What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-06 · 164 added, 155 removed, 330 unchanged (49% of the section changed)

50 unchanged sentences

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 March 2020, we entered into the 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 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.

Concurrently with the MAI Agreement, 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, 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.

In September 2021, we purchased 9,198,423 shares of MAI's Series B preferred stock for $7.0 million.

We anticipate completing an enzyme engineering project with MAI in the first quarter of 2022.

Business Segments

16 unchanged sentences

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.

During 2020, Nestlé Health Science completed a safety, tolerability and PK/PD study of CDX-6114 in PKU patients that demonstrated CDX-6114 was well tolerated and safe at all doses tested.

During 2020, Nestlé Health Science completed a safety, tolerability and PK/PD study of CDX-6114 in PKU patients that demonstrated CDX-6114 was well tolerated at all doses tested.

In addition, an increase in blood levels of cinnamic acid, a biomarker of enzyme activity, was observed which is consistent with the intended mode of action for CDX-6114.

2 unchanged sentences

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.

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

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

2 unchanged sentences

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.

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 received the option exercise fee during the third quarter of 2021.

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.

7 unchanged sentences

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 and six months ended June 30, 2021.

We believe that these disruptions have had a minimal impact on revenue for the three and nine months ended September 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 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 .

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.

In May 2020, we re-initiated limited R&D operations and have ramped up operations such that we are currently utilizing 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.

5 unchanged sentences

Results of Operations Overview

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.

Revenues were $36.8 million in the third quarter of 2021, a 100% increase from $18.4 million in the third quarter of 2020.

Product revenue, which consists primarily of sales of biocatalysts, pharmaceutical intermediates, and Codex ® biocatalyst panels and kits, was $28.7 million in the third quarter of 2021, an increase of 242% from $8.4 million in the third quarter of 2020.

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

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.

for an aggregate amount of $29.0 million of a proprietary high enzyme product that we received in June and August 2021, and that will continue to 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 $8.0 million in the third quarter of 2021, a 19% decrease compared with $10.0 million in the third quarter of 2020.

The decrease in research and development revenue was primarily due to lower license fees from Takeda under the Takeda Agreement and lower revenue from Novartis under the Novartis CodeEvolver ® Agreement being recognized this year compared to 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.

1 unchanged sentence

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 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.

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.

Product gross margins increased to 76% in the third quarter of 2021, compared to 57% in the third quarter of 2020, due to improved product mix resulting from an increase in customer demand for branded products.

Research and development expenses were $15.2 million in the third quarter of 2021, an increase of 26% from $12.0 million in the third quarter of 2020.

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

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 as we continue our efforts on advancing our internal and collaborative programs.

Selling, general and administrative expenses were $13.4 million in the third quarter of 2021, an increase of 52%, compared to $8.8 million in the third quarter of 2020.

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

We recognized $0.1 million in income tax expense in the third quarter of 2021 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.

We recognized $19.0 thousand provision for income taxes for the third quarter 2020 due to the accrual of interest and penalties on historical uncertain tax positions

Net income was $2.2 million, or $0.03 per basic and diluted share in the third quarter of 2021 compared to a net loss of $6.1 million, or $0.10 per basic and diluted share for the third quarter of 2020.

The increase in net income 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 $119.2 million as of September 30, 2021 compared to $149.1 million as of December 31, 2020.

In addition, net cash used in operating activities was $14.9 million in the nine months ended September 30, 2021 as compared to $15.0 million in the nine months ended September 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.

1 unchanged sentence

Obligations under the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property .

In September 2020, we entered into an Eighth Amendment to the Credit Facility whereby 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.

In September 2021, we entered into the Ninth Amendment to the Credit Facility whereby we may draw on the term debt and the Revolving Line of Credit at any time prior to December 31, 2021 and October 1, 2024, respectively.

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

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.

As of September 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.

1 unchanged sentence

Performance Enzymes

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.

Revenues increased by $19.6 million, or 151%, to $32.6 million in the third quarter of 2021, compared to $13.0 million in the third quarter of 2020 primarily due to higher product revenue.

