Codexis, Inc. Q3 FY2021 Earnings Call

Welcome to the Codexis Q3 2021 Earnings Conference Call. All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. Operator provided instructions. And now I’ll turn the call over to Stephanie Marks from Argot Partners. Please go ahead.

Thank you, operator. With me today are John Nicols, Codexis’ President and Chief Executive Officer; and Ross Taylor, Codexis’ Chief Financial Officer. 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 2021 total revenues, our updated guidance on product revenues and gross margin on product revenues, and our expectations regarding sales of one of our proprietary enzymes to Pfizer for the manufacture of their late clinical stage COVID-19 antiviral therapeutic candidate. To the extent that statements made by management are not descriptions of historical facts regarding Codexis, they are forward-looking statements reflecting beliefs and expectations of management as of the statement date, November 4, 2021. You should not place undue reliance on the forward-looking statements, because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the company's control and could materially affect actual results. In particular, there is significant uncertainty about the duration and impact of the COVID-19 pandemic. This means that results could change at any time and the currently contemplated impact of the virus on the company's operations, financial results and outlook is the best estimate based on available information. For details about these risks, please see the quarterly news release that accompanies this call as well as the company's SEC filings, including Codexis’ annual report on Form 10-K filed with the SEC on March 1, 2021; Codexis’ quarterly report on Form 10-Q filed with the SEC on August 6, 2021; and Codexis’ other periodic reports filed with the SEC. Codexis expressly disclaims any intent or obligation to update forward-looking statements, except as required by law. And now I’ll turn the call over to John.

