What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-14 compared with 2024-10-31 · 67 added, 121 removed, 120 unchanged (61% of the section changed)

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“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.

“Risk Factors” of our Annual Report, 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.

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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.

We are a leading provider of enzymatic solutions for efficient and scalable therapeutics manufacturing, and we leverage o ur 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.

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 our 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 small interfering ribonucleic acid (“siRNA”) therapeutic asset with the ECO Synthesis manufacturing platform.

In addition to using full enzymatic sequential synthesis, adding one nucleotide at a 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 offerings as we further enhance the ECO Synthesis platform to address the overall market needs for scalable and sustainable RNAi manufacturing.

As of March 31, 2025, we manage our business as one business segment.

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

Recent Developments

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.

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.

Strengthened Board of Directors with new appointments

We announced the appointment of Christos Richards to our Board of Directors on January 16, 2025, followed by the appointment of Cynthia Collins on March 28, 2025.

Results of Operations

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

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

Three Months Ended March 31, Change

2025 2024 $ %

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Selling, general and administrative 12,355 12,860 (505) (4)%

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 28,029 28,961 (932) (3)%

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Interest and other expense, net (942) (516) (426) 83%

(4,922) (3,895) (1,027) 26 % (6,421) (3,930) (2,491) 63 %

Loss before income taxes (20,677) (11,495) (9,182) 80%

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Net loss $ (20,688) $ (11,505) $ (9,183) 80%

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.

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

• Product revenue consists of sales of biocatalysts used in the manufacture of small molecule active pharmaceutical intermediaries, enzymes such as dsRNA ligase used in the manufacture of siRNA molecules, enzymes for the molecular biology and diagnostic markets, and Codex ™ biocatalyst panels and kits.

• Research and development revenue includes license, technology access and exclusivity fees, research services fees, milestone payments, royalties, optimization and screening fees.

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

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

Three Months Ended March 31, Change

2025 2024 $ %

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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.

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 pharma biocatalysis, ECO and molecular biology and diagnostics enzymes businesses.

We accept purchase orders for deliveries covering periods from one day up to 14 months from the date on which the order is placed.

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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.

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.

Total revenues decreased by $9.5 million to $7.5 million in the three months ended March 31, 2025 compared to the same period in 2024, or 56%.

Product revenue decreased by $3.5 million to $6.1 million in the three months ended March 31, 2025 compared to the same period in 2024, primarily due to lower sales of enzymes used in the manufacture of branded pharmaceutical products.

Research and development revenue decreased by $6.0 million to $1.5 million in the three months ended March 31, 2025 compared to the same period in 2024, primarily due to $6.0 million lower revenue from our licensing agreement with Roche Sequencing Solutions, Inc.

entered into in February 2024 and $0.6 million lower revenue from legacy collaboration agreements being recognized in 2025 as compared to the same period in 2024.

These were partially offset by $0.6 million higher revenue from existing collaboration agreements.

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

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

Three Months Ended March 31, Change

2025 2024 $ %

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Selling, general and administrative 12,355 12,860 (505) (4)%

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 $ 28,029 $ 28,961 $ (932) (3)%

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

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

Three Months Ended March 31, Change

2025 2024 $ %

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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.

Cost of product revenue decreased by $2.1 million in the three months ended March 31, 2025 compared to the same period in 2024 primari ly due to a lower volume of product sales as compared to the same period in 2024.

Product gross margin increased to 55% in the three months ended March 31, 2025 compared to 49% in the three months ended March 31, 2024, primarily due to variability in the product mix.

Research and Development Expenses

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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.

Selling, General and Administrative Expenses

Research and development expenses were $12.9 million in the first quarter of 2025, an increase of $1.7 million, or 15%, from $11.2 million in the first quarter of 2024.

This increase was primarily due to $0.8 million in higher allocable costs, $0.5 million increase in costs associated with higher headcount and $0.3 million in higher lab supplies expense.

Selling, Gene ral 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.

Selling, general and administrative expenses were $12.4 million in the first quarter of 2025, a decrease of $0.5 million, or 4%, compared to $12.9 million in the first quarter of 2024.

This decrease was primarily due to $0.7 million in lower legal fees, $0.6 million in lower stock-based compensation expense, and $0.3 million in lower allocable costs.

These were partially offset by a $1.1 million increase in costs associated with higher headcount.

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

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

Three Months Ended March 31, Change

2025 2024 $ %

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Interest and other expense, net (942) (516) (426) 83%

(4,922) (3,895) (1,027) 26 % (6,421) (3,930) (2,491) 63 %

Total other income (expense), net

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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 income decreased by $0.2 million in the three months ended March 31, 2025 compared to the same period in 2024, primarily due to lower average cash, cash equivalents and short-term investments 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.

Interest and other expense, net, increased by $0.4 million in the three months ended March 31, 2025, compared to the same period in 2024 , primarily due to interest related to long-term debt.

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

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

Three Months Ended March 31, Change

2025 2024 $ %

Provision for income taxes $ 11 $ 10 $ 1 10%

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.

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.

The provision for income taxes for the three months ended March 31, 2025 and 2024, was primarily due to the accrual of interest and penalties on historic uncertain tax positions.

Net loss for the three months ended March 31, 2025 was $20.7 million, or a net loss per basic and diluted share of $0.25.

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

The increase in net loss i s primarily related to lower product revenues and research and development revenues, partially offset by lower cost of product revenue.

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 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.

In addition, pursuant to the 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”).

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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 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

The following summarizes our cash and cash equivalents and short-term investments balances and working capital as of March 31, 2025 and December 31, 2024 (in thousands):

March 31, 2025 December 31, 2024

Cash and cash equivalents $ 18,319 $ 19,264

Short-term investments

$ 41,462 $ 54,194

Working capital $ 56,907 $ 75,124

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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 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 .

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% .

Sales Agreements

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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.

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.

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.

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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.

In 2024, 10,440,000 shares of our common stock were issued and sold pursuant to the Cantor Sales Agreement, all during the third quarter of 2024, and we received net proceeds of $29.7 million after Cantor’s commissions and direct offering expenses.

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.

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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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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.

In addition, under our 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.

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

The following is a summary of cash flows for the nine months ended September 30, 2024 and 2023 (in thousands):

Nine Months Ended September 30,

The following is a summary of cash flows for three months ended March 31, 2025 and 2024 (in thousands):

Three Months Ended March 31,

Net cash used in operating activities $ (13,798) $ (7,789)

Net cash used in investing activities (54,117) (5,962)

Net cash provided by (used in) investing activities 11,769 (28,563)

Net cash provided by financing activities 1,085 29,281

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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.

The $6.0 million increase in net cash used in operations for the three months ended March 31, 2025 as compared to the same period in 2024 was primarily due to the net effect of decreases in cash received from revenue, increases in cash paid for operating expenses 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.

The $40.3 million increase in net cash provided by investing activities for the three months ended March 31, 2025 as compared to the same period in 2024, was primarily due to proceeds from maturity of short-term investments in the first quarter of 2025 offset by cash utilized for purchase of short-term investments.

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.

The $28.2 million decrease in net cash provided by financing activities for the three months ended March 31, 2025 as compared to the same period in 2024 was primarily due to proceeds from the Innovatus Loan in February 2024 that did not reoccur in 2025.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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.

There have been no material changes to our critical accounting policies or estimates during the three months ended March 31, 2025 from those discussed in our Annual Report.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis