Q2 2019 Earnings Call
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I would now like to introduce your host for today's conference Mr., Bruce Voss, Sir you may begin.
Thank you this is Bruce Voss with L.A.J.. Thank you all for participating in todays codecs. This call to discuss second quarter 2019 financial results and business progress.
Please note that could axis is posted an updated pipeline snapshot slide presentation on the investors section of Codexis dot com to accompany todays call.
Joining me from could Axis are John Nicols, President and Chief Executive Officer, and Gordon Sangster, the Companys 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 Kodak says they are forward looking statements, reflecting the beliefs and expectations of management as of August six 2019.
You should not place undue reliance on these forward looking statements because they involve known and unknown risks uncertainties and other factors that are in some cases beyond the company's control and could materially affect actual results.
For details about these risks please see the quarterly news release that accompanies this call as well as the Companys FCC filings.
Codecs as expressly disclaims any intent or obligation to update forward looking statements, except as required by law now would like to turn the call over to John Nicols John .
Thanks, Bruce Good afternoon, everyone and thank you for joining us.
The second quarter was another very solid performance for could access as we continue to deliver against the critical objectives, we established for 2019.
Expanding our customer base.
Commercializing installations, and pharma manufacturing, adding to and strengthening our codeevolver platform licensing network.
Breaking out in molecular diagnostics and other new industrial verticals.
Advancing our novel Biotherapeutics pipeline.
Bolstering the cash on our debt free balance sheet and Onboarding critical new human talent. All of these were delivered in this very productive second quarter.
Let me now walk you through some details to highlight our progress starting with product sales.
Product sales were up 68% year over year and led the way for us in the second quarter.
As usual enzyme sales to Merck for their manufacturing of the active ingredient in Januvia were a solid seven digit base load for our product sales.
Excitingly. In addition, we have generated over a million dollars of product sales with another top 25 pharmaceutical customer in the quarter as they began the manufacture of registration batches for their planned 2020 drug launch following its recent new drug application or in D.A. acceptance by the FDA.
In total eight customers purchase purchased over $100000 of products in the quarter up from five customers in the second quarter last year reinforcing the accelerating penetration of our performance enzymes in real world manufacturing processes.
Euro band Sciences was among the leaders for our product sales as they wind up supplies for their planned in D.A. filing with the FDA in early 2020, so the integration he potential treatment for overactive bladder.
Rounding out the list of clients with more than $100000 in product sales were two more top 25 pharma customers. Each meeting batches of performance enzymes for their clinical stage drugs to leading generic pharmaceutical companies.
And it takes a while for the manufacture of their better tasting, Hey, Steve and Stevia sweetener.
Product gross margins in the quarter came in at a very strong, 56%, which lifted the first half product margins to 50%.
R&D revenues for the quarter were predictably down year over year due to large comps in the prior year quarter from Tate and Lyle and Nestle Health Science.
But excluding these two events R&D revenues were up in excess of 40% year over year and these were spread over a larger customer and industrial base.
Six digit plus R&D revenues were generated in the quarter with Nestle Health Science, Merck Novartis and two other top 25 pharma clients Novartis was added to the ranks of Codeevolver platform licensee, which by the way is off to a solid start.
And the tech transfer to upgrade at Merx platform was completed.
Excellent widening and deepening of adoption in pharma manufacturing in the quarter.
Outside pharma, new R&D projects were initiated with Tate and Lyle and one other new customer each in different non sweetener food ingredient applications.
In molecular diagnostics and molecular biology applications, we broke out with a combined R&D revenues in excess of $750000 with two new clients in two separate and new applications.
These have been under negotiated since last under negotiation since late last year. So it's great to see these materialize in the quarter.
And even better that they are on topic continued projections for our next generation sequencing enzymes to deliver significant sales. Starting later this year targeting molecular diagnostic applications.
The blossoming of food and molecular biology, and diagnostic applications in the quarter show that these markets are finally, reaching inflection points for could axis and the value creating proteins, we can engineer for them.
Capstone in the expansion of the customer base here it could axis I note that combining product with <unk>.
Research revenues, we generated six digit sales with 15 different customers in the second quarter, which is a record for the company.
Second half sales are projected to be higher than first half sales as we maintain our full year revenue guidance of between 69 and $72 million.
