Earnings Call Transcript - CDXS Q3 2023

Operator, Operator

Welcome to the Codexis Third Quarter 2023 Earnings Conference Call. Please be advised that this event is being recorded. I will now hand the call over to Carrie McKim, the Director of Investor Relations. Please proceed.

Carrie McKim, Director of Investor Relations

Thank you, operator. With me today are Dr. Stephen Dilly, Codexis President and Chief Executive Officer; Kevin Norrett, Chief Operating Officer; and Sri Ryali, 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 2023 revenue, product revenues and gross margin on product revenues as well as our strategies and prospects for revenue growth and successful execution of current and future programs and partnerships, including our ECO Synthesis platform and pharmaceutical manufacturing business. To the extent that statements contained in this call are not descriptions of historical facts regarding Codexis, they are forward-looking statements reflecting the beliefs and expectations of management as of the statement date, November 2, 2023. You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond Codexis' control and could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexis' filings with the Securities and Exchange Commission. Codexis expressly disclaims any intent or obligation to update these forward-looking statements, except as required by law. And now, I’ll turn the call over to Stephen.

Stephen Dilly, President and CEO

Thank you, Carrie, and thank you everyone for joining. We approached the end of 2023 in a position of strength. We have a core pharmaceutical manufacturing business that generates cash, a potentially game-changing technology in ECO Synthesis platform, and importantly, financial resources to execute on our plans. In financing our enhanced strategic focus in July, we've worked very hard to put ourselves in a position of financial security, so that we now have a path to potential positive cash flow around the end of 2026 with current financial resources. Let me briefly recap how we got there. It starts with a strong balance sheet. As you'll recall, over the last two years, we received a windfall of roughly $135 million in product revenue from the sale of CDX-616 to Pfizer for the manufacture of PAXLOVID. This was the result of our quick and meticulous execution, supplying metric tons of products in support of the global pandemic. CDX-616 still represents the largest single commercial success to Codexis to date. And the extraordinary revenues generated are central to the strong balance sheet we have today, with approximately $75 million in cash as of September 30. On top of that strong foundation, we've taken steps to dramatically reduce our cash burn by over 50% year-on-year. We did this by focusing our efforts on programs that will generate the greatest value, streamlining our organization to align with our go-forward plan and consolidating operations to a single facility. We've also been working hard to return our core pharmaceutical manufacturing business onto a growth trajectory, and we're very pleased with the progress and excited for future growth potential. The cash generated by our pharma manufacturing business, combined with reduced cash burn and our strong balance sheet, creates the opportunity to invest in our ECO Synthesis technology to bring it to commercialization within our existing resources. The first element of the ECO Synthesis platform, the double-stranded RNA ligase should start generating revenue next year, followed by anticipated early commercial licenses in 2025 and the rollout of the complete ECO Synthesis platform in 2026. Putting all these pieces together—the cash balance, reduced burn, growth in pharmaceutical manufacturing, and the exciting commercial potential of the ECO Synthesis platform—gives us a path for potential positive cash flow around the end of 2026, which is within reach of our existing cash runway. We are rapidly advancing the ECO Synthesis technology. Many of our team members just returned from presenting on our technical progress at the TIDES Europe meeting. Our confidence in the revenue potential of this opportunity is increasing as we continue our conversations with potential partners and experts. As an adjunct to those conversations, we are in the process of forming a strategic advisory board to ensure that we have the best possible understanding of the existing and future landscape, so that the ECO Synthesis platform is tailored to meet the real needs of the market. We are truly delighted and honored to welcome John Maraganore as our Inaugural External Strategic Advisory Board Member. As Founder and Chief Executive Officer of Alnylam Pharmaceuticals, John pioneered the translation of RNAi from a laboratory tool into an entirely new class of medicine. Alongside his participation in our strategic advisory board, we also look forward to hearing John's perspective on the RNAi therapeutics landscape during our upcoming ECO Synthesis focused virtual KOL event in December. Before I hand it over to Kevin to outline that event, let me briefly recap the reasons for our enthusiasm about the ECO Synthesis platform. Growth developers are continuing to evolve pipelines of innovative RNAi therapeutics for large disease indications like Alzheimer's and hypertension, and there is a projected wave of coming demand. The current manufacturing standards using phosphoramidite chemistry are dependable, well established and will no doubt continue to play an important role in the landscape. However, at commercial scale, it also requires enormous capital investment, extensive time, and high volumes of toxic solvents like acetonitrile. For reference, a leading contract manufacturing organization recently invested $725 million to build a phosphoramidite chemistry plant with the capacity to manufacture approximately 1,000 kilos of RNAi annually. Our market research indicates that demand is expected to grow to approximately 30,000 kilos annually by around the end of the decade; it would take billions of dollars and many more of these plants to meet that capacity. Most companies don't have the resources necessary to make that kind of manufacturing investment, particularly given the realities of today's broader capital markets. That's where an elegant enzymatic solution like the ECO Synthesis platform comes in. Today, we're closing in on an aqueous-based working process designed to complement phosphoramidite chemistry and vastly reduce the level of capital investment required for large-scale production. As with any disruptive technology, it will be naive to think that Codexis will command the entire market with our platform. So we're thinking critically about where exactly our technology fits within the existing manufacturing landscape. In many cases, that might look like augmenting the chemical approach with a double-stranded RNA ligase, which can stitch together short strands of RNA that have been chemically synthesized. This enables much more efficient use of existing facilities. And we currently have collaborations with a few key RNAi players in this space. In other cases, the ECO Synthesis platform can be used to synthesize the complete siRNA. Sometimes the best approach will be a combination of the ECO Synthesis, platform ligation, and even chemistry. That strategic optionality and flexibility is one of the beauties of our platform and underscores why ECO Synthesis has such promising potential to play a critical role in meeting future demand for siRNA. Now, while continuing to refine and perfect the technical pieces is important, we also need to pay full attention to the real-life barriers to the adoption of our platform. Put bluntly, why will innovators trust our technology to deliver their valuable siRNA assets when they have a seemingly reliable alternative in phosphoramidite chemistry? For those already developing RNAi therapeutics, it's about demonstrating the levels of purity we can produce and the ease of adoption we can facilitate. For those who aren't, we need to emphasize how the ECO Synthesis platform opens the door for smaller companies to develop RNAi therapeutics for large indications they couldn't otherwise pursue. We are well aware that these questions will be top of mind for drug developers and manufacturers as key decision-makers weigh their options. So it's incumbent on us to help our customers and the investment community understand the need for an enzymatic solution. We think our December virtual KOL event will play a critical role in this ongoing market education process. To cover additional detail on that, and our recent business development efforts, I'll pass it over to Kevin, who has just returned from TIDES Europe.

