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

Welcome to the conference call being hosted today by Codexis' Management. [Operator Instructions] Please note, this event is being recorded. And now I'll turn the call over to Carrie McKim, Director of Investor Relations. Please go ahead.

Thank you, operator. With me today are Dr. Stephen Dilly, Codexis' Chairman and Chief Executive Officer; Kevin Norrett, Chief Operating Officer; Dr. Alison Moore, Chief Technical Officer; and Dr. Stefan Lutz, our Senior Vice President of Research. Georgia Erbez, our Chief Financial Officer, is also here and will be available for any questions during the Q&A. 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 including anticipated technical and commercial milestones, our understanding of customer needs and our position in target markets as well as our strategies and prospects for successful execution of current and future programs and partnerships. To 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, May 22, 2025. 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 Codexis' control and that can materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexis' filings with the Securities and Exchange Commission. Codexis expressly disclaims any intent or obligation to update these forward-looking statements, except as required by law. And now I'll turn the call over to Stephen.

Thanks, Carrie, and good morning, everyone. Having been on the ground at TIDES this week, it's safe to say that siRNA technology has officially arrived. It's widely accepted there will be a surge in demand for these therapeutics and customers are acutely aware of the need to find innovative manufacturing solutions. As a result, the TIDES meetings have become a bustling hub of innovation for the field. Since 2 years ago, TIDES attendance is up threefold to more than 2,000 delegates and sessions on oligonucleotide manufacturing at packed. And while presentations on enzymatic methods have been peppered throughout the meeting, there was an entire half-day session dedicated to enzymatic RNA medicine manufacturing. It's clear that the broader environment is very much shifting in favor of enzymatic synthesis in parallel with the initiative to onshore manufacturing, which both make the rollout of our ECO Synthesis technology quite timely. With 6 presentations featuring our enzymatic solutions at the meeting, Codexis was front and center. As you'll hear shortly, our data provided powerful evidence that our approach can reliably manufacture customers siRNA products at larger scale, and the industry is taking note. On top of the Codexis presentations, Bachem, Nitto Avecia and ST Pharm, 3 leading oligonucleotide manufacturers also highlighted the superior performance of our double-stranded RNA ligase in their hands. We are very pleased with this external validation of our technology, particularly from collaborators who have such broad reach across the siRNA landscape. As you can tell, we're seeing clear enthusiasm from customers on the ground, and I want to spend most of today's call, letting you hear directly from Alison, Stefan and Kevin. They're still in San Diego and can share details on the reactions they've seen from meeting attendees as well as an update on how our customer conversations are playing out. Before I pass it over, let me just say that our ECO Synthesis platform is exactly what you'd expect for maturing technology. Since the TIDES Europe meeting last fall, we've gone from providing proof of concept that our enzymatic approach can succeed to now tackling questions around practical application such as reproducibility and impurity profile. We no longer need to help CDMOs and drug innovators make a conceptual leap to understand the role of our solutions, they know that chemical methods simply won't be able to scale as needed and an enzymatic approach is the only viable option to meet their batch size, cost and purity expectations. With that, I'll hand the call over to Alison to recap our mainstage oral presentation. Alison?

Thanks, Stephen, and good morning from the TIDES USA Meeting. I've been fortunate enough to have been part of the development and licensure of several advanced medicines, some of which are billion-dollar drugs and more importantly, are available to hundreds of thousands or even, in some cases, millions of patients. In the last 7 or 8 years, I've been working in the genomics medicine space. These are a broad range of modalities, but many of these modalities have significant challenges in production at scale. siRNA is a powerful genomic medicine because it has been proven now to be safe and effective, and it has the potential to be used in a large number of indications. And we're really excited about the timing and relevance of our ECO Synthesis technology at this time to move past the constraints of solid base chemistry. At previous TIDES meetings, we've been presenting data that shows the build of the platform. And this time, we described the characterization and performance improvements of the process. We also talked for the first time about our understanding of how ECO Synthesis can scale and alleviate some of the scale barriers and costs involved in solid-phase synthesis. We've transitioned from proof of concept to characterizing the platform and teasing our critical performance criteria that relate to robustness and scale. And this begins to demonstrate to therapeutic process developers, that this is a manufacturing solution capable of being the production vehicle of a $1 billion product. In addition, my colleague, Derek Gauntlett, described the detailed ligation work. This demonstrated performance reproducibility and the relationship of fragment quality to final product quality. And what was exciting was the conclusion that we can remove costly and time-consuming purification steps since the ligated product is very high purity. Now let me pass it over to Stefan.

