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Item 7. Management’s Discussion and Analysis

2023-02-27 compared with 2022-02-28 · 151 added, 277 removed, 271 unchanged (61% of the section changed)

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our audited Consolidated Financial Statements and the related Notes that appear elsewhere in this Annual Report on Form 10-K.

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 21E of the Exchange Act.

The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.

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

These statements include, but are not limited to, expectations regarding our strategy, business plans, financial performance and developments relating to our industry.

These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," or "continue," and similar expressions or variations.

Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors,” set forth in Part I, Item 1A of this Annual Report on Form 10-K and elsewhere in this report.

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item IA:"Risk Factors," of this Annual Report on Form 10-K and elsewhere in this report.

The forward-looking statements in this Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K.

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Business Overview

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

with our first enzyme for this target market:

the Company’s EvoT4™ DNA ligase.

In June 2020, we also entered into a Master Collaboration and Research Agreement with MAI (the “MAI Agreement”) pursuant to which we are leveraging our CodeEvolver ® platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis.

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

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

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

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

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

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

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

In 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.

See Note 5, "Collaborative Arrangements" in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for further information.

Recent Development - Pfizer (PAXLOVID ™ )

In the first and second quarters of 2021, we began to receive 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 U.S.

Food and Drug Administration (“FDA”) in late 2021 for the treatment of COVID-19 in humans.

In 2021, we recognized approximately $34.5 million in revenue from the sale of quantities of CDX-616 to Pfizer.

In addition, as of December 31, 2021, we have received additional purchase orders from Pfizer for delivery of a significant quantity of CDX-616 in 2022.

We have received and currently expect to receive additional purchase orders from Pfizer for significant quantities of CDX-616 during the course of 2022 for delivery in 2022 and 2023.

As of December 31, 2021, we have not yet executed a long-term purchase and sale agreement with Pfizer for CDX-616;

with or without a long-term purchase and sale agreement, 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.

Business Segments

We manage our business as two business segments:

Performance Enzymes and Novel Biotherapeutics.

See Note 15, “Segment, Geographical and Other Revenue Information” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

Performance Enzymes

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

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

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

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

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

Novel Biotherapeutics

We are also targeting new opportunities in the pharmaceutical industry to discover, improve, and/or develop biotherapeutic drug candidates.

We believe that our CodeEvolver ® protein engineering platform technology can be used to discover novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions.

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

Business Update Regarding COVID-19

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

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

economy and other economies worldwide.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and may not be accurately predicted, including the duration and severity of the pandemic, 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.

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

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

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

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 a minimal impact on revenue for the year ended December 31, 2021.

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

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 in 2021.

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

Risk Factors included in this Annual Report on Form 10-K.

We are a leading enzyme engineering company leveraging our proprietary CodeEvolver ® technology platform to discover, develop and enhance novel, high performance enzymes and other classes of proteins.

Enzymes are naturally occurring biological molecules critical to almost all biochemical reactions that sustain life.

They can be precisely engineered and optimized for specific functions, and to have particular characteristics, such as an ability to survive environments in which natural enzymes cannot, or to perform (bio)chemical transformations different than those for which they naturally evolved.

The capacity to enhance the properties and performance of enzymes has led to pivotal improvements across three healthcare industry pillars:

pharmaceutical manufacturing, life sciences, and biotherapeutics.

The enzymes we produce solve for real-world challenges associated with small molecule pharmaceuticals manufacturing, nucleic acid synthesis and genomic sequencing, and – as biotherapeutic candidates – they have the potential to treat challenging diseases.

Our unique enzymes drive improvements such as higher yields, reduced energy usage and waste generation, improved efficiency in manufacturing, greater sensitivity in genomic and diagnostic applications, and potentially more efficacious therapeutics.

Recent Developments

Announcement of interim results from Phase 1 trial of CDX-7108 for Exocrine Pancreatic Insufficiency (“EPI”)

On February 23, 2023, we and our partner, Nestlé Health Science announced interim results from a Phase 1 clinical trial of CDX-7108 for the treatment of EPI.

Data from the proof-of-concept arm indicated improved lipid absorption when patients are administered CDX-7108 versus placebo.

Importantly, no safety issues were noted in the 48 subjects that participated in the single ascending dose and multiple ascending dose portion of the study.

We believe the interim data support further development of CDX-7018 in partnership with Nestlé Health Science, with potential for the initiation of a Phase 2 study in early 2024.

Presentation of pre-clinical data from the Fabry disease transgene program

O n February 22, 2023, w e announced that Takeda Pharmaceutical Company Limited (Takeda) presented pre-clinical data from the Fabry disease transgene program, part of its Strategic Collaboration and License Agreement with Codexis, at the 19th Annual WORLD Symposium ™.

The gene therapy candidate is being developed to encode the codon optimized, CodeEvolver ® engineered -GAL enzyme, which is designed to have improved serum and lysosomal stability and a predicted reduced immunogenicity.

Strengthened management team and Board of Directors with new appointments

On January 23,2023, we announced the appointment of Sri Ryali as Chief Financial Officer and on December 20, 2022, we announced the appointment of H.

Stewart Parker to our Board of Directors.

Recent Investing and Financing Activities

In March 2022, we entered into a Stock Purchase Agreement with seqWell Inc.

("seqWell"), a privately held biotechnology company, pursuant to which we purchased 1,000,000 shares of seqWell's Series C preferred stock for $5.0 million.

In May 2021, we filed a Registration Statement on Form S-3 with the SEC, that automatically became effective upon its filing, under which we may sell common stock, preferred stock, debt securities, warrants, purchase contracts, and units from time to time in one or more offerings.

On the date of this filing, we also filed a post-effective amendment to that Registration Statement on Form S-3.

Pursuant to that post-effective amendment, we registered an aggregate $200.0 million of securities.

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.

Under the terms of the EDA, PSC may sell the shares at market prices by any method that is deemed to be an "at the market offering" as defined in Rule 415 under the Securities Act of 1933, as amended.

During the year ended December 31, 2022, no shares of our common stock were issued pursuant to the EDA.

