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spk01: 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.
spk00: 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.
spk06: 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.
spk09: Thank you, John, and good afternoon, everyone. We delivered strong third quarter 2021 results. Total revenues for the third quarter of 2021 were $36.8 million, up 100% compared to the prior year period. On a segment basis, $32.6 million in revenue was from our performance enzyme segment, and $4.2 million was from our novel biotherapeutic segment. This compares with $13.0 million and $5.4 million for performance enzymes and novel biotherapeutics, respectively, for the prior year period. Product revenue for the third quarter of 2021 was $28.7 million, above our expectations for the quarter, and up 242% compared to $8.4 million for the prior year period. The increase was primarily the result of our sales of Enzyme to Pfizer, which generated $18.9 million in revenue in Q3. R&D revenues were $8.0 million in Q3 compared to $10.0 million last year, the decrease was driven by lower R&D revenue from several major pharmaceutical companies and a shift to self-funded R&D programs. Gross margin on product revenue for the third quarter of 2021 also came in above the high end of our expected range at 76% compared with 57% in the third quarter of 2020. The increase was due to a favorable shift in product mix. Turning to operating expenses, our R&D expenses for the third quarter of 2021 were $15.2 million, up from $12.0 million in the prior year period. The increase was driven by higher compensation expense due mostly to higher headcount, higher cost of lab supplies, and depreciation, partially offset by lower preclinical development and regulatory expenses. SG&A expenses in Q3 of 2021 were $13.4 million, compared to $8.8 million for the prior year period. The increase was the result of higher expenses for compensation, primarily driven by higher headcount and higher legal fees, partially offset by lower allocation expenses. Net income for the third quarter of 2021 was $2.2 million, or 3 cents per share, compared to a net loss of $6.1 million, or a loss of 10 cents per share, for the third quarter of 2020. While we were very pleased to be profitable in Q3, we do not expect to be profitable in Q4 or for the full year 2021. With regards to the balance sheet, cash and cash equivalents as of September 30th, 2021, were $119 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 May of this year. Turning to guidance, we continue to expect full-year 2021 total revenues to be in a range of $98 to $103 million, which is the same as the guidance we issued on August 5, 2021. Importantly, we are increasing our 2021 product revenue guidance based on the improved outlook for several products in our portfolio. We now expect full year 2021 product revenues to be in a range of $63 million to $66 million, up from our prior guidance of $59 to $63 million. We expect full year gross margin on product revenue to be 68% to 71%, up from our prior guidance of 65% to 68%. The increase is driven by a shift in the sales mix to higher margin products for the full year. However, we continue to expect the product gross margin to decline from Q3's levels in the fourth quarter of 2021, as we expect revenue from Citiglifton will increase as a percentage of the sales mix in Q4 compared to Q3. Our outlook for R&D and SG&A expenses for the full year 2021 has not changed materially since our call last quarter. We anticipate R&D and SG&A expenses combined should be in a range of $32 to $34 million in Q4. As we have noted previously, our investments in R&D and in our SG&A infrastructure are important drivers of our future growth. In summary, we are heading toward the end of Codexys' most successful year on record, with excellent growth in total revenues, impressive growth in product revenues, and significant expansion of product gross margin during 2021. With that, I'll turn the call back to John.
spk06: 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 maintained strong momentum throughout the third quarter and as we head into the remainder of the year. In particular, we capitalized on several high-value opportunities in the sustainable manufacturing business, resulting in our largest ever annual sales for a product, and in the diversification of the business lines across a widening range of industries. Alongside our commercial progress in the life science tool sector, highlighting our three new Codex product launches, and our second drug candidate to reach clinical stage, CDX7108 in biotherapeutics, we have nearly completed delivering against these goals that we set for ourselves at the onset of the year. 2021 is proving to be a terrific year for Cadexis to break out across all of its target sectors. We are so pleased and proud of the team's tremendous accomplishments. Next year is setting up solidly as well. While we do not yet have clarity on whether Pfizer's antiviral pill will make it to market to treat COVID patients, we do have confidence that if it does, that our enzyme sales to Pfizer next year will be similar or potentially somewhat higher than what we are delivering to them this year. And underlying growth besides Pfizer looks widespread and solid, with expectations to continue to drive revenue growth at around the historical rates that we have been delivering over our recent past. We are proud of our leadership role as a pioneer in tapping into the nearly unlimited potential of synthetic biology. And we are excited by the vast potential for Cadexis engineered enzymes to dramatically improve the health of people and the planet. Now we'd be happy to take your questions. Operator?
spk01: Thank you. The floor is now open for questions. If you have a question, please press star 1 on your telephone keypad at this time. Questions will be taken in the order they were received. If at any time your question has been answered, you can remove yourself from the queue by pressing 1. Again, ladies and gentlemen, if you do have a question, please press star 1 on your telephone keypad at this time. Please hold while we poll for questions. Our first question comes from Brandon Colliard. Please state your question.
spk04: Hey, thanks. Good afternoon. John, I'd like to start with the Pfizer antiviral program. Should we consider the 29 million orders as being used to only serve clinical trial quantities? And then secondly, in terms of your comments there about expectations for 22, I just want to make sure I understand that right. Whether or not it gets commercialized, you still commented that revenue base will be flat to higher next year? Just help us kind of understand the thought process behind that. Thanks.
spk06: Yeah, sure, Brandon. So first question, the $29 million worth of enzymes that we are supplying this year to Pfizer is beyond their, it is being used not only for limited production of clinical trial quantities, the large majority of it is being used to do what is often referred to as registration trial batches to prove the robustness of Pfizer's process, and also we expect that at least a healthy portion of the enzymes are being used to manufacture the antiviral for stock in anticipation of a launch or in anticipation of them being able to get the emergency use authorization. So I'd say a small minority is used for clinical trials and the rest is to manufacture product in anticipation of the launch. Second, for next year, again, we don't know whether, we don't have any data about how their clinical trials are progressing. However, we have indications from them where they're looking to scenario plan for supply from Codexis for 2022 in the event that they are able to get an emergency use authorization. And those discussions lead us to have confidence that if they are able to get their antiviral pill on the market, that we should be supplying enzyme next year at similar or potentially somewhat higher rates revenues that we've been executing in 2021. I guess we're going to, you know, have to wait to see the results from Pfizer's trials and see them, you know, start to move towards getting an emergency use authorization, but that's our outlook is that if that happens, we would expect to do similar enzyme business next year, maybe a little bit higher.
spk04: Okay, that's clear. In terms of the R&D revenue line, just help us understand, you know, kind of what's going on there in terms of the programs, whether there's some shift in strategy or this is mainly a resource issue. We're sort of reallocating, perhaps, some of the teams to other non-R&D revenue-generating projects and perhaps an update kind of on how the new capacity is developing and whether you see scope for further expansion of those teams in 2022.
spk06: Yeah, we are expanding our research capacity so that we can do more parallel enzyme engineering work. And we've actually had some really good success this year in building up the team capacity. At the end of last year, we were oft quoted as having about 15 or so parallel enzyme engineering teams. Today, we've staffed up to do around 20 parallel enzyme engineering teams. And we look to increase that another notch forward further as we move through the rest of this year and into 2022. On the R&D revenue lines, we're in solid shape. We had some tough comps last year. We had big upfronts from Takeda, for example. We had a lot of R&D revenue from the Cody Volver tech transfer agreement with Novartis. Um, but we're growing underlying growth underneath, for example, in the life science area, you know, just, we used to do almost no business in life science tools back in 2018. And last year we did about three and a half million dollars worth of. Uh, R and D custom work for life science tools customers this year, that's looking to be doubling again. So somewhere around double that 3.6 that we did last year. So we're seeing good strength there. We're seeing solid growth, solid delivery for doing R&D project work for our sustainable manufacturing customers as well. But overall, there is a little bit of an incremental shift. As we've capitalized the company strongly over the last few years, we have been driving an incremental shift to do more self-funded R&D work by Codexis. not being so dependent on customer funding to start a work. So we're able to put our teams to work quicker on a self-funded project. And ultimately, by doing more self-funded work versus customer-funded work, we're preserving more of the back-end value creation to flow to Cadexus. So I'd say there's been an incremental shift, but We're staffing up. We're doing more and more. We have substantial demand to do enzyme engineering. We're incrementally shifting that towards more self-funded work, but underneath there's still a very strong R&D revenue growth curve from funded partnered projects. Hopefully that was helpful. Thank you. Okay. Thanks, Brandi.
