What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 183 added, 141 removed, 302 unchanged (52% of the section changed)

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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.

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.

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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 Nestlé License Agreement with Nestlé Health Science to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU.

In October 2017, we entered into the Nestlé License Agreement with 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 Takeda Agreement with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of 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.

In June 2020, we also entered into the MAI Agreement with MAI pursuant to which we are leveraging our CodeEvolver ® platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis.

In June 2020, we entered into the MAI Agreement with Molecular Assemblies, Inc.

("MAI") 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 MAI pursuant to which we purchased 1,587,050 shares of MAI's Series A preferred stock for $1.0 million and, in connection with the transaction, John Nicols, our President and Chief Executive Officer, also joined MAI’s board of directors.

In April 2021, we purchased an additional 1,000,000 shares of MAI's Series A preferred stock for $0.6 million.

We anticipate completing an enzyme engineering project with MAI in the second half of 2021 that may enable MAI to begin commercialization efforts thereafter.

Business Segments

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

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

Our first lead program was 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.

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

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

The Nestlé SCA was extended through December 2021.

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

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

In 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 preclinical and early clinical studies a lead candidate targeting a gastrointestinal disorder, CDX-7108, discovered through the Nestlé SCA.

During 2021, 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 the fourth quarter of 2021.

Additionally, the parties are progressing three programs under the Nestlé SCA targeting different gastrointestinal disorders.

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

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

In May 2021, Takeda elected to exercise their option to initiate an additional program for a certain undisclosed rare genetic disorder, as a result we are eligible to receive an option exercise fee.

For further description of our business segments, see Note 12, "Segment, Geographical and Other Revenue Information" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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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.

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, the prevalence of more contagious and or virulent variants, 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.

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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 minimal impact on revenue for the three months ended March 31, 2021.

We believe that these disruptions have had a minimal impact on revenue for the three and six months ended June 30, 2021.

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.

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

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

In May 2020, we re-initiated limited R&D operations and have ramped up operations

such that we are currently utilizing the majority of our normal R&D capacity while following county, state and federal COVID-19 guidance for the protection of our employees.

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

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 manufacturing at our Redwood City pilot plant in May 2020.

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

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

The near-and-long term impact of COVID-19 to our financial condition, liquidity, or results of operations in the future remains uncertain.

Although some of the Orders that were enacted to control the spread of COVID-19 have begun to be scaled back and the vaccine rollout has expanded, surges in the spread of COVID-19 due to the emergence of new more contagious or virulent variants or the ineffectiveness of the vaccines against such strains, may result in the reimplementation of certain Orders, which could adversely impact our business.

For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A.

Risk Factors included in this Quarterly Report on Form 10-Q.

Risk Factors included in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2020, filed on March 1, 2021.

Results of Operations Overview

Revenues were $18.0 million in the first quarter of 2021, a 23% increase from $14.7 million in the first quarter of 2020.

Product revenue, which consists primarily of sales of biocatalysts, pharmaceutical intermediates, and Codex ® biocatalyst panels and kits, was $10.2 million in the first quarter of 2021, an increase of 101% from $5.1 million in the first quarter of 2020.

Revenues were $25.5 million in the second quarter of 2021, a 70% increase from $15.0 million in the second quarter of 2020.

Product revenue, which consists primarily of sales of biocatalysts, pharmaceutical intermediates, and Codex ® biocatalyst panels and kits, was $14.7 million in the second quarter of 2021, an increase of 227% from $4.5 million in the second quarter of 2020.

The increase in product revenue was primarily due to an increase in customer demand for branded pharmaceutical products.

Research and development revenues, which include license, technology access and exclusivity fees, research service fees, milestone payments, royalties, and optimization and screening fees, totaled $7.8 million in the first quarter of 2021, a 18% decrease compared with $9.6 million in the first quarter of 2020.

The decrease in research and development revenue was primarily due to lower revenues from Novartis under the Novartis CodeEvolver ® Agreement as we approach completion of the technology transfer to Novartis and prior year license fees from Takeda under the Takeda Agreement.

We expect the demand for our products for the rest of the year to be higher than the comparative periods in the prior year mainly due to overall higher demand for enzymes used in the manufacture of branded pharmaceutical products and a large purchase order for $13.9 million of a proprietary high enzyme product that we received in June 2021 from a pharmaceutical customer that will be recognized as revenue in subsequent periods.

Research and development revenues, which include license, technology access and exclusivity fees, research service fees, milestone payments, royalties, and optimization and screening fees, totaled $10.7 million in the second quarter of 2021, a 3% increase compared with $10.5 million in the second quarter of 2020.

The increase in research and development revenue was primarily due to higher license fees from other existing collaboration agreement, but partially offset by higher license fees from Takeda under the Takeda Agreement being recognized in the same period in the prior year.

Our products’ profitability is affected by many factors including the margin of profit on the products we sell.

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Profit margin data is used as a management performance measure to provide additional information regarding our results of operations on a consolidated basis.

Product gross margins increased to 59% in the first quarter of 2021, compared to 50% in the first quarter of 2020, due to improved product mix resulting from an increase in customer demand for branded products.

Research and development expenses were $11.6 million in the first quarter of 2021, an increase of 6% from $11.0 million in the first quarter of 2020.

Product gross margins increased to 71% in the second quarter of 2021, compared to 62% in the second quarter of 2020, due to improved product mix resulting from an increase in customer demand for branded products.

Research and development expenses were $12.8 million in the second quarter of 2021, an increase of 18% from $10.9 million in the second quarter of 2020.

The increase was primarily due to increases in expenses associated with a higher headcount, an increase in outside services costs, higher depreciation expense and higher lab supplies costs, partially offset by a reduction in outside services related to Chemistry, Manufacturing and Controls ("CMC") and regulatory expenses and a decrease in allocable expenses.

Selling, general and administrative expenses were $11.4 million in the first quarter of 2021, an increase of 27%, compared to $9.0 million in the first quarter of 2020.

The increase was primarily due to increases in expenses associated with a higher headcount, legal expenses, stock-based compensation partially offset by lower travel and allocable expenses.

Net loss was $9.1 million, or a net loss of $0.14 per basic and diluted share in the first quarter of 2021 compared to a net loss of $7.7 million, or a net loss of $0.13 per basic and diluted share for the first quarter of 2020.

The increase in net loss is primarily related to increases in operating expenses and a reduction in research and development revenue, partially offset by an increase in product revenues and margins.

Cash and cash equivalents decreased to $139.7 million of March 31, 2021 compared to $149.1 million as of December 31, 2020.

In addition, net cash used in operations was $6.4 million in the three months ended March 31, 2021 compared to $1.4 million in the three months ended March 31, 2020.

We expect research and development expenses for the rest of the year to be higher than the comparative periods in the prior year mainly due to increase in headcount and as we continue our efforts on advancing our internal and collaborative programs.

Selling, general and administrative expenses were $12.8 million in the second quarter of 2021, an increase of 50%, compared to $8.5 million in the second quarter of 2020.

The increase was primarily due to increases in expenses associated with a higher headcount, legal expenses, and stock-based compensation partially offset by lower travel and allocable expenses.

We expect selling, general and administrative expenses for the rest of the year to be higher than the comparative periods in prior year mainly due to increase in headcount and higher operating costs a s we invest more in our business .

We recognized $8 thousand in income tax expense in the second quarter of 2021 due to the accrual of interest and penalties on historical uncertain tax positions.

We recognized a $0.3 million provision for income taxes for the second quarter of 2020

due to income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of the United States and remitted to the United States.

Net loss was $4.3 million, or a net loss of $0.07 per basic and diluted share in the second quarter of 2021 compared to a net loss of $6.3 million, or a net loss of $0.11 per basic and diluted share for the second quarter of 2020.

The decrease in net loss is primarily related to increase in product revenues and margins, which were partially offset by increases in operating expenses.

Cash and cash equivalents decreased to $129.5 million of June 30, 2021 compared to $149.1 million as of December 31, 2020.

In addition, net cash used in operating activities was $14.7 million in the six months ended June 30, 2021 compared to $11.5 million in the six months ended June 30, 2020.

We believe that based on our current level of operations, our existing cash and cash equivalents will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months.

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Draws on the term debt are subject to customary conditions for funding including, among others, that no event of default exists.

As of March 31, 2021, no amounts were borrowed under the Credit

Facility and we were in compliance with the covenants for the Credit Facility.

As of June 30, 2021, no amounts were borrowed under the Credit Facility and we were in compliance with the covenants for the Credit Facility.

See Note 10, "Commitments and Contingencies" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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Performance Enzymes

Revenues increased by $3.4 million, or 31%, to $14.2 million in the first quarter of 2021, compared to $10.9 million in the first quarter of 2020.

The increase in product revenue of $5.1 million, or 101%, to $10.2 million in the first quarter of 2021, compared to $5.1 million in the first quarter of 2020 was primarily due to higher customer demand for enzymes for the manufacture of branded pharmaceuticals products The decrease in research and development revenue of $1.8 million, or 31%, to $4.0 million in the first quarter of 2021, compared to $5.8 million in first quarter of 2020 was primarily due to lower revenues from the Novartis CodeEvolver ® Agreement as we approach completion of the technology transfer to Novartis.

Product gross margins were 59% in the first quarter of 2021, compared to 50% in the first quarter of 2020.

Revenues increased by $14.1 million, or 188%, to $21.6 million in the second quarter of 2021, compared to $7.5 million in the second quarter of 2020 primarily due to higher product revenue.

The increase in product revenue of $10.2 million, or 227%, to $14.7 million in the second quarter of 2021, compared to $4.5 million in the second quarter of 2020 was primarily due to higher customer demand for enzymes for the manufacture of branded pharmaceuticals products.

The increase in research and development revenue of $3.9 million, or 129%, to $6.9 million in the second quarter of 2021, compared to $3.0 million in second quarter of 2020 was primarily due to higher license fees from existing collaboration agreements but were partially offset by lower revenues from the Novartis CodeEvolver ® Agreement as we approach completion of the technology transfer to Novartis.

Product gross margins were 71% in the second quarter of 2021, compared to 62% in the second quarter of 2020.

The increase in product gross margins was primarily due to improved product mix due to higher demand for enzymes for the manufacture of branded pharmaceutical products .

Research and development expense increased by $0.7 million, or 13%, to $6.4 million for the first quarter of 2021, compared to the first quarter of 2020.

Research and development expense increased nominally by $60.0 thousand, or 1%, to $5.1 million for the second quarter of 2021, compared to the second quarter of 2020.

The increase was primarily due to an increase in costs associated with higher headcount, higher outside services expenses, and higher lab supplies, partially offset by lower allocable expenses.

Selling, general and administrative expense increased by $0.5 million, or 20%, to $2.8 million for the first quarter of 2021, compared to the first quarter of 2020.

The increase was primarily due to an increase in costs associated with headcount, and higher allocable expenses, partially offset by lower outside services expenses.

