CODEXIS, INC. 10-Q

Item 1. Financial Statements Codexis, Inc. Condensed Consolidated Balance Sheets (Unaudited) (In Thousands, Except Per Share Amounts) September 30, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 37,452 $ 65,116 Restricted cash, current 514 519 Short-term investments 52,803 — Financial assets: Accounts receivable 9,721 10,036 Contract assets 3,424 815 Unbilled receivables 3,460 9,142 Total financial assets 16,605 19,993 Less: allowances ( 65 ) ( 65 ) Total financial assets, net 16,540 19,928 Inventories 2,103 2,685 Prepaid expenses and other current assets 3,490 5,218 Total current assets 112,902 93,466 Restricted cash 1,062 1,062 Investment in non-marketable equity securities 5,790 9,700 Right-of-use assets - Operating leases, net 10,772 13,137 Property and equipment, net 13,266 15,487 Goodwill 2,463 2,463 Other non-current assets 1,928 1,246 Total assets $ 148,183 $ 136,561 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 4,212 $ 5,947 Accrued compensation 10,320 11,246 Other accrued liabilities 6,505 4,735 Current portion of lease obligations - Operating leases 4,081 3,781 Deferred revenue 10,011 10,121 Total current liabilities 35,129 35,830 Deferred revenue, net of current portion 610 640 Long-term lease obligations - Operating leases 9,134 12,243 Long-term debt 28,631 — Other long-term liabilities 1,279 1,233 Total liabilities 74,783 49,946 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; 81,376 shares and 69,905 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively 8 7 Additional paid-in capital 625,696 584,138 Accumulated other comprehensive income 126 — Accumulated deficit ( 552,430 ) ( 497,530 ) Total stockholders' equity 73,400 86,615 Total liabilities and stockholders' equity $ 148,183 $ 136,561 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, 2024 2023 2024 2023 Revenues: Product revenue $ 11,158 $ 5,395 $ 26,968 $ 24,807 Research and development revenue 1,675 3,882 10,917 18,775 Total revenues 12,833 9,277 37,885 43,582 Costs and operating expenses: Cost of product revenue 4,317 2,249 12,634 9,947 Research and development 11,505 13,662 34,164 47,651 Selling, general and administrative 13,568 12,302 42,100 41,066 Restructuring charges — 3,140 — 3,284 Asset impairment and other charges — 9,984 165 9,984 Total costs and operating expenses 29,390 41,337 89,063 111,932 Loss from operations ( 16,557 ) ( 32,060 ) ( 51,178 ) ( 68,350 ) Interest income 849 1,056 2,730 3,266 Interest and other expense, net ( 4,922 ) ( 3,895 ) ( 6,421 ) ( 3,930 ) Loss before income taxes ( 20,630 ) ( 34,899 ) ( 54,869 ) ( 69,014 ) Provision for income taxes 10 9 31 34 Net loss $ ( 20,640 ) $ ( 34,908 ) $ ( 54,900 ) $ ( 69,048 ) Net loss per share, basic and diluted $ ( 0.29 ) $ ( 0.50 ) $ ( 0.78 ) $ ( 1.02 ) Weighted average common stock shares used in computing net loss per share, basic and diluted 72,032 69,466 70,759 67,670 See accompanying notes to the unaudited condensed consolidated financial statements. 4 Codexis, Inc. Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (In Thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net loss $ ( 20,640 ) $ ( 34,908 ) $ ( 54,900 ) $ ( 69,048 ) Other comprehensive gain: Unrealized gain on available-for-sale short-term investments, net of tax 149 — 126 — Comprehensive loss $ ( 20,491 ) $ ( 34,908 ) $ ( 54,774 ) $ ( 69,048 ) 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 Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Three Months Ended September 30, 2024 Shares Amount Balance as of July 1, 2024 70,914 $ 7 $ 593,253 $ ( 23 ) $ ( 531,790 ) $ 61,447 Issuance of common stock upon release of stock awards 22 — — — — — Issuance of common stock in connection with an equity sales agreement, net of issuance costs of $ 1,584 10,440 1 29,735 — — 29,736 Stock-based compensation — — 2,708 — — 2,708 Net Loss — — — — ( 20,640 ) ( 20,640 ) Other comprehensive gain — — — 149 — 149 Balance as of September 30, 2024 81,376 $ 8 $ 625,696 $ 126 $ ( 552,430 ) $ 73,400 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income 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 Issuance of common stock upon release of stock awards 23 — — — — — 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 See accompanying notes to the unaudited condensed consolidated financial statements. 6 Codexis, Inc. Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (In Thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity Nine Months Ended September 30, 2024 Shares Amount Balance as of January 1, 2024 69,905 $ 7 $ 584,138 $ — $ ( 497,530 ) $ 86,615 Issuance of common stock upon exercise of stock options 73 — 143 — — 143 Issuance of common stock upon release of stock awards 834 — — — — — Issuance of common stock warrants in connection with debt issuance — — 859 — — 859 Issuance of common stock under employee stock purchase plan 124 — 260 — — 260 Issuance of common stock in connection with an equity sales agreement, net of issuance costs of $ 1,584 10,440 1 29,735 — — 29,736 Stock-based compensation — — 10,561 — — 10,561 Net Loss — — — ( 54,900 ) ( 54,900 ) Other comprehensive gain — — — 126 — 126 Balance as of September 30, 2024 81,376 $ 8 $ 625,696 $ 126 $ ( 552,430 ) $ 73,400 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income 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 Issuance of common stock upon exercise of stock options 214 — 422 — — 422 Issuance of common stock upon release of stock awards 787 — — — — — Issuance of common stock in connection with an equity sales agreement, net of issuance costs of $ 721 3,080 — 7,931 — — 7,931 Stock-based compensation — — 7,808 — — 7,808 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 See accompanying notes to the unaudited condensed consolidated financial statements. 