Kevin Norrett, Chief Operating Officer

Thanks, Stephen. As mentioned, I was just in Amsterdam at the TIDES Europe meeting where I was energized by the high levels of interest we were seeing from potential customers and collaborators. Continued engagement with key players and decision-makers has only reinforced my conviction that there is a very real need for our enzymatic solution, and with that, a significant revenue opportunity for Codexis. Shifting to slide four, we look forward to sharing more detail on our recent technical progress in the coming months, and the December virtual KOL event I mentioned will be a terrific opportunity to hear directly from those in the RNAi space who would benefit from this technology. In addition to welcoming John Maraganore to our SAB, we look forward to his participation in this event, where he will share his perspective on the growing importance of RNAi therapeutics as a class, today’s manufacturing landscape, and the need for innovation as RNAi Demand grows. The agenda will also feature discussions surrounding the ECO Synthesis commercial opportunities, a status update on our anticipated milestones, as well as a technical overview of the platform from Stefan Lutz, our Senior Vice President of Research. We believe this event will be a highly valuable resource for education around what we see as the major growth drivers for Codexis. We hope you'll plan to join us virtually in December. On slide five, I'd like to quickly recap our anticipated key milestones. As we approach the end of 2023, we are nearing the demonstration of gram-scale synthesis with our ECO Synthesis technology. We will take a deeper dive into the significance of this key technological milestone during our December event, but at a high level, it means we plan to demonstrate the prepared-to-scale manufacture of an oligonucleotide composed of the modified nucleotide building blocks typically used in RNAi therapies, and we plan to do this all under process-like conditions. This proof point represents the first step from an R&D project to something with potential commercial applications, and it will enable us to enter pre-commercial testing with select customers next year, followed by early commercial licenses of the technology anticipated in 2025. During those phases, we will collect valuable feedback to inform any necessary tweaks or modifications before the planned full commercial launch in 2026. In parallel to that progress, we also plan to make our engineered double-stranded RNA ligase widely available for customers in the second half of 2024. In addition to providing a near-term RNA synthesis market entry point for us, this product gets our foot in the door with many of the customers currently using phosphoramidite chemistry but requiring ligation-based approaches for longer sequences. This is a meaningful first step in educating customers on the benefits of incorporating enzymatic solutions as a complement to their existing manufacturing process. Before I turn the call over to Sri to discuss our financial results for the quarter, let me provide an update on our business development activities following our strategic pivot in July. We are in active discussions with Nestlé to restructure our collaboration whereby they continue to develop CDX-7108 and Codexis retains an economic interest in this program, but is no longer sharing in the clinical development and commercialization costs. We suspect a potential deal would follow the traditional path for a Phase 1 molecule with an upfront payment, clinical milestones, and sales-based royalties. We are also in active negotiations with other potential partners to monetize assets within the segments of our life sciences portfolio, where we will no longer be focused, such as genomics and PCR-based diagnostics. This is consistent with our previously known strategy to leverage partners with broader channel reach and accelerate value creation for Codexis. We anticipate that we'll be able to execute one or more of these deals by the end of this year or early next year, and we look forward to keeping you updated on that progress. With that, I'll turn the call over to Sri.

