Q3 2019 Earnings Call
Ladies and gentlemen, thank you for Santa by and welcome to the could Texas third quarter 2018 earnings Conference call.
At this time all participant lines are in listen only mode. After the speakers presentation. There will be a question answer session.
You asked the question during the session you would need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Bruce Voss. Thank you. Please go ahead Sir.
Thank you. This is Bruce boss with L.A.J.. Thank you all for participating in today's could axis call to discuss third quarter 2019 financial results in business progress joining me from Kodak's is our John Nicols President and Chief Executive Officer, and Ross Taylor, The company's Chief Financial Officer.
During this call management will be making a number of forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 to the extent that statements made by management are not descriptions of historical facts regarding productions. They are forward looking statements, reflecting the beliefs and expectations of management as of November 15.
29 team.
You should not place undue reliance on these forward looking statements because they involve known and unknown risks uncertainties and other factors that are in some cases beyond the company's control and could materially affect actual results.
For details about these risks please see the quarterly news release that accompanies this call as well as the company's FCC filings codecs is expressly disclaims any intention or obligation to update forward looking statements, except as required by law now I'd like to turn the call over to John Nicols John .
Thanks, Bruce Good afternoon, everyone and thank you for joining us.
I'm exceptionally proud of our strong performance for the third quarter.
Revenues reached nearly $22 million up 29% over the prior year, representing our highest quarterly sales in seven years and the highest quarterly revenues. However, under our current business model.
The quarter delivered on the stepped up revenue generation, we promised for the second half of this year that momentum continues into the fourth quarter, enabling us to confidently reaffirming our full year revenue guidance of between 69 and $72 million.
Sales growth was spread nicely across our product and R&D revenue lines with growth of 23% and 35% respectively versus the prior year.
The strong revenue performance in combination with disciplined management of operating expenses resulted in an operating profit in the quarter.
Our performance enzyme business.
Segment powered the quarter with revenues up 68% year over year and comprising over 20 million of the <unk> million dollars of the company sales.
In parallel and importantly, we continue to expand our performance enzymes revenue generation over a growing set of customers and they diverse list of industrial verticals.
This is core to showing success against the segments mission to harness the untapped possibilities that are enabled by proteins and to prove that could access and our codeevolver protein engineering platform is the way to do so.
Let's start with the momentum we delivered during the quarter in expanding and deepening our protein catalyst penetration in global pharmaceutical manufacturing.
Here, we are proud to share that five customers each contributed product sales of more than $1 million in the quarter.
Mark again led the way with the use of our enzyme for their manufacturer of the active ingredient into new via.
Followed by a notable contribution again from cure and pharmaceutical for their manufacturing of exhibit kron a treatment for overactive bladder.
The same top 25 pharma customer we highlighted for the first time last quarter took another seven digit product shipment in Q3 as they line up for their expected drug approval and launch in 2020.
Novartis purchased nearly $2 million worth of one of our enzymes for one of their commercial drugs, noting that this is an infrequent manufacturing campaign that typically takes place less than once per year.
And rounding out the list of seven digit product sales one of the world's largest generic pharmaceutical companies continued they're relatively consistent purchase of our protein catalyst for two of their commercial generic drugs.
Our Codeevolver licensing strategy was also a major highlight for the quarter.
For the first time, we delivered material revenues from broke both the front end and the backend of Codeevolver deals in the same quarter.
The transfer of technology to our newest Codeevolver licensee Novartis continues at an excellent pace a team of Novartis scientists has been working in our Redwood City, California labs for the last several months learning from their peer of could exit scientists in parallel we had been transferring matured.
Sales and establishing the Novartis Codeevolver lab in Europe .
These activities earned us several million dollars of R&D revenues from the Novartis codeevolver deal in the quarter.
In addition, during Q3, we recognized a $2 million milestone payment from the GSK.
Codeevolver license the first of what we expect to be a growing stream of significant backend revenue generated from our historical Codeevolver license fees.
This milestone was associated with the advancement of an enzyme that is designed to improve a key step in the manufacturing process for one of GSK is commercial patented pharmaceuticals.
