Q4 2020 Codexis Inc Earnings Call
Good day, and welcome to the Codexis fourth quarter and full year 2000, and 'twenty results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Sarky followed by zero.
Today's presentation, there will be and opportunity to ask questions.
To ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Stephanie marks from Argot partners. Please go ahead.
During this call management, and we'll 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 codexis. They are forward looking statements, reflecting beliefs and expectations of management as of the statement day February 25th 2021.
You should not place undue reliance on the 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 and particular, there is significant uncertainty about the duration and impact of the COVID-19 pandemic.
This means that results could change at any time and the currently contemplated the impact of the virus on the company's operations financial results and outlook is the best estimate based on available information.
For details about these risks please see the quarterly news release that accompanies this call as well as the company's SEC filings Codexis expressly disclaims any intent or obligation to update forward looking statements, except as required by law.
John.
Good afternoon, everyone. We are very pleased to report on strong fiscal year, 'twenty and 'twenty results for Codexis.
In spite of the Covid related challenges, which impacted our R&D operations for the second quarter and part of the third quarter of last year I'm extremely proud that we delivered our seventh consecutive year of year over year revenue growth with.
With our highest ever quarterly product revenue in Q4, we finished the year strong on the top line and.
And as our sales mix continued shifting toward higher margin products. We also delivered our highest ever annual product gross margin.
Following our successful secondary offering in December we closed the year with a cash balance of $149 $1 million another historical high for Codexis, which positions us well to invest and the many growth opportunities we see for the company.
With the strong finish to 'twenty and 'twenty, we're poised for excellent growth in 'twenty and 'twenty, one, enabling us to drive our best topline revenue guidance and years showcase and growth of between 19% to 23% over 2020.
Reinforcing that product revenues will lead overall with growth between 20 and 30% year over year.
Russ will provide more details on the 'twenty and 'twenty result, in 'twenty and 'twenty, one guidance shortly but first I'll provide an update across the business.
Starting with our performance enzyme reporting segments, we are growing the business focusing on two quite different markets. The first being sustainable manufacturing this.
And this is where we built codexis enzyme engineering leadership over the past two decades and given that history. This market represents the large majority of the company's revenues currently.
Thanks to the vast scale and constantly accelerating speed of our co development platform Codexis is ability to discover and design ideal enzymes is unrivaled.
Our novel high performing enzymes enable our partners to dramatically reduce the cost and increase the sustainability of manufacturing there and products <unk>.
Paired to using traditional non enzymatic chemistry, which can be complex capital and cash intensive and inefficient codexis enzymes can reduce capital requirements and enable higher yielding processes with reduced energy uses usage and lower waste generation.
This business is growing robustly demonstrated by a 22% five year compound annual growth rate and product revenue.
'twenty and 'twenty, we had 15 and sustainable manufacturing customers contribute greater than $100000 and average quarterly revenue in 'twenty and 'twenty up from 13 and 2019.
Small molecule pharmaceutical processes have been and continue to be a core target for growing the sustainable manufacturing market for Codexis, we estimate that at least one out of three small molecule API is would be made both more sustainably and at lower cost if codexis enzymes.
And so were utilized.
We have partnered with 21 of the 25 largest pharmaceutical companies and the world to help them adopt and install novel Codexis enzymes from manufacturing their Apis.
As these companies increasingly validate the benefits and wide flexibility of enzymes for their manufacturing processes. They recognize its value and can move to license our Cody Barbara platform to perform their own in house enzyme engineering.
So far GSK, Merck and Novartis has in licensed our Cody Barbara platform. We expect that we will expand that elite list over time, and we are forecasting sustained growth of these deals 100% margin back and revenues in 2021 and beyond.
Our pipeline of sustainable manufacturing products, and deep growing and increasingly maturing as.
As we showed in our annual pipeline snapshot as of June 'twenty and 'twenty Codexis enzymes are now used and 11 commercially approved api's.
These enzymes are all patented and are currently the largest source of our recurring product revenue generation there.
Three largest customers of our commercial performance enzymes are all over again.
And quite strong demand and the second half of 'twenty and 'twenty.
Europe and for their newly F. D. A approved treatment for overactive bladder, which is also manufactured and sold by cure and in Japan.
And Merck for its type two diabetes drug januvia.
In addition to products already on the market. We have another 19 enzymes installed and API and phase two or phase III clinical development and that number has almost tripled from four years ago.
This step and growth and the pharma sustainable manufacturing pipeline demonstrates koji bolivars power as a product generating engine.
And the past few years, we've been expanding outside of pharma into verticals with shorter product development timelines and fewer regulatory hurdles and enabling our enzymes to commercialize faster our elite success stories, and the food and industrials market come from our partnership with Tate and Lyle where we did.
<unk> enzymes that enable dramatically higher yields of extracts to produce better tasting sweeteners at much lower cost and we recently extended and deepened our relationship with Tate and Lyle to improve to include improved enzymes for two of their newest sweeteners adult Cheol Prima alyea lows and.
Tasty, but M. Stevia, these new enzymes, which replace enzymes that codexis has already was already providing allowed tate and lyle to significantly increase the efficiency of their production processes for these two sweeteners.
We're set up for improved enzyme sales to Tate and Lyle in 'twenty and 'twenty, one as they continue to gain adoption and their downstream food and beverage markets.
In addition, we're working on developing a range of enzymes for other industrial applications from additional food and beverage ingredients to recycling consumer care and animal feed. These are generally faster to commercialize with larger revenue potential and in fact maturing opportunities as well.
A few years ago, we began to identify applications and the life science tools market, which we view as a significant growth opportunity for the company.
Codexis performance enzymes can enable improvements and next generation sequencing and molecular diagnostics, biosensors, RNA and DNA synthesis and more.
This market is highly attractive given its high growth best commercialization cycles and above average margin prospects and.
In addition enzymes developed from most of the life science tools applications can be marketed to multiple customers and advantage over the highly customized product business and sustainable manufacturing.
We've made rapid inroads into the life science tools market since we began focusing here.
From zero, just a few years ago, we generated $3 $6 million and revenue on 'twenty and 'twenty.
Advanced three enzymes to commercial readiness and several more launches on our soon to follow behind.
Our first partnership and the space is with Roche sequencing solutions for and improved T for D. N. A ligase for their next generation sequencing library prep kits.
This high performance enzyme enables more accurate sequencing DNA from biological samples, which has significant benefits and cancer diagnostics, where it's critical to accurately identify the offending gene.
The technology transfer from the DNA ligase was completed this past October and roche's installation and scaling as they prepare to market to customers.
And the second quarter of last year, we announced a partnership with Alpha design for manufacturing and co marketing of three additional life science tools enzymes.
<unk>, Hi, Fi DNA polymerase codecs high cap RNA polymerase and a first generation codex reverse transcriptase, we rapidly advanced all three of these enzymes toward commercialization in 'twenty and 'twenty and began marketing our DNA polymerase and RNA polymerase at the end.
And of the year.
We're in the final stages of optimizing the reverse transcriptase with exciting performance advantages over currently available enzymes and expect to broadly market to customers and the first half of 2021.
And sensitivities against change with the currently approved messenger RNA based Covid vaccine manufacturing processes, we don't expect adoption of our RNA polymerase for the approved Covid vaccines for the foreseeable future.
However, the medium and longer term outlook for this product is very encouraging.
Validation of our RNA polymerase yield and efficiency benefits and trials with multiple mrna customers has set us up well for potential installations and a range of processes for development stage mrna based vaccines and therapeutic candidates.
We are also seeing very positive feedback from customers for our hi Fi DNA polymerase and expect their adoption cycles will translate into meaningful sales of this product for us and the second half of 2021.
Last June and June we formed a groundbreaking partnership with molecular assemblies for the commercialization of enzymatic DNA synthesis.
This disruptive approach to synthesizing DNA has the potential to significantly impact a wide range of high value markets from drug discovery and manufacturing through synthetic biology and longer term to compete with silicon for data storage and I am extremely extremely excited about this endeavor.
Leveraging the power of code evolved where we're engineering enzymes with dramatic performance improvements that should make molecular assemblies process, a commercially viable and cost effective solution to manufacturing long chain DNA.
It is a big undertaking that we and estimated would take us a year or so of R&D work, we remain on track to complete the enzyme improvement program and the second half of 'twenty 'twenty, one, thereby enabling molecular assemblies to begin early commercialization efforts soon thereafter.
We like this model of working with dynamic early stage private companies Accordingly, and November we launched the sym bio and innovation accelerator income and collaboration with cash and capital our goal for the Sym bio accelerator is to selectively provide expertise and capital to companies that are centered.
Just stick with our engine enzyme engineering technology, and whose business is a long term strategic interest to codexis.
The first investment is in our Zeta a computational protein design company.
And our Zeta and plan to collaborate on expanding the scope and benefit of machine learning and artificial intelligence and developing new impactful enzymes and functional products or tools.
As you can see we've been planting lots of seats and the life science tools market and they are starting to grow into and impressive crop of new products and business collaborations we're extremely optimistic about the opportunities in this space.
Another recent market entry, where we see tremendous growth potential for Codexis is in the discovery and development of proprietary biotherapeutics.
Here, we are rapidly building and advancing a high value pipeline of therapeutic assets for indications with high unmet medical need discovered using our Cody Bolivar platform.
Just four years ago, we had only two early programs and our pipeline fast forward to today, and we have a dozen programs and our pipeline.
We've struck to impressive multi program partnerships with Nestle health Science, and Takeda and we have advanced multiple other self funded programs and parallel.
Our products partnered with Nestle Health science, our therapeutic enzymes for treating diseases caused by congenital arrows of amino acid metabolism and Gi disorders.
The program farthest along in development is C. D ex 6114 for phenylketonuria or PKU, which is fully licensed to Netflix.
They are advancing C. D ex 611, and four solid dose formulation development to prepare for initiating the multiple ascending dose ascending dose phase one b study that is expected to readout next year.
We have three other disease targeted programs partnered with Nestle Health Science.
C D ex seven 108 for treatment of an undisclosed Gi disorder is on track to advance into its first clinical trial and the third quarter of this year.
The other two programs are in earlier discovery stages and are also progressing well.
All three of these assets are co owned by necessary Health Science and Codexis.
Our partnership with Takeda is focused on improving gene therapy candidates for fabry disease, Pompe disease, and a rare blood factor disorder.
We are leveraging Cody bolivar to engineer Trans genes with improved attributes such as enhanced expression improved half life, greater stability better uptake and critical tissue etcetera. The.
And the Fabry program is the most advanced amongst the Takeda programs here a lead engineered transgene from Codexis is advancing through Takeda lead preclinical research.
The Pompeii and blood factor programs continue to advance in parallel as well.
At the World Symposium earlier this month, we presented some exciting transgene improvement data we've developed for the Pompe <unk> program.
Modifying trans genes using could evolve or to enable a gene therapies delivery of our better performing enzyme to address the patient needs is a novel and differentiated approach to design next generation gene therapy candidates.
Beyond the encouraging progress with with Takeda, we have begun new self funded discovery programs targeting improved trans genes for other rare disorders. In addition, based on growing validation for the oral biologics, we're advancing with Nestle Health Science. We are also self funding projects for other Gi.
Orders.
While licensing remains a key component of our long term strategy for our Biotherapeutics segment, we anticipate retaining control over selective assets further into the clinic before partnering and the future in order to capture greater value.
Let me now hand, the call over to Ross to take you through our financial results and more detail.
Yeah.
Thanks, John and good afternoon, everyone.
We have delivered strong 2020 results in spite of the challenges presented by the COVID-19 pandemic.
Total revenues for the fourth quarter of 'twenty and 'twenty.
$21.01 million up 12, 8% compared to the prior year period.
On a segment basis $16 $7 million was from performance enzymes and $4 $3 million was from novel Biotherapeutics.
This compares with $17 $1 million and $1 $6 million per performance enzymes and novel Biotherapeutics, respectively from the prior year period.
Product revenue for the fourth quarter of 'twenty, and 'twenty was $12 2 million up 150 per cent compared to $4 $9 million from the prior year period.
This was our highest ever quarterly product revenue with the major contributors and the increased sales and Merck Allergan and your event.
Gross margin on product revenue from the fourth quarter of 2020 was 52.0 per cent compared with 32% and the fourth quarter of 2019.
The increase was due to favorable product mix.
Turning to operating expenses, our R&D expenses for the fourth quarter of 2020 were $10 $4 million up from $8 $9 million and the prior year period.
The R&D increases were primarily due to increased compensation and corporate allocations and outside services, which were partially offset by lower preclinical development and regulatory expenses.
SG&A expenses in Q4 of 2020 were $8 7 million compared to $7 $3 million from the prior year period.
The increase in SG&A expenses was primarily due to higher costs for compensation.
Actual property legal fees recruiting and consultants, which were partially offset by reductions and allocations and corporate legal fees.
Net loss for the fourth quarter of 'twenty, and 'twenty was $3 $9 million or <unk> <unk> per share and pay.
And with a net loss and zero point $6 million or <unk> 10 per share for the fourth quarter from 2019.
Turning to the full year results.
Total revenues for fiscal 'twenty, and 'twenty were $69 $1 million.
Up about 1% from 2019.
On a segment basis $48 1 million was from performance enzymes and.
21.0 million was from novel Biotherapeutics.
Compared with $58 2 million and $10 $3 million, respectively and 2019.
Revenues from performance enzymes were hindered by the COVID-19, pandemic as and impacted our R&D service revenues and this segment.
Novel Biotherapeutics benefited from revenues from Takeda.
The upfront payment and R&D services as well as R&D services associated with the extension of the Nestle Health Science is collaboration.
Product revenues for fiscal 'twenty, and 'twenty were $30 2 million up 3% from 2019 with major contributors to sales being Merck Allergan Euro dance and cure and.
Gross margin on product revenue for the fiscal year 2020 was 54, 5% up from 46, 9% from 2019 due to favorable product mix as John.
John indicated this was our highest ever annual product gross margin.
R&D expenses for fiscal 2020, or $44 $2 million up from $33 $9 million and fiscal 2019.
The R&D increases were primarily due to higher costs for preclinical development and regulatory.
Compensation, and corporate allocations, and partially offset by lab supplies and consultants.
SG&A expenses for fiscal year, 2020, or $35.0 million compared to $31 $5 million and fiscal 2019.
