Codexis, Inc.

Welcome to the Codex's fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this event is being recorded. And now I'll turn the call over to Brendan Strong from Argo Partners. Please go ahead.

Thank you, Operator. With me today are Dr. Stephen Dilley, Codex's President and Chief Executive Officer, Kevin Norritt, Chief Operating Officer, and Sri Rayali, Chief Financial Officer. During this call, management will be making a number of forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995, including our guidance for 2023 revenue, product revenues, and gross margin on product revenues, as well as our strategies and prospects for revenue growth and successful execution of current and future programs and partnerships. To the extent that statements contained in this call are not descriptions of historical facts regarding Cadexus, they are forward-looking statements reflecting the beliefs and expectations of management as of the statement date, February 23, 2023. You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties, and other factors that are, in some cases, beyond Cadexus's control and could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Cadexus's filings with the Securities and Exchange Commission. Cadexus expressly disclaims any intent or obligation to update these forward-looking statements, except as required by law. I'll now turn the call over to Stephen.

Thank you, Brandon, and thanks, everyone, for joining. As we laid out in the fourth quarter of last year, we continue to focus on prioritizing programs where Cadexus has a clear competitive advantage and we're pleased with our recent momentum. The financial results that we delivered in the fourth quarter were exactly on target, and we ended 2022 with $114 million in cash, providing us with runway through the end of 2024 and giving us plenty of time to demonstrate that our new focus strategy is working. A significant activity during the second half of 2022 and early 2023 has been adding to the strength of our leadership bench. This has been happening across our executive leadership team and board and in less visible ways throughout the organization. We've achieved this while reducing overall headcount since November. To quickly recap the changes outlined in slide three, Kevin Noritz, Chief Operating Officer, and Meg Fitzgerald, Chief Legal Officer and General Counsel both joined us last fall. More recently, Sri Rayali joined us as Chief Financial Officer in January. Sri has a strong background of leading financial organizations within pharmaceutical companies, and his commercial expertise has further strengthened the breadth of our team's collective experience. We've also added new capabilities in FP&A, commercial assessment, and in our translational team. Importantly, this is also happening on our board with the recent additions of Rahul Singhvi and Stuart Parker, both bringing demonstrated track records of success in leading pharmaceutical and genomic therapy companies. Our core strength of engineering unique purpose-built enzymes for use across a range of target markets remains central to our business. However, in line with the strategy we outlined during last quarter's call, we've been deliberate about selectively deploying our platform where we see the most potential for value creation. To that end, I want to take a moment to break down the structure of our business and highlight what we view as the most promising avenues outlined here in slide four. In pharmaceutical manufacturing, we provide a single, often bespoke enzyme engineered with specific characteristics for a specific customer. This process is relatively inexpensive given the investments we've made in Codevolver, but the potential annual revenue per deal is also limited. averaging about 3 to 7 million per successful enzyme. As you may imagine, it takes an awful lot of these to get to a billion-dollar revenue opportunity or even a few hundred million. As we've said before, we'll continue to invest modestly in this business, ensuring that it grows steadily and remains profitable, providing us with capital to invest in our high-priority focus areas. One of those high-priority areas is life sciences. which we view as a fruitful space for Cadexis. On the genomics side, we optimize our enzymes for better performance with higher sensitivity and specificity than the existing enzyme, and with an eye on making our enzyme slot easily into existing customer workflows. If we do our job well, we make it straightforward for potential customers to use the Cadexis enzyme, and key players in the industry are taking notice. This process can be time-consuming and labor-intensive, but when we get it right, we believe the revenue opportunity is closer to $10 to $30 million per enzyme because one enzyme can serve multiple customers. As you can see, this is three or four times larger than a pharmaceutical manufacturing opportunity and well worth the extra effort. We're focused on driving our product revenues in this area over the next few years. Kevin will provide some specific examples in a few moments. We're excited about genomics, and the economics are much better than in pharmaceutical manufacturing, but let's face it, we're still basically selling enzymes for a markup. We believe there are even better opportunities for us to pursue that allow us to capture more true value of our offering. That brings me to RNA and DNA synthesis, where we can engineer enzymes to support the development of nucleic acid-based therapeutics. Our goal, particularly in RNA, is to put together suites of enzymes with unique capabilities where the same combination can have broad utility across many customers. Because the same group of enzymes can be used repeatedly across diverse applications, this strategy creates potential returns