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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-28 · 104 added, 109 removed, 227 unchanged (48% of the section changed)

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Business Overview

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

We are a leading provider of enzymatic solutions for efficient and scalable therapeutics manufacturing, and we leverage 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) 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 other non-core assets within our Life Sciences portfolio.

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 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.

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

our foundational, revenue-generating pharma biocatalysis business and our Enzyme-Catalyzed Oligonucleotide (ECO) Synthesis (“ECO Synthesis”) manufacturing platform, which is comprised of enzymatic tools and processes, designed to enable large-scale manufacture of RNA interference ( “ RNAi ” ) therapeutics.

In July 2023, we announced that we discontinued investment in certain development programs, primarily in our novel biotherapeutics business segment.

As part of this strategic prioritization, during 2024, we completed the divestiture and monetization of certain biotherapeutics assets as well as certain non-core life science assets, including in genomics and next generation sequencing applications.

In o ur revenue-generating pharma biocatalysis business (formerly our pharmaceuticals 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 improve the efficiency and productivity of their manufacturing processes for small molecule therapeutics.

Our unique enzymes drive improvements such as higher yields, increased purity, reduced energy usage and waste generation, all of which lead to improved efficiency and reduced costs in small-molecule manufacturing.

We also use the CodeEvolver platform technology to develop enzymes for the synthesis of RNAi therapeutics through our ECO Synthesis manufacturing platform, where our enzymes are poised to deliver many of the same benefits we offer in pharma biocatalysis across purity, yield, and improved manufacturing efficiency.

In November 2024, we presented data at the TIDES EU conference demonstrating the successful end-to-end enzymatic synthesis of an entire commercially approved siRNA therapeutic asset with the ECO Synthesis manufacturing platform.

In addition to using full enzymatic sequential synthesis, adding one nucleotide at time to synthesize the two strands from beginning to end, we demonstrated synthesis of the same siRNA asset using three other routes utilizing enzymatic ligation with our double-stranded RNA (“dsRNA”) ligase, which can stitch together fragments of chemically and/or enzymatically synthesized RNA to form the full siRNA drug structure.

For the three other routes, our data highlighted that full-length oligos of equal quality and yields were obtained whether the fragments were made with enzymes or by traditional phosphoramidite chemistry.

At the end of 2024, we completed the build-out of our ECO Synthesis Innovation Lab, a facility that uses our ECO Synthesis manufacturing platform to synthesize gram-scale quantities of a customer’s desired siRNA construct suitable for pre-clinical testing.

In 2025, we expect to manufacture good laboratory practice (“GLP”)-grade siRNA for customers in our Innovation Lab under development services contracts model, and we anticipate entering a partnership with a large-scale contract development and manufacturing organization (“CDMO”) to use our ECO Synthesis platform of enzymatic tools and processes to synthesize good manufacturing practices ( “ GMP ” ) -grade siRNA drug substance for our customers.

We expect to expand our enzymatic tools and process offering as further enhance the ECO Synthesis manufacturing platform to address the overall market needs for scalable and sustainable RNAi manufacturing.

Recent Developments

On February 13, 2024, we entered into a five-year loan and security agreement with Innovatus Life Sciences Lending Fund I, LP, an affiliate of Innovatus Capital Partners, LLC (“Innovatus”), for an aggregate principal amount of up to $40.0 million (the “Loan Agreement”) consisting of two tranches, of which the first tranche of $30.0 million was completed on 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 two tranches collectively are referred to as the “Term Loans.”

Investing and Financing Activities

In March 2022, we entered into a Stock Purchase Agreement with seqWell Inc.

(“seqWell ” ), a privately held biotechnology company, pursuant to which we purchased 1,000,000 shares of seqWell's Series C preferred stock for $5.0 million.

In September 2023, we purchased an additional 88,256 shares of seqWell's Series C-1 preferred stock and 44,128 common stock warrants for $0.4 million.

As of December 31, 2023, we have 1,293,535 shares of seqWell's Series C and C-1 preferred stock that we have earned or purchased since executing the Stock Purchase Agreement with seqWell.

Finalized Acquisition and License Agreement for certain non-core Life Sciences assets

In line with our strategy relating to non-core Life Sciences assets, in January 2025 we sold assets that were developed under the seqWell Agreement to seqWell in exchange for the right to receive a cash payment upon future events and a warrant to purchase seqWell’s common stock exercisable upon future events, and terminated the seqWell Agreement.