Thank you, Stephanie. Good afternoon, everyone. I am proud to report that Codexis has delivered another quarter of exceptional operational performance. Total revenue for the third quarter of 2021 grew 100% year-over-year. Product revenue more than tripled from a year ago and product gross margin reached a new high of 76%. Over the past quarter, we continued to diversify our customer base with 19 customers who generated over $100,000 in revenue, seven of whom contributed over $1 million in revenue. Our Sustainable Manufacturing business demonstrated step-out growth this quarter, driven by the large orders we have received from Pfizer for one of our proprietary enzymes to manufacture their late clinical stage COVID-19 antiviral therapeutic candidate. The purchase orders we disclosed in June and August aggregate to approximately $29 million. And this enzyme represents the largest annual sales for a product in company history. This was far from the only success story coming out of our sustainable manufacturing business this quarter, where we also strongly positioned ourselves for the upcoming generic chapter of the sitagliptin market and demonstrated excellent progress in the faster-to-market food space. In the Life Science Tools market, we were very pleased to execute the first commercial sale of Codex HiFi DNA Polymerase, and we remain on track with our other products and custom partnerships in this sector. And in our Biotherapeutics business, we are thrilled to have entered the clinic with CDX-7108, which is co-owned with Nestlé Health Science for the treatment of exocrine pancreatic insufficiency. This is the second Codexis-designed therapeutic to reach Phase 1 clinical trials, the first being CDX-6114, which is fully licensed with Nestlé Health Science for the treatment of phenylketonuria. Our results showcase Codexis’ ability to drive robust progress across diverse market segments in parallel. Sustainable Manufacturing is where we've established Codexis as the undeniable leader in enzyme engineering. And this market continues to represent the large majority of company revenues. Codexis’ novel high-performance enzymes reliably enable our customers to dramatically reduce the cost and increase the sustainability of manufacturing their end products. Compared to using traditional, non-enzymatic chemistry, which is capital intensive and inefficient, our engineered enzymes decreased capital needs meaningfully while also enabling higher yields, reduced energy usage and lower waste generation. And our CodeEvolver enzyme engineering platform is constantly accelerating the speed of our ability to discover and commercialize value-creating enzymes. Small molecule pharmaceutical processes have been and continue to be a core target for growing the sustainable manufacturing markets for Codexis. We have partnered with 21 of the 25 largest pharmaceutical companies in the world to help them adopt and install novel Codexis enzymes for manufacturing their APIs. The large purchase orders we disclosed for Pfizer for a proprietary Codexis enzyme manufactured for their clinical stage COVID-19 antiviral therapeutic candidate represent a historic milestone for Codexis, given their size. In addition, this business and the orders from Pfizer came to fruition with unprecedented speed. Furthermore, these orders also put our supply chain to the test, giving us the opportunity to prove our ability to quickly scale up manufacturing of an enzyme and produce at the pace necessary to fulfill orders of this magnitude. We are proud to be supporting Pfizer on this critical treatment for COVID patients, and we wish them well in the conclusion of their clinical program and potential regulatory authorization. Also, on the COVID antiviral front, we note that we have done some impressive enzyme engineering work in collaboration with Merck to design a multi-enzyme cascade for the manufacturing of their COVID antiviral drug molnupiravir. However, Merck has decided to build supplies for their anticipated Emergency Use Authorization launch with a non-enzymatic process. It is possible that Merck could eventually switch to a Gen2 process with CodeEvolver-engineered enzymes, but we have no knowledge of Merck's plans to do so anytime soon. The cost savings provided by our high-performance enzymes position Codexis to be a key partner to stakeholders throughout the life cycle of a drug, including when a branded product goes off patent. As most of you on the call know, we developed an enzyme for Merck that significantly reduced their cost to manufacture sitagliptin, the API in their blockbuster diabetes drug Januvia. Our sitagliptin enzyme has been an important product revenue generator for us over nearly a decade. With the pending patent expiration of Januvia, we are well positioned to capitalize on the growing demand from generic manufacturers for our enzyme to help them produce low cost sitagliptin. To that end, during the third quarter, we established our first two multi-year agreements to extend our long-standing sitagliptin product business into its generic chapter. With Merck, we extended our enzyme supply contract through the end of 2026. In the case of Almelo, Codexis has agreed to license and supply our proprietary enzyme to them for their generic manufacturing process for sitagliptin. We are pleased with their decision to install the capability to self-produce this enzyme, enabling sitagliptin cost to be driven even lower still. As part of this collaboration RC2 Pharma is responsible for leveraging relationships with global drug product partners to establish downstream channels to market the Almelo-produced sitagliptin. Adding the expertise of RC2 enables a fully integrated, low-cost supply chain to uniquely position this partnership for success in the coming competitive generic sitagliptin marketplace. In addition to pharma manufacturing, in the past few years we've been expanding to other industries, designing enzymes to sustainably manufacture for a wide range of applications, including food and beverage ingredients, as well as a host of other potential industrial enzymes. These products have shorter development timelines and lower regulatory hurdles than pharma manufacturing, enabling our enzymes to reach the market more quickly. In July, we announced an expanded collaboration with Kalsec, a leading producer of food and beverage industry products. Working closely with Kalsec’s advanced hop products innovation team, we leveraged our CodeEvolver enzyme engineering platform to develop a novel enzyme that enables the natural biocatalytic production of a light-stable hop acid. Beers, especially hoppy beers—IPAs—typically need to be canned or packaged in dark glass to prevent the degradation of hops and the formation of the light-struck character, what you may know as skunky beer. By utilizing Codexis’ proprietary engineered enzymes rather than conventional chemical means, a hop acid that is more light-stable is biochemically produced, enabling the beer to be bottled in clear glass without the risk of rapid hops degradation. The green technology also provides a cleaner label for the final beverage product declaration. In addition to expanding our agreement milestone from Kalsec in the third quarter for achieving the Generally Recognized as Safe, otherwise known as GRAS, self-affirmation for this enzyme, we remain enthusiastic about our growing opportunities in the food and nutrition vertical, and this partnership with Kalsec only scratches the surface of what is possible using our unique engineered enzymes. Rounding out the food sector, we are also pleased to see growing momentum for enzyme sales to both Tate & Lyle’s new sweeteners, DOLCIA PRIMA® Allulose and TASTEVA® M Stevia, as we move through 2021, boding well for the strong peak product revenues we expect from each of these newly commercialized food applications. Another high growth opportunity for Codexis is in the life science tools market. Codexis engineered enzymes can enable improvements in next-generation sequencing, and molecular diagnostics, biosensor applications, DNA and RNA synthesis, and more. The market is very attractive given its rapid commercialization cycles and above-average margin prospects. The market also affords us the opportunity to develop products that can be marketed to multiple customers in addition to the highly engineered enzymes we customize for specific partners. Over the past year, we've developed three new life science tools enzymes for broad-based customer marketing: Codex HiCap RNA polymerase, Codex HiFi DNA polymerase, and Codex Reverse Transcriptase. In the third quarter, we were pleased to record our first commercial sale of Codex HiFi DNA polymerase. Our analysis demonstrates that Codex HiFi DNA polymerase enables the highest fidelity next-gen sequencing results of all the competitive DNA polymerases tested and we are proud to have begun the sales ramp for this important new life science enzyme product. Codex HiFi polymerase is being tested by multiple customers for use in existing and future applications. Earlier in the year, we made our first commercial sales of Codex HiCap RNA polymerase to several customers and interest remains strong for its use in clinical-stage messenger RNA manufacturing processes. We engineered Codex HiCap RNA polymerase to provide dramatically higher capping efficiency, enabling customers to significantly reduce the amount of capping reagent that is critical to stabilizing the product for pharmaceutical use. In addition, our proprietary enzyme decreases the production of unwanted double-stranded impurities, which increases yield and simplifies downstream production of the mRNA product. Our third life science tools enzyme, Codex Reverse Transcriptase, has been developed to perform versus incumbent enzymes in both diagnostic and sequencing applications. It has been specifically engineered with improved sensitivity and inhibitor resistance for use in RT–PCR for RNA-based disease detection. One limitation of current reverse transcriptases is their low thermal stability. To get an accurate reading, samples need to be heated to melt the RNA at temperatures well above the tolerance of most enzymes. Our Codex Reverse Transcriptase thrives at high temperatures. We have also engineered our enzyme for increased inhibitor resistance, thereby ensuring that other components found in tested samples do not interfere with the results or prevent the enzyme from doing its job. Together, these two parameters make Codex Reverse Transcriptase a much more robust and sensitive enzyme, reducing false negatives and reducing the turnaround time needed for a diagnostic result. We are encouraged by performance feedback from early access users who have tested the product to date. And we are on track for a broader launch into diagnostic applications next month. The partnership between Codexis and Molecular Assemblies is also making great strides, bringing closer to reality the disruptive enzymatic approach to synthesizing DNA. Codexis is leveraging the power of CodeEvolver to deliver dramatic performance improvements over the current chemical process for gene and DNA synthesis by engineering enzymes designed to make Molecular Assemblies' process a commercially viable, cost-effective and differentiated solution to manufacturing long-chain DNA. In parallel, Molecular Assemblies is scaling their manufacturing platform and building a commercial team to accelerate going to market. Given our confidence in the partnership we have decided to increase our equity stake in Molecular Assemblies, investing $7 million and stepping us up to become their second largest shareholder. Our partner in the SynBio Innovation Accelerator, Casdin Capital, has invested $3 million as well to become a new shareholder in Molecular Assemblies. It's exciting to be leveraging our enzyme engineering and supply capabilities to access downstream value in the fast-growing DNA synthesis marketplace via these strategic moves. Rounding out the life science tools sector, we continue to experience strong demand for partnered enzyme engineering programs for custom and second-generation applications from within the life science industry. Our dedicated engineering teams are currently running multiple partnered programs in the field of biosensors, genomics, oligonucleotide synthesis, and more. The growing life science industry solidifies our belief in the advantages and value that CodeEvolver can bring to this heavily enzyme-dependent market. Leveraging CodeEvolver to discover and develop novel biotherapeutics is another exciting growth strategy for Codexis. Here we are rapidly building and advancing a high-value pipeline of oral biologics and gene therapy candidates. Just a few years ago, we had only two very early-stage programs in our pipeline. Today, we have over a dozen programs in the pipeline and we are increasingly holding assets for select programs deeper into clinical development in order to enhance their value for Codexis. We were thrilled to announce that our second CodeEvolver-discovered biotherapeutic candidate has reached the clinical stage, having recently initiated a Phase 1 study for CDX-7108 for the treatment of exocrine pancreatic insufficiency. EPI is a debilitating condition of the GI tract that is caused by conditions that impair pancreatic function, including pancreatitis, pancreatic cancer, Crohn's disease, celiac disease, and cystic fibrosis. The current standard of care for this condition—pancreatic enzyme replacement therapies, or PERTs—are limited in efficacy due to the GI instability of their lipase component. CDX-7108, an orally administered GI-active lipase, was precisely engineered to overcome the limitations of traditional pancreatic enzyme replacement therapy deficiencies. By engineering enhanced acid tolerance for stomach stability and breakthrough protease resistance for the small intestines, our preclinical trials with CDX-7108 demonstrated equivalent recovery of absorption at a 10-fold lower dose than standard of care PERT. We are excited to advance CDX-7108, the first of a series of equally owned candidates from our Nestlé Health Science partnership, into clinical development. The early clinical study design comprises single dose and multiple dose escalation trials in healthy volunteers followed by a single dose proof-of-concept trial in patients with EPI. While the big news in our segment is CDX-7108, we are making progress across the entirety of our pipeline as well. Three self-funded and two other Nestlé co-owned oral biologic programs are all advancing in their preclinical research and development. We also have an impressive four-program partnership with Takeda Pharmaceuticals, which is focused on engineering transgenes to enable differentiated next-generation gene therapy candidates for rare diseases. In addition to the partnered programs with Takeda, we have recently embarked on self-funded discovery programs targeting improved transgenes for other rare disorders. It's great to see the progress being made by the Codexis biotherapeutics team, expanding and advancing so successfully this year. Let me now hand the call over to Ross to take you through our financial results in more detail.

Thank you, John. And good afternoon, everyone. We delivered strong third quarter 2021 results. Total revenues for the third quarter of 2021 were $36.8 million, up 100% compared to the prior year period. On a segment basis, $32.6 million in revenue was from our performance enzyme segment and $4.2 million was from our novel biotherapeutic segment. This compares with $13.0 million and $5.4 million for performance enzymes and novel biotherapeutics respectively for the prior year period. Product revenue for the third quarter of 2021 was $28.7 million, above our expectations for the quarter and up 242% compared to $8.4 million for the prior year period. The increase was primarily the result of our sales of enzyme to Pfizer, which generated $18.9 million in revenue in Q3. R&D revenues were $8.0 million in Q3 compared to $10.0 million last year. The decrease was driven by lower R&D revenue from several major pharmaceutical companies and a shift to self-funded R&D programs. Gross margin on product revenue for the third quarter of 2021 also came in above the high end of our expected range at 76% compared with 57% in the third quarter of 2020. The increase was due to a favorable shift in product mix. Turning to operating expenses, our R&D expenses for the third quarter of 2021 were $15.2 million, up from $12.0 million in the prior year period. The increase was driven by higher compensation expense due mostly to higher headcount, higher cost of lab supplies and depreciation, partially offset by lower preclinical development and regulatory expenses. SG&A expenses in Q3 of 2021 were $13.4 million compared to $8.8 million for the prior year period. The increase was the result of higher expenses for compensation, primarily driven by higher headcount and higher legal fees, partially offset by lower allocation expenses. Net income for the third quarter of 2021 was $2.2 million or $0.03 per share compared to a net loss of $6.1 million or a loss of $0.10 per share for the third quarter of 2020. While we were very pleased to be profitable in Q3, we do not expect to be profitable in Q4 or for the full year 2021. With regards to the balance sheet, cash and cash equivalents as of September 30, 2021, were $119 million, which puts us in a strong position as we look to seize the company's growth opportunities. Also, I will note that to date, we have not drawn any funds from our $50 million ATM equity facility that we put in place in May of this year. Turning to guidance, we continue to expect full year 2021 total revenues to be in a range of $98 million to $103 million, which is the same as the guidance we issued on August 5, 2021. Importantly, we are increasing our 2021 product revenue guidance based on the improved outlook for several products in our portfolio. We now expect full year 2021 product revenues to be in a range of $63 million to $66 million, up from our prior guidance of $59 million to $63 million. We expect full year gross margin on product revenue to be 68% to 71%, up from our prior guidance of 65% to 68%. The increase is driven by a shift in the sales mix to higher margin products for the full year. However, we continue to expect product gross margin to decline from Q3’s levels in the fourth quarter of 2021, as we expect revenue from sitagliptin will increase as a percentage of the sales mix in Q4 compared to Q3. Our outlook for R&D and SG&A expenses for the full year of 2021 has not changed materially since our call last quarter. We anticipate R&D and SG&A expenses combined should be in a range of $32 million to $34 million in Q4. As we have noted previously, our investments in R&D and in our SG&A infrastructure are important drivers of our future growth. In summary, we are heading toward the end of Codexis’ most successful year on record with excellent growth in total revenues, impressive growth in product revenues and significant expansion of product gross margin during 2021. With that, I'll turn the call back to John.

Thanks Ross. Let me close out our prepared remarks in the context of our goals for the year. As both Ross and I have highlighted, Codexis has maintained strong momentum throughout the third quarter and as we head into the remainder of the year. In particular, we capitalized on several high-value opportunities in the sustainable manufacturing business resulting in our largest ever annual sales for a product and in the diversification of the business lines across a widening range of industries. Alongside our commercial progress in the life science tools sector—highlighting our three new Codexis product launches—and our second drug candidate to reach clinical stage, CDX-7108 in biotherapeutics, we have nearly completed delivering against these goals that we set for ourselves at the onset of the year. 2021 is proving a year for Codexis to break out across all of its target sectors. We are so pleased and proud of the team's tremendous accomplishments. Next year is setting up solidly as well. While we do not yet have clarity on whether Pfizer’s antiviral pill will make it to market to treat COVID patients, we do have confidence that if it does, that our enzyme sales to Pfizer next year will be similar or potentially somewhat higher than what we are delivering to them this year. And underlying growth besides Pfizer looks widespread and solid with expectations to continue to drive revenue growth at around the historical rates that we have been delivering over our recent past. We are proud of our leadership role as a pioneer in tapping into the nearly unlimited potential of synthetic biology. And we are excited by the vast potential for Codexis engineered enzymes to dramatically improve the health of people and the planet. Now, we'd be happy to take your questions. Operator?