Sri Ryali, Chief Financial Officer

Thanks, Kevin. Good afternoon, everyone. Moving to slide six, we released our full third quarter financial results. The press release earlier this afternoon is available on our Investor Relations website where I call out a few highlights from the quarter. Let me first share some thoughts on our financial position. As Stephen noted, our strong balance sheet today reflects the benefits of a roughly $135 million windfall related to our CDX-616 sales to Pfizer for taxable goods between 2021 and 2022. This injection of cash significantly bolstered our financial position and is reflected in our current cash balance of $74.6 million as of September 30. As part of the restructuring announced in July, we focused our money and our people on the priority programs with the highest potential to create value, and we took decisive action to reduce headcount and consolidate facilities. These decisions lowered our projected cash burn by more than half. We now expect annual burn of roughly $20 million to $30 million over the next few years. This, along with the anticipated return to growth of our pharmaceutical manufacturing business in 2024 and expected commercial launch of the ECO Synthesis platform, is projected to fund our planned operations to positive cash flow, which we expect around the end of 2026. This is a good position to be in. Now, let me provide some brief comments on our Q3 results. During our July 20 call we guided that Q3 product revenue would be our lowest quarter given the inherent lumpiness of the pharmaceutical manufacturing business, which is driven by the timing of customer orders. That is exactly in line with what we saw this quarter. Total revenues excluding enzyme sales related to PAXLOVID were $9.3 million for the third quarter of 2023 compared to $21.5 million from the prior year. Product revenues excluding sales related to PAXLOVID were $5.4 million for the third quarter, compared to $15.1 million for the prior year. The decline is largely due to the timing of customer orders, including specific customer building pre-launch inventory in the third quarter of 2022 ahead of the anticipated approval of a pharmaceutical product. However, we expect Q4 product revenues to be more in line with Q1 and Q2 of this year, and we are confident in reiterating our full-year 2023 product revenue guidance of $30 million to $35 million. With the PAXLOVID windfall now behind us, 2023 has been a reset year for the pharmaceutical manufacturing business. As we approach the end of this year, we are increasingly confident that this business is on a path to return to sustained growth beginning in 2024. We plan to provide additional detail during our full-year 2023 financial results call. Now turning to R&D revenues, we reported $3.9 million in Q3 compared to $6.4 million last year. This decrease is driven by the completion of work on the Takeda partner programs and the winding down of our Biotherapeutics programs following our decision to exit the space. As a reminder, our Biotherapeutics R&D revenues reflect the reimbursement for approximately 50% of our costs. So while the decision to exit Biotherapeutics will result in lower R&D revenues, removing these costs actually improves their bottom line by reducing overall cash burn. We continue to expect 2023 R&D revenues to be in the range of $21 million to $24 million. Product gross margin excluding enzyme sales related to PAXLOVID is 58% this quarter compared to 55% in the third quarter of 2022. We continue to expect 2023 product gross margin to be in the range of 55% to 65%. Briefly turning to expenses, R&D expenses for the third quarter of 2023 were $13.7 million, compared to $21.8 million last year, SG&A expenses were $12.3 million, compared to $13.5 million in the third quarter of 2022. Compared to both the prior year and last quarter, you can see reductions across R&D and SG&A expenditures resulting from our financial discipline. You can expect to see a continued benefit of the decisive actions we've taken in the fourth quarter. You'll notice this quarter that our Q3 GAAP expenses included large one-time charges. These primarily related to the restructuring we announced in July. We booked a $3.1 million charge related to the reduction in force and a $10 million non-cash impairment charge reflecting our decision to exit Biotherapeutics and consolidate our facilities. Finally, as you can see in the other income and expense line in the table on the slide, we recorded one-time non-cash expenses related to certain investments we previously made in private life science companies. Shifting to slide seven. To recap, we are in a strong financial position. We’re confident in reiterating our 2023 guidance, and we have laid the foundation for our pharmaceutical manufacturing business to return to sustained growth in 2024. Looking ahead, we've positioned ourselves well with the potential for positive cash flow expected around the end of 2026. We look forward to providing further guidance during our full-year 2023 financial results call. I'll now turn the call back over to Stephen.

Stephen Dilly, President and CEO

Thank you, Sri. In closing, I'm incredibly optimistic that the difficult decisions we made a few months ago have positioned Codexis for long-term success. We've streamlined the company and zeroed in on the killer app of our CodeEvolver platform, and we have the resources we need to realize the potentially massive value of our ECO Synthesis technology. Now we're in execution mode, and with a cascade of upcoming milestones, we look forward to keeping you up to date on our progress. With that, we'd be happy to take your questions. Operator?

Operator, Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Brandon Couillard with Jefferies. Please proceed with your question.

Brandon Couillard, Analyst

Thanks, Good afternoon, guys. Kevin or Stephen, could you elaborate a little bit more on the TIDES Europe conference and some of the engagement you saw there? How do we go relative to expectations? And what were some of the reactions from potential customers that you engaged with there?

Stephen Dilly, President and CEO

Yes, thanks, Brandon. I'm going to get Kevin to answer that because he's literally just back from the airplane and looking a bit jet lagged. So, Kevin.

Kevin Norrett, Chief Operating Officer

Thanks, Stephen. Hi, Brandon. Yes, actually, it was quite exciting for multiple reasons. One, if you remember, in the May TIDES meeting, we really cut above the radar in terms of rolling out what we were working on behind the scenes for the last year or so, which was the ECO Synthesis platform. What we demonstrated at TIDES and really generated a lot of excitement was that we've made significant progress since then in terms of showing increased coupling efficiency, longer strands of siRNA fragments, as well as improvements in some of the other pieces that are important across an enzymatic platform, which is also an important piece of having a fully enzymatic solution. So I think customers and potential collaborators that were not as interested in talking to us in May are now really excited about talking to us, and we were quite popular at the conference. Sri, do you have anything?

Sriram Ryali, Chief Financial Officer

Well, I think it's the nature of the customers.

Stephen Dilly, President and CEO

Yes, I think the nature of the customers really, I mean, TIDES is a manufacturing focused conference. So you know, CDMO and whatnot are really kind of the bulk of the clients there. And they're focused on looking at a new alternative versus simply trying to improve phosphoramidite chemistry was completely shifted from there. I think that really summarizes why I came back super energized from this conference and look forward to sharing more information in May of next year.

Brandon Couillard, Analyst

Got you. Stephen, some of the experts we've talked to about enzymatic approaches question a few things like flexibility, volumetric productivity. How do you address those concerns? What are some, I guess, the timelines to be able to do that? And how do you think I guess, how do you respond to I guess some of those concerns about the approach in general?

Kevin Norrett, Chief Operating Officer

Well, first one will be the volumetric productivity, which is actually the central premise of the enzymatic approach—it should have vastly improved. And that comes from the tethering of the enzyme and having the oligo in solution. We actually expect our volumetric productivity to be significantly superior to the traditional chemical approach. But we need to show you that. We start to do that at the December event, but some of the TIDES slide started to hint at that, and we will continually show more starting with TIDES Asia in March next year and then again in May back to TIDES in the U.S. So it’s just going to be—we want to show you what we've actually done rather than what we're hoping to do. But progress is good and the volumetric part of it is really nailed down. The other thing that we think is super important and actually, we have heard from even in your call, Brandon, was the need to address the building blocks as well. And so one of the things I think that really surprised people at TIDES is how far we've gotten on the enzymatic synthesis of the NQPs, as well as just putting them together into the oligos. And finally, when we announce our gram-scale milestone towards the end of this year, what we're going to be showing is flexibility and the inclusion of modified blocks in there. So, yes, this is why I keep saying we're listening to what your state of the art is, what we need to do, how we need to be competitive. And also, the other thing that we have heard is the intrinsic ability of the enzymatic route to go along is a competitive advantage that the phosphoramidite chemistry approach will find very hard to compete with. So yes, again, that's one of the intrinsic advantages of our approach. But yes, they've been doing this for 40 years, we've been doing this for a year and a half, but we're very much on the same playing field now.

Brandon Couillard, Analyst

Great. I’ll hop in queue. Thanks.

Operator, Operator

Thank you. Our next question comes from Dan Urrea with Stifel. Please proceed with your question.

Unidentified Analyst, Analyst

Hi, guys, it's actually Evan on for Dan. Thanks for the questions. The first one was actually just a simple modeling question. I mean, you're giving your guidance in terms of X product revenues, X PAXLOVID. Can you just remind me what your PAXLOVID enzyme or product revenue is for this year, and kind of which quarters those have or are going to fall into? Thanks.

Stephen Dilly, President and CEO

I can answer that. We haven't booked any revenue related to sales of CDX-616 PAXLOVID, but this year, we are expecting to book $8 million in the fourth quarter. That is part of the accounting for the retainer fee that's already been collected, so it's non-cash revenue. We'll see $8 million in Q4. There's another $9 million that we'll book in Q4 of 2024, and then we'll be done accounting for all of the PAXLOVID retainer fees.

Unidentified Analyst, Analyst

And that's R&D, or is that enzyme sales?

Stephen Dilly, President and CEO

That'll show up in product revenue.

Unidentified Analyst, Analyst

Okay. And then, is there an R&D piece there as well that's, I guess, kind of not PAXLOVID but Pfizer related?

Stephen Dilly, President and CEO

Yes, so in the second quarter, we booked $5 million. This is where Pfizer applied a portion of their credit to a new enzyme not related to PAXLOVID. It’s already been booked as R&D revenue, and that was incurred in last quarter.

Unidentified Analyst, Analyst

Got you. Okay. So $8 million in 4Q and then another $9 million next year in 4Q, and those are product revenues. Okay. Super helpful. We got that out of the way. Thanks. I guess the next question is what I want to ask? I wanted to ask about your write-down. It’s really kind of a double question or related. You took a write-down of some of your investments in the quarter. I think there's a three-point something million dollar charge. So, I guess, which specific investments were those? And then just kind of related I know, you guys have relationships with Alphazyme and Molecular Assemblies, and I know Molecular Assemblies, you have an investment and that's why it's related. What kind of status of the of those relationships?

Stephen Dilly, President and CEO

I can start with the write-down question first. We did book roughly $4 million in impairments on investments in private life science companies that we hold. We have investments held in our queue in MAI, SQL, and Arzeda; the write-downs are related to SQL and Arzeda. And really, it's just a function of the fact that these are companies that have been active on the financing front, and anytime they do that, we have to reassess the value at which they raise money and appropriately reflect that on our financials.

Kevin Norrett, Chief Operating Officer

And I'll cover the MAI and Alphazyme situations. But strangely enough, we've talked to both of them within the last couple of days. MAI, we have a fairly significant equity stake and you'll remember they're using our TDT enzyme version that does DNA and RNA to do DNA synthesis. They're making super good progress, technically, in terms of coming up with some very long, very pure DNA strands, we're super happy with that in that relationship. And really, we're looking at how we collaborate going forward, so that's very positive. Also, with Alphazyme, they've now become part of the broader Merrivale umbrella. We're talking to them. They have existing contracts in place with us, and we're also discussing how we can leverage that relationship going forward. So that obviously being a small company trying to cover a broad landscape, there's a lot of collaborations in our future.

Unidentified Analyst, Analyst

Got you. Thanks a lot for the question.

Operator, Operator

Thank you. Our next question comes from the line of Matt Hewitt with Craig-Hallum. Please proceed with your question.

Matt Hewitt, Analyst

Good afternoon, and thank you for the progress update. Maybe two for me. The first one: what is the biggest challenge to achieving gram-scale synthesis for ECO? And then separately, you're talking about getting maybe your some of your first orders later in the second half of next year, how should we be thinking about the size of those orders? Are these six figures? Are they seven figures? Just help us calibrate how big those initial orders can be? Obviously, we would expect those to scale and ramp higher over time. But where do we start? Thank you.

Stephen Dilly, President and CEO

Great. So I'll cover the gram-scale synthesis question, and Kevin, you’re going to talk about double-stranded ligase for next year. So, with the gram-scale synthesis, it sounds like a very simple statement until you pull it apart and say, what does it actually mean? What we're talking about here is making an appropriate quantity of a suitable length oligo that has the appropriate modifications in it under process conditions, with a reasonable purity and so on. We've been making very strong progress on that, where we reiterate our confidence in hitting that milestone. I think the most interesting question will be, how long we actually go with the oligo by the end of this year, because we were already up with what we showed at TIDES: a very nice six-MER that we made, which is comparable to some other companies showing phosphoramidite chemistry, in terms of its purity and specifications. No one's ever run a TDT RNA oligo out to 15, 16, 17 yet, and we're hoping to do that relatively soon. We can really understand the physical chemistry better. So that's the thing that I'm most excited about. But I've been super happy with things like the conversion efficiency of the enzyme in its present state, the productivity, the reliability, the ability to include the modification. So we’re feeling like we're very much on track and intrigued by how it performs. Kevin?

Kevin Norrett, Chief Operating Officer

Yes. And then you layer on top of that, it's important to note that Stephen mentions the double-stranded RNA ligase. Already, ligation approaches are becoming more and more common within the phosphoramidite chemistry world because phosphoramidite chemistry tends to fall down in the longer oligo range in terms of requirements for more input materials. It becomes a little less efficient, and you get a higher impurity profile, the longer the strands. So a lot of companies have approached us about testing our RNA ligase in the first half of next year, so that they can look at making shorter oligos, all those strands of phosphoramidite chemistry really well and stitching together 10 Mers or 5 Mers to be able to get to siRNA strands in the 20 to 30 Mer range, and maybe even a bit longer with ligation. So when it comes to orders itself though, we're talking about testing with customers in the first half of 2024 and looking at actual customer orders in the second half of 2024 based upon that experience. And the other thing I should mention, we also have two other customized double-stranded RNA ligase programs that are wrapping up from an evolution standpoint, where we could see some additional orders for those customized programs, but we haven't put those supply agreements in place.

Matt Hewitt, Analyst

I mean, order of magnitude in terms of the size of those orders that you'd be happy with. I mean?

Kevin Norrett, Chief Operating Officer

Well, I mean, I think from an individual enzyme standpoint, you know, double-stranded RNA ligase is one piece. It's still in the range of a total peak opportunity at least today without huge growth, towards the end of the decade if we're successful with ECO Synthesis, somewhere in the range of a $15 million to $25 million enzyme opportunity. By the end of this year with early launch, maybe you could see some single-digit millions in terms of ordering. But we'll put out more information around that as we get to our financial guidance for 2024. I think the other thing here really—I just going to say one more thing that, sorry, just to highlight like, this highlights how important it is that we have the cash run we have to be able to set the market correctly, with not only the double-stranded RNA ligase but also the ECO Synthesis platform, and getting that in the hands of customers for testing is coming in.

Matt Hewitt, Analyst

That's really helpful. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Chad Wiatrowski with TD Cowen. Please proceed with your question.

Chad Wiatrowski, Analyst

Hi, this is Chad on for Steven Mah. Just to follow up on Brandon's question on the ECO Synthesis flexibility. Did you guys present any data that the enzyme-based approach allows the utilization of all the various modified nucleotides and analogues which can be used by chemical synthesis methods? And what about future modified bases? How easy would they be to integrate using the existing enzyme or with new enzymes that have to be engineered?

Stephen Dilly, President and CEO

So thanks for the question, Chad. Yes, I mean, this is part of the sort of central driver of how we're evolving the TDT. What we showed at TIDES was some very relevant examples of current modifications, with furthering that in terms of our gram-scale synthesis. The aim is that version 1.0 of ECO Synthesis covers the modifications currently in use. Now, we've always said that this is going to be, to your analogy, like the iPhone or whatever else, where newer, stranger, and more unnatural modifications come through, and we may well have additional enzymes that we need to evolve to include that, or further evolve the current TDT to add that to its capabilities. There’s probably a law of diminishing returns with any single enzyme such that we will perfect around what currently exists with TDT 1.0 and then move on to some of the more innovative ones. This is where Kevin and his team are really doing a lot of hard work to link up with innovative companies, often small companies looking at very new constructs. One of the big concepts about the alpha testing we've been talking about early next year is to put our enzyme kit in their hands to see how it works under their conditions with their modifications and get their feedback. You can imagine the flexibility of this system, because the enzyme is tethered and the oligo moves is that you can pass it through more than one column, to one of a better word. You could have several TDT enzymes specified for the oligo that you're trying to make. So we’re very aware that one of the performance characteristics we need to deliver beyond volumetric efficiency is flexibility and speed.

Kevin Norrett, Chief Operating Officer

I might add just one thing there in that, you know, our assessment of the current products and development for siRNA, we're seeing, there's over 400 products in development. So bear in mind, there may be some variation in this, but we see greater than 80% of them, including the two or three most common modifications which are the two-prime methyl and the two-prime, as well as the phosphonothioate. At the end of the day, that's what we wanted to demonstrate our ability to do that on various timelines. And that was the first step. We'll continue to build upon that as modifications come out.

Stephen Dilly, President and CEO

We put the slide deck from TIDES up on our website. I think the presentation is going to be up within the next day or so, which is worth a look if you've got the time.

Chad Wiatrowski, Analyst

Awesome. Yes. Looking forward to that and to the KOL event in December. Ahead of that event, are there any details you can share on John Maraganore's opinion on the need for the ECO Synthesis? Was he involved in that strategy update, or was he just added to the strategic advisory board recently?

Kevin Norrett, Chief Operating Officer

We've been talking to him for a little while. I mean, he's always told me that yes, he was saying we need an enzymatic solution even before he left being CEO of Alnylam a couple of years ago. He’s very much on board with what we're trying to do. But what we also need is, rather than just cheerleaders, we need people to keep us honest in terms of what it would really take for someone to adopt this methodology because I was serious about what I said in my comments: there are going to be people sitting there weighing the decision about whether to go the old safe route with phosphoramidite chemistry and eat up the cost or to try this new approach. We've got to show that, I mean, reliability and dependability, and we've got a couple of hooks. Purity is going to be one of them, and the reduced capital investment will be another. But they all have to be based on rigor and meeting the specifications, doing it dependably, and doing it repetitively. All of that is front of mind, and having people that are really in that seat advising us is super useful.

Chad Wiatrowski, Analyst

Thanks again for the questions.

Operator, Operator

Thank you. Our next question comes from the line of Brandon Couillard with Jefferies. Please proceed with your question.

Brandon Couillard, Analyst

Hi, thanks for the follow-up. Just want to ask about your source of confidence in the pharma manufacturing business returning to growth in 2024 and whether that'd be a function of business with existing customers or new customers?

Stephen Dilly, President and CEO

Hi, Brandon, as we look at the forecast that we've been developing internally, specifically on 2024, we see growth coming from the pipeline, which we think is an important driver. We also see a normalization of ordering patterns from some of our big customers as well. So both are contributing. As we progress throughout this decade, you'll see a bigger contribution of growth coming from the pipeline. Like we said, this year has been sort of a reset year with PAXLOVID going away, one of our big products going through a recent launch, which caused them to order pre-build inventory and then not order this year. Those patterns start to normalize. So we're confident of growth both for marketed products as well as on the pipeline.

Kevin Norrett, Chief Operating Officer

Maybe one other thing to add there, Brandon, I've been working a lot on is getting better at predicting that element. We've added a couple of resources in the past six months here to be able to do better account management, follow-up, etc., so that we can have a better perspective on the going forward forecasts. And you want to add there?

Stephen Dilly, President and CEO

Just to add, I think we saw that with our expectations on Q3 that we set in July—that this would be the low quarter, and that's exactly what it turned out to be. We're expecting Q4 to come in line to meet our full-year guidance. So I think, as Kevin said, we felt much better about understanding the dynamics of this business than we did a year ago.

Brandon Couillard, Analyst

Thank you.

Operator, Operator

Thank you. There are no further questions at this time. I would like to turn the call back over to Stephen Dilly for his closing remarks.

Stephen Dilly, President and CEO

Well, thanks again for joining us today. As you can tell, Sri, Kevin, and I are looking forward to a very busy fall. We'll be meeting many of you in person during our slate of, I think, five upcoming investor conferences over the next month or so. And of course, we also hope you'll be able to join us for the Eco Synthesis focused virtual KOL event on December the 8th. You're thinking it's going to be a fantastic conversation. So that's all from us, and thank you very much for joining today.

Operator, Operator

This concludes today's call. You may now disconnect.