Codexis Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2024

There are 12 speakers on the call.

Operator

Welcome to the Codexis Third Quarter 20 24 Earnings Conference Call. Please note that this event is being recorded. And now, I'll turn the call over to Carrie McKim, Director of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. With me today are Doctor. Stephen Dilley, Codexis' President and Chief Executive Officer Kevin Norit, Chief Operating Officer and Georgia Erez, Chief Financial Officer. Doctor. Stephan Lutz, our SVP of Research is also here and will be available for any questions during the Q and A.

Speaker 1

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 our guidance for 2024 revenue, product revenues and gross margin on product revenues, anticipated milestones, including product launches, utility expansions, technical milestones and public announcements related thereto, as well as our strategies and prospects for revenue growth, path to profitability and 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 this statement date, October 31, 2024. 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 could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexis' filings with Securities and Exchange Commission. Codexis expressly disclaims any intent or obligation to update these forward looking statements, except as required by law.

Speaker 1

And now, I'll turn the call over to Stephen.

Speaker 2

Thank you, Carrie, and thanks everyone for joining. This has been another strong quarter for Codexis. Let's review a few of the highlights. First, we strengthened our balance sheet by adding $31,000,000 in net proceeds from existing institutional investors via our ATM. Secondly, we strengthened our executive leadership team with the hires of Georgia Urbis as Chief Financial Officer and Alison Moore as Chief Technical Officer.

Speaker 2

Their decades of relevant experience across multiple business entities will be invaluable as we enter our next phase of growth. 3rd, we strengthened the business. We delivered strong revenue growth in Pharma Manufacturing. We initiated several technical collaborations on our EcoSynthesis manufacturing platform. And finally, we completed the divestiture of our legacy Genomics enzyme portfolio to Alphazyme, so we can focus our efforts on the core business.

Speaker 2

Moving to Slide 3, we have a clear path to profitability by the end of 2026. We get there based on 2 key factors. 1st, continued growth in pharma manufacturing revenues and improved profitability as our existing pipeline of higher margin biocatalysis products progressed through clinical trials and into commercialization. 2nd, increasing orders for our double stranded RNA ligase offering from existing customers as their siRNA assets progress through clinical trials. Even better news is that our strong cash position is sufficient to fully fund Codexis until we reach profitability.

Speaker 2

The net result is that we expect Codexis to reach positive cash flow based on the product, customers and cash reserves that we have today, which will put us in the enviable position of launching the complete Ecosynthesis manufacturing platform around the end of 2026 from an already profitable base business. Shifting to Slide 4. I want to talk briefly about why we chose to strengthen our balance sheet a few weeks ago by taking in about $31,000,000 via our ATM. Some of the money, perhaps half, we plan to keep on our balance sheet for the foreseeable future to provide greater operating flexibility and frankly, to cushion and strengthen our path to profitability. The rest will enable some very targeted investments that will strengthen our existing business and accelerate growth in new areas.

Speaker 2

1st, we've identified an opportunity to accelerate adoption manufacturing Biocatalysis enzymes by moving some enzyme production in house so that we can respond to initial scale up requests rapidly and efficiently. We'll spend a few $1,000,000 over the next year to modernize and streamline our existing internal manufacturing capability. 2nd, we're going to invest in our downstream purification capabilities to support initial commercial orders of our double stranded RNA ligase variants directly from Codexis. Keeping this in house a little longer improves our ability to be responsive to customer needs. 3rd, we're designing a kilogram scale facility for our eco synthesis manufacturing platform to supply GMP grade siRNA drug substance for early stage clinical trials.

Speaker 2

There's a theme here. We've learned that we can improve our speed, responsiveness and value capture by taking assets a little further through development in house. This is all part of evolving Codexis into a truly customer orientated mature commercial organization, which seems like a great segue to pass the call over to Kevin.

Speaker 3

Thanks, Stephen. Today, I want to reiterate our commercial strategy, our near term revenue drivers and provide some insights into our progress with customers. Finally, I will highlight some key upcoming milestones. Starting on Slide 5, our commercial focus remains consistent with what we stated at the beginning of this year. We are delivering revenue growth in Pharma Manufacturing.

