Codexis, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also reports unaudited fourth-quarter results. Codexis engineers and sells proteins and enzymes, primarily for pharmaceutical manufacturing, and is expanding into fine chemicals, biotherapeutics and molecular diagnostics.
Financial results and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $50.0 million | $48.8 million |
| Product sales | $26.7 million | $15.3 million |
| Research and development revenue | $20.7 million | $31.3 million |
| Revenue-sharing revenue | $2.6 million | $2.2 million |
| Product gross margin | 46% | 36% |
| Research and development expense | $29.7 million | $22.2 million |
| Selling, general and administrative expense | $29.0 million | $25.4 million |
| Operating loss | $23.0 million | $8.6 million |
| Net loss | $23.0 million | $8.6 million |
| Net loss per share | $0.50 | $0.21 |
- Product sales grew 74%, mainly on higher demand from existing customers. Improved product mix lifted gross margin.
- Research and development revenue fell 34%, largely because 2016 included $22.5 million of non-recurring GSK and Merck platform-transfer revenue.
- Research and development expense rose 33%, principally from CDX-6114 development and higher staffing; SG&A rose 14%, including higher legal and personnel costs.
- Cash and cash equivalents were $31.2 million at year-end, with $0.7 million of marketable securities and working capital of $20.1 million. Operating cash use was $8.8 million, versus $2.7 million in 2016. Financing provided $21.7 million, primarily from the April 2017 stock offering, which generated approximately $23.2 million net.
- Total liabilities were $29.1 million and stockholders’ equity was $24.5 million. No amounts were drawn under the credit facility; up to $15.0 million was available, subject to borrowing conditions and covenants. The facility is secured by substantially all personal property other than intellectual property.
- Fourth-quarter revenue was $21.7 million and net income was $1.0 million, compared with revenue of $10.0 million and a net loss of $5.3 million in fourth-quarter 2016.
Material developments, outlook and risks
- Nestlé collaboration: Codexis received a $14.0 million upfront payment in October 2017 for the CDX-6114 development, option and license agreement; $7.2 million was recognized as 2017 R&D revenue and the remainder was deferred. Potential payments include $4.0 million after Phase 1a begins, $3.0 million upon option exercise, up to $86.0 million in development and approval milestones, up to $250.0 million in sales milestones, and tiered royalties. These contingent amounts depend on future development, option exercise and commercialization.
- Management expected existing cash, cash equivalents and marketable securities to fund operations, planned capital expenditures and working capital for at least 12 months from the filing. It forecast approximately $1.0 million in 2018 capital spending, mainly for laboratory equipment. No specific revenue or earnings guidance was provided.
- CDX-6114 was an early-stage oral enzyme candidate for PKU. The company planned development including a Phase 1a study; clinical, regulatory, funding and partner-option outcomes remain uncertain. A proprietary enzyme for NGS library preparation was beta testing and expected to be commercially available in 2018.
- Revenue concentration remains material: Merck accounted for 28% of 2017 revenue; Nestlé 15%, Novartis 14%, and Tate & Lyle 11%. The company also relies on a limited number of enzyme products and third-party manufacturers for larger-scale production.
- Codexis reported a history of losses, an accumulated deficit of $315.1 million, and dependence on collaboration funding and customer demand. Other disclosed risks include clinical and regulatory uncertainty, customer and manufacturing concentration, competition, intellectual-property challenges, and credit-facility covenants.
- The Exela revenue-sharing arrangement ended in December 2017; Codexis recognized $1.5 million for an exclusive license and termination, and does not expect further revenue under that arrangement. In February 2018, Codexis settled its EnzymeWorks litigation; terms were confidential, with a stipulated patent-infringement judgment and permanent injunction against EnzymeWorks.
- The 2017 Tax Act accounting was provisional. Adoption of ASC 606 in 2018 was expected to reduce accumulated deficit by an estimated $1.2–$2.2 million for assessed items, while the effect on certain collaboration arrangements remained under review.
Investor facts to verify
- Whether product-sales growth and the 46% product gross margin persist, and how much revenue remains dependent on Merck and other major customers.
- Cash consumption and runway relative to CDX-6114 development spending, including whether the Phase 1a trial begins and Nestlé exercises its option.
- Terms, covenant compliance and borrowing availability under the $15.0 million credit facility, as well as any impact of future financing or dilution.
- Commercial adoption and revenue contribution from fine-chemical and molecular-diagnostics products, including the planned 2018 enzyme launch.
- Final ASC 606 and Tax Act accounting effects, and any material developments in clinical, regulatory, manufacturing or intellectual-property matters.