couple of million dollars that we were not able to recognize as revenue based on the timing of the milestone delivery and how revenue accounting works. We are not experiencing, at this point for our core collaboration portfolio, a significant change for the year.
Next we go to the line of Randy Baron with Pinnacle.
I have a few administrative questions for you. Just cleaning up my notes and then, John, a bigger one for you. Han, just a question, how much revenue in the quarter was deferred that will recognized in the third quarter?
Yes, it was approximately -- you're talking specifically about collaboration revenue, I think…
Well, I mean you can include the total revenue that wasn't booked yet.
Yes, so it’s -- John made reference to that, it’s around $2 million.
And then you said there is $312.9 million fully diluted shares after August 14th. What was the basic share number, I missed that and [Technical Difficulty] in there yet?
So let me quickly go there. Just give me a second. Whilst I’m doing that, if you want to ask your broader question to John. So I can come back to you.
I mean, John, I'm trying to get a handle on LAVVAN. And I may have missed kind of the uptake there, just generally speaking. But can you just speak in general terms on where that partnership has been, kind of while you continue to treat them as good assets. Are other parties lined up and ready to partner with you on CBD? And then the tailend of the question, which is what would be the benefit to EBITDA if you cease production of molecules through cannabis?
So let me try to take each piece. First of all, I do need to make clear that I have been restricted. I, meaning the company, has been restricted by LAVVAN for making public comments regarding the partnership. So I'm going to try to do everything I can to answer your question within that restriction or order that we got from LAVVAN. We are in process, I think as Eduardo announced. And Eduardo’s comment about our first cannabinoid is in line with regulatory requirements that we maintain and update you on what we've already make public. So we said we would be scaling up one of our molecules. We are -- one of the cannabinoids, and we are absolutely in process of doing that. We expect first production to start happening within the next couple of weeks. And we think it's a very exciting opportunity for the market.
And I think the most important thing is the fastest time any cannabinoid has been scaled, at the scale that we're going to be producing at. And we will very quickly this year become, I think the largest producer of particular cannabinoid in the U.S. So we're pretty excited about that. We believe the cannabinoid opportunity continues to be, as we thought. Obviously, there are regulatory headwinds about the general use, especially in beverage and other items that you would consume. But the application and topical or used in skin, we still see is pretty significant. And as you can imagine flavors and fragrances and uses and skincare are markets we know extremely well and those are markets that have a keen interest in being able to partner for cannabinoids. So without giving you a lot more detail, I hope that helps. And I'm happy to take a follow up on that, Randy.
Yes, I just wanted to make sure I'm clear. The cannabinoid that you're beginning to go to commercial on that is or is not for LAVVAN? If this is something for without [Technical Difficulty] is it internal for Amyris or this is whole part of that partnership, I'm just not clear on that?
Yes, in the LAVVAN agreement an area or market area that is excluded from that agreement. So we are producing for that excluded market.
And then what's the drop dead date when you're going to be able to no longer be restricted to talk about it? I mean, whether they pay…
As long as we're in the agreement with them, they have put a restriction in our ability to speak publicly about the relationship.
And so just going back to the original agreement, I guess from last year, when is the termination date. I mean if they don’t pay, I get you can't get into the details. But there is a point at which, I assume there's other parties lined up that would want that molecule you created. So how should we think about the original agreement and the timing of that?
Yes, I want to stay with what I said a few minutes ago, Randy, which is because there is an excluded market, our focus is working within the constraints of the agreement and actually effectively working in the market that we have the right to work in.
Then I'll ask the last question on this and I go back in queue. Do you think LAVVAN would [Technical Difficulty]…
I think LAVVAN will what, Randy, could you repeat that please?
I think LAVVAN will eventually live up to their part of the agreement and paying. Amyris has clearly delivered your portion. The market is suspicious that LAVVAN will not. I'm curious if Amyris as a company at this stage believes that LAVVAN is negotiating in good faith?
We've shared with them what we've heard from the market, which is exactly what you just repeated. And they've assured us that they are going to hold their side of the agreement and are going to continue doing exactly what the letter of the agreement says. So, I can only repeat for it to you what I've been told.
Okay. Good luck.
Randy, before you leave, I just want to take your question. Your original administrative question around the shares outstanding. So $204.6 at the present time that includes, as you know, based on the PIPE of $200 million, there is $67 million round numbers shares attached to that. Half of that in terms of common we already distributed the other half, which is around $34 million, will become available at Special Shareholder Meeting on August 14 coming up. And actually, if you go to Slide 14 in the deck that we shared today, there's a couple of footnotes that actually said that out in detail. And you'll see an increase based on that comment I just made from $204.6 million to $238.7 million and that difference is that $34 million.
Just to finish on the share topic. On Slide 21, you have the warrant table. How much of the, call it 2021 warrants, do you think that $92 million will come in? Have you received more warrant cash since the end of June? How should we just think about warrant cash…
No, since the end of June, no, because there were no warrants expiring in this time period. And the few that would be were way out of the money. The ones that are available in 2021 are mostly priced at the 287 level. So actually, when you -- on that same slide to the left hand side, you see $287 million and $36.7 million warrants attached to it, most of dues are in 2021 and will become available mostly after the the first half of 2021.
Ladies and gentlemen, we take our final question from Graham Tanaka from Tanaka Capital.
Congratulations on all achievements, you have lot going on. I just wanted to continue on Randy's questions and the CBD, CBG opportunity. I'm not sure which molecule that is, but whichever that is, what is the revenue potential? And would you be entering the market as with a direct product or as an ingredient?
Yes, again. Gragam, by the way good morning, and thank you for being on the call. We really, in light of the restrictions we have with LAVVAN, I would prefer not to comment on any of the commercial activity or revenue impacts.