New or significantly larger second half sales comp contributors on top of our solid first half base include revenues recognized from the Novartis Codeevolver license and expected low single digit million dollar milestone achievement from the backend of the GSK Codeevolver license.
Growth of sales to take while for pay Steve <unk> and plus growth of sales in molecular biology and diagnostics applications.
And the novel Biotherapeutics segment, there are not a lot of specifics to provide today. So progress is well on track with our 2019 plans.
Nestle Health Science is lining up for Cdx 611 for his first then we'll keep telling urea patient trials and the potential for a significant milestone to be earned by could access in 2020, if that is successful.
And our pipeline of early stage enzyme therapy candidates continue to move ahead nicely in the quarter, including several recently generating positive preclinical proof of concept data readouts.
More to come on the pipeline as we move to deliver on our core goal of achieving partnerable status for at least two of these programs by year end.
Before turning over the call to Gordon I'd like to review, our updated Conexus 2019 pipeline snapshot posted today to our web site.
As you can see on slide two we've added nine net new projects to the pipeline during this past year.
13, new projects overwhelmed the four projects that dropped off the list due to in activity over the past two years.
The number of commercial installations grew by two from nine to 11 over the last year.
The ultimate fruits of our sales cycle when our R&D engine is no longer needed and we can generate sustained revenues and margins.
Two new it commercial installations, this past year, where enzymes for paint miles p., Steve and sweetener and for cure and urinary incontinence drugs the lever.
And on slide four you can see a 58% increase in the number of projects in our pipeline over the past two years and a doubling of the number of projects from 26 to 52 over the past three years.
At the more detailed level as shown on slide four we are successfully expanding our pipeline across multiple industries and applications in parallel.
For example, we have more than doubled the number of late stage phase two or phase three projects over the last three years to 15 could access developed performance enzymes.
Similarly, the number of performance enzyme project in other industries has increased to 12 across three different industrial verticals.
Finally, the number of projects that could access it self funding in our pipeline has doubled over the past three years from six to 12, notably these programs have the prospect for generally larger economic rewards to codecs, it's been partner funded projects.
And it is here that I'm pleased to note our expanded balance sheet capacity, which we can leverage to smartly invest in great opportunities.
I'd like to expense extend a special thanks to cast in capital, which in June added to its ownership position in Conexus with a 50 million dollar equity investment.
I'm delighted to say that this private placement was completed very cost effectively without related expenses other than the standard legal fees.
Let me now turn the call over to Gordon to provide more details on our Q2 financial results Gordon.
Thanks, Tony.
Total revenue for the second quarter of 2019 were $12.3 million compared with $13.5 million in Q2 up 28.
Second quarter 2019 revenue included $10.6 million and the performance ends on second and $1.7 million from the novel Biotherapeutics second.
Current revenue for the second quarter of 2019 increased by 68% to $6.2 million from $3.7 million a year ago with the increase due to demand for instance for both generic and branded pharmaceutical products.
R&D revenue for the 29 to the second quarter was $6.1 million versus $9.8 million in Q2 was 22.
Mr. I mentioned the decrease was primarily due to the completion services into prior years Q2 to Ted Wahl for sweetness product.
Which has no transition compared to come here.
This decrease was partially offset by the revenue recognition of the software license fee from Merck.
And do you read and hear from the second quarter to 29 to include $4.3 million from the friends and family segment and 1.7 million goal from the mobile by therapeutic segment.
Gross margin improved in the second quarter of 2009 too.
56% up from 30% a year ago with the increase due to product mix.
Turning to operating expenses R&D expenses for the second quarter of 2019.
For $8.3 million and included $5.1 million from the person's depends on segment and $2.9 million from the novel Biotherapeutic segment.
The increase in operating expenses from $7.4 million in the prior year period was primarily due to higher expenses related to head count.
Allocation of occupancy related costs and gloves supplies.
Partially offset by lower outside services.
Eschewing expenses in Q2 of $29 million to $7.9 million, which included $2.1 million from the performance sensing segment and $6 million from the novel Biotherapeutics segment and the remaining portion is included and $5.1 billion and corporate overhead and depreciation expense.
The increase from $7.4 million a year ago. This come early due to an increase in cost associated with facilities and headcount.
