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.