spk01: Okay. Our next question comes from Matt Hewitt. Please state your question.
spk03: Good afternoon and congratulations on all the progress on so many fronts. Maybe the first one for me, congratulations on the success of the first DNA polymerase contract. I think previously you've talked about those potentially ramping to eight figures over time, you know, at the peak level. But how should we be thinking about the trajectory or the time to get to that peak revenue ramp?
spk06: Yeah, yeah, thanks for highlighting. You know, we're super proud that we've now broken through some commercial successes. with DNA polymerase like we had broken through earlier in the year for the RNA polymerase. We're aggressively working customer trials, customer discussions across a wide range of customers for the DNA polymerase for using our superior enzyme in next-gen sequencing applications. We're in a good place. It's been a little bit more challenging to get customer attention, to get traction with customers, but we're on a really good pace as we finish 2021. We definitely still see this as being one of our most largest product opportunities in the medium and longer term that we're working to penetrate currently across all sectors. So eight digits for the ultimate peak revenue for DNA polymerase is still very much in our targets and expectations. How it ramps through 2022 and 2023, I think we'll probably give a little more color to the ramp for that as we build out guidance, detailed guidance expectations for 2022 in the beginning part of next year. But clearly we're on a ramp to do better next year versus this year. And so just give us a little bit of time to give you a little more color on how we see that ramp unfolding as we talk to you and set more details about 2022 guidance in February next year.
spk03: Got it. Got it. And then maybe one follow-up regarding the Pfizer contract. And thank you for all the details here. It's obviously helpful given all the questions I'm sure you were getting for a couple weeks. As we think about it, I think you mentioned a little over $18 million. Was that in the quarter or, you know, so far with the contract? But is it your expectation that the remaining portion of that roughly $29 million would fall into Q4, or do you expect that to kind of fall over the next couple of quarters and then wait to see what happens with the trial and the potential EUA? Thank you.
spk09: Right, I can jump in here, Matt, but yes, we did about $19 million in revenue with Pfizer in Q3, and the balance of those orders, which total approximately $29 million, we'd expect to fill that in Q4.
spk03: Understood. All right, thank you. Hey, thanks, Matt.
spk01: Okay, our next question comes from Dan Arias. Please state your question.
spk08: Hey, guys, it's Evan here on for Dan. I just had a couple. How are you doing? I guess quickly, I'm not sure if I heard you correctly, but I guess towards the end of your commentary, you started talking about expectations for, I guess, I think it was revenue growth as you look into next year. And you talked about, you know, just kind of consistent with historical growth rates. And I'm looking at my model here. And obviously not, I mean, 2020 and this year, I guess, are anomalies. But as I look back in the model, I mean, I'm looking at 13% in 19 and 21% in 18. I mean, is that kind of what you're guiding to, or not guiding, but suggesting it could be the outlook as we look forward and kind of what would be incorporated in that?
spk06: Go ahead, Ross, you start. I'll jump in as needed. Thanks. Sure.
spk09: Sure, Evan, try to help you there. But I think what John was referring to in his prepared remarks was if you exclude the impact of Pfizer, which obviously has been substantial, our goal would be to continue or maintain those historical growth rates that we've seen in both total revenues and our product revenues. And just looking back to 2020 and prior, our Five-year growth rate for total revenues was in the neighborhood of, you know, 14%, 15%. And for product revenue, five-year CAGR was about, you know, 22%. So, you know, our longer-term aspirations, you know, goals would be to, you know, maintain growth rates at those levels in the core business. Very helpful.
