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

Thank you, operator. With me today are John Nicols, Codexis’ President and Chief Executive Officer; and Ross Taylor, Codexis’ Chief Financial Officer. During this call, management will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our guidance for 2021 total revenues, our updated guidance on product revenues and gross margin on product revenues, and our expectations regarding sales of one of our proprietary enzymes to Pfizer for the manufacture of their late clinical state COVID-19 antiviral therapeutic candidate. To the extent that statements made by management are not descriptions of historical facts regarding Codexis, they are forward-looking statements reflecting beliefs and expectations of management as of the statement date, November 4, 2021. You should not place undue reliance on the forward-looking statements, because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the company's control and could materially affect actual results. In particular, there is significant uncertainty about the duration and impact of the COVID-19 pandemic. This means that results could change at any time and the currently contemplated impact of the virus on the company's operations, financial results and outlook is the best estimate based on available information. For details about these risks, please see the quarterly news release that accompanies this call as well as the company's SEC filings, including Codexis’ annual report on Form 10-K filed with the SEC on March 1, 2021; Codexis’ quarterly report on Form 10-Q filed with the SEC on August 6, 2021; and Codexis’ other periodic reports filed with the SEC. Codexis expressly disclaims any intent or obligation to update forward-looking statements, except as required by law. And now I’ll turn the call over to John.

Thank you, Stephanie. Good afternoon, everyone. I am proud to report that Codexis has delivered another quarter of exceptional operational performance. Total revenue for the third quarter of 2021 grew 100% year-over-year. Product revenue, more than tripled from a year ago and product gross margin reached a new high of 76%. Over the past quarter, we continue to diversify our customer base with 19 customers who over $100,000 in revenue, seven of whom contributed over $1 million in revenue. Our Sustainable Manufacturing business demonstrated step-out growth this quarter, driven by the large orders we have received from Pfizer for one of our proprietary enzymes to manufacture their late clinical stage COVID-19 antiviral therapeutic candidate. The purchase orders we disclosed in June and August aggregate to approximately $29 million. And this enzyme represents the largest annual sales for a product in company history. This was far from the only success story coming out of our sustainable manufacturing business this quarter, where we also strongly positioned ourselves for the upcoming generic chapter of the sitagliptin market and demonstrated excellent progress in the faster-to-market food space. In the Life Science Tools market, we were very pleased to execute the first commercial sale of Codex® HiFi DNA Polymerase, and we remain on track with our other products and custom partnerships in this sector. And in our Biotherapeutics business, we are thrilled to have entered the clinic with CDX-7108, which is co-owned with Nestlé Health Science for the treatment of exocrine pancreatic insufficiency. This is the second Codexis designed therapeutic to reach Phase 1 clinical trials. The first being CDX-6114, which is fully licensed with Nestlé Health Science for the treatment of phenylketonuria. Our results showcase Codexis’ ability to drive robust progress across diverse market segments in parallel. Sustainable Manufacturing is where we've established Codexis…

Thank you, John. And good afternoon, everyone. We delivered strong third quarter 2021 results. Total revenues for the third quarter of 2021 we're $36.8 million up 100% compared to the prior year period. On a segment basis. $32.6 million in revenue was from our performance enzyme segment and $4.2 million was from our novel biotherapeutic segment. This compares with $13.0 million and $5.4 million for performance enzymes and novel biotherapeutics respectively for the prior year period. Product revenue for the third quarter of 2021 was $28.7 million above our expectations for the quarter and up 242% compared to $8.4 million for the prior year period. The increase was primarily the result of our sales of enzyme to Pfizer, which generated $18.9 million in revenue in Q3. R&D revenues were $8.0 million in Q3 compared to $10.0 million last year. The decrease was driven by lower R&D revenue from several major pharmaceutical companies and a shift to self-funded R&D programs. Gross margin on product revenue for the third quarter of 2021 also came in above the high-end of our expected range at 76% compared with 57% in the third quarter of 2020. The increase was due to a favorable shift in product mix. Turning the operating expenses, our R&D expenses for the third quarter of 2021 were $15.2 million, up from $12.0 million in the prior year period. The increase was driven by higher compensation expense due mostly to higher headcount, higher cost of lab supplies and depreciation, partially offset by lower preclinical development and regulatory expenses. SG&A expenses in Q3 of 2021, where $13.4 million compared to $8.8 million for the prior year period. The increase was the result of higher expenses for compensation, primarily driven by higher headcount and higher legal fees, partially offset by lower allocation expenses. Net…

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

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Brandon Couillard [Jefferies]. Please state your question.

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

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

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

Yes. Yes, we are expanding our research capacity so that we can do more parallel enzyme engineering work. And we've actually had some really good success this year in building up the team capacity. The end of last year we were off quoted as having about 15 or so parallel enzyme engineering teams. Today, where we've staffed up to do around 20 parallel enzyme engineering teams. And we look to increase that another notch forward further as we move through the rest of this year and into 2022. On the R&D revenue lines, we're in solid shape. We had some tough comps last year. We had big fronts from Takeda, for example. We had a lot of R&D revenue from the CodeEvolver, tech transfer agreement with Novartis. But we're underlying growth underneath. For example, in the life science area we used to do almost no business in life science tools back in 2018 and last year we did about $3.5 million worth of R&D custom work for life science tools customers. This year that's looking to be doubling again. So somewhere around doubling that 3.6 that we did last year. So, we're seeing good strength there. We're seeing solid growth, solid delivery for doing R&D project work for our sustainable manufacturing customers as well. But overall, there is a little bit of an incremental shift as we've capitalized the company strongly over the last few years, we have been driving an incremental shift to do more self-funded R&D work by Codexis not being so dependent on customer funding to start the work. So, we're able to put our teams to work quicker on a self-funded project and ultimately by doing more self-funded work versus customer funded work, we're preserving more of the back-end value creation to flow to Codexis. So, I'd say there has been an incremental shift. But we're staffing up, we're doing more and more, we have substantial demand to do enzyme engineering. We're incrementally shifting that towards more self-funded work. But underneath there's still a very strong R&D revenue growth curve from funded partnered projects. Hopefully that was helpful.

Thank you.

Okay, thanks, Brandon.

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

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

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

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

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

Understood. All right. Thank you.

Hey, thanks, Matt.

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

Hey guys, it's Evan [ph] here on for Dan.

Hi Evan [ph].

I just had a couple – hi John. I guess quickly I'm not sure if I heard you correctly, but I guess, towards the end of your commentary, you started talking about expectations for, I guess, I think, it was revenue growth as you look into next year and you talked about just kind of consistent with this historical growth rates. And I'm looking at my model and obviously not, I mean, 2020 and this year, I guess are anomalies, but as I look back in the model. I mean, I'm looking at 13% and 2019 and 21% and 2018. I mean is that kind of what you're guiding to, or not guiding, but suggestion, it could be the outlook as we look forward and kind of what would be incorporated in that?

Maybe I’ll – go ahead, Ross, you start I'll jump in as needed. Thanks.

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

Very helpful.

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

Yes, definitely. I guess my follow-up question. So, I guess, as I look at kind of what you guys have been doing, I mean, you’ve been doing a lot. But I mean, if we, we think about within your pharma customers you've had some big customers and big successes that people have heard about. I mean, this big – with Pfizer you've had success with Merck. I'm just kind of wondering, like, as you have these kinds of big successes and I guess, public successes, have people been approaching you more and have your conversations with them changed? What are that – have you had more conversations about having CodeEvolver I forget what it's called, but like what you have with license agreements and whatnot? I'm just kind wondering, just trying to think if you guys have had more conversation as a result of these big in public Codexis’ success stories.

Yes, sure. It varies by sector, but public success is always drive least incremental energy for us as we work in the marketplace. And we've had material successes in using enzymes to drive low-cost, more sustainable processes and pharmaceutical manufacturing now for almost two decades. And the number of scientific breakthroughs, the different customers that we've advanced partnerships with has really built a great momentum for us. And we're doing at least some measure of business with 21 out of the top 25 drug companies right now. So, our job there is to just continue to showcase all the different chemistries that our enzymes can drive low cost and sustainable manufacturing against to streamline our discussions with more and more of the large pharmaceutical customers in particular. And to get them to believe like Merck, like Pfizer. I'm sorry, like Merck, like GSK, like Novartis, just how widely applicable our technology can be across their entire pipeline. And as we continue to successfully move customers steadily with that awareness on applicability, then people get closer and closer to justifying CodeEvolver platform license, like GSK, Merck, and Novartis. So, yes, it's really good. I mean as we break into life science tools market, I mean, it's an area that we're very new. So, every material publicity we generate there generates significant growth and interest about what we're doing. Presentations at major events, like AGBT, for example, really, really help to bring more – more customers coming to us about asking what we can do. And then in the pharmaceutical, in the biotherapeutic discovery and development, we're also quite new here. And so, showcasing that now we have two programs that are in clinical stage that we're addressing, significant diseases like phenylketonuria disease historically and now exocrine pancreatic insufficiency. This helps us to bring more and more attention to Codexis’ technology being a drug discovery engine. And that Codexis team is increasingly capable to drive development advances like reaching clinical stage. So, yes, thanks. It's really exciting to see that kind of momentum. It doesn't happen in big chunks, but it happens in steady, incremental improvements over time as we continue to succeed like this.

Great. Thanks so much.

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

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

Yes, first you're correct. As we've moved CDX-7108 fifty-fifty owned asset with Nestlé Health Science, there are no milestones currently or in the near term associated with the development of CDX-7108. So, we have not negotiated milestones instead we are, co-funding the continued development of CDX-7108. And so, it's showing up as a growing cost stream for Codexis. Actually, we've been investing pretty materially already to do all the IND-enabling work, which includes CMC and GMP manufacturing and toxicology work. So, it's already been a pretty healthy investment, even split fifty-fifty with Nestlé Health Science. And there'll be a continuation of expenses as we move through these Phase 1 trials. So, that's how that program works.

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

Yes. Great question. And a little hard to see at this early chapter. But we've been building confidence, making statements to you and other investors that we had confidence to continue the kind of revenues that we've been generating in the patented stage, where we just sell to Merck, that we could continue those kind of revenues as it moves into the generic chapter. There is a couple of things that we can't quite see very clearly until we get into the generic chapter. One is will there be more Januvia or sitagliptin, generic sitagliptin prescribed once it goes generic? It's a mainstay drug for Type 2 diabetes. So, there's a good prospect that as the price goes down, as it goes generic, that more docs will prescribe generic sitagliptin than they were prescribing the patent to Januvia. So that would be plus side for us. On the other side, we need to get ourselves positioned in a decent number of these generic companies. We already showcased that we're going to maintain our business with Merck, and we've extended that agreement into 2026, which is a number of years beyond the expiration of the Januvia patents. And earlier in the quarter we showed our first – and it's actually a very nice and significant deal for us in with Almelo in partnership with this other company called RC2 Pharma to show that we've got another brick in our arsenal to try to at least maintain and potentially it could be higher. If we get the right generic partners who win the leading share of the generic market, which we won't really know until 2024, 2025, 2026 timeframe. If we land our business with the winning generic companies, it could be higher. But we're are in really good shape. This is the first two. We have other activities that are ongoing to get our enzymes installed with other generic sitagliptin companies. So, it just gives us a lot of confidence. And this has been a significant revenue generating line for Codexis for years. We're just showcasing that we've got the right strategy to continue that kind of revenue going forward through the generic chapter.

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

Yes, cool. Thanks, Jacob.

Our next question comes from Arthur He [ph]. Please state your question.

Hey, good afternoon, John and Ross. This is Arthur He [ph] for RK. Congratulations on all the progress this quarter. I just had a one question regarding the Codex Reverse Transcriptase. Could you give us more color on the launching and how is their potential customer the feedback during the pre-launch preparation? And also, when we could expect the revenue follow through these products? Thank you.

Sure. So, thanks. Yes, we've been working on Reverse Transcriptase pretty much all year in the design and commercialize chapter. And as we've learned, as we've brought more enzymes into life science tools applications, it's really good to provide kind of early alpha testing of our enzymes before we do a full formal launch to get the formulation right, to really test the validation that we're seeing in our lab. And we got that kind of feedback that indeed our Reverse Transcriptase versus currently use Reverse Transcriptase, we have better thermal stability, which enables faster cycle times that it's a more robust enzyme to things like other components, which you don't want in these biological samples. Our enzyme kind of blows through those batter this sensitivity. So, we're quite confident from these alpha trials that our product is ready to launch. And we're doing that in the coming weeks, somewhere in December. So that's great. The ramp up of sales is, it's like what you've been experiencing and watching us deliver for the DNA polymerase and the RNA polymerase. It takes time. We go out to a range of customers in parallel, we put our application specialists to work to help those customers, to utilize it and to help them with any differences that they're seeing with, versus the Reverse Transcriptase. So, it'll take some time. Next year, for example, if we've just launched the Reverse Transcriptase in December, I wouldn't expect a very big sales for our RT next year, but we should be, as we move through the year showing milestones, like first commercial sale and building enthusiasm for a growing application of the Reverse Transcriptase as we move through 2022. Kind of like what we've been and doing this year with the DNA polymerase and the RNA polymerase.

Sounds great. Thank you. Thank you for the color.

Thank you, Arthur [ph].

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

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