Which were partially offset by lower still compensation.
The net loss for the second quarter 2002 to $6.5 million or 12 cents per share, which compares with a net loss for the second quarter was $28 million to $3.7 million or seven cents per share.
On a non-GAAP basis, excluding noncash depreciation and stock based compensation expense the adjusted net loss for the second quarter 2019.
It was $4.1 million or eight cents per share versus a non-GAAP adjusted net loss a year ago of $1 million or two cents per share.
Turning to the year to date financial results total revenues for the first time $29 million to $27.9 million.
Up slightly from the first quarter from 28 to the strikes well against the guidance, we announced earlier earlier. This year there was a 40% 60% split for revenues between the first half of the year on the second half.
R&D revenues were $13.7 million and consisted of 6.4 million barrels from the performance and segment $7.2 million considerable biotherapeutics second.
Gross margin improved revenues for the first six months of 29% to 50% increase from 35% because a year ago period due to product mix.
R&D expenses for the first time, what $29 million to $16.3 million and SGN expenses, but also the $16.3 million.
We reported a net loss for the first time $29 million to $11.6 million or 20 cents 21 cents per share.
Which compares with a year ago of $8.4 million or 17 cents for sure.
On a non-GAAP basis, the net loss for the first six months of 2019.
$6.9 million or 32 cents for sure versus non-GAAP net loss for the first time from $28 million to $3.5 million or seven cents for sure.
Cash and cash equivalents as of June Thirtyth, 2019, $93.4 million up from $53 million as of December 31st 22.
This increase includes proceeds from the 50 million dollar private placement we completed in June .
Today, we're affirming the 2019 financial guidance, we introduced on our conference call in March we expect total revenues for the year to be between $69 million to $72 million, which represents 2014% to 19% over 22.
We expect 40%.
Second half revenues, Depomed, Q3, and 60% to form Q4.
We expect product sales to range from $26 million to $29 million, we expect gross margin on product sales to be between 40 and 52%.
We expect total operating expenses to be approximately $72 million.
Im pleased to report that the first six months of 29 team, we're tracking well against all these financial metrics.
With that I will turn the call back to John .
Thanks Gordon.
I'm sure all of our investors and analysts have read the tandem press releases, we issued this afternoon.
Which included the announcement Gordon's plan to retire.
I want to add a deep and heartfelt. Thank you from all of US It could access Gordon and particularly from me personally for all you have done for the company since you joined.
As CFO five years ago, you will be missed and your colleagues at Conexus, which you wish you all the best in your retirement.
At the same time, we welcome Ross Taylor as our new CFO effective August 19.
Ross brings to Conexus more than 20 years of health care financial leadership experience. Most recently as CFO of Axis, which is now part of that let us.
Given his extensive industry experience and equity capital markets background I am confident he will seamlessly step in to help conexus continue to grow and succeed.
Additionally, the significant analytical strength and strategic approach refined across a diverse set of businesses and industry sectors.
Position him to add significant value as we expand across a growing set of markets and partnerships.
We look forward to ross's arrival and to get them up to speed and impactful quickly and effectively Gordon will help facilitate the transition through the end of August .
Now let me close this call like usual by highlighting our strategic objectives to drive our near and longer term growth.
Our business strategy begins with a relentless focus on our Codeevolver protein engineering platform technology.
We are delighted with the increased recognition our technology is garnering from global top 25 pharma companies and by a growing customer base that spans multiple verticals.
Proprietary artificial intelligence competencies are at the core of our ability to discover proteins that meet customer needs at an ever accelerating pace.
Together with other cutting edge synthetic biology practiced by the dynamics scientific team that could exes.
Code Codeevolver is a powerful constantly improving platform that rapidly create novel high performing proteins.
In parallel continuous business pros process improvements are accelerating our ability to monetize those proteins.
We are affirming our belief that the revenue generating capabilities of the codeevolver in the high growth synthetic biology segment our unparalleled.
We will be highlighting the protein engineering capabilities of our Codeevolver platform in a company sponsored scientific symposium in October .
I'm thrilled to announce our guest speaker will be Dr., Francis Arnold who is the Linus Pauling Professor of chemical engineering Bioengineering in biochemistry at the California Institute of Technology.
