Codexis, Inc.

Good afternoon and welcome to the Codex's second quarter financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Bruce Voss. Please go ahead.

Thank you. This is Bruce Voss with LHA. Thank you all for participating in today's Cadexes call to discuss second quarter 2020 financial results and recent business progress. A slide presentation featuring an updated product pipeline to accompany the conference call commentary is available on the Investors section of Codexis.com. Joining me from Codexis are John Nichols, President and Chief Executive Officer, and Ross Taylor, the company's 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 Codexes, they are forward-looking statements reflecting the beliefs and expectations of management as of August 6, 2020. You should not place under reliance on these forward-looking statements because they involve known and unknown risks, uncertainties, and other factors that are, in some cases, beyond the company's control and could materially affect actual results. 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 a 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. Codexis expressly disclaims any intent or obligation to update forward-looking statements except as required by law. Today's conference call remarks will include both GAAP and non-GAAP financial results. Codexis believes the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of its business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and allow for greater transparency with respect to key metrics used by management in operating the business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding GAAP measures. Reconciliations between GAAP and non-GAAP financial measures can be found at the end of the financial results news release that was issued earlier today. With that said, I'd like to turn the call over now to John Nichols. John?

Thanks, Bruce. Good afternoon, everyone, and thank you for joining us. It's highly gratifying to report on our strong execution through the COVID-19 pandemic to date. We delivered better than expected financial results for the second quarter with revenues of $15 million. That's up 21% over the prior year. R&D represented over two-thirds of our total revenues and delivered a 72% increase versus the prior year. Product sales came in as we had expected and favorable mix showcased product gross margins well above historical averages in the quarter as well. Importantly, we are forging ahead remarkably well through the effects of COVID-19. Our R&D operations are getting closer to their pre-pandemic operating levels. We have adapted the physical layout of our lab facility and our staggering employee shifts to ensure the safety of our scientists as we rebuild R&D operations. Continuing the remote operation of our general and administrative employee base for the foreseeable future also helps to increase social distancing for the R&D team at the site. Our ability to reopen operations at a faster rate than anticipated when we held our last call in May helped to drive our excellent R&D revenue performance for the quarter. Our expectation is to return to full R&D capacity toward the end of the summer. I'm especially proud of the strong revenue results given that our lab was shut down or operating at low capacity for a large portion of the quarter due to the COVID-19 pandemic. While customers across the board have maintained their demand for our collaborative R&D project work, the shelter in place requirement effectively extended timelines for most of our partner funded R&D project work into the future. Our ability to catch up on those timeline delays is limited. But the good news is that this COVID-related revenue effect is expected to be much lower in the second half of this year versus the second quarter, given the successful ramp up of our R&D capacity since May. Of course, we will remain vigilant and agile in the event that the pandemic changes our circumstances, which of course remains a possibility. Key to the strong results in the quarter came from our new gene therapy partnership with Takeda. Here, in the midst of the pandemic, the two teams expedited the kickoff of multiple projects brilliantly, allowing us to deliver on several revenue recognition events in the quarter. Among these, we have transferred our transgene technology, meaning the nucleic acid information that will code for the differentiated Codex's developed enzymes, that is allowing Takeda to begin their gene therapy candidate preclinical work for Fabry disease. Indeed, we are recognizing revenue from the partnership earlier in the year than we previously anticipated. That said, while we were able to realize more revenue from Takeda than expected in Q2, our overall expectation for 2020 revenue from the Takeda partnership has not changed. Product sales were solid in the quarter and are performing very well year to date. This, coupled with our robust order book, gives us confidence that our full-year outlook for product revenues will come in at the high end of our pre-COVID expectations. In Q2, sales to Merck's Genuvia active ingredient, sitagliptin, continued as the leader amongst our product revenues. We also saw a significant contribution from Cure and Pharmaceutical for the enzyme in Biova tablets for overactive bladder being marketed in Japan. Product revenue was again spread across a broad customer base. The success of our supply chain team to work remotely combined with the outstanding continuous operations of our competent external manufacturing partners ensured that our product revenue stream and gross margin expectation remain largely unaffected by the pandemic. Excitingly, the quarter