Q1 2021 Codexis Inc Earnings Call
[music].
Welcome to Codexis as first quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note. This event is being recorded and I would now like to turn the conference over to Stephanie marks from Argot partners. Please go ahead.
Thank you operator with me today are John Nicols Codexis, President and Chief Executive Officer, and Ross Taylor, Codexis and 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 codexis. They are forward looking statements, reflecting beliefs and expectations of management as of this statements day may six 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 point in time and the currently.
Contemplated 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 and now I'll turn the call over to John.
Thank you Stephanie good afternoon, everyone I'm very pleased to present strong first quarter 2021 results for Codexis.
The company's growth drivers continuing to accelerate we began the year with even stronger momentum than we anticipated.
Total revenue grew by 23% compared to a year ago and with a growing list of commercializing enzymes product revenue grew by 101% year over year.
With our sales mix continuing to shift toward higher margin products. We also delivered impressive product gross margins of 59% up from 50% a year ago.
Our focus on high growth opportunities is bearing fruit.
This quarter, we had 15 customers, who contributed over $100000 and revenue and we had five customers who contributed over $1 million and revenue.
And our sustainable manufacturing segment on top of a strong base of product sales to Merck for Januvia manufacturing and to Allergan and Europe and for their commercial products, we have and exciting list of late stage clinical development installations, driving product revenue growth and 2021.
And the life science tools market, we're off to a strong start with expanding adoption for our own broadly marketed RNA and DNA polymerase is coupled with a strong quarter for R&D revenues for customer partnered programs, including several that were initiated in the first quarter.
And finally, and our Biotherapeutic segment, we steadily advanced our pipeline assets and the quarter and completed key I N D. Enabling activities that set up our second drug candidate to enter clinical trials later this year.
Ross will provide more details on our first quarter results and guidance shortly but first I'll provide detailed updates across each of the businesses.
Starting with our performance enzyme reporting segment, we are growing the business and focusing on two distinct markets. The first being sustainable manufacturing this.
And this is where we built codexis enzyme engineering leadership over the past two decades and this market represents the large majority of the company's revenues currently.
Codexis as novel high performance enzymes, and enable our customers to dramatically reduce the cost and increase the sustainability of manufacturing there and products.
Compared to using traditional non enzymatic chemistry, which is capital intensive and inefficient, our engineered enzymes and decreased capital needs and meaningfully while also enabling higher yields reduce energy usage and lower waste generation.
And our Cody Baba platform is constantly accelerating the speed of our ability to discover and design these value creating enzymes.
Small molecule pharmaceutical processes have been and continue to be a core target for growing the sustainable manufacturing market for codexis.
<unk> partnered with 21 of the 25 largest pharmaceutical companies and the world to help them adopt and install novel Codexis enzymes from manufacturing their E. P ice.
Merck is a great example of the work we do with our pharma partners.
One of the original projects and there'll be tackled with Merck was to improve the cost and efficiency of manufacturing the active ingredients citic lipton and their blockbuster diabetes drug januvia.
The enzyme we engineered for the sustainable manufacturing of Civic Lipton was one of Codexis is earliest commercialized products and continues to be a significant revenue generator for us today and.
As a result of our work with Merck on Sitagliptin and other projects Merck recognize the value and wide applicability of using enzymes and their processes and decided to license our could evolve our platform to accelerate their adoption by and performing enzyme engineering on their own in house.
Yes.
More recently another significant project we collaborated on with Merck was the design of novel enzymes too to sustainably manufacturer if slots for beer their investigational drug for H E. B, we help them convert a 16 step traditional chemistry process to one that only requires three.
Missteps dramatically improving their capital efficiency and yield.
And the proprietary process utilizes nine enzymes, a groundbreaking enzyme cascade process installation only made possible by the extensive use of our Cody Bolivar enzyme engineering platform we.
We supplied over $1 billion of several of these enzymes to Merck and the first quarter.
