CODEXIS, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Codexis, Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm 100 Consolidated Balance Sheets 103 Consolidated Statements of Operations 104 Consolidated Statements of Stockholders' Equity 105 Consolidated Statements of Cash Flows 106 Notes to Consolidated Financial Statements 107 99 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Codexis, Inc. Redwood City, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Codexis, Inc. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related Notes (collectively referred to as the “Consolidated Financial Statements”). In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2021 expressed an unqualified opinion thereon. Change in Accounting Principle As discussed in Note 13 to the consolidated financial statements, the Company has changed its accounting method for accounting for leases in fiscal year 2019 due to the adoption of Topic 842: Leases using a modified retrospective approach. Basis for Opinion These Consolidated Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s Consolidated Financial Statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Consolidated Financial Statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the Consolidated Financial Statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Consolidated Financial Statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Consolidated Financial Statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition As described in Note 2 to the consolidated financial statements, the Company recognizes revenue in a manner that best depicts the transfer of promised goods or services to the customer, when control of the product or service is transferred to a customer. The Company's contracts with customers include enzyme supply, licensing, and collaborative research and development agreements. Contracts with customers may contain multiple performance obligations and may contain up-front or annual 100 license fees, fees for full time employee research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage. The Company makes significant judgments in determining revenue recognition for customer contracts. We identified management’s significant judgments and estimates related to revenue recognition for contracts with customers as a critical audit matter. Auditing the evaluation of distinct performance obligations, determination and estimation of material rights, determination of standalone selling prices, determination of the pattern of transfer of control for each distinct performance obligation and estimation of variable consideration required significant audit effort and auditor subjectivity in evaluating management's judgments and estimates. The primary procedures we performed to address this critical audit matter included: • Testing the design and operating effectiveness of internal controls relating to the identification of distinct performance obligations and material rights, the determination of the timing of revenue recognition, the estimation of standalone selling prices, and the estimation of variable consideration. • Examining a sample of revenue contracts and other source documents to test management's identification of significant terms for completeness, including the identification of distinct performance obligations, material rights and variable consideration including sending confirmations to a sample of customers to confirm our understanding of the parties’ rights and obligations. • Assessing the reasonableness of management's estimates and assumptions used in determining stand-alone selling prices for new products and services and those products and services that are not sold separately. • Evaluating the reasonableness of management’s judgments and estimates used to assess the stand-alone selling prices for new functional licenses when granted to customers as part of contracts containing multiple performance obligations. • Evaluating the reasonableness and accuracy of management’s judgments and estimates used in accounting for identified material rights, including transactions accounted for under the alternative approach to estimating the standalone selling price of a material right. This includes testing management’s estimates of the expected consideration from the customer’s exercise of options. • Assessing the reasonableness of management’s judgments and estimates to calculate variable consideration, and the timing of recognizing the related revenue subject to any constraints. • Evaluating the appropriateness of management’s determination of whether identified performance obligations meet the criteria for over-time revenue recognition, including whether certain products and services have alternative use. /s/ BDO USA, LLP We have served as the Company's auditor since 2013. San Jose, California March 1, 2021 101 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Codexis, Inc. Redwood City, California Opinion on Internal Control over Financial Reporting We have audited Codexis, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020 and the related Notes, and our report dated March 1, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, LLP San Jose, California March 1, 2021 102 Codexis, Inc. Consolidated Balance Sheets (In Thousands, Except Per Share Amounts) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 149,117 $ 90,498 Restricted cash, current 638 661 Investment in non-marketable debt security 1,000 — Financial assets: Accounts receivable 13,894 9,063 Contract assets 4,526 1,027 Unbilled receivables 10,942 10,099 Total financial assets 29,362 20,189 Less: allowances ( 74 ) ( 34 ) Total financial assets, net 29,288 20,155 Inventories 964 371 Prepaid expenses and other current assets 3,416 2,520 Total current assets 184,423 114,205 Restricted cash 1,062 1,062 Investment in non-marketable equity securities 1,450 — Right-of-use assets - Operating leases, net 21,382 23,837 Right-of-use assets - Finance leases, net 119 268 Property and equipment, net 9,675 6,282 Goodwill 3,241 3,241 Other non-current assets 294 178 Total assets $ 221,646 $ 149,073 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 2,970 $ 2,621 Accrued compensation 7,288 5,003 Other accrued liabilities 10,272 6,540 Current portion of lease obligations - Operating leases 2,627 1,107 Current portion of lease obligations - Finance leases — 60 Deferred revenue 1,824 57 Total current liabilities 24,981 15,388 Deferred revenue, net of current portion 2,967 1,987 Long-term lease obligations, Operating leases 22,324 24,951 Other long-term liabilities 1,271 1,230 Total liabilities 51,543 43,556 Commitments and contingencies (Note 13) — — Stockholders’ equity: Preferred stock, $ 0.0001 par value per share; 5,000 shares authorized, none issued and outstanding — — Common stock, $ 0.0001 par value per share; 100,000 shares authorized; 64,283 and 58,877 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively 6 6 Additional paid-in capital 536,516 447,920 Accumulated deficit ( 366,419 ) ( 342,409 ) Total stockholders’ equity 170,103 105,517 Total liabilities and stockholders’ equity $ 221,646 $ 149,073 See Accompanying Notes to Consolidated Financial Statements 103 Codexis, Inc. Consolidated Statements of Operations (In Thousands, Except Per Share Amounts) Year Ended December 31, 2020 2019 2018 Revenues: Product revenue $ 30,220 $ 29,465 $ 25,590 Research and development revenue 38,836 38,993 35,004 Total revenues 69,056 68,458 60,594 Costs and operating expenses: Cost of product revenue 13,742 15,632 12,620 Research and development 44,185 33,873 29,978 Selling, general and administrative 35,049 31,502 29,291 Total costs and operating expenses 92,976 81,007 71,889 Loss from operations ( 23,920 ) ( 12,549 ) ( 11,295 ) Interest income 405 1,287 671 Other expenses, net ( 156 ) ( 656 ) ( 291 ) Loss before income taxes ( 23,671 ) ( 11,918 ) ( 10,915 ) Provision for (benefit from) income taxes 339 17 ( 37 ) Net loss $ ( 24,010 ) $ ( 11,935 ) $ ( 10,878 ) Net loss per share, basic and diluted $ ( 0.40 ) $ ( 0.21 ) $ ( 0.21 ) Weighted average common stock shares used in computing net loss per share, basic and diluted 59,360 56,525 52,205 See Accompanying Notes to Consolidated Financial Statements 104 Codexis, Inc. Consolidated Statements of Stockholders’ Equity (In Thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount December 31, 2017 48,365 $ 5 $ 340,079 $ ( 472 ) $ ( 315,065 ) $ 24,547 Exercise of stock options 856 — 4,680 — — 4,680 Release of stock awards 832 — — — — — Employee stock-based compensation — — 7,865 — — 7,865 Non-employee stock-based compensation — — 24 — — 24 Taxes paid related to net share settlement of equity awards ( 301 ) — ( 3,190 ) — — ( 3,190 ) Issuance of common stock, net of issuance costs 4,313 — 37,317 — — 37,317 Cumulative effect of change in accounting principles (1) — — — 472 ( 4,531 ) ( 4,059 ) Net Loss — — — — ( 10,878 ) ( 10,878 ) December 31, 2018 54,065 5 386,775 — ( 330,474 ) 56,306 Exercise of stock options 1,466 — 7,099 — — 7,099 Release of stock awards 449 — — — — — Employee stock-based compensation — — 6,943 — — 6,943 Taxes paid related to net share settlement of equity awards ( 152 ) — ( 2,850 ) — — ( 2,850 ) Issuance of common stock, net of issuance costs of $ 123 3,049 1 49,876 — — 49,877 Short swing profit settlement — — 77 — — 77 Net Loss — — — — ( 11,935 ) ( 11,935 ) December 31, 2019 58,877 6 447,920 — ( 342,409 ) 105,517 Exercise of stock options 210 — 1,323 — — 1,323 Release of stock awards 370 — — — — — Employee stock-based compensation — — 7,622 — — 7,622 Non-employee stock-based compensation — — 106 — — 106 Taxes paid related to net share settlement of equity awards ( 103 ) — ( 1,257 ) — — ( 1,257 ) Issuance of common stock, net of issuance costs of $ 5,448 4,929 — 80,802 — — 80,802 Net Loss — — — — ( 24,010 ) ( 24,010 ) December 31, 2020 64,283 $ 6 $ 536,516 $ — $ ( 366,419 ) $ 170,103 (1) Cumulative effect of change in accounting principles included: Accounting Standards Update 2014-9 (Topic 606), of $ 4.1 million and Accounting Standards Update 2016-01 (Subtopic 825-10), of $ 0.5 million. See Accompanying Notes to Consolidated Financial Statements 105 Codexis, Inc. Consolidated Statements of Cash Flows (In Thousands) Year Ended December 31, 2020 2019 2018 Operating activities: Net loss $ ( 24,010 ) $ ( 11,935 ) $ ( 10,878 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 1,950 1,570 1,147 Amortization expense - right-of-use assets - operating and finance leases 2,604 2,987 — Stock-based compensation 7,728 6,943 7,889 Equity securities earned from research and development activities ( 900 ) — — Other non-cash items 55 525 91 Changes in operating assets and liabilities: Financial assets, net ( 8,723 ) ( 5,867 ) ( 1,424 ) Inventories ( 593 ) 217 447 Prepaid expenses and other assets ( 1,012 ) ( 1,324 ) 191 Accounts payable 101 ( 428 ) ( 524 ) Accrued compensation and other accrued liabilities 6,175 2,205 502 Other long-term liabilities ( 2,586 ) ( 1,210 ) ( 904 ) Deferred revenue 2,747 ( 6,243 ) ( 10,631 ) Net cash used in operating activities ( 16,464 ) ( 12,560 ) ( 14,094 ) Investing activities: Purchase of property and equipment ( 3,748 ) ( 3,730 ) ( 2,768 ) Proceeds from disposal of property and equipment — 3 2 Proceeds from sale of investment securities — 62 — Investment in non-marketable securities ( 2,000 ) — — Net cash used in investing activities ( 5,748 ) ( 3,665 ) ( 2,766 ) Financing activities: Proceeds from exercises of stock options 1,323 7,099 4,680 Proceeds from issuance of common stock in connection with public offering, net of underwriting discounts and commission 86,250 — 37,497 Costs incurred in connection with public offering ( 5,448 ) — ( 180 ) Proceeds from issuance of common stock in connection with private offering — 50,000 — Costs incurred in connection with private placement — ( 123 ) — Payments of lease obligations - Finance leases ( 60 ) ( 242 ) ( 238 ) Recovery of short swing profit — 77 — Taxes paid related to net share settlement of equity awards ( 1,257 ) ( 2,850 ) ( 3,190 ) Net cash provided by financing activities 80,808 53,961 38,569 Net increase in cash, cash equivalents and restricted cash 58,596 37,736 21,709 Cash, cash equivalents and restricted cash at the beginning of the year 92,221 54,485 32,776 Cash, cash equivalents and restricted cash at the end of the year $ 150,817 $ 92,221 $ 54,485 Supplemental disclosure of cash flow information: Interest paid $ 52 $ 49 $ 84 Income taxes $ 312 $ 5 $ 5 Supplemental non-cash investing and financing activities: Capital expenditures incurred but not yet paid $ 1,750 $ 140 $ 300 Assets received for research & development revenue earned $ 900 $ — $ — The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown above (in thousands): Year Ended December 31, 2020 2019 2018 Cash and cash equivalents $ 149,117 $ 90,498 $ 53,039 Restricted cash, current and non-current 1,700 1,723 1,446 Total cash, cash equivalents and restricted cash at the end of the period $ 150,817 $ 92,221 $ 54,485 See Accompanying Notes to Consolidated Financial Statements 106 Codexis, Inc. Notes to Consolidated Financial Statements Note 1. Description of Business In these Notes to the Consolidated Financial Statements, the “Company,” “we,” “us,” and “our” refers to Codexis, Inc. and its subsidiaries on a consolidated basis. 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 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. 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 competences 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. 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. with our first enzyme for this target market: the Company’s EvoT4™ DNA ligase. In June 2020, we also entered into a Master Collaboration and Research Agreement with 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 synthesis. Concurrently with the MAI Agreement, we entered into a Stock Purchase Agreement with Molecular Assemblies, Inc ("MAI") pursuant to which we purchased 1,587,050 shares of MAI's Series A preferred stock for 107 $ 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 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 the Nestlé SCA 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 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. Below are brief descriptions of our business segments: Performance Enzymes 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, 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 We are also targeting new opportunities in the pharmaceutical industry to discover, improve, and/or develop biotherapeutic drug candidates. We believe that our CodeEvolver ® protein engineering platform technology can be used to discover novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions. 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. 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. In October 2017, we announced a global development, option and license agreement with Nestlé Health Science to advance CDX-6114, our own novel orally administrable enzyme therapeutic candidate for the potential treatment of PKU. 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. The initiation of the trial triggered a $ 4.0 million milestone payment from Nestlé Health Science. 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 U.S. Food and Drug Administration that it had completed its review of our investigational drug application 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. In October 2017, we entered into the Nestlé SCA 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 108 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. Our most recent achievement in novel biotherapeutics came in March 2020, when we announced a strategic collaboration and license agreement with Takeda in which we will collaborate with Takeda to research and develop protein sequences for use in gene therapy products for certain disease indications. Under the terms of the Takeda Agreement, we have agreed to generate novel gene sequences encoding protein variants designed to enhance efficacy as a result of increased activity, stability, and cellular uptake using our CodeEvolver ® protein engineering platform. Takeda will combine these improved transgenes with its gene therapy capabilities to generate novel candidates for the treatment of rare genetic disorders. We are currently collaborating on three initial programs for the treatment of Fabry disease, Pompe disease, and an undisclosed blood factor deficiency. The Company is responsible for the creation of novel enzyme sequences for advancement as gene therapies into pre-clinical development. Takeda is responsible for the pre-clinical and clinical development and commercialization of gene therapy products resulting from the collaboration programs. Under the terms of the agreement, in addition to the three initial programs, Takeda may initiate up to four additional programs for separate target indications. In March 2020, we began research and development activities under the program plans and received a $ 8.5 million one-time, non-refundable cash payment. We expect to continue to make additional investments in our pipeline with the aim of advancing additional product candidates targeting other therapeutic areas. For additional discussion of our business segments, see Note 15, “Segment, Geographical and Other Revenue Information.” 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 have had a negative impact on 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 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. As of the date of issuance of our Consolidated Financial Statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations in the future is uncertain. 109 Note 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) and include the accounts of Codexis, Inc. and its wholly-owned subsidiaries. Certain prior year amounts have been reclassified to conform to 2020 presentation. In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance requiring implementation of a new impairment model applicable to financial assets measured at amortized cost which, among other things required that accounts receivable, contract assets, unbilled receivables and related allowances be reclassified as financial assets. The results of the year ended December 31, 2020 reflect the adoption of the accounting standards including Accounting Standard Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which added a new impairment model applicable to our financial assets measured at amortized cost. See “Recently adopted accounting pronouncements” for details regarding the adoption of these standards. The consolidated financial statements include the accounts of Codexis, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Financial Statement Exclusion The total net loss in the consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018 is not different from our consolidated comprehensive loss. The consolidated financial statements exclude the consolidated statements of comprehensive loss for the years ended December 31, 2020, 2019 and 2018. Use of Estimates The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. We regularly assess these estimates which primarily affect revenue recognition, inventories, goodwill arising out of business acquisitions, accrued liabilities, stock awards, and the valuation allowances associated with deferred tax assets. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, and may not be accurately predicted, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers, markets and economies. Segment Reporting We report two business segments, Performance Enzymes and Novel Biotherapeutics, which are based on our operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker or decision making group (“CODM”), in deciding how to allocate resources, and in assessing performance. Our CODM is our Chief Executive Officer. Our business segments are primarily based on our organizational structure and our operating results as used by our CODM in assessing performance and allocating resources for the Company. We do not allocate or evaluate assets by segment. The Novel Biotherapeutics segment focuses on new opportunities in the pharmaceutical industry to discover or improve novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions. 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. The Performance Enzymes segment consists of biocatalyst products and services with focus on pharmaceutical, food, molecular diagnostics, and other industrial markets. Foreign Currency Translation The USD is the functional currency for our operations outside the United States. Accordingly, nonmonetary assets and liabilities originally acquired or assumed in other currencies are recorded in USD at the exchange rates in effect at the date they were acquired or assumed. Monetary assets and liabilities denominated in other currencies are translated into United States dollars at the exchange rates in effect at the balance sheet date. Translation adjustments are recorded in other expense in the consolidated statements of operations. Gains and losses realized from non-USD transactions, including intercompany balances not considered as permanent investments, denominated in currencies other than an entity’s functional currency are included in other expense in the accompanying consolidated statements of operations. 110 Revenue Recognition Our revenues are derived primarily from product revenue and collaborative research and development agreements. The majority of our contracts with customers typically contain multiple products and services. We account for individual products and services separately if they are distinct-that is, if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our product revenue and collaborative research and development agreements, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each performance obligation. The majority of our collaborative contracts contain multiple revenue streams such as upfront and/or annual license fees, fees for research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage, among others. We determine the stand-alone selling price (“SSP”) and allocate consideration to distinct performance obligations. Typically, we base our SSPs on our historical sales. If an SSP is not directly observable, then we estimate the SSP taking into consideration market conditions, forecasted sales, entity-specific factors and available information about the customer. We estimate the SSP for license rights by using historical information if licenses have been previously sold to customers and for new licenses, we consider multiple methods, including a discounted cash flow method which includes the following key assumptions: the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success. We account for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Non-cancellable purchase orders received from customers to deliver a specific quantity of product, when combined with our order confirmation, in exchange for future consideration, create enforceable rights and obligations on both parties and constitute a contract with a customer. We measure revenue based on the consideration specified in the contract with each customer, net of any sales incentives and taxes collected on behalf of government authorities. We recognize revenue in a manner that best depicts the transfer of promised goods or services to the customer, when control of the product or service is transferred to a customer. We make significant judgments when determining the appropriate timing of revenue recognition. The following is a description of principal activities from which we generate revenue: Product Revenue Product revenue consist of sales of biocatalysts, pharmaceutical intermediates and Codex ® biocatalyst panels and kits. A majority of our product revenue is made pursuant to purchase orders or supply agreements and is recognized at a point in time when the control of the product has been transferred to the customer typically upon shipment. For some of the products that we develop, we recognize revenue over time as the product is manufactured because we have a right to payment from the customer under a binding, non-cancellable purchase order, and there is no alternate use of the product for us as it is specifically made for the customer’s use. Certain of our agreements provide options to customers which they can exercise at a future date, such as the option to purchase our product during the contract duration at discounted prices and an option to extend their contract, among others. In accounting for customer options, we determine whether an option is a material right and this requires us to exercise significant judgment. If a contract provides the customer an option to acquire additional goods or services at a discount that exceeds the range of discounts that we typically give for that product or service for the same class of customer, or if the option provides the customer certain additional goods or services for free, the option may be considered a material right. If the contract gives the customer the option to acquire additional goods or services at their normal SSPs, we would likely determine that the option is not a material right and, therefore, account for it as a separate performance obligation when the customer exercises the option. We primarily account for options which provide material rights using the alternative approach available pursuant to the applicable accounting guidance, as we concluded we meet the criteria for using the alternative approach. Therefore, the transaction price is calculated as the expected consideration to be received for all the goods and services we expect to provide under the contract. We update the transaction price for expected consideration, subject to constraint, each reporting period if our estimate of future goods to be ordered by customers change. 111 Research and Development Revenues We perform research and development activities as specified in each respective customer agreement. We identify each performance obligation in our research and development agreements at contract inception. We allocate the consideration to each distinct performance obligation based on the estimated SSP of each performance obligation. Performance obligations included in our research and services agreements typically include research and development services for a specified term, periodic reports and small samples of enzyme produced. The majority of our research and development agreements are based on a contractual rate per dedicated project team working on the project. The underlying product that we develop for customers does not create an asset with an alternative use to us and the customer receives benefits as we perform the work towards completion. Thus, our performance obligations are generally satisfied over time as the service is performed. We utilize an appropriate method of measuring progress towards the completion of our performance obligations to determine the timing of revenue recognition. For each performance obligation that is satisfied over time, we recognize revenue using a single measure of progress, typically based on hours incurred. Our contracts frequently provide customers with rights to use or access our products or technology, along with other promises or performance obligations. We must first determine whether the license is distinct from other promises, such as our promise to manufacture a product. If we determine that the customer cannot benefit from the license without our manufacturing capability, the license will be accounted for as combined with the other performance obligations. If we determine that a license is distinct and has significant standalone functionality, we would recognize revenues from a functional license at a point in time when the license is transferred to the customer, and the customer can use and benefit from it. We estimate the SSP for license rights by using historical information if licenses have been previously sold to customers and for new licenses, we consider multiple methods, including a discounted cash flow method which includes the following key assumptions: the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success. For licenses that have been previously sold to other customers, we use historical information to determine SSP. At the inception of each arrangement that includes variable consideration such as development milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. Our CodeEvolver ® platform technology transfer collaboration agreements typically include license fees, upfront fees, and variable consideration in the form of milestone payments, and sales or usage-based royalties. We have recognized revenues from our platform technology transfer agreements over time as our customer learns to use our technology. We also have an agreement under which we have granted a functional license to some elements of our biocatalyst technology. We recognize revenues for the functional license at a point in time when the control of the license and technology transfers to the customer. For license agreements that include sales or usage-based royalty payments to us, we do not recognize revenue until the underlying sales of the product or usage has occurred. At the end of each reporting period, we estimate the royalty amount. We recognize revenue at the later of (i) when the related sale of the product occurs, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied. Practical Expedients, Elections, and Exemptions We apply certain practical expedients available which permit us not to adjust the amount of consideration for the effects of a significant financing component if, at contract inception, the expected period between the transfer of promised goods or services and customer payment is one year or less. We perform monthly services under our research and development agreements and we use a practical expedient permitting us to recognize revenue at the same time that we have the right to invoice our customer for monthly services completed to date. We have elected to treat shipping and handling activities as fulfillment costs. We have elected to record revenue net of sales and other similar taxes. 112 Contract Assets Contract assets include amounts related to our contractual right to consideration for completed performance obligations not yet invoiced. Contract assets are reclassified to receivables when the rights become unconditional. Contract Liabilities Contract liabilities are recorded as deferred revenues and include payments received in advance of performance under the contract. Contract liabilities are realized when the development services are provided to the customer or control of the products has been transferred to the customer. A portion of our contract liabilities relate to supply arrangements that contain material rights that are recognized using the alternative method, under which the aggregate amount invoiced to the customer for shipped products, including contractual fees, is higher than the amount of revenue recognized based on the transaction price allocated to the shipped products. Contract Costs We recognize a non-current asset for the incremental costs of obtaining a contract with a customer if the entity expects to recover such costs. Incremental costs are costs that would not have been incurred if the contract had not been obtained. Examples of contract costs are commissions paid to sales personnel. We do not typically incur significant incremental costs because the compensation of our salespeople are not based on contracts closed but on a mixture of company goals, individual goals, and sales goals. If a commission paid is directly related to obtaining a specific contract, our policy is to capitalize and amortize such costs on a systematic basis, consistent with the pattern of transfer of the good or service to which the asset relates. Contract costs are reported in other non-current assets. Cost of Product Revenue Cost of product revenue comprises both internal and third party fixed and variable costs including materials and supplies, labor, facilities, and other overhead costs associated with our product sales. Shipping costs are included in our cost of product revenue. Such charges were not significant in any of the periods presented. Fulfillment costs, such as shipping and handling, are recognized at a point in time and are included in cost of product sales. Cost of Research and Development Services Cost of research and development services related to services under research and development agreements approximate the research funding over the term of the respective agreements and is included in research and development expense. Costs of services provided under license and platform technology transfer agreements are included in research and development expenses and are expensed in the periods in which such costs are incurred. Research and Development Expenses Research and development expenses consist of costs incurred for internal projects and partner-funded collaborative research and development activities, as well as license and platform technology transfer agreements, as mentioned above. These costs include our direct and research-related overhead expenses, which include salaries and other personnel-related expenses (including stock-based compensation), occupancy-related costs, supplies, and depreciation of facilities and laboratory equipment, as well as external costs, and are expensed as incurred. Costs to acquire technologies that are utilized in research and development and that have no alternative future use are expensed when incurred. Advertising Advertising costs are expensed as incurred and included in selling, general and administrative expenses in the consolidated statements of operations. Advertising costs were $ 0.3 million, $ 0.5 million and $ 0.5 million in the years ended December 31, 2020, 2019 and 2018, respectively. Stock-Based Compensation We use the Black-Scholes-Merton option pricing model to estimate the fair value of options granted under our equity incentive plans. The Black-Scholes-Merton option pricing model requires the use of assumptions, including the expected term of the award and the expected stock price volatility. The expected term is based on historical exercise behavior on similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. We use historical volatility to estimate expected stock price volatility. The risk-free rate assumption is based on United States Treasury instruments whose terms are consistent with the expected term of the stock options. The expected dividend assumption is based on our history and expectation of dividend payouts. 113 Restricted Stock Units (“RSUs"), Restricted Stock Awards (“RSAs”) and performance-contingent restricted stock units (“PSUs”) are measured based on the fair market values of the underlying stock on the dates of grant. Performance based options (“PBOs”) are measured using Black-Scholes-Merton option pricing model. The vesting of PBOs and PSUs awarded is conditioned upon the attainment of one or more performance objectives over a specified period and upon continued employment through the applicable vesting date. At the end of the performance period, shares of stock subject to the PBOs and PSUs vest based upon both the level of achievement of performance objectives within the performance period and continued employment through the applicable vesting date. Stock-based compensation expense is calculated based on awards ultimately expected to vest and is reduced for estimated forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated annual forfeiture rates for stock options, RSUs, PSUs, PBOs, and RSAs are based on historical forfeiture experience. The estimated fair value of stock options, RSUs and RSAs are expensed on a straight-line basis over the vesting term of the grant and the estimated fair value of PSUs and PBOs are expensed using an accelerated method over the term of the award once management has determined that it is probable that the performance objective will be achieved. Compensation expense is recorded over the requisite service period based on management's best estimate as to whether it is probable that the shares awarded are expected to vest. Management assesses the probability of the performance milestones being met on a continuous basis. Cash and Cash Equivalents We consider all highly liquid investments with maturity dates of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market funds. The majority of cash and cash equivalents is maintained with major financial institutions in the United States. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits. Cash and cash equivalents totaled $ 149.1 million and were comprised of cash of $ 21.5 million and money market funds of $ 127.6 million at December 31, 2020. Cash and cash equivalents totaled $ 90.5 million, comprised of cash of $ 19.3 million and money market funds of $ 71.2 million at December 31, 2019. Restricted Cash In 2016, we began the process of liquidating our Indian subsidiary. The local legal requirements for liquidation required us to maintain our subsidiary's cash balance in an account managed by a legal trustee to satisfy our financial obligations. This balance is recorded as current restricted cash on the consolidated balance sheets of $ 0.6 million as of December 31, 2020 and $ 0.7 million as of December 31, 2019. Pursuant to the terms of a lease agreement for our Redwood City, CA facilities, we obtained a letter of credit collateralized by cash deposit balance s of $ 1.1 million as of December 31, 2020 and 2019. These cash deposit balances are recorded as non-current restricted cash on the consolidated balance sheets. See Note 13, “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and we consider counterparty credit risk in our assessment of fair value. Carrying amounts of financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate their fair values as of the balance sheet dates because of their short maturities. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: • Level 1: Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. 114 • Level 2: Inputs that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. • Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. See Note 7, “ Fair Value Measurements” for additional details. Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, contract assets, non-marketable securities, and restricted cash. Cash that is not required for immediate operating needs is invested principally in money market funds. Cash and cash equivalents are invested through banks and other financial institutions in the United States, India, and the Netherlands. Such deposits in those countries may be in excess of insured limits. Financial Assets and Allowances W e currently sell enzymes primarily to pharmaceutical and fine chemicals companies throughout the world by the extension of trade credit terms based on an assessment of each customer's financial condition. Trade credit terms are generally offered without collateral and may include an insignificant discount for prompt payment for specific customers. To manage our credit exposure, we perform ongoing evaluations of our customers' financial conditions. In addition, accounts receivable include amounts owed to us under our collaborative research and development agreements. We recognize accounts receivable at invoiced amounts and we maintain a valuation allowance as follows: Allowance for credit losses from January 1, 2020 O n and subsequent to January 1, 2020, our financial results reflect an impairment model (known as the “current expected credit loss model” or “CECL”) based on estimates and forecasts of future conditions requiring recognition of a lifetime of expected credit losses at inception on our financing receivables measured at amortized costs which is comprised of accounts receivable, contract assets, and unbilled receivables. We have determined that our financing receivables share similar risk characteristics including: (i) customer origination in the pharmaceutical and fine chemicals industry, (ii) similar historical credit loss pattern of customers (iii) no meaningful trade receivable differences in terms, (iv) similar historical credit loss experience and (v) our belief that the composition of certain assets are comparable to our historical portfolio used to develop loss history. As a result, we measured the allowance for credit loss (“ACL”) on a collective basis. Our ACL methodology considers how long the asset has been past due, the financial condition of the customers, which includes ongoing quarterly evaluations and assessments of changes in customer credit ratings, and other market data that we believe are relevant to the collectability of the assets. Nearly all financing receivables are due from customers that are highly rated by major rating agencies and have a long history of no credit loss. We derive our ACL by establishing an impairment rate attributable to assets not yet identified as impaired. We derive our ACL by initially relying on our historical financing receivable loss rate which contemplates the full contractual life of the assets sharing similar risk characteristics, adjusted to reflect (i) the extent to which we have determined current conditions differ from the conditions that existed for the period over which historical loss information was evaluated and (ii) by taking into consideration the changes in certain macroeconomic historical and forecasted information. We apply the ACL to past due financing receivables and record charges to the ACL as a provision to credit loss expense in the Statement of Operations. Financing receivables we identify as uncollectible are also charged against the ACL. We adjust the impairment rate to reflect the extent to which we have determined current conditions differ from the conditions that existed for the period over which historical loss information was evaluated. Adjustments to historical loss information may be qualitative or quantitative in nature and reflect changes related to relevant data. In the year ended December 31, 2020, inputs to our CECL forecast incorporated forward-looking adjustments associated with the COVID-19 pandemic which we believe are appropriate to incorporate due to the uncertainty of the economic impact on cash flows from our financial assets. 115 Allowance for credit losses before January 1, 2020 Prior to January 1, 2020, the allowances for doubtful accounts reflected our best estimates of probable losses inherent in our accounts receivable and contract assets balances. The allowance determination was based on known troubled accounts, historical experience, and other currently available evidence. Uncollectible accounts receivable were written off against the allowance for doubtful accounts when all efforts to collect them have been exhausted. Recoveries were recognized when they were received. Accounts Receivable Trade credit terms are generally offered without collateral and may include an insignificant discount for prompt payment for specific customers. To manage our credit exposure, we perform ongoing evaluations of our customers' financial conditions. In addition, accounts receivable include amounts owed to us under our collaborative research and development agreements and we recognize accounts receivables at invoiced amounts. Unbilled Receivable The timing of revenue recognition may differ from the timing of invoicing to our customers. When we satisfy (or partially satisfy) a performance obligation, prior to being able to invoice the customer, we recognize an unbilled receivable when the right to consideration is unconditional. As of December 31, 2020 and 2019, unbilled receivables of $ 10.9 million and $ 10.1 million, respectively, were included in our consolidated balance sheets. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using a weighted-average approach, assuming full absorption of direct and indirect manufacturing costs, or based on cost of purchasing from our vendors. If inventory costs exceed expected net realizable value due to obsolescence or lack of demand, valuation adjustments are recorded for the difference between the cost and the expected net realizable value. Concentrations of Supply Risk We rely on a limited number of suppliers for our products. We believe that other vendors would be able to provide similar products; however, the qualification of such vendors may require substantial start-up time. In order to mitigate any adverse impacts from a disruption of supply, we attempt to maintain an adequate supply of critical single-sourced materials. For certain materials, our vendors maintain a supply for us. We outsource the large scale manufacturing of our products to contract manufacturers with facilities in Austria and Italy. Property and Equipment Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization and depreciated using the straight-line method over their estimated useful lives as follows: Asset classification Estimated useful life Laboratory equipment 5 years Computer equipment and software 3 to 5 years Office equipment and furniture 5 years Leasehold improvements Lesser of useful life or lease term Property and equipment classified as construction in process includes equipment that has been received but not yet placed in service. Normal repairs and maintenance costs are expensed as incurred. Impairment of Long-Lived Assets We have not identified property and equipment by segment since these assets are shared or commingled. We evaluate the carrying values of long-lived assets, which include property and equipment and right-of-use assets, whenever events, changes in business circumstances or our planned use of long-lived assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. If these facts and circumstances exist, we assess for recovery by comparing the carrying values of long-lived assets with their future net undiscounted cash flows. If the comparison indicates that impairment exists, long-lived assets are written down to their respective fair values based on discounted cash flows. Significant management judgment is required in the forecast of future operating results that are used in the preparation of unexpected undiscounted cash flows. 116 As of December 31, 2020 and 2019, there were no events or changes in circumstances which indicated that the carrying amount of our Asset Group might not be recoverable. No impairment charges for long-lived assets were recorded during the years ended December 31, 2020, 2019 and 2018. Investment in Non-Marketable Securities Investment in Non-Marketable Equity Securities Our non-marketable equity securities are accounted for under the measurement alternative. Under the measurement alternative, the carrying value of our non-marketable equity investments is adjusted to fair value for observable transactions for identical or similar investments of the same issuer or impairment. Adjustments are determined primarily based on a market approach as of the transaction date and are recorded as a component of other income (expense), net. We measure investments in non-marketable equity securities without a readily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or minus changes resulting from observable price changes on a non-recurring basis. Gains and losses on these securities are recognized in other income and expenses. Investment in Non-Marketable Debt Securities We measure available-for-sale investments in non-marketable debt at fair value. Unrealized gains and losses on these securities are recognized in other comprehensive income until realized. Non-marketable debt securities are classified as available-for-sale securities. We classify non-marketable debt securities as Level 3 in the fair value hierarchy because we estimate the fair value based on a qualitative analysis using the most recent observable transaction price and other significant unobservable inputs including volatility, rights, and obligations of the securities we hold. Significant changes to the unobservable inputs may result in a significantly higher or lower fair value estimate. We may value these securities based on significant recent arms-length transactions with sophisticated non-strategic unrelated new investors, providing the terms of these transactions are substantially similar to the terms between the company and us. The impact of the difference in transaction terms on the market value of the investment may be difficult or impossible to quantify. See Note 7, “ Fair Value Measurements” for additional details. We evaluate both equity and debt securities for impairment when circumstances indicate that we may not be able to recover the carrying value. We may impair these securities and establish an allowance for a credit loss when we determine that there has been an “other-than-temporary” decline in estimated fair value of the debt or equity security compared to its carrying value. We calculate the estimated fair value of these securities using information from the investee, which may include: • Audited and unaudited financial statements; • Projected technological developments of the company; • Projected ability of the company to service its debt obligations; • If a deemed liquidation event were to occur; • Current fundraising transactions; • Current ability of the company to raise additional financing if needed; • Changes in the economic environment which may have a material impact on the operating results of the company; • Contractual rights, obligations or restrictions associated with the investment; and • Other factors deemed relevant by our management to assess valuation. • The valuation may be reduced if the company's potential has deteriorated significantly. If the factors that led to a reduction in valuation are overcome, the valuation may be readjusted. Goodwill Goodwill represents the excess of the consideration transferred over the fair value of net assets of businesses acquired and is assigned to reporting units. We test goodwill for impairment considering amongst other things, whether there have been sustained declines in our share price. If we conclude it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative fair value test is performed. We manage our business as two reporting units and we test goodwill for impairment at the reporting unit level. We allocated goodwill to the two reporting units using a relative fair value allocation methodology that primarily relied on our estimates of revenue and future earnings for each reporting unit. Using the relative fair value allocation methodology, we have determined that approximately $ 2.4 million, or 76 %, of the goodwill allocated to the Performance Enzymes segment and $ 0.8 million, or 24 %, is assigned to the Novel Biotherapeutics segment. We test goodwill for impairment for each reporting unit on an annual basis on the last day of the fourth fiscal quarter and, when 117 specific circumstances dictate, between annual tests by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. During 2020, 2019 and 2018, we did no t record impairment charges related to goodwill. We test for goodwill impairment as follows: Goodwill impairment testing from January 1, 2020 We test for impairment annually on a reporting unit basis, on the last day of the fourth fiscal quarter, and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The annual impairment test is completed using either: a qualitative “Step 0” assessment based on reviewing relevant events and circumstances; or a quantitative “Step 1” assessment, which determines the fair value of the reporting unit. To the extent the carrying amount of a reporting unit is less than its estimated fair value, an impairment charge is recorded. Using the relative fair value allocation methodology for assets and liabilities used in both of our reporting units, we compare the allocated carrying amount of each reporting unit’s net assets and the assigned goodwill to its fair value. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. Any excess of the reporting unit’s carrying amount of goodwill over its fair value is recognized as an impairment. Since late 2019, the COVID-19 pandemic has spread worldwide. The COVID-19 pandemic has caused a decline in global and domestic macroeconomic conditions, the general deterioration of the U.S. economy and other economies worldwide, all of which may negatively impact our overall financial performance, driving a reduction in our cash flows. We believe that the impact of the COVID-19 pandemic was a triggering event that gave rise to a qualitative goodwill impairment test in the second quarter ended June 30, 2020. We also conducted a qualitative impairment assessment as of December 31, 2020, which included an evaluation of our cash flow projections to reflect the current economic environment, including the uncertainty surrounding the nature, timing, and extent of the impact of the pandemic in operating our business. We determined that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying amount as of December 31, 2020. Therefore, a quantitative impairment test of our goodwill at the reporting unit level was not required to be performed. Goodwill impairment testing before January 1, 2020 Prior to January 1, 2020, the goodwill impairment test consisted of a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compared the fair value of each reporting unit to its carrying value. Using the relative fair value allocation methodology for assets and liabilities used in both of our reporting units, we compared the allocated carrying amount of each reporting unit’s net assets and the assigned goodwill to its fair value. If the fair value of the reporting unit exceeded its carrying amount, goodwill of the reporting unit was considered not impaired, and the second step of the impairment test was not required. The second step, if required, compared the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. Implied fair value was the excess of the fair value of the reporting unit over the fair value of all identified or allocated assets and liabilities. Any excess of the reporting unit’s carrying amount goodwill over the respective implied fair value was recognized as an impairment. Lease Accounting We determine if an arrangement is a lease at inception. Where an arrangement is a lease we determine if it is an operating lease or a finance lease. At lease commencement, we record a lease liability and ROU asset. Lease liabilities represent the present value of our future lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of our lease liability is determined using our incremental collateralized borrowing rate at lease inception. ROU assets represent our right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease liability for leases with an initial term greater than 12 months. Over the lease term, we use the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized to the consolidated statement of operations in a manner that results in straight-line expense recognition. We do not apply lease recognition requirements for short-term leases. Instead, we recognize payments related to these arrangements in the consolidated statement of operations as lease costs on a straight-line basis over the lease term. Income Taxes We use the liability method of accounting for income taxes, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount that will more likely than not be realized. We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenues and expenses for tax and financial statement 118 purposes. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized on a jurisdiction by jurisdiction basis. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income in the future. We have recorded a valuation allowance against these deferred tax assets in jurisdictions where ultimate realization of deferred tax assets is more likely than not to occur. As of December 31, 2020, we maintain a full valuation allowance in all jurisdictions against the net deferred tax assets as we believe that it is more likely than not that the majority of deferred tax assets will not be realized. We make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation allowance may be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the statements of operations for the periods in which the adjustment is determined to be required. We account for uncertainty in income taxes as required by the provisions of ASU 2009-06, Income Taxes (Topic 740) Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities , which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual outcomes. The Tax Reform Act of 1986 and similar state provisions limit the use of net operating loss (“NOL”) carryforwards in certain situations where equity transactions result in a change of ownership as defined by Internal Revenue Code Section 382. In the event we should experience such a change of ownership, utilization of our federal and state NOL carryforwards could be limited. We recognized income tax provision of $ 0.3 million, income tax provision of $ 17 thousand and income tax benefit of $ 37 thousand for the years ended December 31, 2020, 2019 and 2018, respectively. The provision for income taxes for 2020 was primarily due to foreign withholding taxes on certain sales to a non-U.S. customer. The provision for income taxes in 2019 was primarily due to the accrual of interest and penalties on historic uncertain tax positions. The benefit from income taxes in 2018 was primarily related to a net loss from our foreign operations and a reduction in the deferred tax liability for accrued future withholding taxes on dividends. We continue to maintain a full valuation allowance against our net deferred tax assets as we believe that it is more likely than not that the majority of our deferred tax assets will not be realized. Changes to Tax Law On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), P.L. 116-136, was passed into law, amending portions of certain relevant US tax laws. The CARES Act included a number of federal income tax law changes, including, but not limited to: (i) permitting net operating loss carrybacks to offset 100% of taxable income for taxable years beginning before 2021, (ii) accelerating alternative minimum tax credit refunds, (iii) temporarily increasing the allowable business interest deduction from 30% to 50% of adjusted taxable income, and (iv) providing a technical correction for depreciation related to qualified improvement property. The CARES Act had no impact on our consolidated financial statements. Beginning in 2018, the global intangible low-taxed income (“GILTI”) provisions in the Tax Act required us to include, in our U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Per guidance issued by the FASB, companies can either account for deferred taxes related to GILTI or treat tax arising from GILTI as a period cost. Both are acceptable methods subject to an accounting policy election. At December 31, 2018, we finalized our policy and elected to use the period cost method for GILTI. In 2020, we did not incur any GILTI inclusion as our foreign subsidiaries generated losses. Due to losses incurred in the U.S. we will not be eligible for an Internal Revenue Code Section 250 deduction for foreign derived intangible income. The BEAT provisions in the Tax Act eliminated the deduction of certain base-erosion payments made to related foreign corporations and imposed a minimum base erosion anti-abuse tax if greater than regular tax. In 2020, our company was not subject to BEAT as it did not meet the requirements to be subject to BEAT. 119 Accounting Pronouncements Recently adopted accounting pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which amends the FASB's guidance on the impairment of financial instruments. The standard adds a new impairment model, known as CECL, which replaces the probable loss model. The CECL impairment model is based on estimates and forecasts of future conditions which requires recognition of a lifetime of expected credit losses at inception on financial assets measured at amortized costs. Our financial assets consist of non-marketable debt and equity securities and financing receivable assets measured at amortized cost, comprised of accounts receivable, contract assets, and unbilled receivables . We adopted the new standard in the first quarter of 2020 using a modified retrospective approach requiring a cumulative-effect adjustment to the opening accumulated deficit as of the date of adoption. The ASU establishes a new valuation account “allowance for credit losses” replacing the “allowance for doubtful accounts” in the consolidated balance sheets, which is used to adjust the amortized cost basis of assets in presentation of the net amount expected to be collected. The adoption required certain additional disclosures but had no other impact on our consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendment eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit to its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The ASU eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment, and if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. We adopted the ASU in the first quarter of 2020 using a prospective approach. The adoption required certain additional disclosures but had no impact on our consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The primary focus of the standard is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. The standard requires the use of the prospective method of transition for disclosures related to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop fair value measurements categorized within Level 3 of the fair value hierarchy, and narrative description of measurement uncertainty. All other amendments in the standard are required to be adopted retrospectively. We adopted the ASU in the first quarter of 2020 and the adoption had no impact on our consolidated financial statements nor on our related disclosures. In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606 . ASU 2018-18 provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. The standard also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The ASU is to be applied retrospectively to the date of the initial application of Topic 606 which also requires recognition of the cumulative effect of applying the amendments as an adjustment to the opening balance of retained earnings of the later or the earliest annual period presented and the annual period inclusive of the initial application of Topic 606. We adopted the ASU in the first quarter of 2020 and the adoption had no impact on our consolidated financial statements nor on our related disclosures. Recently issued accounting pronouncements not yet adopted From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is intended to simplify various aspects related to accounting for income taxes . The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The standard will be adopted upon the effective date for us beginning January 1, 2021 on a retrospective basis. We believe that the adoption of ASU 2019-12 will have minimal impact on our consolidated financial Statements and related disclosures. 120 In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) : Facilitation of the Effects of Reference Rate Reform on Financial Reporting . The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions in which the reference LIBOR or another reference rate are expected to be discontinued as a result of the Reference Rate Reform. The standard is effective for all entities. The standard may be adopted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2022, on a prospective basis. We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to elect the optional expedients for contract modification; however, we believe that the adoption of ASU 2020-04 will have minimal impact on our consolidated financial statements and related disclosures. In August 2020, FASB issued ASU No 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) No. 2020-06 August 2020 Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to reduce the complexity and to simplify the accounting for convertible debt instruments and convertible preferred stock, and the derivatives scope exception for contracts in an entity's own equity. In addition, the guidance on calculating diluted earnings per share has been simplified and made more internally consistent. The standard is effective the for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted for fiscal periods beginning after December 15, 2020. The standard will be adopted by us beginning January 1, 2021. Entities are allowed to adopt the standard using a either a modified retrospective method of transition or a fully retrospective method of transition. We are currently evaluating the effects of the standard on our consolidated financial statements and related disclosures; however, we believe that the adoption of ASU 2020-06 will have minimal impact on our consolidated financial statements and related disclosures. In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements . ASU 2020-10 provides amendments to a wide variety of topics in the FASB’s Accounting Standards Codification, which applies to all reporting entities within the scope of the affected accounting guidance. The standard is effective for annual periods beginning after December 15, 2020 with early adoption permitted. The standard will be adopted upon the effective date for us beginning January 1, 2021 on a retrospective basis. We are currently evaluating the effects of the standard on our consolidated financial statements and related disclosures, however we believe that the adoption of ASU 2020-10 will have no impact the our consolidated financial statements and related disclosures. Note 3. Revenue Recognition Disaggregation of Revenue The following table provides information about disaggregated revenue from contracts with customers into the nature of the products and services, and geographic regions, and includes a reconciliation of the disaggregated revenue with reportable segments. The geographic regions that are tracked are the Americas (United States, Canada, and Latin America), EMEA (Europe, Middle East, and Africa), and APAC (Australia, New Zealand, Southeast Asia, and China). Segment information for fiscal year 2020 is as follows (in thousands): Year Ended December 31, 2020 Performance Enzymes Novel Biotherapeutics Total Major products and service: Product Revenue $ 30,220 $ — $ 30,220 Research and development revenue 17,886 20,950 38,836 Total revenues $ 48,106 $ 20,950 $ 69,056 Primary geographical markets: Americas $ 11,111 $ 13,241 $ 24,352 EMEA 11,548 7,709 19,257 APAC 25,447 — 25,447 Total revenues $ 48,106 $ 20,950 $ 69,056 121 Segment information for fiscal year 2019 is as follows (in thousands): Year Ended December 31, 2019 Performance Enzymes Novel Biotherapeutics Total Major products and service: Product Revenue $ 29,465 $ — $ 29,465 Research and development revenue 28,691 10,302 38,993 Total revenues $ 58,156 $ 10,302 $ 68,458 Primary geographical markets: Americas $ 13,039 $ — $ 13,039 EMEA 26,831 10,302 37,133 APAC 18,286 — 18,286 Total revenues $ 58,156 $ 10,302 $ 68,458 Segment information for fiscal year 2018 is as follows (in thousands): Year Ended December 31, 2018 Performance Enzymes Novel Biotherapeutics Total Major products and service: Product Revenue $ 25,590 $ — $ 25,590 Research and development revenue 21,483 13,521 35,004 Total revenues $ 47,073 $ 13,521 $ 60,594 Primary geographical markets: Americas $ 15,332 $ 38 $ 15,370 EMEA 8,878 13,483 22,361 APAC 22,863 — 22,863 Total revenues $ 47,073 $ 13,521 $ 60,594 Contract Balances The following table presents balances of contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands): December 31, 2020 December 31, 2019 Contract assets $ 4,526 $ 1,027 Unbilled receivables $ 10,942 $ 10,099 Contract costs $ 90 $ — Contract liabilities: deferred revenue $ 4,791 $ 2,044 We recognize accounts receivable when we have an unconditional right to recognize revenue and have issued an invoice to the customer. Our payment terms are generally between 30 and 90 days. We recognize unbilled receivables when we have an unconditional right to recognize revenue and have not issued an invoice to our customer. Unbilled receivables, current are transferred to accounts receivable on issuance of an invoice. Unbilled receivables, non-current are transferred to accounts receivable on issuance of an invoice; payment is expected from the customer thereon. Unbilled receivables are classified separately on the consolidated balance sheets as assets. We maintain a valuation allowance on accounts receivables and unbilled receivables. 122 Contract assets represent our right to recognize revenue for custom products with no alternate use and under binding non-cancellable purchase orders and are largely related to our procurement of product. We recognize contract assets when we have a conditional right to recognize revenue. The delivery pattern of certain of products occurs in advance of the invoicing process, which generates contract assets. In addition, we recognize a contract asset related to milestones not eligible for royalty accounting when we assess it is probable of being achieved and there will be no significant reversal of cumulative revenues. Contract assets are classified separately on the consolidated balance sheets as an asset and transferred to accounts receivable when our rights to payment become unconditional. We maintain a valuation allowance on contract assets. Contract liabilities, or deferred revenue, represent our obligation to transfer a product or service to the customer, and for which we have received consideration from the customer. We recognize a contract liability when we receive advance customer payments under development agreements for research and development services, upfront license payments, and from upfront customer payments received under product supply agreements. Contract liabilities are classified as a liability on the consolidated balance sheet. Contract costs relate to incremental costs of obtaining a contract with a customer. Contract costs are amortized along with the associated revenue over the term of the contract. During the years ended December 31, 2020 and 2019, we had no asset impairment charges related to contract assets. We recognized the following revenues (in thousands): Year Ended December 31, Revenue recognized in the period for: 2020 2019 Amounts included in contract liabilities at the beginning of the period: Performance obligations satisfied $ 57 $ 4,567 Changes in the period: Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods 774 1,442 Performance obligations satisfied from new activities in the period - contract revenue 68,225 62,449 Total revenues $ 69,056 $ 68,458 Performance Obligations The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting periods. The estimated revenue does not include contracts with original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of December 31, 2020. The balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts (in thousands): 2021 2022 2023 2024 and Thereafter Total Product Revenue $ 67 $ 67 $ 431 $ 1,923 $ 2,488 Research and development revenue 1,757 — 546 — 2,303 Total revenues $ 1,824 $ 67 $ 977 $ 1,923 $ 4,791 Note 4. Net Loss per Share Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding, less restricted stock awards (“RSAs”) subject to forfeiture. Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock shares outstanding, less RSAs subject to forfeiture, plus all additional common shares that would have been outstanding, assuming dilutive potential common stock shares had been issued for other dilutive securities. For periods presented, diluted and basic net loss per share are identical since potential common stock shares are excluded from the calculation, as their effect was anti-dilutive. 123 Anti-Dilutive Securities In periods of net loss, the weighted average number of shares outstanding, prior to the application of the treasury stock method, excludes potentially dilutive securities from the computation of diluted net loss per common share because including such shares would have an anti-dilutive effect. The following shares were not considered in the computation of diluted net loss per share because their effect was anti-dilutive (in thousands): Year Ended December 31, 2020 2019 2018 Shares issuable under the Equity Incentive Plan 5,348 4,763 6,339 Note 5. Collaborative Arrangements GSK Platform Technology Transfer, Collaboration and License Agreement In July 2014, we entered into a CodeEvolver ® protein engineering platform technology transfer collaboration and license agreement (the “GSK CodeEvolver ® Agreement”) with GSK. Pursuant to the terms of the agreement, we granted GSK a non-exclusive license to use the CodeEvolver ® protein engineering platform technology to develop novel enzymes for use in the manufacture of GSK's pharmaceutical and health care products. We received an upfront fee upon the execution of the agreement in July 2014 and milestone payments in each of the years from 2014 through April 2016. We completed the transfer of the CodeEvolver ® protein engineering platform technology to GSK in April 2016 and all revenues relating to the technology transfer have been recognized as of April 2016. We have the potential to receive additional cumulative contingent payments that range from $ 5.75 million to $ 38.5 million per project based on GSK’s successful application of the licensed technology. We are also eligible to receive royalties, based on net sales of GSK’s sales of licensed enzyme products, that are currently not being recognized. In 2019, we received a $ 2.0 million milestone payment relating to the advancement of an enzyme developed by GSK using our CodeEvolver ® protein engineering platform technology. We recognized research and development revenue of nil , $ 2.0 million, and nil in the year ended December 31, 2020, 2019, and 2018, respectively. Merck Platform Technology Transfer and License Agreement In August 2015, we entered into a CodeEvolver ® platform technology transfer collaboration and license agreement (the “Merck CodeEvolver ® Agreement”) with Merck, Sharp & Dohme (“Merck”) which allows Merck to use the CodeEvolver ® protein engineering technology platform in the field of human and animal healthcare. We received an upfront license fee upon execution of the Merck CodeEvolver ® Agreement and milestone payments in September 2015 and in September 2016, when we completed the transfer of the engineering platform technology. We recognized research and development revenues of $ 3.1 million, $ 4.0 million, and $ 4.1 million in the years ended December 31, 2020, 2019 and 2018, respectively, for various research projects under our collaborative arrangement. We have the potential to receive payments of up to a maximum of $ 15.0 million for each commercial active pharmaceutical ingredient (“API”) that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver ® protein engineering technology platform. The API payments, which are currently not recognized in revenue, are based on the quantity of API developed and manufactured by Merck and will be recognized as usage-based royalties. In October 2018, we entered into an amendment to the Merck CodeEvolver ® Agreement which amended certain licensing provisions and one exhibit. In January 2019, we entered into an amendment to the Merck CodeEvolver ® Agreement to install certain CodeEvolver ® protein engineering technology upgrades into Merck’s platform license installation and maintain those upgrades for a multi-year term expiring in January 2022. The license installation was completed in 2019 and we recognized $ 0.9 million as license fee revenue accordingly under the amendment. Pursuant to the agreement, Merck has options to future technology enhancements for a specified fee. As of December 31, 2020, Merck has not exercised its option for technology enhancements. We recognized $ 0.1 million and $ 0.9 million in research and development revenues under the terms of the amendment in 2020 and 2019, respectively. 124 Merck Sitagliptin Catalyst Supply Agreement In February 2012, we entered into a five-year Sitagliptin Catalyst Supply Agreement (“Sitagliptin Catalyst Supply Agreement”) with Merck whereby Merck may obtain commercial scale enzyme for use in the manufacture of Januvia ® , its product based on the active ingredient sitagliptin. In December 2015, Merck exercised its option under the terms of the Sitagliptin Catalyst Supply Agreement to extend the agreement for an additional five years through February 2022. Effective as of January 2016, we and Merck amended the Sitagliptin Catalyst Supply Agreement to prospectively provide for variable pricing based on the cumulative volume of sitagliptin catalyst purchased by Merck and to allow Merck to purchase a percentage of its requirements for sitagliptin catalyst from a specified third-party supplier. Merck received a distinct, functional license to manufacture a portion of its demand beginning January 1, 2018, which we recognized as research and development revenue. We recognized no research and development revenues in the years ended December 31, 2020 and 2019 and $ 1.3 million of research and development revenues in the year ended December 31, 2018. We have determined that the variable pricing, which provides a discount based on the cumulative volume of sitagliptin catalyst purchased by Merck, provides Merck material rights and we are recognizing product revenues using the alternative method. Under the alternative approach, we estimate the total expected consideration and allocate it proportionately with the expected sales. The Sitagliptin Catalyst Supply Agreement requires Merck to pay an annual fee for the rights to the sitagliptin technology each year for the term of the Sitagliptin Catalyst Supply Agreement. Amounts of annual license fees are based on contractually agreed prices and are on a declining scale over the term of the contract. Pursuant to the terms of the Sitagliptin Catalyst Supply Agreement, Merck may purchase supply from us for a fee based on contractually stated prices. We recognized $ 13.4 million, $ 15.1 million and $ 12.3 million in product revenues for the years ended December 31, 2020, 2019 and 2018, respectively. Revenues recognized by us under the Sitagliptin Catalyst Supply Agreement comprised 19 %, 22 %, and 22 % of our total revenues for the years ended December 31, 2020, 2019 and 2018, respectively. The Sitagliptin Catalyst Supply Agreement will terminate in February 2022 unless extended and we have not received an amendment to extend the agreement. Enzyme Supply Agreement In November 2016, we entered into a supply agreement whereby our customer may purchase quantities of one of our proprietary enzymes for use in its commercial manufacture of a product. Pursuant to the supply agreement, we received an upfront payment in December 2016 which was recorded as deferred revenues. Such upfront payment will be recognized over the period of the supply agreement as the customer purchases our proprietary enzyme. We additionally have determined that the volume discounts under the supply agreement provides the customer material rights and we are recognizing revenues using the alternative method. As of December 31, 2020 and 2019, we had deferred revenue balances from the supply agreement of $ 2.0 million. Research and Development Agreement In March 2017, we entered into a multi-year research and development services agreement with Tate & Lyle Ingredients Americas LLC (“Tate & Lyle”) to develop enzymes for use in the manufacture of Tate & Lyle’s zero-calorie TASTEVA ® M Stevia sweetener. Under the agreement, we received an upfront payment of $ 3.0 million, which was recognized ratably over the maximum term of the services period of 21 months . Beginning January 1, 2018, we are recognizing revenue using a single measure of progress that depicts our performance in transferring the services. During the second quarter of 2018, Tate & Lyle opted to obtain additional development services that we completed by June 30, 2018 and we earned milestone payments upon completion of the services. We recognized nil , $ 0.1 million and $ 7.1 million in revenue in the years ended December 31, 2020, 2019 and 2018, respectively, in research and development services under the research and development services agreement. Commercial Agreement In April 2019, we entered into a multi-year commercial agreement with Tate & Lyle under which Tate & Lyle has received an exclusive license to use a suite of Codexis novel performance enzymes in the manufacture of Tate & Lyle’s zero-calorie stevia sweetener, TASTEVA ® M, and other stevia products. Under the agreement, we will supply Tate & Lyle with its requirements for these enzymes over a multiple year period and receive royalties on stevia products. In November 2020, we amended the commercial agreement based on Tate & Lyle's intent to use a specific Codexis novel performance enzyme in its production of TASTEVA ® M Stevia Sweetener and became eligible to receive milestone payments of up to $ 1.1 million. In the fourth quarter of 2020, we became eligible to receive a milestone payment of $ 0.4 million, which we subsequently received in the fourth 125 quarter of 2020. We recognized $ 0.2 million in revenue in the year ended December 31, 2020. As of December 31, 2020, we had a deferred revenue balance of $ 0.2 million. Global Development, Option and License Agreement and Strategic Collaboration Agreement In October 2017, we entered into a Global Development, Option and License Agreement (the “Nestlé License Agreement”) with Société des Produits Nestlé (formerly known as Nestec Ltd.) (“Nestlé Health Science”) and, solely for the purpose of the integration and the dispute resolution clauses of the Nestlé License Agreement, Nestlé Health Science S.A., to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU. We received an upfront cash payment of $ 14.0 million in 2017 upon the execution of the Nestlé License Agreement, a $ 4.0 million milestone payment after dosing the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114, and a $ 1.0 million milestone payment upon achievement of a milestone relating to formulation of CDX-6114. The $ 4.0 million milestone payment that was triggered by the initiation of the trial was received in 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. The upfront payment and the variable consideration relating to the progress payment of $ 4.0 million and a milestone payment of $ 1.0 million were recognized over time as the development work was performed. Revenue was recognized using a single measure of progress that depicted our performance in transferring control of the services, which was based on the ratio of level of effort incurred to date compared to the total estimated level of effort required to complete all performance obligations under the agreement. We recognized $ 13 thousand, $ 1.9 million and $ 9.9 million in research and development revenue in 2020, 2019 and 2018, respectively. 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 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 and paid us $ 3.0 million which we recognized as research and development revenue in 2019. Upon exercising its option, Nestlé Health Science assumed all responsibilities for future clinical development and commercialization of CDX-6114. 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 product. 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. Under the Strategic Collaboration Agreement, we received an upfront payment of $ 1.2 million in 2017 and an incremental payment of $ 0.6 million in September 2018 for additional services. 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 our Nestlé SCA into pre-clinical and early clinical studies. Under the Nestlé SCA and the development agreement, we recognized $ 7.9 million, $ 5.4 million and $ 3.6 million in research and development revenue in years ended December 31, 2020, 2019, and 2018, respectively. Strategic Collaboration Agreement In April 2018, we entered into the Porton Agreement with Porton to license key elements of our biocatalyst technology for use in Porton’s global custom intermediate and API development and manufacturing business. Under the Porton Agreement, we are eligible to receive annual collaboration fees and research and development revenues. We received initial collaboration payments of $ 0.5 million and $ 0.5 million within 30 days of the effective date and on the first anniversary of the effective date of the Porton Agreement, respectively. We also received annual collaboration payments of $ 1.0 million for each on the first and second anniversaries of the effective date of the Porton Agreement, respectively. We are eligible to re ceive $ 1.0 million each annual collaboration payment on the third and fourth anniversaries of the effective date of the Porton Agreement, respectively . We completed the technical transfer in the fourth quarter of 2018 and recognized $ 2.8 million in research and development revenue. We recognized revenue related to the functional license provided to Porton at a point in time when control of the license was transferred to the customer. We recognized research and development revenue related to the Porton Agreement of $ 1.1 million, nil and $ 2.8 million in the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020 and 2019, we had deferred revenue balances of $ 0.1 million and nil , respectively. 126 Platform Technology Transfer and License Agreement In May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver ® Agreement”) with Novartis. The Agreement allows Novartis to use our proprietary CodeEvolver ® protein engineering platform technology in the field of human healthcare. Under the Novartis CodeEvolver ® Agreement, we are transferring our proprietary CodeEvolver ® protein engineering platform technology to Novartis over approximately 25 months, starting with the date on which we commenced the technology transfer (the “Technology Transfer Period”). As a part of this technology transfer, the Company provided to Novartis our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms. In addition, teams of the Company and Novartis scientists participated in technology training sessions and collaborative research projects at our laboratories in Redwood City, California and at a designated Novartis laboratory in Basel, Switzerland. Upon completion of technology transfer, Novartis will have the CodeEvolver ® protein engineering platform technology installed at its designated laboratory. Pursuant to the agreement, we received an upfront payment of $ 5.0 million 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 recognized $ 3.4 million for partial completion of the third technology milestone and we expect to receive payment in the first quarter of 2021. Additionally, we are eligible to receive an additional $ 1.6 million upon satisfactory completion of the third technology transfer milestone. 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 Codexis annual payments which amount to an additional $ 8.0 million. The Company 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 ® protein engineering 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 the Company for each quarter that Novartis manufactures API using a CodeEvolver ® -developed enzyme. The usage payments will be based on the total volume of API produced using the CodeEvolver ® -developed enzyme. These usage payments can begin in the clinical stage and will extend throughout the commercial life of each API. Revenue for the combined initial license and technology transfer performance obligation, which is expected to occur over twenty-three months, is being recognized using a single measure of progress that depicts our performance in transferring control of the services, which is based on the ratio of level of effort incurred to date compared to the total estimated level of effort required to complete the performance obligation relating to the combined initial license and technology transfer. Revenue allocated to future improvements will be recognized during the Improvement Term. We recognized $ 6.2 million and $ 11.3 million in research and development revenue in the year ended December 31, 2020 and 2019, respectively, from the Novartis CodeEvolver ® Agreement. License Agreement In December 2019, we entered a license agreement with Roche Sequencing Solutions, Inc. (“Roche”) to provide Roche with our EvoT4 DNA™ ligase high-performance molecular diagnostic enzyme. The royalty bearing license grants Roche worldwide rights to include the EvoT4 DNA™ ligase in its nucleic acid sequencing products and workflows. Under the license agreement, we received an initial collaboration fee payment of $ 0.8 million within 45 days of the effective date of the agreement, and we received an additional $ 0.9 million milestone after the completion of technology transfer in October 2020. The agreement also contemplates milestone payments to Codexis upon the achievement of various development and commercialization events and royalty payments from commercial sales of the enzyme. We recognized research and development fees of $ 1.1 million and nil in the years ended December 31, 2020 and 2019. Strategic Collaboration and License Agreement In March 2020, we entered into a Strategic Collaboration and License Agreement (the “Takeda Agreement”) with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Co. Ltd. (“Takeda”) under which we are collaborating to 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”). In March 2020, 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 $ 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 127 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 period in 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 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. We recognized research and development revenue related to the Takeda Agreement of $ 13.2 million in the year ended December 31, 2020. As of December 31, 2020, we had a deferred revenue balance of $ 1.5 million from Takeda. Master Collaboration and Research Agreement and Stock Purchase Agreement In June 2020, we entered into a Stock Purchase Agreement with Molecular Assemblies, Inc. (“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 a Master Collaboration and Research Agreement with MAI (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. Based on these services, the Company is eligible to earn additional shares of MAI's Series A preferred stock. MAI will combine its advanced chemistries with our enzymes to drive the process to commercialization. We are eligible to earn such non-monetary payments over ten to thirteen months , and any such shares would be issued thirty days in arrears after each calendar quarter-end. We are also eligible to receive amounts for bonuses, targets and milestones on achievement of timeline and project goals specified in the statement of work ("SOW"). Payments for bonuses, targets and milestones on achievement of timeline and project goals are to be issued thirty days after the Company provides notification of completion. Under the MAI Agreement, we will have the right to use and sell the engineered enzymes to third parties for any purpose other than for the synthesis of native DNA. Under the MAI Agreement, we would make a $ 0.5 million payment to MAI upon our achievement of a milestone of $ 5.0 million in aggregate commercial sales to third parties of the engineered enzymes or any product incorporating or derived from the engineered enzymes for any purpose other than the synthesis of native DNA. The MAI Agreement contemplates that we and MAI will enter into a Commercialization and Enzyme Supply Agreement (the “CESA”) within six months following the completion of certain timelines specified in the SOW. In addition, we and MAI have agreed pursuant to the MAI Agreement to certain terms to be contained within the CESA in the event that the CESA becomes executed in the future. Those include: (a) that MAI would receive an exclusive license to use the DNA polymerase enzymes engineering by us under the MAI Agreement in the synthesis of native DNA and a non-exclusive license to use these enzymes for research and development on the synthesis of non-native DNA, and (b) we would become the exclusive manufacturer of these enzymes for MAI, its affiliates and licensees. 128 We received 714,171 shares of MAI's Series A preferred stock from research and development services in the year ended December 31, 2020, and recognized $ 0.9 million from these services with MAI in the year ended December 31, 2020. At December 31, 2020, we had $ 0.5 million in contract asset due from MAI for services rendered. Payment for the services rendered was subsequently received in form of additional MAI Series A preferred stock in the first quarter of 2021. Note 6. Investments in Non-Marketable Securities Non-Marketable Debt Securities We classify non-marketable debt securities, which are accounted for as available-for-sale, within Level 3 in the fair value hierarchy because we estimate the fair value based on a qualitative analysis using the most recent observable transaction price and other significant unobservable inputs including volatility, rights, and obligations of the securities we hold. We determine gains or losses on the sale or extinguishment of non-marketable debt securities using a specific identification method. Unrealized gains and losses on non-marketable debt securities are recorded as a component of other comprehensive loss until realized. Realized gains or losses are recorded as a component of other expenses, net. We recognized no unrealized or realized gains or losses during the year ended December 31, 2020. As of December 31, 2020 and 2019, the fair value of non-marketable debt securities was $ 1.0 million and nil , respectively. As of December 31, 2020, the adjusted cost, carrying value and fair value of non-marketable debt securities is the following (in thousands): December 31, 2020 By contractual maturity: Adjusted Cost and Carrying value Fair Value Non-marketable debt securities due in 1 year or less $ 1,000 $ 1,000 There were no investments in non-marketable debt securities at December 31, 2019. Non-Marketable Equity Securities Non-marketable equity securities are investments in privately held companies without readily determinable market values. We measure investments in non-marketable equity securities without a readily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or minus changes resulting from observable price changes on a non-recurring basis. The fair value of non-marketable equity securities that have been remeasured due to impairment are classified within Level 3. We adjust the carrying value of non-marketable equity securities which have been remeasured during the period and recognize resulting gains or losses as a component of other expenses, net. We recognized no unrealized or realized gain or losses during the year ended December 31, 2020. At December 31, 2020 and 2019, the carrying value of non-marketable equity securities is the following (in thousands): December 31, 2020 2019 Non-marketable equity securities $ 1,450 $ — 129 Note 7. Fair Value Measurements The following tables present the financial instruments that were measured at fair value on a recurring basis at December 31, 2020 and 2019 by level within the fair value hierarchy (in thousands): December 31, 2020 Level 1 Level 2 Level 3 Total Money market funds $ 127,567 $ — $ — $ 127,567 Non-marketable debt securities $ — $ — $ 1,000 $ 1,000 Total $ 127,567 $ — $ 1,000 $ 128,567 December 31, 2019 Level 1 Level 2 Level 3 Total Money market funds $ 71,248 $ — $ — $ 71,248 There were no investments in non-marketable debt and equity securities at December 31, 2019. The fair value of non-marketable securities remeasured due to impairment would be classified within level 3. During the year ended December 31, 2020, we did no t recognize any significant other-than-temporary impairment losses. After the adoption of ASU 2016-13, we did no t recognize any significant credit losses. Note 8. Balance Sheets Details Cash Equivalents Cash equivalents at December 31, 2020 and 2019 consisted of the following (in thousands): December 31, 2020 December 31, 2019 Adjusted Cost Estimated Fair Value Adjusted Cost Estimated Fair Value Money market funds (1) (2) $ 127,567 $ 127,567 $ 71,248 $ 71,248 (1) Money market funds are classified in cash and cash equivalents on our consolidated balance sheets. (2) Average Contractual Maturities (in days) is not applicable. As of December 31, 2020, the total cash and cash equivalents balance of $ 149.1 million was comprised of money market funds of $ 127.6 million and cash of $ 21.5 million held with major financial institutions worldwide. As of December 31, 2019, the total cash and cash equivalents balance of $ 90.5 million was comprised of money market funds of $ 71.2 million and cash of $ 19.3 million held with major financial institutions worldwide. Inventories Inventories consisted of the following (in thousands): December 31, 2020 2019 Raw materials $ 77 $ 7 Work in process 82 26 Finished goods 805 338 Inventories $ 964 $ 371 130 Property and Equipment, net Property and equipment, net consisted of the following (in thousands): December 31, 2020 2019 Laboratory equipment (1) $ 25,468 $ 23,561 Leasehold improvements 10,785 10,804 Computer equipment and software 3,192 3,016 Office equipment and furniture 1,246 1,461 Construction in progress (2) 2,357 691 Property and equipment 43,048 39,533 Less: accumulated depreciation and amortization ( 33,373 ) ( 33,251 ) Property and equipment, net $ 9,675 $ 6,282 (1) Fully depreciated property and equipment with a cost of $ 1.8 million and $ 1.0 million we re ret ired during the years ended December 31, 2020 and 2019, respectively. (2) Construction in progress includes equipment received but not yet placed into service pending installation. Depreciation expense included in the consolidated statements of operations as follows (in thousands): Year Ended December 31, 2020 2019 2018 Depreciation expense $ 1,950 $ 1,570 $ 1,147 Goodwill Goodwill had a carrying value of approximately of $ 3.2 million as of December 31, 2020 and 2019. Other Accrued Liabilities Other accrued liabilities consisted of the following (in thousands): December 31, 2020 2019 Accrued purchases $ 7,170 $ 4,386 Accrued professional and outside service fees 2,589 1,802 Other 513 352 Total $ 10,272 $ 6,540 Note 9. Stock-based Compensation Equity Incentive Plans In 2019, our board of directors (the “Board”) and stockholders approved the 2019 Incentive Award Plan (the “2019 Plan”). The 2019 Plan superseded and replaced in its entirety our 2010 Equity Incentive Plan (the “2010 Plan”) which was effective in March 2010, and no further awards will be granted under the 2010 Plan; however, the terms and conditions of the 2010 Plan will continue to govern any outstanding awards thereunder. The 2010 Plan provided for the grant of incentive stock options, non-statutory stock options, restricted stock units (“RSUs”), restricted stock awards (“RSAs”), performance-contingent 131 restricted stock units (“PSUs”), performance based options (“PBOs”), stock appreciation rights, and stock purchase rights to our employees, non-employee directors and consultants. The number of shares of our common stock available for issuance under the 2019 Plan is equal to the sum of (i) 7,897,144 shares and (ii) any shares subject to awards granted under the 2010 Plan that were outstanding as of April 22, 2019 and thereafter terminate, expire, lapse or are forfeited; provided that no more than 14,000,000 shares may be issued upon the exercise of incentive stock options (“ISOs”). In June 2019, 8.1 million shares authorized for issuance under the 2019 Plan were registered under the Securities Act of 1933, as amended (the “Securities Act”). The 2019 Plan provides for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock or cash based awards and dividend equivalents to eligible employees and consultants of the Company or any parent or subsidiary, as well as members of the Board. As of December 31, 2020, total shares remaining available for issuance under the 2019 Plan were approximately 6.8 million shares. Stock Options The option exercise price for incentive stock options must be at least 100 % of the fair value of our common stock on the date of grant and the option exercise price for non-statutory stock options is 85 % of the fair value of our common stock on the date of grant, as determined by the Board. If, at the time of a grant, the optionee directly or by attribution owns stock possessing more than 10 % of the total combined voting power of all of our outstanding capital stock, the exercise price for these options must be at least 110 % of the fair value of the underlying common stock. Stock options granted to employees generally have a maximum term of ten years and vest over four years from the date of grant, of which 25 % vest at the end of one year , and 75 % vest monthly over the remaining three years . We may grant options with different vesting terms from time to time. Unless an employee's termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier. Restricted Stock Units (RSUs) We also grant employees RSUs, which generally vest over either a three year period with one-third of the shares subject to the RSUs vesting on each yearly anniversary of the vesting commencement date or over a four year period with 25 % of the shares subject to the RSU vesting on each yearly anniversary of the vesting commencement date, in each case contingent upon such employee’s continued service on such vesting date. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. We may grant RSUs with different vesting terms from time to time. Performance-contingent Restricted Stock Units (PSUs) and Performance Based Options (PBOs) The compensation committee of the Board approved, solely in respect of non-executive employees, delegated to our Chief Executive Officer the authority to approve grants of PSUs. The compensation committee of the Board also approved grants of PBOs and PSUs to our executives. The PSUs and PBOs vest based upon both the successful achievement of certain corporate operating milestones in specified timelines and continued employment through the applicable vesting date. When the performance goals are deemed to be probable of achievement for these types of awards, recognition of stock-based compensation expense commences. Once the number of shares eligible to vest is determined, those shares vest in two equal installments with 50 % vesting upon achievement and the remaining 50 % vesting on the first anniversary of achievement, in each case, subject to the recipient’s continued service through the applicable vesting date. If the performance goals are achieved at the threshold level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to half the number of PSUs granted and one-quarter the number of shares underlying the PBOs granted. If the performance goals are achieved at the target level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to the number of PSUs granted and half of the shares underlying the PBOs granted. If the performance goals are achieved at the superior level, the number of shares eligible to vest in respect of the PSUs would be equal to two times the number of PSUs granted and equal to the number of PBOs granted. The number of shares issuable upon achievement of the performance goals at the levels between the threshold and target levels for the PSUs and PBOs or between the target level and superior levels for the PSUs would be determined using linear interpolation. Achievement below the threshold level would result in no shares being eligible to vest in respect of the PSUs and PBOs. In 2020, we awarded PSUs (“2020 PSUs”) and PBOs (“2020 PBOs”), each of which commence vesting based upon the achievement of various weighted performance goals, including corporate revenue, performance enzyme segment gross margin, major new biotherapeutics publicity events, strategic performance enzyme and biotherapeutics deliverables, and strategic plan development. As of December 31, 2020, we estimated that the 2020 PSUs and 2020 PBOs performance goals would be achieved at 88 % of the target level, and recognized expenses accordingly. 132 In 2019, we awarded PSUs (“2019 PSUs”) and PBOs (“2019 PBOs”), each of which commenced vesting based upon the achievement of various weighted performance goals, including sustained revenue and performance enzyme growth, strategic advancement of biotherapeutics, cash balance and strategic plan development. In the first quarter of 2020, we determined that the 2019 PSUs and 2019 PBOs performance goals had been achieved at 84 % of the target level, and recognized expenses accordingly. Accordingly, 50 % of the shares underlying the 2019 PSUs and PBOs vested in the first quarter of 2020 and 50 % of the shares underlying the 2019 PSUs and PBOs will vest in the first quarter of 2021, in each case subject to the recipient’s continued service on each vesting date. In 2018, we awarded PSUs (“2018 PSUs”) and PBOs (“2018 PBOs”), each of which commenced vesting based upon the achievement of various weighted performance goals, including core business revenue growth, cash balance, new licensing collaborations, new research and development service revenue arrangements, technology advancement and novel therapeutic enzymes advancement. In the first quarter of 2019, we determined that the 2018 PSUs and 2018 PBOs performance goals had been achieved at 118 % of the target level, and recognized expenses accordingly. Accordingly, 50 % of the shares underlying the 2018 PSUs and PBOs vested in the first quarter of 2019 and in the first quarter of 2020, respectively, in each case subject to the recipient’s continued service on each vesting date. Stock-Based Compensation Expense: Stock-based compensation expense is included in the consolidated statements of operations as follows (in thousands): Year Ended December 31, 2020 2019 2018 Research and development $ 1,620 $ 1,562 $ 2,055 Selling, general and administrative 6,108 5,381 5,834 Total $ 7,728 $ 6,943 $ 7,889 The following table presents total stock-based compensation expense by security type included in the consolidated statements of operations (in thousands): Year Ended December 31, 2020 2019 2018 Stock options $ 2,381 $ 2,149 $ 1,975 RSUs and RSAs 2,231 1,805 1,770 PSUs 1,160 1,087 1,511 PBOs 1,956 1,902 2,633 Total $ 7,728 $ 6,943 $ 7,889 Grant Award Activities: Stock Option Awards We estimated the fair value of stock options using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarizes the weighted-average assumptions used to estimate the fair value of employee and non-employee stock options granted: Year Ended December 31, 2020 2019 2018 Expected life (years) 5.3 5.6 5.6 Volatility 50.4 % 55.3 % 60.0 % Risk-free interest rate 1.0 % 2.4 % 2.7 % Expected dividend yield 0.0 % 0.0 % 0.0 % 133 The following summarizes the weighted-average assumptions used to estimate the fair value of 76,000 shares of stock options granted to non-employees during the year ended December 31, 2020 for services valued at $ 0.4 million: Expected life (years) 5.4 Volatility 51.6 % Risk-free interest rate 0.4 % Expected dividend yield 0.0 % The weighted average grant date fair value per share of non-employee stock options granted in 2020 was $ 5.04 . The Company did no t grant shares of stock options to non-employees during the years ended December 31, 2019 and 2018. The following tables summarizes stock option activities: Number of Shares Weighted Average Exercise Price Per Share (In Thousands) Outstanding at December 31, 2017 4,579 $ 4.40 Granted 645 $ 9.56 Exercised ( 772 ) $ 5.56 Forfeited/Expired ( 340 ) $ 6.66 Outstanding at December 31, 2018 4,112 $ 4.81 Granted 406 $ 20.68 Exercised ( 1,045 ) $ 4.50 Forfeited/Expired ( 326 ) $ 11.01 Outstanding at December 31, 2019 3,147 $ 6.31 Granted 496 $ 13.30 Exercised ( 210 ) $ 6.30 Forfeited/Expired ( 48 ) $ 16.71 Outstanding at December 31, 2020 3,385 $ 7.19 Number of Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In Thousands) (In Years) (In Thousands) Outstanding at December 31, 2020 3,385 $ 7.19 5.4 $ 49,542 Exercisable at December 31, 2020 2,569 $ 5.09 4.3 $ 42,998 Vested and expected to vest at December 31, 2020 3,279 $ 6.96 5.3 $ 48,786 The weighted average grant date fair value per share of employee stock options granted in 2020, 2019 and 2018 were $ 6.03 , $ 10.77 and $ 5.34 , respectively. The total intrinsic value of options exercised in 2020, 2019 and 2018 were $ 1.8 million, $ 13.6 million and $ 7.6 million, respectively. As of December 31, 2020, there was $ 4.1 million of unrecognized stock-based compensation, net of expected forfeitures, related to unvested stock options, which we expect to recognize over a weighted average period of 2.4 years. 134 Restricted Stock Awards (RSAs) The following table summarizes RSA activities: Number of Shares Weighted Average Grant Date Fair Value Per Share Non-vested balance at December 31, 2017 159 $ 4.68 Granted 47 $ 14.35 Vested ( 151 ) $ 4.71 Non-vested balance at December 31, 2018 55 $ 12.83 Granted 40 $ 17.18 Vested ( 56 ) $ 12.83 Forfeited/Expired ( 4 ) $ 17.18 Non-vested balance at December 31, 2019 35 $ 17.18 Granted 96 $ 11.44 Vested ( 35 ) $ 17.18 Non-vested balance at December 31, 2020 96 $ 11.44 The total fair value, as of the vesting date, of RSAs vested in fiscal 2020, 2019 and 2018 were $ 0.4 million, $ 1.0 million and $ 2.1 million respectively. As of December 31, 2020, there was $ 0.6 million of unrecognized stock-based compensation cost related to non-vested RSAs, which we expect to recognize over a weighted average period of 1.6 years. Restricted Stock Units (RSUs) The following table summarizes RSU activities: Number of Shares Weighted Average Grant Date Fair Value Per Share (In Thousands) Non-vested balance at December 31, 2017 560 $ 4.08 Granted 86 $ 10.56 Vested ( 290 ) $ 4.09 Forfeited/Expired ( 8 ) $ 4.73 Non-vested balance at December 31, 2018 348 $ 5.66 Granted 72 $ 19.19 Vested ( 210 ) $ 5.03 Forfeited/Expired ( 9 ) $ 13.60 Non-vested balance at December 31, 2019 201 $ 10.76 Granted 156 $ 14.22 Vested ( 168 ) $ 10.05 Forfeited/Expired ( 13 ) $ 15.16 Non-vested balance at December 31, 2020 176 $ 14.17 The total fair value, as of the vesting date, of RSUs vested in fiscal 2020, 2019 and 2018 were $ 2.1 million, $ 4.1 million and $ 2.9 million respectively. As of December 31, 2020, there was $ 1.4 million of unrecognized stock-based compensation cost related to non-vested RSUs, which we expect to recognize over a weighted average period of 1.9 years. 135 Performance-Contingent Restricted Stock Units (PSUs) The following table summarizes PSU activities: Number of Shares Weighted Average Grant Date Fair Value Per Share (In Thousands) Non-vested balance at December 31, 2017 429 $ 4.20 Granted 306 $ 6.71 Vested ( 495 ) $ 7.16 Non-vested balance at December 31, 2018 240 $ 7.48 Granted 95 $ 14.98 Vested ( 200 ) $ 6.58 Forfeited/Expired ( 15 ) $ 15.58 Non-vested balance at December 31, 2019 120 $ 13.88 Granted 124 $ 13.59 Vested ( 107 ) $ 11.28 Forfeited/Expired ( 6 ) $ 21.80 Non-vested balance at December 31, 2020 131 $ 15.34 The total fair value, as of the vesting date, of PSUs vested in the years ended December 31, 2020, 2019, and 2018 were $ 1.3 million, $ 3.8 million, and $ 5.4 million, respectively. As of December 31, 2020, there was $ 0.5 million of unrecognized stock-based compensation cost related to non-vested PSUs, which we expect to recognize over a weighted average period of 0.6 years. Performance Based Options (PBOs) We estimated the fair value of PBO using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarize the ranges of weighted-average assumptions used to estimate the fair value of employee stock options granted: Year Ended December 31, 2020 2019 2018 Expected life (years) 5.3 5.6 5.6 Volatility 49.9 % 55.8 % 60.3 % Risk-free interest rate 1.3 % 2.5 % 2.7 % Expected dividend yield 0.0 % 0.0 % 0.0 % 136 The following tables summarizes PBO activities: Number of Shares Weighted Average Grant Date Fair Value Per Share (in thousands) Outstanding at December 31, 2017 1,720 $ 2.54 Granted 1,200 $ 5.02 Exercised ( 84 ) $ 2.54 Forfeited ( 1,254 ) $ 3.73 Outstanding at December 31, 2018 1,582 $ 3.47 Granted 718 $ 11.44 Exercised ( 422 ) $ 3.17 Forfeited ( 618 ) $ 10.34 Outstanding at December 31, 2019 1,260 $ 4.75 Granted 689 $ 6.37 Forfeited ( 389 ) $ 6.42 Outstanding at December 31, 2020 1,560 $ 5.05 Number of Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In Thousands) (In Years) (In Thousands) Exercisable at December 31, 2020 1,156 $ 7.55 6.6 $ 16,504 Vested and expected to vest at December 31, 2020 1,510 $ 9.54 7.2 $ 18,567 The total fair value of exercised PBOs wer e nil for 2020, $ 1.3 million for 2019 and $ 0.2 million for 2018. As of December 31, 2020, there was $ 1.1 million of unrecognized stock-based compensation cost related to non-vested PBOs, which we expect to recognize over a weighted average period of 0.5 years. Note 10. Capital Stock Public Offerings In December 2020, we completed an underwritten public offering in which we issued and sold 4,928,572 shares of our common stock, par value $ 0.0001 per share, at a public offering price of $ 17.50 per share. We received gross proceeds of $ 86.3 million, net of underwriting discounts and commissions of $ 5.2 million and direct offering expenses of $ 0.3 million for net proceeds of $ 80.8 million. In April 2018, we completed an underwritten public offering of 4,312,500 shares of our common stock, par value $ 0.0001 per share, at a public offering price of $ 9.25 per share. We received net proceeds after deducting the underwriting discounts and commissions and estimated offering expenses of approximately $ 37.3 million. Private Placement 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. After deducting issuance costs of $ 0.1 million from the Private Offering, our net proceeds were $ 49.9 million. The Private Offering was exempt from registration pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) the Securities Act, and Regulation D under the Securities Act. Note 11. 401(k) Plan In January 2005, we implemented a 401(k) Plan covering certain employees. Currently, all of our United States based employees over the age of 18 are eligible to participate in the 401(k) Plan. Under the 401(k) Plan, eligible employees may elect 137 to reduce their current compensation up to a certain annual limit and contribute these amounts to the 401(k) Plan. We may make matching or other contributions to the 401(k) Plan on behalf of eligible employees. We recorded employer matching contributions expense of $ 0.8 million, $ 0.7 million, and $ 0.6 million in the years ended December 31, 2020, 2019, and 2018, respectively. Note 12. Income Taxes Our loss before provision for (benefit from) income taxes was as follows (in thousands): Year Ended December 31, 2020 2019 2018 United States $ ( 23,452 ) $ ( 11,751 ) $ ( 10,653 ) Foreign ( 219 ) ( 167 ) ( 262 ) Loss before provision for income taxes $ ( 23,671 ) $ ( 11,918 ) $ ( 10,915 ) The tax provision (benefit from) for the years ended December 31, 2020, 2019 and 2018 consists primarily of taxes attributable to foreign operations. The components of the provision for income taxes are as follows (in thousands): Year Ended December 31, 2020 2019 2018 Current provision (benefit): State $ 5 $ 5 $ 5 Foreign 342 18 ( 13 ) Total current provision (benefit) 347 23 ( 8 ) Deferred provision (benefit): Foreign ( 8 ) ( 6 ) ( 29 ) Total deferred provision (benefit) ( 8 ) ( 6 ) ( 29 ) Provision for (benefit from) income taxes $ 339 $ 17 $ ( 37 ) Reconciliation of the provision for (benefit from) income taxes calculated at the statutory rate to our provision for (benefit from) income taxes is as follows (in thousands): Year Ended December 31, 2020 2019 2018 Tax benefit at federal statutory rate $ ( 4,971 ) $ ( 2,503 ) $ ( 2,292 ) State taxes ( 465 ) ( 1,120 ) 222 Research and development credits ( 811 ) ( 693 ) ( 499 ) Foreign operations taxed at different rates 2 1 ( 17 ) Stock-based compensation 132 ( 3,606 ) ( 2,587 ) Other nondeductible items 69 505 ( 3 ) Executive compensation 24 872 838 Change in valuation allowance 6,359 6,561 4,301 Provision for (benefit from) income taxes $ 339 $ 17 $ ( 37 ) Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. 138 Significant components of our deferred tax assets and liabilities are as follows (in thousands): December 31, 2020 2019 Deferred tax assets: Net operating losses $ 72,530 $ 68,422 Credits 9,914 8,494 Deferred revenues 1,080 468 Stock-based compensation 2,576 2,338 Reserves and accruals 1,914 1,545 Depreciation 1,115 1,358 Intangible assets 1,714 2,159 Capital losses 25 26 Unrealized gain/loss 400 406 Lease liability 5,626 5,974 Other assets 100 92 Total deferred tax assets: 96,994 91,282 Valuation allowance ( 92,126 ) ( 85,768 ) Deferred tax liabilities: Right-of-use assets ( 4,848 ) ( 5,514 ) Other ( 52 ) ( 40 ) Total deferred tax liabilities: ( 4,900 ) ( 5,554 ) Net deferred tax liabilities $ ( 32 ) $ ( 40 ) ASC 740 requires that the tax benefit of NOLs, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a valuation allowance against our deferred tax assets. Accordingly, the net deferred tax assets in all our jurisdictions have been fully reserved by a valuation allowance. The net valuation allowance increased by $ 6.4 million during the year ended December 31, 2020, increased by $ 6.5 million during the year ended December 31, 2019, and increased by $ 5.2 million during the year ended December 31, 2018. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced. The following table sets forth our federal, state and foreign NOL carryforwards and federal research and development tax credits as of December 31, 2020 (in thousands): December 31, 2020 Amount Expiration Years Net operating losses, federal $ 224,475 2022-2037 Net operating losses, federal $ 82,931 Do not expire Net operating losses, state $ 127,317 2028-2040 Tax credits, federal $ 10,654 2022-2040 Tax credits, state $ 11,977 Do not expire Net operating losses, foreign $ 778 Various 139 Current U.S. federal and California tax laws include substantial restrictions on the utilization of NOLs and tax credit carryforwards in the event of an ownership change of a corporation. Accordingly, the Company's ability to utilize NOLs and tax credit carryforwards may be limited as a result of such ownership changes. We performed an analysis in 2020 and determined that there was not a limitation that would result in the expiration of carryforwards before they are utilized. Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. In 2014, we determined that the undistributed earnings of our India subsidiary will be repatriated to the United States, and accordingly, we have provided a deferred tax liability totaling $ 0.1 million as of December 31, 2020, for local taxes that would be incurred upon repatriation. We have not provided for U.S. federal and state income taxes on all of the remaining non-U.S. subsidiaries’ undistributed earnings as of December 31, 2020 as the remaining foreign jurisdictions are in an accumulative loss position. We apply the provisions of ASC 740 to account for uncertain income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): December 31, 2020 2019 2018 Balance at beginning of year $ 11,330 $ 9,980 $ 9,422 Additions based on tax positions related to current year 1,357 1,362 1,087 Reductions to tax provision of prior years ( 4 ) ( 12 ) ( 529 ) Balance at end of year $ 12,683 $ 11,330 $ 9,980 We recognize interest and penalties as a component of our income tax expense. Total interest and penalties recognized in the consolidated statement of operations was $ 39 thousand, $ 32 thousand and $ 37 thousand, respectively, in 2020, 2019 and 2018. Total penalties and interest recognized in the balance sheet was $ 0.4 million in 2020 and 2019. The total unrecognized tax benefits that, if recognized currently, would impact our company’s effective tax rate were $ 0.3 million as of December 31, 2020 and 2019. We do not expect any material changes to our uncertain tax positions within the next 12 months. We are not subject to examination by United States federal or state tax authorities for years prior to 2002 and foreign tax authorities for years prior to 2013. In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided a measurement period of up to one year from the enactment date of the Tax Cuts and Jobs Act of 2017 (the “Act”) for companies to complete the accounting for the Tax Act and its related impacts. In 2018, the Company completed its accounting for the Tax Act. The income tax effects of the Tax Act for which the accounting was completed in 2018 include: the impact of the Transition Tax, the revaluation of deferred tax assets and liabilities to reflect the 21% corporate tax rate, the impact to the aforementioned items on state income taxes. We completed our accounting for the income tax effects under the Tax Cuts and Jobs Act (the “Act”) that are relevant to the Company and required to be recorded and disclosed pursuant to ASC 740. Accordingly, any and all provisional amounts previously recorded in accordance with SAB 118 were adjusted to reflect their final amounts. Beginning in 2018, the global intangible low-taxed income (“GILTI”) provisions in the Tax Act required us to include, in our U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Per guidance issued by the FASB, companies can either account for deferred taxes related to GILTI or treat tax arising from GILTI as a period cost. Both are acceptable methods subject to an accounting policy election. At December 31, 2018, we finalized our policy and elected to use the period cost method for GILTI. In 2020, we did not incur any GILTI inclusion as our foreign subsidiaries generated losses. 140 The BEAT provisions in the Tax Act eliminated the deduction of certain base-erosion payments made to related foreign corporations and impose a minimum base erosion anti-abuse tax if greater than regular tax. In 2020, our company was not subject to BEAT as it did not meet the requirements to be subject to BEAT. Note 13. Commitments and Contingencies Operating Leases Our headquarters are located in Redwood City, California, where we occupy approximately 77,300 square feet of office and laboratory space in four buildings within the same business park of Metropolitan Life Insurance Company (“MetLife”). Our Lease agreement with MetLife ("RWC Lease") includes approximately 28,200 square feet of space located at 200 and 220 Penobscot Drive, Redwood City, California (the “200/220 Penobscot Space”) and approximately 37,900 square feet of space located at 400 Penobscot Drive, Redwood City, California (the “400 Penobscot Space”) (the 200/220 Penobscot Space and the 400 Penobscot Space are collectively referred to as the “Penobscot Space”), and approximately 11,200 square feet of space located at 501 Chesapeake Drive, Redwood City, California (the “501 Chesapeake Space”). Until the end of January 2020, we also leased approximately 29,900 square feet of space located at 101 Saginaw Drive, Redwood City, California (the “Saginaw Space”). During the period January 1, 2020 through January 31, 2020, we subleased approximately 26,500 square feet of the Saginaw Space to Minerva Surgical, Inc. The lease and sublease for the Saginaw Space both expired at the end of January 2020. During the period from February 1, 2020 through April 30, 2020, we subleased approximately 3,400 square feet at 101 Saginaw Drive from Minerva Surgical, Inc. The sublease expired at the end of April 2020. We entered into the initial lease with MetLife for our facilities in Redwood City in 2004 and the RWC lease has been amended multiple times since then to adjust the leased space and terms of the Lease. In February 2019, we entered into an Eighth Amendment to the Lease (the “Eighth Amendment”) with MetLife with respect to the Penobscot Space and the 501 Chesapeake Space to extend the term of the Lease for additional periods. Pursuant to the Eighth Amendment, the term of the lease of the Penobscot Space has been extended through May 2027. The lease term for the 501 Chesapeake Space has been extended to May 2029. We have one (1) option to extend the term of the lease for the Penobscot Space for five ( 5 ) years, and one (1) separate option to extend the term of the lease for the 501 Chesapeake Space for five ( 5 ) years. We incurred $ 3.6 million of capital improvement costs related to the facilities leased from MetLife through December 31, 2012. During 2011 and 2012, we requested and received $ 3.1 million of reimbursements from the landlord for the tenant improvement and HVAC allowances for the completed construction. The reimbursements were recorded once cash was received. In those fiscal periods prior to January 1, 2019, we recorded reimbursements from the landlord for tenant improvements as liabilities in the consolidated balance sheets and we amortized the reimbursements on a straight line basis over the term of the RWC Lease as a reduction to rent expense. On January 1, 2019 we adopted ASU 2016-02 and related amendments, Leases (Topic 842) (“ASC 842”), which provided a new basis of accounting for leases. Under the provisions of ASC 842, we reclassified lease incentive obligations as operating lease right-of-use assets in the consolidated balance sheets. Rent expense for the Redwood City properties is recognized on a straight-line basis over the term of the RWC Lease. We are required to restore certain areas of the Redwood City facilities that we are renting to their original form. We are expensing the asset retirement obligation over the terms of the respective leases. We review the estimated obligation each reporting period and make adjustments if our estimates change. We recorded asset retirement obligations of $ 0.2 million as of December 31, 2020 and 2019, which are included in other liabilities on the consolidated balance sheets. Accretion expense related to our asset retirement obligations was nominal in 2020 and 2019. Pursuant to the terms of the RWC Lease, we exercised our right to deliver a letter of credit in lieu of a security deposit. The letter of credit is collateralized by deposit balances held by the bank in the amount of $ 1.1 million as of December 31, 2020 and 2019, and are recorded as non-current restricted cash on the consolidated balance sheets. Finance Leases In December 2016, we entered into a three-year financing lease agreement with a third party supplier for the purchase of laboratory equipment that was partially financed through a finance lease of approximately $ 0.4 million. The lease became effective upon delivery of the equipment, in February 2017 and term of the three-year lease was from February 2017 and expired in February 2020. This financing agreement was accounted for as a finance lease due to bargain purchase options at the end of the lease. In April 2017, we entered into a three-year financing lease agreement with a third party supplier for the purchase of information technology equipment for approximately $ 0.3 million. The effective term the three-year lease was from May 2017 and expired in April 2020. 141 Lease costs, amounts included in measurement of lease obligations and other information related to non-cancellable operating leases and finance leases for the year ended December 31, 2020 and 2019 were as follows (in thousands): Year Ended December 31, 2020 2019 Amortization of right-of-use assets $ 152 $ 217 Interest on lease obligations 1 10 Finance lease costs 153 227 Operating lease cost 3,879 4,556 Short-term lease costs (1) 47 — Sublease income ( 55 ) ( 957 ) Total lease cost (2) $ 4,024 $ 3,826 (1) Short-term lease costs on leases with terms of over one month and less than one year. (2) The Company had no variable lease costs. Lease costs for the years ended December 31, 2020 and 2019 as compared to year ended December 31, 2018 reflected the effects of adopting the provisions of ASC 842 which provided a new basis of accounting for leases in 2019. Operating lease costs were $ 3.2 million for the year ended December 31, 2018, partially offset by sublease income of $ 1.1 million. Finance lease payments were $ 0.3 million for the year ended December 31, 2018. 142 Amounts included in measurement of lease obligations: Year Ended December 31, 2020 2019 Cash paid: Operating cash flows from operating leases $ 2,816 $ 3,279 Operating cash flow from finance leases $ 1 $ 10 Financing cash flows from finance leases $ 60 $ 242 Non-cash activity: Operating Lease - Right-of-use assets obtained in exchange for lease liabilities $ — $ 26,617 Finance Lease - Right-of-use assets obtained in exchange for lease liabilities $ — $ 493 Operating Lease Finance Lease Other information: Weighted-average remaining lease term (in years) 5.5 years — Weighted-average discount rate 6.6 % 5.0 % As of December 31, 2020, our maturity analyses of annual undiscounted cash flows of the non-cancellable operating leases are as follows (in thousands): Years ending December 31, Operating Leases 2021 $ 4,197 2022 4,285 2023 4,589 2024 4,726 2025 4,868 Thereafter 8,626 Total minimum lease payments 31,291 Less: imputed interest 6,340 Lease obligations $ 24,951 Subsequent Event In the first quarter of 2021, we entered into a lease agreement with ARE-San Francisco No. 63, LLC (“ARE”) to lease a portion of a facility comprising approximately 36,593 rentable square feet in San Carlos, California to serve as additional office and research and development laboratory space (the “San Carlos Space”). We expect to commence occupancy of the San Carlos Space in November 2021 once tenant improvements are substantially completed by ARE in accordance with the construction plan. For additional information and a maturity analyses of the estimated annual undiscounted cash flows of the operating lease, see Note 17, “Subsequent Events” Other Commitments We enter into supply and service arrangements in the normal course of business. Supply arrangements are primarily for fixed-price manufacture and supply. Service agreements are primarily for the development of manufacturing processes and certain studies. Commitments under service agreements are subject to cancellation at our discretion which may require payment of certain cancellation fees. The timing of completion of service arrangements is subject to variability in estimates of the time required to complete the work. 143 The following table provides quantitative data regarding our other commitments. Future minimum payments reflect amounts that we expect to pay including potential obligations under services agreements subject to risk of cancellation by us (in thousands): Other Commitment Agreement Type Agreement Date Future Minimum Payment Manufacture and supply agreement with expected future payment date of December 2022 April 2016 $ 320 Development and manufacturing services agreements September 2019 2,341 Total other commitments $ 2,661 Credit Facility In June 30, 2017, we entered into a credit facility (the “Credit Facility”) with Western Alliance Bank consisting of term loans (“Term Debt”) up to $ 10.0 million, and advances (“Advances”) under a revolving line of credit (“Revolving Line of Credit”) up to $ 5.0 million with an accounts receivable borrowing base of 80 % of eligible accounts receivable. At December 31, 2020 and 2019, we have not drawn from the Credit Facility. We may draw on the Term Debt and the Revolving Line of Credit at any time prior to October 1, 2021 and October 1, 2024, respectively. On October 1, 2024 loans drawn under the Term Debt mature and the Revolving Line of Credit terminate. Loans made under the Term Debt bear interest through maturity equal to the greater of (i) 3.75 % or (ii) the sum of (A) Index Rate (prime rate published in the Money Rates section of the Western Edition of The Wall Street Journal plus (B) 0.50 %. Advances made under the Revolving Line of Credit bear interest at a variable annual rate equal to the equal to the greater of (i) 4.25 % or (ii) the sum of (A) the prime rate plus (B) 1.0 %. Our obligations under the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property. The Credit Facility includes a number of customary covenants and restrictive financial covenants including meeting minimum product revenue levels and maintaining certain minimum cash levels with the lender. The Credit Facility’s financial covenants restrict the ability of the Company to transfer collateral, incur additional indebtedness, engage in mergers or acquisitions, pay dividends or make other distributions, make investments, create liens, sell assets, or sell certain assets held at foreign subsidiaries. A failure to comply with these covenants could permit the lender to exercise remedies against us and the collateral securing the Credit Facility, including foreclosure of our properties securing the Credit Facilities and our cash. At December 31, 2020, we were in compliance with the covenants for the Credit Facility. The Credit Facility allows for interest-only payments on the Term Debt through November 1, 2022. Monthly payments of principal and interest on the Term Debt are required following the applicable amortization date. We may elect to prepay in full the Term Debt and Advances under the Revolving Line of Credit at any time. Legal Proceedings We are not currently a party to any material pending litigation or other material legal proceedings. Indemnifications We are required to recognize a liability for the fair value of any obligations we assume upon the issuance of a guarantee. We have certain agreements with licensors, licensees and collaborators that contain indemnification provisions. In such provisions, we typically agree to indemnify the licensor, licensee and collaborator against certain types of third party claims. The maximum amount of the indemnifications is not limited. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. There were no accruals for expenses related to indemnification issues for any periods presented. Impact of 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. 144 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 have had a negative impact on 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 in accordance with these Orders. In May 2020, we initiated limited R&D operations and have gradually ramped up operations such that we are currently utilizing the majority of our normal R&D capacity. 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. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations in the future is uncertain. Note 14. Related Party Transactions Molecular Assemblies, Inc. In June 2020, we entered into a Stock Purchase Agreement with Molecular Assemblies, Inc. (“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 Executive Officer, also joined MAI’s board of directors. Concurrently with our initial equity investment, we entered into a Master Collaboration and Research Agreement with MAI (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 services with MAI and we recognized $ 0.9 million in research and development revenue from these services with MAI in the year ended December 31, 2020. Our investment in MAI Series A preferred stock was $ 1.5 million at December 31, 2020. At December 31, 2020, we had $ 0.5 million in contract asset due from MAI for services rendered. Payment for the services rendered was subsequently received in the form of additional MAI Series A preferred stock in the first quarter of 2021. For addition information, see Note 5, "Collaborative Arrangements." Arzeda Corp. In November 2020, we entered into the SynBio Innovation Accelerator (“Accelerator”) collaboration with Casdin Capital, LLC ("Casdin"). The Accelerator is an informal collaboration with no commitment, designed to invest in the bio-production space to stimulate innovation which may deliver products leveraging the engineering technology and operational capability of Codexis and the resources, network and investment processes of Casdin, a shareholder with greater than a 5% ownership in Codexis' publicly traded common stock. The first Accelerator investment was in an available-for-sale non-marketable interest-bearing debt securities which are convertible subordinated notes issued by Arzeda Corp., an early-stage computational protein design company. The cost to acquire and the carrying value of the investment as of December 31, 2020 was $ 1.0 million. For additional information, see Note 7, “Fair Value Measurements.” AstraZeneca PLC Pam P. Cheng, who served as a member of our board of directors until June 2020, joined AstraZeneca PLC as Executive Vice President, Operations and Information Technology in June 2015. We sold biocatalyst products to AstraZeneca PLC and its controlled purchasing agents and contract manufacturers. We recognized $ 0.1 million of revenue in 2020 through the date of Ms. Cheng’s departure from our board of directors. We recognized $ 1.0 million and $ 0.6 million of revenue from transactions with AstraZeneca in the years ended December 30, 2019 and 2018, respectively. At December 31, 2020 and 2019, we had nil 145 and $ 0.3 million of related party receivables from AstraZeneca PLC and its controlled purchasing agents and contract manufacturers, respectively. Settlement of Short Swing Profit Claim In August 2019, we recorded approximately $ 77 thousand related to the short swing profit settlement remitted by a shareholder of our company under Section 16(b) of the Securities Exchange Act of 1934, as amended. We recognized the proceeds as an increase to additional paid-in capital in the consolidated balance sheets as of December 31, 2019 and consolidated statements of stockholders’ equity as well as in cash provided by financing activities in the consolidated statements of cash flows for the year ended December 31, 2019. Note 15. Segment, Geographical and Other Revenue Information Segment Information We manage our business as two business segments: Performance Enzymes and Novel Biotherapeutics. We report corporate-related expenses such as legal, accounting, information technology, and other costs that are not otherwise included in our reportable business segments as “Corporate costs.” All items not included in income (loss) from operations are excluded from the business segments. We manage our assets on a total company basis, not by business segment, as the majority of our operating assets are shared or commingled. Our CODM does not review asset information by business segment in assessing performance or allocating resources, and accordingly, we do not report asset information by business segment. 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. 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, 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. Novel Biotherapeutics We are also targeting new opportunities in the pharmaceutical industry to discover, improve, and/or develop biotherapeutic drug candidates. We believe that our CodeEvolver ® protein engineering platform technology can be used to discover novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions. 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. PKU is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient. We have also developed a pipeline of other biotherapeutic drug candidates, which are in preclinical development, and in which we expect to continue to make additional investments with the aim of advancing additional product candidates targeting other therapeutic areas. 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. Factors considered in determining the two reportable segments of the Company include the nature of business activities, the management structure directly accountable to our CODM for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors. Our CODM regularly reviews our segments and the approach provided by management for performance evaluation and resource allocation. Operating expenses that directly support the segment activity are allocated based on segment headcount, revenue contribution or activity of the business units within the segments, based on the corporate activity type provided to the segment. The expense allocation excludes certain corporate costs that are separately managed from the segments. This provides the CODM with more meaningful segment profitability reporting to support operating decisions and allocate resources. 146 The following tables provide financial information by our reportable business segments along with a reconciliation to consolidated loss before income taxes (in thousands): Year Ended December 31, 2020 Year Ended December 31, 2019 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Revenues: Product revenue $ 30,220 $ — $ 30,220 $ 29,465 $ — $ 29,465 Research and development revenue 17,886 20,950 38,836 28,691 10,302 38,993 Total revenues 48,106 20,950 69,056 58,156 10,302 68,458 Costs and operating expenses: Cost of product revenue 13,742 — 13,742 15,632 — 15,632 Research and development (1) 20,923 21,705 42,628 19,380 13,278 32,658 Selling, general and administrative (1) 9,597 2,355 11,952 8,462 2,222 10,684 Total segment costs and operating expenses 44,262 24,060 68,322 43,474 15,500 58,974 Income (loss) from operations $ 3,844 $ ( 3,110 ) 734 $ 14,682 $ ( 5,198 ) 9,484 Corporate costs (2) ( 22,306 ) ( 19,624 ) Depreciation and amortization ( 2,099 ) ( 1,778 ) Loss before income taxes $ ( 23,671 ) $ ( 11,918 ) (1) Research and development expenses and selling, general and administrative expenses exclude depreciation and amortization of finance leases. (2) Corporate costs include unallocated selling, general and administrative expense, interest income, and other income and expenses. Year Ended December 31, 2019 Year Ended December 31, 2018 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Revenues: Product revenue $ 29,465 $ — $ 29,465 $ 25,590 $ — $ 25,590 Research and development revenue 28,691 10,302 38,993 21,483 13,521 35,004 Total revenues 58,156 10,302 68,458 47,073 13,521 60,594 Costs and operating expenses: Cost of product revenue 15,632 — 15,632 12,620 — 12,620 Research and development (1) 19,380 13,278 32,658 18,924 10,185 29,109 Selling, general and administrative (1) 8,462 2,222 10,684 7,538 771 8,309 Total segment costs and operating expenses 43,474 15,500 58,974 39,082 10,956 50,038 Income (loss) from operations $ 14,682 $ ( 5,198 ) 9,484 $ 7,991 $ 2,565 10,556 Corporate costs (2) ( 19,624 ) ( 20,324 ) Depreciation ( 1,778 ) ( 1,147 ) Loss before income taxes $ ( 11,918 ) $ ( 10,915 ) (1) For the year ended December 31, 2019, research and development expenses and selling, general and administrative expenses exclude depreciation and amortization of finance leases. For the year ended December 31, 2018, research and development expenses and selling, general and administrative expenses exclude depreciation. (2) Corporate costs include unallocated selling, general and administrative expense, interest income, and other income and expenses. 147 The following table provides stock-based compensation expense included in income (loss) from operations (in thousands): Years Ended December 31, 2020 2019 2018 Performance Enzymes $ 2,970 $ 2,303 $ 2,591 Novel Biotherapeutics 768 695 338 Corporate cost 3,990 3,945 4,960 Total $ 7,728 $ 6,943 $ 7,889 Significant Customers Customers that each accounted for 10% or more of our total revenues were as follows: Percentage of Total Revenues For the Years Ended December 31, 2020 2019 2018 Merck 26 % 28 % 29 % Nestlé Health Science 11 % 15 % 22 % Novartis * 23 % * Tate & Lyle * * 13 % Takeda Pharmaceutical Co. Ltd. 19 % * * * Percentage was less than 10% Customers that each accounted for 10% or more of accounts receivable balances as of the periods presented as follows: Percentage of Accounts Receivables As Of December 31, 2020 2019 Merck & Co. 32 % 38 % Nestlé Health Science 13 % 10 % Novartis 25 % * * Percentage was less than 10% Geographical Information Geographic revenues are identified by the location of the customer and consist of the following (in thousands): Year Ended December 31, 2020 2020 2019 2018 Revenues Americas $ 24,352 $ 13,039 $ 15,370 EMEA 19,257 37,133 22,361 APAC 25,447 18,286 22,863 Total revenues $ 69,056 $ 68,458 $ 60,594 Identifiable long-lived assets by location was as follows (in thousands): December 31, 2020 2019 United States $ 31,176 $ 30,387 148 Identifiable goodwill was as follows (in thousands):` Year Ended December 31, 2020 Year Ended December 31, 2019 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Goodwill $ 2,463 $ 778 $ 3,241 $ 2,463 $ 778 $ 3,241 Note 16. Allowance for Credit Losses The following summarizes the financing receivables allowance for credit losses (in thousands): Year Ended December 31, 2020 Beginning Balance, January 1, 2020 $ 34 Current year provision 40 Ending Balance, December 31, 2020 $ 74 The following tables below summarizes accounts receivable by aging category (in thousands): December 31, 2020 31-60 Days 61-90 Days 91 Days and over Total over 31 Days Current Total balance Accounts receivable $ 688 $ 7 $ 27 $ 722 $ 13,172 $ 13,894 December 31, 2019 31-60 Days 61-90 Days 91 Days and over Total over 31 Days Current Total balance Accounts receivable $ 191 $ 8 $ 62 $ 261 $ 8,802 $ 9,063 149 Note 17. Subsequent Events In the first quarter of 2021, we entered into a lease agreement with ARE-San Francisco No. 63, LLC (“ARE”) to lease a portion of a facility comprising approximately 36,593 rentable square feet in San Carlos, California to serve as additional office and research and development laboratory space (the “San Carlos Space”). We expect to commence occupancy of the San Carlos Space in November 2021 once tenant improvements are substantially completed by ARE in accordance with the construction plan. The construction plan includes Codexis-specific improvements necessary for operations at the lease commencement date. The budget provides a net tenant improvement allowance of $ 6.3 million plus an additional allowance of up to $ 2.7 million. If we use the additional allowance, ARE will have an enforceable right to payment by us in the form of equal monthly additional rent payments at a certain interest rate through the lease term. The useful life of improvements made under the additional allowance are the lesser of useful life or lease term. The terms include an initial annualized base rent of approximately $ 2.5 million which are subject to scheduled 3 % annual rent increases, plus certain operating expenses. The lease has a 10-year term with one option to extend the term for an additional period of 5 years. We have provided ARE with an approximately $ 0.4 million security deposit in the form of a letter of credit. We have the right to sublease the facility, subject to landlord consent. An estimated maturity analyses of the annual undiscounted cash flows of the operating lease is as follows (in thousands): Years ending December 31, Operating lease 2021 $ 208 2022 2,091 2023 2,582 2024 2,659 2025 2,739 Thereafter 17,690 Total minimum lease payments 27,969 Less: imputed interest 5,328 Lease obligations $ 22,641 150 Selected Quarterly Financial Data (Unaudited) The following table provides the selected quarterly financial data for 2020 and 2019: Condensed Consolidated Statements of Operations (In Thousands, Except Per Share Amounts) Quarter Ended (1) December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, 2020 (3) 2020 2020 2020 2019 (3) 2019 2019 2019 Revenues: Product revenue $ 12,215 $ 8,401 $ 4,504 $ 5,100 $ 4,877 $ 10,351 $ 6,249 $ 7,988 Research and development revenue 8,819 9,984 10,463 9,570 13,773 11,555 6,070 7,595 Total revenues $ 21,034 $ 18,385 $ 14,967 $ 14,670 $ 18,650 $ 21,906 $ 12,319 $ 15,583 Costs and operating expenses: Cost of product revenue $ 5,860 $ 3,642 $ 1,699 $ 2,541 $ 3,402 $ 5,067 $ 2,772 $ 4,391 Research and development 10,355 12,010 10,853 10,967 8,872 8,711 8,274 8,016 Selling, general and administrative 8,741 8,797 8,522 8,989 7,322 7,869 7,896 8,415 Total costs and operating expenses $ 24,956 $ 24,449 $ 21,074 $ 22,497 $ 19,596 $ 21,647 $ 18,942 $ 20,822 Income (loss) from operations $ (3,922) $ (6,064) $ (6,107) $ (7,827) $ (946) $ 259 $ (6,623) $ (5,239) Income (loss) before income taxes $ (3,912) $ (6,075) $ (6,037) $ (7,647) $ (630) $ 336 $ (6,491) $ (5,133) Net income (loss) $ (3,920) $ (6,094) $ (6,344) $ (7,652) $ (635) $ 343 $ (6,507) $ (5,136) Net income (loss) per share, basic $ (0.06) $ (0.10) $ (0.11) $ (0.13) $ (0.01) $ 0.01 $ (0.12) $ (0.09) Net income (loss) per share, diluted $ (0.06) $ (0.10) $ (0.11) $ (0.13) $ (0.01) $ 0.01 $ (0.12) $ (0.09) Weighted average common shares used in computing net income (loss) per share, basic (2) 60,483 59,061 59,000 58,888 58,620 58,287 54,954 54,170 Weighted average common shares used in computing net income (loss) per share, diluted (2) 60,483 59,061 59,000 58,888 58,620 61,412 54,954 54,170 (1) Amounts were computed independently for each quarter, and the sum of the quarters may not total the annual amounts due to rounding differences. (2 ) The full year net loss per share of common stock, basic and diluted, may not equal the sum of the quarters due to weighting of outstanding shares. (3) PSUs, PBOs, and cash bonus awards are granted to certain employees and executives and are subject to our performance in achieving pre-determined criteria approved by our board of directors. Based on the actual achievement of the annual goals, we updated the calculation of the annual expense in the fourth quarter which resulted in estimate revisions of approximately $(0.1) million in 2020 and $(0.9) million in 2019, primarily in selling, general and administrative expense. 151 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.