The increase in SG&A expenses was primarily due to higher cost per compensation consultants.
Consultants facilities intellectual property legal expenses and outside services.
These were partially offset by reductions and allocated expenses and travel.
Net loss for fiscal year, 'twenty, and 'twenty was 24.0, a million dollars or <unk> 40 per share compared to $11 $9 million or 21 per share for fiscal 2019.
Turning to the balance sheet and December Codexis completed a follow on offering of $4 9 million shares of its common stock and the exercise of the green shoe.
The offering price was $17 and 50 per share.
After deducting offering expenses and net cash proceeds were $81 million cash.
Cash and cash equivalents as of December 31, and 2020 from $149 $1 million, which puts us on a strong position as we look to seize the companys growth opportunities.
With respect to guidance for 'twenty and 'twenty. One we expect total revenues for the year to be between 82, and $85 million, which represents growth of 19% to 23% over 2020.
We expect approximately 40% of 'twenty and 'twenty, one revenue to be reported and the first half of the year and 60% and the second half of the year.
Within the first half, we expect approximately 40% of revenues to be in Q1, and 60% and Q2.
We expect the growth and total revenues for the year to be driven by our performance enzymes segment, we do not anticipate growth and revenues for the Biotherapeutics second segment and 2021 due to our strong results and 2020.
We expect product sales to be and a range of $36 million to $39 million and 2021, which represents growth of 20% to 30% over 2020.
We expect gross margin on product sales to be between 54% and 58% cementing and and the gross margin strength of 2020.
On the expense side, we anticipate expenses for R&D and SG&A combined will be approximately $25 million and both the first quarter and the second quarter of 2021.
We anticipate R&D and SG&A expenses combined to increase by roughly 10% sequentially in Q3 from Q2.
And to increase by approximately another 10% sequentially and Q4.
We recently signed a lease for a new facility that will provide space for additional research.
And development laboratories, and office space, which we expect to occupy and Q4.
Our expansion into this facility and a strong indicator of the growth opportunities and store for us over the next several years.
Building out this facility plus a project to upgrade our pilot plant will result, and a onetime bolus and capital expenditures, bringing our total 2000 and 'twenty, one capex to approximately $21 million compared to about $4 million and 2020.
In summary, we had a strong fiscal 2020, and we're well positioned for excellent growth and total revenues.
Strong growth and product revenues and continued expansion of product gross margin in 2021 with that I'll turn the call back to John.
Thanks Ross.
Codexis is poised for a strong 2021, we have clear visibility to the multiple catalysts that will accelerate the company's growth ambitions across each of our three markets.
From recently commercialized enzyme product revenue upticks to new product development and launches to therapeutics data generation to inorganic investments.
And we're excited to deliver against all of these and more and 2021.
In closing, it's exciting to consider how many growth accelerators are simultaneously and motion at Codexis.
With our enhanced balance sheet, we're investing to step up our parallel enzyme discovery team capacity.
Coupled with Coody bolivars and machine learning acceleration on.
Our product generation flywheel is truly picking up steam.
R&D project teams move on to discover the next enzyme.
While the Codexis business team work on penetrating their markets with the growing list of enzymes poised for commercialization.
In parallel the enzyme projects, we're targeting can both commercialized faster and address larger recurring revenue possibilities today versus yesterday on average as well.
Well like a baseball team getting more times at that.
Getting on base more frequently and with more extra base hitters on deck all at the same time.
We are incredibly excited by the nearly limitless possibilities for enzymes as a product class we have only begun to scratch the surface of how codexis enzymes can make a difference for the health of people and the planet.
Reinforcing our confidence and the step out growth, we expect to deliver as a company and our future.
Now we're happy to take your questions operator.
Thank you and we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Doug Schenkel with Cowen. Please proceed with your question.
Hi, Good afternoon. This is Kyle on for Doug today, and thanks for taking the questions I just had a question here first about product revenue in 2021, so you've got and product revenue and the range of 36 to 39 million per the year and would it be possible to kind of break down the components of growth here.
Thank you.
I'll start on Hey, this is John.
Kyle Thanks for the question, Yeah, where we're growing on the product revenue side across a couple of different dimensions first some of our largest product revenue generators of the recent past.
And in particular, the enzyme sales to Merck for the manufacture of their diabetes drug Januvia, that's very stable year on year, so giving us a good base. So we don't see any headwinds there.
As we kick off 2021, we continue to have strength and demand from our more recent customers who have recently gotten their approvals Allergan cure and then your events are all set up for solid product revenue demand year on year. So on top of a strong base there we see some new.
And upticks and product revenues for other pharmaceutical companies, we see upticks as reported in the and the prepared remarks for tape and mile in the food industry.
We're expecting us to generate meaningful sales.
Sales revenues in the life science enzymes.
We launched and particular, the DNA polymerase and the RNA polymerase and so I'd say those are the major components that lead to our confidence to deliver really solid year on year product sales growth of $20 to 30%.
And 2021 versus 2020.
That's great. Thank you and me and maybe just one more here.
You may ask how you're thinking about Januvia revenue and 2021 day I mean as a proportion of overall product revenue and what are we thinking here.
So it's it's a it continues to be our largest product revenue sale.
And and like I said and the previous response, it's very stable year on year, and 2021 versus 2020, and actually that was fairly stable versus 2019 as well. So Mark's business is doing quite well and our sales of enzymes are very stable and very strong.
So with stable sales to Merck for Januvia and growing sales overall the ratio will be down the percentage of our total product sales for merck's januvia will be down, but that's because of growth elsewhere.
April sales tomorrow.
Thank you.
Our next.
Our next question is coming from the line of Brandon Couillard with Jefferies. Please proceed with your question.
Hey, Thanks, good afternoon.
Hey, Brian and John maybe maybe starting with life Sciences and <unk>.
The $3 6 million revenue figure you shared for 2020 is that 100% Roche and then look into 'twenty. One how do we think about the magnitude of that free up.
Lucian of from the customer base and.
And if you could speak to the sort of degree of visibility that you have.
And many of these programs kind of earlier stage its a newer market.
Do you have some partners you're working with.
And just some of those factors are there.
Cool.
Sure sure. So the answer to your first part of your question is no.
That does not.
To Roche actually Roche is a minority of that number in 'twenty and 'twenty.
So we had a revenue generation associated with the molecular assemblies partnership we had other undisclosed R&D partnerships and the life Science Arena.
And that are exciting there are pre commercial they're not.
And they're not.
We're not ready to we're not able to speak to to what we're doing with whom just yet but we're excited it's you know it's it's growth opportunities.
And across the life science tool space from.
And are working new enzyme opportunities for next generation sequencing and some cases Q P. C R.
And then on and DNA and RNA synthesis.
And then finally, we see some opportunities and the and the biosensor monitoring and arena so across that space. We have several other partnerships that have generated revenue in 'twenty and 'twenty.
If if if there was another question and there I apologize maybe you can.
Stated you know after that detail or does that cover that great. Yes.
And more and more about the second part of the question is more about the kind of the forward outlook and in 'twenty one and.
Do you share with as far as how to think about sort of the evolution of that customer base and magnitude of the revenue ramp is many of these.
And do enzymes are commercialized.
Yeah, we we see a certainly I've already alluded to and the previous question growth and product sales for our recently launched products at the end of last year, the DNA polymerase and the RNA polymerase and it.
And we're happy that we made our first commercial sale from the RNA polymerase and the beginning of this year and we expect that to ramp.
We're.
Also looking forward to you know a nice uptick and significant sales and the DNA preliminary and so on the product side. Those two in life science tool area will lead for us.
Then in the middle of the year or you know and the first half a day excuse me, we'll be launching our reverse transcriptase, we're very excited about.
The performance and early feedback on that product, so we'll get that out into the wider market. So potentially by the second half of the year, we may be generating product sales for the reverse transcriptase as well.
Revenue generation and the DNA synthesis partnership with molecular assembly should be a year on your uptick.
Started that program and.
And the third quarter of 2020, and we'll we'll have at least three quarters worth of activities with with molecular assemblies, and then we'll move towards commercialization and so that's set up for a year on year growth.
The other companies that I referred to but couldn't disclose are also set up for for strength year on year and then there are new opportunities on top of that so all of that adds up to a lot of tailwind and the life science tools area. So $3 $6 million last year, we're certainly going to be up ticking that buy.
And certainly at least low single digit millions of dollars year on year growth over that $3 6 million dollar base potentially even stronger than that.
Okay. That's helpful as far as kind of the outlook goes first on topline and have you embedded any assumption for another coda Bolivar platform deal can you speak to the likelihood that or something like that occurring.
And as far as the Opex outlook goes I think it implies about 36% year over year growth, which is a pretty big step up you elaborate on kind of the main areas of investment.
And that you're planning.
Sure sure.
Certainly and so the first question and I'll take it started the second question and and Ross can fill in on the Opex question taken from where I leave off.
So for Cody Bolivar.
Just continued to strengthen and why it and our positions and pharmaceutical manufacturing.
And the our ability to to engineer enzymes quicker and cheaper is really getting at the primary barrier to getting enzymes installed and API processes that cheaper and quicker. We can do that the less upfront cost that the customer needs to bear and so fundamentally coty bolivars and.
Improvements are enabling us to reduce that critical barrier to adoption and.
And and and how does that is happening and as our reputation continues to grow in this marketplace. We just continue to strengthen our position across a growing list of the world's largest companies pharmaceutical companies.
Expanding and smaller companies as well.
And so that just sets a really great stage for for a long term.
To continue to drive the largest come from pharmaceutical companies and the world towards Coty Barbara platform deals just like we've already moved to Glaxo and Merck and Novartis.
So so we expect that to happen.
And where are we did not build any new coty Bolivar platform licensing deals into our guidance for 2021, so if that were to happen.
As we move through this year and that would be and upside I wouldn't give it 50% probability it's a possibility.
But we're very confident that we continue to really build the business case for several of these largest companies beyond the three we've already worked with and a platform licensing arrangement to ultimately justify the expense of putting in place and platform license like those on the three peers out so so that that.
Built into our revenue guidance for the year and we continue to be very encouraged that overtime, we will continue to bring more.
Companies into Cody Baba platform licensing deals.
So I'm going to move to your second question, which is indeed, a we are stepping up the the opex spending for the company.
Primarily this is a two to staff up our our research capacity and our development capacity as a company are the lifeblood of Codexis, Inc.
And is to engineer enzymes, and then commercialize them and the more enzymes we engineer.
And the more we'll be creating tomorrow sustaining and recurring revenue streams.
And so with with the the strength and balance sheet and the confidence from the investors who.
Continue to to to support US we are stepping up the the number on parallel enzyme discovery teams that we're putting in place you saw the recent announcement Ross highlighted it in his comments as well, where we're taking on some additional footprint on nearby our headquarters in Redwood City that.
That will enable us to bring in the talent to expand our discovery capacity.
And where and in parallel and where we're hiring up to bring on more capacity. So that's first we've taken on more footprint were taken on more head count as a company now we continue to grow the.
And the number of companies who are willing to fund our.
Discovery work and so that's good that will continue to generate growing R&D revenue partnered revenue generation.
But in addition, we're going to take on selectively doing our own self funded investments and other enzymes that are not partner funded and this is something that we're really excited about we've been doing this for years and both the.
And the biotherapeutics discovery operation as well as.
Engineering on our own life science tool enzymes and.
And we see other opportunities and by us investing our own money earlier, we're able to preserve a larger piece of the value that we create for the successful enzyme downstream. If we partner we generally have a share of the back and downstream economics, if we do it on our own we can bring more of that to our P&L.
So those are our core also on the Opex line, where also.
Building out the biotherapeutics pipeline.
And as we continue to advance assets from discovery.
Through preclinical research into IND, enabling and then ultimately clinical trials, we bear more expense there so that the growth and expense to continue to develop our therapeutics pipeline is growing and 2021 versus 'twenty and 'twenty you.
You heard that we're expecting to initiate.
On clinical trials for our second product in 2021.
Hello, and Gi disorder enzyme that we co on with unnecessary health science.
And we hope to bring other earlier stage candidates into IND, enabling work, which will add to our expense since from 2021 as well. So those are the primary.
Year on year upticks in operating expenses for the company.
That's very helpful. Thank you last one for Ross the product gross margin step up.
North of 50 per cent.
Certainly encouraging to see is this a sustainable new normal is there a specific driver of kind of the sudden and step up.
And has something changed as far as your economics that you capture with Januvia, which I think has long been kind of the drag as far as mix goes and the from those product growth.
Yeah.
Yeah, I'll address the latter part of that question first brand and but no nothing has changed with the economics on Januvia and that's still the same but I think the step up and gross margin that you're seeing and it's really just driven by the shift and our product mix towards higher margin products I think and response to an earlier question.
John outlined how we expect roughly stable sales and the Merck Sitagliptin and so it will be going down a day.
Managing the mix.
And other much higher margin products will be.
Driving much of the growth you see and our outlook for 2021. So the improvement we see is it's pure.
Purely a mix shift.
In terms of sustainability I think our guidance of 54% to 58% suggests we.
Have a good chance of seeing a little bit of improvement and the gross margin in 2021, certainly for the next 12 months, we're pretty encouraged with the trend and I think some of that trend should continue longer term.
Very good thank you.
Thanks Brandon.
Thank you. Our next question comes from Matt Hewitt with Craig Hallum. Please proceed with your question.
Yeah. This is Lucas on for Matt Hewitt here at Craig Hallum, and I guess first off it was great to hear that you signed your first contract for the RNA polymerase is the revenue they're going to be more back half weighted or how should we be thinking about the ramp for that particular product.
Yeah without a doubt I mean, both the DNA polymerase and the RNA polymerase product are designed for multiple customers and we're promoting it to a universe of customers, who we think can benefit from the improved performance of these enzymes. So so the debt is great news. Thanks.
For your encouragement from making our first commercial sale for the RNA polymerase and at the beginning of the year, but that's just one customer. So we expect to start selling to multiple customers for both of these products and so clearly you know given the the early adoption.
Adoption of this product and in unexpected set of customers, we expect back half sales to be stronger than the first half sales for both of these products.
And then as you alluded to them earlier on and you've been adding some R&D teams I guess, how many R&D teams do you currently have and what could that grow to by year end.
Sure.