Strengthened Board of Directors with new appointments

We announced the appointment of Raymond De Vré , PhD, to our Board of Directors on November 12, 2024, followed by the appointment of Christos Richards on January 16, 2025.

Financing Activities

In May 2021, we filed a Registration Statement on Form S-3 with the SEC, that automatically became effective upon its filing, under which we may sell common stock, preferred stock, debt securities, warrants, purchase contracts, and units from time to time in one or more offerings.

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Pursuant to that post-effective amendment, we registered an aggregate $200.0 million of securities.

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

Under the terms of the EDA, PSC may sell the shares at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended.

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 year ended December 31, 2024.

During the year ended December 31, 2023, 3,079,421 shares of our common stock were issued and sold pursuant to the EDA for gross proceeds of $8.7 million, or $7.9 million in net proceeds after PSC's commissions and direct offering expenses of $0.7 million.

As of December 31, 2023, $41.3 million of shares remained available for sale under the EDA.

During the year ended December 31, 2022, no shares of our common stock were sold pursuant to the EDA.

In June 2020, we entered into a Stock Purchase Agreement with MAI, a privately held life sciences company, pursuant to which we purchased 1,587,050 shares of MAI's Series A preferred stock for $1.0 million.

Nicols, our former President and CEO until August 2022, also joined MAI’s board of directors in June 2020 and remained on MAI's board until September 2023.

Concurrently with our initial equity investment, we entered into a Master Collaboration and Research Agreement with MAI (the “MAI Agreement”), pursuant to which we performed services utilizing our CodeEvolver ® directed evolution technology platform to improve DNA polymerase enzymes in exchange for compensation in the form of additional shares of MAI's Series A and B preferred stock.

In April 2021, we purchased an additional 1,000,000 shares of MAI's Series A preferred stock for $0.6 million.

In September 2021, we purchased 9,198,423 shares of MAI's Series B preferred stock for $7.0 million.

As of December 31, 2023, we held 19,277,914 shares of MAI's Series A and B preferred stock that we have earned or purchased since executing the Stock Purchase Agreement with MAI.

Business Impact of COVID-19 and Sales of CDX-616 to Pfizer for PAXLOVID™

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

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

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

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

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

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

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

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

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

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

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

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

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

The sale of CDX-616 to Pfizer had a substantial impact on our revenues in 2021 and 2022, and to a lesser extent in 2023.

Potential revenues in future years from our sales of CDX-616 to Pfizer and other potential customers (including sublicensees of Pfizer technology from The Medicine Patent Pool) are subject to a number of factors which are outside of our control and could reduce or eliminate our sales of CDX-616.

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 year ended December 31, 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 December 31, 2024, $43.7 million remained available for sale under the Cantor Sales Agreement.

On February 13, 2024, we entered into the Loan Agreement with Innovatus consisting of up to two tranches, of which the first tranche of $30.0 million was disbursed 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 and subject to payment of a facility fee equal to 1.00% of the amount of such term loan.

The Term Loan carries an interest-only period of 36 months (with the possibility to extend up to 48 months upon achievement of certain pre-specified financial milestones) and will bear interest at a floating rate of the sum of (a) the greater of (i) prime rate and (ii) 7.50%, plus (b) 3.25%.

RESULTS OF OPERATIONS

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Interest income 3,670 4,172 1,441 6 % 6 % 1 %

Other income (expense), net (12,274) 124 1,148 (17) % — % 1 %

Interest and other expense, net (10,393) (12,274) 124 (18) % (17) % — %

Loss before income taxes (65,242) (76,171) (33,316) (111) % (108) % (24) %

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Total revenues decreased by $10.8 million in 2024 to $59.3 million, as compared to 2023.

The decrease was driven by lower product revenue and lower research and development revenue as compared to the prior year.

Product revenue was $36.8 million in 2024, a decrease of 14% compared with $42.9 million in 2023.

The decrease in product revenue was primarily due to one-time revenue recognition of $8.2 million in 2023 related to Pfizer's fee previously received under the Enzyme Supply Agreement with Pfizer Ireland Pharmaceuticals, a subsidiary of Pfizer, Inc., a $2.9 million decrease due to the early termination of an enzyme supply agreement with a customer in 2023, and the one-time recognition of a $1.3 million settlement fee in 2023 under the same enzyme supply agreement.

This decrease was partially offset with higher sales of branded pharmaceutical products in 2024.

Research and development revenue decreased by $4.7 million in 2024 to $22.6 million, or 17% compared with $27.2 million in 2023.

The decrease was primarily due to $9.1 million lower research and development fees from Nestlé Health Science (“Nestlé”), the one-time recognition of $5.0 million revenue related to a license agreement in 2023 and $2.0 million lower revenue from our master service agreements with Pfizer Inc.

(“Pfizer”), $1.2 million lower revenue from T akeda Pharmaceutical Co.

under a Strategic Collaboration and License Agreement, and $4.3 million lower revenue from other legacy collaboration agreements.

This decrease was offset by $6.0 million higher revenue from our licensing agreement with Roche Sequencing Solutions, Inc.

(“Roche”) entered into in February 2024, recognition of $9.5 million revenue related to a license agreement with Pfizer entered into in December 2024, and $1.9 million higher revenue from existing collaboration agreements.

2023 compared to 2022

Total revenues decreased by $68.4 million in 2023 to $70.1 million, as compared to 2022.

The decrease was driven by lower product revenue as compared to the prior year.

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This decrease was partially offset by $8.2 million release of prior year's deferrals related to Pfizer's fee, $3.2 million release of prior periods' product revenue deferrals due to early termination of the enzyme supply obligations to a customer and $1.3 million of product revenue recognized as settlement fee pursuant to the enzyme supply agreement with the same customer .

Research and development revenue increased by $5.3 million in 2023 to $27.2 million, or 24% compared with $21.9 million in 2022, primarily due to higher revenue from the Pfizer license agreement and from Nestlé Health Science under the Nestlé SCA and development agreement and the Acquisition Agreement, which was partially offset by lower research and development fees from existing collaboration agreements being recognized in 2023 as compared to the prior year.

2022 compared to 2021

Total revenues increased b y $33.8 million in 2022 to $138.6 million, as compared to 2021.

The increase was driven by growth in product revenue of $46.0 million, or 65%, partially offset by a decrease in research and development revenue of $12.2 million, or 36%.

Product revenue was $116.7 million in 2022, an increase of 65% compared with $70.7 million in 2021.

The increase in product revenue was primarily due to $40.9 million higher revenue from Pfizer sales related to the purchase of CDX-616.

Research and development revenue decreased by $12.2 million in 2022 to $21.9 million , or 36% compared with $34.1 million in 2021, primarily due to lower license fees from Takeda, decreased revenue from milestone payments received from GSK in 2021 and lower research and development fees from other existing collaboration agreements being recognized in 2022 as compared to the prior year.

A portion of our research and development revenue in 2022 and 2021 was paid to us by MAI in the form of additional shares of MAI Series A and Series B preferred stock.

We received an aggregate of 1,587,049 and 3,491,505 shares of MAI's Series A and B preferred stock for the years ended December 31, 2022 and 2021, respectively.

Research and development revenue increased by $5.3 million in 2023 to $27.2 million, or 24% compared with $21.9 million in 2022, primarily due to higher revenue from a 2023 Pfizer license agreement and from Nestlé Health Science under a Strategic Collaboration Agreement with Nestlé (the “Nestlé SCA”) and development agreement and an acquisition agreement with Nestlé (the “Acquisition Agreement”), which was partially offset by lower research and development fees from existing collaboration agreements being recognized in 2023 as compared to the prior year.

Costs and Operating Expenses (in thousands, except percentages):

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2024 compared to 2023

Cost of product revenue increased by $3.5 million in 2024 to $16.3 million, as compared to 2023.

The increase was primarily due to the combination of increased sales of certain enzyme product and higher costs.

Product gross margins decreased to 56% in 2024 as compared to 70% in 2023, primarily due to variability in the product mix and with 2023 benefiting from product revenue recognized with no related cost in 2023 related to the utilization of Pfizer’s fee and to the early termination of an enzyme supply agreement with a customer.

2023 compared to 2022

Cost of product revenue decreased by $25.2 million in 2023 to $12.8 million, as compared to 2022.

The decrease was primarily due to lower volu me of product sales as compared to prior year.

The decrease was primarily due to lower volu me of product sales as compared to the prior year.

Product gross margins increased to 70% in 2023 as compared to 67% in 2022, primarily due to product revenue recognized with no related costs in 2023 related to the utilization of Pfizer's fee and early termination of an enzyme supply agreement with a customer, and was partially offset by variability in the product mix.

2022 compared to 2021

Cost of product revenue increased by $15.8 million in 2022 to $38.0 million, as compared to 2021.

The increase was primarily due to a higher volume of product sales and variations in product mix.

Product gross margins decreased to 67% in 2022 as compared to 69% in 2021, primarily due to variations in product mix, variation in prices per volume sold and higher shipping costs.

Some of these cost increases are a result of the impact of inflation and supply chain pressures seen in 2022.

Research and Development Expenses

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Research and development expenses were $46.3 million in 2024 compared to $58.9 million in 2023, a decrease of $12.6 million, or 21%.

This decrease was primarily due $10.0 million decrease in costs associated with lower headcount, $6.4 million decrease in outside services and Chemistry, Manufacturing and Controls (“CMC”) and regulatory expense, $4.1 million in lower lab supplies expense, $1.3 million in lower stock comp expense, and $1.0 million decrease in lease costs due to the assignment of our San Carlos facility lease.

This decrease was primarily due to a $4.4 million decrease from lower use of outside services related to Chemistry, Manufacturing and Controls procedures (“CMC”) and lower regulatory expense, $4.3 million decrease in costs associated with lower headcount, $3.8 million decrease from lower lease and facilities costs due to the assignment of our San Carlos facility lease during the fourth quarter of 2023, and $0.3 million in lower depreciation expenses.

These were partially offset by $0.4 million in higher allocable costs.

2023 compared to 2022

Research and development expenses were $80.1 million in 2022 compared to $55.9 million in 2021, an increase of $24.2 million, or 43%.

The increase was primarily due to an increase of $7.4 million in costs associated with higher headcount, $4.8 million in higher facilities and repair and maintenance expenses, $5.3 million increase in outside services and CMC and regulatory expenses , $2.6 million in higher lab supplies, $2.1 million in higher depreciation expenses, $1.1 million in higher stock-based compensation expenses and $0.7 million in higher allocable expenses.

Some of these cost increases are a result of the impact of inflation seen in 2022.

Research and development expenses were $58.9 million in 2023 compared to $80.1 million in 2022, a decrease of $21.2 million, or 26%.

This decrease was primarily due to a $10.0 million decrease in costs associated with lower headcount, $6.4 million decrease in outside services and CMC and regulatory expense, $4.1 million in lower lab supplies expense, $1.3 million in lower stock comp expense, and a $1.0 million decrease in lease costs due to the assignment of our San Carlos facility lease.

These were partially offset by $1.7 million in higher allocable costs.

Selling, General and Administrative Expenses

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Selling, general and administrative expenses were $55.1 million in 2024 compared to $53.3 million in 2023, an increase of $1.9 million, or 4%.

This increase was primarily due to $3.6 million higher in payroll-based expenses, $0.6 million in higher legal expense, $0.4 million in higher repairs and maintenance expense, and $0.3 million in higher consulting and outside services.

This was partially offset by $3.2 million lower stock based compensation expense and $0.4 million in lower allocable expenses.

This increase was primarily due to $2.9 million in higher stock-based compensation expense, $0.9 million in higher consulting and outside services, and $0.7 million in higher legal fees.

This was partially offset by a $1.9 million in lower payroll-based expenses and $0.7 million in lower allocable expenses.

2023 compared to 2022

Selling, general and administrative expenses were $53.3 million in 2023 compared to $52.2 million in 2022, an increase of $1.1 million, or 2%.

The increase was primarily due to an increase of $6.0 million in costs associated with higher headcount, $1.8 million in higher stock-based compensation costs, $0.8 million in higher outside and temporary services, which was partially offset by a decrease of $3.5 million in allocable expenses due to higher expenses allocated to research and development activities in 2022 and $3.3 million in lower legal fees.

Some of these cost increases are a result of the impact of inflation seen in 2022.

This increase was primarily due to $3.6 million in higher payroll-based expenses, $0.6 million in higher legal expense, $0.4 million in higher repairs and maintenance expense, and $0.3 million in higher consulting and outside services.

This was partially offset by $3.2 million in lower stock-based compensation expense and $0.4 million in lower allocable expenses.

Restructuring Charges

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

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

There were no restructuring charges recognized for the year ended December 31, 2024.

Restructuring charges were $3.3 million and $3.2 million for the years ended December 31, 2023, and 2022, respectively.

Asset Impairment and Other Charges

Asset impairment and other charges for the year ended December 31, 2024 were $0.2 million related to a long-lived asset impairment charge in the second quarter of 2024.

Asset impairment and other charges for the year ended December 31, 2023 were $10.0 million, consisting o f a $ 9.2 million long-lived asset impairment charge and a $0.8 million goodwill impairment charge, all of which are non-cash charges.

