What changed in this filing

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Item 1. Financial Statements

2023-11-03 compared with 2023-08-03 · 188 added, 115 removed, 531 unchanged (36% of the section changed)

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(In Thousands, Except Per Share Amounts)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets:

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Prepaid expenses and other current assets 5,402 5,487

Assets held for sale 646 —

Total current assets 103,014 162,894

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200,000 shares authorized;

69,804 shares and 65,811 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

69,827 shares and 65,811 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 581,838 566,081

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(In Thousands, Except Per Share Amounts)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Restructuring charges 3,140 — 3,284 —

Asset impairment and other charges 9,984 — 9,984 —

Total costs and operating expenses 41,337 45,106 111,932 129,846

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Interest income 1,056 436 3,266 618

Other expense, net ( 9 ) ( 63 ) ( 33 ) ( 66 )

Other income (expense), net

( 3,895 ) 216 ( 3,930 ) 150

Loss before income taxes ( 34,899 ) ( 9,984 ) ( 69,014 ) ( 20,863 )

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Capital Accumulated Deficit Total Stockholders' Equity

Three Months Ended June 30, 2023 Shares Amount

Balance as of April 1, 2023

Three Months Ended September 30, 2023 Shares Amount

Balance as of July 1, 2023

69,804 $ 6 $ 579,555 $ ( 455,430 ) $ 124,131

Exercise of stock options 71 — 141 — 141

Release of stock awards 23 — — — —

Employee stock-based compensation — — 2,283 — 2,283

Issuance of common stock, net of issuance costs of $ 331

2,752 — 6,781 — 6,781

Net loss — — — ( 34,908 ) ( 34,908 )

Balance as of June 30, 2023

Balance as of September 30, 2023

69,827 $ 6 $ 581,838 $ ( 490,338 ) $ 91,506

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Capital Accumulated Deficit Total Stockholders' Equity

Three Months Ended June 30, 2022 Shares Amount

Balance as of April 1, 2022

Three Months Ended September 30, 2022 Shares Amount

Balance as of July 1, 2022

65,494 $ 6 $ 558,147 $ ( 398,694 ) $ 159,459

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Net loss — — — ( 9,992 ) ( 9,992 )

Balance as of June 30, 2022

Balance as of September 30, 2022

65,613 $ 6 $ 562,811 $ ( 408,686 ) $ 154,131

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Capital Accumulated Deficit Total Stockholders' Equity

Six Months Ended June 30, 2023 Shares Amount

Nine Months Ended September 30, 2023 Shares Amount

Balance as of January 1, 2023

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Net loss — — — ( 69,048 ) ( 69,048 )

Balance as of June 30, 2023

Balance as of September 30, 2023

69,827 $ 6 $ 581,838 $ ( 490,338 ) $ 91,506

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Capital Accumulated Deficit Total Stockholders' Equity

Six Months Ended June 30, 2022 Shares Amount

Nine Months Ended September 30, 2022 Shares Amount

Balance as of January 1, 2022

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Net loss — — — ( 20,988 ) ( 20,988 )

Balance as of June 30, 2022

Balance as of September 30, 2022

65,613 $ 6 $ 562,811 $ ( 408,686 ) $ 154,131

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(In Thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities:

Net loss $ ( 69,048 ) $ ( 20,988 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation 4,302 3,961

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( 187 ) ( 1,245 )

Unrealized gain on non-marketable securities

Asset impairment and other charges 9,984 —

Impairment of investment in non-marketable equity securities

Other non-cash items ( 3 ) ( 29 )

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Deferred revenue ( 11,273 ) 3,750

Net cash used in operating activities ( 25,299 ) ( 13,367 )

Net cash provided by (used in) operating activities

( 41,601 ) 6,367

Investing activities:

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Capital expenditures incurred but not yet paid $ 159 $ 128

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets as of June 30, 2023 and 2022 to the total of the same such amounts shown above in the unaudited condensed consolidated statements of cash flows:

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets as of September 30, 2023 and 2022 to the total of the same such amounts shown above in the unaudited condensed consolidated statements of cash flows:

September 30,

Cash and cash equivalents $ 74,577 $ 108,689

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We discover, develop, enhance, and commercialize novel, high performance enzymes and other classes of proteins leveraging our proprietary CodeEvolver ® directed evolution platform.

As of June 30, 2023, we reported our financial results based on two reportable segments:

As of September 30, 2023, we reported our financial results based on two reportable segments:

Performance Enzymes and Novel Biotherapeutics.

Our Performance Enzymes business consists primarily of two focus areas:

i) biocatalysts for the sustainable manufacturing of pharmaceuticals and ii) enzymes for life science applications, including genomic sequencing and nucleic acid synthesis.

i) biocatalysts for the enzymatic manufacturing of pharmaceuticals and ii) enzymes for life science applications, including genomic sequencing and nucleic acid synthesis.

Our Novel Biotherapeutics business includes product candidates in clinical and preclinical development.

The segment information aligns with how the chief operating decision maker ( “ CODM ” ), who is our Chief Executive Officer ( “ CEO ” ), reviews and manages the business.

In July 2023, we announced that we are discontinuing investment in Novel Biotherapeutics and expect to have just one business segment, Performance Enzymes, by the end of 2023.

In July 2023, we announced a restructuring of our business and that we are discontinuing investment in certain development programs, primarily in Novel Biotherapeutics.

Basis of Presentation and Summary of Significant Accounting Policies

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The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements.

The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023 and 2022, are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 2022 Annual Report on Form 10-K and are updated below as necessary.

The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022, are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 2022 Annual Report on Form 10-K and are updated below as necessary.

There have been no significant changes in our significant accounting policies or critical accounting estimates since December 31, 2022.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly our financial position as of June 30, 2023, results of our operations for the three and six months ended June 30, 2023 and 2022, changes in stockholders' equity for the three and six months ended June 30, 2023 and 2022, and cash flows for the six months ended June 30, 2023 and 2022.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly our financial position as of September 30, 2023, results of our operations for the three and nine months ended September 30, 2023 and 2022, changes in stockholders' equity for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022.

The interim results are not necessarily indicative of the results for any future interim period or for the entire year.

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The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities.

We regularly assess these estimates which primarily affect revenue recognition, deferred revenue, inventories, valuation of equity investments, goodwill arising out of business acquisitions, accrued liabilities, stock awards, and the valuation allowances associated with deferred tax assets.

We regularly assess these estimates which primarily affect revenue recognition, deferred revenue, inventories, valuation of equity investments, valuation of assets held for sale, goodwill arising out of business acquisitions, accrued liabilities, stock awards, and the valuation allowances associated with deferred tax assets.

Actual results could differ from those estimates and such differences may be material to the consolidated financial statements.

Impairment of Long-Lived Assets

We evaluate the carrying values of long-lived assets, which include property and equipment and right-of-use assets, whenever events, changes in business circumstances or our planned use of long-lived assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate.

If these facts and circumstances exist, we assess for recovery by comparing the carrying values of long-lived assets with the future net undiscounted cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measure by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

For additional information on the impairment charge recorded in the three and nine months ended September 30, 2023, s ee Note 7, “Balance Sheets Details” and Note 10, “Commitments and Contingencies.”

Assets Held For Sale

The Company classifies assets as held for sale when the following conditions are met:

(i) management has committed to a plan to sell, (ii) the assets are available for immediate sale in their present condition, (iii) the Company has initiated an active program to identify a buyer, (iv) it is probable that a sale will occur within one year, (v) the assets are actively marketed for sale at a reasonable price in relation to their current fair value, and (vi) there is a low likelihood of significant changes to the plan or that the plan will be withdrawn.

If all of the criteria are met as of the balance sheet date, the assets are presented separately in the consolidated balance sheet as held for sale at the lower of the carrying amount or fair value less costs to sell.

The assets are then no longer depreciated or amortized while classified as held for sale.

For additional information, see Note 15, “Assets Held For Sale.”

Accounting Pronouncements

Recently adopted accounting pronouncements or recently issued accounting pronouncements not yet adopted

There were no recent accounting pronouncements or changes in accounting pronouncements during the three and six months ended June 30, 2023, that are of significance or potential significance to us.

There were no recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended September 30, 2023, that are of significance or potential significance to us.

Revenue Recognition

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Segment information is as follows (in thousands):

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

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Total revenues $ 8,710 $ 567 $ 9,277 $ 31,146 $ 3,324 $ 34,470

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

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The following table presents balances of contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Contract assets $ 1,936 $ 2,116

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deferred revenue $ 19,336 $ 30,609

We had no asset impairment charges related to financial assets in the three and six months ended June 30, 2023 and 2022.

The increase in contract assets was primarily due to increases in product revenue from contracts subject to over time revenue recognition.

The increase in unbilled receivables was primari ly due to the timing of billings.

T he decrease in deferred revenue was primarily due to timing of recognition of revenue, including the $ 2.9 million release of prior periods' product revenue deferrals during the second quarter of 2023 due to early termination of the enzyme supply obligations to a customer .

We had no asset impairment charges related to financial assets in the three and nine months ended September 30, 2023 and 2022.

The decrease in contract assets was primarily due to decreases in product revenue from contracts subject to over time revenue recognition.

The decrease in unbilled receivables was primari ly due to the timing of billings.

T he decrease in deferred revenue was primarily due to timing of recognition of revenue, including the $ 2.9 million rel ease of prior periods' product revenue deferrals during the second quarter of 2023 due to early termination of the enzyme supply obligations to a customer .

We recognized the following revenues (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Revenue recognized in the period for:

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The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting periods.

The estimated revenue does not include contracts with original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of June 30, 2023.

The balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts as of June 30, 2023 (in thousands):

Remainder of 2023

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The following shares were not considered in the computation of diluted net loss per share because their effect was anti-dilutive (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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(“MAI”), a privately held life sciences company .

As of June 30, 2023, we held an aggregate of 19,277,914 shares of MAI's Series A and B preferred stock that we have earned or purchased from MAI.

As of September 30, 2023, we held an aggregate of 19,277,914 shares of MAI's Series A and B preferred stock that we have earned or purchased from MAI.

See Note 11 “Related Party Transactions” for additional information on our investment in MAI.

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In March 2023, we entered into a Master Collaboration Agreement and Research Agreement with seqWell (the “seqWell Agreement”), pursuant to which we are providing research and experimental screening and protein engineering activities in exchange for compensation in the form of additional shares of seqWell's common stock.

We received 65,982 and 113,915 shares of seqWell's common stock from research and development services with seqWell and we recognized $ 69 thousand and $ 118 thousand in research and development revenue from these services during the three and six months ended June 30, 2023, respectively.

In addition to our initial equity investment and the shares we have received under the seqWell Agreement, in September 2023, we purchased an additional 88,256 shares of seqWell's Series C-1 preferred stock and 44,128 common stock warrants for $ 0.4 million.

We received 65,982 and 179,897 shares of seqWell's common stock from research and development services with seqWell and we recognized $ 69 thousand and $ 187 thousand in research and development revenue from these services during the three and nine months ended September 30, 2023, respectively.

We own 207,070 shares of Series B-2 preferred stock of Arzeda Corp.

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Non-marketable equity securities are measured at fair value on a non-recurring basis and classified within Level 2 in the fair value hierarchy when we estimate the fair value of these investments using the observable transaction price paid by third party investors for the same or similar security of the same issuers.

The fair value of non-marketable equity securities are classified within Level 3 when we estimate fair value using unobservable inputs such as when we remeasure due to impairment and we use discount rates, market data of comparable companies, and rights and obligations of the securities the Company holds, among others.

We adjust the carrying value of non-marketable equity securities which have been remeasured during the period and recognize resulting gains or losses as a component of other expense, net in the unaudited condensed consolidated statements of operations.

There was no remeasurement event for our investments in MAI, seqWell, Arzeda, and other non-marketable equity securities that occurred during the three and six months ended June 30, 2023 and 2022.

We recognized no realized gains or losses during the three and six months ended June 30, 2023 and 2022.

For the three months ended September 30, 2023, we recognized an impairment charge of $ 3.9 million and included this as adjustment to the carrying value of our investments in seqWell and Arzeda.

This adjustment, which is presented within other income (expense), net in the condensed consolidated statements of operations, is related to the write-down of the carrying value of our investments in seqWell by $ 3.0 million and in Arzeda by $ 0.9 million to its estimated fair values as determined based on valuation methods using the recent transaction price of similar preferred stock securities issued by the investees and adjusted for the rights and obligations of the preferred stock securities the Company holds.

For the three months ended September 30, 2022, we recognized a $ 0.2 million unrealized gain and included as adjustment to the carrying value of our investment in MAI, for the remeasurement of the additional 1,587,049 shares of Series B preferred stock received as milestone payment during the three months ended September 30, 2022 based on the latest observed transaction price of MAI's preferred stock.

There was no remeasurement event for our investments in other non-marketable equity securities that occurred during the three and nine months ended September 30, 2023 and 2022.

We recognize d no realized gains or losses during the three and nine months ended September 30, 2023 and 2022.

The following table presents the carrying value of our non-marketable equity securities (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

$ 14,671 $ 13,921

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The following tables present the financial instruments that were measured at fair value on a recurring basis within the fair value hierarchy (in thousands):

June 30, 2023

September 30, 2023

Level 1 Level 2 Level 3 Total

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Money market funds $ 77,309 $ — $ — $ 77,309

During the three and six months ended June 30, 2023 and 2022, we did no t recognize any significant credit losses no r other-than-temporary impairment losses on non-marketable securities.

During the three and nine months ended September 30, 2023 and 2022, we did no t recognize any significant credit losses no r other-than-temporary impairment losses on non-marketable securities.

The investments in non-marketable securities that have been remeasured due to an observable event or impairment are classified within Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including rights and obligations of the investments we hold.

For additional information, see Note 5, “Investments in Non-Marketable Securities.”

As of September 30, 2023, the Company had classifie d $ 0.6 million of laboratory equipment, net of accumulated depreciation, that it intends to sell within the next quarter and that meets the held for sale criteria, to assets held for sale in the condensed consolidated balance sheet.

The estimated fair values (Level 2 fair value measurements) were determined based on the quoted proceeds from the sale of these assets less costs to sell.

For additional information, see Note 15, “Assets Held For Sale.”

Balance Sheets Details

Cash Equivalents

Cash equivalents as of June 30, 2023 and December 31, 2022, consisted of the following (in thousands):

June 30, 2023 December 31, 2022

Cash equivalents as of September 30, 2023 and December 31, 2022, consisted of the following (in thousands):

September 30, 2023 December 31, 2022

Adjusted Cost Estimated Fair Value Adjusted Cost Estimated Fair Value

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Average contractual maturities (in days) is not applicable.

As of June 30, 2023, the total cash and cash equivalents balance of $ 92.1 million consisted of money market funds of $ 80.1 million and cash of $ 12.0 million held with major financial institutions.

As of September 30, 2023, the total cash and cash equivalents balance of $ 74.6 million consisted of money market funds of $ 65.6 million and cash of $ 9.0 million held with major financial institutions.

