Codexis, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. Codexis develops engineered enzymes and related products and services, primarily for pharmaceutical manufacturing, and is expanding into fine chemicals. The company also has a preclinical enzyme-therapeutics program.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Total revenue | $41.8 million | $35.3 million |
| Biocatalyst product revenue | $11.4 million | $13.1 million |
| Biocatalyst R&D revenue | $25.6 million | $14.9 million |
| Revenue-sharing arrangement | $4.8 million | $7.3 million |
| Product gross margin | 42% | 26% |
| Operating loss | $7.8 million | $19.1 million |
| Net loss | $7.6 million; $0.19 per share | $19.1 million; $0.50 per share |
| Cash used in operations | $0.4 million | Cash provided: $0.3 million |
| Cash and cash equivalents at year-end | $23.3 million | $26.5 million |
| Working capital at year-end | $18.0 million | $19.3 million |
Total assets were $44.6 million and total liabilities were $21.8 million at year-end; the filing does not disclose funded debt. The company also held $1.5 million of marketable securities, primarily its investment in CO2 Solutions. No long-term debt is separately presented. Product gross margin is for biocatalyst product sales, not total-company revenue.
Q4 2015: Revenue was $11.6 million and net loss was $2.1 million. In Q3, Codexis reported $17.4 million of revenue and $5.4 million of net income, reflecting the timing of collaboration milestones and other revenue.
Material changes and drivers
- Revenue rose 18%, mainly because R&D revenue increased 71%, including technology-transfer milestones from Merck and GSK, a $3.1 million settlement with a non-core royalty customer, and a new customer project.
- Product revenue declined 13%, primarily due to customer-demand timing; product sales had also been pressured by lower statin-family and hepatitis-C product sales in prior periods.
- Revenue sharing fell 34% after expiration of a third-party argatroban formulation patent in June 2014 increased generic competition.
- R&D expense declined 9% to $20.7 million; SG&A increased 2% to $22.3 million. Lower product costs and improved product mix contributed to the higher product gross margin.
- Loss narrowed substantially year over year, but the company remained unprofitable and had an accumulated deficit of $283.5 million.
Outlook, risks, and unusual items
- Management said existing cash and cash equivalents were expected to fund operations, planned capital expenditures, and working capital for at least 12 months, based on the current operating plan. Planned 2016 capital spending was approximately $1.0 million.
- Codexis expected to receive $15.5 million in 2016 from GSK and Merck milestones, subject to achievement of collaboration objectives; timing and achievement were uncertain. The company provided no specific revenue or earnings guidance.
- GSK technology transfer had completed two waves by year-end; a further $7.5 million payment is contingent on Wave 3. Merck transfer had completed Wave 1; an additional $8.0 million is contingent on Wave 2. Both agreements also include potential future product-related payments, but those are not assured.
- Management planned continued evaluation of its preclinical PKU candidate and modest additional 2016 investment to generate candidates in other therapeutic areas. The program requires further development and faces substantial clinical, regulatory, funding, and partnering risks.
- Revenue and operating results are exposed to concentrated customers and products: Merck, GSK, and Exela represented 29%, 20%, and 12% of FY2015 revenue, respectively. Large-scale enzyme manufacturing also depends on a limited number of contract manufacturers.
- Codexis filed an IP and trade-secret lawsuit against EnzymeWorks and an individual in February 2016, seeking injunctive relief and damages. The outcome and timing were uncertain. The filing reported no other material litigation.
- Other notable risks include competitive pressure, patent challenges and enforcement costs, regulatory requirements for food products and EU chemicals, foreign-currency exposure, and the possibility of additional capital needs. The company reported no impairment charge in 2015; it recorded impairment and asset-sale-related charges in 2014.
- The company reported effective disclosure controls and internal control over financial reporting as of year-end; its auditor issued unqualified opinions on the financial statements and internal controls. The General Counsel and Chief Administrative Officer planned to resign effective April 1, 2016.
Most important facts for investors to verify
- Whether GSK and Merck achieve the remaining technology-transfer milestones and whether the expected $15.5 million of 2016 milestone receipts is realized.
- Whether product revenue and argatroban revenue sharing stabilize or continue to decline, and how customer concentration affects results.
- Whether the improved product gross margin is sustainable given product mix, pricing, and outsourced manufacturing costs.
- Cash burn, working-capital movements, and the company’s liquidity runway relative to management’s 12-month assessment.
- Progress and funding or partnering plans for the PKU program, and developments in the EnzymeWorks litigation.