Speaker 3

Orders from our existing customer pipeline grew both in quantity and size quarter. Our intention is to provide double digit growth in annual revenues through the end of the decade from our existing pipeline. We are also adding new customer programs to secure the long term prospects of this business. Next, we are focused on securing expected follow on orders for our double stranded RNA ligase enzymes from existing customers as they progress through the clinic. Continued outreach has led to new customers testing our double stranded ligase variants and feedback indicates excitement regarding the superior performance they are seeing, which promises reduced manufacturing time and purification costs.

Speaker 3

Finally, we are focused on adding development programs into our EcoSynthesis Innovation Lab, where we can synthesize a customer's desired siRNA construct and demonstrate the capabilities of our EcoSynthesis manufacturing platform. Moving to Slide 6, we are on track for 3 exciting presentations at the TIDES Europe meeting in mid November. First, we have a joint poster presentation demonstrating the superiority of our double stranded RNA ligase variance in collaboration with Baqem, a leading CDMO specializing in the manufacture of siRNA. 2nd, we will have an oral presentation comparing data on siRNA manufacturing using our engineered ligase versus using various wild type versions. 3rd will be another oral presentation that demonstrates the enzymatic synthesis of a commercially available drug using a variety of approaches, emphasizing our ability to meet customers' needs in a variety of ways with our growing ecosystems capabilities.

Speaker 3

We also expect to share the results from another customer collaboration with the top siRNA drug innovator. Further showcasing the real world application of our technology and the concrete commercial interests we are seeing from major players. We are aware that many of you don't attend TIDES meetings As they are not webcast, it can be a bit challenging to keep track. With that in mind, we are intending to host a webcast investor recap call at 4:30 pm Eastern Time on November 14, where we will relay news from the meeting and review key points in our presentations. The access information for this call will be available on our Investor Relations website.

Speaker 3

On Slide 7, I want to focus for a second on an emerging market opportunity related to the EcoSinsys platform. Currently, the nucleotide quatrophosphate or NQP building blocks that are used in our process are sized chemically. We have made great technical progress on building an enzymatic process that can produce these NQPs more sustainably and at comparable cost to a chemical approach. This is becoming increasingly important as large drug innovators want a fully enzymatic and more sustainable approach to all materials used in the process. Furthermore, we can also use a similar simplified version of the process to make the nucleotide triphosphate or NTP building blocks used in mRNA synthesis.

Speaker 3

Like the double stranded ligase opportunity, this may expand the market reach of our platform to support the growing demand for mRNA production. On slide 8, as customers understand what the Ecosysys platform can do for them in terms of scalability, efficiency, sustainability and even quality, they also need to know that our process will provide a reliable source of their siRNA at sufficient scale for their near term and future needs. Our Ecosynthesis Innovation Lab gives us the ability to manufacture GLP grade material in sufficient quantities to support preclinical development. It also allows us to optimize scaling of the specific process before tech transfer to a GMP facility. In the short term, we will focus on partnerships for GMP production.

Speaker 3

So early process optimization is critical. We are working towards solidifying a scale up partnership with a GMP CDMO where we can tech transfer a customer's siRNA for bulk production to support clinical trials and beyond. You might ask, will we rely on GMP scale up partners for the foreseeable future? The answer is no. We believe there is significant value in establishing our own kilogram scale GMP facility to directly supply customers as they enter early phase clinical trials.

Speaker 3

We expect this to accelerate adoption of our ecosystems manufacturing platform with smaller drug innovators who don't have an established path to GMP, allowing us to hold on to the customer longer and to capture more revenue over the life of the product. Shifting briefly to milestones on Slide 9. We look forward to sharing multiple examples of customer collaborations at TI ZU from November 12 to 14. And we remain on track for the completion of the Ecosynthesis Innovation Lab by the end of the year. Looking ahead for Ecosynthesis, in 2025, we will concentrate on building scale through our innovation lab and increasing the number of customers using our ecosystem's manufacturing platform to produce their GLP grade siRNA material.

Speaker 3

Finally, in addition to presenting at both key TIDES meetings again next year, we also expect to sign and announce a GMP scale up partnership.

Speaker 2

With that, let me turn

Speaker 3

the call over to Georgia to discuss our financial results and outlook for the rest of the year.

Speaker 4

Thanks, Kevin. Good afternoon, everyone. I recently joined Codexis this fall, so let me take a moment to introduce myself before reviewing the quarterly results. I have decades of financial and operational experience across Investment Banking, Capital Markets and Strategic Advisory and I have spent roughly 12 years as a corporate CFO at several biotech companies. I have also had the pleasure of working with Steven and Kevin in prior roles and I am looking forward to working alongside them again as we them again as

Speaker 5

we execute this next phase of Codexis growth.

Speaker 4

Now starting on Slide 10, I will provide a brief overview of our financial results here on the call and invite you to review our 10 Q filed today for a more detailed discussion. Total revenues were $12,800,000 for the Q3 of 2024, including product revenue of $11,200,000 and R and D revenue of $1,700,000 dollars This is compared to total revenue of $9,300,000 for the Q3 of 2023, including product revenue of $5,400,000 and R and D revenue of $3,900,000 dollars The increase in product revenue was driven by timing of customer orders, while the decrease in R and D revenue was primarily due to lower non recurring items, including for biotherapeutics program that we previously discontinued. Product gross margin was 61% this quarter. This was up from 58% in Q3 2023, largely driven by product mix. Turning to expenses.

Speaker 4

R and D expenses for the Q3 of 2024 were $11,500,000 compared to $13,700,000 last year. You can see the continued benefit of the expense control actions we took last year reflected in the 16% year over year reduction. I also want to note that we expect to see a slight increase in R and D expenses as we ramp up operating costs related to the EcoSynthesis Innovation Lab. SG and A expenses were $13,600,000 compared to $12,300,000 in the Q3 of 2023, largely due to an increase in consulting and outside services. The net loss for the Q3 of 2024 was $20,600,000 compared to $34,900,000 for the Q3 of 2023.

Speaker 4

Moving to Slide 11, we are reiterating our guidance and expect revenue will fall in the current range of analyst estimates for the year ended 2024. We ended the quarter in a strong cash position with $90,000,000 in cash, cash equivalents and investments, which we expect will fund our planned operations through profitability and into 2027. With that, I will now turn the call back over to Stephen.

Speaker 2

Thank you, Georgia. As you just heard, we continue to make great technical progress. Just as important, we have strong market traction with our existing businesses and clear line of sight to generating value with our full EcoSynthesis manufacturing platform. We're only about 2 years away from profitability and we have the financial, technical and human resources to get there. Now we'd be happy to take your questions.

Speaker 2

Operator?

Operator

Thank you. And our first question comes from Kristin Kluska with Cantor. Please state your

Speaker 6

question. Hi, good afternoon everybody. Thanks for taking my questions. And Georgia, welcome to the Codexis team. Just at a high level, no EU tides is going to be big presentation for you.

Speaker 6

And without asking you what the data is itself, can you just tell us how one what parameters one looks at to check off synthesis when looking at whatever this undisclosed asset is relative to the process they took? So essentially I'm trying to ask you without looking for the specific data, what are the key parameters that you look at to check off whether or not it's a success? Excuse me.

Speaker 2

Great. Stefan is going to take that.

Speaker 7

Yes. Happy to jump in here. There's really 2 key parameters. One is overall yield or full length product. The other one is the impurity or the quality of the material, which is represented with the so called impurity profile, both sets of information we're planning to provide.

Speaker 6

Okay, thanks. And it sounds like collaboration talks are getting into the weeds here. So can you give us a sense of if you announce partnerships collaborations in the future, do you have a sense of what level of detail you're going to be able to give to The Street? I'm guessing you're going to be able to tell us the company name, but anything about program specifics, revenue structure, etcetera?

Speaker 3

Hi, Kristen. This is Kevin. So we definitely want to give as much color as we can. Obviously, each one of these collaborations works a little bit differently depending on the partner. However, what we're focused on is ensuring that we get these projects from proof of concept into revenue generating development projects within our Eco Innovation Lab, which should be finished by around the end of this year.

Speaker 3

So more to come on that, but I think where we're excited is we're working with the top siRNA drug developers. We've done we're going to share and show something at TIDES associated with one of those. In addition to an exciting collaboration on the ligase with top, top siRNA producer, CDMO. So we'll share more as we get more with that, but I think it's going to depend on the partners themselves and what we do.

Speaker 6

Okay. Thanks. And last question for me, if I may. I know all of your guidance is exclusive of PAXLOVID, but wanted to see if you can give us any color about any early expectations. Saw that the sales they reported this quarter were 4x higher than what analyst consensus were.

Speaker 6

So it seems like the drug is being utilized quite a bit, but any color you could share there would be helpful. Thank you again.

Speaker 2

We're really not assuming anything there, Tristan. And so if they want more, that's great, but we're not planning for anything on Paxlovid. Thank you.

