Greetings and welcome to the Codexis Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Brendan Strong 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. Earlier today, Codexis issued a press release detailing the company's results for the fourth quarter and full year ended 2021 and provided guidance for 2022. This press release, along with a slide presentation that we plan to reference during today's call, are available under the Investor Relations section of the company's website, codexis.com. 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, without limitation, our guidance for 2022 revenues, product revenues and gross margin on product revenues, for our life sciences tools, food sector and biotherapeutics products businesses and our expectations regarding sales of one of our proprietary enzymes to Pfizer for the manufacturer of their COVID-19 antiviral therapeutic Paxlovid. To the extent that statements made by management are not prescriptions of historical facts regarding Codexis, they are forward-looking statements reflecting beliefs and expectations of management as of this statement date February 24, 2022. 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 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 statements 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 and Codexis' quarterly report on Form 10-Q filed with the SEC on November 5, 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. I'll now turn the call over to John.

Thank you, Brendan. Good afternoon, everyone. We are very pleased to report exceptional fiscal year 2021 results for Codexis and to discuss the exciting growth drivers that will continue to accelerate company momentum through 2022 and beyond. In particular, I am extremely proud that we delivered our eighth consecutive year-on-year revenue growth. In addition to more than doubling our annual product revenue, we also delivered our highest total revenue in recent history of $104.8 million. And as our sales mix continue shifting toward higher-margin products, we delivered our highest ever annual product gross margin as well. In addition to these accelerating financial metrics, we also made great strategic strides across all of our target markets. We'll go over each of those business areas in more detail shortly but I'm super proud to highlight now our record performance against core fundamental growth metrics in 2021. In our Biotherapeutics segment, we now have two CodeEvolver discovered candidates that have advanced into the clinical development stage. And in Performance Enzymes, we commercialized a record eight new products in the year, including our largest ever annual product sale to Pfizer for their COVID antiviral pill, Paxlovid. 2022 is set to continue the company's acceleration following the record strong finish in 2021. Total company sales are set to grow 50% year-on-year again in 2022. Leading the way to deliver double-digit sales growth, excluding the large Paxlovid enzyme business, is the high-growth life science tools market which is set to deliver 50-plus percent revenue growth this year. In the Biotherapeutics segment, we expect to have three developmental candidates up from one currently executing IND-enabling work toward the clinic by the end of 2022. Driven by an increasingly profitable Performance Enzymes business and a robust year-end cash balance of $117 million. We are poised to continue to…

Thanks, John and good afternoon, everyone. We delivered incredibly strong results in 2021. Starting with the fourth quarter. Total revenues were $24.5 million, up 16% compared to the prior year period. On a segment basis, $22.1 million was from the Performance Enzymes segment and $2.4 million was from Novel Biotherapeutics. This compares with $16.7 million and $4.3 million for the Performance Enzymes and Novel Biotherapeutics segments, respectively, for the prior year period. Product revenue for the fourth quarter of 2021 was $17.0 million, up 39% compared to $12.2 million for the prior year period. Product revenues from the sales of Enzyme to Pfizer for Paxlovid were $11.3 million in the fourth quarter. Gross margin on product revenue for the fourth quarter of 2021 was 60.0% compared with 52.0% in the fourth quarter of 2020. The increase was due to favorable product mix. Notably, the improvement from mix was partially offset by a reclassification of freight expenses related to product sales from SG&A expense into cost of goods sold during Q4. Excluding this, our product gross profit margin would have been about 70% in Q4. Turning to operating expenses. Our R&D expenses for the fourth quarter of 2021 were $16.4 million, up from $10.4 million in the prior year period. In addition, SG&A expenses for the fourth quarter of 2021 were $11.7 million, up from $8.7 million for the prior year period. The net loss for the fourth quarter of 2021 was $10.2 million or $0.16 per share compared with a net loss of $3.9 million or $0.06 per share for the fourth quarter of 2020. Turning to the full year results. Total revenues for fiscal 2021 were $104.8 million, up 52% from 2020. This is the highest annual growth that we have delivered in more than 10 years. On a…

Great update, Ross. And nice to see the financials in such terrific shape as we gear up for another year of step out top line growth in 2022. Opportunities abound for Codexis to tap into our differentiated, constantly improving platform to create value in our target markets. In this environment, we will strategically continue to keep our foot on the gas to maximize the company's medium and longer-term growth. It all starts with our capacity to discover new patentable value-creating products. And in 2022, we are continuing the work we started last year to add to our R&D capacity. Enzyme discoveries are the lifeblood of Codexis and we are showcasing our ability to translate those into a growing cascade of commercializing products. With added platform capacity, that flywheel will continue to accelerate for our future. Leveraging the growing profits from our accelerating top line and our solid balance sheet, we are also strategically tapping into a range of medium-term accelerators as well. Investments to keep our platform constantly improving and widening our competitive advantage. Self-funding a healthy minority of our projects, so we can extract more long-term value from our successful innovations. Steadily increasing the percent of opportunities like for life science tools, food and industrial markets, where peak revenues are projected larger and products can commercialize quicker. Investing in IND-enabling and early clinical development to deliver higher value from our differentiated biotherapeutic discoveries. And synergistically investing in companies whose businesses complement ours and who can benefit from accessing our platform technology. Each of these leverage our core enhancing high return growth and brightening our future. All of this sets us up to deliver another strong year of successes and growth in 2022. We have clear visibility to the multiple catalysts that will accelerate the company's growth ambitions across all of our target markets. From executing another record year serving Pfizer to another year of exceptional revenue growth in life science tools to more new product developments and launches to preclinical and clinical advancements across our biotherapeutics pipeline, we're excited to deliver against all of these and more in 2022. Now, we'd be happy to answer your questions. Operator?

[Operator Instructions] Our first question comes from Brandon Couillard with Jefferies. Please proceed with your question.

Hey, thanks. Good afternoon. John, a couple of things on the guide. So if my math is right, for product revs, if I strip out Pfizer in both years, it would suggest only a couple of million dollars of base product growth, is that right? What are some of the kind of moving parts there to think about? And then in terms of the Pfizer Paxlovid, can you just sort of give us a feel for your level visibility to '22 revenues there? And would it be logical to expect additional POs to come in over the balance of the year that would contribute to revs later this year that's not embedded in guidance perhaps?

Yes. Thanks, Brandon. Really good questions. So I'll take those in turn. So the first question you have was about product revenues outside of the Pfizer Paxlovid enzyme sales. And here, your math is correct. We are showing some modest growth in product revenues in 2022's guidance outlook versus 2021. And I think anyone who's been following Codexis like you for years, sees that there are a number of puts and takes every year in terms of product sales. That ultimately, over time, lead to fairly explosive years growth. You can see that our product sales have compounded 36% per year over the last five years. Some of that, of course, is from the successful business with Pfizer last year. But most of that growth is coming from the commercialization of new products that have been in the developmental stage and the growth of those products as they finally reach market. And so for us, just a few million growth year-over-year in product sales in 2022, probably maybe a little bit on the conservative side but also it's just -- we are fully confident in our ability to continue to translate developmental-stage products into recurring commercial-stage products that are going to ensure that fundamentally, we're going to continue to lift up our product sales in the Performance Enzymes side significantly, like we have consistently over these past years. The second question was regards to Paxlovid enzyme sales themselves. And in my prepared remarks, you heard that we actually have orders in hand right now that cover the guidance range that Ross detailed of $75 million to $80 million of enzyme sales this year, it's unlikely that we're going to see material new enzyme POs from Pfizer that are going to affect that number. I think we're fairly confident in that range. And unlikely to see much more, although it's possible. We also shared that we already have purchase orders in hand that carry us into early 2023 that make up at least the majority of the guidance range that we have for 2022 already for 2023. So that's giving us visibility with POs in the hand all the way well into 2023. So pretty solid. Actually, more solid visibility in this product than we're historically used to with Pfizer.

Okay, that's very helpful. And then second question on the Biotherapeutics side. That pipeline has grown considerably. Those programs are advancing further in development that's reflected in the OpEx spend for next year. What's the likelihood that one or more of those get partnered out at some point this year? And Ross, could you just put a pin in your expected the cash burn for '22, what that would kind of shake out to at the bottom line?

Yes, I'll take the first question and Ross, you can handle the second question. Our plan for the three IND-enabling stage programs, two of them are wholly owned. This is the two products that we reported scientific data at this -- of Metabolism Conference in November. We plan to take those forward on our own for the foreseeable future. So I would not see Codexis partnering of CDX-6512 for homocystinuria nor CDX-6210 for maple syrup urine disease, not in that time frame. I think we're really encouraged by the data. We're fully funding the preclinical development expenses to reach early clinical stage and we had announced in the prepared remarks that for homocystinuria that's going to be around the end of next year and maple syrup urine disease a little bit later. So I think we're going to strategically fund those. The preclinical data was very compelling. And we're going to look to get some early data as our strategy in clinical trials and early clinical trials for those two compounds. The third program that we expect to start IND-enabling stage III clinical development this year is one of the 50-50 partner programs with Nestlé Health Science. It's actually the third program that we started to work on with them. Of course, the first one being PKU, the second one being CDX-7108 which just started clinical trials. The third one would have to detail that yet. But that program has done very, very well and we expect to start IND-enabling work in that area. So that one is already 50-50 partnered with Nestlé.

Let's see, the last part of your question, Brandon, related to cash burn. We burned about $32 million in 2021. And our estimates right now are that we'll probably burn a similar amount to that in 2022; so probably right around $30 million, $32 million in 2022.

Thank you.

Our next question comes from Matt Hewitt with Craig-Hallum Capital Group. Please proceed with your question.

Good afternoon and congratulations on all the progress last year and thank you for providing all the details, as it pertains to the '22 guidance. Maybe first up for me, just a point of clarification regarding Paxlovid. Pfizer has partnered or licensed that out to a few other manufacturers. Are you providing enzymes to those parties as well? And is that part of the Pfizer contract that you have? Or do you have the opportunity to sign additional contracts with those third parties? And what kind of contribution can we anticipate from those?

Yes. So any business through the medicines patent pool with generic companies is not part of our Pfizer relationship. Our Pfizer relationship is for -- directly for Pfizer's developed world business. The possibility to supply additional enzyme to those generic companies is certainly there. We don't have a lot of visibility yet. It's lagging significantly behind the manufacturing scale-up that we're participating with Pfizer. So we don't see it as a big contributor in 2022, if at all. And we'll have to keep you and our investors updated as we move through this year as that opportunity unfolds and gives us some visibility into what that might look like for as we move through 2022 and into 2023.

Got it. That's helpful. And then maybe just a follow-up regarding the commercialization efforts or progress with those two internally owned programs. It sounds like you're planning to take those through the IND stage into Phase I. Is there a point at which you would look to partner those out? Or at this point in time, are you thinking that you might take those all the way through to commercialization should they get to get to that stage?

Yes. Great question and I'm glad you asked it just to clarify. I mean Codexis is really not set up in the foreseeable future to bring drugs directly to market to patients. That's not -- that's not who we are. However, we are looking to validate our discoveries to inflect higher value by advancing those candidates through preclinical validation and through early clinical validation. But once we get early clinical validation and we start moving into the time consumable costly later-stage -- clinical trials, we're almost certain to look for partners to bear those operational needs and to ultimately bring those to market. So, I think we're set up to bring our Biotherapeutic assets farther maybe than we have historically but not too far, at least the way we're set up as a company today to just really invest to bring higher value to those assets. But ultimately, we're going to be looking for partners to capitalize the very heavy lift of larger clinical trials and bringing products to market.

That makes complete sense. So thank you for the clarification on that. Maybe one last one and then I'll hop back into the queue. Regarding the product gross margins, obviously, there's a mix component that you talked about in Q4. You provided some guidance for '22. As you look -- and maybe without getting to specific products but as you look at the programs that you're working on, the enzymes that you're providing, are life science tools may be higher margin are drug-based enzymes? Are either on a higher margin and can move the needle in one quarter or the other? Or are they pretty similar regardless of the end customer end use?

Yes. I don't see a lot of differentiation anymore. And the -- a couple of years back, the Life Science Tools target margins were higher. But we've been very successful to lift up our average gross margin to pharmaceutical manufacturing applications and customers over the recent years. So they're fairly close. I mean, a given product could be significantly higher margin than another product. But as a grouping, I think both the Life Science Tools, the food and industrial sectors and the pharma manufacturing are all fairly similar in new product margins in this range of the guide range that Ross detailed for us.

Got it. Thank you very much.

Thanks, Matt.

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

Hey, good afternoon, guys. John, maybe first question, just on kind of capital allocation investments in the business. You're taking this kind of bolus revenues from Pfizer and it seems kind of reinvesting back in the business. I guess, longer term, you've got this very profitable Performance Enzyme business now. You're investing in Novel Biotherapeutics more. Can you just talk about the philosophy that as we see the top line grows, your desire to reinvest that back into the business kind of longer term beyond this year?

Yes, I think really good question, Jacob. Thanks. First and foremost, we're investing in the capacity to discover and develop enzymes. And we stepped that up last year and we continue to step up a little bit more moderated in 2022 versus 2021 but we see continued demand for enzyme engineering and that applies across the company's target markets and sectors. And that's a big part of the lift. Now beyond that, the expenses to move -- to move Biotherapeutic discoveries through preclinical development per asset is pretty significant. And so you see Ross detailed that we're going to spend more because we're moving from a typical year where we had one biotherapeutic program in the preclinical development chapter. To this year, we're going to be having three and so three in parallel. So that's going to be a significant investment to move more candidates more quickly into the clinic in the Biotherapeutics area. And so hopefully, we can continue to see great preclinical data that warrants us making those kinds of investments going forward in the future. We don't have that kind of expense profile for commercializing or developing performance enzymes -- enzyme in the Performance Enzymes segment. So I'd say that we're strategically fully funding the advancement of the Biotherapeutics pipeline. At this stage, we're very excited by the data and the prospects there. And we continue to build out the company's R&D capacity to really expand the flywheel of new product discovery which ultimately will translate into more and more commercial products for our future. And on that point, it's really amazing and terrific to see how many of our products that were in development are now moving into the commercial stage, eight in the last year, almost double over the last two years; that's really the proof -- that's the proof point. We do all this discovery. We share our pipeline snapshot every year. We show that we have many dozens of programs. And really, the fruit is to bring them to the commercial stage. So the cost to bring them to that stage is far less significant in the performance enzyme side. So I think over time, you'll see the cost growth taper materially in enzymes versus Biotherapeutics but we're going to be smart about the spending in Biotherapeutics as well.

Got it. That's super helpful context. And then maybe just as a follow-up, just -- it's been a while since you did a CodeEvolver license, a lot of focus and talk about kind of the self-funded work you're doing. Can you just maybe your latest thoughts on the pipeline or potential for additional CodeEvolver licenses down the road?

Yes. Yes. Still a great strategy. It's paid great dividends for the company to move large pharmaceutical companies from doing one project at a time to ultimately endorsing a major investment in the CodeEvolver license. And we've done three of those, as you well know with GSK, Merck and Novartis, we finished the Novartis transfer last year. And we continue to advance, widen our adoption and penetration in essentially all of the large pharmaceutical companies. And so over time, we see a continued prospect for other large pharmaceutical companies to move into a state of having the return on investment to buy the CodeEvolver platform license. We didn't build any expectation of doing a CodeEvolver deal in 2022 into our guidance outlook. It's not likely that we will initiate a fourth CodeEvolver license this year. It's possible but it's not likely. But we continue to support this strategy because it's a great -- it's a great validation of our technology. And economically, we think it's far more attractive than working one project at a time with these kinds of customers.

Got it. Thanks for taking the questions.

Thanks, Jacob.

[Operator Instructions] Our next question comes from Swayampakula Ramakanth with H.C. Wainwright. Please proceed with your question.

Thank you. This is RK from H.C. Wainwright. Thinking about sitagliptin and the generic that you have signed some agreements with, any expectations from that in '22 and beyond? I know it probably dwarfs against Pfizer but just trying to understand where things are there?

Yes. Thanks, RK. We're really very much on track with our trends and expectations to continue to have a significant enzyme business for sitagliptin even after sitagliptin moves into the generic chapter. The timing of generic is very uncertain. There's a lot of legal discussions about when is loss of exclusivity for Januvia in various countries in the world. So -- but we're -- in 2021, we showcased two deals. First and foremost was a continuation of our business with Merck. And of course, Merck, even as the drug is generic, we'll continue to have a double-digit market share we expect in the manufacture of sitagliptin active. And we'll -- that deal shows that we'll still be the enzyme of choice for their manufacturer. And then we showcased a second deal and this is with a major Indian generic company in a unique partnership that showcases we're going to have positions with generic companies as well. And recall, our patents for our enzyme which liberated tremendous cost savings for Merck when it was installed almost 10 years ago. Those patents extend well beyond Merck's loss of exclusivity. So this company, Almelo, saw the value-creating possibilities of using our enzyme as have many other generic companies. So it's been a very active area. These are the first two deals, we expect more. So hang on and we'll update you on getting more of these deals in place. And then as time goes by, we'll see this generic market unfold, we'll see our sales to Merck go down but continue and we'll see our sales to other generic companies start to make up that difference, we hope and believe.

And then on the Life Science Tools business, certainly, the growth has been pretty good and you're expecting another 50% growth over the next year. In terms of the DNA synthesis enzyme launch that you're talking about for '22, any -- what commentary would you give on expectations, launch timings and how we should think about the trajectory of that product or that -- Yes, that product in the market?

Yes, thanks. So the DNA synthesis Enzyme project has been really exciting for Codexis. And you've seen us showcase our partnership with Molecular Assemblies over the last 1.5 years. So in today's prepared remarks, I highlighted that we are finished now with the enzyme engineering. We have -- we have radically overhauled the enzyme that's needed to do enzymatic DNA synthesis using our CodeEvolver platform now for 18 months, a very, very intensive program. It needed to be that intensive because the performance improvement, the yield, the activity, the thermal stability that we needed to impart on that enzyme were enormous and we have accomplished it. So we finished the enzyme engineering. We are in the middle of discussing with Molecular Assemblies. The commercialization of that enzyme. So stay tuned for that. And then really, most of the work shifts over to molecular assemblies. And as I shared also in the prepared remarks, we have seen Molecular Assemblies build up their manufacturing platform significantly over the last year, especially and they continue to invest in that. They're building a go-to-market team so that they can start to set up to be able to sell DNA synthesis -- synthesize DNA in competition with a growing market who's already serving that -- a growing set of suppliers who are already serving that market. Their commercialization is an important milestone thereafter, when are they out in the market selling custom genes and D&A. We hear from them and we serve on their Board and we're the second largest investor in that company. that, that is set up for 2023. So you'll see announcements of us firming the enzyme. Part of the collaboration will start to supply enzyme to molecular assemblies but small quantities in 2022. And then, Molecular Assemblies will start to line up for their commercialization and ultimately start selling into the DNA synthesis market in 2023. And that's when the consumption of the enzyme will kick into a much higher gear. And hopefully, they will successfully compete and our equity investments in Molecular Assemblies will start to pay off as well.

Fantastic. So one last question on Biotherapeutics business. Obviously, there, you have a deep pipeline with almost a dozen or so products in the pipeline right now. But do you think you have -- you are getting to the point of resource constraint? Or do you think you'll be adding more to that pipeline of molecules in -- either in discovery or preclinical stages?

I think you could see us adding some selectively into the discovery stage of our pipeline. But you're seeing Codexis start to mature the assets in the pipeline as the priority. The partners that we're working with Takeda and Nestlé Health Science are helping to fund the advancement of the CodeEvolver, Codexis covered enzyme -- discovered biotherapeutics are self-funded. We're starting to move those towards the clinic. So it's more about the advancement of the dozen or so pipeline assets than the expansion of those. But you could see us continue to be in other programs at a discovery stage smartly to continue to validate the applicability and widening applicability of our platform as a drug discovery engine.

Thank you. Thank you for taking all my questions.

Thank you, RK.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would now like to turn the call back over to John Nicols for closing remarks.

Thank you again, everyone, for joining us today. Today is officially two days from our 20th anniversary as a company this Saturday, an exciting milestone for Codexis. So thank you for joining us today. As a reminder, we will be attending the upcoming Cowen Healthcare Conference the week of March 7. We look forward to continuing to update you on Codexis' progress. Thank you very much again.

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