Good day ladies and gentlemen and welcome to Q4 2014 Codexis Inc Earnings Conference Call. My name is Whitley and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. [Operator Instructions] As a reminder this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Jody Cain. Please proceed.

This is Jody Cain with LHA. Thank you for participating in today’s call to discuss Codexis financial results for the 2014 fourth quarter and full year and its business progress. Joining me from Codexis are John Nicols, President and Chief Executive Officer, and Gordon Sangster the Company’s Chief Financial Officer. During today’s call management will make a number of forward looking statements. These forward looking statements include the company’s forecast for full year 2015 financial metrics including total revenues and total gross margin as a percentage of total revenues. The timing of starting its second Wave Two project with GSK, the timing of recognizing revenues from the Wave Two GSK milestones, the company expectation of driving towards future profitability, the company’s plan to pursue additional CodeEvolver technology licensing agreement, the belief that Codexis will complete another pharma clinical order in the first quarter of 2015, the company’s forecast of delivering year-over-year growth in 2015 for one of the food ingredients products. The company’s expectation of signing a masters services agreement for a second project with the second food customer, the ability of the CodeEvolver technology to develop new drug candidates and the company’s plan to continue preclinical studies in 2015 for its PKU enzyme therapeutic program. These forward looking statements are based on assumptions and are subject to risks and uncertainties that can cause actual results to differ significantly from those projected during the call. Given these risks and uncertainties, you should not place undue reliance on these forward looking statements. Please refer to Codexis annual report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2014 and its Form 10-Q filed with the Securities and Exchange Commission on November 06, 2014 for some of the important risk factors that can cause actual results to differ materially from the forward-looking statements made on this call. The content of this call contains time sensitive information that is accurate only as of today, March 03, 2015 and except as required by law Codexis disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. Now, I’d like to turn the call over to John Nicols. John?

Thanks, Jody. Good afternoon everyone, thank you for joining us. I am pleased to report on our strong finish to a year of significant financial and operational progress. Revenues for the fourth quarter increased 49% from the prior year and included the first milestone payment under our GSK licensing agreement, which we announced last July. Looking at the full year we met all of our financial guidance metrics. Our revenues grew to more than $35 million, up 11% from the prior year. This is especially noteworthy given that as expected more than $6 million of our 2013 revenues did not recur in 2014 due to shifts, downstream in the hepatitis C market. We achieved our guidance target for gross margin as well, which reached 72% for 2014. This is a significant increase from the 2013 gross margin of 54% and largely reflects the greater percentage of our revenues generated from our higher margin R&D services business. We generated in excess of $1 million positive cash flow for 2014. While modest, it is very substantial accomplishment when compared with 2013 when the company burned in excess of $20 million in cash. In summary, we have turned the company’s financials around in 2014 and delivered a solid full year of growth on all key measures. Gordon will provide more details on financial results in a few minutes. Before that, I want to highlight some of our key accomplishments in 2014 starting with the GSK agreement I just mentioned. Our agreement with GSK is a worldwide non-exclusive licensing agreement that allows GSK to use our proprietary CodeEvolver protein engineering technology platform for their in-house research needs. It represents a new business model for Codexis allowing us to deepen our work with major customers as well as accelerate the penetration of biocatalysts across a…

Thanks, John. And thanks for joining us on the call today. I’ll start by reviewing highlights from the fourth quarter of 2014 and then I’ll talk about the year. Total revenues for the quarter were $14.2million, an increase of 49% from the fourth quarter of 2013 and reviewing our revenues by category, biocatalyst product sales were $4.7 million. This is a decline of 10% compared with the prior year due mainly to the timing of shipments of $3 million to a major pharmaceutical customer and the prior year’s fourth quarter. Biocatalyst research and development revenues which include license, technology access and exclusivity fees, FDE [ph] payments milestones and royalties increased to $7.8 million and included the $5 million milestone payment from the agreement with GSK. This compares with $1.9 million for the fourth quarter of 2013. Revenue sharing arrangement sales of $1.7 million compared with $2.3 million a year ago and were related to the license with Exela Pharma Sciences for the anticoagulant drug argatroban. The decrease resulted from lower sales following the expression of the formulation patent for argatroban in June 2014 allowing for genetic competition in the following quarters. As anticipated this resulted in declines in our revenues associated with this arrangement. Gross margin for the quarter was 75% up sharply from 50% in the fourth quarter of 2013 and reviewing operating expense as R&D expenses for the quarter declined 43% year-over-year to $5 million due primarily to lower employee related expenses associated with the countrywide [Indiscernible] 2013 and the return of $1.6 million in the prior year’s fourth quarter. SG&A expenses declined 11% to $5.1 million due primarily also to reductions in employee related expenses, another discretionary expense reductions related to the late 2013 restructuring as well. We reported a profit for the fourth quarter of 2014…

Thanks, Gordon. We are implementing a multi-pronged business strategy to support the revenue growth in 2015 that Gordon just introduced. The key components of our strategy include the following; licensing the CodeEvolver platform technology to pharmaceutical customers for their own in-house protein engineering. Continuing to pursue and develop opportunities with pharmaceutical customers to integrate our proprietary biocatalysts into their manufacturing processes to reduced costs. Accelerating adoption and penetration of our biocatalysts into adjacent markets including the food industry, leveraging our CodeEvolver protein engineering strength to generate R&D service and licensing agreements whereby we enable and accelerate the discovery of our pharmaceutical partners novel biologic developments and using the same approach that enable us to discovery novel biologics for our customers to develop our own novel Therapeutic Drug Candidates. We plan to execute on this strategy while remaining financially disciplined with the goal of driving Codexis to profitability and growing profits from there. In closing, we believe we are well positioned as we move into 2015. We see a growing recognition among customers for our value proposition for design novel biocatalysts that reduced production cost. In parallel, we are becoming increasingly efficient at minimizing the expense and time to deliver these projects. Our CodeEvolver platform technology is the key providing us with the distinct advantages of engineering novel proteins faster and better than most others. With these comments, I’d like to open the call for questions. Operator?

[Operator Instructions]

While we are waiting for our question, I’d like to mention that we will be presenting at the ROTH Conference next Tuesday, March 10, at 8 am Pacific time. If you aren’t able to attend the conference in person, a webcast of our presentation will be available on the Investor Section of our website at www.codexis.com. Okay, operator, we’re ready for the first question.

Our first question comes from the line of Matt Tiampo with Craig-Hallum. Please proceed.

Good afternoon, gentlemen and congrats on the great quarter and a great finish to 2014.

Thank you very much Matt.

Guys, I wanted to ask quick, in your guidance what do you contemplate in terms of trend for the sales of argatroban as we move into 2015. I think it’s a little bit stronger than maybe we would thought, it would be given the trends in that market in the back half of 2014? Just wondering where that shakes out in terms of contributor for you going forward?

Hey, Matt. This is John. We expect that the revenue sharing arrangement with Exela will face a year-on-year decline compared to 2014, and the magnitude of that is pretty hard to predict. Second half revenue sharing results were probably slightly ahead of what we would have expected as we entered into this new generic competition chapter, but we still expect that in 2015 we won’t see as much revenue from that line item as we did in 2014.

Great. I think it’s not great, but it sounds like you got that doubt. I think you said, you’d expect more of your revenue to be skewed towards the back half of the year, but can you give us a sense for the magnitude of that skewing, just given what you’ve got in the pipeline, and maybe what the cadence might be throughout 2015?

Yes. I mean, it is based on the customer forecast and the timing that we see, but roughly 40%, 60% I guess would be a ballpark of that range.

Great. Thanks guys. Just one more from me and then I’ll hop back in the queue, but I know that a big part of a story is continuing to license at CodeEvolver platform, have you had additional conversations outside of the GSK agreement and how those conversations progressed and it sounds like maybe they were going positively?

Yes. We’ve been talking to other clients particularly in the pharmaceutical industry who we think could benefit from a similar arrangement like what we’ve done with GSK. Those conversations encourage us that this is an ongoing business model for the company. The timing of when the next one would be affected is really hard to predict. And so, it’s a significant deal for us. It’s a significant deal for a potential client, and we haven’t built any expectation for that into our outlook for 2015.

Great. Thanks very much.

Thank you.

Thanks, Matt.

Your next question comes from the line of Kevin DeGeeter of Ladenburg. Please proceed.

Hey, good afternoon, guys, congratulations on the progress. And few more quick questions from me. It sounds like the progress on the first product with GSK is moving along well. Can you provide us any visibility on the timeline to -- really sort of milestone revenue, product specific milestone revenue from GSK independent from the upfront way one, two and three milestones?

Sure, Kevin, thanks, thanks for the complement at the beginning. It’s hard to predict how milestones, the timing of milestones from projects with GSK. The project is going well, it has delivered significant biocatalyst improvements, but it’s pretty early stage and so we’re – I’d say two or more years away from seeing that translate into back end milestones from the CodeEvolver license deal. And there’s of course risk that it doesn’t get installed by GSK for one reason or another. So, I think it’s early to start giving any real visibility to that for both us and for our investors. But if we continue to progress the biocatalyst development project well, we could see some significant milestone payments down the road from our first project and another so.

Great. Gordon, can you just maybe just walk us through kind of factors that drive towards high end and the bottom end of the revenue guidance for 2015, appreciating that the milestone payments for GSK gets a meaningful component of that. But what is sort of the swing factor, because it is a reasonably wide range if you kind of back out the GSK which I’m going to kind of think or sort of fixed number in there?

Yes. Again, it comes down to liability of our customer’s forecasts and also a service revenues that we are anticipating during the year of again for some deals that are in the – either have been discussed or in the process of being discussed. So plus the swing and the CodeEvolver, we got about $6 million in 2014. We’re expecting about $8.5 million from that deal in 2015. So that’s a $2.5 million swing there. The rest is really I think R&D fees and some royalties in milestone income.

Do you have any meaningful currency exposure in these contracts, I know we’ve seen significant more of euro versus dollar?

No. Nothing significant.

Okay, great. And then lastly from me, as I think about gross margin for the year, should we think about the first half is perhaps being below the target range of 70, 75 with the higher customer orders and milestones in second half pushing you into that range for the full year?

I think that the margins are pretty constant throughout the year depending on the sales mix. So it’s not particularly skewed towards the second half of the year, it’s more a function of the level of revenues that we’re anticipating.

Great. That’s it from me. Thank you.

Thanks Kevin.

[Operator Instructions] Your next question comes from the line of Kevin Hanrahan of KMH Capital Advisors. Please proceed.

Hello, Gordon, you talk about the contract manufacturing problem being solved, can you tell us when that solved? Was that solved this year?

No. It was in the latter half of last year, but that was resolved.

Okay. It’s good. And John, I listen to your speak at the conference in New York where you’re referencing your first food ingredient company and I think their product is in testing you said. I think the final user of their product might be a baby. But can you tell us a time line on that, like when the testing might be done. Will that take 2015 or will that take the whole year to do?

It’s a good question. And I can’t give full sharpness on the answer. But the commercial scale product of our customer has been in the hands of their downstream customers for several months. And so, it’s really all about back and forth between our customer and their customers about how well this particular food ingredient performance versus expectations. I don’t think it will take a year for us to have clarity on whether this will become a commercial product for our customer and enhance for us. So, I think we’ll have update of importance as we go through 2015 on how the commercialization has developed.

Okay. Thanks for that. And on the second food ingredient company, can you tell us anything about that, in another words I think it’s probably not frozen food, can you tell us what area it is?

Honestly, sorry Kevin, we’re not at liberty to disclose any real details about that particular projects – those two particular projects at this point. We’re just encouraged, it’s a significant company, and there is a multiple prospects for Codexis to deliver value by designing novel biocatalysts for that particular client – for that client’s multiple food industry applications. So, hopefully we can give more visibility as time goes on. But these are early stage developments for the company. So those will take some time just like it s taking some time to be able to definitively disclose what we’re doing with our earlier first food ingredient client.

Okay, John. Thanks so much.

Sure. Thanks, Kevin.

You next question comes from the line of James Liberman with Wells Fargo. Please proceed.

Again, congratulations on your developments and progress to-date. Can you give any color on the European pharma relationship, and did I understand that you said that you have another one that was completed during the works there?

Yes. I think it was a second quarter, we disclose that we entered into a multi-year contract with a Europe generic client, prior to that we had not entered into multiyear product supply contract. We just worked biocatalysts R&D developments. So, that milestone took place in the middle of 2014. And as we went through 2014, we delivered more product sales under that contract to that particular European generic client, so, nice success, nice growth of the business, through 2014 with two milestones for that particular client. The other European client, of course, in our corporate presentation which has also posted on our website, we closed that we are doing business already with 15 of the top 20 major drug companies in the world. So, we have business of some amounts which most of the large pharmaceutical clients. What I’ve highlighted on this call was that for one of those client, a major innovator in Europe. We achieve our higher sales of all time. So it shows acceleration of sales to another major client that based in European.

And I guess not in all cases, but in this might be assumed that these could be ongoing and possibly growing opportunities?

We very much hope so. And in the case of the major innovator I will say that the sales are involved in the development stage of that client’s R&D, so the revenue growth from here will be a function of the success of that drug company’s development cycle as they try to advance that particular candidate through the development cycle and commercialized. If that happens that could be a really nice over the year’s growth for the company for its biocatalysts business.

Thank you. It’s very helpful to understanding your activities better. Appreciate it.

You’re welcome. Thank you.

Our next question we have a follow-up from Mr. Matt Tiampo with Craig-Hallum. Please proceed.

Hey, guys. I just wanted to follow-up and ask about the PKU program that you announced in Q4. And how have you – how conversations with the potential partners being going at this point? And do you think it’s reasonable to for us to think about a partnership at this early stage pre-clinically?

It’s hard to say, conversations are going nicely. We’ve reached out to a significant number of potential strategic partners for our PKU preclinical asset. It is early for most of these companies to consider partnering. They like to see the drug candidate a little more advanced than the current PKU candidate is. However we’re hopeful and we’re optimistic that those conversations can indeed lead to a successful partnering transaction and we’re work in as priority to try to accomplish that in 2015.

Great. Thanks very much, gentlemen.

Thank you.

There are no further questions in queue.

Okay. I’d like to thank close by thanking you again for joining us this afternoon. We’re excited about our growth prospects and our ability to managed corporate expenses with the goal of driving Codexis toward sustained profitability. We look forward to providing a progress report on our next quarterly conference call. Have a great evening. Thank you.