As of December 31, 2022, the total cash and cash equivalents balance of $ 114.0 million consisted of money market funds of $ 77.3 million and cash of $ 36.7 million held with major financial institutions.

Inventories consisted of the following (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Raw materials $ 108 $ 108

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Total Inventories $ 2,305 $ 2,029

Inventories are recorded net of reserves of $ 1.2 million as of June 30, 2023 and December 31, 2022.

Inventories are recorded net of reserves of $ 1.4 million as of September 30, 2023 and December 31, 2022.

Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Laboratory equipment $ 36,376 $ 39,679

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Property and equipment, net

$ 15,282 $ 22,614

During the three and nine months ended September 30, 2023, the Company recorded a n on-cash impairment charge of $ 4.7 million associated with the San Carlos facility leasehold improvements.

For additional information, see Note 10, “Commitments and Contingencies.”

As of September 30, 2023, the Company had classi fied $ 2.1 million of laboratory equipment, net of accumulated depreciation, that it intends to sell within the next quarter and that meets the held for sale criteria, to assets held for sale.

The Company determined that the carrying value of the assets held for sale exceeds fair value less costs to sell, which resulted in a write-down o f $ 1.5 million, presented within the asset impairment and other charges line item in the condensed consolidated statements of operations, for the quarter ended September 30, 2023.

As of September 30, 2023, the Company has presented $ 0.6 million of assets held for sale in the condensed consolidated balance sheet.

For additional information, see Note 15, “Assets Held For Sale.”

Depreciation expense included in both research and development expenses and selling, general and administrative expenses in the unaudited condensed consolidated statements of operations was as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Depreciation expense $ 1,357 $ 1,405 $ 4,302 $ 3,961

Goodwill had a carrying value of $ 3.2 million as of June 30, 2023 and December 31, 2022.

Balance at January 1, 2023

Impairment ( 778 )

Balance at September 30, 2023

Goodwill was allocated to each of the Company's reporting units.

In July 2023, we announced a restructuring of our business and that we are discontinuing investment in certain development programs, primarily in Novel Biotherapeutics.

As a result of this plan, the Company determined that a triggering event had occurred that required an interim goodwill impairment test during the third quarter of 2023.

Based on the results of the impairment evaluation, the Company determined that the goodwill within the Novel Biotherapeutics reporting unit was impaired, which resulted in a non-cash impairment charge of $ 0.8 million to write off all of the associated goodwill.

The impairment charge is recorded within the asset impairment and other charges in the condensed consolidated statements of operation for the three and nine months ended September 30, 2023 .

Goodwill had a carrying value of $ 2.5 million and $ 3.2 million as of September 30, 2023 and December 31, 2022, respectively.

Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Accrued professional and outside service fees $ 5,149 $ 3,495

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In January 2023, our board of directors (the “Board”) approved the 2022 Employment Inducement Award Plan (the “2022 Inducement Plan”) which provides for the grant of non-qualified stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance awards, other stock awards and dividend equivalents to eligible employees with respect to an aggregate of up to 2,000,000 shares of our common stock.

In June 2023, the 2022 Inducement Plan was terminated upon the stockholders' approval of an amendment to the Company's 2019 Incentive Award Plan (the “2019 Plan”) at the 2023 annual meeting of the Company's stockholders (the “Annual Meeting”).

In June 2023, the 2022 Inducement Plan was terminated upon the approval of an amendment to the Company's 2019 Incentive Award Plan (the “2019 Plan”) at the 2023 annual meeting of the Company's stockholders (the “Annual Meeting”).

In 2019, the Board and stockholders approved the 2019 Plan.

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however, the terms and conditions of the 2010 Plan will continue to govern any outstanding awards thereunder.

The 2010 Plan provided for the grant of incentive stock options, non-statutory stock options, RSUs, RSAs, PSUs, PBOs, stock appreciation rights, and stock purchase rights to our employees, non-employee directors and consultants.

The 2019 Plan provides for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, RSA, RSUs, performance-contingent restricted stock units (“PSUs”), performance based options (“PBOs”), other stock or cash based awards and dividend equivalents to eligible employees and consultants of the Company or any parent or subsidiary, as well as members of the Board.

The number of shares of our common stock available for issuance under the 2019 Plan is equal to the sum of (i) 7,897,144 shares, and (ii) any shares subject to awards granted under the 2010 Plan that were outstanding as of April 22, 2019 and thereafter terminate, expire, lapse or are forfeited;

provided that no more than 14,000,000 shares may be issued upon the exercise of incentive stock options (“ISOs”).

The number of shares of our common stock that were initially available for issuance under the 2019 Plan is equal to the sum of (i) 7,897,144 shares, and (ii) any shares subject to awards granted under the 2010 Plan that were outstanding as of April 22, 2019 and thereafter terminate, expire, lapse or are forfeited.

In June 2019, 8.1 million shares authorized for issuance under the 2019 Plan were registered under the Securities Act of 1933, as amended (the “Securities Act”).

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The 2019 Amended Plan included the (i) increase in the number of shares available by 8,000,000 shares, such that an aggregate of 15,897,144 shares are reserved for issuance under the 2019 Amended Plan and any shares subject to awards granted under the 2010 Plan, and (ii) increase in the number of shares that may be granted as incentive stock options under the 2019 Amended Plan such that an aggregate of 22,000,000 shares of common stock may be granted as incentive stock options under the 2019 Amended Plan.

Employee Stock Purchase Plan

In April 2023, the Board approved an employee stock purchase plan (the “ESPP”) which became effective upon the stockholders' approval at the Annual Meeting in June 2023.

In April 2023, the Board approved an employee stock purchase plan (the “ESPP”) which became effective upon approval at the Annual Meeting in June 2023 of the Company's stockholders.

The ESPP allows eligible employees of the Company to purchase shares of our common stock through payroll deductions over 24 -month offering periods.

The per share purchase price will be the lower of 85 % of the closing trading price per share of our common stock on the first trading date of an offering period in which a participant is enrolled or 85 % of the closing trading price per share on the purchase date.

Participant purchases are limited to a maximum of $ 25,000 of fair value or our stock per calendar year.

Participant purchases are limited to a maximum of $ 25,000 of fair value of our stock per calendar year.

The Company is authorized to grant up to 2,000,000 shares of common stock under the ESPP.

As of June 30, 2023, the Company had not issued any shares of common stock nor recognized any stock-based compensation expenses related to the ESPP.

As of September 30, 2023, the Company had not issued any shares of common stock nor recognized any stock-based compensation expenses related to the ESPP.

Stock Options

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Performance-contingent Restricted Stock Units ("PSUs") and Performance Based Options ("PBOs")

The compensation committee of the Board approved, solely in respect of non-executive employees, delegated to our CEO the authority to approve grants of PSUs.

The compensation committee of the Board also approved grants of PBOs and PSUs to our executives.

In prior years, the compensation committee of the Board approved grants of PBOs and PSUs to our executives, and solely in respect of non-executive employees, delegated to our CEO the authority to approve grants of PSUs.

The PSUs and PBOs vest based upon both the successful achievement of certain corporate operating milestones in specified timelines and continued employment through the applicable vesting date.

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Achievement below the threshold level would result in no shares being eligible to vest in respect of the PSUs and PBOs.

No PSUs and PBOs were granted during the first half of 2023.

No PSUs and PBOs were granted during the nine months ended September 30, 2023.

In 2022, we awarded PSUs ("2022 PSUs") and PBOs ("2022 PBOs"), each of which commence vesting based upon the achievement of various weighted performance go als, including finance and corporate strategy, performance enzymes and biotherapeutics deliverables, research plans, and organizational development.

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Stock-based compensation expense is included in the unaudited condensed consolidated statements of operations as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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The following table presents total stock-based compensation expense by security type included in the unaudited condensed consolidated statements of operations (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Total $ 2,283 $ 4,531 $ 7,808 $ 11,600

As of June 30, 2023, unrecognized stock-based compensation expense, net of expected forfeitures, was $ 10.8 million related to unvested stock options, $ 8.0 million related to unvested RSUs and RSAs, $ 0.8 million related to unvested PSUs, and $ 0.1 million related to unvested PBOs based on current estimates of the level of achievement.

As of September 30, 2023, unrecognized stock-based compensation expense, net of expected forfeitures, was $ 9.4 million related to unvested stock options, $ 6.0 million related to unvested RSUs and RSAs, $ 0.5 million related to unvested PSUs, and $ 0.1 million related to unvested PBOs based on current estimates of the level of achievement.

Stock-based compensation expense for these awards will be recognized through 2027.

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Exercise of Options

For the six months ended June 30, 2023 and June 30, 2022, we issued 214,284 and 174,600 shares, respectively, upon option exercises at a weighted-average exercise price of $ 1.97 and $ 2.47 per share, respectively, with net cash proceeds of $ 0.4 million and $ 0.4 million, respectively.

For the nine months ended September 30, 2023 and September 30, 2022, we issued 214,284 and 252,100 shares, respectively, upon option exercises at a weighted-average exercise price of $ 1.97 and $ 2.43 per share, respectively, with net cash proceeds of $ 0.4 million and $ 0.6 million, respectively.

Equity Distribution Agreement

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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.

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.

We are not required to sell any shares at any time during the term of the EDA.

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With the exception of certain expenses, we will pay PSC up to 8 % of the gross sales price of the shares sold pursuant to the EDA for a combined amount of commission and reimbursement of PSC's expenses and fees.

During the three and six months ended June 30, 2023, 2,751,941 and 3,079,421 shares of our common stock, respectively, were issued and sold pursuant to the EDA.

During the three and six months ended June 30, 2023, we received gross proceeds of $ 7.1 million and $ 8.7 million, or $ 6.8 million and $ 7.9 million in net proceeds after PSC's commissions and direct offering expenses of $ 0.3 million and $ 0.7 million, respectively.

As of June 30, 2023, $ 41.3 million worth of shares remained available for sale under the EDA.

During the three and six months ended June 30, 2022, no shares of our common stock were issued pursuant to the EDA.

No shares of our common stock were issued and sold under the EDA during the three months ended September 30, 2023.

During the nine months ended September 30, 2023, 3,079,421 shares of our common stock were issued and sold pursuant to the EDA.

During the nine months ended September 30, 2023, we received gross proceeds of $ 8.7 million or $ 7.9 million in net proceeds after PSC's commissions and direct offering expenses of $ 0.7 million.

As of September 30, 2023, $ 41.3 million of shares remained available for sale under the EDA.

During the three and nine months ended September 30, 2022, no shares of our common stock were issued pursuant to the EDA.

Commitments and Contingencies

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Pursuant to the terms of the RWC Lease, we exercised our right to deliver a letter of credit in lieu of a security deposit.

The letter of credit is collateralized by deposit balances held by the bank in the amount of $ 1.1 million as of June 30, 2023 and December 31, 2022, and are recorded as non-current restricted cash on the unaudited condensed consolidated balance sheets.

The letter of credit is collateralized by deposit balances held by the bank in the amount of $ 1.1 million as of September 30, 2023 and December 31, 2022, and are recorded as non-current restricted cash on the unaudited condensed consolidated balance sheets.

In January 2021, we entered into a lease agreement with ARE-San Francisco No.

63, LLC ("ARE") to lease a portion of a facility consisted of approximately 36,593 rentable square feet in San Carlos, California to serve as additional office and research and development laboratory space (the "San Carlos Space").

63, LLC ("ARE") to lease a portion of a facility consisting of approximately 36,593 rentable square feet in San Carlos, California to serve as additional office and research and development laboratory space (the "San Carlos Space").

The lease has a 10 -year term from the lease commencement date of November 30, 2021 with one option to extend the term for an additional period of 5 years.

We have provided ARE with a $ 0.5 million security deposit in the form of a letter of credit and is recorded as non-current restricted cash on the condensed consolidated balance sheet.

In July 2023, we announced that we expect to consolidate operations from our San Carlos facility to our headquarters in Redwood City.

The move is expected to occur during the second half of 2023, and we are actively pursuing options to substantially offset our lease obligation, including through a sublease or assignment.

We are required to restore certain areas of the Redwood City and San Carlos facilities that we are renting to their original form.

We are expensing the asset retirement obligation over the terms of the respective leases.

In July 2023, we announced our plan to consolidate operations from our San Carlos facility to our headquarters in Redwood City.

On September 1, 2023, the Company entered into an Assignment and Assumption of Lease (the “Assignment Agreement”) with Vaxcyte, Inc.

(“Vaxcyte”), pursuant to which the Company agreed to assign to Vaxcyte, and Vaxcyte agreed to assume from the Company, all of the Company’s right, title and interest in, under and to the San Carlos Space and the Lease Agreement, dated as of January 29, 2021.

On September 6, 2023, the Company, Vaxcyte and ARE entered into a Consent to Assignment and First Amendment (the “Consent”) pursuant to which ARE consented to the Assignment Agreement and the assignment by the Company and the assumption by Vaxcyte of the Company’s interest as tenant in the lease and agreed to release the Company from all of its obligations under the lease that accrue from and after the assignment, and following the assignment, to return the Company's security deposit of approximately $ 0.5 million provided to ARE in the form of a letter of credit.

Under the Assignment Agreement, the Company will prepay to ARE (i) the base rent, as defined in the lease agreement, with respect to the three-month period commencing on the date of the assignment and (ii) certain amounts payable to ARE in connection with tenant improvements completed by ARE pursuant to the lease, which a mounted to $ 3.1 million .

In connection with the Consent, ARE agreed that neither the Company nor Vaxcyte will be required to remove any existing alterations or improvements to the San Carlos Space.

The effective date of the assignment was October 1, 2023, which under the terms of the Assignment Agreement was the earlier of (i) the date Vaxcyte occupies the San Carlos Space for the operation of business or (ii) the date the Company vacated and decommissioned the San Carlos Space and certain other customary conditions were satisfied.

We have provided ARE with a $ 0.5 million security deposit in the form of a letter of credit which we expected to be released in the fourth quarter of 2023 following the effectiveness of the lease assignment in October 1, 2023 and which is recorded as current restricted cash on the condensed consolidated balance sheet.

As a result of the Assignment Agreement, the Company remeasured the lease obligation for the San Carlos Space as $ 3.1 million, or the present value of the remaining lease payments, which consist of the remaining rent through the effectiveness of the lease assignment and certain amounts payable to ARE pursuant to the Assignment Agreement, and wrote off the remaining lease liability of $ 19.6 million and the corresponding right of use asset balance.

Simultaneously, the Company determined that indicators of impairment existed because the lease assignment will impact the utilization of the related right of use assets and leasehold improvements in the San Carlos Space, and therefore performed a recoverability test by estimating future undiscounted net cash flows expected to be generated from the use of these assets.

As there were no substantial future cash inflows associated with these assets, the carrying values of these assets were deemed unrecoverable.

As a result, the Company recognized a non-cash impairment charge of $ 7.7 million, of which $ 4.7 million is related to leasehold improvements and $ 3.0 million for the right of use assets, presented within the asset impairment and other charges line item in the condensed consolidated statements of operations, for the three and nine months ended September 30, 2023.

The tables below tables below show the balance of right-of-use assets and lease obligations as of January 1, 2023 and the balance as of September 30, 2023, including the changes during the period (in thousands):

Right-of-use Assets - Operating Lease, net

Right-of-use assets - Operating leases, net, at January 1, 2023

Amortization of right-of-use assets

Remeasurement due to lease modification

Right-of-use assets - Operating leases, net, at September 30, 2023

Lease Obligations - Operating Leases

Lease obligations - Operating leases, net, at January 1, 2023

Lease payments

Interest accretion

Remeasurement due to lease modification

Lease obligations - Operating leases, net, at September 30, 2023

We are required to restore certain areas of the Redwood City facility that we are renting to its original form.

We are expensing the asset retirement obligation over the term of the Redwood City lease.

We review the estimated obligation each reporting period and make adjustments if our estimates change.

We recorded asset retirement obligations of $ 0.5 million as of June 30, 2023 and December 31, 2022, which are included in other liabilities on the unaudited condensed consolidated balance sheets.

Accretion expense related to our asset retirement obligations was nominal in the three and six months ended June 30, 2023 and 2022.

We recorded asset retirement obligations of $ 0.3 million and $ 0.5 million as of September 30, 2023 and December 31, 2022, respectively, which are included in other liabilities on the unaudited condensed consolidated balance sheets.

Accretion expense related to our asset retirement obligations was nominal in the three and nine months ended September 30, 2023 and 2022.

Lease and other information

Lease costs, amounts included in measurement of lease obligations and other information related to non-cancellable operating leases and finance leases were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Weighted-average discount rate 6.7 %

Six Months Ended June 30,

Nine Months Ended September 30,

Cash paid (in thousands):

Operating cash flows from operating leases $ 5,668 $ 4,658

As of June 30, 2023, our maturity analysis of annual undiscounted cash flows of the non-cancellable operating leases were as follows (in thousands):

As of September 30, 2023, our maturity analysis of annual undiscounted cash flows of the non-cancellable operating leases were as follows (in thousands):

Years Ending December 31, Operating Leases

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Total 2023 (Remaining 3 Months) 2024 and Thereafter

Development and manufacturing services agreements $ 3,221 $ 2,313 $ 908

Facility maintenance agreement $ 1,084 $ 1,039 $ 45

Total other commitments $ 5,712 $ 4,804 $ 908

Credit Facility

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In addition to our initial equity investment and the shares we have received under the MAI Agreement, in April 2021, we purchased an additional 1,000,000 shares of MAI's Series A preferred stock for $ 0.6 million and in September 2021, we purchased 9,198,423 shares of MAI's Series B preferred stock for $ 7.0 million.

Revenues recognized from transactions with MAI in the three and six months ended June 30, 2023, and subsequent to the related party period which ended in August 2022, are included in the condensed consolidated statement of operations.

We recognized nil and $ 0.2 million in research and development revenue from transactions with MAI in the three and six months ended June 30, 2022, respectively, and we recognized $ 0.1 million in product revenue from transactions with MAI in the three and six months ended June 30, 2022, during the related party period .

Revenues recognized from transactions with MAI in the three and nine months ended September 30, 2023, and subsequent to the related party period which ended in August 2022, are included in the condensed consolidated statement of operations.

We recognized $ 1.0 million and $ 1.2 million in research and development revenue from transactions with MAI in the three and nine months ended September 30, 2022, respectively, and we recognized $ 0.2 million and $ 0.4 million in product revenue from transactions with MAI in the three and nine months ended September 30, 2022, respectively, during the related party period .

Segment, Geographical and Other Revenue Information

Segment Information

As of June 30, 2023, we managed our business as two business segments:

As of September 30, 2023, we managed our business as two b usiness segments:

Performance Enzymes and Novel Biotherapeutics.

Our business segments are primarily based on our organizational structure and our operating results as used by our CODM in assessing performance and allocating resources for the Company.

In July 2023, we announced that we are discontinuing investment in Novel Biotherapeutics and expect to have just one business segment, Performance Enzymes, by the end of 2023.

In July 2023, we announced a restructuring of our business and that we are discontinuing investment in certain development programs, primarily in Novel Biotherapeutics.

We report corporate-related expenses such as legal, accounting, information technology, and other costs that are not otherwise included in our reportable business segments as "corporate costs." All items not included in income (loss) from operations are excluded from the business segments.

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All of our long lived assets are located in the United States.

Factors considered in historically determining the two reportable segments of the Company include the nature of business activities, the management structure directly accountable to our CODM for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors.

Factors considered in historically determining the two re portable segments of the Company include the nature of business activities, the management structure directly accountable to our CODM for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors.

Our CODM regularly reviews our segments and the approach provided by management for performance evaluation and resource allocation.

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The following table provides financial information by our reportable business segments along with a reconciliation to consolidated loss before income taxes (in thousands):

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

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Restructuring charges 1,182 1,217 2,399 — — —

Asset impairment and other charges (2)

— 778 778 — — —

Total segment costs and operating expenses 13,325 6,758 20,083 20,359 14,743 35,102

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Loss before income taxes $ ( 34,899 ) $ ( 9,984 )

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total

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Restructuring charges 1,182 1,362 2,544 — — —

Asset impairment and other charges (2)

— 778 778 — — —

Total segment costs and operating expenses 41,807 23,597 65,404 60,618 39,567 100,185

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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, interest income, and other expense, net.

(2) Impairment charge of $ 0.8 million is related to the goodwill allocated to the Novel Biotherapeutics segment.

(3) Corporate costs include unallocated selling, general and administrative expenses, unallocated asset impairment and restructuring charges, interest income, and other income (expense), net.

The following table provides stock-based compensation expense in cluded in loss from operations (in thousands):

Three Months Ended June 30,

Three Months Ended September 30,

Performance Enzymes Novel Biotherapeutics Corporate cost Total Performance Enzymes Novel Biotherapeutics Corporate cost Total

Stock-based compensation $ 903 $ ( 235 ) $ 1,615 $ 2,283 $ 1,593 $ 414 $ 2,524 $ 4,531

Six Months Ended June 30,

Nine Months Ended September 30,

Performance Enzymes Novel Biotherapeutics Corporate cost Total Performance Enzymes Novel Biotherapeutics Corporate cost Total

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Percentage of Total Revenues for the

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Percentage of Accounts Receivables as of

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

* Percentage was less than 10%

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Geographic revenues are identified by the location of the customer and consist of the following (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Identifiable long-lived assets by location was as follows (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

United States $ 29,177 $ 61,877

Identifiable goodwill by reporting unit was as follows (in thousands):

As of June 30, 2023 and December 31, 2022

Performance Enzymes Novel Biotherapeutics Total

Goodwill $ 2,463 $ 778 $ 3,241

Goodwill at January 1, 2023

$ 2,463 $ 778 $ 3,241

— ( 778 ) ( 778 )

Goodwill at September 30, 2023

$ 2,463 $ — $ 2,463

For additional information on the goodwill impairment, see Note 7, “Balance Sheet Details.”

Allowance for Credit Losses

The following table summarizes the financial assets allowance for credit losses (in thousands):

Three and Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Balance at beginning of period $ 133 $ 109 $ 163 $ 416

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The following tables summarize accounts receivable by aging category (in thousands):

June 30, 2023

September 30, 2023

Current 31-60 Days 61-90 Days 91 Days and over Total over 31 Days Total balance

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Restructuring Charges

In November 2022, we announced a plan for a workforce reduction of approximat ely 18 % of our total employee to realign and optimize our workforce requirements in alignment with our refined corporate strategy.

The plan was substantially completed in December 2022 and severance costs were paid through the second quarter of 2023.

During the three and six months ended June 30, 2023, we recorded an additional restructuring charge of $ 0.1 million and $ 0.2 million, respectively, related to severance, bonus and other termination benefits in connection with the workforce reduction.

In July 2023, in alignment with our enhanced strategic focus, we announced a restructuring of our business, including a plan for a workforce reduction of approximately 25 %.

During the three and nine months ended September 30, 2023, w e recorded a restructuring charge of $ 3.1 million related to severance and related benefit costs.

As of September 30, 2023, we have accrued $ 1.9 million as a current liability within accrued compensation on our condensed consolidated balance sheets, which is expected to be paid in the fourth quarter of 2023.

We do not expect to record any significant future charges related to the restructuring plan.

In November 2022, we announced a plan for a workforce reduction of approximately 18 % to realign and optimize our workforce requirements in alignment with our refined corporate strategy.

The plan was substantially completed in December 2022 and severance costs were paid through the third quarter of 2023.

During the three and nine months ended September 30, 2023, we recorded additional restructuring charges of nil and $ 0.2 million, respectively, related to severance, bonus and other termination benefits in connection with the workforce reduction announced in November 2022.

We do not expect to record any future charges related to the restructuring plan initiated in 2022.

Subsequent Events

On July 20, 2023, in alignment with our enhanced strategic focus, we announced a plan for a workforce reduction of approximately 25 %.

We further announced that we are discontinuing investment in our biotherapeutics business and as part of this enhanced strategic focus, we are prioritizing the advancement and commercialization of our ECO Synthesis ™ Platform and our complementary pharmaceutical manufacturing business, We expect to incur approximately $ 2.9 million of restructuring charges, comprised mainly of severance and related benefit costs.

The restructuring actions associated with this charge are expected to be substantially complete and paid by September 30, 2023.

We also announced that we will consolidate operations to our headquarters in Redwood City, California in the second half of 2023.

Assets Held For Sale

In July 2023, we announced our plan to consolidate operations from our San Carlos facility to our headquarters in Redwood City.

As part of this plan, we entered into agreements to sell certain laboratory equipment located in our San Carlos facility through an asset auction and as part of the lease assignment of the San Carlos Space to Vaxcyte (see further discussion at Note 10, “Commitments and Contingencies”).

The fixed assets that will be sold as part of this transaction met the assets held for sale criteria and were reclassified to assets held for sale as of September 30, 2023.

As of September 30, 2023, the Company has presented $ 0.6 million of fixed assets expected to be sold during the fourth quarter of 2023 as a current asset under the caption of “assets held for sale” in the accompanying condensed consolidated balance sheets.

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

What changed 10-Q

Item 1. Financial Statements