Codexis, Inc.

Welcome to the Codex's fourth quarter and full year 2023 earnings conference call. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this call is being recorded. And now I'll turn the call over to Carrie McKim, Director of Investor Relations. Please go ahead.

Thank you, operator. With me today are Dr. Stephen Dilley, Codex's President and Chief Executive Officer, Kevin Norris, Chief Operating Officer, Sri Riali, Chief Financial Officer, and Stefan Lipp, SVP of Research. 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 2024 revenue, product revenues, and growth 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 Codexys, they are forward-looking statements reflecting the beliefs and expectations of management as of the statement date, February 28, 2024. 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 Codexys control and that could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexus Filings with the Securities and Exchange Commission. Codexus expressly disclaims any intent or obligation to update these forward-looking statements, except as required by law. And now, I'll turn the call over to Stephen.

Thank you, Carrie, and thanks everyone for joining. Seven months ago, we took decisive action to reduce our cash burn by more than 50% and execute on a clear, prioritized strategy. We ended 2023 strongly with clear indications that the strategic decisions we made last year are translating into real momentum. This was illustrated by the series of exciting and validating announcements we made in December, specifically the achievement of gram-scale synthesis with our Ecosynthesis Manufacturing Platform, the completion of an exclusive licensing agreement with Aldebaran for our Codex HiCap RNA polymerase, and our purchase agreement with Nestle for CDX 7108. We've continued that upward trajectory with a couple of positive updates already under our belt in 2024. First, driven by the extremely encouraging technical progress we're making with the Ecosynthesis Manufacturing Platform that Stefan Lutz will describe later in his call, we announced plans to initiate the construction schedule for our Ecosynthesis Innovation Lab, We expect that this facility will be a hugely valuable resource to support the technical and commercial advancement of our ecosystem manufacturing platform. Additionally, the Innovation Lab is intended to enable us to provide sufficient GLP-grade siRNA directly to innovators to support preclinical development of their product candidates. As Kevin will describe, this gives us access to a critical part of the growing siRNA ecosystem. Furthermore, we anticipate that the learnings from the Ecosynthesis Lab will enable us to move to in-house, full-scale GMP siRNA production when the time is right. Now, while the business case for acceleration of the Ecosynthesis Innovation Lab is compelling, we made sure to secure the financial resources first by executing on a very carefully designed strategic debt financing with Innovatus Capital Partners. Sri will describe the financial details in his comments, but the punchline is that the Innovata's deal fully funds the construction and operation of our Ecosynthesis Innovation Lab several years and strengthens our balance sheet and increases our operational flexibility for our projected runway to cash flow positivity around the end of 2026. On the heels of that announcement, we were also delighted to welcome two additional members to our strategic advisory our strategic direction. Finally, we added more strength to our balance sheet just over the last few days when we announced the completion of an exclusive out-license for a non-core asset, this time with Roche for a newly engineered double-stranded DNA ligase. As you can see, we've done exactly what we said we were going to do, and even more, right on the timelines we laid out. As a result, We now have projected runway through positive cash flow expected around the end of 2026, an innovation engine with an anticipated billion-dollar-plus market potential in our ecosystem's manufacturing platform, and an adjacent growing core pharmaceutical manufacturing business that generates cash and boosts our relevant commercial reach. Before I pass it off to Stefan and then Kevin to review our recent technical and commercial progress, let me share some thoughts on how we view the road ahead. Moving to slide three. Our path to success starts with our longstanding pharmaceutical manufacturing business. We've been working hard to return this core business to an upward trajectory, and today we're pleased to highlight anticipated 2024 product revenue growth of at least 10% from 2023. Underpinned by our co-devolver-directed evolution platform, the value of the technical expertise, credibility, and commercial relationships we developed through this business Furthermore, the cash our pharmaceutical manufacturing business generates is an invaluable element of supporting our runway to breakeven and positive cash flow. That said, we believe our eco-synthesis manufacturing platform to enable the commercial scale manufacture of RNA therapeutics has true breakout potential to transform the value trajectory of Cadexis. The great thing about Cadexis is the synergy of the experience commercial infrastructure, our pharmaceutical manufacturing business, with the emerging opportunity of the Ecosynthesis Manufacturing Platform. A beautiful example of that synergy is how we're approaching the commercialization of our double-stranded RNA ligase program, which is an important stepping stone on the way to fully enzymatic siRNA synthesis. To recap, the RNA ligase is designed to allow innovators to build full-length siRNA from several shorter fragments. That's important because both the cost and impurity profile of phosphoramide chemistry-built molecules increases with the length of the construct. It's a nice idea, but in order to turn it into a real commercial opportunity, you have to be able to build an enzyme optimized for the specific reaction being driven and rapidly scale the manufacturing and supply to fit in with the requirements and schedule of the customers. We believe Cadexis is uniquely equipped to meet that challenge because we've been doing something extremely similar for a decade or more through our pharmaceutical manufacturing business. Look for some exciting news flow on our EcoRNA ligase program in the second quarter. And now I'd like to pass the call over to Stefan Lutz, Senior Vice President of Research, to describe some of our exciting progress on the Ecosim manufacturing platform. Stefan.

Thank you, Steven. I'd like to use my time today to briefly recap our recent progress on the Ecosynthesis manufacturing platform and outline what you should expect on the technical front in the coming months. Shifting to slide four, as we announced in December, we achieved grand scale synthesis with our Ecosynthesis manufacturing platform. This was a critical technical milestone, providing proof of concept concept for the platform's capability of manufacturing at preparative scale, oligonucleotides composed of modified nucleotide building blocks typically used in RNAi therapeutics under process-like conditions. Our enzyme engineering teams have made tremendous progress in transforming native enzymes into high-performance biocataloids that together offer a scalable process solution for siRNA manufacturing. In addition, there are two more reasons why hitting this grand scale benchmark is important. Firstly, it has enabled our scientists to initiate an in-depth assessment of the impurity profile for oligonucleotides produced with the Ecosynthesis platform. Secondly, it has provided a first data set on process-related parameters, informing early models of the manufacturing process and laying the foundation for broader platform development and process optimization efforts. The last two decades of experience have taught us that a solution to a difficult challenge sometimes lies in evolving the enzyme and sometimes in tweaking the reaction conditions. Experimental testing and validation of the ecosynthesis platform allows us to refine our models and also enables us to leverage complementary and sometimes synergistic effects of enzyme engineering and process engineering. It also sets the stage for the Ecosynthesis Innovation Lab, which takes these efforts to the next level by giving us a venue to further push scale and process development capabilities. Kevin will speak more to the value of this facility on the commercial side, but we expect that the data-driven insights we gain will give us critical information to drive robust conversations with potential early access customers. Since achieving grand scale synthesis, we've continued to push the Ecosynthesis Manufacturing Platform with a particular focus on synthesizing longer strands of siRNA sequences. While we plan to share further technical updates at the TIDES US meeting in May, we've been very pleased with the performance of the Ecosynthesis Manufacturing Platform which has been easily exceeding the sequence length previously achieved by competing enzymatic RNA synthesis technologies. Based on this progress, the May Tides Conference will offer an opportunity to talk about the linear synthesis of full-length clinically relevant siRNA that incorporates the different nucleotide modifications most frequently found in approved therapeutic assets today. We plan to do this having used our EcoSynthesis manufacturing platform from the start all the way through to the full length product. When you take a step back, the progress we've made with the EcoSynthesis platform over the past year seems quite remarkable. Yet this overnight success might actually mean 20 years in the making. Such rapid technical advancement could not have been possible without our extensive history of engineering technically complex enzymes for a variety of pharma and life sciences applications. Today, we're writing the book of enzymatic RNA manufacturing as we go, and within less than a year since unveiling our technology at last year's TIDE US meeting, we are on the cusp of presenting an enzymatic synthesis of real siRNA therapeutic assets. Beyond the ability to manufacture RNA oligonucleotides, our Ecosynthesis product roadmap includes the introduction of innovative new approaches and solutions for the bio-catalytic production of key reagents, such as NQPs and starter oligos, as well as their underlying processes. As you can see on slide five, to help Cadexis' strategy in developing the Ecosynthesis technology, We were pleased to recently announce the appointment of Professor Masa Dama and Dr. Jim Lalonde to the company's Strategic Advisory Board, joining John Maragonori, the founder and former CEO of Al-Nayla Pharmaceuticals. The board's expertise across oligonucleotide synthesis and manufacturing provides critical insights to involve the continued development of our RNA manufacturing platform. While further process optimization and refinement of our ecosynthesis manufacturing platform lies ahead, we are highly encouraged by our progress to date and look forward to sharing further updates throughout the year. Kevin, over to you. Thanks, Stefan.

Before I provide an overview of our pharmaceutical manufacturing business and our commercial progress with the ecosynthesis manufacturing platform, Let me recap some of the recent business development announcements Stephen mentioned. Starting on slide six, during our restructuring last year, we told you that our plan was to focus on our foundational revenue-generating biocatalysis business for pharmaceutical manufacturing and to develop the potentially game-changing ecosynthesis manufacturing platform. We also committed to monetizing products in our portfolio by leveraging partners with broader commercial reach. Since then, as Stephen noted, we have completed an exciting series of deals and announcements, and I view our consistent execution as confirmation that we are focusing our efforts on the right assets. Our Codex high-cap RNA polymerase is a great example. Offering improved capping efficiency and reduced double-stranded RNA contamination, this enzyme represents a meaningful step up from the wild-type variants available on the market today. For Aldebaran, this product is compelling from both a scientific and commercial perspective, and they can maximize its value given their existing footprint in the mRNA manufacturing arena. From our standpoint, Aldebaran offered strong terms and a rapid path to manufacturing a GMP version of this enzyme. Given Aldebaran's leadership in mRNA manufacturing and the evolving RNA manufacturing landscape, this is a valuable relationship to Colt Bay. We look forward to building a long-term partnership with Aldebaran and the broader Danaher family of companies. As seen on slide 7, we also announced the Nestle Health Sciences purchase of CDX7108, which followed our discontinuation of investment in biotherapeutics last July. Putting CDX7108 in the hands of Nestle allowed us to significantly reduce our cash burn going forward while providing an upfront payment of $5 million and the potential for additional payments upon reaching development milestones and eventual commercial royalties. Finally, we announced an exclusive global outlicense agreement with Roche for our newly engineered double-stranded DNA ligase, where we'll receive mid-single-digit million combined upfront and technical milestone payments. Importantly, returns on this deal are a healthy multiple over what it costs to develop this enzyme. These examples demonstrate our ability to find partners who can extend our commercial reach and to monetize high-value assets that are non-core to our business. Before I shift to covering our Ecosynthesis Manufacturing Platform and upcoming milestones, I'd like to take a moment to share more about our foundational pharmaceutical manufacturing business. Shifting to slide eight, when a customer approaches us about a potential enzyme project, the first step is to determine whether we have an off-the-shelf engineered enzyme that will fit their needs or whether a particular enzyme requires evolution to optimize it for the customer's API manufacturing process. Over the last 10 years, we have generated thousands of enzyme variants across commonly used enzyme classes, which gives us the ability to identify existing variants that can be quickly manufactured in kilogram quantities to support full clinical development plans. When a customer requires some evolution of the selected enzyme, this fee-for-service business can usually be completed in less than six months, and sometimes even in a few weeks. Once the enzyme meets the customer requirements, we generate gram-level quantities the customer's process and formulation work for use in clinical trials. As the product enters the clinic, we can quickly scale the enzyme to kilogram quantities. While enzyme evolution fee-for-service is recognized as R&D revenue, our ultimate goal is to provide a customized enzyme product to support their future clinical trials and eventual commercial launch. These are our product revenues. process from enzyme variant selection to potential evolution and finally the kilogram quantity production can take several years as the customer's product moves through clinical trial phases therefore to continue driving long-term product revenue growth we must fill the funnel with new enzyme variant screening programs and clinical stage products where one of our enzymes or enzyme classes can be used to replace chemical steps and reduce overall cost Over the years, we have also had experiences where an existing customer comes to us to develop an enzymatic route for a drug that is already commercially approved. In order to drive growth in all these areas, we have dedicated business development and key account management personnel. As a result, we've already seen an increase in new screening programs with new customers in the midsize pharmaceuticals. On slide nine, as I just mentioned, we remain focused on filling the pipeline to sustain annual product revenue growth throughout the decades. That said, much of our expected product revenue growth for the next three years is based upon enzymes that have already transitioned out of R&D and are moving to kilogram scales for further clinical trials. Typically, we refer to these as named programs, meaning the customer has disclosed the drug candidate's name and target indication to Cadexis. This usually occurs when the drug candidate reaches phase two or early phase three clinical trials. Once we understand the drug candidate indication, We can better forecast the future enzyme production needs for late-stage clinical development and a potential commercial launch. As you can see on this slide, we are currently selling custom engineered enzymes to pharmaceutical manufacturers for 12 of these NAME products. While this number of NAME programs fluctuates from year to year, as not all clinical programs are successful, our goal is to maintain a consistent number of pipeline programs to sustain future product revenue growth. While we expect annual product revenue growth to be sustainable, all of these factors contribute to why quarter-over-quarter product revenue tends to be unpredictable. When we provide guidance at the start of each year, we typically have visibility into somewhere between 60% to 70% of our product revenues through a combination of binding and non-binding customer forecasts, as well as our understanding of new programs. Maintaining this visibility is why we need to continue our efforts across business development and key account management. Keep in mind that customers, which are primarily procurement and manufacturing leaders, will make changes to their forecast of enzyme needs when they see changes in product demand or when they stockpile to avoid direct shortages. When you look at historical quarterly product revenues, there is no consistent trend or clear seasonality to the ebbs and flows of this business. As a result, our sense of future demand comes down to active customer communication and overall market monitor. As a reminder, we currently sell custom engineered enzymes for 16 commercial drugs across large indications, including cancer, diabetes, and neurological disorders. More than 50% of our product revenues come from three enzymes, which we are selling to four large pharma customers, i.e., the big three. If our pipeline of NAME programs continues to be successful in clinical development, we expect the Big 3 to become the Big 6 or 7, driving the majority of the product revenues in the future. Turning to our Ecosynthesis Manufacturing Platform on slide 10, as Stephan mentioned, we are looking forward to an important presentation at the TIDES US meeting in May. Between the effective demonstration of a full-length enzymatically synthesized siRNA, and the buildup of the Ecosynthesis Innovation Lab, we anticipate that our interactions with potential customers will rapidly shift from theoretical conversations to concrete demonstrations of our capabilities. And we remain on track for our first early access customers in the second half of this year. Ideally, one of these customers will translate into an early commercial license in 2025. Technical progress that Stefan and his team presented at TIDE's EU in November has already allowed us to begin conversations about access to the platform with several large pharma and large CDMO customers. In addition, we anticipate the innovation that will enable us to provide sufficient GLP-grade SIRNA directly to innovators, which supports preclinical development of their product candidate. Having the ability to license the Ecosynthesis manufacturing platform to large pharma and large CMO customers, along with the ability to provide a complete solution for smaller pharma customers, enhances our ability to win market share from different segments. And I'm really excited because the Ecosynthesis Innovation Lab provides us the blueprint for the potential future production of GMP-grade SIRs. Finally, I'm thrilled that we anticipate offering a near-term solution to our future potential EcoSynthesis manufacturing platform customers with our double-stranded EcoRNA ligase, which we plan to make available for customers in the second half of this year. The ability to provide customers with a double-stranded RNA ligase solution allows them to build full-length siRNA from several shorter fragments that can be joined together. This directly reduces the cost and impurities from the phosphoraminic chemistry-built molecules of increasing lengths. Recall that we already have multiple customized double-stranded RNA ligase programs ongoing with major players in the space. The important takeaway from today is that we have many ways to engage customers and win with the progress we have made with our enzymatic approaches to RNAi manufacturing. With that, I'll turn the call over to Sri to discuss our financial results and 2024 guidance. Thank you, Kevin.

Good afternoon, everyone. Before we dive into the fourth quarter in full-year 2023 financials, I'd like to reiterate Stephen's commentary on the recent loan agreement with Innovatis on slide 11. Between the rapid technical progress we've made with the ecosynthesis manufacturing platform and the increased commercial engagement we've seen, this was the right time to accelerate our technology's value creation. Importantly, the agreement with Innovatis achieves each of the key financing goals we highlighted During our conference call a few weeks ago, we estimate that the cost to build out and operate the Ecosynthesis Innovation Lab for the next few years will be approximately $10 million. This means that most of the proceeds from this financing will remain on our balance sheet. This facility will put us in the best position possible to drive rapid uptake of our ecosynthesis manufacturing platform, and we're pleased to have secured the capital to get it up and running for the next few years. Moving to slide 12. We released our fourth quarter and full year 2023 financial results press release earlier this afternoon, which is available on our investor relations website. Our results are in line with the 8K pre-announcement we issued in January, and I'd like to call out a few highlights, starting with the fourth quarter. Total revenues, splitting enzyme sales related to Paxlovid, were $18.4 million for the fourth quarter of 2023, compared to $13 million from the prior year. Product revenues excluding enzyme sales related to Paxlovid were $9.9 million for the fourth quarter compared to $5.9 million for the prior year. Turning to R&D revenues, we reported $8.5 million in Q4 compared to $7.1 million last year. Product gross margin excluding enzyme sales related to Paxlovid was 71% this quarter compared to 44% in the fourth quarter of 2022. Briefly turning to expenses, R&D expenses for the fourth quarter of 2023 were $11.2 million compared to $19.7 million last year. SG&A expenses were $12.2 million compared to $12.3 million in the fourth quarter of 2022. This was our first quarter post-reduction in force, and excluding impairment and restructuring charges, we can see that expenses are down year over year, operating loss has improved significantly. This was also our lowest quarter of cash firm, consistent with our expectations following the decision to streamline our portfolio and consolidate facilities last year. Now let me review a key elements of our full year 2023 financial results. Total revenues for fiscal year 2023, splitting enzyme sales related to Paxlovid, were $62 million compared to $63.2 million 2022. Full year 2023 product revenues, splitting end-type sales related to Paxlovid, were $34.8 million, compared to $41.3 million from the prior year. Before shifting to 2024 guidance, I want to share a closer look at our 2023 revenues. On slide 13, this graph shows the distribution of our 2023 product revenue by major categories. In 2023, Of the $34.8 million in product revenue excluding Paxlovid, roughly 50% came from the big three commercial pharma manufacturing products that Kevin referenced. Outside of that, approximately 3% came from sales of enzymes we supply for other commercially approved products. 25% was for programs that we currently supply in clinical trials. 5% was for generics. 11% came from food and feed. 6% was from life sciences and other programs. We've built a nice pharmaceutical manufacturing pipeline with our enzymes currently supplying the 12 named programs that Kevin referenced. As a result, looking ahead, we expect reduced concentration in our 2024 product revenue base. Now turning to guidance on slide 14, excluding revenue related to Paxlovid, we expect product revenues to be in the range of $38 million $42 million, indicating our expectation of at least approximately 10% year-over-year growth at the low end of this range. Excluding the benefit in 2023 from accelerating deferred revenue and milestones due to exiting the food and feed business, which was approximately $3.9 million, our model would actually indicate 2024 product sales growth of more than 20% versus 2023 at the low end for a guidance range. To help with modeling, based on our current visibility into the timing of customer orders, we expect our revenues will be weighted toward the second half of the year, with Q2 anticipated to be our lowest quarter of the year. This is the opposite of what we saw in 2023, where our revenues were weighted toward the first half of the year. We'll provide additional detail on anticipated quarterly revenue distribution as we advance throughout the year. Moving to slide 15. We expect R&D revenues to be in the range of $18 million to $22 million, which includes roughly $7 million from recent business development deals with Roche and Aldebaran. While R&D revenues are down year over year, it's important to note that 2023 R&D revenues included $6.1 million for a biotherapeutics business and $7 million in non-cash revenue related to Pfizer applying a portion of their retainer fee credit to a new program. INCLUDING THESE ITEMS, WE ARE ACTUALLY PROJECTING AN INCREASE IN R&D REVENUES OF APPROXIMATELY 28% YEAR-OVER-YEAR AT THE LOW END FOR OUR CORE BUSINESS. WE ARE PROJECTING ROUGHLY THE EQUIVALENT AMOUNT FOR BUSINESS DEVELOPMENT TRANSACTIONS AND R&D REVENUES FOR 2023 AND 2024. SHIFTING TO SLIDE 16, WHEN YOU TAKE OUR PRODUCT AND R&D REVENUE GUIDANCE TOGETHER, OUR 2024 TOTAL REVENUE GUIDANCE WAITS TO ARRANGE $56 MILLION $64 million. This range excludes revenue from enzyme sales related to Paxlovid. Gross margin on product revenue is expected to be in the range of 58% to 63%. Including our anticipated build-out of the Ecosynthesis Innovation Lab, we continue to 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 and cash flow grant even around the end of 2026. And now I'll turn the call back to Stephen.

