Codexis, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports unaudited fourth-quarter results. Codexis develops custom industrial enzymes and sells pharmaceutical products and services; its cellulosic biofuels and bio-based chemicals programs remain development-stage and depend significantly on collaborators.
Financial performance
Amounts are in U.S. dollars; annual financial figures are in millions except per-share amounts.
| Metric | FY 2011 | FY 2010 | Change or context |
|---|---|---|---|
| Total revenue | $123.9 | $107.1 | Up 16% |
| Product revenue | $49.0 | $32.8 | Up 49%; 39% of FY 2011 revenue |
| Collaborative R&D revenue | $71.4 | $70.2 | Up 2%; Shell contributed $63.2 million in 2011 |
| Government grant revenue | $3.5 | $4.1 | Down 15% |
| Product gross profit / margin | $7.2 / 15% | $4.9 / 15% | Margin unchanged |
| Operating loss | $(15.9) | $(7.1) | Loss widened |
| Net loss / loss per share | $(16.6) / $(0.46) | $(8.5) / $(0.35) | Net loss increased |
| Operating cash flow | $(0.5) | $(16.4) | Cash use narrowed |
Fourth quarter: Revenue was $33.5 million and net loss was $5.3 million, versus revenue of $29.8 million and net loss of $0.5 million in Q4 2010. Q4 2011 operating costs and expenses were $38.4 million.
Liquidity and capital: At year-end, cash and cash equivalents were $25.8 million, current marketable securities $27.7 million and non-current marketable securities $10.3 million. Working capital was $50.9 million, down from $64.7 million. Total assets were $135.9 million and stockholders’ equity $102.7 million. The filing reports no financing obligations at year-end. Investing cash outflow was $48.8 million, primarily reflecting net purchases of marketable securities and $10.7 million of capital expenditures; financing cash inflow was $2.6 million, mainly from option exercises. Management stated existing cash and investments were expected to fund operations, planned capital spending and working capital for at least 12 months, subject to changes in plans and assumptions.
Material changes and business developments
- Product revenue grew substantially, primarily on higher sales to generic and innovator pharmaceutical customers; product gross margin remained 15%.
- Shell revenue declined to $63.2 million from $66.1 million. Shell reduced funded collaboration personnel from 128 to 116 in August 2011. Codexis earned $5.6 million in Shell technical milestones in 2011, compared with $7.4 million in 2010.
- Research and development expense increased 16% to $61.0 million; SG&A increased 9% to $36.9 million. The company cited higher amortization following its Maxygen IP acquisition, staffing, product-development and facility costs.
- Raízen became the largest shareholder after Shell transferred its Codexis shares in 2011; Raízen held approximately 15.5% at year-end. Codexis entered a joint development agreement with Raízen for first-generation sugarcane ethanol.
- The carbon-management collaboration with Alstom ended in October 2011. Codexis recognized $3.8 million of 2011 revenue from that collaboration. A U.S. Department of Energy grant provided $2.2 million in 2011 and was scheduled to expire in 2012.
Outlook, risks and contingencies
- The Shell research agreement was scheduled to expire in October 2012 unless extended; the related exclusivity commitment runs until November 2012. Codexis said it was discussing continuation with Shell. Shell has no obligation to commercialize Codexis technology or buy its enzymes, and can reduce funded personnel or terminate under the agreement.
- At year-end, Codexis remained eligible for $8.5 million in 2012 technical milestone payments and a $10.0 million commercial milestone, contingent on achieving the applicable goals. These are not guaranteed revenues.
- Management expected approximately $6.0 million of capital expenditures in 2012. Chemtex was expected to pilot the CodeXol detergent-alcohol process in 2012; commercial feasibility, customer adoption and scale-up remained uncertain.
- Codexis had a history of losses: accumulated deficit was $184.7 million at year-end. Major risks include dependence on Shell and a small customer base, unproven commercial-scale cellulosic economics, pharmaceutical product concentration, reliance on Lactosan for substantially all commercial pharmaceutical enzyme production, and reliance on Arch for certain intermediates and market access.
- Operating lease commitments totaled $23.0 million, including $3.3 million due in 2012. A potential value-added-tax exposure of approximately $0.6 million related to an intercompany IP transfer was disclosed as more than remote but less than likely; no accrual was recorded. No material litigation was reported.
- The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective at December 31, 2011.
Investor facts to verify
- Whether the Shell collaboration was extended, and the resulting effect on funded FTEs, revenue, milestones and exclusivity.
- How much of the reported product growth is recurring, and whether pharmaceutical gross margins can improve from 15%.
- Actual cash burn, capital spending and liquidity after year-end, compared with management’s stated 12-month funding expectation.
- Progress and economics of the Chemtex CodeXol pilot and any commercial customer or manufacturing commitments.
- Achievement and collection of remaining Shell milestones, and resolution or reassessment of the disclosed tax contingency.