We're ready to go ahead and get started. My name is Allison Bratzel. I'm one of the senior biotech analysts here at Piper Sandler. Thanks for joining us at our healthcare conference. It's my pleasure to introduce Codexis. Joining us today for a fireside chat, we have CEO, Stephen Dilly. So this is meant to be informal, so if anyone in the audience has any questions, feel free to raise your hand and get it asked. But just to kick us off, I have a bunch of questions prepared, so I'll sort of just jump in there. Just starting off, Stephen, you've led Codexis now for close to a year and a half. A lot of things have changed in that time.
A strategic refocusing a year ago and then again this past summer, along with meaningful extension of your cash runway. So just from a high level, walk us through some of that. You know, how has the value proposition for Codexis changed, since this time last year, and, and just what's your overarching vision for the company?
Great. So thanks, Ally. Thanks for having us here as well. So really what this is about is you need to perfect the organization for the environment you actually find yourself in, rather than the one you wish you were in. And we're in a pretty hostile environment right now, so it's really important that Codexis is a tightly run organization. It's very efficient. What we've been doing is making sure that we can drive as much value as possible out of our pharma manufacturing base business, throwing off the cash to develop something really exciting, which is the ECO Synthesis platform. And where we are right now is cash runway, plus proceeds from pharma manufacturing gets us to the end of 2026, by which time we expect to be cash flow positive.
That puts us in the sort of pretty select bunches of small biotech companies that really don't need to raise money.
Yeah. No, a good spot to be in. And yeah, so you touched on the ECO Synthesis platform. I guess, you know, high level, just walk us through that. You know, what are the current needs in RNAi manufacturing? How does this platform enable scalable manufacturing of RNAi therapeutics?
So what we're looking at is an explosion of demand in the new area of medicine, which is starting with short inhibitory RNA, but also moving to other very sort of closely alike, constructs. This has really been driven by the first 4 or 5 drugs approved over the last half a decade or so, but 40 in development in late phase, another 400 in development overall. If you put normal probability against that, you see a lot of drugs getting approved. More than that, targeting has improved so that we're starting to address some of the bigger indications.
So you're seeing a transition from siRNA being a boutique sort of intervention for some very rare diseases, always through the liver, to suddenly being able to target the CNS, being able to take down lipids for six months at a time with a single dose, being able to control hypertension with two injections a year, this kind of stuff. We see it as a hugely important wave of new medicines, and our projections on the demand for the actual siRNA entities themselves is moving from about a metric ton a year globally right now, which is addressed through phosphoramidite chemistry, to probably 30 metric tons by the end of this decade and growing from there. The challenge is that the current methods of manufacture are perfected for small scale-
It's really hard to scale cost effectively, both in terms of capital investment, but also in terms of the run rate when you actually are producing the stuff. And what we have is an enzymatic solution that addresses many of those challenges.
Yeah, and just, you know, I think you've talked about the genesis of your investment in this technology, you know, being a response to partners asking for an enzymatic solution for siRNA production. You know, can you just talk about, you know, the genesis of this and then also how that feedback just has changed over the last 2.5 years since you started working on this platform?
Yeah.
Um, yeah.
Absolutely. So we've been saying, you know, we've had customers come to us and that we've been working with in pharma manufacturing, making enzymes for small molecule biocatalysis, and saying: Well, you know, we're working on RNA now. Is there a way you can do that? And these were sort of half one-off conversations, and then we sort of had the grandfather of the field, John Maraganore, a couple of months ago saying, "Look, you know, I said two years ago when I was leaving Alnylam as CEO, we need to come up with an enzymatic solution." So, you know, it comes from sort of, you know, the heart of the field that this is what's needed.
The reason is that an enzymatic solution would be an aqueous-based method of producing siRNA extremely efficiently, with really good purity, and it would address many of the challenges of scale. And yet one of the big barriers to the adoption of this new class of medicines is the ability to make them in the first place.
That's what we're trying to work on.
So then, you know, kind of a related question, is just what specifically gave you the confidence to make this strategic pivot and go all in on ECO Synthesis? Was it confidence on the demand side, on your side, on the, you know, the technical side of things, or just... Kind of talk about that.
Yes. So when we first heard the sort of question, a great question: Can you make RNA constructs using your enzymatic technology? It was sort of became a skunkworks research project for about 6 or 9 months, and we'd got an edge because we'd already been working on the enzymatic construction of DNA oligos, using a TdT enzyme that we eventually developed a version of for RNAi. And so it was, you know, can you make the switch from DNA to RNA? And the answer was yes, with some really clever evolution. And then it was, well, that's only half the problem here. You've got to get all these different modifications in because the way that mRNA survives and it becomes useful is through some of the modifications that are made.