No asset impairment charges were recorded for the years ended December 31, 2022 or 2021.

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

No asset impairment charges were recorded for the year ended December 31, 2022.

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

Year Ended December 31, 2024 2023

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Interest income $ 3,670 $ 4,172 $ 1,441 $ (502) (12) % $ 2,731 190 %

Other income (expense), net (12,274) 124 1,148 (12,398) (9,998) % (1,024) (89) %

Interest and other expense, net (10,393) (12,274) 124 1,881 (15) % (12,398) (9,998) %

Total other income (expense), net $ (6,723) $ (8,102) $ 1,565 $ 1,379 (17) % $ (9,667) (618) %

Interest Income

Interest income decreased by $0.5 million in 2024 compared to 2023, primarily due to lower average cash balances.

Interest income increased by $2.7 million in 2023 compared to 2022, primarily due to higher average interest rates on cash balances.

Interest income increased by $1.0 million in 2022 compared to 2021, primarily due to higher average interest rates on cash balances, and was partially offset by earned interest income on a non-marketable debt security in the prior year.

Other Income (Expense), net

Other income (expense), net, decreased by $12.4 million in 2023 compared to 2022, primarily due to impairment of our investments in MAI, seqWell and Arzeda.

Other income (expense), net, decreased by $1.0 million in 2022 compared to 2021, primarily due to a lower gain from remeasurement on the carrying value of our investment in MAI recognized in 2022 as compared to 2021 .

Interest and Other Expense, net

Interest and other expense, net, decreased by $1.9 million in 2024 compared to 2023, primarily due to the higher impairment charges recognized in 2023 related to our investments in Molecular Assemblies, Inc.

(“MAI”), seqWell Inc.

(“seqWell”) and Arzeda Corp.

(“Arzeda”), offset by $3.5 million in interest related to the long-term debt in the current year.

Interest and other expense, net, increased by $12.4 million in 2023 compared to 2022, primarily due to impairment of our investments in MAI, seqWell and Arzeda.

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

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Provision for income taxes $ 34 $ 69 $ 276 $ (35) (51) % $ (207) (75) %

The provision for income taxes in 2023 was primarily for current year state income taxes and the accrual of interest and penalties on historic uncertain tax positions.

The provision for income taxes in 2024 was primarily due to the accrual of interest and penalties on historic uncertain tax positions.

The provision for income taxes in 2023 was primarily for fiscal year 2023 state income taxes and the accrual of interest and penalties on historic uncertain tax positions.

The provision for income taxes in 2022 was primarily due to the income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of the Unites Stated and remitted to the United States and the accrual of interest and penalties on historic uncertain tax positions, as well as current year state income taxes.

Starting in 2022, changes to Internal Revenue Code Section 174 made by the Tax Cuts and Jobs Act of 2017 no longer permit an immediate deduction for research and development expenditures in the tax year that such costs are incurred.

As a result, the Company capitalized such costs in its 2022 income tax provision resulting in an increase in deferred tax assets and state income taxes.

However, as we have recorded a full valuation allowance on our deferred tax assets, this did not have an impact on our net deferred tax assets.

The provision for income taxes in 2021 was primarily due to the income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of the Unites Stated and remitted to the United States and the accrual of interest and penalties on historic uncertain tax positions.

Net loss for 2024 was $65.3 million, or a net loss per basic and diluted share of $0.89.

This compared to a net loss of $76.2 million, or $1.12 per basic and diluted share, for 2023.

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

The decrease in net loss was primarily related to lower operating expenses in 2024.

Net loss for 2023 was $76.2 million, or a net loss per basic and diluted share of $1.12.

This compared to a net loss of $33.6 million, or $0.51 per basic and diluted share, for 2022.

The increase in net loss was primarily related to lower research and development revenues and higher operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

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

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

In addition, pursuant to our Loan Agreement with 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.

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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 balance and working capital as of December 31, 2023, 2022 and 2021 (in thousands):

The following summarizes our cash and cash equivalents and short-term investments balances and working capital as of December 31, 2024, 2023 and 2022 (in thousands):

2024 2023 2022

Cash and cash equivalents $ 19,264 $ 65,116 $ 113,984

Short-term investments $ 54,194 $ — $ —

Working capital $ 75,124 $ 57,636 $ 113,828

Sources of Capital

In addition to our existing cash and cash equivalents and revenue generated through our existing operations, we are eligible to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain royalty payments under our collaboration agreements with Merck, Nestlé, and Novartis of up to $59.0 million in aggregate.

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

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 .

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

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

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

Pfizer's ability to utilize the credit under item (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, and any portion of the fee that is not utilized within the specific period will be forfeited and recognized as revenue.

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.

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Loan Agreement and Term Loans

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

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

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

Equity Distribution Agreement

Sales Agreements

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

During the year ended December 31, 2023, 3,079,421 shares of our common stock were issued and sold pursuant to the EDA, all during the first half of 2023, and we received net proceeds of $7.9 million.

As of December 31, 2023, $41.3 million of shares remained available for sale under the EDA.

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

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

On April 24, 2024, we terminated the EDA.

On May 2, 2024, we entered into the Cantor Sales Agreement with 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.

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 year ended December 31, 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 December 31, 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.

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.

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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.

In addition, we may choose to seek sources of capital, which may arise through a combination of equity offerings, debt financings, other third-party funding and other collaborations, strategic alliances and partnering arrangements, 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.

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Cash Flows from Operating Activities

The $3.2 million decrease in net cash used in operating activities in 2024 as compared to 2023 was primarily due to the net effect of decreases in cash paid from operating expenses, primarily driven by the restructuring of our business in 2023 which included the assignment of our previous San Carlos facility lease in the fourth quarter of 2023, and changes in operating assets and liabilities.

The $63.9 million decrease in net cash provided by operating activities in 2023 as compared to 2022 was primarily due to the net effect of decreases in cash received from our customers due to lower revenue in 2023 and with 2022 benefiting from the receipt of a $25.9 million fee from Pfizer that is creditable against future orders, partially offset by decreases in cash paid for cost of revenues and operating expenses.

The $25.6 million increase in net cash provided by operating activities in 2022 as compared to 2021 was primarily due to the receipt of a $25.9 million fee from Pfizer in August 2022 creditable against future orders and increases in cash received from revenue, which was partially offset by increased payments associated with higher operating costs.

Cash Flows from Investing Activities

The $52.1 million increase in net cash used in investing activities in 2024 as compared to 2023 was primarily due to higher cash utilized for purchases of short-term investments, partially offset by lower purchases of property and equipment in the current year.

The $8.7 million decrease in net cash used in investing activities in 2023 as compared to 2022 was primarily due to higher cash utilized for additional investments in equity securities and purchases of property and equipment in the prior year.

The $7.8 million decrease in net cash used in investing activities in 2022 as compared to 2021 was primarily due to higher cash utilized for additional investments in equity securities and purchases of property and equipment in 2021.

Cash Flows from Financing Activities

The $52.4 million increase in net cash provided by financing activities in 2024 as compared to 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 in the third quarter of 2024, partially offset by proceeds from issuance of common stock under the EDA during the first half of 2023.

The $8.7 million increase in net cash provided by financing activities in 2023 as compared to 2022 was primarily due to proceeds from issuance of common stock under the EDA and lower cash paid on taxes related to net share settlement of equity awards.

The $4.3 million decrease in net cash provided by financing activities in 2022 as compared to 2021 was primarily due to higher cash paid on taxes related to net share settlement of equity awards and lower proceeds from exercises of stock options.

OFF-BALANCE SHEET ARRANGEMENTS

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Our revenues are derived primarily from product revenue and collaborative research and development agreements.

The majority of our contracts with customers typically contain multiple products and services.

Some of our contracts with customers contain multiple products and services.

The majority of our collaborative contracts contain multiple revenue streams such as upfront and/or annual license fees, research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage, among others.

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If we determine that a license is distinct, we would recognize an allocable portion of the transaction price when the license is transferred to the customer, and the customer can use and benefit from it.

We estimate the SSP for license rights by using historical information if licenses have been previously sold to customers and for new licenses, we consider multiple methods, a discounted cash flow method which includes the following key assumptions:

the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success.

We estimate the SSP for license rights by using historical information if licenses have been previously sold to customers.

At the inception of each arrangement that includes variable consideration such as development milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method.

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We measure investments in non-marketable equity securities without a readily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or minus changes resulting from observable price changes on a non-recurring basis.

Gains and losses on these securities are recognized in other income (expense), net.

Gains and losses on these securities are recognized in interest and other expense, net.

We evaluate equity securities for impairment when circumstances indicate that we may not be able to recover the carrying value.

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If these facts and circumstances exist, we assess for recovery by comparing the carrying values of long-lived assets with the future net undiscounted cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measure by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

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.

Recent Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis