Q2 2022 Codexis Inc Earnings Call
Welcome to the Codexis second quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
<unk> 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 now I'll turn the call over to Brendan Shah from Argot Partners. Please go ahead.
Thank you operator with me today are John Nicols Codexis, as President and CEO , Ross Taylor Codexis as Chief Financial Officer, and Dr. Stephen Dilly current board member and incoming president and CEO of Codexis.
During this call management will be making a number of forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095, including our guidance for 2022 revenues product revenues and gross margin on product revenues.
Prospects for our life science tools.
Food sector, and biotherapeutics product businesses, and our expectations regarding sales of one of our proprietary enzymes to Pfizer for the manufacturer of their COVID-19, antiviral therapeutic <unk>.
The extent that statements contained in this call are not descriptions of historical facts regarding codexis. They are forward looking statements, reflecting the beliefs and expectations of management as of the statement date August 4th 2022.
You should not place undue reliance on these forward looking statements because they involve known and unknown risks uncertainties and other factors that are in some cases beyond <unk> control and that could materially affect actual results additional information about factors that could materially affect actual results can be found in <unk> annual report on Form 10-K.
<unk> with the Securities and Exchange Commission on February 28, 2022, and on Form 10-Q filed with the SEC on May nine 2022, including under the caption risk factors and in <unk>. Other periodic reports filed with the SEC.
<unk> expressly disclaims any intent or obligation to update these forward looking statements, except as required by law I'll now turn the call over to John .
Thank you Brendan and good afternoon, everyone.
First it's great to spend this time with all of you today.
Those who have been following us for a while know that for the last five plus years, we have been on a very strong sustained growth trajectory with a remarkable track record of financial and strategic execution.
Our confidence and optimism for our business remain steadfast as you will hear us reiterate many times on today's call at the same time as we outlined a few weeks ago. Our R&D revenue is not building as quickly as we originally anticipated, which led to our first significant downward guidance for <unk>.
Asian in recent memory.
As always you know us as transparent and clean clear communicators and we wanted to make sure that today, we proactively provide you with key insights into those bumps in the road and how we are managing that.
Still no that the fundamental strengths of Codexis are unwavering and we will continue to enable us to deliver significant and sustained long term growth benefiting our customers and shareholders alike.
Let's get into the results for the quarter, starting with slide three.
We are proud of our second of our second quarter product revenue in first half of 2022 revenues. Overall you can see this positive trend on the right hand side of slide three stemming from growth not only within pharma manufacturing, but also in other verticals like food and nutrition.
With total year over year revenue growth of 51% for the quarter and year over year product revenue growth of 135%. We are executing on our goals to expand product adoption ramp up commercialization and establish new offerings.
In the second quarter, our base of customers generating significant revenue remained strong and wide with 18 customers who contributed over $100000 in revenue six of which contributed over $1 million in revenue.
We will provide an in depth overview of each of our business segments. Shortly but first I am pleased to share our latest annual pipeline snapshot update.
For the last seven years now in this August Investor call. We have provided an update to our pipeline of programs and products across the company to provide insights into how we are executing on and expanding our growth opportunities.
Today, we published this annual pipeline snapshot as of June 32022.
Let me take a moment to discuss a few of the most notable metrics in this year's update.
As you will see on slides four and five the total number of our pipeline programs again increased by over 20% to <unk> 94 from 78 last year.
Both pipelines for performance enzymes, and biotherapeutics grew double digits annually to 70 and 24 programs respectively.
Importantly, five more performance enzymes for commercialized over the last 12 months. We now have 22 commercial enzyme products doubled from three years ago and up 29% versus last year.
You will also note the step out growth in programs, we have been executing in the life science tool sector, where we now boast 21 total pipeline programs up 62% from 13 last year.
We are also pleased with the advancements across our biotherapeutics pipeline as shown on slide five where we continue to gain momentum reflected by the addition of six new programs since last year's snapshot.
Consistent with our existing business strategy, we are hard at work to advance and expand our pipeline of oral enzyme therapies and gene therapy assets.
Our business model is designed to consistently accelerate the number of pipeline assets driving the expansion of new programs and high growth verticals and increasing our total number of shots on goal.
As seen on slide six we have steadily been doing just that across each focus area within our broader segments.
As we continue trending in this direction, we look forward to advancing a growing proportion of these assets towards commercialization. While also working to increase the average program speed to market and peak revenue potential.
Broken out by segment on slide seven the expansion trend becomes even more evident.
The most salient points include the more than doubling of commercialized products within our performance enzymes pipeline.
And the significant increase in biotherapeutic programs over these last four years.
It is gratifying to look back and show such significant and consistent growth in application of our <unk> enzyme engineering platform over the years.
This is this is exactly what we mean when we say that codexis is enabling the promise of synthetic biology, bringing sustainability benefits and innovation to today's world.