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

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

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

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

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

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

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

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

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As of December 31, 2022, we have 18,292,369 shares of MAI's Series A and B preferred stock that we have earned or purchased since executing the Stock Purchase Agreement with MAI.

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

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

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

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

In November 2020, we invested $1.0 million in Arzeda Corp., a privately-held computational protein design company that focuses on computational approaches to designing novel enzyme functionality, and received a convertible subordinated note issued by Arzeda Corp.

In July 2021, we converted the non-marketable debt security with a carrying value of $1.3 million into 207,070 shares of Series B-2 preferred stock of Arzeda Corp.

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, underwriting discounts and commissions and other offering expenses of $5.5 million.

During the year ended December 31, 2021, no shares of our common stock were issued pursuant to the EDA.

Results of Operations Overview

Revenues we re $104.8 million in 2021, a 52% increase from $69.1 million in 2020.

Product revenue, which consists primarily of sales of biocatalysts, pharmaceutical intermediates, and Codex ® biocatalyst panels and kits, was $70.7 million in 2021, an increase of 134% compared with $30.2 million in 2020.

The increase in product revenue was primarily due to $34.5 million in revenue from Pfizer related to the purchase of our performance enzyme products and an increase in demand for enzymes used in the manufacture of branded pharmaceutical products.

Research and development revenues, which include license, technology access and exclusivity fees, research service fees, milestone payments, royalties, and optimization and screening fees, totale d $34.1 million in 2021, a 12% decrease compared with $38.8 million in 2020.

The decrease in research and development revenue was primarily due to lower license fees from Takeda under the Takeda Agreement and lower revenues from Novartis under the Novartis CodeEvolver ® Agreement recognized this year compared to the prior year, partially offset by higher license fees from other existing collaboration agreements.

Our products’ profitability is affected by many factors including the mix of 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 69% in 2021, compared to 55% in 2020 due to improved product mix resulting from sales to Pfizer and an increase in customer demand for branded pharmaceutical products.

Research and development expenses were $55.9 million in 2021, an increase of 26% from $44.2 million in 2020.

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

Selling, general and administrative expenses were $49.3 million in 2021, an increase of 41% compared to $35.0 million in 2020.

The increase was primarily due to an 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.

Net loss was $21.3 million, or a net loss of $0.33 per share, in 2021 compared to a net loss of $24.0 million, or a net loss of $0.40 per share, in 2020.

The decrease in net loss was 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 $116.8 million as of December 31, 2021 compared to $149.1 million as of December 31, 2020.

In addition, net cash used in operations was $14.3 million in 2021, as compared to net cash used in operations of $16.5 million in 2020.

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

In June 2017, we entered into a loan and security agreement with Western Alliance Bank that allowed us to borrow up to $10.0 million under a term loan, and allow us to borrow up to $5.0 million under a revolving credit facility with 80% of certain eligible accounts receivable as a borrowing base (the “Credit Facility”).

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.

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

As of December 31, 2021, no amounts were borrowed under the Credit Facility and we were in compliance with the covenants for the Credit Facility.

See Note 13, “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

Recent Accounting Pronouncements

For information on recent accounting pronouncements, see Note 2, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

Business Update Regarding COVID-19

In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide.

The spread of COVID-19 has affected segments of the global economy and may affect our operations, including the potential interruption of our supply chain.

We are monitoring this situation closely, and although operations have not been materially affected by the COVID-19 outbreak to date, the ultimate duration and severity of the outbreak and its impact on the economic environment and our business is uncertain.

As a result of the COVID-19 pandemic, we have 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 API, nirmatrelvir, used by Pfizer in combination with the API ritonavir, as its PAXLOVID™ (nirmatrelvir tablets;

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

We are a party to an Enzyme Supply Agreement with Pfizer Ireland Pharmaceuticals, a subsidiary of Pfizer, Inc.

(the “Pfizer Supply Agreement”), covering the manufacture, sale and purchase of CDX-616 for use by Pfizer in the manufacture of nirmatrelvir.

Under the terms of the Pfizer Supply Agreement, Pfizer paid us a fee of $25.9 million in August 2022 which is creditable against future orders of CDX-616 used to manufacture its PAXLOVID™ .

The sale of CDX-616 to Pfizer had a substantial impact on our revenue for the year ended December 31, 2022.

Revenues in 2023 and in future years from our sales of CDX-616 to Pfizer and other potential customers (including sublicensees of Pfizer technology from The Medicine Patent Pool) are subject to a number of factors which are outside of our control and could reduce or eliminate our sales of CDX-616, and therefore materially and adversely affect our business, results of operations and financial conditions.

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

Risk Factors included in this Annual Report on Form 10-K.

RESULTS OF OPERATIONS

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Selling, general and administrative 52,172 49,323 35,049 38 % 47 % 51 %

Restructuring charges 3,167 — — 2 % — % — %

Total costs and operating expenses 173,471 127,451 92,976 125 % 121 % 135 %

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

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.

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.

2022 compared to 2021

Total revenues increased by $35.7 million in 2021 to $104.8 million, as compared to 2020.

Total revenues increased b y $33.8 million in 2022 to $138.6 million, as compared to 2021.

The increase was driven by growth in product revenue of $46.0 million, or 65%, but partially offset by a decrease in research and development revenue of $12.2 million, or 36%.

Product revenues, which consist primarily of sales of biocatalysts, pharmaceutical intermediates, and Codex ® biocatalyst panels and kits, were $70.7 million in 2021, an increase of 134% compared with $30.2 million in 2020.

The increase in product revenue was primarily due to $34.5 million in revenue from Pfizer and an increase in demand for enzymes used in the manufacture of branded pharmaceutical products.

Research and development revenue decrea sed by $4.7 million in 2021 to $34.1 million, or 12% compared with $38.8 million 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, partially offset by higher license fees from other existing collaboration agreements.

Product revenue, which consist primarily of sales of biocatalysts, pharmaceutical intermediates, and Codex ® biocatalyst panels and kits, was $116.7 million in 2022, an increase of 65% compared with $70.7 million in 2021.