The increase in product revenue of $20.3 million, or 242%, to $28.7 million in the third quarter of 2021, compared to $8.4 million in the third quarter of 2020 was primarily due to higher customer demand for enzymes for the manufacture of branded pharmaceuticals products.

for an aggregate amount of $29.0 million of a proprietary high enzyme product that we received in June and August 2021 and that will continue to be recognized as revenue in subsequent periods.

The decrease in research and development revenue of $0.8 million, or 16%, to $3.9 million in the third quarter of 2021, compared to $4.6 million in third quarter of 2020 was primarily due to lower revenues from the Novartis CodeEvolver ® Agreement as we completed the technology transfer to Novartis during the third quarter of 2021, but were partially offset by higher license fees from existing collaboration agreements.

Product gross margins were 76% in the third quarter of 2021, compared to 57% in the third 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 nominally by $60.0 thousand, or 1%, to $5.1 million for the second quarter of 2021, compared to the second quarter of 2020.

Research and development expense increased by $0.5 million, or 9%, to $5.7 million for the third quarter of 2021, compared to $5.2 million in the third 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 $0.8 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 .

Selling, general and administrative expense increased by $0.6 million, or 24%, to $3.3 million for the third quarter of 2021, compared to $2.7 million in the third quarter of 2020.

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

Novel Biotherapeutics

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.

Research and development revenues decreased by $1.2 million, to $4.2 million in the third quarter of 2021, compared to $5.4 million in the third quarter of 2020.

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

Research and development expense increased by $2.4 million, or 38%, to $8.9 million for the third quarter of 2021, compared to $6.4 million in the third quarter of 2020.

The increase was primarily due to higher costs associated with higher

headcount and allocable expenses, but offset by reduction in outside services related 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 prior year mainly due to increase in headcount as we continue our efforts on advancing our internal and collaborative programs.

Selling, general and administrative expense increased by $0.3 million, or 61%, to $0.8 million in the third quarter of 2021, compared to $0.5 million in the third quarter of 2020.

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

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 February 2012, we entered into a five-year Sitagliptin Catalyst Supply Agreement (“Sitagliptin 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 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 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 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.

In September 2021, the Sitagliptin Catalyst Supply Agreement was amended to extend the agreement through December 2026.

Effective as of January 2016, we and Merck amended the Sitagliptin Supply Agreement to prospectively provide for variable pricing based on the cumulative volume of sitagliptin enzyme purchased by Merck.

We have determined that the variable pricing, which provides a discount based on the cumulative volume of sitagliptin enzyme purchased by Merck, provides Merck material rights and we are recognizing product revenues using the alternative method.

Under the alternative method, we estimate the total expected consideration and allocate it proportionately with the expected sales.

Pursuant to the terms of the Sitagliptin Supply Agreement, Merck may purchase supply of sitagliptin enzyme from us for a fee based on contractually stated prices.

We recognized revenue of $1.9 million and $7.3 million for the three and nine months ended September 30, 2021, respectively, compared to $3.2 million and $7.0 million for the three and nine months ended September 30, 2020, respectively, in product revenue under this contract.

Revenues recognized by us under the Sitagliptin Supply Agreement comprised 5% and 9% for the three and nine months ended September 30, 2021, respectively, compared to 17% and 15% for the three and nine months ended September 30, 2020 of our total revenues.

As of September 30, 2021, we recorded revenue of $2.5 million from sitagliptin enzyme 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.

3 unchanged sentences

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-licensabl e 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.

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 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 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.

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

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

Under the Nestlé SCA and the development agreement, we recognized research and development fees of $2.4 million and $5.8 million for the three and nine months ended September 30, 2021, r espectively, compared to $2.8 million and $6.1 million for the three and nine months ended September 30, 2020, respectively.

Platform Technology Transfer and License Agreement

1 unchanged sentence

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 27 months, starting with the date on which we commenced the technology transfer (the “Technology Transfer Period”).

In July 2021, we announced the completion of the technology transfer period during which we transferred our proprietary CodeEvolver ® protein engineering platform technology to Novartis (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.

Novartis has now installed the CodeEvolver ® protein engineering platform technology 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.

1 unchanged sentence

We have also received $3.4 million in March 2021, for partial completion of the third technology milestone.

In addition to this payment, we are eligible for an additional payment of $1.6 million for completion of the third technology milestone transfer, which would bring total cash payment for this milestone to $5.0 million as specified in the Novartis CodeEvolver ® Agreement.

In consideration for the continued disclosure and license of improvements to the 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 in aggregate.

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.

Additionally, we will receive an additional payment of $1.6 million for completion of the third technology transfer milestone in July 2021, which brings the total cash payment for the third technology transfer milestone to $5.0 million as specified in the Novartis CodeEvolver ® Agreement.

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

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 began 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.

1 unchanged sentence

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 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 $0.3 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.

Revenue for the combined initial license and technology transfer performance obligation 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.

In July 2021, we completed the technology transfer to Novartis.

Revenue allocated to improvements made during the Improvements Term will be recognized during the Improvement Term.

We recognized $0.2 million and $1.4 million in research and development revenue for the three and nine months ended September 30, 2021, respectively, compared to $0.9 million and $4.1 million for the three and nine months ended September 30, 2020, respectively.

Strategic Collaboration and License Agreement

In March 2020, we entered into the Takeda Agreement with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Co.

(“Takeda”), under which we are collaborating to research and develop protein sequences for use in gene therapy products for certain diseases.

In March 2020, we entered into the Takeda Agreement with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda, under which we are collaborating to research and develop protein sequences for use in gene therapy products for certain diseases.

On execution of the Takeda Agreement, we received an upfront non-refundable cash payment of $8.5 million.

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.

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.

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

as a result we received the option exercise fee during the third quarter of 2021.

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.

We recognized research and development revenue related to the Takeda Agreement of $1.8 million and $6.0 million f or the three and nine months ended September 30, 2021, respectively, compared to $2.6 million and $10.6 million for the three and nine months ended September 30, 2020, respectively.

purchase orders

In June 2021, we received a binding purchase order from Pfizer, Inc.

for the sale and purchase of a quantity of proprietary enzyme product for $13.9 million.

In August 2021, we had received two additional binding purchase orders from Pfizer for the sale and purchase of a quantity of the same enzyme product for an aggregate amount of approximately $15.0 million.

The enzyme product is intended for use in the manufacture of Pfizer's clinical-stage COVID antiviral therapeutic candidate.

We recognized product revenue related to the three purchase orders from Pfizer of $18.9 million for the three and nine months ended September 30, 2021.

As of September 30, 2021, we recorded revenue of $10.6 million from the sale of this enzyme product that were recognized over time based on the progress of the manufacturing process.

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

As of September 30, 2021, we had $10.6 million in contract assets related to these purchase orders.

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):

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

Three months ended September 30, Change Nine months ended September 30, Change

2021 2020 $ % 2021 2020 $ %

7 unchanged sentences

Total costs and operating expenses 35,439 24,449 10,990 45 % 92,565 68,019 24,546 36 %

Loss from operations (4,486) (6,107) 1,621 27% (13,641) (13,935) 294 2%

Income (loss) from operations 1,330 (6,064) 7,394 122 % (12,312) (19,996) 7,684 (38) %

Interest income 41 39 2 5 % 424 362 62 17 %

Other income (expense), net 983 (50) 1,033 2,066 % 920 (125) 1,045 836 %

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

Income (loss) before income taxes 2,354 (6,075) 8,429 139 % (10,968) (19,759) 8,791 (44) %

Provision for income taxes 110 19 91 479 % 121 331 (210) (63) %

Net loss $ (4,265) $ (6,344) $ 2,079 33% $ (13,333) $ (13,996) $ 663 5%

Net income (loss) $ 2,244 $ (6,094) $ 8,338 137 % $ (11,089) $ (20,090) $ 9,001 (45) %

Our revenues comprise of product revenue and research and development revenue as follows:

2 unchanged sentences

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

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

Three months ended September 30, Change Nine months ended September 30, Change

2021 2020 $ % 2021 2020 $ %

6 unchanged sentences

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

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

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 $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.

Total revenues increased by $18.4 million and $32.2 million in the three and nine months ended September 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 three and nine month period.

Product revenue, increased by $20.3 million and $35.7 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, primarily due to an increase in customer demand for branded pharmaceutical products.

for an aggregate amount of $29.0 million of a proprietary high enzyme product that we received in June and August 2021 and that will continue to be recognized as revenue in subsequent periods.

Research and development revenue decreased by $1.9 million and $3.4 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, primarily due to lower license and research and development fees from Takeda under the Takeda Agreement and lower revenues from the Novartis CodeEvolver ® Agreement recognized this year compared to the prior year period, partially offset by higher license fees from other existing collaboration agreements.

Cost and Operating Expenses

1 unchanged sentence

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):

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

Three months ended September 30, Change Nine months ended September 30, Change

2021 2020 $ % 2021 2020 $ %

7 unchanged sentences

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):

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

Three months ended September 30, Change Nine months ended September 30, Change

2021 2020 $ % 2021 2020 $ %

7 unchanged sentences

(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 $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.

Cost of product revenue increased by $3.2 million in the three months ended September 30, 2021, compared to the three months ended September 30, 2020, and increased by $7.5 million in the nine months ended September 30, 2021, compared to the nine months ended September 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 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.

The product gross margin increased to 76% and 71% in the three and nine months ended September 30, 2021, respectively, compared to 57% and 56% in the three and nine months ended September 30, 2020, respectively, primarily due to the sale of higher margin branded products.

Research and Development Expenses

2 unchanged sentences

Research and development expenses are expensed when incurred.

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.

Research and development expenses increased by $3.2 million, or 26%, during the three months ended September 30, 2021, and by $5.7 million, or 17%, in the nine months ended September 30, 2021, compared to the same periods in 2020.

The increase in research and development expenses w as 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 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.

Selling, general and administrative expenses increased by $4.6 million, or 52%, in the three months ended September 30, 2021, and by $11.3 million, or 43%, in the nine months ended September 30, 2021 compared to the same periods in 2020.

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

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

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

Three months ended September 30, Change Nine months ended September 30, Change

2021 2020 $ % 2021 2020 $ %

1 unchanged sentence

Other income (expense), net 983 (50) 1,033 2,066 % 920 (125) 1,045 836 %

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

Total other income (expense), net $ 1,024 $ (11) $ 1,035 9,409% $ 1,344 $ 237 $ 1,107 467 %

Interest Income

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.

Interest income increased by $2 thousand and $62 thousand in the three and nine months ended September 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 lower 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.

Other income (expense), net, increased by $1.0 million in the three and nine months ended September 30, 2021 compared to the same periods in 2020, primarily due to gain from remeasurement on the carrying value of our investment in MAI, but partially offset by a 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 June 30, Change Six months ended June 30, Change

Three months ended September 30, Change Nine months ended September 30, Change

2021 2020 $ % 2021 2020 $ %

Provision for income taxes $ 110 $ 19 $ 91 479 % $ 121 $ 331 $ (210) (63) %

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.

The provision for income taxes for the three and nine months ended September 30, 2021 and 2020 were primarily due to the 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 and the accrual of interest and penalties on historic uncertain tax positions.

Net Income (Loss)

Net income for the three months ended September 30, 2021 was $2.2 million, or $0.03 per basic and diluted share.

This compared to a net loss of $6.1 million, or $0.10 per basic and diluted share for the three months ended September 30, 2020.

Net loss for the nine months ended September 30, 2021 was $11.1 million, or $0.17 per basic and diluted share.

This compared to a net loss of $20.1 million, or $0.34 per basic and diluted share for the nine months ended September 30, 2020.

The achievement of net income in the three months ended September 30, 2021, and the decrease in net loss for the nine months ended September 30, 2021, was primarily related to an 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 June 30, Change

Three months ended September 30, Change

2021 2020 Performance Enzymes Novel Biotherapeutics

3 unchanged sentences

Total revenues $ 32,584 $ 4,185 $ 36,769 $ 13,005 $ 5,380 $ 18,385 $ 19,579 151 % $ (1,195) (22) %

Six months ended June 30, Change

Nine months ended September 30, Change

2021 2020 Performance Enzymes Novel Biotherapeutics

3 unchanged sentences

Total revenues $ 68,397 $ 11,856 $ 80,253 $ 31,385 $ 16,638 $ 48,023 $ 37,012 118 % $ (4,782) (29) %

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.

Revenues from the Performance Enzymes segment increased by $19.6 million, or 151%, for the three months ended September 30, 2021, and by $37.0 million, or 118%, for the nine months ended September 30, 2021, compared to the same periods in 2020, primarily due to higher product revenue.

The increase in product revenue of $20.3 million, or 242%, in the three months ended September 30, 2021, and of $35.7 million, or 198%, in the nine months ended September 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 decrease in research and development revenue of $0.8 million, or 16%, to $3.9 million in three months ended September 30, 2021, compared to $4.6 million in the three months ended September 30, 2020 was primarily due to lower revenue from the Novartis CodeEvolver ® Agreement as we completed the technology transfer to Novartis during the third quarter of 2021 .

The increase in research and development revenue of $1.3 million, or 10%, to $14.7 million in the nine months ended September 30, 2021, compared to $13.4 million in the nine months ended September 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 $1.2 million, or 22%, for the three months ended September 30, 2021, and by $4.8 million, or 29%, for the nine months ended September 30, 2021 , compared to the same

periods in 2020, primarily due to lower license and research and development fees from Takeda under the Takeda Agreement recognized this year compared to the prior year and a decrease in research and development revenue from Nestlé Health Science compared to last year.

Costs and operating expenses by segment

Three months ended June 30, Change

Three months ended September 30, Change

2021 2020 Performance Enzymes Novel Biotherapeutics

9 unchanged sentences

Total costs and operating expenses $ 35,439 $ 24,449

Six months ended June 30, Change

Nine months ended September 30, Change

2021 2020 Performance Enzymes Novel Biotherapeutics

13 unchanged sentences

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

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.

Research and development expense in the Performance Enzymes segment increased by $0.5 million, or 9%, in the three months ended September 30, 2021, and by $1.3 million, or 8% in the nine months ended September 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.

Selling, general and administrative expense in the Performance Enzymes segment increased by $0.6 million, or 24%, in the three months ended September 30, 2021, and by $1.9 million, or 26%, in the nine months ended September 30, 2021, as compared to the same periods in 2020.

The increase wa s 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 $2.4 million, or 38%, in the three months ended September 30, 2021, and by $3.8 million, or 23%, in the nine months ended September 30, 2021, as compared to the same periods in 2020.

The increase was primarily due to higher costs associated with higher headcount and allocable expenses but partially offset by reduction in costs associated with outside services relating to CMC and regulatory expenses.

Selling, general and administrative expense in the Novel Biotherapeutics segment increased by $0.3 million, or 61%, in the three months ended September 30, 2021, and by $0.3 million, or 19%, in the nine months ended September 30, 2021, as compared to the same periods in 2020.

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

Liquidity and Capital Resources

4 unchanged sentences

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

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

September 30, 2021 December 31, 2020

Cash and cash equivalents $ 119,189 $ 149,117

3 unchanged sentences

In 2016, we completed the final phase in the transfer of CodeEvolver ® technology to Merck under the Merck CodeEvolver ® Agreement.

Following the completion of the technology transfer to Merck, we are now eligible to receive payments of up to $15.0 million for each commercial API that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver ® technology.

We are eligible to receive payments of up to $15.0 million for each commercial API that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver ® technology.

In addition, depending upon GSK's successful application of the licensed technology, we have the potential to receive additional contingent payments that range from $5.75 million to $38.5 million per project.

4 unchanged sentences

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

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

Additionally, we will receive an additional $1.6 million for the completion of the third technology transfer milestone 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 .

4 unchanged sentences

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.

1 unchanged sentence

We have historically experienced negative cash flows from operations as we continue to invest in key technology development projects and improvements to our CodeEvolver ® protein engineering technology platform and expand our business development and collaboration with new customers.

Our cash flows from operations will continue to be affected principally by sales from licensing our technology to major pharmaceutical companies, product sales and product gross margins, and collaborative research and development services provided to customers, as well as our headcount costs, primarily in research and development.

Our cash flows from operations will continue to be affected principally by product sales and product gross margins, sales from licensing our technology to major pharmaceutical companies, and collaborative research and development services provided to customers, as well as our headcount costs, primarily in research and development.

Our primary source of cash flows from operating activities is cash receipts from our customers for purchases of products, collaborative research and development services, and licensing our technology to major pharmaceutical companies.

2 unchanged sentences

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.

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

As of September 30, 2021, $50.0 million of shares remained available for sale 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.

1 unchanged sentence

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.

In December 2020, we completed an underwritten public offering of 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.

1 unchanged sentence

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.

In September 2020, we entered into an Eighth Amendment to the Credit Facility whereby 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, subject to customary conditions for funding including, among others, that no event of default exists.

In September 2021, we entered into the Ninth Amendment to the Credit Facility whereby we may draw on the Term Debt and the Revolving Line of Credit at any time prior to December 31, 2021 and October 1, 2024, respectively, subject to customary conditions for funding including, among others, that no event of default exists.

Draws on the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property.

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 June 30, 2021 and December 31, 2020.

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

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

There were no amounts drawn under the credit facility as of September 30, 2021 and December 31, 2020.

At September 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.

1 unchanged sentence

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.

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.

As of September 30, 2021, we had cash and cash equivalents of $119.2 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.

11 unchanged sentences

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 six months ended June 30, 2021 and 2020 (in thousands):

Six months ended June 30,

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

Nine months ended September 30,

Net cash used in operating activities $ (14,927) $ (14,972)

3 unchanged sentences

Cash Flows from Operating Activities

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.

Cash used in operating activities was $14.9 million for the nine months ended September 30, 2021, which resulted from a net loss of $11.1 million adjusted for non-cash charges for depreciation of $2.1 million, ROU lease asset amortization expense of $2.0 million, stock-based compensation of $8.5 million, partially offset by equity securities earned from research and development activities of $0.7 million and unrealized gain on non-marketable securities of $1.0 million.

Additional cash used by changes in operating assets and liabilities was $14.8 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.

Changes in operating assets and liabilities included a decrease of $2.3 million in other long-term liabilities, increase of $19.6 million in financial assets and increase of $1.2 million in prepaid expenses and other assets, partially offset by increase of $7.0 million in accrued compensation and other accrued liabilities, increase of $0.9 million in deferred revenue and increase of $0.6 million in accounts payable.

Cash used in operating activities was $15.0 million for the nine months ended September 30, 2020, which resulted from a net loss of $20.1 million adjusted for non-cash charges for depreciation of $1.4 million, ROU lease asset amortization expense of $2.0 million, stock-based compensation of $6.1 million and allowance of credit loss of $40 thousand.

Additional cash used by changes in operating assets and liabilities was $4.3 million.

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.

Changes in operating assets and liabilities included an increase of $4.9 million in unbilled receivables, an increase of $1.6 million in accounts receivables, and a decrease of $1.9 million in other long-term liabilities partially offset by an increase of $3.6 million in accrued compensation and other accrued liabilities and an increase of $2.0 million in deferred revenue.

Cash Flows from Investing Activities

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 used in investing activities was $15.9 million and $3.3 million for the nine months ended September 30, 2021 and 2020, respectively.

Cash used in investing activities for the nine months ended September 30, 2021 was primarily attributable to $8.3 million for purchases of property and equipment and $7.6 million for the purchase of 1,000,000 shares of MAI's Series A preferred stock in April 2021 and 9,198,423 shares of MAI's Series B preferred stock in September 2021.

Cash used in investing activities of $3.3 million for the nine months ended September 30, 2020, was primarily attributable to $2.3 million for purchases of property and equipment and $1.0 million for the purchase of 1,587,050 shares of MAI's Series A preferred stock.

Cash Flows from Financing Activities

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.

Cash provided by financing activities was $1.3 million for the nine months ended September 30, 2021 primarily attributable to $2.7 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 $0.8 million for the nine months ended September 30, 2020, which included $1.3 million for taxes paid related to net share settlement of equity awards offset by $0.5 million of proceeds from exercises of stock options.

Material Cash Requirements

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

6 unchanged sentences

(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.

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

63, LLC, for our San Carlos facilities.

15 unchanged sentences

Actual results could differ from those estimates.

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.

There have been no material changes to our critical accounting policies or estimates during the three and nine months ended September 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