Codexis, Inc.

Welcome to Cadexys' first quarter 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. Please note this event is being recorded. and I would now like to turn the conference over to Stephanie Marks from Argo Partners. Please go ahead.

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 Codexas, they are forward-looking statements reflecting beliefs and expectations of management as of this statement date, May 6, 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. In particular, there is significant uncertainty about the duration and impact of the COVID-19 pandemic. This means that results could change at any point in 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. 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.

Thank you, Stephanie. Good afternoon, everyone. I'm very pleased to present strong first quarter 2021 results for Codexys. With the company's growth drivers continuing to accelerate, we began the year with even stronger momentum than we anticipated. total revenue grew by 23% compared to a year ago. And with a growing list of commercializing enzymes, product revenue grew by 101% year over year. With our sales mix continuing to shift toward higher margin products, we also delivered impressive product gross margins of 59% up from 50% a year ago. Our focus on high growth opportunities is bearing fruit. This quarter, we had 15 customers who contributed over $100,000 in revenue, and we had five customers who contributed over $1 million in revenue. In our sustainable manufacturing segment, on top of a strong base of product sales to Merck for Genuvia Manufacturing and to Allergan and Eurovant for their commercial products, we have an exciting list of late-stage clinical development installations driving product revenue growth in 2021. In the life science tools market, we're off to a strong start with expanding adoption for our own broadly marketed RNA and DNA polymerases, coupled with a strong quarter for R&D revenues for customer partnered programs, including several that were initiated in the first quarter. And finally, in our biotherapeutic segment, We steadily advanced our pipeline assets in the quarter and completed key IND-enabling activities that set up our second drug candidate to enter clinical trials later this year. Ross will provide more details on the first quarter results and guidance shortly, but first I'll provide detailed updates across each of the businesses. Starting with our performance enzyme reporting segment, we are growing the business and focusing on two distinct markets, the first being sustainable manufacturing. This is where we built Codexys' enzyme engineering leadership over the past two decades, and this market represents the large majority of the company's revenues currently. Codexys' novel high-performance enzymes 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 Codevolver platform is constantly accelerating the speed of our ability to discover and design these value-creating enzymes. Small molecule pharmaceutical processes have been and continue to be a core target for growing the sustainable manufacturing market for Cadexis. 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. Merck is a great example of the work we do with our pharma partners. One of the original projects that we tackled with Merck was to improve the cost and efficiency of manufacturing the active ingredient sitagliptin in their blockbuster diabetes drug, Genubia. The enzyme we engineered for the sustainable manufacturing of sitagliptin was one of Codexis's earliest commercialized products. and continues to be a significant revenue generator for us today. As a result of our work with Merck on sitagliptin and other projects, Merck recognized the value and wide applicability of using enzymes in their processes and decided to license our Codevolver platform to accelerate their adoption by performing enzyme engineering on their own in-house. More recently, another significant project we collaborated on with Merck was the design of novel enzymes to sustainably manufacture Islatravir, their investigational drug for HIV. We helped them convert a 16-step traditional chemistry process to one that only requires three steps, dramatically improving their capital efficiency and yield. The proprietary process utilizes nine enzymes, a groundbreaking enzyme cascade process installation only made possible by the extensive use of our co-devolver enzyme engineering platform. We supplied over $1 million of several of these enzymes to Merck in the first quarter. In general, our newer sustainable manufacturing enzymes, like these for Islatravir, are being priced at above average gross margins. These newer, more profitable products are making up an increasing portion of our product revenue. Our sustainable manufacturing pipeline also has an increasing number of pharma products in late stage clinical development with the potential for FDA marketing approval approaching. Recently and excitingly, we've been helping two different large pharmaceutical companies by developing novel enzymes for manufacturing their COVID-19 antiviral clinical stage candidates. With accelerated development pathways for COVID treatments, these candidates are moving through the clinic much more rapidly than other pharmaceutical products. Two proprietary codexis enzymes are key to the manufacturing processes of these two clinical stage products and hold exciting prospects as potential new sources of product revenues for Cadexis. In addition to pharma, 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. These products have relatively short development timelines and lower regulatory hurdles, enabling our enzymes to reach the market more quickly. In the first quarter, we announced the commercial installation of new, higher-yielding enzymes for each of Tastiva Amstevia and Dulcia Prima Allulose, two of Tate & Lyle's most exciting new sweetener product launches. These cost-reducing enzymes enable our partner to further accelerate their already promising customer adoption outlooks. In addition, with a deep and growing pipeline of other late-stage development industrial enzyme candidates, we expect this shift towards higher margin and faster to market products will continue to accelerate Codexys' growth. Another relatively new area of expansion for Codexys is the life science tools market, which is a significant growth opportunity for the company. Codexys performance enzymes can enable improvements in next generation sequencing and liquid biopsy genomics diagnostics BioSensor Applications, and more. This market is highly attractive given its high growth, rapid commercialization cycles, and above average margin prospects. This market also affords us the opportunity to develop products that can be marketed to multiple customers in addition to the highly customized enzymes we engineer for specific partners. We've recently developed three new life science tools, enzymes for broad-based customer marketing. Codex high-cap RNA polymerase, Codex hi-fi DNA polymerase, and Codex reverse transcriptase. Our RNA and DNA polymerases have led the way as we rapidly advanced these enzymes toward commercialization last year and began marketing at the end of 2020. In the first quarter, we're already demonstrating success. We engineered Codex HiCap RNA polymerase to provide dramatically higher capping efficiency, enabling customers to significantly reduce the amount of cap agent that is required in the manufacturing recipe alongside an RNA polymerase. The graph on the right side of this slide shows the improved capping efficiency from using Codex HiCap at various cap agent loading levels. In addition, our proprietary enzyme decreases the production of unwanted double-strand RNA, which increases the customer's product yield and simplifies downstream purification needs. In the first quarter, we recorded our first commercial sales of Codex HiCap RNA polymerase to several customers who tested and validated its yield and efficiency benefits. The product is also in various stages of customer trials with several other messenger RNA manufacturers. This excellent start to customer adoption gives us confidence that we're well positioned for potential installation in a range of processes for development stage mRNA based vaccines and therapeutic candidates. We expect product sales to continue to grow through the rest of this year. setting up for a meaningful sales pace as we finish 2021 and beyond. We're also making great progress with the launch of Codex HiFi DNA polymerase. It has been formulated in a master mix that is a standard formulation used for library amplification in next-generation sequencing. Our analysis demonstrates that Codex HiFi DNA polymerase enables the highest next-gen sequencing fidelity results of all the competitive DNA polymerases we tested. We showcased our findings at the AGBT conference this quarter, which drove increased customer interest. The enzyme is currently in trials with dozens of customers for potential use in their current and future NGS kits. In addition to these broadly marketed products, we are also growing customer partnered life science tools programs. Continuing the recent trend, In Q1, we added multiple new customer-funded life science tools R&D programs with undisclosed partners to our pipeline. Several significant projects kicked off in the first quarter, which helped drive R&D revenue from this type of work up over 45% year over year to well over a million dollars in Q1. With the surge in demand for R&D project teams for these new customer-funded projects, We temporarily shifted some resources away from the finalization of the engineering of our reverse transcriptase enzyme, slightly delaying its commercialization. We are now expecting that product to launch in the second half of the year. One extremely exciting customer partner project we're working on in the life science tools market is our groundbreaking collaboration with Molecular Assemblies for the commercialization of enzymatic DNA synthesis. 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. Leveraging the power of codevolver, we are engineering enzymes with the dramatic performance improvements that should make molecular assemblies process a commercially viable, cost-effective, and differentiated solution to manufacture long-chain DNA. We remain on track to complete the enzyme engineering work for this program in the second half of 2021, enabling molecular assemblies to begin early commercialization efforts soon thereafter. 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 closing out the business review, we see tremendous growth potential for Cadexis in the discovery and development of novel biotherapeutics. 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 a dozen programs in the pipeline, including one in clinical stage and another in IND enabling development. We have an impressive multi-program partnership with Takeda Pharmaceuticals focused on improving gene therapy candidates for rare diseases. We are leveraging Codevolver to engineer trans genes with improved attributes such as enhanced expression, improved half-life, greater stability, better uptake in difficult-to-access cells, et cetera. At the World Symposia in February, we presented some exciting new transgene optimization data we've developed for Pompe disease, one of our programs partnered with Takeda. We screened over 19,000 variants of alpha glucosidase and engineered a GAA variant with dramatically enhanced attributes that overcome the key limitations of existing Pompe disease therapies, improving stability and enzyme half-life, increasing time-dependent uptake into challenging cellular targets and eliminating predictive epitopes to reduce immunogenicity. We're proud of the success we have generated in gene therapies after just one year in collaboration with Cicada. Modifying transgenes using CodeEvolver to enable a gene therapy's expression of better performing enzymes is a novel and differentiated approach to design improved next generation gene therapy candidates. Accordingly, we have embarked on self-funded discovery programs targeting improved transgenes for other rare disorders. Leveraging CodeEvolver to discover novel oral biologics that are more safe, We have four oral biologics in partnership with Nestle Health Science and three early-stage self-funded programs. Three of the partnered programs with Nestle are co-owned between the parties, and the most advanced of those, CDX7108, is poised to begin its first clinical trials later this year. Most of our IND-enabling activities for CDX 7108 are complete, including preclinical toxicology studies and GMP manufacturing campaign, setting the stage for IND submission in the third quarter of this year. Let me now hand the call over to Ross to take you through our financial results in more detail.