Thanks, Alison. It was super exciting to look at the audience's action to your presentation, including the question and then some of the follow-up dialogue with customers. I couldn't help but reflect on how different this was from a year ago. So let me take a moment to call out some key points on the other key Codexis' presentations as well as our CDMO collaborator talks. With ligation being the topic of almost every other talk on oligonucleotide manufacturing this week, our poster presentation on our newly developed machine learning tool was perfectly timed. In helping customers to optimize RNA fragment designs and matching it with the right Codexis ligase, it is one thing to offer a tool that guides them towards finding a quicker solution. It is a whole different story if that tool quickly identifies solutions that otherwise would have not -- or would have been counterintuitive and they turned out to be more effective. Now this machine learning tool not only works in our hands but have been successfully deployed for developing customer assets. One of those was highlighted in our joint oral presentation with Bachem. Being standing room only with an estimated attendance of over 200, the Bachem talk showed how our ligase solution worked seamlessly and efficiently in combination with their innovative chemical synthesis platform demonstrating the approaches, increased productivity and improved economics in manufacturing a therapeutically relevant siRNA asset. Similarly, our 2 other CDMO collaborators, ST Pharm and Nitto Avecia presented on their recent in-house siRNA synthesis via enzymatic ligation, again, successfully achieving significant process improvements with our engineered double-stranded RNA ligases. As Stephen mentioned earlier, a common threat, an important takeaway here is the consistently high performance of our ligase on different assets under different process conditions and for different operators. A bit more technical, but no less important was our third and final oral presentation by one of our senior scientists, Stephanie Forget on controlling the stereochemistry of sulfur modifications in the phosphate backbone of siRNA therapeutics with our ECO Synthesis technology. This matters because it can impact the efficacy, stability and safety of these assets. Though this features still in the early stages of development, Stephanie Forget elicited some serious interest from delegates at the conference and chose all the signs of becoming a disruptive technology in this field, introducing an elegantly simple and scalable manufacturing solution to siRNA assets with defined stereochemistry. This is something that chemical oligonucleotide synthesis has struggled to deliver for over 40 years. We will share additional details on this capability down the line. So stay tuned. With that, Kevin, let me pass things over to you.

Thanks, Stefan. This has been an incredibly engaging meeting. As you have heard, we have shown such tremendous progress. My challenge as COO of Codexis is to translate this momentum into genuine customer traction. Fortunately, the topics we are now able to cover allow us to bring our naturally skeptical customers fully onboard with the specifics of what we can do for them. As a result, it is super pleasing to see the change in both the people we are talking to and the questions they are asking. What is noticeable is that our points of contact have shifted from discovery scientists to decision-makers in process development and manufacturing. Because of the importance of this technology to our pipelines and their upcoming challenges, they're often exploring enzymatic methods in parallel with our current technology before the next logical step of adopting this as their exclusive platform. Customers need to make step-wise advancements before exclusively committing to an innovative platform like ECO Synthesis. What's important is that we have moved from customers asking whether an enzymatic solution can work to now asking how and when they can incorporate it into their drug development. Amidst all the exciting developments happening broadly in the siRNA field, a few things have become clear at this meeting. Let me emphasize there is no longer a debate that enzymatic solutions are required to meet the coming wave of demand for genomic medicines, specifically siRNA. As a first step, CDMOs and drug innovators see the use of ligation as the new standard for manufacturing, and we are hearing about major infrastructure investments in this approach. In addition, Codexis is no longer in accidental stealth mode and is now seen as the enzymatic technology leader for the manufacturing siRNA. We are on track with the trajectory and time line that we laid out 2 years ago. Customers are actively testing us with various constructs and an increasing proportion of our customer proposals going out today are for ECO Synthesis of fragments plus ligation. To provide some perspective, here are our numbers. A year ago, we had no joint presentations. Now we have 3 with leading CDMOs. A year ago, we had one client purchasing small amounts of ligase from us. By the end of this year, we can have up to four. A year ago, we were in single digits in terms of customer prospects, now we are in substantive discussions with well over 20. As we look beyond this meeting, customer engagement and awareness of the ECO platform continues to increase and we remain on track to sign a GMP scale-up partnership this year. And based upon our current customer conversations, we expect to sell our ECO Innovation Labs capacity before the end of the year. I also want to briefly comment on the competitive landscape. It is clear from this meeting that we are well ahead of the competition in terms of scalability and reproducibility and we expect to show continued progress on that at TIDES EU later this year. One of the other reasons I believe we are really going to succeed here is that we are already establishing the RNA medicines field. During the half day session on RNA medicines, Aldevron showed how they are using our HiCap enzyme to achieve meaningful improvements in mRNA manufacturing with reduced cost, streamlined production and improved quality product. Ultimately, between the technical capabilities of our ECO Synthesis platform, which Alison and Stefan just outlined, our demonstrated ability to scale production and our long-standing history of working directly with CDMOs and drug innovators, we are as confident as ever in our leading market position. With that, we look forward to your questions. Operator?

