Codexis, Inc.

Welcome to the Codex's third quarter 2021 earnings conference call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero on your telephone keypad to reach a live operator. Please note this event is being recorded. And now I'll turn the call over to Stephanie Marks from Argo Partners. Please go ahead.

Thank you, operator. With me today are John Nichols, Codexys President and Chief Executive Officer, and Ross Taylor, Codexys 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, including our guidance for the 2021 total revenues, our updated guidance on product revenues, and gross margin on product revenues, and our expectations regarding sales of one of our proprietary enzymes to Pfizer for the manufacturer of their late clinical stage COVID-19 antiviral therapeutic candidate. 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, November 4th, 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 time, and the currently contemplated impact of the virus on the company's operations, financial results, and outlooks 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, Codexys' quarterly report on Form 10-Q filed with the SEC on August 6, 2021, and Codexys' other periodic reports filed with the SEC. 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 am proud to report that Codexys has delivered another quarter of exceptional operational performance. Total revenue for the third quarter of 2021 grew 100% year over year, Product revenue more than tripled from a year ago and product gross margin reached a new high of 76%. Over the past quarter, we continue to diversify our customer base with 19 customers who contributed over $100,000 in revenue, seven of whom contributed over $1 million in revenue. Our sustainable manufacturing business demonstrated step-out growth this quarter, driven by the large orders we have received from Pfizer for one of our proprietary enzymes to manufacture their late clinical stage COVID-19 antiviral therapeutic candidate. The purchase orders we disclosed in June and August aggregate to approximately $29 million, And this enzyme represents the largest annual sales for a product in company history. This was far from the only success story coming out of our sustainable manufacturing business this quarter, where we also strongly positioned ourselves for the upcoming generic chapter of the Citigliptin market and demonstrated excellent progress in the faster to market food space. In the life science tools market, We were very pleased to execute the first commercial sale of Codex HiFi DNA polymerase, and we remain on track with our other products and custom partnerships in this sector. And in our biotherapeutics business, we are thrilled to have entered the clinic with CDX7108, which is co-owned with Nestle Health Science, for the treatment of exocrine pancreatic insufficiency. This is the second Codexys-designed therapeutic to reach phase one clinical trials, the first being CDX6114, which is fully licensed to Nestle Health Science for the treatment of phenylketonuria. Our results showcase Codexys' ability to drive robust progress across diverse market segments in parallel. Sustainable manufacturing is where we've established Codexys as the undeniable leader in enzyme engineering, and this market continues to represent the large majority of company revenues. Codexys' novel, high-performance enzymes reliably 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 enzyme engineering platform is constantly accelerating the speed of our ability to discover and commercialize value-creating enzymes. Small molecule pharmaceutical processes have been and continue to be a core target for growing the sustainable manufacturing market for Codexis. We have partnered with 21 of the 25 largest pharmaceutical companies in the world to help them adopt and install novel Codexis enzymes for manufacturing their APIs. The large purchase orders we disclosed for Pfizer for a proprietary Codexis enzyme to manufacture their clinical stage COVID-19 antiviral therapeutic candidate represents a historic milestone for Codexis given their size. In addition, this business and the orders from Pfizer came to fruition with unprecedented speed. Furthermore, these orders also put our supply chain to the test. giving us the opportunity to prove our ability to quickly scale up manufacturing of an enzyme and produce at the pace necessary to fulfill orders of this magnitude. We are proud to be supporting Pfizer on this critical treatment for COVID patients, and we wish them well in the conclusion of their clinical program and potential regulatory authorization. Also on the COVID antiviral front, We note that we have done some impressive enzyme engineering work in collaboration with Merck to design a multi-enzyme cascade for the manufacturing of their COVID antiviral drug, Molnupiravir. However, Merck has decided to build supplies for their anticipated emergency use authorization launch with a non-enzymatic process. It is possible that Merck could eventually switch to a Gen 2 process with Codevolver engineered enzymes, but we have no knowledge of Merck plans to do so anytime soon. The cost savings provided by our high-performance enzymes position Codexus to be a key partner