Codexis, Inc. (CDXS) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining the H.C. Wainwright 2022 Global Investment Hybrid Conference. My name is Sean Lee, and I'm an equity research analyst at the bank. While we are hybrid this year, we're confident we're going to be able to provide value to you with over 550 companies presenting at this conference in multiple sectors devoted to life sciences, blockchain and fintech, technology, media, clean tech and growth. H.C. Wainwright is a full-service investment bank dedicated to providing corporate finance, strategic advisory and related services to public and private companies across multiple sectors and regions. We have a total of 24 publishing senior analysts and over 648 companies covered across all sectors. The in-person venue for this event is the Fontainebleau Hotel in Miami. Virtual participation will be staged simultaneously with over 550 company presentations scheduled as live feed and available on-demand. Please join us for one-on-one meetings, corporate presentations and panels that will be available live and streaming on May 24 to 26. With that said, have a productive and enjoyable day. And I'd like to introduce our first presenter. I'd like to welcome Mr. John Nicols, who is the CEO of Codexis, a pioneer in the development and commercialization of synthetic enzymes.

Thanks very much, Sean. Pleasure to be here and a pleasure to speak to you about Codexis, on the screen, we have our mission statement. And you're going to hear a good bit about enzymes and how critical they can be to improve the health of people through drug discovery, the health of the planet through sustainable manufacturing, and how the company is accelerating its deployment of a platform technology to make a difference in the world. I'm going to be making forward-looking statements today. I encourage everyone to check out our risk factors on our SEC filings, most recently at the end of May -- the beginning of May. So Codexis, what we're doing, we're pioneering the use of a unique synthetic biology platform we call CodeEvolver. CodeEvolver will enable the dramatic enhancements of enzymes as products. Mother Nature has provided many enzymes for the world to benefit from many of the enzymes are circulating in your body. They break down biomasses in the field, et cetera. But the reality is this class of products is nearly infinite in its ability to be designed for unique functionality. And that's what Codexis' 20-year history has been focused on. How do we look at the infinite optionality of designing enzyme molecules and make them do things that are beneficial for the world. And after focusing on it for 20 years, we've made our CodeEvolver platform increasingly capable of performing that very challenging feat. And as a result, we're now scaling dramatically our use of CodeEvolver to discover new enzymes that are delivering new performance attributes for a whole range of different marketplaces. And really, we think this is the best way to play synthetic biology. There's other ways, but to you to modify organisms, to produce specialized high-performance enzymes, patentable enzymes is the business model of Codexis. And we're big believers in the long-term promise of synthetic biology and a long-term promise of enzymes to make a big difference in our world. We're off to a great start in 2022. The charts on the right show that we're accelerating in, actually commercializing new products that are making a real difference in the world. Just in 2 years, the commercialized products from our platform are now almost quadrupling in their product sales in the world and $30 million just 2 years ago to our guidance range of nearly $118 million in 2022. First quarter, we were right on track. Our total revenue growth nearly doubled in the first quarter year-over-year. Our product revenues more than tripled year-over-year. And as we're bringing these products to market, they're coming to market with higher and higher gross margins, our product gross margins averaged 72% in the first quarter. And we're doing it widely. We're spreading it across a growing range of customers over 16 that had over $100,000 of sales in the first quarter, half of whom, 8 of whom had over $1 million sales. So it's a diverse growing diverse range of products and customers and as you'll hear in a very exciting range of different markets. Those are bringing enzymes forward that enhance sustainable manufacturing in a range of different markets, and we'll get into some details. More recently, we've been creating enzymes that are enhancing Life Science Tools applications, nucleic acid synthesis that are enhanced with Codexis' engineered enzymes, next-gen sequencing workflows that are bringing better diagnostic solutions based on Codexis enzymes. These 2 target markets make up what we call our Performance Enzymes segment, and we actually separate out our Performance Enzymes segment in our quarterly and annual financials for you. On the right, an exciting new area for the company is to use our CodeEvolver platform to discover enzymes that are drug substances, big target market, huge potential benefit to the world. And you'll see in just 5 years' time, what was just an idea for our company has now blossomed into a pipeline of over a dozen different diseases that we're addressing at various stages of early development for biotherapeutics coming from being discovered from our platform. So we'll get into each of these 3 segments, in turn together, starting with Sustainable Manufacturing. Sustainable Manufacturing is the market that we've been involved in our entire 20-year history. And today, it makes up the