What changed in this filing

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Item 1A. Risk Factors

2024-08-08 compared with 2024-05-02 · 36 added, 34 removed, 697 unchanged (9% of the section changed)

24 unchanged sentences

• We may need additional capital in the future in order to expand our business.

• We may not be able to comply with the terms of our five-year loan and security agreement (our “ Loan Agreement ” ) with Innovatus Life Sciences Lending Fund, I, LP, an affiliate of Innovatus Capital Partners (“Innovatus”).

• We may not be able to comply with the terms of our Loan Agreement with Innovatus .

• Our ongoing efforts to deploy our technology in the life science tools market may fail.

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We have a history of net losses and we may not achieve or maintain profitability.

We have incurred net losses since our inception, including losses of $76.2 million, $33.6 million, and $21.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.

and $11.5 million and $22.6 million for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024 and December 31, 2023, we had an accumulated deficit of $509.0 million and $497.5 million, respectively.

We have incurred net losses since our inception, including losses of $76.2 million, $33.6 million, and $21.3 million for the years ended December 31, 2023, 2022, and 2021, respectively, and $34.3 million and $34.1 million for the six months ended June 30, 2024 and 2023, respectively.

As of June 30, 2024 and December 31, 2023, we had an accumulated deficit of $531.8 million and $497.5 million, respectively.

If we are unable to continue to successfully develop and commercialize products in our pharmaceutical manufacturing business, increase sales of existing products and services, develop and commercialize our ECO Synthesis™ manufacturing platform, and or develop new products or services, or otherwise expand our business, whether through new or expanded collaborations or other products and services, our net losses may increase and we may never achieve profitability.

In addition, some of our agreements, including the agreements with GSK, Merck, Novartis, Nestlé Health Science, Aldevro n and Roche provide for milestone payments, usage payments, and/or future royalty or other payments, which we will only receive if we and/or our collaborators develop and commercialize products or achieve technical milestones.

In addition, some of our agreements, including the agreements with GSK, Merck, Novartis, Nestlé Health Science, Aldevro n, Roche and Crosswalk Therapeutics provide for milestone payments, usage payments, and/or future royalty or other payments, which we will only receive if we and/or our collaborators develop and commercialize products or achieve technical milestones.

We also intend to continue to fund the development of additional proprietary performance enzyme products and advance new technologies like our ECO Synthesis™ manufacturing platform.

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Biotherapeutic programs are highly regulated and expensive, and our enzyme products are complex and subject to quality control requirements.

The ability of our customers, future customers or collaborators, including any company developing RNAi therapeutics, to advance product candidates utilizing our products to clinical trials and to ultimately receive regulatory approvals is highly uncertain.

The ability of our customers, future customers or collaborators, including any company developing RNAi and other RNA-based therapeutics, to advance product candidates utilizing our products to clinical trials and to ultimately receive regulatory approvals is highly uncertain.

Although we are no longer developing our own portfolio of biotherapeutics product candidates, we continue to develop enzyme products, including our ECO Synthesis ™ manufacturing platform, that may be used by our customers, future customers or collaborators in connection with their biotherapeutic product candidates.

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Although we continue to expand our customer base, our current revenues are derived from a limited number of key customers.

For the three months ended March 31, 2024 and 2023, customers that each individually contributed 10% or more of our total revenue accounted for 60% and 60% of our total revenues, respectively.

For the six months ended June 30, 2024 and 2023, customers that each individually contributed 10% or more of our total revenue accounted for 40% and 49% of our total revenues, respectively.

We expect a limited number of customers to continue to account for a significant portion of our revenues for the foreseeable future.

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Any such expiration, termination or reduction could materially adversely affect our revenues, financial condition and results of operations.

For the three months ended March 31, 2024, we derived a majority of our product revenue from these product supply agreements.

For the six months ended June 30, 2024, we derived a majority of our product revenue from these product supply agreements.

The demand for our products depends in part on our customers’ research and development and the clinical and market success of their products.

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We are working to qualify new contract manufacturers to produce certain of our enzymes, however those efforts may not be successful and therefore we may experience limitations on our ability to supply our enzymes to customers.

Manufacturing of our enzymes is conducted primarily in four locations:

our in-house facility in Redwood City, California, and at three third-party contract manufacturing organizations, Lactosan in Kapfenberg, Austria, ACSD in Anagni, Italy, Alphazyme in Jupiter, Florida, and Sekisui in Maidstone, United Kingdom.

Manufacturing of our enzymes is conducted primarily in five locations:

our in-house facility in Redwood City, California, and at four third-party contract manufacturing organizations, Lactosan in Kapfenberg, Austria, ACSD in Anagni, Italy, Alphazyme in Jupiter, Florida, and Sekisui in Maidstone, United Kingdom.

Generally, we perform smaller scale manufacturing in-house and outsource the larger scale manufacturing to these contract manufacturers.

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We may be forced to secure alternative sources of supply, which may be unavailable on commercially acceptable terms, and could cause delays in our ability to deliver products to our customers, increase our costs and decrease our profit margins.

We currently have supply agreements in place with Lactosan, ACSD and Alphazyme.

In the absence of a supply agreement, a contract manufacturer will be under no obligation to manufacture our enzymes and could elect to discontinue their manufacture at any time.

We currently have supply agreements in place with Lactosan, ACSD, Alphazyme and Sekisui.

As Alphazyme’s services relate primarily to non-core assets following our strategic shift of focus, that agreement will terminate as of May 2025.

However, in the absence of a supply agreement, a contract manufacturer will be under no obligation to manufacture our enzymes and could elect to discontinue their manufacture at any time.

If we require additional manufacturing capacity and are unable to obtain it in sufficient quantity, we may not be able to increase our product sales, or we may be required to make substantial capital investments to build that capacity or to contract with other manufacturers on terms that may be less favorable than the terms we currently have with our suppliers.

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• our collaborators experience business difficulties, which could eliminate or impair their ability to effectively perform under our agreements.

Takeda recently confirmed that it will end research, discovery and preclinical work in certain rare disease areas that may overlap with the programs on which we collaborate under the Strategic Collaboration and License Agreement (the “Takeda Agreement”) we entered into with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda, in March 2020.

Takeda announced in April 2023 the discontinuance of these development programs .

Even after collaboration relationships expire or terminate, some elements of the collaboration may survive.

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We have invested significant resources to enable fully enzymatic nucleic acid synthesis, which is based on novel ideas and technologies that are largely unproven.

Our ECO Synthesis™ manufacturing platform is currently in development to enable the commercial-scale manufacture of RNAi therapeutics through an enzymatic route.

Our ECO Synthesis™ manufacturing platform is currently in development to enable the commercial-scale manufacture of RNAi and other RNA-based therapeutics through an enzymatic route.

While we believe fully enzymatic nucleic acid synthesis will offer certain improvements over phosphoramidite chemistry, including with respect to required infrastructure investments, batch size limitations and waste disposal challenges, the enzymatic route is novel and has not yet been commercialized.

As such, we may be faced with unforeseen results, delays and setbacks, in addition to the other foreseeable risks and uncertainties associated with the ongoing development of the ECO Synthesis™ manufacturing platform and other products.

Other challenges with a new technology such as our ECO Synthesis™ manufacturing platform include having an unknown and unproven regulatory path, uncertainly around the value that we can realize from the technology, uncertainty around the timeline for adoption of the technology by customers, and uncertainly around our ability to manufacture and partner with customers on manufacturing and utilizing the technology.

Other challenges with a new technology such as our ECO Synthesis™ manufacturing platform include having an unknown and unproven development and regulatory path, uncertainly around the value that we can realize from the technology, uncertainty around the timeline for adoption of the technology by customers, and uncertainly around our ability to manufacture at GMP scale and partner with customers on manufacturing and utilizing the technology.

We may also be unable to achieve the expected benefits of the ECO Synthesis™ manufacturing platform in a timely manner or at all.

There can be no assurance that these events we may experience in the future related to enzymatic synthesis will not cause significant delays or unanticipated costs, or that such development problems can be solved.

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We have investments in illiquid or non-marketable equity securities acquired in private transactions.

As of March 31, 2024, 6.5% of our consolidated assets consisted of investment securities, which are illiquid investments.

As of June 30, 2024, 7.3% of our consolidated assets consisted of investment securities, which are illiquid investments.

Investments in non-marketable, securities are inherently risky and difficult to value.

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Given our recent change in strategic direction, we may receive limited revenue or no future value from certain of our existing license agreements .

While we have historically invested significant time and financial resources in the development of biotherapeutics assets, including candidates for the treatment of Fabry disease and Pompe disease, which are included in the Takeda Agreement, in July 2023, we announced we are terminating investment in our biotherapeutics business and in other programs.

While we have historically invested significant time and financial resources in the development of biotherapeutics assets, we announced we are terminating investment in our biotherapeutics business and in other programs.

As a result, we are renegotiating some of these, along with other license agreements for product candidates in our biotherapeutics, food and feed, and non-core life science assets.

For example, we entered into the Acquisition Agreement with Nestlé under which they acquired rights to our co-developed lipase enzyme CDX-7108 and we received an upfront payment and the right to downstream milestones and royalties, terminating our prior SCA and development agreement with Nestlé.

For example, we entered into the Acquisition Agreement with Nestlé Health Science under which they acquired rights to our co-developed lipase enzyme CDX-7108 and we received an upfront payment and the right to downstream milestones and royalties, terminating our prior SCA and development agreement with Nestlé Health Science.

While we are working to amend or terminate some of our agreements and enter into new agreements in such a way that we may be able to receive future revenue or other benefits, we may be unsuccessful in doing so.

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Further, renegotiating these agreements may be costly and could divert management attention, which could have an adverse impact on our business and results of operations.

Our ongoing efforts to deploy our technology in the life science tools markets may fail.

Our efforts to deploy our technology in the life science tools markets may fail.

We have used our CodeEvolver ® directed evolution technology platform to develop new products for customers using NGS and PCR/qPCR for in vitro molecular diagnostic applications.

While we have entered into license agreements for products in this market, we do not know if we can successfully compete in this new market.

While we have entered into license agreements for products in this market, we do not know if our partners or licensees can successfully compete in this market.

This new market is well established and consists of numerous large, well-funded entrenched market participants who have long and established track records and customer relationships.

We have also developed a newly engineered ligase designed to address sequencing challenges.

These enzymes, and any additional products that we may develop in the future for this market, may not succeed in displacing current products.

If we succeed in commercializing new products for this market, we may not generate significant revenues and cash flows from these activities.

The failure to successfully deploy products on a timely basis in this space may limit our growth and have a material adverse effect on our financial condition, operating results and business prospects.

We use hazardous materials in our business and we must comply with environmental laws and regulations.

Any claims relating to improper handling, storage or disposal of these materials or noncompliance of applicable laws and regulations could be time consuming and costly and could adversely affect our business and results of operations.

Our research and development and commercial processes involve the use of hazardous materials, including chemical, radioactive and biological materials.

Our research and development, manufacturing, and commercial processes involve the use of hazardous materials, including chemical, radioactive and biological materials, such as acetonitrile, which is used in some of our purification processes.

Our operations also produce hazardous waste.

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Although we believe that, based on our current level of operations, our existing cash, cash equivalents and equity securities will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months, we may need additional capital if our current plans and assumptions change.

Our need for additional capital will depend on many factors, including the financial success of our performance enzyme business, our spending to develop and commercialize new and existing enzyme products and the amount of collaboration funding we may receive to help cover the cost of such expenditures, 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, including the ongoing commercialization of our ECO Synthesis™ manufacturing platform , and the filing, prosecution, enforcement and defense of patent claims.

Our need for additional capital will depend on many factors, including the financial success of our performance enzyme business, our spending to develop and commercialize new and existing enzyme products and the amount of collaboration funding we may receive to help cover the cost of such expenditures, 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, including the ongoing commercialization of our ECO Synthesis™ manufacturing platform , scaling the ECO Synthesis™ manufacturing platform to GMP capability, and the filing, prosecution, enforcement and defense of patent claims.

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 enzyme 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.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations, such as funding the ongoing commercialization of our ECO Synthesis™ manufacturing platform , even if we believe we have sufficient funds for our current or future operating plans.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations, such as funding the ongoing commercialization of our ECO Synthesis™ manufacturing platform and a GMP manufacturing facility , even if we believe we have sufficient funds for our current or future operating plans.

We may seek to obtain such additional capital through equity offerings, including pursuant to the EDA, the Cantor Sales Agreement, debt financings, credit facilities and/or strategic collaborations.

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We have made acquisitions in the past, and if appropriate opportunities become available, we expect to acquire additional businesses, assets, technologies, or products to enhance our business in the future.

For example, in October 2010, we acquired substantially all of the patents and other intellectual property rights associated with Maxygen’s directed evolution technology.

For example, in October 2010, we acquired substantially all of the patents and other intellectual property rights associated with Maxygen Inc.’s directed evolution technology.

In connection with any future acquisitions, we could:

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The occurrence of any event or penalty described above may also inhibit our customers or collaborators’ ability to commercialize products and our ability to generate revenues.

In addition, the FDA’s policies, and policies of foreign regulatory agencies, may change, and additional regulations may be enacted that could prevent, limit or delay regulatory approval of product candidates.

In addition, the FDA’s policies, and policies of foreign regulatory agencies, may change, including due to judicial challenges, and additional regulations may be enacted that could prevent, limit or delay regulatory approval of product candidates.

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad.

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In addition, if we or our contract manufacturers fail to comply with REACH, we may be subject to penalties or other enforcement actions, which could have a material adverse effect on our business and results of operations.

The biopharmaceutical industry is subject to extensive regulatory obligations and policies that are subject to change, including due to judicial challenges.

On June 28, 2024, the U.S.

Supreme Court issued an opinion holding that courts reviewing agency action pursuant to the Administrative Procedure Act “must exercise their independent judgment” and “may not defer to an agency interpretation of the law simply because a statute is ambiguous.” The decision will have a significant impact on how lower courts evaluate challenges to agency interpretations of law, including those by the FDA and other agencies with significant oversight of the biopharmaceutical industry.

The new framework is likely to increase both the frequency of such challenges and their odds of success by eliminating one way in which the government previously prevailed in such cases.

As a result, significant regulatory policies will be subject to increased litigation judicial scrutiny.

Any resulting changes in regulation may result in unexpected delays, increased costs, or other negative impacts on our business that are difficult to predict.

Risks Related to Intellectual Property and Information Technology

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In addition, if any of our technology, products and services are covered by third-party patents or other intellectual property rights, we could be subject to various legal actions.

For example, we are aware of certain third-party intellectual property that does or may overlap with aspects of the Company’s technology.

We cannot assure that our technology products and/or services do not infringe, violate or misappropriate any patents or other intellectual property rights owned or controlled by others or that they will not in the future.

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We have adopted a strategy of seeking patent protection in the United States and in foreign countries with respect to certain of the technology used in or relating to our products, services, and processes.

As such, as of March 31, 2024 , we owned or controlled approximately 2,095 active issued patents and pending patent applications in the United States and in various foreign jurisdictions.

As of March 31, 2024 , our patents and patent applications, if issued, have terms that expire between 2024 and approximately 2045.

As such, as of June 30, 2024, we owned or controlled approximately 1,990 active issued patents and pending patent applications in the United States and in various foreign jurisdictions.

As of June 30, 2024, our patents and patent applications, if issued, have terms that expire between 2024 and approximately 2045.

We also have license rights to a number of issued patents and pending patent applications in the United States and in various foreign jurisdictions.

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Any potential intellectual property litigation also could force us to do one or more of the following:

• stop making, using, selling or importing our technologies, products and services that use the subject intellectual property;

• stop making, using, selling, offering for sale or importing our technologies, products and services that use the subject intellectual property;

• pay monetary damages to the third party asserting claims against us;

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Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions.

Recently, the closures of Silicon Valley Bank (“SVB”) and Signature Bank (“Signature”) and their placement into receivership with the Federal Deposit Insurance Corporation, and the government-brokered sale of the deposits and majority of assets of First Republic Bank to JPMorgan Chase, created bank-specific and broader financial institution liquidity risk and concerns.

During 2023, the closures of Silicon Valley Bank (“SVB”) and Signature Bank (“Signature”) and their placement into receivership with the Federal Deposit Insurance Corporation, and the government-brokered sale of the deposits and majority of assets of First Republic Bank to JPMorgan Chase, created bank-specific and broader financial institution liquidity risk and concerns.

Although government intervention ensured that depositors at these banks have access to their funds, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs, and create additional market and economic uncertainty.

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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 1A. Risk Factors