More potential seven seven digit milestone payments to could access are possible for this enzyme should it continue to advance and its commercialization over the coming years.
Continuing our growing penetration of performance enzymes into pharma manufacturing, we performed Codeevolver R&D services with four other top 25 drug companies in the quarter.
For three of these customers we have started their first ever six digit project work in the last few months.
In addition, we are pleased at the pace of adoption that port and pharma solutions is having with their much larger set of custom pharmacy pharmaceutical manufacturing opportunities that model is working well also as they appear to be nearing more sizable installations for our technology with their customers.
Shifting to performance enzyme highlights in other markets, we had a relatively light quarter in the food industry, but our forward outlook in this sector continues to be encouraging.
Hey, mild continues to market their new tasty and stevia sweetener aggressively and they have shared with us enthusiast stick product qualification responses from their wide customer base.
The two newly initiated projects, we discussed last quarter with Tate and Lyle and one other in new customer each in different non sweetener food ingredient applications are set up for growth in for Q and 2020.
In molecular diagnostics and molecular biology applications. Once again, we delivered combined R&D revenues in excess of $750000 with the two new clients and two new applications. We highlighted last quarter, it's great to see momentum from these projects continue in Q3.
And even better they are they are on top of revenues that are beginning to materialize in this fourth quarter for our DNA like gaze for next generation sequencing.
Other exciting new clients, an application opportunities and these and other industrial verticals continued to move towards revenue generation as well.
As a highlight to the continued expansion and diversification of our performance enzyme customer base across both product and R&D revenue 12 customers exceeded six digits in sales in Q3 and half of them contributed sales above the $1 million level.
These are exciting times for the expansion of applicability for outperformance enzymes business.
Shifting to our novel Biotherapeutics segment sales to Nestle Health Sciences made up the full $1.5 million of segment revenues as expected. These sales were lower than last year segment sales as revenues and costs associated with Cdx 611 for as a clinical cans.
It it for federal ketone urea or PK, you were negligible versus making up the large majority of sales in the same quarter last year.
Nonetheless that program continues well in our partners hands and we note that they have dose PK you patients with Cdx 611 for for the first time in recent months.
Biotherapeutic discovery work partnered with Nestle Health Science for a net for another disease target.
Made up the vast majority of the segment's revenues for the quarter and that programs preclinical research results are quite encouraging as we close out the year.
For our self funded novel Biotherapeutics pipeline, we continue to advance favorable favorably across the entire list of targets. We remain on track and look forward to sharing details of the two product candidates, we expect to achieve partnerable status around year end.
And lastly, I want to share our excitement with two events that demonstrate a coming of age of synthetic biology, and its near infinite power to engineer new high value proteins I'm truly proud of our team it could Texas for organizing a groundbreaking two day protein engineering for him held in Palo Alto Calif.
When you last month.
Attendance of more than 150 innovators for more than 50, mostly industrial institutions exceeded our expectations.
This forum highlighted recent successes in enzymatic manufacturing.
Biologics discovery and agricultural and diagnostic applications as well as technical progress in library generation high throughput screening and bio informatics.
We were thrilled to have Dr. Francis Arnold as our keynote speaker you may recall that Dr. Arnold received the 2018 Nobel Prize and chemistry for our pioneering work in the directed evolution of enzymes.
The high level of interest and the quality of discussions and presentations generated generated tremendous energy over the entire two days and inspire new ideas to expand the impact of proteins in the real world.
The event, followed could excesses, leading participation and sponsorship at the annual same bio beta summit arguably the world's largest gathering focused on advancing synthetic biology and its impact on mankind.
Our participation included a main stage fireside chat between me and the and the Chief Technology Officer of Tate and Lyle and several workshops, highlighting codeevolver and our lead in the space in delivering a stream of real world commercialization successes.
The success of both events is truly a sign of the increased importance of synthetic biology and protein engineering as well as the pre eminent roll Conexus enjoys in this leading edge technology arena.
Those remarks, let me now turn the call over to Ross Taylor, who has done a great job to get up to speed and impact could access during his first quarter as CFO for us.
