Codexis, Inc.

Greetings, and welcome to the Codex fourth quarter and full year 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. I would now like to turn the conference over to Brendan Strong from Argo Partners.

Please go ahead. Thank you, operator. With me today are John Nichols, Codexus's president and chief executive officer, and Ross Taylor, Codexus's chief financial officer. Earlier today, Codexus issued a press release detailing the company's results for the fourth quarter and full year ended 2021 and provided guidance for 2022. This press release, along with a slide presentation that we plan to reference during today's call, are available under the investor relations section of the company's website, 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, without limitation, our guidance for 2022 revenues, product revenues and gross margin on product revenues, prospects for our life sciences tools, food sector, and biotherapeutics products businesses, and our expectations regarding sales of one of our proprietary enzymes to Pfizer, for the manufacturer of their COVID-19 antiviral therapeutic Paxlovid. To the extent that statements made by management are not descriptions of historical facts regarding sexes, they are forward-looking statements reflecting beliefs and expectations of management as of the statement date, February 24th, 2022. 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 statements, 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 Cadexus's annual report on Form 10-K filed with the SEC on March 1st, 2021, and Cadexus's quarterly report on Form 10-Q filed with the SEC on November 5th, 2021, and Cadexus's other periodic reports filed with the SEC. Cadexus expressly disclaims any intent or obligation to update forward-looking statements, except as required by law. I'll now turn the call over to John.

Thank you, Brendan. Good afternoon, everyone. We are very pleased to report exceptional fiscal year 2021 results for Codexys and to discuss the exciting growth drivers that will continue to accelerate company momentum through 2022 and beyond. In particular, I am extremely proud that we delivered our eighth consecutive year-on-year revenue growth. In addition to more than doubling our annual product revenue, we also delivered our highest total revenue in recent history of $104.8 million. And as our sales mix continues shifting toward higher margin products, we delivered our highest ever annual product gross margin as well. In addition to these accelerating financial metrics, we also made great strategic strides across all of our target markets. We'll go over each of those business areas in more detail shortly, But I'm super proud to highlight now our record performance against core fundamental growth metrics in 2021. In our biotherapeutic segment, we now have two Cody-Volver discovered candidates that have advanced into the clinical development stage. And in performance enzymes, we commercialized a record eight new products in the year. including our largest ever annual product sale to Pfizer for their COVID antiviral pill, Paxlovid. 2022 is set to continue the company's acceleration following the record strong finish in 2021. Total company sales are set to grow 50% year on year again in 2022. Leading the way to deliver double digit sales growth, excluding the large Paxlovid enzyme business, is the high-growth life science tools market, which is set to deliver 50-plus percent revenue growth this year. In the biotherapeutic segment, we expect to have three developmental candidates, up from one currently, executing IND-enabling work toward the clinic by the end of 2022. Driven by an increasingly profitable performance enzymes business, and a robust year-end cash balance of $117 million. We are poised to continue to invest in the growing number of high ROI opportunities we are developing, positioning us to continue this growth well beyond 2022 as well. All core fundamental metrics show that we are delivering on the promise of translating the power of synthetic biology into tangible real-world benefits and impact. In our performance enzymes business, we are on track to deliver a nearly four-fold increase in product revenues in just two years. Our technology and products are benefiting a widening set of customer relationships in parallel, noting that our customers with significant size have expanded by 37 percent over the last two years. We manage dozens of developmental stage programs with these customers, but the fruits of both of our efforts come when the program fully commercializes, at which point both we and our customers enjoy the recurring benefits from the use of the products we engineer, patent, and scale. Hence, it is fabulous to see our pace of commercialization take off, nearly doubling over the past year and a half. Once one of our products gets commercially specified into our customer's process, given our strong intellectual property position, we are poised to serve the customer with that product for many years, if not decades to come. And finally, notice the step-out progress we are making in our novel biotherapeutic segment, where we expect to have five therapeutic candidates in either clinical or IND-enabling stages by the end of 2022. This is up from just one in 2019. Whether de-risked through partnership or wholly owned, these are by far the largest potential products our technology can aspire to create. Discovering lead drug candidates leverages our core Cote d'Ivoire platform. Driving those patented candidates towards the clinic leverages our decades-long experience in enzyme process development and manufacturing. Validation of those drug candidates in the clinic is where the real value creation happens. It's incredibly gratifying to see us step up the advancement of the biotherapeutic pipeline and its value creation over these recent years, and we look forward to maintaining this exciting momentum. Now let me shift to more detailed reviews of our target markets, first starting with sustainable manufacturing. This is where Codexys has differentiated itself as the global leader in overhauling processes utilizing engineered enzymes. We serve a growing diverse group of branded and generic drug companies, food and beverage companies, and industrial manufacturers. Thanks to the scale and constantly accelerating speed of our unique CodeEvolver platform, Codexis has an unparalleled ability to discover and commercialize high-value enzymes for a growing array of applications. Our 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. Small molecule pharmaceutical processes have been and continue to be a core target for growing the sustainable manufacturing market for Codexys. Here, our business is accelerating substantially, with product sales growing at a 36% compound annual growth rate over the last five years. Our reputation and competitive advantages are well known, with us doing at least some amount of business with 21 of the top 25 largest pharmaceutical companies in the world, helping them adopt and install novel Cadexus enzymes for manufacturing their APIs. These are large household names that are increasingly putting great trust in us, depending on our products to manufacture medicines that improve the lives of people around the world. Eleven pharmaceutical customers now each generate in excess of $1 million revenue for us, up nicely from eight last year. In 2021, we secured the largest product sale in company history for a proprietary Codexis enzyme to manufacture Paxlovid, Pfizer's COVID-19 antiviral pill. which has been granted emergency use authorization by the FDA, as well as corresponding international marketing approvals. This success represents a historic milestone for Cadexis, demonstrating the agility and speed of our commercial supply chain and manufacturing capabilities to generate unprecedented enzyme quantities in support of Pfizer making Paxlovid available to COVID-19 patients as quickly and widely as possible. Following last year's record sales of $34.5 million for Paxlovid, we are set up to more than double our supply in 2022 to between $75 and $80 million. Orders are now in hand to cover that demand in 2022, and we have also secured purchase orders for deliveries in early 2023 that give us visibility into at least the majority of this revenue stream continuing into next year as well. Prompted by this strengthened and extended demand from Pfizer, we have gotten our two leading custom manufacturing partners to expand their capacities and have secured additional new production from two other high-quality CMO partners. Not only will that help us continue to stay ahead of Pfizer's enzyme requirements, but this will also bring longer-term supply chain robustness to us as we continue to grow our overall enzyme production needs. The Cadexis team has done an amazing job capitalizing on this opportunity of unprecedented scale. We are honored to have earned Pfizer's trust and confidence to be a key partner in the manufacturing process of such a critical drug, and we look forward to continuing to support Pfizer's manufacturing of this essential treatment for COVID-19 patients. In addition to our work with branded drug manufacturers, the cost savings provided by our high performance enzymes have positioned Codexys to be a key partner to stakeholders throughout the life cycle of a drug, including when the drug goes off patent. In 2021, we have begun to demonstrate through the announcement of our first two deals that we will sustain ongoing business from both the branded and generic versions of CIDIC Lipton as that API ultimately becomes available in generic form. We have refined our CodeEvolver platform and business model approaches with the pharmaceutical industry over two decades now, and that has been leveraged to extend us successfully into exciting new, much larger addressable verticals like food and industrials over the last few years. These applications have shorter developmental timelines and lower regulatory hurdles than pharma manufacturing, allowing us to commercialize enzymes