showcased the stepped up ambitions of Codexys into the world's high growth and dynamic life science markets. Four new enzyme products targeting the space under two highly creative new partnership deals were announced in the quarter. These follow the recent successful partnership deal with Roche commercializing our first enzyme, DNA ligase, for next gen sequencing. We aspire to penetrate the space with these enzymes, plus offer more new product innovations for these life science and diagnostic applications, as this area is proving a great target for applying our platform protein engineering capabilities to bring forward transformative new products and solutions. Let me take a few minutes to thumbnail our two new life science partnerships, starting with AlphaZyme. Led by industry veteran and former co-founder of Enzymatics, Chris Benoit, AlphaZyme is a highly synergistic partner for Codexys for life science enzymes. Our expertise in designing new enzyme structures that can deliver unique value-added performance features complements naturally with their manufacturing strengths. On top, We combine our networks and application knowledge to collaborate and bring extra horsepower for going to market. It's very early days, but the three enzyme program launches are nicely on track. Our DNA polymerase, which has been engineered to deliver high fidelity and uniformity of coverage for next generation sequencing, is already in customer trials, is generating significant interest, and is nearing its first commercial sale. Our RNA polymerase for lower-cost manufacture of messenger RNA-based therapeutics and vaccines has been commercially scaled, and enzyme sampling for customer trialing has just begun. Encouragingly, some of the leading players lining up for COVID-19 mRNA vaccine manufacture are among those sampling our RNA polymerase. Similar milestones for the reverse transcriptase for RNA diagnostic use trail a bit behind the other two enzymes due to our chosen priorities. All in all, an excellent start to the partnership and launch of these exciting new enzymes. As a reminder, the deal is set up with Codexis fully recognizing the product sales revenue collected from customers with AlphaZyme's contributions appearing on our books as a cost of goods sold. Equally exciting is our new partnership with Molecular Assemblies, focused on a disruptive enzyme-based approach to synthesizing DNA, a crucial and rapidly growing input for a range of applications, including drug discovery and manufacturing, synthetic biology for sustained production of chemicals, and longer term for information storage. Our assessment is that radical enzyme improvements are needed to make the enzymatic DNA synthesis approach commercially viable and differentiated versus the chemical synthesis route that has been used to build today's billion-dollar-plus synthetic DNA market. As you have heard many times, radically improving enzyme performance is what we love to do at Cadexis. and we believe that only Codevolver could ever make enzymes do what is necessary to open up enzymatic DNA synthesis technology for the world. Looking forward, this demanding target will likely take Codexys approximately one year to engineer those needed enzyme improvements. In parallel, Molecular Assembly's team will focus on optimizing the chemistry to use those enzymes. If all goes according to plan, molecular assemblies will begin to commercialize their technology around the end of 2021 and will wield unique competitive advantage leveraging our proprietary enzymes. The enzymes for the partnership will be owned, controlled, and sold by Codexis, and Codexis will enjoy its equity ownership in molecular assemblies as they succeed downstream in their DNA synthesis business. Before I turn the call over to Ross, I'm excited about sharing our updated Codexys pipeline snapshot as of June 30, 2020, which we posted to our website today. As you can see on slide two, we've made considerable progress over the past year with the entire pipeline ramping at a significant pace. Highlights include adding 13 new projects to the pipeline, That's a 25% increase from the prior year and brings our total pipeline to 65 projects. The number of commercial stage programs increased to 14, an increase of three from last year. Of course, the whole goal of the pipeline is to drive an acceleration of commercial recurring revenue generating programs. That takes time, so it's great to show this year the largest jump in the number of new commercial stage programs since we began tracking the pipeline in 2016. In the detail shown on slide three, you can see a more than 50% increase in the number of projects in our pipeline over the last two years, as well as a two and a half fold increase over the past four years. We have successfully expanded our pipeline across multiple industries and applications in parallel. For example, over the last four years, the number of late stage phase two or phase three pharmaceutical manufacturing projects is up more than 170%. The number of programs in our novel biotherapeutics pipeline has more than tripled and the number of life science enzymes increased to eight with three added over the past year. What our pipeline illustrates is our ability to deliver against core strategic goals as we build for a strong future. Growing and advancing development stage projects that lead to growing commercial recurring revenue products is the goal. Our pipeline snapshot shows that momentum consistently accelerating. Great job by the Codexys team. Strong testament to the value we are creating for the future. With that, let me turn the call over to Ross for a review of our financial performance. Ross?