Codexis, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Codexis develops and sells engineered enzymes and proteins using its CodeEvolver platform. Its two segments are Performance Enzymes and Novel Biotherapeutics. Financial amounts below are in millions, except per-share data.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $36.8 | $18.4 | $80.3 | $48.0 |
| Product revenue | $28.7 | $8.4 | $53.7 | $18.0 |
| Research and development revenue | $8.0 | $10.0 | $26.6 | $30.0 |
| Operating income (loss) | $1.3 | $(6.1) | $(12.3) | $(20.0) |
| Net income (loss) | $2.2 | $(6.1) | $(11.1) | $(20.1) |
| Diluted EPS | $0.03 | $(0.10) | $(0.17) | $(0.34) |
| Net cash used in operating activities | — | — | $14.9 | $15.0 |
- Product gross margin rose to 76% in Q3 and 71% for the first nine months, versus 57% and 56%, respectively, in 2020. Management attributed the improvement to a richer mix of higher-margin branded pharmaceutical products.
- At September 30, cash and cash equivalents were $119.2, down from $149.1 at December 31, 2020. Cash, cash equivalents and restricted cash totaled $121.3. Working capital was $140.6, versus $159.4 at year-end.
- Operating cash outflow was $14.9 for the first nine months. Investing cash outflow was $15.9, including $8.3 of property and equipment purchases and $7.6 invested in MAI. Financing provided $1.3.
- No borrowings were outstanding under the credit facility; up to $15.0 was available, subject to its terms and covenants. Total liabilities were $58.5, including $23.0 of operating lease obligations. The filing reports no material pending litigation.
Material changes and business developments
- Q3 revenue doubled year over year; nine-month revenue grew 67%. Product revenue increased sharply, primarily on greater demand for enzymes used in branded pharmaceuticals. R&D revenue fell 19% in Q3 and 11% year to date, principally reflecting lower Takeda and Novartis revenue.
- Three Pfizer purchase orders received in June and August totaled approximately $29.0 for an enzyme intended for Pfizer’s clinical-stage COVID-19 antiviral candidate. Codexis recognized $18.9 of related product revenue in Q3 and the first nine months; $10.6 was recorded as a contract asset for product revenue recognized over the manufacturing process. Remaining revenue is subject to subsequent performance and customer demand.
- Performance Enzymes generated Q3 revenue of $32.6 and segment operating income of $16.7, compared with $13.0 and $1.5 a year earlier. Novel Biotherapeutics revenue was $4.2 and its segment operating loss was $5.5, compared with $5.4 and a $1.6 loss.
- Codexis completed the Novartis CodeEvolver technology transfer in July 2021. It expects $8.0 in aggregate annual payments during the improvements term, plus potential usage-based payments tied to API production.
- In September, Codexis amended its Merck sitagliptin supply agreement, extending it through December 2026. Takeda exercised an option for a fourth program in May; the related option fee was received in Q3.
- Codexis purchased $7.0 of MAI Series B preferred shares in September. Its MAI investment carrying value was $11.5 at quarter-end; a remeasurement gain contributed to other income.
Outlook, commentary and risks
- Management expected product demand for the remainder of 2021 to exceed the prior-year comparison, citing branded pharmaceutical demand and the Pfizer orders. It also expected higher R&D and SG&A expenses due mainly to headcount and business investment. These are management expectations, not guaranteed results.
- Management stated that existing cash was expected to fund operations, planned capital expenditures and working capital for at least the next 12 months, based on the then-current operating level. It cautioned that changed plans or assumptions could require additional capital.
- The filing added a specific risk: if Pfizer stops developing its antiviral candidate and no longer needs Codexis’s enzyme, revenue could be materially and adversely affected. Customer concentration was notable: one customer represented 51% of Q3 revenue and 29% for the first nine months, though the customer table anonymizes identities.
- Other risks include reliance on third-party manufacturing and logistics capacity, variable customer purchase orders, possible collection delays, and uncertainty from COVID-19 and potential supply-chain or operating disruptions. Management said COVID-related disruptions had minimally affected revenue through the reporting period.
- Codexis entered a 10-year San Carlos lease expected to commence in December 2021. Disclosed future minimum payments were $31.7; the lease adds a substantial long-term commitment. The existing credit facility has financial and restrictive covenants, and the company reported compliance at quarter-end.
Important facts for investors to verify
- How much of the approximately $29.0 Pfizer order value is ultimately shipped, recognized as revenue and collected—and whether Pfizer’s candidate advances clinically or commercially.
- Whether the unusually strong product mix and 71% year-to-date product gross margin are sustainable, given customer concentration and variable manufacturing demand.
- How revenue evolves after completion of the Novartis technology transfer and as Takeda and other collaboration programs progress.
- Whether operating cash use, planned capital spending and the San Carlos lease remain consistent with management’s stated 12-month liquidity expectation.
- The status and potential value of contingent collaboration milestones, royalties and usage-based payments, which depend on partner decisions and development outcomes.