Thank you. The floor is now open for questions. Operator provided instructions.

Thanks. Good afternoon. John, I'd like to start with the Pfizer antiviral program. Should we consider the $29 million of orders as being used to only serve clinical trial quantities? And then secondly, in terms of your comments there about expectations for 2022, I just want to make sure I understand that right. Whether or not it gets commercialized you're still confident that that revenue base will be flat or higher next year and just help us kind of understand the thought process behind that. Thanks.

Yes, sure Brandon. So first question: the $29 million worth of enzymes that we are supplying this year to Pfizer is beyond their clinical trial quantities. The large majority of it is being used to do what is often referred to as registration trial batches to prove the robustness of Pfizer's process. Also, we expect that at least a healthy portion of the enzymes are being used to manufacture the antiviral for stock in anticipation of a launch or in anticipation of them being able to get Emergency Use Authorization. So, I'd say a small minority is used for clinical trials and the rest is to manufacture product in anticipation of a launch. Second, for next year, again, we don't have any data about how their clinical trials are progressing. However, we have indications from them that they're looking to scenario plan for supply from Codexis for 2022 in the event that they are able to get an Emergency Use Authorization. Those discussions lead us to have confidence that if they are able to get their antiviral pill on the market, we should be supplying enzyme next year at similar or potentially somewhat higher revenues than we've been executing in 2021. We are going to have to wait to see the results from Pfizer's trials and see them start to move towards getting an Emergency Use Authorization. But our outlook is that if that happens, we would expect to do similar enzyme business next year, maybe a little bit higher.

Got you. Okay. That's clear. Then in terms of the R&D revenue line, just help us understand the change on there, in terms of the programs, whether there's some shifting strategy, or this is mainly a resource issue sort of relocating perhaps some of the teams to other non-R&D-revenue-generating projects? And perhaps comment on how the new capacity is developing and whether you see scope for further expansion of those teams in 2022?

Yes. Yes, we are expanding our research capacity so that we can do more parallel enzyme engineering work. We've actually had some really good success this year in building up the team capacity. At the end of last year we were quoted as having about 15 or so parallel enzyme engineering teams. Today, we've staffed up to do around 20 parallel enzyme engineering teams. And we look to increase that another notch forward further as we move through the rest of this year and into 2022. On the R&D revenue line, we're in solid shape. We had some tough comps last year. We had big fronts from Takeda, for example. We had a lot of R&D revenue from the CodeEvolver tech transfer agreement with Novartis. But there's underlying growth underneath. For example, in the life science area we used to do almost no business in life science tools back in 2018 and last year we did about $3.5 million worth of R&D custom work for life science tools customers. This year that's looking to be roughly double that. So somewhere around doubling what we did last year. So, we're seeing good strength there. We're seeing solid growth, solid delivery for doing R&D project work for our sustainable manufacturing customers as well. But overall, there is a bit of an incremental shift: as we've capitalized the company strongly over the last few years, we have been driving an incremental shift to do more self-funded R&D work by Codexis, not being so dependent on customer funding to start the work. So, we're able to put our teams to work quicker on a self-funded project and ultimately by doing more self-funded work versus customer-funded work, we're preserving more of the back-end value creation to flow to Codexis. So, I'd say there has been an incremental shift. But we're staffing up, we're doing more and more, we have substantial demand to do enzyme engineering, and we're incrementally shifting that towards more self-funded work. But underneath there's still a very strong R&D revenue growth curve from funded partnered projects. Hopefully that was helpful.

Thank you.

Okay. Our next question comes from Matt Hewitt with Craig Hallum. Please state your question.

Good afternoon. And congratulations on all the progress on so many fronts. Maybe the first one for me: congratulations on the success of the first DNA polymerase contract. I think previously you've talked about those potentially ramping to eight figures over time at the peak level, but how should we be thinking about the trajectory or the time to get to that peak revenue ramp?

Yes. Thanks for highlighting it. We’re super proud that we've now broken through some commercial successes with DNA polymerase, like we also broke through earlier in the year for the RNA polymerase. We're aggressively working customer trials and discussions across a wide range of customers for the DNA polymerase for use in next-gen sequencing applications. So, we're in a good place. It's probably taken a little bit; it's been a little bit more challenging to get customer attention and traction with customers, but we're on a really good pace as we finish 2021. We definitely still see this as being one of our largest product opportunities in the medium and longer term that we're working to penetrate across all sectors. Eight digits for the ultimate peak revenue for DNA polymerase is still very much in our targets and expectations. How it ramps through 2022 and 2023, I think we'll probably give a little more color to the ramp for that as we build out detailed guidance expectations for 2022 in the early part of next year. But clearly, we're on a ramp to do better next year versus this year. So give us a little bit of time to give you a little more color on how we see that ramp unfolding as we talk to you and set more details about 2022 guidance in February next year.

Got it. Got it. And then maybe one follow-up regarding the Pfizer contract. Thank you for all the details here. It's obviously helpful given all the questions I'm sure you were getting for a couple weeks. As we think about, I think, you mentioned a little over $18 million, was that in the quarter, or so far with the contract, but your expectation that the remaining portion of that roughly $29 million would fall into Q4 or do you expect that to kind of fall over the next couple of quarters and then wait to see what happens with the trial and the potential EUA?

Right. I can jump in here, Matt. We did about $19 million in revenue with Pfizer in Q3 and the balance of those orders, which total approximately $29 million, we'd expect to fill in Q4.

Understood. All right. Thank you.

Okay, our next question comes from Dan Arias. Please state your question.

Hi John. I guess quickly I'm not sure if I heard you correctly, but towards the end of your commentary, you started talking about expectations for revenue growth as you look into next year and you talked about being consistent with historical growth rates. I'm looking at my model and, obviously, 2020 and this year are anomalies, but as I look back in the model I'm seeing 13% in 2019 and 21% in 2018. Is that kind of what you're suggesting as the outlook as we look forward and what would be incorporated in that?

I'll try to help you there. What John was referring to in his prepared remarks was if you exclude the impact of Pfizer, which obviously has been substantial, our goal would be to continue or maintain the historical growth we've seen in both total revenues and our product revenues. Looking back to 2020 and prior, our five-year growth rate for total revenues was in the neighborhood of 14% to 15% and the five-year CAGR for product revenue was about 22%. So our longer-term aspirations and goals would be to maintain growth rates at those levels in the core business.

We've got a number of good tailwinds to drive us for that underlying growth. Our food business, as highlighted in the prepared remarks, is on a really nice ramp. The two enzymes to Tate & Lyle, and we have this new application with Kalsec, which we have good optimism for. We have the ramp for RNA and DNA polymerase. We have the new product Reverse Transcriptase that we're launching as we finish this year. So, I would expect to start to see a sales ramp build for that in 2022. There are a lot of good underlying tailwinds to drive growth, and those are just a few.

Very helpful. I guess my follow-up question: as I look at what you guys have been doing, you've had some big customers and big successes that people have heard about. With these kinds of big public successes, have people been approaching you more and have your conversations with them changed? Have you had more conversations about platform licenses and similar arrangements? I'm just kind of wondering if you've had more conversations as a result of these big public successes.

It varies by sector, but public success always drives incremental energy for us in the marketplace. We've had material successes in using enzymes to drive lower-cost, more sustainable processes in pharmaceutical manufacturing now for almost two decades. The number of scientific breakthroughs and the different customers that we've advanced partnerships with has really built great momentum for us. We're doing at least some measure of business with 21 out of the top 25 drug companies right now. Our job is to continue to showcase all the different chemistries that our enzymes can drive to lower cost and sustainable manufacturing, and to streamline our discussions with more and more of the large pharmaceutical customers. We want them to believe, like Merck, like Pfizer, like GSK, like Novartis, how widely applicable our technology can be across their entire pipeline. As we continue to successfully move customers steadily with that awareness of applicability, then people get closer and closer to justifying CodeEvolver platform licenses like we've seen with GSK, Merck, and Novartis. It's really good. As we break into the life science tools market, which is an area we're relatively new in, every material piece of publicity generates significant growth and interest. Presentations at major events, like AGBT, really help to bring more customers to us. And in the biotherapeutic discovery and development area, showcasing that we have two programs in the clinic helps bring more attention to Codexis as a drug discovery engine. So yes, it's exciting to see that kind of momentum. It generally happens in steady, incremental improvements over time as we continue to succeed.

Great. Thanks so much.

Our next question comes from Jacob Johnson with Stephens. Please state your question.

Hey, good evening, everybody. Congrats on nice quarter. John, maybe first question just on CDX-7108, congrats on that moving into Phase 1. I believe since you own 50% of that with Nestlé there's no milestone here, but I do think you may have to fund some of the R&D. Can you just talk about any kind of R&D investments that could be associated with that? Maybe they are not worth calling out, but I figured I'd check.

You're correct. CDX-7108 is a fifty-fifty owned asset with Nestlé Health Science. There are no milestones currently or in the near term associated with the development of CDX-7108. Instead, we are co-funding the continued development of CDX-7108. It's showing up as a growing cost stream for Codexis. We've been investing materially already to do all the IND-enabling work, which includes CMC and GMP manufacturing and toxicology work. So, it's already been a pretty healthy investment, split fifty-fifty with Nestlé Health Science. And there will be a continuation of expenses as we move through these Phase 1 trials. So that's how that program works.

Got it. Thanks for that, John. And then thanks for the couple of updates on Januvia. Just one longer-term question there: when Januvia goes off patent and maybe you have some agreements with some of the generic manufacturers, is this something that increases the potential opportunity from that drug, or should we think about generics and the continuing relationship with Merck and whatever happens with their sales as kind of all netting out to being the same as it is today?

Great question and a little hard to see at this early stage. But we've been saying that we have confidence that we could maintain the kinds of revenues we've been generating in the patented stage when we sell to Merck as it moves into the generic chapter. A couple of things we can't quite see clearly until we get into the generic chapter: one is whether there will be more sitagliptin prescribed once it goes generic. It's a mainstay drug for Type 2 diabetes, so there's a good prospect that as the price goes down with generics, prescriptions could increase, which would be a plus for us. On the other side, we need to get positioned with a decent number of these generic companies. We've already shown that we're maintaining our business with Merck and we've extended that agreement into 2026, which is a number of years beyond the expiration of the Januvia patents. Earlier in the quarter we announced a significant deal with Almelo in partnership with RC2 Pharma to show that we've got another strategic path to maintain and potentially increase share. If we get the right generic partners who win the leading share of the generic market, which we won't really know until the 2024–2026 timeframe, it could be higher. We're in really good shape; this has been a significant revenue-generating line for Codexis for years, and we're showcasing that we have the right strategy to continue that kind of revenue into the generic chapter.

Got it. It might have been a little bit early for the question, but I figured I'd check. Thanks for your time.

Our next question comes from Arthur He. Please state your question.

Hey, good afternoon, John and Ross. Congratulations on all the progress this quarter. I just had one question regarding the Codex Reverse Transcriptase. Could you give us more color on the launch and what the potential customer feedback has been during the pre-launch preparation? Also, when could we expect revenue follow-through on this product?

Thanks. We've been working on Reverse Transcriptase pretty much all year in the design and commercialization phase. As we've brought more enzymes into life science tools applications, it's been valuable to provide early alpha testing of our enzymes before a full formal launch to get the formulation right and to validate what we're seeing in our lab. We've received feedback from alpha trials that indeed our Reverse Transcriptase, versus current reverse transcriptases, has better thermal stability, which enables faster cycle times, and it's a more robust enzyme to tolerate inhibitors and other components found in biological samples. Our enzyme shows improved sensitivity. We're quite confident from these alpha trials that our product is ready to launch, and we're planning that in the coming weeks, somewhere in December. The ramp up of sales takes time; we go out to a range of customers in parallel and put our application specialists to work to help those customers use the product and address any differences they see versus incumbent reverse transcriptases. Given a December launch, I wouldn't expect very large sales for Reverse Transcriptase in 2022's early months, but we should be showing milestones such as first commercial sales and building enthusiasm for a growing application of the Reverse Transcriptase as we move through 2022—similar to what we've been doing this year with DNA polymerase and RNA polymerase.

Sounds great. Thank you for the color.

I'm showing there are no further questions. I'll turn the call back to John Nicols for closing remarks.

Okay. Thank you again for joining us today. As a reminder we will be attending the upcoming Craig Hallum, Stifel and Jefferies London conferences the week of November 15, as well as the Stephens, Evercore and Piper Sandler conferences the week of November 29. We look forward to continuing to update you on Codexis' progress. Thank you very much.