more quickly as well. 2021 was an excellent year of growth for us in the food sector. Enzymes used in the manufacture of Tate & Lyle's Dulcia Prima Allulose and Tastevia Sweeteners delivered seven-digit year-on-year product sales growth. Combined with our newly commercialized enzyme for CalSec's new light stable hop products, our sales to these two key customers more than doubled to exceed $3 million in 2021. We are encouraged that both of these key partners expect that they will continue to increase their customer adoption and penetration downstream, boding well for our growth in 2022 and beyond. As their sales grow, our sales grow. Beyond these commercial food applications, we made early inroads into a range of other developmental food and industrial targets, and we look forward to converting some of these exciting opportunities into new and innovative commercial sources of product revenues over time. Stay tuned for that. Switching to the life science tools, this market continues to be a very high growth area for Codexys. From our initial market entry just three years ago, we generated over $7 million of sales in this market in 2021, doubled from the prior year. We expect another 50% growth in 2022, targeting over $12 million in revenue this year. Our engineered enzymes enable improvements in next-generation sequencing and molecular diagnostics, DNA and RNA synthesis, and more. The market is very attractive given its 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. 2021 was a groundbreaking year in this regard, with the team successfully commercializing and launching three new products into the sector. Early in 2021, we launched Codex HiFi DNA polymerase, for use in next generation sequencing. Based on our comparison against commercially leading DNA polymerases, HiFi generated significantly higher NGS diagnostic fidelity. Around that same time, we launched our Codex HiCap RNA polymerase for use in messenger RNA manufacturing. Our tests demonstrated that HiCap drove down the need for cap agent as well as reduce the production of undesirable double-stranded RNA byproduct compared with commercially available RNA polymerases. With a growing list of customer trial successes in 2021, customers increasingly agreed. Our first commercial sales followed, and meaningful sales in a range of $1 million for each of these unique new products are expected in 2022. In December, we launched our third Life Science Tools product, Codex High Temp Reverse Transcriptase, for use in one-step quantitative reverse transcription, currently used widely for viral diagnostic testing. This enzyme is specifically engineered and optimized for enhanced thermal stability and robustness to address well-known challenges in handling clinical samples. Given the recent unprecedented demand for PCR testing due to the COVID-19 pandemic, this Codexis enzyme is a timely addition to our portfolio amidst supply chain and sample processing workflow challenges. And the product is currently available to customers in bulk supply quantities. In addition to these three commercial product launches, we are making exciting advancements in our groundbreaking partnership with Molecular Assemblies. Here, Codexis is leveraging the power of Codevolver to deliver dramatic performance improvements over the current chemical process for DNA synthesis by engineering enzymes designed to make MAIs process a commercially viable, cost-effective, and differentiated solution to manufacturing quality long-chain DNA. In parallel, Molecular Assemblies has been scaling their manufacturing platform and building a go-to-market team to enable their business commercialization in 2023. Our DNA synthesis enzyme has recently been finalized after one of the most intense and extended enzyme engineering campaigns in our company history. Underscoring our confidence in our enzyme's competitive advantage and the work that Molecular Assemblies is performing, we stepped up our investment in 2021 to become their second largest shareholder. Finally, we continue to experience strong demand for a range of partnered enzyme engineering programs for those life science applications where a bespoke engineered enzyme product can unlock value. Driving near-term R&D revenue generation, these programs add low-risk sources of potential future commercializations as well. No other market area for the company is surfacing an abundance of opportunities comparable to those within life sciences. Enzymes are core to unlocking unique value across the life science space, and Cody Barber's ability to design in unique performance attributes is proving to be a widely applicable value creating tool. Between penetration growth for our recently launched products, new product launches with broad customer applicability, and new high-synergy inorganic investment approaches, look for this sector to continue to be an important source of top-line growth for the company for the foreseeable future. Shifting to the biotherapeutic segment, we are thrilled with our progress building and advancing a high-value pipeline of oral biologics and gene therapy candidates. Five-plus years in, Now with over a dozen programs in our pipeline, there is no question to us that our CodeEvolver platform is validated as a unique discovery engine, creating differentiated large molecule drug candidates. The majority of our programs are supported by growing partnerships with Nestle Health Science and Takeda. But our strategy to increasingly invest to keep more of our drug discoveries value accruing to us is starting to generate momentum. Of the five most advanced assets in our pipeline, two are wholly owned and two are owned 50% by Codexis. Recalling that each of these product targets have by far the highest peak revenue potential for the company, but also noting their relatively higher risks, we believe we are striking a very attractive and compelling strategic balance for the segment's return on our growing investments. 2021 was a breakout year for building out our growing biotherapeutics pipeline. We segment the pipeline between our two unique value propositions. First, that Cody Ballard can enable us to discover large molecule drugs that can be safe, efficacious, and stable in the human GI tract so that they can be taken in a convenient, orally delivered form. This approach makes up the majority of our pipeline, but also all of our most advanced assets. Second, that co-devolver can enable the discovery of safer, more efficacious gene therapy constructs by focusing on engineering unique performance enhancements of the transgene that is packaged and delivered by the gene therapy vector. This is a newer value-creating approach within our pipeline, but it is bearing terrific early development success. Starting with our oral biologics pipeline assets, our most advanced program is CDX6114 for PKU, which is in phase one clinical trials and fully outlicensed to Nestle Health Science. Here, Nestle has informed that progress to initiate the next clinical trial, a solid-dose multiple ascending dose study at multiple sites and patients has been slowed due to COVID-related issues. The program continues to be fully supported by Nestle, and the trial results are now expected in 2023. Last quarter, we were thrilled to announce that a second Cody-Bauber discovered biotherapeutic candidate reached the clinical stage with the initiation of 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, like pancreatitis, pancreatic cancer, and Crohn's disease. 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 components. CDX7108 an orally administered GI-active lipase was precisely engineered to overcome this limitation of traditional PERPs, as it is highly stable to the acidic conditions in the stomach. The CDX7108, which is 50-50 owned and partnered with Nestle Health Science, is expected to read out the phase one trial results late in 2022. Just recently, we also announced that the FDA granted orphan drug designation and rare pediatric disease designation to CDX6512, our wholly owned candidate for the treatment of homocysteine urea, a rare inborn error of amino acid metabolism disorder estimated to affect one in 150,000 people worldwide. At the 14th International Congress of Inborn Errors of Metabolism in November, we presented preclinical data highlighting the exciting potential for CDX6512 to become a first-in-class oral enzyme therapeutic for a condition with limited treatment options to date. We are currently lining up and advancing IMD enabling work for CDX6512 to enable the initiation of clinical trials by the end of 2023 or early 2024. At the same IEM conference late last year, We also presented exciting preclinical data for CDX6210, our wholly owned candidate for the treatment of maple syrup urine disease or MSUD. We expect that CDX6210 will begin IMD enabling work later in 2022. Shifting to the gene therapy programs within our pipeline, we are very encouraged by the progress we're making within our four program partnership with Takeda. In 2021, Takeda exercised their unilateral option to add a fourth program targeting another lysosomal storage disorder to the partnership, a clear indication of their enthusiasm for Cody-Volver's ability to improve gene therapy constructs. In addition, for all three of the initial programs targeting Fabry and Pompe diseases plus an undisclosed blood factor disorder, we have finalized the discovery work and have transferred our Codevolver-improved lead transgenes. CACADA is inserting those into their proprietary vectors and is advancing preclinical validation of these gene therapy candidates. In parallel, Codexys has successfully established an infrastructure to do its own preclinical gene therapy research, and we have already made exciting discovery progress there, targeting another rare disease. It's highly rewarding to see all the progress the team is making in the biotherapeutic segment, and we look forward to sharing our continued progress here with you. Let me now hand over the call to Ross to take you through our financial results in more detail.