We believe Codexis is the only synthetic biology company currently delivering real benefits to today's markets.
Before I hand, the call to Ross to share details on our second quarter financial results. Let me first provide some detailed updates across each of our businesses.
Moving to slide eight sustainable manufacturing is where codexis has differentiated itself as an established leader in engineering enzymes that reliably enable customers to overhaul manufacturing processes and increase efficiencies across an array of applications.
Using our unique <unk> platform, we are unrivaled in our ability to quickly discover and commercialize these high value enzymes at scale to dramatically reduce the cost and increase the sustainability of manufacturing and products.
With a diverse customer base spanning branded and generic drug companies food and beverage providers and other industrial manufacturers. This market continues to represent a large majority of the company's revenues.
Small molecule pharmaceutical processes have been and remain a core target for growing the sustainable manufacturing market for Codexis.
As a result of our long standing efforts to revolutionize pharma manufacturing by pioneering the use of enzymes in this space Codexis has established a credibility and supply chain capacity to execute on key partnerships with some of the biggest players in pharma. We currently serve 21.
Of the 25 largest pharmaceutical companies in the world, helping them adopt and installed novel Codexis enzymes for manufacturing their Apis.
Through our work with industry powerhouses, like Merck and Pfizer on Januvia and pack slow with respectively. Codexis is becoming increasingly known for the quality and commercial scale of our enzymes and our ability to deliver meaningful cost savings enhance sustainability and operational.
<unk> for our customers.
To that end, we recently announced that Codexis has entered into a multiyear agreement with Pfizer to supply an enzyme used in the manufacturing process for <unk>.
We are incredibly proud of our role in responding to the COVID-19 pandemic to date and.
And we are pleased that this opportunity allowed us to demonstrate our ability to rapidly fulfill orders at an unprecedented scale and deliver significant cost savings to our customer.
While the revenue opportunity that we are demonstrating from <unk> in 2022 is not expected to continue in 2023, we view our contributions to support Pfizer as an important proof point that has not gone unnoticed by other pharmaceutical manufacturers.
Nicely illustrating our growing commercial enzyme installed base in pharma manufacturing. We are pleased to report strong seven digit sales to multiple additional customers during the second quarter, including Merck Allergan cure in and eurobond.
In addition to the deep relationships, we've cultivated with household pharma names, we are continually working to widen our scope with smaller biotech and generic companies.
Here, we are pleased to update you on our excellent progress to get our enzymes installed and future generic citic lift and manufacturing processes.
On top of our previously announced agreement with Al Mellow in India. We now have supply agreements in place with four other leading generic pharmaceutical manufacturers.
More agreements are in the works and we have supplied quantities of our enzymes to over two dozen other aspiring generic citic lift in companies.
Note that Citic Lipton is the first of Codexis is pharma and products to approach its transition from the branded to generic stage, our business model and patent positions enable us to sustain revenue through other future generic transitions as well.
Importantly, the advantages offered by our engineered enzymes can extend far beyond the pharmaceutical manufacturing space.
We are steadily growing in other industries and exciting new verticals, especially the food industry.
With the shorter development timelines and lower regulatory hurdles found in these industries as compared to pharma manufacturing they offer ample opportunity for us to capture additional market share and ensure that our enzymes reached the market more quickly.
As mentioned previously we are delighted with our results in the food sector with over $1 million in sales. This quarter led by enzyme sales to Tate and Lyle, but also spreading nicely across other food and nutrition customers as well.
We look forward to continuing to broaden our reach in the sector, both with existing and new customers.
Let's now shift to life science tools on slide nine.
We first identified this area as a target market just a few years ago.
Since then we have been hard at work, making inroads into this space as we demonstrate the potential for Codexis engineered enzymes to improve a widening range of life science and molecular biology applications, such as next generation sequencing nucleic acid synthesis and more.
This market is very attractive given its high growth short commercialization cycles and above average margin prospects and the fact that enzyme developed for life science tools applications can often be marketed to multiple customers.
Today, the large majority of our revenues are generated from a growing list of the spoke enzyme R&D projects with specific partners as.
As we reported a few weeks ago. Several of these life science customers have paused or slowed their project work with us in 2022 broadly due to a general increase in R&D cost consciousness in the space.
That is leading us to reduce our prior $12 million life science tools revenue outlook for 2022 to similar levels as last year or around $7 million.
We view this lack of growth as a temporary situation and are highly confident to recover significant sector revenue growth in 2023 and beyond.
As I shared in the pipeline snapshot review the number of new programs and life Science tools has been booming nearly tripling in just the last two years.
Those programs are poised to advance and expand boding well for future renewed step out revenue growth in the sector.
Plus we are seeing growing traction for our slate of recently launched widely marketed products, including codecs, Hi Fi DNA polymerase for use in next generation sequencing.
That's high cap RNA polymerase for use in messenger RNA manufacturing and codex high temp reverse transcriptase for use in Q PCR viral diagnostics.
Each of the three enzymes is engineered to offer differentiated and highly beneficial performance attributes such as enhanced diagnostic fidelity thermal stability robustness cycle time reductions and or reduce waste generation.
While these recently launched products are a minor contributor to today's sector revenues. We are pleased with these products' progress to date and continued continued to see each of these are substantial revenue generators in the future.
Our hifi DNA polymerase, it's tracking below plan. So far this year as we have determined that modifying the product formulation would enhance ngl's adoption rates that reformulation is completed and renewed customer trialing is now back in gear.
On the flip side, we now have a growing list of customers buying our high cap RNA polymerase for developmental stage messenger RNA manufacturing installations.
And we are quite encouraged by the positive trial results that we have seen that multiple customers for the more recently launched high temp reverse transcriptase for Q P C. Our viral detection applications.
In addition, our partnerships with life science industry innovators continue to push the boundaries of how we can leverage the power of our could evolve our platform to deliver significant performance improvements and drive progress in this rapidly evolving market.
As an example, molecular assemblies or M. AI for short and Codexis partnered in 2020 to engineer an enzyme to deliver differentiated and cost effective solutions for the fully enzymatic synthesis of DNA.
In April we announced the successful completion of one of the most intensive enzyme engineering campaigns and Codexis is history.
The resulting highly evolved version of T. D T polymerase delivers unparalleled coupling efficiency and speed at elevated temperatures.
This enzyme both enables and significantly differentiates MAA is fully enzymatic synthesis or F. E. S technology from other emerging players as well as versus today's industry standard non enzymatic DNA synthesis methods, allowing M AI to produce.
Longer highly pure sequence specific DNA more quickly.
On the heels of the exciting advancements on the scientific front with MAA I, we just announced the execution of a commercial license and enzyme supply agreement with them.
This transition from research to a commercial supply of our enzyme represents a critical inflection point on the path towards MAA is commercial launch anticipated in 2023.
We are confident that once commercialized the superior quality of this technology will enable M AI to penetrate the market and quickly become competitive with existing products.
From a codexis perspective, we are now generating modest enzyme product revenues from M. AI. We note that we also have the opportunity to generate milestone revenues as well as royalties on their product sales as a result of this agreement.
And as MAA is second largest shareholder we are excited about the potential value of our equity investment as they commercialize into the $1 billion plus in fast growing DNA synthesis market starting next year.
Our second strategic investment is with <unk>, a developer of transformative library preparation products for various genomics and <unk> applications.
Like our partnership with M. A I could evolve or enzyme engineering can enhance sequels product offerings and we look forward to reporting on the progress of this recently established partnership over time.
Let me shift now to take a few minutes to highlight our progress of building a biotherapeutic pipeline leveraging our <unk> platform.
Here, we are focused on discovering and advancing unique patentable oral biologic and gene therapy candidates for a widening range of human health disease challenges.
No other synthetic biology company possesses such an extensive biotherapeutic discovery and development capability and we are highly confident in codexis is ability to capitalize on our biotherapeutic pipeline investments.
The majority of our most advanced programs are supported by growing partnerships with Nestle Health Science and Takeda. These.
These partnerships are structured to help us derisk learn cover costs and generate revenues in.
In addition, as we develop more proof of relevance from our <unk> platform as a drug discovery engine, we have been increasingly investing over the last few years in our own self funded pipeline assets to enable us to retain more value from our successes in this arena.
As we shared in the pipeline snapshot update over the last year. We have added six self funded biotherapeutic programs in pursuit of this goal.
While we are optimistic across our 15 current self funded preclinical programs. We are shifting our focus in favor of partnering necessitated by the current capital markets environment.
Given the heavy resource investment.
Squire to advanced Biotherapeutic assets. We are also cognizant of the need to prioritize programs that demonstrate the most potential something we will continue to that as our pipeline matures.
These early assets and our growing reputation as a uniquely capable drug discover set us up well to partner monetize assets and control costs versus our earlier higher investment strategy.
Stay tuned for us to share updates on this over the coming quarters.
Shifting to specific program update let me start with CTX 7108, co owned with necessarily health science for the treatment of exocrine pancreatic insufficiency or epi currently in a phase one trial.
C D X seven one O eight is an orally administered G. I active light piece that was precisely engineered to be highly stable to the acidic conditions in the stomach, which is a key challenge for today's industry standard $1 billion plus pancreatic enzyme replacement therapies.
We are pleased to report that the partnership has completed the first two stages of the phase one trial in healthy volunteers without adverse events as.
As the next step of the phase one trial, we have begun dosing patients and expect to share. The complete study results early in the new year.
In parallel we are currently making excellent progress on our IND, enabling work for <unk> 6512 for home assistant urea.
Very encouraging in vivo efficacy results had been generated in a relevant mouse model and in nonhuman primate preclinical studies the.
The drug substance manufacturing process is being tech transferred to our CMO partner, who would who will begin GMP manufacturing later in the year.
In addition, we remain on track to advance two additional developmental candidates into IND, enabling stage in 2022.
One of those co owned products is with Nestle health science, and oral biologic targeting an undisclosed Gi disorder.
That has been delayed on its initiation of IND, enabling work versus our early 'twenty two expectations.
Resulting in low single digit million dollar reduction in our expected R&D revenues from this program this year.
Alongside our pipeline of oral biologics, we are leveraging <unk> to enable more effective next generation gene therapy candidates as.
As previously shared we have handed off our lead could evolve our engineered transgene candidates for three of the four programs to Takeda.
We are extremely pleased with the momentum on this front as Takeda advances advances each of these through their gene therapy preclinical evaluations.
Codexis also presented preclinical data at the American Society of gene and cell therapy, 25th annual meeting in May.
Here, we highlighted enzyme variants engineered without could evolve our platform to offer potentially improved efficacy as compared to current enzymes when administered as trans genes and gene therapies for fabry disease, Pompe disease and hemophilia a.
We view our participation in this meeting as encouraging validation of our gene therapy efforts and we look forward to further establishing ourselves as an innovator in this space.
Now I'd like to hand, the call over to Ross to take you through our financial results in more detail.
Thanks, John and good afternoon, everyone let.
Let me dive into our second quarter 2022 financial results, which are summarized on slide 11.
Total revenues for the second quarter of 2022 or 30.
$38 4 million, an increase of 51% from the prior year period.
On a segment basis $36 5 million in revenue was from the performance enzymes segment and $1 $9 million was from bio therapeutics. This.
This compares to $21 $6 million and $3 $9 million from the performance enzymes biotherapeutics, respectively from the prior year period.
Product revenues for the second quarter of 2022 were $34 $6 million.
<unk> to $14 $7 million in the second quarter of 2021.
The increase was largely due to higher enzyme sales to Pfizer for Pax movement as well as strong sales to other key pharma manufacturing customers.
R&D revenues were $3 8 million compared to $10 $7 million last year. The decrease was driven by a mix of fewer new deals being signed in 2022 and lower than anticipated revenue from existing customers.
Product gross margin for the second quarter of 2022 was 67% compared to 71% in the second quarter of 2021.
The change was largely driven by changes in product mix variations in prices for volume sold mainly for enzyme related to tax movement and higher shipping costs.
Turning to operating expenses, our R&D expenses for the second quarter of 2022 were $19 1 million.
Compared to $12 $8 million in the second quarter of 2021.
The increase was primarily driven by increases in costs associated with higher headcount and salaries as well as higher expenses for facilities lab supplies and outside services.
SG&A expenses for the second quarter of 2022 were $10 7 million compared to $12 $8 million in the second quarter of 2021.
The decrease was primarily driven by a decrease in legal fees, mostly due to the settlement of a trademark dispute and lower allocable expenses.
Partially offset by an increase in costs associated with higher headcount and higher outside services.
The net loss for the second quarter of 2022 was $2 6 million or <unk> <unk> per share compared to a loss of $4 3 million or seven cents per share for the second quarter of 2021.
As of June 32022, the company had $90 $1 million in cash and cash equivalents, not including the $25 $9 million retainer fees.
E payments from Pfizer.
Also we have not drawn any funds from our $50 million ATM equity facility that we put in place in may of last year.
I would like to spend a moment breaking down our financial results by segment outlined on slide 12.
Revenue in our performance enzymes business increased 69% to 30 $36 $5 million in the second quarter of 2022.
Before the allocation of corporate overhead expense operating income for this segment was $14 5 million $14 $5 million in the second quarter for an operating profit margin of 40%.
And our biotherapeutics business revenue was $1 $9 million and we generated an operating loss of $9 $9 million.
And before the allocation of corporate overhead expenses.
Our operating losses in this business decreased year over year.
Continued to grow and advance our self funded programs.
Moving to slide 13.
We updated our 2022 financial guidance on July 14th and where we are we are reiterating those expectations today.
We expect full year 2022, total revenues to be in the range of $135 million to $141 million.
Product revenues are expected to be in the range of $112 million to $118 million, which is the same range that we originally provided in February .
This includes approximately $75 million in revenue from Pfizer.
As you May recall when we originally provided our revenue guidance for 2022, we were anticipating $75 million to $80 million of revenue from Pfizer.
We now expect Pfizer revenues to be at the low end of this range, we expect to offset this with.
And we are seeing in product sales from other customers.
We expect R&D revenues will be in the range of 20% to $25 million down from approximately $40 million that was implied by our by our original revenue guidance for the year.
This reduction is.
The result of multiple factors, including some anticipated new partnerships not been signed within the timelines we expected in part due to Mac in part due to the macroeconomic backdrop as well as lower than expected revenues from existing partnerships due to delays in some project timelines.
Softness in R&D revenue was across both our performance enzymes and biotherapeutics segments.
Gross margin on product revenue is expected to be in the range of 65% to 70% consistent with prior guidance.
Excluding any one time noncash charges that may arise from our CEO transition, we anticipate R&D and SG&A expenses combined will be in a range of $136 million to $140 million for the full year.
This forecast range is down from the $150 million expectation that we described.
On our fourth quarter earnings call back in February demonstrating that the expense mitigation efforts, we implemented are having an impact.
Also in line with our business strategy, we are continually evaluating opportunities to partner our programs and share the financial risk of development. Some of our self funded programs, particularly within our biotherapeutics business.
Regarding cash we anticipate that our cash flow should be positive in the second half of this year due to the $25 million payment from Pfizer.
We expect that our existing cash and cash equivalents combined with our future expectations for product revenues R&D revenues and expense management will be sufficient to fund our planned operations through the end of 2024.
Now I'll turn the call back to John .
Thanks, Ross as we near the end of our prepared remarks, I'd like to reiterate our 2022 corporate goals and catalysts as outlined on slide 14.
And sustainable manufacturing the headlines over the past year has been our execution of exceptionally high volume enzyme sales to Pfizer for their manufacture opex a little bit.
In parallel we are driving widened adoption and product commercialization with other pharma manufacturing customers and we are encouraged by the accelerated uptake we are seeing in the food and industrial verticals as well.
With that in mind, we are well positioned to continue to drive double digit growth for our non Pfizer product sales in the coming quarters as we continue to strengthen the diversity of Codexis as business.
In life Science tools, we are focused on driving increased adoption and product sales for our three commercial enzymes advancing and adding to our R&D partnerships and building long term value from our synergistic inorganic investments with molecular assemblies and sequel.
Finally, we are advancing in monetizing our pipeline of high value assets and partnerships in biotherapeutics.
We look forward to reporting data from the phase one clinical trial of <unk> 7108 early next year as well as our continued progress to bring an increasing number of partnered and self funded assets successfully into early clinical development stage over time.
In closing I am sure you have read a few weeks ago that I am stepping down as president and CEO of Codexis in the coming days for family reasons.
My wife, Marcy has suffered from a debilitating post viral infectious disorder for decades, now and after 30 plus years of her supporting my demanding and deeply gratifying career. It's time for me to focus the majority of my attention on her health.
Second only to my family My involvement and Codexis has been the most rewarding endeavor of my life and the Capstone of my 35 year career.
I am incredibly proud to have had the opportunity to lead codexis over this past decade.
Codexis is stronger and better positioned than ever with an incredibly talented team in place.
Grateful to the entire Codexis team for their dedication hard work and collaborative spirit and for helping us become such an exciting company to work for and with.
We are only seeing the beginning of the long term benefits that codexis its team and technology can bring to our world.
Our future is in excellent hands with Dr. Stephen Dilly.
I've been thrilled to get to know Stephen as a member of <unk> Board over these past two years. He is a proven leader with a successful two time CEO track record amongst many other significant accomplishments.
He is uniquely poised to hit the ground running for Codexis and I look forward to supporting Codexis is ongoing success as a continuing member of the board and as a strategic advisor over the next few years.
Now I'll turn the call over to Steven to say a few words.
Good afternoon, everyone first I want to thank John for his leadership over the past decade.
I look forward to building upon the strong foundation that he'd like.
I know many of you are probably curious about my plans protection future.
I plan to spend my initial months learning the cool business from the inside I continue formulating my broader vision for Codexis.
As the board member over the past two years I'm coming into this role having participated actively in the company's recent strategic decisions. So you can expect continuity.
I'm honored that the board selected for this role and look forward to getting to know each of you months ahead.
Back to you John .
Thank you Stephen I have no doubt that the business will continue to flourish under your capable leadership.
Now we'd be happy to take your questions operator.
Thank you we will now be conducting a question and answer session.
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Please while we poll for your questions.
Our first questions come from the line of Brandon Couillard with Jefferies. Please proceed with your questions.
Thanks, Chris This is Matt on for Brandon John just wanted to send you my best it's been a pleasure working with you over the years.
Maybe first one for Steve I appreciate the comments there do you just talk about kind of high level, what attracted you to see that.
CEO , knowing you've been on the board here for three years and then curious did you get just some of your initial thoughts around what you see some of the most exciting areas of the portfolio today and then also your familiarity with the biotherapeutic pipeline.
And kind of philosophically, how youre thinking about areas in that area of the business versus the product side. Thanks.
Yes. Thanks.
First of all I'd actually say this is my fifth CEO role, so I'm a bit of a glutton for punishment. So it was really when John and I started talking about.
Codexis and his personal circumstances.
I really did I wish I could do something about it and serendipity just played into our hands.
Allowed me to step in and what was really exciting was looking at this core.
Core technology co Diebold huh.
All the different ways that it can play out to add value.
And as you commented one of the areas that I'm most familiar with is the biotherapeutics pipeline, which I think is significantly underappreciated, but also the ability to get into different parts of the value chain for instance, pharmaceutical manufacturing and when you look at a.
I don't have an opportunity like this the big question to ask is how can I help.
Daily the right person to put into this role.
I think that partly it's because I've become familiar with the company as a board member and I mean.
In a good position to.
Maintain some continuity, but also I'm a bit complementary and my skill sets are much more thinking from a market focused and much more.
Thinking about the <unk>.
The drug product at the end of the process rather than the enzyme at the start of the process. So I think there's a lot of ways that the mind meld and thank goodness, John is going to be around as an adviser.
Through at least the medium term future.
We can really synergistically add value so I couldn't be more excited than I am right now.
Yeah.
Thanks, that's helpful and then on the pipeline or another nice year growth year on the commercial side, adding five products versus last year can you just talk a little bit about where some of those newer programs are in their ramps are they all contributing meaningful revenues to production today and kind of where those could go over the next year or two thank you.
Yes, Hey, Thanks, Matt. This is John first thanks for your nice comments in the beginning.
Really appreciate it.
Yes, the pipeline the momentum and the pipeline continues to be very exciting for codexis.
Once again, 20% plus growth in the number of pipeline assets.
And nicely spread across the entire set of sectors that we've been building up at Codexis. Many of these are very early these commercial products at 22 commercial products are very early in their market adoption, especially in the food and life Sciences area and just a highly.
<unk>.
Look back four years ago at our pipeline snapshot and you guys can do that too we had only one commercial product in the food space today, we have three we.
We had zero commercialized products in the life Science area. Today, we have five clearly these are very very early in their commercial adoption. So theres a lot of headroom for revenue growth, especially in these newer market areas like food and life Sciences, but it's also exciting to see the <unk>.
Action and the sustained success that we've had building commercial successes out of our pharmaceutical manufacturing pipeline.
Similarly looked back at the numbers four years ago, we only had two commercialized products back then.
Sorry of Januvia, which we've been talking about for many years plus only one other in the patented arena and most of our business development has been focusing on getting codexis enzymes installed in clinical stage programs at that time four years ago, We had 14 phase II phase III installations.
Of those 14 seven of those have had turned into commercial products.
And that's despite the reality that many many phase II phase III programs do not advanced to two full approvals with the FDA, so really exciting to see the traction.
And the build out of <unk>.
What what used to be only three commercial products in those sectors to now.
Not including the generic space now 17. So it is really working it's really working well and Theres a lot of headroom for revenue growth from these fairly recently commercialized inch.
Installations.
Super I'll leave it there thank you.
Thanks, Matt.
Thank you. Our next question is coming from the line of Steven Mah with Cowen. Please proceed with your questions.
Oh, great. Thanks for the questions and.
Warm welcome to Steven and John Best wishes to you and your family.
Thanks for both of Us.
Yeah.
Two questions on the life science tools enzyme business one.
Can you update us on the Roche T for DNA ligase license agreement and the second part can you give us any color on the size of the molecular assemblies milestone payment expected demand from molecular assemblies and remind us of the margin profile of this optimized PDT enzyme and the reason I asked that is that.
Given that it was such a tour de force to engineered the TD T enzyme.
No.
Our margins or are you going to be charging more because of that versus other life science tools enzymes.
Yeah, Hey call great questions. So first on your first question was about progress with Roche.
Our T for DNA ligase for next Gen sequencing library prep so several years ago, we transferred the technology to Roche.
And through the pandemic they've been building up their capabilities to manufacture that enzyme in house.
And they have been installing it into.
Next generation Library prep kits, so really they have been working downstream to get their products to.
To have our chief our DNA ligase installed so not a lot to report just to refresh everybody's memory gear.
Given that we've enabled roche to be able to manufacture the enzyme.
Our ultimate revenues will show up in the form of royalties on their product sales not not our product sales. So stay tuned for more progress as Roche continues to work.
<unk> two to improve their library prep using our DNA ligase.
Yeah. Thanks for highlighting in asking a question on the molecular assemblies partnership we're super excited about the progress both that we've done and our partner are molecular assembly is done.
Put out a press release, just a couple of days ago that showed that we've notched off another key milestone.
To enable molecular assemblies to commercially launch.
They're oligonucleotide and gene synthesis into the market, which that press release says they expect next year, which is great.
We.
<unk> the way we're supplying the enzyme.
And to cut to the chase pretty quick we expect a.
At least.
A typical gross margin on those product sales probably enhanced.
And we have to be careful.
Because really the pricing for this product.
We don't want to overprice it in effect there their cost of goods, making the lagoon nucleotides that would be something that would get in the way of their ability to commercialize downstream. So we've landed on a really good model, we're going to charge a very fair price for the enzyme product supply. We're also.
So I noted in the prepared remarks that the agreement allows us to touch.
To generate royalties on their product sales and those are modest.
Low single digit royalties.
But then also where as the second largest shareholder.
We're set up to benefit from their downstream success, which we're very encouraged and hopeful and we're supporting them to do so.
Leveraging this like you said I appreciate your phrase toward the force effort to create the world's best GDT enzyme, which they have accessed in this agreement exclusively to enhance their competitiveness, so really really a terrific set of developments.
And we look forward to sharing how well theyre doing and of course, they'll do that as well over time.
Got it and then any color on the milestone payments from molecular assembly, it's like the timing of revenue recognition of that.
And magnitude.
Hi.
The milestones opportunities that I referred to.
In my prepared remarks, our forward looking possible milestones. So I think we'll just we'll just wait to share those news as they unfold.
There's no I think maybe Ross can speak to.
Any kind of milestone are R&D revenue, that's a that we've generated from the consummation of this commercial supply agreement.
Yes, Steve It's Ross Yeah, you may see us record one milestone here in the back half of the year that might be in the neighborhood of seven digits, but.
We'll report on that later.
Okay No I appreciate it and then my last question, it's going to be on the pack slow that listened.
Listen to the Pfizer earnings call and they called out that they improve the manufacturing process for <unk>, reducing the lead time, improving the yield so they don't need as much API to produce the same amount of finished goods.
My question is was this the reason that they pulled back on the <unk> and manufacturing enzyme orders.
And are you a victim of your own success in optimizing enzyme so well and.
Could this potentially happen with any of your existing or future API manufacturing partners I'm thinking about like januvia or the.
The generic civic Lipton.
Layers youre talking to.
How should we think about.
Any sort of risk around around that.
Yes, I'll jump in.
We can't speak for Pfizer.
Sorry in the transcript as well that they made they were asked the question about our enzyme agreement with them.
And their answer was mostly about API manufacturing not about enzymes. So I'd encourage you to look carefully at the words that they do.
Used in answering the question.
But.
We're not a victim of our own success here because we did not engineer. This enzyme. This was an enzyme that was available off the shelf.
And and we provided it to them early in their development stage and ultimately as you know got or enzyme installed in their manufacturing recipe, which has led to the significant very significant sales that we're generating this year. So I think that's that's those are specific to your <unk>.
Your questions Yeah of course, yeah, yeah, thanks for clarifying that.
Yeah.
Yeah, Okay yeah.
Thanks.
Don't have anything else.
Thanks for taking it.
Thank you. Our next question is come from the line of Matt Hewitt with Craig Hallum. Please proceed with your questions.
Good afternoon, and just to reiterate what the others have said John it's been a pleasure working with you.
The last few years and welcome Steven we look forward to working with you as well.
Maybe first step.
Given the current inflationary environment the success that you've had with Pfizer and others I'm just curious if youre seeing more interest more demand.
For for your enzymes as a result, because of the cost reductions that you can make in bringing products to market faster.
Through your enzymes.
Yeah, I think we continue to have nice wind in our sails on adoption for manufacturing processes.
Inflationary pressures definitely put more attention to supply chain efficiencies for our customers.
And enzymes are a great tool to reduce cost sometimes in a stepwise fashion also I'd I'd highlight that our success story with Pfizer on <unk> has highlighted just how quickly and to what magnitude Codexis is technology and products can generate that kind of value and that is being noticed.
Across the industry finally, I'd just add that.
Not only have we are we do we continue to work with all of the largest pharmaceutical companies, we continued to spread to smaller biotech companies to help them see the value that enzymes can can bring to their manufacturing recipes and I think thats, having some fruit as well all of that happens over.
Time, but nice wind in our sales that will continue for very very medium and long term that we continue to exploit here.
Got it and then regarding the partnering.
The shift that you talked about with your internal candidates.
Maybe shifting more towards partnering a little bit earlier is that something that you anticipate happening.
You know here in the back half of the year or is it a function of kind of needing to build up.
The interested parties and so it's more of a 'twenty three event.
Yeah, I think that you know that.
It takes time.
You can see our first half R&D revenues were just north of $8 million.
Ross shared our full year outlook is $20 million to $25 million. So clearly we expect some lift in the second half versus the first half, but I think our efforts as we shifted earlier in the year.
As the macro and capital market environment started to impact the way, we pour and use all the levers that we have to grow as a company.
We're going to really be building that R&D revenue wave more than next year versus the short run like in the next five months, so look for us to build out.
The R&D revenues from where we land this year.
Obviously, a key question for US a key focus for us is driving the outlook for 2023, not only do we.
Expect them to deliver on.
Nice sizeable year on year growth next year in R&D revenues, we we just have a terrific momentum in product sales.
Excluding Pfizer.
That we're very encouraged about and driving.
Driving double digit sales from roughly 36 ex Pfizer last year to 40, maybe more this year as we finish this year.
We've had a five year compounded growth rate in product sales before the Pfizer opportunity ever happened of 22%. We've reported we shared all of this momentum in our pipeline and the first question from from Matt at Jefferies. We've just brought a lot of new commercial products.
On stream over these last few years and they're very early in their revenue ramps. So so we're very encouraged about all these growth drivers for 2023 and beyond that.
That encourages us.
Two.
Two to continue to drive drive medium and long term growth as a company.
That's great and if I could sneak one more in regarding molecular assemblies.
You guys have been fairly public as far as your relationship and your buying and your ownership with the company and I am curious.
If you have started to develop a pipeline of potential candidates has molecular assemblies had customers reaching out even before this contract was formalized.
Wanting to be first movers to to use or use the product as it became available.
Oh, yes, yes, and Thats actually a key component of molecular assemblies as press releases recently also highlighted in the.
The press release that we.
Issued earlier this week there.
Putting forward now that they are finalizing their pilot manufacturing capabilities. They are putting forward what they call I think the key customer campaign to tap into the early interest from many different parties in many different DNA synthesis marketplaces. So that's really the key focus for them is too.
To validate with real customers their ability to to generate longer strands of high quality DNA quicker than traditional approaches.
Got it thank you.
Thank you Matt.
Thank you our final question will come from the line of RK with H C. Wainwright. Please proceed with your questions.
Thank you.
John .
It's been a great pleasure.
I'm also really appreciate how grown codexis from where it was I believe about six years ago. When I first met you into 2015.
<unk> J P M.
Good luck and much hope on this your wife and there were some good help.
Welcome aboard Steven.
So I have a couple of quick questions.
One is on the relationship.
<unk> been building that.
Some of these.
Generally companies that are planning to.
Matter of fact, you'll see the Clifton.
Then when <unk> done.
Ward.
What was the revenue run rate be similar to what you have been achieving.
Januvia.
Yeah.
You want to take them one at a time, Okay. You want do you want to add to that question I'm sorry.
So that is that's.
The second one was on Tate and Lyle I'm, just trying to understand.
R R.
If the relationship is going to get any deeper beyond the stevia.
You have heard for a while now.
Those are the pure yeah, let me take those in turn.
We've provided some really terrific qualitative update on our progress to get our enzymes installed in generic sitagliptin processes.
Noting that today the market is still under merck's exclusive domain.
Worldwide. So it's a positioning of many generic companies.
Two ultimately enter what will become a large generic market.
And we announced.
Last year.
We had it.
Stablish a generic partnership with an Indian company named Al Mellow and Thats been advancing but we today, we announced that we have for other supply agreements. These are substantial agreements with four other leading generic companies that we've put in place to date.
And we've had a tremendous amount of sampling activity. So we expect additional agreements with other generic companies as well, so really getting our enzymes installed into tomorrow's ultimate generic market, which is very encouraging. This is critical for us to be able to try to maintain or.
Maybe even grow our sales.
In that generic market versus what we've been doing with Merck. So I can't really answer we cant really answer at this point, what kind of revenue run rate were going to have with generic companies as compared to Merck. We have to we have to wait until that generic market unfolds in the coming future.
While it's been a tremendous partnership not only do we have one of our commercial enzymes installed in the manufacture of the better tasting stevia product with which Tate and Lyle has launched and is growing and is buying more and more of our enzyme for but we also have a commercial enzyme installed in another.
One of Katyn Lyles recently launched sweeteners, it's a product called <unk> prima and its a more bulky kind of sweetener. Its also low caloric not non caloric, which is also growing so both of these commercial.
Enzyme installations with Tate and Lyle are doing well, we continue to showcase that quarter to quarter.
Our revenues are growing to Tate and Lyle and more broadly in the food space.
Given the success that we've had with team while we continue to have many discussions with Tate and Lyle and I'm hopeful that we can showcase other commercial breakthroughs beyond these two with Tate and Lyle overtime.
Thank you. Thank you for taking my questions and good luck with that.
Okay.
Thank you too okay.
Thank you we have reached the end of our question and answer session. I will now turn the call back over to John Nicols for any closing remarks.
Yes. Thank you everybody again for joining US today, we look forward to continuing to update you on our progress as Stephen takes the helm of the company have a great evening.
Okay.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
Enjoy the rest of your day.