[Operator Instructions] And our first question comes from the line of Kristen Kluska with Cantor.

Congrats on the update. Glad to hear that the TIDES meeting is taking off very nicely. So we've talked at great length before about cost, yield, scalability, environmental impact. But today's update from my recollection at least, seems to be one of the ones that is also focusing more on the time aspect of it in terms of the production time. So can you help us understand how this could ultimately translate for some of these larger siRNA products? And essentially like help us to understand how this part of the focus will play into customer engagements?

Thanks, Kristen. And this is a perfect question for Alison, who has lived this before, but remember, what we pointed out is a significant reduction in the need for CapEx. We've also talked about batch size, and we've talked about faster times to produce each batch, each of which is super important. And Kevin and others are working hard on things like the raw material supply which will affect our run rate when we're actually making siRNA. So cost of goods manufactured where we're on the same ballpark right now as the comparator. But Alison, take it away.

In terms of the specific cycle times that we are calling out, I think that is the genesis of your question. So just stressing the comment that I made about transitioning from showing proof of concept into a real working production platform, this is a key parameter for us. And I would say that you might expect to see continued work in this space from us and from time-to-time reporting on cycle time. This is us -- we're using enzymes. And when we're at the proof-of-concept stage, we're carefully looking at enzyme reaction running to completion. And sometimes those can take very long time. But then when you're trying to industrialize a platform, we need to coordinate a lot of component part cycle time into shorter practical production cycle time because in order to make a batch at the end of the day, it needs to be practical and in a manufacturing plant, if that plant is operating at capacity, then production time translate into cost of goods manufactured. So what we reported on this time is really an important feature of making sure that our production cycle times of our enzyme reactions are manufacturable.

So Kristen, I hope you get the feel that we're right in the throes of translating this from science and discovery and research into the practicalities of what it means in someone's plant, and having people like Alison and Derek in the fold is super helpful and actually essential to doing this.

Okay. And then admittedly, it's been a while since I pulled open an organic chemistry book. But on the stereochemistry side of things, like how do you think about using this to your advantage to work with partners to maybe make like next-generation candidates to -- as this space is just franking becoming more competitive? And are there certain spaces where the activity and stability might be more critical than others?

Yes. I think that this is of cosmic significance being able to control stereochemistry because if you start at the discovery stage, you can make something enzymatically that you simply can't make at scale chemically. And so that allows you to define unique profiles. And it's quite likely that most of the siRNA being given to patients at the moment is inactive or suboptimal in its activity. And being able to address that is super important. It also addresses part of the scale issue by being able to make the pure substance, which carries the activity. And there will be different strategies. When we are getting into the supply chain of an existing product, it will be about matching what's already been done out of the gate. When we're talking about new products, that gives us the opportunity to invent and create something actually new and so we are playing both of those games. And what's really sort of super cool about this is we can dial up the stereochemistry that we want, whether it's the mixture or the pure substance. So as I say, watch this space.

[Operator Instructions] The next question is from the line of Matt Hewitt with Craig-Hallum.

Congratulations on the successful event this week. Maybe first up, I think you mentioned that you expect to fill the innovation labs capacity this year. Could you remind us is your preference to have multiple customers utilizing that lab? Or would you take a single customer if it came down to that?

Preference, Matt -- thanks for the question, Matt. The preference is definitely to have multiple customers because the innovation lab is a bridge to scale with multiple products, and we want to go as broad as we can. But we have limited capacity. So it will be a single-digit number that we can fit in, in any eventuality. And Kevin, you should talk about the trade-offs you're going in, in terms of thinking about who we fit in this year.

Sure. Thanks, Stephen. Yes. I agree with Stephen entirely. Multiple customers would be great because we want to build a pipeline of products going into larger scale. The variety of customers coming into the ECO Innovation Lab also is important in terms of both large drug innovators as well as smaller drug innovators. And the other piece I would say to that is the work associated that Alison and Derek showed around ligation for maybe later assets as part of ECO Synthesis as well as maybe full ECO Sequential Synthesis for earlier stage or preclinical products. So the mix is important. And the other piece I would say that we're telling customers now is this is an inexhaustible resource, which is we need to be selective in what we can do between now and the end of the year because we are resource constrained.