Selling, general and administrative expense increased by $0.8 million, or 33%, to $3.2 million for the second quarter of 2021, compared to the second quarter of 2020.

The increase was primarily due to a n increase in costs associated with higher headcount and allocable expenses, partially offset by lower outside services expenses.

We expect both research and development expenses and selling, general and administrative expenses for the rest of the year to be higher than the comparative periods in the prior year mainly due to increase in headcount and a s we invest more in our business .

Novel Biotherapeutics

Research and development revenues remained unchanged at approximately $3.8 million for the first quarter of 2021 and 2020.

Revenue in the first quarter of 2021 as compared to the first quarter of 2020 increased from higher license and research and development fees from Takeda under the Takeda Agreement, and were mostly offset by decreases in research and development revenue from Nestlé Health Science.

Research and development expense decreased by $0.3 million, or 6%, to $4.6 million for the first quarter of 2021, compared to $4.9 million in the first quarter of 2020.

The decrease was primarily due to lower costs associated with outside services relating to CMC and regulatory expenses for CDX-7108 which we are developing pursuant to our development agreement with Nestlé Health Science, lower outside services costs, and lower lab supply expenses, which were partially offset by higher allocable expenses and an increase in costs associated with higher headcount.

Selling, general and administrative expense remained unchanged at approximately $0.6 million for the first quarter of 2021 and 2020.

An increase in costs associated with higher headcount were mostly, offset by lower allocable expenses.

Research and development revenues decreased by $3.6 million, to $3.9 million in the second quarter of 2021, compared to $7.5 million in the second quarter of 2020.

The decrease in research and development revenue was primarily due to higher license and research and development fees from Takeda under the Takeda Agreement recognized in the prior year.

Research and development expense increased by $1.7 million, or 31%, to $7.2 million for the second quarter of 2021, compared to $5.5 million in the second quarter of 2020.

The increase was primarily due to higher costs associated with higher headcount and allocable expenses.

We expect research and development expenses for the rest of the year to be higher than the comparative periods in prior year mainly due to increase in headcount and as we continue our efforts on advancing our internal and collaborative programs.

Selling, general and administrative expense remain unchanged at $0.6 million f or the second quarter of 2021 and 2020.

The increase in costs associated with headcount and higher allocable expenses were partially offset by lower outside services expenses.

Merck Sitagliptin Catalyst Supply Agreement

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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 revenue of $3.3 million and $1.8 million for the three months ended March 31, 2021 and 2020, respectively, in product revenue under this agreement.

Revenues recognized by us under the Sitagliptin Catalyst Supply Agreement comprised 18% and 12% of our total revenues for the three months ended March 31, 2021 and 2020, respectively.

We recognized revenue of $2.2 million and $5.5 million for the three and six months ended June 30, 2021, respectively, compared to $2.0 million and $3.8 million for the three and six months ended June 30, 2020, respectively, in product revenue under this agreement.

Revenues recognized by us under the Sitagliptin Catalyst Supply Agreement comprised 9% and 13% for the three and six months ended June 30, 2021, respectively, compared to 13% for the three and six months ended June 30, 2020 of our total revenues.

The Sitagliptin Catalyst Supply Agreement will expire in February 2022.

We are in process of negotiating an extension at this time.

As of March 31, 2021 and March 31, 2020, we recorded revenue of $3.1 million and $2.2 million, respectively, from sitagliptin products that were recognized over time based on the progress of the manufacturing process.

As of June 30, 2021, we recorded revenue of $5.2 million from Sitagliptin products that were recognized over time based on the progress of the manufacturing process.

These products will be shipped within the six month period following the end of the quarter.

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In October 2017, we entered into the Nestlé License Agreement with 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 upon the execution of the Nestlé License Agreement and milestone payments after dosing the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114, and upon achievement of a milestone relating to formulation of CDX-6114.

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.

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

We are also eligible to receive payments from Nestlé Health Science under the Nestlé License Agreement that 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.

single year, and (iii) tiered royalties, at percentages ranging from the mid-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.

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, CDX-7108, 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 research and development fees of $1.8 million and $1.6 million for the three months ended March 31, 2021 and 2020, respectively.

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, CDX-7108, targeting a gastrointestinal disorder discovered through our Nestlé SCA into preclinical and early clinical studies.

Under the Nestlé SCA and the development agreement, we recognized research and development fees of $1.7 million and $3.5 million for the three and six months ended June 30, 2021, respectively, compared to $1.7 million and $3.3 million for the three and six months ended June 30, 2020, respectively.

Platform Technology Transfer and License Agreement

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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.

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.

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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-five 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 for the combined initial license and technology transfer performance obligation, which is expected to occur over 27 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 $0.8 million and $2.4 million in research and development revenue for the three months ended March 31, 2021 and 2020, respectively, from the Novartis CodeEvolver ® Agreement.

We recognized $0.3 million and $1.1 million in research and development revenue for the three and six months ended June 30, 2021, respectively, compared to $0.9 million and $3.7 million for the three and six months ended June 30, 2020, respectively.

Strategic Collaboration and License Agreement

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Revenue relating to the functional licenses provided to Takeda was recognized at a point in time when the control of the license transferred to the customer.

Other potential payments from Takeda include (i) reimbursement of research and development fees and pre-clinical development milestones for the three initial programs of $15.4 million, in aggregate (ii) clinical development and commercialization-based milestones, per target gene, of up to $100.0 million, and (iii) tiered royalties based on net sales of applicable 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 $2.1 million and $2.2 million in the three months ended March 31, 2021 and 2020, respectively.

In May 2021, Takeda elected to exercise their option to initiate an additional program for a certain undisclosed rare genetic disorder;

as a result we are eligible to receive an option exercise fee.

Other potential payments from Takeda include (i) reimbursement of research and development fees and preclinical development milestones for the three initial programs of $15.4 million, in aggregate (ii) clinical development and commercialization-based milestones, per target gene, of up to $100.0 million, and (iii) tiered royalties based on net sales of applicable 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 $2.1 million and $4.2 million f or the three and six months ended June 30, 2021, respectively, compared to $5.7 million and $8.0 million for the three and six months ended June 30, 2020, respectively.

Results of Operations

The following table shows the amounts from our unaudited condensed consolidated statements of operations for the periods presented (in thousands, except percentages):

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Three months ended June 30, Change Six months ended June 30, Change

2021 2020 $ % 2021 2020 $ %

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Interest income 206 57 149 261% 382 323 59 18%

Other expenses, net (88) (86) (2) (2)%

Other income (expense), net 23 13 10 (77)% (63) (72) 9 13%

Loss before income taxes (4,257) (6,037) 1,780 29% (13,322) (13,684) 362 3%

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Revenues are as follows (in thousands, except percentages):

Three months ended March 31, Change

Three months ended June 30, Change Six months ended June 30, Change

2021 2020 $ % 2021 2020 $ %

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We accept purchase orders for deliveries covering periods from one day up to approximately 14 months from the date on which the order is placed.

However, a majority of the purchase orders can be revised or cancelled by the customer without penalty.

However, a majority of the purchase orders can be revised or cancelled by the customer without

Considering these industry practices and our experience, we do not believe the total of customer purchase orders outstanding (backlog) provides meaningful information that can be relied on to predict actual sales for future periods.

Total revenues increased by $3.4 million to $18.0 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The increase was primarily due higher product revenue partially offset by lower research and development revenue.

Product revenue, increased by $5.1 million to $10.2 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The increase was primarily due to an increase in customer demand for branded pharmaceutical products.

Research and development revenue decreased by $1.8 million to $7.8 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The decrease was primarily due to lower revenues from Novartis under the Novartis CodeEvolver ® Agreement.

Total revenues increased by $10.5 million and $13.8 million in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, primarily due to higher product revenue but partially offset by lower research and development revenue for the six month period.

Product revenue, increased by $10.2 million and $15.3 million in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, primarily due to an increase in customer demand for branded pharmaceutical products.

Research and development revenue increased by $0.3 million to $10.7 million in the three months ended June 30, 2021 compared to three months ended June 30, 2020, primarily due to higher license fees from existing collaboration agreements.

Research and development revenue decreased by $1.5 million to $18.5 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to higher license and research and development fees from Takeda under the Takeda Agreement recognized in the prior year period, partially offset by higher license fees from other existing collaboration agreements.

Cost and Operating Expenses

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The following table shows the amounts of our cost of product revenue, research and development expense, and selling, general and administrative expense from our unaudited condensed consolidated statements of operations for the periods presented (in thousands, except percentages):

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The following table shows the amounts of our product revenue, cost of product revenue, product gross profit and product gross margin from our unaudited condensed consolidated statements of operations for the periods presented (in thousands, except percentages):

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2021 2020 $ % 2021 2020 $ %

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Product gross margin (%) (2)

71 % 62 % 66 % 56 %

(1) 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 revenue.

(2) Product gross margin is used as a performance measure to provide additional information regarding our results of operations on a consolidated basis.

Cost of product revenue increased by $1.7 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Cost of product revenue increased by $2.6 million in the three months ended June 30, 2021, compared to the three months ended June 30, 2020 and increased by $4.3 million in the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

The increase was primarily due to a higher volume of product sales and variations in product mix.

The product gross margin increased to 59% in the three months ended March 31, 2021 compared to 50% in the three months ended March 31, 2020 is primarily due to the sale of higher margin branded products.

The product gross margin increased to 71% and 66% in the three and six months ended June 30, 2021, respectively, compared to 62% and 56% in the three and six months ended June 30, 2020, respectively, primarily due to the sale of higher margin branded products.

Research and Development Expenses

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Research and development expenses are expensed when incurred.

Research and development expenses were $11.6 million in the three months ended March 31, 2021 compared to $11.0 million in the three months ended March 31, 2020, an increase of $0.6 million, or 6%.

The increase was primarily due to costs

associated with higher headcount, higher lab supplies, depreciation and other outside services, which was partially offset by a decrease in costs associated with outside services relating to CMC and regulatory expenses.

We expect research and development expenses for the rest of the year to be higher than the comparative periods in the prior year as we invest more in our business in order to pursue on future growth opportunities.

Research and development expenses increased by $2.0 million, or 18%, during the three months ended June 30, 2021, and by $2.6 million, or 12%, in the six months ended June 30, 2021, compared to the same periods in 2020.

The increase in research and development expenses was primarily due to an increase in costs associated with higher headcount, higher lab supplies, depreciation and other outside services, partially offset by a decrease in costs associated with outside services relating to CMC and regulatory expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of employee-related costs, which include salaries and other personnel-related expenses (including stock-based compensation), hiring and training costs, consulting and outside services expenses (including audit and legal counsel related costs), marketing costs, building lease costs, and depreciation expenses and amortization expense.

Selling, general and administrative expenses were $11.4 million in the three months ended March 31, 2021 compared to $9.0 million in the three months ended March 31, 2020, an increase of $2.4 million, or 27%.

The increase was primarily due to costs associated with a higher headcount, an increase in legal fees, and higher share-based compensation costs, partially offset by lower travel and allocable expenses.

