Welcome to the Codexis Strategic Update Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this event is being recorded. Now, I will turn the call over to Carrie McKim, Director of Investor Relations. Please go ahead.
Thank you, operator. With me today are Dr. Stephen Dilly, Codexis President and Chief Executive Officer, Kevin Norrett, Chief Operating Officer, and Sri Ryali, Chief Financial Officer. During this call, management will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our guidance for 2023 revenue, product revenues, and growth margin on product revenues, as well as our strategies and prospects for revenue growth and successful execution of current and future programs and partnerships. To the extent that statements contained in this call are not descriptions of historical facts regarding Codexis, they are forward-looking statements reflecting the beliefs and expectations of management as of this statement date, July 20th, 2023.
You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties, and other factors that are, in some cases, beyond Codexis control and that could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexis' filings with the Securities and Exchange Commission. Codexis expressly disclaims any intent or obligation to update these forward-looking statements, except as required by law. Now, I'll turn the call over to Stephen.
Thank you, Carrie, and thanks, everyone, for joining today's call. Earlier this afternoon, we provided an update on our enhanced strategic focus areas. The decisions we announced are designed to build upon our company's existing strength in enzyme engineering and prioritize opportunities where we believe we have competitive advantages in markets with significant revenue potential. We wanted to take this time to discuss those decisions and the path forward in more detail. At its core, Codexis is built around our powerful enzyme evolution technology called CodeEvolver. While there are many potentially useful applications of our technology, our task is to focus on the application where we can command the most meaningful market share and drive maximum value. Today, we believe that we've identified our killer app, namely, enabling the commercial scale manufacture of siRNA therapeutics through our enzyme catalyzed oligonucleotide or ECO Synthesis technology.
We view this as an extremely valuable opportunity, where we are in a uniquely strong position to win. In addition to fully resourcing the development and optimization of the ECO Synthesis platform, we plan to continue growing our highly complementary pharmaceutical manufacturing business. With the portfolio approach prioritization decisions that we'll walk through shortly, we've extended our projected cash runway to mid-2026 to help ensure that Codexis is purpose-built and well-capitalized to realize the tremendous value potential ahead of us. Moving to slide four. RNAi therapeutics have the potential to alter treatment paradigms for a host of widespread, difficult-to-treat diseases. There are multiple categories of RNAi therapeutics, and while the ECO Synthesis technology has the potential to enable efficient manufacturing in many types, our initial focus is on siRNA, which are typically approximately 20 nucleotides in length.
There are currently five FDA-approved siRNA medications, more than 40 in late-stage clinical trials and about 500 in development. It's absolutely clear that siRNA-based drugs are positioned to become an important part of the therapeutic armamentarium. While the first siRNAs were approved for rare indications, many of the agents in development, and actually one of the approved drugs, are targeted at large disease indications impacting millions of potential patients, including Alzheimer's, hyperlipidemia, and hypertension. It's also clear that there's a real issue with the scalability of the current chemical-based method of siRNA production to meet this wave of demand. We believe that our ECO Synthesis technology has the potential to address that challenge by providing a scalable, sustainable, and cost-effective alternative that acts as a complement to traditional phosphoramidite chemistry.
If we are successful, we believe that our ECO Synthesis platform has the potential to command a meaningful share of siRNA production and can be a significant driver of value creation, far beyond anything else in our portfolio. Of course, we're not alone in seeing the value of an enzymatic solution to siRNA production, so we need to focus our efforts to maintain our lead in this important field. Shifting to slide five, we actually started working on our ECO Synthesis technology about two years ago in response to multiple partners asking if we could develop an enzymatic solution to address the emerging supply and demand crisis in siRNA. It is by far the most technically challenging project we've undertaken to date.
However, our long history of engineering increasingly complex enzymes for large pharmaceutical customers has essentially been a 20-year setup, enabling Codexis to take on this highly technical challenge, and we've made sufficient progress to be confident that we can succeed. Touching briefly on the platform itself. Our ECO Synthesis technology is a proprietary process and suite of high-performance enzymes engineered to synthesize RNAi without the use of a template. It's also designed to address the scalability limitations and chemical waste associated with current manufacturing techniques. The first public disclosure of our ECO Synthesis platform was at the TIDES USA meeting in May this year, where we demonstrated the first publicly shared enzymatic de novo RNAi synthesis. The cornerstone of the ECO Synthesis platform we're developing is a TdT polymerase enzyme engineered to recognize and incorporate modified ribonucleotides in order to synthesize siRNA.
