Earnings Call Transcript - CDXS Q1 2021

Operator, Operator

Welcome to Codexis' First Quarter 2021 Earnings Conference Call. At this time, all participants will be in listen-only mode. A question-and-answer session will follow the formal presentation. Operator instructions: Please note, this event is being recorded. And I would now like to turn the conference over to Stephanie Marks from Argot Partners. Please go ahead.

Stephanie Marks, Investor Relations / Moderator

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. 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 this statement date May 6, 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 point in 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. 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.

John Nicols, President & Chief Executive Officer

Thank you, Stephanie. Good afternoon everyone. I'm very pleased to present a strong first quarter 2021 results for Codexis. With the company's growth drivers continuing to accelerate, we began the year with even stronger momentum than we anticipated. Total revenue grew by 23%, compared to a year ago and with a growing list of commercializing enzymes, product revenue grew by 101% year-over-year. With our sales mix continuing to shift toward higher-margin products, we also delivered impressive product gross margins of 59%, up from 50% a year ago. Our focus on high-growth opportunities is bearing fruit. This quarter, we had 15 customers, who contributed over $100,000 in revenue and we had five customers, who contributed over $1 million in revenue. In our sustainable manufacturing segment, on top of a strong base of product sales to Merck for Januvia manufacturing and to Allergan and Urovant for their commercial products, we have an exciting list of late-stage clinical development installations, driving product revenue growth in 2021. In the Life Science Tools market, we're off to a strong start with expanding adoption for our own broadly marketed RNA and DNA polymerases, coupled with a strong quarter for R&D revenues for customer-partnered programs, including several that were initiated in the first quarter. And finally, in our Biotherapeutics segment, we steadily advanced our pipeline assets in the quarter and completed key IND-enabling activities that set up our second drug candidate to enter clinical trials later this year. Ross will provide more details on the first quarter results and guidance shortly. But first, I'll provide detailed updates across each of the businesses. Starting with our Performance Enzymes reporting segment, we are growing the business and focusing on two distinct markets. The first being sustainable manufacturing. This is where we built Codexis' enzyme engineering leadership over the past two decades and this market represents the large majority of the company's revenues currently. Codexis' novel high-performance enzymes 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 decrease capital needs meaningfully, while also enabling higher yields, reduced energy usage and lower waste generation. And our CodeEvolver platform is constantly accelerating the speed of our ability to discover and design these value-creating enzymes. Small molecule pharmaceutical processes have been and continue to be a core target for growing the sustainable manufacturing market 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. Merck is a great example of the work we do with our pharma partners. One of the original projects that we tackled with Merck was to improve the cost and efficiency of manufacturing the active ingredient sitagliptin in their blockbuster diabetes drug Januvia. The enzyme we engineered for the sustainable manufacturing of sitagliptin was one of Codexis' earliest commercialized products and continues to be a significant revenue generator for us today. As a result of our work with Merck on sitagliptin and other projects, Merck recognized the value and wide applicability of using enzymes in their processes and decided to license our CodeEvolver platform to accelerate their adoption by performing enzyme engineering on their own in-house. More recently, another significant project we collaborated on with Merck was the design of novel enzymes to sustainably manufacture islatravir, their investigational drug for HIV. We help them convert a 16-step traditional chemistry process to one that only requires three steps, dramatically improving their capital efficiency and yield. The proprietary process utilizes nine enzymes, a groundbreaking enzyme cascade process installation, only made possible by the extensive use of our