The increase in product revenue was primarily due to $40.9 million higher revenue from Pfizer sales related to the purchase of CDX-616.

Research and development revenue decreased by $12.2 million in 2022 to $21.9 million , or 36% compared with $34.1 million in 2021, primarily due to lower license fees from Takeda, decreased revenue from milestone payments received from GSK in 2021 and lower research and development fees from other existing collaboration agreements being recognized in 2022 as compared to the prior year.

A portion of our research and development revenue in 2022 and 2021 was paid to us by MAI in the form of additional shares of MAI Series A and Series B preferred stock.

We received an aggregate of 1,587,049 and 3,491,505 shares of MAI's Series A and B preferred stock for the years ended December 31, 2022 and 2021, respectively.

2021 compared to 2020

Total revenues increased by $35.7 million in 2021 to $104.8 million, as compared to 2020.

The increase was driven by growth in product revenue of $0.8 million, or 3%, offset by a decrease in research and development revenue of $0.2 million or nominal percent.

The increase was driven by growth in product revenue of $40.4 million, or 134%, but partially offset by a decrease in research and development revenue of $4.7 million, or 12%.

Product revenues were $70.7 million in 2021, an increase of 134% compared with $30.2 million in 2020.

The increase in product revenue is primarily due to higher customer demand for enzymes used in the manufacture of branded pharmaceutical products.

Research and development revenues decreased by $0.2 million in 2020 to $38.8 million compared with 39.0 million in 2019, primarily due to lower revenues from the Novartis CodeEvolver® Agreement, a prior year functional license fee revenue from Nestlé Health Science, and a prior year milestone payment from GSK under the GSK CodeEvolver® Agreement, partially offset by the recognition of license fees from Takeda under the Takeda Agreement, and recognition of functional license fees revenue from Porton.

Cost and Operating Expenses (in thousands, except percentages):

The increase in product revenue was primarily due to $34.5 million in revenue from Pfizer and an increase in demand for enzymes used in the manufacture of branded pharmaceutical products.

Research and development revenue decrea sed by $4.7 million in 2021 to $34.1 million, or 12% compared with $38.8 million in 2020, primarily due to lower license and research and development fees from Takeda and lower revenues from Novartis recognized in 2021 compared to the prior year, which was partially offset by higher license fees from other existing collaboration agreements.

A portion of our research and development revenue in 2020 was paid to us by MAI in the form of additional shares of MAI Series A preferred stock.

We received an aggregate of 714,171 shares of MAI's Series A preferred stock for the year ended December 31, 2020.

Costs and Operating Expenses (in thousands, except percentages):

Year Ended December 31, 2022 2021

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Selling, general and administrative 52,172 49,323 35,049 2,849 6 % 14,274 41 %

Restructuring charges 3,167 — — $ 3,167 100 % $ — — %

Total costs and operating expenses $ 173,471 $ 127,451 $ 92,976 $ 46,020 36 % $ 34,475 37 %

Cost of Product Revenue and Product Gross Margin

Costs of Product Revenue and Product Gross Margin

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

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 consolidated statements of operations for the years ended (in thousands, except percentages):

Year Ended December 31, Change Year Ended December 31, Change

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

The product gross margin increased to 69% in 2021 as compared to 55% in 2020, primarily due to the sale of higher margin branded products.

Product gross margins decreased to 67% in 2022 as compared to 69% in 2021, primarily due to variations in product mix, variation in prices per volume sold and higher shipping costs.

Some of these cost increases are a result of the impact of inflation and supply chain pressures seen in 2022.

2021 compared to 2020

Cost of product revenue decreased by $1.9 million in 2020 to $13.7 million, as compared to 2019.

The decrease was primarily due to lower costs compared to costs associated with prior year product revenue.

The product gross margin increased to 55% in 2020 as compared to 47% in 2019 due to improved product mix.

Cost of product revenue increased by $8.5 million in 2021 to $22.2 million, as compared to 2020.

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

The product gross margin increased to 69% in 2021 as compared to 55% in 2020, primarily due to the sale of higher margin branded products.

Research and Development Expenses

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Research and development expenses were $80.1 million in 2022 compared to $55.9 million in 2021, an increase of $24.2 million, or 43%.

The increase was primarily due to $7.6 million in costs associated with higher headcount, $0.8 million in higher stock-based compensation expenses, $2.6 million in higher lab supplies, $2.2 million in higher allocable expenses, $1.1 million increase in outside services, and $1.0 million in higher depreciation expenses, partially offset by a $3.7 million decrease in costs associated with outside services related to CMC and regulatory expenses.

The increase was primarily due to an increase of $7.4 million in costs associated with higher headcount, $4.8 million in higher facilities and repair and maintenance expenses, $5.3 million increase in outside services and Chemistry, Manufacturing and Controls (“CMC”) and regulatory expenses , $2.6 million in higher lab supplies, $2.1 million in higher depreciation expenses, $1.1 million in higher stock-based compensation expenses and $0.7 million in higher allocable expenses.

Some of these cost increases are a result of the impact of inflation seen in 2022.

2021 compared to 2020

Research and development expenses were $55.9 million in 2021 compared to $44.2 million in 2020, an increase of $11.7 million, or 26%.

The increase was primarily due to $5.0 million in costs associated with outside services relating to CMC and regulatory expenses, $3.4 million in costs associated with higher headcount, $1.5 million in higher allocable expenses which include occupancy-related costs and supplies, $0.4 million in higher outside services, and $0.3 million in higher depreciation expense and were partially offset by a decrease of $0.4 million in lab supply expenses.

The increase was primarily due to $7.6 million in costs associated with higher headcount, $0.8 million in higher stock-based compensation expenses, $2.6 million in higher lab supplies, $2.2 million in higher allocable expenses, $1.1 million increase in outside services, and $1.0 million in higher depreciation expenses, which was partially offset by a $3.7 million decrease in costs associated with outside services related to CMC and regulatory expenses.

Selling, General and Administrative Expenses

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Selling, general and administrative expenses were $52.2 million in 2022 compared to $49.3 million in 2021, an increase of $2.8 million, or 6%.

The increase was primarily due to an increase of $6.6 million in costs associated with higher headcount to support our growth, $3.1 million in higher stock-based compensation costs, $5.1 million increase in legal fees, $1.1 million in higher outside and temporary services, $1.0 million in higher facilities cost, and $0.4 million increase in allowance for credit losses, partially offset by a decrease of $3.0 million in allocable expenses.

The increase was primarily due to an increase of $6.0 million in costs associated with higher headcount, $1.8 million in higher stock-based compensation costs, $0.8 million in higher outside and temporary services, which was partially offset by a decrease of $3.5 million in allocable expenses due to higher expenses allocated to research and development activities in 2022 and $3.3 million in lower legal fees.

Some of these cost increases are a result of the impact of inflation seen in 2022.

2021 compared to 2020

Selling, general and administrative expenses were $49.3 million in 2021 compared to $35.0 million in 2020, an increase of $14.3 million, or 41%.

The increase was primarily due to increases of $1.7 million in salaries and personnel costs associated with higher headcount, $0.6 million in stock-based compensation expense, $0.8 million in consultants costs, $0.8 million in legal and accounting fees, $0.7 million in facilities costs, $0.7 million in outside and temporary services, and $0.4 million in licensed technology, which were partially offset by decreases of $1.6 million in allocable expenses and $0.8 million in travel expenses.

The increase was primarily due to an increase of $6.6 million in costs associated with higher headcount to support our growth, $3.1 million in higher stock-based compensation costs, $5.1 million increase in legal fees, $1.1 million in higher outside and temporary services, $1.0 million in higher facilities cost, and $0.4 million increase in allowance for credit losses, which was partially offset by a decrease of $3.0 million in allocable expenses due to higher expenses allocated to research and development activities in 2021.

Restructuring Charges

Restructuring charges in 2022 consist of one-time employee severance and other termination benefits due to a workforce reduction plan that occurred in the fourth quarter of 2022.

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

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Interest Income

Interest income increased by $0.1 million in 2021 compared to 2020, primarily due to earned interest income on a non-marketable debt security, partially offset by a reduction in interest income from lower average interest rates on lower average cash balances .

Interest income decreased by $0.9 million in 2020 compared to 2019, primarily due to lower average interest rates on declining average cash balances.

Interest income increased by $1.0 million in 2022 compared to 2021, primarily due to higher average interest rates on cash balances and was partially offset by earned interest income on a non-marketable debt security in the prior year.

Interest income increased by $0.1 million in 2021 compared to 2020, primarily due to earned interest income on a non-marketable debt security, which was 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, decreased by $1.0 million in 2022 compared to 2021, primarily due to a higher gain from remeasurement on the carrying value of our investment in MAI in the prior year compared to this year .

Other income (expense), net increased by $1.3 million in 2021 compared to 2020, primarily due to a $1.0 million gain from remeasurement on the carrying value of our investment in MAI.

Other expense decreased by $0.5 million in 2020 compared to 2019, primarily due to a $0.5 million write-down in the fair value of our investment in CO 2 Solutions and fluctuations in foreign currency in 2019.

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

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Provision for income taxes $ 276 $ 189 $ 339 $ 87 46 % (150) (44) %

The provision for income taxes for 2021 was primarily due to the income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of the Unites States and remitted to the Unites States and the accrual of interest and penalties on historic uncertain tax positions.

The provision for income taxes for 2022 was primarily due to the income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of the Unites Stated and remitted to the United States and the accrual of interest and penalties on historic uncertain tax positions, as well as current year state income taxes.

Starting in 2022, changes to Internal Revenue Code Section 174 made by the Tax Cuts and Jobs Act of 2017 no longer permit an immediate deduction for research and development expenditures in the tax year that such costs are incurred.

As a result, the Company capitalized such costs in its 2022 income tax provision resulting in an increase in deferred tax assets and state income taxes.

However, as we have recorded a full valuation allowance on our deferred tax assets, this did not have an impact on our net deferred tax assets.

The provision for income taxes in 2021 was primarily due to the income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of the Unites Stated and remitted to the United States and the accrual of interest and penalties on historic uncertain tax positions .

The provision for income taxes in 2020 was primarily due to foreign withholding taxes on certain sales to non-U.S.

The provision for income taxes in 2019 was primarily due to the accrual of interest and penalties on historic uncertain tax positions.

Net loss for 2021 wa s $21.3 million, or a net loss per basic and diluted share of $0.33.

T his compared to a net loss of $24.0 million, or $0.40 per basic and diluted share for 2020.

The decrease in net loss 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 net loss for 2020 was $24.0 million, or $0.40 per basic and diluted share.

Net loss for 2022 was $33.6 million, or a net loss per basic and diluted share of $0.51.

This compared to a net loss of $21.3 million, or $0.33 per basic and diluted share for 2021.

The increase in net loss was primarily related to an increase in costs associated with outside services relating to CMC and regulatory expenses, higher headcount, higher consultants, higher stock compensation expenses and higher facility expense.

The increase in net loss was primarily related to lower research and development revenues and higher operating expenses.

Net loss for 2021 was $21.3 million, or a net loss per basic and diluted share of $0.33.

This compared to a net loss of $24.0 million, or $0.40 per basic and diluted share for 2020.

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

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

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Revenues from the Performance Enzymes segment increased by $36.1 million, or 40%, to $126.6 million in 2022, compared to $90.5 million in 2021.

The increase in product revenue of $40.4 million, or 134%, to $70.7 million in 2021, compared to $30.2 million in 2020 was primarily due to $34.5 million in revenue from Pfizer and higher customer demand for enzymes used in the manufacture of branded pharmaceutical pro ducts.

The increase in research and development revenue of $2.0 million, or 11%, to $19.9 million in 2021, compared to $17.9 million in 2020 was primarily due to higher licenses fees from existing collaboration arrangements, partially offset by lower revenues from Novartis under the Novartis CodeEvolver ® Agreement.

The increase in product revenue of $46.0 million, or 65%, to $116.7 million in 2022, compared to $70.7 million in 2021 was primarily due to $40.9 million higher revenue from Pfizer sales related to the purchase of CDX-616.

The decrease in research and development revenue of $9.9 million, or 50%, to $9.9 million in 2022, com pared to $19.9 million in 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, decreased revenue from milestone payments received from GSK, and lower research and development fees from other existing collaboration agreements compared to 2021.

Revenues from the Novel Biotherapeutics segment decreased by $2.3 million, or 16% , to $12.0 million in 2022, compared to $14.2 million in 2021.

The decrease in 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 and a decrease in research and development revenue from Nestlé Health Science compared to last year.

The decrease in revenue was primarily due to lower research an d development fees from Takeda and lower research and development revenue from Nestlé Health Science recognized this year compared to the prior year.

2021 compared to 2020

Revenues from the Performance Enzymes segment decreased by $10.1 million, or 17%, to $48.1 million in 2020, compared to $58.2 million in 2019.

The increase in product revenue of $0.8 million, or 3%, to $30.2 million in 2020, compared to $29.5 million in 2019, was primarily due to higher customer demand for enzymes used in the manufacture of branded pharmaceutical products.

The decrease in research and development revenue of $10.8 million, or 38%, to $17.9 million in 2020, compared to $28.7 million in 2019 was primarily due to lower revenues from Novartis under the Novartis CodeEvolver ® Agreement, a prior year milestone payment from GSK under the GSK CodeEvolver ® Agreement, and lower license fees and revenue from Merck, partially offset by the recognition of functional license fees revenue from Porton in 2020.

Revenues from the Novel Biotherapeutics segment increased by $10.6 million, or 103%, to $21.0 million in 2020, compared to $10.3 million in 2019.

The increase in revenue was primarily due to recognition of license fees from Takeda under the Takeda Agreement, partially offset by a decrease in prior year functional license fee revenue from Nestlé Health Science.

Revenues from the Performance Enzymes segment increased by $42.4 million, or 88%, to $90.5 million in 2021, compared to $48.1 million in 2020.

The increase in research and development revenue of $2.0 million, or 11%, to $19.9 million in 2021, compared to $17.9 million in 2020 was primarily due to higher licenses fees from existing collaboration arrangements, which was partially offset by lower revenues from Novartis.

Revenues from the Novel Biotherapeutics segment decreased by $6.7 million, or 32%, to $14.2 million in 2021, compared to $21.0 million in 2020.

The decrease in revenue was primarily due to lower license and research and development fees from Takeda and a decrease in research and development revenue from Nestlé Health Science in 2021 compared to 2020.

Costs and operating expenses by segment

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14,724 2,421 17,145 12,105 2,755 14,860 2,619 22% (334) (12)%

Restructuring Charges $ 1,708 $ 966 2,674 $ — $ — — $ 1,708 100% $ 966 100%

Total segment costs and operating expenses $ 80,251 $ 53,157 133,408 $ 57,454 $ 32,974 90,428 $ 22,797 40% $ 20,183 61%

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(1) Research and development expenses and selling, general and administrative expenses exclude depreciation and amortization of finance leases.

(2) Corporate costs include unallocated selling, general and administrative expenses.

(2) Corporate costs include unallocated selling, general and administrative expense and restructuring charges.

Year Ended December 31, 2021 Year Ended December 31, 2020 Change

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Research and development expense in the Performance Enzymes segment increased by $2.6 million, or 11%, to $25.8 million in 2022, compared to $23.1 million in 2021.

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.

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

Selling, general and administrative expense in the Performance Enzymes segment increased by $2.6 million, or 22%, to $14.7 million in 2022, compared to $12.1 million in 2021.

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

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

Research and development expense in the Novel Biotherapeutics segment increased by $19.6 million, or 65%, to $49.8 million in 2022, compared to $30.2 million in 2021.

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 increase d by $0.4 million, or 17%, to $2.8 million in 2021, compared to $2.4 million 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.

The increase was primarily due to higher costs associated with higher headcount, higher facilities cost and lab supplies, increase in outside services related to CMC and regulatory expenses and higher allocable expenses.

Selling, general and administrative expense in the Novel Biotherapeutics segment decreased by $0.3 million, or 12%, to $2.4 million in 2022, c ompared to $2.8 million in 2021.

The decrease was primarily due to lower outside services expenses.

2021 compared to 2020

Research and development expense in the Performance Enzymes segment increased by $2.2 million, or 11%, to $23.1 million in 2021, compared to $20.9 million in 2020.

The increase was primarily due to an increase in costs associated with higher headcount, higher stock-based compensation expense, higher repairs and maintenance expense, and were partially offset by lower lab supply expenses and lower allocable expenses.

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

Selling, general and administrative expense in the Performance Enzymes segment increased by $2.5 million, or 26%, to $12.1 million in 2021, compared to $9.6 million in 2020.

The increase was primarily due to an increase in costs associated with licensed technology, outside services, stock-based compensation expense, and higher allocable expenses which were partially offset by lower travel expenses.

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

Research and development expense in the Novel Biotherapeutics segment increased by $8.5 million, or 39%, to $30.2 million in 2021, compared to $21.7 million in 2020.

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

Selling, general and administrative expense in the Novel Biotherapeutics segment increased by $0.1 million, or 6%, to $2.4 million in 2020, compared to $2.2 million in 2019.

The increase was primarily due to an increase in costs associated with headcount, licensed technology, consultants and stock-based compensation expense which were partially offset by lower allocable expenses, outside services, and travel expenses.

Selling, general and administrative expense in the Novel Biotherapeutics segment increase d by $0.4 million, or 17%, to $2.8 million in 2021, compared to $2.4 million in 2020.

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

Income (loss) from operations by segment

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Income from operations in the Performance Enzymes segment increased by $13.3 million, or 40%, to $46.4 million, in 2022, compared to $33.1 million in 2021.

The increase in income from operations was primarily due to higher product revenue and research and development revenue, partially offset by higher costs and operating expenses.

Loss from operations in the Novel Biotherapeutics segment increased by $15.6 million, or 502%, to $18.7 million in 2021 compared to a loss from operations of $3.1 million in 2020.

The increase in loss from operations was primarily due to lower

research and development revenue from Takeda under the Takeda Agreement and decrease in research and development revenue from Nestlé Health Science, and higher research and development expenses associated with higher headcount and allocable expenses.

The increase in income from operations was primarily due to higher product revenue from Pfizer sales partially offset by lower research and development revenue and higher costs and operating expenses.

Loss from operations in the Novel Biotherapeutics segment increased by $22.4 million, or 120%, to $41.2 million in 2022 compared to a loss from operations of $18.7 million in 2021, primarily d ue to lower research and development revenue from Takeda and Nestlé Health Science and higher research and development expenses associated with higher headcount, higher facilities cost and lab supplies and higher allocable expenses.

2021 compared to 2020

Income from operations in the Performance Enzymes segment decreased by $10.8 million, or 74%, to $3.8 million, in 2020, compared to $14.7 million in 2019.

The decrease in income from operations was primarily due to decrease in research and development revenue and increases in research and development costs and selling, general and administrative expenses.

Loss from operations in the Novel Biotherapeutics segment decreased by $2.1 million, or 40%, to $3.1 million in 2020 compared to a loss from operations of $5.2 million in 2019.

The decrease in loss from operation was primarily due to the recognition of license fees from Takeda under the Takeda Agreement, partially offset by a decrease in prior year functional license fee revenue from Nestlé Health Science, an increase in costs associated with outside services relating to CMC and regulatory expenses, higher headcount, higher outside services, and higher allocable expenses.

Income from operations in the Performance Enzymes segment increased by $29.2 million, or 760%, to $33.1 million, in 2021, compared to $3.8 million in 2020.

The increase in income from operations was primarily due to higher product revenue and research and development revenue, which was partially offset by higher costs and operating expenses.

Loss from operations in the Novel Biotherapeutics segment increased by $15.6 million, or 502%, to $18.7 million in 2021 compared to a loss from operations of $3.1 million in 2020.

The increase in loss from operations was primarily due to lower research and development revenue from Takeda and decrease in research and development revenue from Nestlé Health Science, and higher research and development expenses associated with higher headcount and allocable expenses.

LIQUIDITY AND CAPITAL RESOURCES

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We have historically funded our operations primarily through cash generated from operations, stock option exercises and public and private offerings of our common stock.

We also have the ability to borrow up to $5.0 million under our Credit Facility.

We also have the ability to borrow up to $5.0 million under our Credit Facility (defined below).

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

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

Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, research and development expenses including costs related to the potential clinical development of our product candidates, manufacturing costs, laboratory and related supplies, legal and other regulatory expenses, and general overhead costs.

We expect our cash requirements to increase in the near term as we continue to invest in high potential research and development activities with long-term commercial potential, if approved, and see less cash revenue from sales of CDX-616 to Pfizer for PAXLOVID™.

The following summarizes our cash and cash equivalents balance and working capital as of December 31, 2022, 2021 and 2020 (in thousands):

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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.

In addition to our existing cash and cash equivalents and revenue generated through our existing operations, 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 with Merck, Novartis and Nestlé Health Science of up to $439.0 million in aggregate.

In addition, under the GSK CodeEvolver ® Agreement, we have the potential to receive additional contingent payments that range from $5.8 million to $38.5 million per project.

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 .

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, 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 a 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.

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

We have also received 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 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 trail with CDX-6114 and achievement of a formulation relating to 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.

In addition, pursuant to the terms of the Pfizer Supply Agreement, we received a fee of $25.9 million in August 2022.

The fee is creditable against future orders of CDX-616 used to manufacture PAXLOVID™ with shipment dates prior to December 31, 2023 and for fees associated with any new development and licensing agreements with Pfizer entered into prior to March 31, 2023 that are invoiced prior to December 31, 2023.

Up to 50% of any portion of the fee which has not been credited pursuant to credits granted under the preceding sentence is creditable against future orders of CDX-616 used to manufacture PAXLOVID™ with shipment dates prior to December 31, 2024.

In the fourth quarter of 2022, we and Pfizer agreed to adjust the terms of certain existing non-cancelable purchase orders of CDX-616 issued under the Pfizer Supply Agreement pursuant to which Pfizer will pay us $36.8 million in lieu of the delivery of certain quantities of CDX-616 under those purchase orders, upon which we collected $19.8 million in December 2022 and the remaining amount is expected to be received in the first quarter of 2023.

We are actively collaborating with new and existing customers.

We believe that we can utilize our current products and services, and develop new products and services, to increase our revenues and gross margins in future periods.

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During the year ended December 31, 2021, no shares of our common stock were issued pursuant to the EDA.

As of December 31, 2021, $50.0 million of shares remained available for sale under the EDA.

During the year ended December 31, 2022, no shares of our common stock were issued pursuant to the EDA, and as of December 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 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.

Credit Facility

In June 2017, we entered into the Credit Facility with Western Alliance Bank which consists of term debt for loans that allowed us to borrow up to $10.0 million and a revolving credit 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 terminate.

Our right to take draws on the term debt expired on December 31, 2021 and no amounts were drawn under the Credit Facility as of December 31, 2021.

In June 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 up to $5.0 million with 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, if any, 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.

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

For additional information about our contractual obligations, see Note 13, “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

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.

As of December 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 13, “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

We believe that our existing cash and cash equivalents, combined with our future expectations for product revenues, research and development revenue, and expense management will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next twelve months.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our capital resources sooner than we expect.

However, we may need additional capital if our current plans and assumptions change.

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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.

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

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

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2022 2021 2020

Net cash used in operating activities $ (14,267) $ (16,464) $ (12,560)

Net cash provided by (used in) operating activities $ 11,284 $ (14,267) $ (16,464)

Net cash used in investing activities (13,578) (21,422) (5,748)

Net cash provided by financing activities 3,767 80,808 53,961

Net cash provided by (used in) financing activities (575) 3,767 80,808

Net increase (decrease) in cash, cash equivalents and restricted cash

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Cash Flows from Operating Activities

Cash used in oper ating activities was $14.3 million in 2021, which resulted from a net loss of $21.3 million adjusted for non-cash charges for depreciation of $3.1 million, right-of-use ("ROU") lease asset amortization expense of $2.8 million, stock-based compensation of $11.6 million, $0.3 million allowance for credit losses, partially offset by equity securities earned from research and development activities of $2.0 million and unrealized gain on non-marketable securities of $1.3 million.

Additionally, changes in operating assets and liabilities were $7.6 million.

The net change in operating assets and liabilities included a decrease in other long-term liabilities of $4.1 million, increase in financial assets of $9.2 million, increase in prepaid expenses and other assets of $2.3 million, increase in inventories of $0.2 million, partially offset by increase in accrued compensation and other accrued liabilities of $6.6 million, increase in deferred revenue of $1.3 million and increase of $0.3 million in accounts payable.

Cash used in operating activities was $16.5 million in 2020, which resulted from a net loss of $24.0 million adjusted for non-cash charges for depreciation of $2.0 million, ROU lease asset amortization expense of $2.6 million and stock-based compensation of $7.7 million, as well as changes in operating assets and liabilities.

The net change in operating assets and liabilities included decreases in other long-term liabilities of $2.6 million and combined increases in financial assets of $8.7 million, prepaid expenses and other assets of $1.0 million, as well as accrued compensation and other accrued liabilities of $6.2 million and deferred revenue of $2.7 million.

Cash used in operating activities was $12.6 million in 2019, which resulted from a net loss of $11.9 million adjusted for non-cash charges for depreciation of $1.6 million, ROU lease asset amortization expense of $3.0 million and stock-based compensation of $6.9 million, as well as changes in operating assets and liabilities.

The net change in operating assets and liabilities included decreases in deferred revenue of $6.2 million and in other long-term liabilities of $1.2 million, and combined increases in financial assets of $5.9 million, prepaid expenses and other assets of $1.3 million, as well as accrued compensation and other accrued liabilities of $2.2 million.

The $25.6 million increase in net cash provided by operating activities in 2022 as compared to 2021 was primarily due to the receipt of a $25.9 million fee from Pfizer in August 2022 creditable against future orders and increases in cash received from revenue, which was partially offset by increased payments associated with higher operating costs.

The $2.2 million decrease in net cash used by operating activities in 2021 as compared to 2020 was primarily due to increases in cash received from revenue, which was partially offset by increased payments associated with higher operating costs.

Cash Flows from Investing Activities

Cash used in investing activities was $21.4 million in 2021 primarily due to the purchase of property and equipment of $13.8 million and 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 for $7.6 million.

Cash used in investing activities was $5.7 million in 2020 primarily due to the purchase of property and equipment of $3.7 million, and investments in non-marketable equity securities of $1.0 million and non-marketable debt securities of $1.0 million.

Cash used in investing activities was $3.7 million in 2019 primarily due to the purchase of property and equipment of $3.7 million and partially offset by proceeds from sale of CO 2 investment securities of $0.1 million.

The $7.8 million decrease in net cash used in investing activities in 2022 as compared to 2021, was primarily due to higher cash utilized for additional investments in equity securities and purchases of property and equipment in 2021.

The $15.7 million increase in net cash used in investing activities in 2021 as compared to 2020, was primarily due to higher cash utilized for the additional investments in MAI's Series A and B preferred stock for $7.6 million and higher purchases of property and equipment during 2021.

Cash Flows from Financing Activities

Cash provided by financing activities was $3.8 million in 2021, primarily due to $5.2 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 and $0.2 million of costs incurred in connection with the EDA.

Cash provided by financing activities was $80.8 million in 2020, primarily due to $80.8 million net proceeds from our offering of common stock after deducting underwriting discounts and commission and related costs and proceeds from the exercises of employee stock options which were partially offset by the payment of taxes related to the net share settlement of equity awards

Cash provided by financing activities was $54.0 million in 2019, primarily due to net proceeds from our private offering of common stock after deducting underwriting discounts and commission and related costs and proceeds from the exercises of employee stock options which were partially offset by the payment of taxes related to the net share settlement of equity awards.

The $4.3 million decrease in net cash provided by financing activities in 2022 as compared to 2021 was primarily due to higher cash paid on taxes related to net share settlement of equity awards and lower proceeds from exercises of stock options.

The $77.0 million decrease in net cash provided by financing activities in 2021 as compared to 2020 was primarily due to the receipt of $80.8 million in net proceeds from our offering of common stock in 2020.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2021, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K as promulgated by the SEC.

As of December 31, 2022, we had no off-balance sheet arrangements as defined in Item 303 of Regulation S-K as promulgated by the SEC.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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The majority of our contracts with customers typically contain multiple products and services.

We account for individual products and services separately if they are distinct-that is, if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer.

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our product revenue and collaborative research and development agreements, we perform the following steps:

(i) identification of the promised goods or services in the contract;

(ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the

constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations based on estimated selling prices;

and (v) recognition of revenue when (or as) we satisfy each performance obligation.

The majority of our collaborative contracts contain multiple revenue streams such as upfront and/or annual license fees, research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage, among others.

We determine the stand-alone selling price ("SSP") and allocate consideration to distinct performance obligations.

Typically, we base our SSPs on our historical sales.

If an SSP is not directly observable, then we estimate the SSP taking into consideration market conditions, forecasted sales, entity-specific factors and available information about the customer.

We estimate the SSP for license rights by using a discounted cash flow method which includes the following key assumptions:

the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success.

For licenses that have been previously sold to other customers, we use historical information to determine SSP.

We account for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Non-cancellable purchase orders received from customers to deliver a specific quantity of product, when combined with our order confirmation, in exchange for future consideration, create enforceable rights and obligations on both parties and constitute a contract with a customer.

We measure revenue based on the consideration specified in the contract with each customer, net of any sales incentives and taxes collected on behalf of government authorities.

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We make significant judgments when determining the appropriate timing of revenue recognition.

The following is a description of principal activities from which we generate revenue:

Product Revenue

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

A majority of our product revenue is made pursuant to purchase orders or supply agreements and is recognized either at a point in time when the control of the product has been transferred to the customer typically upon shipment or over time as the product is manufactured because we have a right to payment from the customer under a binding, non-cancellable purchase order, and there is no alternate use of the product for us as it is specifically made for the customer’s use.

Certain of our agreements provide options to customers which they can exercise at a future date, such as the option to purchase our product during the contract duration at discounted prices and an option to extend their contract, among others.

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We update the transaction price for expected consideration, subject to constraint, each reporting period if our estimate of future goods to be ordered by customers change.

Research and Development Revenues

We perform research and development activities as specified in each respective customer agreement.

We identify each performance obligation in our research and development agreements at contract inception.

We allocate the consideration to each distinct performance obligation based on the estimated SSP of each performance obligation.

Performance obligations included in our research and services agreements typically include research and development services for a specified term, periodic reports and small samples of enzyme produced.

Estimating expected consideration to be received under the alternative approach involves significant judgment.

Research and Development Revenue

The majority of our research and development agreements are based on a contractual rate per dedicated project team working on the project.

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We utilize an appropriate method of measuring progress towards the completion of our performance obligations to determine the timing of revenue recognition.

For each performance obligation that is satisfied over time, we recognize revenue using a single measure of progress, typically based on hours incurred.

For each performance obligation that is satisfied over time, we recognize revenue using a single measure of progress either based on hours incurred or based on stage of progress under the project.

Our contracts frequently provide customers with rights to use or access our products or technology, along with other promises or performance obligations.

Under ASC 606, we must first determine whether the license is distinct from other promises, such as our promise to perform research and development services.

If we determine that the customer cannot benefit from the license without our services, the license will be accounted for as combined with the other performance obligations.

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Milestone payments that are not within our control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment.

Our CodeEvolver ® platform technology transfer collaboration agreements typically include license fees, upfront fees, and variable consideration in the form of milestone payments, and sales or usage-based royalties.

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We recognize revenue at the later of (i) when the related sale of the product occurs, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied.

Stock-Based Compensation

We use the Black-Scholes-Merton option pricing model to estimate the fair value of options granted under our equity incentive plans.

The Black-Scholes-Merton option pricing model requires the use of assumptions, including the expected term of the award and the expected stock price volatility.

The expected term is based on historical exercise behavior on similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior.

We use historical volatility to estimate expected stock price volatility.

The risk-free rate assumption is based on United States Treasury instruments whose terms are consistent with the expected term of the stock options.

The expected dividend assumption is based on our history and expectation of dividend payouts.

Restricted Stock Units (“RSUs”), Restricted Stock Awards (“RSAs”) and performance-contingent restricted stock units (“PSUs”) are measured based on the fair market values of the underlying stock on the dates of grant.

Performance based options (“PBOs”) are measured using Black-Scholes-Merton option pricing model.

The vesting of PBOs and PSUs awarded is conditioned upon the attainment of one or more performance objectives over a specified period and upon continued employment through the applicable vesting date.

At the end of the performance period, shares of stock subject to the PBOs and PSUs vest based upon both the level of achievement of performance objectives within the performance period and continued employment through the applicable vesting date.

Stock-based compensation expense is calculated based on awards ultimately expected to vest and is reduced for estimated forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The estimated annual forfeiture rates for stock options, RSUs, PSUs, PBOs, and RSAs are based on historical forfeiture experience.

The estimated fair value of stock options, RSUs and RSAs are expensed on a straight-line basis over the vesting term of the grant and the estimated fair value of PSUs and PBOs are expensed using an accelerated method over the term of the award once management has determined that it is probable that the performance objective will be achieved.

Compensation expense is

recorded over the requisite service period based on management's best estimate as to whether it is probable that the shares awarded are expected to vest.

Management assesses the probability of the performance milestones being met on a continuous basis.

Lease Accounting

We determine if an arrangement is a lease at inception.

Where an arrangement is a lease we determine if it is an operating lease or a finance lease.

At lease commencement, we record a lease liability and corresponding ROU asset.

Lease liabilities represent the present value of our future lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised.

The present value of our lease liability is determined using our incremental collateralized borrowing rate at lease inception.

ROU assets represent our right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease liability for leases with an initial term greater than 12 months.

Over the lease term we use the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized to consolidated statement of operations in a manner that results in straight-line expense recognition.

We elected to apply the practical expedient for short-term leases and accordingly do not apply lease recognition requirements for short-term leases.

Instead, we recognize payments related to these arrangements in the consolidated statement of operations as lease costs on a straight-line basis over the lease term.

Investment in Non-Marketable Securities

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Gains and losses on these securities are recognized in other income (expense), net.

Investment in Non-Marketable Debt Securities

We measure available for sale investments in non-marketable debt at fair value.

Unrealized gains and losses on these securities are recognized in other comprehensive income until realized.

Non-marketable debt securities are classified as available-for-sale securities.

We classify non-marketable debt securities as Level 3 in the fair value hierarchy because we estimate the fair value based on a qualitative analysis using the most recent observable transaction price and other significant unobservable inputs including volatility, rights, and obligations of the securities we hold.

Significant changes to the unobservable inputs may result in a significantly higher or lower fair value estimate.

We may value these securities based on significant recent arms-length transactions with sophisticated non-strategic unrelated new investors.

We evaluate both equity and debt securities for impairment when circumstances indicate that we may not be able to recover the carrying value.

We evaluate equity securities for impairment when circumstances indicate that we may not be able to recover the carrying value.

We may impair these securities and establish an allowance for a credit loss when we determine that there has been an "other-than-temporary" decline in estimated fair value of the debt or equity security compared to its carrying value.

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What changed 10-K

Item 7. Management’s Discussion and Analysis