Codexis - Earnings Call - Q2 2025

Executive Summary

• Q2 revenue beat and margin inflection: Revenue $15.33M, above S&P Global consensus $14.18M, on strong Pharma Biocatalysis demand and a licensing agreement; product gross margin expanded to 72% from 45% YoY, driving a materially lower net loss ($13.3M vs $22.8M YoY). Consensus figures from S&P Global.*
• EPS modestly missed: GAAP EPS of -$0.16 versus -$0.15 consensus as operating investments continued; management reiterated FY25 revenue guidance of $64–$68M and flagged continued quarterly lumpiness as ECO ramps. Consensus figures from S&P Global.*
• Strategic momentum in ECO Synthesis and ligase: “Well over 30” ECO engagements (deck indicated 34), expanding ligase wins, and multiple CDMOs demonstrating transferability; management evaluating capacity expansion (ECO Lab #2, potential Codexis-owned GMP) to capture demand.
• Balance sheet strengthened: $66.3M cash and investments at 6/30; company raised $27.3M via ATM and Innovatus loan to support ECO expansion and a path to GMP-grade siRNA.

What Went Well and What Went Wrong

• What Went Well

  • Revenue and margin outperformance: Q2 revenue $15.33M vs $7.98M YoY; product gross margin 72% vs 45% YoY as mix shifted toward more profitable products and away from legacy lines.
  • Commercial validation and pipeline build: “Well over 30” ECO engagements and several new ligase customers expected before YE; three CDMO collaborators highlighted ECO/ligase at TIDES, underscoring transferability and performance.
  • Stronger liquidity and reiterated outlook: $66.3M cash/investments; FY25 revenue guide reiterated at $64–$68M; management emphasized path to cash flow breakeven by end-2026, with discussion of potentially prioritizing value creation over near-term breakeven as ECO scales.
  • Management quote: “Our second quarter results are strong… revenue is above consensus and our operating loss is halved compared to Q2 2024… the objective of cash flow breakeven by 2026 is attainable”.

• What Went Wrong

  • EPS slight miss and continued operating losses: EPS of -$0.16 missed by $0.01; net loss $13.3M as R&D expense rose with higher headcount and reclassification. Consensus figures from S&P Global.*
  • Visibility/lumpiness persists: Management reiterated that quarter-to-quarter revenue will remain variable due to large order timing in the heritage business (biocatalysis), though expected to mitigate as ECO revenue scales.
  • Capacity constraints near-term: Demand for ECO may exceed current capacity; company is exploring options (ECO Lab #2, Codexis-owned GMP path) to avoid bottlenecks and retain value in supplying siRNA directly.

Transcript

Speaker 7

Welcome to Codexis's second quarter 2025 earnings conference call. If you require operator assistance during the conference, please press star zero at any time. Please note this event is being recorded. I'll turn the call over to Georgia Erbez, Chief Financial Officer. Please go ahead.

Speaker 1

Thank you, operator. With me today are Dr. Stephen Dilly, Codexis's Chairman and Chief Executive Officer, and Kevin Norrett, Chief Operating Officer. During this call, we 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 2025 revenue, anticipated milestones, including product launches, pilot scale manufacturing, and paths to scale up, technical milestones, and public announcements related thereto, as well as our strategies and prospects for revenue growth, path to profitability, and successful execution of current and future programs and partnerships. To the extent the statements contained in this call are not descriptions of historical facts regarding Codexis, they are forward-looking statements reflecting our beliefs and expectations as of the statement date August 13, 2025.

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's control that could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexis's 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. Now I'll return the call over to Stephen.

Speaker 4

Thank you, Georgia, and thanks everyone for joining. Our second quarter results are strong and demonstrate our ability to run an effective business. We've maintained a solid cash balance. Operating margins are significantly improved. Our revenue is above consensus, and our operating loss is halved compared to Q2 2024. Given this trajectory, it is clear that the objective of cash flow breakeven by the end of 2026 is attainable. However, given the strong interest in the ECO Synthesis™ platform, with more than 30 ongoing customer engagements, we're considering that this may not necessarily be the best way to create stockholder value. It is apparent that demand for ECO will rapidly exceed our ability to supply, starting in the ECO lab and then moving to GMP production.

Therefore, we're exploring options that will expand our bandwidth to support early projects now and investing in the future to maximize the return from the ECO platform. The clearest path to creating value over the longer term is to lock in as many early phase products as we can onto the ECO platform. As they mature into late phase assets and commercial drugs, the return on investment becomes compelling, particularly if we remain the direct source of siRNA for as long as possible. To share a bit more, let me pass it over to Kevin.

Speaker 3

Thanks, Stephen. Moving to slide three, we are pleased with recent progress across each of our core businesses, and we remain on track for the key milestones we mentioned during Tides US earlier this year. Before sharing updates on our ECO Synthesis™ platform, let me start with our strong Q2 revenue, which was driven by increasing orders for enzymes supporting late phase and commercialized APIs within the pharmabiocatalysis business. Codexis remains the gold standard in enzyme engineering. Customers continue to bring us their most challenging small molecule manufacturing problems because we have a proven track record of delivering high-quality enzymes that address each client's specific needs. That credibility has fueled the expansion of our early biocatalysis engagements with some recent wins within the large pharma segment.

As we have mentioned before, our commercial focus has been on generating these new programs, but they take time to grow into meaningful revenue streams. However, they provide the basis for future revenue growth as they move through clinical trials and towards commercialization. Shifting to our ECO Synthesis™ platform, customer engagement is progressing nicely. At the Tides US meeting earlier this year, enzymatic manufacturing solutions were a central focus, and three of our CDMO collaborators featured the ECO Synthesis™ platform in their own presentations. That meeting also made it clear that ligation, otherwise known as the chemoenzymatic route, is rapidly becoming the new standard in siRNA manufacturing. As a result, we are extremely focused on winning new ligase customers with our machine learning capabilities and expansive ligase library.

Some of our newest customers came to Codexis after they were not able to achieve desired performance for competitor and wild type ligases. We continue to believe ligase performance makes a fundamental difference in the productivity and cost of a manufacturing process, and we are seeing indications that our customers are recognizing this too. As I mentioned before, we expect to add several new ligase customers before the end of the year. Finally, we continue to believe that our ligase business creates the bridge to our full ECO Synthesis™ platform. We have also continued to fill our sales funnel with new potential ECO Innovation Lab customers. We have signed another new contract since Tides US, and we expect to bring additional customers on board before the end of the year.

These proof of concept projects with process development and material scale-up allow us to show customers that we can develop a reproducible, scalable process for their assets before they commit to our process for GLP material for tox studies and future GMP material for their clinical trials. As we've said before, another critical element of securing long-term customer buy-in is to have a credible path to GMP-grade material. Our CDMO partnering strategy provides one option, but establishing a Codexis's own GMP facility offers a few key benefits. First, it will dramatically improve our ability to create a seamless scale-up process before tech transfer to a customer's chosen CDMO. Second, this facility enables us to service small and medium-sized drug innovators, allowing them to stay with Codexis for the long term with a supply of GMP-grade material for their phase one and two clinical trials.

As you can tell, our ECO Synthesis™ business is lifting off. Our focus is on translating our exciting commercial momentum into meaningful revenue, and we look forward to a busy second half of the year. With that, I will now turn the call over to Georgia for a discussion of our financial results.

Speaker 1

Thanks, Kevin. Good afternoon, everyone. Starting on slide four, I will provide a brief overview of our financial results here on the call and invite you to review our 10-Q filed today for more detailed discussions. Total revenue for the second quarter ended June 30, 2025, was $15.3 million compared to $8 million in the second quarter of 2024. The increase was primarily due to variability in pharmabiocatalysis customers' manufacturing schedules and clinical trial progression, further demonstrating the trends we've seen of order size and timing having a significant effect on revenue. As we begin the second half of the year, it's important to note that we will continue to see some lumpiness in our quarter-to-quarter revenue due to the inherent unpredictability of our heritage business.

This will be mitigated over time as ECO Synthesis™ revenues begin to grow, but for the next few years, we anticipate a hybrid dynamic while pharmabiocatalysis remains a significant percentage of our base business. Product gross margin was 72% for the second quarter of 2025. This was up from 45% in Q2 2024, largely due to shifts in sales to more profitable products and declines in less profitable legacy products. While this is a significant increase quarter to quarter, we do not anticipate this magnitude of change to be sustained over the entire year. We continue to push for efficiencies in our manufacturing practices and expect gross margins to improve for the entire year compared to 2024. Turning to operating expenses, research and development expenses for the second quarter of 2025 were $13.8 million compared to $11.4 million last year.

The increase was largely driven by costs associated with higher headcount, as well as internal reclassification of certain employees to the research and development function. Selling, general, and administrative expenses were $12.3 million compared to $15.7 million in the second quarter of 2024. The decrease was primarily due to lower stock-based compensation expense, lower legal expense, and reduced use of outside services. As ECO Synthesis™ revenues begin to materialize, we are conscious of our burn rate and remain focused on carefully managing expenses. We are fortunate to be in a strong cash position, and we are making the most of that by streamlining our business practices and thoughtfully balancing our resource allocation. The net loss for the second quarter of 2025 was $13.3 million compared to $22.8 million for the second quarter of 2024. Finally, based on our current operating plan, we are reiterating our 2025 guidance.

As a reminder, we guided to a range of $64 million to $68 million for 2025. We ended the quarter in a strong cash position with $6.3 million in cash, cash equivalents, and investments, which we expect will be sufficient to fund our planned operations through the first quarter of 2027. With that, we'll be happy to take your questions. Operator?

Speaker 7

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Matt Stanton with Jefferies. Please proceed.

Speaker 5

Thanks for taking my question. Maybe just to start off on the pipeline, if I go back to May on Tides US conference, I think it was over 20. Now you're talking about well over 30. I think the deck had 34 specifically. Can you just help level set us? I assume these are at various stages of discussion, so maybe bucket them out a bit in terms of where they are in the funnel. Any more color you can provide on the May over 20 to now over 30, coming out of Tides US conference, just mix between biopharma originators versus CDMOs, maybe even on a geographic basis, just a bit more flavor on some of those incremental opportunities coming into that pipeline funnel there. Thank you.

Speaker 4

Kevin, that sounds like gate one for you.

Speaker 3

No, super exciting to say that we have well over 30 discussions going on. I think the number might even be a little bit higher, growing into the 40s as we speak today. Particularly, it's a mix of CDMOs, large drug innovators, and small stealth biotech and medium-sized biotechs. It's really hard to point to any one single customer segment. I think the other thing in terms of where they are in various stages, I think I mentioned that we signed another one potential customer. We've signed another customer since the last time we spoke, and we expect to sign several new ligase customers before the end of the year. We're very much on track for both of those metrics. They are at various stages of discussion, and we're super excited about the progress we've seen so far.

Speaker 4

Yeah, the great thing about this breadth of pipeline is we can't hope to service all of them. We can start to choose and select and say where are the places where we can get the most traction, which are the ones that look most interesting to us. That's really driving our strategy.

Speaker 5

Okay, thanks. Steve, maybe sticking with you, just to talk about in terms of process development projects entering the ECO Innovation Lab, any more color in terms of those customer programs? I know it's very early days, but how that's maybe tracking versus plan, if there's any way to kind of talk about where utilization of the ECO Lab is today or where it could be by the end of the year. The second part of that question, just you talked about in your prepared remarks around kind of exploring options for additional capacity. I guess maybe just any more color in terms of what those options are that you're considering and any update on timing of when we could learn more about that. It sounds like the demand is far outseen the supply. It sounds like maybe we'll get an update sooner rather than later, given that reason.

We'd just love any more color in terms of the options and the timing around those things.

Speaker 4

Yeah, great question. The thing that we are really excited about is recruiting and locking in early phase projects where they start out of the gate as ECO projects and they remain ECO projects all the way through development and commercialization. The obvious challenge with that is it takes a while and there will be attrition. The good news is it's actually relatively cheap for us to scale that early phase support. The very current conversation here within Codexis is how we set up ECO Lab number two, because we had a certain capacity for ECO Lab number one. It's very easy to service that early part of the funnel. What we're also finding is that the performance of our platform is very, very good. We're super pleased with the scalability and what we call the polymetric efficiency, which means we can do more with a smaller footprint.

We're actually rebuilding our models with aspirations to go a lot further ourselves and control the value that way.

Speaker 5

Okay, thanks. The tough one on this, maybe if I can sneak one more in on the guide. I know you talked about kind of lumpiness, but just any more color to provide in terms of phasing. Will 3Q be up relative to 2Q? I know 4Q is typically seasonally strong, but any more color on the cadence and just visibility and comfort, just given the magnitude of the step up from first half, kind of low $20 million revenue to low to mid-$40 million in the back half. Any more color there would be appreciated. Thank you.

Speaker 1

We still expect a very, you know, pretty steady growth in our base business. As we guided in the beginning of the year, that guidance is still the same. We do expect the bulk of the growth to come from our ligase and our ECO Synthesis™ business for the second half. Based on the cadence of the conversations that we're having and the negotiations we're having, that is where that growth will come from in the second half. Looking at, you know, the guidance, the average guidance on the street, it's, you know, within the range of reasonableness.

Speaker 5

Super, thank you.

Speaker 7

Thank you. Our next question comes from the line of Alison Moore with Piper Sandler. Please proceed.

Speaker 0

Hey team, good afternoon and thanks for taking my question. Really a follow-up to some of the last questions. I just wanted to drill down on some of your commentary that you're exploring options to expand the bandwidth to maximize return on the ECO Synthesis™ platform. I guess, could you just expand on how that changes the near-term steps you plan to take in building out ECO Synthesis™? Also, where does the path to GMP come into play? You have optionality via CDMO partnership versus building out your own GMP capabilities. Could you just talk to the relationship there? Maybe separately, just kind of a back-to-basics question, but what I've been getting from investors is, could you just remind us of your IP position around ECO Synthesis™, the platform? What does that look like? Can you talk to the overall competitive moat you have there around the platform? Thank you.

Speaker 4

Sure. What we're focusing on is filling the capacity that we have and working out where we need to build. Kevin and his team are doing a great job of filling the capacity around the ligase platform and then building out the funnel of early opportunities. It's the early opportunities where we can start them off with sequential synthesis off the ECO Synthesis™ platform that we're really focusing on increasing capacity. Within that, what we're looking for is companies to work with that have a very good chance of succeeding, that they have a well-thought-through strategy clinically, that they have good access to funds, and the opportunities that they're pursuing could become significant. We do have a filter that we look through. It's really how do we entice them onto the platform and work with them as partners going forward.

That comes to the second part of your question, which is the route to GMP. What we need to do initially is provide them with high-quality, well-controlled materials to test. Then we need to provide them with GLP-grade material, which we can do right now out of the ECO Innovation Lab. In the fullness of time, once that's run through a year or so later, they start to need GMP material. That timeline is something that we can address ourselves. We're increasing in our conversations with regulators, also looking at the facilities we already have and those that are available to us. We think much of this we can actually do ourselves. That comes to your third question, which is about IP protection. We have an excellent IP portfolio around the enzymes, the process, all that good stuff.

We are acutely aware that in the world of AI and everything else going on, trade secrets and know-how are a very important part of defending your asset longer term and also being a great partner to work with. I've said a number of times, I feel we're more in a high-tech kind of world than a biotech kind of world here where we're building a platform. We have to think of all those things. We pursue our IP strategy. We keep some of the secret source to ourselves, which is another driver of why we want to do more ourselves for longer. By the time this technology sees prime time, we are a very easy partner to work with and we remove any incentives for people to try and work around us. That's really our strategy.

Speaker 0

Thank you.

Speaker 7

Thank you. Our next question comes from the line of Christine Korsak with Cantor Fitzgerald. Please proceed.

Speaker 2

Hi, congrats on the quarter and the clear level of interest that you're getting here. A couple of questions for me. First, how should we be correlating this strategy to go for some of the earlier stage and work with them for the long term from a revenue perspective? Is it that more initial shots on goal could lead to more future revenues, even if hypothetically like 30% or 40% of these drugs end up being something meaningful? How should we also be thinking about the pace to collecting revenues, especially if there's a lot more companies up front? Thank you.

Speaker 4

Great. It is absolutely locking in a large number to get a slightly smaller number out the other end, hitting when the supply becomes important. In that, as we move to be the direct supplier of the siRNA, we remove a lot of complexity out of the equation, like how you make money from reagents and raw materials and all that kind of stuff, through to saying, no, we're going to be competing based on the quality, the timeliness, and the cost of the material that we supply direct to the customer. What you also have to realize is in the early stages, we are asking often small companies to trust us with their baby, and we have to make that something that they can do easily.

Some of that is by partnering with them very well, offering them reliability of supply, all those good stuff, being able to point to how we're going to make their GLP and their GMP material, but managing their costs early on. It definitely is something about being sort of less emphasizing the early revenues and really driving for a valuable market going forward as these assets mature. In order to pay for that, we have to drive revenues in the shorter term. That's where the ligase strategy, where increasingly we are being validated in our assertion that we have a world-beating ligase portfolio in customers coming to us that have tried others and didn't like them and come back to us. Our access to big late-phase assets in the short term is through the ligation strategy. Anything to add to that, Kevin?

Speaker 3

No, I think we're seeing that play out based upon what came out of Tides US conference and the chemoenzymatic approach being here to stay. That's the only thing I would add. I'd say it's ligase is here and it's a growing market, and, you know, we're making inroads versus competition.

Speaker 4

Yeah, just to put that in sort of the better mousetrap metaphor, our ligase is a better mousetrap than something people are already doing. We can compete directly on performance against an existing alternate. With the ECO Synthesis™ platform, it's about doing something new and taking the partner with us step-wise as we progress it.

Speaker 2

Okay, thank you for that answer. I would imagine as much as you guys want to go out there and do this in-house to convince these folks to stay with you long term, they probably want the same thing so that, you know, by the time they're later stage, they don't have to worry about any tech transfer or any significant step-ups that could delay their product getting on the market. Clearly, you've been having a substantial amount of conversations. Was it your experience that this is kind of what your potential partners were hoping for you to choose as well?

Speaker 4

Absolutely. It's like the fewer transitions during the development timeline, the better. It's also the impressive scalability because a year ago we thought we knew what the scalability of our tech was. Now we're much more certain. As we take each step up, we're really pleased with the improvements that we're making, and it allows us to, as I say, do more with a much smaller footprint, which is great.

Speaker 2

Okay, I'll ask one last question. How should we be thinking about the time and the cost for this process? Clearly, it sounds like there's a lot of interest and you can be selective here about working with some partners that could help offset this a little bit. Thanks so much again.

Speaker 4

One of the things that we did talk about in our prepared remarks was we did a modest, very targeted top-up of our cash position. That was designed to give us access to the facilities, infrastructure, and everything else that we need to do this scaling. Be reassured about that. We're not getting out over our skis. We can afford to do what we need to do. It really is looking at working through the rest of the year and having clarity early next year in terms of the trajectory.

Speaker 1

It really depends on the mix of business that we see in the contracts that come out over the next six to nine months. We'll give you more clarity on that when we do our 2026 guidance.

Speaker 2

Perfect. Thank you again.

Speaker 7

Thank you. Our next question comes from the line of Matthew Wood with Craig Hallum Capital Group. Please proceed.

Speaker 8

Good afternoon. Thanks for taking the questions. Maybe first up, the variable manufacturing schedule that you noted, does that imply that there's maybe some pull forward, push out that's occurring and that's what's creating the variability, or is there something else that I'm missing?

Speaker 1

If you look at the variability from Q1 to Q2 last year and then again from this year, it really is that it's the timing of big orders. I don't want to get any more scientific than that. We just don't have a lot of visibility. There are some orders that we had anticipated, for example, in the fourth quarter, they came in the first quarter and vice versa. That's exactly what happened this time, probably not at the same magnitude that we expected this time. It's certainly not like what we experienced in the first quarter last year or this year, but it is definitely that. It's having not quite a lot of predictability in when some of these larger orders come in.

Speaker 8

Okay, that's super helpful. The GMP scale-up partner that you noted in the press release and in your prepared remarks, is that likely one of the three CDMO partners that were presented at Tides US conference this spring, or are there others that you're in discussion with that could ultimately leapfrog those three?

Speaker 4

We are talking to more than those three. They progress at different rates, but you know, Kevin?

Speaker 3

Yeah, I mean, certainly ones that we presented with are in the mix, but as Stephen said, there are others that have risen to the challenge, I would say, in the last couple of months and are accelerating in terms of our conversations.

Speaker 4

Right. I then come to, you know, what do we need CDMO partners for? It's not immediately for scaling the ECO Synthesis™ process itself. We can do that in-house. This is for relationships with big customers that are doing chemoenzymatic. Quite often what we get is one of those CDMOs bringing us a problem to address for them to service one of the big players. That's really one of the critical models that we're working on.

Speaker 8

Got it. All right. Thank you very much.

Speaker 7

Thank you. Our next question comes from the line of Brendan Strong with TD Cowen. Please proceed.

Speaker 6

Great. Thanks for taking the questions, guys. Really appreciate it. I wanted to actually ask first just a bit more about how you see the potential revenue funnels through clinical development. I fully appreciate, you know, the ramp and revs is going to really depend on clinical success and therapeutic area, among other things. I guess just what kind of ramp from maybe preclinical to phase one, two, three are you broad strokes forecasting, at least among partners that you've already signed or are in talks with? I have a follow-up. Thanks.

Speaker 4

Okay, so when you're talking about the very initial phases of, you know, feasibility, can the platform perform and do what they need it to do in terms of producing the construct? You're talking about collaborations that take a couple of months and are hundreds of thousands of dollars. You then move from that, which is really a technical collaboration, to some milestone-based revenues as we progress through development, but also the material supply itself. In early development, the way we make ourselves whole is by supplying the material for a certain cost, but also milestones as we go through that. As it becomes more significant in terms of quantity, it gets much simpler and it's just the amount they're paying for the siRNA that they're buying from us. That's the way the ramp works.

We try and sort of square the circle early with the milestones and payments, such as transitions to something very simple towards the latter stages.

Speaker 6

Got it. Okay, that's very helpful. Appreciate that. Just maybe a quick follow-on. I wanted to ask, I guess just as of today, and I can appreciate this might shift over time, but can you just speak a little bit to what the scope of options is to kind of fund some of the scaling to GMP, maybe even faster than is necessary, just given kind of the renewed interest? Maybe if potentially even a sale of the biocatalysis businesses or something like that would be on the table in that respect. Thanks.

Speaker 4

We really like our biocatalysis business because even though its growth trajectory is modest, it is very profitable because a lot of these are significant assets that we baked in a while ago. We know how to make them. The margins are good. Therefore, that is worth a lot to us as an engine that reduces our need for cash. There's also work around the ligase, particularly lucrative contracts there that can help us fund. Also, we don't need to spend all the money we need to scale right away. It's an incremental process where, because the technology is very rapid to set up, we can stay just in front of the curve. It's not like we have to build a facility and then wait for two years.

We can actually step forward with GLP within our existing footprint and then set up GMP in a very short time, such that we're ready to supply it as existing assets in our pipeline mature rather than building it and hoping they come.

Speaker 6

Got it. Okay, very helpful. Thank you, guys. Appreciate it.

Speaker 7

Thank you. I'm showing there are no further questions. I'd like to turn the call back over to Stephen Dilly for any closing remarks.

Speaker 4

Thank you everyone for tuning in. As you hear, we're very excited about where we are. We're thinking very hard about the market dynamics going forward and how best to capture the value from this exciting technology that we built in ECO Synthesis™. We will be hoping to see some of you live at the forthcoming meetings over the next month or so. Thank you very much for tuning in.

Speaker 7

This concludes today's call. Thank you for your participation. You may now disconnect.