Codexis, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Codexis discovers, develops and sells enzymes and proteins using its CodeEvolver platform. It reports Performance Enzymes and Novel Biotherapeutics segments.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $35.3 million | $18.0 million | +96% |
| Product revenue | $30.7 million | $10.2 million | +200% |
| Research and development revenue | $4.7 million | $7.8 million | -40% |
| Product gross margin | 72% | 59% | +13 percentage points |
| Operating loss | $8.4 million | $9.2 million | Loss narrowed $0.8 million |
| Net loss | $8.4 million | $9.1 million | Loss narrowed $0.7 million |
| Net loss per share, basic and diluted | $0.13 | $0.14 | |
| Net cash used in operating activities | $11.2 million | $6.4 million | Cash use increased |
Product revenue growth was driven primarily by $21.3 million of CDX-616 sales to Pfizer for use in its PAXLOVID supply chain. Pfizer-related CDX-616 represented 60% of total revenue (versus 2% a year earlier); one customer represented 61% of total revenue. Revenue from APAC was $27.5 million, or about 78% of total revenue. R&D revenue fell mainly because of lower Takeda and other collaboration revenue, and completion of Novartis technology transfer.
Operating expenses were $43.7 million, up 61% year over year: R&D expense rose 69% to $19.5 million, and SG&A rose 38% to $15.7 million. Management attributed increases to higher headcount, facilities and lab costs, stock compensation, legal fees and outside services. Segment operating income was $14.9 million for Performance Enzymes, while Novel Biotherapeutics reported a $10.8 million operating loss; corporate costs and unallocated depreciation contributed to the consolidated operating loss.
Cash, liquidity and obligations
- Cash and cash equivalents were $94.3 million at March 31, 2022, down from $116.8 million at year-end; cash, cash equivalents and restricted cash totaled $96.3 million.
- Working capital was $115.4 million, compared with $128.5 million at December 31, 2021. Management said existing cash should fund operations, planned capital expenditures and working capital for at least 12 months.
- Investing cash use was $10.1 million, including $5.1 million in property and equipment and a $5.0 million seqWell investment. Financing cash use was $1.3 million. Total cash and restricted cash decreased $22.5 million.
- No borrowings were outstanding under the credit facility. The $10 million term-loan draw period had expired; a revolving line of credit of up to $5 million remained, subject to borrowing-base and covenant terms. The company reported compliance with covenants.
- Operating lease obligations totaled $47.3 million; additional disclosed service and facility commitments totaled $6.6 million. The filing reports no material pending litigation.
Outlook, risks and notable items
- Management expects Pfizer CDX-616 orders to remain a significant component of 2022 product revenue. However, there was no long-term purchase-and-sale agreement, no minimum purchase obligation, and future orders depend on Pfizer’s needs.
- Management expects R&D and SG&A expenses for the rest of 2022 to be higher than comparable prior-year periods, reflecting planned investment, hiring and expanded laboratory space. The filing provides no specific revenue or earnings guidance.
- Revenue and cash generation may be volatile due to customer manufacturing schedules, clinical-trial timing, cancellable or revisable orders, reliance on third-party manufacturers, and customer concentration. COVID-19-related supply, logistics and demand impacts remain uncertain; management said disruption had minimally affected Q1 revenue to date.
- The company disclosed a material weakness in controls over product revenue recognition for arrangements recognized over time. A current-period misstatement was corrected before the statements were issued, but management concluded disclosure controls and internal control over financial reporting were ineffective as of March 31, 2022. Remediation was underway, with no completion timeline provided.
- In March, Codexis invested $5.0 million in seqWell preferred stock. A non-material trademark dispute was settled in April 2022.
Most important facts for investors to verify
- Whether Pfizer orders and CDX-616 revenue persist, and the effect of customer concentration on future revenue and margins.
- Whether reported revenue, contract assets and receivables are reliable while the revenue-recognition material weakness is being remediated.
- Whether cash burn, planned spending and capital expenditures remain consistent with management’s stated 12-month liquidity assessment.
- Progress and revenue contribution from collaboration programs, particularly Takeda, Nestlé and Novartis, given lower Q1 R&D revenue.
- Credit-facility covenant compliance and the company’s ability to meet lease and other contractual commitments.