Codexis(CDXS) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2020, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes on accounting policies and agreements Condensed Consolidated Balance Sheets As of March 31, 2020, total assets slightly increased to $149.5 million, while cash and cash equivalents decreased, and total liabilities rose to $50.4 million primarily due to deferred revenue, leading to a decrease in total stockholders' equity to $99.1 million Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $87,327 | $90,498 | | Total current assets | $114,562 | $114,205 | | Total assets | $149,472 | $149,073 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $22,282 | $15,388 | | Total liabilities | $50,406 | $43,556 | | Total stockholders' equity | $99,066 | $105,517 | | Total liabilities and stockholders' equity | $149,472 | $149,073 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2020, total revenues decreased to $14.7 million, resulting in a wider net loss of $7.7 million, or ($0.13) per share, compared to a $5.1 million net loss in the prior-year quarter Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total revenues | $14,670 | $15,583 | | Loss from operations | ($7,827) | ($5,239) | | Net loss | ($7,652) | ($5,136) | | Net loss per share, basic and diluted | ($0.13) | ($0.09) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from $105.5 million at the start of the quarter to $99.1 million by March 31, 2020, primarily due to the $7.7 million net loss, partially offset by $2.2 million in employee stock-based compensation Changes in Stockholders' Equity (in thousands) | Description | Three Months Ended March 31, 2020 | | :--- | :--- | | Balance as of January 1, 2020 | $105,517 | | Net loss | ($7,652) | | Employee stock-based compensation | $2,169 | | Taxes paid related to net share settlement | ($1,007) | | Balance as of March 31, 2020 | $99,066 | Condensed Consolidated Statements of Cash Flows In Q1 2020, net cash used in operating activities improved to $1.4 million, while investing activities used $0.8 million and financing activities used $1.0 million, resulting in a total net decrease in cash of $3.2 million Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,425) | ($2,851) | | Net cash used in investing activities | ($761) | ($445) | | Net cash used in financing activities | ($1,019) | ($2,082) | | Net decrease in cash, cash equivalents and restricted cash | ($3,205) | ($5,378) | Notes to Condensed Consolidated Financial Statements These notes detail the company's business, accounting policies, and financial results, covering its CodeEvolver® platform, revenue recognition, collaborative agreements, segment performance, and the initial impacts of the COVID-19 pandemic - The company discovers, develops, and sells proteins using its proprietary CodeEvolver® protein engineering technology platform, which leverages artificial intelligence. It operates in two segments: Performance Enzymes (for pharmaceuticals, food, diagnostics) and Novel Biotherapeutics (for developing drug candidates)[23][24][31] - The company adopted new accounting standards on January 1, 2020, including ASU 2016-13 for credit losses (CECL model) and ASU 2017-04 for simplifying goodwill impairment testing, with no material impact on financial statements[61][62] - In March 2020, the company entered into a strategic collaboration and license agreement with Takeda to develop gene therapies, receiving an $8.5 million upfront payment, with $2.2 million recognized as research and development revenue for Q1 2020[34][108][111] - The COVID-19 pandemic resulted in approximately $0.6 million of deferred research and development revenue for Q1 2020 and caused the temporary closure of its Redwood City facilities, with the full future impact remaining uncertain[38][154] - In April 2020, the company achieved a technology transfer milestone under its agreement with Novartis, entitling it to a $4.0 million payment[176] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for Q1 2020, highlighting a decrease in total revenue driven by lower product sales, offset by growth in R&D revenue from new collaborations, and details the company's liquidity, capital resources, and the initial business impact of the COVID-19 pandemic Results of Operations Total revenues for Q1 2020 decreased by 6% to $14.7 million, primarily due to a 36% drop in product revenue, partially offset by a 26% increase in R&D revenue, leading to a 49% increase in net loss to $7.7 million Results of Operations Summary (in thousands) | Metric | Q1 2020 | Q1 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $14,670 | $15,583 | ($913) | (6)% | | Product revenue | $5,100 | $7,988 | ($2,888) | (36)% | | R&D revenue | $9,570 | $7,595 | $1,975 | 26% | | Cost of product revenue | $2,541 | $4,391 | ($1,850) | (42)% | | Research and development | $10,967 | $8,016 | $2,951 | 37% | | Selling, general and administrative | $8,989 | $8,415 | $574 | 7% | | Net loss | ($7,652) | ($5,136) | ($2,516) | (49)% | - Product gross margin improved to 50% in Q1 2020 from 45% in Q1 2019 due to a more favorable product mix[241] - The increase in R&D revenue was primarily driven by the Novartis CodeEvolver® Agreement and the Takeda Agreement, partially offset by lower revenue from Nestlé Health Science compared to the prior year[237] - The increase in R&D expenses was mainly due to higher costs for outside services related to Chemistry, Manufacturing, and Controls (CMC), regulatory expenses, and increased headcount[243] Liquidity and Capital Resources As of March 31, 2020, the company held $87.3 million in cash and cash equivalents and $92.3 million in working capital, believing these resources, along with an undrawn $15.0 million credit facility, are sufficient to fund operations for at least the next 12 months, despite uncertain COVID-19 impacts Liquidity Summary (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $87,327 | $90,498 | | Working capital | $92,280 | $98,817 | - Net cash used in operating activities for Q1 2020 was $1.4 million, an improvement from $2.9 million in Q1 2019[277] - The company has a credit facility allowing for up to $10.0 million in term loans and a $5.0 million revolving line of credit, with no amounts drawn as of March 31, 2020[267] - The company received an $8.5 million upfront payment from Takeda in March 2020 as part of a new strategic collaboration[270] Quantitative and Qualitative Disclosures about Market Risk The company's market risks are primarily from interest rate fluctuations on its undrawn variable-rate credit facility and limited foreign currency exchange rate changes, with a hypothetical 10% unfavorable exchange rate shift potentially leading to a $0.1 million loss - The company has a credit facility with variable interest rates, but since no amounts were drawn as of March 31, 2020, there was no impact from interest rate changes[296] - Foreign currency risk is present due to non-functional currency denominated monetary assets; a hypothetical 10% unfavorable change in exchange rates would result in a potential loss of approximately $0.1 million[297] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting, aside from minor modifications for remote work due to COVID-19 and new accounting standards adoption - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2020[300] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting. Minor modifications were made due to COVID-19 shelter-in-place orders[301] PART II. OTHER INFORMATION Legal Proceedings The company reports that it is not currently a party to any material pending litigation or other material legal proceedings - The company is not currently a party to any material pending litigation or other material legal proceedings[305] Risk Factors This section highlights significant risks from the ongoing COVID-19 pandemic, detailing potential adverse effects on business operations, supply chains, clinical trials, and employee availability, leading the company to withdraw its full-year 2020 financial guidance due to uncertainty - The primary updated risk factor is the ongoing COVID-19 pandemic, which may adversely affect business, results of operations, and financial condition[307] - The pandemic has caused disruptions including the temporary closure of the Redwood City facilities, potential supply chain delays, and challenges in conducting R&D and clinical trials[310][311] - Due to the uncertainty surrounding the impact of COVID-19, the company has withdrawn its full-year 2020 financial guidance[313] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[314] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Strategic Collaboration and License Agreement with Takeda, a letter agreement with GlaxoSmithKline, officer certifications, and iXBRL data files - Key exhibits filed include the Strategic Collaboration and License Agreement with Takeda and various officer certifications required by the SEC[319]