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Item 1. Business

2021-03-01 compared with 2020-02-28 · 338 added, 182 removed, 345 unchanged (60% of the section changed)

COMPANY OVERVIEW

We discover, develop and sell proteins that deliver value to our clients in a growing set of industries.

We view proteins as a vast untapped source of value-creating materials, and we are using our proven technologies, which we have been continuously improving since our inception in 2002, to commercialize an increasing number of novel proteins, both as proprietary Codexis products and in partnership with our customers.

We are a pioneer in the harnessing of computational technologies to drive biology advancements.

We discover, develop and sell enzymes and other proteins that deliver value to our clients in a growing set of industries.

We view proteins as a vast, largely untapped source of value-creating products, and we are using our proven technologies, which we have been continuously improving since our inception in 2002, to commercialize an increasing number of novel enzymes, both as proprietary Codexis products and in partnership with our customers.

We are a pioneer in harnessing computational technologies to drive biology advancements.

Since 2002, we have made substantial investments in the development of our CodeEvolver ® protein engineering technology platform, the primary source of our competitive advantage.

Our technology platform is powered by proprietary, artificial intelligence-based, computational algorithms that rapidly mine our large and continuously growing library of protein variants’ performance attributes.

These computational outputs enable increasingly reliable predictions for next generation protein variants to be engineered, enabling delivery of targeted performance enhancements in a time-efficient manner.

In addition to its computational prowess, our CodeEvolver ® protein engineering technology platform integrates additional modular competencies, including robotic high-throughput screening and genomic sequencing, organic chemistry and process development which are all coordinated to create our novel protein innovations.

Our approach to developing commercially viable biocatalytic manufacturing processes begins by conceptually designing the most cost-effective and practical process for a targeted product.

We then develop optimized protein catalysts to enable that process design, using our CodeEvolver ® protein engineering platform technology.

Engineered protein catalyst candidates many thousands for each protein engineering project are then rapidly screened and validated in high throughput screening under relevant manufacturing operating conditions.

This approach results in an optimized protein catalyst enabling cost-efficient processes that typically are relatively simple to run in conventional manufacturing equipment.

This also allows for the efficient technical transfer of our process to our manufacturing partners.

Our technology platform is powered by proprietary, artificial intelligence-based, computational algorithms that rapidly mine the structural and performance attributes of our large and continuously growing library of protein variants.

These computational outputs enable increasingly reliable predictions for next generation protein variants to be engineered, enabling time- and cost-efficient delivery of the targeted performance enhancements.

In addition to its computational prowess, our CodeEvolver ® protein engineering technology platform integrates additional modular competencies, including robotic high-throughput screening and genomic sequencing, organic chemistry and bioprocess development which are all coordinated to rapidly innovate novel, fit-for-purpose products.

The core historical application of the technology has been in developing commercially viable biocatalytic manufacturing processes for more sustainable production of complex chemicals.

It begins by conceptually designing the most cost-effective and practical process for a targeted product.

We then develop optimized biocatalysts to enable the designed process, using our CodeEvolver ® platform.

Engineered biocatalyst candidates, numbering many thousands for each project, are then rapidly screened and validated using high throughput methods under process-relevant operating conditions.

This approach results in an optimized biocatalyst that enables cost-efficient processes that are relatively simple to run in conventional manufacturing equipment allowing for efficient technical transfer of our processes to our manufacturing partners.

This also allows for efficient technical transfer of our processes to our manufacturing partners.

The successful embodiment of our CodeEvolver ® protein engineering technology platform in commercial manufacturing processes requires well-integrated expertise in a number of technical disciplines.

In addition to those directly involved in practicing our CodeEvolver ® protein engineering platform technology, such as molecular biology, enzymology, microbiology, cellular engineering, metabolic engineering, bioinformatics, biochemistry and high throughput analytical chemistry, our process development projects also involve integrated expertise in organic chemistry, chemical process development, chemical engineering, fermentation process development and fermentation engineering.

Our integrated, multi-disciplinary approach to biocatalyst and process development is a critical success factor for our company.

We initially commercialized our CodeEvolver ® protein engineering technology platform and products in the pharmaceuticals market, which remains a primary business focus.

Our customers, which include many large global pharmaceutical companies, use our technology, products and services in their manufacturing processes and process development.

We have also licensed our proprietary CodeEvolver ® protein engineering technology platform to global pharmaceutical companies so that they may in turn use this technology to engineer enzymes for their own businesses.

In addition to those competencies directly integrated in our CodeEvolver ® protein engineering platform, such as molecular biology, enzymology, microbiology, cellular engineering, metabolic engineering, bioinformatics, biochemistry and high throughput analytical chemistry, our process development projects also involve integrated expertise in organic chemistry, chemical process development, chemical engineering, bioprocess development and fermentation engineering.

Our integrated, multi-disciplinary approach to product and process development is a critical success factor for the Company.

We initially commercialized our CodeEvolver ® protein engineering technology platform and products in the manufacture of small molecule pharmaceuticals, which remains a primary business focus.

Our customers, which include many large, global pharmaceutical companies, use our technology, products and services in their process development and in manufacturing.

Additionally, we have licensed our proprietary CodeEvolver ® protein engineering technology platform to global pharmaceutical companies enabling them to use this technology, in house, to engineer enzymes for their own businesses.

Most recently, in May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver ® Agreement”) with Novartis Pharma AG (“Novartis”).

The Novartis CodeEvolver ® Agreement allows Novartis to use Codexis’ proprietary CodeEvolver ® protein engineering platform technology in the field of human healthcare.

As evidence of our strategy to extend our technology beyond pharmaceutical manufacturing, we have also used the technology to develop protein catalysts and industrial enzymes for use in a wider set of industrial markets.

These target industries consist of several large market verticals, including food and food ingredients, animal feed, consumer care, flavors, fragrances and agricultural chemicals.

In addition, we are using our technology to develop enzymes for customers using next generation sequencing ("NGS") and polymerase chain reaction ("PCR/qPCR") for in vitro molecular diagnostic and genomic research applications.

In December 2019, we entered into a license agreement to provide Roche with our first enzyme for this target market, Codexis’ EvoT4™ DNA ligase.

We have also begun using the CodeEvolver ® protein engineering technology platform to develop early stage, novel biotherapeutic product candidates, both for our customers and for our own business, most notably our lead program for the potential treatment of phenylketonuria ("PKU") in humans.

The Novartis CodeEvolver ® Agreement (Codexis’ third such agreement with large pharma companies) allows Novartis to use our proprietary CodeEvolver ® protein engineering platform technology in the field of human healthcare.

As evidence of our strategy to extend our technology beyond pharmaceutical manufacturing, we have also used the technology to develop biocatalysts and enzyme products for use in a broader set of industrial markets, including several large verticals, such as food, feed, consumer care and fine chemicals.

In addition, we are using our technology to develop enzymes for various life science related applications, such as next generation sequencing (“NGS”) and polymerase chain reaction (“PCR/qPCR”) for in vitro molecular diagnostic and genomic research applications.

In December 2019, we entered into a license agreement to provide Roche Sequencing Solutions, Inc.

("Roche") with our first enzyme for this target market:

the Company’s EvoT4™ DNA ligase.

In June 2020, we entered into a co-marketing and enzyme supply collaboration agreement with Alphazyme LLC for the production and co-marketing of enzymes for life science applications including, initially, high-fidelity DNA polymerase, T7 RNA polymerase and reverse transcriptase enzymes.

In June 2020, we also entered into a Master Collaboration and Research Agreement with Molecular Assemblies, Inc.

("MAI") (the “MAI Agreement”) pursuant to which we are leveraging our CodeEvolver ® platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA

Concurrently with the MAI Agreement, we entered into a Stock Purchase Agreement with MAI pursuant to which we purchased 1,587,050 shares of MAI's Series A preferred stock for $1.0 million and, in connection with the transaction, John Nicols, our President and Chief Operating Officer, also joined MAI’s board of directors.

Approximately five years ago, we began using the CodeEvolver ® protein engineering technology platform to develop early stage, novel biotherapeutic product candidates, both in partnership with customers and for our own proprietary Codexis drug candidates.

Our first program was for the potential treatment of phenylketonuria ("PKU") in humans.

PKU is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient.

In October 2017, we entered into a Global Development, Option and License Agreement (the "Nestlé Agreement") with Societé des Produits Néstle S.A., formerly known as Nestec Ltd.

(“Nestlé Health Science”), to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential

treatment of PKU.

In October 2017, we entered into a Global Development, Option and License Agreement (the “Nestlé License Agreement”) with Societé des Produits Nestlé S.A., formerly known as Nestec Ltd.

(“Nestlé Health Science”) to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU.

In February 2019, Nestlé Health Science exercised its option to obtain an exclusive license to develop and commercialize CDX-6114.

Also in October 2017, we entered into a strategic collaboration agreement with Nestle Health Science (“Nestlé SCA”) in which we and Nestlé Health Science are collaborating to leverage the CodeEvolver ® platform technology to develop other novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas.

In January 2020, we entered into a development agreement with Nestlé Health Science to advance a new lead candidate discovered under the Nestlé SCA, CDX-7108, into preclinical development and early clinical studies as a potential treatment for a gastro-intestinal disorder.

In parallel, the Nestlé SCA was extended through December 2021 to support the discovery of therapeutic candidates for additional disorders.

In March 2020, we entered into a Strategic Collaboration and License Agreement (“Takeda Agreement”) with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”), for the research and development of novel gene therapies for certain disease indications, including the treatment of lysosomal storage disorders and a blood factor deficiency.

BUSINESS SEGMENTS

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Performance Enzymes

We initially commercialized our CodeEvolver ® protein engineering technology platform and products in the pharmaceuticals market, and to date this continues to be our largest market served.

We initially commercialized our CodeEvolver ® protein engineering technology platform and products in the manufacture of small molecule pharmaceuticals and, to date, this continues to be our largest market served.

Our customers, which include many large global pharmaceutical companies, use our technology, products and services in their manufacturing processes and process development.

We have also used the technology to develop customized enzymes for use in other industrial markets.

These markets consist of several large industrial verticals, including food and food ingredients, animal feed, consumer care, flavors, fragrances, and agricultural chemicals.

We also use our technology to develop enzymes for customers using NGS and PCR/qPCR for in vitro molecular diagnostic and molecular biology research applications.

These markets consist of several large industrial verticals, including food, feed, consumer care, and fine chemicals.

We also use our technology in the life sciences markets to develop enzymes for customers using NGS and PCR/qPCR for in vitro molecular diagnostic and molecular biology research applications, as well DNA/RNA synthesis and health monitoring applications.

Novel Biotherapeutics

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Similarly, we believe that we can deploy our platform technology to improve specific characteristics of a customer’s pre-existing biotherapeutic drug candidate, such as its activity, stability or immunogenicity.

Most notable is our lead program for the potential treatment of PKU in humans.

Our first lead program was for the potential treatment of hyperphenylalaninemia (“HPA”) (also referred to as PKU) in humans.

PKU is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient.

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In July 2018, we announced that we had dosed the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114, which was conducted in Australia.

In November 2018, we announced top-line results from the Phase 1a study in healthy volunteers with CDX-6114.

In December 2018, Nestlé Health Science became obligated to pay us an additional $1.0 million after the achievement of a milestone relating to formulation of CDX-6114.

The initiation of the trial triggered a $4.0 million milestone payment from Nestlé Health Science.

$1.0 million milestone payment that was triggered by the achievement of a formulation relating to CDX-6114 was received in February 2019.

In January 2019, we received notice from the U.S.

Food and Drug Administration (the “FDA”) that it had completed its review of our investigational new drug application (“IND”) for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States.

Food and Drug Administration ("FDA") that it had completed its review of our investigational new drug application ("IND") for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States.

In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sub-licensable license for the global development and commercialization of CDX-6114 for the management of PKU.

As a result of the option exercise, we earned a milestone and recognized $3.0 million in revenues in the first quarter of 2019.

Upon exercising its option, Nestlé Health Science assumed all responsibilities for future clinical development and commercialization of CDX-6114, with the exception of the completion of an extension study, CDX-6114-004, which was substantially completed in the fourth quarter of 2019.

In October 2017, we separately entered into a Strategic Collaboration Agreement with Nestlé Health Science pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver ® platform technology to develop other novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas.

In January 2020, we and Nestlé Health Science entered into a development agreement pursuant to which we and Nestlé Health Science are collaborating to advance a lead candidate targeting a gastro-intestinal disorder discovered through our Strategic Collaboration Agreement into pre-clinical and early clinical studies.

Concurrently, the Strategic Collaboration Agreement was extended through December 2021.

See Note 16, "Subsequent Events” in the notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

Using our CodeEvolver ® protein engineering platform technology, we have also developed a pipeline of other biotherapeutic drug candidates, all of which are in preclinical development.

We expect to continue to make additional investments in our pipeline with the aim of advancing additional product candidates targeting other therapeutic areas.

RECENT FINANCING ACTIVITIES

In June 2019, we entered into a Securities Purchase Agreement with an affiliate of Casdin Capital, LLC (“Casdin”) pursuant to which we issued and sold to Casdin 3,048,780 shares of our common stock at a purchase price of $16.40 per share (the “Private Offering”).

After deducting issuance costs of $0.1 million from the Private Offering, our net proceeds were $49.9 million.

See Note 10, "Capital Stock" in the notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for further details.

As a result of the option exercise, we earned a

milestone and recognized $3.0 million in revenues in the first quarter of 2019.

Upon exercising its option, Nestlé Health Science assumed all responsibilities for future clinical development and commercialization of CDX-6114.

In October 2017, we separately entered into the Nestlé SCA with Nestlé Health Science pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver ® platform technology to develop other novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas.

In January 2020, we and Nestlé Health Science entered into a development agreement pursuant to which we and Nestlé Health Science are collaborating to advance into pre-clinical and early clinical studies a lead candidate targeting a gastro-intestinal disorder, CDX-7108, discovered through the Nestlé SCA.

The Nestlé SCA was extended through December 2021.

During 2020, we, together with Nestlé Health Science, continued to advance CDX-7108 towards initiation of a Phase 1 clinical trial which we anticipate will begin in 2021.

Additionally, the parties initiated two new programs under the Nestlé SCA targeting a gastro-intestinal disorder.

In March 2020, we entered into the Takeda Agreement with Takeda pursuant to which we are collaborating to research and develop protein sequences for use in gene therapy products for certain disease indications in accordance with the respective program plans for Fabry Disease, Pompe Disease, and an undisclosed blood factor deficiency.

In March 2020, we received a one-time, non-refundable cash payment of $8.5 million.

Of these programs, the Fabry disease program is the most advanced, with multiple sequences, including CDX-6311, having been provided to Takeda.

BUSINESS UPDATE REGARDING COVID-19

We are subject to risks and uncertainties as a result of the current COVID-19 pandemic.

The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the U.S.

economy and other economies worldwide.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and may not be accurately predicted, including the duration and severity of the pandemic and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

To date, we and our collaboration partners have been able to continue to supply our enzymes to our customers worldwide.

However, we are dependent on our manufacturing and logistics partners and consequently, disruptions in operations of our partners and customers may affect our ability to supply enzymes to our customers.

Furthermore, our ability to provide future research and development (“R&D”) services will continue to be impacted as a result of governmental orders and any disruptions in operations of our customers with whom we collaborate.

We believe that these disruptions had a negative impact on our revenue for the year ended December 31, 2020, although we are unable to fully determine and quantify the extent to which this pandemic has affected the amount and timing of our total revenues.

The extent to which the pandemic may impact our business operations and operating results will continue to remain highly dependent on future developments, which are uncertain and cannot be predicted with confidence.

In the U.S., the impact of COVID-19, including governmental orders (“Orders”) governing the operation of businesses during the pandemic, caused the temporary closure of our Redwood City, California facilities and has disrupted our R&D operations.

R&D operations for several projects were temporarily suspended from mid-March 2020 through the end of April 2020 in accordance with these Orders.

In May 2020, we re-initiated limited R&D operations and have ramped up operations such that we are currently utilizing the majority of our normal R&D capacity while following county, state and federal COVID-19 guidance for the protection of our employees.

Additionally, we resumed small scale manufacturing at our Redwood City pilot plant in May 2020.

Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges faced by our customers.

The extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations in the future is uncertain.

For additional information on the various risks posed by the COVID-19 pandemic, see “Risk Factors” set forth in Item 1A of this Annual Report on Form 10-K.

RECENT INVESTING AND FINANCING ACTIVITIES

In June 2020, we entered into a Stock Purchase Agreement with MAI pursuant to which we purchased 1,587,050 shares of MAI's Series A preferred stock for $1.0 million.

In connection with the transaction, John Nicols, our President and Chief Operating Officer, also joined MAI’s board of directors.

Concurrently with our initial equity investment, we entered into the MAI Agreement pursuant to which we are performing services utilizing our CodeEvolver ® protein engineering platform technology to improve DNA polymerase enzymes in exchange for compensation in the form of additional shares of MAI's Series A preferred stock.

We received 714,171 shares of MAI's Series A preferred stock from research and development activities in the year ended December 31, 2020, and recognized $0.9 million in research and development revenue from these activities with MAI in the year ended December 31, 2020.

At December 31, 2020, we had $0.5 million of financial assets due from MAI for services rendered.

In November 2020, we announced the SynBio Innovation Accelerator (“Accelerator”) collaboration with Casdin Capital, LLC ("Casdin").

The goal of the Accelerator is to fund the early-stage companies with disruptive technology platforms or unique product development capabilities in the field of synthetic and industrial biotechnology.

The first investment by Codexis associated with the Accelerator collaboration was made in Arzeda Corp., a privately-held computational protein design company that focuses on computational approaches to designing novel enzyme functionality.

We invested $1.0 million in Arzeda and received a convertible subordinated note issued by Arzeda Corp.

The note is an available-for-sale non-marketable interest-bearing debt security which will mature within one year.

In December 2020, we completed an underwritten public offering of 4,928,572 shares of our common stock, including the exercise in full by the underwriters of their option to purchase an additional 642,857 of our shares, at a public offering price of $17.50 per share.

After deducting the underwriting discounts, commissions, and estimated offering expenses, net proceeds were approximately $80.8 million.

Our strategy is to grow our revenues, profits, and stockholder value by leveraging our CodeEvolver ® protein engineering technology platform in the following ways:

• Licensing our CodeEvolver ® protein engineering technology platform.

We intend to continue to pursue opportunities to license our CodeEvolver ® protein engineering technology platform to third parties so they can create cost-saving protein catalyst solutions utilizing their own in-house protein engineering capability.

• Growing our pharmaceutical protein catalysts business.

We intend to continue to pursue opportunities to license our CodeEvolver ® protein engineering technology platform to third parties so they can create cost-saving biocatalyst solutions utilizing their own in-house protein engineering capability.

• Growing our pharmaceutical biocatalysts business.

We intend to continue to pursue opportunities in the pharmaceutical market to use our protein catalysis products and services to reduce the costs for manufacturing small molecule drugs.

We intend to increase the number of pharmaceutical customers and processes that utilize and benefit from our novel, cost-saving protein catalyst solutions.

We intend to increase the number of pharmaceutical customers and processes that utilize and benefit from our novel, cost-saving biocatalyst solutions.

• Creating and advancing novel biotherapeutic drug candidates.

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We have also invested in research and development in an effort to generate additional early stage novel biotherapeutic candidates.

• Extending our protein catalysts and industrial enzymes business into new markets.

We intend to continue to pursue opportunities in the fine chemicals market to use protein catalysis products and services to reduce the costs for manufacturing in adjacent markets like food and food ingredients.

• Extending our biocatalysts and industrial enzymes business into new markets.

We intend to continue to pursue opportunities to use biocatalyst products and services to reduce the costs and improve sustainability for manufacturing in markets such as food and food ingredients.

We intend to increase the number of customers and industrial verticals that utilize and benefit from our novel performance enzyme solutions.

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Our pharmaceutical customers, which include many large global pharmaceutical companies, use our technology, products and services in their manufacturing processes and process development.

Our CodeEvolver ® protein engineering technology platform enables us to deliver solutions to our customers in this market by developing and delivering optimized protein catalysts that perform chemical transformations at a lower cost and improve the efficiency and productivity of manufacturing processes.

Our CodeEvolver ® protein engineering technology platform enables us to deliver solutions to our customers in this market by developing and delivering optimized biocatalysts that perform chemical transformations at a lower cost and improve the efficiency and productivity of manufacturing processes.

We provide value throughout the pharmaceutical product lifecycle.

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• reducing the need for late-stage purifications.

Early in a pharmaceutical product’s lifecycle, pharmaceutical manufacturers can use our protein catalyst products and services to reduce manufacturing costs.

Early in a pharmaceutical product’s lifecycle, pharmaceutical manufacturers can use our biocatalyst products and services to reduce manufacturing costs.

If an innovator incorporates our products or processes into an approved product, we expect the innovator to continue to use our products or processes at least over the patent life of the marketed drug.

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Typically, pharmaceutical companies will only seek regulatory approval for a manufacturing change if substantial cost savings are realizable.

We believe that the cost savings associated with our products may lead our customers to change their manufacturing processes for approved products and, if necessary, seek regulatory approval of the new processes which incorporate our proteins.

incorporate our biocatalyst products.

Moreover, we believe these cost savings are potentially attractive to generics manufacturers, who compete primarily on price.

In addition, manufacturing processes that utilize our protein catalysts can frequently enable processes that are more sustainable and environmentally friendly compared to alternative, traditional manufacturing approaches.

In addition, manufacturing processes that utilize our biocatalysts can frequently enable processes that are more sustainable and environmentally friendly compared to alternative, traditional manufacturing approaches.

This has led us to earn three U.S.

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We approach biopharmaceutical companies to collaborate and utilize our platform technology for the discovery of specific novel biotherapeutic candidates.

We currently have one such biotherapeutic discovery partnership in progress under the Strategic Collaboration Agreement with Nestlé Health Science.

We currently have one such biotherapeutic discovery partnership in progress under the Nestlé SCA with Nestlé Health Science.

We continue to pursue other customers who could benefit by applying our CodeEvolver ® protein engineering platform technology to improve the discovery and/or development of other biotherapeutics in partnership with us.

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As a result, phenylalanine accumulates to toxic levels in the brain, causing serious neurological problems including intellectual disability, seizures and cognitive and behavioral problems.

To avoid toxic levels of phenylalanine in their blood, individuals with PKU must follow a strict, life-long diet that is

low in phenylalanine and supplement their diet with a synthetic phenylalanine-free formula to provide them with sufficient nutrients.

To avoid toxic levels of phenylalanine in their blood, individuals with PKU must follow a strict, life-long diet that is low in phenylalanine and supplement their diet with a synthetic phenylalanine-free formula to provide them with sufficient nutrients.

Maintaining a strict, life-long diet can be challenging for individuals with PKU.

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Nestlé Health Science

On October 12, 2017, we entered into the Nestlé Agreement with Nestlé Health Science and, solely for the purpose of the integration and the dispute resolution clauses of the Nestlé Agreement, Nestlé Health Science S.A., pursuant to which we granted to Nestlé Health Science, under certain of our patent rights and know-how:

(i) an option to obtain an exclusive, worldwide, royalty-bearing, sublicenseable license to develop and commercialize certain products (each, a “Product”) based on CDX-6114 and our other therapeutic enzyme product candidates covered by specified patent applications for the treatment of hyperphenylalaninemia (“HPA”), and (ii) an exclusive right of first negotiation (the “Right of First Negotiation”) for a period of five years to obtain an exclusive worldwide license to develop and commercialize up to two enzymes discovered by us for use in the field of the prevention, diagnosis, treatment and management of inborn errors of amino acid metabolism.

In October 2017, we entered into the Nestlé License Agreement with Nestlé Health Science pursuant to which we granted to Nestlé Health Science, under certain of our patent rights and know-how:

(i) an option to obtain an exclusive, worldwide, royalty-bearing, sublicensable license to develop and commercialize certain products (each, a “Product”) based on CDX-6114 and our other therapeutic enzyme product candidates covered by specified patent applications for the treatment of HPA, and (ii) an exclusive right of first negotiation (the “Right of First Negotiation”) for a period of five years to obtain an exclusive worldwide license to develop and commercialize up to two enzymes discovered by us for use in the field of the prevention, diagnosis, treatment and management of inborn errors of amino acid metabolism.

We are not under any obligation to undertake any research and development activities relating to inborn errors of amino acid metabolism.

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In February 2019, Nestlé Health Science exercised its option to receive an exclusive license to further develop and commercialize CDX-6114 and our other therapeutic enzyme product candidates covered by specified patent applications for the treatment of PKU (each, a “Compound”).

Under the terms of the Nestlé Agreement, upon option exercise, Nestlé Health Science received a license to the Compound, other than any enzyme that has other clinically significant, specified activity against another molecule, unless that enzyme’s specified activity against phenylalanine is ten times greater than its activity against such other molecule (in which case it is not excluded).

Under the terms of the Nestlé License Agreement, upon option exercise, Nestlé Health Science received a license to the Compound, other than any enzyme that has other clinically significant, specified activity against another molecule, unless that enzyme’s specified activity against phenylalanine is ten times greater than its activity against such other molecule (in which case it is not excluded).

Furthermore, we generally will retain the right to use any enzyme as a biocatalyst, provided that preclinical development of such enzyme has not commenced.

The first Compound to be developed under the Nestlé Agreement was our enzyme CDX-6114.

The Nestlé Agreement also sets forth the parties’ respective obligations for development, commercialization, regulatory and manufacturing and supply activities for CDX-6114 and Product containing CDX-6114.

The first Compound to be developed under the Nestlé License Agreement was our enzyme CDX-6114.

The Nestlé License Agreement also sets forth the parties’ respective obligations for development, commercialization, regulatory and manufacturing and supply activities for CDX-6114 and Product containing CDX-6114.

Prior to Nestlé Health Science exercising its option to receive an exclusive license to CDX-6114, we were generally responsible for development activities, including conducting a Phase 1a clinical study.

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Our development activities were governed by a development plan and overseen by a joint steering committee.

The parties established a patent committee to discuss strategies and coordinate activities for the patents related to CDX-6114 and product containing CDX-6114, and we will jointly own all inventions and information that result from each party’s activities performed under the Nestlé Agreement.

The Nestlé Agreement also contains customary representations and warranties by the parties, intellectual property protection provisions, certain indemnification rights in favor of each party and customary confidentiality provisions and limitations of liability.

Nestlé Health Science paid us an upfront cash payment of $14.0 million in the fourth quarter of 2017.

The Nestlé License Agreement also contains customary representations and warranties by the parties, intellectual property protection provisions, certain indemnification rights in favor of each party and customary confidentiality provisions and limitations of liability.

Nestlé Health Science paid us an upfront cash payment of $14.0 million in 2017.

In July 2018, we announced that we had dosed the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114 which was conducted in Australia.

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The $4.0 million milestone payment that was triggered by the initiation of the trial was received in September 2018 and the $1.0 million milestone payment that was triggered by the achievement of a formulation relating to CDX-6114 was received in February 2019.

In January 2019, we received notice from the FDA that it had completed its review of our IND for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States.

In January 2019, we received notice from the U.S.

Food and Drug Administration (the “FDA”) that it had completed its review of our IND for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States.

In February 2019, Nestlé Health Science exercised its option to obtain an exclusive license for the global development and commercialization of CDX-6114 for the management of PKU.

The exercise of the option triggered a $3.0 million milestone payment.

Other potential payments from Nestlé Health Science to us under the Agreement include (i) development and approval milestones of up to $85.0 million, (ii) sales-based milestones of up to $250.0 million in the aggregate, which aggregate amount is achievable if net sales exceed $1.0 billion in a single year, and (iii) tiered royalties, at percentages ranging from the middle single digits to low double-digits, of net sales of products containing an enzyme covered by the agreement as its sole active ingredient.

In addition to the Nestlé Agreement, we and Nestlé Health Science concurrently entered into a Strategic Collaboration Agreement pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver ® platform technology to develop novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas.

In January 2020, we and Nestlé Health Science entered into a development agreement (the “Development Agreement”) pursuant to which we and Nestlé Health Science are collaborating to advance a lead candidate targeting a gastro-intestinal disorder discovered through our Strategic Collaboration Agreement into pre-clinical and early clinical studies.

Concurrently, the Strategic Collaboration Agreement was extended through December 2021.

See Note 16, "Subsequent Events” in the notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

Other potential payments from Nestlé Health Science to us under the Nestlé License Agreement include (i) development and approval milestones of up to $85.0 million, (ii) sales-based milestones of up to $250.0 million in the aggregate, which aggregate amount is achievable if net sales exceed $1.0 billion in a single year, and (iii) tiered royalties, at percentages ranging from the middle single digits to low double-digits, of net sales of products containing an enzyme covered by the agreement as its sole active ingredient.

In October 2017, we entered into the Nestlé SCA pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver ® protein engineering technology platform to develop novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas.

The Nestlé SCA has been extended through December 2021.

In January 2020, we entered into a development agreement with Nestlé Health Science pursuant to which we and Nestlé Health Science are collaborating to advance a lead candidate targeting a gastro-intestinal disorder discovered through the Nestlé SCA into pre-clinical and early clinical studies.

Shire Human Genetic Therapies/Takeda Pharmaceutical

In March 2020, we entered into the Takeda Agreement with Takeda under which we will research and develop protein sequences for use in gene therapy products for certain diseases (each, a “Field”) in accordance with each applicable program plan (each, a “Program Plan”).

We received an upfront nonrefundable cash payment of $8.5 million and we initiated activities under three Program Plans for Fabry Disease, Pompe Disease, and an undisclosed blood factor deficiency, respectively (the “Initial Programs”).

We are primarily responsible for the research and development of protein sequences under the Program Plans (the “Protein Sequences”) and we are eligible to earn up to $15.4 million of research and development fees and pre-clinical milestone payments for the Initial Programs.

Takeda has the right, but not the obligation, to develop, manufacture and commercialize gene therapy products that include nucleic acid sequences that encode the Protein Sequences (“Products”) at their expense.

Takeda has the right to a certain number of additional disease indications (“Reserved Target Indications”) for a limited time period during which Takeda may initiate a Program Plan for one or more Reserved Target Indications (“Additional/Option Program,” with Initial Programs, the “Programs”), provided, (a) if Takeda elects to initiate an Additional/Option Program while the parties are collaborating on three other Programs at the time of such election, or (b) if Takeda elects to initiate an Additional/Option Program using the last remaining Reserved Target Indication, then Takeda must pay us an option exercise fee to initiate such Additional/Option Program.

We will own all rights to the Protein Sequences and corresponding nucleic acid sequences and related intellectual property rights and Takeda will own all rights to Products and related intellectual property rights.

We granted to Takeda an exclusive, worldwide, royalty-bearing, sublicensable license to use the Protein Sequences and their corresponding nucleic acid sequences to develop, manufacture and commercialize the applicable Products in the applicable Field.

We also granted to Takeda a limited non-exclusive, worldwide, sublicensable license (a) to research the Protein Sequences within or outside the applicable Fields and (b) to research the Products outside of the applicable Fields, which such

rights exclude Takeda's right to perform any Investigational New Drug-enabling activities.

The licenses to research the Protein Sequences expire after a pre-determined period of time.

The term of the Takeda Agreement begins on the effective date of the Takeda Agreement and continues on a Product-by-Product and country-by-country basis, until the expiration of Takeda’s obligation to pay royalties to the Company with respect to that Product in that country.

The Takeda Agreement expires in its entirety upon the expiration of Takeda’s obligation to pay royalties to the Company with respect to the Products in all countries worldwide.

Subject to the terms of the Takeda Agreement, and after the first anniversary of the Effective Date with respect to the Initial Programs or after the first anniversary of confirmation of the applicable Program Plan by the parties with respect to the Additional/Option Programs, Takeda may terminate a Program upon specified prior written notice to the Company.

Subject to the terms of the Takeda Agreement, Takeda may terminate the Takeda Agreement, at will, on a Product-by-Product basis upon specified prior written notice to the Company and the Takeda Agreement in its entirety upon specified prior written notice to the Company.

Subject to the terms of the Takeda Agreement, Takeda may terminate the Takeda Agreement on a Product-by-Product basis for safety reasons upon specified prior written notice to the Company.

Either party may terminate the Takeda Agreement for an uncured material breach by the other party, or the other party’s insolvency or bankruptcy.

We are eligible to receive certain development and commercialization milestone payments up to $100.0 million per target gene, the modulation of which would lead to the treatment of the disease indications by the applicable Product.

We are also eligible to receive tiered royalties based on net sales of Products at percentages ranging from the middle-single digits to low single-digits.

Licensing Our CodeEvolver ® Protein Engineering Technology Platform

Licensing our CodeEvolver ® protein engineering technology platform to pharmaceutical companies enables them to rapidly develop custom-designed enzymes that are highly optimized for efficient manufacturing processes.

To date, we have entered into platform technology licensing agreements with each of GlaxoSmithKline, Merck and Novartis, and we intend to continue to enter into license arrangements with third parties that will allow them to use our CodeEvolver ® protein engineering technology platform to discover and develop novel proteins for their internal use.

To date, we have entered into platform technology licensing agreements with each of GlaxoSmithKline Intellectual Property Development Limited, a subsidiary of GlaxoSmithKline plc ("GSK"), Merck, Sharp & Dohme ("Merck") and Novartis Pharma AG ("Novartis"), and we intend to continue to enter into license arrangements with third parties that will allow them to use our CodeEvolver ® protein engineering technology platform to discover and develop novel proteins for their internal use.

GlaxoSmithKline

We entered into our first CodeEvolver ® protein engineering Platform Technology Transfer, Collaboration and License Agreement (“GSK CodeEvolver ® Agreement”) on July 10, 2014 with GlaxoSmithKline Intellectual Property Development Limited, a subsidiary of GlaxoSmithKline plc (collectively, “GSK”), pursuant to which we granted GSK a non-exclusive, worldwide license to use our CodeEvolver ® protein engineering technology platform in the field of human healthcare for its internal development purposes.

Under the GSK CodeEvolver ® Agreement, we transferred our CodeEvolver ® protein engineering technology platform to GSK over a twenty-one-month period that began on July 10, 2014.

We entered into our first CodeEvolver ® protein engineering Platform Technology Transfer, Collaboration and License Agreement (“GSK CodeEvolver ® Agreement”) in July 2014 with GlaxoSmithKline Intellectual Property Development Limited, a subsidiary of GSK, pursuant to which we granted GSK a non-exclusive, worldwide license to use our CodeEvolver ® protein engineering technology platform in the field of human healthcare for its internal development purposes.

Under the GSK CodeEvolver ® Agreement, we transferred our CodeEvolver ® protein engineering technology platform to GSK over a twenty-one-month period that began in July 2014.

As a part of this technology transfer, we provided to GSK our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms.

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GSK can terminate the GSK CodeEvolver ® Agreement by providing 90 days written notice to us.

In September 2019, we received notification from GSK that a milestone relating to the advancement of an enzyme developed by GSK using our CodeEvolver ® protein engineering platform technology has been achieved, triggering a $2.0 million

milestone payment to Codexis from GSK.

We recognized revenue of $2.0 million for the milestone payment in 2019, compared to zero in 2018 and 2017, respectively, as research and development revenue.

On August 3, 2015, we entered into a CodeEvolver ® platform technology transfer and license agreement (the “Merck CodeEvolver ® Agreement”) with Merck Sharp & Dohme Corp., a subsidiary of Merck & Co., Inc.

(collectively, “Merck”).

In 2019, we received a $2.0 million milestone payment on the advancement of an enzyme developed by GSK using our CodeEvolver ® protein engineering platform technology.

In August 2015, we entered into a CodeEvolver ® Platform Technology Transfer and License Agreement (the “Merck CodeEvolver ® Agreement”) with Merck.

The Merck CodeEvolver ® Agreement allows Merck to use our proprietary CodeEvolver ® protein engineering platform technology in the field of human and animal healthcare.

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In addition, Merck is prohibited from using the CodeEvolver ® protein engineering technology platform to develop or produce enzymes or any other compounds for or on behalf of any third parties except in a very limited manner when Merck divests a therapeutic product that is manufactured using an enzyme developed using the CodeEvolver ® protein engineering technology platform.

Under the terms of the Merck CodeEvolver ® Agreement, Merck paid us up-front technology transfer and license fees and milestone payments over the technology transfer period of 15 months from August 3, 2015, the effective date of the Merck CodeEvolver ® Agreement.

Under the terms of the Merck CodeEvolver ® Agreement, Merck paid us upfront technology transfer and license fees and milestone payments over the technology transfer period of 15 months from August 2015.

We also have the potential to receive product-related payments of up to $15.0 million for each API that is manufactured by Merck using one or more enzymes that have been developed or are in development using the CodeEvolver ® protein engineering technology platform during the 10-year period that begins on the conclusion of the 15-month technology transfer period.

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For each API that Merck manufactures using an enzyme developed with the CodeEvolver ® protein engineering technology platform, we will have a right of first refusal to supply Merck with the enzyme used to manufacture the API if Merck outsources the supply of the enzyme.

Our right of first refusal applies during the period that begins on the completion of a phase III clinical trial for the product containing the API and ends five years following regulatory approval for such product.

Our right of first refusal applies during the period that begins on the completion of a Phase 3 clinical trial for the product containing the API and ends five years following regulatory approval for such product.

The Merck CodeEvolver ® Agreement has a term that continues, unless earlier terminated, until the expiration of all payment obligations under the agreement.

Merck may terminate the Merck CodeEvolver ® Agreement by providing 90 days written

notice to us.

Merck may terminate the Merck CodeEvolver ® Agreement by providing 90 days written notice to us.

We can terminate the Merck CodeEvolver ® Agreement by providing 30 days written notice to Merck if we determine, pursuant to our contractual audit rights under the Merck CodeEvolver ® Agreement, that Merck has repeatedly failed to make required payments to us and/or materially underpaid us an amount due under the Merck CodeEvolver ® Agreement.

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In January 2019, we entered into an amendment to the Merck CodeEvolver ® Agreement whereby we installed certain CodeEvolver ® protein engineering technology upgrades into Merck’s platform license installation.

We will maintain those upgrades for a multi-year term.

We recognized $0.9 million in research and development revenues under the terms of the amendment in the year ended December 31, 2019.

As of December 31, 2019 and 2018 we had no deferred revenue balances.

On May 2, 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver ® Agreement”) with Novartis Pharma AG (“Novartis”).

The Novartis CodeEvolver ® Agreement allows Novartis to use Codexis’ proprietary CodeEvolver ® protein engineering platform technology (the “CodeEvolver ® Platform Technology”) in the field of human healthcare.

We will maintain those upgrades for a multi-year term expiring in January 2022.

In May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver ® Agreement”) with Novartis.

The Novartis CodeEvolver ® Agreement allows Novartis to use our proprietary CodeEvolver ® protein engineering platform technology (the “CodeEvolver ® Platform Technology”) in the field of human healthcare.

The CodeEvolver ® Platform Technology enables rapid development of custom-designed enzymes that are highly optimized for efficient manufacturing processes.

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In addition, Novartis is prohibited from using the CodeEvolver ® Platform Technology to develop or produce enzymes or any other compounds for or on behalf of any third parties except in a very limited manner when Novartis divests an API that is manufactured using an enzyme developed using the CodeEvolver ® Platform Technology.

Novartis will pay Codexis up to $14.0 million over approximately the period through March 2021, $5.0 million of which was paid shortly after the Effective Date, and an additional $4.0 million of which is subject to satisfactory completion of the first technology transfer milestone and $5.0 million of which is subject to satisfactory completion of the second technology transfer milestone.

In consideration for the continued disclosure and license of improvements to the Codexis technology and materials during a multi-year period that begins on the conclusion of the Technology Transfer Period (“Improvements Term”), Novartis will pay Codexis annual payments which amount to an additional $8.0 million.

Codexis also has the potential to receive

quantity-dependent, usage payments for each API that is manufactured by Novartis using one or more enzymes that have been developed or are in development using the CodeEvolver ® Platform Technology during the period that begins on the conclusion of the Technology Transfer Period and ends on the expiration date of the last to expire licensed patent.

Novartis will pay Codexis up to $14.0 million over approximately the period through March 2021, of which $5.0 million was received shortly after the effective date of the Novartis CodeEvolver ® Agreement.

In the second quarter of 2020, we completed the second technology milestone transfer under the agreement and became eligible to receive a milestone payment of $4.0 million, which we subsequently received in July 2020.

We have also billed $3.4 million for partial completion of the third technology milestone and we expect to receive payment in the first quarter of 2021.

In addition to this payment, we are eligible

for an additional payment of $1.6 million for completion of the third technology milestone transfer, which would bring total cash payment for this milestone to $5 million as specified in the Novartis CodeEvolver ® Agreement.

In consideration for the continued disclosure and license of improvements to our technology and materials during a multi-year period that begins on the conclusion of the Technology Transfer Period (“Improvements Term”), Novartis will pay us annual payments which amount to an additional $8.0 million.

Codexis also has the potential to receive quantity-dependent, usage payments for each API that is manufactured by Novartis using one or more enzymes that have been developed or are in development using the CodeEvolver ® Platform Technology during the period that begins on the conclusion of the Technology Transfer Period and ends on the expiration date of the last to expire licensed patent.

These product-related usage payments, if any, will be paid by Novartis to Codexis for each quarter that Novartis manufactures API using a CodeEvolver ® -developed enzyme.

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Any improvements to the CodeEvolver ® Platform Technology during the Technology Transfer Period will also be included in the license grants from Codexis to Novartis.

Under the Agreement, Codexis will own any improvements to Codexis’ protein engineering methods, processes and algorithms that arise and any enzyme technology or process technology that is developed during the Technology Transfer Period or during the Improvements Term.

Under the Novartis CodeEvolver ® Agreement, Codexis will own any improvements to Codexis’ protein engineering methods, processes and algorithms that arise and any enzyme technology or process technology that is developed during the Technology Transfer Period or during the Improvements Term.

Novartis will own (a) any enzyme technology that is developed solely by Novartis or jointly by Novartis and Codexis under an enzyme evolution project using the CodeEvolver ® Platform Technology (a “Project Enzyme”) and (b) the methods of use of any Project Enzyme or any enzyme developed solely by Novartis or jointly by Novartis and Codexis under an enzyme evolution project using the CodeEvolver ® Platform Technology (“Process Technology”).

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For each Novartis-controlled API that Novartis manufactures using an enzyme developed using the CodeEvolver ® Platform Technology, Codexis will have a right of first refusal to supply Novartis with the enzyme used to manufacture the API, once Novartis’s requirement for such enzyme exceeds a certain quantity, if Novartis self-produces or outsources the supply of the enzyme.

Codexis’ right of first refusal applies during the period that begins on the completion of a Phase I clinical trial for the first therapeutic product containing the API and ends on the earlier of five years following regulatory approval for such product and termination of the Novartis CodeEvolver ® Agreement.

The Novartis CodeEvolver ® Agreement has a term that begins on the Effective Date and continues unless and until terminated under the Novartis CodeEvolver ® Agreement.

Codexis’ right of first refusal applies during the period that begins on the completion of a Phase 1 clinical trial for the first therapeutic product containing the API and ends on the earlier of five years following regulatory approval for such product and termination of the Novartis CodeEvolver ® Agreement.

The Novartis CodeEvolver ® Agreement has a term that begins on its effective date and continues unless and until terminated under the Novartis CodeEvolver ® Agreement.

At any time following the first technology transfer stage, Novartis may terminate the Novartis CodeEvolver ® Agreement by providing 90 days written notice to Codexis.

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In November 2016, we entered into an exclusive agreement with Tate & Lyle, a market-leading food ingredients company, to supply a proprietary enzyme for use in Tate & Lyle’s food ingredient production.

In March 2017, we announced a second multi-year research and development services agreement with Tate & Lyle for the development of a second ingredient for the food ingredient industry.

In March 2017, we entered into a multi-year research and development agreement with Tate & Lyle for the development of a second ingredient for the food ingredient industry.

We engineered a suite of enzymes that enable Tate & Lyle’s novel bioconversion route for the manufacture of their newly-launched zero-calorie TASTEVA ® M Stevia sweetener.

We are seeking to expand our enzyme offerings in the fine chemical and industrial enzyme markets within and beyond the food industry, including, for example, to the animal feed, agricultural chemicals, consumer care, flavors and fragrances markets.

We are seeking to expand our enzyme offerings in the fine chemical and industrial enzyme markets within and beyond the food

industry, including, for example, to the animal feed, agricultural chemicals, consumer care, flavors and fragrances markets.

Molecular Biology and In Vitro Diagnostic Enzymes

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In December 2019, we entered into a license agreement to provide Roche with our EvoT4™ DNA ligase high-performance molecular diagnostic enzyme.

This enzyme was developed using our proprietary CodeEvolver ® protein engineering platform and is expected to be incorporated into Roche’s next generation sequencing (NGS) library preparation kits and other sequencing products.

We are also currently working on a second enzyme, a DNA polymerase, which is being prepared for beta testing.

Protein Catalyst Products and Services

Our protein catalyst products and services can deliver value to our customers in multiple potential ways:

This enzyme was developed using our proprietary CodeEvolver ® protein engineering platform and is expected to be incorporated into Roche’s NGS library preparation kits and other sequencing products.

We are also currently working on a second enzyme independently of Roche, a DNA polymerase, which is being prepared for beta testing.

Biocatalyst Products and Services

Our biocatalyst products and services can deliver value to our customers in multiple potential ways:

• manufacture their products at lower cost;

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• enable their products to achieve higher product purity;

• reduce the risk of adverse effects arising from product impurities;

• allow the removal of entire steps from chemical production;

• provide flexibility to apply at any point across their product’s lifecycle.

Our products include protein catalysts, chemical intermediates and Codex ® biocatalyst panels and kits.

Our products include biocatalysts, chemical intermediates and Codex ® biocatalyst panels and kits.

We sell our products worldwide primarily through our direct sales and business development force in the United States and Europe.

In addition to products, we also offer research and development services to our customers.

These research and development service agreements often contain service fee payments and intellectual property provisions under which we screen and/or engineer protein catalysts for customers in connection with their process development efforts.

These research and development service agreements often contain service fee payments and intellectual property provisions under which we screen and/or engineer biocatalysts for customers in connection with their process development efforts.

In these collaborations, we typically receive consideration in the form of one or more of the following:

up-front payments, milestone payments, payments for screening and engineering services, licensing fees and royalties.

Protein Catalysts

We often sell protein catalysts (also referred to as biocatalysts or enzymes), by the gram or kilogram, that have already been engineered, scaled up, and installed in a customer’s commercial process.

For example, we sell protein catalysts to Merck for their manufacture of sitagliptin, the active ingredient in Januvia ® .

We also sell protein catalysts which are in developmental stages.

These are enzymes that are sold in batches or by the gram or kilogram that are in the process of being engineered or scaled up by Codexis, or are in the process of being trialed or approved for use in the customer’s process.

We may sell batches of specific protein catalysts that are in the middle of our protein engineering efforts to test their performance at a larger customer scale.

We also may sell batches of specific protein catalysts for use in a customer’s developmental products (for example, to trial in a customer’s Phase II drug candidate process).

Finally, we may sell batches of specific protein catalysts as a customer performs trials for approval in their commercial manufacturing operations.

upfront payments, milestone payments, payments for screening and engineering services, licensing fees and royalties.

We often sell biocatalysts, by the gram or kilogram, that have already been engineered, scaled up, and installed in a customer’s commercial process.

For example, we sell biocatalysts to Merck for their manufacture of sitagliptin, the active ingredient in Januvia ® .

We also sell biocatalysts which are in developmental stages.

These are enzymes that are sold by the batch or by the gram or kilogram that are in the process of being engineered or scaled up by Codexis, or are in the process of being trialed or approved for use in the customer’s process.

We may sell batches of specific biocatalysts that are in the midst of protein engineering efforts, in order to test their performance at a larger scale or to accelerate a customer’s process development.

We may also sell batches of specific biocatalysts for use in a customer’s developmental products (for example, for use in the manufacture of a customer’s Phase 2 drug candidate).

Finally, we may sell batches of specific biocatalysts as a customer performs trials for approval in their commercial manufacturing operations.

Chemical Intermediates

In some cases, we sell intermediate chemicals products that are produced in a process that uses our protein catalysts.

In some cases, we sell intermediate chemicals products that are produced in a process that uses our biocatalysts.

These chemical intermediates are then used by our customer for further chemical processing.

Codex ® Biocatalyst Panels and Kits

We sell kits and panels of our protein catalysts.

We sell kits and panels of our biocatalysts.

These kits and panels assemble a relevant subset of our engineered enzymes to enable customers to perform chemistry screening on their own.

These kits and panels are organized by specific types of chemical reactions that are widely applicable in the pharmaceutical and fine chemical markets.

Protein Catalyst Screening Services

Biocatalyst Screening Services

If a customer prefers, rather than purchasing our Codex ® Biocatalyst Panels or Kits to use for its own screening, it may send us its starting materials and desired chemical reaction, and we will test against our existing libraries of enzymes on a research and development service fee basis.

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Once we have identified potentially beneficial mutations, we create libraries of thousands of variants with combinations of these mutations.

With our proprietary genetic manipulation tools, we generate libraries of genes that have programmed and random combinations of the mutations for testing.

With our proprietary genetic manipulation tools, we generate libraries of genes that have programmed and random combinations of mutations for testing.

The pool of genes is used to transform host cells, which entails introducing the various genes into host cells.

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Cells from individual colonies are cultured in high throughput to produce the enzyme encoded by the genetic variant in those cells.

The enzymes expressed by these cells are then screened in high throughput using test conditions relevant to the desired process.

The enzymes expressed by these cells are then screened in high throughput using test conditions relevant to the desired application.

The screening results allow us to identify and catalog individual genes that produce improved enzymes with beneficial mutations as well as enzymes having detrimental ones.

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As the enzymes improve over these iterations, the screening conditions are made increasingly more stringent.

In this way, the protein catalyst is rapidly optimized until all in-process performance requirements have been achieved and the economic objectives for the desired process have been met.

In this way, the biocatalyst is rapidly optimized until all in-process performance requirements have been achieved and the economic objectives for the desired process have been met.

INTELLECTUAL PROPERTY

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Likewise, in the generic pharmaceutical area, proprietary protection, through patent, trade secret or other protection of our enzymes and methods of producing a pharmaceutical product is important for us and our customers to maintain a lower cost production advantage over competitors.

As of December 31, 2019, we owned or controlled approximately 1450 issued patents and pending patent applications in the United States and in various foreign jurisdictions.

These patents and patent applications include many that are directed to our enabling technologies and specific methods and products that support our business in the pharmaceutical markets.

In addition, our portfolio includes applications and patents that support our businesses in the biotherapeutics, molecular diagnostics, food and other markets.

Our current intellectual property rights have terms that expire between 2020 and 2040.

Our United States intellectual property rights directed to the CodeEvolver ® proprietary enabling technology platform developed internally by us have terms that expire between 2029 to 2034.

As of December 31, 2020, we owned or controlled approximately 1,635 issued patents and pending patent applications in the United States and in various foreign jurisdictions, many of which are directed to our enabling technologies and specific methods and products that support our business in the pharmaceutical markets.

In addition, our portfolio includes patents and pending patent applications that support our businesses in the biotherapeutics, molecular diagnostics, food and other markets.

Our patents and pending patent applications, if issued, have terms that expire between 2021 and approximately 2041.

Our United States patents and pending patent applications directed to the CodeEvolver ® proprietary enabling technology platform developed internally by us have terms that expire between 2029 and approximately 2034.

It is possible that some US patents may be entitled to patent term extensions and/or patent term adjustments, which would extend the protection beyond these expiration dates.

It is also possible that some patents in other jurisdictions will be entitled to additional patent term.

Our current intellectual property rights also include patents, trademarks, copyrights, software and certain assumed contracts that we acquired from Maxygen, Inc.

(“Maxygen”) in October 2010, which are associated with directed evolution technology, known as the MolecularBreeding™ technology platform developed by Maxygen.

The intellectual property rights and assets that we acquired from Maxygen continue to be

subject to existing exclusive and non-exclusive license rights granted by Maxygen to third parties.

(“Maxygen”) in October 2010, which are associated with directed evolution technology, known as

the MolecularBreeding™ technology platform developed by Maxygen.

The intellectual property rights and assets that we acquired from Maxygen continue to be subject to existing exclusive and non-exclusive license rights granted by Maxygen to third parties.

We continue to file new patent applications, for which terms generally extend 20 years from the non-provisional filing date in the United States.

As of December 31, 2019, we owned and used the following registered, pending, and common law trademarks in the United States, with some trademarks also registered or pending in foreign jurisdictions:

Codexis ® , Codex ® , CodeEvolver ® , Mosaic ® , Sage ® , Microcyp ® , MCYP ® , ProSAR ® , Unlock the Power of Proteins ® , Codexis Protein Engineering Experts™, and a Codexis design mark (i.e., the Codexis logo).

As of December 31, 2020, we owned approximately 110 trademark registrations in the United States and foreign jurisdictions, as well as many common law trademarks.

These include, but are not limited to:

Codexis ® , Codex ® , CodeEvolver ® , Mosaic ® , Sage ® , Microcyp ® , MCYP ® , ProSAR ® , Unlock the Power of Proteins ® , the Codexis Protein Engineering Experts ® logo, Strategist™, Continuity ® ™, Ameli™, Forager ® ™, Analogene ® ™, Harvester ® ™, Atoms ® ™, Riptide ® ™, APS™ and a Codexis design mark (i.e., the stylized Codexis logo).

We face differing forms of competition in the small molecule pharmaceuticals, biotherapeutics and fine chemicals markets, as set forth below.

Small Molecule Pharmaceuticals

We market our protein catalyst products and services to manufacturers of small molecule pharmaceutical intermediates and APIs.

Our primary competitors in that market are companies marketing either conventional, non-enzymatic catalysts or alternative protein catalyst products and services.

We also face competition sometimes from existing in-house technologies (both biocatalysts and conventional catalysts) within our client and potential client companies.

We market our biocatalyst products and services to manufacturers of small molecule pharmaceutical intermediates and APIs.

Our primary competitors in that market are companies marketing either conventional, non-enzymatic catalysts or alternative biocatalyst products and services.

We also sometimes face competition from existing in-house technologies (both biocatalysts and conventional catalysts) within our client and potential client companies.

The principal methods of competition and competitive differentiation in this market are price, product quality and performance, including manufacturing yield, safety and environmental benefits and speed of delivery of product.

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The market for the manufacture and supply of APIs and intermediates is large, with many established companies.

These companies include many of our large innovator and generic pharmaceutical customers, such as Merck, GSK, Novartis, Pfizer, Bristol Myers Squibb, Kyorin, Urovant and Teva Pharmaceutical Industries Ltd., which have significant internal research and development efforts directed at developing processes to manufacture APIs and intermediates.

These companies include many of our large innovator and generic pharmaceutical customers, such as Merck, GSK, Novartis, Pfizer Inc.

("Pfizer"), Bristol-Myers Squibb Company ("Bristol-Myers"), KYORIN Pharmaceutical Co., Ltd.

("Kyorin"), Urovant Sciences GmbH ("Urovant"), and Teva Pharmaceutical Industries Limited ("Teva"), which have significant internal research and development efforts directed at developing processes to manufacture APIs and intermediates.

The processes used by these companies include classical conventional organic chemistry reactions, chemo-catalytic reactions, biocatalytic reactions or combinations thereof.

Our protein catalyst based manufacturing processes must compete with these internally developed routes.

Our biocatalyst based manufacturing processes must compete with these internally developed routes.

Companies developing and marketing conventional catalysts include Solvias AG, BASF, Johnson-Matthey and Takasago International Corporation.

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There is also competition in the enzyme customization and optimization area from several smaller companies, such as BRAIN AG, Arzeda, c-LEcta GmbH and Evocatal GmbH.

We believe that our principal advantage is our ability to rapidly deliver customized protein catalysts for existing and new intermediates and APIs in the pharmaceutical manufacturing market.

This capability has allowed us to create a breadth of protein catalysts with improved performance characteristics including, for example, better activity, stability, and activity on a range of substrates, compared to traditional chemistry-based manufacturing processes and naturally occurring (and thus not optimized) biocatalysts.

We believe that our principal advantage is our ability to rapidly deliver customized biocatalysts for existing and new intermediates and APIs in the pharmaceutical manufacturing market.

This capability has allowed us to create a breadth of biocatalysts with improved performance characteristics including, for example, better activity, stability, and activity on a range of substrates, compared to traditional chemistry-based manufacturing processes and naturally occurring (and thus not optimized) biocatalysts.

We believe that our CodeEvolver ® protein engineering platform technology provides substantially superior results, in shorter time frames, than companies offering competing biocatalyst development services.

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(“BioMarin”) and Daiichi Sankyo Company market Kuvan ® in the United States, Europe and Japan for the treatment of a certain type of PKU.

In addition, BioMarin gained US FDA approval in 2018 and began commercial sales of PalynziqTM as an injectable enzyme substitution therapy for the potential treatment of PKU.

Several companies, including Synlogic, Homology Medicines and Rubius have reported clinical efforts to develop biotherapeutic candidates for PKU.

Beyond targeting PKU, Takeda (which recently acquired Shire Plc), Genzyme / Sanofi S.A., BioMarin, and other companies market or are actively developing enzyme therapeutics.

In addition, BioMarin had gained FDA approval in May 2018 and began the commercial sales of Palynziq ® , an injectable enzyme substitution therapy to address different options for care in the treatment of PKU.

Subsequently in May 2019, BioMarin obtained marketing authorization for Palynziq ® from the European Commission.

Several companies, including Synlogic,

Homology Medicines and Rubius have reported clinical efforts to develop biotherapeutic candidates for PKU.

Beyond targeting PKU, Takeda, Genzyme / Sanofi S.A., BioMarin, and other companies market or are actively developing enzyme therapeutics.

There are numerous companies that are developing other forms of therapeutics, such as small molecules, gene therapy, as well as therapies based on gene editing, which could compete with biotherapeutics.

Fine Chemicals

We entered the fine chemicals market in 2013 by applying our protein engineering technology in the food market.

We entered the fine chemicals market in 2013 by applying our protein engineering technology in the manufacture of food ingredients.

We face similar forms of competition in this market as in the small molecule pharmaceutical markets, with the exception that the risk of losing opportunities to larger competitors in fine chemicals is greater given the larger scale of opportunities available in the fine chemicals market compared to the pharmaceutical market.

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We also supply initial commercial quantities of biocatalysts for use by our collaborators to produce pharmaceutical intermediates and manufacture biocatalysts that we sell.

Please see Note 15 in the notes to our Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for a description of our revenues and long-lived assets both within and outside of the United States.

Our research and development operations include efforts directed towards engineering protein catalysts, bioprocess development, cellular engineering, biocatalyst screening, metabolites, strain improvement, fermentation development and process engineering.

We conduct enzyme evolution, enzyme production development, microbial bioprocess development, cellular engineering, microbial evolution and process engineering evaluations and design primarily at our headquarters in Redwood City, California.

In the first quarter of 2021, we entered into an arrangement with a lessor to lease a facility in San Carlos, California to serve as additional office and research and development laboratory space which we expect to occupy in November 2021.

Please see Note 15, “ Segment, Geographical and Other Revenue Information ” in the Notes to our Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for a description of our revenues and long-lived assets both within and outside of the United States.

Please see Note 15, “ Segment, Geographical and Other Revenue Information ” for a description of our revenues and long-lived assets both within and outside of the United States, and with respect to the San Carlos facility, please see Note 17, “ Subsequent Events ” in the Notes to our Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

Our research and development operations include efforts directed towards engineering biocatalysts, bioprocess development, cellular engineering, biocatalyst screening, metabolites, strain improvement, fermentation development and process engineering.

City, California.

For more information on our research and development expenditures, see Item 8 of this Annual Report on Form 10-K.

Manufacturing of our enzymes is conducted primarily in three locations, at our in-house facility in Redwood City, California and at third-party contract manufacturing organizations, Lactosan GmbH & Co.

KG (“Lactosan”) in Kapfenberg, Austria and DPhar SpA (“DPhar”) in Agnani, Italy.

KG (“Lactosan”) in Kapfenberg, Austria and DPhar S.p.A.

(“DPhar”) in Anagni, Italy.

Generally, we perform smaller scale manufacturing in-house and outsource the larger scale manufacturing and a large percentage of our production of novel enzymes to contract manufacturing organizations.

GOVERNMENT REGULATION

In the United States, the FDA regulates drug and biologic products under the Federal Food, Drug and Cosmetic Act, its implementing regulations and other laws, including, in the case of biologics, the Public Health Service Act.

In the United States, the FDA extensively regulates, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of drug and biologic products under the Federal Food, Drug and Cosmetic Act, its implementing regulations and other laws, including, in the case of biologics, the Public Health Service Act.

Our biotherapeutic product candidates are subject to regulation by the FDA as biologics.

Biologics require the submission of a biologics license application (“BLA”) and licensure, which constitutes approval, by the FDA before being marketed in the United States.

If we or our development partners fail to comply with applicable FDA or other requirements at any time during product development, clinical testing, the approval process or after approval, we may become subject to administrative or judicial sanctions.

The process required by the FDA before our biologic product candidates may be marketed in the United States generally involves the following:

We, along with third-party contractors and our collaborators, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.

The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

The process required by the FDA before a biologic product may be marketed in the United States generally involves the following:

• completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s good laboratory practice (“GLP”) regulations;

• submission to the FDA of an IND, which must become effective before clinical trials in the United States may begin;

• performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication, conducted in accordance with the FDA’s good clinical practice (“GCP”) regulations;

• submission to the FDA of a BLA;

• approval by an institutional review board (“IRB”), or ethics committee at each clinical site before the trial is commenced;

• performance of adequate and well-controlled human clinical trials to establish the safety, purity, and potency of the product candidate for each proposed indication, conducted in accordance with the FDA’s good clinical practice (“GCP”) regulations;

• preparation and submission to the FDA of a BLA after completion of all pivotal clinical trials:

• satisfactory completion of an FDA Advisory Committee review, if applicable;

• a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;

• satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current good manufacturing practice (“cGMP”) regulations and to assure that the facilities, methods and controls are adequate to preserve the biological product’s continued safety, purity and potency, and of selected clinical investigation sites to assess compliance with Good Clinical Practices, or GCPs;

• FDA review and approval of the BLA prior to any commercial marketing, sale or distribution of the product.

The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.

Preclinical and Clinical Trials

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The results of preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND.

An IND is a request for authorization from the FDA to administer an investigational new drug to humans.

The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies.

The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks, and imposes a clinical hold.

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A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development, and the FDA must grant permission, either explicitly or implicitly by not objecting, before each clinical trial can begin.

Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified investigators.

Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies or animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study.

Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial and the parameters and criteria to be used in monitoring safety and evaluating effectiveness.

Each protocol must be submitted to the FDA as part of the IND.

An independent institutional review board (“IRB”) for each investigator site proposing to participate in a clinical trial must also review and approve the clinical trial before it can begin at that site, and the IRB must monitor the clinical trial until it is completed.

The FDA, the IRB, or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk.

Clinical testing also must satisfy extensive GCP requirements, including requirements for informed consent.

An independent IRB for each investigator site proposing to participate in a clinical trial must also review and approve the clinical trial and its informed consent form before it can begin at that site, and the IRB must monitor the clinical trial until it is completed.

The FDA, the IRB, or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives.

Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy.

There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.

For purposes of BLA approval, clinical trials are typically conducted in three sequential phases, which may overlap or be combined.

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Such post-approval clinical trials are typically referred to as Phase 4 clinical trials.

Although most clinical research performed in the United States in support of a BLA must be authorized in advance by the FDA, under the IND regulations and procedures described above, there are certain circumstances under which clinical trials can be conducted without submission of an IND.

For example, a sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND.

Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events, findings from other studies that suggest a significant risk for human subjects, and any clinically important increase in the rate of a serious adverse reaction over that listed in the protocol or investigator brochure.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the biologic and finalize a process for manufacturing the biologic in commercial quantities in accordance with cGMP requirements.

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Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

For example, a sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND.

BLA Submission and FDA Review

The results of preclinical studies and clinical trials, together with other detailed information, including extensive manufacturing information and information on the composition of the biologic, are submitted to the FDA in the form of a BLA requesting approval to market the biologic for one or more specified indications.

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of preclinical studies and clinical trials, together with other detailed information, including extensive manufacturing information and information on the composition of the biologic, are submitted to the FDA in the form of a BLA requesting approval to market the biologic for one or more specified indications.

The BLA must include all relevant data available from preclinical and

clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things.

Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by investigators.

The submission of a BLA requires payment of a substantial user fee unless a waiver is granted.

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The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission.

Once a BLA has been accepted for filing, by law the FDA has 180 days to review the application and respond to the applicant.

However, the review process is often significantly longer.

Under the Prescription Drug User Fee Act, the FDA has a goal of reviewing BLAs within ten months of the 60-day filing date for standard review or six months for priority review, but the overall timeframe is often extended by FDA requests for additional information or clarification.

Once a BLA has been accepted for filing under the Prescription Drug User Fee Act, the FDA has a goal of reviewing BLAs within ten months of the 60-day filing date for BLAs designated for standard review or six months for priority review, but the overall timeframe is often extended by FDA requests for additional information or clarification.

The FDA reviews a BLA to determine, among other things, whether the biological product is safe, pure and potent and whether the facility or facilities in which it is manufactured meet standards designed to assure the product’s continued safety, purity and potency.

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Before approving a BLA, the FDA will inspect the facility or the facilities at which the biologic product is manufactured, and will not license the product unless cGMP compliance is satisfactory.

The FDA may also inspect the sites at which the clinical trials were conducted to assess their compliance with GCP requirements.

The FDA may deny approval of a BLA if the applicable statutory and regulatory criteria are not satisfied, or it may require additional preclinical or clinical data.

Even if such data are submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval.

Data from clinical trials are not always conclusive and the FDA may interpret data differently than sponsors.

Once the FDA approves a BLA, such approval defines the indicated uses for which the biologic may be marketed.

The FDA may also require implementation of a Risk Evaluation and Mitigation Strategy, or REMS, which can include a medication guide, communication plan, or elements to assure safe use, such as restricted distribution methods,

physician training, patient registries and other risk minimization tools.

The FDA also may condition approval on, among other things, changes to proposed labeling claims or the development of adequate controls and specifications.

Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the market.

The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and it may limit further marketing based on the results of these post-marketing studies.

After approval, certain changes to the approved biologic, such as adding new indications, manufacturing changes or additional labeling claims, are subject to further FDA review and approval.

Depending on the nature of the proposed change, a BLA supplement must be filed and approved before the change may be implemented.

The FDA may also inspect the sites at which the clinical trials were conducted to assess their compliance with GCP requirements, and will not license the biologic unless compliance with such requirements is satisfactory.

If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information.

Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (“CRL”).

An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications.

A CRL will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections, testing submitted product lots, and/or reviewing proposed labeling.

In issuing the CRL, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification.

The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed.

For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy (“REMS”), to ensure the benefits of the product outweigh its risks.

A REMS is a safety strategy implemented to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools.

The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications.

Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace.

The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.

Expedited Development and Review Programs

The FDA maintains several programs intended to facilitate and expedite development and review of new drugs and biologics to address unmet medical needs in the treatment of serious or life-threatening diseases or conditions.

For example a product candidate is eligible for Fast Track designation if it is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address unmet medical needs for such disease or condition.

Fast Track designation applies to the combination of the product candidate and the specific indication for which it is being studied.

Fast Track designation provides increased opportunities for sponsor meetings with the FDA during preclinical and clinical development, in addition to the potential for rolling review once a marketing application is filed, meaning that the FDA may review portions of the marketing application before the sponsor submits the complete application, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA.,

In addition, a product candidate may be eligible for Breakthrough Therapy designation if it is intended to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.

Breakthrough Therapy designation provides all the features of Fast Track designation in addition to intensive guidance on an efficient development program beginning as early as Phase 1, and FDA organizational commitment to expedited development, including involvement of senior managers and experienced review staff in a cross-disciplinary review, where appropriate.

Any product candidate submitted to the FDA for approval, including a product candidate with Fast Track or Breakthrough Therapy designation, may also be eligible for additional FDA programs intended to expedite the review process, including Priority Review designation and Accelerated Approval.

A BLA is eligible for Priority Review if the product candidate is designed to treat a serious or life-threatening disease or condition, and if approved, would provide a significant improvement in safety or effectiveness in the treatment, diagnosis or prevention of a serious disease or condition.

Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive Accelerated Approval if they can be shown to have an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or an effect on a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality which is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments.

As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit.

Products receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required post-marketing studies or if such studies fail to verify the predicted clinical benefit.

In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

Fast Track designation, Breakthrough Therapy designation, Priority Review designation and Accelerated Approval do not change the standards for approval but may expedite the development or review process.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Orphan drug designation and exclusivity

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic.

Orphan drug designation must be requested before submitting a BLA.

After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.

If a product candidate that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated.

Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition.

Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application user fee.

A designated orphan drug many not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation.

In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or, as noted above, if a second applicant demonstrates that its product is clinically superior to the approved product with orphan exclusivity or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Post-Approval Requirements

Licensed biologics that are manufactured and distributed in the United States are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product distribution, advertising and promotion and reporting of adverse experiences with the product.

advertising and promotion and reporting of adverse experiences with the product.

There is also a continuing, annual prescription drug program user fee.

Any biologics manufactured or distributed by us, our partners or our contract manufacturers pursuant to FDA approvals would be subject to ongoing regulation by the FDA.

Any biologics manufactured or distributed pursuant to FDA approvals remain subject to ongoing regulation by the FDA.

Manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP, which impose extensive procedural and documentation requirements.

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• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

• fines, warning letters or holds on post-approval clinical trials;

• fines, warning letters, untitled letters, or holds on post-approval clinical trials;

• refusal of the FDA to approve applications or supplements to approved applications, or suspension or revocation of product approvals;

• product seizure or detention, or refusal to permit the import or export of products;

• mandated modification of promotional materials and labeling and the issuance of corrective information;

• the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product;

• injunctions or the imposition of civil or criminal penalties.

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Physicians may prescribe legally available biologics for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA.

Such off-label uses are common across medical specialties.

Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances.

The FDA does not regulate the behavior of physicians in their choice of treatments.

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The abbreviated regulatory pathway provides legal authority for the FDA to review and approve biosimilar biologics based on their similarity to an existing brand product, referred to as a reference product, including the possible designation of a biosimilar as interchangeable with a brand product.

Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies.

Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.

Under the BPCIA, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed.

Moreover, the extent to which a biosimilar, once approved, will be substituted for a reference product in a way that is similar to traditional generic substitution for non-biological drug products is not yet clear and will depend on a number of marketplace and regulatory factors that are still developing.

In addition, the period of exclusivity provided by the BPCIA only operates against third parties seeking approval via the abbreviated pathway, but would not prevent third parties from pursuing approval via the traditional BLA approval pathway.

In addition, a biological product can also obtain pediatric market exclusivity in the United States.

Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms.

This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.

The BPCIA is complex and continues to be interpreted and implemented by the FDA.

As a result, its ultimate implementation and impact are subject to uncertainty.

In addition, the period of exclusivity provided by the BPCIA only operates against third parties seeking approval

via the abbreviated pathway, but would not prevent third parties from pursuing approval via the traditional BLA approval pathway.

Other Healthcare Laws

Pharmaceutical companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and relationships through which we and our partners research, sell, market and distribute any products for which we obtain marketing approval.

Such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, data privacy and security and transparency laws regarding drug pricing and payments and other transfer of value to physicians and other healthcare providers.

If their operations are found to be in violation of any of such laws or any other governmental regulations that apply, they may be subject to penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, exclusion from participation in federal and state healthcare programs and individual imprisonment.

Coverage and Reimbursement

Sales of any product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of reimbursement for such product by third-party payors.

Decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis.

These third-party payors are increasingly reducing reimbursements for medical products, drugs and services.

In addition, the U.S.

government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products.

Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product.

Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product and also have a material adverse effect on sales.

Healthcare Reform

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, each as amended (collectively known as the “ACA”), was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly affected the pharmaceutical industry.

The ACA contained a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement adjustments and changes to fraud and abuse laws.

For example, the ACA:

• increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to 23.1% of the average manufacturer price;

• required collection of rebates for drugs paid by Medicaid managed care organizations;

• required manufacturers to participate in a coverage gap discount program, under which they must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;

• imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA.

Supreme Court is currently reviewing the constitutionality of the ACA in its entirety, and it is unclear how the Supreme Court will rule.

Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year, which was temporarily suspended from May 1, 2020 through March 31, 2021, and reduced payments to several types of Medicare providers.

Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries, proposed and enacted legislation and executive orders issued by the President designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and

manufacturer patient programs, and reform government program reimbursement methodologies for drug products.

Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We rely on a limited number of key customers for the majority of our revenues.

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Merck 26 % 28 % 29 %

Novartis 23 % * 14 %

Nestlé Health Science 11 % 15 % 22 %

Novartis * 23 % *

Tate & Lyle * * 13 %

Takeda 19 % * *

* Percentage was less than 10%

HUMAN CAPITAL RESOURCES

As of December 31, 2020, we had 181 full-time employees and part-time employees worldwide.

Of these employees, 105 were engaged in research and development, 24 were engaged in operations and quality control and 52 were engaged in selling, general and administrative activities.

None of our employees is represented by a labor union, and we consider our employee relations to be good.

None of our employees is represented by a labor union.

Supported by our annual employee survey, we believe our relationship with our employees to be generally good.

Our scientists, bioinformatics experts and other professionals work collaboratively as interdisciplinary teams to unlock and advance technological innovation.

Compensation, benefits and development

Our goal is to attract, motivate and retain talent with a focus on encouraging performance, promoting accountability and adhering to our company values.

We offer competitive compensation and benefit programs including a company-matched 401(k) Plan, stock options for eligible employees, health savings and flexible spending accounts, paid time off, education and training programs, and employee assistance programs.

We believe it is important to help build community and enabling our employees actively participate in community service projects and in company-sponsored philanthropic activities.

Diversity, inclusion and belonging

We are committed to our continued efforts to increase diversity and foster an inclusive work environment that supports the global workforce and the communities we serve.

We recruit the best people for the job regardless of gender, ethnicity or other protected traits and it is our policy to fully comply with all laws applicable to discrimination in the workplace.

Our diversity, equity and inclusion principles are also reflected in our employee training and policies.

We continue to enhance our diversity, equity and inclusion policies which are guided by our executive leadership team.

Health and safety

We are committed to maintain a safe and healthy workplace for our employees.

Our policies and practices are intended to protect our employees and surrounding communities in which we operate.

In 2020, in response to the COVID-19 pandemic, we implemented safety protocols and new procedures to protect our employees.

These protocols include complying with social distancing and other health and safety standards as required by state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

In addition, we modified the way we conduct many aspects of our business including the practice of social distancing, wearing face coverings mandated by state and local regulations, and maintaining a quarantine for employees determined to be in close contact with a COVID-19 case.

For example, we implemented day-time shift hours in our

R&D and small scale manufacturing at our Redwood City pilot plant to minimize the number of employees in close proximity to each other and we have significantly expanded the use of virtual interaction whenever possible in our business.

For a detailed discussion of the impact of the COVID-19 pandemic on our human capital resources, see “Risk Factors" Item 1A of this Form 10-K.

We also launched the Employee-Requested Work from Home Policy in late 2020.

This policy establishes the process and criteria to enable Redwood City employees to request permission to work from home on a regular basis.

CORPORATE & AVAILABLE INFORMATION

We were incorporated in Delaware in January 2002 as a wholly-owned subsidiary of Maxygen, Inc.

We commenced independent operations in March 2002, after licensing core enabling technology from Maxygen, Inc.

Our principal corporate offices are located at 200 Penobscot Drive, Redwood City, California 94063 and our telephone number is (650) 421-8100.

We were incorporated in Delaware in January 2002.

Our internet address is www.codexis.com.

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business