Codexis, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise stated. Codexis develops and sells engineered enzymes and proteins using its CodeEvolver platform. Its businesses are Performance Enzymes and Novel Biotherapeutics.
Financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $18.0 million | $14.7 million | +23% |
| Product revenue | $10.2 million | $5.1 million | +101% |
| Research and development revenue | $7.8 million | $9.6 million | -18% |
| Product gross margin | 59% | 50% | +9 percentage points |
| Research and development expense | $11.6 million | $11.0 million | +6% |
| Selling, general and administrative expense | $11.4 million | $9.0 million | +27% |
| Operating loss | $9.2 million | $7.8 million | Loss increased |
| Net loss | $9.1 million | $7.7 million | Loss increased |
| Net loss per share, basic and diluted | $0.14 | $0.13 | Loss per share increased |
| Cash used in operating activities | $6.4 million | $1.4 million | Cash use increased |
Higher branded pharmaceutical enzyme demand drove product revenue growth and improved product margins. Lower R&D revenue primarily reflected reduced Novartis technology-transfer revenue as the transfer neared completion, as well as prior-year Takeda license revenue. Increased operating expenses more than offset higher product revenue and margins.
Segments: Performance Enzymes revenue was $14.2 million, up 31%; segment operating income was $0.7 million. Novel Biotherapeutics revenue was $3.8 million, approximately flat; segment operating loss was $1.4 million. Corporate costs and unallocated depreciation contributed to the consolidated operating loss.
Financial position and liquidity
- Cash and cash equivalents were $139.7 million at March 31, 2021, down from $149.1 million at December 31, 2020. Cash, cash equivalents and restricted cash totaled $141.9 million.
- Working capital was $151.0 million, compared with $159.4 million at year-end 2020. Total assets were $212.2 million and stockholders’ equity was $163.7 million.
- No amounts were drawn under the Western Alliance facility, which provides up to $10 million in term debt and a revolving line of credit of up to $5 million, subject to terms and covenants. Codexis reported covenant compliance.
- Total liabilities were $48.4 million, including $24.3 million of operating lease obligations. The company reported no conventional borrowings outstanding.
- Investing cash use was $2.5 million, primarily for property and equipment; financing cash flow was approximately break-even.
Material developments, outlook and risks
- Management stated existing cash was expected to fund operations, planned capital expenditures and working capital for at least the next 12 months. It cautioned that additional capital could be needed if plans or assumptions change.
- Management expected R&D and SG&A expenses for the remainder of 2021 to exceed the comparable prior-year periods as the company invests in growth. The filing provides no numerical revenue or earnings guidance.
- Codexis received $3.4 million from Novartis in Q1 for partial completion of a technology-transfer milestone and was eligible for a further $1.6 million upon completion. The transfer was approaching completion; additional improvement-term and potential usage payments are subject to agreement terms and future activity.
- The Merck sitagliptin catalyst supply agreement expires in February 2022; Codexis said it was negotiating an extension. Revenue under the agreement was $3.3 million, or 18% of Q1 revenue, versus $1.8 million, or 12%, a year earlier.
- Customer concentration is significant: one customer represented 28% of Q1 revenue, and another represented 14%. One customer accounted for 41% of receivables at quarter-end.
- A new San Carlos lease is expected to commence in November 2021, with a 10-year term. Estimated minimum payments total $31.7 million, before certain operating expenses. The company also reported $2.4 million of other service and manufacturing commitments and contingent development and sales milestone obligations.
- COVID-19 had, in management’s view, minimal revenue impact in Q1, but disruptions to customers, suppliers, logistics and R&D remained uncertain. The company relied on third-party manufacturing and logistics partners.
- Management anticipated CDX-7108 could enter a Phase 1 trial in 2021. Timing and outcomes remain uncertain. No material pending litigation was reported; the filing said risk factors had not materially changed from the 2020 Form 10-K.
Investor verification points
- Assess whether branded-product demand and the 59% product gross margin are sustainable, including the impact of customer and product mix.
- Track the completion and remaining payment under the Novartis transfer, and the revenue transition as technology-transfer work winds down.
- Verify progress on the Merck agreement extension before its February 2022 expiry and monitor the revenue concentration represented by sitagliptin products.
- Compare operating cash use and planned investment with management’s stated 12-month liquidity assessment; account for the new San Carlos lease and other commitments.
- Monitor customer concentration, third-party supply dependencies, and clinical and collaboration milestones that could affect revenue or costs.