Operator

And our next question comes from Tycho Peterson with Jefferies. Please state your question.

Speaker 8

Yes. Hi, this is Jack Malik on I guess, kind of sticking with the increased volume of inbounds for the Ecosynthesis technology, are you able to share any sort of color on these, the type of client, the whether the more clinical stage, CDMOs versus pharma, just any additional color there into the type of client you'd be working with would be great? Thanks.

Speaker 3

I'd say increasingly we're seeing a lot of interest from the large major sRNA drug developers. They're really the ones that are at the forefront from an innovation standpoint and coming to us to say, prove to us you can make their construct. And so that's one of the things we plan to share at this upcoming Tides meeting, which I think is de risking for other emerging players to get into working with us. We're in the enviable position of actually looking for quality over quantity at this point. We have to prioritize these projects.

Speaker 3

So I think again, a focus on making sure we can prove to the major players that we can do this and they want to adopt the technology is 1st and foremost. We are also working with the CDMOs, as I mentioned on the call, and specifically because we need to get to signing a GMP scale up partnership in 2025 to be able to provide all of these clients a full path to GMP.

Speaker 8

Okay. That's great. Appreciate it. And I guess just one more. As we start to think about 2025, I guess is there any sort of swing factors that we should be thinking about one way or another?

Speaker 8

Thank you.

Speaker 2

So the 2 big drivers, Jack, for 2025 are the continued growth of the Pharma Manufacturing business. We've got good line of sight on the trajectory there. And the other one is, as Kevin said before, it's converting the initial orders of the ligase into follow on bigger volume orders and making sure we fulfill them. We're feeling good about 25 and beyond.

Operator

Thank you. And our next question comes from Dan Arias with Stifel. Please state your question.

Speaker 9

Good afternoon, guys. Thanks for the questions. Kevin or Stephen, just going back to the partnerships, can you just touch on what you see as the major hurdles that you still have in front of you there? I mean, obviously, you're talking about year end for pharma. So I imagine the to do list there for that one is getting kind of short, but I am kind of curious about what the list does look like.

Speaker 9

And then if you could just talk to how it differs, how that list differs depending on whether you're talking about pharma or you're talking about a CDMO?

Speaker 2

So we're talking here about the eco platform and how we're partnering with different players, right, Dan?

Speaker 10

Yes.

Speaker 3

So do you want to start off

Speaker 2

with the CDMO, Kevin? Sure.

Speaker 3

So from a CDMO standpoint, 1st and foremost, we're focused on trying to identify a major siRNA producing CDMO that can be our GMP scale partner. So that is literally taking things that we've developed through the Eco Innovation Lab applying our technology and being able to have a partner to transfer them for GMP scale up. They're also interested in other elements of our technology, one of which I mentioned is particularly adding a ligase to their sort of toolbox to be able to drive more efficient manufacturing today and to be able to offer that to their clients. On the large drug innovator side, those are more what I would say traditional eco innovation development projects coming into our lab. And so they bring constructs to us, want us to make them, we've optimized the process, use our toolbox to be able to do that and provide them something that they can either take in house or take to a downstream CDMO partner.

Speaker 3

Stephen or Brian want to add anything else there?

Speaker 2

Yes. That's right. And the thing that we're learning increasingly is that to move this to being a real product and to get into real sort of economic conversations, we show them the path to GMP. And so that's why those two relationships are very complementary that we can do stuff in our Eco Innovation Lab, but then they need to see, okay, how are we going to scale, how are we going to support this going forward. The other thing that they're very interested in is, of course, the security of our raw material supply.

Speaker 2

And that's why Kevin's comments around the synthesis of NQPs and the sourcing of NTPs is really important. So it's kind of the whole picture.

Speaker 9

Yes. Yes. All right. So if I could just maybe drill into that a little bit. So Kevin, what as in this conversation with CDMOs, as you're trying to convince them that you are the partner that they should go with, what are the near term items that you're most focused on in terms of getting them over the hump?

Speaker 9

Because it kind of seems to me that it would be different potentially for CDMO versus a pharma. You're obviously pretty far down the road on pharma, right? I mean, in 2 months, you're expecting to announce that partnership or thereabouts. But as far as discrete items that we're talking about to get that CDMO on board, can you kind of just point us to what it is that we should think about you being successful doing in order to get that second one across the finish line as well?

