Codexis, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; compared with Q1 2022. Codexis engineers and commercializes enzymes and proteins through its CodeEvolver platform. It reports Performance Enzymes and Novel Biotherapeutics segments.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Total revenue | $13.0 million | $35.3 million |
| Product revenue | $8.4 million | $30.7 million |
| Research and development revenue | $4.6 million | $4.7 million |
| Product gross profit and margin | $3.8 million; 46% | $22.2 million; 72% |
| Operating expenses | $36.6 million | $43.7 million |
| Operating loss | $23.7 million | $8.4 million |
| Net loss; loss per share | $22.6 million; $0.34 | $8.4 million; $0.13 |
| Cash used in operating activities | $9.2 million | $11.2 million |
| Cash, cash equivalents and restricted cash | $104.9 million | $116.0 million at Dec. 31, 2022 |
| Working capital | $91.6 million | $113.8 million at Dec. 31, 2022 |
At March 31, cash and cash equivalents were $102.8 million, including $100.2 million in money market funds. Total assets were $218.1 million and stockholders’ equity was $126.0 million. Operating lease liabilities totaled $42.3 million; the company terminated its Western Alliance Bank credit facility in March 2023. The filing reports no outstanding borrowings under that facility.
Material changes and business developments
- Revenue fell 63%, primarily because product sales of CDX-616 to Pfizer declined. Codexis recognized no revenue under the Pfizer supply agreement in Q1 2023, compared with $21.3 million of Pfizer product revenue in Q1 2022.
- Performance Enzymes revenue declined 71% to $9.5 million. Novel Biotherapeutics revenue increased 56% to $3.5 million, primarily from higher Nestlé Health Science collaboration revenue.
- Product gross margin decreased to 46% from 72%, reflecting a lower-margin product mix, including sitagliptin, and variation in prices per volume sold.
- Operating expenses decreased 16%, including a 15% decline in R&D expense; lower headcount and reduced outside services, CMC and regulatory costs, and lab supplies were cited. Despite lower expenses, the net loss increased substantially as revenue fell.
- Cash used in investing activities was $3.3 million, including $2.5 million of property and equipment purchases and a $0.8 million investment in Molecular Assemblies. Financing activities provided $1.4 million, including net proceeds from common-stock issuance and option exercises.
- The November 2022 workforce reduction of approximately 18% was substantially completed in December. Q1 2023 included $0.1 million of additional severance-related charges; no significant further charges are expected.
Outlook, commentary and risks
- Management believes existing cash and cash equivalents, expected revenue and expense management will fund operations, planned capital expenditures and working capital for at least the next 12 months. It cautions that this depends on assumptions that may prove incorrect and says cash needs are expected to rise while Pfizer-related cash revenue declines. No specific full-year revenue or earnings guidance is provided.
- Pfizer paid a $25.9 million fee in 2022, recorded as deferred revenue; $24.4 million remained deferred at March 31, 2023. After quarter-end, Pfizer used part of the available credit for a license agreement; Codexis expects to recognize $5.0 million of non-cash R&D revenue in Q2 2023. Pfizer’s ability to use the credit for qualifying development and licensing agreements expired April 4, 2023; eligible future product orders may still use specified credits.
- Management reported interim CDX-7108 Phase 1 data showing improved lipid absorption versus placebo in the proof-of-concept arm, with no notable safety issues in 48 study participants. The company sees potential for a Phase 2 study in 2024, subject to continued development.
- Major risks include persistent losses, reliance on a limited number of customers and collaborators, uncertain future CDX-616 demand, and dependence on a small number of contract manufacturers. The filing notes that customers representing at least 10% each accounted for 60% of Q1 2023 revenue in aggregate.
- Codexis says it is discussing Takeda’s plans after media reports that Takeda may end research, discovery and preclinical work in some rare-disease areas that could overlap with partnered programs. Takeda had made no definitive program decisions known to Codexis as of the filing.
- Other risks include clinical and regulatory uncertainty, potential collaboration termination, illiquid private-company investments, financing and dilution risk, competition, intellectual-property exposure, and operational, cybersecurity and economic disruptions. The company reported no material pending litigation and concluded disclosure controls were effective as of March 31, 2023.
Important facts for investors to verify
- Whether product sales and gross margins can recover or diversify as Pfizer-related CDX-616 revenue declines.
- How much of the Pfizer credit is applied to future orders or licensing, and when associated revenue is recognized, including the expected $5.0 million non-cash Q2 2023 item.
- Cash burn, spending plans and the assumptions supporting management’s estimate of at least 12 months of liquidity.
- Customer concentration and the status, funding and continuation of key collaborations, particularly with Takeda and Nestlé Health Science.
- Progress, safety and timing of partnered clinical programs, including the potential CDX-7108 Phase 2 study, and whether any additional capital or equity issuance becomes necessary.