Codexis, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Codexis develops and sells engineered proteins and enzymes using its CodeEvolver platform. Its two segments are Performance Enzymes and Novel Biotherapeutics.
Key financial results
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $14.7 million | $15.6 million; down 6% |
| Product revenue | $5.1 million | $8.0 million; down 36% |
| Research and development revenue | $9.6 million | $7.6 million; up 26% |
| Product gross margin | 50% | 45% |
| Research and development expense | $11.0 million | $8.0 million; up 37% |
| Selling, general and administrative expense | $9.0 million | $8.4 million; up 7% |
| Operating loss | $7.8 million | $5.2 million |
| Net loss | $7.7 million, or $0.13 per share | $5.1 million, or $0.09 per share |
| Cash used in operating activities | $1.4 million | $2.9 million |
Product revenue declined mainly due to timing of branded-product customer demand; improved product mix lifted product gross margin. Higher operating expenses and lower product sales more than offset increased R&D revenue, widening the net loss.
Financial position and liquidity
- At March 31, cash and cash equivalents were $87.3 million, versus $90.5 million at December 31, 2019. Cash, cash equivalents and restricted cash totaled $89.0 million. Working capital was $92.3 million.
- Total assets were $149.5 million and total liabilities were $50.4 million. Stockholders’ equity was $99.1 million.
- No amounts were drawn under the credit facility; the company reported $15 million of facility capacity, subject to terms and borrowing conditions, and compliance with its covenants. The revolving line’s stated draw period ended September 30, 2020.
- Operating lease obligations were $26.1 million on the balance sheet; undiscounted future operating lease payments totaled $33.8 million. No material pending litigation was reported.
Business developments and outlook
- In March, Codexis entered a gene-therapy research collaboration with Takeda, received an $8.5 million nonrefundable upfront payment, and began three initial programs. It recorded $2.2 million of related Q1 R&D revenue and reported $6.4 million of deferred revenue from Takeda at quarter-end. Potential additional payments include program fees and milestones, plus royalties, contingent on future development and sales.
- Novartis technology-transfer revenue contributed to Q1 R&D revenue. Codexis achieved a further transfer milestone in April, making it eligible for a $4.0 million payment within 60 days.
- COVID-19 deferred certain R&D services and reduced Q1 R&D revenue by approximately $0.6 million. The Redwood City facilities were temporarily closed and R&D operations disrupted, while enzyme supply had continued. Management cited potential further effects from project delays, supply-chain disruption, uncertain demand and slower customer payments.
- Codexis withdrew its full-year 2020 financial guidance because of pandemic uncertainty. Management said existing cash was expected to fund operations, planned capital expenditures and working capital for at least 12 months, while noting that changed assumptions could require additional capital.
- COVID-19 prompted an interim goodwill impairment test; no impairment was recorded. The company adopted new credit-loss and goodwill accounting standards in 2020; adoption had no material impact on the reported statements.
Investor verification priorities
- Track product demand and whether the Q1 decline reflects timing or a sustained change; also monitor customer concentration. Four customers each represented at least 10% of Q1 revenue, and one customer accounted for 47% of accounts receivable at March 31.
- Verify the timing and cash collection of unbilled receivables, which rose to $13.9 million from $10.1 million, and deferred revenue, which rose to $8.5 million from $2.0 million.
- Assess subsequent effects of COVID-19 on R&D delivery, product sales, customer collections, manufacturing partners and liquidity, as well as any revised outlook.
- Monitor Takeda and Novartis program progress, milestone receipts, and the extent to which collaboration revenue converts to cash or future recurring revenue.
- Review the credit facility’s September 2020 revolving-line draw deadline, borrowing conditions and financial covenants, alongside lease and other contractual commitments.