Codexis (NASDAQ:CDXS) Q2 2021 Earnings Call

0:01 Greetings and welcome to Cadexus Q2 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. and now I'll turn the call over to Stephanie Marks from Argo Partners. Please go ahead.

0:36 Thank you, Operator. With me today are John Nichols, Codexas President and Chief Executive Officer, and Ross Taylor, Codexas' 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 Codexys, they are forward-looking statements reflecting beliefs and expectations of management as of the statement date, August 5, 2021. You should not place undue reliance on the 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.

1:24 In particular, there is significant uncertainty about the duration and impact of the COVID-19 pandemic. This means that results could change at any time and the currently contemplated impact of the virus on the company's operations, financial results, and outlook is the best estimate based on available information. For details about these risks, please see the quarterly news release that accompanies this call as well as the company's SEC filings, including Codexys' annual report on Form 10-K, filed with the SEC on March 1, 2021, and Codexys' quarterly report on Form 10-Q, filed with the SEC on May 7, 2021, as well as Codexys' other periodic reports filed with the SEC.

2:09 Codexys expressly disclaims any intent or obligation to update forward-looking statements except as required by law. And now I'll turn the call over to John.

2:20 Thank you, Stephanie. Good afternoon, everyone. I am very pleased to report exceptionally strong second quarter 2021 results for Cadexes. Total revenue for the quarter grew by an impressive 70% year over year. Product revenue more than tripled over a year ago, and product gross margin reached a new high of 71%. We are demonstrating our ability to capitalize on Codexys' rapidly accelerating business model, translating years of groundwork and R&D efforts into impressive top-line growth. We had 22 customers who contributed over $100,000 in revenue in the quarter, nine of whom contributed over $1 million in revenue.

3:10 We are firing on all cylinders in our sustainable manufacturing business. In June, we received a significant new commercial scale quantity order from an unnamed global pharmaceutical company for one of Cadexis's proprietary enzymes. This enzyme is designed for use in the manufacturing process of a therapeutic drug that is in late stage clinical trials with an accelerated development and regulatory process. This business will deliver the largest annual sales for a product in the company's history. We raised our guidance in June upon receipt of the $13.9 million order. Today, we are raising our revenue guidance again as we have solidified that order's delivery schedule to be executed within 2021 and have solid indications from the customer that they have significant additional 2021 product needs as well.

4:12 Ross will provide more details later in the call. On top of that exceptional strength in pharma manufacturing, we recently executed a commercialization agreement in the food sector, working with our innovative partner, CalSec, to help them introduce new hop extracts to beverage applications. We also had very good sales to Tate & Lyle for their commercial stevia and allulose sweeteners, and we have a solid outlook for revenues related to both of these products over the balance of the year. We're building strong momentum in the food and nutrition vertical. In the life science tools market, our newly launched engineered enzymes continue to gain traction with market interest, and our partnered programs continue to drive significant 2021 R&D revenue growth.

5:03 And in our biotherapeutics business, our partner Takeda exercised its option to expand our collaboration to add a fourth program to the pipeline. In addition to all of our customer-driven programs, we are applying our R&D resources to an increasing number of self-funded programs across all lines of the business. We are advancing programs further into development as part of our strategy to capture even greater value in the future. Every year at the end of June, we provide an update to our pipeline of programs and products across the company. breaking them down in a number of ways to provide insight on how we're expanding our future growth opportunities.

5:51 Today, we published this annual pipeline snapshot as of June 30, 2021, which you can see here and find on our IR website. Let me highlight a few metrics that I think are particularly salient. First, our total number of commercial products and pipeline programs has grown by 20% since last year, increasing to 78 from 65. We have dramatically increased our number of shots on goal. We now sell enzymes to sustainably manufacture 17 commercial products, up more than 50% from 11 just two years ago. The ultimate goal of our pipeline is to drive programs to commercial recurring revenue stage So it's great to see momentum building for us here.

6:44 Clearly, this is connected to the dramatic product revenue growth we're delivering in 2021 versus the past. Pharma manufacturing continues to be the largest application area in our pipeline, but we are also putting stakes in the ground more broadly. Note the 50% growth in performance enzyme programs outside pharma manufacturing in the last year. led by the life science tool sector, but also nice growth in the food and other industrial markets as well. Our biotherapeutics pipeline continues to expand as well, highlighted by our investments in three new self-funded programs over the last year and by Takeda's exercise of its option to license a fourth program from Cadexis during the quarter.

7:34 Our business model is consistently delivering acceleration of assets in our pipeline, as you can see in the four-year trends shown in slide five. More than doubling over the four years in almost all categories. An explosion of programs in our new high-growth verticals of life science tools and novel biotherapeutics. We look forward to continuing to these trends going forward. Adding to our shots on goal, advancing those towards commercial, increasing the average program speed to market, and peak revenue potential, all in tandem. Let's dive more deeply into our recent progress across our three businesses, starting with sustainable manufacturing.

8:23 Sustainable manufacturing is where we built Codexys' enzyme engineering leadership over the past two decades, and this market currently represents the large majority of the company's revenues. Codexis's novel high-performance enzymes continue to enable our customers to dramatically reduce the cost and increase the sustainability of manufacturing their end products. Compared to using traditional non-enzymatic chemistry, which is capital-intensive and inefficient, our engineered enzymes decrease capital needs meaningfully while also enabling higher yields, reduced energy usage, and lower waste generation. and our CodeEvolver platform is constantly accelerating the speed of our ability to discover and design these value-creating enzymes.

9:16 Small molecule pharmaceutical processes have been and continue to be a core target for growing the sustainable manufacturing market for Codexys. We have partnered with 21 of the 25 largest pharmaceutical companies in the world to help them adopt and install novel Cadexis enzymes for manufacturing their APIs. The $13.9 million order that we announced in June from an undisclosed global pharmaceutical company is a historic one for Cadexis, and it came to fruition with unprecedented speed. In a matter of months, we scaled up production of the enzyme to manufacture hundreds of kilograms, and now we are fully ramped up and in position to produce at the metric ton scale to fulfill this order during the second half of 2021.

10:12 And as I mentioned earlier, we already have strong indications from this customer that they will need additional supply in 2021 on top of the June order, and we've already established sufficient supply chain capacity to be able to fulfill the incremental demand. Another aspect of our sustainable manufacturing business is our ability to license our CodeEvolver protein engineering platform technology to partners. In the second quarter, we earned the largest back-end licensing milestone payment from our partner, GlaxoSmithKline. It was related to the advancement of the commercialization of an enzyme designed by GSK using CodeEvolver that is engineered to improve a key step in the manufacturing process for an undisclosed, patented, on-the-market drug.

11:05 CodeEvolver back-end license milestone payments such as this one are 100% profit margin, highlighting another important and emerging facet of our business model. We also announced the completion of a CodeEvolver platform license technology transfer to Novartis. This was our third licensing collaboration to enable a customer to bring Cote d'Ivoire technology in-house, but the first one where we had to implement a considerable portion of the tech transfer virtually. I'm incredibly proud of our team's efforts to operate in lockstep with Novartis to ensure a smooth tech transfer. In addition to pharma manufacturing, in the past few years, we've been expanding to other industries designing enzymes for sustainably manufacturing a range of applications, including food and beverage ingredients, recycling, consumer care, and animal feed, et cetera.

12:04 These products have shorter development timelines and lower regulatory hurdles, enabling our enzymes to reach the market more quickly. Recently, we announced the expansion of our research collaboration with CalSec. a leading producer of food and beverage industry products. Through the partnership, we have entered into an exclusive supply agreement for a novel enzyme to produce CalSec's newest natural hop extract. This enzyme was engineered using our Codivolver technology to improve functionality, stability, and efficiency, enabling CalSec to deliver consistent hop characteristics and taste. while also furthering Codexys' mission to support the development of sustainable and clean label products.

12:56 We're really excited about our growing opportunities in the food and nutrition vertical. In addition to the new development with CalSec, we also had strong quarterly product sales from Tate and Lyle. They are growing the downstream adoption and sales of their newest sweeteners that use our enzymes for the manufacturing of Tastiva Amstevia and Dulcia Prima Allulose sweeteners. This is a very encouraging progress for these enzymes, and we believe they could grow to be one of the largest enzyme products over time. With our deep and growing pipeline of other late-stage development industrial enzyme candidates, we expect this shift towards high-margin, faster-to-market products to continue to accelerate Codexys's growth in sustainable manufacturing.

13:46 Another area of expansion for Codexys is the life science tools market, which is a significant growth opportunity for the company. Codexys engineered enzymes can enable improvements in next generation sequencing and molecular diagnostics, biosensor applications, DNA and RNA synthesis, and more. This market is very attractive given its high growth, rapid commercialization cycles, and above average margin prospects. The market also affords us the opportunity to develop products that can be marketed to multiple customers in addition to the highly engineered enzymes we customize for partners. In the past year, we've developed three new life science tools enzymes for broad-based customer marketing. Codex high-cap RNA polymerase, Codex HiFi DNA polymerase and Codex reverse transcriptase.

14:43 Our RNA and DNA polymerases have led the way as we rapidly advanced these enzymes towards commercialization last year and began marketing at the end of 2020. In the first half of 2021, we've already been demonstrating success. We engineered Codex HiCap RNA polymerase to provide dramatically higher capping efficiency, enabling customers to significantly reduce the amount of capping reagent that is critical to stabilizing the product for pharmaceutical use. In addition, our proprietary enzyme decreases the production of unwanted double stranded impurities, which increases yield and simplifies downstream purification of the messenger RNA product.

15:31 We made our first commercial sales of Codex HiCap RNA polymerase to several customers earlier this year, and now this product is in various stages of customer trials with multiple other messenger RNA manufacturers. Although the adoption cycle is a bit longer than we had hoped, this is an excellent start, and we are confident that we're well positioned for potential installations in a range of processes for development stage mRNA-based vaccines and therapeutic candidates. We expect product sales to begin to grow more meaningfully in the coming quarters. We're also making solid progress with the launch of Codex HiFi DNA polymerase.

16:16 Our analysis demonstrates that Codex HiFi DNA polymerase enables the highest fidelity next-gen sequencing results of all the competitive DNA polymerases tested. The enzyme is being sampled by dozens of high-profile customers for potential use in their current and future NGS kits, and progress in their trials is encouraging. Codex reverse transcriptase has been developed to further improve performance versus incumbent enzymes in both diagnostic and sequencing applications. It is currently being tested by our early access users, and we are preparing for broader launch later this year.

17:02 In addition to these broadly marketed products, we are also developing customer-partnered enzyme products for life science tools applications. In the second quarter, we earned an option milestone on a new enzyme with an unnamed life science tools leader and have multiple revenue-generating partnered programs advancing in parallel as well. As an update on our groundbreaking collaboration with Molecular Assemblies, for the commercialization of enzymatic DNA synthesis, we continue to make strong technical progress on this project. This disruptive approach to synthesizing DNA has the potential to significantly impact a wide range of high value markets from drug discovery and manufacturing through synthetic biology and longer term to compete with silicon for data storage.

17:57 Leveraging the power of Codevolver to deliver dramatic performance improvements, we are engineering enzymes that should make molecular assemblies process a commercially viable, cost-effective, and differentiated solution to manufacturing long-chain DNA. We remain on track to complete the enzyme engineering work for this program in the second half of 2021. With an increasing number of differentiated products and strong partnerships in the life science tools market, Codexys continues to build momentum to capitalize on this high growth opportunity. In wrapping up the business review, we remain highly enthusiastic about the value creating potential for Codexys in the discovery and development of novel biotherapeutics.

18:50 Here, we are rapidly building and advancing a high-value pipeline of oral biologics and gene therapy candidates discovered using our CodeEvolver platform. Just a few years ago, we had only two very early-stage programs in our pipeline. Fast forward to today, and we have over a dozen programs in the pipeline, including one in clinical stage and another in IND enablement development. We have an impressive multi-program partnership with Takeda Pharmaceuticals, focused on improving gene therapy candidates for rare diseases. Here, we are leveraging Codevolver to engineer transgenes with improved attributes, such as enhanced expression, improved half-life, greater stability, and better uptake in difficult-to-access cells.

19:43 During the second quarter, Takeda exercised its option to expand our strategic collaboration for the research and development of an additional gene therapy for a lysosomal storage disorder, bringing the total number of programs under the agreement to four. We are extremely proud of the success we have generated in gene therapies for the potential treatment of Fabry disease, Pompe disease, and an undisclosed blood factor deficiency after just one year in collaboration with Takeda. especially given that we are just a year into the partnership. This expansion to four is a gratifying indication of Takeda's enthusiasm for our technology and its ability to discover differentiated gene therapies for patients with rare genetic diseases.

20:34 Modifying transgenes using Codevolver to enable a gene therapy's expression of a better performing enzyme is a novel and differentiated approach to design improved next-generation gene therapy candidates. Accordingly, in addition to the partnered programs with Takeda, we have embarked on self-funded discovery programs targeting improved transgenes for other rare disorders. Leveraging Codevolver to discover novel oral biologics that are more safe, stable, and efficacious for gastrointestinal indications is another high-value growth strategy for Cadexis. We have four oral biologics in partnership with Nestle Health Science and three early stage self-funded programs.

21:21 Three of the partner programs with Nestle are co-owned between the parties, the most advanced of those being CDX7108, which is targeting an undisclosed GI disorder. Our IMD enabling activities for CDX7108, including GMP manufacturing and preclinical toxicology, have now been successfully completed. In addition, CDX 7108 has been filed for approvals with the ex-United States regulatory authorities for its first clinical trial, which we expect to initiate around the turn of the year. Now let me hand the call over to Ross to take you through our financial results in more detail.

22:09 Thanks, John, and good afternoon, everyone.

22:11 We delivered strong second quarter 2021 results. Total revenues for the second quarter of 2021 were $25.5 million, up 70% compared to the prior year period. On a segment basis, $21.6 million in revenue was from our performance enzyme segment, and $3.9 million in revenue was from our novel biotherapeutic segment. This compares with $7.5 million and $7.5 million for performance enzymes and Novel Biotherapeutics, respectively, for the prior year period. Product revenue for the second quarter of 2021 was $14.7 million, above the high end of our expected range for the quarter, and up 227% compared to $4.5 million for the prior year period.

23:02 The major contributors were increased sales in the sustainable manufacturing segment to partners including Allergan, Tate & Lyle, contribution from generic manufacturers, Kiorin, and significant product revenues from our undisclosed global pharmaceutical partner. R&D revenues were $10.7 million in Q2, up slightly from $10.5 million last year. Gross margin on product revenue for the second quarter of 2021 also came in above the high end of our expected range at 71% compared with 62% in the second quarter of 2020. The increase was due to a favorable shift in product mix, as higher margin products drove the growth in the quarter and our sales of Citigliptin, which is a lower margin product, were flat.

23:53 Turning to operating expenses, our R&D expenses for the second quarter of 2021 were $12.8 million, up from $10.9 million in the prior year period. The R&D expense increases were primarily due to increased compensation resulting from higher headcount, higher expense from outside services, and higher costs for lab supplies and depreciation. These items were partially offset by lower biotherapeutics preclinical development and regulatory expenses. SG&A expenses in Q2 of 2021 were $12.8 million compared to $8.5 million for the prior year period. The increase in SG&A expenses was primarily due to higher payroll expenses higher share-based compensation, and higher legal fees, partially offset by lower allocable expenses.

24:47 Net loss for the second quarter of 2021 was $4.3 million, or 7 cents per share, compared with a net loss of $6.3 million, or 11 cents per share, for the second quarter of 2020. Turning to the balance sheet, cash and cash equivalents as of June 30, 2021, were $129 million, which puts us in a strong position as we look to seize the company's growth opportunities. Also, I will note that to date we have not drawn any funds from our $50 million ATM equity facility that we put in place in early May of this year. As John described earlier, we are increasing our 2021 financial guidance issued on June 17, 2021.

25:35 The increase is primarily the result of our expectation for more business from the large, unidentified global pharmaceutical customer that we referenced previously for an enzyme that is used to manufacture a therapeutic drug. However, I should also point out that sales of many other products in our portfolio are also trending very well. We now expect full-year 2021 total revenues to be in a range of $98 million to $103 million. up from prior guidance of $89 million to $92 million, driven by an increase in our product sales forecast. We expect full-year 2021 product revenues to be in a range of $59 million to $63 million, up from our prior guidance of a range of $45 million to $48 million.

26:27 We expect our full-year gross margin on product revenue to be in a range of 65 to 68%. up from our prior guidance of a range of 60% to 64%. The increase is driven by a shift in the sales mix to higher margin products for the full year. However, we do expect the product gross margin to decline from Q2's levels during the second half of 2021 as revenue from Citiglipton will increase as a percentage of the sales mix during the back half. For R&D revenue, we are updating our outlook for the remainder of 2021. We now forecast that 2021 R&D revenue will be lower than we anticipated at the beginning of the year. The change is partially due to the prioritization of the strategic build-out of our self-funded projects and is also due to some new partnering opportunities likely occurring later than we originally expected.

