Codexis, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Codexis develops and sells engineered proteins and enzymes using its CodeEvolver platform, primarily for pharmaceutical applications, and also serves fine chemicals, food ingredients, and molecular diagnostics markets.
Key financial metrics
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q1 2017 | Q1 2016 / prior period |
|---|---|---|
| Total revenue | $7.97 | $8.00 |
| Product sales | $5.59 | $3.74 |
| Research and development revenue | $2.00 | $3.53 |
| Revenue sharing | $0.38 | $0.72 |
| Product gross profit / margin | $2.58 / 46% | $1.25 / 33% |
| Research and development expense | $5.84 | $5.69 |
| Selling, general and administrative expense | $6.61 | $6.80 |
| Operating loss | $(7.48) | $(6.98) |
| Net loss / loss per diluted share | $(7.46) / $(0.18) | $(6.97) / $(0.17) |
| Cash from operating activities | $(3.61) | $0.22 |
At March 31, cash and cash equivalents were $13.92 million, marketable securities $1.05 million, and restricted cash $1.59 million. Working capital was $8.22 million, down from $14.86 million at year-end 2016. Total liabilities were $18.95 million. The filing reports a $0.38 million capital-lease obligation; it does not disclose material conventional borrowing. The quarter-end cash balance excludes subsequent financing proceeds.
Material changes versus the comparable period
- Revenue was essentially flat: product sales rose 49% to $5.59 million, largely on higher enzyme demand, but R&D revenue fell 43% and revenue sharing declined 47%. Lower collaboration milestone and upfront-fee revenue contributed to the R&D decline.
- Product gross margin improved to 46% from 33%, which management attributed to sales mix.
- Net loss widened by $0.49 million to $7.46 million. Higher product sales partly offset reduced R&D and revenue-sharing income.
- Operating cash flow shifted from $0.22 million provided to $3.61 million used. Cash and cash equivalents fell $5.32 million during the quarter.
Outlook, risks, and unusual items
- Management said existing cash and cash equivalents were expected to fund operations, planned capital expenditures, and working capital for at least 12 months, based on the then-current operating level. It also said future capital needs depend on business performance, development spending, and other factors; additional financing may be required if plans or assumptions change.
- After quarter-end, Codexis completed a public offering of 6.325 million shares at $4.00 per share, generating approximately $23.3 million in net proceeds. It also reported receiving a low-single-digit-million-dollar payment from Tate & Lyle in May 2017. These events were not reflected in March 31 cash.
- Management expects opportunities to increase revenue and gross margins, but gave no specific financial guidance. Collaboration milestones and contingent payments depend on partners’ research, development, and commercialization activity, and their timing is uncertain.
- Revenue may fluctuate with customer manufacturing schedules and clinical-trial timing. Codexis has limited internal enzyme manufacturing capacity and depends on third-party manufacturers. Customer purchase orders may generally be changed or cancelled, so backlog is not considered a reliable predictor of sales.
- Three customers each represented at least 10% of Q1 revenue, together accounting for 57%. One customer represented 30% of accounts receivable at quarter-end.
- Codexis is pursuing litigation against EnzymeWorks and related defendants alleging patent infringement and other claims. The defendants said they would not contest infringement of asserted patents but denied other claims; the outcome and timing remain uncertain. No material litigation accrual is reported.
- The company reported no material changes to the risk factors in its 2016 Form 10-K and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of March 31, 2017.
Important facts for investors to verify
- Whether product-sales growth and the improved product gross margin continue, and how much they offset lower collaboration and revenue-sharing revenue.
- Cash burn, working-capital needs, and the effect of the April offering and subsequent Tate & Lyle payment on liquidity and share dilution. The filing reports 48,169,923 shares outstanding as of April 28, 2017.
- Customer concentration, third-party manufacturing capacity, and the timing and collectability of collaboration milestones, royalties, and other contingent payments.
- Developments and potential financial consequences of the EnzymeWorks litigation and disclosed manufacturing-process commitments.