What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-03 · 102 added, 241 removed, 115 unchanged (75% of the section changed)

8 unchanged sentences

“Risk Factors” of our Annual Report, as incorporated herein and referenced in Part II, Item 1A:

“Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.

“Risk Factors” of this Quarterly Report on Form 10-Q and elsewhere in this report.

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

3 unchanged sentences

Business Overview

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

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

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

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

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

pharmaceutical manufacturing, life sciences, and biotherapeutics.

The enzymes we produce solve for real-world challenges associated with small molecule pharmaceuticals manufacturing and nucleic acid synthesis.

We are currently developing our proprietary ECO Synthesis ™ Platform to enable the commercial scale manufacture of RNAi therapeutics through an enzymatic route.

We expect to demonstrate gram-scale synthesis using the ECO Synthesis ™ Platform by the end of 2023, enabling pre-commercial customer testing to begin in 2024, all with a goal of commercialization beginning in 2025.

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

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

Performance Enzymes and Novel Biotherapeutics.

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

See Note 12, “Segment, Geographical and Other Revenue Information” in the Notes to Unaudited Condensed Consolidated Financial Statements included in this report.

Performance Enzymes

Our performance enzymes business consists primarily of two focus areas:

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

In our pharmaceutical manufacturing business, we utilize our CodeEvolver ® directed evolution platform to develop optimized enzymes that are used by some of the world’s largest pharmaceutical companies to reduce their costs and improve the efficiency and productivity of their manufacturing processes for some small molecule therapeutics.

In life science markets, we use our platform technology to develop enzymes for customers using next generation sequencing (“NGS”), a parallel sequencing technology used to identify genomic information in the study of biological systems, and PCR/qPCR for in vitro molecular diagnostic and molecular biology research applications, as well as for synthesis of nucleic acids such as DNA/RNA, including our ECO Synthesis™ Platform, which is in development to enable the commercial scale manufacture of RNAi therapeutics.

Novel Biotherapeutics

In July 2023, we announced that we are discontinuing investment in certain development programs in our biotherapeutics business, including our partnered product candidate CDX-7108 for the treatment of exocrine pancreatic insufficiency (“EPI”), which has completed Phase 1 clinical trials.

We are in active negotiations with Nestlé Health Science to advance the program without our financial support.

In addition, we previously licensed CDX-6114 for the treatment of phenylketonuria (“PKU”).

We have also engineered a series of transgenes that code for enzymes that may be used as gene therapies to treat rare lysosomal storage disorders with our partner Takeda, such as Fabry Disease and Pompe Disease, as well as a blood factor disorder.

Takeda previously announced that they are discontinuing development of these programs.

We focus on leveraging our capacity to enhance the properties and performance of enzymes to drive pivotal improvements across two key focus areas:

our foundational, revenue-generating pharmaceutical manufacturing business and our Enzyme-Catalyzed Oligonucleotide (ECO) Synthesis™ (“ECO Synthesis™”) manufacturing platform, which is currently in development to enable the commercial scale manufacture of RNA interference ( “ RNAi ” ) therapeutics.

Our unique enzymes drive improvements such as higher yields, increased purity, reduced energy usage and waste generation, and improved efficiency in manufacturing.

In July 2023, we announced that we discontinued investment in certain development programs, primarily in our novel biotherapeutics business segment and that we are actively exploring options to drive value by potentially monetizing non-core assets within our biotherapeutics and Life Science portfolios.

Within the pharmaceutical manufacturing business, we utilize our CodeEvolver ® technology platform to develop optimized enzymes that are used by some of the world’s largest pharmaceutical companies to reduce their costs and improve the efficiency and productivity of their manufacturing processes for small molecule therapeutics.

We also use the CodeEvolver ® technology platform to develop enzymes for the synthesis of nucleic acids such as DNA/RNA, including enzymes utilized in our ECO Synthesis™ manufacturing platform.

We demonstrated gram-scale synthesis with the ECO Synthesis™ manufacturing platform in December 2023 and expect to begin pre-commercial customer testing in 2024.

We anticipate that this will be followed by early commercial licenses to the ECO Synthesis™ manufacturing platform in 2025 and a full commercial launch in 2026.

As of March 31, 2024, we manage our business as one business segment.

For additional information, see Note 12, “Segment, Geographical and Other Revenue Information” in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.

Recent Developments

In July 2023, we announced an update to our business strategy to focus resources on programs with the strongest probability of creating significant value in the near-term and beyond.

As part of this enhanced strategic focus, we are prioritizing the advancement and commercialization of our ECO Synthesis ™ Platform and our highly complementary Pharmaceutical Manufacturing business.

We also streamlined operations, including the discontinuation of investment in certain development programs, primarily in our biotherapeutics business, consolidated operations to our headquarters in Redwood City, California and reduced headcount by approximately 25%.

Business Update Regarding COVID-19

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

The impact of COVID-19 affected segments of the global economy and its continuing impacts may affect our operations, including the potential interruption of our supply chain.

On May 11, 2023, the COVID-19 Public Health Emergency (“PHE”) declared under the Public Health Service (“PHS”) Act expired.

While COVID-19 is no longer considered a PHE, future surges or actions taken in response to COVID-19 or other PHEs may materially affect our products, supply chain or operation.

As a result of the COVID-19 pandemic, in 2021 and 2022 we received purchase orders from Pfizer Inc.

(“Pfizer”) for large quantities of our proprietary enzyme product, CDX-616, for use by Pfizer in the manufacture of a critical intermediate for its proprietary API, nirmatrelvir, used by Pfizer in combination with the API ritonavir, as its PAXLOVID™ (nirmatrelvir tablets;

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

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

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

Under the terms of the Pfizer Supply Agreement, Pfizer paid us a fee of $25.9 million in August 2022 which was recorded as deferred revenue.

Pursuant to the agreement, 90% of the fee ($23.3 million) is creditable against (i) future orders of CDX-616 used to manufacture its PAXLOVID™ with shipment dates prior to December 31, 2023, and (ii) fees associated with any new development and licensing agreements with Pfizer entered into prior to April 4, 2023.

On March 31, 2023, we entered into a license agreement whereby Pfizer utilized a portion of the $23.3 million credit towards a license to develop future product candidates, for which we recognized $5.0 million as non-cash research and development revenue during the second quarter of 2023.

Pfizer's ability to utilize the credit under item (ii) above expired on April 4, 2023.

Up to 50% of any portion of the $25.9 million which has not been credited under items (i) and (ii) is creditable against future orders of CDX-616 used to manufacture PAXLOVID™ with shipment dates in 2024.

The sale of CDX-616 to Pfizer had a substantial impact on our revenues in 2021 and 2022.

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

Entered into exclusive licensing agreement for newly engineered double-stranded DNA ligase with Roche

On February 26, 2024, we announced that we entered into an agreement with Roche Sequencing Solutions, Inc.

(“Roche”) for an exclusive, global license for the Company’s newly engineered double-stranded DNA (dsDNA) ligase for next-generation sequencing (NGS) library preparation and the Company’s EvoT4™ DNA ligase.

Under the terms of the deal, Codexis will receive upfront and technical milestone payments.

This deal supersedes the prior exclusive license on the EvoT4™ DNA ligase.

Secured $40.0 million in strategic financing deal with Innovatus Capital Partners to further strengthen cash position ahead of key milestones

On February 13, 2024, we announced that we entered into a loan facility agreement with an affiliate of Innovatus Capital Partners, LLC (Innovatus) for up to $40.0 million, including $30.0 million upfront and access to an additional $10.0 million upon achieving certain prespecified revenue thresholds.

Appointment of new members of our Strategic Advisory Board (“SAB”)

On February 20, 2024, we announced the appointment Masad Damha, PhD and Jim Lalonde, PhD to our SAB.

On April 11, 2024, we announced the appointment of Carole Cobb, MBA to our SAB as well.

Damha and Lalonde and Ms.

Cobb join John Maraganore, PhD, the founder and former Chief Executive Officer of Alnylam Pharmaceuticals on our SAB, which is now comprised of experts across oligonucleotide synthesis and manufacturing and was established to help guide the Company’s strategic direction, providing critical insights to inform the continued development of Codexis’ ECO Synthesis™ manufacturing platform.

Significant Collaborative Arrangements Update

Merck Sitagliptin Catalyst Supply Agreement

In February 2012, we entered into a five-year Sitagliptin Catalyst Supply Agreement (“Sitagliptin Supply Agreement”) with Merck whereby Merck may obtain commercial scale enzyme for use in the manufacture of Januvia®, its product based on the active ingredient sitagliptin.

In December 2015, Merck exercised its option under the terms of the Sitagliptin Supply Agreement to extend the agreement for an additional five years through February 2022.

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

We r ecognized nil and $3.7 million under this agreement for the three and nine months ended September 30, 2023, respectively, compared to $2.4 million and $5.1 million for the three and nine months ended September 30, 2022, respectively.

This represented 0% and 8% of our total revenues for the three and nine months ended September 30, 2023, respectively, compared to 7% and 5% for the three and nine months ended September 30, 2022, respectively.

As of September 30, 2023 , we recorded revenue of $1.1 million from sitagliptin enzyme sales that were recognized over time based on the progress of the manufacturing process.

These products will be shipped within the six-month period following the end of the third quarter of 2023.

Global Development, Option and License Agreement and Strategic Collaboration Agreement

In October 2017, we entered into the Nestlé License Agreement with Nestlé Health Science and, solely for the purpose of the integration and the dispute resolution clauses of the Nestlé License Agreement, Nestlé Health Science S.A., to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU.

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

Food and Drug Administration (“FDA”) that it had completed its review of our IND for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States.

In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sub-licensable license for the global development and commercialization of CDX-6114 for the management of PKU.

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

In October 2023, we provided notice pursuant to Nestlé License Agreement of our intent to abandon or transfer to Nestlé Health Science (at their option) the patents and patent applications related to CDX-6114, as of December 5, 2023.

W e anticipate that such abandonment or transfer will reduce our patent-related responsibilities and costs while not materially affecting our other rights and obligations under the Nestlé License Agreement.

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

The term of the Nestlé SCA will expire in December 2023, as we opted out of a renewal period through December 2024.

In January 2020, we entered into a development agreement with Nestlé Health Science pursuant to which we and Nestlé Health Science are collaborating to advance a lead candidate discovered through our Nestlé SCA, CDX-7108, targeting EPI, into preclinical and early clinical studies.

We, together with Nestlé Health Science, initiated a Phase 1 clinical trial of CDX-7108 in the fourth quarter of 2021 and on February 23, 2023, we and Nestlé Health Science announced interim results.

Interim data from the proof-of-concept arm showed improved lipid absorption when patients were administered CDX-7108 versus placebo.

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

In July 2023, we announced plans to discontinue our development support of CDX-7108 and are in active negotiations with Nestlé Health Science to advance the program without our financial support.

