Q3 2020 Codexis Inc Earnings Call
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Good day and welcome to the code that you could access third quarter.
Financial results conference call today, all participants will be in a listen only mode should you.
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Forward looking statements, except as required by law.
Today's conference call remarks will include both gap and non-GAAP financial results. So, Texas believes the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of his business enables a comparison of financial resources between periods, where certain items may vary.
Independently of business performance and allow for greater transparency with respect to keep metrics used by management and operating the business.
These non-GAAP financial measures are presented solely for informational and coffee comparative purposes, and should not be regarded as a replacement for corresponding gap measures.
Reconciliation between gap and non-GAAP financial measures can be found at the end of the financial results news release that was issued earlier today now I'd like to turn the call over to John Nichols John.
[noise] Thanks Jodie.
Afternoon, everyone and thank you for joining us.
We are very pleased to record another quarter of exceptional execution.
We delivered strong sequential growth with revenues with $18.4 million and solid progress across all growth verticals.
Product revenue for the quarter again exceeded our pre covid expectations and two three sales to three customers topped the 1 million dollar Mark with Merck's Januvia active ingredient cynic lipton continuing as the leader.
Olive Dan another top 20 Global farm a company was the next leading contributor followed by your advanced Sciences or Deborah ground. It's it's product candidate for overactive bladder.
Sales of the background to your band insurance farm have been very strong so far this year and we expect another strong corner from your event in two four.
The F D as the termination on your events N D. A for the background is rapidly approaching with an assigned Paducah date of December 26, and a positive outcome bodes well for future sales of this product for Codexis.
Additional momentum during the quarter came from another top 20, former customer who needed a significant batch a bar enzymes to make their drug substance for face Covid trials.
As anticipated our larger volume manufacturing partners have remained consistently operational to date with minimal impact from the pandemic. This is allowing for the continued production of critical materials from them.
Our supply chain team continues to successfully manage the logistics on schedule.
Given our strong execution to date and our outlook for the fourth quarter, we expect full year product revenue to be nicely above our pre COVID-19 guidance range and very close to what we delivered in 2019.
A favorable mix and product sales led to another quarter of strong product gross margin.
I like polka passivity, we expect the effect of COVID-19 on revenue to be minimal in the fourth quarter and future quarters. We will remain agile in the event the pandemic changes or circumstances, which of course remains a possibility.
Let me know share details on the significant progress, we're making across each of our growth verticals, starting first with our novel Biotherapeutics segment.
First we are pleased to report on clinical progress and the path forward for C. D X 61144, phenylketonuria or P. K U here Nestle Health Sciences recently completed a safety Tolerability and P. K P. D study of C. D at 6114.
For the first time and PKU patients.
Consistent with past clinical results C. D X 6114 was again, well tolerated and safe at all doses tested and.
In addition, an increase in cinnamic acid levels, a biomarker of enzyme activity was observed which is consistent with the intended mode of action for Cvs 6114.
Based on the results of the study necessarily health Science has decided to undertake additional solid dose formulation development prior to initiating it's next clinical trial, which will be a multiple ascending dose <unk> face one b study accordingly results from the phase one study are now expected.
To read out in 2022.
We are also collaborating with necessarily health science on three other disease targeted programs. The lead program C. D X seven 108 for an undisclosed gastro intestinal disorder is making solid progress towards its first clinical trial, which is expected to commit to commence by the middle of 2020.
One.
G M P batches of C. D X seven 108 had been manufactured by our C. M. O partner in preclinical toxicology studies have been completed with audited reports expected to be ready around year N.
But the other two programs are in earlier discovery stages, and there will also progressing well.
One of these discovery projects was just added significantly increasing the funded R&D revenue, we are generating from the necessarily health science discovery partnership for the foreseeable future.
Each of these three assets Arco owned between that's why health Science and Codexis. It's.
It's exciting to see the list grow and the programs advancing.
The Fabry program is the most advanced and our Takeda partnership here.
Here the joint team is undergoing final stages of in vitro Andean bibbo characterization of Codexis generated trans jeans with improved stability and activity against the target substrate.
Accordingly, Fabry joint team outside the joint February team as well position to make a recommendation by the beginning of next year concerning which transgene will progress for packaging into Takeda is viral vector.
Pompeii program continues to favorably progress as well, albeit from a less advanced starting point then February when we initiated the Takeda deal we have submitted an abstract and expect to present transgene improvement data.
From our pump a program for the first time at the World Symposia in February of next year.
And food and other industrial applications. We also had a good corner.
We are starting to see enzyme sales for patent miles better tasting stevia sweetener, tasty, but EM generate meaningful revenue we generated a few hundred thousand dollars in sales for those enzymes in the third quarter stepping up the slope nicely on a sequential basis.
We also generated six digit food sales and another food application in the quarter and generated early development stage sales for three additional projects and other industrial verticals.
Switching to life Sciences, we continue to see good progress in that arena moving all five of our disclosed enzyme programs for it when the quarter.
