Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 28, 2024 (the “Annual Report”). This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include, but are not limited to, expectations regarding our strategy, business plans, financial performance and developments relating to our industry. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part II, Item 1A: “Risk Factors” of this Quarterly Report on Form 10-Q and Part I, Item 1A: “Risk Factors” of our Annual Report, as incorporated herein and referenced in Part II, Item 1A: “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. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
Business Overview
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. 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 ” ) and other RNA-based 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 September 30, 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.
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Recent Developments
Entered into licensing agreement for genomics life science enzyme portfolio with Alphazyme LLC
On October 1, 2024, we announced that we entered into a non-exclusive commercial and manufacturing license agreement with Alphazyme LLC, part of Maravai LifeSciences, for multiple enzymes in Codexis’ life science enzyme portfolio. The agreement includes licenses for certain commercially available enzymes and certain enzymes that were in development directed towards genomics and diagnostics applications prior to the Company’s strategic shift announced in July 2023. Under the terms of the agreement, Codexis is eligible to receive sales-based royalties.
Strengthened management team with new appointments
On October 2, 2024, we announced the appointment of Georgia Erbez as our new Chief Financial Officer, replacing Sriram Ryali in such role, effective September 30, 2024. We also announced the appointment of Alison Moore, Ph.D., to the newly created role of Chief Technical Officer effective September 30, 2024. In connection with her appointment as Chief Technical Officer, Dr. Moore resigned from the Board and its committees, effective September 30, 2024. On October 22, 2024, we announced that we entered into a separation and consulting agreement with Mr. Ryali, pursuant to which Mr. Ryali will provide transitional consulting services on an as-needed basis until February 28, 2025.
Significant Collaborative Arrangements Update
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 received an upfront payment, and will receive future potential milestone payments and net-sales based royalties. We recognized $5.0 million in research and development revenue during the fourth quarter of 2023 related to the Acquisition Agreement, with the $5.0 million upfront fee received in January 2024.
Pfizer Enzyme Supply Agreement
We are a party to an Enzyme Supply Agreement (the “Pfizer Supply Agreement”), with Pfizer Ireland Pharmaceuticals, a subsidiary of Pfizer, Inc. (“Pfizer”), 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 in the second quarter of 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. 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.
No product revenue was recognized from the Pfizer Supply Agreement during the three and nine months ended September 30, 2024 and 2023. As of September 30, 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 (the “Nestlé 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.
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. Both the Nestlé SCA and development agreement were terminated under the terms of the CDX-7108 Acquisition Agreement with Nestlé Health Science.
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Both the Nestlé SCA and the development agreement were terminated under the Nestlé Acquisition Agreement. Under the Nestlé SCA and the development agreement, we recognized nil in research and development fees for the three and nine months ended September 30, 2024, compared to $0.6 million and $4.1 million for the three and nine months ended September 30, 2023, respectively.
License Agreement
In February 2024, 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 received upfront and technical milestone payments. This deal superseded the prior exclusive license on the EvoT4™ DNA ligase. We recognized research and development revenue of $6.0 million during the first quarter of 2024 related to the license agreement.
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
2024 2023 $ % 2024 2023 $ %
Revenues:
Product revenue $ 11,158 $ 5,395 $ 5,763 107 % $ 26,968 $ 24,807 $ 2,161 9 %
Research and development revenue 1,675 3,882 (2,207) (57) % 10,917 18,775 (7,858) (42) %
Total revenues 12,833 9,277 3,556 38 % 37,885 43,582 (5,697) (13) %
Costs and operating expenses:
Cost of product revenue 4,317 2,249 2,068 92 % 12,634 9,947 2,687 27 %
Research and development 11,505 13,662 (2,157) (16) % 34,164 47,651 (13,487) (28) %
Selling, general and administrative 13,568 12,302 1,266 10 % 42,100 41,066 1,034 3 %
Restructuring charges — 3,140 (3,140) (100) % — 3,284 (3,284) (100) %
Asset impairment and other charges — 9,984 (9,984) (100) % 165 9,984 (9,819) (98) %
Total costs and operating expenses 29,390 41,337 (11,947) (29) % 89,063 111,932 (22,869) (20) %
Loss from operations (16,557) (32,060) 15,503 (48) % (51,178) (68,350) 17,172 (25) %
Interest income 849 1,056 (207) (20) % 2,730 3,266 (536) (16) %
Interest and other expense, net
(4,922) (3,895) (1,027) 26 % (6,421) (3,930) (2,491) 63 %
Loss before income taxes (20,630) (34,899) 14,269 (41) % (54,869) (69,014) 14,145 (20) %
Provision for income taxes 10 9 1 11 % 31 34 (3) (9) %
Net loss $ (20,640) $ (34,908) $ 14,268 (41) % $ (54,900) $ (69,048) $ 14,148 (20) %
Revenues
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.
• Research and development revenue include license, technology access and exclusivity fees, research services fees, milestone payments, royalties, optimization and screening fees.
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Revenues are as follows (in thousands, except percentages):
Three Months Ended September 30, Change Nine Months Ended September 30, Change
2024 2023 $ % 2024 2023 $ %
Product revenue $ 11,158 $ 5,395 $ 5,763 107 % $ 26,968 $ 24,807 $ 2,161 9 %
Research and development revenue 1,675 3,882 (2,207) (57) % 10,917 18,775 (7,858) (42) %
Total revenues $ 12,833 $ 9,277 $ 3,556 38 % $ 37,885 $ 43,582 $ (5,697) (13) %
Revenues typically fluctuate on a quarterly basis due to the variability in our customers' manufacturing schedules and the timing of our customers' clinical trials. In addition, we have limited internal capacity to manufacture enzymes. As a result, we are dependent upon the performance and capacity of third-party manufacturers for the commercial scale manufacturing of the enzymes used in our pharmaceutical and fine chemicals business.
We accept purchase orders for deliveries covering periods from one day up to 14 months from the date on which the order is placed. However, some of our purchase orders can be revised or cancelled by the customer without penalty. 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 increased by $3.6 million in the three months ended September 30, 2024 compared to the same period in 2023 primarily due to higher product revenue, which was partially offset by lower research and development revenue. Total revenues decreased by $5.7 million in the nine months ended September 30, 2024 compared to the same period in 2023 primarily due to lower research and development revenue.
Product revenue increased by $5.8 million and $2.2 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, primarily due to higher sales of branded pharmaceutical products. This increase was partially offset with the prior year benefiting from the $2.9 million release of prior periods' product revenue deferrals during the second quarter of 2023 due to early termination of the enzyme supply obligations to a customer for a deprioritized asset related to a prior restructuring of our business, and $1.3 million of product revenue recognized during the third quarter of 2023 as a settlement fee pursuant to the enzyme supply agreement with the same customer.
Research and development revenue decreased by $2.2 million in the three months ended September 30, 2024 compared to the same period in 2023 primarily due to the recognition of $0.7 million in non-cash revenue related to our master service agreement with Pfizer in the third quarter of 2023, $0.6 million lower research and development fees from Nestlé Health Science under the Nestlé SCA and development agreement and $0.9 million lower revenue from both legacy and existing collaboration agreements being recognized in 2024 as compared to the same period in the prior year.
Research and development revenue decreased by $7.9 million in the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to the recognition of $6.3 million in non-cash revenue related to our license and our master service agreements with Pfizer in the nine months ended September 30, 2023, $4.1 million lower research and development fees from Nestlé Health Science, $1.6 million lower revenue from Takeda Pharmaceutical Co. Ltd. under a Strategic Collaboration and License Agreement and $2.8 million lower revenue from other legacy collaboration agreements being recognized in 2024 as compared to the same period in 2023. This was offset by $6.0 million higher revenue from our licensing agreement with Roche entered into in February 2024 and $0.9 million higher revenue from existing collaboration agreements recognized in the current year.
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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
2024 2023 $ % 2024 2023 $ %
Cost of product revenue $ 4,317 $ 2,249 $ 2,068 92 % $ 12,634 $ 9,947 $ 2,687 27 %
Research and development 11,505 13,662 (2,157) (16) % 34,164 47,651 (13,487) (28) %
Selling, general and administrative 13,568 12,302 1,266 10 % 42,100 41,066 1,034 3 %
Restructuring charges — 3,140 (3,140) (100) % — 3,284 (3,284) (100) %
Asset impairment and other charges — 9,984 (9,984) (100) % 165 9,984 (9,819) (98) %
Total costs and operating expenses $ 29,390 $ 41,337 $ (11,947) (29) % $ 89,063 $ 111,932 $ (22,869) (20) %
Cost of Product Revenue and Product Gross Margin
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
2024 2023 $ % 2024 2023 $ %
Product revenue $ 11,158 $ 5,395 $ 5,763 107 % $ 26,968 $ 24,807 $ 2,161 9 %
Cost of product revenue (1)
4,317 2,249 2,068 92 % 12,634 9,947 2,687 27 %
Product gross profit $ 6,841 $ 3,146 $ 3,695 117 % $ 14,334 $ 14,860 $ (526) (4) %
Product gross margin (%) (2)
61 % 58 % 53 % 60 %
(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 increased by $2.1 million and $2.7 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, primarily due to a higher volume of product sales.
Product gross margins were 61% and 53% in the three and nine months ended September 30, 2024, respectively, compared to 58% and 60% in the corresponding periods in 2023 du e to variability in the product mix and with 2023 benefiting from revenue recognized with no related cost in the second and third quarters of 2023 related to the early termination of an enzyme supply agreement with a customer for a deprioritized asset related to a prior restructuring of our business.
Research and Development Expenses
Research and development expenses consist of costs incurred for internal projects as well as collaborative research and development activities. These costs primarily consist of (i) employee-related costs, which include salaries and other personnel-related expenses (including stock-based compensation), (ii) various allocable expenses, which include occupancy-related costs, supplies, depreciation of facilities and laboratory equipment, and (iii) external costs. Research and development expenses are expensed when incurred.
Research and development expenses decreased by $2.2 million, or 16%, in the three months ended September 30, 2024 compared to the same period in 2023 primarily due to a $1.3 million decrease from lower use of outside services related to Chemistry, Manufacturing and Controls (“CMC”) and lower regulatory expense s and $0.9 million decrease in lease and facilities costs due to the assignment of our San Carlos facility lease during the fourth quarter of 2023, partially offset by a $0.2 million in crease in costs associated with headcount. The decrease in research and development expenses of $13.5 million, or 28%, in the nine months ended September 30, 2024, compared to the same period in 2023, was primarily due to a $4.8 million decrease in CMC and outside services, $4.6 million decrease in costs associated with lower headcount, $3.7 million de crease from lower lease and facilities associated costs, $0.4 million lower lab supply, and a $0.2 million decrease in depreciation costs.
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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 increased by $1.3 million, or 10%, during the three months ended September 30, 2024, compared to the same period in 2023 primarily due to $1.2 million in higher consulting and outside services and a $0.3 million higher legal expense. Selling, general and administrative expenses increased by $1.0 million, or 3%, during the nine months ended September 30, 2024 as compared to the same period in 2023 primarily due to a $2.6 million higher stock-based compensation expense, a $1.1 million increase in legal costs, and a $0.7 million increase in consulting and outside services, partially offset by $2.8 million decrease in payroll-related expenses, and a $0.5 million decrease in facility associated costs.
Restructuring Charges
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 and nine months ended September 30, 2024. 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 were nil and $0.2 million for the three and nine months ended September 30, 2024, respectively, related to a long-lived asset impairment charge in the second quarter of 2024. Asset impairment and other charges for the three and nine months ended September 30, 2023 were $10.0 million, consisting of a $9.2 million long-lived asset impairment charge and a $0.8 million goodwill impairment charge, all of which are non-cash charges.
Interest Income and Interest and Other Expense, net (in thousands, except percentages):
Three Months Ended September 30, Change Nine Months Ended September 30, Change
2024 2023 $ % 2024 2023 $ %
Interest income $ 849 $ 1,056 $ (207) (20) % $ 2,730 $ 3,266 $ (536) (16) %
Interest and other expense, net
(4,922) (3,895) (1,027) 26 % (6,421) (3,930) (2,491) 63 %
Total other income (expense), net
$ (4,073) $ (2,839) $ (1,234) 43 % $ (3,691) $ (664) $ (3,027) 456 %
Interest Income
Interest income decreased by $0.2 million and $0.5 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, primarily due to lower average cash balances.
Interest and Other Expense, net
Interest and other expense, n et increased by $1.0 million and $2.5 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, primarily due to the impairment of our investment in MAI during the third quarter of 2024 and interest related to long-term debt in the current year, partially offset by the impairment of our investments in seqWell and Arzeda recognized in 2023.
Provision for Income Taxes (in thousands, except percentages):
Three Months Ended September 30, Change Nine Months Ended September 30, Change
2024 2023 $ % 2024 2023 $ %
Provision for income taxes $ 10 $ 9 $ 1 11 % $ 31 $ 34 $ (3) (9) %
The provision for income taxes for the three and nine months ended September 30, 2024 and 2023, was primarily due to the accrual of interest and penalties on historic uncertain tax positions.
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Net Loss
Net loss for the three months ended September 30, 2024 was $20.6 million, or a net loss per basic and diluted share of $0.29. This compared to a net loss of $34.9 million, or a net loss per basic and diluted share of $0.50, for the three months ended September 30, 2023. Net loss for the nine months ended September 30, 2024 was $54.9 million, or a net loss per basic and diluted share of $0.78. This compared to a net loss of $69.0 million, or a net loss per basic and diluted share of $1.02, for the nine months ended September 30, 2023. The decrease in net loss for both the three and nine months ended September 30, 2024, was primarily related to higher product revenue and lower operating expenses in 2024.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the measurement of our ability to meet working capital needs and to fund capital expenditures. 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 our 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, we borrowed $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. The Loan Agreement provides for an aggregate principal amount of up to $40.0 million and with a maturity date of February 13, 2029 (the “Innovatus Loan”). 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. banks.
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 September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024 December 31, 2023
Cash and cash equivalents $ 37,452 $ 65,116
Short-term investments $ 52,803 $ —
Working capital $ 77,773 $ 57,636
Sources of Capital
In addition to our existing cash and cash equivalents, short-term investments and revenue generated through our existing operations, we are eligible to earn milestone and other contingent payments for the achievement of defined collaboration objectives under our collaboration agreements. 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 .
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. Our primary source of cash flows from operating activities is cash receipts from our customers for purchases of products, collaborative research and development services, and licensing our technology to major pharmaceutical companies. 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.
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 Loan Agreement 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% . The Company believes it is in compliance with the terms included within the Innovatus Loan as of September 30, 2024 .
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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. 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. 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. 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 of shares remained available for sale under the Cantor Sales Agreement.
Sales of our common stock under the Cantor Sales Agreement 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.
Liquidity
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. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our capital resources sooner than we expect.
However, we may need additional capital if our current plans and assumptions change. 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™ 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. 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™ 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.
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Cash Flows
The following is a summary of cash flows for the nine months ended September 30, 2024 and 2023 (in thousands):
Nine Months Ended September 30,
2024 2023
Net cash used in operating activities $ (32,942) $ (41,601)
Net cash used in investing activities (54,117) (5,962)
Net cash provided by financing activities 59,390 8,167
Net decrease in cash, cash equivalents and restricted cash $ (27,669) $ (39,396)
Cash Flows from Operating Activities
The $8.7 million decrease in net cash used in operating activities for the nine months ended September 30, 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
The $48.2 million increase in net cash used in investing activities for the nine months ended September 30, 2024 as compared to the same period in 2023, was primarily due to higher cash utilized for purchases of short-term investments, partially offset by lower purchases of property and equipment during the period.
Cash Flows from Financing Activities
The $51.2 million increase in net cash provided by financing activities for the nine months ended September 30, 2024 as compared to the same period in 2023 was primarily due to proceeds from the Innovatus Loan in February 2024 and proceeds from issuance of common stock under the Cantor Sales Agreement, partially offset by proceeds from issuance of common stock under the EDA during the nine months ended September 30, 2023.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make judgments, estimates and assumptions in the preparation of our consolidated financial statements and accompanying notes. 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, 2024 from those discussed in our Annual Report.
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