You may recall that Dr. Arnold received the 2018 Nobel Prize in chemistry for her pioneering work in the directed evolution of enzymes.
We have been building, our protein discovery and commercialization business steadily and relentlessly.
Our updated product pipeline shows our parallel expansion over a broadening group of customers across a growing list of industries.
In novel Biotherapeutics, we are further validating the ability of codeevolver to create differentiated patentable, new drugs, and we will be bringing at least two programs to partnerable status by year end 2019.
With our significantly strengthened balance sheet, featuring more than $90 million in cash at quarter close we are extremely well positioned to capitalize on a variety of high value growth opportunities afforded by our talented codecs his team and the versatility of our Codeevolver technology.
With that overview I would like to open up the call for questions operator.
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Our first question comes from Brandon Couillard with Jefferies. Your line is now open.
Hey, before Brandon jumps on I apologize, so while were waiting.
I'd like to alert view of our busy Investor investment conference schedule. This fall.
We'll be presenting at the Cantor Fitzgerald Global Healthcare conference being held October two through four in New York, The Stephens Nashville, Tony 19 investment conference being held in November 19 through 20.
And is this the Stifel Healthcare conference being held in November 19 through 21 in New York and finally, the Craig Hallum Conference being held in New York November 12 webcast of our presentations at these conferences conferences will be posted to the investors section Conexus dotcom, Okay. Operator were ready for the first question.
Right and clearing your line is now open.
Hey, Thanks, good afternoon.
Hey, Brian first off Gordon its been a pleasure working with you had no idea you were considering retirement.
But the wish you the best.
Great. Thanks for Brendan.
John would be great. If he could you know to the extent, you're you're willing and able to but love to get some more detail on the two new.
Customer partnered programs in the molecular diagnostics segment, if you could elaborate kind of on what the application set is and perhaps the potential size of the opportunity and it maybe that the timelines for I guess are these becoming much bigger sort of product revenue generating endeavors.
Sure Yeah, we're really happy that Weve secured these two new projects with these two new clients.
These are the enzymes that where engineering right now with our Codeevolver platform.
We are not targeting the the enzymes that are needed for next generation sequencing workflows. These are over and above that particular application, which we continue to see strong.
Strengthen and and that we've talked about many times in the past. So these are these are new or targets.
They're both very customized more niche in terms of that potential applicability.
And one of them is targeting a different class of diagnostic.
Not genomic diagnostic that we're all familiar with using nextgen sequencing or polymerase chain reaction. These diagnostics other types of Biomarkers and human.
Biology.
We're excited we're working with one of the great leaders in this space.
And the progress of that R&D project is proceeding quite well.
And there could be multiple targets that a that this partnership could go after in other words more than one particular biomarker could benefit by more than one axis enzyme.
The second application is is it's more of a molecular biology application. Its also a niche type of enzyme.
And it's going to enable.
This particular class of clients.
To to manufacture their products more efficiently and we see this as a growth segment for us.
Company and we're partnered up with the leader in that space as well. So that's a little more color about these two new growth applications for the company.
I appreciate that and on the back of the cast some capital raise should we expect you to really accelerate.
The bio therapeutic development activity kind of where do you see the pipeline progressing kind of over the next 12 months now that you have that the funding back.
Yes, I think clearly it gives us optionality to do so but quite frankly, we're driving that pipeline as hardening as fast as we can we're working on now five programs in parallel to the Nestle led PK you program.
We've already out license to Nestle in the beginning of this year.
And we're driving as hard as we can now those programs as they move through their early discovery and preclinical development cycle will require more capital as they continue to be successful.
But those are those are relatively modest capital spends and we'll keep you posted on how those unfold if I could add to a lot of our costs. This year. For example, although it's a piece of of why we continue to uphold higher operating expense outlook for the rest of this year then we so far.
Spending this year next year the.
The spending associated with that pipeline will will go up naturally with the successful advancement of those.
Assets in our pipeline, but I'd say not only does the the optionality a cash the additional cash on our balance sheet enable us to to drive the pipeline.
Effectively and give us a lot of runway for that pipe therapeutics pipeline. It also enables us to to to take some smart bets on developing performance enzymes without a customer partner money.
We did that with the early days of our Stevia program before we ever.
Ah showed be enzymes that we believed we could discover to Tate and Lyle and others. We had done significant proof of concept work on our own account and we think that was a key element for us to drive a much more attractive commercialization deal with Tate and Lyle. So we look to do that as well to help accelerate our growth and performance enzymes to.
Thanks, Lastly, a follow up for Gordon.
We just look at the back half the year revenue guidance implies R&D revs more or less double in the back half compared to the first half of the year, just sort of speak to the level of confidence and visibility you have on that ramp in the second half. Thanks.
Yes, we've got a pretty good visibility on that Brandon.
Part of it is we havent recognized any revenue yet from the new boxes pretty bold relations. So that will kick in the second half the year and with the other projects that we expect to be able to complete by the end of the year, which will help us to reach the guidance that we just announced or confirmed.
Very good thank you.
Yeah. Thanks.
[noise]. Thank you and our next question comes from Matt Hewitt with Craig Hallum Capital. Your line is now open.
Good afternoon. Thanks for all the details and similar I'd like to congratulate you on your retirement Gordon into and best wishes as you move on and enjoy and Joe you're a little bit more freedom.
Absolutely sticking with the that the pipeline a little bit I'm first question last quarter, you had three six figure industrial customers that came on I'm curious if there was any follow on what those customers are on how that vertical is kind of shaping up and how we should be thinking about that going forward.
All three of those customers grew in the second quarter and the project work in the R&D chapter continues to advance well.
And in the prepared remarks that I gave a little more definition of what those three projects were.
And two of them are these new diagnostic molecular biology application applications, which I detailed oh based on Brandons question.
The third one was another food application and it's not really a classic food application or so kind of a near food applications at last quarter, we spoke to it as a new industrial sector. This this time, it's really closely aligned with the food space. So we put it in there I noted that it's not a sweetener it's another.
Food use for Codexis enzymes. So that's that's where those three are in between the three of them are there was well over a million dollars of revenue that hit are you now in the second quarter for those three new growing projects in applications.
Oh, that's great that's great or the other I guess follow up question would be regarding the the the two new it was a top 20 pharma customers and I think you gave us some details in the prepared remarks regarding those what was a one is stepping up ahead of an N.D.A. early next year. The one recently received and then did I get those right and.
And any additional color that you can provide on those would be helpful.
Yeah, I spoke to actually to unnamed top 25 pharma companies in both the product area and in the R&D revenue area and those are four different top 25 companies just.
For your information so in the R&D, rather than new area that one of the projects or was it dedicated project team with a leading actually top 10 pharma company referred to in the past.
And they're they're working on a parallel process for for their pipeline of drug processes.
Looking at my list here the other cop 25 drug company in the R&D revenue.
As a company we haven't done a lot of business with historically and we're really excited to have gotten started with that particular top 25 pharma company a and in the second quarter, we actually did a whole stack of screens. Those are usually not very I'm very a high revenue not very costly to the to the client but it showed that this client really gets it and they were I'm looking at a lot of different drug processes and early stage projects with good access and we're hopeful that those translate into deeper protein engineering projects with that particular top 25 pharma company.
In the product area you got to close your advantage as a company that is ahead of the NDA filing next year. We did in it. In addition, we did over a million dollars of product sales to another top 25 drug company they've already got an acceptance for their in D.A. So this client is lining up for their launch next year.
That's great and maybe one last one.
Or what [laughter]. How many teams are are you currently working for the R&D.
Process group right now so I'm trying to remember what the number was last quarter, but if you could give us that number for Q2 I've got it somewhere in my notes I'm sure.
Yes.
Now were operating a maybe 16 to 18 different parallel protein engineering teams.
Excellent all right. Thank you very much.
Thanks, Matt.
Thank you and our next question comes from Doug Schenkel of Cowen. Your line is now open.
Hi, This is Ryan on for Doug. Thanks for taking my questions. Congrats Gordon on the retirement and.
Tim Congrats to Ross on the new job.
Maybe just following up on first on Brendans question earlier on the R&D revenue guidance in the step up in Q4, it's just seem to suggest to US that you expect another new strategic deal in Q4 is that correct and if so how much visibility do you have on that at this point.
Oh, we got pretty good visibility on the bench test would be our let's say the main thing would be the new boxes Codeevolver license recognized any revenue yet, but that will start in the third quarter and ramp up from Q4 and were looking at was the larger project something John alluded to right now in terms of these new verticals that we're talking about.
But there are there is the possibility of other deals as well the second huh.
Great and then I apologize if I missed this but are you still on track to launch the preliminaries for your Ngs customers late this year and I'm any update you come about on overall ngs enzyme revenue and 2019. Thank you.
Oh, Yeah, we still expect a two to deliver material sales in the Ngs enzymes arena those would be focused on the DNA like Ace, which is already launched and out in the market.
The polymerase is a is getting buttoned up for beta Trialing a very shortly so absolutely. This will be in the hands of customers are and will be a set up for a launch before year end.
So we're still doing really good work there were really excited we're getting encouraged by our clients.
And it's looking to be a really good target segment for the company not only for DNA ligation claim rates, we also see opportunities for other.
Enzymes that are beneficial in the workflows for running next Gen sequencing.
Yes.
Okay.
Thank you and our next question comes from RK from HC Wainwright. Your line is now open.
Thank you.
Good on you will certainly be missed.
Hi, I am right I wish you all the best in your retirement.
And hopefully you'll have a better time off good access.
Jeff.
Oh no.
On the pipeline.
I I believe Johnny stated that.
There is one new project other than Tate and Lyle that out that got included into into this pipeline.
Could you give us.
A little bit more color on the opportunity and.
It's probably a day of becoming a meaningful revenue line.
Soon.
I try to make sure I'm answering the question Casey are you asking.
How about the new eight mile project that was initiated that I referred to in my prepared remarks.
Yeah.
Got it so it's early it's an early start so your probability of success in early R&D is always lower but as we advance through the Codeevolver protein engineering process, the odds of creating an enzyme that liberates value and justifies the investment by taking a while to to install it commercially gross so pain, while is a power user of our technology.
They know what we can do it's been proven now successfully several times a very impactful projects are they usually you guys know how to point, our technology, which is really the state of their relationship with them. So generally speaking a a project directed with the Tate and Lyle.
Has a little higher prospect of ultimately commercializing given their knowledge of wielding the technology, but it's still early on I would say like like both of the other two are successful commercial projects with take while I'm if things go well from the beginning which as I said just started into Q.
To commercialization can take place can all be accomplished in two years and this is no bid. This project also has that prospect.
Thank you and then on the on the generics business now you stated that there were two additional projects over the last 12 months.
How meaningful is this segment.
Alvin.
And how much of a percent does it make for you to go Oh no.
Go go and get more generics.
Project on board.
You know the the you know looking at the pipeline total we have six commercial sustaining products for the generic industry.
We have five pre commercial.
But those six sustaining revenue businesses are in total a lot smaller than the one success with Merck for example, so they are they are nice pieces of business are generally smaller and and in their revenue scope.
And noting.
The pre commercial side of the pipeline, it's pretty rare that conexus would spend its own money to develop enzyme targeting a generic process. The generic drug process you can see we have done that.
In one case, so that project is encouraging to us, but it's the anomaly. We usually you know drive the customer to fund those programs.
So anyway. So it's a it's a nice segment, it's stable to growing I think we do better business with patent holders in the drug manufacturing world on average, but we continue to support and grow in this sector.
And then my last question isn't a novel Biotherapeutics so.
You are saying that the Cdx six one and four trial is expected to start in 2020, So what is.
No what is left or what what needs to get done still before and before the for this or they can get started.
Yes. So this program is now under the direct control and that's life. So.
So on the out licensing partnering arrangement, we have and that's why we are informed that not involved any longer.
And to be precise what I mentioned in the prepared remarks was that we have an opportunity to earn a milestone in 2020.
From the first trial conducted with federal ketone urea PKD patients, which definitely is lining up so.
So yeah. So it's basically a marker in your models to say that next year, if things continue to go well with.
Cdx 6 million for PK, you that there's another milestone on the horizon next year not this year.
Okay and as you know, we're very close can that's why.
And how they're running that program and then partnering projects that we have ongoing if that plays out. So we are fully confident that they are driving.
Thank you and as a reminder to our listeners if you'd like to queue up to ask a question. Please hit Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. You may do so by pressing the pound. Okay. Our next question comes from Steve Schwartz with first analysis. Your line is now open.
Yes, good afternoon, everyone.
Let me wish congratulations to Gordon.
Yes.
Given the complexity and the in the life term of these.
Licensing deals you know if you let Gordon keep his cell phone I'll be glad to RASM.
Well through 2020 with questions.
On those licensing deals.
But and onto the more serious matters.
With respect to the pipeline.
I you have listed codecs a self funded.
Pre commercial project in food ingredients is is that in fact, what you're referring to in this non sweetener food application.
Or is that something completely different.
That's actually something completely <unk> and Steve Thanks for highlighting that.
You know when I spoke in prepared remarks, and I forget which of the analysts ask the question I was referring to a customer funded project.
Oh, which generated revenue for us in the second quarter. So that's one of the three and the customer partner line.
This this one in the self funded is is an enzyme that we're developing a with an R&D team.
Targeting an application that we're quite excited about.
And we're using our own funds for that.
Ultimately, we will seek a partner because our channel to market is obviously very limited as an enzyme company. So we're going to develop the asset to a point, where we have a compelling proof of concept.
And then we will go out and we'll speak to clients and pitch them on the value that it can create and ideally create a competition for a for a partner to take it to market.
And and so a project like this does it spawn itself from the work you're already doing.
In that immediate area through like a tate and Lyle or through these other.
Customer partner programs or something like that coming about.
No it doesn't at all actually it can you know if we're if we're privy to ideas and project concepts in our partnership discussions those would likely be bound by confidentiality that would prohibit us to work on it on their own and these are in fact projects that we identify with our own market research.
Or with our own you know frontline business development team, where they see an opportunity for an improved enzyme maybe an enzyme that's already being used by clients that have deficiencies in today's and tomorrow's markets or are we seeing other application, where a new enzyme can deliver value where enzymes are used. So these are these are projects that we.
Conceive of with our own intelligence and then we do proof of concept work using coty level, we like this model very much its proven successful.
With stevia and we can prove successful in other segments and opportunities as well.
Okay, and then sticking with the pipeline snapshot Hi, RK had asked about the generic opportunities for generic drugs.
And certainly it's a big area on the pipeline.
What direction does it go from here, where you have the F.D.A. a passing through a higher volume of Andas right and the pricing gets more competitive on generics, which is favorable to your what you do but at the same time it seems like the life cycle of the generics themselves and the market share for any given companies generic seems to be shrinking. It is is it all in all the market dynamics favorable to you or against you in this situation.
I think it's more challenging I would I would argue that the lifecycle of the successful generic drugs is actually not shrinking over time that these drugs can get locked in for a very long periods of time.
But but you're right about the complexity of market share because many many generic companies gun for the same generic drug and so it's hard for us to to position ourselves probably impossible for our so as to position ourselves against all of these companies trying to to grab a piece of the market as it goes generic so we we where we're selective in our partnerships, where where we've had success.
I'd say it's a.
It is not a very large part of our R&D a utilization today, creating new proteins for generic drugs, but it continues to hold up as it as a good.
Solid target for us that will generate great returns on investment like all of our projects for.
Now Okay and then my last question is just with respect to R&D expense.
It seems in the first half of the year, who you've been consistent in around $8 million roughly speaking.
What does the second half of the year look like for that expense and then even if you. If you can generally touch on 2020.
With some of the activities you know where should we be modeling this expense that.
Yeah, we'd expect the R&D expenses to ramp up in the second half slightly we're going up to six months of some of the heads rebounded.
And the first conference here and also just a dumb through some of these programs. So you know I would expect that to get back to our 72 million guidance total opex for the years roughly split evenly between R&D and <unk>.
Got it okay. That's helpful. Okay. Thank you gentlemen.
Great. Thanks, Dave.
Thank you and I'm showing no further questions in queue at this time I'd like to turn the call back to John Nicols President and CEO for any closing remarks.
Okay. Thank you everyone for your questions. Congratulations Gordon for your last quarterly earnings call of your career, we're excited about our many developments over the first half of this year and we look forward to providing ongoing progress updates to you in the meantime, I wouldnt have a great day.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may all disconnect everyone have a great thing.