to stakeholders throughout the lifecycle of a drug, including when a branded product goes off patent. As most of you on the call know, we developed an enzyme for Merck that significantly reduced their cost to manufacture sitagliptin, the API in their blockbuster diabetes drug, Genuvia. Our sitagliptin enzyme has been an important product revenue generator for us over nearly a decade. With the impending patent expiration of Genuvia, we are well positioned to capitalize on the growing demand from generic manufacturers for our enzyme to help them produce low-cost sitagliptin. To that end, during the third quarter, we established our first two multi-year agreements to extend our long-standing sitagliptin product business into its generic chapter. With Merck, we extended our enzyme supply contract through the end of 2026. In the case of Almelo, Codexis has agreed to license and supply our proprietary enzyme to them for their generic manufacturing process for sitagliptin, and we are pleased with their decision to install the capability to self-produce this enzyme, enabling sitagliptin cost to be driven even lower still. As part of this collaboration, RC2 Pharma is responsible for leveraging relationships with global drug product partners to establish downstream channels to market the Almelo-produced sitagliptin. Adding the expertise of RSE2 enables a fully integrated, low-cost supply chain to uniquely position this partnership for success in the coming competitive, generic sitagliptin marketplace. In addition to pharma manufacturing, in the past few years, we've been expanding to other industries designing enzymes to sustainably manufacture for a wide range of applications, including food and beverage ingredients, as well as a host of other potential industrial enzymes. These products have shorter development timelines and lower regulatory hurdles than pharma manufacturing, enabling our enzymes to reach the market more quickly. In July, we announced an expanded collaboration with CalSec. a leading producer of food and beverage industry products. Working closely with CalSec's advanced hop products innovation team, we leveraged our Codevolver enzyme engineering platform to develop a novel enzyme that enables the natural biocatalytic production of a light, stable hop acid. Beers, especially hoppy beers like IPAs, typically need to be canned or packaged in dark glass to prevent the degradation of hops and the formation of light struck character, what you may know as skunky beer. By utilizing Codexis's proprietary engineered enzymes rather than conventional chemical means, a hop acid that is more light stable is biochemically produced, enabling the beer to be bottled in clear glass without the risk of rapid hops degradation. The green technology also provides a cleaner label for the final beverage product declaration. In addition to expanding our agreement, we also earned a milestone from CALSEC in the third quarter for achieving the generally recognized as safe, otherwise known as GRAS, self-affirmation for this enzyme. We remain enthusiastic about our growing opportunities in the food and nutrition vertical, and this partnership with CalSec only scratches the surface of what is possible using our unique engineered enzymes. Rounding out the food sector, we are also pleased to see growing momentum for enzyme sales to both of Tate & Lyle's new sweeteners, Dolcea Prima Allulose and Tasteva Amstevia, as we move through 2021, voting well for the strong peak product revenues we expect from each of these newly commercialized food applications. Another high growth opportunity for Codexys is in the life science tools market. Codexys engineered enzymes can enable improvements in next generation sequencing and molecular diagnostics, biosensor applications, DNA and RNA synthesis, and more. The market is very attractive given its 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 specific partners. Over the past year, we've developed three new life science tools enzymes for broad-based customer marketing. Codex HiCap RNA polymerase, Codex HiFi DNA polymerase, and Codex reverse transcriptase. In the third quarter, we were pleased to record our first commercial sale of Codex HiFi DNA polymerase. Our analysis demonstrates that Codex HiFi DNA polymerase enables the highest fidelity next-gen sequencing results of all the competitive DNA polymerases tested. and we are proud to have begun the sales ramp for this important new life science enzyme product. Codex Hi5 polymerase is being tested by multiple customers for use in existing and future applications. Earlier in the year, we made our first commercial sales of Codex HiCap RNA polymerase to several customers, and interest remained strong for its use in clinical stage messenger RNA manufacturing processes. 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 production of the mRNA product. Our third life science tool's enzyme, Codex reverse transcriptase, has been developed to improve performance versus incumbent enzymes in both diagnostic and sequencing applications. It has been specifically engineered with improved sensitivity and inhibitor resistance for use in RT-qPCR for RNA-based disease detection. One limitation of current reverse transcriptases is their low thermal stability. To get an accurate reading, samples need to be heated to melt the RNA at temperatures well above the tolerance of most enzymes. Our codex reverse transcriptase thrives at high temperatures. We have also engineered our enzyme for increased inhibitor resistance, thereby ensuring that other components found in tested samples do not interfere with the results or prevent the enzyme from doing its job. Together, these two parameters make Codex reverse transcriptase a much more robust and sensitive enzyme, reducing false negatives and reducing the turnaround time needed for a diagnostic result. We are encouraged by performance feedback from Early Access users who have tested the product to date, and we are on track for a broader launch into diagnostic applications next month. The partnership between Codexys and Molecular Assemblies is also making great strides, bringing closer to reality the disruptive enzymatic approach to synthesizing DNA. Codexys is leveraging the power of Codevolver to deliver dramatic performance improvements over the current chemical process for gene and DNA synthesis by engineering enzymes designed to make MAI's process a commercially viable, cost-effective, and differentiated solution to manufacturing long chain DNA. In parallel, Molecular Assemblies is scaling their manufacturing platform and building a commercial team to accelerate going to market. Given our confidence in the partnership, we have decided to increase our equity stake in Molecular Assemblies. investing $7 million and stepping us up to become their second largest shareholder. Our partner in the SynBio Innovation Accelerator, Kasdan Capital, has invested $3 million as well to become a new shareholder in molecular assemblies. It's exciting to be leveraging our enzyme engineering and supply capabilities to access downstream value in the fast-growing DNA synthesis marketplace via these strategic moves. Rounding out the life sciences tool sector, we continue to experience strong demand for partnered enzyme engineering programs for custom and second-generation applications from within the life science industry. Our dedicated engineering teams are currently running multiple partnered programs in the field of biosensors, genomics, oligonucleotide synthesis, and more. The growing demand from the life science industry solidifies our belief in the advantages and value that Codevolver can bring to this heavily enzyme-dependent market. Leveraging Codevolver to discover and develop novel biotherapeutics is another exciting growth strategy for Codexys. Here, we are rapidly building and advancing a high-value pipeline of oral biologics and gene therapy candidates. Just a few years ago, we had only two very early stage programs in our pipeline. Today, we have over a dozen programs in the pipeline, and we are increasingly holding assets for select programs deeper into clinical development in order to enhance their value for Cadexis. We were thrilled to announce that our second CoDevolver discovered biotherapeutic candidate has reached clinical stage having recently initiated a phase one study for CDX7108 for the treatment of exocrine pancreatic insufficiency. EPI is a debilitating condition of the GI tract that is caused by conditions that impair pancreatic function, including pancreatitis, pancreatic cancer, Crohn's disease, celiac disease, and cystic fibrosis. The current standard of care for this condition, pancreatic enzyme replacement therapies, or PERTs, are limited in efficacy due to the GI instability of their lipase component. CDX7108, an orally administered GI active lipase, was precisely engineered to overcome the limitation of traditional pancreatic enzyme replacement therapy deficiencies. by engineering enhanced acid tolerance for stomach stability and breakthrough protease resistance for the small intestines, our preclinical trials with CDX7108 demonstrated equivalent recovery of coefficient of fat absorption at a tenfold lower dose than standard of care PERT. We are excited to advance CDX7108, the first of a series of equally owned candidates from our Nestle HealthScience partnership into clinical development. The early clinical study design comprises single-dose and multiple-dose escalation trials in healthy volunteers, followed by a single-dose proof-of-concept trial in patients with EPI. While the big news in our biotherapeutic segment is CDX7108, we are making progress across the entirety of our pipeline as well. Three self-funded and two other Nestle co-owned oral biologic programs are all advancing in their preclinical research and development. We also have an impressive four-program partnership with Takeda Pharmaceuticals, which is focused on engineering transgenes to enable differentiated next-generation gene therapy candidates for rare diseases. In addition to the partnered programs with Takeda, We have recently embarked on self-funded discovery programs targeting improved transgenes for other rare disorders. It's great to see the progress being made by the Cadexis Biotherapeutics team expanding and advancing so successfully this year. Let me now hand the call over to Ross to take you through our financial results in more detail.