Under the Nestlé SCA and the development agreement, we recogni zed $0.6 million and $4.1 million in research and development fees for the three and nine months ended September 30, 2023, respectively, compared to $2.2 million and $3.8 million for the three and nine months ended September 30, 2022, respectively.

Platform Technology Transfer and License Agreement

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

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

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

As a part of this technology transfer, we provided to Novartis our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms.

In addition, our teams and Novartis scientists participated in technology training sessions and collaborative research projects at our laboratories in Redwood City, California and at a designated Novartis laboratory in Basel, Switzerland.

Novartis has now installed the CodeEvolver ® protein engineering platform technology at its designated laboratory.

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

We completed the second technology milestone transfer under the Novartis CodeEvolver ® Agreement in 2020 and received a milestone payment of $4.0 million.

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

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

We received the first annual payment of $2.0 million in the fourth quarter of 2022.

The Company also has the potential to receive quantity-dependent, usage payments for each API that is manufactured by Novartis using one or more enzymes that have been developed or are in development using the CodeEvolver ® protein engineering platform technology during the period that began on the conclusion of the Technology Transfer Period and ends on the expiration date of the last to expire licensed patent.

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

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

We recognized $0.2 million and $0.8 million in r esearch and development revenue for the three and nine months ended September 30, 2023, respectively, compared to $0.2 million and $0.7 million for the three and nine months ended September 30, 2022, respectively.

Strategic Collaboration and License Agreement

In March 2020, we entered into a Strategic Collaboration and License Agreement (the “Takeda Agreement”) with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Co.

(“Takeda”), pursuant to which we have collaborated with Takeda to research and develop protein sequences for use in gene therapy products for certain diseases in accordance with each applicable program plan.

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

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

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

We completed the research and development services relating to the fourth program with Takeda during the second quarter of 2023.

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

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

Pursuant to the Takeda Agreement, we are eligible to receive other payments that include ( i) clinical development and commercialization-based milestones, per target gene, of up to $104.0 million and (ii) tiered royalty payments based on net sales of applicable products at percentages ranging from the mid-single digits to low single-digits.

However, Takeda recently announced that they are discontinuing development of these programs.

We continue to engage in discussions with Takeda about the foregoing but the Takeda Agreement remains in effect as of the date of this report.

Revenue recognized relating to the functional licenses provided to Takeda was recognized at a point in time when the control of the license transferred to the customer.

We recognized research and development revenue related to the Takeda Agreement of nil a nd $1.9 million for the three and nine months ended September 30, 2023, respectively, compared to $1.2 million and $3.7 million for the three and nine months ended September 30, 2022, respectively.

Acquisition Agreement

In December 2023, we entered into an acquisition agreement (the “Acquisition Agreement”) with Nestlé Health Science, pursuant to which we agreed to assign our interests in CDX-7108 (including associated agreements and intellectual property rights) to Nestlé Health Science.

Under the terms of the Acquisition Agreement, Nestlé Health Science will be solely responsible for the continued development and commercialization of CDX-7108, including all associated costs, and Codexis will receive upfront payment, future potential milestone payments and net-sales based royalties.

We recognized research and development revenue of $5.0 million during the fourth quarter of 2023 related to the Acquisition Agreement and received the $5.0 million upfront fee in January 2024.

Pfizer Enzyme Supply Agreement

3 unchanged sentences

Pfizer's ability to utilize the credit under item (ii) above expired on April 4, 2023.

Pfizer's ability to utilize the credit under item (i) above expired on December 31, 2023, and under item (ii) above expired on April 4, 2023.

No product revenue was recognized from the Pfizer Supply Agreement during the three and nine months ended September 30, 2023.

We recognized product revenue of $12.9 million and $58.0 million for the three and nine months ended September 30, 2022, respectively, from the sale of quantities of CDX-616 to Pfizer which comprised 38% and 54% of our total revenues for the three and nine months ended September 30, 2022, respectively.

As of September 30, 2023 and December 31, 2022, we had $18.3 million and $24.4 million, respectively, in deferred revenue related to the $25.9 million fee received from Pfizer.

No product revenue was recognized from the Pfizer Supply Agreement during the three months ended March 31, 2024 and 2023.

As of March 31, 2024 and December 31, 2023, we had $9.5 million in deferred revenue related to the $25.9 million fee received from Pfizer.

Strategic Collaboration Agreement

In October 2017, we entered into the Nestlé Strategic Collaboration Agreement (“SCA”) pursuant to which we and Nestlé Health Science have collaborated to leverage the CodeEvolver ® protein engineering technology platform to develop novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas.

The term of the Nestlé SCA has expired in December 2023, as we opted out of a renewal period through December 2024.

In January 2020, we entered into a development agreement with Nestlé Health Science pursuant to which we and Nestlé Health Science have collaborated to advance a lead candidate discovered through our Nestlé SCA, CDX-7108, targeting exocrine pancreatic insufficiency, into preclinical and early clinical studies.

We, together with Nestlé Health Science, initiated a Phase 1 clinical trial of CDX-7108 in the fourth quarter of 2021, and on February 23, 2023, we and Nestlé Health Science announced interim results.

In July 2023, we announced plans to discontinue our development support of CDX-7108.

Under the Nestlé SCA and the development agreement, we recognize d nil and $1.8 million in research and development fees for the three months ended March 31, 2024 and 2023, respectively.

Results of Operations

The following table shows the amounts from our unaudited condensed consolidated statements of operations for the periods presented (in thousands, except percentages):

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

Three Months Ended March 31, Change

2024 2023 $ %

7 unchanged sentences

Restructuring charges — 72 (72) 100%

Asset impairment and other charges 9,984 — 9,984 100 % 9,984 — 9,984 100 %

Total costs and operating expenses 28,961 36,647 (7,686) (21)%

1 unchanged sentence

Interest income 909 1,089 (180) (17)%

Other income (expense), net

(3,895) 216 (4,111) (1,903) % (3,930) 150 (4,080) (2,720) %

Other expense, net (516) (25) (491) 1,964%

Loss before income taxes (11,495) (22,601) 11,106 (49)%

1 unchanged sentence

Net loss $ (11,505) $ (22,617) $ 11,112 (49)%

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

Our revenues consisted of product revenue, research and development revenue, and royalties and license revenue as follows:

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

1 unchanged sentence

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

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

Three Months Ended March 31, Change

2024 2023 $ %

8 unchanged sentences

Considering these industry practices and our experience, we do not believe the total of customer purchase orders outstanding (backlog) provides meaningful information that can be relied on to predict actual sales for future periods.

Total revenues decreased by $25.2 million in the three months ended September 30, 2023 compared to the same period in 2022 primarily due to lower product revenue and lower research and development revenue.

Total revenues decreased by $64.6 million in the nine months ended September 30, 2023 compared to the same periods in 2022, primarily due to lower product revenue, which was partially offset by higher research and development revenue.

Product revenue, decreased by $22.6 million and $68.6 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, primarily due to decreased sales of CDX-616 to Pfizer.

This decrease was partially offset by $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 and $1.3 million of product revenue recognized during the third quarter of 2023 as settlement fee pursuant to the enzyme supply agreement with the same customer .

Research and development revenue decreased by $2.5 million in the three months ended September 30, 2023 compared to the same period in 2022 primarily due to lower research and development fees from existing collaboration agreements being recognized in 2023 as compared to the same period in the prior year.

Research and development revenue increased by $3.9 million in the nine months ended September 30, 2023 compared to the same period in 2022, primarily due to higher revenue from Pfizer license agreement and from Nestlé Health Science under the Nestlé SCA and development agreement, which was partially offset by lower research and development fees from existing collaboration agreements being recognized in 2023 as compared to the same period in the prior year.

Total revenues increased by $4.1 million to $17.1 million in the three months ended March 31, 2024 compared to the same period in 2023, or 32%.

Product revenue increased by $1.2 million to $9.6 million in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to higher sales of branded pharmaceutical products.

Research and development revenue increased by $2.9 million to $7.5 million in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to $6.0 million higher revenue from Roche licensing agreement entered into in February 2024.

This was offset by $1.8 million lower research and development fees from Nestlé Health Science under the Nestlé SCA and development agreement and $1.7 million lower revenue from Takeda under the Strategic Collaboration and License Agreement we entered into with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda, in March 2020.

Cost and Operating Expenses

The following table shows the amounts of our cost of product revenue, research and development expense, selling, general and administrative expense, and restructuring charges from our unaudited condensed consolidated statements of operations for the periods presented (in thousands, except percentages):

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

Three Months Ended March 31, Change

2024 2023 $ %

3 unchanged sentences

Restructuring charges — 72 (72) 100%

Asset impairment and other charges 9,984 — 9,984 100 % 9,984 — 9,984 100 %

Total costs and operating expenses $ 28,961 $ 36,647 $ (7,686) (21)%

Cost of Product Revenue and Product Gross Margin

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

Revenues from the Novel Biotherapeutics segment are derived entirely from collaborative research and development activities as we have no approved products available for sale.

The following table shows the amounts of our product revenue, cost of product revenue, product gross profit and product gross margin from our unaudited condensed consolidated statements of operations for the periods presented (in thousands, except percentages):

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

Three Months Ended March 31, Change

2024 2023 $ %

4 unchanged sentences

Product gross margin (%) (2)

58 % 65 % 60 % 68 %

(1) Cost of product revenue consist of both internal and third-party fixed and variable costs, including materials and supplies, labor, facilities and other overhead costs associated with our product revenue.

(1) Cost of product revenue consists of both internal and third-party fixed and variable costs, including materials and supplies, labor, facilities and other overhead costs associated with our product revenue.

(2) Product gross margin is used as a performance measure to provide additional information regarding our results of operations on a consolidated basis.

Cost of product revenue decreased by $7.5 million and $19.6 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, primarily due to lower volume of product sales as compared to the same periods in prior year.

Product gross margins were 58% and 60% in the three and nine months ended September 30, 2023, respectively, compared to 65% and 68% in the corresponding periods in 2022 due to variability in the product mix which was partially offset by revenue recognized with no related cost in the second and third quarters of 2023.

Cost of product revenue increased by $0.3 million in the three months ended March 31, 2024 compared to the same period in 2023 primarily due to a higher volume of product sales as compared to the same period in prior year.

The product gross margin increased to 49% in the three months ended March 31, 2024 compared to 46% in the three months ended March 31, 2023, primarily due to variability in the product mix.

Research and Development Expenses

2 unchanged sentences

Research and development expenses are expensed when incurred.

Research and development expenses decreased by $8.2 million, or 37%, during the three months ended September 30, 2023 compared to th e same period in 2022.

This decrease was primarily due to a $3.7 million decrease in costs associated with lower headcount, $1.4 million from lower lab supply costs.

$2.2 million from lower outside services related to Chemistry, Manufacturing and Controls (“CMC”) and regulatory expenses and $0.6 million from lower stock-based compensation costs.

The decrease in research and development expenses of $12.8 million, or 21%, in the nine months ended September 30, 2023, compared to the same period in 2022, was primarily due to a $7.3 million decrease in costs associated with lower headcount, a $3.1 million decrease in CMC and outside services, $2.9 million in lower lab supply costs, and a $1.2 million decrease in stock based compensation costs, partially offset by an increase of $1.6 million in allocable expenses.

Research and development expenses were $11.2 million in the first quarter of 2024, a decrease of $5.4 million, or 32%, from $16.7 million in the first quarter of 2023.

This decrease was primarily due to $2.4 million decrease in costs associated with lower headcount, $1.2 million decrease in outside services related to Chemistry, Manufacturing and Controls and regulatory expenses, $1.2 million decrease in lease costs due to the assignment of our San Carlos facility lease during the fourth quarter of 2023, and $0.5 million lower lab supply costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of employee-related costs, which include salaries and other personnel-related expenses (including stock-based compensation), hiring and training costs, consulting and outside services expenses (including audit and legal counsel related costs), marketing costs, building lease costs, and depreciation expenses and amortization expenses.

Selling, general and administrative expenses decreased by $1.2 million, or 9%, during the three months ended September 30, 2023, compared to the same period in 2022.

This decrease was primarily due to decreases of $1.6 million in stock-based compensation costs and $0.3 million in lower outside services, partially offset by an increase of $0.6 million higher in payroll-based expenses.

The increase in selling, general and administrative expenses of $1.2 million, or 3%, in the nine months ended September 30, 2023, compared to the same period in 2022 was primarily due to $3.0 million higher payroll-based expenses and $1.2 million of higher fees for outside services, partially offset by a $2.6 million decrease in stock-based compensation costs and $0.7 million decrease in allocable expenses.

Selling, general and administrative expenses were $12.9 million in the first quarter of 2024, a decrease of $2.5 million, or 16%, compared to $15.4 million in the first quarter of 2023.

This decrease was primarily due to $1.6 million decrease in costs associated with lower headcount , $0.7 million in lower consulting and outside services, and $0.2 million of lower marketing and advertising costs.

These were partially offset by a $0.3 million higher stock based compensation expense.

Restructuring Charges

Restructuring charges consist of one-time employee severance and other termination benefits due to workforce reduction plans that were initiated during the third quarter of 2023 and in the fourth quarter of 2022.

Restructuring charges were $3.1 million and $3.3 million for the three and nine months ended September 30, 2023, respectively.

Asset Impairment and Other Charges

Asset impairment and other charges for the three and nine months ended September 30, 2023 were $10.0 million, consisting o f a $7.7 million long-lived asset impairment charge, a $0.8 million goodwill impairment charge and a $1.5 million write-down on assets held for sale, all of which are non-cash charges.

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

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

Restructuring charges consist of one-time employee severance and other termination benefits due to workforce reduction plans that were initiated in the prior years.

There were no restructuring charges recognized in the three months ended March 31, 2024.

Restructuring charges were $0.1 million for the three months ended March 31, 2023.

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

Three Months Ended March 31, Change

2024 2023 $ %

Interest income $ 909 $ 1,089 $ (180) (17)%

Other income (expense), net

(3,895) 216 (4,111) (1,903) % (3,930) 150 (4,080) (2,720) %

Other expense, net (516) (25) (491) 1,964%

Total other income, net $ 393 $ 1,064 $ (671) (63)%

Other Income (Expense), net

Other income (expense), net decreased by $4.1 million in the three and nine months ended September 30, 2023, compared to the same periods in 2022, primarily due to impairment of our investments in seqWell and Arzeda.

Interest Income

Interest income increased by $0.6 million and $2.6 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, primarily due to higher average interest rates on cash balances.

Interest income decreased by $0.2 million in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to lower average cash balances.

Other Expense, net

Other expense, net increased by $0.5 million in the three months ended March 31, 2024, compared to the same period in 2023, primarily due to interest related to long-term debt.

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

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

Three Months Ended March 31, Change

2024 2023 $ %

Provision for income taxes $ 10 $ 16 $ (6) (38)%

The provision for income taxes for the three and nine months ended September 30, 2023, was primarily for current year state income taxes and the accrual of interest and penalties on historic uncertain tax positions.

The provision for income taxes for the three and nine months ended September 30, 2022, was primarily due to the income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of the United States and remitted to the United States and the accrual of interest and penalties on historic uncertain tax positions.

Net loss for the three months ended September 30, 2023, was $34.9 million, or a net loss per basic and diluted share of $0.50.

This compared to a net loss of $10.0 million, or a net loss per basic and diluted share of $0.15 for the three months ended September 30, 2022.

Net loss for the nine months ended September 30, 2023, was $69.0 million, or a net loss per basic and diluted share of $1.02.

This compared to a net loss of $21.0 million, or a net loss per basic and diluted share of $0.32 for the nine months ended September 30, 2022.

The increase in net loss for both the three and nine months ended September 30, 2023, was primarily related to lower product revenues from CDX-616 and one-time charges recognized during 2023 related to asset impairment, including impairment in our investments in non-marketable equity securities, and restructuring charges, which was partially offset by lower operating expenses in 2023.

RESULTS OF OPERATIONS BY SEGMENT (in thousands, except percentages):

Revenues by segment

Three Months Ended September 30, Change

2023 2022 Performance Enzymes Novel Biotherapeutics

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

Product revenue $ 5,395 $ — $ 5,395 $ 28,042 $ — $ 28,042 $ (22,647) (81) % $ — — %

Research and development revenue 3,315 567 3,882 3,104 3,324 6,428 211 7 % (2,757) (83) %

Total revenues $ 8,710 $ 567 $ 9,277 $ 31,146 $ 3,324 $ 34,470 $ (22,436) (72) % $ (2,757) (83) %

Nine Months Ended September 30, Change

2023 2022 Performance Enzymes Novel Biotherapeutics

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

Product revenue $ 24,807 $ — $ 24,807 $ 93,376 $ — $ 93,376 $ (68,569) (73) % $ — — %

Research and development revenue 12,696 6,079 18,775 7,398 7,441 14,839 5,298 72 % (1,362) (18) %

Total revenues $ 37,503 $ 6,079 $ 43,582 $ 100,774 $ 7,441 $ 108,215 $ (63,271) (63) % $ (1,362) (18) %

Revenues from the Performance Enzymes segment decreased by $22.4 million, or 72%, for the three months ended September 30, 2023, and by $63.3 million, or 63%, for the nine months ended September 30, 2023 compared to the same periods in 2022.

The decrease in product revenue of $22.6 million, or 81%, in the three months ended September 30, 2023, and of $68.6 million, or 73%, in the nine months ended September 30, 2023, compared to the same periods in 2022, was primarily due to decreased sales of CDX-616 to Pfizer which was partially offset by a $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 and $1.3 million of product revenue recognized during the third quarter of 2023 as settlement fee pursuant to the enzyme supply agreement with the same customer.

The increase in research and development revenue of $0.2 million, or 7%, for the three months ended September 30, 2023, and of $5.3 million, or 72%, in the nine months ended September 30, 2023, compared to the same periods in 2022, was primarily due to higher revenue from the Pfizer license agreement.

Revenues from the Novel Biotherapeutics segment decreased by $2.8 million, or 83%, for the three months ended September 30, 2023 and by $1.4 million, or 18%, for the nine months ended September 30, 2023 compared to the same periods in 2022, primarily due to lower research and development fees from Takeda under the Takeda Agreement partially offset by higher research and development revenue from Nestlé Health Science under the Nestlé SCA and development agreement.

Costs and operating expenses by segment

Three Months Ended September 30, Change

2023 2022 Performance Enzymes Novel Biotherapeutics

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

Cost of product revenue $ 2,249 $ — $ 2,249 $ 9,786 $ — $ 9,786 $ (7,537) (77) % $ — — %

Research and development (1)

8,146 4,377 12,523 6,782 13,855 20,637 1,364 20 % (9,478) (68) %

Selling, general and administrative (1)

1,748 386 2,134 3,791 888 4,679 (2,043) (54) % (502) (57) %

Restructuring charges 1,182 1,217 2,399 — — — 1,182 — % 1,217 100 %

Asset impairment and other charges (2)

— 778 778 — — — — — % 778 100 %

Total segment costs and operating expenses $ 13,325 $ 6,758 20,083 $ 20,359 $ 14,743 35,102 $ (7,034) (35) % $ (7,985) (54) %

Corporate costs (3)

Unallocated depreciation and amortization 1,357 1,405

Total costs and operating expenses $ 41,337 $ 45,106

Nine Months Ended September 30, Change

2023 2022 Performance Enzymes Novel Biotherapeutics

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

Cost of product revenue $ 9,947 $ — $ 9,947 $ 29,577 $ — $ 29,577 $ (19,630) (66) % $ — — %

Research and development (1)

24,100 19,929 44,029 19,833 37,279 57,112 4,267 22 % (17,350) (47) %

Selling, general and administrative (1)

6,578 1,528 8,106 11,208 2,288 13,496 (4,630) (41) % (760) (33) %

Restructuring charges 1,182 1,362 2,544 — — — 1,182 — % 1,362 100 %

Asset impairment and other charges (2)

— 778 778 — — — — — % 778 100 %

Total segment costs and operating expenses $ 41,807 $ 23,597 65,404 $ 60,618 $ 39,567 100,185 $ (18,811) (31) % $ (15,970) (40) %

Corporate costs (3)

42,226 25,708

Unallocated depreciation and amortization 4,302 3,953

Total costs and operating expenses $ 111,932 $ 129,846

(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 and unallocated asset impairment and restructuring charges.

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

Research and development expense in the Performance Enzymes segment increased by $1.4 million, or 20%, in the three months ended September 30, 2023, compared to the same period in 2022 primarily due to $4.6 million higher allocable expenses, partially offset by a $3.0 million decrease in costs associated with lower headcount and lower lab supply costs.

The increase in research and development expense by $4.3 million, or 22%, in the nine months ended September 30, 2023, as compared to the same period in 2022 was primarily due to $10.6 million in higher outside services and allocable expenses, partially offset by a $5.9 million decrease in costs associated with lower headcount and lower lab supply costs.

Selling, general and administrative expense in the Performance Enzymes segment decreased by $2.0 million, or 54%, in the three months ended September 30, 2023, and by $4.6 million, or 41%, in the nine months ended September 30, 2023, as compared to the same periods in 2022, primarily due to lower headcount related expenses.

Research and development expense in the Novel Biotherapeutics segment decreased by $9.5 million, or 68%, in the three months ended September 30, 2023, as compared to the same period in 2022, primarily due to a $4.3 million decrease in costs associated with lower headcount and $4.8 million in lower fees related to outside services and lower allocable expenses.

The decrease in research and development expenses of $17.4 million, or 47% in the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to a $7.0 million decrease in costs associated with lower headcount and a $10.1 million decrease in outside services related to CMC and regulatory expenses, lower lab supply costs and lower allocable expenses.

We expect research and development expenses to decrease in subsequent quarters reflecting the impact of the reduction in force that was announced in July 2023 and substantially completed by September 30, 2023 as well as reduced expenses resulting from our decision to discontinue investment in the Novel Biotherapeutics segment.

Selling, general and administrative expense in the Novel Biotherapeutics segment decreased by $0.5 million, or 57%, in the three months ended September 30, 2023 and by $0.8 million, or 33%, in the nine months ended September 30, 2023, as compared to the same periods in 2022.

The decrease was primarily due to lower headcount related expenses.

The provision for income taxes for the three months ended March 31, 2024 and 2023, was primarily due to the accrual of interest and penalties on historic uncertain tax positions.

Net loss for the three months ended March 31, 2024 was $11.5 million, or a net loss per basic and diluted share of $0.16.

This compared to a net loss of $22.6 million, or a net loss per basic and diluted share of $0.34 for the three months ended March 31, 2023.

The decrease in net loss is primarily related to higher product and research and development revenues and lower operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

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

In addition, pursuant to the Loan Agreement, we received $30.0 million from Innovatus, as Lender, on February 13, 2024 and may become eligible to borrow up to an additional $10.0 million upon the achievement of certain financial milestones.

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

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

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

We expect our cash requirements to increase in the near term as we complete the reduction in force and facility consolidation that we announced in July 2023.

The following summarizes our cash and cash equivalents balance and working capital as of September 30, 2023 and December 31, 2022 (in thousands):

September 30, 2023 December 31, 2022

Our primary uses of capital for the foreseeable future, including the next 12 months, are for compensation and related expenses, research and development expenses including manufacturing costs, laboratory and related supplies, legal and other regulatory expenses, and general overhead costs.

The following summarizes our cash and cash equivalents and short-term investments balances and working capital as of March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024 December 31, 2023

Cash and cash equivalents $ 58,046 $ 65,116

Short-term investments

Working capital $ 78,868 $ 57,636

Sources of Capital

In addition to our existing cash and cash equivalents and revenue generated through our existing operations, we are eligible to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain royalty payments under our collaboration agreements with Merck and Novartis of up to $19.0 million in the aggregate.

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

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

In addition, pursuant to the terms of the Pfizer Supply Agreement, Pfizer paid us a fee of $25.9 million in August 2022 which was recorded as deferred revenue.

Pursuant to the agreement, 90% of the fee ( $23.3 million ) is creditable against (i) future orders of CDX-616 used to manufacture its PAXLOVID™ with shipment dates prior to December 31, 2023, and (ii) fees associated with any new development and licensing agreements with Pfizer entered into prior to April 4, 2023.

Subsequent to the end of the first quarter of 2023, we entered into a license agreement whereby Pfizer utilized a portion of the $23.3 million credit towards a license to develop future product candidates, for which we recognized $5.0 million as non-cash research and development revenue during the second quarter of 2023.

Pfizer's ability to utilize the credit under item (ii) above expired on April 4, 2023.

We have historically experienced negative cash flows from operations as we continue to invest in key technology development projects and improvements to our CodeEvolver ® protein engineering technology platform, develop and commercialize new and existing products including our ECO Synthesis™ platform and expand our business development and collaboration with new customers.

We have historically experienced negative cash flows from operations as we continue to invest in key technology development projects and improvements to our CodeEvolver ® technology platform, develop and commercialize new and existing products including our ECO Synthesis™ manufacturing platform and expand our business development and collaboration with new customers.

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

1 unchanged sentence

Our largest uses of cash from operating activities are for employee-related expenditures, rent payments, inventory purchases to support our product sales and non-payroll research and development costs.

Equity Distribution Agreement

Loan Agreement and Term Loans

On February 13, 2024, we entered into the Loan Agreement with Innovatus consisting of two tranches, of which the first tranche of $30.0 million was completed upon execution of the Loan Agreement.

We will be eligible to draw on the second tranche of $10.0 million upon achievement of certain milestones including certain pre-specified revenue thresholds.

The Term Loan carries an interest-only period of 36 months and will bear an interest at a floating rate of the sum of (a) the greater of (i) prime rate and (ii) 7.50% , plus (b) 3.25% .

Sales Agreements

In May 2021, we entered into an Equity Distribution Agreement (“EDA ” ) with Piper Sandler & Co (“PSC ” ), under which PSC, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the execution of the EDA up to a maximum of $50.0 million of shares of our common stock.

During the nine months ended September 30, 2023, 3,079,421 shares of our common stock were issued and sold pursuant to the EDA and we received net proceeds of $7.9 million.

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

There have been no additional sales of common stock under the EDA since June 2023.

Sales of our common stock under this arrangement could be subject to business, economic or competitive unce rtainties and contingencies, many of which may be beyond our control, and which could cause actual results from the sale of our common stock to differ materially from expectations.

In 2023, 3,079,421 shares of our common stock were issued and sold pursuant to the EDA, all during the first half of 2023, and we received net proceeds of $7.9 million.

As of March 31, 2024, $41.3 million of shares remained available for sale under the EDA.

The registration statement registering the offer and sale of the shares pursuant to the EDA is set to expire on May 7, 2024.

On April 24, 2024, we terminated the EDA.

On May 2, 2024, we entered into a Controlled Equity Offering℠ Sales Agreement (the “Cantor Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor”), under which Cantor, at our discretion and at such times that we may determine from time to time, may sell up to a maximum of $75.0 million of shares of our common stock.

Under the terms of the Cantor Sales Agreement, Cantor 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 intend to file a registration statement on Form S-3 registering the offer and sale of these shares under the Securities Act.

We will pay a commission of up to 3.0% of gross sales proceeds of any common stock sold under the Cantor Sales Agreement.

Sales of our common stock under these arrangements could be subject to business, economic or competitive unce rtainties and contingencies, many of which may be beyond our control, and which could cause actual results from the sale of our common stock to differ materially from expectations.

We believe that our existing cash and cash equivalents, combined with our future expectations for product revenues, research and development revenue, and expense management will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirement s for at least the next 12 months.

2 unchanged sentences

In addition, we may choose to seek other sources of capital even if we believe we have generated sufficient cash flows to support our operating needs.

Our need for additional capital will depend on many factors, including the financial success of our business, the spending required to develop and commercialize new and existing products including our ECO Synthesis ™ platform, the effect of any acquisitions of other businesses, technologies or facilities that we may make or develop in the future, our spending on new market opportunities, and the potential costs for the filing, prosecution, enforcement and defense of patent claims, if necessary.

Our need for additional capital will depend on many factors, including the financial success of our business, the spending required to develop and commercialize new and existing products including our ECO Synthesis™ manufacturing platform, the effect of any acquisitions of other businesses, technologies or facilities that we may make or develop in the future, our spending on new market opportunities, and the potential costs for the filing, prosecution, enforcement and defense of patent claims, if necessary.

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

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

If we raise debt financing or enter into credit facilities, we may be subject to restrictive covenants that limit our ability to conduct our business.

In addition, under the Loan Agreement, we are subject to restrictive covenants that limit our ability to conduct our business and could be subject to additional covenants to the extent we seek other debt financing in the future.

We may not be able to raise sufficient additional funds on terms that are favorable to us, if at all.

If we fail to raise sufficient funds and fail to generate sufficient revenues to achieve planned gross margins and to control operating costs, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited.

If this happens, we may be forced to delay or terminate development of new products or services, such as our ECO Synthesis ™ Platform, or the commercialization of products resulting from our technologies, curtail or cease operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us.

If this happens, we may be forced to delay or terminate development of new products or services, such as our ECO Synthesis™ manufacturing platform, or the commercialization of products resulting from our technologies, curtail or cease operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us.

If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.

The following is a summary of cash flows for nine months ended September 30, 2023 and 2022 (in thousands):

Nine Months Ended September 30,

Net cash provided by (used in) operating activities $ (41,601) $ 6,367

The following is a summary of cash flows for three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,

Net cash used in operating activities $ (7,789) $ (9,212)

Net cash used in investing activities (28,563) (3,284)

Net cash provided by (used in) financing activities 8,167 (914)

Net cash provided by financing activities 29,281 1,352

Net decrease in cash, cash equivalents and restricted cash $ (7,071) $ (11,144)

Cash Flows from Operating Activities

Cash used in operating activities for the nine months ended September 30, 2023 of $41.6 million consisted of net loss adjusted for certain non-cash items and changes in operating assets and liabilities.

The $48.0 million increase in net cash used operating activities for the nine months ended September 30, 2023 as compared to the same period in 2022, was primarily due to the net effect of decreases in cash received from revenue, increases in cash paid for cost of revenues and operating expenses and changes in operating assets and liabilities.

The $1.4 million decrease in net cash used in operations for the three months ended March 31, 2024 as compared to the same period in 2023 was primarily due to the net effect of decreases in cash paid for operating expenses, primarily driven by the restructuring of our business in 2023 which included the assignment of our San Carlos facility lease in the fourth quarter of 2023, and changes in operating assets and liabilities.

Cash Flows from Investing Activities

Cash used in investing activities for the nine months ended September 30, 2023 was primarily attributable to $1.2 million for the purchase of additional shares of MAI's Series B preferred stock in March 2023 and seqWell's Series C-1 preferred stock and common stock warrants and $4.8 million for purchases of property and equipment during the period.

The $7.6 million decrease in net cash used in investing activities for the nine months ended September 30, 2023 as compared to the same period in 2022, was primarily due to higher cash utilized for additional investments in equity securities and purchases of property and equipment in the prior year.

The $25.3 million increase in net cash used in investing activities for the three months ended March 31, 2024 as compared to the same period in 2023, was primarily due to higher cash utilized for purchase of short-term investments.

Cash Flows from Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2023 included $8.7 million gross proceeds from issuance of common stock and $0.4 million of proceeds from exercises of stock options, and was partially offset by $0.4 million for taxes paid related to net share settlement of equity awards.

The $9.1 million increase in net cash provided by financing activities for the nine months ended September 30, 2023 as compared to the same period in 2022 was primarily due to proceeds from issuance of common stock under the EDA and lower cash paid on taxes related to net share settlement of equity awards.

The $27.9 million increase in net cash provided by financing activities for the three months ended March 31, 2024 as compared to the same period in 2023 was primarily due to proceeds from the Innovatus Loan in February 2024.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

1 unchanged sentence

Actual results could differ from those estimates.

There have been no material changes to our critical accounting policies or estimates during the three and nine months ended September 30, 2023 from those discussed in our Annual Report.

There have been no material changes to our critical accounting policies or estimates during the three months ended March 31, 2024 from those discussed in our Annual Report.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis