CODEXIS, INC. 10-Q

Item 1. Financial Statements Codexis, Inc. Condensed Consolidated Balance Sheets (Unaudited) (In Thousands, Except Per Share Amounts) September 30, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 74,577 $ 113,984 Restricted cash, current 991 521 Financial assets: Accounts receivable 11,629 31,904 Contract assets 1,936 2,116 Unbilled receivables 5,661 7,016 Total financial assets 19,226 41,036 Less: allowances ( 133 ) ( 163 ) Total financial assets, net 19,093 40,873 Inventories 2,305 2,029 Prepaid expenses and other current assets 5,402 5,487 Assets held for sale 646 — Total current assets 103,014 162,894 Restricted cash 1,062 1,521 Investment in non-marketable equity securities ($ 0 and $ 13,921 with a related party) 18,013 20,510 Right-of-use assets - Operating leases, net 13,895 39,263 Property and equipment, net 15,282 22,614 Goodwill 2,463 3,241 Other non-current assets 726 350 Total assets $ 154,455 $ 250,393 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 3,098 $ 3,246 Accrued compensation 10,521 11,453 Other accrued liabilities 8,796 15,279 Current portion of lease obligations - Operating leases 6,764 5,360 Deferred revenue 9,236 13,728 Total current liabilities 38,415 49,066 Deferred revenue, net of current portion 10,100 16,881 Long-term lease obligations - Operating leases 13,215 38,278 Other long-term liabilities 1,219 1,371 Total liabilities 62,949 105,596 Commitments and Contingencies (Note 10) Stockholders' equity: Preferred stock, $ 0.0001 par value per share; 5,000 shares authorized, none issued and outstanding — — Common stock, $ 0.0001 par value per share; 200,000 shares authorized; 69,827 shares and 65,811 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively 6 6 Additional paid-in capital 581,838 566,081 Accumulated deficit ( 490,338 ) ( 421,290 ) Total stockholders' equity 91,506 144,797 Total liabilities and stockholders' equity $ 154,455 $ 250,393 See accompanying notes to the unaudited condensed consolidated financial statements. 3 Codexis, Inc. Condensed Consolidated Statements of Operations (Unaudited) (In Thousands, Except Per Share Amounts) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Product revenue ($ 0 , $ 215 , $ 0 , and $ 358 from a related party) $ 5,395 $ 28,042 $ 24,807 $ 93,376 Research and development revenue ($ 0 , $ 1,000 , $ 0 , and $ 1,245 from a related party) 3,882 6,428 18,775 14,839 Total revenues 9,277 34,470 43,582 108,215 Costs and operating expenses: Cost of product revenue 2,249 9,786 9,947 29,577 Research and development 13,662 21,821 47,651 60,410 Selling, general and administrative 12,302 13,499 41,066 39,859 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 Loss from operations ( 32,060 ) ( 10,636 ) ( 68,350 ) ( 21,631 ) Interest income 1,056 436 3,266 618 Other income (expense), net ( 3,895 ) 216 ( 3,930 ) 150 Loss before income taxes ( 34,899 ) ( 9,984 ) ( 69,014 ) ( 20,863 ) Provision for income taxes 9 8 34 125 Net loss $ ( 34,908 ) $ ( 9,992 ) $ ( 69,048 ) $ ( 20,988 ) Net loss per share, basic and diluted $ ( 0.50 ) $ ( 0.15 ) $ ( 1.02 ) $ ( 0.32 ) Weighted average common stock shares used in computing net loss per share, basic and diluted 69,466 65,426 67,670 65,271 See accompanying notes to the unaudited condensed consolidated financial statements. 4 Codexis, Inc. Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (In Thousands) Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders' Equity Three Months Ended September 30, 2023 Shares Amount Balance as of July 1, 2023 69,804 $ 6 $ 579,555 $ ( 455,430 ) $ 124,131 Release of stock awards 23 — — — — Employee stock-based compensation — — 2,283 — 2,283 Net loss — — — ( 34,908 ) ( 34,908 ) Balance as of September 30, 2023 69,827 $ 6 $ 581,838 $ ( 490,338 ) $ 91,506 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders' Equity Three Months Ended September 30, 2022 Shares Amount Balance as of July 1, 2022 65,494 $ 6 $ 558,147 $ ( 398,694 ) $ 159,459 Exercise of stock options 77 — 180 — 180 Release of stock awards 47 — — — — Employee stock-based compensation — — 4,516 — 4,516 Non-employee stock-based compensation — — 15 — 15 Taxes paid related to net share settlement of equity awards ( 5 ) — ( 47 ) — ( 47 ) Net loss — — — ( 9,992 ) ( 9,992 ) Balance as of September 30, 2022 65,613 $ 6 $ 562,811 $ ( 408,686 ) $ 154,131 See accompanying notes to the unaudited condensed consolidated financial statements. 5 Codexis, Inc. Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (In Thousands) Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders' Equity Nine Months Ended September 30, 2023 Shares Amount Balance as of January 1, 2023 65,811 $ 6 $ 566,081 $ ( 421,290 ) $ 144,797 Exercise of stock options 214 — 422 — 422 Release of stock awards 787 — — — — Employee stock-based compensation — — 7,808 — 7,808 Issuance of common stock, net of issuance costs of $ 721 3,080 — 7,931 — 7,931 Taxes paid related to net share settlement of equity awards ( 65 ) — ( 404 ) — ( 404 ) Net loss — — — ( 69,048 ) ( 69,048 ) Balance as of September 30, 2023 69,827 $ 6 $ 581,838 $ ( 490,338 ) $ 91,506 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders' Equity Nine Months Ended September 30, 2022 Shares Amount Balance as of January 1, 2022 65,109 $ 6 $ 552,083 $ ( 387,698 ) $ 164,391 Exercise of stock options 252 — 612 — 612 Release of stock awards 332 — — — — Employee stock-based compensation — — 11,467 — 11,467 Non-employee stock-based compensation — — 133 — 133 Taxes paid related to net share settlement of equity awards ( 80 ) — ( 1,484 ) — ( 1,484 ) Net loss — — — ( 20,988 ) ( 20,988 ) Balance as of September 30, 2022 65,613 $ 6 $ 562,811 $ ( 408,686 ) $ 154,131 See accompanying notes to the unaudited condensed consolidated financial statements. 6 Codexis, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In Thousands) Nine Months Ended September 30, 2023 2022 Operating activities: Net loss $ ( 69,048 ) $ ( 20,988 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 4,302 3,961 Amortization expense - right-of-use assets - operating and finance leases 3,647 3,618 Stock-based compensation 7,808 11,600 Provision (recovery) for credit losses — ( 307 ) Equity securities earned from research and development activities ($ 0 and $ 1,245 from a related party) ( 187 ) ( 1,245 ) Unrealized gain on non-marketable securities — ( 208 ) Asset impairment and other charges 9,984 — Impairment of investment in non-marketable equity securities 3,875 — Other non-cash items ( 3 ) ( 29 ) Changes in operating assets and liabilities: Financial assets 21,580 8,184 Inventories ( 276 ) ( 463 ) Prepaid expenses and other assets ( 252 ) 429 Accounts payable ( 105 ) ( 351 ) Accrued compensation and other accrued liabilities ( 7,269 ) 2,279 Other long-term liabilities ( 4,384 ) ( 3,863 ) Deferred revenue ( 11,273 ) 3,750 Net cash provided by (used in) operating activities ( 41,601 ) 6,367 Investing activities: Purchase of property and equipment ( 4,798 ) ( 8,340 ) Proceeds from sale of property and equipment 27 29 Investment in non-marketable securities ( 1,191 ) ( 5,300 ) Net cash used in investing activities ( 5,962 ) ( 13,611 ) Financing activities: Proceeds from exercises of stock options 422 612 Proceeds from issuance of common stock in connection with public offering 8,652 — Costs incurred in connection with issuance of common stock at public offering ( 503 ) ( 42 ) Taxes paid related to net share settlement of equity awards ( 404 ) ( 1,484 ) Net cash provided by (used in) financing activities 8,167 ( 914 ) Net decrease in cash, cash equivalents and restricted cash ( 39,396 ) ( 8,158 ) Cash, cash equivalents and restricted cash at the beginning of the period 116,026 118,895 Cash, cash equivalents and restricted cash at the end of the period $ 76,630 $ 110,737 Supplemental disclosure of cash flow information: Interest paid $ 28 $ 22 Income taxes paid $ 193 $ 100 Supplemental non-cash investing and financing activities: Capital expenditures incurred but not yet paid $ 159 $ 128 7 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, 2023 2022 Cash and cash equivalents $ 74,577 $ 108,689 Restricted cash, current and non-current 2,053 2,048 Total cash, cash equivalents and restricted cash $ 76,630 $ 110,737 See accompanying notes to the unaudited condensed consolidated financial statements. 8 Codexis Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. Description of Business In these notes to the unaudited condensed consolidated financial statements, the “Company,” “we,” “us,” and “our” refers to Codexis, Inc. and its subsidiaries on a consolidated basis. We discover, develop, enhance, and commercialize novel, high performance enzymes and other classes of proteins leveraging our proprietary CodeEvolver ® directed evolution platform. 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 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 a restructuring of our business and that we are discontinuing investment in certain development programs, primarily in Novel Biotherapeutics. Note 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial information but does not include all the information and notes required by GAAP for complete financial statements. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2022. 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 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 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. The unaudited condensed consolidated financial statements include the accounts of Codexis, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates 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, 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. 9 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 nine months ended September 30, 2023, that are of significance or potential significance to us. Note 3. Revenue Recognition Disaggregation of Revenue The following table provides information about disaggregated revenue from contracts with customers into the nature of the products and services, and geographic regions, and includes a reconciliation of the disaggregated revenue with reportable segments. The geographic regions that are tracked are the Americas (United States, Canada, and Latin America), EMEA (Europe, Middle East, and Africa), and APAC (Australia, New Zealand, Southeast Asia, and China). Segment information is as follows (in thousands): Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Major products and service: Product revenue $ 5,395 $ — $ 5,395 $ 28,042 $ — $ 28,042 Research and development revenue 3,315 567 3,882 3,104 3,324 6,428 Total revenues $ 8,710 $ 567 $ 9,277 $ 31,146 $ 3,324 $ 34,470 Primary geographical markets: Americas $ 4,278 $ — $ 4,278 $ 3,654 $ 1,168 $ 4,822 EMEA 2,624 567 3,191 3,831 2,156 5,987 APAC 1,808 — 1,808 23,661 — 23,661 Total revenues $ 8,710 $ 567 $ 9,277 $ 31,146 $ 3,324 $ 34,470 10 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Major products and service: Product revenue $ 24,807 $ — $ 24,807 $ 93,376 $ — $ 93,376 Research and development revenue 12,696 6,079 18,775 7,398 7,441 14,839 Total revenues $ 37,503 $ 6,079 $ 43,582 $ 100,774 $ 7,441 $ 108,215 Primary geographical markets: Americas $ 8,865 $ 1,933 $ 10,798 $ 8,514 $ 3,653 $ 12,167 EMEA 10,484 4,146 14,630 11,017 3,788 14,805 APAC 18,154 — 18,154 81,243 — 81,243 Total revenues $ 37,503 $ 6,079 $ 43,582 $ 100,774 $ 7,441 $ 108,215 Contract Balances The following table presents balances of contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands): September 30, 2023 December 31, 2022 Contract assets $ 1,936 $ 2,116 Unbilled receivables $ 5,661 $ 7,016 Contract costs $ — $ 19 Contract liabilities: deferred revenue $ 19,336 $ 30,609 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 September 30, Nine Months Ended September 30, Revenue recognized in the period for: 2023 2022 2023 2022 Amounts included in contract liabilities at the beginning of the period: Performance obligations satisfied $ 1,303 $ 889 $ 9,111 $ 1,694 Changes in the period: Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods 1,018 495 4,238 365 Performance obligations satisfied from new activities in the period - contract revenue 6,956 33,086 30,233 106,156 Total revenues $ 9,277 $ 34,470 $ 43,582 $ 108,215 Performance Obligations 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 September 30, 2023. 11 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 September 30, 2023 (in thousands): Remainder of 2023 2024 2025 2026 and Thereafter Total Product revenue $ 8,446 $ 9,590 $ 140 $ 500 $ 18,676 Research and development revenue 660 — — — 660 Total revenues $ 9,106 $ 9,590 $ 140 $ 500 $ 19,336 Note 4. N et Loss per S hare Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding, less restricted stock awards ("RSAs") subject to forfeiture. Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock shares outstanding, less RSAs subject to forfeiture, plus all additional common shares that would have been outstanding, assuming dilutive potential common stock shares had been issued for other dilutive securities. For all periods presented, diluted and basic net loss per share, are identical since potential common stock shares are excluded from the calculation, as their effect was anti-dilutive. Anti-Dilutive Securities In periods of net loss, the weighted average number of shares outstanding, prior to the application of the treasury stock method, excludes potentially dilutive securities from the computation of diluted net loss per common share because including such shares would have an anti-dilutive effect. 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Shares issuable under the Equity Incentive Plan 8,873 6,604 8,873 6,604 Note 5. Investments in Non-Marketable Securities Non-Marketable Equity Securities In March 2023, we purchased an additional 985,545 shares of Series B preferred stock for $ 0.8 million in Molecular Assemblies, Inc. (“MAI”), a privately held life sciences company . 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. In March 2022, we entered into a Stock Purchase Agreement with seqWell, Inc. (“seqWell”), a privately held life sciences company, pursuant to which we purchased 1,000,000 shares of seqWell's Series C preferred stock for $ 5.0 million. 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. 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. (“Arzeda”), an early-stage computational protein design company. 12 Our non-marketable equity securities are investments in privately held companies without readily determinable market value and primarily relate to our investments in MAI, seqWell and Arzeda. These investments are accounted for under the measurement alternative and are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes for identical or similar securities of the same issuer. 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. 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): September 30, 2023 December 31, 2022 MAI $ 14,671 $ 13,921 seqWell 2,598 5,000 Arzeda 444 1,289 Other investments in non-marketable equity securities 300 300 Total non-marketable equity securities $ 18,013 $ 20,510 Note 6. Fair Value Measurements The following tables present the financial instruments that were measured at fair value on a recurring basis within the fair value hierarchy (in thousands): September 30, 2023 Level 1 Level 2 Level 3 Total Money market funds $ 65,585 $ — $ — $ 65,585 December 31, 2022 Level 1 Level 2 Level 3 Total Money market funds $ 77,309 $ — $ — $ 77,309 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.” 13 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.” Note 7. Balance Sheets Details Cash Equivalents 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 Money market funds (1) $ 65,585 $ 65,585 $ 77,309 $ 77,309 (1) Money market funds are classified in cash and cash equivalents on our unaudited condensed consolidated balance sheets. Average contractual maturities (in days) is not applicable. 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 Inventories consisted of the following (in thousands): September 30, 2023 December 31, 2022 Raw materials $ 108 $ 108 Work-in-process — 91 Finished goods 2,197 1,830 Total Inventories $ 2,305 $ 2,029 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): September 30, 2023 December 31, 2022 Laboratory equipment $ 36,376 $ 39,679 Leasehold improvements 11,750 16,633 Computer equipment and software 3,096 3,039 Office equipment and furniture 1,366 1,345 Construction in progress 1,781 1,739 Property and equipment 54,369 62,435 Less: accumulated depreciation and amortization ( 39,087 ) ( 39,821 ) 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.” 14 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Depreciation expense $ 1,357 $ 1,405 $ 4,302 $ 3,961 Goodwill Goodwill Balance at January 1, 2023 $ 3,241 Impairment ( 778 ) Balance at September 30, 2023 $ 2,463 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): September 30, 2023 December 31, 2022 Accrued professional and outside service fees $ 5,149 $ 3,495 Accrued purchases 2,644 10,852 Other 1,003 932 Total other accrued liabilities $ 8,796 $ 15,279 Note 8. Stock-based Compensation Equity Incentive Plans 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 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”). 15 In 2019, the Board and stockholders approved the 2019 Plan. The 2019 Plan superseded and replaced in its entirety our 2010 Equity Incentive Plan (the “2010 Plan”) which was effective in March 2010, and no further awards will be granted under the 2010 Plan; 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 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”). In April 2023, the Board approved an amendment to the 2019 Plan (the “2019 Amended Plan”) which became effective upon stockholders' approval at the Annual Meeting in June 2023. 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 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 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 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 The option exercise price for incentive stock options must be at least 100 % of the fair value of our common stock on the date of grant and the option exercise price for non-statutory stock options is at least 85 % of the fair value of our common stock on the date of grant, as determined by the Board. If, at the time of a grant, the optionee directly or by attribution owns stock possessing more than 10 % of the total combined voting power of all of our outstanding capital stock, the exercise price for these options must be at least 110 % of the fair value of the underlying common stock. Stock options granted to employees generally have a maximum term of ten years and vest over four years from the date of grant, of which 25 % vest at the end of one year , and 75 % vest monthly over the remaining three years . We may grant options with different vesting terms from time to time. Unless an employee's termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier. Restricted Stock Units ("RSUs") We also grant employees RSUs, which generally vest over either a three year period with 33 % of the shares subject to the RSUs vesting on each yearly anniversary of the vesting commencement date or over a four year period with 25 % of the shares subject to the RSU vesting on each yearly anniversary of the vesting commencement date, in each case contingent upon such employee’s continued service on such vesting date. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. We may grant RSUs with different vesting terms from time to time. 16 Performance-contingent Restricted Stock Units ("PSUs") and Performance Based Options ("PBOs") 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. When the performance goals are deemed to be probable of achievement for these types of awards, recognition of stock-based compensation expense commences. Once the number of shares eligible to vest is determined, those shares vest in two equal installments with 50 % vesting upon achievement, as determined by the compensation committee of the Board, and the remaining 50 % vesting on the first anniversary of achievement, in each case, subject to the recipient’s continued service through the applicable vesting date. If the performance goals are achieved at the threshold level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to half the number of PSUs granted and one-quarter the number of shares underlying the PBOs granted. If the performance goals are achieved at the target level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to the number of PSUs granted and half of the shares underlying the PBOs granted. If the performance goals are achieved at the superior level, the number of shares eligible to vest in respect of the PSUs would be equal to two times the number of PSUs granted and equal to the number of PBOs granted. The number of shares issuable upon achievement of the performance goals at the levels between the threshold and target levels for the PSUs and PBOs or between the target level and superior levels for the PSUs would be determined using linear interpolation. 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 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. In the first quarter of 2023, the compensation committee of the Board determined that the 2022 PSUs and 2022 PBOs performance goals had been achieved at 85 % and 42.5 % of the target level, respectively, and recognized stock-based compensation expenses accordingly. Accordingly, 50 % of the shares underlying the 2022 PSUs and PBOs vested in the first quarter of 2023 and 50 % of the shares underlying the 2022 PSUs and PBOs will vest in the first quarter of 2024, in each case , subject to the recipient’s continued service on each vesting date. In 2021, we awarded PSUs ("2021 PSUs") and PBOs ("2021 PBOs"), each of which commence vesting based upon the determination by the compensation committee of the Board of the achievement of various weighted performance goals, including total revenues, product revenue, performance enzymes pipeline advancements, biotherapeutics pipeline advancements, organization and infrastructure upgrades, and significant events that can be publicly announced. In the first quarter of 2022, we determined that the 2021 PSUs and 2021 PBOs performance goals had been achieved at 146 % and 73 % of the target level, respectively, and recognized stock-based compensation expenses accordingly. Accordingly, 50 % of the shares underlying the 2021 PSUs and PBOs vested in the first quarter of 2022 and 50 % of the shares underlying the 2021 PSUs and PBOs vested in the first quarter of 2023, in each case , subject to the recipient’s continued service on each vesting date. Stock-Based Compensation Expense Stock-based compensation expense is included in the unaudited condensed consolidated statements of operations as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Cost of product revenue $ 60 $ 124 $ 272 $ 367 Research and development 450 1,045 1,978 3,110 Selling, general and administrative 1,773 3,362 5,558 8,123 Total $ 2,283 $ 4,531 $ 7,808 $ 11,600 17 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Stock options $ 1,017 $ 1,679 $ 3,035 $ 3,279 RSUs and RSAs 942 1,290 3,441 3,785 PSUs 292 965 1,408 2,279 PBOs 32 597 ( 76 ) 2,257 Total $ 2,283 $ 4,531 $ 7,808 $ 11,600 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. Note 9. Capital Stock Exercise of Options 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 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 February 27, 2023, we filed a post-effective amendment to that Registration 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. We are not required to sell any shares at any time during the term of the EDA. The EDA will terminate upon the earlier of: (i) the issuance and sale of all shares through PSC on the terms and conditions of the EDA, or (ii) the termination of the EDA in accordance with its terms. Either party may terminate the EDA at any time upon written notification to the other party in accordance with the EDA, and upon such notification, the offering will terminate. Under no circumstances shall any shares be sold pursuant to the EDA after the date which is three years after the registration statement is first declared effective by the SEC. We agreed to pay PSC a commission of 3 % of the gross sales price of any shares sold pursuant to the EDA. 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. 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. 18 Note 10. Commitments and Contingencies Operating Leases Our headquarters are located in Redwood City, California, where we occupy approximately 77,300 square feet of office and laboratory space in multiple buildings within the same business park operated by Metropolitan Life Insurance Company ("MetLife"). Our lease agreement with MetLife ("RWC Lease") includes approximately 28,200 square feet of space located at 200 and 220 Penobscot Drive, Redwood City, California (the “200/220 Penobscot Space”) and approximately 37,900 square feet of space located at 400 Penobscot Drive, Redwood City, California (the “400 Penobscot Space”) (the 200/220 Penobscot Space and the 400 Penobscot Space are collectively referred to as the “Penobscot Space”), and approximately 11,200 square feet of space located at 501 Chesapeake Drive, Redwood City, California (the “501 Chesapeake Space”). We entered into the initial lease with MetLife for our facilities in Redwood City in 2004 and the RWC Lease has been amended multiple times since then to adjust the leased space and terms of the Lease. In February 2019, we entered into an Eighth Amendment to the Lease (the “Eighth Amendment”) with MetLife with respect to the Penobscot Space and the 501 Chesapeake Space to extend the term of the Lease for additional periods. Pursuant to the Eighth Amendment, the term of the lease of the Penobscot Space has been extended through May 2027. The lease term for the 501 Chesapeake Space has been extended to May 2029. We have one (1) option to extend the term of the lease for the Penobscot Space for five ( 5 ) years, and one (1) separate option to extend the term of the lease for the 501 Chesapeake Space for five ( 5 ) years. 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 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 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. 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. 19 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 $ 39,263 Amortization of right-of-use assets ( 3,647 ) Additions 898 Remeasurement due to lease modification ( 19,622 ) Impairment ( 2,997 ) Right-of-use assets - Operating leases, net, at September 30, 2023 $ 13,895 Lease Obligations - Operating Leases Lease obligations - Operating leases, net, at January 1, 2023 $ 43,638 Lease payments ( 5,668 ) Interest accretion 1,631 Remeasurement due to lease modification ( 19,622 ) Lease obligations - Operating leases, net, at September 30, 2023 $ 19,979 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 $ 0.3 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Finance lease costs $ — $ — $ — $ 18 Operating lease costs 1,618 1,831 5,278 5,491 Short-term lease costs (1) — — — 40 Total lease costs (2) $ 1,618 $ 1,831 $ 5,278 $ 5,549 (1) Short-term lease costs on leases with terms of over one month and less than one year. (2) The Company had no variable lease costs. Other information: Operating Leases Weighted-average remaining lease term (in years) 3.4 years Weighted-average discount rate 6.7 % Nine Months Ended September 30, Cash paid (in thousands): 2023 2022 Operating cash flows from operating leases $ 5,668 $ 4,658 20 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 2023 (remaining 3 months) $ 4,229 2024 4,727 2025 4,868 2026 5,014 2027 2,533 Thereafter 1,078 Total minimum lease payments 22,449 Less: imputed interest 2,470 Lease obligations $ 19,979 Reconciliation of operating lease liabilities as shown within the unaudited condensed consolidated balance sheets: Current portion of lease obligations - Operating leases $ 6,764 Long-term lease obligations - Operating leases 13,215 Total operating lease liabilities $ 19,979 Other Commitments We enter into supply and service arrangements in the normal course of business. Supply arrangements are primarily for fixed-price manufacture and supply. Service agreements are primarily for the development of manufacturing processes and certain studies. Commitments under service agreements are subject to cancellation at our discretion which may require payment of certain cancellation fees. The timing of completion of service arrangements is subject to variability in estimates of the time required to complete the work. The following table provides quantitative data regarding our other commitments. Future minimum payments reflect amounts that we expect to pay including potential obligations under services agreements subject to risk of cancellation by us (in thousands): Payments Due by Period Total 2023 (Remaining 3 Months) 2024 and Thereafter Facility maintenance agreement $ 1,084 $ 1,039 $ 45 Credit Facility In June 30, 2017, we entered into a credit facility (the “Credit Facility”) with Western Alliance Bank consisting of term loans (“Term Debt”) up to $ 10.0 million, and advances (“Advances”) under a revolving line of credit ("Revolving Line of Credit") up to $ 5.0 million with an accounts receivable borrowing base of 80 % of eligible accounts receivable. The right to take draws on the Term Debt expired on December 31, 2022. In March 2023, we terminated the Credit Facility with Western Alliance Bank. Legal Proceedings We may be involved in legal actions in the ordinary course of business, including inquiries and proceedings concerning business practices and intellectual property infringement, employee relations and other claims. We will recognize a loss contingency in the unaudited condensed consolidated financial statements when it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. We will disclose any loss contingencies that do not meet both conditions if there is a reasonable possibility that a material loss may have been incurred. Gain contingencies are not recorded until they are realized. 21 Indemnifications We are required to recognize a liability for the fair value of any obligations we assume upon the issuance of a guarantee. We have certain agreements with licensors, licensees and collaborators that contain indemnification provisions. In such provisions, we typically agree to indemnify the licensor, licensee and collaborator against certain types of third party claims. The maximum amount of the indemnifications is not limited. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. There were no accruals for expenses related to indemnification issues for any periods presented. Note 11. Related Party Transactions Molecular Assemblies, Inc. In June 2020, we entered into a Stock Purchase Agreement with MAI, a privately held life sciences company, pursuant to which we purchased 1,587,050 shares of MAI's Series A preferred stock for $ 1.0 million. Mr. Nicols, our former President and CEO until August 2022, also joined MAI’s board of directors in June 2020. Concurrently with our initial equity investment, we entered into a Master Collaboration and Research Agreement with MAI (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 and B preferred stock which are valued based on the observed transaction price of similar securities that MAI issued to third parties. We completed the R&D service with MAI pursuant to the MAI Agreement during the first quarter of 2022. 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 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 . Note 12. Segment, Geographical and Other Revenue Information Segment Information 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 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. We manage our assets on a total company basis, not by business segment, as the majority of our operating assets are shared or commingled. Our CODM does not review asset information by business segment in assessing performance or allocating resources, and accordingly, we do not report asset information by business segment. All of our long lived assets are located in the United States. 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. Operating expenses that directly support the segment activity are allocated based on segment headcount, revenue contribution or activity of the business units within the segments, based on the corporate activity type provided to the segment. The expense allocation excludes certain corporate costs that are separately managed from the segments. This provides the CODM with more meaningful segment profitability reporting to support operating decisions and allocate resources. 22 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 September 30, 2023 Three Months Ended September 30, 2022 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Revenues: Product revenue $ 5,395 $ — $ 5,395 $ 28,042 $ — $ 28,042 Research and development revenue 3,315 567 3,882 3,104 3,324 6,428 Total revenues 8,710 567 9,277 31,146 3,324 34,470 Costs and operating expenses: Cost of product revenue 2,249 — 2,249 9,786 — 9,786 Research and development (1) 8,146 4,377 12,523 6,782 13,855 20,637 Selling, general and administrative (1) 1,748 386 2,134 3,791 888 4,679 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 Income (loss) from operations $ ( 4,615 ) $ ( 6,191 ) ( 10,806 ) $ 10,787 $ ( 11,419 ) ( 632 ) Corporate costs (3) ( 22,736 ) ( 7,947 ) Unallocated depreciation and amortization ( 1,357 ) ( 1,405 ) Loss before income taxes $ ( 34,899 ) $ ( 9,984 ) Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Revenues: Product revenue $ 24,807 $ — $ 24,807 $ 93,376 $ — $ 93,376 Research and development revenue 12,696 6,079 18,775 7,398 7,441 14,839 Total revenues 37,503 6,079 43,582 100,774 7,441 108,215 Costs and operating expenses: Cost of product revenue 9,947 — 9,947 29,577 — 29,577 Research and development (1) 24,100 19,929 44,029 19,833 37,279 57,112 Selling, general and administrative (1) 6,578 1,528 8,106 11,208 2,288 13,496 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 Income (loss) from operations $ ( 4,304 ) $ ( 17,518 ) ( 21,822 ) $ 40,156 $ ( 32,126 ) 8,030 Corporate costs (3) ( 42,890 ) ( 24,940 ) Unallocated depreciation and amortization ( 4,302 ) ( 3,953 ) Loss before income taxes $ ( 69,014 ) $ ( 20,863 ) (1) Research and development expenses and selling, general and administrative expenses exclude depreciation and amortization of finance leases. (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. 23 The following table provides stock-based compensation expense in cluded in loss from operations (in thousands): Three Months Ended September 30, 2023 2022 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 Nine Months Ended September 30, 2023 2022 Performance Enzymes Novel Biotherapeutics Corporate cost Total Performance Enzymes Novel Biotherapeutics Corporate cost Total Stock-based compensation $ 2,861 $ 98 $ 4,849 $ 7,808 $ 4,776 $ 1,182 $ 5,642 $ 11,600 Significant Customers Customers that each accounted for 10% or more of our total revenues were as follows: Percentage of Total Revenues for the Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Customer A 20 % * * * Customer B * 39 % 15 % 54 % Customer C * 13 % * * Customer D * * 10 % * Customer E * * 10 % * * Percentage was less than 10% Customers that each accounted for 10% or more of accounts receivable balances as of the periods presented as follows: Percentage of Accounts Receivables as of September 30, 2023 December 31, 2022 Customer B * 53 % Customer D 15 % * Customer E * 10 % Customer F 38 % * Customer G 17 % * * Percentage was less than 10% Geographical Information Geographic revenues are identified by the location of the customer and consist of the following (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues Americas $ 4,278 $ 4,822 $ 10,798 $ 12,167 EMEA 3,191 5,987 14,630 14,805 APAC 1,808 23,661 18,154 81,243 Total revenues $ 9,277 $ 34,470 $ 43,582 $ 108,215 24 Identifiable long-lived assets by location was as follows (in thousands): September 30, 2023 December 31, 2022 United States $ 29,177 $ 61,877 Identifiable goodwill by reporting unit was as follows (in thousands): Performance Enzymes Novel Biotherapeutics Total Goodwill at January 1, 2023 $ 2,463 $ 778 $ 3,241 Impairment — ( 778 ) ( 778 ) Goodwill at September 30, 2023 $ 2,463 $ — $ 2,463 For additional information on the goodwill impairment, see Note 7, “Balance Sheet Details.” Note 13. Allowance for Credit Losses The following table summarizes the financial assets allowance for credit losses (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Balance at beginning of period $ 133 $ 109 $ 163 $ 416 Provision for credit losses — — — — Write-offs — — ( 30 ) ( 257 ) Adjustment to the existing allowance — — — ( 50 ) Balance at end of period $ 133 $ 109 $ 133 $ 109 The following tables summarize accounts receivable by aging category (in thousands): September 30, 2023 Current 31-60 Days 61-90 Days 91 Days and over Total over 31 Days Total balance Accounts receivable $ 6,835 $ 4,690 $ 22 $ 82 $ 4,794 $ 11,629 December 31, 2022 Current 31-60 Days 61-90 Days 91 Days and over Total over 31 Days Total balance Accounts receivable $ 28,896 $ 1,747 $ 469 $ 792 $ 3,008 $ 31,904 Note 14. Restructuring Charges 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. 25 Note 15. 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. 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 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. 26