CodeEvolver enzyme engineering platform. We supplied over $1 million of several of these enzymes to Merck in the first quarter. In general, our newer sustainable manufacturing enzymes like these for islatravir are being priced at above-average gross margins. These newer more profitable products are making up an increasing portion of our product revenue. Our sustainable manufacturing pipeline also has an increasing number of pharma products in late-stage clinical development, with the potential for FDA marketing approval approaching. Recently and excitingly, we've been helping two different large pharmaceutical companies by developing novel enzymes for manufacturing their COVID-19 antiviral clinical stage candidates. With accelerated development pathways for COVID treatments, these candidates are moving through the clinic much more rapidly than other pharmaceutical products. Two proprietary Codexis enzymes are key to the manufacturing processes of these two clinical stage products and hold exciting prospects as potential new sources of product revenues for Codexis. In addition to pharma, in the past few years we've been expanding to other industries; designing enzymes for sustainably manufacturing a range of applications, including food and beverage ingredients, recycling, consumer care and animal feed. These products have relatively short development timelines and lower regulatory hurdles, enabling our enzymes to reach the market more quickly. In the first quarter we announced the commercial installation of new higher-yielding enzymes for each of TASTEVA M Stevia and DOLCIA PRIMA Allulose, two of Tate & Lyle's most exciting new sweetener product launches. These cost-reducing enzymes enable our partner to further accelerate their already promising customer adoption outlooks. In addition with a deep and growing pipeline of other late-stage development industrial enzyme candidates, we expect this shift towards higher margin and faster-to-market products will continue to accelerate Codexis' growth. Another relatively new area of expansion for Codexis is the life science tools market, which is a significant growth opportunity for the company. Codexis' Performance Enzymes can enable improvements in next-generation sequencing and liquid biopsy genomics, diagnostics, biosensor applications and more. This market is highly attractive, given its high growth, rapid commercialization cycles and above-average margin prospects. This market also affords us the opportunity to develop products that can be marketed to multiple customers, in addition to the highly customized enzymes we engineer for specific partners. We've recently developed three new Life Science Tools enzymes for broad-based customer marketing: Codex HiCap RNA polymerase, Codex HiFi DNA polymerase and Codex reverse transcriptase. Our RNA and DNA polymerases have led the way, as we rapidly advance these enzymes toward commercialization last year and began marketing at the end of 2020. In the first quarter we're already demonstrating success. We engineered Codex HiCap RNA polymerase to provide dramatically higher capping efficiency, enabling customers to significantly reduce the amount of cap agent that is required in the manufacturing recipe alongside an RNA polymerase. The graph on the right side of this slide shows the improved capping efficiency from using Codex HiCap at various cap agent loading levels. In addition, our proprietary enzyme decreases the production of unwanted double-stranded RNA, which increases the customer's product yield and simplifies downstream purification needs. In the first quarter, we recorded our first commercial sales of Codex HiCap RNA polymerase to several customers, who tested and validated it to yield and efficiency benefits. The product is also in various stages of customer trials with several other messenger RNA manufacturers. This excellent start to customer adoption gives us confidence that we're well positioned for potential installation in a range of processes for development stage mRNA-based vaccines and therapeutic candidates. We expect product sales to continue to grow through the rest of this year, setting up for a meaningful sales pace as we finish 2021 and beyond. We're also making great progress with the launch of Codex HiFi DNA polymerase. It has been formulated in a master mix that is a standard formulation used for library amplification and next-generation sequencing. Our analysis demonstrates that Codex HiFi DNA polymerase enables the highest next-gen sequencing fidelity results of all the competitive DNA polymerases we tested. We showcased our findings at