We have about a 16, one six on parallel enzyme discovery teams and are currently in operation.
And.
We are staffing up we're taking on the new footprint that new footprint will enable us to inhabit the space and the fourth quarter of this year and so we expect that we'll be able to slowly ramp that up the talent that we need to bring and it's very specialized and were very critical about the scientists we bring.
And to our company. So I would tell you over the next 12 to 18 months, taking us into 2022, and we're looking to bring that 16 teams up to something upwards of 25 teams, it's in that order of magnitude and what.
Like I said to brand and we'll continue to grow the number of funded teams, but we are going to increase the number of self fund the teams to take on that capacity to take that growing chunk of that capacity as we are higher up on those those enzyme discovery teams.
Okay. Thank you very much that's all I had.
And our thinking with this.
Thank you and the next question is coming from Jacob Johnson with Stephens. Please proceed with your question.
Hey, Thanks for taking the questions John on the self funded R&D and and the uptick there should we think about more of that activity and and life science tools or novel Biotherapeutics or maybe all of the above.
Yeah, where the self funding will be heavily concentrated in those two areas life science tools, new enzymes for new.
Molecular biology applications, and you're starting to see us really accelerate the types of products are bringing there plus expansion of our pipeline and novel Biotherapeutics.
As you know are in biotherapeutics today, we have three.
And three funded programs with Nestle Health Science. In addition to the PKU program with Nestle's already taken.
Taking over full control and we have three funded programs with Takeda. So that's pretty significant number. So we're building up on our earlier stage discovery to go after other Gi disorders, and other trans genes for gene therapies.
And a self funded way.
And so and those two areas are going to be the majority we will do some.
Self funded work very selectively and sustainable manufacturing generally our business model and sustainable manufacturing like pharmaceutical manufacturing and food or other industrial sectors is to get the partner to fund.
The development of the enzyme the discovery work of the enzyme, but sometimes we'll selectively do our own self funding. If we're really confident or if we want to deliver some unique proof of concept and I will do some self funded work there, but and that would be a minority of the programs and that area and a minority of the program.
And so as a whole as a whole for the company compared to life science tools and bio therapeutics.
Got it and then I guess the one follow up just on the first RNA polymers polymerase sale was that for a COVID-19 vaccine and then maybe longer term if the success of these mrna vaccines leads to more activity.
Hum mrna vaccines for per.
And our other diseases could there be a longer tail of opportunities for that RNA polymerase.
Yeah, Yeah, Jacob I'm. So first the first sale of the RNA polymerase was not to our company involved in COVID-19 vaccine manufacturing. It was not a we've been working with those companies are pretty intensively to get there and to assess our improved RNA per.
And I'm race.
Actually they are very much validated the performance benefits of our prelim raised versus the preliminaries is that are installed and their manufacturing operations. However, they're just not ready and they're just not and are positioned to change anything at this point their attentions are focused on ramping up the supply of these materials and change management as is.
Getting the priority at this stage. So we put in our prepared remarks, we don't expect certainly and 'twenty 'twenty, one and we don't expect to be able to penetrate today's approved COVID-19 vaccine manufacturing processes. However, the long tail is really encouraging I mean, the success of messenger RNA based.
Vaccines for COVID-19 is remarkable and it's really put a lot of huge amount of of life into the pipelines for these companies not just the companies that are making the COVID-19 vaccines, but multiple others, who are investing in discovery and development efforts.
For messenger RNA based therapeutics in multiple categories Messenger RNA based vaccines for other diseases may be messenger RNA based vaccines for next generation COVID-19, well, we're not sure but all of that it has really created a lot of it.
Enthusiasm for us and these companies a multiple of them have trialled or product, they're validating the performance benefits the efficiency debacle and raised compared to the incumbent and the reduction and the cap agent that's needed and alongside the prelim raised are all being validated by these this customer base and so we're very.
And then we're going to get our RNA polymerase increasingly installed in the development stages.
Pipelines for these kinds of companies. So we're quite bullish it's not going to be a big huge uptick like maybe getting installed and COVID-19.
19 vaccine manufacturing could have been but it'll be a very steady and I think a very exciting ramp up for the company over and over the coming years.
Got it thanks for taking the question John.
And thank you Jacob.
Yeah.
Thank you. Our next question is coming from Sean Lee with H C. Wainwright. Please proceed with your question.
Good afternoon, guys. This is Sean on for Okay and thanks.
And thanks for taking my question.
My first one is on the Biotherapeutics segment. So could you provide us with a highlight of what are the clinical and preclinical milestones. We can expect from these programs. This year and also do you plan on presenting any data at conferences and such.
So sure so first on <unk> as a major milestone event for 'twenty and 'twenty, one and our biotherapeutics pipeline will be the initiation of the first clinical trial for <unk> seven 108 for an undisclosed currently undisclosed Gi disorder and and the.
Our prepared remarks, we indicated that we should start that clinical trial in the third quarter of this year.
And that is <unk> seven 108 is co owned between Codexis and Nestle Health Science.
We've.
We've advanced the preclinical development work for that molecule substantially to enable us to have the confidence to initiate the clinical trial and just a few quarters. So that'll be a milestone number one.
And for that molecule, we expect to be able to share more detail is that.
Clinical trial as we line up for that clinical trial data should be forthcoming and you know at least a few months before and the initiation of the trial on clinical trials Gov.
That will enable us to share more about the indication and share more about the data that we've generated and preclinical development and preclinical research that encourage us to invest and the clinical development. So I would highlight that as the primary milestone.
The programs that are partnered.
And with Takeda and.
Codexis his role is to generate trans genes that will be transferred and and the <unk>.
Preclinical stage to Takeda.
Later, we will take the trans genes and they will install them inside of their gene therapy delivery vectors and run a preclinical research with.
With the full gene therapy candidate.
That is and you know.
<unk>, that's completely controlled by Takeda.
Hopeful that they share some data and or allow us to share some data on how.
On our trans genes in their gene therapy perform in the preclinical development.
During 2021, but.
But we may not be able to based on.
And their confidentiality so hang on.
Where we're looking forward to being able to save some good things about the Takeda led programs.
And gene therapy, and parallel Codexis is beginning to do our own work and gene therapy.
It's early days.
So we're generating yeah like we always do with Cody evolved with thousands of different variants to consider as new trans genes for new gene therapy targets and I'm hopeful that we can share some some progress and the early pipeline development and so there. We're also doing some early work and other Gi disorders outside of the <unk> partnership.
So we're hopeful that we can share some insights into the early development on those programs as well and Ah. Yeah. I think those are those will lead us to occasionally be able to present, some meaningful data at conferences and so I was happy to share.
And my prepared remarks that we've shared that one of our great scientists.
And I had presented data at the World Symposium, which is a a big lysosomal storage disorder event every year that put that event took place virtually in February and our scientists stock bought them are presented on our Pompe program. So I encourage anyone who's interested to.
Dig into some of the details of our therapeutics to look at the data that we generated that showed some really really great preclinical research results for our a transgene for pompe disease, and obviously that was clear.
Cleared by Takeda for us to share its really exciting to see that and where we're going to do the best we can to put out as much day. It as possible about the successful results of our bio therapeutics pipeline over time.
Yeah.
Thanks, John for the additional details and that was very helpful.
On my last question is on the.
Food segment and in the prepared remarks, you guys mentioned that you expect significant growth from the Tate and Lyle partnership this year. So I was wondering.
Maybe you can give us a bit more color on what proportion of your current product revenues comes from this segment and or why do you think.
I expect it to grow this year and are you planning to make additional products and the second is as well. Thanks.
Sure Yeah, we're very encouraged by our acceleration and the food sector.
Actually and in the.
And the Powerpoint presentation that accompanied the the today's earnings release, you can actually see a pie chart that shows the the percentage of our performance enzymes, Rob and new.
Across three different submarkets within performance enzymes.
First and largest being enzymes used and pharmaceutical manufacturing, which is spent on our core business for many many years a couple of decades now.
Which is by far the largest also you can see the percentage of revenues for life Sciences, and and we actually detail that to be $3 $6 million and 2020, and then you can see a sliver for food and other industrial applications and that that is about 4% of our total.
And it's enzymes revenue in 2020.
So that that's you know so we're actually getting very sharp information on on that question.
Growth is coming largely from two different sources and the food sector first and the last couple of years, we've commercialized a couple of enzymes and partnership with Tate and Lyle for two sweeteners. The adult your premium alveolus sweetener and the tasty, but M stevia sweetener.
Both of those are doing well Tate and Lyle and informs us in our downstream markets.
We grew the sales team and excuse me Tate and Lyle grew their sales of these sweeteners and their markets. They continue to expect to grow those in 'twenty and 'twenty, one versus 'twenty 'twenty, they're getting good feedback and outlook for their sweeteners and the share and that will pull on demand for our enzymes and so we see year on year growth and enzyme sales.
Accordingly to Tate and Lyle also theres been other development outside of the two programs that we've spoken a lot about the Tate and Lyle in the food industry and we see success.
And translating in 'twenty and 'twenty one.
And we're hopeful that we can talk more about those in the coming quarters, but we have a lot of visibility to ongoing continued success and other food applications in 2021 that will add to the growth and food.
Food sales this year.
Thanks, that's all I have.
Thank you Sean.
Thank you. This concludes our question and answer session. So I would like to turn the conference back over to management for any additional closing remarks.
Okay. Thank you everyone for joining us today as a reminder, we will be presenting at the SBB Leerink Conference Tomorrow.
The Cowen Conference next week, and the H C. Wainwright conference. The following week, we look forward to continuing to update you on Codexis and its progress. Thank you very much.
Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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