Codexis, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Codexis discovers, develops and sells enzymes and proteins through its Performance Enzymes and Novel Biotherapeutics segments.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $38.4 million | $25.5 million | $73.7 million | $43.5 million |
| Product revenue | $34.6 million | $14.7 million | $65.3 million | $24.9 million |
| Research and development revenue | $3.8 million | $10.7 million | $8.4 million | $18.5 million |
| Net loss | $2.6 million | $4.3 million | $11.0 million | $13.3 million |
| Net loss per share | $0.04 | $0.07 | $0.17 | $0.21 |
| Net cash used in operating activities | — | $13.4 million | $14.7 million |
Revenue rose 51% in Q2 and 70% in the first half, chiefly from Pfizer purchases of CDX-616: $23.8 million in Q2 and $45.1 million in the first half. This more than offset lower product sales to other customers and lower collaboration revenue. Product gross margin was 67% in Q2 versus 71%; first-half margin was 70% versus 66%. Management attributed Q2 margin decline to product mix, pricing per volume and higher shipping costs.
Q2 operating expenses increased 37% to $41.0 million, including R&D expense up 49% to $19.1 million. SG&A fell 17% to $10.7 million, partly due to lower legal fees following settlement of a trademark dispute. The net loss narrowed year over year as higher product revenue outweighed higher expenses and lower R&D revenue.
Financial position and liquidity
- At June 30, cash and cash equivalents were $90.1 million, down from $116.8 million at December 31, 2021; cash, cash equivalents and restricted cash totaled $92.2 million. Working capital was $115.3 million, down from $128.5 million.
- First-half operating cash use was $13.4 million; investing cash use was $12.3 million, including $7.0 million of property and equipment purchases and $5.3 million of private-company investments. Cash and restricted cash declined $26.7 million in total.
- No borrowings were outstanding under the Western Alliance credit facility; the company reported compliance with its covenants. Operating lease obligations totaled $46.1 million. Total liabilities were $75.5 million.
- Management said existing cash, expected revenues and expense management should fund operations, planned capital expenditures and working capital through the end of 2024, subject to assumptions that could prove incorrect.
Outlook, developments and risks
- Management expected Pfizer CDX-616 sales to remain a significant component of 2022 product revenue. R&D expenses were expected to be higher for the rest of 2022 than in comparable prior-year periods, reflecting staffing, facilities and external program costs.
- Under a July 2022 Pfizer supply agreement, Codexis received a $25.9 million retainer in August, in lieu of certain early-2023 orders that were cancelled. The retainer is creditable against future CDX-616 orders and qualifying new Pfizer development and licensing fees. Codexis expected to recognize a nominal amount in 2022 and the remainder in 2023 and 2024.
- Pfizer represented 62% of Q2 revenue and 61% of first-half revenue. The filing also reports that one customer accounted for 67% of accounts receivable at June 30. This concentration makes results and collections sensitive to a small number of customers and to demand for CDX-616.
- A material weakness in revenue-recognition controls remained unremediated at June 30. Controls over the completeness and accuracy of reports used for certain over-time product revenue calculations failed to identify errors; a related Q1 2022 misstatement was corrected before those financial statements were issued. Management was enhancing review controls and testing remediation.
- Other disclosed risks include dependence on third-party manufacturing and logistics, potential supply-chain and COVID-19 disruptions, variable customer orders that may be revised or cancelled, and the possibility that capital needs exceed current estimates. The company said COVID-related disruptions had minimally affected revenue through June 30.
- After quarter-end, Codexis announced a new MAI commercial license and enzyme supply agreement. It also disclosed the planned CEO transition: Dr. Stephen Dilly was appointed effective August 9, succeeding John Nicols, who planned to retire as CEO on August 8 and serve as a strategic advisor.
- The filing reports no material pending litigation. A non-material trademark dispute was settled in April 2022.
Important facts for investors to verify
- How much 2022–2024 revenue and cash collection ultimately depend on Pfizer’s CDX-616 demand, and how the $25.9 million retainer is recognized and applied.
- Whether customer concentration, order changes or cancellations materially affect revenue, receivables and production planning.
- Progress and independent evidence of remediation of the revenue-recognition material weakness, including whether future reporting requires adjustments.
- Whether cash burn, R&D spending and capital expenditures remain consistent with management’s funding outlook through 2024.
- Future product gross margins and the trajectory of collaboration revenue as prior technology-transfer and research programs change.