spk06: Yeah, we've got a number of good, you know, tailwinds to drive us for that underlying growth. Our food business, as highlighted in the prepared remarks, is on a really nice ramp. So the two enzymes to Tate and Lyle. And we have this new application with CalSec, which we have some good optimism for. We have the ramp for RNA and DNA polymerase. We have a new product, reverse transcriptase, that we're launching as we finish this year. So hopefully we start to see a sales ramp build for that in 2022. So a lot of good. a lot of good underlying tailwinds to drive growth, and those are just a few.
spk08: Yeah, definitely. I guess my follow-up question, so I guess, you know, as I look at kind of what you guys have been doing, I mean, you've been doing a lot, but, I mean, if we think about within your pharma customers, you've had some, you know, big customers and big successes that, you know, people have heard about. I mean, this big, you know, with Pfizer, you've had success with Merck. I'm just kind of wondering, like, as you have these kind of big successes and public successes, have people been approaching you more and have your conversations with them changed? And, you know, what kind of – what is that – you know, have you had more conversations about having CodeEvolver, you know – I forget what it's called, but, you know – you know, like what you have with code of license agreements and whatnot. I'm just trying to think if you guys have had more conversation as a result of these big, you know, and public success stories.
spk06: Yeah, sure. You know, it varies by sector, but, you know, public successes always, you know, drive, you know, at least incremental energy for us as we work in the marketplace. And, you know, we've had material successes in, you know, using enzymes to drive low-cost, more sustainable processes in pharmaceutical manufacturing now for almost two decades. And the number of scientific breakthroughs, the different customers that we've advanced partnerships with has really built a great momentum for us. And we're doing at least some measure of business with 21 out of the top 25 drug companies right now. So our job there is to just continue to showcase all the different chemistries that our enzymes can produce can drive low cost and sustainable manufacturing against, to streamline our discussions with more and more of the large pharmaceutical customers in particular, and to get them to believe like Merck, like Pfizer, like Merck, like GSK, like Novartis, just how widely applicable our technology can be across their entire pipeline. And as we continue to successfully move customers steadily with that with that awareness on applicability, then people get closer and closer to justifying, you know, a CodeEvolver platform license like GSK Merck and Novartis. So, yeah, it's really good. I mean, as we, you know, break into life science tools market, I mean, it's an area that we're very new, so every material publicity we generate there generates significant growth and interest about what we're doing. Presentations at major events like AGBT, for example, you know, really, really help to bring more, you know, more customers coming to us about asking what we can do. And then in the pharmaceutical, you know, in the biotherapeutic discovery and development, we're also quite new here. And so, you know, showcasing that now we have two programs that are in clinical stage that we're addressing, you know, significant diseases like phenylketonuria disease historically and now exocrine pancreatic insufficiency. you know, this helps us to bring more and more attention to Codexys' technology being a drug discovery engine and that Codexys' team is increasingly capable to drive development advances, you know, like reaching clinical stage. So, yeah, thanks. It's really exciting to see that kind of momentum. It doesn't happen in big chunks, but it happens in steady incremental improvements over time as we continue to succeed like this.
spk08: Great, thanks so much.
spk01: Our next question comes from Jacob Johnson. Please state your question.
spk07: Yep. Hey, good evening, everybody. Congrats on this quarter. John, maybe first question, just on 7-108, congrats on that moving into phase one. I believe since you own 50% of that with Nestle, no milestone here, but I do think you maybe have to fund some of the R&D. So can you just talk about any kind of R&D investments that could be associated with that. Maybe they're not worth calling out, but I figured I'd check.
spk06: Yeah, first, you're correct. As we've moved 7108, you know, a 50-50 owned asset with Nestle Health Science, there are no milestones currently or in the near term associated with the development of CDX 7108. So we have not negotiated milestones. Instead, we are co-funding the continued development of CDX 7108, and so it's showing up as a growing cost stream for Codexis. Actually, we've been investing pretty materially already to do all the I&D enabling work, which includes CMC and GMP manufacturing and toxicology work, so it's already been a pretty healthy investment, even split 50-50 with Nestle Health Science. And there'll be a continuation of expenses as we move through these phase one trials. So that's how that program works.
spk07: Got it. Thanks for that, John. And then thanks for the couple of updates on Genuvia. Just one kind of longer-term question there. When Genuvia goes off-patent, And maybe you have some agreements with some of the generic manufacturers. Is this something that increases the potential opportunity from that drug? Or should we think about kind of generics and the continuing relationship with Merck and whatever happens with their sales is kind of all netting out to being the same as it is today?
spk06: Yeah, great question. And a little hard to see at this early chapter. But we've been building confidence, making statements to you and other investors that we had confidence to continue the kind of revenues that we've been generating in the patented stage where we just sell to Merck that we could continue those kind of revenues as it moves into the generic chapter. There's a couple of things that we can't quite see very clearly until we get into the generic chapter. One is will there be more Genuvia or Citagliptin, generic Citagliptin, prescribed once it goes generic? It's a mainstay drug for type 2 diabetes. So there's a good prospect that as the price goes down, as it goes generic, that more docs will prescribe, you know, generic Citagliptin than they were prescribing the patent to Genuvia. So that would be a plus side for us. On the other side, we need to get ourselves positioned in a decent number of these generic companies. We've already showcased that we're going to maintain our business with Merck, and we've extended that agreement into 2026, which is a number of years beyond the expiration of the Genuvia patents. And earlier in the quarter, we showed our first, and it's actually a very nice and significant deal for us in with Elmello in partnership with this other company called RC2 Pharma to show that we've got another brick in our arsenal to try to at least maintain, and potentially it could be higher. If we get the right generic partners who win the leading share of the generic market, which we won't really know until 2024 or 5, 6 timeframe, if we land our business with the winning generic companies, It could be higher, but we're in really good shape. This is the first two. We have other activities that are ongoing to get our enzymes installed with other generic citagliptin companies. So it just gives us a lot of confidence. And this has been a significant revenue generating line for Cadexis for years. We're just showcasing that we've got the right strategy to continue that kind of revenue going forward through the generic chapter.
spk07: It might have been a little bit early for the question, but I figured I'd check.
spk06: Thanks for that. Cool. Thanks, Jacob.
spk01: Our next question comes from Arthur He. Please state your question.
spk05: Hey, good afternoon, John and Ross. This is Arthur for RK. Congratulations on all the progress this quarter. I just had a question regarding the codex reverse transcriptase. Could you give us more color on the launching and how is the potential customer feedback during the pre-launch preparation and also when we could expect the revenue follow through these products? Thank you.
spk06: Sure. Sure, thanks. Yeah, we've been working on reverse transcript days pretty much all year in the in the design and commercialize chapter. As we've learned as we've brought more enzymes into life science tools applications, it's really good to provide early alpha testing of our enzymes before we do a full formal launch to get the formulation right, to really test the validation. that we're seeing in our lab, and we got that kind of feedback, that indeed, our reverse transcriptase versus currently used reverse transcriptase, we have better thermal stability, which enables faster cycle times, that it's a more robust enzyme to things like other components, which you don't want in these biological samples. Our enzyme kind of blows through those better, this sensitivity. So we're quite confident from these alpha trials that our product is ready to launch, and we're doing that in the coming weeks, somewhere in December. So that's great. The ramp-up of sales is, you know, it's like what you've been experiencing and watching us deliver for the DNA polymerase and the RNA polymerase. It takes time. We go out to a range of customers in parallel. We put our application specialist to work to help those customers to utilize it and to help them with any differences that they're seeing versus the reverse transcript days. So it'll take some time. Next year, for example, if we've just launched the reverse transcript days in December, I wouldn't expect a very big sales for our RT next year, but we should be, as we move through the year, showing milestones like first commercial sale and building enthusiasm for a growing application of the reverse transcriptase as we move through 2022, kind of like what we've been doing this year with the DNA polymerase and the RNA polymerase.
spk05: Sounds great. Thank you. Thank you for the color. Thank you, Arthur.
spk01: I'm showing there are no further questions. I'll turn the call back to John Nichols for closing remarks.
spk06: Okay, thank you again for joining us today. As a reminder, we will be attending the upcoming Craig Hallam, Stiefel, and Jeffries London conferences the week of November 15, as well as the Stevens, Evercore, and Piper Sandler conferences the week of November 29. We look forward to continuing to update you on Codexus's progress. Thank you very much.
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