That's great. And then maybe -- go ahead.

So Matt, just one thing. If we have our druthers, don't forget the comment Kevin made about early assets and big cut, getting something in right out of the gate where we can do things like controlling stereochemistry has a real appeal to us, right?

Makes sense. And then I guess maybe shifting gears a little bit. The machine learning tool, obviously, very timely for multiple reasons. But I'm just curious, what did you hear from customers regarding that tool? How would that be integrated into your platform? Will you be selling that separately? Or will that be part of a larger contract? Just any color regarding that, too, would be helpful.

That's great. Let's get Stefan to talk about the technical bits of the tool and then Kevin to talk about how we intend to commercialize it.

Yes, Matt. So the technical aspect is that this tool really goes hand-in-hand with the design and the product offering that Codexis provides for customers. The sequences, the disconnection when you design these fragments that you want to ligate with our enzymes, the disconnection point matters. And so what we have done is, basically, we have trained the algorithm to really look at all the performance parameters and identify the perfect spot. So this is a perfect early design stage -- process design stage tool that gets customers to a quick and successful implementation of that ligation step.

Yes. And just to jump in, the thing that got me really excited was we had a customer testing us that thought they've done all the work on their ligation strategy, and they were testing the tools to see whether it came up with the right answer. The tool came up with a different answer. And this is what Stefan is referring to, it was better, and that was really impactful. Kevin?

Yes -- go ahead, Matt. Sorry.

No, I would just fascinating, but go on, sorry.

And I was just going to say your second part of your question was how are we commercializing this. It depends on every customer, depending whether it's ligation or ligation plus ECO, but to be completely frank, this is really an engagement tool for us to demonstrate our capabilities and be able to show that we can move really rapidly to a solution for them. So it's not necessarily something that we're trying to sell separately as part of customer engagement. It's much more a part of the holistic process of getting people into the ECO Innovation Lab.

The next question is from the line of Brendan Smith with TD Cowen.

I actually wanted to piggyback a bit on the earlier question and extend on the stereochemistry control that you called out. I know at least with ASOs in the past, there's been some debate about the impact of stereochemistry and chyroality of the different structures itself. So I guess my first question is really I guess whether this is coming up in your conversations with customers and maybe in what context it has thus far? And then second, just so we can understand a little bit better, is this more a matter of making sure you're able to maintain consistency of the molecule itself with any given batch and like maximize bioavailability of the active structure? Or are you actually seeing data to suggest that different stereochemical structures can produce biochemically distinctive effects in vivo?

Thanks for the question, Brendan. And this is obviously an emerging field for a very important reason, which is, there was no way of scaling pure stereochemical molecules through phosphoramidite chemistry over the last few years. So it's kind of been ignored and people know that they've been administering mixtures, but they've really not drilled into what that means at the level you'd expect. So you have to go back a few years in the literature to see some very clear evidence that the different stereochemistry actually matters. And usually, it's about activity or no activity rather than disparate activities on different parts of mRNA. So it's being able to have the molecule that does exactly what you want it to do and nothing else, and it's all active. Now you made the point about existing assets that they're in development, that they're in humans even, that's all about being able to match it. And that's a super important part of our platform is it can be dialed in exactly to match what's previously been done also to control batch to batch. So Stefan, do you want to add anything to that?

Yes. No. Brendan, stereochemistry matters in biology. And as Stephen points out, I think the -- it's not just that we can make stereo-defined products. It's this capability of literally matching in existing asset, distribution, stereoisomeric distribution, but then also giving the customer the option to actually explore the enansomerically pure, the stereochemically pure components. The platform really is an enabling tool. It's not forcing them to work with stereochemistry, with stereochemically pure compounds. It gives them options. It gives them choices.

Yes. And it also drives us towards getting involved at the discovery stage as well, right? If what we had was simply a platform that does big-scale synthesis better, more efficiently, all that kind of stuff, we'd be super focused exclusively on the 100-kilo products and upwards. But this is the reason why we need to get in early with multiple assets and really get them off the ground using the sort of stereochemistry advantage and others to move through development with them. And that's why we want to have a nice mixture of partners in the innovation lab and engage across the platform.

Thank you. I'm showing there are no further questions. So I'll turn the call back to Stephen Dilly for closing remarks.

Well, thanks, everyone, for joining us today. And as you can tell, we're in the midst of a very busy spring, we will be attending the Jefferies Conference in New York soon where we look forward to connecting with many of you in person to discuss our exciting progress. So thanks again for tuning in.

This concludes today's call. You may now disconnect.