In general our newer sustainable manufacturing enzymes like these for slaughter of ear are being priced at above average gross margins. These newer and more profitable products are making up an increasing portion of our product revenue.
Our sustainable manufacturing pipeline also has an increasing number of pharma products in late stage clinical development with the potential for F. D a marketing approval approaching.
Recently, and Excitingly, we've been helping to different large pharmaceutical companies buy developed developing novel enzymes from manufacturing their COVID-19, and anti viral clinical stage candidates.
With accelerated development pathways for COVID-19 treatment. These candidates are moving through the clinic much more rapidly than other pharmaceutical products.
Two proprietary codexis enzymes are key to the manufacturing processes of these two clinical stage products and hold exciting prospects as potential new sources of product revenues for Codexis.
In addition to pharma in the past few years, we've been expanding to other industries designing enzymes for sustainably manufacturing a range of applications, including food and beverage ingredients recycling consumer care and animal feed.
These products had relatively short development timelines and lower regulatory hurdles and enabling our enzymes to reach the market more quickly.
And the first quarter, we announced the commercial installation of new higher yielding enzymes for each of taste Stephen M Stevia and don't share premium alloy and loves to have Tate and Lyle most exciting new sweetener product launches.
Cost reducing enzymes enable our partner to further accelerate their already promising customer adopt adoption outlooks.
In addition, with a deep and growing pipeline of other late stage development industrial enzyme candidates. We expect this shift towards higher margin and faster to market products will continue to accelerate codexis and its growth.
Another relatively new area of expansion for Codexis is the life science tools market, which is a significant growth opportunity for the company.
Codexis performance enzymes can enable improvements and next generation sequencing and liquid biopsy genomics diagnostics bio sensor applications and more.
This market is highly attractive given its high growth rapid commercialization cycles and above average margin prospects.
Market also affords us the opportunity to develop products that can be marketed to multiple customers. In addition to the highly customized engineered enzymes, we engineer for specific partners.
We've recently developed three new life science tools enzymes for broad based customer marketing.
Codex high cap RNA polymerase.
Codecs, Hi, Fi DNA polymerase and codex reverse transcriptase.
Our RNA and DNA polymerase have led the way as we rapidly advance these enzymes toward commercialization last year and began marketing at the end of 2020.
And the first quarter, we've already we're already demonstrating success.
And we engineered codecs high cap RNA polymerase to provide dramatically higher capping efficiency, enabling customers to significantly reduce the amount of tap agent that is required in the manufacturing and recipe alongside and RNA polymerase. The graph on the right side of this slide shows the improved capping efficient.
See from using codex high cap and various cap agent loading levels.
In addition, our proprietary enzyme decreases the production of unwanted double strand, RNA, which increases the product the customers product yield and simplifies downstream purification needs.
And the first quarter, we recorded our first commercial sales of Codexis high cap RNA polymerase to several customers, who tested and validated at your yield and efficiency benefits.
The product is also in various stages of customer trials with several other messenger RNA manufacturers.
This excellent start to customer adoption gives us confidence that we're well positioned for potential installation and a range of processes for development stage mrna based vaccines and therapeutic candidates.
We expect product sales to continue to grow through the rest of this year setting up for a meaningful sales pace as we finish 2021 and beyond.
We're also making great progress with the launch of codecs, Hi, Fi DNA polymerase and.
It has been formulated in a master mix debt as a standard formulation used for library amplification and next generation sequencing.
Our analysis demonstrates that codex Hi, Fi DNA polymerase enables the highest nextgen sequencing fidelity results of all the competitive DNA polymerase is we tested we showcased our findings at the a G. B T conference this quarter, which drove increased customer interest the enzyme is current.
<unk> and trials with dozens of customers for potential use and their current and future and G. S kits.
In addition to these broadly marketed products. We are also growing customer partner life science tools programs.
Continuing the recent trend in Q1, we added multiple new customer funded life science tools R&D programs with undisclosed partners to our pipeline.
Several significant projects kicked off and the first quarter, which helped drive R&D revenue from this type of work up over 45% year over year to well over $1 million and Q1.
With the surge and demand for R&D project teams for these new customer funded projects, we temporarily shifted some resources away from the Finalization of the engineering of our reverse transcriptase enzyme slightly delaying its commercialization. We are now expecting that product to launch and the second half of the year.
One extremely exciting customer partnered project, we're working on and the life Science tools market is our ground groundbreaking collaboration with molecular assemblies for the commercialization of enzymatic DNA synthesis.
This disruptive approach to Symphony 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.
Leveraging the power of Coody Bolivar, we are engineering enzymes with the dramatic performance improvements that should make molecular assemblies process, a commercially viable cost effective and differentiated solution to manufacturer long chain DNA.
We remain on track to complete the enzyme engineering work for this program and the second half of 2021, enabling molecular assemblies to begin early commercialization efforts soon thereafter.
With an increasing number of differentiated products and strong partnerships and the life science tools market Codexis continues to build build momentum to capitalize on this high growth opportunity.
And closing out the business review, we see tremendous growth potential for Codexis and the discovery and development of novel Biotherapeutics and here, we are rapidly building and advancing a high value pipeline of oral biologics and gene therapy candidates discovered using our acuity.
The platforms.
Just a few years ago, we had only two very early stage programs and our pipeline.
Fast forward to today, and we have a dozen programs and the pipeline, including one and clinical stage and another in IND, enabling development.
We have and impressive multi program partnership with Takeda Pharmaceuticals.
And on improving gene therapy candidates for rare diseases.
We are leveraging coty bolivar to engineer Trans genes with improved attributes such as enhanced expression improved half life, greater stability, better uptake and difficult to access cells et cetera.
At the World Symposium in February we presented some exciting new Trans gene optimization data, we've developed for Pompe disease, one of our programs partnered with Takeda.
And we screened over 19000 variance of outflows glucosamine days and engineered a G. A a variant with dramatically enhanced attributes that overcome the key limitations of existing pompe disease therapies, improving stability and enzyme half life increasing.
Time dependent uptake into challenging cellular targets and eliminating predictive epitopes to reduce immunogenicity.
We're proud of the success, we have generated and gene therapies. After just one year and collaboration with Takeda.
Defying trans genes using Cody Bolivar to enable a gene therapies expression are better performing enzymes is a novel and differentiated approach to design improved next generation gene therapy candidates.
Accordingly, we have embarked on self funded discovery programs targeting improved trench genes for other rare disorders.
Leveraging coty Bolivar to discover novel oral biologics that are more safe stable and efficacious for G. I indications is another high value growth strategy for Codexis.
We have four oral biologics and partnership with Nestle Health Science and three early stage self funded programs.
Three of the partnered programs with Nestle are co owned between the parties and the most advanced of those C. D. And 70 108 is poised to begin its first clinical trials later this year.
Most of our IND, enabling activities for CTX 7108 are complete including preclinical toxicology studies and G and GMP manufacturing campaign setting the stage for IND submission and the third quarter of this year.
Let me now hand, the call over to Ross to take you through our financial results in more detail.
Thanks, John and good afternoon, everyone. We delivered strong first quarter, 2020, one and results.
Total revenues for the first quarter of 2020, one where 18.0.
Up 23% compared to the prior year period.
On a segment basis $14 $2 million and revenue was from our performance enzymes segment and $3 8 million was from our novel Biotherapeutics segment.
This compares with $10 9 million and $3 8 million from performance enzymes and novel Biotherapeutics, respectively from the prior year period.
Product revenue for the first quarter of 2021 was $10 $2 million above the high end of our expected range for the quarter and up 100% compared to $5 $1 million from the prior year period.
The major contributors were increased sales to Merck, Allergan, and Europe, and as well as strength and generics and contribution from a new product then another top 10 Big Pharma company has and late stage clinical development.
R&D revenues were $7 8 million and Q1 down from $9 $6 million last year.
Decrease was largely driven by lower revenue contribution from Novartis as we wind down and the tech transfer process from the Novartis coda Barbara and agreement.
Gross margin on product revenue for the first quarter and 2021 also came in above the high end of our expected range as it was 59% compared with 50% from the first quarter of 2020.
The increase was due to a favorable shift in product mix.
Turning to operating expenses, our R&D expenses from the first quarter of 2021 were $11 6 million up from $11.0 million and the prior year period.
The R&D expense increases were primarily due to increased compensation, resulting from higher headcount and higher costs for lab supplies and depreciation.
These items were partially offset by lower biotherapeutics preclinical development and regulatory expenses.
SG&A expenses in Q1, and 2021 were $11 4 million compared to $9.0 million from the prior year period.
The increase in SG&A expenses was primarily due to higher costs for compensation and legal fees, which were partially offset by lower travel and allocation expenses.
Net loss for the first quarter of 2020, one was $9 1 million or 14 per share compared with a net loss of $7 7 million or <unk> 13 per share for the first quarter of 2020.
Turning to the balance sheet cash and cash equivalents as of March 31, 2021 for $140 million, which puts us on a strong position as we look to seize the companys growth opportunities.
We are reiterating our guidance for 2021 on a quarterly basis, our business remains a lumpy one even with the strong Q1 results. We continue to expect total revenues for the year to be between $82 million and $85 million, which.
Presents growth of 19% to 23% over 2020.
We now anticipate that total revenues in Q2 should be similar to the level of Q1.
We expect product sales to trend toward the high end of our guidance range of 36 million to $39 million and 2021, which represents growth of 20% to 30% over 2020.
Also we continue to expect gross margin on product sales to be between 54 and 58% for the year.
While R&D and SG&A expenses on a combined basis were somewhat lower than we expected in Q1, our outlook for these expenses for the full year 2021. He has not changed materially from the description we provided on our earnings call back in February.
We anticipate expenses for R&D and SG&A combined will be and a range of 25 million to $26 million and the second quarter of 2021.
In addition, we anticipate R&D and SG&A expenses.
And should increase by roughly 10% sequentially from Q3 from Q2 and to increase by another 10% sequentially and Q4 from Q3.
These investments in R&D and in our SG&A infrastructure are important drivers of our future growth.
In summary, we had a strong start to 2021, and we are well positioned for excellent growth and total revenues strong growth and product revenues and expansion of product gross margin and 2021.
With that I'll turn the call back to John.
Thanks Ross.
Me close out our prepared remarks, and the context of our goals for this year.
As both Ross and I have shared today Codexis has started off 2021 with strength financially.
We have also made excellent progress across the critical strategic objectives that will drive the continued step outgrowth for the company and the medium and longer term as well.
From widening our pharmaceutical and industrial installations, and our sustainable manufacturing segment too.
Two excellent early customer adoption of our newly launched RNA and DNA polymerase and life science tools.
Two advancing our second biotherapeutic product towards clinical trials, we plan to check all the boxes on this list in 2021.
We are on track to continue delivering on the catalyst that will accelerate the company's growth ambitions.
We're so 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.
Now we'd be happy to take your questions operator.
Thank you at this time, we'll be conducting a question and answer session.
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One moment, please while we poll for questions.
While we're waiting for the first question I want to let you all know that on May 26, I'll be speaking on the plenary panel session kicking off the 2021, Sym bio beta Biopharma conference and.
And by east to listen and to what will be a very dynamic discussion there.
In addition, we will be presenting and attending multiple investor conferences in May and June we will issue press releases with those details as we approach the event dates.
Look forward to virtually seeing many of you at those.
Our first question today comes from Brandon <unk> of Jefferies. Please proceed with your question.
Yeah.
Hey, Thanks, good afternoon.
John I appreciate all the all the.
And all the detail around the progress on some of the life science programs for the Hi, Fi DNA polymerase and talked about dozens of potential customers trialing for use and Theyre Ngl's kits can you just talk about what that evaluation process looks like in terms of length and remind us.
And sort of how you see the the magnitude of the potential opportunity for this DNA preliminaries, let's say over the next two or three years.
Yeah. Thanks, Brandon. So first question just the continued timeline for sales development for our Hi Fi DNA polymerase. So trialing is critical of course, so and small scale the customers are testing on.
Our master mix with our DNA polymerase.
And Theyre amplification and step up their particular on next Gen sequencing workflow and there are many different next gen sequencing workflows that various customers used for various applications. So this is a critical step I'd say typically a customer trialing effort it would take and the range of three to six months.
Some of them had been underway for some period of time. So some of those are some of those customer prospects today are well and motion.
But you know.
Some of those just recently started it so we should expect to see some results from these trials as we move through the summer.
And if you.
You know the customers validate the performance attributes and benefits that we've seen then we'd start to move towards on sales pace discussion. So should should layer in some first commercial sales as we move through the summer and we should start to see a ramp and that product as we move towards through the end of the year and should show.
And set us up extremely well for for a year on year growth and 2022 versus 2021.
And this is a really meaningful product and the world and molecular biology, and and diagnostics and pretty much any company and the world. That's running and next generation sequencing machine will require the DNA polymerase to run their workflow and we.
We see this as probably one of if not the largest.
Category of enzymes used in the in the diagnostic the.
Sticks and the genomic diagnostic environment.
And so if we're successful at penetrating this market like we expect and hope.
This this could be one of the largest products in our on our portfolio over the next three years or so.
And you know today, our largest product exceeds $10 million per year. So we can definitely see what success and continued success, our pathway to $10 million plus channels and this product.
Great and then just a clarification Ross.
So here, you're right and in terms of.
On your revenue outlook for the year I think you suggested two key revenues similar to the first quarter is that true for both product and R&D revenues specifically.
And you are the higher margin products.
And in terms of trying to predict a peak or where that eventually levels out.
And I'm not sure if you really want to go there at this point and you're Brandon, but certainly we see the trend over the next few years as positive.
[noise] very good thank you.
Okay.
The next question is from a dog Schenkel up calling please proceed with your question.
Hi, Good afternoon. This is Kyle on for dog. Thank you for taking the questions I just wanted to start with early last week, Kate and low had responded to some media speculation that they were exploring the sale of its food and beverage solutions and primary products businesses. If this claim or to come to fruition would there be any impact on the relationship that could access has with paint and.
And while.
[noise] a a call. Thanks I'll feel that one so so there there were some rumors that were put out there about and potential significant restructuring for one of our top customers tape mile and she highlighted what we saw.
And was the potential for Tate and I'll to spin out it's primary products Division the primary products division or more of a commodity bulk products like hyper tests corn syrup is one of their big primary products that that would be the the.
The division that would spin out so that would leave with paint and while Ah Ah focus on their food and beverage solutions Division and.
Our our our business with Tate and Awhile is focused on the food and beverage division the enzymes that we've developed for pay Steve a M and the enzymes, we developed for adult Yep cream, <unk> or both new products and their food and beverage solutions Division. These are all on.
On you know on qualified rumors at this point and honestly if if if the business that we have would take miles spends out and two of newco, we would be a very important supplier to that new co, but the way we see it today is it the the our our products would stay as key products for tape miles and we would see it isn't that Ben.
<unk> net beneficial if taken why on where to spin out the primary products division and that would make paid and lie on more focused on kind of the higher value food and beverage products that remain as paid and while and we've become a very important and growing suppliers day model from that division.
Thank you that's that's really helpful and maybe just one more regarding your Holy on pipeline Biotherapeutics assets, both oral biologics and gene therapies have all of these gate it into the preclinical stage from discovery and how many preclinical stages are there and what sort of time and he should we expect thank you.
Sure so.
The everything is and preclinical development and Codexis today and connects to assist biotherapeutic pipeline today with the exception of C. D X 611 for the the enzyme replacement therapy that we developed four phenylketonuria disease that.
And is now and the clinical stage. It is the only product that we've discovered with Cody vulgar and in our history that is and the clinical stage that clinical stage program is being run by next flight today, So and that's why health science, we have formally out license that product and that's the way help science and just real quick we.
Didn't address it and the prepared remarks, the the C. D. At 6114 program is and really good shape under necessarily health Sciences control. They are working on the solid dose formulation upgrades to stage for a critical.
Multiple sending dose study that they expect to to run and read out and 2022 does not big event that product doesn't have a big event and in 2021, but it'll be set up for a pretty critical clinical development program read out and 2022 other than that all of our program.
And is all 11 of our programs are on the preclinical stage and we've separated preclinical into three chapters just to give a little bit of color on that first is the discovery stage here and the discovery stage Codexis is using code evolver to generate you know on usually tens of thousands of different enzyme Barry and.
Or protein variance to assess against the target attributes for that particular disease code Evolver is generating a lot of these these variants were testing those variance we're changing the molecular structure of those variance the research stage that we call preclinical <unk>.
Research, we're starting to hone in on the best variance from our discovery chapter from code Evolver and we're increasingly doing animal research, we're doing preclinical trials and relevant animal models to get much more you know translatable results from the the candidates that.
And we elevate from the discovery chapter and.
On the end of the preclinical research chapter for US is where we've identified the lead candidate and the candidate that we're going to invest and all of the the I N D. Enabling work that sets codexis up to do clinical trials thereafter.
[noise] today, we have one program and the I N D. Enabling chapter that's one of our co owned or a biologic programs with necessarily health Science C. D X 7108, and the prepared remarks, we shared that we've done the preclinical toxicology work that's critical and this I N D, enabling stage we've done on.
All the G. M P manufacturing that of course sets up to be able to do clinical trials later, and where we're approaching and I N D with the F D. A N and the third quarter and we should see our second program with 7108 and the clinic before the year is over.
So hopefully that gave you a nice feel for you know how we define the various critical chapters of drug discovery and early development and and and I'm not <unk> I think I answered all your questions. There, but have you had others. Please by all means.
Yeah, that's great that's great. That's all thank you.
Okay. Thank you <unk>.
The next question is from Jacob Johnson up Stevens. Please proceed what's your question Hey.
Thanks, and good afternoon, and maybe just one for off and I I apologize and I missed this and and the commentary prepared comments, but really strong start to the year and the first quarter I think better than the Kate and see you had expected to express last corner and is there any pull for and in the corner or just maybe can you just come out on what came and better than expected and and this first.
Right you know I think really it was just the timing of some of the order. Some came in and you know earlier than we expected and you know maybe a few things that were you know not necessarily expected as well, but it was really more of a.
Tiny issue I wouldn't.
It was and put forward effort on our part and you know certainly, but but I think the timing of orders, which just you know different and what we originally expected.
And you know our business and <unk>, you know very lumpy on a quarterly basis. It can be difficult to predict for a number of reasons, but yeah. We're certainly pleased and you'll start to your off strong, but we don't see any.
No need or the change our guidance at this point.
Got it got it thanks for that Ross and maybe for for John you talked to them about the the D. N a polymerase, but just something we've heard recently, it's just about the need for better enzymes and and I think maybe just more supply of and time for M. R and a manufacturing and I know you touched on you know some of the initial trial.
<unk>, but can you just talk about one the outlet for the RNA polymerase and then are there are there are other kind of enzyme type products, you can launch for that and market.
Yeah. Thanks, Jacob Yeah, we're we're very encouraged by the beginning of penetration for our hi cap on a polymerase we shared some data in in the the deck that we provided today for the first time that shows you know the capping.
Fish and see benefits that are on April and raise provides vs incumbent on in April and races, we see the RNA polymerase as as the key enzyme for are and a manufacturing. Indeed, there are others, we would see them as you know less <unk> less gravitas less less potential.
<unk>, but you know so we're very focused primarily on her and a polymerase as it relates to the messenger or and a manufacturing that's to speak just to messenger RNA manufacturing, which we think we're well positioned to really benefit from and in the world and the growing world and messenger or and as.
But broadly speaking, we're just saying a tremendous amount of opportunity to bring engineer the enzymes and to life science tools in general the D. N. A polymerase they are and a polymerase we've spoken to now and the Q&A as well as and the prepared remarks progress with <unk>.
<unk> on the DNA ligase on first ends and enzyme into the space, we highlighted with more color today than in the past a growing list of of customer partnered enzyme developments. These are niche enzymes that have particular benefit for a given.
Customer and they are given application less and less and less broad market based but more specific to what a given company is trying to do with their portfolio and we've had a tremendous growth and this type of project customer partner projects and life science stools, and it actually generated some very meaningful salesperson and the first quarter.
So, we're just saying a tremendous amount of opportunity not only for the the the enzymes that we'd get them you know you and our investors a fair amount of color on but also uhm others that we have earlier and the development cycle and or that we're partnering with customers. These days. So continues to be a very very dynamic.
Exciting space for connections.
And thanks for all that color, John and I'll I'll leave it there.
Alright, Thank you Jacob.
The next question is from Matt Hewitt of Craig How on capital Group. Please proceed with your question.
Good afternoon, and thanks for taking the questions. Just a couple from me first on the on a polymerase orders that you received and the first quarter. How should we think about the way that those will ramp is it. They they take an initial batch kind of get started and things should progress and and accelerate from there or much.
Like maybe a priest talking for drug development, where you take it maybe maybe take a bigger upfront get launched so there's maybe a low and then things pick up a quarter or two later.
Yeah, I'm not sure. Thanks for the good question I I'd say more of the former you know early orders are smaller you know most of that is working to to fit a R. R and a polymerase into their particular recipe from manufacturing their particular messenger.
And a as we move forward with these customers and then they will start to apply it and kind of clinical stage patches in other programs within their development pipeline. So you know the first approach for giving customers to get it trialled and.
And validated and installed in one particular messenger RNA, either vaccine or therapeutic agent and then a dominoes into our we hope where it's a domino into other messenger RNA programs within their pipeline. These are all development stage programs at this point I as we've shared and the past one.
Not installed and the two big commercial stage messenger RNA programs for COVID-19 vaccines. So it's all development stage, you know orders will come as the as the the customer starts to make more materials for follow on on clinical batches and.
And so we'll see some lumpiness, but we'll see generally growth and the number of customers and then growth and the number of programs within each customers that are applying our our and a polymerase and so we're very encouraged to see us get in and start to break through first commercial sales start to break into new custom.
Mars as we've kicked off 2021, so we're very much on the track that I just outlined that we hope to be on as we move through the air.
Got it and then and maybe one separate question as you're looking at these these products and.
Is there a difference are are are there are efficiencies that can be garnered when you're working on trial batches and then you move up to and a commercial batch will that have on an impact on gross margins as you move up to those larger batches. Thank you.
Yeah, typically when we start <unk> with working with a customer and the clinical stage. We generally have above average gross margins for those sales, they're smaller read the new there higher gross margins and as as we move through towards you know.
<unk> for the customer the the margins will come down some from these high basis, but generally we see our and a poem raise our our high kept bar and a polymerase being accretive to our close margins. So we would expect that it vs. Our historical product Martin.
And this will be you know lifting up at least incrementally from what we've been able to deliver for the company. Even after we you know even after the application matures and some of the price and comes down a little bit.
Okay, great. Thank you.
Thank you.
The next question is from sway on Makola Rama can't of H C. Wainwright. Please proceed what's your question.
Mr. Romack on your line is open.
Hi, sorry.
Good afternoon on John really quick day, Okay.
The first one is on the on I put on there is and.
And it's nice to see that the business and picking up steam.
When would you think they are and I put on there is.
Uhm Avenue line becomes meaningful and I know you Uhm and said this and thank you answer this question to a certain extent, but probably that and <unk>.
<unk>, then and then pokes on Trialling your day and <unk>.
And is there is that a and Ah how long ago from period of time do their child it far.
On it does it depend on the project.
Sure and your second question was again related to our and a polymerase or DNA polymerase RK before I got it and it but there and I put on mother's day. When is the first on on an appointment and then be on it but.
Okay sure. So yeah, good questions, both for our and a polymerase.
And you know I I I was detailing and a little bit from at a few it.
That you know the the first and is too to penetrate a customer get a a commercial sale installation into one of their clinical stage programs and then expand the number of of their assets and their pipeline that use are on a polymerase and and parallel to to work and.
New customers. Similarly, so we've already broken into a couple of customers with first commercial sales, which is great. You know the reality is these are fairly small orders and the clinical stage and general and so they'll ramp and the number of customers should grow from you know what we've been able to deliver on the beginning of this.
Sure. So meaningful revenues are are probably especially as we continue to grow like Ross said towards the high end of our 36 to 39 million dollar product revenues. This year, you know meaningful revenues for this product or that move that dial aren't gonna happen until 2022 and there.
After but you know really it's all about penetration now it's all about widening and so the customer base. It's all about widening the installations within each customer, which really just set us up for you know for hitting the potential for this product overtime, but really the the right question meaningful revenues for on a preliminary is 20.
22, plus but but a lot of milestones and progress and 2021 and.
On the the sales progression for D. N. A polymerase you know as you heard today, we've got our hi, five D. N. A polymerase is in dozens of customer Trialling right now and and typically it's three to six months to go through a fully qualified trial.
And to engage into a sales based negotiation assuming the trial results you know validate the kind of performance benefits that we see if the customer sees that then they would towards the end of that three to six months and they'll start to talk to us about supply conditions and pricing and timing and stuff like that so that's generally how we see the same.
LS progression and for for actually for all of the life science tool enzymes, and it's that kind of a timeframe.
Okay. Thanks, Thanks for that and then and just trying to see if you have any commentary on your on your ongoing relationship with proton Karma and and he update you can provide us.
Yeah sure Yeah, we haven't spoken a lot about port and and a while but really they've turned into a terrific partner for could access. They have you know become very proficient at working with and the pharmaceutical manufacturing chemists at Codexis.
To understand how to apply all of the different enzyme catalysts that we've developed over two decades. They have the ability to rapidly screen in China without the assistance of Codexis. The enzymes that we've developed and we've seen them work.
Many different many different projects with their much larger frankly customer base and the pharmaceutical manufacturing world given the size and that they are as and CMO. They both work with both large farm, our customers and and a growing list a small farm our customers.
Which helps us to expand our reach into the sustainable manufacturing a pharmaceutical ingredients and you know like US. It takes it takes you know multiple years for you know and early progress with the customer process to translate into meaningful products and.
<unk> Ah, but they're very nicely on that track and they're adding to our ability to penetrate this wide market, they're great partners they've learned a lot and we've really really pick the great partner report and so hang on and we'll start to overtime showcase installations that meaningful.
Product sales that flow through port and overtime.
Thank you thanks for that [laughter].
Yeah My pleasure. Thank you all day.
I'm showing there are no further questions I'll turn on the call back to John Nicols for closing remarks.
Okay, well. Thank you everybody for joining us today, we look forward to continuing to update you on all of the progress and Codexis going forward. Thanks, very much and have a great evening.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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