Is this, whatever the revenue might be coming in the second half. Is that expected -- is that included in your guidance, or is that a potential upside?
Again, I’d prefer not to comment. And I can tell you that what's in the guidance is pretty well solidified.
So not trying to push my level further. Switching to Squalane as an adjuvant, similar question. Is that potential revenue in the second half in the guidance, or is that potential upside?
Yes, that was a question one of the analysts I think asked earlier. I think our view is that a lot of the upsides, we're really keeping out of the guidance and keeping our guidance focused on the $220 million that we started the year with, especially in light of the significant uncertainties around COVID-19.
So it sounds like both of these might be potential upside and you're leaving that the way it is because of the uncertainty of potential slowdowns perhaps in the second half due to COVID that you just…
It's exactly right. I mean, look, to put it different way. If you think about one of the impacts that we had in the second quarter, I said was this manufacturer in Italy where we make one of the flavor ingredients. We never expect it to be in COVID. So the way we work with a manufacturer like that is our team goes to the site to help the manufacturer scale up and produce our product. The fact that we couldn't do that, the manufacturer obviously is not as familiar with our process, did not deliver what we expected and ended up really affecting our revenue by about $2.5 million, actually $2.7 million in the quarter off of that particular product. I mean, the good news is we actually have a way to make that up, because we're now redoing that process. Obviously, Italy is now more available for us to work in, and we have access across Europe to be able to get the product produced.
So the revenue for the year isn't affected but it definitely affected our second quarter. And it's those kinds of uncertainties that we want to make sure we keep plenty of cushion to manage through the rest of the year, which is why we're not as betting upsize and changing what our guidance is. We're keeping our guidance where it's at. We're focused on managing all these issues, all these movements like the example of the Italian manufacturer and making sure that we're covered for the $220 million for the year.
One of the things that several of us have been wondering about is Squalane as an adjuvant. How significant are the advantages? You talked about a 1,000, I think 1,000 times more efficient, or if you could be little more explicit on the advantages and disadvantages versus other adjuvants like aluminums and things like that are more common historically? And what would be the price or value per dose of kind of an expected dose? Whoever a customer, pharmaceutical customer might be? Thank you.
So your question varies significantly by the -- the specific vaccine itself. So every vaccine has a very different profile. What is common around Squalane as an adjuvant is typically it's used for vaccines that need to be turbocharged. It need to be much more powerful, much higher efficacy than a typical vaccine in that class. One of the most common uses, as an example, are flu vaccines for the elderly are big users of Squalane as an adjuvant, so that's the way to think of it. For certain vaccines, Squalane is the most impactful adjuvant you can use to really increase the efficacy, i.e. get better penetration and delivery of the active into the blood stream. So, that's how to think about Squalane as an adjuvant.
When you think about economics, the way we're thinking about this is, the issue in the market with Squalane, because it's shark source, it's not really available and it's actually pretty expensive. So, our value proposition is we believe we have the lowest cost source of Squalane to the world, and we have the only ability to actually produce as much as possible. So one of the first orders we're negotiating is actually a pretty significant and very high number of vaccines for a company that wants to prepare itself, and that it costs that I don't think anybody ever thought Squalane could be available for. And again, I don't want to disclose publicly but I can tell you, it's over a 1,000 and less than 2,000 a kilo, somewhere in that range.
So how many grams or milligrams they use per dose? We just don't know how much is used to make an estimate…
Yes, I mean again, it varies by how many people are going to use it and in what vaccines. I can tell you the size of agreements we're negotiating are typically around 10 tons each.
And so what percentage of the 140 vaccines, sorry to be so specific, but of 140 vaccines being developed currently worldwide for COVID-19. What percentage of those might be applicable as available potential markets for this Squalane vaccine adjuvant as opposed to another adjuvant or non-adjuvant vaccine?
Look, I can probably answer the question differently, which is of the top 10 candidates, we are --the off take discussions we're having involve three of the top 10 candidates that are currently on target for COVID.
If I actually had a chance for one more question, I just wanted to ask Han. And welcome aboard, welcome to the team. What do you, in terms of achieving the cost structure, you would like to see for the second half and for 2021? How confident are you of achieving those cost reductions or limitations in order to achieve breakeven cash flow and profit this fourth quarter and profitability sometime in 2021? Thank you.
So as we just said, we've made some good progress. We just recorded the lowest sequential, five quarter sequential quarter with our cash operating expense. We are continuing to look at it. Obviously, we're dealing with a lot of new and different dynamics given COVID in terms of how we're operating our sites but also how our support staff is working. And we are taking a very close look at that in terms of all these dynamics. So in terms of how we're organized, how we operate, so that is part of continuous improvement the way we see it. And for the second half, we have targets, particularly we've demonstrated some of that already very clearly, as it relates to our G&A reductions, that will be continue to be a focus. And part of that will be an overall reduction and part of that will be really to review to reinvest in the business, particularly as we commented today with our go to market for particularly supporting the growth of our consumer brand. So, that will be the balanced approach. But it's an important discussion we have at the company and we'll continue to pursue these improvements in our cost base.
We now turn to John Melo for closing remarks. Please go ahead, sir.
Great. Thanks, Melinda. It's been a long call. So I just like to thank the Amyris team and all of our partners for keeping everybody safe while continuing to execute on our mission. It's been an amazing time, very unpredictable. Yet, just realized significant benefit for our business during this period, both with our consumer brands and our ingredients. And again, I just want to reemphasize the great appreciation of our partners, both on the manufacturing side and then on the customer side. They've just been usually supportive and working with us very carefully as we work to supply their needs and the growing consumer needs for cleaning products and products that keep them healthy and safe. So, thanks everybody, appreciate it. And hope you all have a very good day.
Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.