All right, great. Thanks. So I think we'll get started here. My name is Matt Stanton. I'm part of the life science tools and diagnostics team here at Jefferies. Happy to have Codexis back at the conference with us this year. Joining us from the company, we have CEO Stephen Dilly. Stephen, thanks for joining us today. Maybe just to set the table, if we go back a year ago when we had you here, it was very early days of ECO Synthesis. Over the last 12 months, a lot of progress has been made, which we'll discuss a bit more.
But before we jump into it, maybe you could just kind of give a brief background and level set people on, you know, your ECO Synthesis platform, how it came about within Codexis, what are the issues you're trying to solve for, and maybe, you know, the competitive advantages of your product versus maybe some other things out there?
Great. Yeah, and thanks for having me, Matt. So ECO Synthesis really all came about because of inbound interest from customers we'd been working with in more conventional fields of biocatalysis. And these were the big pharmaceutical companies that we've been supplying enzymes to, to make small molecule APIs. And they said, "You know, really, if you could do an enzymatic solution to siRNA synthesis, we'd be very interested to see it." And at the time, we looked at it, it looked really hard, and it was for about the first year, it was a skunkworks where we didn't talk about it.
And then about a year ago, we started getting enough technical traction that we said, "Okay, this is worth sort of rolling out and talking to people about." And then, since then, it's really been lightning progress of getting to gram scale at the end of last year, and then just a week or so ago, showing full-length enzymatic synthesis of what I think a lot of people didn't appreciate, which was a real live oligo that's on the market with a targeting moiety attached to it. So, you know, that was enough progress to make people really sit up and take note. And in that, we've had a lot of dialogue with, with potential partners and customers and learned a lot about that ecosystem, so we're super excited.
And maybe kind of picking up there, you know, TIDES a few weeks ago, you know, presented some good data. You know, what's kind of the nature of the feedback in, from, you know, potential customers over the last few weeks? And I guess, you know, where are they most excited? And conversely, you know, are there any areas of pushback or additional proof points needed for people to get, you know, more, more excited?
So, first of all, TIDES was really interesting in terms of being, you know, an excellent meeting for us, huge customer engagement in terms of the people currently in the space of making siRNA or projecting getting into that space, but really not an investor meeting, you know, in that it was almost invisible to the equity capital markets. But, you know, we had a lot of sort of interest going into that meeting, but a phenomenal level of engagement coming out of it. And what we've learned is that there are several classes of engagement that we got. One of them is with innovator companies that are making siRNAs and developing those at the moment as therapeutics, that are interested in how they're going to scale their in-house manufacturing.
And often, they're talking to us about the, the fully enzymatic route and, and how we do this soup to nuts with using enzymes. Then there are the existing CDMO players who are using phosphoramidite chemistry right now, to make siRNA for their clients who want to make that chemical process better. And that's really been where the ligation strategies come in as something that's real right now. And we actually rolled out two things at TIDES. One of them was the enzymatic synthesis of full length, the other one was the ligase optimization service, and we see that as a crucial bridge between chemistry and enzymatic synthesis in the future.
Okay, I want to touch on those a bit more here in a minute, but I guess just going to something you hit on really quick at the beginning, you know, the, the clinical relevance, right? I think it was maybe overlooked that, you know, the data at TIDES was on a molecule or molecules that had clinical relevance, right? So I guess maybe just talk a bit more about, you know, why this is important, and, you know, the molecules that were worked on for that data.
Yeah. So I don't know that people appreciated this, but even at the end of last year, when we were doing gram scale, we'd already demonstrated that the enzyme was capable of getting to a full-length oligo. But at the time, what we were doing was making full-length oligos with very standard building blocks. And that was answering questions like, with a tethered enzyme, can it handle a strand that long? All those kind of things, and the answer was yes. What we did in the interim between the end of last year and the TIDES meeting in May, was to introduce the actual building blocks into a real molecule, because we kind of had to set that up as a standard.
You know, we could make illustrative constructs as long as we want, but it only really matters when you make drugs that are there on the market people can see. And so we actually, buried in the data in TIDES, those were two commercialized molecules that we'd shown that we can make enzymatically. And that's really important to people because the one of the real differentiators of our platform versus anything anyone else is doing is the universality of things like our polymerase, where we have essentially a single enzyme that can do it all. And when you think about the process of scaling, that's super important because it makes it so much simpler as a system.
Okay. I want to touch maybe quick on, you know, we'll call it competitive backdrop, right? There's players out, much larger players out there, like Agilent, who's added a lot of capacity for their oligo, you know, CDMO-type business. There's Bachem in Europe, there's ST Pharm in Asia, who are doing different things, right? How do we think about where Codexis fits within that competitive ecosystem? And I guess, you know, it sounds like maybe there's actually an opportunity for some of these competitors to be partners. So maybe just, you know, help us understand where you fit in that ecosystem and how, you know, you might, they might actually be partners rather than competitors, those guys or some of the others out there.
Yeah. So you gave a list of names. We're talking to all of them and more-
Mm-hmm.
actively engaged, and this is a fundamental shift in our understanding. We went into this thinking we were gonna be competitors to those guys, but actually, the big learning is that introduction of, for instance, ligation steps, can make phosphoramidite chemistry more efficient. And so suddenly, if you are, you know, Agilent and you spent $700 million on building a fantastic plant in Colorado, being able to increase the productivity of that plant is quite important, right? And so that's where we can come into those kind of conversations.
There are some sort of interesting quirks in the siRNA landscape as well, which make it such that a strategy of making shortmers and stitching them together is actually quite favorable, and that's because chemistry is very, very good at short sequences, and the longer you go, the harder it gets. So having a strategy where you construct an siRNA molecule out of, you know, four chunks, is actually improves yield, improves purity, and therefore the productivity of the existing phosphoramidite chemistry plant. So we've really converted from a paradigm of competition to one of you know, cooperation and facilitation.
Yeah, and maybe kind of sticking with that, I think maybe the way to frame it's product versus process, but you talk about, you know, a lot of players in the bioprocessing space, right? There's one filter that's maybe spec'd in, and it's hard to switch to the other one, right? High switching costs-
Yeah.
dollars and regulatory things like that. You know, maybe help us better... You know, if it's the process and not the product, you know, I guess, you know, in a blue sky scenario, you know, things come out next year, like, what's the timing of, you know, you're in a plant that already exists? Like, how do we think about the switching costs there? Obviously, it's not flipping a switch and overnight, but maybe, you know, how we think about that, because I think it's kind of underappreciated.
It's a lot easier than we thought it was gonna be, right? That's really the take-home from this, because you may have noticed, we've been talking about signing our first commercial customer for the ligase. This was a group that was in phase 2, moving to phase 3, had been using another ligase. We believe a wild-type ligase, tested ours, found it was sufficiently better to actually make the right switch, during you know, major clinical scaleup. We think that's an encouraging sign. And if you think about what a ligase does, then improving the ligase keeps you within the specifications of the product you're making. It's a relatively minor change.
What we've learned is, again, we went in with the paradigm that we'd have to get involved with very early-stage assets, even preclinical, and then follow them through development. Actually, the world's different from that. The real challenges of phosphoramidite chemistry come in when you scale, and so therefore, there's a very significant need to make the switch. To give you some numbers, if you, for instance, look at the best-known siRNA inclisiran, which is projecting sort of $10 billion in annual sales later in this decade, about 10% of that is cost of goods. An optimized ligation strategy can reduce that cost of goods overall by 10%-20%. That's $200 million of reduction in COGS, right? That's worth getting out of bed for. That's worth filing a, you know, a minor change to your process with the FDA.
Mm-hmm.
So that's a fundamentally different driver in this space than what we've been looking at in pharma manufacturing.
Yeah, that- that's interesting. I guess shifting gears over, you touched on it a bit, but just some of the things you launched at TIDES, so the RNA ligase screening service, you know, how do we think about the strategy there in terms of, you know, is this a revenue contributor? Is it more, you know, driving deeper access with potential customers? And you know, maybe specifically to that, you know, feedback and traction since coming out of TIDES. We talked about kind of broadly, but maybe for, for that product, screening service specifically.
Yeah. So we prefer to call it our optimization service. Screening is one step in that, and we're confident enough in our offering that we do that for free for people to optimize the ligase. And where this comes from is we've spent years developing a very, very large library of double-stranded RNA ligases. And we've also learned that the performance of the ligase can be optimized to specific sequences, specific modifications of the building blocks of the siRNA. And so already, we're in a position where we have multiple hits for any given construct. And so we've got two paradigms. One of them is people can order a screening kit from us. We'll give them a bunch of enzymes, they can test, they can find the one they like, and then we'll optimize from there.
The other one is they send us their construct, and we will optimize the ligase, and that's actually faster because we've got direct access to the many thousands and then can do the tweaks that are needed. And so the idea is, we can provide them with a dramatic enough improvement in the ligation step over wild type, that they will, you know, inevitably adopt and move forward from there. And so we do see ligase as a very important revenue stream for Codexis. We expect that, by 2027, the ligase part of our business will be as big or bigger than the entire pharma manufacturing business.
... on the double-stranded RNA ligase opportunity in 1Q, you talked about you secured your first order for an engineered double-stranded ligase with a large pharma company. Talk a bit about the process to secure that deal, how the pipeline's kind of firming up, and I think, you know, that was not a very early stage, you know, product, so maybe that serves as a proof point to this, you know, hey, it could be later down the clinic.
It does. We know for a fact that that was a phase two molecule moving into phase three. So there they were willing to change their process in midstream for that. That was actually an evolution for a specific construct that we did. It was part of constructing these very big libraries that we've got. That order, we expect to be followed up with further orders, you know, obviously predicated on successful development of the molecule next year. The quantities and sort of economics contrast very favorably with our traditional business in that, you know, what I've been saying about pharma manufacturing is we have been selling for the last decade, really good biocatalysis enzymes for, say, $3,000-$5,000 a kilo.
The double-stranded RNA ligase is so differentiated that we're talking about, you know, tens of thousands of dollars per gram, right? So it's four orders of magnitude higher value, and because it's, it makes such a fundamental difference, it's a catalytic enzyme, it's got all of those properties to it. We are engaged with multiple other customers, some of them with a specific asset that they want to optimize around. Others, interestingly, wanting to adopt a more generic, broadly potent double-stranded ligase that they can use as a platform across their portfolio in early stages and then optimize later, right? So there's this thing that was a footnote has become a whole business in itself.
Interesting. Okay. Over on the product side of the business, so you guided, I think, the year to kind of $40 million at the midpoint. You know, if we just think about that business and taking a step back, you know, what's the mid- to long-term growth rate for that business? You know, I think you've maybe talked about kind of 10% or better over a multi-year period, understanding it can be, you know, a little lumpy. And then what gives you just kind of the confidence and visibility to kinda underwrite that over, you know, call it the midterm here?
Yeah, great. So, we are very confident in reiterating that we're gonna be, you know, hitting that double-digit growth this year in the product revenue for pharma manufacturing. The reason it's been lumpy is, most of the business, something like 60% of that revenue, has been from 3 enzymes and 4 customers. We now have a full funnel of product in late-stage clinical development, which will eventually convert to commercial supply. Over the next 2-3 years, we see the big 3 converting to the big 6 or 7 or 8, which will smooth the business somewhat and grow it.
We're also now having increasing visibility into what we're working on and what classes of molecules, and that allows us to really sort of focus our efforts to make sure we're supporting the ones that can potentially be big, like for instance, the TYK2s and the PCSK9s in the world, which really have a pipeline in themselves. So we're very confident about the continued growth of that business. That's an important backdrop to the rollout of Eco, because there's a lot of validation in being able to show the same customers we're talking to about siRNA that we've reliably been supplying them with critical enzymes in their other parts of their manufacturing field.
Okay, that's helpful. I guess, you know, as we talked about, the last year's been, you know, pretty busy on the milestone and catalyst front. You know, you guys have laid out a number, you've hit those. As we think about go forward, you know, I think you have the ECO RNA kit. We have, you know, ability to do in-house ligation, but what are some of the key kind of milestones, catalysts, proof points investors should look for over the next, you know, 6-12 months as we march towards commercialization?
Yeah. A lot of it is converting, you know, really positive conversations into business over the, over the next six to nine months. That. So look for us announcing another, RNA ligase customer. Look for us announcing a, what we'd call a validating partnership on the Eco platform. And, you know, that would be about working with a, an innovator company on the stepwise progression from ligation to fully enzymatic synthesis of siRNA. And, you know, that's something I really want to communicate is we went into this thinking that enzymatic synthesis was different and completely separate from chemical synthesis. What we've learned is it's a continuum, that the first step is ligation of chemical fragments, and that allows you to then introduce individual enzymatically synthesized fragments and progress as the molecule scales from a chemical route to an enzymatic route.
Okay, that's helpful. I guess one that's, that's kind of in there is, you know, the opening of the ECO Synthesis Innovation Lab here later this year. I guess, you know, timing update, do you still expect that to kind of be late in 2024? And then just kind of walk through, you know, the goals or, you know, kind of reasons underpinning the opening of this lab, you know, what it allows you to do with customers and how we think about it fitting into the broader, you know, commercial ECO launch over time.
Right. So, so coming out of TIDES, partners are coming to us saying, "Can you make our molecule?" And the answer is, "Yes, we can already do that," but it's disseminated infrastructure around our facility. The enzyme engineering and the process development, they're in different places. What the ECO Lab is about doing is bringing it all into one part of the building in a continuous work stream that we can put quality controls around, and that allows us, around the end of this year, to step from making experimental grade material to making GLP grade material suitable for people doing their preclinical tox work. And we're talking about making, you know, tens of gram batches of that, so they can do significant preclinical workup. And that'll be important for customer engagement. It's already important that we can do a show and tell with people-
Mm-hmm.
-which moves this from being a sort of theoretical concept to something they can see, they can visualize. And we're also having the interesting thing of the reverse visits, where we go and look at potential partners' facilities, and they say, "Eco will go here," right?
Mm-hmm.
In their sort of 30 or 50,000 sq ft facility.
And then I guess just, yeah, on that, so in terms of capacity, it sounds like the discussions have been pretty good since TIDES. You know, do you feel like you have the capacity at that lab facility, I guess, and, you know, if everything goes well, is there, is there ability to add more? I know you're talking about kind of tens of grams here, but, you know, how do you feel about kind of the, the capacity and ability to kind of meet, hopefully, that wave of demand from, from customers once it's opened up?
Well, there, there's meeting the wave of demand is quantity, but it's also they need a route to GMP, right?
Mm-hmm.
One of the things that's very high on our priority list is actually getting to GMP manufacture of siRNA, using, you know, obviously the ligation step first, but then introducing increasing elements of the enzymatic synthesis. We can do some of that in our ECO Synthesis lab, some of that through partnerships with existing CDMOs. And then our next idea is, over time, to build our own in-house GMP facility. And, you know, the volumetric efficiency of this process is so dramatically different from phosphoramidite chemistry, that, you know, a 30,000-square-foot facility could be producing 50-100 kilos of siRNA a year. So, you know, we don't have to think of the $700 million sort of big CapEx investment. It's much more incremental, much more stepwise.
Okay. I want to touch on the balance sheet here in a second, but I guess one last one, you know. Would love an update on Aldevron. You know, you signed that partnership, I think, about six months ago for the HiCap RNA polymerase. You know, how has kind of feedback and interest levels been so far? I think for 2024, it's a fairly modest, you know, contribution from a revenue perspective, but how do we think about, you know, the ramp, in 2025 and and beyond with, you know, pretty, pretty attractive, partner there?
So we're super pleased with the engagement with Aldevron and the broader sort of Danaher family after the high cap deal. They've got a route to GMP, to non-GMP production this year, GMP production sometime next year. That's really when our revenue ramp will start to kick in, because we've got a very healthy royalty in that. This is a great example of where something is not sort of totally in our focus zone, using the commercial channel of a big partner to really leverage a market we couldn't reach otherwise. We did the bit we're good at, which was the enzyme engineering and the process development, and they're really taking it from there, so super pleased with that.
Okay, and, I guess, yeah, shifting over to the balance sheet. You know, you've talked about a plan to get to positive cash flow by 2026. You did a raise in February. You recently put a new shelf up as well. You know, just talk about kinda high level, how you're thinking about where the balance sheet sits today, especially as it relates kinda to, you know, I guess, the use of capital between now and kind of the targets you've laid out for 2026.
Yeah. So we worked very hard to get a strong balance sheet and in the position to get to cash flow positivity, end of 2026. We still preserve that. We've now started to get more concrete in our guidance, and what we're saying is we expect product revenue to essentially double by 2026. That is driven by growth in pharma manufacturing, which is already profitable. That is driven by the introduction of the ligase, which gets us there. That then flips us to being profitable. Now, we have many options to accelerate value creation and buy up, but we're gonna be very prudent and do that within the context always of preserving our self-determined path to profitability. And so we have, you know, a shelf up, we have an ATM, but we're gonna be very, very thoughtful if we ever use them.
Okay. All right. I think with that, we'll stop and leave it there.