large majority of our sales. And the large majority of the sales within our Sustainable Manufacturing arena is to enhance manufacturing of pharmaceutical drug processes. We're also involved in the food industry. We're growing into other industrial sectors, and I'll spend some more time on life sciences later as the second target market within our Performance Enzymes division. Here, our biggest success story in the recent past is to get a Codexis engineered enzyme installed in the manufacturing process. for Pfizer's PAXLOVID, oral COVID antiviral. And we've just boomed in our sales. We're executing from last year around this time, almost no product sales and booming to $21 million of enzymes that we're selling to Pfizer in the first quarter to enable them to step up the production of PAXLOVID. This has been a tremendous success story for Codexis, the largest application of our company's technology in our entire 20-year history, and we're on track to continue a similar pace for the rest of the year. We've guided to in the range of $75 million to $80 million of enzyme sales to Pfizer's PAXLOVID this year. But that's a good, healthy piece of our business. But we're doing business here with 21 of the top 25 pharmaceutical companies. We're growing in smaller biotech and generic companies as well. Our platform to engineer enzymes for pharma manufacturing is widely applicable. We estimate that 1 out of 3 small molecule drugs can benefit materially by reducing the cost of manufacturing 1 out of 3 small molecule drugs, not only manufacturing them cheaper using our technology, but also in a much more sustainable way. In the last 4 or 5 years, we've branched into bringing our technology into other industrial sectors. We've had some great successes in that short period of time, working with Tate & Lyle to bring enzymes into the manufacture of their better-tasting stevia product another sweetener with Tate & Lyle. Last year, we announced a new partnership in the food industry with a company named Kalsec who's a leader in hop ingredients, and we're enabling a new hop ingredient to be launched by them. And we did over $1 million of sales or about $1 million of sales with these customers in the first quarter, and we're starting to get some traction in other industrial sectors as well. At a high level, this is our pipeline, broad, wide range of applications in pharma manufacturing with many of the world's leading companies, a couple of commercial successes in the food space, other food projects following behind and developmental stage, and a whole range of potential exciting potentially large applications in other industrial sectors. Shifting to Life Science Tools. The other area for Codexis' Performance Enzymes business here. Just 4 years ago, we had $0 sales in this market, and we grew it to about $8 million of sales last year, and we've targeted that we should do in the range of $12 million, so a growth of 50% again year-over-year. A lot of exciting activity here from new products that we've launched into the marketplace to custom partnerships with some of the world's leading life science tools companies to a range of strategic partnerships, which was a big highlight for our first quarter results was we've advanced the partnership with a private company down in San Diego named Molecular Assemblies, where we finalized an enzyme that's going to unlock a much more effective way to do DNA synthesis. And only Codexis' platform CodeEvolver could engineer an enzyme to truly unlock the possibilities of doing gene length synthesis at higher qualities and higher lengths and higher speed than what is currently available, and we've chosen to bring that technology into a partnership with Molecular Assemblies where we're the leading strategic investor in Molecular Assemblies. In the quarter, we also announced another very synergistic partnership, this time with a Boston-based company called seqWell. They're a leader in the next-gen sequencing area. They're bringing a more effective approaches to library preparation for next-gen sequencing. And it's being unlocked by an enzyme called transposase and this enzyme truly liberates higher fidelity, more efficient next-gen sequencing workflows. And seqWell has been successful as a Series C company to break into the market with an enzyme that's basically naturally available. And so both the and Codexis see the opportunity to improve that enzyme with CodeEvolver and make them even more effective to take more and more of a growing share of the next-gen sequencing workspace. And so as we bring this kind of an enzyme engineering partnership to seqWell, we've chosen to take a leading investment in their late Series C financing round. We led that around with $5 million of investment, and we're super excited to see a second highly synergistic partnership unfold in the Life Science Tools area. Again, our pipeline, we've launched multiple products into the marketplace across sequencing and RNA synthesis. These products are doing well in their early adoption. I described the DNA synthesis market. We have other applications. This is just a very dynamic thriving area for Codexis to grow going forward. So look for Codexis to continue to grow in the exciting life science marketplace as we move forward. The third, last but not least, our effort to use our CodeEvolver platform to discover novel drug substances. In 2016, it was just an idea. We just did some light experimentation with the basic question, can our platform be a drug discovery engine. And the answer is an overwhelming yes. We've built this area today or by the end of this year, we should have over a dozen programs in various stages, 2 programs already in the clinical stage, one we've out-licensed to our partner, Nestle Health Science. A second one, we are in a 50-50 partnership with Nestle Health Science for a product called CDX-7108, which is an enzyme that is more efficacious for pancreatic enzyme insufficiencies or otherwise EPI. We're doing other self-funded work beyond the partnerships with Takeda and Nestle. But today, the majority of our programs are in partnership with these great companies, 4 in partnership with Takeda 4 in partnership with Nestle Health Science. Covering 2 broad areas that we've already developed significant proof-of-concept as a company. First is take enzymes and enable them to be orally administrable, make those enzymes stable and human biology so that they can be efficacious in the gut. And the problem with normal enzymes or large molecules in general, is that our body is extremely effective at breaking down large molecules in the small intestine. And so making our enzyme stable in the harsh environment of the gut, so that they can be available to deliver therapeutic benefits is a unique attribute for Codexis. And that makes up a healthy majority of our programs, amino acid deficiencies like phenylketonuria or homocystinuria. We've got earlier programs focusing on Gluten and a few other areas. The second area is to improve gene therapies. Today, the large majority of gene therapies are delivering nucleic acid information that's going to code for an enzyme that's basically the missing enzyme for these disease Fabry disease, the patients are born without a gene that codes for a specific lysosomal enzyme. And most of the gene therapy programs are basically delivering that missing enzyme. Codexis' approach is we can deliver a more effective enzyme through gene therapies. We can engineer the transgene to express a more effective enzyme. And we started early work 4 or 5 years ago in Fabry disease, and that was the anchor for us to form a partnership with Takeda. And now we're proving that engineering, the transgenes to make better next-generation gene therapies is a working approach in a growing partnership with Takeda. And we're starting to do some early work on our own outside of the Takeda partnership as well. So this makes up our growing, advancing pipeline of therapeutic assets, super exciting for us. And we've already used this pipeline to generate significant revenue and partnering revenue to help us derisk our expense here. But enzymes that we create here have the potential to be much larger products in the long term for Codexis. And so we have a healthy spread of our programs in the area of drug discovery as a company. Okay. Bringing it together in the corporate and financial highlights. The company has been executing brilliantly. I'm really proud of the Codexis team, 8 years in a row of revenue growth as a company, even when we were shut down for the better part of a quarter in 2020 due to COVID. Product revenues up in 2020, highest ever gross margins. The largest product sale in the company's history with PAXLOVID last year, the number of programs in our therapeutics area that have moved into the clinic and the number of newly commercialized products. Every single one of those were records for Codexis last year. And we're positioned to continue the acceleration in 2022. We expect top line growth nearly 50% year-on-year in 2022 compared to last year. Continued commercialization of new products in the Performance Enzyme area. This high-growth Life Science Tools area, that's targeted to grow 50-plus percent. The profitability of our Performance Enzymes segment continues to advance. And we're advancing biotherapeutic candidates towards the clinic nicely in 2022 as well. So really set up for another great year. Our first quarter results, $35 million of sales nearly doubled year-over-year. Gross margins, good cost control, good cash management as a company, we're generating a significant amount of cash flow from our top line. Our guidance metrics, $152 million to $158 million total revenues for the company, $112 million to $118 million, large majority as product sales and once again delivering upwards of 70% product gross margins. And the company is really poised to continue to accelerate. We are growing our discovery capacity. Those teams are using machine learning and other critical tools to enhance the velocity of Discovery. We're smartly self-funding programs to increase our speed. We're targeting more and more larger volume opportunities as a company. We're smartly using our biotherapeutics investments to advance the value creation in that pipeline. And we're doing these cool partnerships with very limited capital like we've done with Molecular Assemblies and seqWell to help position Codexis other runways of growth. So a lot of acceleration possible, and we're executing on all of it. So that the long-term growth of the company continues to exceed expectations, double-digit top line growth for sure. So we set very clear goals for 2022 across each of the 3 segments. We're on track to deliver that great start to the year, significant milestones being showcased here. So we're really thrilled to share an update on Codexis, and we'd love to talk further with you if you have any questions, don't hesitate to reach out to us.

Thank you, John. And I also want to thank all of our presenters for [indiscernible] in what has been a very productive and informative series of presentations. We appreciate the time and effort of wanting to preparing them. We are very grateful for your flexibility and your presence at our conference this year. Thank you again from the H.C. Wainwright team.