As you can see on slide six, we've already made robust progress in evolving this enzyme. We originally engineered a TdT polymerase from Molecular Assemblies to use in DNA synthesis. Separately, we thereafter explored whether we could apply TdT, which naturally work with DNA, to RNA instead. Our scientists have since worked out an elegant solution by engineering a TdT with high levels of activity, stability, and promiscuity for the nucleotide being incorporated. This means that the enzyme has a vastly minimized preference for any specific nucleotide, an essential characteristic, given the number of structurally distinct RNAi building blocks. Today, we are well beyond the halfway point in the necessary rounds of TdT evolution. We expect to complete that phase of engineering during the second half of this year.
As we continue to refine the platform and prepare it for potential commercial use, we look forward to sharing updates at scientific meetings and investor events. With our projected cash runway to mid-2026, we are funded through commercialization of the ECO Synthesis platform, setting the path towards potential positive cash flow in 2027. With that backdrop, let me recap the four things you will need to believe to share our excitement about the potential value of our ECO Synthesis platform, listed on slide seven. Number one, an enormous wave of demand for RNAi therapeutics is coming. Number two, the current phosphoramidite chemistry alone can't scale sufficiently to meet this RNAi manufacturing demand. Thirdly, an enzymatic synthesis route is a viable alternative to complement traditional manufacturing methods. Number four, Codexis is already ahead of the competition and has differentiated expertise and competitive advantages to capture this attractive market.
Frankly, we've been digging into this for a while, and we've become increasingly confident on all four of those points. Before Kevin dives into a bit of detail on the ECO Synthesis platform and our commercial strategy, I'd like to provide a brief recap of our recent prioritization efforts and what the roadmap looks like from here. Moving to slide eight. As I mentioned, pharmaceutical manufacturing is highly complementary to our work in RNAi synthesis. We anticipate a return to product revenue growth of this business in 2024, combined with a robust pipeline of our customers' projects in phase II and phase III, we expect to drive potential growth over the next several years if new products gain FDA approval. We also have a rich existing library of customized enzymes, which will allow us to efficiently expand the business into the latter part of the decade.
That said, enzymes used as traditional biocatalysts have per-product peak revenue of roughly $5 million a year, and the anticipated growth trajectory of this business is far more modest than the potential ECO Synthesis market. However, given the useful overlap in expertise, infrastructure, and commercial reach, pharmaceutical manufacturing is a nice business to have. It generates positive cash flow and affords us credibility with a critical customer segment as we execute on the powerful ECO Synthesis opportunity. We're also consolidating the rest of our life sciences assets and focusing only on the highly differentiated enzymes that solve the true unmet needs. After commercializing our first batch of products in this arena, we found that incrementally better enzymes just weren't enough for customers to disrupt existing workflows or for us to achieve meaningful market penetration.
With that learning in mind, we took a hard look at our life sciences portfolio and made the decision to prioritize enzymes where there is limited competition and where sensitivity and accuracy matter. We will continue to focus efforts on our newly engineered DNA ligase and the Codex HiCap RNA Polymerase. We've received high levels of interest and engagement with each of these products because of their differentiation and their ability to be applied across multiple customer workflows. Closing out our program updates. In biotherapeutics, we announced our plan to discontinue all preclinical discovery work, including both inborn errors of metabolism and gene therapy. We're also discontinuing our 50/50 development support of the CDX-7108 clinical program, and we're in active discussions with our partner, Nestlé Health Science, about advancing the asset without our financial support.
While we continue to believe that enzymes have great potential for use in medicines, our leadership team includes many drug development veterans, and we are acutely aware of the significant capital and time investment required in that arena. While our biotherapeutics programs provide nice validation of our technical capabilities, we are an enzyme engineering company. In addition to streamlining our focus areas, we announced our decision to consolidate operations to our headquarters facility in Redwood City, California, and to reduce our headcount by approximately 25% to align with our portfolio priorities. While it was a difficult decision, this consideration was made much easier in that it allows us to direct our resources towards critical value-add activities and extends our projected cash runway to mid-2026.
This gives us the time and the capital we need to build sustaining value through our ECO Synthesis platform and helps us control our own destiny moving forward. As we position ourselves for success, we are hyper-focused on building the right team, identifying where we can add value via our core capability in enzyme engineering, and making our way up the value chain to command a greater share of potential profits. Today's announcements are aimed at optimizing Codexis, and our enhanced strategy is all about clear prioritization, streamlining, and focused execution on a core group of promising assets. Now I'll pass over to Kevin.
Thanks, Stephen. I'll focus my time today on why we are so bullish on the ECO Synthesis platform and what we expect on the path forward. To grasp the magnitude of this opportunity, it's critical to understand the trajectory of the anticipated demand for RNAi therapeutics in the coming years, outlined on slide nine. For context, we estimate current annual demand for RNAi oligos to be approximately 1,000 kg, as RNAi therapeutics are primarily targeting rare orphan indications. However, as Stephen mentioned, there are more than 40 phase II and phase III clinical assets currently in development for large disease indications, which we define as those with prevalent populations of hundreds of thousands of patients to more than one million patients per year. Given this late-stage clinical pipeline, our market research estimates that demand for RNAi therapeutics could grow 20 to 30 times by 2030.
Assuming a portion of these late-stage product candidates are approved, this could mean as much as 30,000 kilograms of demand will be required annually at peak penetration. Phosphoramidite chemistry has effectively enabled bench-top RNAi manufacturing scale for many decades, but it has certain limitations that we believe will prevent it from scaling to support large-scale commercial manufacturing. First, it is limited in batch size to single-digit kilograms of production. Second, it requires the use of acetonitrile, a toxic solvent, to facilitate the reaction environment necessary to produce the RNAi. If phosphoramidite chemistry is used exclusively to meet the 30,000 kg of RNAi demand that we expect to come, acetonitrile use would grow to 20 million L, a 20 times increase over the one million liters used today.
This spike would place a significant burden on the global acetonitrile supply chain and also generate massive volumes of hazardous and costly environmental waste. In order to meet the coming wave of RNAi demand, phosphoramidite chemistry alone will not be sufficient, and an alternative enzymatic route must be made available. Moving to slide 10, we began developing a fully enzymatic approach to RNAi synthesis about two years ago, after we were approached by our existing pharmaceutical manufacturing customers, who were looking for a way to meet the coming RNAi demand in their own therapeutic pipelines. We believe our long-standing reputation and demonstrated experience in tackling difficult challenges in enzyme engineering separates us from the pack and makes us a natural choice. We already have ongoing R&D enzyme engineering projects with large and mid-sized pharmaceutical customers who have existing pipelines of RNAi therapeutics.
These partners are well acquainted with our ability to perform extensive rounds of engineering necessary to achieve complex enzyme specifications, and they know that Codexis is uniquely equipped to develop an enzymatic solution to this problem. Because our foundational pharmaceutical manufacturing business already involves working with large pharma companies, we also understand the big company mindset, including how they move from discovery, to development, to commercial stage. Given our established track record of supporting scalable, efficient, and cost-effective enzymes for the manufacturing of pharmaceutical products, we believe we have a significant competitive advantage over emerging players in the enzymatic RNAi synthesis space. From a business standpoint, the ECO Synthesis opportunity draws upon our existing expertise, but is far more attractive in terms of potential value to Codexis and its customers. Pharmaceutical manufacturing requires one-to-one custom enzyme engineering projects, which involve significant time and resource investment on a per asset basis.
The peak enzyme revenue potential is also limited to low single-digit millions annually per asset, and customers can still rely upon traditional chemistry as a cost-effective way to scale to commercialization. The beauty of the ECO Synthesis technology we are developing, on the other hand, is that it has the potential to manufacture any siRNA strand without the need for project-based customization. That means that with one single platform and process, we have the potential to rapidly enable the manufacture of tens to hundreds of kg of any custom siRNA strand per batch across multiple customers. Further, the scale our solution can enable takes our technology from a nice-to-have option to an essential method to meet the coming demand. As shown on slide 11, in direct comparison to phosphoramidite chemistry, the ECO Synthesis platform we are developing presents several potential advantages when manufacturing at commercial scale.
As I just mentioned, our potential solution offers an efficient way to manufacture large volumes of high-purity RNAi. By using aqueous reactions, our platform also avoids the need for acetonitrile and should significantly decrease chemical waste streams and associated disposal costs. In addition to scalability limitations and low purity output, phosphoramidite chemistry also requires a massive capital and infrastructure investment early in the clinical development process. The ECO Synthesis platform we are developing, however, may be utilized in small molecule manufacturing facilities, potentially obviating the need for a significant early-stage capital investment in manufacturing. Phosphoramidite chemistry does a great job as the workhorse to manufacture RNAi at small bench-top scale. In parallel to that, we believe the ECO Synthesis platform opportunity lies in enabling the large-scale manufacture of RNAi therapeutics.
As is often the case when a new technology is introduced to the market, we expect the two methods to coexist, working in harmony to serve different purposes within the ecosystem. Let me take a moment to describe how all of this translates into the total addressable market for the synthesis of RNAi therapeutics, and how we view the specific ECO Synthesis platform revenue potential, as outlined on slide 12. I mentioned greater than 40 clinical assets in late-stage development, targeting large disease indications like cardiovascular disease and Alzheimer's. If we assume an approval rate for late-stage clinical programs of approximately 1/3, there could be 15 approved RNAi therapeutics for large indications by 2030.
If each patient requires roughly one gram of RNAi therapy for treatment on an annual basis, and we assume an average treated population of approximately two million patients per indication, peak annual RNAi therapeutic demand would hover around 2,000 kilograms per asset, with 15 drugs approved by 2030, peak annual RNAi therapeutic demand could reach 30,000 kilograms. Based on what we are hearing from industry-leading CDMOs and experts within the large pharmaceutical companies, we estimate the cost to manufacture RNAi therapeutics today to be between $250,000 up to $1 million per kilogram. The exact number depends on several factors, but if we assume phosphoramidite chemistry continues to be optimized over the next decade, we estimate that figure will be closer to the lower end of that range.
With the potential for as much as 30,000 kilograms of annual demand at manufacturing costs of $250,000 per kilogram, we estimate the total addressable market for peak annual RNAi therapeutic demand could be as high as $7.5 billion. There is a critical need for an enzymatic synthesis solution that offers a scalable, sustainable alternative to phosphoramidite chemistry. Conservatively, if the ECO Synthesis platform can capture even an estimated modest percentage of that, it has the potential to result in a significant revenue opportunity of $1 billion by the early part of next decade. It's clear that this platform offers the most significant revenue potential of any program in Codexis' history. Moving to slide 13, we plan to demonstrate gram-scale synthesis of our ECO Synthesis technology by the end of this year.
This critical milestone provides a key point of technical validation of our platform. It enables us to begin pre-commercial testing with select customers in 2024. We have learned over time that early customer feedback can provide valuable perspectives to ensure we build a product they actually want and believe in. We will take these insights into further process development as we prepare for the ECO Synthesis platform commercial launch, which we anticipate by 2026. While we continue to develop the fully enzymatic route, we plan to enter the RNAi therapeutics manufacturing market via our double-stranded RNA ligase. Our double-stranded RNA ligase offers an intermediate step that allows for the connection of short RNA, RNAi fragments generated from phosphoramidite chemistry or other methods to form full-length RNAis.
This enzyme is expected to be made available to customers by the end of 2024 and provides an important bridge, both technically and commercially, until the ECO Synthesis platform is fully developed. In conclusion, we are excited to be focused on this incredible opportunity. The ECO Synthesis technology platform is where Codexis' core technical competency and existing commercial infrastructure come together, positioning us to potentially capture massive value in a market facing significant challenges to meet future anticipated demand. We are well on our way to demonstrating full proof of concept, and we look forward to keeping you up to date on our technical progress. With that, I will turn the call over to Sri to discuss the financials.
Thank you, Kevin. Good afternoon, everyone. As Stephen and Kevin both mentioned, the actions we announced today, which were recently approved by our board and are outlined on slide 14, will strengthen our financial position by extending our cash runway to the middle of 2026, enabling us to focus on key priorities. Our ecosystems platform, and the return to growth of our pharmaceutical manufacturing business. Let me dive into some specifics on expected timing and the anticipated savings associated with the decisions we just outlined. The majority of our headcount reduction of approximately 25% of our workforce is expected to be complete by September 30th, 2023. This allows sufficient time to transition the workflows associated with each of the impacted programs, and we should begin to realize associated savings in the fourth quarter of this year.
The operational consolidation for our headquarters facility in Redwood City, California, is expected to be complete in the second half of this year. As a result of these changes, we anticipate a reduction of annual expenses by approximately $15 million in R&D and $5 million in SG&A, reflecting lower headcounts and facility expenses. We expect to incur a restructuring charge of roughly $3 million in the third quarter of this year related to the reduction in force. A key element of the savings stemming from the strategic update is that we will not incur the significant ramp-up in costs originally anticipated as part of increasing spend related to the CDX-7108 phase III clinical trial initiation and CMC scale-up activities.
We also estimate that we are avoiding more than $100 million in third-party spend associated with our continued investment to develop CDX-7108 through phase III. We'll recognize savings resulting from the elimination of costs associated with preclinical activities for programs in gene therapy and inborn errors of metabolism. Turning to our financials on slide 15, we plan to report results for the second quarter of 2023, post-market on August 3rd. Today, we are sharing select preliminary metrics as well as updated financial guidance. Please note that we and our auditors have not yet completed the preparation of our financial statements for the second quarter of 2023. As a result, final reported results may differ materially from the preliminary results described here.
Total revenues for the second quarter of 2023 are expected to be in the range of $21 million to $22 million. This includes anticipated product revenues in the range of $11 million to $12 million and R&D revenues of approximately $10 million. Shifting to guidance on slide 16, we continue to expect full year 2023 product revenues to be in the range of $30 million to $35 million, excluding enzyme sales related to Paxlovid. As you think about modeling the rest of this year, recall that our pharmaceutical manufacturing business tends to be varied quarter to quarter. This is due to timing dynamics associated with customer orders, including, for example, pre-launch inventory builds in one year, followed by no orders during the following year.
The second quarter represents strong product revenue, given the inherent lumpiness of this business, we are confident in reaffirming our full-year guidance range. Looking ahead to the rest of 2023, based on the visibility we have today, we anticipate a decline in product revenues from Q2 to Q3, with the expectation that fourth quarter product revenues will be more in line with the second quarter. We also continue to expect product gross margin to be in the range of 55% to 65%, excluding enzyme sales related to Paxlovid, the same guidance range we issued in our first quarter earnings release on May 4th. We are adjusting our 2023 R&D revenue guidance based on the strategic priorities and actions announced today.
We now expect R&D revenues to be in a range of $21 million to $24 million, down from prior guidance of $28 million to $33 million. This decrease is primarily due to the discontinuation of investment in the CDX-7108 clinical development program. Our biotherapeutics R&D revenues reflect a reimbursement of approximately 50% of our costs, and although R&D revenues are down, removing these costs actually improves our bottom line by reducing our overall cash burn. As of June 30th, 2023, we had $92.1 million in cash and cash equivalents, providing anticipated runway to mid-2026. We expect these resources to be sufficient to fund the planned milestones Kevin outlined for the advancement and commercialization of our ECO Synthesis platform. I'll turn the call back to Stephen.
Thank you, Sri. In closing, the foundational strength and enzyme engineering to an enormous commercial opportunity. The actions we're taking today set Codexis's up for real revenue generation potential within the next two to five years by affording us the cash runway and resources we need to execute on this world-leading application. We'd be happy to take your questions. Operator?
Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Allison Bratzel with Piper Sandler. Please proceed with your question.
Hey, good afternoon. Thank you for taking the question, and thanks for holding this call. I think first, you know, it would be helpful if you could kind of frame for us, you know, how do you see ECO Synthesis fitting into the existing RNAi manufacturing landscape today? You know, what gives you confidence that the two kind of systems or standards can coexist? How do you anticipate that this is going to evolve, you know, over the next decade and thereafter?
Thanks. Stephen here. I'll take that question. First of all, I'd reiterate what Kevin said, that phosphoramidite chemistry is highly evolved. It's been around for 40 years. We expect it's going to play a continuing role in the RNAi landscape. We know what it's good at. It's really good at making small quantities rapidly. You can plug on almost any nucleotide or modified nucleotide that you want to. It's a very flexible system, it's also really good at making short fragments. The gap in phosphoramidite chemistry is when either you try to make long strings of RNA or you try to scale it up, and one of the factors in that is, like, a five kg physical limitation in batch size, which when you're trying to make thousands of kilos, is a real problem.
We see our entry as addressing those pain points. First of all, the RNAi, the RNA ligase, the double-stranded RNA ligase that we'll be introducing commercially next year, we already have versions of it in collaboration with some of the RNAi players right now, but broadly introduced next year, will allow phosphoramidite chemistry-based companies to make shorter strands of, say, five or six, and bolt them together in a very efficient way. What that will do is be an entry point into the market that makes their current offering more efficient, more cost effective, more scalable. Behind that, we will introduce the full ECO Synthesis platform through a program of alpha and beta testing that Kevin touched on. There'll be an enzymatic option for scaling up.
What I like to think back to is my days as a person leading, you know, big development portfolios in large companies. When you're doing that, you have to think about the capital investment, particularly when the risks are high. The big problem with RNAi right now is that if you're thinking of moving forward into a big indication, you have to put down a massive capital investment early. We hear numbers like, you know, Agilent building a plant that costs $750 million, that will be capable of making about 1,000 kilos. Alnylam, we know, are also investing heavily in that type of infrastructure. Now, what ECO Synthesis does is it allows companies to use their existing small molecule facilities to scale up, so you don't have that big barrier to entry of capital investment.
That's why we think that it's rational to consider that we could command something similar in terms of economics to the current phosphoramidite. We see a stepwise process. Starts off where we're enabling them, making them better, then we're providing an alternative, and eventually, we could provide the complete solution from start to finish. The other part of that is, we think it's really important that we build the analytical bridge to allow products that are already in development or even approved based on phosphoramidite chemistry, to move over to the ECO Synthesis platform. You could imagine an example where they were treating a small indication, they get evidence that they have potential in a broader indication, scaling is an issue, and it's worth going through the Rate Freeze process to shift horses, if you like.
We see it as a very sort of stepwise process, which is a great thing. You know, we don't have to wait until it's all done before we can get involved in the market.
Great! That's very helpful. Maybe just another one for you guys. You know, you walked through the anticipated news flow for the ECO Synthesis platform, you know, catalyst, I think between now and 2025. I guess, could you kind of help frame, you know, which you see as the major value inflections for the platform, and just kinda when, you know, we can get kind of line of sight into, you know, the market opportunity here?
First time that we show you gram scale synthesis of full length siRNA, purely using the ECO platform, will be super important, right? That's what we're aiming for by the end of this year.
Mm-hmm.
The next one is as we get feedback and adoption next year from the alpha testing of the ECO platform, and then, you know, it really takes off from there, the next one being the introduction of the double-stranded RNA ligase, and that's actually the newly engineered one beyond the one that's already in use.
Right. Yeah. This is Kevin. Maybe I could just add, as well as that success associated with the alpha and beta testing in 2024, gaining that valuable set of insights that I talked about in terms of further tweaking to the platform, we could see some early commercial licenses to the technology and adoption from smaller scale partners in the 2025 timeframe, but we're planning for a full commercial launch in 2026.
Got it. That's helpful, and that kind of leads into my last question here. Just hoping, you know, any color you could provide on some of those assumptions that went into your updated cash flow guidance. You know, I understand the cost cutting and things you outlined near term. I think you also kind of talked about, yeah, the potential for large scale commercialization by 2026, and I think I heard you know, quote the potential for cash flow positivity in 2027. Just, can you kind of walk us through your assumptions there, and kind of how we should think about that cadence?
Sure. Hey, Alli, it's Sri. Happy to take that. I think the biggest difference from how we were thinking about our burn before, when we were working on a number of different programs, is we've reduced that burn by over half over the next several years, including the discontinuation of our investment in biotherapeutics. To get to cash flow through middle of 2026 and potentially positive cash flow in 2027, that assumes the return to growth in pharmaceutical manufacturing, which we're confident of, as well as the commercialization of the ECO Synthesis platform and the timelines that Kevin and Stephen discussed. Those are the key drivers of our updated financial forecast.
Got it. Well, thank you, guys, and congrats on the update.
Thank you.
Thank you.
As a reminder, ladies and gentlemen, it is star one to ask a question. Our next question comes from the line of Dan Arias with Stifel. Please proceed with your question.
Even as we sort of digest the changes and the makeup of the company, what % of the commercial effort is going to be going towards ECO Synthesis going forward? How much of the R&D and how much of the SG&A goes that direction versus the existing programs that you're keeping?
Those are commercial?
Yeah.
Sure. This is Kevin. Hi, Dan. I'd say the majority of it, we do have a couple of other key enzymes that we are still working towards launching. One is the double-stranded DNA ligase, which we brought out for alpha and beta testing earlier this year at AGBT. We are looking as part of that and our Codex HiCap RNA Polymerase, to leverage channel partners in terms of downstream sales, support through licensing efforts. Again, the majority of the efforts, around commercialization will be centered on ECO Synthesis platform. Do you want to add anything?
Well, I just chip in there and say what we're trying to do here, Dan, is we're trying to focus our forces to really be impactful. We're playing on the synergy between the pharma manufacturing commercialization footprint, where we're talking to the same customers and pulling through the conversations about RNAi. In the other parts of our universe, like life science enzymes, I'd emphasize the fact that what we're trying to do is use other people's channels.
Yeah.
I mean, Kevin, you're looking at exclusive relationships there, so it's very de minimis in terms of the amount of investment we have to make. In the biotherapeutics arena, we don't actually think there's zero value there. We think we can realize some value over time, but it's sticking to our guns in enzyme engineering and really relying on partners to do the development investment. We will command some economics that are appropriate to that. So, Sri.
Similarly, on the R&D side, our focus is very much around the ECO platform. Just as a reminder, the R&D work that we're doing in pharmaceutical manufacturing is largely funded by partners, which you see in our R&D revenue line. The work that we're funding ourselves in R&D is focused on ECO Synthesis.
Okay. Okay, it sounds like the high temp, hot start, HiCap, those are all still products that you'll be putting into the market. It also does sound like you're scaling back a little bit of the life sciences effort, if I'm understanding that correctly?
I think you're absolutely right, Dan. It's scaling back in terms of focus. Focus on those enzymes where we can make a big difference. We think the HiCap, we think the double-stranded DNA ligase and the focusing on the launch around the double-stranded RNA ligase and ensuring those go off without a hitch. In terms of hot start DNA polymerase, those are things that are within our portfolio, quite frankly, I don't think they're differentiated enough. We focused our efforts on those three enzymes in terms of generating penetration with potential downstream channel partners.
As Steven mentioned, we're in various different discussions around exclusive licensing of several of those, and think that, you know, they're better equipped with their existing sales forces to be able to do that, whereas we want to leverage our pharma manufacturing field force to be able to focus on awareness and driving that around the ECO Synthesis platform.
Right. You don't win in these markets by sort of being superficial. You have to understand them intimately, understand the barriers to adoption, understand the drivers. You know, already it's been a huge pleasure to be able to dig deep in, you know, how does this ecosystem work? What do people need? Who should we be playing with? How do we get in there early, in a way that we just couldn't when we were trying to do so many more things? We're already feeling the benefits.
Okay, just one last quick one. Anything that changes with the relationship or the partnership with Molecular Assemblies?
No, we're very happy with that partnership. We see it as great technical validation of the original old PDP enzyme pointed at DNA oligos. Similarly, we're also very happy with our relationship with seqWell, around the transposase.
Yeah, we still expect that transposase to finish evolution and get into the market sometime in 2024. Certainly I've been very pleased with the effort there.
Yeah.
Okay, thanks a bunch.
Our next question comes from the line of Chad Wiatrowski with TD Cowen. Please proceed with your question.
Hey, everyone. Chad on for Steven Mah. Just with regards to the reduction in headcount, can you give some color on what portion of that 25% was in the biotherapeutics segment?
Sure. About two-thirds of the headcount reduction was related to the discontinuation of our efforts in biotherapeutics.
Got it. Just given that, do you feel comfortable that you have the R&D team in place today to get you to some of those value inflection points, or do you see that expanding in the future?
We have the R&D people in place to do right now what we need to do right now. In the future, you know, we're gonna have to continue to evolve the team. We're gonna have to add modestly around things like our chemistry capability, around our engineering capability, and some of this defines, you know, the product offering itself. And one of the areas that we're really quite interested in is, for instance, working with technology partners around a benchtop version of this, but also then working with, you know, the other type of technology partners around making, you know, full-scale synthesis kits.
Mm.
Some of that will be make, some of that will be buy, but it's all within our wherewithal in terms of funding right now with this new focused approach. Sri?
Just to add, the additional resources that Stephen commented on are contemplated in our runway guidance, and we're funded to the middle of 2026 to get through these critical milestones.
Mm-hmm.
Got it. Really helpful.
That, a nd that.
Some really conservative assumptions around, you know, not getting anything for biotherapeutics products.
We're taking very conservative views of our revenue streams on some of the life sciences stuff. We've kicked the tires on this sort of assertion that we're funded to mid 2026, and we're very confident in it.
Yeah.
Great. Thanks for the questions.
As a reminder, it is star one to ask a question. Our next question comes from the line of Jacob Johnson with Stephens. Please proceed with your question.
Thanks. Good afternoon. Just for Sri first, just to maybe a point of clarification on the updated guidance. It sounds like the reduction in R&D revenue's really related to these kind of internal efforts or the initiatives you've outlined today. You know, inevitably, people are worried about the funding backdrop and the macro. I'm just curious if there's any change you saw there that impacted that guidance, or if this is kind of purely the result of the actions you're taking?
It's entirely the result of the actions we're taking around discontinuation of the biotherapeutics program.
We're no longer going to collect 50% reimbursement of costs, as those costs are no longer part of our go-forward plan, so it's a net benefit to our cash burn.
Okay, got it. Then maybe for Stephen, just on CDX-7108, the avoiding the cost related to that, can you just talk about, you know, is that something that Nestlé would like to wholly own, and could you get some back-end economics? I'm guessing you're probably in conversations about it right now, so maybe there's not too much you can share, but just kind of curious what that relationship looks like going forward for that drug.
Sure. I'll comment gently, 'cause you're absolutely right that we're in conversation with Nestlé around the appropriate go-forward pathway. Now, both Nestlé and Codexis agree that this is a potentially valuable drug. There's an obvious position for it in the armamentarium. You know, the addition of CDX-7108 to ZENPEP to increase the lipase activity makes absolute sense. It's also clear that it aligns much more closely with their mission and their core capabilities than it does with ours. You know, while they would like us to carry 50% of the funding burden through the future, we've, you know, communicated that that is not an option.
The other thing that is, you know, a contractual fact is that neither party can move forward without the other, and so, you know, we need to come to an arrangement. Yes, we do see that there is potential for realizing significant value down the line, but much more in the context of a classic out-licensing arrangement.
And just to reiterate.
Yeah
None of those potential economics are in our cash runway guidance.
That's entirely upside. Yeah.
Perfect. Thanks for taking the question.
Our next question comes from the line of Matt Hewitt with Craig-Hallum. Please proceed with your question.
Good afternoon, thanks for providing the update. Maybe first up, with the platform, being ready, next year for, I think, at least from a beta testing standpoint, will it be possible for you to get spec'd into some of the later stage programs? When you're ready to go, will you be focusing more on future programs?
Great question. What's different about this compared to classic pharma manufacturing is that, as Kevin intimated, sometimes just scaling the conventional method is not gonna be feasible, right? The barriers to entry, it takes a while to get a plant up and running, all the rest of it. We believe there is significantly greater rationale for actually switching from one to the other in late stage programs. In order for that to happen in a credible way, we need to show that our approach has, you know, clear approval from the regulators, there's an analytical bridge in place. That's why one of the milestones that we're gonna emphasize is the first time an IND is accepted using the ECO Synthesis platform. The other thing is, it makes any siRNA, so therefore, you know, proof of the platform is real validation broadly.
That's one of the work streams that the team is on, is building that bridge from phosphoramidite chemistry in phase II or phase III, or even in early commercialization, to the ECO Synthesis platform. Now, it's much easier if a company adopts ECO Synthesis as soon as they go into clinical development, and they've done their top studies with an eco-produced molecule, and so on. That will take longer, and the difference is, you know, if we get on board with early development, you know, starting 2024 and 2025, those will hit the market in the early 2030s. Whereas if we want to be realizing significant revenue, and I mean significant revenue early, we need to really underwrite that analytical bridge I've been describing.
Got it. Then maybe one question. I understand the decision with CDX-7108. Where do things sit with CDX-6114? Is that partnership still in place? If you could provide an update there, that'd be great. Thank you.
Yeah. Yeah, CDX-6114 is actually a really good model for where we wanna go with CDX-7108, in that it was a pure out-licensing. You know, Nestlé is continuing to chug forward with CDX-6114. And, you know, we'll report whenever we know what's happening there, whenever the new milestone.
Yeah, we're waiting further updates on its development.
Got it. Thank you very much.
Thank you.
There are no further questions in the queue. I'd like to hand the call back to you, Dr. Stephen Dilly, for closing remarks.
Thank you. Thanks again for joining us today, especially at short notice. We'll issue our second quarter 2023 earnings press release on August 3rd. We do plan to host an ECO Synthesis platform-focused investor event later this year. Please be on the lookout for details there. We really do look forward to keeping you updated on Codexis's progress.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.