Codexis, Inc. Q2 FY2025 earnings call

• Second quarter results are strong with solid cash balance, improved operating margins, and revenue above consensus. Operating loss halved compared to Q2 2024. Objective of cash flow breakeven by end of 2026 is attainable. - Strong interest in ECO Synthesis platform with over 30 ongoing customer engagements; exploring options to expand bandwidth to support early projects and maximize return from ECO platform. - Pharma Biocatalysis business has strong Q2 revenue driven by increasing orders for enzymes, with customers trusting Codexis for challenging small molecule manufacturing problems. - ECO Synthesis platform customer engagement progressing nicely, ligase business has new customers, and expect to add several new ligase customers before end of year. Proof-of-concept projects with process development and material scale-up are ongoing.

In the second quarter of 2025, total revenue was $15.3 million compared to $8 million in the second quarter of 2024. The increase was mainly due to variability in Pharma Biocatalysis customers' manufacturing schedules and clinical trial progression. Product gross margin for the second quarter of 2025 was 72%, up from 45% in Q2 2024, driven by shifts to more profitable products and declines in less profitable legacy products. The Pharma Biocatalysis business saw increasing orders for enzymes supporting late-phase and commercialized APIs, with Codexis being the gold standard in enzyme engineering, fueling expansion of early biocatalysis engagements.

• Reiterating 2025 guidance of $64 million to $68 million. - Bulk of growth expected to come from ligase and ECO Synthesis business in the second half. - Based on conversations and negotiations, growth in second half will come from these areas, and guidance is within range of reasonableness.

• Known and unknown risks, uncertainties and other factors beyond Codexis' control that could materially affect actual results. Factors can be found in Codexis' filings with the Securities and Exchange Commission.

Q: Maybe just to start off on the pipeline. If I go back to May at TIDES, I think it was over 20. Now you're talking about well over 30. I think the deck had 34 specifically. So can you just help level set us? I assume these are at various stages of discussions. So maybe bucket them out a bit in terms of where they are in the funnel. And then any more color you can provide on the May over 20 to now over 30 coming at TIDES, just mix between Biopharma originators or CDMOs, maybe even on a geographic basis, just a bit more flavor on some of those incremental opportunities coming into the pipeline from there.

A: Kevin Norrett said they have well over 30 discussions going on, mix of CDMOs, drug or large drug innovators and small stealth biotech and medium-sized biotechs. Hard to point single customer segment. Expect to sign several new ligase customers before end of year and super excited about progress.

Q: And Steve, maybe sticking with you, just can you talk about in terms of process development projects entering the ECO innovation lab, any more color in terms of those customer programs? I know it's very early days, but how that's maybe tracking versus plan, if there's any way to kind of talk about where utilization of the ECO lab is today or where it could be by the end of the year? And then maybe the second part of that question, just you talked about in your prepared remarks around kind of exploring options for additional capacity. I guess maybe just any more color in terms of what those options are that you're considering? And any update on timing of when we could learn more about that? It sounds like the demand is far out seeing supply. So it sounds like maybe we'll get an update sooner rather than later given that reason, but would just love any more color in terms of the options and the timing around those things.

A: Stephen George Dilly said they are excited about recruiting and locking in early phase projects starting out of the gate as ECO projects. Current conversation is about setting up ECO Lab #2 as ECO Lab #1 has certain capacity. Performance of platform is good with scalability and volumetric efficiency. They are rebuilding models with aspirations to go further themselves and control value.

Q: Maybe if I could sneak one more in on the guide. I know you talked about kind of lumpiness, but just any more color to provide in terms of phasing? Will 3Q be up relative to 2Q? I know 4Q is typically seasonally strong, but any more color on the cadence and just visibility and comfort just given the magnitude of the step-up from first half kind of low $20 million revenue to low to mid-40s in the back half. Any more color there would be appreciated.

A: Georgia L. Erbez said still expect steady growth in base business, guidance still same. Bulk of growth expected from ligase and ECO Synthesis business in second half, and growth will come from conversations and negotiations in second half, and guidance is within range of reasonableness.

Q: Really a follow-up to some of the last questions. I just wanted to drill down on some of your commentary that you're exploring options to expand the bandwidth to maximize return on the ECO platform. I guess, could you just expand on how that changes. The near-term steps you plan to take in building out ECO Synthesis? And also just where does the path to GMP come into play? You have optionality via CDMO partnership versus building out your own GMP capabilities. Could you just talk to the relationship there? And then maybe separately, just kind of a back to basics question, but one I've been getting from investors is, could you just remind us of your IP position around ECO Synthesis, the platform? What does that look like? And just can you talk to the overall competitive moat you have there around the platform.

A: Stephen George Dilly said focusing on filling capacity and working out where to build. Kevin and team filling capacity around ligase platform and building early opportunity funnel. Route to GMP involves providing high-quality material to test, GLP grade material now from ECO Innovation Lab, and addressing GMP material later through conversations with regulators and existing facilities. IP portfolio around enzymes and process is excellent, trade secrets and know-how important for defending asset and being good partner, and they pursue IP strategy to control value and be easy partner to work with.

Q: Congrats on the quarter and the clear level of interest that you're getting here. A couple of questions for me. First, how should we be correlating this strategy to go for some of the earlier stage and work with them for the long term from a revenue perspective? Is it that more initial shots on goal could lead to more future revenues even if hypothetically like 30%, 40% of these drugs end up being something meaningful? And then how should we also be thinking about the pace to collecting revenues, especially if there's a lot more companies upfront.

A: Stephen George Dilly said it's about locking in large number to get smaller number at other end, hitting when supply becomes important. Less emphasizing early revenues and driving for valuable market as assets mature. Ligase strategy with world-beating ligase portfolio as customers come back after trying others. Kevin Norrett added chemo-enzymatic approach is here to stay and ligase is growing market with inroads versus competition.

Q: And I would imagine as much as you guys want to go out there and do this in-house to convince these folks to stay with you long term, they probably want the same thing so that by the time they're later stage, they don't have to worry about any tech transfer or any significant step-ups that could delay their product getting on the market. So clearly, you've been having a substantial amount of conversations. Was it your experience that this is kind of what your potential partners were hoping for you to choose as well?

A: Stephen George Dilly said absolutely, fewer transitions during development timeline is better, and impressive scalability. They are pleased with improvements in scalability as they take each step up.

Q: Maybe first up, the variable manufacturing schedule you noted, does that imply that there's maybe some pull-forward pushout that's occurring, and that's what's creating the variability? Or is there something else that I'm missing?

A: Georgia L. Erbez said variability is due to timing of big orders, some orders anticipated in fourth quarter came in first quarter and vice versa, not having much visibility on when larger orders come in.

Q: The GMP scale-up partner that you noted in the press release and in your prepared remarks, is that likely one of the 3 DMO -- or one of the 3 CDMO partners that presented at TIDES this spring? Or are there others that you're in discussion with that could ultimately leapfrog those 3?

A: Stephen George Dilly said talking to more than those 3, they progress at different rates. Kevin Norrett added ones presented with are in mix but others are accelerating in conversations.

Q: I wanted to actually ask, first, just a bit more about how you see the potential revenue funnels through clinical development. I fully appreciate the ramp in revs is going to really depend on clinical success in the therapeutic area, among other things. But I guess just what kind of ramp from maybe preclinical to Phase I, II, III are you broad strokes forecasting, at least among partners that you've already signed or are in talks with?

A: Stephen George Dilly said initial phases of feasibility are couple months and hundreds of thousands of dollars in technical collaborations. Then milestone-based revenues and material supply as progress through development, transitioning to simple payment for siRNA bought from them towards latter stages.

Q: Just maybe a quick follow-on. I wanted to ask, I guess, just as of today, and again, appreciate this might shift over time. But can you just speak a little bit to what the scope of options is to kind of fund some of the scaling to GMP maybe even faster than is necessary, just given kind of the renewed interest and maybe if potentially even to sale the Biocatalysis business or something like that would be on the table in that respect.

A: Stephen George Dilly said like Biocatalysis business as it's profitable and reduces need for cash, ligase contracts are lucrative to fund, and scaling is incremental with technology rapid to set up, able to stay just in front of curve and not having to build facility and wait long.