the AGBT conference this quarter, which drove increased customer interest. The enzyme is currently in trials with dozens of customers for potential use in their current and future NGS kits. In addition to these broadly marketed products, we are also growing customer partnered Life Science Tools programs. Continuing the recent trend in Q1, we added multiple new customer-funded Life Science Tools R&D programs with undisclosed partners to our pipeline. Several significant projects kicked off in the first quarter, which helped drive R&D revenue from this type of work up over 45% year-over-year to well over $1 million in Q1. With the surge in demand for R&D project teams for these new customer-funded projects, we temporarily shifted some resources away from the finalization of the engineering of our reverse transcriptase enzyme, slightly delaying its commercialization. We are now expecting that product to launch in the second half of the year. One extremely exciting customer partner project we're working on in the Life Science Tools market is our groundbreaking collaboration with Molecular Assemblies for the commercialization of enzymatic DNA synthesis. This disruptive approach to synthesizing DNA has the potential to significantly impact a wide range of high-value markets from drug discovery and manufacturing through synthetic biology and longer term to compete with silicon for data storage. Leveraging the power of CodeEvolver, we are engineering enzymes with the dramatic performance improvements that should make Molecular Assemblies process a commercially viable, cost-effective and differentiated solution to manufacture a long-chain DNA. We remain on track to complete the enzyme engineering work for this program in the second half of 2021, enabling Molecular Assemblies to begin early commercialization efforts soon thereafter. With an increasing number of differentiated products and strong partnerships in the Life Science Tools market Codexis continues to build momentum to capitalize on this high-growth opportunity. In closing out the business review, we see tremendous growth potential for Codexis in the discovery and development of Novel Biotherapeutics. Here we are rapidly building and advancing a high-value pipeline of oral biologics and gene therapy candidates discovered using our CodeEvolver platform. Just a few years ago we had only two very early-stage programs in our pipeline. Fast forward to today and we have a dozen programs in the pipeline including one in clinical stage and another in IND-enabling development. We have an impressive multi-program partnership with Takeda Pharmaceuticals focused on improving gene therapy candidates for rare diseases. We are leveraging CodeEvolver to engineer transgenes with improved attributes such as enhanced expression, improved half-life greater stability better uptake in difficult-to-access cells et cetera. At the WORLDSymposium in February, we presented some exciting new transgene optimization data, we've developed for Pompe disease one of our programs partnered with Takeda. We screened over 19,000 variants of alpha-glucosidase and engineered a GAA variant with dramatically enhanced attributes that overcome the key limitations of existing Pompe disease therapies, improving stability in enzyme half-life, increasing time-dependent uptake into challenging cellular targets and eliminating predictive epitopes to reduce immunogenicity. We're proud of the success we have generated in gene therapies after just one year in collaboration with Takeda. Modifying transgenes using CodeEvolver to enable a gene therapy's expression of better performing enzymes is a novel and differentiated approach to design improved next-generation gene therapy candidates. Accordingly, we have embarked on self-funded discovery programs targeting improved transgenes for other rare disorders. Leveraging CodeEvolver to discover novel oral biologics that are more safe stable and efficacious for GI indications is another high-value growth strategy for Codexis. We have four oral biologics in partnership with Nestlé Health Science and three early stage self-funded programs. Three of the partnered programs with Nestlé are co-owned between the parties. And the most advanced of those CDX-7108 is poised to begin its first clinical trials later this year. Most of our IND-enabling activities for CDX-7108 are complete including preclinical toxicology studies and GMP manufacturing campaign setting the stage for IND submission in the third quarter of this year. Let me now hand the call over to Ross to take you through our financial results in more detail.

Ross Taylor, Chief Financial Officer

Thanks, John and good afternoon, everyone. We delivered strong first quarter 2021 results. Total revenues for the first quarter of 2021 were $18 million, up 23% compared to the prior year period. On a segment basis $14.2 million in revenue was from our Performance Enzymes segment and $3.8 million was from our Novel Biotherapeutics segment. This compares with $10.9 million and $3.8 million for Performance Enzymes and Novel Biotherapeutics, respectively for the prior year period. Product revenue for the first quarter of 2021 was $10.2 million above the high end of our expected range for the quarter and up 100% compared to $5.1 million for the prior year period. The major contributors were increased sales to Merck, Allergan and Urovant as well as strength in generics and contribution from a new product than another top 10 big pharma company has in late-stage clinical development. R&D revenues were $7.8 million in Q1 down from $9.6 million last year. The decrease was largely driven by lower revenue contribution from Novartis as we wind down the tech transfer process for the Novartis CodeEvolver agreement. Gross margin on product revenue for the first quarter of 2021 also came in above the high end of our expected range as it was 59% compared with 50% in the first quarter of 2020. The increase was due to a favorable shift in product mix. Turning to operating expenses. Our R&D expenses for the first quarter of 2021 were $11.6 million up from $11 million in the prior year period. The R&D expense increases were primarily due to increased compensation resulting from higher headcount and higher cost for lab supplies and depreciation. These items were partially offset by lower biotherapeutics, preclinical development and regulatory expenses. SG&A expenses in Q1 of 2021 were $11.4 million compared to $9 million for the prior year period. The increase in SG&A expenses was primarily due to higher costs for compensation and legal fees which were partially offset by lower travel and allocation expenses. Net loss for the first quarter of 2021 was $9.1 million or $0.14 per share compared with a net loss of $7.7 million or $0.13 per share for the first quarter of 2020. Turning to the balance sheet. Cash and cash equivalents as of March 31, 2021 were $140 million, which puts us in a strong position as we look to seize the company's growth opportunities. We are reiterating our guidance for 2021. On a quarterly basis, our business remains a lumpy one. Even with the strong Q1 results, we continue to expect total revenues for the year to be between $82 million and $85 million which represents growth of 19% to 23% over 2020. We now anticipate that total revenues in Q2 should be similar to the level of Q1. We expect product sales to trend toward the high end of our guidance range of $36 million to $39 million in 2021, which represents growth of 20% to 30% over 2020. Also, we continue to expect the gross margin on product sales to be between 54% and 58% for the year. While R&D and SG&A expenses on a combined basis were somewhat lower than we expected in Q1, our outlook for these expenses for the full year 2021 has not changed materially from the description we provided on our earnings call back in February. We anticipate expenses for R&D and SG&A combined will be in the range of $25 million to $26 million in the second quarter of 2021. In addition we anticipate R&D and SG&A expenses combined should increase by roughly 10% sequentially in Q3 from Q2 and to increase by another 10% sequentially in Q4 from Q3. These investments in R&D and in our SG&A infrastructure are important drivers of our future growth. In summary, we had a strong start to 2021 and we are well-positioned for excellent growth in total revenues strong growth in product revenues and expansion of product gross margin in 2021. With that I'll turn the call back to John.

John Nicols, President & Chief Executive Officer

Thanks Ross. Let me close out our prepared remarks in the context of our goals for this year. As both Ross and I have shared today Codexis has started off 2021 with strength financially. We have also made excellent progress across the critical strategic objectives that will drive the continued step out growth for the company in the medium and longer term as well. From widening our pharmaceutical and industrial installations in our sustainable manufacturing segment to excellent early customer adoption of our newly launched RNA and DNA polymerases in Life Science Tools to advancing our second biotherapeutic product toward clinical trials, we plan to check all the boxes on this list in 2021. We are on track to continue delivering on the catalyst that will accelerate the company's growth ambitions. We're so excited by the nearly limitless possibilities for enzymes as a product class. We have only begun to scratch the surface of how Codexis enzymes can make a difference for the health of people and the planet. Now, we'd be happy to take your questions. Operator?

Operator, Operator

Thank you. At this time, we'll be conducting a question-and-answer session. Operator instructions:

John Nicols, President & Chief Executive Officer

While we're waiting for the first question, I want to let you all know that on May 26th, I'll be speaking on the plenary panel session kicking off the 2021 SynBioBeta Biopharma Conference. We invite you to listen into what will be a very dynamic discussion there. In addition, we will be presenting and attending multiple investor conferences in May and June. We will issue press releases with those details as we approach the event dates. We look forward to virtually seeing many of you at those.

Operator, Operator

Our first question today comes from Brandon Couillard of Jefferies. Please proceed with your question.

Brandon Couillard, Analyst (Jefferies)

Thanks. Good afternoon. John I appreciate all the detail around the progress on some of the life science programs. For the HiFi DNA polymerase, you talked about dozens of potential customers trialing for using their NGS kits. Can you just talk about what that evaluation process looks like in terms of length and remind us sort of how you see the magnitude of the potential opportunity for the DNA polymerase let's say over the next two three years?

John Nicols, President & Chief Executive Officer

Yes, thanks Brandon. On the timeline for sales development of our HiFi DNA polymerase: trials are critical. At small scale, customers are testing our master mix with the DNA polymerase in the amplification step of their particular next-generation sequencing workflows. There are many different NGS workflows that customers use for various applications, so this is a critical step. Typically a customer trial takes about three to six months. Some trials have been underway for some time and are well in motion, while others have only recently started. We should expect to see results from these trials as we move through the summer. If customers validate the performance attributes and benefits we’ve demonstrated, we would begin sales discussions, and we should see some initial commercial sales over the summer. We expect the product to ramp as we move toward the end of the year, which should position us well for year-over-year growth in 2022 versus 2021. This is a meaningful product in molecular biology and diagnostics: virtually any company running a next-generation sequencing machine needs a DNA polymerase for their workflow. We view this as one of, if not the, largest enzyme categories in the genomic diagnostic environment. If we successfully penetrate this market as we expect, this could become one of the largest products in our portfolio over the next three years. Today our largest product exceeds $10 million per year, so with continued success we can see a clear pathway to $10 million-plus sales for this product.

Brandon Couillard, Analyst (Jefferies)

Great. And then just a clarification Ross. Did I hear you right in terms of your revenue outlook for the year, I think you suggested 2Q revenues similar to the first quarter. Is that true for both product and R&D revenues specifically?

Ross Taylor, Chief Financial Officer

Yeah. Good question, Brandon. I think with products, I would think the mix of products versus R&D will be pretty similar to what we saw in Q1. I'd expect very nice growth in product revenue in Q2. I think R&D revenue is likely to be down from Q2 last year. Keep in mind we had a large lump of revenues come in from Takeda in Q2 last year which certainly makes a tough comparison there.

Brandon Couillard, Analyst (Jefferies)

Okay. And then lastly product gross margins continue to make good progress. Can you just talk about the longer-term runway there over the next few years, especially as the mix shift towards some of these newer products? Where do you think product gross margins over time could ultimately go to?

Ross Taylor, Chief Financial Officer

Yeah. I'll take a stab at answering that, Brandon. Given our guidance, we expect to see a nice step-up in gross margins in 2021. That trend will likely continue over the next several years. I'm not sure it will continue at the same pace of improvement we saw in 2021 versus 2020, but you should see some improvement in our product gross margin over time. As we've discussed before, much of that is driven by a shift in the product mix toward higher-margin products. In terms of predicting a peak or where it will eventually level out, I'm not sure we want to go there at this point, Brandon, but we certainly see the trend over the next few years as positive.

Brandon Couillard, Analyst (Jefferies)

Okay. Thank you.

Ross Taylor, Chief Financial Officer

Thanks.

Operator, Operator

The next question is from Doug Schenkel of Cowen. Please proceed with your question.

Kyle Boucher, Analyst (Cowen)

Hi, good afternoon. This is Kyle on for Doug. Thanks for taking the questions. I just wanted to start with early last week Tate & Lyle had responded to some media speculation that they were exploring the sale of its food and beverage solutions and primary products businesses. If this plan were to come to fruition would there be any impact on the relationship that Codexis has with Tate & Lyle?

John Nicols, President & Chief Executive Officer

Hey Kyle, thanks. I'll field that one. There were rumors about a potential significant restructuring at one of our top customers, Tate & Lyle, as you highlighted. What we saw was the possibility of Tate & Lyle spinning out its Primary Products division, which includes the commodity bulk products like high-fructose corn syrup. That would leave Tate & Lyle focused on their Food & Beverage Solutions division. Our business with Tate & Lyle is focused on the Food & Beverage division. The enzymes we've developed for Tasteva M and the enzymes we developed for Dolcia Prima Allulose are both new products in their Food & Beverage Solutions division. These are all unqualified rumors at this point. If the business we have with Tate & Lyle were spun out into a new company, we would be a very important supplier to that new company. But as we see it today, our products would remain key products for Tate & Lyle. We would view a spin-out of the Primary Products division as net beneficial, because it would make Tate & Lyle more focused on the higher-value food and beverage products that remain, and we would become a very important and growing supplier to Tate & Lyle for that division.

Kyle Boucher, Analyst (Cowen)

Thank you. That's really helpful. And maybe just one more. Regarding your wholly owned pipeline biotherapeutics assets both oral biologics and gene therapies have all these gated into the preclinical stage from discovery? And how many preclinical stages are there? And what sort of timing should we expect? Thank you.

John Nicols, President & Chief Executive Officer

Sure. Everything in Codexis' biotherapeutic pipeline today is in preclinical development, with the exception of CDX-6114, the enzyme replacement therapy we developed for phenylketonuria. That program is now in the clinical stage and is the only product we have discovered with CodeEvolver that is in the clinic. The clinical-stage program is being run by Nestlé Health Science; we have formally out-licensed that product to them. The CDX-6114 program is in good shape under Nestlé Health Science's control. They are working on solid dose formulation upgrades in preparation for a critical multiple ascending dose study that they expect to run and read out in 2022. There is not a big event for that product in 2021, but it will be set up for a significant clinical development program readout in 2022. Other than that, all 11 of our programs are in the preclinical stage. We have separated preclinical into three chapters to give a little color on that. First is the discovery stage. In discovery, Codexis uses CodeEvolver to generate usually tens of thousands of enzyme or protein variants to assess against the target attributes for a particular disease. CodeEvolver generates many variants; we test those variants and modify their molecular structures. In the preclinical research stage, we begin to hone in on the best variants from the discovery stage and increasingly do animal research and preclinical trials in relevant animal models to obtain more translatable results from the candidates we elevate from discovery. The end of the preclinical research chapter for us is where we've identified the lead candidate, the one we will invest in for all IND-enabling work that sets Codexis up to do clinical trials thereafter. Today, we have one program in the IND-enabling chapter: one of our co-owned oral biologic programs with Nestlé Health Science, CDX-7108. In the prepared remarks, we shared that we've completed the preclinical toxicology work, which is critical in this IND-enabling stage. We've done all the GMP manufacturing needed to set up clinical trials, and we are approaching an IND submission with the FDA in the third quarter. We should see CDX-7108 in the clinic before the year is over. I hope that gives you a good sense of how we define the various critical chapters of drug discovery and early development. I think I answered your questions, but if you have others, please by all means ask.

Kyle Boucher, Analyst (Cowen)

That’s great. That’s clear thought, thank you.

Ross Taylor, Chief Financial Officer

Thank you, Kyle.

Operator, Operator

The next question is from Jacob Johnson of Stephens. Please proceed with your question.

Jacob Johnson, Analyst (Stephens)

Hey, thanks. Good afternoon. Maybe just one question for Ross, and I apologize if I missed this in the prepared comments, but you had a really strong start to the year in the first quarter, which seemed better than the cadence you had expressed last quarter. Was there any pull forward in the quarter, or can you comment on what came in better than expected in this first quarter?

Ross Taylor, Chief Financial Officer

Right. I think really it was just the timing of some of the orders. Some came in earlier than we expected. Maybe a few things that were not necessarily expected as well but it was really more of a timing issue. I wouldn't say it was a pull-forward effort on our part certainly. But I think the timing of orders was just different than what we originally expected. As you know our business is very lumpy on a quarterly basis it can be difficult to predict for a number of reasons. But we're certainly pleased that you'll start the year off strong but we don't see any need or to change our guidance at this point.

Jacob Johnson, Analyst (Stephens)

Got it. Thanks for that Ross. Maybe for John you talked some about the DNA polymerase, but it's something we've heard recently is just about the need for better enzymes. And I think maybe just more supply of enzymes for mRNA manufacturing. I know you touched on some of the initial trialing but can you just talk about one the outlook for the RNA polymerase? And then are there other kind of enzyme type products you could launch for that end market?

John Nicols, President & Chief Executive Officer

Yes, thanks Jacob. We're very encouraged by the initial penetration of our HiCap RNA polymerase. We shared data in today's deck for the first time showing the capping efficiency benefits our RNA polymerase provides versus incumbent RNA polymerases. We see RNA polymerase as the key enzyme for RNA manufacturing. There are other enzymes, but we view them as having less gravitas and potential. So we're primarily focused on RNA polymerase as it relates to messenger RNA manufacturing. That's just speaking to mRNA manufacturing, where we think we're well positioned to benefit as the mRNA field grows. More broadly, we see a tremendous opportunity to bring engineered enzymes into Life Science Tools. In addition to DNA polymerase and RNA polymerase, which we've discussed in the Q&A and prepared remarks, we are progressing with Roche on DNA ligase, our first enzyme in that space. Today we provided more detail on a growing list of customer-partnered enzyme developments. These are niche enzymes that provide particular benefits for a given customer and are tied to specific applications rather than broad markets. We've seen tremendous growth in these customer-partner projects in Life Science Tools, and they generated meaningful sales for us in the first quarter. So it's a very dynamic, exciting space for Codexis, not only for the enzymes we've described to investors but also for others earlier in development or being developed in partnership with customers.

Jacob Johnson, Analyst (Stephens)

Got it. Thanks for all the color, John. I will leave it there.

John Nicols, President & Chief Executive Officer

Thank you, Jacob.

Operator, Operator

The next question is from Matt Hewitt of Craig-Hallum Capital Group. Please proceed with your question.

Matt Hewitt, Analyst (Craig-Hallum)

Good afternoon. Thanks for taking my question. I have a couple. First, regarding the RNA polymerase orders you received in the first quarter, how should we think about their ramp? Do customers typically take an initial batch to get started and then progress and accelerate from there, or is it more like prestocking for drug development where they place a larger upfront order to launch, leading to a lull and then activity picking up a quarter or two later?

John Nicols, President & Chief Executive Officer

Yes Matt sure. Thanks for the good question. I'd say more of the former. Early orders are smaller. Most of that is working to fit our RNA polymerase into their particular recipe for manufacturing their particular messenger RNA. As we move forward with these customers then they will start to apply it in kind of clinical stage batches in other programs within their development pipeline. So the first approach for a given customer is to get it trialed and validated and installed in one particular messenger RNA, either vaccine or a therapeutic agent and then it dominoes into – or we hope for it to domino into other messenger RNA programs within their pipeline. These are all development stage programs at this point. As we've shared in the past, we're not installed in the two big commercial stage messenger RNA programs for COVID-19 vaccines, so it's all development stage. Orders will come, as the customer starts to make more materials for follow-on clinical batches and so we'll see some lumpiness but we'll see generally growth in the number of customers and then growth in the number of programs within each customers that are applying our RNA polymerase. And so we're very encouraged to see us get in, start to break through first commercial sales, start to break into new customers, as we've kicked off 2021. So we're very much on the track that I just outlined that we hope to be on as we move through the year.

Matt Hewitt, Analyst (Craig-Hallum)

Got it. And then maybe one separate question. As you're looking at these products, is there a difference, or are there efficiencies that can be garnered when you're working on trial batches and then you move up to a commercial batch, will that have an impact on gross margins as you move up to those larger batches? Thank you.

John Nicols, President & Chief Executive Officer

Yes. Typically when we start with – working with a customer in the clinical stage, we generally have above-average gross margins for those sales, they're smaller revenue, they're higher gross margins. And as we move through towards commercialization for the customer, the margins will come down some from these high bases. But generally, we see RNA polymerase, our HiCap RNA polymerase being accretive to our gross margins. So we would expect that versus our historical product margins. This will be lifting up at least incrementally from what we've been able to deliver for the company even after we – even after the application matures and some of the pricing comes down a little bit.

Matt Hewitt, Analyst (Craig-Hallum)

Okay. Great. Thank you.

John Nicols, President & Chief Executive Officer

Thank you.

Operator, Operator

The next question is from Swayampakula Ramakanth of H.C. Wainwright. Mr. Ramakanth, your line is open.

Swayampakula Ramakanth, Analyst (H.C. Wainwright)

Sorry. Good afternoon, John. Really quick two questions. The first one is on the RNA polymerase. It's nice to see that that business picking up steam. When would you think the RNA polymerase revenue line becomes meaningful? And I know you answered this – I think you answered this question to a certain extent but probably I didn't catch the full bit. When folks are trialing your DNA polymerase is there – how long of a period of time do they trial it far, or does it depend on the project?

John Nicols, President & Chief Executive Officer

Sure. Your second question was about RNA polymerase and DNA polymerase — sorry, DNA polymerase. For RNA polymerase, the first objective is to penetrate a customer with a commercial sale and installation into one of their clinical-stage programs, then expand the number of assets in their pipeline that use our RNA polymerase while simultaneously working to win new customers. We have already made initial commercial sales with a couple of customers, which is great, but these early clinical-stage orders are fairly small. They should ramp, and the number of customers should grow from what we delivered at the beginning of this year. Meaningful revenues for RNA polymerase are likely to occur in 2022 and beyond, even though we expect a lot of progress and milestones in 2021. Right now it’s all about penetration, widening the customer base, and expanding installations within each customer to set us up to realize the product’s potential over time. For DNA polymerase, our high-performance DNA polymerase is currently in trials with dozens of customers. Typically it takes three to six months to complete a fully qualified trial and move into sales negotiations, assuming the trial validates the performance benefits. Toward the end of that three- to six-month period, customers typically start discussions about supply conditions, pricing, and timing. That is generally the sales progression timeframe for this and our other life science tool enzymes.

Swayampakula Ramakanth, Analyst (H.C. Wainwright)

Okay. Thanks for that. And then, just trying to see, if you have any commentary on your ongoing relationship with Porton Pharma? And any update you can provide us?

John Nicols, President & Chief Executive Officer

Yes. Sure. We haven't spoken a lot about Porton in a while, but they have become a terrific partner for Codexis. They have become very proficient at working with pharmaceutical manufacturing chemists and with Codexis to understand how to apply all of the different enzyme catalysts we've developed over two decades. They can rapidly screen in China, without assistance from Codexis, the enzymes that we've developed. We have seen them work on many different projects with their much larger customer base in the pharmaceutical manufacturing world, given their size as a CMO. They work with both large pharma customers and a growing list of small pharma customers, which helps us expand our reach into the sustainable manufacturing of pharmaceutical ingredients. Like us, it takes multiple years for early progress with a customer's process to translate into meaningful product sales, but they are nicely on that track. They are adding to our ability to penetrate this wide market. They are great partners, they've learned a lot, and we've really picked a great partner with Porton. Over time we will start to showcase installations that have meaningful product sales that flow through Porton.

Swayampakula Ramakanth, Analyst (H.C. Wainwright)

Thank you. Thanks for that.

John Nicols, President & Chief Executive Officer

Yeah. My pleasure. Thank you, Ramakanth.

Operator, Operator

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

John Nicols, President & Chief Executive Officer

Okay. Well, thank you everybody for joining us today. We look forward to continuing to update you on all of the progress at Codexis going forward. Thanks very much. And have a great evening.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.