Alright approved reverse transcriptase enzyme having successfully manufacturer trial batches of an early berrien.
It's still early days for the program, but the engineered enzyme is performing well an initial trials and we expect customer feedback in the fourth quarter, which will guide our ongoing optimization of the product ahead of a planned launch in the beginning of 2021.
As I described last quarter, our partnership with molecular assemblies is focused on a disruptive enzyme based approach to synthesizing D N a with the potential to significantly impact a wide range of high value markets from drug discovery and manufacturing through synthetic biology and long.
Return to compete with silicon for data storage, we have now embarked on the project engineer the required radical improvements to make enzymatic D. N a synthesis competitive with traditional chemical synthesis that underpins the billion dollar plus synthetic DNA market today.
The program has started well and the teams are collaborating to drive the initial concept proving improvements to validate the approach. We're very encouraged by early progress and we continue to expect completion of the enzyme improvement program and the second half of 2021, enabling early commercialization efforts to begin soon.
After.
I'd like to think that could access team for the outstanding job and bringing us back onto our growth strong growth trajectory as we close out 2020.
With that let me turn the call over to Ross for a review of our financial performance Ross.
Thanks, John and good afternoon, everyone.
Two three top line total revenues for the third quarter of 2024 $18.4 million compared with $21.9 million for Q3 of 2019.
Revenues for Q3 of 2020 included 13.0 million $13.0 million from the performance enzyme segment.
Five $4 million from the novel Biotherapeutics segment.
Product revenues for the third quarter of 2020 $484 million compared with $10 four $9 million for the prior year period with a decrease due to the timing of demand for various enzymes.
But then product sales mirc once again had the strongest showing during Q3, while allergen and you're a and also had strong showings with each of these contributing more than $1 million in revenue in the quarter.
R&D revenue for the 2023rd quarter was $10.0 million, primarily due to contributions from our Nestle Health Science, Takeda Novartis and Merck collaborations.
R&D revenue for the third quarter of 2020 included four $6 million from the performance enzyme segment and five $4 million from the novel Biotherapeutics segment.
Gross margin on product revenue for the third quarter of 2020 was 57% up from 51% a year ago with the increased due to the change in product mix.
Turning to operating expenses R&D expenses for the third quarter of 2020, where $12.0 million. This included $5 $2 million million dollars from the performance enzymes segment and $6.4 million from the novel by a therapeutic segment.
The increase in R&D expenses from eight $7 million a year ago was primarily due to higher regulatory expenses higher head count higher allocable expenses and outside services.
SG&A expenses in Q3 of 2028 $8 million.
Which included $2.7 million from the performance enzymes segment and zero point $5 million from the novel Biotherapeutics segment.
The remaining $6.0 million is included in corporate overhead and depreciation.
The increase in SG&A expenses from seven $9 million a year ago was primarily due to costs associated with higher headcount consultants facilities outside services and insurance, partially offset by lower recruiting costs and lower allocable expenses.
The net loss for the third quarter of 2020 was $6.1 million for a loss of 10 per share and this compares with net income for the third quarter of 2019 at zero point $3 million or one cent per share.
Turning to the cute turning to the year to date financial results.
Total revenues for the first nine months of 2020 or $48.0 million.
Product revenue was $18 million.
R&D revenue was $30 million and consisted of $13 million.
From the performance enzymes segment and $16 $6 million from the novel Biotherapeutics segment.
Gross margin on product revenue for the first nine months of 2019 was 56% up from 50% for the prior year period.
The improvement in the product gross margin was driven by mix.
R&D expenses for the first nine months of 2020, or 33 $8 million and SG&A expenses were $26.3 million.
We reported a net loss for the first nine months of 2020 of $21 million or 34 per share, which compares with a year ago net loss of $11.3 million for 2000 per share.
Cash and cash equivalents as of September 30th we're $71.5 million.
But I will turn the call back to John.
Thanks, Ross I'd like to close out are prepared remarks by focusing on the momentum we are building as a company.
You know a novel Biotherapeutics segment, we are creating significant value and substantial pipeline opportunity throughout through our partnership with Takeda leverage seafood evolver to validate a novel approach to enable differentiated gene therapy candidate design.
In parallel our partnership with necessarily health Science now with four programs advancing also continues to build momentum leveraging Quebec Cody vulgar to validate new approaches to address gastrointestinal disorders. Importantly, these groundbreaking partnerships and the proof of concept data we are general.
Rating are attracting the attention about the potential partners and setting us up to perform.
Our <unk> our own new self funded G I N gene therapy programs.
Mdna code for a specific enzyme.
We know how to get that DNA into an organism and therefore, our targeted enzyme will be expressed.
But knowing how that enzyme will perform well there's the rub the get the enzymes to drive the chemistry yield and selectivity in series and you have an engineered organism producing a fine chemical.
Get the enzymes to assemble the targeted DNA sequence and you have high Fidelity June synthesis.
Get the enzymes to clip the DNA strand on target at 100% of the time and you have efficient gene editing.
Liver enzymes with both step outperformance benefit and that are commercially scaled to ensure that they take their rightful place in our change resistant world.
Commercializing is hard wired into our amino acid sequence here I could access because for could access it's all about making a meaningful impact in the world in which we live in which we live.
With our flywheel and investments we are poised to do even more to improve health of people and the planet.
I want to thank all of you for joining us today and hope you and your families remain safe and well through these very dynamic times.
With that overview I'd like to open up the call for questions operator.
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At this time, we will pause momentarily to assemble a roster.
So while we are waiting for our first question I'd like to alert you to our busy schedule of upcoming virtual investment conferences.
We will be participating in the sequel Health care Conference on Monday November 16th the.
The 11th annual Craig Hallum Alpha Select conference on Tuesday November 17th and the Stevens Annual investment Conference 2020 on Wednesday November 18th.
We will post webcast of our presentations at the Steeple Health Care Conference and Stevens annual investment conference to the Investor section of our website at <unk> Dot Com I.
I also invite you to visit our newly redesign website with more robust and aesthetically pleasing content and easy navigation.
Okay, operator, we're ready for the first question.
[noise] today's first question comes from Matt Hewitt with Craig Hallum Group.
Capital Group. Please proceed.
Thank you for taking the questions and congratulations on on a solid quarter progress. Despite whatever has remained relatively challenging environment, maybe first step and thank you for for helping us understand that the vaccine opportunity a little bit could you maybe walk us through I understand it's it's not necessarily the first batch, but help us understand how this <unk>.
Dresses uhm with those second bachelor's which are ultimately the ones that are gonna be distributed to the world Wow, how does that process work.
Yeah, Yeah, so I mean it it it works you know in as as a traditionally does we we showcase are improved enzyme we showcase the data that we've generated that ascribe the benefits and in the case of the T. Seven RNA polymerase, we believe that our enzyme will be.
Significantly more cost efficient versus the incumbent RNA polymerases that are currently specht into these processes and we commenced that those benefits are significant enough to.
To warrant the customer to go through a change management to number one validate that they see the benefits that we see in our labs and to to showcase our supply chain capabilities and timelines to to effectively serve their supply chains and we've been working that process. We.
We we we work this process you know since basically since we started the the partnership without design that we announce at the end of April and we've gotten really good response from these customers and we're encouraged that customers for this particular market and other markets that require RNA polymerase is.
Are are very interested in will ultimately spec in our product bleeding to our ultimately our our product sales on our piano.
Okay, that's great and then regarding the the the DNA Blue Morays.
You were in your in contracting there maybe what are the conversations like with those customers how should we be thinking about that as we get through this year and into next year and you know how how are those opportunities may be expanded.
Yeah, it's going really well there are many users with D. N. A polymerase essentially any company that rugs polymerase chain reaction diagnostic workflow or an extra and sequencing workflow uses a DNA polymerase, we we've tuned rdna polymerase to be effective.
<unk> are to be differentiated for next gen sequencing applications. So we've been approaching multiple companies to to to showcase the improve benefits that we have a DNA polymerase versus you know several well entrenched incumbents in this industry and.
Okay, and so the the buildup of their supply chain for your band up to you know in advance of the Paducah date, which clearly they expect will be a positive result will go I'll wait and see has been very encouraging I think they have that suggest that they have a strong outlook for for uptake in the market as they as they put the product and.
The market posed to do.
Uhm <unk> with this will be a very nice size.
It'd be north of 30 million and what would you call out as sort of an a couple of biggest drivers of product growth and 21.
Yeah sure not a pleasure yeah the by far the the most positive development as 2020 has unfolded for us on the product rather than mine has been indeed, the uptake of product from the combination of euro event their sister partner a cure in.
And we hope and believe above our historical growth rate, our historical growth rate as company has been somewhere in the mid teens.
So what gives us that confidence.
Is funded.
What you expect.
For product gross margins in the fourth quarter and it looks like for the year product gross margins will will top the 50% mark or is that a good barometer for us to think about as being sustainable for 21 based on where you stand today.
[noise].
Higher margin products, we should continue to see the gross margin drift higher.
Great. Thanks.
Okay. Thanks Bye.
As a reminder, if you do have a question. Please press Star then one on your Touchtone phone.
The next question comes from Jacob Johnson with Stephens. Please proceed sir.
Hey, Thanks for taking my question and congrats on nice quarter.
Low double digit sales, if we penetrate annotate mile penetrates as we hope.
And it's just going to go through a ramped on.
As we go from modest sales and said in the prepared remarks couple of hundred thousand dollars in sales in this Q3, which is better than what we've seen in the earlier quarters to share.
And it will move through that kind of a slow next year. So I think as we unfold for our investors in a more detailed outlook comments. The 2021, we'll I'm sure give some color as to how we see the sales ramping in 2021, and I think those those dots been connected.
Well, Dan door to showcase to other partners beyond dictator.
Got it Super helpful. Thanks, John.
Yeah pleasure thanks Jacob.
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