27:25 Also, I will note that our underlying R&D business is strong, as we expect to deliver a similar level of total R&D revenue this year as last year, despite facing combined headwinds of over $10 million from the initial three Takeda projects and the Novartis co-devaluer tech transfer. Our outlook for R&D and SG&A expenses for the full year 2021 has not changed materially since our call last quarter. We expect R&D and SG&A expenses combined should be in a range of $27 million to $28 million in Q3. and in a range of $32 million to $34 million in Q4. As we have noted before, our investments in R&D and in our SG&A infrastructure are important drivers of our future growth.

28:17 In summary, we are beginning to reap the benefits of the foundations we have established in each of our business segments, and we are well positioned for excellent growth in total revenues, strong growth in product revenues, and expansion of product gross margin in 2021. With that, I'll turn the call back to John.

28:37 Thanks, Ross. Let me close out our prepared remarks in the context of our goals for the year. As both Ross and I have highlighted, Codexys has made excellent progress throughout the second quarter of 2021. In particular, we have executed on standout opportunities within the sustainable manufacturing sector, resulting in significantly increased product revenues and a defining period of growth for this business line. Add to that the continued progress within our proprietary life science tools portfolio and the advancement of our second biotherapeutic product toward clinical trials, we are making great strides towards achieving the goals outlined on this slide.

29:23 We are deeply energized by the endless possibilities that lie before Cadexis, and we are proud of our role in harnessing the power of enzymes and synthetic biology to improve the health of people and the planet. Now we'd be happy to take your questions. Operator? Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

30:13 The first question today is from Brandon Colliard of Jefferies. Please proceed with your question.

30:20 Hey, thanks. Good afternoon. John, in terms of the pipeline update, clearly great progress across a number of fronts. Can you just talk about how you feel about the capacity of your R&D teams right now and kind of expansion plans as you look out for the next 12 months?

30:39 Hey, Brandon, thanks. Yeah, we've been staffing up the research capacity in the company consistently, actually at a higher rate since the middle of last year once we got the company re-established after the second quarter COVID shutdown last year. We could sense significant growth in demand for our research, our engineered enzymes, both for customer-partnered projects as well as for a growing list of self-funded projects. So from that point forward, we've been Thank you very much. Really, really great progress, great execution.

31:46 It's actually a very dynamic market to hire these kinds of talent. So it's been a big effort and a big success story so far and more to come because we continue to ramp up the research and development capacity of the company through the rest of this year and likely into the beginning of next year.

32:04 Okay, and then related to the large $14 million undisclosed pharma order, kind of alluded to having some visibility at this point around the customer needs in 22. Can you just touch on what you expect there? Should we sort of model this in order to be recurring? Maybe it steps up even next year? Any indications you can share with us right now?

32:33 Yeah, Brandon. Yeah.

32:35 Go ahead, Rob. You're in.

32:39 Okay. Yeah, I'll try to take a stab at that, Brandon. I think in terms of thinking about 2022, our practice really is to update guidance early in each calendar year after we report our Q4 results, as you know. But stepping back, though, our base business right now, it is firing on all cylinders. At the same time, we are working very hard and we're committing a lot of resources to fulfill this large new piece of business that we Thank you for joining us. certainly would suggest confidence and good demand going forward. But at the same time, I think we have to keep in mind that this is a drug that has to work through the FDA process, and much is going to be dependent on that, obviously.

33:54 Great. Last one for you, Ross. Did you quantify the size of the GSK milestone payment that you booked in the second quarter? And then any color you could share with us in terms of the phasing for the back half between 3Q and 4Q.

34:13 In terms of the GFK milestone, we're really not permitted to disclose what it is specifically. I will note that the last GFK milestone we got back in the Q3 of 2019, and we did disclose then it was about $2 million. And this one's probably somewhere in that neighborhood, but we can't be more specific than that. I think your second question related to cadence of revenues in the back half. And I think it's going to be about evenly split between Q3 and Q4. I think as far as products go, it might be a little bit more weighted to Q3 versus Q4 and probably the opposite for R&D. So maybe just slightly more products in Q3 versus Q4 and a little bit less R&D in Q3, a The overall total revenue is probably split about equally between the two quarters.

35:11 Thanks. The next question is from Doug Schenkel of Cohen & Company. Please proceed with your question. Hi, good afternoon. This is Kyle on for Doug. Thanks for taking the questions. Just one today. Going back to your prepared remarks and the collaboration agreement with CALSAC that you spoke about, I just want to kind of get a feel for, you know, how would you characterize the revenue opportunity that that presents?

35:42 Yeah, hey, Kyle, thanks for the good question. Yeah, we're real excited about the new food ingredient success story for the company, this time with a new partner, CalSec, who's a really cool company, a very innovative company, and they're working in the area, amongst others, but the area that we've been working with them in. is in improving, bringing forward improved hop derivatives and extracts. And we've been working on the research chapter of that program for a while. It's one of our, you know, one of the programs that showed up without a lot of detail in our pipeline snapshot now for the last year or two. And if this program continues to commercialize as they and we expect, it should be a nice size product. I would say in the low to mid-single million dollars of enzyme sales per year as it penetrates the market. Could be more if their new hop extract is more successful than they expect in their markets in the next few years, but that's probably a good feel.

36:49 Nice-sized product, a little larger than a typical pharmaceutical API project, so low to mid-single million. Thank you, Steve.

37:20 Maybe let's just step back a little bit. This is more of a kind of a high-level question for you, John. So given recent events in the space and given your broad pipeline and lots of shots on goals, how do you de-risk developing products that are going to meet your customer specifications? Can you just give us a sense on how you guys manage that risk?

37:48 Yeah, you know, it really comes down to, I'd say, Steve, early definition of what the market needs the enzymes performance attributes to be. And the more we get that right, the more we point code evolvers, enzyme engineering, at the right targets to improve upon. How much thermal stability, reactivity, how important is it? Are there other critical features? So the more we get that early design of the enzymes performance better up front, right up front, the more we de-risk. And we can take calculated moves. We can bring the enzyme 75% away along, get it out in the market, and we can, together with our partner, if it's a self-funded, broadly marketed enzyme like we're doing in the life science tools area, We can go out and we can bring a largely finished enzyme into the marketplace and calibrate from real-world customer feedback and finish the R&D.

38:56 We can very quickly these days improve enzyme performance given how increasingly efficient CodeEvolver is. So that's kind of the way we go about it. We do our best to design up front. We bring the enzyme engineering along a very substantial amount of the way. Sometimes that's sufficient and the market rapidly uptakes it. Sometimes we need to learn from the customer trialing and the downstream performance that the customers are having to come back and just make some modifications to get it just right. And that's the way we go about de-risking the discovery and development part for new enzymes that we're bringing forward.

39:42 Okay, got it. Yeah, that's helpful color. Okay, so yeah, and with regards to kind of these trial studies or pilot studies, you know, do you do those typically for all your partnered programs or is it just for a portion of them?

39:59 You know, partnered programs we can do a lot quicker, right? It's just one-to-one where, you know, we just have one customer. Like we just spoke about CALSEC. I mean, there we've been making improvements to the enzyme. We've been shooting samples across the CalSec in very real-time fashion, and they can do their assessment of taste and profile from the hops that use the enzyme. So we can do that very real-time, very quickly. We can almost do it round by round with a custom partnership. As we bring forward our own enzymes into wider markets, enzymes like our life science tools, enzymes where there are many different potential customers, it can take a little more effort.

40:46 And we're experiencing that to some extent with the DNA polymerase for next-gen sequencing, for example. But that iterative process really helps to refine the product for more broader uptake, and that's how it works.

41:02 Okay, got it. Yeah, that's helpful. Yeah. Okay, so it looks like it's an iterative process with partners, ample time to course correct the program. Okay.

41:12 Yeah. Yeah, and not too time-consuming and not too costly to make improvements based on market feedback. It doesn't take a lot of time and cost and effort.

41:25 Okay. Okay. Got it. And then maybe moving on to the large ATI enzyme order we've been talking about, how do you de-risk the manufacturing? I know you guys are, for this one, you're outsourcing to partners. Can you just give us a sense on, you know, the ability to scale up to, I think you mentioned it was, you know, tens of tons of product?

41:50 Sure. Yeah, this enzyme is actually an established enzyme that we've manufactured commercially in our historical past. So we already have experience manufacturing this particular enzyme at full commercial scale at our CMO partners. So that helps. So when the opportunity with this customer came along, we were able to rapidly move to line up Thank you very much. process development team that has essentially scaled up every enzyme in the company's history, and we're rapidly approaching 100 enzymes that we have fully scaled and transitioned over to CMO partners.

43:03 So this is a core capability of our company to be able to develop robust commercial scale processes up to a significant scale in-house and then seamlessly move it out to our CMO partners. This is truly a refined commercial capability of the company that we continue to make more efficient. We continue to leverage into tomorrow's new products. It's really a key part of our commercialization success and capabilities.

43:35 Okay, great. Yeah, that's fantastic. All right, maybe moving on to molecular assemblies. You mentioned that the enzyme engineering will be mostly done by the back half of 2021. Do you have any sense of the timing of a potential launch of an enzymatic synthesis product?

43:56 Molecular assemblies, DNA synthesis.

44:00 Yes. Yeah, I mean, that's a great question to ask them directly, and as our investors know, I serve on the board of Molecular Assemblies since we made the investment in equity in that company. We're very intimate with Molecular Assemblies. We've made tremendous progress to design the enzymes that enable a low-cost, competitive manufacturing process using our enzymes. We have a little more work to do because it's a pretty competitive market, so that's why we continue to project it'll take us into the second half of the year to get the enzyme to be designed just right for enabling this breakthrough enzymatic DNA synthesis.

44:45 Our ability to scale that enzyme to the volumes that molecular assemblies and market will need is being done in parallel so we're quite confident and that will be pretty time efficient as well. That will take us into maybe the middle of next year So in parallel, the real activity is the build-out of bimolecular assemblies of a competitive manufacturing platform to manufacture long-chain DNA to be able to stitch together oligonucleotides and nucleotides to design to the specification of downstream customers. And they're making great progress. I probably can't speak too much as to how they're doing it and how well they're doing it.

45:32 But we're very impressed. They have made significant investments in building out their manufacturing platform capability. They've done some tremendous hiring to really accelerate their ability to bring forward a competitive manufacturing platform to make DNA using our enzymes. So I feel it's coming together extremely well. and we'll see milestone events like Molecular Assembly's manufacturing platform being in place, likely being announced sometime towards the end of 2022 or thereabouts.

46:11 Okay, great. That's a lot of color. I appreciate that it's a sensitive topic, but yeah, just thought I'd give it a shot and ask you anyway. All right. Thank you. I'll get to some modeling questions on the callback later tonight.

46:26 Okay, Steve, thanks very much. The next question is from Matt Hewitt of Craig Hallam Capital Group. Please proceed with your question.

46:37 I'll echo everyone else. Congratulations on the strong quarter. Just a couple questions for me. First, just a point of clarification. The $13.9 million order, you increased guidance for in the second, well, June, mid-June. You're taking guidance up again today, but it sounded like There's a very likely potential for that order to grow. Did you include incremental revenues from that contract in the updated guidance?

47:07 Yes, we did, Matt. We've had significant discussions with this customer. Part of taking up the guidance was when we put the updated guidance out on June 17th, At that point, we weren't 100% sure of the timing of that $13.9 million order. So we thought maybe some of that could have spread into 2022.

47:31 We now know that all of that is in 2021.

47:36 And so that's a piece of our upgrade today. Also, confidence that additional demand is going to come to Codexus for this particular customer for their needs. And also executable in 2021. So we share it. in the prepared remarks that we've already assured ourselves of the capacity to serve the additional demand. So those are the two pieces that lead us to the increased guidance today versus the already increased guidance from June. Okay, that's really helpful.

48:09 Thank you. And it kind of leads into my second question, which is, given the strength that you're seeing, particularly on the pharma side, What kind of visibility do you have into some of these programs? I mean, obviously you know when there's a Phase 2 or a Phase 3 trial being conducted, but are your customers coming to you saying, hey, you know, the Phase 3 trial ends on this date or around this date, a PDUFA date is expected here, and we think we're going to need this amount of product in Fiscal 22 or Fiscal 23, or what kind of visibility do you have with those customers?

48:45 Yeah, we actually get quite good visibility as late clinical trials move towards their completion. And the customer, assuming they're confident of being able to file and launch, starts to work with us to do what is known as registration batches. So they need to go through a process to convince the FDA in parallel that to the good trial results, they need to be able to convince the FDA that they can produce to a tight quality specification range. And they do that by doing what they call a series of actually a parallel set of qualification registration batches. And these require Conexus enzymes to be able to make those registration batches. So the planning is often These kinds of discussions are always guarded by an uncertain trial result and obviously an uncertain FDA response to the trial data but the need to line up supply chain pre-launch for these registration batches and then to be able to have material ready for launch is well planned and we get good significant visibility when our customers' programs reach this kind of stage.

50:12 Okay, that's helpful as well. Thank you. And then maybe one last one, then I'll hop back into queue. Regarding, I guess, kind of following on that, your pipeline update, thank you for providing that. You've got 22 customer-partnered products that are in Phase 2 or Phase 3. Are there incremental programs that are through phase three and are awaiting PDUFA dates? And if so, you know, are those later this year? Are those next year? Any color as to maybe the number that we should be anticipating over the next year, acknowledging, you know, that you don't know what's going to happen with those actual meetings. But if you follow normal, you know, analytics, you should be getting X number of small molecule and X number of large molecule approvals just any color on the PDUFA date pipeline that would be helpful.

51:05 Thank you.

51:07 Yeah, Matt, that's a hard one for us to answer and we typically haven't given that kind of sharpness across these late stage clinical programs. I will just highlight that we've had a really nice momentum of historical late stage clinical programs moving to fully commercially approved drugs and leading to announceable multi-year supply contracts from Codexis. And so, you know, I can reference Allergan and Curin and Urovant as some of the more recent, you know, programs that moved from late clinical into fully commercial. And obviously, we're right on that edge with this large unnamed pharmaceutical customer as well.

51:59 So you should just expect to see more of these events unfold, and the timing of those are always very hard for us to be able to have strong visibility into. But from a trend perspective and momentum, we're really starting to build a head of steam from the now many years of building late-stage clinical installations and having them probabilistically increasingly move towards commercial and really it's great to see all that translate into such a step up in our product revenues in 2021 versus the recent past. So hopefully that helped give you some feel.

52:42 Yeah, no, that does. Thank you very much.

52:43 Thanks, Matt. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question is from Sean Lee of HC Wainwright. Please proceed with your question.

53:01 Good afternoon, guys, and thanks for taking my questions. So my first question is on the life sciences tool sector, which you mentioned to be a high-growth area for the company. So in the prepared remarks, you mentioned there's an increase in the customer-partnered R&D programs. Could you provide a little more color on what these programs entail, and how do you see these translating to longer-term sustained revenues?

53:26 Yeah, great. Thanks for noting this. I mean, this has been a really great growth area for the company over, I'd say, the last 12, 18 months, where in addition to actually alongside Codex is bringing forward our own enzymes into sequencing markets and to nucleic acid synthesis, RNA synthesis, now DNA synthesis. We've had a growing list of clients come to us with very specialized needs for engineered enzymes. These are more You know, one-to-one opportunities. We engineer an enzyme that's very specific to a client's unique application, not widely applicable, like a polymerase is for next-gen sequencing. And this has been great. I mean, our success stories and our growing visibility has brought a growing stream of partners to us.

54:16 And that's dominoed into a really nice, attractive, you know, million-dollar-plus quarter kind of R&D revenue generation that we've had in the recent few quarters with a set of different partners. And these programs are very unique. They're all different from each other. But like we've suggested, the area of life science tools generally has a little bit larger peak revenue enzyme opportunity if we're successful and we can go commercial with those So, I mean, just, you know, compared to, you know, our traditional API manufacturing enzymes. So I'd say on average, these could be mid-single-digit, million-dollar enzyme opportunities at peak, some of them higher, some of them lower.

55:05 But that's a really nice number for us to be targeting, especially when we get, you know, the partner to fund the R&D early in these programs. So hopefully that gives you a nice feel, you know, really attractive set of partnered R&D programs and life science tools and growing.

55:22 Yes, thanks for that. My second question is on the biotherapeutics. So you mentioned the 7108 is expected to enter phase one probably towards the end of the year. In addition to that, can we expect any release of clinical or preclinical results in your other programs before then?

55:42 Yeah, we plan to share more data. You know, we have 12 programs and growing in the pipeline. We just added a fourth partnered program with Takeda. And so as a group, these are all really nicely advancing, and it's going to be great to get 7108 into the clinic as we finish this year, around the turn of this year.

56:07 So that will be our second clinical drug that was discovered by Codexis and Cody Balver.

56:15 Other areas, you know, they're advancing. I'm not going to foreshadow where. but hang on, we'll be providing some insight into the kind of differentiated performance that we are generating pre-clinically for at least a few of these programs in the not-too-distant future.

56:35 Great. We'll be looking forward to it then. That's all I have.

56:38 Thank you, Sean. I'm showing there are no further questions. I'll turn the call back to John Nichols for closing remarks.

56:49 Okay, thank you again for joining us today. We look forward to continue to update you on Codexys' progress in the future. Thank you very much. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.