that are orders of magnitude greater than our other offerings. We believe a suite of enzymes like this can be worth hundreds of millions of dollars in revenue opportunity. Finally, our biotherapeutics business is where our technology really has the promise to create tremendous value. As shown on slide five, today we're advancing a pipeline of oral enzymes and gene therapies, many of which we're working on in collaboration with Nestle Health Sciences and Decatur. Most of our near-term milestones are related to these programs, and as you'll hear today, they're moving along quite nicely. If we're successful, we have multiple shots on goal to address billion-dollar market opportunities. The first is CDX7108, a drug candidate for the treatment of lipase deficiency in patients with exocrine pancreatic insufficiency, or EPI, a debilitating condition of the GI tract caused by conditions that impair pancreatic function. Let's discuss the biology briefly. Under normal conditions, Pancreatic enzymes, which are important in the digestion of fat, protein, and sugars, are secreted directly into the duodenum through the pancreatic duct. Exocrine pancreatic insufficiency occurs when either the pancreatic duct is blocked or the pancreas itself is damaged and insufficient enzymes reach the small intestine. This leads to a wide range of problems, including weight loss, fatigue, anemia, abdominal pain, and so on. The currently established treatment paradigm, pancreatic enzyme replacement therapy, or PERT, is based on oral administration of porcine-derived pancreatic enzymes. There are three main issues with this approach. Firstly, the practicalities of harvesting sufficient porcine enzymes to address the market is daunting. Secondly, the enzymes are given orally, so they have to pass through the very acidic environment in the stomach, Finally, the dosing regimen tends to be onerous, with patients requiring multiple doses per meal to achieve adequate lipase levels for fat absorption. Despite these challenges, the two leading products on the market today have combined annual sales of greater than $1.5 billion. CDX 7108 has the potential to address all three of these limitations of current PERT therapy, as shown on slide 6. CDX7108 is a recombinant protein produced in E. coli, so production is easily scalable. Secondly, CDX7108 has been engineered to be stable even in very acidic conditions, so it can transit through the stomach without losing activity. Thirdly, CDX7108 is sufficiently potent as a lipase to potentially support treatment with a single capsule per meal. We believe this trifecta of manufacturability, durability, and potency can translate into a very exciting commercial potential. Moving to slide seven, that's why we were so excited to recently review a first clinical data from 48 normal volunteers and five patients with EPI treated with CDX7108. Importantly, the safety profile was quite reassuring with no significant adverse events attributed to treatment. In the patients, we measured fat absorption following CDX7108 or placebo in a crossover design using the 13CO2-labeled breath test. In brief, patients eat a fatty meal labeled with a known amount of carbon-13 in the fat, and then we measure the amount of carbon-13 exhaled over the next four hours. The results were exactly as we'd hoped, showing increased fat absorption in the CDX7108 arm and a very encouraging potency and duration of action. Suffice to say, we and our colleagues at Nestle are very encouraged by what we've seen and decided to move forward expeditiously with a phase two trial that we expect to initiate in early 2024. Similarly, as outlined on slide eight, we're excited about our collaboration with Decatur with our gene therapy programs continuing to track towards the goals we outlined a few months ago. Here we're using Codevolver to engineer targeting and expression within the body when administered as transgenes and gene therapies, potentially offering improved therapeutic benefit as compared with current treatment options across a range of rare genetic disorders. As you may have seen yesterday, we highlighted preclinical data from the Fabry Disease Transgene Program that Takeda will soon be presenting at the 19th Annual World Symposium. Fabry Disease is a rare lysosomal storage disorder in which the body cannot efficiently break down lipids into smaller components. And the enzyme replacement therapies currently available for treatment are compromised by their short in vivo half-life and the development of anti-drug antibodies. As part of our work with Takeda, we engineered a protein variant with enhanced stability and potentially reduced immunogenicity to try to overcome these limitations. While this update is encouraging in isolation, this strategic partnership has also allowed us to demonstrate the power of our co-devolver enzyme engineering platform in the context of gene therapy more broadly. Our ability to tailor enzymes with precise and desirable characteristics makes us an incredibly powerful collaborator. And this program is indicative of how we can leverage our transgene engineering capabilities to introduce new and potentially more efficacious therapeutic options for rare diseases where the unmet need remains high. We understand that the IND preparation work is in full swing, which logically leads to the entry into patients around the turn of this year. To sum it up, with a strong team in place and a rich set of upcoming catalysts, the next 18 months will be a critical period for Cadexis. As demonstrated by the updates I've shared, our strategy is all about clear prioritization and steady execution. focusing on programs that can create the most potential value. Now I'd like to hand the call over to Kevin to dive further into our commercial strategy across each market.

Thank you, Stephen. Moving to slide nine, we have continued to modestly invest in our pharmaceutical manufacturing focus area to build a pipeline of phase two and earlier clinical programs, which should ensure continued growth into the latter part of the decade. However, these opportunities are customized one-on-one projects with some taking five-plus years to market. When we look at our life sciences focus area, we have developed a pipeline of enzymes to address many challenges across multiple customers, outlined on slide 10. We have designed our enzymes to be more sensitive, more robust, and more optimized to easily drop into existing workflows. A good example is our newly engineered DNA ligase for next-generation sequencing, or NGS. Ligase enzymes are used to barcode the pieces of DNA in a sample so they can be read on a sequencer, making them critical to detecting a signal. Natural ligases have a ligation efficiency of approximately 40% to 50%, meaning that about 50% to 60% of any DNA sample goes unbarcoded and therefore is not sequenced or detected. In comparison, our newly engineered DNA ligase achieves over 90% ligation efficiency. This is a significant improvement when you are searching for a needle in a haystack across small tissue samples. Not only is this ligase more sensitive and efficient, but it was developed using common test kits and buffers so that it is an easy drop-in solution across multiple customer workflows. Earlier this month, I had the opportunity to discuss our preliminary data from our DNA ligase white paper with many potential customers at the Advances in Genome Biology and Technology Conference, or AGBT. There was a lot of interest in this enzyme from multiple large NGS players, and we plan to deliver the research-grade version to customers for testing in the second quarter. We also will have commercial supply available later this year. Finally, Roche, who previously licensed a different DNA ligase from us in 2019, just exercised their right of first negotiation on this newly engineered version. As part of this, we will begin negotiating potential terms with them over the next 90 If you are interested in learning more about our newly engineered DNA ligase, a copy of the white paper is available under the Resources tab on our corporate website. In the RNA and DNA synthesis space, we can enable the development of nucleic acid-based therapeutics. For example, on slide 11, our high-cap RNA polymerase is the first enzyme we engineered to support mRNA synthesis. This enzyme increases capping efficiency and significantly decreases the unwanted byproduct of double-stranded RNA. We launched this enzyme in late 2020-2021 and continue to gain customer traction with multiple RNA manufacturers. This enzyme was our entry point into mRNA manufacturing, and we are now developing a suite of enzymes to support these customers. Looking ahead, we expect to launch at least one other enzyme in this arena before the end of the Steven previously mentioned that the same group of enzymes can be used repeatedly across diverse applications, allowing for a strategy to drive potential returns that are orders of magnitude greater than our other offerings. On slide 12, in oligonucleotide synthesis, our engineered TDT polymerase is a perfect example. We have developed this enzyme for our partner, molecular assemblies, to enable more efficient and customized DNA synthesis. The TDT polymerase adds any one of four DNA-based units onto the end of a growing chain, regardless of the prior sequence of that chain, and then stops before the next program step occurs and the next base unit is added. This enables DNA sequences to be built to order in a controlled fashion. Moving to slide 13, we are now applying the same approach to RNA synthesis. Over the last year, we have been focused on developing a suite of enzymes to support short interference RNA, or siRNA manufacturing. Over 300 RNAi therapies are currently in development, and we want to be positioned to help any one of these companies manufacture commercial-level supply of their RNA therapeutics. Today, biopharmaceutical companies use phosphoramide chemistry to develop small quantities of siRNA. This process is expensive and creates a lot of chemical waste. Assuming these companies receive FDA approval for their therapies, they will need new solutions to efficiently scale up manufacturing to large quantities. We believe we are close to an enzymatic solution that can lower costs and save time, and we plan to share more information on the technology platform at the TIDES meeting in May. Wrapping up life sciences, our goal is to develop differentiated enzymes that solve complex problems for multiple customers. First, with plug-and-play solutions in genomics and NGS, second with a suite of enzymes and methods in RNA and DNA synthesis to support the development of nucleic acid-based therapeutics. Finally, I'd like to take a moment to revisit the enhanced commercial focus we discussed on our last call, outlined on slide 14. Last quarter, for our biotherapeutics pipeline, we told you that we were prioritizing assets so that we have a clear understanding of the investment needed to support partnering or Codex's driven development of our most promising clinical candidates. We are doing just that, and our collaboration with Nestle is a great example of how we can effectively leverage strong partners to de-risk our programs and rapidly penetrate markets. For instance, CDX 7108, as you just heard from Stephen, this program is targeting an existing $1.5 billion market. We've used the co-developer platform to engineer a differentiated life base with the potential to address limitations of the standard of care treatment options in exocrine pancreatic insufficiency. Meanwhile, our partner Nestle brings existing market presence and robust commercial infrastructure in the space. By combining the strengths of each respective organization, we are poised to deliver long-term value creation. With that, I will now turn the call over to Sri to discuss our financial results for the quarter.

Thank you, Kevin. Good afternoon, everyone. Let me dive into the highlights of our full year 2022 financial results, starting with slide 15. Total revenues for fiscal year 2022 were $138.6 million, an increase of 32% from $104.8 million the prior year. Including enzyme sales related to Paxlovid, which were $75.4 million and $34.5 million for 2022 and 2021 respectively, total revenues for fiscal year 2022 were $63.2 million, a decrease of 10% from $70.3 million in the prior year. Product revenues for 2022 were $116.7 million, an increase of 65% from $70.7 million the prior year, primarily driven by enzyme sales related to Paxlovid. Excluding these sales, total product revenues for fiscal year 2022 were $41.3 million, an increase of 14% from $36.1 million in the prior year. R&D revenues were $21.9 million for fiscal year 2022, compared to $34.1 million the prior year. The decrease was driven by lower license fees and decreased revenue from milestone payments, as well as lower R&D fees from existing collaboration agreements. Product gross margin for fiscal year 2022 was 67% compared to 69% the prior year. The decrease was primarily driven by changes in sales mix and higher shipping costs. Turning to operating expenses, R&D expenses for fiscal year 2022 increased to $80.1 million compared to $55.9 million the prior year. Selling general and administrative expenses for fiscal year 2022 were $52.2 million compared to $49.3 million the prior year. We also recognize $3.2 million in restructuring charges related to the workforce reduction plan we announced in the fourth quarter of last year. The net loss for fiscal year 2022 was $33.6 million or 51 cents per share compared to $21.3 million or 33 cents per share for fiscal year 2021. As of December 31st, 2022, we had $114 million in cash and cash equivalents. In addition, we have not drawn any funds from our $50 million ATM facility we put in place in May of 2021. I'd like to spend a moment breaking down our financial results by segment, as outlined here on slide 16. Revenue in our performance enzymes business increased 40% to $126.6 million in 2022. Before the allocation of corporate overhead expense, operating income for this segment was $46.4 million in 2022 for an operating profit margin of 39%. In our biotherapeutics business, revenue was $12 million, and we generated an operating loss of $41.2 million. again, before the allocation of corporate overhead expenses. Our operating losses in this business increased year over year as we grew and advanced CDX 7108, as well as our self-funded programs. According to guidance as outlined on slide 17, we expect total revenues in 2023 to be in the range of $63 million to $68 million. This range excludes revenue from enzyme sales related to Paxlovid, and is in line with 2022 revenue. As you may recall, when we announced the amendments of our supply agreement with Pfizer last July, it included a $25.9 million retainer fee that was paid to us in 2022. We'll be recognizing this amount as non-cash revenue over the course of 2023 and 2024. Since we do not know the actual timing or amount that we may record in 2023, we've excluded it from our revenue guidance. If you choose to include that in your model, I would encourage you to do so in the fourth quarter. We expect product revenues to be in the range of $35 million to $40 million. As you heard from Steven and Kevin, we expect growth from our life science business in 2023 to offset the year-over-year variability in the pharma manufacturing business. We expect R&D revenues to be in the range of $25 million to $30 million. Gross margin on product revenue is expected to be in the range of 68%, 73%. As Stephen noted, we expect that our existing cash and cash equivalents, combined with our future expectations for product revenues, R&D revenues, and expense management, will be sufficient to fund our planned operations through the end of 2024. I'll now turn the call back to Stephen.

Thank you, Sri. Thank you. In closing, we've delivered exactly what we promised last quarter in terms of Q4 revenues, cash position, and cash runway. Our difficult strategic decisions towards the last few months of 2022 have paid off in opening up many potential avenues for revenue generation going forward. I continue to be excited about the development of the team as we equip ourselves for the next leg of the journey. Now, we'd be happy to take the questions. Operator?

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from the line of Steven Ma with Cowan & Company. Please shoot your questions.

Great, thanks a lot. Hey, congrats on the therapeutics progress, and welcome, Shree. Can you guys hear me? Thank you. Yeah, we can. Thank you. Okay, no problem. So a question on 7108. Can you provide some color on the... on the initiation of the phase two study in early 2024. Is there a reason why I can't start earlier?

The timeline is principally driven by CMC considerations. We want to get the final formulation in place by the time we go into the very definitive phase two program. And we're actively working on that right now. And, you know, we're confident that we can have everything in place for, early 2024, we will obviously try and beat that if we can.

Okay, no, understood. And then I saw in the separate press release, you said the phase two studies is expected to take about 12 months. Is there a sense for the number of patients that are going to be in that phase two trial? And what I'm getting at is, you know, given, you know, given that, you know, it's a fairly rare disease, will the trial be able to enroll that quickly to achieve that timing?

So yeah, there's a number. Let me unpack that a little bit and say in terms of trial size in the phase two study, the next one that we'll be initiating, we see that somewhere in the range of 40 or 50 patients. The phase 1B, which was relatively slow to enroll, was using essentially a single site. And we're going to be going to multiple sites in multiple countries for the phase two. We're sharpening the pencil on exactly how many right now, but given the sort of the nature of the protocol, we'd expect 15 to 20 centers to do that sort of 40 to 50 patients, which should therefore go a lot quicker.

Okay, understood. Yeah, thanks for the additional color. So maybe just pivoting over to life science tools, enzymes. Specifically on the second-generation DNA ligase for NGS library prep, on the Roche right of first negotiation, you mentioned they had 90 days. Does that mean that they have 90 days to come up with a deal with you guys, and then it's freely available to transact with other counterparties?

Sir, hi, Stephen. This is Kevin. Essentially, we have 90 days of good-faith negotiations. If we want to continue past that, we can certainly open that discussion with them longer, but we can obviously open the discussion with other players at that time.

Okay. All right. Perfect. And then on the first-generation ligase that they already have licensed, is there a status you can share with us on the status of that kit?

Sure. First thing, just to clarify, this is a newly engineered DNA ligase as opposed to a second generation, so it was engineered off a different backbone, just to clarify that point. And then secondly, we've been communicating with Roche over the launch of the Evo T4 DNA ligase that they licensed from us in 2019 and are expecting our first commercial sales this year, but don't have clarity exactly what order at this point.

Okay, understood. And then if I can sneak one last question in, and this is for you, Kevin, as well. You said you'd be tweaking the sales model and modestly increasing the sales footprint to target midsize drug manufacturers. Could you give us an update on is that completed or give us a timing on completion of that? Thank you.

Sure. So just a little bit more color on that too. Then, you know, the last four or five months has been diagnosing sort of the approach from a commercial standpoint. And what's been surprising to me is as we've been trying to grow the segment, how little we focused in terms of, you know, front end facing sales people in terms of pull through of enzyme sales. Now we only had three products on the market, but now we've looked at, you know, not only that resourcing there and looking to modestly increase it, We're still in progress of actually doing that, so it's not complete yet. I expect that to be done probably by the end of this quarter. And that's where I think we'll start to see some increased lift in terms of our existing products and product sales increasing.

OK, great. Thank you.

Thank you. Our next question is coming from the line of Brandon Culliard with Jefferies. Pleased to see with your questions.

Hey, thanks, guys. Good afternoon. David, each of you be willing to kind of share the revenue base for life science enzymes in 22 and maybe some, some goalposts of parameters in terms of what you're expecting for growth in that portfolio in 23.

So we haven't disclosed a lot of information around life sciences as it's still relatively in its infancy. As I mentioned, uh, even, you know, we're still sort of building the sales plan. One of the things that I just, in my assessment has been, we've been very focused on sort of customized enzyme engineering agreements over the last couple of years and a little less focused on actual customer engagement and, and pull through and account planning. And that's where we're focused now. So we expect to bring more than information towards the end of the year, but as we're getting the plans in place, we haven't put anything forward at this point, but, We definitely want to provide more color on that.

In terms of our revenue guidance, the growth that we're expecting in life sciences, we're expecting that to offset some of the year-over-year variability in pharma manufacturing. So when you look at our revenue guidance, the low end of that is in line with 2022. And as Kevin indicated, the growth that we would expect to see primarily on the life sciences side, and we'll have more details on that throughout this year.

Okay. And then yesterday, Marv, I announced the acquisition of AlphaZyme, who you've partnered with on at least three life sciences enzymes. Are there any implications of that deal as far as Cadexus is concerned, any changes in the commercial relationship? And do you own all the IP for those three enzymes that you've commercialized with them?

So first, this is Kevin. First answer is yes, we own all the IP with regards to those enzymes. And I just recently got back from the EGPT conference where I met with those folks, was aware of some of the news coming out there, and our business relationship with them is really solid. They've been good partners for us in terms of being able to execute and deliver enzymes downstream. We obviously are going to look at, as we have been for some time, second sources of supply, but that being said, the business relationship is in good shape.

All right, and then last one for Sri. Any color you're willing to share as far as revenue pacing for the year? I know your prior CFO, you know, you like to have this 40-60 kind of framework, but any color as far as just phasing? Thanks.

You're talking about just in terms of the quarterly phasing?

Yeah, our first half, second half, anything like that to be aware of. Yep.

Yeah, so we haven't provided quarterly revenue guidance. I think one of the things that I've observed in the month on the jobs here is that the pharma manufacturing revenues are inherently lumpy and it's hard to predict those quarter to quarter, let alone year to year. So we haven't gone as far to provide quarter over quarter guidance yet on revenue, but we're very comfortable with the full year range of the 63 to 68 million for total revenue.

Very good, thank you.

Our next question is from the line of Doe Kim with Piper Sandler. Please proceed with your questions.

Hi, this is Skylar on for Doe. Thanks for taking my question. For the partnership with MAI, do you have an update on how the stock launch is going for the DNA synthesis platform? And how near term is the plan to commercialize that in 2023? And can you comment on any expectations you have for that? Thanks.

So really, we look at the MAI partnership as a validation of the TDT enzyme and the technical capability of that enzyme. As Kevin said in his comments, a lot of it is around the ability to then tweak that to be part of the RNA platform. We think that MAI are making really great technical strides in terms of producing longer oligos. Uh, but yeah, we're waiting to see just like you are in terms of, do they get commercial traction when they launch? So really, uh, yeah, we're not planning on much right now.

Kevin? No, we're, we're, we're being cautiously optimistic as associated with commercial uptake. We, we would like to see a little bit more in terms of their, you know, front end facing and their pull through downstream. Again, we think they've achieved a really nice technical set of success here. So we're waiting and seeing as you are.

Got it. Thanks.

Our next question is coming from the line of Matt Hewitt with Craig Helm. Please proceed with your questions.

Good afternoon. Thank you for taking the questions. Maybe first up some clarification on the Paxlovid contribution. So if I heard you correctly, there's still likely 12.5 million this year, next year, put it in Q4 if we're going to include it. I appreciate all of that. Will you still be recording that as revenues in the fourth quarter if and when it hits?

Yes, we would record that as revenue, but it would be non-cash revenue.

Okay, got it. And then backing that off, so your guidance doesn't include it, if you look at the core product revenues in fiscal 22 compared to your guidance, it does appear as though your revenues are going to decline a little bit. Maybe a little bit of color on what's happening with the rest of the portfolio there.

So the low end of our revenue range of $63 million is flat to what we achieved in 2022, excluding tax low bid. I think what we've discussed that this is sort of a refocus here. We've talked about the variability in pharma manufacturing, how that ebbs and flows year to year. We are expecting growth in life sciences to make up for that. That's how we came to our 63 to 68 million dollar range. So definitely a year where we are focusing for growth for life sciences that'll set us up down the road.

Got it. And then maybe I think you've got two different groups that you're working with on commercial agreements at the moment. How should we be thinking about the structure of those contracts? Is it gonna be simply hit your product sales line? Are these potential milestone royalty opportunities? Just trying to think about how they could end up impacting the financials. Thank you.

So with regards to the two different product lines, my assumption is you're talking about pharma manufacturing versus life sciences, to clarify. In that context, yeah, okay, good, go ahead.

No, I just said correct. Are those deals going to be structured where you'd be recognizing enzyme sales, product sales, or how will those two agreements be structured, or what are your hopes there?

Yeah, I mean, I think it goes back to some of Stephen's comments earlier with regards to farm manufacturing and some of the challenges there in terms of selling enzyme supply and the lumpiness associated with that. You know, when you're an intermediary associated with a biocatalysis process, we're definitely adding value there, but it's a little bit harder to negotiate downstream royalties, particularly with some of these, you know, larger pharmaceutical manufacturers. When you move over to life sciences, where we can provide a really complex and differentiated enzyme, which really enhances the workflow that hence gets back to the larger range of revenue you can see from this type of opportunity because some of that is straight-up product sales, but some of that also could be licensing fees as well as milestones and downstream royalties, and that's how we're looking at structuring those contracts going forward.

That's really helpful. Thank you.

Thank you. As a reminder, you may press star 1 to ask a question. The next question is from the line of Jacob Joshon with Stevens. Please proceed with your question.

Good afternoon. This is Mac on for Jacob. Just a couple of quick ones, maybe for Sri. Can you talk about your priorities as it relates to balancing investment and managing cash firm, and how should we think about the outlook for R&D investments into this year?

Sure. In terms of the philosophy, I think in the fourth quarter when we announced the restructuring plan, what we initiated was a more disciplined approach to the portfolio broadly, where we were focused on high potential development programs that had high value commercial opportunities. And that's very much in line with how we've approached thinking about our 2023 and beyond investments. Cash burn is important to us. Certainly we're starting the year in a strong cash position with $114 million that provides us two years of runway and funds the programs that we talked about on the call today, including moving 7108 forward, gene therapy programs, as well as RNA and DNA synthesis. So my approach will be very much in line with that, ensuring that we are looking at the overall value that the programs are contributing to the company, as opposed to just any one line item on the P&L. And then in terms of your question specifically on R&D expenses, we haven't provided expense level guidance. We provided the cash burn guidance. But what I will say, again, going back to the previous direction on refocusing the portfolio, we expect that the savings generated as a result of that effort will be redeployed to these new investments and high potential development programs. So hopefully that helps a little bit.

Thank you for the color.

Thank you. At this time, we've reached the end of our question and answer session, and I'll turn the floor back to Stephen Milley, Chief Executive Officer, for closing remarks.

Well, thanks everyone for tuning in today. As you can tell, we're very pleased with the results that we delivered in 22 and super excited for 2023 and continuing to make progress on these focus areas. So thanks again and have a great afternoon.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.