7 Codexis, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In Thousands) Nine Months Ended September 30, 2024 2023 Operating activities: Net loss $ ( 54,900 ) $ ( 69,048 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,737 4,302 Reduction in the carrying amount of right-of-use assets 2,364 3,647 Stock-based compensation 10,561 7,808 Asset impairment and other charges 165 9,984 Impairment of investment in non-marketable equity securities 3,910 3,875 Equity securities earned from research and development activities — ( 187 ) Non-cash interest expense 611 — Amortization of discount on short-term investments ( 1,009 ) — Other non-cash items 11 ( 3 ) Changes in operating assets and liabilities: Financial assets 2,818 21,580 Inventories 582 ( 276 ) Prepaid expenses and other assets 1,417 ( 252 ) Accounts payable ( 1,339 ) ( 105 ) Accrued compensation and other accrued liabilities 1,334 ( 7,269 ) Other long-term liabilities ( 3,064 ) ( 4,384 ) Deferred revenue ( 140 ) ( 11,273 ) Net cash used in operating activities ( 32,942 ) ( 41,601 ) Investing activities: Purchase of property and equipment ( 2,531 ) ( 4,798 ) Proceeds from sale of property and equipment 84 27 Purchases of short-term investments ( 72,643 ) — Proceeds from maturity of short-term investments 19,000 — Proceeds from sale of short-term investments 1,973 — Investment in non-marketable securities — ( 1,191 ) Net cash used in investing activities ( 54,117 ) ( 5,962 ) Financing activities: Proceeds from exercises of stock options 281 422 Proceeds from issuance of stock under employee stock purchase plan 525 — Proceeds from issuance of common stock in connection with equity sales agreements 31,320 8,652 Costs incurred in connection with equity sales agreements ( 1,615 ) ( 503 ) Proceeds from long-term debt 29,521 — Payment of debt issuance costs ( 642 ) — Taxes paid related to net share settlement of equity awards — ( 404 ) Net cash provided by financing activities 59,390 8,167 Net decrease in cash, cash equivalents and restricted cash ( 27,669 ) ( 39,396 ) Cash, cash equivalents and restricted cash at the beginning of the period 66,697 116,026 Cash, cash equivalents and restricted cash at the end of the period $ 39,028 $ 76,630 8 Supplemental disclosure of cash flow information: Interest paid $ 1,633 $ 28 Income taxes paid $ 17 $ 193 Supplemental non-cash investing and financing activities: Capital expenditures incurred but not yet paid $ 249 $ 159 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, 2024 and 2023 to the total of the same such amounts shown above in the unaudited condensed consolidated statements of cash flows: September 30, 2024 2023 Cash and cash equivalents $ 37,452 $ 74,577 Restricted cash, current and non-current 1,576 2,053 Total cash, cash equivalents and restricted cash $ 39,028 $ 76,630 This table excludes short-term investments of $ 52.8 million as of September 30, 2024. Total cash, cash equivalents, and short-term investments as of September 30, 2024 were $ 90.3 million. See accompanying notes to the unaudited condensed consolidated financial statements. 9 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,” “Codexis,” “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 technology platform. We previously managed our business as two business segments, Performance Enzymes and Novel Biotherapeutics. During the third and fourth quarters of 2023, we made changes to the structure of our organization in connection with the restructuring of our business that we announced in July 2023, including the discontinuation of investment in certain development programs, primarily in our biotherapeutics business, consolidation of operations to our Redwood City, California headquarters, and headcount reduction. In connection with these organizational structure changes, corresponding changes were made to how our business is managed, how results are reported internally and how our Chief Executive Officer (“CEO”), our chief operating decision maker, assesses performance and allocates resources. As a result of these changes, our previous Performance Enzymes and Novel Biotherapeutics operating segments were combined into a single reportable segment. Effective October 1, 2023, the Company's operations are managed and reported to the CEO on a consolidated basis. The CEO assesses performance and allocates resources based on the consolidated results of operations. We believe that these changes better align internal resources to create a more efficient and effective organizational structure. Under this new organizational and reporting structure, we managed our business as one reportable segment as of December 31, 2023. Comparative prior period disclosures that reflected the previous two segments' information have been revised to conform to this change in our reportable segment. 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, 2023. The condensed consolidated balance sheet at December 31, 2023 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, 2024 and 2023, are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 2023 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, 2023. 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, 2024 and results of operations for the interim periods presented. 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, 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 condensed consolidated financial statements. 10 Short-term Investments We classify all marketable debt securities that have effective maturities of three months or less from the date of purchase as cash equivalents and those with effective maturities of greater than three months as short-term investment securities in the condensed consolidated balance sheets. We determine the appropriate classification of our short-term investments at the time of purchase and reevaluate such designation at each balance sheet date. We have classified and accounted for our short-term investments as available-for-sale. After consideration of our risk versus reward objectives, as well as our liquidity requirements, we may sell these debt securities prior to their effective maturities. We carry these short-term investments at fair value, and report the unrealized gains and losses, net of taxes, as a component of stockholders’ equity, except for the changes in allowance for expected credit losses, which are included in “Interest and other expense, net” in the unaudited condensed consolidated statements of operations. We determine any realized gains or losses on the sale of short-term investments on a specific identification method, and we record such gains and losses as a component of interest income. Short-term investments are reviewed periodically for allowances for credit losses and impairment. When evaluating the investments, the Company reviews factors such as the extent to which the fair value of the security is less than the amortized cost basis, adverse conditions specifically related to the security, the financial condition of the issuer, the Company’s intent to sell, and whether it would be more likely than not that the Company would be required to sell the investments before the recovery of the amortized cost basis. 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 measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. 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. There were no assets classified as held for sale as of September 30, 2024 and December 31, 2023. Accounting Pronouncements Recently adopted accounting pronouncements There were no recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended September 30, 2024, that are of significance or potential significance to us. Recently issued accounting pronouncements not yet adopted In March 2024, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements . This ASU amends the FASB Accounting Standard Codification (the “ASC”) to remove references to various concepts statements and impacts a variety of topics in the ASC. This ASU is effective for public companies with annual periods beginning after December 15, 2024, with early adoption permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the effects of the standard on our consolidated financial statements and related disclosures. 11 In December 2023, FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amendments in the ASU require public companies, on an annual basis, to provide disclosures of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. This ASU is effective for public companies with annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the effects of the standard on our consolidated financial statements and related disclosures. In November 2023, FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The standard should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the effects of the standard on our consolidated financial statements and related disclosures. In October 2023, FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative . The amendments in the ASU are intended to amend certain disclosure and presentation requirements for a variety of topics within the ASC. These amendments align the requirements in the ASC to the removal of certain disclosure requirements set out in Regulation S-X and Regulation S-K, as announced by the SEC. The effective date for each amended topic in the ASC is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirements by that date. Early adoption is prohibited. We are currently evaluating the effects of the standard on our consolidated financial statements and related disclosures. Note 3. Revenue Recognition Disaggregation of Revenue The following table provides information about disaggregated revenue from contracts with customers by g eographic regions. 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). Disaggregated information is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Primary geographical markets: Americas $ 1,534 $ 4,278 $ 9,823 $ 10,798 EMEA 2,229 3,191 6,768 14,630 APAC 9,070 1,808 21,294 18,154 Total revenues $ 12,833 $ 9,277 $ 37,885 $ 43,582 Contract Balances The following table presents balances of contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands): September 30, 2024 December 31, 2023 Contract assets $ 3,424 $ 815 Unbilled receivables $ 4,793 $ 9,904 Contract liabilities: deferred revenue $ 10,621 $ 10,761 We had no asset impairment charges related to financial assets in the three and nine months ended September 30, 2024 and 2023. The increase in contract assets was primarily due to increases in product revenue from contracts subject to over time revenue recognition. The decrease in unbilled receivables was primarily due to the timing of billings. The decrease in deferred revenue was primarily due to the timing of recognition of revenue. 12 As of September 30, 2024, we have $ 3.5 million of short-term unbilled receivables presented as unbilled receivables within current assets and $ 1.3 million of long-term unbilled receivables that is included within the other non-current assets line item in the condensed consolidated balance sheets. As of December 31, 2023 , we had $ 9.1 million of short-term unbilled receivables presented as unbilled receivables within current assets and $ 0.8 million of long-term unbilled receivables that is included within the other non-current assets line item in the condensed consolidated balance sheets. We recognized the following revenues (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Revenue recognized in the period for: 2024 2023 2024 2023 Amounts included in contract liabilities at the beginning of the period: Performance obligations satisfied $ — $ 1,303 $ 475 $ 9,111 Changes in the period: Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods 146 1,018 ( 446 ) 4,238 Performance obligations satisfied from new activities in the period - contract revenue 12,687 6,956 37,856 30,233 Total revenues $ 12,833 $ 9,277 $ 37,885 $ 43,582 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, 2024. The balances in the table below a re 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, 2024 (in thousands): Remainder of 2024 2025 2026 2027 and Thereafter Total Product revenue $ 9,981 $ 140 $ 140 $ 360 $ 10,621 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, 2024 2023 2024 2023 Shares issuable under the Equity Incentive Plan and ESPP 12,931 8,873 12,931 8,873 Warrants (1) 424 — 424 — Total potentially dilutive securities 13,355 8,873 13,355 8,873 (1) Pertains to the warrants issued in connection with the Innovatus Loan. For additional information, see Note 11, “Debt.” 13 Note 5. Investments in Non-Marketable Securities Non-Marketable Equity Securities Our non-marketable equity securities are investments in privately held companies without readily determinable market value and primarily relate to our investments in Molecular Assemblies, Inc. (“MAI”) and seqWell, Inc. (“seqWell”). 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 interest and other expense, net in the unaudited condensed consolidated statements of operations. For the three and nine months ended September 30, 2024, we recognized an impairment charge of $ 3.9 million which is presented within interest and other expense, net in the condensed consolidated statements of operations. This adjustment is related to the write-down of our investment in MAI to its related fair value as determined based on valuation methods using the latest observed transaction price of MAI’s preferred stock securities to be issued during the fourth quarter of 2024 and adjusted for the rights and obligations of the preferred stock securities the Company holds. There was no remeasurement event for our investments in seqWell and other non-marketable equity securities that occurred during the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, we recognized an impairment charge of $ 3.9 million and included this as an adjustment to the carrying value of our investments in seqWell and Arzeda Corp. (“Arzeda”). This adjustment, which is presented within interest and other 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 their estimated fair values as determined based on valuation methods using the recent transaction price of similar p referred stock securities issued by the investees and adjusted for the rights and obligations of the preferred stock securities the Company holds. We recognized no realized gains or losses during the three and nine months ended September 30, 2024 and 2023. The following table presents the carrying value of our non-marketable equity securities (in thousands): September 30, 2024 December 31, 2023 MAI $ 2,783 $ 6,693 seqWell 2,625 2,625 Other investments in non-marketable equity securities 382 382 Total non-marketable equity securities $ 5,790 $ 9,700 14 Note 6. Fair Value Measurements The following tables show the Company’s cash, cash equivalents, and short-term investments by significant investment category as of September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Short-term Investments Cash $ 7,359 $ — $ — $ 7,359 $ 7,359 $ — Level 1: Money market funds 30,093 — — 30,093 30,093 — Level 2 (1) : Commercial paper 8,416 7 — 8,423 — 8,423 Corporate debt 8,723 14 ( 2 ) 8,735 — 8,735 U.S. agency securities 1,983 9 — 1,992 — 1,992 U.S. treasury securities 33,555 98 — 33,653 — 33,653 Subtotal 52,677 128 ( 2 ) 52,803 — 52,803 Total $ 90,129 $ 128 $ ( 2 ) $ 90,255 $ 37,452 $ 52,803 (1) The valuation techniques used to measure the fair values of the Company’s Level 2 financial instruments uses inputs that are either directly or indirectly observable for the asset through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. December 31, 2023 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Cash and Cash Equivalents Short-term Investments Cash $ 8,742 $ — $ — $ 8,742 $ 8,742 $ — Level 1: Money market funds 56,374 — — 56,374 56,374 — Total $ 65,116 $ — $ — $ 65,116 $ 65,116 $ — We limit the credit risk associated with our cash equivalents and short-term investments by placing them with banks and institutions we believe are highly credit-worthy and investing in highly-rated investments. As of September 30, 2024, and December 31, 2023, the contractual maturity of all investments held was less than one year. During the three and nine months ended September 30, 2024 and 2023, we did no t recognize any significant credit losses no r other-than-temporary impairment losses on our short-term investments. Note 7. Balance Sheets Details Inventories Inventories consisted of the following (in thousands): September 30, 2024 December 31, 2023 Raw materials $ — $ 108 Work-in-process 36 7 Finished goods 2,067 2,570 Total Inventories $ 2,103 $ 2,685 Prepaid expenses and other current assets As of September 30, 2024, prepaid expenses and other current assets consisted of prepaid expenses of $ 3.2 million and other current assets of $ 0.3 million. As of December 31, 2023, prepaid expenses and other current assets consisted of prepaid expenses of $ 4.6 million and other current assets of $ 0.6 million. 15 Property and Equipment, net Property and equipment, net consisted of the following (in thousands): September 30, 2024 December 31, 2023 Laboratory equipment $ 36,468 $ 37,216 Leasehold improvements 12,086 11,912 Computer equipment and software 2,675 2,565 Office equipment and furniture 1,131 1,469 Construction in progress 1,629 1,636 Property and equipment 53,989 54,798 Less: accumulated depreciation and amortization ( 40,723 ) ( 39,311 ) Property and equipment, net $ 13,266 $ 15,487 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, 2024 2023 2024 2023 Research and development $ 965 $ 1,121 $ 3,017 $ 3,606 Selling, general and administrative 219 236 658 696 Total depreciation expense $ 1,184 $ 1,357 $ 3,675 $ 4,302 Other Accrued Liabilities Other accrued liabilities consisted of the following (in thousands): September 30, 2024 December 31, 2023 Accrued purchases $ 3,291 $ 1,402 Accrued professional and outside service fees 2,810 2,330 Other 404 1,003 Total other accrued liabilities $ 6,505 $ 4,735 Note 8. Stock-based Compensation Equity Incentive Plans In August 2024, our board of directors (the “Board”) approved the 2024 Employment Inducement Award Plan (the “2024 Inducement Plan”) which provides for the grant of non-qualified stock options, RSAs, restricted stock units (“RSUs”), and performance awards to eligible employees with respect to an aggregate of up to 1,000,000 shares of our common stock. Employee Stock Purchase Plan In April 2023, the Board approved an employee stock purchase plan (as may be amended from time to time, the “ESPP”) which became effective upon approval at the Annual Meeting in June 2023. The ESPP allows eligible employees of the Company to purchase shares of our common stock through payroll deductions. Offering periods are generally over a 24 -month period and begin in May and November of each year. 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. The first offering period of the ESPP commenced in December 2023. 16 For the three and nine months ended September 30, 2024, nil and 123,889 shares of our common stock were purchased under the ESPP, respectively. As of September 30, 2024, 1,876,111 shares of common stock were available for future issuance under the ESPP. We recognized $ 0.1 million and $ 0.2 million of stock-based compensation expenses related to the ESPP for the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, the total unrecognized stock-based compensation expense, net of expected forfeitures, related to the ESPP was $ 0.6 million and is expected to be recognized over the remaining offering period. Stock Options 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 . In January 2024, the Board approved the grants of stock options with a vesting term over three years from the date of grant, of which 33 % vest at the end of one year , and 67 % vest monthly over the remaining two years . Restricted Stock Units (“RSUs”) We also grant employees RSUs, which generally vest over either a period with 33 % of the shares subject to the RSUs vesting on each yearly anniversary of the vesting commencement date, in each case contingent upon such employee’s continued service on such vesting date. We may grant RSUs with different vesting terms from time to time. 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, 2024 2023 2024 2023 Cost of product revenue $ 93 $ 60 $ 309 $ 272 Research and development 690 450 2,151 1,978 Selling, general and administrative 1,925 1,773 8,101 5,558 Total $ 2,708 $ 2,283 $ 10,561 $ 7,808 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, 2024 2023 2024 2023 Stock options $ 1,506 $ 1,017 $ 5,137 $ 3,035 RSUs and RSAs 1,109 942 3,578 3,441 Performance-contingent restricted stock units (“PSUs”) — 292 247 1,408 Performance based options (“PBOs”) — 32 1,357 ( 76 ) ESPP 93 — 242 — Total $ 2,708 $ 2,283 $ 10,561 $ 7,808 On June 29, 2024, we entered into an Advisory Services Agreement with a former executive of the Company. Pursuant to the advisory agreement, the exercise period for the former executive’s vested stock options and performance-based options was also extended. The modification resulted in a stock-based compensation expense of $ 2.0 million recognized in selling, general and administrative expenses during the nine months ended September 30, 2024. As of September 30, 2024, unrecognized stock-based compensation expense, net of expected forfeitures, was $ 12.0 million related to unvested stock options, and $ 5.0 million related to unvested RSUs and RSAs. Stock-based compensation expense for these awards will be recognized through 2028. 17 Note 9. Capital Stock Exercise of Options For the nine months ended September 30, 2024 and September 30, 2023, we issued 72,856 and 214,284 shares, respectively, upon option exercises at a weighted-average exercise price of $ 1.97 per share, with net cash proceeds of $ 0.1 million and $ 0.4 million, respectively. Sales Agreements In May 2021, we filed a Registration Statement on Form S-3 with the SEC (the “2021 Registration Statement”), that automatically became effective upon its filing, under which we were permitted to 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 the 2021 Registration Statement. 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 determined from time to time, may have sold 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 was permitted to sell the shares at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). We were not required to sell any shares at any time during the term of the EDA. On April 24, 2024, we terminated the EDA. No shares of our common stock were issued and sold pursuant to the EDA during the three and nine months ended September 30, 2024. During the three and nine months ended September 30, 2023, nil and 3,079,421 shares of our common stock, respectively, were issued and sold pursuant to the EDA and we received gross proceeds of nil and $ 8.7 million, or nil and $ 7.9 million in net proceeds after PSC's commissions and direct offering expenses of nil and $ 0.7 million, respectively. 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. On May 2, 2024, we filed a registration statement on Form S-3 registering the offer and sale of these shares under the Securities Act which became effective on May 14, 2024. We will pay a commission of up to 3.0 % of gross sales proceeds of any common stock sold under the Cantor Sales Agreement. During the three and nine months ended September 30, 2024, 10,440,000 shares of our common stock were issued and sold pursuant to the Cantor Sales Agreement and we received gross proceeds of $ 31.3 million , or $ 29.7 million in net proceeds after Cantor’s commissions and direct offering expenses of $ 1.6 million . As of September 30, 2024, $ 43.7 million remained available for sale under the Cantor Sales Agreement. Note 10. Commitments and Contingencies Lease and other information The Company has entered into operating leases primarily for office and laboratory space. Lease cost amounts included in the measurement of lease obligations and other information related to non-cancellable operating leases were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Operating lease costs (1) $ 1,032 $ 1,618 $ 3,097 $ 5,278 (1) The Company had no variable lease costs. Other information: Operating Leases Weighted-average remaining lease term (in years) 3.1 years Weighted-average discount rate 6.6 % 18 Nine Months Ended September 30, Cash paid (in thousands): 2024 2023 Operating cash flows from operating leases $ 3,542 $ 5,668 As of September 30, 2024, our maturity analysis of annual undiscounted cash flows of the non-cancellable operating leases are as follows (in thousands): Years Ending December 31, Operating Leases 2024 (remaining 3 months) $ 1,184 2025 4,868 2026 5,014 2027 2,533 2028 760 Thereafter 318 Total minimum lease payments 14,677 Less: imputed interest 1,462 Lease obligations $ 13,215 Reconciliation of operating lease liabilities as shown within the unaudited condensed consolidated balance sheets (in thousands): Current portion of lease obligations - Operating leases $ 4,081 Long-term lease obligations - Operating leases 9,134 Total operating lease liabilities $ 13,215 In July 2023, we announced our plan to consolidate operations from our previous 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”) to assign to Vaxcyte all of the Company’s right, title and interest in, under and to the San Carlos facility and the Lease Agreement, dated as of January 29, 2021. On September 6, 2023, the Company, Vaxcyte and ARE-San Francisco No. 63, LLC (“ARE”) entered into a Consent to Assignment and First Amendment 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. The effective date of the assignment was October 1, 2023. As a result of the Assignment Agreement, the Company remeasured the lease obligation for the San Carlos facility to its present value of $ 3.1 million 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 impacts the utilization of the related right of use assets and leasehold improvements in the San Carlos facility, 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, during the third quarter of 2023, the Company recognized a non-cash impairment charge of $ 7.7 million, of which $ 4.7 million was 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. As part of the plan, the Company entered into agreements to sell certain laboratory equipment previously located in the San Carlos facility through an asset auction and as part of the lease assignment of the San Carlos facility to Vaxcyte. These certain items of laboratory equipment met the assets held for sale criteria and were sold during the fourth quarter of 2023. Using a fair value estimate based of Level 3 inputs in the fair value hierarchy, the Company determined that the carrying value of these assets exceeds fair value less costs to sell, which resulted in a write-down of $ 1.5 million, presented within the asset impairment and other charges line item in the consolidated statements of operations for the three and nine months ended September 30, 2023. 19 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. Commitments under service agreements are typically 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 2024 (Remaining 3 Months) 2025 and Thereafter Facility maintenance agreement $ 281 $ 281 $ — 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 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. We are not currently a party to any material pending litigation or other material legal proceedings that management believes could have a material adverse effect on our financial statements. 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. Debt Innovatus Loan Agreement On February 13, 2024 (the “Closing Date”), we entered into a five -year term loan and security agreement (the “Loan Agreement”) with Innovatus Life Sciences Lending Fund I, LP (“Innovatus”), an affiliate of Innovatus Capital Partners, LLC, for an aggregate principal amount of up to $ 40.0 million and with a maturity date of February 13, 2029 (the “Innovatus Loan”). The Innovatus Loan consists of two tranches, of which the first tranche of $ 30.0 million was funded on February 13, 2024. We will be eligible to draw down the second tranche of $ 10.0 million upon achievement of certain milestones including pre-specified revenue thresholds. The floating per annum interest rate of the Innovatus Loan is equal to the sum of (a) the greater of (i) prime rate published in the Money Rates section of the Wall Street Journal and (ii) 7.50 % , plus (b) 3.25 %; provided that, at the election of the Company, up to 2.0 % of such rate shall be payable in-kind until the third anniversary of the closing date. The Company is required to make monthly interest-only payments through February 1, 2027, after which the Company is required to make monthly amortizing payments, with the remaining balance of the principal plus accrued and unpaid interest due at maturity. 2.0 % of the interest is payable in-kind for the first three years of the term by increasing the principal balance. Prepayments of the loan, in whole or in part, will be subject to an early prepayment fee which ranges between 3.0 % and 1.0 % and declines each year until the third anniversary date of the Closing Date, after which no prepayment fee is required. The Company is also required to pay an exit fee upon any payment or prepayment equal to 3.0 % of the aggregate principal amount of the tranches funded under the Innovatus Loan. The Innovatus Loan contains customary representations and warranties and covenants, subject to customary carve outs, and includes financial covenants related to liquidity and net product revenue, with the latter beginning with the period ended September 30, 2024. The Innovatus Loan is secured by perfected first priority liens on the Company's assets, including a commitment by the Company to not allow any liens to be placed upon the Company's intellectual property. 20 In connection with the issuance of the Innovatus Loan, we recorded a debt discount of $ 1.3 million and capitalized debt issuance costs of $ 0.6 million . The discount and issuance costs will be amortized over the life of the Innovatus Loan. Interest expense for the Innovatus Loan for the three and nine months ended September 30, 2024 was $ 1.0 million and $ 2.5 million respectively, and is inclusive of non-cash amortization of the debt discount, debt issuance costs, payable in-kind interest, and accretion of final payment. The carrying amount of the Innovatus Loan approximates fair value given its recent issuance and the interest rate is based on the current prime rate. The effective interest rate for the Innovatus Loan was 13.5 % as of September 30, 2024 . Additionally, in connection with entering into the Innovatus Loan, we entered into a Warrant Agreement with Innovatus on February 13, 2024 and issued to Innovatus a warrant to purchase an aggregate of 424,028 shares of the Company’s common stock at an exercise price of $ 2.83 per share. The warrants may be exercised on a cashless basis, and are immediately exercisable through the 10th anniversary of the issuance date. At the time of issuance, the Company determined the estimated fair value of the warrants of $ 0.9 million using the Black-Scholes model. As the warrants represent a freestanding equity instrument, the Company recorded the fair value of the warrants in additional paid-in capital during the first quarter of 2024 . The Company accounts for the amortization of the debt discount and issuance costs utilizing the effective interest method. Long-term debt consisted of the following at September 30, 2024 (in thousands): September 30, 2024 Face value of debt $ 30,000 Add: payment in-kind interest 332 Add: amortized exit fee 87 Less: unamortized debt discount ( 1,208 ) Less: unamortized debt issuance costs ( 580 ) Total long-term debt $ 28,631 The future principal payments under the Innovatus Loan are as follows (in thousands): Years Ending December 31, 2024 $ — 2025 — 2026 — 2027 13,264 2028 15,917 2029 2,653 Total principal payments 31,834 Add: amortized exit fee 87 Less: uncapitalized payment in-kind interest ( 1,502 ) Less: unamortized debt issuance fee ( 1,208 ) Less: unamortized debt issuance costs ( 580 ) Total long-term debt $ 28,631 Note 12. Segment, Geographical and Other Revenue Information Segment Information We previously managed our business as two business segments, Performance Enzymes and Novel Biotherapeutics. During the third and fourth quarters of 2023, we made changes to the structure of our organization in connection with the restructuring of our business that we announced in July 2023, including the discontinuation of investment in certain development programs, primarily in our biotherapeutics business, consolidation of operations to our Redwood City, California headquarters, and headcount reduction. In connection with these organizational structure changes, corresponding changes were made to how our business is managed, how results are reported internally and how our CEO, our chief operating decision maker, assesses performance and allocates resources. As a result of these changes, our previous Performance Enzymes and Novel Biotherapeutics operating segments were combined into a single reportable segment. 21 Effective October 1, 2023, the Company's operations are managed and reported to the CEO on a consolidated basis. The CEO assesses performance and allocated resources based on the consolidated results of operations. We believe that these changes better align internal resources and external go to market activities in order to create a more efficient and effective organizational structure. Under this new organizational and reporting structure, we managed our business as one reportable segment as of December 31, 2023. Com parative prior period disclosures that reflected the previous two segments' information have been revised to conform to this change in our reportable segment. As a result of the restructuring of our business, the Company determined that a triggering event had occurred that required an interim goodwill impairment test during the third quarter of 2023. The fair value estimate used in the interim goodwill impairment test was primarily based on Level 3 inputs in the fair value hierarchy. 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 asset impairment and other charges in the condensed consolidated statements of operation for the three and nine months ended September 30, 2023 . 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, 2024 2023 2024 2023 Customer A 18 % * 17 % 10 % Customer B 17 % * 10 % * Customer C 11 % * * * Customer D 11 % * * * Customer E * * * 15 % Customer F * 20 % * * Customer G * * 16 % * Customer H * * * 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, 2024 December 31, 2023 Customer A * 12 % Customer B 21 % 12 % Customer D 15 % 13 % Customer I 15 % * Customer J 12 % * Customer K * 21 % * Percentage was less than 10% Identifiable long-lived assets by location was as follows (in thousands): September 30, 2024 December 31, 2023 United States $ 24,277 $ 28,624 22