Codexis, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Codexis develops and commercializes engineered enzymes using its CodeEvolver platform. Following its July 2023 strategic reset, the company is prioritizing Performance Enzymes—particularly pharmaceutical manufacturing and its ECO Synthesis platform—and plans to discontinue investment in certain programs, primarily in Novel Biotherapeutics.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $9.3m | $34.5m | $43.6m | $108.2m |
| Product revenue | $5.4m | $28.0m | $24.8m | $93.4m |
| Research and development revenue | $3.9m | $6.4m | $18.8m | $14.8m |
| Operating loss | $(32.1)m | $(10.6)m | $(68.4)m | $(21.6)m |
| Net loss | $(34.9)m | $(10.0)m | $(69.0)m | $(21.0)m |
| Net loss per share | $(0.50) | $(0.15) | $(1.02) | $(0.32) |
| Product gross margin | 58% | 65% | 60% | 68% |
Revenue declined 73% in the quarter and 60% year to date, largely because sales of CDX-616 enzyme to Pfizer fell sharply; no product revenue under the Pfizer supply agreement was recognized in Q3 2023. Nine-month R&D revenue increased, primarily reflecting Pfizer licensing revenue and Nestlé collaboration revenue. Lower R&D expense partly offset the revenue decline, but operating and net losses increased substantially. Product gross margin also declined, reflecting product mix, partly offset by revenue recognized without associated product cost.
Cash, liquidity and obligations
- Cash and cash equivalents were $74.6m at September 30, 2023, down from $114.0m at December 31, 2022. Restricted cash was an additional $2.1m.
- Working capital was $64.6m, compared with $113.8m at year-end 2022.
- Cash used in operations was $41.6m for the first nine months, versus $6.4m provided in the comparable 2022 period. Investing used $6.0m; financing provided $8.2m, including $7.9m net proceeds from common-stock sales under the equity distribution agreement.
- The company reported $20.0m of operating lease liabilities. It terminated its Western Alliance Bank credit facility in March 2023; the filing does not report outstanding borrowings under that facility.
- Management expects existing cash, future revenue and expense management to fund operations and planned needs for at least the next 12 months, while cautioning that assumptions may prove incorrect and additional capital may be needed. $41.3m remained available under the equity distribution agreement at quarter-end.
Material changes, outlook and risks
- In July, Codexis announced a workforce reduction of approximately 25%, discontinuation of investment in certain development programs, and consolidation of operations from San Carlos to Redwood City. Q3 restructuring charges were $3.1m; $1.9m remained accrued and was expected to be paid in Q4. Management did not expect significant additional charges for this plan.
- Q3 asset impairment and other charges were $10.0m, all non-cash: $7.7m related to the San Carlos leasehold improvements and right-of-use assets, $0.8m to Novel Biotherapeutics goodwill, and $1.5m to equipment held for sale. Separately, Codexis recorded a $3.9m impairment of its seqWell and Arzeda investments in other expense.
- The San Carlos lease assignment to Vaxcyte became effective October 1, 2023. Codexis remeasured the related lease obligation to $3.1m and wrote off the remaining liability and related right-of-use asset.
- Management’s stated ECO Synthesis milestones were to demonstrate gram-scale synthesis by the end of 2023, enable pre-commercial customer testing in 2024, and target commercialization beginning in 2025. These are objectives, not assurances.
- Pfizer-related CDX-616 revenue remains uncertain: Pfizer has no binding commitment to buy specified quantities, and demand depends on factors including PAXLOVID demand, manufacturing decisions and supply capacity. The Pfizer agreement included credits against eligible orders; the filing reports $18.3m of related deferred revenue at quarter-end.
- Revenue and cash generation are exposed to customer concentration, variable customer ordering, and dependence on a limited number of contract manufacturers and collaborators. Customers contributing at least 10% each represented 35% of nine-month revenue, versus 54% a year earlier.
- The filing reports no material pending litigation. Management concluded disclosure controls were effective at September 30, 2023.
Investor verification priorities
- Track whether Performance Enzymes revenue and product margins recover after the loss of much of the prior-period Pfizer volume.
- Verify progress and customer adoption against the ECO Synthesis development and commercialization milestones.
- Monitor operating cash burn, cash balances, and whether management’s at-least-12-month liquidity expectation remains supportable.
- Assess further dilution risk from potential equity sales and the effects of customer concentration and contract-manufacturer capacity.
- Check execution and costs of the restructuring and facility consolidation, and the status of discontinued or transferred collaboration programs, including Nestlé and Takeda-related work.