Speaker 3

I think part of it, Dan, is really coming down to what we can do for these larger innovators, because at the end of the day being able to make these constructs, the CDMOs are also working with these same players and we've actually have several three way conversations going on now associated with that. So, them seeing us being able to do that is actually then the next step after that is being able to provide them a package of materials that they can take and actually put into their facility to be able to do the scale up. But the first step here is really the proving out of the technology with making the constructs themselves.

Speaker 9

Yes. Okay. Okay. And then maybe just a follow on to that idea. I mean, as you've broadened the scope of therapeutics or at least a number of therapeutics that you're pointing, eco synthesis at, I'm curious if you've picked up on any differences that might exist that make your process or your capability either more or less advantageous depending on which one you might be talking about or working on?

Speaker 7

So, yes, Stephane here. Our main focus has been and continues to be siRNA therapeutic assets. The number of building blocks, the type of modifications people incorporate have have been the focal point for developing our technology platform, and that has continued.

Speaker 9

Okay. So if I could ask maybe a follow on to that. So if there are 6 siRNA therapeutics that are approved right now by the FDA, are you essentially saying that your process and the benefit to be derived from your process is essentially the same across all of them, if we wanted to use that as the example? Or are there certain things within certain therapeutics, specific therapeutics that when you see when you look at the manufacturing process, you say, hey, the economic case for us can be better or worse than if we're talking about another one?

Speaker 2

Okay. So we developed this platform looking at what's currently available, right. So to start with all the modifications currently included. So if you throw a rug over the 6 currently approved, they look very similar in terms of our platform. Then we're looking at new stuff people are doing and where they're going, construct wise, whether they've got a hairpin in there, whether it's a standard one, all that kind of stuff, making sure we cover that landscape.

Speaker 2

Where we're at now in the conversations with specific companies is starting to drill down on what their actual pipeline is, where we can help them with their pain points. And sometimes that's a lie gaze to help them scale more rapidly. Sometimes it's thinking about the whole manufacturing platform. But it's really now moving from the generic, you build an engine that can do just about everything to tuning it specifically to solve the problems of the customer. And so that's why the conversations take a little while.

Speaker 2

Right, Kevin?

Speaker 3

Yes, I think that's right. And I think the one other thing just to add to that is the other area, we've developed the technology around several specifically available conjugation modalities that exist, but where we see the explosion in siRNA and we're looking forward to Stephane and team are working on additional, conjugation moieties that can actually be targeted towards other organs, for lack of a better word. So, I think that's the other key piece that we want to expand our capabilities in the near term, because that's really what expands the sRNA therapeutics universe for us.

Speaker 7

Yes. As Stephen points out, the existing platform is a prototype. It is broadly applicable and not too dissimilar to how phosphoramidide chemistry for manufacturing a specific asset in large quantities is being optimized for that process. The EcoSynthesis platform goes through that exact same process once we identified a specific target, including efficient incorporation of all the tissue targeting moieties, which are a great deal.

Speaker 2

Okay. Thank you, guys.

Operator

Thank you. Our next question comes from Matt Hewitt with Craig Hallum. Please state your question.

Speaker 11

Good afternoon and congratulations on the progress. Maybe first up, kind of similar to the first question, what will the technical collaboration for Ecosynthesis look like? Well, you put out a press release, we've signed our first agreement with X Company, but will there be an upfront? Will it be milestone and royalty based? Will there be shared R and D expenses initially?

Speaker 11

Just kind of walk us through what that first collaboration might look like?

Speaker 2

So the short answer that I'll give, Matt, is it depends. And then Kevin is going to drill down a little bit more on the kind of flavors we're having. That's all right, Kevin?

Speaker 3

Yes. I mean, it is truly it depends. I mean, there is everything from straight up, we want you to make the construct doing it in this way with this set of parameters and that's sort of a straight up development contract, not necessarily like a joint development collaboration. Then there are players that are at the table that want to discuss the joint development collaboration where they have 5 or 6 assets that they want to license the technology for specific application and for us to do the preliminary process optimization work and then to take it in house into their manufacturing facility. Those could follow more of sort of an upfront milestones and royalty based type of agreement.

Speaker 3

But those as you know also take a little bit longer to do as opposed to filling our Eco Innovation Lab with current development contracts that is part of being a emerging CDMO ourselves in terms of being able to do the process optimization up to a point and then transfer it to a big GMP scale up partner before our Kilogram facility is potentially online.

Speaker 11

Got it. So if I'm hearing you correctly, your preference would be maybe for the former and not the latter, at least for the first one so that you can start utilizing that new facility?

Speaker 3

Well, I think that's true because learn a lot from each one of those 2, and we want to be as successful as possible with expanding the breadth of what we can do for perhaps a really big player that wants to do a joint development collaboration on 5 or 6 assets that they have in their pipeline that are large indication assets and that's the type of conversation we're having today.

Speaker 11

Got it. And then I think in your prepared remarks you're talking a little bit about some of your key targeted investments over the near term. As far as the investment in the purification for the double stranded capabilities and the kilogram scale facility, how should we be thinking about the magnitude of those investments? Are those low 7 figures each? Or obviously, the balance sheet is much better today than it was even last quarter.

Speaker 11

So you do have some flexibility there, but just trying to think about some of the cash use over the near term?

Speaker 2

Right. Thanks, Matt. Good question. So it goes into 3 buckets. One of them is the sort of streamlining modernization of the pharma manufacturing, small scale manufacturing capability that really is retrofitting an existing facility with some newer fermentors newer tanks so that we can actually run more reliably and faster there.

Speaker 2

Think of that as low single digit million. Similarly, for the downstream processing for the ligase. So, yes, 5 should cover both of those. Then we're looking at the kilo scale facility. That will be a bigger investment, but not immediately.

Speaker 2

That will be over time. So in 2025, the first half of twenty twenty five, we're really doing the sort of the planning of that and exactly what it looks like and exactly where it's going to go and all that kind of stuff. And then look for us to start spending significantly on that in the second half of twenty twenty five and twenty twenty six if the business case holds up when we move forward.

Speaker 11

Got it. That's super helpful. Thank you. And then maybe one last one here, but obviously with the Alphazyme partnership, how should we be thinking about the scale up and when we should maybe anticipate those revenues to start to ramp? Is that something that could start in 2025 or is it still too early to tell?

Speaker 3

It could start in 2025. I think they still have some work to do to optimize them for their commercialization process, because they are because they are actually a major genomics player. We think their ability to scale and commercialize these is better than ours, which is why we decided to do the deal. So some in 2025, but I would expect it to ramp further into '26 and 'twenty seven.

Speaker 11

Excellent. All right. Thanks very much.

Operator

Our next question comes from Chad Wieczynski with TD Cowen and Company. Please state your question.

Speaker 10

Hey, everyone. It's Chad on for Brendan Smith. It's nice to see the Alvheim deal completed. Could you just speak to any additional opportunities you have to monetize non core assets?

Speaker 3

Even if I mentioned anything else?

Speaker 2

We're getting close to the end of that. But increasingly, it's about focusing on the new stuff. Alphazyme was a big step there. We do have some potential incoming from, for instance, the relationship with Nestle with milestones on that down the line. We're also looking at the optimization of our relationships with Sequel, with MAI.

Speaker 2

So it really can be very, very focused on the core business of Pharma Manufacturing 1.0 and then 2.0 with the ligase and the eco platform.

Speaker 10

And then just on bringing the enzymes in house.

Speaker 2

Do you expect that to

Speaker 10

have any material impact on gross margin? And can you help just contextualize sort of how much space you have? I know the innovation lab is modest in terms of square feet. So could you just help us understand sort of where you're at with capacity?

Speaker 2

Yes. In terms of the Innovation Lab, the optimization of the in house manufacturing for pharma and the ligase, we can do all of that comfortably within our current footprint. We're really asking the question about exactly where the kilo lab or the kilo manufacturing plant would go. But we're in good shape sort of real estate wise and we're in a very sort of efficient part of the Bay Area cost wise as well.

Speaker 10

And do you see any impact on gross margin bringing enzymes in house?

Speaker 2

So what we're working on obviously with these facilities are new enzymes, which tend to have significantly higher margins than the old ones. So the whole point about driving this adoption is to improve margins. And I don't think we've quantified that yet, but directionally it should be very positive.

Speaker 10

That's helpful. Thanks for the questions.

Speaker 4

Asked.

Speaker 6

Thank

Operator

you. Our next question comes from Jacob Johnson with Stephens. Please state your question.

Speaker 5

Hey, thanks. Good afternoon, everybody. On the RNA building blocks, I think it's something you talked about for some time, but it seems like maybe you now have a slide dedicated to it in the presentation. This might be a dumb question from a finance person, but just for these NQPs and NTPs, if enzymatic version is comparable cost to chemical, why do these customers want enzymatic? And then just on the finance side of things, how should we think about the potential revenue opportunity from these building blocks?

Speaker 5

Should we just think about this as part of ecosystems or could this be kind of like the double stranded RNA, a separate product on its own?

Speaker 2

I'll answer the why question and then Kevin and George can answer the finance one. So there's two reasons for the why. One of them is around the quality, the purity of the product itself and that actually some of our partners are very interested in the environmental impact of the processes they run. And a fully enzymatic route for making your NQPs is clearly advantageous. There's also down the line things like the BioSecure Act happening and you're on shoring the production, enzymatic production of NTPs and NQPs is a hell of a lot easier than doing it chemically within the United States.

Speaker 2

So all of those good reasons why we want it. The other one is to keep the chemical producers honest in terms of price point, because we can actually peg them by what we can do enzymatically. And so it really does allow us to drive a better deal in terms of the chemical supply if we have an alternative. And then in terms of the economics of that?

Speaker 3

Sure. I can jump in. George, you can add in. On the economics of the NQPs, obviously, that's a raw material that we're trying to secure the lowest cost possible to ensure that our platform is comparable or better to phosphoramide chemistry. So whether it's chemical or enzymatic doesn't matter.

Speaker 3

To some customers, it's about cost. And so we want to ensure that we drive down that cost and make sure we're really economically comparable or better. On the second piece, whether with regards to the enzymatic production of the NTPs I mentioned, we're in various different conversations with key mRNA players there around their interest in that because one of the major costs within the production of mRNA constructs is actually the NTPs themselves. It's about 30% of the cost reaction. So we still have some work to do in terms of those conversations, but the opportunity could be significant for them as well they start to scale up and more

Speaker 2

of these become available. And Georgia, it might be a bit early to ask you this, but how are you thinking of reporting the ECO platform? Would you be splitting stuff like this out or?

Speaker 4

Yes. We're working on that pretty intensely right now, figuring out what are the most meaningful operating metrics to talk to you guys about. We want the information that we put out to both be material and useful. So we're working on how we're reporting our different separate categories of revenue. So you might see some changes coming up in 2025, but also as our other business lines continue to mature, we would look at reporting them when they become material.

Speaker 5

Got it. That's helpful. And Steven is doing my job for me asking questions. Thanks so much. Steven, maybe just last question.

Speaker 5

You mentioned kind of a theme here earlier about kind of improving speed and trying to increase your value capture. I'm just curious, now that you've been here for a bit, just do you think customers are starting to view Codexis any differently than maybe a couple of years ago? And maybe for Kevin, just curious kind of your view on the awareness of Codexis in the siRNA market now versus a year ago when you guys got into this more meaningfully?

Speaker 2

Yes. I do think there's a sea change, Jacob, in terms of how we're being looked at. Partly it's because we're able to focus and go deeper and have much more intense conversations with the customers. We're also therefore able to interact with them through different routes, not just in pharma manufacturing. Historically, it was typically working with the procurement groups, which are fine, but you also need to get in there with the R and D groups to learn what they're doing in the future and what their pain points are.

Speaker 2

And we're taking that lesson and really applying it to the conversations with the RNA players because we're starting at the top. We're often starting in the C suite and then working down rather than the other way up. So they're very well aware of what we're doing. And it is clear from those conversations that Codexis is considered the leader in enzymatic synthesis of RNA constructs. And we intend to stay in that position and leverage that reputation to secure the right partners.

Speaker 3

I think Stephen summed it up really nicely, which all speaks to the awareness having gone way up and we're getting approached by these major players and the innovation groups within that, which is starting at the C level and working our way down as opposed to the other way that we have to deal with in Pharma Manufacturing.

Speaker 5

Got it. Thanks for taking the questions. Thanks.

Operator

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

Speaker 2

Thanks. And thanks everyone for joining us again today. And as you can probably detect, we're going to have a very busy November because the Tides Europe meeting is coming up fast. As Kevin said, we'll have a briefing event for those of you that can't be there. And then followed by a series of investor conferences in New York, London and Nashville.

Speaker 2

And we're looking forward to connecting with many of you live over the coming weeks. So thanks again for tuning in.

Powered by Quartr
Earnings Conference Call
Codexis Q3 2024
00:00 / 00:00