We expect selling, general and administrative expenses for the rest of the year to be higher than the comparative periods in the prior year as we invest more in our business in order to pursue on future growth opportunities.

Interest Income and Other Expense (in thousands, except percentages):

Three months ended March 31, Change

Selling, general and administrative expenses increased by $4.3 million, or 50%, in the three months ended June 30, 2021, and by $6.7 million, or 38%, in the six months ended June 30, 2021 compared to the same periods in 2020.

The increase was primarily due to an increase in costs associated with a higher headcount, an increase in legal fees, and higher share-based compensation costs, partially offset by lower travel and allocable expenses.

We expect selling, general and administrative expenses for the rest of the year to be higher than the comparative periods in the prior year mainly due to increase in headcount and higher operating costs as we invest more in our business in order to pursue on future growth opportunities.

Interest Income and Other Income (Expense), net (in thousands, except percentages):

Three months ended June 30, Change Six months ended June 30, Change

2021 2020 $ % 2021 2020 $ %

Interest income $ 206 $ 57 $ 149 261% $ 382 $ 323 $ 59 18%

Other expenses, net (88) (86) (2) (2)%

Other income (expense), net 23 13 10 (77)% (63) (72) 9 13%

Total other income $ 229 $ 70 $ 159 227% $ 319 $ 251 $ 68 27%

Interest Income

Interest income decreased by $0.1 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to earned interest income and amortization of debt discount on non-marketable debt security, partially offset by a reduction in interest income from lower average interest rates on declining average cash balances.

Other Expenses

Other expenses increased by $2.0 thousand in three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to interest expense charges recognized on the amortization of an embedded bifurcated derivative of a share-settled redemption feature on non-marketable securities, partially offset by prior year write-down of $0.4 million of our investment in CO 2 Solutions and fluctuations in foreign currency.

Interest income increased by $149.0 thousand and $59.0 thousand in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, primarily due to earned interest income and amortization of debt discount on a non-marketable debt security, partially offset by a reduction in interest income from lower average interest rates on declining average cash balances.

Other Income (Expense), net

Other income (expense), net, increased by $10.0 thousand and $9.0 thousand in the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, primarily due to interest expense charges recognized on the amortization of an embedded bifurcated derivative of a share-settled redemption feature on non-marketable securities, partially offset by prior year write-down of $0.4 million of our investment in CO 2 Solutions and fluctuations in foreign currency.

Provision for Income Taxes (in thousands, except percentages):

Three months ended March 31, Change

Three months ended June 30, Change Six months ended June 30, Change

2021 2020 $ % 2021 2020 $ %

Provision for income taxes $ 8 $ 307 $ (299) (97) % $ 11 $ 312 $ (301) 96 %

The provision for income taxes for the three months ended March 31, 2021 and 2020, were primarily due to the accrual of interest and penalties on historic uncertain tax positions.

Net loss for the three months ended March 31, 2021 was $9.1 million, or a net loss per basic and diluted share of $0.14.

This compared to a net loss of $7.7 million, or a net loss per basic and diluted share of $0.13 for the three months ended March 31, 2020.

The increase in net loss was primarily related to higher operating expenses and lower in research and development revenues, partially offset by increased in product revenue and related margins from the sale of products.

The provision for income taxes for the three and six months ended June 30, 2021 were primarily due to the accrual of interest and penalties on historic uncertain tax positions.

We recognized a provision for income taxes for the three and six months ended June 30, 2020 for income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of the United States and remitted to the United States.

Net loss for the three months ended June 30, 2021 was $4.3 million, or a net loss per basic and diluted share of $0.07.

This compared to a net loss of $6.3 million, or a net loss per basic and diluted share of $0.11 for the three months ended June 30, 2020.

Net loss for the six months ended June 30, 2021 was $13.3 million, or a net loss per basic and diluted share of $0.21.

This compared to a net loss of $14.0 million, or a net loss per basic and diluted share of $0.24 for the six months ended June 30, 2020.

The decrease in net loss for both the three and six months ended June 30, 2021 was primarily related to increase in product revenue with higher margins, partially offset by higher operating expenses and lower research and development revenues.

Results of Operations by Segment (in thousands, except percentages):

Revenues by segment

Three months ended March 31, Change

Three months ended June 30, Change

2021 2020 Performance Enzymes Novel Biotherapeutics

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Total revenues $ 21,585 $ 3,868 $ 25,453 $ 7,506 $ 7,461 $ 14,967 $ 14,079 188 % $ (3,593) (48) %

Revenues from the Performance Enzymes segment increased by $3.4 million, or 31%, to $14.2 million for the three months ended March 31, 2021, compared to $10.9 million for the three months ended March 31, 2020.

The increase in product revenue of $5.1 million, or 101%, to $10.2 million in the three months ended March 31, 2021 compared to $5.1 million in the three months ended March 31, 2020 was primarily due to higher customer demand for enzymes for the manufacture of branded pharmaceuticals products.

The decrease in research and development revenue of $1.8 million, or 31%, to $4.0 million in three months ended March 31, 2020, compared to $5.8 million in the three months ended March 31, 2020 was primarily due to lower revenues from Novartis under the Novartis CodeEvolver ® Agreement.

Revenues from the Novel Biotherapeutics segment was approximately $3.8 million for the three months ended March 31, 2021 and 2020.

Revenue in three months ended March 31, 2021 as compared to three months ended March 31, 2020 increased from higher license and research and development fees from Takeda under the Takeda Agreement, and were partially offset by decreases in research and development revenue from Nestlé Health Science.

Six months ended June 30, Change

2021 2020 Performance Enzymes Novel Biotherapeutics

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total $ % $ %

Product revenue $ 24,943 $ — $ 24,943 $ 9,604 $ — $ 9,604 $ 15,339 160 % $ — — %

Research and development revenue 10,872 7,670 18,542 8,775 11,258 20,033 2,097 24 % (3,588) (32) %

Total revenues $ 35,815 $ 7,670 $ 43,485 $ 18,379 $ 11,258 $ 29,637 $ 17,436 95 % $ (3,588) (32) %

Revenues from the Performance Enzymes segment increased by $14.1 million, or 188%, for the three months ended June 30, 2021, and by $17.4 million, or 95%, for the six months ended June 30, 2021 compared to the same periods in 2020 primarily due to higher product and research and development revenue.

The increase in product revenue of $10.2 million, or 227%, in the three months ended June 30, 2021, and of $15.3 million, or 160%, in the six months ended June 30, 2021, compared to the same periods in 2020, was primarily due to higher customer demand for enzymes for the manufacture of branded pharmaceuticals products.

The increase in research and development revenue of $3.9 million, or 129%, to $6.9 million in three months ended June 30, 2021, compared to $3.0 million in the three months ended June 30, 2020 was primarily due to an annual collaboration fee and research and development revenue from Porton under the Porton Agreement.

The increase in research and development revenue of $2.1 million, or 24%, to $10.9 million in the six months ended June 30, 2021, compared

to $8.8 million in the six months ended June 30, 2020 was primarily due to higher license fees from existing collaboration agreements but partially offset by lower revenues from Novartis under the Novartis CodeEvolver ® Agreement.

Revenues from the Novel Biotherapeutics segment decreased by $3.6 million, or 48%, for the three months ended June 30, 2021 and by $3.6 million, or 32%, for the six months ended June 30, 2020 compared to the same periods in 2020 primarily due to higher license and research and development fees from Takeda under the Takeda Agreement recognized in the prior year and decrease in research and development revenue from Nestlé Health Science.

Costs and operating expenses by segment

Three months ended March 31, Change

Three months ended June 30, Change

2021 2020 Performance Enzymes Novel Biotherapeutics

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Total costs and operating expenses $ 29,939 $ 21,074

Six months ended June 30, Change

2021 2020 Performance Enzymes Novel Biotherapeutics

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total $ % $ %

Cost of product revenue $ 8,536 $ — $ 8,536 $ 4,240 $ — $ 4,240 $ 4,296 101 % $ — — %

Research and development (1)

11,502 11,799 23,301 10,693 10,415 21,108 809 8 % 1,384 13 %

Selling, general and administrative (1)

5,988 1,221 7,209 4,720 1,213 5,933 1,268 27 % 8 1 %

Total segment costs and operating expenses $ 26,026 $ 13,020 39,046 $ 19,653 $ 11,628 31,281 $ 6,373 32 % $ 1,392 12 %

Corporate costs (2)

16,654 11,293

Unallocated depreciation and amortization 1,426 998

Total costs and operating expenses $ 57,126 $ 43,572

(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 expenses.

For a discussion of product cost of revenue, see " Results of Operations ".

Research and development expense in the Performance Enzymes segment increased by $0.7 million, or 13%, to $6.4 million in the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

The increase was primarily due to an increase in costs associated with outside services, lab supplies and higher headcount.

Selling, general and administrative expense in the Performance Enzymes segment increased by $0.5 million, or 20%, to $2.8 million in the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

The increase was primarily due to an increase in costs associated with headcount.

Research and development expense in the Novel Biotherapeutics segment decreased by $0.3 million, or 6%, to $4.6 million in the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

The decrease was primarily due to lower outside services including lower costs relating to CMC regulatory expenses, partially offset by an increase in costs associated with higher headcount.

Selling, general and administrative expense in the Novel Biotherapeutics segment remained unchanged for the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

Research and development expense in the Performance Enzymes segment increased nominally by $60.0 thousand, or 1%, in the three months ended June 30, 2021 and by $0.8 million, or 8% in the six months ended June 30, 2021, as compared to the same periods in 2020.

The increase was primarily due to an increase in costs associated with outside services, lab supplies and higher headcount, partially offset by lower allocable expenses .

Selling, general and administrative expense in the Performance Enzymes segment increased by $0.8 million, or 33%, in the three months ended June 30, 2021, and by $1.3 million, or 27%, in the six months ended June 30, 2021, as compared to the

same periods in 2020.

The increase was primarily due to an increase in costs associated with higher headcount and higher allocable expenses, partially offset by lower outside services expenses.

Research and development expense in the Novel Biotherapeutics segment increased by $1.7 million, or 31%, and by $1.4 million, or 13%, in the six months ended June 30, 2021 compared to the same periods in 2020.

The increase was primarily due to higher costs associated with higher headcount and allocable expenses.

Selling, general and administrative expense in the Novel Biotherapeutics segment remained unchanged for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020.

Liquidity and Capital Resources

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We actively manage our cash usage and investment of liquid cash to ensure the maintenance of sufficient funds to meet our working capital needs.

The majority of our cash and cash equivalents are held in U.S.

banks, and our foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short-term operating expenses.

The following summarizes our cash and cash equivalents balance and working capital as of March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021 December 31, 2020

Our cash and cash equivalents are held in U.S.

The following summarizes our cash and cash equivalents balance and working capital as of June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021 December 31, 2020

Cash and cash equivalents $ 129,506 $ 149,117

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In the first quarter of 2021, we also received $3.4 million for partial completion of the third technology milestone.

Additionally, we are eligible to receive an additional $1.6 million upon satisfactory completion of the third technology transfer milestone.

Additionally, we will receive an additional $1.6 million upon satisfactory completion of the third technology transfer milestone which occurred in July 2021.

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 million in aggregate .

In October 2017, we entered into the Nestlé License Agreement with Nestlé Health Science.

Pursuant to the Nestlé License Agreement, Nestlé Health Science paid us an upfront cash payment and milestone payments after dosing the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114 and achievement of a formulation relating to CDX-6114.

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.

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

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 mid-single digits to low double-digits, of net sales of Product.

We are actively collaborating with new and existing customers in the pharmaceutical and food industries.

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Our largest uses of cash from operating activities are for employee-related expenditures, rent payments, inventory purchases to support our product sales and non-payroll research and development costs.

Equity Distribution Agreement

In May 2021, we entered into an Equity Distribution Agreement ("EDA") with Piper Sandler & Co ("PSC"), under which PSC, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the execution of the agreement up to a maximum of $50 million of shares of our common stock.

During the six months ended June 30, 2021, no shares were issued of our common stock pursuant to the EDA.

As of June 30, 2021, $50.0 million of shares remained available under the EDA.

Sales of our common stock under this arrangement could be subject to business, economic or competitive uncertainties and contingencies, many of which may be beyond our control, and which could cause actual results from the sale of our common stock to differ materially from expectations.

For information, see Note 9, "Capital Stock" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Stock Offering

In December 2020, we completed an underwritten public offering of approximately 4,928,572 shares of our common stock, par value $0.0001 per share, at a public offering price of $17.50 per share.

The net proceeds to us were approximately $80.8 million after deducting offering costs and the underwriting discounts and commissions and other offering expenses of $5.5 million.

Credit Facility

In June 30, 2017, we entered into the Credit Facility with Western Alliance Bank which consists of term debt for loans that allow us to borrow up to $10.0 million, and under a revolving facility that allows us to borrow up to $5.0 million with a certain eligible accounts receivable borrowing base of 80% of eligible accounts receivable.

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On October 1, 2024 loans drawn under the Term Debt mature and the Revolving Line of Credit terminate.

No amounts were drawn under the credit facility as of March 31, 2021 and December 31, 2020.

At March 31, 2021 we were in compliance with the covenants for the Credit Facility.

No amounts were drawn under the credit facility as of June 30, 2021 and December 31, 2020.

At June 30, 2021, we were in compliance with the covenants for the Credit Facility.

The Credit Facility requires us to maintain compliance with certain financial covenants including attainment of certain lender-approved projections or maintenance of certain minimum cash levels.

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For additional information about our contractual obligations, see Note 10, "Commitments and Contingencies" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

In October 2017, we entered into the Nestlé License Agreement with Nestlé Health Science.

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

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.

As of March 31, 2021, we had cash and cash equivalents of $139.7 million and $15.0 million available to borrow under our Credit Facility.

As of June 30, 2021, we had cash and cash equivalents of $129.5 million and $15.0 million available to borrow under our Credit Facility.

Our liquidity is dependent upon our cash and cash equivalents, cash flows provided by operating activities and the continued availability of borrowings under our Credit Facility.

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In addition, we may choose to seek other sources of capital even if we believe we have generated sufficient cash flows to support our operating needs.

Our need for additional capital will depend on many factors, including the financial success of our business, the spending required to develop and commercialize new and existing products, the effect of any acquisitions of other businesses, technologies or facilities that we may make or develop in the future, our spending on new market opportunities, and the potential costs for the filing, prosecution, enforcement and defense of patent claims, if necessary.

we may make or develop in the future, our spending on new market opportunities, and the potential costs for the filing, prosecution, enforcement and defense of patent claims, if necessary.

If our capital resources are insufficient to meet our capital requirements, and we are unable to enter into or maintain collaborations with partners that are able or willing to fund our development efforts or commercialize any products that we develop or enable, we will have to raise additional funds to continue the development of our technology and products and complete the commercialization of products, if any, resulting from our technologies.

If future financings involve the issuance of equity securities, our existing stockholders would suffer

If future financings involve the issuance of equity securities, our existing stockholders would suffer dilution.

If we raise debt financing or enter into credit facilities, we may be subject to restrictive covenants that limit our ability to conduct our business.

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If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.

The following is a summary of cash flows for three months ended March 31, 2021 and 2020 (in thousands):

Three months ended March 31,

The following is a summary of cash flows for six months ended June 30, 2021 and 2020 (in thousands):

Six months ended June 30,

Net cash used in operating activities $ (14,735) $ (11,498)

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Cash Flows from Operating Activities

Cash used in operating activities was $6.4 million net for the three months ended March 31, 2021, which resulted from a net loss of $9.1 million for the three months ended March 31, 2021 adjusted for non-cash charges for depreciation of $0.7 million, ROU lease asset amortization expense of $0.6 million, stock-based compensation of $2.7 million, partially offset by equity securities earned from research and development activities of $0.1 million.

Cash used in operating activities was $14.7 million for the six months ended June 30, 2021, which resulted from a net loss of $13.3 million for the six months ended June 30, 2021 adjusted for non-cash charges for depreciation of $1.4 million, ROU lease asset amortization expense of $1.3 million, stock-based compensation of $5.5 million, partially offset by equity securities earned from research and development activities of $0.5 million.

Additional cash used by changes in operating assets and liabilities was $8.8 million.

Changes in operating assets and liabilities included a decrease of $0.6 million in other long-term liabilities, a decrease of $1.7 million in accrued compensation and other accrued liabilities, a decrease of $0.3 million in deferred revenue, partially offset by a decrease of $1.1 million in financial assets and an increase of $0.4 million in accounts payable.

Cash used in operating activities was $1.4 million net for the three months ended March 31, 2020, which resulted from a net loss of $7.7 million for the three months ended March 31, 2020 adjusted for non-cash charges for depreciation of $0.4 million, ROU lease asset amortization expense of $0.7 million and stock-based compensation of $2.2 million.

Changes in operating assets and liabilities included a decrease of $1.3 million in other long-term liabilities, a decrease of $0.4 million in accrued compensation and other accrued liabilities and an increase of $7.5 million in financial assets, partially offset by an increase of $0.3 million in deferred revenue and increase of $0.4 million in accounts payable.

Cash used in operating activities was $11.5 million for the six months ended June 30, 2020, which resulted from a net loss of $14.0 million for the six months ended June 30, 2020 adjusted for non-cash charges for depreciation of $0.9 million, ROU lease asset amortization expense of $1.3 million and stock-based compensation of $4.1 million.

Additional cash used by changes in operating assets and liabilities was $3.8 million.

Changes in operating assets and liabilities included an increase of $6.5 million in deferred revenue and $3.1 million in other accrued liabilities, partially offset by a $3.9 million increase in unbilled receivables and a $1.9 million decrease accrued compensation.

Changes in operating assets and liabilities included a $2.3 million decrease in unbilled receivables and a $5.0 million decrease in accounts receivables, partially offset by an increase of $3.0 million in deferred revenue and $1.9 million in accrued compensation and other accrued liabilities.

Cash Flows from Investing Activities

Cash used in investing activities was $2.5 million for the three months ended March 31, 2021 and 2020.

Cash used in investing activities for the three months ended March 31, 2021 and 2020, was primarily attributable to $2.6 million for purchases of property and equipment.

Cash used in investing activities was $4.9 million and $2.5 million for the six months ended June 30, 2021 and 2020, respectively.

Cash used in investing activities for the six months ended June 30, 2021 was primarily attributable to $4.3 million for purchases of property and equipment and $0.6 million for the purchase of 1,000,000 shares of MAI's Series A preferred stock.

Cash used in investing activities for the six months ended June 30, 2020 was primarily attributable to the purchase of 1,587,050 shares of MAI's Series A preferred stock for $1.0 million and $1.5 million for purchases of property and equipment.

Cash Flows from Financing Activities

Cash used in financing activities was nominal for the three months ended March 31, 2021.

Cash used in financing included $1.2 million for taxes paid related to net share settlement of equity awards offset by $1.2 million of proceeds from exercises of stock options.

Cash used in financing activities was $1.0 million for the three months ended March 31, 2020 and primarily included taxes paid related to net share settlement of equity awards.

Credit Facility

In June 2017, we entered into the Credit Facility financing arrangement 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.

As of March 31, 2021, we have not drawn from the Credit Facility.

For additional information about our credit facility, see Note 10, "Commitments and Contingencies" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Cash provided by financing activities was $0.5 million for the six months ended June 30, 2021 primarily attributable to $1.7 million of proceeds from exercises of stock options, partially offset by $1.2 million for taxes paid related to net share settlement of equity awards.

Cash used in financing activities was $0.9 million for the six months ended June 30, 2020 and primarily attributable to taxes paid related to net share settlement of equity awards.

Material Cash Requirements

The following table summarizes our material cash requirements as of March 31, 2021 (in thousands):

The following table summarizes material cash requirements related to minimum future payments under non-cancellable operating leases, exclusive of common area maintenance charges and real estate taxes, as of June 30, 2021 (in thousands):

Payments due by period

Total Less than 1 year 1 to 3 years 4 to 5 years More than 5 years

Operating leases obligations (1) $ 30,251 $ 4,144 $ 9,058 $ 9,666 $ 7,383

Operating leases obligations (2) 31,723 276 5,939 6,252 19,256

Operating lease (1)

$ 29,198 $ 4,156 $ 9,179 $ 9,738 $ 6,125

Operating lease (2)

31,723 1,000 5,977 7,912 16,834

Total $ 60,921 $ 5,156 $ 15,156 $ 17,650 $ 22,959

(1) Represents future minimum lease payments under non-cancellable operating leases in effect as of March 31, 2021 for our facilities in Redwood City, California.

The minimum lease payments above do not include common area maintenance charges or real estate taxes.

In February 2019, we have entered into an Eighth Amendment to the Lease (the “Eighth Amendment”) with MetLife for our facilities, extending the lease terms fr om May 2027 to May 2029.

(2) Represents future minimum lease payments under non-cancellable operating lease entered into in the first quarter of 2021 for facilities in San Carlos, California.

The estimated minimum lease payments above do not include common area maintenance charges or real estate taxes.

(1) In the first quarter of 2019, we have entered into an Eighth Amendment to the Lease with MetLife, extending the lease terms fr om May 2027 to May 2029 of our Redwood City, California facilities.

(2) In the first quarter of 2021, we entered into a ten-year lease with 2021 RE-San Francisco No.

63, LLC, for our San Carlos facilities.

For additional information see Note 10, “Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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Actual results could differ from those estimates.

There have been no material changes to our critical accounting policies or estimates during the three months ended March 31, 2021 from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 1, 2021.

There have been no material changes to our critical accounting policies or estimates during the three and six months ended June 30, 2021 from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 1, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis