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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2021-11-05 · 152 added, 291 removed, 203 unchanged (69% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 1, 2021 (the “Annual Report”).

The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 28, 2022 (the “Annual Report”).

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

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

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

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

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

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

This approach results in an optimized biocatalyst that enables cost-efficient processes that are relatively simple to run in conventional manufacturing equipment.

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

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

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

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

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

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

Our customers, which include many large, global

pharmaceutical companies, use our technology, products and services in their process development and in manufacturing.

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

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

Most recently, in May 2019, we entered into the Novartis CodeEvolver ® Agreement with Novartis.

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

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

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

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

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

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

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

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the Company’s EvoT4™ DNA ligase.

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

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

We have been using the CodeEvolver ® protein engineering technology platform to develop early stage, novel biotherapeutic product candidates, both in partnership with customers and for our own proprietary Codexis drug candidates.

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

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

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

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

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

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.

Also in October 2017, we entered into a strategic collaboration agreement with Nestle Health Science (“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 March 2020, we entered into a Strategic Collaboration and License Agreement ("Takeda Agreement") with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited ("Takeda") for the research and development of novel gene therapies for certain disease indications, including the treatment of lysosomal storage disorders and a blood factor deficiency.

BUSINESS SEGMENTS

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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 PKU in humans.

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

In October 2017 , we announced a global development, option and license agreement with Nestlé Health Science to advance CDX-6114, our own novel orally administrable enzyme therapeutic candidate for the potential treatment of PKU.

In 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 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 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.

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.

The Nestlé SCA was extended through December 2021.

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 commenced in October 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.

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

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

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.

BUSINESS UPDATE REGARDING COVID-19

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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, 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.

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

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

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

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 such as the Delta and Omicron 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, however, there can be no guarantee this will continue.

Furthermore, our ability to provide future 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 minimal impact on our revenue for the three months ended March 31, 2022.

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 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 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.

As a result of the COVID-19 pandemic we have received purchase orders from Pfizer for large quantities of our proprietary enzyme product, CDX-616, for use by Pfizer in the manufacture of a critical intermediate for its proprietary active pharmaceutical ingredient, nirmatrelvir, used by Pfizer in combination with the active pharmaceutical ingredient ritonavir, as its PAXLOVID™ (nirmatrelvir tablets;

ritonavir tablets) product for the treatment of COVID-19 infections in humans.

These purchase orders have had substantial impact on our revenue for the three months ended March 31, 2022 and for the year ended December 31, 2021.

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

The near-and-long term impact of COVID-19 to our financial condition, liquidity, or results of operations 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 our Annual Report on Form 10-K, for the fiscal year ended December 31, 2020, filed on March 1, 2021.

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

Results of Operations Overview

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 total of three large purchase orders from Pfizer, Inc.

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.

Revenues were $35.3 million in the first quarter of 2022, a 96% increase from $18.0 million in the first quarter of 2021.

Product revenue, which consists primarily of sales of biocatalysts, pharmaceutical intermediates, and Codex ® biocatalyst panels and kits, was $30.7 million in the first quarter of 2022, an increase of 200% fro m $10.2 million in the first quarter of 2021.

The increase in product revenue was primarily due to $21.3 million in revenue from Pfizer related to the purchase of our CDX-616 enzyme products but partially offset by lower revenue from the sales of other enzyme products used in the manufacture of branded pharmaceutical products.

We expect the significant purchase orders we have received from Pfizer for CDX-616 enzyme products to continue to remain a significant component of our product revenue in 2022.

Research and development revenues, which include license, technology access and exclusivity fees, research service fees, milestone payments, royalties, and optimization and screening fees, totaled $4.7 million in the first quarter of 2022, a 40% decrease compared with $7.8 million in the first quarter of 2021.

The decrease in research and development revenue was primarily due to lower research and development fees from Takeda under the Takeda Agreement and lower research and development fees from other existing collaboration agreements being recognized in the first quarter of 2022 as compared to the same period in the prior year.

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

Our profit margins are affected by many factors including the costs of internal and third-party fixed and variable costs, including materials and supplies, labor, facilities and other overhead costs.

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 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 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 as we invest more in our business.

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.

Product gross margins increased to 72% in the first quarter of 2022, compared to 59% in the first quarter of 2021, due to improved product mix resulting from sales to Pfizer and to other pharmaceutical customers.

Research and development expenses were $19.5 million in the first quarter of 2022, an increase of 69% from $11.6 million in the first quarter of 2021.

The increase was primarily due to increases in costs associated with higher headcount, higher facilities cost and lab supplies, higher stock-based compensation and higher depreciation expense and other outside services.

We expect research and development expenses for the rest of the year to be higher than the comparative prior year periods mainly due to increase in headcount and higher allocation of facilities cost due to the additional research and development laboratory space we commenced occupancy in December 2021, and as we continue our efforts on advancing our internal and collaborative programs.

Selling, general and administrative expenses were $15.7 million in the first quarter of 2022, an increase of 38%, compared to $11.4 million in the first quarter of 2021.

The increase was primarily due to increase in costs associated with a higher headcount, increase in legal fees, higher stock-based compensation costs, higher outside and temporary services, partially offset by lower allocable expenses.

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

Net loss wa s $8.4 million, or a net loss of $0.13 per basic and diluted share in the first quarter of 2022 compared to a net loss of $9.1 million, or a net loss of $0.14 per basic and diluted share in the first quarter of 2021.

The decrease in net loss is primarily related to an increase in product revenue with higher margins, partially offset by higher operating expenses and lower research and development revenues.

Cash and cash equivalents decreased to $94.3 million of March 31, 2022 compared to $116.8 million as of December 31, 2021.

In addition, net cash used in operations was $11.2 million in the three months ended March 31, 2022 compared to $6.4 million in the three months ended March 31, 2021.

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

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

Draws on the term debt are subject to customary conditions for funding.

Our ability to take draws on the term debt expired on December 31, 2021.

As of March 31, 2022, 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.

Below is an overview of our results of operations by business segments:

Performance Enzymes

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 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 $0.6 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.

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 a s we invest more in our business .

Novel Biotherapeutics

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

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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.

The contract asset balances were partially offset by contract liabilities as they are under the same contract.

We have previously 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 recognized product revenues using the alternative method wherein we estimated the total expected consideration and allocated it proportionately with the expected sales.

Pursuant to the latest amendment of the Sitagliptin Supply Agreement, we have determined that the latest price per volume of sitagliptin enzyme to be purchased by Merck no longer provides Merck material rights, and as such we are recognizing product revenue based on contractually stated prices effective as of February 2022.

We recognized $1.7 million and $3.3 million in product revenue under this contract for the three months ended March 31, 2022 and 2021, respectively.

Revenues recognized by us under the Sitagliptin Supply Agreement comprised 5% and 18% of our total revenues for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022, we recorded revenue o f $1.2 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 first quarter of 2022.

Global Development, Option and License Agreement and Strategic Collaboration Agreement

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.

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.

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

Food and Drug Administration (“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.

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

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

The term of the Nestlé SCA has been extended through December 2022.

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.

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.

During 2021, we, together with Nestlé Health Science, continued to advance CDX-7108 towards initiation of a Phase 1 clinical trial with the first subject being dosed in November 2021.

Under the Nestlé SCA and the development agreement, we recognize d $1.1 million and $1.8 million in research and development fees for the three months ended March 31, 2022 and 2021, 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, our teams 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.

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.

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

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

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.

We completed the second technology milestone transfer under the agreement in 2020 and received a milestone payment of $4.0 million.

We have also received an aggregate of $5.0 million for the completion of the third technology milestone in 2021.

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 over four years 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.

The usage payments will be based on the total volume of API produced using the CodeEvolver ® -developed enzyme.

These usage payments can begin in the clinical stage and will extend throughout the commercial life of each API.

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

Revenue for the combined initial license and technology transfer performance obligation was recognized using a single measure of progress that depicted our performance in transferring control of the services.

Revenue allocated to improvements made during the Improvements Term are being recognized during the Improvements Term.

We recognize d $0.2 million and $0.8 million in research and development revenue for the three months ended March 31, 2022 and 2021, 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, 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 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 accordance with each applicable program plan.

On execution of the Takeda Agreement, we received an upfront non-refundable cash payment of $8.5 million and we initiated activities under three program plans for Fabry Disease, Pompe Disease, and an undisclosed blood factor deficiency, respectively (the “Initial Programs”).

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 $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.

Pursuant to the Takeda Agreement, we are eligible to receive other payments that include (i) reimbursement of research and development fees and preclinical development milestones for the three initial programs of $10.5 million, in aggregate, and $7.2 million for the fourth program, (ii) clinical development and commercialization-based mil estones, per target gene, of up t o $100.0 million and (iii) tiered royalty payments based on net sales of applicable products at percentages ranging from the mid-single digits to low single-digits.

Revenue recognized 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.

We recognized research and development revenue related to the Takeda Agreement of $1.2 million a nd $2.1 million for the three months ended March 31, 2022 and 2021, 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.

In 2021, we received purchase orders from Pfizer, Inc.

(“Pfizer”) for large quantities of our proprietary enzyme product, CDX-616, for use by Pfizer in the manufacture of a critical intermediate for its proprietary active pharmaceutical ingredient, nirmatrelvir.

Pfizer markets, sells and distributes nirmatrelvir, in combination with the active pharmaceutical ingredient ritonavir, as its PAXLOVID™ (nirmatrelvir tablets;

ritonavir tablets) product, which received emergency use authorization by the FDA in late 2021 for the treatment of COVID-19 in humans.

We have received additional purchase orders from Pfizer for significant quantities of CDX-616.

As of March 31, 2022, we have not yet executed a long-term purchase and sale agreement with Pfizer for CDX-616.

We currently expect that future orders for quantities of CDX-616 by Pfizer will continue to be based on the needs of Pfizer for quantities of CDX-616 and there will be no minimum purchase obligation on the part of Pfizer.

We recognized product revenue of $21.3 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively, from the sale of quantities of CDX-616 enzyme products to Pfizer.

Revenues recognized by us from sales of CDX-616 enzyme products to Pfizer comprised 60% and 2% of our total revenues for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, we recorded revenue and contract assets of $7.1 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 first quarter of 2022.

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 September 30, Change Nine months ended September 30, Change

Three Months Ended March 31, Change

2022 2021 $ %

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Total costs and operating expenses 43,726 27,187 16,539 61%

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

Loss from operations (8,386) (9,155) 769 (8)%

Interest income 42 177 (135) (76)%

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

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

Other expense, net (3) (88) 85 (97)%

Loss before income taxes (8,347) (9,066) 719 (8)%

Provision for income taxes 9 2 7 350%

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:

Net loss $ (8,356) $ (9,068) $ 712 (8)%

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

• Product revenue consist of sales of biocatalysts, pharmaceutical intermediates, and Codex ® biocatalyst panels and kits.

• Research and development revenue includes license, technology access and exclusivity fees, research services fees, milestone payments, royalties, optimization and screening fees.

• Research and development revenue include license, technology access and exclusivity fees, research services fees, milestone payments, royalties, optimization and screening fees.

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

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

Three Months Ended March 31, Change

2022 2021 $ %

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As a result, we are dependent upon the performance and capacity of third-party manufacturers for the commercial scale manufacturing of the enzymes used in our pharmaceutical and fine chemicals business.

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.

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

However, some of our 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 $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.

Total revenues increased by $17.3 million to $35.3 million in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to higher product revenue but partially offset by lower research and development revenue.

Product revenue, increased by $20.5 million to $30.7 million in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to $21.3 million in revenue from Pfizer related to the purchase of our CDX-616 enzyme products but partially offset by lower revenue from sales of other enzyme products used in the manufacture of branded pharmaceutical products.

Research and development revenue decreased by $3.2 million to $4.7 million in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to lower research and development fees from Takeda under the Takeda Agreement and lower research and development fees from other existing collaboration agreements being recognized in the first quarter of 2022 as compared to the same period in the prior year.

Cost and Operating Expenses

Our cost and operating expenses comprise cost of product revenue, research and development expense, and selling, general and administrative expense.

Our cost and operating expenses consist of cost of product revenue, research and development expense, and selling, general and administrative expense.

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 September 30, Change Nine months ended September 30, Change

Three Months Ended March 31, Change

2022 2021 $ %

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Our product revenues are derived entirely from our Performance Enzymes segment.

Revenues from the Novel Biotherapeutics segment are from collaborative research and development activities and not from product revenue.

Revenues from the Novel Biotherapeutics segment are only from collaborative research and development activities.

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 September 30, Change Nine months ended September 30, Change

Three Months Ended March 31, Change

2022 2021 $ %

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Product gross margin (%) (2)

76 % 57 % 71 % 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.

(1) Cost of product revenue consists of 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 $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.

Cost of product revenue increased by $4.3 million in the three months ended March 31, 2022 compared to the same period in 2021.

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

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.

The product gross margin increased to 72% in the three months ended March 31, 2022 compared to 59% in the three months ended March 31, 2021, 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 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.

Research and development expenses were $19.5 million in the first quarter of 2022, an increase of $7.9 million or 69%, from $11.6 million in the first quarter of 2021.

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 $4.6 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.

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.

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

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

Selling, general and administrative expenses were $15.7 million in the first quarter of 2022, an increase of $4.3 million, or 38%, compared to $11.4 million in the first quarter of 2021.

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

Three Months Ended March 31, Change

2022 2021 $ %

Interest income $ 42 $ 177 $ (135) (76)%

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

Other expense, net (3) (88) 85 97%

Total other income (expense), net $ 39 $ 89 $ (50) (56)%

Interest Income

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 $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.

Interest income decreased by $0.1 million in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to earned interest income and amortization of debt discount on non-marketable debt security in prior year and reduction in interest income from lower average interest rates on declining average cash balances.

Other Expense, net

Other expense, net, decreased by $85.0 thousand in the three months ended March 31, 2022 compared to the same period in 2021, 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 in prior year.

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

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

Three Months Ended March 31, Change

2022 2021 $ %

Provision for income taxes $ 9 $ 2 $ 7 350%

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.

The provision for income taxes for the three months ended March 31, 2022 and 2021, were primarily due to the accrual of interest and penalties on historic uncertain tax positions.

Net loss for the three months ended March 31, 2022 was $8.4 million, or a net loss per basic and diluted share of $0.13.

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

The decrease in net loss is primarily related to an increase in product revenues 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 September 30, Change

2021 2020 Performance Enzymes Novel Biotherapeutics

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

Product revenue $ 28,731 $ — $ 28,731 $ 8,401 $ — $ 8,401 $ 20,330 242 % $ — — %

Research and development revenue 3,853 4,185 8,038 4,604 5,380 9,984 (751) (16) % (1,195) (22) %

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

Nine months ended September 30, Change

Three Months Ended March 31, Change

2022 2021 Performance Enzymes Novel Biotherapeutics

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Total revenues $ 33,099 $ 2,241 $ 35,340 $ 14,229 $ 3,803 $ 18,032 $ 18,870 133% $ (1,562) (41)%

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.

Revenues from the Performance Enzymes segment increased by $18.9 million, or 133%, for the three months ended March 31, 2022, compared to the same period in 2021.

The increase in product revenue of $20.5 million, or 200%, in the three months ended March 31, 2022 as compared to the same period in 2021, was primarily due to higher revenue from Pfizer but partially offset by lower revenue from the sales of other enzyme products used in the manufacture of branded pharmaceuticals products.

The decrease in research and development revenue of $1.6 million, or 40%, to $2.4 million in three months ended March 31, 2021, as compared to $4.0 million in the three months ended March 31, 2021 was primarily due to lower revenues from Novartis under the Novartis CodeEvolver ® Agreement as we completed the technology transfer to Novartis during the third quarter of 2021 and lower research and development fees from other existing collaboration agreements compared to the same period in the prior year.

Revenues from the Novel Biotherapeutics segment decreased by $1.6 million, or 41%, for the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to lower research and development fees from Takeda under the Takeda Agreement and lower research and development revenue from Nestlé Health Science.

Costs and operating expenses by segment

Three months ended September 30, Change

2021 2020 Performance Enzymes Novel Biotherapeutics

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

Cost of product revenue $ 6,867 $ — $ 6,867 $ 3,642 $ — $ 3,642 $ 3,225 89 % $ — — %

Research and development (1)

5,670 8,850 14,520 5,184 6,433 11,617 486 9 % 2,417 38 %

Selling, general and administrative (1)

3,306 831 4,137 2,675 515 3,190 631 24 % 316 61 %

Total segment costs and operating expenses $ 15,843 $ 9,681 25,524 $ 11,501 $ 6,948 18,449 $ 4,342 38 % $ 2,733 39 %

Corporate costs (2)

Unallocated depreciation and amortization 794 528

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

Nine months ended September 30, Change

Three Months Ended March 31, Change

2022 2021 Performance Enzymes Novel Biotherapeutics

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Corporate costs (2)

25,775 16,763

Unallocated depreciation and amortization 1,232 685

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

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 $0.6 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.

Research and development expense in the Performance Enzymes segment decreased by $0.3 million, or 5%, in the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to lower allocable expenses, partially offset by 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 $0.7 million, or 26%, in the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to an increase in costs associated with higher headcount and higher stock-based compensation costs.

Research and development expense in the Novel Biotherapeutics segment increased by $7.7 million, or 168%, in the three months ended March 31, 2022 as compared to the same period in 2021, primarily due to higher costs associated with higher headcount, higher facilities cost and lab supplies and higher allocable expenses.

Selling, general and administrative expense in the Novel Biotherapeutics segment increased by $0.1 million or 20% in the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to an increase in costs associated with higher headcount and higher stock-based compensation costs.

Liquidity and Capital Resources

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

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

The following summarizes our cash and cash equivalents balance and working capital as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022 December 31, 2021

Cash and cash equivalents $ 94,260 $ 116,797

Working capital $ 115,374 $ 128,517

Sources of Capital

In addition to our existing cash and cash equivalents, we are eligible to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain royalty payments under our collaboration agreements.

Our ability to earn these milestone and contingent payments and the timing of achieving these milestones is primarily dependent upon the outcome of our collaborators’ research and development activities and is uncertain at this time.

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

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.

In May 2019, we entered into the Novartis CodeEvolver ® Agreement with Novartis.

Under the Merck CodeEvolver ® Agreement, we are eligible to receive payments of up t o $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, under the GSK CodeEvolver ® Agreement, 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.

In May 2019, we entered into the Platform Technology Transfer and License Agreement with Novartis.

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

Pursuant to the agreement, we received an upfront payment of $5.0 million shortly after the effective date of the Novartis CodeEvolver ® Agreement.

In the 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 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 .

Pursuant to the agreement, we received an upfront payment of shortly after the effective date and we also received milestone payments upon completion of the second technology milestone transfer in 2020 and the third technology milestone in 2021.

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 an additional $8.0 million in aggregate over four years.

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.

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 products containing 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.

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

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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 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.

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 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.

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 EDA up to a maximum of $50.0 million of shares of our common stock.

During the three months ended March 31, 2022, no shares of our common stock were issued pursuant to the EDA and as of March 31, 2022, $50.0 million worth 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 unce rtainties 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.

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.

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 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.

In June 30, 2017, we entered into the Credit Facility with Western Alliance Bank consisting of term loans up to $10.0 million, and advances under a revolving credit facility of up to $5.0 million with an accounts receivable borrowing base of 80% of eligible accounts receivable.

Our right to take draws on the term debt expired on December 31, 2021.

On October 1, 2024, loans drawn under the Revolving Line of Credit terminate.

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.

Restrictive covenants in the Credit Facility restrict the payment of dividends or other distributions.

As of March 31, 2022, no amounts were borrowed under the Credit Facility and we were in compliance with the covenants for the Credit Facility.

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 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.

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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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.

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.

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.

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.

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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 nine months ended September 30, 2021 and 2020 (in thousands):

Nine months ended September 30,

The following is a summary of cash flows for three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Net cash used in operating activities $ (11,186) $ (6,440)

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Cash Flows from Operating Activities

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 $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 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 used in operating activities for the three months ended March 31, 2022 of $11.2 million consisted of net loss adjusted for certain non-cash items and changes in operating assets and liabilities.

The $4.7 million increase in net cash used in operations for the three months ended March 31, 2022 as compared to the same period in 2021, was primarily due to the net effect of increases in cash paid for cost of revenues and operating expenses and changes in operating assets and liabilities, partially offset by increases in cash received from revenue.

Cash Flows from Investing Activities

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 used in investing activities for the three months ended March 31, 2022 was primarily attributable to $5.0 million for the purchase of 1,000,000 shares of seqWell Series C preferred stock in March 2022 an d $5.1 million for purchases of property and equipment.

Th e $7.5 million increase in net cash used in investing activities for the three months ended March 31, 2022 as compared to the same period in 2021, was primarily due to higher cash utilized for additional investment in equity securities and purchases of property and equipment.

Cash Flows from Financing Activities

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 September 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 lease (1)

$ 28,146 $ 4,220 $ 9,247 $ 9,810 $ 4,869

Operating lease (2)

31,723 1,726 6,015 7,974 16,008

Total $ 59,869 $ 5,946 $ 15,262 $ 17,784 $ 20,877

(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 ARE-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.

Other Material Cash Requirements

We have other material cash requirements related to supply and service arrangements entered in the normal course of business.

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

Future minimum payments reflect amounts those obligations are expected to have on our liquidity and cash flows in future period and include obligations subject to risk of cancellation by us (in thousands):

Other Material Cash Requirements by Agreement Type Agreement Date Future Minimum Payment

Manufacture and supply agreement with expected future payment date of December 2022 April 2016 $ 147

Development and manufacturing services agreements September 2019 686

Total other commitments $ 833

We are contingently committed to an aggregate $2.7 million of potential future research and development milestone payments to third parties for patents, licensing and development programs achieved in clinical application and the regulatory approval process.

Payments generally are due and payable only upon achievement of certain developmental and regulatory milestones for which the specific timing cannot be predicted.

Certain agreements also provide for sales-based milestones aggregating to $0.6 million that we are contingently obligated to pay to upon achievement of certain sales levels in addition to royalties.

We do not utilize special-purpose financing vehicles or have undisclosed off-balance sheet arrangements.

Cash used in financing activities for the three months ended March 31, 2022 included $1.4 million for taxes paid related to net share settlement of equity awards offset by $0.2 million of proceeds from exercises of stock options.

The $1.3 million increase in net cash used financing activities for the three months ended March 31, 2022 as compared to the same period in 2021 was primarily due to lower proceeds from exercises of stock options and higher cash paid on taxes related to net share settlement of equity awards.

Critical Accounting Policies and Estimates

The preparation financial statements in conformity with generally accepted accounting principles requires management to make judgments, estimates and assumptions in the preparation of our consolidated financial statements and accompanying notes.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make judgments, estimates and assumptions in the preparation of our consolidated financial statements and accompanying notes.

Actual results could differ from those estimates.

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.

There have been no material changes to our critical accounting policies or estimates during the three months ended March 31, 2022 from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022.

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