Thank you John .
Total revenues for the third quarter of 2019 were $21.9 million up 29% from $16.9 million in Q3 2018.
Third quarter 2019 revenue included $20.4 million from the performance enzyme segment and $1.5 million from the novel Biotherapeutics segment.
Product revenue for the third quarter of 2019 increased by 23% to $10.4 million from $8.4 million a year ago with the increased due to higher demand for enzymes for both generic and branded pharmaceutical products.
R&D revenue for the 2019 third quarter increased 35% to $11.6 billion up from $8.5 million in Q3 2018.
The increase was primarily due to revenues from the Novartis Codeevolver agreement that we announced in May and a milestone payment from GSK for the GSK Codeevolver agreement that John mentioned previously.
These increases were partially offset by the prior year completion of services to Tate and Lyle in lower development fees from the Nestle Health Science.
R&D revenue for the third quarter of 2019 included $10.1 billion from the performance enzymes segment and $1.5 million from the novel Biotherapeutics segment.
Gross margin on product revenue for the third quarter of 2019 was 51% compared to 55% a year ago decreased due to changes in product mix.
Turning to operating expenses R&D expenses for the third quarter of 2019 were $8.7 million.
This amount included $5.3 million from the performance enzymes segment and $3.1 million from the novel Biotherapeutics segment.
The increase in R&D expenses from $7.9 million a year ago was primarily due to higher expenses related to head count.
And see related costs and lab supplies, partially offset by lower outside services.
Yes, DNA expenses in Q3 were $7.9 million, which included $2.0 million from the performance enzymes segment and zero point $7 million from the novel Biotherapeutics segment.
The remaining portion of SGN a extends the $5.4 million is included in corporate overhead expense and depreciation expense.
The increase in SDMA expenses from $7.3 million, a year ago was primarily due to increasing costs associated with facilities and head count, which were partially offset by lower outside services.
Net income for the third quarter of 2019 was zero point $3 million for one cent per diluted share, which compares with a net loss for the third quarter of 2018 of $2.0 million or four cents per diluted share.
On a non-GAAP basis, excluding noncash depreciation and stock based compensation expense adjusted net income for the third quarter of 2019 was $2.5 million for four cents per diluted share.
Versus non-GAAP adjusted net income a year ago of $91000 or zero cents per share.
Turning to the year to date financial results total revenues for the first nine months of 2019 were $49.8 million up 12% from the first nine months of 2018.
Product revenue was $24.6 million R&D revenues were 20 $425.2 million in consisted of six foot $16.5 million from the performance enzyme segment at $8.7 million from the novel Biotherapeutics segment.
Gross margin on product revenue for the first nine months of 2019 was 50% compared with 44% to the prior year period with the change due to product mix.
R&D expenses for the first nine months of 2019 were $25.0 million Ines DNA expenses were $24.2 million.
We reported a net loss for the first nine months of 2019 of $11.3 million or 20 cents per share, which compares with a net loss for the first nine months of last year of $10.4 million or 20 cents per share.
On a non-GAAP basis, the net loss for this first nine months of 2019 was $4.4 million for a loss of eight cents per share versus a non-GAAP net loss for the first nine months of 2018 of $3.4 million or seven cents per share.
Cash and equivalents as of September Thirtyth were $92 million up from $53 million on December 31 of 2018. This increase includes proceeds from the $50 million private placement that we can completed in June .
As we noted in the press release today, we are affirming the 2018 revenue guidance introduced on our conference call in February .
We continue to expect total revenues for the year to be between 69, and $72 million, which represents growth of 13% to 18% over 2018.
We are maintaining our expectation for product sales to be in a range of $26 million to $29 million and we are also affirming our expectation for gross margin on product sales to be between 48% and 52%.
Lastly, with regards to operating expenses year to date operating expenses of $49.2 million trended modestly below our expectations. So far this year. We currently estimate operating expenses should be in a range of $68 million to $69 million for the full year compared to our previous expectation of approximately.
$72 million.
With that I'll turn the call back to John .
Thanks, Ross, let me close my prepared remarks by highlighting the strategies that are driving our confidence to deliver consistent double digit near and longer term revenue growth.
Our strategy begins with a relentless focus on our Codeevolver protein engineering platform technology.
We were delighted with the reception at the codecs is sponsored events as we continue to expand and commercialize real world applications for high value proteins engineered with codeevolver at an ever accelerating pace.
Proprietary artificial intelligence competencies are at the core of our ability to discover proteins that meet customer needs.
Cutting edge synthetic biology practiced by the dynamic scientific team that conexus together with the constantly improving codeevolver platform continues to demonstrate our prowess in rapidly discovering and commercializing novel high performing proteins.
Our ability to produce such exceptional financial results for the quarter further reinforces our confidence in our strategies, we continue to make progress growing in penetrating deeper into pharmaceutical manufacturing as well as layering on growing revenues and new performance enzyme verticals like food Molina.
Nostix and molecular biology, plus we're confident that other new applications would develop on top as well in novel Biotherapeutics. We're further validating the ability of codeevolver to discover and develop differentiated patentable new drug candidates as we watch our partner advance our first clinical drug.
Candid it and we bring at least two other programs to partnerable status around year end.
Our balance sheet featured more than $90 million in cash quarter close and we are extremely well position to capitalize on a variety of high value growth opportunities afforded by our talented conexus team and the versatility of our Coke Codeevolver technology.
As a final note we will be introducing 2020 financial guidance on our next conference call in February when we discuss our 2019 fourth quarter and full year results.
With that overview I'd like to open the call for questions operator.
As a reminder to ask the question you will need to press star one on your telephone.
All your question press the pound key please stand by Lilly compiled acuity roster.
While we're waiting for our first question I'd like to alert you have are busy busy investments conference schedule.
We will be participating in the Craig Hallum Alpha Select Conference next Tuesday November 12 in New York and we'll be at the Stephens Nashville Investment conference. The following day.
We'll be presenting at the Stifel Healthcare conference on Wednesday November 22019 in New York, and we'll be at the Canaccord Genuity 2019 medical technology in diagnostics form the following day also in New York.
Webcast of our presentations at the Stevens and Stifel conferences will be posted to the investor sections of Conexus dotcom.
For those of you heading to San Francisco for the annual JP Morgan Healthcare Conference in January please contact L.A.J. to work with them to a range one on one meetings with us during that conference.
Okay, operator, we're ready for the first question.
My first question comes from branding cleared with Jefferies. Your line is open.
Hey, Thanks, good afternoon.
Hey, Brandon.
John but lets start.
With the food business, you mentioned, there was a little bit light in the quarter could just.
Sure with us an update of where.
[noise] teach stands with the stevia ramp what any gets in and at what point do you think we can begin to ramp towards that 10 million dollar number you'd kind of talked about in terms of the revenue potential for that product that steady state things, yes. It's it's a it's early days still tape mild continues to.
Very assertively market and position that product within their sweetener portfolio and they continue to encourage us with.
Qualitative inputs about how their customers are receiving.
The new better tasting tasty the end stevia sweetener.
And so you know, but the the the volume ramp has yet to really kick in.
We had a little bit of inventory build that they were working down through the most recent quarter and we'll we'll get as much color and quality as we can from Tate and Lyle about what they expect in calendar year 2020.
As we finish this year and come back forward to you in in February and talk about 2020 guidance.
Yeah, but were certainly expecting that their their growth will will ramp and the question. Just really is just what is that slope curve.
And how quickly can they penetrate their markets is pretty pretty pretty hard to see if this very early days, but we continue to be encouraged by the long term prospects of the kind of product gross sales of.
Reaching the top of our list in the not too distant future brand.
They sit on the buyer therapeutic side.
I understand you may want to hold off to share a little bit more calibrating qualitative color you can share with us in terms of the nature of your conversations with other third parties the quality of conversations and perhaps list of.
Yeah.
Partners, you may be talk into relative to where you stood with 611 for the first time around and then in general how many teams do you have working on discovery programs today and talk about maybe your capacity in terms of number of compounds you can really thoroughly investigate with the team right now thanks.
Yes, good question so.
Part are both status means that we've gotten we've gotten our asset pre clinically validated.
Validated with a preclinical research results that show the differentiation of our product versus the disease needs and or competitive products that may be out in the market. So so plus of course getting our patent ability and around so that doesn't presume that we're in conversations with Oh with CLSA.
Science to reach this partnerable status on some of the areas we consistently show.
Where we are with our our biotherapeutics preclinical research data.
To get it kind of a an ongoing and it continue a sense of how.
Strategic companies in the marketplace are seeing the data that we're generating.
But.
Between between you know sharing with you that we may have a partner partnered event or that we have the kind of data that's going to be.
Driving preclinical value, we're gonna be showing that kind of data as we.
Finished this year maybe into early next year and it's very close so we're very encouraged the success of data generation. The the discovery candidates that are coming out of the R&D team are a very impressive across effectively the entire pipeline.
Both in partnership with Nestle.
As well as the for lead programs that we've been working on now for a little over a year.
Those are the advanced from.
Canada degeneration into preclinical research trials those preclinical research trials on average have done very well to validate the kind of data that we believe we'll need to have a differentiable preclinical candidates proceed towards the clinic. So we're really excited with how well our biotherapeutics.
Discovery pipeline is advancing.
Your final question with regards to the number of teams are kinda the R&D capacity that we're applying.
Both for the whole company and and the percentage that we're targeting for where the therapeutics pipeline could it today the company is operating roughly.
15, or 16 parallel protein engineering teams.
So in effect inside the labs with the office building that we're in right here.
We are working on 16 brand new to the world protein molecules right now.
As we've highlighted many times the speed with which we can discover protein molecules a hit demanding real world targets is accelerating so those that same number teams can can discover more molecules going forward versus yesterday and of those.
Of those 15 or 16 teams roughly 30% or five or so of those teams are focused on the biotherapeutics pipeline right now.
The other the other 10 are mostly are working on funded projects for the performance enzyme business, but we also continue to do some minor share out those 10 of the teams for performance enzymes were self funding for example, the two programs for for the the next generation sequencing area. We can.
And you to invest.
In making our DNA like gaze product even better.
And we are nearing the launch of the second product the DNA polymerase for the next generation sequencing market as well.
Thanks. That's helpful. Then not just one for us the guidance for the year implies product revenues in the fourth quarter only about one of the have four and a half million, which would be the lowest.
The quarterly number at some time to just help us with some of the puts and takes and how realistic that does.
That is for Fourq you. Thanks.
Well I think where we are.
Year to date for product sales I think the higher end to that guidance ranges.
Probably no more realistic as opposed to lower end.
At the same time I think we had a really strong quarter in terms of product sales you know the businesses a little bit you unpredictable. So we just weren't real comfortable.
In that range up at this point.
Very good thank you.
Yes, Brian .
Our next question comes from Matt Hewitt with Craig Hallum Capital. Your line is open.
Good afternoon, and congratulations on the continued strong performance.
Hey, Matt.
First up on the food the non sweetener food segment. The last quarter you had a couple new projects. There sounds like there was a little bit of a pause here is that a function of those customers going back to their teams kind of figuring out where they stand and do you expect that to come back.
In Q1, and how maybe walk through that process a little bit.
Yeah, Yeah, I think you got it at a high level. So so though the work with those two applications, one with Tate and Lyle and along with another client that were not at liberty to disclose yet.
Took place in the third quarter, we generated modest revenue is less than a million in combination for those two projects combined back in the third quarter and they are we did our we use codeevolver to create candidates that could be you know validated downstream with those clients and so really it's an NAV.
Sure all kind of short term pause for for the customers to go cast and actually trial it.
And and get a sense for how the food ingredient, Andrew where the process that makes that food ingredient is performing and the customers and so so while it didnt really generate any you know significant revenue or much significant revenue in the third quarter like I commented in the prepared remarks, we continue to be encouraged.
Oh that even in the fourth quarter and certainly into next year. Those two those two project areas are going to become bigger contributors for us said still still quite.
Quite encouraging.
That's great and then regarding the PK you opportunity I think its phase one be is expected to be completed by the end of the year.
Does the completion trigger a milestone or is it you know starting phase two just walk us through what the next trigger would be on a milestone payments.
The next triggers the completion of the phase one the patient trial.
And so it I think Youd mentioned that it would be done by the end of the show that's not true.
Is there some possibility that it could be done towards the end of next year I may not be done until 2021 and will sharpen that 40 as we come forward with clarity about our 2020.
Guidance in the beginning of next year, but at the point at which that phase one be trial is completed that's when the milestone payment to conexus triggered and that's a $5 million milestone payment.
5 million, Okay that that was going to be my next question. So that's great. Thank very much can congratulations on the strong quarter.
Thanks, Matt.
Our next question comes from Doug Schenkel with Cowen Your line is open.
Hey, good afternoon guys.
Okay.
Maybe just a follow up to the last question on Nestle. So so according to clinical trials Dot Gov Nestle initiated a 20 patient phase one.
PK you study in early September .
I'm just curious like it with is that what was expected. Maybe this is a naive question, but I thought normally because.
This was a rare disease situation that you might be able to move right to phase two way. So im just curious if this is all as expected and if the initiation of the small study was something that was suggested by the FDA or whether nestle just conducting additional.
Pharmacodynamics study.
Pharmacodynamics study to have a better handle on the dosing.
Yeah. This this was certainly not a dictated is this was expected.
As the the ongoing clinical plan for Cdx at one of them for by Nestle for the for the get go. We this is what we've been expecting them to do.
They've been running it according to plan.
And I I think that they're on the right clinical plan and where we're involved of course, there running it it's their expenses or control, but we think the way they are running the trials and how they plan to do.
The ongoing clinical trials through this trial and beyond assuming the data continues to bear out positively is very appropriate and and and the right way to run. This clinical program. Okay. Alright. That's helpful. Thanks for walking me through that.
And then one of the quarter that I just want to go back to guidance.
In the quarter, obviously, almost every line item was with a bit better than expected. The one line that was maybe a little bit light of forecast was gross margin was was that just a function of mix or was there anything else going on there.
Yeah, that's purely just product mix, yes, okay that makes sense.
And then on guidance.
If we go back to the Q2 call. You you indicated you expect the split or second half revenue to really be 40% Q3, 60% Q4.
Based on guidance now, which was reiterated for the year and now it seems like you're expecting this to be about 50 50.
I guess I point out these facts, just just largely because I'm wondering if you're basically position in Q3 strength as really just a function of pulling forward revenue from the fourth quarter or would you say that you're tracking ahead of plan. It feels like you're tracking ahead of plan and maybe you're just being conservative recognizing.
In the inherent lumpiness of the business, but I just want to make sure.
Yeah, I think a couple of things there I mean, we did keep our total revenue guidance the same as well as the product revenue guidance and even though we did very well in the third quarter did better than we expected.
Yeah, we still still do have a big number to accomplish here in Q4, we have to get $20 million plus revenue here in Q4.
Yeah, I mentioned before and I'm sure you guys have heard this in past quarters past years mean of businesses a bit volatile quarter to quarter, we do have.
Reasonably good visibility for.
Results this quarter, but you'll to save time, we think we still have a fairly big hurdle to accomplish.
And again, we've kept our.
Total revenue guidance, the same and we think thats.
Very reasonable at this point.
Okay, Alright, Thats all Super helpful. Thank you for taking the questions.
Thank you once again like how many of you wish to ask the question at this time. Please press Star then one are you touched on telephone.
Our next question comes from Arcane with Wainwright Your line is open.
Thank you.
Good evening.
Okay.
Most of these lessons have been answered, but a couple of them.
The start of.
You were talking about port on farm, our partnership I'm trying to understand what's the status there regarding finalizing the fixed transfer and and also potentially.
I'm starting to use products from the early well, but instead manufacturing processes.
[laughter] fits them I commented before I apologize I got on the call it little bit.
And the problem or any other partnership with port is going very nicely. So we're a little over a year into the partnership the technology transfer and demands for that partnership were modest nothing like what we're doing right now as Cody with Novartis because in the case of of Port and.
Oh, we just set them up with screening capabilities and library capabilities no protein engineering like we do it with a with Novartis. So the technology transfer has been done quite some time ago, certainly well before the end of last year. So they've just been out running the model and just to reinforce the model.
Porton sees many many more pharmaceutical manufacturing opportunities and could access does.
That's their businesses pharmaceutical manufacturing so they they bid on many different projects every month.
And the the the model is for them to be very rapid and efficient in screening our existing biocatalyst protein catalyst against those much larger set of of manufacturing opportunities.
And they've done a great job of that they're they're very efficient they're great chemists, we're very collaborative with them we talk.
Keenly about kind of screening results that they got a we talk about whether it's a warrants doing a protein engineering back here in Redwood city to support them and with that with now with that traction and what they're growing experience with protein based kept the could catalytic.
Processes, we're now starting to see them see real prospects to get our technology installed. So we're quite encouraged we're very pleased there they're a very very competent western oriented sophisticated partner and and and we're continue to to hope for and look.
Forward to ER to growing things with growing business with with important.
Thank you thank you for that legally who.
Codeevolver licensing.
So.
It was because I think we are either.
I listen to them prisons within column 18 months, we've given you know lessons.
So there there are we on that so I could just fine you know should we expect something within the next.
Six months in terms of initiating a new codeevolver license.
No I wouldn't want to set your expectation for another codeevolver licensing deal to be struck that quickly RK or any other investor. It takes quite some time to for the client themselves to build the business case that justifies the kind of expensive Codeevolver license.
Entails not only the licensing.
ER to could access, but also the investment and some equipment or the dedication of of laboratory footprint and the hiring of at least a dozen or more employees to run the operations as a big investment decision and as we've witnessed with all three of our Codeevolver partners.
Takes them some time to validate the applicability and usually means that they're working on projects with us.
To show that the technology works against their kind of molecules that they're trying to commercialize. So so you know just a little bit of a long winded answer I, we were having excellent progress as you've heard consistently to widen our our penetration of big.
Pharmaceutical customers, who theoretically could justify it codeevolver license investment, we're getting more and more business doing more of our codeevolver work with a larger number of these companies.
And those are all just the rights steps to build the business case and to ultimately.
Bear fruit for us for other codeevolver investments beyond or GSK and Novartis. So we'll keep you posted work in that process as a as assertively it as effectively as possible.
I wouldn't expect anything as quickly as you you'd hoped for in your question.
No no. Okay. Thank you Blue then regarding you know you're probably more likely than they do.
In a rising revenues teams or in that sense, you're talking about how this quarter. There are seven customers, who constituted a million dollars.
Sure.
So how sustainable are these the revenue streams.
But you know what potentially could be the flows and what's for these revenue trends over the next.
Corridors are no yeah.
Yeah, I mean of the Sad then we've got Novartis Merck.
Nicely.
ER and you know these are solid consistently growing consistently country for any closing for us.
I highlighted though a leading world leading generic manufacturer their products or commercial or enzymes of commercial so that's a pretty steady sustainable revenue base a another one of the million dollar plus pharmaceutical customers as mentioned them two quarters in a row where they.
Hey, lifted a million or more dollars to product sales.
Lining up for their approval they've already gotten positive phase three data. So it's highly likely they will get the approval and launch.
But we would be you know waiting for them to launch and get traction in their markets. So assuming all that happens that'll be a very sustainable a.
Multi million dollar revenue generator for the company I did put some color into.
A relatively spotty 2 million dollar product shipment to novartis in the quarter.
This is a.
Relatively small.
Commercial active ingredient for Novartis, so they don't manufacturer their product routinely they manufacture it in batches.
And usually not as frequently as once per year. So we had that occur in the third quarter of this year and probably that won't occur again until you know, possibly next year, but maybe the year after that so.
So that's not as consistent of revenue generator as [laughter] certainly not on a quarterly basis is the others that I highlighted so I think you know that's a that's a fairly detailed answer I'm RK to give you another investor some confidence that you know these when they reach this multi <unk> that when they reach $6 million plus status. They.
Generally are in a stage of sustainability, not always but generally and that growing that list of million dollar plus clients is a great sign.
On average of growing the sustainable revenue base the company.
Yep that's for sure.
Thank you. Thank you for picking on the questions.
Okay.
Our next question comes from Marc Silk with Silk investment Advisors. Your line is open.
Thank you for taking my questions. So John the first one is no matter who wins in 2020 selection big focus will be on reducing the cost of medication to the masses, which will impact biopharmas gross margins how could this shift impact conexus.
Yeah Boy, that's a softball, thanks, it's definitely a modest Ah Ah tailwind for the company that as a big pharma in particular has pricing pressures impacting their margins that one place. They can turn is to the cost of manufacturing and that's exactly what.
Gee enables.
As to you know properly applied to our technology can enable a step change in the cost of the active ingredient, which is the largest cost component of pretty much every drug out there. So so we see this as an underpinning Ah that's enabling the strength of our core business the performance enzymes for our pharmaceutical many.
Factoring and and we're encouraged by it we see a little more support for process engineering within Big Pharma in General, which are then you know enables Ah Ah you know more sophisticated higher capacity teams to work with us and our technology.
Well, if that's the case hopefully the baby doesn't get thrown out the bathwater if that these prices do go lower next question with the rise of the plant based of meat products for the likes of beyond meat is there any opportunity. There are people kind of reached out to you I just was kind of curious.
It's a really exciting trend in the wider synthetic biology world that companies like beyond need and possible Burger or there's other biosynthetic pathways to natural things that were used to consuming or that are being.
That are having some success in the world. So.
We find this is a very interesting class or will you know these companies are relatively new and their penetration of markets is relatively new but this could be this could be a prospect space for the company.
It hasn't been so far certainly not materially, but but this is an area that will watching in and out we'll see how could that this is rolling out unfolds over time.
That's interesting and you know for the life of me I'm still trying to figure out.
Why you're stuck got pummeled last quarter, you know, whether they didn't think you're going to hit your guidance. I think that question is the answer but more importantly, let's say it was that you were going to increase the amount of projects you are self funding, which obviously increases the cost near term, but also creases. Your you know your revenue potential in the future.
So I would assume that the shift to the self funding unless partnerships is something where what's your knowledge you can kind of figure out because you have all the answer is where you'll know which ones makes sense to self fund and then which ones might be more beneficial to partnership is that that's kind of.
Am I thinking correctly.
Yeah, Yeah, you know a you know five or six years ago, we didn't sell find anything today.
Close to half of our our R&D capacity is towards self funded projects not quite happy but close.
And we've got a great batting average of picking some winners right in the beginning of our stevia.
Story was a self investment and then we brought it to Tate and Lyle I made the deal with Tate and Lyle the PK. The orally administered bull enzyme for phenylketonuria disease that that was a self investment.
And until we made the deal with Nestle. So we are priding ourselves with a oh, great batting average and we think we can continue that and clearly when we self invest it puts us in a stronger position to monetize the asset in a higher value wafer for could access and its shareholders. So.
That's you know that's increasingly what we're doing but you know at the end of the day a lot of times. The best way to go forward is a is a funded partnership.
The spread the risk or give us some short term cost cover so we've got a very nice mix of both.
Great and I do appreciate the you in the other insider buying shares back to just basically saying listen this is overdone and I have enough conference in the company to put my money, where my mouth. So congratulations on a good quarter in a continued success.
Thanks Mark.
Thank you. This concludes the question answer session now like turn the call back over to John Nicols for closing remarks.
Okay. Thanks, everyone for your questions. We're very excited about our results for the quarter and our outlook for the remainder of 2019 and beyond we look forward to providing ongoing progress updates to you in the meantime, everyone have a great day. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect.