Codexis, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a stand-alone fourth-quarter filing. Codexis develops and sells engineered enzymes and licenses its CodeEvolver protein-engineering platform. Its segments are Performance Enzymes and Novel Biotherapeutics.
Financial results and liquidity
- Revenue: $69.1 million, up 1% from $68.5 million in 2019. Product revenue was $30.2 million (+3%); research and development revenue was $38.8 million (slightly lower year over year).
- Profitability: Net loss was $24.0 million, or $0.40 per share, versus a $11.9 million loss, or $0.21 per share, in 2019. Operating loss was $23.9 million. The company reported a history of net losses and an accumulated deficit of $366.4 million.
- Product margin: Product gross margin improved to 55% from 47%, mainly from a more favorable mix of branded-pharmaceutical enzyme sales. This is product margin, not an overall company gross margin.
- Expenses: R&D expense rose 30% to $44.2 million; selling, general and administrative expense rose 11% to $35.0 million. Higher R&D costs included CMC and regulatory work, particularly for CDX-7108.
- Cash flow: Cash used in operations was $16.5 million, versus $12.6 million in 2019; cash used in investing was $5.7 million. Financing provided $80.8 million, principally from the December common-stock offering.
- Liquidity: Cash and cash equivalents were $149.1 million at year-end, versus $90.5 million; working capital was $159.4 million. The company said available cash was sufficient for at least 12 months of operations, planned capital expenditures and working capital needs.
- Debt and obligations: No amounts were drawn on the $10 million term-loan and $5 million revolving credit facility; Codexis reported covenant compliance. Operating lease obligations were $25.0 million on the balance sheet, with $31.3 million of undiscounted remaining payments for leases in place at year-end. The filing reports no off-balance-sheet arrangements.
Material changes and business developments
- Performance Enzymes revenue fell 17% to $48.1 million as lower platform-license and collaboration revenue outweighed modest product growth. Novel Biotherapeutics revenue more than doubled to $21.0 million, primarily reflecting Takeda license revenue; this segment still recorded a $3.1 million operating loss.
- Merck, Nestlé Health Science and Takeda represented 26%, 11% and 19% of total revenue, respectively (56% combined). Merck revenue included $13.4 million from sitagliptin products, and the supply agreement is scheduled to expire in February 2022 unless extended; Codexis had not received an extension.
- Codexis received approximately $80.8 million net from a December public offering of 4.93 million shares at $17.50 per share. Year-end shares outstanding increased to 64.3 million from 58.9 million a year earlier.
- The company invested $1.0 million in Molecular Assemblies (MAI) and earned $0.9 million of R&D revenue in additional MAI preferred shares; $0.5 million for services was also due at year-end. It separately invested $1.0 million in an Arzeda convertible note.
Outlook, commentary and risks
- No specific consolidated revenue or earnings guidance is provided. Management stated that cash should fund operations for at least 12 months based on current plans. It anticipated CDX-7108 could enter a Phase 1 trial in 2021 and expected higher 2021 capital spending for laboratory and IT equipment.
- COVID-19 temporarily closed Redwood City facilities and suspended some R&D projects from mid-March through April 2020. Operations later resumed at most normal R&D capacity. Management believed pandemic-related disruption negatively affected 2020 revenue but could not quantify the impact; further effects on demand, collections, supply and operations remained uncertain.
- Key risks include persistent losses and cash burn; dependence on a small number of customers, products and collaborators; reliance on contract manufacturers; potential non-renewal of the Merck supply agreement; uncertain development, regulatory approval and commercialization of biotherapeutics; and intellectual-property and competitive risks.
- Potential Nestlé and Takeda milestones and royalties are contingent on development and commercial outcomes and are not assured. Codexis reported no material pending litigation. The auditor issued unqualified opinions on the financial statements and internal control; revenue recognition was identified as a critical audit matter because it involves significant estimates and judgments.
Important facts for investors to verify
- Whether the Merck sitagliptin supply agreement is extended beyond February 2022, and the revenue and margin impact if it is not.
- How customer concentration and collaboration timing affect recurring revenue, especially as Novartis technology-transfer revenue changes and Takeda revenue depends on program progress.
- Whether operating cash burn stabilizes as R&D and commercial spending increase, and whether reported liquidity converts into cash without delays in receivables or supply disruptions.
- Progress and results for CDX-7108 and Takeda programs, including clinical timing, partner commitments and the conditions attached to future milestones and royalties.
- The value and liquidity of MAI and Arzeda investments, including the non-cash nature of MAI service consideration and the maturity of the Arzeda note.