So we had to sort of troll the landscape, what are people working with? What are the real constructs people are using? And see if we could evolve an enzyme to actually include those as well. And so it was really, you know, 6 or 9 months of really good research before we were willing to sort of slightly open the kimono.
And tell people we could do this. And then when we sort of started to say, "We think we could do this," then the level of interest went way up from potential partners.
Yeah. So that's, that's a good kind of segue. You know, you, you really unveiled this, the ECO Synthesis platform this past spring at TIDES USA. More recently, you were at TIDES Europe, presented on progress there. You know, walk us through the progress you made between those two kind of time points, and just your path toward, you know, gram scale synthesis, which I think you've guided to-
Yeah
achieving by year-end.
So TIDES US at the beginning of this year, early this year, was really about a show and tell, saying: Here's an enzyme that can do sequential additions to, to an RNA oligo. We think we can make this into a thing, right? And people sort of came and—well, came to our session, nodded and grunted and said, you know, "Come back when it works," right?
The TIDES Europe was completely different. That was about showing a little engine that can, actually showing sequential additions, which made people sit up and take notice because of the incorporation efficiency, because of the kind of modifications it was including. It was. It's now become a real thing that we're perfecting, as opposed to an idea that we're working on. And so that really sets us up for this gram scale milestone, which, like all milestones, is a gross oversimplification. What it really means is we can make a, you know, a reasonable amount of the stuff, which includes the relevant modifications that we want to be able to demonstrate to the world at really good conversion efficiency, with good purity, such that people under process conditions, such that people can look at this and say, "Okay, now it's ready for testing.
Right? And so that really sets up the commercial team to get into the first sort of friends and family partnerships, where, yeah, it's all very well to have this technology working on a bench in Redwood City in our lab. We want it to be working on a bench in someone else's lab right? And so that's what the sort of early part of next year is about.
Okay. And then, you know, just some of the news from the last quarterly update, I think you disclosed the formation of an SAB, you know, John Maraganore, the inaugural external member. You know, how to talk about that, you know, how long has that been in the works? What kind of perspective are you, you know, looking for from this SAB, and you know, as you develop the, you know, the ECO Synthesis platform?
So one of the interesting things about running a technology company that's been around for a while and, you know, has a beautiful core around enzyme engineering, is we can sort of fall in love with our own methodology and what we do a little bit too much. And so the SAB is there to keep us honest and make sure that we're working on real problems that people actually want solutions to, but also that we've got our heads up to see where the field is going, right? And that's actually one of the challenges for a company like us, is looking under the hood of all the other companies, not to see what they're working on right now or what's, you know, currently in the public domain, but what's coming.
And so it's really having that sort of input to make sure that we're working on the most relevant problems and also that we're making the right trade-off between scientific purity and pragmatism-
... in terms of building something that works. And an example of that would be, we could work with, you know, exclusively a single TdT enzyme to make it as good as possible at doing everything, or we could bifurcate to having a system that had several enzymes in it. And there are trade-offs of time and all the rest of it, and, yeah, having input into which is the thing that people actually need could be really important.
And then related to that, you know, you're hosting a virtual KOL event, just on the platform, next month, I think in two weeks. And I think you're gonna have feature a number of KOLs from different, you know, points of view, from the biopharma side, the CDMO perspective. So just talk about that, and, you know, what are the goals of that KOL session? What do you hope to communicate to investors at that forum?
Right. One of the things at that session will be, I'll be extremely brief, so we can listen to the KOL.
Okay.
We're gonna have... John is gonna talk about the sort of evolution of the field and where it's going from a sort of clinical, medicinal point of view. Then we're gonna have, David Butler, who's the Chief Technology Officer of Hongene, so a very well-established, important CDMO in the field. And he's gonna talk about two things. One of them is the challenge of scaling the current phosphoramidite chemistry technology, which has been around for a very long time and is sort of, you know, almost hitting the asymptote in terms of-
... how good you can make it. But then setting up what an enzymatic platform would need to do to be competitive and adoptable by, you know, companies like Hongene and others. And then that will be a huge setup for our Head of Research, Stefan Lutz, to say, you know, "Here's where we are with the eco platform. Here's where we're going, here's how we can meet those challenges." So it's really meant to reinforce the sort of relevance of what we're doing and the way that it is really grounded in input from critical players in the industry.
Okay. And then just, you know, thinking about the timelines, the anticipated, you know, news flow or milestones on ECO Synthesis. You know, I think we're getting sort of a bit of a soft launch maybe in 2024. You know, you talked about entering pre-commercial testing with select customers. You know, how descriptive are you gonna be on that front as we move through 2024? Like, what should we be expecting, you know, to hear about that on the investor side?
Yes. So first of all, you know, you need to know that we're carrying through 2024, 2025, 2026 in good shape with the wiggle room to do what we need to do.
Yeah
... and adjust appropriately. So much of what I want people to be looking at is, you know, as we read out the full year results from 2023, and then we start to look at 2024, seeing the return to growth and improving margins out of pharma manufacturing. And, yeah, a lot of that is already locked and loaded. We're very confident about that, but it's really important because that throws off the cash that gives us the room to maneuver. What's, you know, most important to us next year is the quality of the input and the conversations we get as we refine the overall ECO platform.
But there's also the first introduction is what we call our ECO Ligase, which is the double-stranded RNA ligase, which is a way of almost bridging the intermediate step between a chemical synthesis and an enzymatic one, allowing people to make shorter strands with chemical synthesis, which is quite efficient, and then stitching them together. And it gets them sort of over the hump. I like to call it our gateway drug to ECO Synthesis.
Yeah.
You know, the whole thing that gets them over the idea of using an enzyme in the process. And so it's a lot of that, but also, you know, people have been very focused on the little engine that repeatedly sort of sequentially adds another NTP and another NTP. Just as important is the enzymatic production of the building blocks themselves and of the starter oligo. And so those are things that there should be news flow for in 2024. So, 2024 is all about technical news flow, validation from partners, and then we start to see, you know, meaningful revenue numbers that Sri and others will talk about sometime in 2025 and then into 2026.
Okay, great. Yeah, I guess I'm just, you know, thinking... I think you've kind of put out some numbers on the opportunity, you know, on the kind of the. So kind of maybe you can compare and contrast the value of this program versus, say, your traditional pharma manufacturing business. I know, I think you talked about a TAM around $7 billion-$7.5 billion. Ecosynthesis could capture something like $1 billion in revenue. I know these are all numbers, which came out from the early part of next decade, but can you walk us through the math there, the assumptions, kind of what needs to happen for those to, you know, become reality?
Yeah. So all of this is underpinned by the assumptions we were talking about earlier around this being an important wave of medicines that we can enable, that there really is demand out there, and we're becoming increasingly convinced that that is true. You know, almost every week there's another publication of exciting clinical data and so on. It's also being reinforced by the conversations that we're having with CDMOs and players in the field, and that, you know, out of curiosity, we went into this expecting that our initial conversations would be with the big innovative companies. Actually, it's with the people whose job it is to be ahead of the curve and be able to meet demand in 3-5 years' time, who are building now and talking to us and saying: How do we adopt? So all of that underpins the assumption.
We are looking at, you know, currently a situation where the large scale manufacturer of siRNA, largely based around inclisiran and other sort of similar molecules, is being done chemically by a few big players, such as, you know, Agilent, and that's really tapped out the market, and small innovators are having to pay extraordinarily high amounts of money for small quantities of siRNA. And a quote that we heard recently was: "$1 million a kilo for non-GMP and $2 million a kilo for GMP siRNA," which is unsustainable and, and crazy. But that creates a world, if you think of 30 tons of demand at $1 million a kilo, you get to a number that is extraordinarily big, right? And so we're looking at this and saying: How do we think we can do well here?
Well, we're offering the entire solution rather than a single enzyme that's a step in the manufacture. So we are in a much stronger position than in the sort of traditional part of our business. Also, we're providing a solution that we can put in a CDMO partner's hands, for instance, that can make any siRNA. We provide them with the engine, which is the TdT and the phosphatase, plus the building blocks, plus the starter oligo. They can churn out unlimited quantities of siRNA at that point. So we should be able to command a percentage of the value that they create, and you make very, very sort of conservative assumptions around that, which are robust to many different business models, and you get to very big numbers.
And so we're looking at this as $many hundreds of millions of revenue around the end of this decade. We could, we could do significantly better than that, but if I told you that with a straight face, you wouldn't take me seriously, right? But we're sitting on something that we think is huge.
Yeah, and then just maybe on that, you know, on the guidance point of, side of things, you know, we've seen really remarkable financial discipline out of Codexis the last couple of years. I think you reduced cash burn something like 50%, you know, year-over-year. So I guess when can we expect to hear more, maybe granularity on kind of what went into your, guidance, for, you know, reaching cash flow positivity by around year-end 2026? Just kind of talk about the milestones or the kind of, newsflow we should expect on that front.
Right. So the first thing is we'll have much more visibility as we put a few more quarters down in terms of our burn reduction and just how much we streamlined that. Our estimate is we've taken our burn down by more than 50%. We've taken our headcount down by more than 40%. We've focused in one facility, but more important, we're focused on essentially doing the thing that we do really well, which is enzyme engineering and perfection and scale-up. And there's a kind of synergy in having the whole organization pointed in the same direction. So you'll start to see the benefits of that flywheel. It plays out in terms of, you know, we've been surprised at pharma manufacturing, how healthy and robust that business is. We thought, you know, maybe biocatalysis was gonna become something that was commoditized.
It is for the easy stuff. It's not for the difficult stuff. What we hear again and again from our customers is, what we're really good at is making enzymes that do cool things, but also making them such that they're expressible and scalable and reliable. You learn that over 20 years. So that's a part of the business where you'll be able to plot a trajectory of revenue growth, improving margins, therefore profitability, therefore calculate how much that throws off, decreased burn. We've got some, you know, good stuff happening in the pipeline in terms of monetizing a lot of our non-core assets, which will create wiggle room. You know, we pulled out of Biopharma, not because it didn't have value, but because we couldn't afford it in the current environment. Expect to see some positive news there.
Some of our other enzymatic platforms, like the mRNA platform, look for some news flow there. And so all of that will allow you to say, "Okay, here's a company with a strong balance sheet, with a, a very low burn, with a profitable part of the business," and then you can put some very modest projections on the ECO Synthesis platform, which flips us into cash flow positive in 2026 and beyond.
So maybe touching on one of the components you just mentioned, which is, you know, optionality on some of the non-core assets, including, you know, the biotherapeutics assets and some other things in your life science business. You know, and specifically on the biotherapeutics, you know, remind us where you are. I think you were in discussions on restructuring the Nestlé collaboration, but you could retain an economic interest. So maybe walk us through, like, the status there, what kind of newsflow we should be expecting.
Absolutely. Let's start with Nestlé. And, you know, what we have with Nestlé is CDX-7108, which is an engineered lipase that survives the upper part of the GI tract, and therefore can actually perform in the gut as pancreatic enzyme replacement therapy. Really good phase 1 data from last year, and now looking to go forward into phase 2. We were originally in a profit share with Nestlé around that program, but, you know, that was something where we really didn't have the infrastructure and the expertise to take it forward in that way. So we've been reframing it to much more of a partnership. Nestlé is deeply committed to that area. They've got an important revenue-generating product in Zenpep already.
This is an addition to that platform. Plus, behind CDX-7108, there are two other enzymes, a protease and an amylase, that could make a completely recombinant combination, because at the moment, these are all porcine-derived. So they're taking it forward, and what we're sort of in the later stages of negotiating right now is the appropriate financial arrangement, which turns it into a classic out-licensing, where instead of, you know, us committed to a profit share, which is a loss share for a very long time, it's an upfront milestone commensurate with a phase 1 product, with then some milestones through development and launch, and then a, you know, royalty at the back end. And, you know, that might well be a model for the future for us.
If someone comes and says, "Can you make this enzyme?" The answer might well be, to be blunt, "If you pay for it," and then... Right? And then we will take the appropriate value out of that equation, rather than getting out over our skis and trying to become a drug development company.
Excellent. I think we've got just under a minute left. You know, anything else we didn't touch on that you think is kind of important to emphasize, you know, as we head into 2024?
Yeah, I mean, I'm super pleased with where we are with Codexis right now. It'll take a while for the world to catch on, as it always does. But, you know, we're, as I say, we are fully funded through cash flow, break even, and profitability. We are valued based on, you know, our balance sheet and our pharma manufacturing business, and we have this potentially incredibly valuable ECO Synthesis platform, which starts with siRNA, but can go an awful lot of places after that, and we think is, you know, a real opportunity to build something very special in Codexis. So we're feeling good, and we've got the right organization to do it.
Excellent. Well, we'll look forward to watching that play out. Thanks so much-