Thank you, Sri. And thank you to Stefan and Kevin for those exciting updates. There are lots of companies out there that are either all innovation or all execution. We've built a well-oiled organization as well. With a greatly reduced burn rate, a growing-based business grounded in solid customers And a disruptive platform with enormous potential upside, Codexys has all the components in place to become a breakout story. And I encourage you to stay tuned for an exciting year ahead. I would be happy to take your questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. 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 comes from the line of Brandon Couillard with Jefferies. Please proceed with your question.

Hi, guys. This is Kayla on for Brandon. Thanks for taking the question. I guess just starting off with the ROSE partnership for the new double-stranded DNA ligase, any more color you can share on the economics or deal structure, and then how big could this be over time for Codexos, and how similar or different to the EVO T4 DNA ligase? prior deal as well.

Sure. This is Kevin. So to give you a little more color on this deal, this was a really exciting deal for us. We love this deal because it really was about monetizing this non-core asset in terms of getting cash up front. So there is no back-ended royalty associated with this product. We were focused on that aspect because we're exiting the genomics business, and we really have a lack of control in terms of their product cycle, and we learned that from the Evo T4 experience. We love the fact that Roche came back to us again. They're a blue-chip partner. If they asked us to come back and do it again, the economics here were really favorable in terms of a total return on investment with a couple of years of evolution to move on to a mid-single-digit million product or a deal. So we love it.

Great. And then just switching over to the HICAP RNA polymerase agreement with Aldebaran. Pretty recent, but any update or feedback you can provide that you've heard since the deal was announced? And then you can quantify all the contribution expected in 24.

So, I'll let Sheree comment on some of the contribution in 24, but the feedback we've received from external parties and from the investment community is very positive in terms of the partnering aspect with Aldebaran. They're a leader in the mRNA space and certainly can extend our commercial reach in this space that is growing with the high-cap RNA polymerase.

Yeah, in terms of 2024, in R&D revenue, our guidance includes a total of $7 million across business development deals And that's inclusive of Roche and Aldebaran. And as Kevin said, Roche is mid-single-digit millions in terms of milestone payment and technical milestone payment and upfront.

And the remainder is Aldebaran, which we previously said was low single-digit million upfront.

Great. Thank you.

Thank you. Our next question comes from the line of Dan Arias. with Stifel. Please proceed with your question.

Hey, guys. This is Evan on for Dan. My biggest question, I mean, it's kind of along the same line. So it's like I'm trying to think about this business kind of over 24 and 25, because you're probably not going to generate much revenue, if at all, from Ecosynthesis in 25. So if I kind of just look at 24, I have in my model, and I think this is what you guys have talked about, is $9 million from Pfizer. And that goes into your product revenues. Now you're talking about $7 million this year from Roche and Aldevron. Are there any revenues this year? I guess one question is, are there any revenues this year from Nestle Health Sciences? And then as I think about kind of moving on to you know, just 25. I know you don't have visibility on, um, on everything, but like, do these, are these numbers, is this $7 million from Roche and Delveron? And I, and yes, I, I, and Pfizer is going to go away. As you kind of just think about like going on to 25, like what's kind of like the baseline, like what, how should we look at this from like 24, our revenue is just going to, are going to go down again in 25, just trying to get a baseline of how we should be thinking about the progression here.

I think we need to think about revenues in terms of the components. So if you think about product sales, and I take Pfizer out of the equation for that, the $9 million that you mentioned, that's correct. We do expect to book a $9 million accounting for revenue in Q4 of 2024 as an artifact of a retainer fee, and that should be the last of the accounting for that. And it's non-cash, so the guidance we've given excludes that. But we're expecting product sales to grow significantly. low double-digit kegger through the end of the decade. It goes to the comments Kevin made earlier about the progression of the pharma manufacturing pipeline and expecting less concentration in our revenue from the big three pharma manufacturing customers to more of the pipeline programs that could take us to the big six or big seven. So we do see product growth moving along year over year till the end of the decade and then growing even more once we launch the ecosynthesis platform. Another key contributor to product growth is the double-stranded RNA ligase or the eco-RNA ligase, which we expect to be commercially available in the second half of this year. That will also be a key contributor of product revenue over time. On R&D revenue, if you looked at the picture that we had up, you can see that year over year in terms of the core business, when you back out the deals, we actually are projecting close to 30% growth And that comes from finding new customers for new services and new programs that over time will translate into future product sales growth. Can you add to that? That was a great summary, Sherry.

Yeah, I guess so. That makes a lot of sense, particularly on the product revenue side. On the R&D revenue side, so last year, or this year, you had $5.6 million investing in Aldebaran, and this year you're forecasting $7 million. I guess... One question I asked earlier, so is there anything from Nestle in there? And then also, the $7 million that you're going to get this year, do you have any visibility on to what that looks like in 2025? Because like, I guess it's kind of, is that just going to go away? That's the core of my question.

So the current guidance does not contemplate additional milestones from NFC, although that could be potentially in play. In terms of your question on the $7 million, both of those were upfront payments related to deals. So those are one-time payments that we don't expect to continue because those deals don't have additional milestones beyond those. Now, with Aldebaran, there are royalties that are tied to sales of high cap. And those should show up in our revenues over time as well as Eldeveron launches that product.

Okay. All right. That makes a lot of sense. So the right way to think about it is that your guide for this year is at the midpoint $20 million. I want to take the $7 million now from the upfront payments to kind of get my baseline. And then I can embed some sort of just growth plus potential for Ness or Eldeveron products. Is that kind of the right way to think about it?

I think that's fair.

Okay, cool. I'll pass it on. Thank you.

Thank you. Our next question comes from the line of Steven Ma with TD Cowan. Please proceed with your question.

Great. Thanks for taking the questions. Just a few follow-ups here. On the T4 ligase deal with Roche, how much of the product guide is Roche product sales from their NGS kits? Or is it just going to be all up front?

The deal is strictly up front as well as structured in terms of an out license. It's really much more of an asset purchase. So the deal was more upfront and technical or tech transfer milestone associated all recognized in 2024.

Oh, yeah. Sorry. I might have missed it. I would have some connection difficulties. But so there's no royalty rate with the Roche legacy deal? It's just a basically out licensing it?

It's just straight up front, Steve. Yep. Yep.

Okay. No, understood. Appreciate that, caller. And then last one, on the product revenue guide, can you remind us, you know, if there's going to be a contribution from Aldebaran in terms of royalties? I know there's kind of an upfront component. And also on the double-strand RNA ligase, if there's going to be any product revenue contribution in 2024? And then also, can you remind us what the expected TAMs of each of these new opportunities are? Thank you.

Sure. So, from a revenue standpoint from Aldebaran in 2024, they're already selling in the marketplace in terms of an RUL version of the enzymes which we have today. So, we're expecting a, I think what we said before is, you know, a high double-digit royalty associated with 2024. With regards to 2025 and beyond, we're expecting them to move into a GMP version, where it's also a very healthy royalty associated with that from a product revenue standpoint. And then the second part of it, double-stranded RNA ligase. We actually... We're getting very close to having some early customer orders associated with that ligase. We've been out there testing in the marketplace. If you recall, we were talking about first half of this year with early access customer testing. Some of that has gone well. But we are looking to make that more widely available in the second half of this year. So we expect some contribution this year in terms of the double-stranded RNA ligase, sticking on point with the second half of this year. And then in 2025 and 2026, certainly growth beyond that.

Okay, great. And can you remind us what the expected TAMs of high-cap and double-strand RNA ligase are? Thank you.

Expected TAM for the high-cap RNA polymerase in terms of probably somewhere in the $200 to $300 million range in our conversations. With folks, the large players there have a good handle on that, and that's sort of how we model the deal specifics. As regards to the TAM around the RNA ligase, You know, it's tied to where we are from a phosphoramidide chemistry standpoint in sRNA build-out. Remember, this has a significant impact in terms of cost reduction because phosphoramidide chemistry gets very inefficient in the longer strands of sRNA over time. So being able to stitch these together when you're talking about five, six, seven mers to be able to get to a 21 mer, It's very effective. So I don't have a number to provide you around the total addressable market there yet, other than to say it's growing with the SRNA market and expanding precipitously.

Okay, got it. Do you have any sense right now for the phosphoramidide chemistry market right now for RNA? Okay.

Well, we're projecting that there's, you know, back to our projections, 400 products in clinical development growing from somewhere around 1,000 kilograms today to 30,000 kilograms by the end of the decade. So that's what we use in terms of our thinking around the RNA ligands fitting into that potential, you know, total addressable market, assuming all those move through clinical trials and will continue to come into the pipeline.

Okay, great. Appreciate the call. Thank you.

Thank you. Our next question comes from the line of Jacob Johnson with Stevens. Please proceed with your question.

Hey, thanks. Good evening. Congrats on the quarter and the outlook. Maybe just sticking with the modeling question, Cherie, just if we kind of use 4Q expense trends as a jumping off point, anything to call out as we think about OPEX trends in 2024, I guess specifically maybe around the eco-synthesis investments you're making?

Yeah, I do think that the Q4 OpEx is a good barometer for how the run rate will look like in 2024. We expect that base to actually come down a bit, but then be offset by some incremental investments in ECO, including in the ECO lab later this year. So I think that's a fair barometer.

Got it. Thanks for that. And then maybe for Kevin, you know, you've partnered off the DNA ligase, the Nestle stuff, the RNA polymerase. Anything else kind of major on the partnering front, or was that the kind of heavy lift, and maybe just along the same lines, is there anything else contemplated in guidance this year from any additional partnering activities?

I'll let Sheree speak to the guidance aspect, but the things that we've been talking about are the remainders of the genomics portfolio. which really encompasses our three other launched enzymes, as well as a host that we had in development. And we're in various conversations with multiple folks around those. Again, blue chip players have come to the table as they've been looking for engineered variants of this and sort of highlights the value that we're able to create out of this remainder of the portfolio that could help extend our cash runway. But do you want to speak to that guidance?

Yeah, our guidance really reflects the deals that we've already announced. And the additional programs that Kevin mentioned would likely be smaller to about front payments from the ones you've already completed.

Got it. Thanks for taking questions, guys.

Thank you. Our next question comes from the line of Matt Hewitt with Craig Hallam Capital Group. Please proceed with your question.

Good afternoon, and thanks for taking the questions. Maybe the first one, following your presentation success with the gram scale and you're obviously got the presentation at Tides, but as we look to the back half of the year and after you started to get this into the hands of some potential customers, what are your thoughts as far as the model? Will you kind of stick with a standard, you know, upfront milestone sales-based model? Will it depend upon the potential customers? Are you hoping to standardize those contracts across the number of customers that you ultimately sign up? Just how should we be thinking about the Ecosynthesis sales model?

Great question, Matt. It actually does segment with a category of customers. One of them is the one we've been talking about for a while, which is the CDMO, where we're enabling them to supply multiple customers. Kevin can talk about that. The other one is looking at the innovative pharma where they're looking at a single product that they're trying to scale. The other one that's become apparent recently is enabled by the new Ecosynthesis Lab, which is our ability to directly supply SIRA GLP grade at sort of multiple gram scale. And that enables them to go through their early development steps, and then we talk about how we scale. And so what we need is a template that fits each of those. And, you know, some of it's going to be up front, some of it's going to be about licensing for the technology, but some of it's also going to be a share in the assets. Kevin, do you want to say anything?

The only thing I would add is, and then, of course, as part of that, there'll be the sales of the reagents and materials to support those licensees on an ongoing basis. So I think Stephen hit the nail on the head. One of the things that the EcoInnovation Lab really offers now is the ability to hit this small and medium-sized pharma segment that was going to be difficult because they wanted a path from preclinical all the way through to TMP. So I think the ability to do that now and to be able to sell actually full-fledged product out of that, not just reagents and materials, to be able to support that really opens up this whole other customer segment.

Got it. Got it. That's helpful. Thanks. And then Maybe just a balance sheet item. Cash balance today, if I'm running the math right, you see exited the year with $65 million, $29 million from Innovatus, $5 million from Nestle, $1 million, $2 million from Roche. So you basically have $100 million minus whatever you've burned so far this quarter. Do I have the math right there?

Yes, that's pretty good. One thing on Roche, I would just clarify that we're expecting a mid- single-digit millions in terms of combined up from the technical, but your math still checks.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Dan Arias with Stifel. Please proceed with your question.

Hey, guys. Sorry. Thanks for the follow-up. I just wanted to make sure I had a couple of things right, and this is particularly related to the Aldevron and the Roche deals. So for Aldebaran, I just want to make sure I understand. So you had roughly $5 million of the upfront payment. I think you said mid-single digits. And did you say that there's a high double-digit royalty on sales? And whatever the number is, are those royalty payments or sales-based payments, is there any of that baked into the guidance? And then on the double-stranded ligase, just to make sure I understand exactly how this deal works, it does sound like you're monetizing the assets, but you will also be generating product-based revenues on it going forward. Can you just explain how that's going to work, just so I have it straight in my head? Thanks.

So remember, there's a double-stranded DNA ligase and there's a double-stranded RNA ligase. The DNA ligase is exactly what you said. It's an asset sale. So it's couched as an out-licensing deal, but Russia's bought it from us, right? So it's simply, you know, money on the barrel head and then we have no further sort of interest in it. With Aldebaran, it was a low single digit up front. but then a healthy double-digit royalty. And what we're saying when we mean high double-digit is not 10, right? We don't mean 99, but we don't mean 10, right? So we've got to be in there somewhere. Then with a double-stranded RNA ligase, that is a really exciting product because that's the same product we can, the program we can sell to multiple customers where we will be getting you know, upfront enzyme payments and potentially royalties and, you know, significant supply rings down there. So we see, you know, back to the question earlier around the TAMP, we see that in the real high double digits potential for that enzyme class over the next coming years. That's big for us.

Yeah, I would say just add to that, one of the things as we've gone through our customer conversations This really has become much more of a meaningful business segment for us in terms of potential opportunity, because this is their first step into phosphoramide chemistry. So it's an immediate cost reducer and an immediate impact, whereas ecosynthesis, as we know, we're going to be talking about that launching in 26, and we need to bring pre-info into the fold of a full enzymatic process. way of synthesizing SRNA. So it's a much easier lift in terms of getting customers over the hump in terms of buying into the proposition.

One thing to add is that any royalties from the Aldebaran deal would likely show up in our R&D revenue line and not product revenue.

Okay, super. And did you say how much is embedded in the guide for each of those things or not yet?

On the upfront, we said that the low single-digit million is embedded in the R&D review. We haven't broken out the royalties. Okay, great.

Thanks so much.

Thank you. There are no further questions at this time. I'll turn the call back over to Stephen Dilley for closing remarks.

Great. Well, thank you again for joining us today. Sri, Kevin, Carrie, and I are looking forward to meeting many of you in person at the upcoming Cowan Conference in Boston next week. But thanks for participation today.

Thank you. This concludes today's call. You may now disconnect. Goodbye.