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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File No.: 001-34705

Codexis, Inc.
(Exact name of registrant as specified in its charter)
Delaware 71-0872999
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
200 Penobscot Drive, Redwood City, California
 94063
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (650421-8100

Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class:Trading Symbols(s):Name of Each Exchange on which Registered:
Common Stock, par value $0.0001 per shareCDXSThe Nasdaq Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YesNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.YesNo
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YesNo
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).YesNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer, "accelerated filer" and "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of
incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).YesNo
The aggregate market value of voting and non-voting common stock held by non-affiliates of Codexis as of June 30, 2023 was approximately $122.4 million based upon the closing price reported for such date on the Nasdaq Global Select Market.
As of February 23, 2024, there were 70,303,639 shares of the registrant’s Common Stock, par value $0.0001 per share, outstanding.





______________________________________ 
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A in connection with the registrant’s 2024 Annual Meeting of Stockholders (the "2024 Proxy Statement"), to be filed subsequent to the date hereof, are incorporated by reference into Part III of this Report. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the conclusion of the registrant’s fiscal year ended December 31, 2023. Except with respect to information specifically incorporated by reference in this Form 10-K, the 2024 Proxy Statement is not deemed to be filed as part of this Form 10-K.



Codexis, Inc.
Annual Report on Form 10-K
For The Year Ended December 31, 2023
 
TABLE OF CONTENTS
PART I
Item 1
Item 1A
Item 1B
Item 1C
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 9C
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the related Notes that appear elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended ("the Exchange Act"), particularly in Part I, Item 1: "Business," Part I, Item 1A: "Risk Factors" and Part 2, Item 7: "Management’s Discussion and Analysis of Financial Condition and Results of Operations." These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate" or "continue," and similar expressions or variations. All statements other than statements of historical fact could be deemed forward-looking, including, but not limited to: any projections of financial information or performance; any statements about historical results that may suggest trends for our business; any statements of the plans, strategies, and objectives of management for future operations; any statements of expectation or belief regarding future events, technology developments, our products and product candidates, product sales, revenues, expenses, liquidity, cash flow, commercial reach, market growth rates or enforceability of our intellectual property rights and related litigation expenses; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Accordingly, we caution you not to place undue reliance on these statements. For a discussion of some of the factors that could cause actual results to differ materially from our forward-looking statements, see the discussion on risk factors that appear in Part I, Item 1A: "Risk Factors" of this Annual Report on Form 10-K and other risks and uncertainties detailed in this and our other reports and filings with the U.S. Securities and Exchange Commission ("SEC"). The forward-looking statements in this Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Annual Report on Form 10-K.

 

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PART I
ITEM 1. BUSINESS
COMPANY 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. 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 biocatalysis pharmaceutical manufacturing business and our Enzyme-Catalyzed Oligonucleotide Synthesis™ (“ECO Synthesis™”) manufacturing platform, which is currently in development to enable the commercial 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 and that we are actively exploring options to drive value by potentially monetizing non-core life science assets, including in genomics and next generation sequencing (“NGS”).
In our revenue-generating 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. Our unique enzymes drive improvements such as higher yields, increased purity, reduced energy usage and waste generation, and improved efficiency in manufacturing. We also use the CodeEvolver® platform technology to develop enzymes for the synthesis of nucleic acids such as DNA/RNA, including enzymes utilized in our ECO Synthesis™ manufacturing platform, where our enzymes are poised to deliver many of the same benefits we offer in pharmaceutical manufacturing across purity, yield, and improved efficiency. We demonstrated gram-scale synthesis under process-like conditions 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.
History and Core Technology
We are a pioneer in harnessing computational technologies to drive biology advancements. Since 2002, we have made substantial investments in the development of our proprietary CodeEvolver® technology platform, the primary source of our competitive advantage for our business. The CodeEvolver® technology platform has the power to transform the performance of an enzyme, tailoring it for a specific application and/or process. Using powerful machine learning tools and sophisticated molecular, cellular, and bioanalytical workflows, we design and screen libraries of thousands of variants in high throughput every two to four weeks on each project, sequencing every variant and correlating its sequence with its performance in a highly application-relevant screen. Content-rich libraries screened under real-world conditions can yield dense and valuable datasets, when data-mined effectively, and multiple parameters can be optimized in parallel. The resulting evolved variants often have a combination of enhanced properties, such as increased activity, specificity, and stability under desired conditions, or improved expression in the production host. These enhanced properties provide differentiated technical performance in the target application and can provide our customers increased value in the commercial deployment of their products.
Recent Changes to Business Strategy
In July 2023, we announced the restructuring of our business to focus resources on programs that we believe have the strongest probability of creating significant value in the near-term and beyond, including the advancement and commercialization of our ECO Synthesis™ manufacturing platform and growing our complementary pharmaceutical manufacturing business. As part of this enhanced strategic focus, we also streamlined operations, including the discontinuation of investment in certain development programs, primarily in our biotherapeutics business, consolidated operations to our Redwood City, California headquarters, and reduced headcount by approximately 25%.
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Our biotherapeutic product candidates, which were in clinical and preclinical development, were discovered using our proprietary CodeEvolver® technology platform and ranged from orally delivered enzymes to engineered transgenes for delivery as gene therapies. The most advanced of our biotherapeutics programs was CDX-7108, a potent lipase intended for use as a potential treatment for exocrine pancreatic insufficiency (“EPI”), which was being developed under a Strategic Collaboration Agreement with Nestlé Health Science (“Nestlé”) (the “Nestlé SCA”). As part of the Nestlé SCA, we and Nestlé completed a Phase 1 clinical trial of CDX-7108. In December 2023, we entered into an acquisition agreement with Nestlé (the “Acquisition Agreement”), pursuant to which we agreed to assign our interests in CDX-7108 (including associated agreements and intellectual property rights) to Nestlé and terminate the Nestlé SCA. Under the terms of the Acquisition Agreement, Nestlé will be solely responsible for the continued development and commercialization of CDX-7108, including all associated costs, with Codexis retaining an economic interest in the program through an upfront payment, future potential milestone payments and net-sales based royalties.
In addition, we used our CodeEvolver® technology platform to engineer a series of transgenes that code for enzymes that may be used as gene therapies to treat rare lysosomal storage disorders, such as Fabry Disease and Pompe Disease, as well as a blood factor disorder, with Takeda Pharmaceutical Co. Ltd. (“Takeda”). Takeda announced in April 2023 the discontinuation of these development programs.
Performance Enzymes
Our performance enzymes business consists primarily of two complementary focus areas: pharmaceutical manufacturing and our ECO Synthesis™ manufacturing platform, which is currently in development to enable the commercial-scale manufacture of RNAi therapeutics. In addition to the overlap in technical enzyme engineering expertise required for operating our pharmaceutical manufacturing business and developing the ECO Synthesis™ manufacturing platform, we believe both areas include a similar set of potential customers. Many of our longstanding pharmaceutical manufacturing customers are currently investing in the development of RNAi therapeutics, providing us with an advantage in terms of commercial reach. Further, our pharmaceutical manufacturing business establishes credibility for the ECO Synthesis™ manufacturing platform by demonstrating our proven history of engineering technically complex enzymes for large pharmaceutical companies and effectively scaling up to multiple metric tons of manufactured product using our existing platforms.
Pharmaceutical Manufacturing
We believe the pharmaceutical industry represents a significant market opportunity for our performance enzymes as pharmaceutical companies are in constant search of new small molecule drugs and are under significant competitive pressure both to reduce costs and to increase the speed to market for their products. To address these pressures, pharmaceutical companies are driven to identify reliable, cost-effective, and sustainable manufacturing processes to produce both their new drug candidates and their existing products, while not impacting drug safety and efficacy. Cost reduction is increasingly important to drug developers (known as innovators) closer to their product launch and during the commercial stage of the product, which can last a decade or more. In addition, cost pressures further intensify as innovators lose their patent exclusivities and begin to experience competition from manufacturers of generic versions of their products.
Our pharmaceutical manufacturing customers, which include many large global pharmaceutical companies, partner with us to develop engineered enzymes for use as biocatalysts, meeting precisely defined criteria, with the goal of lowering costs and improving the efficiency, productivity and sustainability of their manufacturing processes by: improving productivity, yield and purity; using water as a primary solvent; eliminating hazardous inputs; enabling the use of simple equipment and reducing the need for capital expenditure; reducing energy requirements; reducing the generation of chemical byproducts or waste; and reducing the need for late-stage purifications.
As of December 31, 2023, we are selling biocatalysts to pharmaceutical manufacturers for 16 therapeutic drugs that are currently approved for commercial sales.
In July 2022, we announced that we and Pfizer Inc. (“Pfizer”) had entered into an agreement to supply Pfizer with CDX-616, a proprietary high-performance enzyme used to manufacture a critical intermediate for nirmatrelvir, an active pharmaceutical ingredient in PAXLOVID™, Pfizer’s antiviral therapeutic, which is now approved in the United States for the treatment of mild-to-moderate COVID-19 in people at high risk of progression to severe illness, and also authorized or approved by other regulatory authorities across the globe. While we have generated significant revenue from supplying CDX-616 to Pfizer, particularly in 2021 and 2022, there is no future binding commitment for Pfizer to purchase any particular quantity or quantities of CDX-616 from us.
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We regularly sell biocatalysts, at multi-kilograms to metric tons per annum scale, that have already been engineered, scaled up, and installed in a customer’s commercial process. For example, in addition to Pfizer, we sell biocatalysts to Merck, Sharp & Dohme (“Merck”) for their manufacture of sitagliptin, the active ingredient in JANUVIA®, to Urovant Sciences GmbH (Urovant) and KYORIN Pharmaceutical Co., Ltd. (Kyorin) for the manufacture of vibregon, the active ingredient in Urovant’s GEMTESA™ and Kyorin’s BEOVA® products for the treatment of overactive bladder, as well as supporting other products and customers for which public disclosures have not been made.
In addition to these larger volumes of biocatalysts that are sold for our customers’ ongoing commercial requirements, we also sell lesser quantities of engineered enzymes for use in a customer’s developmental, qualification or regulatory approval operations. As of December 31, 2023, Codexis is selling biocatalysts to pharmaceutical manufacturers for 12 drug candidates currently in Phase 2 and Phase 3 clinical trials, or to customers working to convert to an enzymatic manufacturing process for drugs that have been commercially approved. This pipeline reinforces our confidence in our ability to continue to grow this business over time.
Finally, we also sell even smaller quantities of enzymes (typically grams to multi-kilogram scale) to customers for experimental, testing, and qualification purposes, or as part of an enzyme engineering project.
In addition to the sale of biocatalysts, we also offer research and development partnerships to our customers. These research and development activities are typically governed by collaboration agreements, which often contain research fee payments and intellectual property provisions, under which we screen and/or engineer biocatalysts for customers in connection with their process development efforts. In these collaborations, we typically receive consideration in the form of one or more of the following: upfront payments, milestone payments, payments for screening and engineering, with other exclusive supply of enzyme or licensing fees and royalties as the customer’s product commercializes.
We also have licensed our CodeEvolver® technology platform to pharmaceutical companies to help them develop custom-designed enzymes that are highly optimized for efficient manufacturing processes. To date, we have entered into platform technology licensing agreements with each of GlaxoSmithKline Intellectual Property Development Limited, a subsidiary of GlaxoSmithKline plc (“GSK”), Merck and Novartis Pharma AG (“Novartis”).
ECO Synthesis™ Manufacturing Platform
ECO Synthesis™ Manufacturing Platform Overview
A key strategic priority for Codexis is the advancement and commercialization of our ECO Synthesis™ manufacturing platform, which is currently in development to enable the commercial scale manufacture of RNAi therapeutics. As of December 31, 2023, there are six approved small interfering ribonucleic acid (“siRNA”) therapeutics on the market in the United Sates, primarily targeting rare orphan disease indications. However, there are more than 450 RNAi therapeutic assets in development, including over forty that are in Phase 2 and Phase 3 clinical trials, with more than 40 of these targeting large disease indications such as Alzheimer’s, hyperlipidemia and hypertension. We expect worldwide demand for RNAi therapeutics to grow significantly as RNAi therapeutics progress through clinical development and are commercially approved.
The current industry standard for manufacturing RNAi therapeutics is a well-established, chemical-based method called phosphoramidite chemistry. This approach has existed for more than forty years and works effectively for small-scale manufacturing required during the discovery stage of clinical development. However, phosphoramidite chemistry faces multiple limitations in the context of commercial-scale manufacture of RNAi therapeutics. This approach requires significant infrastructure and capital investment in order to meet the anticipated future growth in demand for RNAi therapeutics. Phosphoramidite chemistry is also currently limited to single-digit kilogram batch sizes, which presents challenges around quality control and scalability. Further, chemical synthesis requires large volumes of acetonitrile to facilitate the reaction environment necessary to produce RNAi therapeutics. Acetonitrile is a toxic solvent with high waste disposal costs and future supply may face constraints and price volatility as demand for RNAi therapeutics grows. As additional RNAi therapeutic candidates are approved for large disease indications, we believe using traditional chemical synthesis for commercial scale production will become prohibitively expensive, time-intensive, and challenging for many drug developers and contract development and manufacturing organizations (“CDMOs”).
We believe that the ECO Synthesis™ manufacturing platform presents several advantages to potentially address these limitations. First, this technology is being developed to integrate within existing manufacturing facilities, potentially eliminating much of the infrastructure investment required for commercial scale manufacturing of RNAi therapeutics with phosphoramidite chemistry. The ECO Synthesis™ manufacturing platform is also being designed to manufacture tens to hundreds of kilograms of high-purity RNA per batch, with a closed-loop system intended to increase volumetric reagent efficiency. Finally, our process is aqueous based, potentially mitigating the need for high volumes of acetonitrile, significantly decreasing chemical waste streams, and reducing heavy disposal and purification costs.
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ECO Synthesis™ Manufacturing Platform Potential Commercial Opportunity
We believe we have significant competitive advantages to successfully execute on the ECO Synthesis™ manufacturing platform opportunity, largely stemming from synergies with our pharmaceutical manufacturing business in terms of technical expertise and commercial reach. Many of our pharmaceutical manufacturing customers are developing RNAi therapeutics, and we believe that their familiarity with our ability to engineer and scale complex enzymes is a significant commercial advantage for our ECO Synthesis™ manufacturing platform. However, there are also key differences that make this platform a compelling opportunity as compared to our existing pharmaceutical manufacturing business. Pharmaceutical manufacturing generally requires one-to-one custom enzyme engineering projects, which involve significant time and resource investment from Codexis. Our top five selling pharmaceutical manufacturing enzymes in 2023, excluding sales of CDX-616 related to PAXLOVID™, generated on average between $2.0 million to $9.0 million annually per enzyme between 2021 and 2023. By contrast, the ECO Synthesis™ manufacturing platform could be applicable to many customers and has the potential to manufacture a range of siRNA. Further, the potential scalability of our solution is differentiated from phosphoramidite chemistry, which is limited in batch size and requires high volumes of toxic solvent. We believe that the ECO Synthesis™ manufacturing platform could enable CDMOs and drug developers to scale production of RNA therapeutics and as a result could potentially command significantly better economic terms than the current annual revenues for pharmaceutical manufacturing enzymes.
A critical component that is complimentary to the ECO Synthesis™ manufacturing platform is our engineered double stranded RNA (“dsRNA”) ligase, which can stitch together fragments of chemically and/or, in the future, enzymatically synthesized RNA. We believe the dsRNA ligase has the potential to reduce the cost because the cost and impurity profile of phosphoramidite chemistry-built molecules has been shown to increase with the length of the oligonucleotide. Our capabilities in RNA ligase engineering have been in development throughout 2023 via customized evolution programs with medium and large pharmaceutical customers developing RNAi therapeutics. The dsRNA ligase is our early market entry into the RNAi therapeutics manufacturing market. In addition to potentially improving upon the wildtype ligation-based approaches currently available, our dsRNA ligase will serve as a way to introduce our ECO SynthesisTM manufacturing platform to customers who want to begin utilizing an enzymatic approach to the manufacture of RNAi therapeutics.
Other Differentiated Enzymes
In addition to DNA/RNA synthesis applications, we have also applied our CodeEvolver® technology platform to develop customized enzymes for customers using NGS and PCR/qPCR for in vitro molecular diagnostic and molecular biology research applications.
In December 2019, we entered into a license agreement to provide Roche Sequencing Solutions, Inc. ("Roche) with an evolved DNA ligase for NGS library prep. In February 2024, we entered into a new license agreement with Roche granting them rights to our newly engineered DNA ligase, superseding our prior agreement in December 2019 for our evolved T4 DNA ligase. We are eligible to receive an aggregate of mid-single digit millions in upfront and technical milestones payments. This is consistent with our business strategy to focus our resources on high-value opportunities in pharmaceutical manufacturing and the ECO Synthesis™ manufacturing platform while monetizing non-core assets within our Life Sciences portfolio.
In June 2020, we entered into a co-marketing and enzyme supply collaboration agreement with Alphazyme LLC (Alphazyme) for the production and co-marketing of enzymes for life science applications. Since then, this collaboration has enabled the commercialization of Codex® HiFi DNA Polymerase, Codex® HiFi Hot Start DNA Polymerase, Codex® HiFi Hot Start 2X NGS Mix, Codex® HiCap RNA Polymerase, Codex® HiFi UL DNA Polymerase, and Codex® HiTemp Reverse Transcriptase.
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In June 2020, we entered into a Master Collaboration and Research Agreement with Molecular Assemblies, Inc. (“MAI) (the “MAI Agreement”), and between June 2020 and April 2022, we leveraged our CodeEvolver® technology platform to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis. At the time we entered into the MAI Agreement, we purchased $1.0 million in MAI’s Series A financing. In April 2021, Codexis invested an additional $0.6 million in MAI’s Series A financing and, in September 2021, Codexis invested an additional $7.0 million in MAI’s Series B financing. In April 2022, we and MAI announced that, using our CodeEvolver® technology platform, we had developed a novel, engineered terminal deoxynucleotidyl transferase (“TdT”) enzyme which would enable MAI’s Fully Enzymatic Synthesis™ (“FES™”) technology that produces highly pure, sequence-specific DNA on demand. In August 2022, we and MAI announced that we had entered into a Commercial License and Enzyme Supply Agreement with MAI (the “MAI Supply Agreement”) under which Codexis shall manufacture and sell the TdT enzyme to MAI for use in native DNA synthesis. In connection with the execution of the MAI Supply Agreement, we received a milestone payment of $1.0 million in the form of an additional 1,587,049 shares of MAI Series B preferred stock pursuant to the MAI Agreement. In March 2023, we purchased an additional 985,545 shares of MAI Series B preferred stock for $0.8 million. As of December 31, 2023, we held 5,443,734 shares of MAI Series A preferred stock and 13,834,180 shares of MAI Series B preferred stock, for an aggregate of 19,277,914 shares of MAI's Series A and B preferred stock earned or purchased from MAI.
In March 2022, we entered into a Stock Purchase Agreement with seqWell, Inc. (“seqWell”), a privately held life sciences company, pursuant to which we purchased 1,000,000 shares of seqWell's Series C preferred stock for $5.0 million. In March 2023, we entered into a Master Collaboration Agreement and Research Agreement with seqWell (the “seqWell Agreement”), pursuant to which we are providing research and experimental screening and protein engineering activities in exchange for compensation in the form of additional shares of seqWell's common stock. We received 205,279 shares of seqWell's common stock from research and development services with seqWell in the year ended December 31, 2023. In addition to our initial equity investment and the shares we have received under the seqWell Agreement, in September 2023, we purchased an additional 88,256 shares of seqWell's Series C-1 preferred stock and 44,128 common stock warrants for $0.4 million.
In December 2023, we announced that we have entered into an exclusive licensing agreement with Aldevron LLC (Aldevron), a global leader in the custom development and manufacture of plasmid DNA, RNA and proteins for the biotech industry, whereby Aldevron licensed our Codex® HiCap RNA Polymerase. Under the terms of the deal, Aldevron received global manufacturing and commercialization rights to the Codex® HiCap RNA Polymerase in exchange for payments for near-term technical milestones, along with commercial milestones and sales-based royalties for research use only material as well as good manufacturing practices (GMP) material.
OUR STRATEGY
Our strategy is to grow our revenues, profits, and stockholder value by leveraging our CodeEvolver® directed evolution technology platform in the following ways:
Growing our foundational revenue-generating pharmaceutical manufacturing business. We intend to continue to pursue opportunities in the pharmaceutical market to use our enzymes to reduce the costs for manufacturing small molecule drugs. We intend to increase the number of pharmaceutical customers and processes that utilize and benefit from our novel, cost-saving enzyme biocatalyst solutions.
Developing and commercializing high-performance enzymes for use in nucleic acid synthesis, including our dsRNA Ligase and our proprietary ECO Synthesis™ manufacturing platform. We intend to enable fully enzymatic nucleic acid synthesis, which includes the development of our proprietary ECO Synthesis™ manufacturing platform to manufacture RNAi therapeutics at commercial scale through an enzymatic route, including enabling enzymes to manufacture the building blocks, starter materials, and targeting moieties.
Monetizing non-core assets and leveraging channel partners with strong commercial reach to drive penetration of other developed, non-core enzymes. Consistent with our strategy to focus on programs that we believe have the strongest probability of creating significant value in the near-term and beyond, we continue to look for opportunities to monetize non-core assets and to leverage channel partners with stronger commercial reach to drive penetration of other developed, non-core life sciences enzymes. Recent examples of this strategy include monetizing CDX-7108 through the purchase agreement with Nestlé and the exclusive licensing agreement with Aldevron for our Codex® HiCap RNA Polymerase, both of which were announced in December 2023, as well as the exclusive licensing agreement with Roche in February 2024 for the newly engineered DNA ligase.
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Strategic Collaborations
Licensing Our CodeEvolver® Directed Evolution Technology Platform
GlaxoSmithKline
We entered into our first CodeEvolver® Platform Technology Transfer, Collaboration and License Agreement (“GSK CodeEvolver® Agreement”) in July 2014 with GlaxoSmithKline Intellectual Property Development Limited, a subsidiary of GSK, pursuant to which we granted GSK a non-exclusive, worldwide license to use our CodeEvolver® technology platform in the field of human healthcare for GSK's internal development purposes.
Under the GSK CodeEvolver® Agreement, we licensed and transferred our certain patents, patent applications and know-how from our CodeEvolver® technology platform to GSK, completing the transfer in April 2016. Under this agreement, we have the potential to receive contingent payments that range from $5.75 million to $38.5 million per project, dependent on GSK's successful application of the licensed technology. We are also eligible to receive royalties based on net sales, if any, of a limited set of products developed by GSK using our CodeEvolver® technology platform.
The term of the GSK CodeEvolver® Agreement continues, unless earlier terminated, until the expiration of all payment obligations under the GSK CodeEvolver® Agreement. GSK can terminate the GSK CodeEvolver® Agreement by providing 90 days written notice to us.
In 2019, we received a $2.0 million milestone payment on the advancement of an enzyme developed by GSK using our CodeEvolver® technology platform. In 2021, we received two additional milestone payments from GSK under the GSK CodeEvolver® Agreement.
Merck
In August 2015, we entered into a CodeEvolver® Platform Technology Transfer and License Agreement (the “Merck CodeEvolver® Agreement”) with Merck. The Merck CodeEvolver® Agreement allows Merck to use our proprietary CodeEvolver® technology platform in the field of human and animal healthcare.
Under the terms of the Merck CodeEvolver® Agreement, we granted to Merck an exclusive license under certain patents, patent applications and know-how from our CodeEvolver® technology platform for the research, development and manufacture of novel enzymes for use by Merck in the chemical synthesis of therapeutic products owned or controlled by Merck ("Merck Exclusive Field") and a non-exclusive worldwide license to use the CodeEvolver® technology platform to research, develop and manufacture novel enzymes for use by Merck in its internal research programs (“Merck Non-Exclusive Field”).
Under the terms of the Merck CodeEvolver® Agreement, Merck paid us upfront technology transfer and license fees and milestone payments over the technology transfer period of 15 months from August 2015. We also have the potential to receive product-related payments of up to $15.0 million for each active pharmaceutical ingredient (“API”) that is manufactured by Merck using one or more enzymes that have been developed or are in development using the CodeEvolver® technology platform during the 10-year period that begins on the conclusion of the 15-month technology transfer period. These product-related payments, if any, will be paid by Merck to us for each quarter that Merck manufactures API using a CodeEvolver®-developed enzyme. The payments will be based on the total volume of API produced using the CodeEvolver®-developed enzyme.
In September 2016, we completed the full transfer of the engineering platform technology. In October 2018, we entered into an amendment to the Merck CodeEvolver® Agreement whereby we amended certain licensing provisions and one exhibit. In January 2019, we entered into a second amendment to the Merck CodeEvolver® Agreement whereby we installed certain CodeEvolver® technology platform upgrades into Merck’s platform license installation. We maintained those upgrades for a multi-year term that expired in January 2022.
Novartis
In May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver® Agreement”) with Novartis. The Novartis CodeEvolver® Agreement allows Novartis to use our proprietary CodeEvolver® platform technology in the field of human healthcare.
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Under the terms of the Novartis CodeEvolver® Agreement, we granted to Novartis a worldwide license to use certain patents, patent applications and know-how from our CodeEvolver® technology platform to research, develop and manufacture novel enzymes for use by or on behalf of Novartis as biocatalysts in the chemical synthesis of small molecule and bioconjugate APIs. The license is exclusive for the research, development and manufacture of novel enzymes for use by Novartis as biocatalysts in the chemical synthesis of API owned or controlled by Novartis (“Novartis Exclusive Field”) and non-exclusive for the research, development and manufacture of novel enzymes for use by Novartis in the chemical synthesis of API not owned or controlled by Novartis or any third party (“Novartis Non-Exclusive Field”).
In July 2021, we announced the completion of the technology transfer period during which we transferred our proprietary CodeEvolver® technology platform to Novartis (the “Technology Transfer Period”).
Pursuant to the Novartis CodeEvolver® Agreement, we received an upfront payment of $5.0 million shortly after the effective date. We completed the second technology milestone transfer under the agreement and received a milestone payment of $4.0 million in 2020. We have also received an aggregate of $5.0 million for the completion of the third technology transfer milestone in 2021.
In consideration for the continued disclosure and license of improvements to the technology and materials during a multi-year period that began on the conclusion of the Technology Transfer Period (the “Improvements Term”), Novartis will pay us annual payments over four years which amount to an additional $8.0 million in aggregate. We also have the potential to receive quantity-dependent, usage payments for each API that is manufactured by Novartis using one or more enzymes that have been developed or are in development using the CodeEvolver® technology platform during the period beginning on the conclusion of the Technology Transfer Period and ending on the expiration date of the last to expire licensed patent. These product-related usage payments, if any, will be paid by Novartis to Codexis for each quarter that Novartis manufactures API using a CodeEvolver®-developed enzyme.
The licenses to Novartis are granted under patents, patent applications and know-how that Codexis owns or controls as of the effective date of the Novartis CodeEvolver® Agreement and that cover the CodeEvolver® technology platform. Any improvements to the CodeEvolver® technology platform during the Technology Transfer Period will also be included in the license grants from Codexis to Novartis.
INTELLECTUAL PROPERTY
Our success depends in large part on our ability to protect our proprietary technology, products and services under patent, copyright, trademark and trade secret laws. We also rely heavily on confidentiality and non-disclosure and other contractual agreements for further protection of our proprietary technology, products and services. Protection of our proprietary rights, titles and interests is important for us to offer our customers and partners proprietary technology, products and services that are not available from our competitors, and to exclude our competitors from practicing technology that we have developed or exclusively licensed from other parties. For example, our ability to successfully supply innovator pharmaceutical manufacturers as customers depends on our ability to supply proprietary enzymes or methods for making pharmaceutical intermediates or APIs that are not available from our competitors. Likewise, in the generic pharmaceutical area, protection of our proprietary technology, products and services directed to our enzymes and methods of producing pharmaceutical products, through patent or trade secret laws or other legal protections is important for us and our customers to maintain a lower cost production advantage over competitors.
As of December 31, 2023, we owned or controlled approximately 1,990 active issued patents and pending patent applications in the United States and in various foreign jurisdictions, many of which are directed to our enabling technologies and specific methods and products that support our business in the pharmaceutical and oligonucleotide synthesis markets. This portfolio also includes patents and pending patent applications in the biotherapeutics, molecular diagnostics, and other markets. As of December 31, 2023, our patents and pending patent applications, if issued, have terms that expire between 2024 and approximately 2044. Our United States (“U.S.”) patents and pending patent applications directed to the CodeEvolver® technology platform developed internally by us have terms that expire between 2029 and approximately 2034. It is possible that some U.S. patents and patent applications (if issued) may be entitled to patent term extensions and/or patent term adjustments, which would extend the protection beyond these expiration dates. It is also possible that some patents and patent applications (if issued) in other jurisdictions will be entitled to additional patent terms. Our current intellectual property rights also include patents, trademarks, copyrights, software and certain assumed contracts that we acquired from Maxygen, Inc. (“Maxygen”) in October 2010, which are associated with directed evolution technology, known as the MolecularBreeding™ technology platform developed by Maxygen. The intellectual property rights and other related assets that we acquired from Maxygen continue to be subject to existing exclusive and non-exclusive license rights granted by Maxygen to third parties. We continue to file new patent applications in our business areas of interest, for which terms generally extend 20 years from the non-provisional filing date in the United States.
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As of December 31, 2023, we owned approximately 100 trademark registrations in the United States and foreign jurisdictions, as well as various common law trademarks. These include, but are not limited to: Codexis®, Codex®, CodeEvolver®, Mosaic®, Sage®, Microcyp®, MCYP®, ProSAR®, Unlock the Power of Proteins®, the Codexis Protein Engineering Experts® logo, Strategist®, Continuity®, Ameli®, Forager®, Analogene®, Harvester®, Atoms®, Riptide®, APS® and a Codexis design mark (i.e., the stylized Codexis logo), as well as pending registration applications for ECO Synthesis™ and ecoRNA™.
COMPETITION
We face differing forms of competition in pharmaceutical manufacturing and RNAi therapeutics manufacturing, as set forth below.
Performance Enzyme
Pharmaceutical Manufacturing
We market our biocatalyst products and services to manufacturers of small molecule pharmaceutical intermediates and APIs. Our primary competitors in that market are companies marketing either conventional, non-enzymatic catalysts or alternative biocatalyst products and services, or from full-service CDMOs offering conventional chemistry approaches to the production of APIs. We also face competition from existing in-house technologies (both biocatalysis and conventional chemistries) within our client and potential client companies. The principal methods of competition and competitive differentiation in this market are price, product quality and performance, including manufacturing yield, safety and environmental benefits and speed of product delivery. Pharmaceutical manufacturers that use biocatalytic processes can face competition from manufacturers that use more conventional processes and/or manufacturers that are based in regions (such as India and China) with lower operating, regulatory, safety and environmental costs.
We also compete with companies developing and marketing conventional catalysts including, for example, Solvias AG, BASF, Johnson-Matthey and Takasago International Corporation.
The market for supplying enzymes for use in pharmaceutical manufacturing is quite fragmented. There is competition from large industrial enzyme companies, as well as subsidiaries of larger contract research/contract manufacturing organizations, such as DSM Firmenich, Cambrex Corporation, Lonza, WuXi STA and Almac Group Ltd. Some fermentation pathway design companies, such as Ginkgo Bioworks, whose traditional focus has been to design microorganisms that express small molecule chemicals, could extend into designing organisms that express enzymes. There is also competition in the enzyme customization and optimization area from several smaller companies, such as BRAIN AG, evoxx technologies GmbH, c-LEcta GmbH, Enzymicals AG, and Enzymaster.
The market for the manufacture and supply of APIs and intermediates is large, with many established companies. These companies include many of our large innovator and generic pharmaceutical customers, such as Merck, GSK, Novartis, Pfizer, Bristol-Myers Squibb Company ("Bristol-Myers"), Kyorin, Urovant, and Teva Pharmaceutical Industries Limited ("Teva"), which have significant internal research and development efforts directed at developing processes to manufacture APIs and intermediates for use in their drug product manufacturing. There is also a large network of CDMOs servicing the innovator companies with supply of APIs and/or intermediates. These C(D)MOs include Cambrex Corporation, Asymchem, WuXi STA and Almac Group Ltd, among many others. The processes used by these companies (both C(D)MOs and innovators) include classical organic chemistry reactions, chemo-catalytic reactions, biocatalytic reactions or combinations thereof. Our biocatalyst-based manufacturing processes must compete effectively on cost and efficiency with these internally developed routes.
We believe that our principal advantage is our ability to rapidly deliver customized biocatalysts for existing and new intermediates and APIs in the pharmaceutical manufacturing market. This capability has allowed us to create a breadth of biocatalysts with improved performance characteristics including, for example, better activity, stability, and activity on a range of substrates, compared to traditional chemistry-based manufacturing processes and naturally occurring (and thus not optimized) biocatalysts. We believe that our CodeEvolver® technology platform can provide substantially superior results, in shorter time frames, than companies offering competing biocatalyst development services.
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ECO SynthesisTM Manufacturing Platform for RNAi Therapeutics
Following the restructuring of our business announced in July 2023, our Life Sciences business is now primarily focused on RNAi therapeutics manufacturing as we develop and commercialize the ECO Synthesis™ manufacturing platform. Phosphoramidite chemistry is the current and long-established industry standard for the manufacture of RNAi therapeutics, examples including antisense oligonucleotides (ASO), small-interfering RNA (siRNA), RNA aptamers, and guide RNA (gRNA). Primary competitors in this space include CDMOs, such as Agilent Technologies, which has made significant capital investment to expand their RNA manufacturing capabilities using phosphoramidite chemistry. In addition, CDMOs and large pharmaceutical companies are seeking to make incremental improvements to phosphoramidite chemistry, including the development of ligation-based approaches, liquid-phase synthesis, and solvent recycling. There are also multiple early-stage competitors who are pursuing fully enzymatic approaches to the manufacture of RNA, including EnPlusOne, a private startup company, and a UK-based consortium led by the Centre for Process Innovation (CPI”) and consisting of multiple academic and research organizations, including The University of Manchester and large pharmaceutical companies, including AstraZeneca plc and Novartis.
Other
Core Technology
We are a leader in the field of enzyme engineering to create novel enzymes, and our work across Pharmaceutical Manufacturing and the Eco SynthesisTM manufacturing platform relies on our core technology. We are aware that other companies, organizations and persons have developed technologies that appear to have some similarities to our patented proprietary technologies. For example, we are aware that other companies, including Ginkgo Bioworks, BRAIN, Enzymaster, and Enzymicals AG have alternative methods for obtaining and generating genetic diversity or use mutagenesis techniques to produce genetic diversity. In addition, academic institutions such as the California Institute of Technology, University of Manchester, and the Austrian Centre of Industrial Biotechnology are also working in this field. This field is highly competitive with companies and academic and research institutions actively seeking to develop technologies that could be competitive with our technologies.
Technological developments by others may result in our products and technologies, as well as products manufactured by our customers using our biocatalysts, becoming obsolete. We monitor publications and patents that relate to directed molecular evolution to be aware of developments in the field and evaluate appropriate courses of action in relation to these developments.
Many of our competitors have substantially greater manufacturing, financial, research and development, personnel and marketing resources than we do. As a result, our competitors may be able to develop competing and/or superior technologies and processes, and compete more aggressively and sustain that competition over a longer period of time than we could. Our technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors.
We initially commercialized our CodeEvolver® technology platform and products in the manufacture of small molecule pharmaceuticals, which remains a primary business focus. Our customers, which include many large, global pharmaceutical companies, use our technology, products and services in their process development and in manufacturing. Additionally, we have licensed our proprietary CodeEvolver® technology platform to global pharmaceutical companies enabling them to use this technology, in-house, to engineer enzymes for their own businesses.
CUSTOMERS
We rely on certain key customers for a significant portion of our total revenues and our accounts receivable balances. For the year ended December 31, 2023, two customers accounted for approximately 22% and 13% of our total revenues. As of December 31, 2023, four customers accounted for approximately 21%, 13%, 12% and 12% of our accounts receivable balances. For more information, see Note 15, “Segment, Geographical and Other Revenue Information” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.
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OPERATIONS
Our corporate headquarters are located in Redwood City, California and provide general administrative support to our business and are the center of our research, development and business operations. We have limited internal manufacturing capacity at our headquarters in Redwood City. We expect to rely on third-party manufacturers for commercial production of our biocatalysts for the foreseeable future. Our in-house manufacturing is dedicated to producing both Codex® biocatalyst panels and kits and enzymes for use by our customers in pilot scale and clinical production. We also supply initial commercial quantities of biocatalysts for use by our collaborators to produce pharmaceutical intermediates and manufacture biocatalysts that we sell.
In September 2023, we announced that we had entered into an agreement for the assignment and assumption of lease for our San Carlos, California facility. In the first quarter of 2021, we entered into an arrangement to lease this facility to serve as an additional office and research and development laboratory space which we occupied beginning December 2021. As part of the restructuring of our business announced in July 2023, we consolidated operations to our Redwood City headquarters and discontinued investment in biotherapeutics. For additional information on the San Carlos facility, see Note 13, “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.
Our research and development operations include efforts directed towards engineering biocatalysts, bioprocess development, cellular engineering, biocatalyst screening, metabolites, strain improvement, fermentation development and process engineering. We conduct enzyme evolution, enzyme production development, microbial bioprocess development, cellular engineering, microbial evolution and process engineering evaluations and design primarily at our headquarters in Redwood City, California. Manufacturing of our enzymes is conducted primarily in four locations: at our in-house facility in Redwood City, California and at third-party contract manufacturing organizations, Lactosan GmbH & Co. KG (“Lactosan”) in Kapfenberg, Austria, ACS Dobfar S.p.A. (“ACSD”) (formerly known as DPhar S.p.A.) in Anagni, Italy, and Alphazyme in Jupiter, Florida, United States. Generally, we perform smaller scale manufacturing in-house and outsource larger scale manufacturing, representing a large percentage of our production of novel enzymes, to contract manufacturing organizations.
GOVERNMENT REGULATION
Our enzymes are used by pharmaceutical and biopharmaceutical companies in the manufacture of their drug or biologic product candidates and finished products. In the United States, the manufacture, distribution, marketing, and sale of drug products and the provision of certain services for development-stage pharmaceutical and biotechnology products are subject to extensive ongoing regulation by the United States Food and Drug Administration (“FDA”), the United States Department of Health and Human Services (“HHS”), state boards of pharmacy, state health departments, various accrediting bodies, and similar regulatory authorities in other countries, including laws and regulations governing bribery, fraud, kickbacks, and false claims. The costs associated with complying with the various applicable federal, state, local, national, and international laws and regulations could be significant, and the failure to comply with such legal requirements could have an adverse effect on our results of operations and financial condition. The FDA extensively regulates, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of drug and biologic products under the Federal Food, Drug and Cosmetic Act, its implementing regulations and other laws, including, in the case of biologics, the Public Health Service Act. Our third-party contractors, collaborators, and customers will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which they wish to conduct studies or seek approval or licensure of their product candidates, which may include regulatory inspections for compliance with current good manufacturing practices (“cGMP”). The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. This regulatory scrutiny results in our customers imposing rigorous quality and other requirements on us as their supplier through supplier qualification processes and customer contracts and specifications.
The process required by the FDA before a drug or biologic may be marketed in the United States generally involves the following:
completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s good laboratory practice regulations;
submission to the FDA of an IND, which must become effective before clinical trials in the United States may begin;
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performance of adequate and well-controlled human clinical trials to establish the safety and potency of the product candidate for each proposed indication, conducted in accordance with the FDA’s good clinical practice (“GCP”) regulations;
preparation and submission to the FDA of a new drug application ("NDA") or biologics license application ("BLA") after completion of all pivotal clinical trials;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with cGMP regulations and to assure that the facilities, methods and controls are adequate to preserve the drug's continued safety, purity and potency, and of selected clinical investigation sites to assess compliance with Good Clinical Practices, or GCPs; and
FDA review and approval of the NDA or BLA prior to any commercial marketing, sale or distribution of the product.
Environmental, Health and Safety Regulations
We are responsible for ensuring an environmentally responsible, safe, and healthy workplace. We are required to abide by all relevant county, state and federal agency regulations for environmental, health and safety requirements and have the necessary procedure, permits, and licenses in place to operate accordingly. Our contracts with outside suppliers and vendors require compliance with applicable laws and regulations.
HUMAN CAPITAL RESOURCES
As of December 31, 2023, we had 174 full-time employees and part-time employees worldwide. Of these employees, 61 were engaged in research and development, 41 were engaged in operations and quality control and 72 were engaged in selling, general and administrative activities. None of our employees are represented by a labor union. Supported by our annual employee survey, we believe our relationship with our employees to be generally good. Our scientists, bioinformatics experts and other professionals work collaboratively as interdisciplinary teams to unlock and advance technological innovation.
Compensation, benefits and development
Our goal is to attract, motivate and retain talent with a focus on encouraging performance, promoting accountability and adhering to our company values. We offer competitive compensation and benefit programs including a company-matched 401(k) Plan, an Employee Stock Purchase Plan (ESPP), stock options for eligible employees, health savings and flexible spending accounts, paid time off, education and training programs, and employee assistance programs.
Diversity, equity and inclusion
We are committed to our continued efforts to increase diversity and foster an inclusive work environment that supports our global workforce and the communities we serve. We recruit the best people for the job regardless of gender, ethnicity or other protected traits and it is our policy to fully comply with all laws applicable to discrimination in the workplace. Our diversity, equity and inclusion principles are also reflected in our employee training and policies. We continue to enhance our diversity, equity and inclusion policies which are guided by our executive leadership team, including our commitment to green chemistry, demonstrated, among other things, by our “My Green Lab Certification.
Health and safety
We are committed to maintain a safe and healthy workplace for our employees. Our policies and practices are intended to protect our employees and the surrounding communities in which we operate.
We continue to monitor COVID-19 local, state, and federal guidance, policies and regulations for changes and we implement modifications to internal guidelines as needed. In response to the COVID-19 pandemic, we implemented safety protocols and new procedures to protect our employees. These protocols include health and safety standards as required by state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.
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CORPORATE & AVAILABLE INFORMATION
We were incorporated in Delaware in January 2002 as a wholly-owned subsidiary of Maxygen, Inc. We commenced independent operations in March 2002, after licensing core enabling technology from Maxygen, Inc. Our principal corporate offices are located at 200 Penobscot Drive, Redwood City, California 94063 and our telephone number is (650) 421-8100. Our internet address is www.codexis.com. The information on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K or any other filings we make with the U.S. Securities and Exchange Commission (the “SEC”).
We make available on or through our website certain reports and amendments to those reports that we file with, or furnish to, the SEC in accordance with the Exchange Act. These include our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make this information available on or through our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. Copies of this information may be obtained at the SEC website at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the references to website URLs are intended to be inactive textual references only.
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ITEM 1A. RISK FACTORS
You should carefully consider the risks described below together with the other information set forth in this Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Additional discussion of the material risks and uncertainties summarized in this risk factor summary, as well as certain other risks and uncertainties that we face, can be found in this section.
RISK FACTORS SUMMARY
The following is a summary of the principal factors that cause an investment in the Company to be speculative or risky:
We have a history of net losses and we may not achieve or maintain profitability.
Biotherapeutic programs are highly regulated and expensive.
We are dependent on a limited number of customers.
Our product supply agreements with customers have finite duration and may not be extended or renewed.
The demand for our product depends in part on our customers' research and development and the clinical and market success of their products.
With respect to customers purchasing our products for the manufacture of API, the termination or expiration of such patent protection may materially and adversely affect our revenues, financial condition or results of operations.
We are dependent on a limited number of contract manufacturers for large scale production of substantially all of our enzymes.
We are dependent on our collaborators, and our failure to successfully manage these relationships could prevent us from developing and commercializing many of our products.
If we are unable to develop and commercialize new products for the target markets, our business and prospects will be harmed.
We have invested significant resources to enable fully enzymatic nucleic acid synthesis, which is based on novel ideas and technologies that are largely unproven.
Future revenues from our sales of CDX-616 to Pfizer are subject to a number of factors which are outside of our control and may not materialize.
Ethical, legal and social concerns about genetically engineered products and processes could limit or prevent the use of our products, processes, and technologies and limit our revenues.
We have recently enhanced our strategic focus to concentrate on certain programs and business lines. As a result of this refined focus on returning the foundational, revenue-generating pharmaceutical manufacturing business and the ECO SynthesisTM manufacturing platform, we may fail to capitalize on other opportunities that may be more profitable or for which there is a greater likelihood of success.
Given our recent change in strategic direction, we may receive limited revenue or no future value from certain of our existing license agreements.
We use hazardous materials in our business, and we must comply with environmental laws and regulations.
As a public reporting company, we are subject to rules and regulations established from time to time by the SEC and Nasdaq regarding our internal controls over financial reporting. We may not complete needed improvements to our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock and your investment.
We may need additional capital in the future in order to expand our business.
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We may not be able to comply with the terms of our five-year loan and security agreement (our Loan Agreement) with Innovatus Life Sciences Lending Fund, I, LP, an affiliate of Innovatus Capital Partners (“Innovatus”).
Our ongoing efforts to deploy our technology in the life science tools market may fail.
Even if our customers or collaborators obtain regulatory approval for any products utilizing our enzymes, such products will remain subject to ongoing regulatory requirements, which may result in significant additional expense.
If we or our customers fail to comply with certain healthcare laws, including fraud and abuse laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.
Our efforts to prosecute, maintain, protect and/or defend our intellectual property rights may not be successful.
Our ability to compete may decline if we do not adequately prosecute, maintain, protect and/or defend our proprietary technology, products or services or our intellectual property rights.
Third parties may claim that we are infringing, violating or misappropriating their intellectual property rights, which may subject us to costly and time-consuming litigation and prevent us from developing or commercializing our technology, products or services.
We may be involved in lawsuits to protect or enforce our intellectual property rights, which could be expensive, time-consuming and unsuccessful.
We may not be able to enforce our intellectual property rights throughout the world.
If our biocatalysts are stolen, misappropriated or reverse engineered, others could use these biocatalysts to produce competing products.
We are subject to anti-takeover provisions in our certificate of incorporation and bylaws and under Delaware law that could delay or prevent an acquisition of our company.
Market and economic conditions may negatively impact our business, financial condition, and share price.
Business interruptions resulting from disasters or other disturbances could delay us in the process of developing our products and could disrupt our sales.
Evolving expectations around environmental, social and governance matters may expose us to reputational and other risks.
Risks Related to Our Business and Strategy
We have a history of net losses and we may not achieve or maintain profitability.
We have incurred net losses since our inception, including losses of $76.2 million, $33.6 million, and $21.3 million for the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023, we had an accumulated deficit of $497.5 million. If we are unable to continue to successfully develop and commercialize products in our pharmaceutical manufacturing business, increase sales of existing products and services, develop and commercialize our ECO Synthesis manufacturing platform, and or develop new products or services, or otherwise expand our business, whether through new or expanded collaborations or other products and services, our net losses may increase and we may never achieve profitability. In addition, some of our agreements, including the agreements with GSK, Merck, Novartis, Nestlé Health Science, Aldevron and Roche provide for milestone payments, usage payments, and/or future royalty or other payments, which we will only receive if we and/or our collaborators develop and commercialize products or achieve technical milestones. We also intend to continue to fund the development of additional proprietary performance enzyme products and advance new technologies like our ECO Synthesis manufacturing platform. There can be no assurance that any of these products or services will become commercially viable or that we will ever achieve profitability on a quarterly or annual basis. If we fail to achieve profitability, or if the time required to achieve profitability is longer than we anticipate, we may not be able to continue our business. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
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Biotherapeutic programs are highly regulated and expensive, and our enzyme products are complex and subject to quality control requirements. The ability of our customers, future customers or collaborators, including any company developing RNAi therapeutics, to advance product candidates utilizing our products to clinical trials and to ultimately receive regulatory approvals is highly uncertain.
Although we are no longer developing our own portfolio of biotherapeutics product candidates, we continue to develop enzyme products, including our ECO Synthesis manufacturing platform, that may be used by our customers, future customers or collaborators in connection with their biotherapeutic product candidates. The successful development of biotherapeutic candidates involves many risks and uncertainties, requires long timelines and may lead to uncertain results.
Our customers are subject to extensive regulations by the FDA and similar regulatory authorities in other countries for conducting clinical trials and commercializing products for therapeutic, vaccine or diagnostic use. These regulations result in our customers imposing quality requirements on us for the manufacture of our enzyme products through supplier qualification processes and customer contracts and specifications
In order to market a biologic or drug product in the United States, our customers, future customers or collaborators must undergo the following process required by the FDA:
completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA's Good Laboratory Practice requirements;
submission to the FDA of an Investigational New Drug Application (“IND”), which must become effective before human clinical studies may begin in the United States;
approval by an independent institutional review board (“IRB”) representing each clinical site before the clinical study may be initiated at the site;
performance of adequate and well-controlled human clinical studies in accordance with Good Clinical Practice (“GCP”) requirements to establish the safety, purity and potency (or efficacy) of the product candidate for each proposed indication;
preparation of and submission to the FDA of a Biologics License Application (“BLA”) or New Drug Application (“NDA”)after completion of all clinical studies;
potential review of the product candidate by an FDA advisory committee;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities where the product candidate is produced to assess compliance with current Good Manufacturing Practice (“cGMP”) requirements;
FDA review and approval of a BLA or NDA prior to any commercial marketing or sale of the product in the United States; and
any post-approval requirements, if applicable.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and the results are inherently unpredictable. If our customers, future customers or collaborators are ultimately unable to obtain regulatory approval for their biotherapeutic product candidates utilizing our enzyme products, our business may be harmed. In addition, if our customers, future customers or collaborators fail to comply with applicable FDA or other regulatory requirements at any time during the drug development process, clinical testing, the approval process or after approval, they may become subject to administrative or judicial penalties, including the FDA’s refusal to approve a pending application, withdrawal of an approval, warning letters, product recalls and additional enforcement actions, any of which may have an adverse effect on our financial condition.
We believe our enzyme products are exempt from compliance with the Food, Drug, and Cosmetic Act (“FDCA”) and the current GMP (“cGMP”) regulations of the FDA, as our products are further processed and incorporated into final drug or biologic products by our customers and we do not make claims related to their safety or effectiveness. Our products are manufactured following the voluntary quality standards of ISO 9001:2015. In the event we, or our suppliers, produce products that fail to comply with required quality standards, we may incur delays in fulfilling orders, write-downs, damages resulting from product liability claims and harm to our reputation.
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In the future, our products could become subject to more onerous regulation, or the FDA could disagree with our assessment that our enzyme products are exempt from current GMP regulations. In addition, the FDA could conclude that the products we provide to our customers are actually subject to the pharmaceutical, drug or biologic quality-related regulations for manufacturing, processing, packing or holding of drugs, biologics, or finished pharmaceuticals, and could take enforcement action against us, including requiring us to stop distribution of our products until we are in compliance with applicable regulations, which would reduce our revenue, increase our costs and adversely affect our business, prospects, results of operations and financial condition.
We are dependent on a limited number of customers.
Although we continue to expand our customer base, our current revenues are derived from a limited number of key customers. For the years ended December 31, 2023 and 2022, customers that each individually contributed 10% or more of our total revenue accounted for 35% and 56% of our total revenues, respectively. We expect a limited number of customers to continue to account for a significant portion of our revenues for the foreseeable future. This customer concentration increases the risk of quarterly fluctuations in our revenues and operating results. The loss or reduction of business from one or a combination of our significant customers could, materially adversely affect our revenues, financial condition and results of operations.
Our product supply agreements with customers have finite duration, may not be extended or renewed and generally do not require the customer to purchase any particular quantity or quantities of our products.
Our product supply agreements with customers generally have a finite duration, may not be extended or renewed and generally do not require the customer to purchase any particular quantity or quantities of our products. While our products are not considered commodities and may not be easily substituted for by our customers, particularly when our products are used in the manufacture of active pharmaceutical ingredients, our customers may nevertheless terminate or fail to renew their product supply agreements with us or significantly curtail their purchases thereunder under certain circumstances. We are working to develop new relationships with existing or new customers, but despite these efforts we may not, at the time that any of our existing product supply agreements expire or are terminated, or purchases thereunder curtailed, have other contracts in place generating similar or material revenue. Any such expiration, termination or reduction could materially adversely affect our revenues, financial condition and results of operations. For the year ended December 31, 2023, we derived a majority of our product revenue from these product supply agreements.
The demand for our products depends in part on our customers’ research and development and the clinical and market success of their products. Our business, financial condition, and results of operations may be harmed if our customers spend less on, or are less successful in, these activities. In addition, customer spending may be affected by, among other things, general market and economic conditions beyond our control.
Our customers are engaged in research, development, production, and marketing of pharmaceutical products and intermediates. The amount our customers spend on research, development, production, and marketing, as well as the outcomes of such research, development, and marketing activities, have a large impact on our sales and profitability, particularly the amount our customers choose to spend on our offerings. Available resources, the need to develop new products, and consolidation in the industries in which our customers operate may have an impact on such spending. Our customers and potential customers finance their research and development spending from private and public sources. A reduction in available financing for and spending by our customers, for these reasons or because of continued unstable or unpredictable economic and marketplace conditions, could have a material adverse effect on our business, financial condition, and results of operations. If our customers are not successful in attaining or retaining product sales due to market conditions, reimbursement issues, or other factors, our results of operations may be materially adversely affected.
With respect to customers purchasing our products for the manufacture of APIs for which they have exclusivity due to patent protection, the termination or expiration of such patent protection and any resulting generic competition may materially and adversely affect our revenues, financial condition or results of operations.
With respect to customers purchasing our products for the manufacture of API, or lead to the manufacture of API, for which exclusivity due to patent protection has or is about to expire, we can expect that the quantity of our products sold to such customers for such products may decline as generic competition for the API increases. While we anticipate that we may, in some cases, also be able to sell products to these generic competitors for the manufacture of these APIs, or lead to the manufacture of these APIs, the overall effect on our revenues, financial condition and results of operations could be materially adverse.
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We are dependent on a limited number of contract manufacturers for large scale production of substantially all of our enzymes. We are working to qualify new contract manufacturers to produce certain of our enzymes, however those efforts may not be successful and therefore we may experience limitations on our ability to supply our enzymes to customers.
Manufacturing of our enzymes is conducted primarily in four locations: our in-house facility in Redwood City, California, and at three third-party contract manufacturing organizations, Lactosan in Kapfenberg, Austria, ACSD ( in Anagni, Italy, and Alphazyme in Jupiter, Florida, United States. Generally, we perform smaller scale manufacturing in-house and outsource the larger scale manufacturing to these contract manufacturers. 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 larger scale manufacturing of the enzymes used in our pharmaceutical and life sciences businesses.
Accordingly, we face risks of difficulties with, and interruptions in, performance by third party manufacturers, the occurrence of which could adversely impact the availability, launch and/or sales of our enzymes in the future. Enzyme manufacturing capacity limitations at our third-party manufacturers and manufacturing delays could negatively affect our business, reputation, results of operations and financial condition. The failure of any contract manufacturer to supply us our required volumes of enzyme on a timely basis, or to manufacture our enzymes in compliance with our specifications or applicable quality requirements or in volumes sufficient to meet demand, would adversely affect our ability to sell pharmaceutical and complex chemicals products, could harm our relationships with our customers or collaborators and could negatively affect our revenues and operating results. We may be forced to secure alternative sources of supply, which may be unavailable on commercially acceptable terms, and could cause delays in our ability to deliver products to our customers, increase our costs and decrease our profit margins.
We currently have supply agreements in place with Lactosan, ACSD and Alphazyme. In the absence of a supply agreement, a contract manufacturer will be under no obligation to manufacture our enzymes and could elect to discontinue their manufacture at any time. If we require additional manufacturing capacity and are unable to obtain it in sufficient quantity, we may not be able to increase our product sales, or we may be required to make substantial capital investments to build that capacity or to contract with other manufacturers on terms that may be less favorable than the terms we currently have with our suppliers. If we choose to build our own additional manufacturing facility, it could take several years or longer before our facility is able to produce commercial volumes of our enzymes. Any resources we expend on acquiring or building internal manufacturing capabilities could be at the expense of other potentially more profitable opportunities. In addition, if we contract with other manufacturers, we may experience delays of several months in qualifying them, which could harm our relationships with our customers or collaborators and could negatively affect our revenues or operating results.
We are dependent on our collaborators, and our failure to successfully manage these relationships could prevent us from developing and commercializing many of our products and achieving or sustaining profitability, and could lead to disagreements with our current or former collaborators.
Our ability to maintain and manage collaborations in our markets is fundamental to the success of our business. We currently have license agreements, research and development agreements, supply agreements and/or distribution agreements with various collaborators. For example, we have ongoing collaborations and agreements with GSK, Merck, Novartis, Roche and Aldevron that are important to our business and financial results. We may have limited or no control over the amount or timing of resources that any collaborator is able or willing to devote to our partnered products or collaborative efforts. Any of our collaborators may fail to perform its obligations. These collaborators may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. Further, our collaborators may not develop products arising out of our collaborative arrangements or devote sufficient resources to the development, manufacture, marketing or sale of these products. Moreover, disagreements with a collaborator could develop, and any conflict with a collaborator could lead to litigation, reduce our ability to enter into future collaboration agreements and negatively impact our relationships with one or more existing collaborators. If any of these events occur, especially if they occur in our collaborations with GSK, Merck or Novartis, or if we fail to maintain our agreements with our collaborators, we may not be able to commercialize our existing and potential products or grow our business or generate sufficient revenues to support our operations, we may not receive contemplated milestone payments and royalties under the collaboration, and we may be involved in litigation. Our collaboration opportunities could be harmed and our financial condition and results of operations could be negatively affected if:
we do not achieve our research and development objectives under our collaboration agreements in a timely manner or at all;
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we develop products and processes or enter into additional collaborations that conflict with the business objectives of our other collaborators;
our collaborators and/or our contract manufacturers do not receive the required regulatory and other approvals necessary for the commercialization of the applicable product;
we disagree with our collaborators as to rights to intellectual property that are developed during the collaboration, or their research programs or commercialization activities;
we are unable to manage multiple simultaneous collaborations;
our collaborators or licensees are unable or unwilling to implement or use the technology or products that we provide or license to them;
our collaborators become competitors of ours or enter into agreements with our competitors;
our collaborators become unable or less willing to expend their resources on research and development or commercialization efforts due to general market conditions, their financial condition or other circumstances beyond our control; or
our collaborators experience business difficulties, which could eliminate or impair their ability to effectively perform under our agreements.
Takeda recently confirmed that it will end research, discovery and preclinical work in certain rare disease areas that may overlap with the programs on which we collaborate under the Strategic Collaboration and License Agreement (the “Takeda Agreement”) we entered into with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda, in March 2020. Takeda announced in April 2023 the discontinuance of these development programs.
Even after collaboration relationships expire or terminate, some elements of the collaboration may survive. For instance, certain rights, licenses and obligations of each party with respect to intellectual property and program materials may survive the expiration or termination of the collaboration. Disagreements or conflicts between and among the parties could develop even though the collaboration has ended. These disagreements or conflicts could result in expensive arbitration or litigation, which may not be resolved in our favor.
Finally, our business could be negatively affected if any of our collaborators or suppliers undergoes a change of control or were to otherwise assign the rights or obligations under any of our agreements.
If we are unable to develop and commercialize new products for the pharmaceutical, biotherapeutics, diagnostics and life science tools markets, our business and prospects will be harmed.
We plan to launch new products for the pharmaceutical, biotherapeutics, diagnostics and other life science tools markets such as our ECO Synthesis manufacturing platform. These efforts are subject to numerous risks, including the following:
customers in these markets may be reluctant to adopt new manufacturing processes that use our enzymes;
we may be unable to successfully develop the enzymes or manufacturing processes for our products in a timely and cost-effective manner, if at all;
we may face difficulties in transferring the developed technologies to our customers and the contract manufacturers that we may use for commercial scale production of intermediates and enzymes in these markets;
the biotherapeutics products that use our tools may not receive regulatory approval or be commercially viable;
the contract manufacturers that we may use may be unable to scale their manufacturing operations to meet the demand for these products and we may be unable to secure additional manufacturing capacity;
customers may not be willing to purchase these products for these markets from us on favorable terms, if at all;
we may face product liability litigation, unexpected safety or efficacy concerns and product recalls or withdrawals;
our customers’ products may experience adverse events or face competition from new products, which would reduce demand for our products;
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we may face pressure from existing or new competitive products; and
we may face pricing pressures from existing or new competitors, some of which may benefit from government subsidies or other incentives.
We have invested significant resources to enable fully enzymatic nucleic acid synthesis, which is based on novel ideas and technologies that are largely unproven.

Our ECO Synthesis™ manufacturing platform is currently in development to enable the commercial-scale manufacture of RNAi therapeutics through an enzymatic route. While we believe fully enzymatic nucleic acid synthesis will offer certain improvements over phosphoramidite chemistry, including with respect to required infrastructure investments, batch size limitations and waste disposal challenges, the enzymatic route is novel and has not yet been commercialized. As such, we may be faced with unforeseen results, delays and setbacks, in addition to the other foreseeable risks and uncertainties associated with the ongoing development of the ECO Synthesis™ manufacturing platform and other products.

Other challenges with a new technology such as our ECO Synthesis™ manufacturing platform include having an unknown and unproven regulatory path, uncertainly around the value that we can realize from the technology, uncertainty around the timeline for adoption of the technology by customers, and uncertainly around our ability to manufacture and partner with customers on manufacturing and utilizing the technology.

There can be no assurance that these events we may experience in the future related to enzymatic synthesis will not cause significant delays or unanticipated costs, or that such development problems can be solved. Any delay or difficulties in developing and commercializing our ECO Synthesis™ manufacturing platform or any of our other current or future products could adversely affect our business and operations.
Competitors and potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete or may use their greater resources to gain market share at our expense.
The biocatalysis and performance enzyme industries and each of our target markets are characterized by rapid technological change. Our future success will depend on our ability to maintain a competitive position with respect to technological advances. In addition, as we enter new markets, we will face new competition and will need to adapt to competitive factors that may be different from those we face today.
We are aware that other companies, including DSM, BASF, Bayer and Novozymes have alternative methods for obtaining and generating genetic diversity or use mutagenesis techniques to produce genetic diversity. Academic institutions such as the California Institute of Technology, the Max Planck Institute and the Austrian Centre of Industrial Biotechnology are also working in this field. Technological development by others may result in our technology, products and services, as well as products developed by our customers using our biocatalysts, becoming obsolete.
Our primary competitors in the performance enzymes for the pharmaceutical products markets include (i) companies marketing either conventional, non-enzymatic processes or biocatalytic enzymes; (ii) manufacturers of pharmaceutical intermediates and APIs; and (iii) existing in-house technologies (both biocatalysts and conventional catalysts) within our client and potential client companies. The principal methods of competition and competitive differentiation in this market are price, product quality and performance, including manufacturing yield, safety and environmental benefits, and speed of delivery of product. Pharmaceutical manufacturers that use biocatalytic processes can face increased competition from manufacturers that use more conventional processes and/or manufacturers that are based in regions (such as India and China) with lower regulatory, safety and environmental costs.
The market for the manufacture and supply of APIs and intermediates is large with many established companies. These companies include many of our large innovator and generic pharmaceutical customers, such as Merck, GSK, Novartis, Pfizer, Bristol-Myers, Kyorin, Urovant, and Teva which have significant internal research and development efforts directed at developing processes to manufacture APIs and intermediates. The processes used by these companies include classical conventional organic chemistry reactions, chemo catalytic reactions, biocatalytic reactions or combinations thereof. Our biocatalytic based manufacturing processes must compete with these internally developed routes. Additionally, we also face competition from companies developing and marketing conventional catalysts such as Solvias Inc., BASF and Takasago International Corporation.
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The market for supplying enzymes for use in pharmaceutical manufacturing is quite fragmented. There is competition from large industrial enzyme companies, such as Novozymes and DuPont, as well as subsidiaries of larger contract research/contract manufacturing organizations, such as DSM, Cambrex Corporation, Lonza, WuXi STA and Almac Group Ltd. Some fermentation pathway design companies, like Ginkgo Bioworks (who recently acquired Zymergen), whose traditional focus has been to design microorganisms that express small molecule chemicals, could extend into designing organisms that express enzymes. There is also competition in the enzyme customization and optimization area from several smaller companies, such as BRAIN AG, Arzeda, c-LEcta GmbH and Evocatal GmbH.
We face competitive challenges related to our ECO Synthesis™ manufacturing platform. Phosphoramidite chemistry is the current and long-established industry standard for the manufacture of RNA therapeutics. Primary competitors in this space include CDMOs, such as Agilent Technologies, which has made significant capital investment to expand their RNA manufacturing capabilities using phosphoramidite chemistry. In addition, CDMOs and large pharmaceutical companies are seeking to make incremental improvements to phosphoramidite chemistry, including the development of ligation-based approaches, liquid-phase synthesis, and solvent recycling. There are also multiple early-stage competitors who are pursuing fully enzymatic approaches to the manufacture of RNA, including EnPlusOne, a private startup company, and a UK-based consortium led by CPI and consisting of multiple academic and research organizations, including The University of Manchester and large pharmaceutical companies, including AstraZeneca plc and Novartis.
Our ability to compete successfully in any of these markets will depend on our ability to develop proprietary products that reach the market in a timely manner and are technologically superior to and/or are less expensive than other products on the market. Many of our competitors have substantially greater production, financial, research and development, personnel and marketing resources than we do. They also started developing products earlier than we did, which may allow them to establish blocking intellectual property positions or bring products to market before we can. In addition, certain of our competitors may also benefit from local government subsidies and other incentives that are not available to us. As a result, our competitors may be able to develop competing and/or superior technologies and processes and compete more aggressively and sustain that competition over a longer period of time than we could. Our technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors. We cannot be certain that any products we develop in the future will compare favorably to products offered by our competitors or that our existing or future products will compare favorably to any new products that are developed by our competitors. As more companies develop new intellectual property in our markets, the possibility of a competitor acquiring patent or other rights that may limit our products or potential products increases, and could additionally lead to litigation.
Our limited resources relative to many of our competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and market share, adversely affect our results of operations and financial position, and prevent us from obtaining or maintaining profitability.
Revenues in future years from our sales of CDX-616 to Pfizer are subject to a number of factors which are outside of our control and may not materialize.
Starting the first and second quarters of 2021, we began to receive purchase orders from Pfizer for large quantities of our proprietary enzyme product, CDX-616, for use by Pfizer in the manufacture of a critical intermediate for its proprietary active pharmaceutical ingredient, nirmatrelvir. Pfizer markets, sells and distributes nirmatrelvir, in combination with the active pharmaceutical ingredient ritonavir, as its PAXLOVID™ (nirmatrelvir tablets; ritonavir tablets) product, which received FDA approval in May 2023 for the treatment of mild-to-moderate COVID-19 in adults who are at high risk for progression to severe COVID-19, including hospitalization or death.
Potential revenues in future years from our sales of CDX-616 to Pfizer and other potential customers (including sublicensees of Pfizer technology from The Medicines Patent Pool (the “MPP”)) are subject to a number of factors which are outside of our control, including, without limitation, the following, all of which could reduce or eliminate our sales of CDX-616, and therefore materially and adversely affect our business, results of operations and financial condition:
Pfizer has no future binding commitment to purchase any particular quantity or quantities of CDX-616 from us, and we are dependent upon Pfizer continuing to place orders with us (whether on a spot basis or under a long-term agreement, when and if executed) for their requirements, if any, for CDX-616;
to our knowledge, sublicensees of Pfizer technology from the MPP have no obligation to purchase CDX-616 from us under their sublicenses with the MPP;
future vaccine development and usage and the development and usage of other new therapies for the treatment or elimination of COVID-19 may eliminate or reduce demand for PAXLOVID™;
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new variants of COVID-19 may emerge which PAXLOVID™ is not effective in treating;
Pfizer could reformulate or make changes in the manufacturing process for nirmatrelvir which would eliminate or reduce demand for the use of CDX-616 in its manufacture;
sublicensees of Pfizer technology for the manufacture, sale and distribution of PAXLOVID™ from the MPP may not utilize CDX-616 in the manufacture of nirmatrelvir;
national and regional governmental authorities (including those of the United States government) may mandate that raw materials and intermediates used in the manufacture of PAXLOVID™ to be marketed, sold and distributed within the borders of that country be domestically produced, which could eliminate or reduce demand for the use of CDX-616 in such country; and
we may be unable (because of lack of available manufacturing capacity at our contract manufacturers, supply chain disruptions or an inability to obtain applicable regulatory approvals) to manufacture the quantities of CDX-616 that Pfizer may desire to purchase from us.
We have investments in non-marketable securities, which may subject us to significant impairment charges.
We have investments in illiquid or non-marketable equity securities acquired in private transactions. As of December 31, 2023, 7.1% of our consolidated assets consisted of investment securities, which are illiquid investments. Investments in non-marketable, securities are inherently risky and difficult to value. We account for our non-marketable equity securities under the measurement alternative. Under the measurement alternative, the carrying value of our non-marketable equity investments is adjusted to fair value for observable transactions for identical or similar investments of the same issuer or impairment. We evaluate our investment in non-marketable securities when circumstances indicate that we may not be able to recover the carrying value. We may impair these securities and establish an allowance for a credit loss when we determine that there has been an “other-than-temporary” decline in estimated fair value of the equity security compared to its carrying value. The impairment analysis requires significant judgment to identify events or circumstances that would likely have a material adverse effect on the fair value of the investment. Because over 5% of our total assets consisted of non-marketable investment securities, any future impairment charges from the write down in value of these securities could have a material adverse effect on our financial condition or results of operations.
Ethical, legal and social concerns about genetically engineered products and processes could limit or prevent the use of our technology, products and processes and limit our revenues.
Some of our technology, products and services, such as our ECO Synthesis manufacturing platform, are genetically engineered or involve the use of genetically engineered products or genetic engineering technologies. If we and/or our collaborators are not able to overcome the ethical, legal, and social concerns relating to genetic engineering, our technology, products and services may not be accepted. Any of the risks discussed below could result in increased expenses, delays, or other impediments to our programs or the public acceptance and commercialization of products and processes dependent on our technologies or inventions. Our ability to develop and commercialize one or more of our technologies, products, or processes could be limited by the following factors:
public attitudes about the safety and environmental hazards of, and ethical concerns over, genetic research and genetically engineered products and processes, which could influence public acceptance of our technologies, products and processes;
public attitudes regarding, and potential changes to laws governing ownership of, genetic material, which could harm our intellectual property rights with respect to our genetic material and/or discourage collaborators from supporting, developing, or commercializing our technology, products and services; and
governmental reaction to negative publicity concerning genetically modified organisms, which could result in greater government regulation of genetic research and derivative products.
The subject of genetically modified organisms has received negative publicity, which has aroused public debate. This adverse publicity could lead to greater regulation and trade restrictions on imports of genetically altered products. The biocatalysts that we develop have significantly enhanced characteristics compared to those found in naturally occurring enzymes or microbes. While we produce our biocatalysts only for use in a controlled industrial environment, the release of such biocatalysts into uncontrolled environments could have unintended consequences. Any adverse effect resulting from such a release could have a material adverse effect on our business and financial condition, damage our reputation, and/or expose us to liability for any resulting harm.
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We have recently enhanced our strategic focus to concentrate on certain programs and business lines. As a result of this refined focus, we may fail to capitalize on other opportunities that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we have recently focused our efforts on developing certain programs and business lines. As a result, we may forego or delay pursuit of business opportunities that later prove to have greater commercial potential. Further our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. In addition, our spending on current and future research and development programs, such as ECO Synthesis manufacturing platform that is in development, may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular program or business line, our business and results of operations could be harmed.
Given our recent change in strategic direction, we may receive limited revenue or no future value from certain of our existing license agreements.
While we have historically invested significant time and financial resources in the development of biotherapeutics assets, including candidates for the treatment of Fabry disease and Pompe disease, which are included in the Takeda Agreement, in July 2023, we announced we are terminating investment in our biotherapeutics business and in other programs. As a result, we are renegotiating some of these, along with other license agreements for product candidates in our biotherapeutics, food and feed, and non-core life science assets. For example, we entered into the Acquisition Agreement with Nestlé under which they acquired rights to our co-developed lipase enzyme CDX-7108 and we received an upfront payment and the right to downstream milestones and royalties, terminating our prior SCA and development agreement with Nestlé. While we are working to amend or terminate some of our agreements and enter into new agreements in such a way that we may be able to receive future revenue or other benefits, we may be unsuccessful in doing so. As a result, it remains uncertain as to whether we will receive any value or benefit from these license agreements going forward. Further, renegotiating these agreements may be costly and could divert management attention, which could have an adverse impact on our business and results of operations.
We use hazardous materials in our business and we must comply with environmental laws and regulations. Any claims relating to improper handling, storage or disposal of these materials or noncompliance of applicable laws and regulations could be time consuming and costly and could adversely affect our business and results of operations.
Our research and development and commercial processes involve the use of hazardous materials, including chemical, radioactive and biological materials. Our operations also produce hazardous waste. We cannot eliminate entirely the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state, local and foreign laws and regulations govern the use, manufacture, storage, handling and disposal of, and human exposure to, these materials. We may face liability for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our total assets. Although we believe that our activities comply in all material respects with environmental laws, there can be no assurance that violations of environmental, health and safety laws will not occur in the future as a result of human error, accident, equipment failure or other causes. Compliance with applicable environmental laws and regulations may be expensive, and the failure to comply with past, present or future laws could result in the imposition of fines, third party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production or a cessation of operations, and our liability may exceed our total assets. Liability under environmental laws can be joint and several and without regard to comparative fault. Environmental laws could become more stringent over time imposing greater compliance costs and increasing risks and penalties associated with violations, which could impair our research, development or production efforts and harm our business. In addition, we may be required to indemnify some of our customers or suppliers for losses related to our failure to comply with environmental laws, which could expose us to significant liabilities.
Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards (“NOLs”), to offset future taxable income. If the Internal Revenue Service challenges our analysis that our existing NOLs are not subject to limitations arising from previous ownership changes, our ability to utilize NOLs could be limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize a material portion of the NOLs reflected in our financial statements, even if we attain profitability.
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As a public reporting company, we are subject to rules and regulations established from time to time by the SEC and Nasdaq regarding our internal controls over financial reporting. We may not complete needed improvements to our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock and your investment.
We are subject to the rules and regulations established from time to time by the SEC and Nasdaq. These rules regulations require, among other things, that we establish and periodically evaluate procedures with respect to our internal controls over financial reporting. As part of these evaluations, material weaknesses in our internal controls over financial reporting may be identified. A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. While we were able to remediate previously identified material weaknesses in our internal controls over financial reporting, there can be no guarantee we will not identify similar or other material weaknesses in the future and if such material weaknesses are identified, there can be no guarantee we would be able to remediate such material weaknesses. Any material weaknesses in our internal controls may adversely affect our ability to record, process, summarize and accurately report timely financial information and, as a result, our consolidated financial statements may contain material misstatements or omissions.
Reporting obligations as a public company place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel. In addition, as a public company we are required to document and test our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal controls over financial reporting. Likewise, our independent registered public accounting firm is required to provide an attestation report on the effectiveness of our internal controls over financial reporting in our Annual Reports on Form 10-K. If our management is unable to certify the effectiveness of our internal controls or if our independent registered public accounting firm cannot deliver a report attesting to the effectiveness of our internal controls over financial reporting, or if we identify or fail to remediate material weaknesses in our internal controls, we could be subject to regulatory scrutiny and a loss of public confidence, which could seriously harm our reputation and the market price of our common stock. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in our common stock price and may seriously harm our business.
We may need additional capital in the future in order to expand our business.
Our future capital requirements may be substantial, particularly as we continue to develop our business. Although we believe that, based on our current level of operations, our existing cash, cash equivalents and equity securities will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months, we may need additional capital if our current plans and assumptions change. Our need for additional capital will depend on many factors, including the financial success of our performance enzyme business, our spending to develop and commercialize new and existing enzyme products and the amount of collaboration funding we may receive to help cover the cost of such expenditures, 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, including the ongoing commercialization of our ECO Synthesis manufacturing platform, and the filing, prosecution, enforcement and defense of patent claims. If our capital resources are insufficient to meet our capital requirements, and we are unable to enter into or maintain collaborations with partners that are able or willing to fund our development efforts or commercialize any enzyme products that we develop or enable, we will have to raise additional funds to continue the development of our technology and products and complete the commercialization of products, if any, resulting from our technologies.
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In addition, we may choose to raise additional capital due to market conditions or strategic considerations, such as funding the ongoing commercialization of our ECO Synthesis manufacturing platform, even if we believe we have sufficient funds for our current or future operating plans. We may seek to obtain such additional capital through equity offerings, including pursuant to the EDA, debt financings, credit facilities and/or strategic collaborations. If future financings involve the issuance of equity securities, our existing stockholders would suffer dilution. 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. Strategic collaborations may also place restrictions on our business. We may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. If we fail to raise sufficient funds and fail to generate sufficient revenues to achieve planned gross margins and to control operating costs, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited. If this happens, we may be forced to delay or terminate research or development programs or the commercialization of products resulting from our technologies, curtail or cease operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.
Covenants and other provisions in our Loan Agreement with Innovatus restrict our business and operations in many ways, and if we do not effectively manage our covenants, our financial conditions and results of operations could be adversely affected. In addition, our operations may not provide sufficient cash to meet the repayment obligations of our debt incurred under the Loan Agreement.
Pursuant to the Loan Agreement, Innovatus has been granted a security interest in substantially all of our assets. If an event of default occurs under the Loan Agreement, Innovatus may foreclose on its security interest and liquidate some or all of these assets, which would harm our business, financial condition and results of operations.
In the event of a default in connection with our bankruptcy, insolvency, liquidation, or reorganization, Innovatus would have a prior right to substantially all of our assets to the exclusion of our general unsecured creditors. Only after satisfying the claims of Innovatus and any unsecured creditors would any amount be available for our equity holders.
The pledge of these assets and other restrictions imposed in the Loan Agreement may limit our flexibility in raising capital for other purposes. Because substantially all of our assets are pledged to secure the Loan Agreement obligations, our ability to incur additional indebtedness or to sell or dispose of assets to raise capital may be impaired, which could have an adverse effect on our financial flexibility.

In addition, if we are unable to comply with certain financial and operating restrictions in the Loan Agreement, we may be limited in our business activities and access to credit or may default under the Loan Agreement. Provisions in the Loan Agreement impose restrictions or require prior approval on our ability, and the ability of certain of our subsidiaries to, among other things:
sell, lease or transfer certain parts of our business or property, including equity interests of our subsidiaries;
engage in new lines of business;
acquire new companies and merge or consolidate;
incur additional debt or guarantee the indebtedness of others or our subsidiaries;
create liens or encumbrances;
pay cash dividends and make distributions or redeem or repurchase our capital stock;
make certain investments;
enter into transactions with affiliates; and
terminate or, in certain cases, amend our material agreements.

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The Loan Agreement also contains other customary covenants. We may not be able to comply with these covenants in the future. Our failure to comply with these covenants may result in the declaration of an event of default, which, if not cured or waived, may result in the acceleration of the maturity of indebtedness outstanding under the Loan Agreement and would require us to pay all amounts outstanding. If the maturity of our indebtedness is accelerated, we may not have sufficient funds then available for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us or at all. Our failure to repay our obligations under the Loan Agreement would result in Innovatus foreclosing on all or a portion of our assets, which could force us to curtail or cease our operations.
If we engage in any acquisitions, we will incur a variety of costs and may potentially face numerous risks that could adversely affect our business and operations.
We have made acquisitions in the past, and if appropriate opportunities become available, we expect to acquire additional businesses, assets, technologies, or products to enhance our business in the future. For example, in October 2010, we acquired substantially all of the patents and other intellectual property rights associated with Maxygen’s directed evolution technology.
In connection with any future acquisitions, we could:
issue additional equity securities, which would dilute our current stockholders;
incur substantial debt to fund the acquisitions;
use our cash to fund the acquisitions; or
assume significant liabilities including litigation risk.
Acquisitions involve numerous risks, including problems integrating the purchased operations, technologies or products, unanticipated costs and other liabilities, diversion of management’s attention from our core businesses, adverse effects on existing business relationships with current and/or prospective collaborators, customers and/or suppliers, risks associated with entering markets in which we have no or limited prior experience and potential loss of key employees. We do not have extensive experience in managing the integration process and we may not be able to successfully integrate any businesses, assets, products, technologies or personnel that we might acquire in the future without a significant expenditure of operating, financial and management resources, if at all. The integration process could divert management’s time from focusing on operating our business, result in a decline in employee morale and cause retention issues to arise from changes in compensation, reporting relationships, future prospects or the direction of the business. Acquisitions may also require us to record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to certain intangible assets, and incur large and immediate write offs and restructuring and other related expenses, all of which could harm our operating results and financial condition. In addition, we may acquire companies that have insufficient internal financial controls, which could impair our ability to integrate the acquired company and adversely impact our financial reporting. If we fail in our integration efforts with respect to any of our acquisitions and are unable to efficiently operate as a combined organization, our business and financial condition may be adversely affected.
COVID-19 has adversely affected, and any resurgence of COVID-19 pandemic or another global health epidemic may in the future, directly or indirectly, adversely affect our business, results of operations and financial condition.
COVID-19 has had a significant impact globally, prompting governments and businesses to take unprecedented measures in response. In the United States, COVID-19 has and may continue in the future to, directly or indirectly, adversely affect our business, results of operations and financial condition.
In the future, our business could be materially adversely affected, directly or indirectly, by the widespread outbreak of contagious disease, such as COVID-19 or any resurgence thereof. If national, state and local governments in affected regions implement safety precautions, similar to those implemented in response to COVID-19, including quarantines, border closures, increased border controls, travel restrictions, governmental orders and shutdowns, business closures, cancellations of public gatherings and other measures, such precautions could, and for COVID-19 did, disrupt normal business operations both in and outside of affected areas and could have significant negative impacts on businesses and financial markets worldwide.
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The impact of COVID-19 has had, and any resurgence of the COVID-19 pandemic or another pandemic or public health crisis, could in the future have, significant repercussions across regional, national and global economies and financial markets, and could trigger a period of regional, national and global economic slowdown or regional, national or global recessions. The outbreak of COVID-19 in many countries adversely impacted regional, national and global economic activity and has continued to contribute to significant volatility and negative pressure in financial markets. As a result, we may experience difficulty accessing debt and equity capital on attractive terms, or at all, due to the severe disruption and instability in the global financial markets. In addition, our customers may terminate or amend their agreements for the purchase of our technology, products and services due to bankruptcy, lack of liquidity, lack of funding, operational failures or other reasons.
Risks Related to Government Regulation
Our ongoing efforts to deploy our technology in the life science tools markets may fail.
We have used our CodeEvolver® directed evolution technology platform to develop new products for customers using NGS and PCR/qPCR for in vitro molecular diagnostic applications. While we have entered into license agreements for products in this market, we do not know if we can successfully compete in this new market. This new market is well established and consists of numerous large, well-funded entrenched market participants who have long and established track records and customer relationships.
We have also developed a newly engineered ligase designed to address sequencing challenges. These enzymes, and any additional products that we may develop in the future for this market, may not succeed in displacing current products. If we succeed in commercializing new products for this market, we may not generate significant revenues and cash flows from these activities. The failure to successfully deploy products on a timely basis in this space may limit our growth and have a material adverse effect on our financial condition, operating results and business prospects.
Even if our customers, future customers or collaborators obtain regulatory approval for any products utilizing our enzymes, such products will remain subject to ongoing regulatory requirements, which may result in significant additional expense.
Any products that receives FDA approval will remain subject to ongoing regulatory requirements for manufacturing, labeling, packaging, distribution, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information, among other things. Any regulatory approvals received for such products may also be subject to limitations on the approved indicated uses for which they may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing and surveillance studies. For example, the holder of an approved NDA or BLA in the United States is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the NDA or BLA. In the United States, the holder of an approved NDA or BLA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Similar provisions apply in the European Union (the “EU”). Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. Similarly, in the EU any promotion of medicinal products is highly regulated and, depending on the specific jurisdiction involved, may require prior vetting by the competent national regulatory authority. In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP requirements and adherence to commitments made in the NDA, BLA or foreign marketing application.
If our customers, future customers or our collaborators or a regulatory agency discovers previously unknown problems with a product such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured or disagrees with the promotion, marketing or labeling of that product, a regulatory agency may impose restrictions relative to that product, the manufacturing facility or our customers or collaborators, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
In addition, if our customers or collaborators fail to comply with applicable regulatory requirements, the FDA and other regulatory authorities may:
issue an untitled letter or a warning letter asserting a violation of the law;
seek an injunction, impose civil or criminal penalties, and impose monetary fines, restitution or disgorgement of profits or revenues;
suspend or withdraw regulatory approval;
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issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product;
mandate modification of promotional materials and labeling and issuance of corrective information;
issue consent decrees or corporate integrity agreements, or debar or exclude from federal healthcare programs;
suspend or terminate any ongoing clinical trials or implement requirements to conduct post-marketing studies or clinical trials;
refuse to approve a pending NDA, BLA or comparable foreign marketing application (or any supplements thereto);
restrict the labeling, marketing, distribution, use or manufacturing of products;
seize or detain products or otherwise require the withdrawal or recall of products from the market;
refuse to approve pending applications or supplements to approved applications;
refuse to permit the import or export of products; or
refuse government contracts.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may also inhibit our customers or collaborators’ ability to commercialize products and our ability to generate revenues.
In addition, the FDA’s policies, and policies of foreign regulatory agencies, may change, and additional regulations may be enacted that could prevent, limit or delay regulatory approval of product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may be subject to enforcement action and we may not achieve or sustain profitability.
If we or our customers fail to comply with certain healthcare laws, including fraud and abuse laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.
The healthcare industry is highly regulated. We, and our customers, are subject to various local, state, federal, national, and international laws and regulations, which include laws and regulations promulgated by the FDA, HHS, state boards of pharmacy, state health departments, and similar regulatory bodies in other countries. Additionally, our business operations and future arrangements with investigators, healthcare professionals, and consultants, among others, may expose us and our customers to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute, the federal civil False Claims Act, the federal Civil Monetary Penalties Law, and analogous state laws. These laws may constrain the business or financial arrangements and relationships through which we will conduct our operations. Because of the breadth of these laws and narrowness of available statutory and regulatory exceptions, it is possible that some of our business activities could be regulated by or subject to challenge under one or more of such laws. We cannot ensure that our compliance controls, policies, and procedures will in every instance protect us from acts of our employees, agents, contractors, or collaborators that turn out to violate any of the laws described above. If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, imprisonment and the curtailment or restructuring of our operations, any of which could materially adversely affect our ability to operate our business and our financial results.
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Ongoing healthcare legislative and regulatory reform measures may have a material adverse effect on our business and results of operations.
In the United States, there have been, and we expect there will continue to be, a number of legislative initiatives to contain healthcare costs. Some of these initiatives, such as ongoing healthcare reform, including with respect to reforming drug pricing, adverse changes in governmental or private funding of healthcare products and services, legislation or regulations governing patient access to care, and the delivery, coverage, pricing, and reimbursement of pharmaceuticals and healthcare services may cause our customers to change the amount of our offerings that they purchase from us or the price they are willing to pay us for these offerings. If cost-containment efforts or other healthcare reform measures limit our customers’ profitability, they may decrease research and development spending, which could decrease the demand for our products and services and materially adversely affect our growth prospects. Any of these factors could harm our customers’ businesses, which, in turn, could materially adversely affect our business, financial condition, results of operations, cash flows, and prospects.
We cannot predict the likelihood, nature, or extent of other health reform initiatives that may arise from future legislative, administrative, or other action. Any substantial revision of applicable healthcare legislation could have a material adverse effect on the demand for our customers’ products, which in turn could have a negative impact on our results of operations, financial condition, or business. Changes in the healthcare industry’s pricing, selling, inventory, distribution, or supply policies or practices, or in public or government sentiment for the industry as a whole, could also significantly reduce our revenue and results of operations.
Compliance with European Union chemical regulations could be costly and adversely affect our business and results of operations.
Some of our products are subject to the EU regulatory regime known as The Registration, Evaluation and Authorization of Chemicals (“REACH”). REACH mandates that certain chemicals manufactured in, or imported into, the EU be registered and evaluated for their potential effects on human health and the environment. Under REACH, we and our contract manufacturers located in the EU are required to register certain of our products based on the quantity of such product imported into or manufactured in the EU and on the product’s intended end-use. The registration, evaluation and authorization process under REACH can be costly and time consuming. Problems or delays in the registration, evaluation or authorization process under REACH could delay or prevent the manufacture of some of our products in, or the importation of some of our products into, the EU, which could adversely affect our business and results of operations. In addition, if we or our contract manufacturers fail to comply with REACH, we may be subject to penalties or other enforcement actions, which could have a material adverse effect on our business and results of operations.
Risks Related to Intellectual Property and Information Technology
Our efforts to prosecute, maintain, protect and/or defend our intellectual property rights may not be successful.
We will continue to file and prosecute patent applications and maintain trade secrets in an ongoing effort to protect our intellectual property rights. It is possible that our current patents, or patents which we may later acquire, may be successfully challenged or invalidated, in whole or in part. It is also possible that we may not obtain issued patents from our pending patent applications. We sometimes permit certain patents or patent applications to lapse or go abandoned under appropriate circumstances. Due to uncertainties inherent in prosecuting patent applications, sometimes patent applications are rejected, and we subsequently abandon them. It is also possible that we may develop proprietary technology, products or services in the future that are not patentable or that the patents of others will limit or altogether preclude our ability to conduct business. In addition, any patent issued to us or to our licensor may provide us with little or no competitive advantage, in which case we may abandon such patent, license it to another entity or terminate the license agreement.
Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop technologies, products or services that are identical or similar to ours or that compete with ours. Patent, trademark, copyright and trade secret laws afford only limited protection for our technology, products and services . The laws of many countries do not protect our proprietary rights to as great of an extent as do the laws of the United States. Despite our efforts to protect our proprietary rights, unauthorized parties have in the past attempted, and may in the future attempt, to operate under the aspects of our intellectual property rights, or proprietary technology, products or services or products, or to obtain and use information that we regard as proprietary. Third parties may also design around our proprietary rights, which may render our protected technology, services and products less valuable, if the design around is favorably received in the marketplace. In addition, if any of our technology, products and services are covered by third-party patents or other intellectual property rights, we could be subject to various legal actions. We cannot assure that our technology products and/or services do not infringe, violate or misappropriate any patents or other intellectual property rights owned or controlled by others or that they will not in the future.
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Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement, invalidity, misappropriation, or other claims.
Any such litigation could result in substantial costs and diversion of our resources. Moreover, any settlement of or adverse judgment resulting from litigation relating to intellectual property rights could require us to obtain a license to continue to make, use, import, sell or offer for sale the technology, products or services that is the subject of the claim, or otherwise restrict or prohibit our use of the technology, products or services.
Our ability to compete may decline if we do not adequately prosecute, maintain, protect and/or defend our proprietary technology, products or services or our intellectual property rights.
Our success depends in part on our ability to obtain patents and maintain adequate protection of our intellectual property rights directed to our technology, products and services in the United States and other countries. We have adopted a strategy of seeking patent protection in the United States and in foreign countries with respect to certain of the technology used in or relating to our products, services, and processes. As such, as of December 31, 2023, we owned or controlled approximately 1,990 active issued patents and pending patent applications in the United States and in various foreign jurisdictions. As of December 31, 2023, our patents and patent applications, if issued, have terms that expire between 2024 and approximately 2044. We also have license rights to a number of issued patents and pending patent applications in the United States and in various foreign jurisdictions. Our owned and licensed patents and patent applications include those directed to our enabling technology and to the methods and products that support our business in the pharmaceutical manufacturing, life sciences, oligonucleotide synthesis, and other markets. We intend to continue to apply for patents relating to our technology, methods, services and products as we deem appropriate.
Issuance of claims in patent applications and enforceability of such claims once issued involve complex legal and factual questions and, therefore, we cannot predict with any certainty whether any of our issued patents will survive invalidity claims asserted by third parties. Issued patents and patents issuing from pending applications may be challenged, invalidated, circumvented, rendered unenforceable or substantially narrowed in scope. In addition, the inventorship and ownership of the patents and patent applications may be challenged by others. Moreover, the United States Leahy-Smith America Invents Act (“AIA”), enacted in September 2011, brought significant changes to the United States patent system, which include a change to a “first to file” system from a “first to invent” system and changes to the procedures for challenging issued patents and disputing patent applications during the examination process, among other things. While interference proceedings are possible for patent claims filed prior to March 16, 2013, many of our filings will be subject to the post- and pre-grant proceedings set forth in the AIA, including citation of prior art and written statements by third parties, third party pre-issuance submissions, ex parte reexamination, inter partes review, post-grant review, and derivation proceedings. We may need to utilize the processes provided by the AIA for supplemental examination or patent reissuance. These proceedings could result in substantial cost to us even if the outcome is favorable. Even if successful, any proceeding may result in loss of certain claims. Any litigation or proceedings could divert our management's time and efforts. Even unsuccessful claims brought by third parties could result in significant legal fees and other expenses, diversion of management time, and disruption in our business. Uncertainties resulting from initiation and continuation of any patent or related litigation could harm our ability to compete.
Additional uncertainty may result from legal precedent handed down by the United States Federal Circuit Court and Supreme Court as they determine legal issues concerning the scope and construction of patent claims and inconsistent interpretation of patent laws by the lower courts. Accordingly, we cannot ensure that any of our pending patent applications will result in issued patents, or even if issued, predict the breadth of the claims upheld in our, our licensors', and other companies' patents. Given that the degree of future protection for our proprietary rights is uncertain, we cannot ensure that: (i) we or our licensors were the first to invent the inventions covered by each of our pending applications, (ii) we or our licensors were the first to file patent applications for these inventions, or (iii) the proprietary technology, products or services we develop will be patentable. In addition, unauthorized parties may attempt to copy or otherwise obtain and use our technology, products and services. Monitoring unauthorized use of our intellectual property rights is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, products or services, particularly in certain foreign countries where the local laws may not protect our proprietary rights as fully as in the United States. Moreover, third parties could practice our inventions in territories where we do not have patent protection. Such third parties may then try to import products made using our inventions into the United States or other countries. If competitors are able to use our proprietary technology, products or services, our ability to compete effectively could be harmed. In addition, others may independently develop and obtain patents for technologies, products or services that are similar to or superior to our technologies, products or services. If that happens, we may need to license these technologies, products or services, and we may not be able to obtain licenses on reasonable terms, if at all, which could cause harm to our business.
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Similarly, foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. Changes in patent laws and regulations in other countries or jurisdictions, changes in the governmental bodies that enforce them, or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we own or may obtain in the future. For example, in some cases, we have filed for unitary patent protection under the rules implemented on June 1, 2023, in the European Patent Office. We will continue to assess this route of protection on a case-by-case basis, as applications are filed and patents are granted through the European Patent Office. This may alter our ability to protect our patents in some European countries. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. For example, in some foreign jurisdictions, governments have the right to compel patent owners to grant others licenses to their intellectual property under certain circumstances. In addition, any protection afforded by foreign patents may be more limited than that provided under U.S. patent and intellectual property laws. We may encounter significant problems in enforcing and defending our intellectual property both in the United States and abroad. For example, if the issuance in a given country of a patent covering an invention is not followed by the issuance in other countries of patents covering the same invention, or if any judicial interpretation of the validity, enforceability or scope of the claims or the written description or enablement in a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in other countries, our ability to protect our intellectual property rights in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property rights or narrow the scope of our patent protection. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and foreign legislative bodies. Those changes may materially affect our patents or patent applications and our ability to obtain additional patent protection in the future. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects.
Third parties may claim that we are infringing, violating or misappropriating their intellectual property rights, which may subject us to costly and time-consuming litigation and prevent us from developing or commercializing our technology, products or services.
Our commercial success also depends in part on our ability to operate without infringing, violating or misappropriating patents and other intellectual property rights of third parties, and without breaching any licenses or other agreements that we have entered into with regard to our technologies, products or services. We cannot ensure that patents have not been issued, or will not be issued, to third parties that could block our ability to obtain patents or to operate as we would like. There may be patents in some countries that, if valid, may block our ability to make, use, sell, or offer for sale our technology, products or services in those countries, or import our products into those countries, if we are unsuccessful in circumventing or acquiring rights to these patents. There also may be claims in patent applications filed in some countries that, if granted and valid, may also block our ability to commercialize technology, products, services or processes in these countries if we are unable to circumvent or obtain rights to them.
The industries in which we operate and the biotechnology industry, in particular, are characterized by frequent and extensive litigation regarding patents and other intellectual property rights. Many biotechnology companies have employed intellectual property litigation as a way to gain a competitive advantage. We are aware of some patents and patent applications relating to aspects of our technologies, products or services filed by, and issued to, third parties. We cannot assure that if such third-party patents rights are asserted against us that we would ultimately prevail. Any involvement in litigation or other intellectual property proceedings inside and/or outside of the United States to defend against claims that we infringe, misappropriate or violate the intellectual property rights of others may divert our management’s time from focusing on business operations and could cause us to spend significant amounts of money. Any potential intellectual property litigation also could force us to do one or more of the following:
stop making, using, selling or importing our technologies, products and services that use the subject intellectual property;
pay monetary damages to the third party asserting claims against us;
grant or transfer rights to third parties relating to our patents or other intellectual property rights;
obtain from the third party asserting its intellectual property rights a license to make, sell, offer for sale, import or use the relevant technology, product or service, which license may not be available on reasonable terms, or at all; or
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redesign those technologies, products, services or processes that use any allegedly infringing, misappropriated or violated intellectual property rights, or relocate the operations relating to the allegedly infringing, misappropriated or violated intellectual property rights to another jurisdiction, which may result in significant cost or delay to us, could be technically infeasible or could prevent us from making, selling, offering for sale, using or importing some of our technologies, products or services in the United States or other jurisdictions.
We may be involved in lawsuits to protect or enforce our intellectual property rights, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe, violate or misappropriate our intellectual property rights or those of our licensors. To prevent infringement, violation, misappropriation or other unauthorized use, we have in the past filed, and may in the future be required to file, enforcement claims, which can be expensive and time-consuming. In addition, in an enforcement proceeding, a court may decide that the intellectual property right that we own or control is not valid, is unenforceable and/or is not infringed, violated or misappropriated. In addition, in legal proceedings against a third party to enforce a patent directed at one of our technologies, products or services, the defendant could counterclaim that our patent is invalid and/or unenforceable in whole or in part. In patent enforcement litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a patent validity challenge include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could include an allegation that someone connected with prosecution of the patent withheld relevant information from the United States Patent and Trademark Office (“USPTO”) or made a misleading statement during prosecution. Third parties may also raise similar claims before the USPTO, even outside the context of enforcement litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable, and prior art could render our patents or those of our licensors invalid. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on the respective technology, products or services. Such a loss of patent protection could have a material adverse impact on our business.
Even if resolved in our favor, litigation or other legal proceedings relating to our intellectual property rights may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our expenses and reduce the resources available for operations and research and development activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace. Furthermore, because of the substantial amount of discovery required in connection with U.S. intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
We may not be able to enforce our intellectual property rights throughout the world.
The laws of some foreign countries where we do business do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and enforcing intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property rights, particularly those relating to biotechnology technologies. Accordingly, our efforts to protect and enforce our intellectual property rights in such countries may be inadequate. This could make it difficult for us to stop the infringement, violation or misappropriation of our patents or other intellectual property rights. Additionally, proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business.
If our biocatalysts, or the genes that code for our biocatalysts, are stolen, misappropriated or reverse engineered, others could use these biocatalysts or genes to produce competing products.
Third parties, including our contract manufacturers, customers and those involved in shipping our biocatalysts, often have custody or control of our biocatalysts. If our biocatalysts, or the genes that code for our biocatalysts, were stolen, misappropriated or reverse engineered, they could be used by other parties who may be able to reproduce these biocatalysts for their own commercial gain. If this were to occur, it may be difficult for us to challenge this type of use, especially in countries with limited intellectual property rights protection or in countries in which we do not have patents covering the misappropriated biocatalysts.
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Confidentiality and non-use agreements with employees, consultants, advisors and other third parties may not adequately prevent disclosures and non-use of trade secrets and other proprietary information.
In addition to patent protection, we also rely on other intellectual property rights, including protection of copyright, trade secrets, know-how and/or other proprietary information that is not patentable or that we elect not to patent. However, trade secrets can be difficult to protect, and some courts are less willing or unwilling to protect trade secrets. To maintain the confidentiality of our trade secrets and proprietary information, we rely in part on trade secret law and contractual agreements to protect our confidential and proprietary information and processes. We generally enter into confidentiality and invention assignment agreements with our employees, consultants and third parties working on our behalf upon their commencement of a relationship with us. However, trade secrets and confidential information are difficult to protect and we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes and we may not enter into such agreements with all employees, consultants and third parties who have been involved in the development of our intellectual property rights. Nevertheless, without our permission or awareness, our confidential and proprietary information may be disclosed to third parties, used by the respective individuals for purposes other than for the Company’s business, or obtained through illegal means, such that third parties could reverse engineer our biocatalysts, enzyme products and processes, to attempt to develop the same technology or develop substantially equivalent technology.
Costly and time-consuming litigation could be necessary to enforce and determine the scope of our confidential and proprietary rights, and failure to protect our trade secrets could adversely affect our competitive business position. If any of our trade secrets were lawfully obtained, we may be unable to prevent them, or those to whom they communicate it, from using that technology or information to compete with us or disclosing it publicly. Therefore, these events could have a material adverse effect on our business, financial condition and results of operations. In particular, a failure to protect our proprietary rights may allow competitors to copy our technology, which could adversely affect our pricing and market share.
In addition to contractual measures, we try to protect the confidential nature of our proprietary information by maintaining physical security of our premises and electronic security of our information technology systems. Such security measures may not, for example, in the case of misappropriation of a trade secret by an employee, consultant or other third party with authorized access or with unauthorized access but an intent to steal, provide adequate protection for our proprietary information. Our security measures may not prevent such employee, consultant or other third party from misappropriating our trade secrets and using them or providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. While we use commonly accepted security measures, trade secret violations are often a matter of state law in the United States, and the criteria for protection of trade secrets can vary among different jurisdictions. If the steps we have taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.
Risks Related to Owning our Common Stock
We are subject to anti-takeover provisions in our certificate of incorporation and bylaws and under Delaware law that could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders.
Provisions in our amended and restated certificate of incorporation and our bylaws may delay or prevent an acquisition of the Company. Among other things, our amended and restated certificate of incorporation and bylaws provide for a board of directors which is divided into three classes, with staggered three-year terms and provide that all stockholder action must be effected at a duly called meeting of the stockholders and not by a consent in writing, and further provide that only our board of directors, the chairman of the board of directors, our chief executive officer or president may call a special meeting of the stockholders. In addition, our amended and restated certificate of incorporation allows our board of directors, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These provisions may also frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management team. Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (“DGCL”) which prohibits, with some exceptions, stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Finally, our charter documents establish advanced notice requirements for nominations for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings. Although we believe these provisions together provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer to acquire our company may be considered beneficial by some stockholders.
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Our bylaws designate a state or federal court located within the State of Delaware as the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us our current or former directors, officers, stockholders, or other employees.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us under Delaware law, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or other employee of the Company to us or our stockholders, (iii) any action asserting a claim against us or any of our directors, officers, or other employees arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws (as either may be amended from time to time), (iv) any action asserting a claim against us governed by the internal affairs doctrine, or (v) any other action asserting an “internal corporate claim,” as defined under Section 115 of the DGCL. The forgoing provisions do not apply to any claims arising under the Securities Act and, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the sole and exclusive forum for resolving any action asserting a claim arising under the Securities Act.
These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our current or former directors, officers, or other employees, which may discourage lawsuits with respect to such claims. There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find these types of provisions to be inapplicable or unenforceable, and if a court were to find the choice of forum provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations or financial condition.
Our quarterly or annual operating results may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of research analysts or investors, which could cause our stock price to decline.
Our financial condition and operating results have varied significantly in the past and may continue to fluctuate from quarter to quarter and year to year in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors, as well as other factors described elsewhere in this report:
our ability to achieve or maintain profitability;
our dependence on a limited number of customers;
our product supply agreements with customers have finite duration, may not be extended or renewed and generally do not require the customer to purchase any particular quantity or quantities of our products;
with respect to customers purchasing our products for the manufacture of active pharmaceutical ingredients for which they have exclusivity due to patent protection, the termination or expiration of such patent protection and any resulting generic competition may materially and adversely affect our revenues, financial condition or results of operations;
our dependence on a limited number of products in our performance enzymes business;
our reliance on a limited number of contract manufacturers for large scale production of substantially all of our enzyme products;
our relationships with, and dependence on, collaborators in our principal markets;
our ability to successfully and timely develop and commercialize new products, including our ECO Synthesis manufacturing platform, for the markets we serve;
the potential of GSK, Merck, Novartis or any other performance enzyme customer terminating their agreements with us;
the success of our customers’ products in the market and the ability of such customers to obtain regulatory approvals for products and processes;
our ability to deploy our technology platform in life science tools markets;
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our dependence on our collaborators or customers’ product candidates which could unexpectedly fail at any stage of preclinical or clinical development;
our dependence on our collaborators or customers’ product candidates which may lack the ability to work as intended or cause undesirable side effects;
our ability to successfully prosecute and protect our intellectual property;
our ability to compete if we do not adequately protect our proprietary technologies or if we lose some of our intellectual property rights;
our ability to avoid infringing the intellectual property rights of third parties;
our involvement in lawsuits to protect or enforce our patents or other intellectual property rights;
our ability to enforce our intellectual property rights throughout the world;
our dependence on, and the need to attract and retain, key management and other personnel;
our ability to prevent the theft or misappropriation of our biocatalysts, the genes that code for our biocatalysts, know-how or technologies;
our ability to protect our trade secrets and other proprietary information from disclosure by employees and others;
our ability to obtain substantial additional capital that may be necessary to expand our business;
our ability to comply with the terms of our Loan Agreement;
our ability to timely pay debt service obligations;
our customers’ ability to pay amounts owed to us in a timely manner;
our ability to avoid charges to earnings as a result of any impairment of goodwill, intangible assets or other long-lived assets;
changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported results of operations;
our ability to maintain effective internal control over financial reporting;
our dependency on information technology systems, infrastructure and data;
our ability to control and to improve product gross margins;
our ability to protect against risks associated with the international aspects of our business;
the cost of compliance with EU chemical regulations;
potential advantages that our competitors and potential competitors may have in securing funding or developing products;
our ability to accurately report our financial results in a timely manner;
results of regulatory tax examinations;
market and economic conditions may negatively impact our business, financial condition, and share price;
business interruptions due to natural disasters, disease outbreaks or other events beyond our control;
public concerns about the ethical, legal and social ramifications of genetically engineered products and processes;
our ability to integrate our current business with any businesses that we may acquire in the future;
our ability to properly handle and dispose of hazardous materials in our business;
potential product liability claims;
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changes to tax law and related regulations could materially affect our tax obligations and effective tax rate; and
our ability to use our NOLs to offset future taxable income.
Due to the various factors mentioned above, and others, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.
We do not intend to pay cash dividends for the foreseeable future.
We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant.
General Risk Factors
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock in a negative manner, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
We face risks associated with our international business.
While we have a limited number of employees located outside of the United States, we are and will continue to be dependent upon contract manufacturers located outside of the United States. In addition, we have customers and partners located outside of the United States. Conducting business internationally exposes us to a variety of risks, including:
changes in or interpretations of U.S. or foreign laws or regulations that may adversely affect our ability to sell our products, repatriate profits to the United States or operate our foreign-located facilities;
the imposition of tariffs;
the imposition of limitations on, or increase of, withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures;
the imposition of limitations on genetically-engineered or other products or processes and the production or sale of those products or processes in foreign countries;
currency exchange rate fluctuations;
uncertainties relating to foreign laws, regulations and legal proceedings including pharmaceutical, tax, import/export, anti-corruption and exchange control laws;
the availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us;
increased demands on our limited resources created by our operations may constrain the capabilities of our administrative and operational resources and restrict our ability to attract, train, manage and retain qualified management, technicians, scientists and other personnel;
economic or political instability in foreign countries;
difficulties associated with staffing and managing foreign operations; and
the need to comply with a variety of United States and foreign laws applicable to the conduct of international business, including import and export control laws and anti-corruption laws.
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Market and economic conditions may negatively impact our business, financial condition, and share price.
Concerns about inflation, energy costs, geopolitical issues, the United States mortgage market and a declining real estate market, unstable global credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, increased unemployment rates, and increased credit defaults in recent years. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions.
Recently, the closures of Silicon Valley Bank (“SVB”) and Signature Bank (“Signature”) and their placement into receivership with the Federal Deposit Insurance Corporation, and the government-brokered sale of the deposits and majority of assets of First Republic Bank to JPMorgan Chase, created bank-specific and broader financial institution liquidity risk and concerns. Although government intervention ensured that depositors at these banks have access to their funds, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs, and create additional market and economic uncertainty. There can be no assurance that future credit and financial market instability and a deterioration in confidence in economic conditions will not occur, and we cannot predict the impact or follow-on effects of these insolvencies more broadly or on our business in particular. Further, we cannot guarantee that the government will intervene to provide depositors with access to funds if similar events occur in the future. If other banks and financial institutions enter receivership or become insolvent in the future, our ability to access our existing cash, cash equivalents, and investments may be threatened, which could have a material adverse effect on our business and financial condition.
In addition, if the market and economic conditions described above continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance, and stock price. Additionally, rising rates of inflation have increased the costs associated with conducting our business, including by causing substantial increases in the costs of materials, including raw materials and consumables, equipment, services, and labor. Moreover, given the unpredictable nature of the current economic climate, including future changes in rates of inflation, it may be increasingly difficult for us to predict and control our future expenses, which may harm our ability to conduct our business.
Business interruptions resulting from disasters or other disturbances could delay us in the process of developing our products and could disrupt our sales. Our business continuity and disaster recovery plans may not adequately protect us from a serious disaster or other disturbance.
Our headquarters and other facilities are located in the San Francisco Bay Area, which in the past has experienced both severe earthquakes and wildfires. Earthquakes, wildfires or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. We are also vulnerable to other types of disasters and other events that could disrupt our operations, such as riot, civil disturbances, war, terrorist acts, public health emergencies, domestic or foreign conflicts, infections in our laboratory or production facilities or those of our customers or contract manufacturers and other events beyond our control. If a natural disaster or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event, and we may incur substantial expenses as a result of the limited nature of such plans. We do not carry insurance for earthquakes and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our cash flows and success as an overall business.
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We are dependent on information technology systems, infrastructure and data, and any failure of these systems could harm our business. Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business, results of operations and financial condition.
Information technology helps us operate efficiently, interface with customers, maintain financial accuracy and efficiency and accurately produce our financial statements. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions or the loss of or damage to intellectual property through security breach. If our information technology systems do not effectively collect, store, process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human error, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Our information technology systems and those of our external vendors, strategic partners and other contractors or consultants are vulnerable to attack and damage or interruption from computer viruses and malware (e.g. ransomware), malicious code, natural disasters, terrorism, war, telecommunication and electrical failures, hacking, cyberattacks, phishing attacks and other social engineering schemes, employee theft or misuse, human error, fraud, denial or degradation of service attacks, sophisticated nation-state and nation-state-supported actors or unauthorized access or use by persons inside our organization, or persons with access to systems inside our organization. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows and the timeliness with which we report our internal and external operating results.
Our business may require us to use and store personal information of our customers, employees, and business partners. This may include names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers and payment account information. We require usernames and passwords in order to access our information technology systems. We also use encryption and authentication technologies to secure the transmission and storage of data. However, these security measures may be compromised as a result of security breaches by unauthorized persons, employee error, malfeasance, faulty password management or other irregularity, and result in persons obtaining unauthorized access to our data or accounts. Third parties may attempt to fraudulently induce employees or customers into disclosing usernames, passwords or other sensitive information, which may in turn be used to access our information technology systems. For example, our employees have received “phishing” emails and phone calls attempting to induce them to divulge passwords and other sensitive information.
In addition, unauthorized persons may attempt to hack into our products or systems to obtain personal data relating to employees and other individuals, our confidential or proprietary information or confidential information we hold on behalf of third parties. We also rely on external vendors to supply and/or support certain aspects of our information technology systems. The systems of these external vendors may contain defects in design or manufacture or other problems that could unexpectedly compromise information security of our own systems, and we are dependent on these third parties to deploy appropriate security programs to protect their systems. If we or our third-party vendors were to experience a significant cybersecurity breach of our or their information systems or data, the costs associated with the investigation, remediation and potential notification of the breach to counterparties and data subjects could be material. Our remediation efforts may not be successful. Further, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss, corruption or unauthorized disclosure of our trade secrets, personal information or other proprietary or sensitive information or other similar disruptions. Attacks upon information technology systems are also increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. As a result of the remote work policies we initiated in response to the COVID-19 pandemic, and our continued hybrid working environment, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. We have programs in place to detect, contain and respond to data security incidents, and we make ongoing improvements to our information-sharing products in order to minimize vulnerabilities, in accordance with industry and regulatory standards. However, because the techniques used to obtain unauthorized access to or sabotage systems change frequently and may be difficult to detect, we may not be able to anticipate and prevent these intrusions or mitigate them when and if they occur. Even if identified, we may be unable to adequately and timely investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection and to remove or obfuscate forensic evidence.
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We and certain of our external vendors are from time to time subject to cyberattacks and security incidents. While we do not believe that we have experienced any significant system failure, accident, or security breach to date, if such an event were to occur, it could result in the unauthorized access to or unauthorized use, disclosure, release or other processing of personal information, it may be necessary to notify individuals, governmental authorities, supervisory bodies, the media and other parties pursuant to privacy and security laws. Any security compromise affecting us, our service providers, vendors, strategic partners, other contractors, consultants or our industry, whether real or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures and lead to regulatory scrutiny. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential or proprietary or personal information, we could incur liability, including litigation exposure, penalties and fines, which may not be covered by insurance or may be in excess of our insurance coverage. Additionally, we could become the subject of regulatory action or investigation, our competitive position could be harmed and the further development of our products could be delayed. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our business and could materially and adversely affect our business, results of operations and financial condition.
Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business, results of operations and financial condition.
The global data protection landscape is rapidly evolving, and we are or may become subject to state, federal and foreign laws, regulations, decisions and directives governing the privacy, security, collection, storage, transmission, use, processing, retention and disclosure of personal information. Any failure or perceived failure by us to comply with applicable laws or regulations, our internal policies and procedures or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third parties and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.
In the United States, HIPAA imposes, among other things, certain standards relating to the privacy, security, transmission and breach reporting of certain individually identifiable health information. Certain states have also adopted and continue to adopt new privacy and security laws and regulations, which govern the privacy, processing and protection of health-related and other personal information. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. For example, the California Consumer Privacy Act (“CCPA”) went into effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches (which has increased the likelihood of, and risks associated with, data breach litigation). Further, the California Privacy Rights Act (“CPRA”) significantly amended the CCPA, which went into effect in January 2023. It imposes additional data privacy obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data and opt outs for certain uses of sensitive data. It also created a new California privacy protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. Additional compliance investment and potential business process changes may also be required. Similar laws regulating personal information generally or health information in particular have passed in more than a dozen states and have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. These developments increase our compliance burden and our risk, including risks of regulatory fines, litigation and associated reputational harm. Any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
Furthermore, the Federal Trade Commission (“FTC”) and many state Attorneys General continue to enforce federal and state consumer protection laws against companies for the collection, use, sharing and security of personal information that appear to be unfair or deceptive. For example, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.
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In the European Union (“EU”), the EU General Data Protection Regulation (“EU GDPR”) governs the processing of personal data. The UK has implemented the EU GDPR as the UK GDPR which sits alongside the UK Data Protection Act 2018 (the “UK GDPR”, and together with the EU GDPR, the “GDPR”). The GDPR imposes requirements for controllers, including (among others) specific requirements for obtaining valid consent where consent is the legal basis for processing, requirements around accountability and transparency, the obligation to consider data protection when any new products or services are developed, the obligation to comply with individuals’ data protection rights, and the obligation to notify relevant data supervisory authorities of notifiable personal data breaches without undue delay (and no later than 72 hours) after becoming aware of the personal data breach (and affected data subjects where the personal data breach is likely to result in a high risk to their rights and freedoms). The EU GDPR provides that EU member states may enact their own additional national laws and regulations regarding the processing of genetic, biometric or health data, which could affect our ability to use and share personal data or could cause our costs to increase and potentially harm our business and financial condition. Failure to comply with the requirements of the GDPR can result in (among other things) fines of up to the greater of €20 million (under the EU GDPR) or £17.5 million (under the UK GDPR) or 4% of an organization’s total worldwide annual turnover of the preceding financial year and other administrative penalties. To the extent that we are subject to the GDPR, compliance with the GDPR may require substantial amendments to our procedures and policies and these changes could adversely impact our business by increasing operational and compliance costs or impact business practices. Further, there is a risk that the amended policies and procedures will not be implemented correctly or that individuals within the business will not be fully compliant with the new procedures. There is a risk that we could be impacted by a cybersecurity incident that results in loss or unauthorized disclosure of personal data, potentially resulting in us facing harms similar to those described above.
Among other requirements, the EU GDPR prohibits the international transfer of personal data subject to the GDPR from the European Economic Area (“EEA”) to third countries that the European Commission does not recognize as having an ‘adequate’ level of data protection, unless a data transfer mechanism has been put in place or a derogation under the EU GDPR can be relied on. In July 2020, the Court of Justice of the EU in its Schrems II judgement limited how organizations could lawfully transfer personal data from the EEA to the United States by invalidating the EU-U.S. Privacy Shield for purposes of international transfers and imposing further restrictions on the use of standard contractual clauses (“EU SCCs”), including a requirement for companies to carry out a transfer privacy impact assessment (“TIA”). A TIA, among other things, assesses laws governing access to personal data in the recipient country and considers whether supplementary measures that provide privacy protections additional to those provided under the EU SCCs will need to be implemented to ensure an ‘essentially equivalent’ level of data protection to that afforded in the EEA.
On October 7, 2022, U.S. President Biden introduced an Executive Order to facilitate a new Trans-Atlantic Data Privacy Framework (“DPF”) and in July 2023, the European Commission adopted its Final Implementing Decision granting the United States adequacy (“Adequacy Decision”) for EU-U.S. transfers of personal data for entities self-certified to the DPF. Entities relying on EU SCCs for transfers to the United States are also able to rely on the analysis in the Adequacy Decision as support for their TIA regarding the equivalence of U.S. national security safeguards and redress.
The UK GDPR also imposes similar restrictions on transfers of personal data from the UK to jurisdictions that the UK Government does not consider adequate, including the United States. The UK Government has published its own form of the EU SCCs, known as the International Data Transfer Agreement and an International Data Transfer Addendum to the new EU SCCs. The UK Information Commissioner’s Office has also published its own version of the TIA and guidance on international transfers, although entities may choose to adopt either the EU or UK-style TIA. Further, on September 21, 2023, the UK Secretary of State for Science, Innovation and Technology established a UK-U.S. data bridge (i.e., a UK equivalent of the Adequacy Decision) and adopted UK regulations to implement the UK-U.S. data bridge (“UK Adequacy Regulations”). Personal data may now be transferred from the UK under the UK-U.S. data bridge through the UK extension to the DPF to organizations self-certified under the UK extension to DPF.
As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.
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Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business or our reputation with customers. For example, some countries have adopted laws mandating that certain personal information regarding customers in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit processing of personal information to within individual countries could increase our operating costs significantly. Any failure, or perceived failure, by us to comply with federal, state or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, a loss of customer confidence, damage to our brand and reputation and a loss of customers, any of which could have an adverse effect on our business.
Evolving expectations around corporate responsibility practices, specifically related to environmental, social and governance (“ESG”) matters, may expose us to reputational and other risks.
Investors, stockholders, customers, suppliers and other third parties are increasingly focusing on ESG and corporate social responsibility endeavors and reporting. Companies that do not adapt to or comply with the evolving investor or stakeholder expectations and standards, or that are perceived to have not responded appropriately, may suffer from reputational damage, which could result in the business, financial condition and/or stock price of a company being materially and adversely affected. For example, certain customers have inquired about our ESG practices and may impose ESG guidelines, procurement policies, sustainability standards, mandates or reporting requirements for, and may scrutinize relationships more closely with, their suppliers, including us, which may lengthen sales cycles, increase our costs or impair our ability to attract and retain customers. Further, this increased focus on ESG issues may result in new regulations, international accords and/or third-party requirements that could adversely impact our business, or certain shareholders reducing or eliminating their holdings of our stock. An allegation or perception that we have not taken sufficient action in these areas could negatively harm our reputation. Additionally, the subjective nature and wide variety of methods and processes used by various stakeholders, including investors, to assess environmental, social, and governance criteria could result in a negative perception or misrepresentation of the company's sustainability policies and practices.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.

ITEM 1C. CYBERSECURITY
Risk Management and Strategy
In the normal course of business, we may collect and store personal information and other sensitive information, including proprietary and confidential business information, trade secrets, intellectual property, sensitive third-party information and employee information. We assess and identify cybersecurity risk to such information by maintaining cybersecurity policies that require continuous monitoring and detection programs and network security precautions. Our program incorporates industry-standard frameworks, policies and practices designed to protect the privacy and security of our sensitive information.
We manage cybersecurity risks by maintaining various protections designed to safeguard against cyberattacks, including firewalls and virus detection software, and periodic end user training on common cybersecurity threats (e.g. phishing exercises and interactive trainings). We have established our disaster recovery plan and we protect against business interruption by backing up our major systems. In addition, we periodically scan our environment for any vulnerabilities, perform penetration testing and engage third parties to assess effectiveness of our data security practices. A third party security consultant conducts regular network security reviews, scans and audits, and we may consult with other external experts as warranted by a particular cybersecurity incident or threat. In addition, we maintain insurance that includes cybersecurity coverage.
Areas of cybersecurity risk are assessed bi-annually, and updates are reported by our Vice President of Information Technology (“VP IT”) to the Board’s Audit Committee and senior management annually. Where our bi-annual cybersecurity risk assessment identifies areas for improvement, we document and track our remediation activities, which are also reported to the Audit Committee and senior management annually. In this way, our program to manage cybersecurity risk integrates with our overall risk management processes.
With respect to third parties who provide services affecting critical business management systems, we collect and maintain SOC2 type II reports (attestation of controls at a service organization over a minimum six-month period). For other third-party service providers, cybersecurity risk is addressed as appropriate.
As of the date of this report, we are not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations and financial condition. Despite the implementation of our cybersecurity program, our security measures cannot guarantee that a significant cyberattack will not occur. A successful attack on our information technology systems could have significant consequences to the business. While we devote resources to our security measures to protect our systems and information, these measures cannot provide absolute security. See “Risk Factors – General Risk Factors” for additional information about the risks to our business associated with a breach or compromise to our information technology systems.
Governance
The Company’s Board of Directors has visibility into cybersecurity risks through its Audit Committee and through the process described below. The Audit Committee has oversight of the Company’s cybersecurity risk management programs and the design and operating effectiveness thereof, and reviews reports from Company management on cybersecurity, data privacy and other risks relevant to the Company’s computerized information system controls and security.
Areas of cybersecurity risk are assessed bi-annually, and updates are reported by the VP IT to the Audit Committee and senior management annually. Where our bi-annual cybersecurity risk assessment identifies areas for improvement, we document and track our remediation activities, which are also reported to the Audit Committee and senior management annually.
Senior management has appointed a Cybersecurity Council that is responsible for identifying, escalating, and facilitating the assessment and determination of the materiality of cybersecurity incidents and threats. The Cybersecurity Council is made up of representatives of IT, Legal and Finance, as well as ad hoc additional members depending on the circumstances of the incident or threat. The members of the Cybersecurity Council do not have specific expertise in cybersecurity risk other than the VP IT who has more than 20 years of experience, and engages with trusted third-party experts for support and guidance when additional expertise is required. Prior to joining Codexis, our VP IT has managed cybersecurity functions, where he was responsible for overseeing cybersecurity strategy and operations, including incident response, threat intelligence, security awareness training programs, risk assessments and remediation, and regulatory and compliance matters.
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An actual or suspected cybersecurity incident that jeopardizes the confidentiality, integrity, or availability of Codexis' information systems or any information residing therein (or threat that presents significant risk to our information systems as identified by IT) is reported to the Cybersecurity Council by our IT Department. The focus of the Cybersecurity Council is on the investigation and facilitation of senior management’s assessment and determination of materiality of an incident or threat, and such investigation is separate but contemporaneous with the investigation(s) done under other applicable programs, policies, and plans regarding cybersecurity. The Cybersecurity Council will liaise directly with other investigation(s) and share information and assessments. Along with assistance from the Cybersecurity Council as necessary, senior management reports its materiality determination and analysis, including necessary facts to support its determination, to the Audit Committee of the Board of Directors. Pursuant to its charter, the Audit Committee may, along with senior management, report such determination to the Board of Directors.
ITEM 2. PROPERTIES
FACILITIES
Our headquarters are located in Redwood City, California, where we lease approximately 77,300 square feet of office and laboratory space.
Our lease (“RWC Lease”) with Metropolitan Life Insurance Company (“MetLife”) includes approximately 28,200 square feet of space located at 200 and 220 Penobscot Drive, Redwood City, California (the “200/220 Penobscot Space”), approximately 37,900 square feet of space located at 400 Penobscot Drive, Redwood City, California (the “400 Penobscot Space”) (the 200/220 Penobscot Space and the 400 Penobscot Space are collectively referred to as the “Penobscot Space”), and approximately 11,200 square feet of space located at 501 Chesapeake Drive, Redwood City, California (the “Chesapeake Space”).
We entered into the initial lease with MetLife for our facilities in Redwood City in 2004 and the RWC lease has been amended multiple times since then to adjust the leased space and terms of the RWC Lease. In February 2019, we entered into an Eighth Amendment to the RWC Lease (the “Eighth Amendment”) with MetLife with respect to the Penobscot Space and the 501 Chesapeake Space to extend the term of the RWC Lease for additional periods. Pursuant to the Eighth Amendment, the term of the lease of the Penobscot Space has been extended through May 2027. The lease term for the 501 Chesapeake Space has been extended to May 2029. We have one (1) option to extend the term of the lease for the Penobscot Space for five (5) years, and one (1) separate option to extend the term of the lease for the 501 Chesapeake Space for five (5) years.
In January 2021, we entered into a lease agreement with ARE-San Francisco No. 63, LLC (ARE) to lease a portion of a facility comprising approximately 36,593 rentable square feet at 825 Industrial Road, San Carlos, California to serve as additional office and research and development laboratory space (the San Carlos Space). In December 2021, we commenced occupancy of the San Carlos Space. The lease term for the San Carlos Space was through the end of November 2031, with one (1) option to extend the term of the lease for the San Carlos Space for five (5) years.
In July 2023, we announced our plan to consolidate operations from our San Carlos facility to our headquarters in Redwood City. On September 1, 2023, the Company entered into an Assignment and Assumption of Lease (the “Assignment Agreement”) with Vaxcyte, Inc. (“Vaxcyte”) to assign to Vaxcyte all of the Company’s right, title and interest in, under and to the San Carlos Space and the Lease Agreement, dated as of January 29, 2021. On September 6, 2023, the Company, Vaxcyte and ARE entered into a Consent to Assignment and First Amendment (the “Consent”) pursuant to which ARE consented to the Assignment Agreement and the assignment by the Company and the assumption by Vaxcyte of the Company’s interest as tenant in the lease and agreed to release the Company from all of its obligations under the lease that accrue from and after the assignment. The effective date of the assignment was October 1, 2023.
We believe that the facility that we currently lease in Redwood City, California is adequate for our needs for the immediate future and that, should it be needed, additional space can be leased to accommodate any future growth.
ITEM 3. LEGAL PROCEEDINGS
We are currently not a party to any material pending litigation or other material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our common stock is quoted on the Nasdaq Global Select Market (“Nasdaq), under the symbol “CDXS.”
As of February 23, 2024, there were approximately 125 stockholders of record. A substantially greater number of stockholders may be "street name" or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.
Dividend Policy
We have never declared or paid cash dividends on our common stock, and we currently do not plan to declare dividends on shares of our common stock in the foreseeable future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. In addition, unless waived, the terms of our Loan Agreement prohibit us from paying any cash dividends or making other distributions. The payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors deemed relevant by our board of directors.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item concerning securities authorized for issuance under equity compensation plans is incorporated by reference from the information that will be set forth in the Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held in 2024 (the “2024 Proxy Statement) under the heading “Executive Compensation—Equity Compensation Plan Information.
Stock Price Performance Graph
The following tabular information and graph compare our total common stock return with the total return for (i) the Nasdaq Composite Index and (ii) the Nasdaq Biotechnology Total Return Index for the period December 31, 2018 through December 31, 2023. The figures represented below assume an investment of $100 in our common stock at the closing price on December 31, 2018 and in the Nasdaq Composite Index and the Nasdaq Biotechnology Total Return Index on December 31, 2018 and the reinvestment of dividends into shares of common stock. The comparisons in the table and graph are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock. The tabular information and graph shall not be deemed “soliciting material or to be “filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act.
December 31,
$100 investment in stock or indexTicker201820192020202120222023
Codexis, Inc.CDXS$100.00 $95.75 $130.72 $187.25 $27.90 $18.26 
Nasdaq Composite Total ReturnXCMP$100.00 $136.69 $198.10 $242.03 $163.28 $236.17 
Nasdaq Biotechnology (Total Return) IndexXNBI$100.00 $125.11 $158.17 $158.20 $142.19 $148.72 

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2731
Unregistered Sales of Equity Securities and Use of Proceeds
During the year ended December 31, 2023, we did not issue or sell any unregistered securities not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Issuer Purchases of Equity Securities
None.

ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include, but are not limited to, expectations regarding our strategy, business plans, financial performance and developments relating to our industry. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," or "continue," and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item IA: "Risk Factors," of this Annual Report on Form 10-K and elsewhere in this report. The forward-looking statements in this Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Annual Report on Form 10-K.
Business Overview
We are a leading enzyme engineering company leveraging our proprietary CodeEvolver® technology platform to discover, develop, enhance, and commercialize novel, high performance enzymes and other classes of proteins. Enzymes are naturally occurring biological molecules critical to almost all biochemical reactions that sustain life. They can be precisely engineered and optimized for specific functions, and to have particular characteristics, such as an ability to survive environments in which natural enzymes cannot, or to perform (bio)chemical transformations different than those for which they naturally evolved. We focus on leveraging our capacity to enhance the properties and performance of enzymes to drive pivotal improvements across two key focus areas: our foundational, revenue-generating pharmaceutical manufacturing business and our Enzyme-Catalyzed Oligonucleotide (ECO) Synthesis™ (“ECO Synthesis™”) manufacturing platform, which is currently in development to enable the commercial scale manufacture of RNA interference (RNAi) therapeutics. Our unique enzymes drive improvements such as higher yields, increased purity, reduced energy usage and waste generation, and improved efficiency in manufacturing. In July 2023, we announced that we discontinued investment in certain development programs, primarily in our novel biotherapeutics business segment and that we are actively exploring options to drive value by potentially monetizing other non-core assets within our Life Sciences portfolio.
Within the pharmaceutical manufacturing business, we utilize our CodeEvolver® technology platform to develop optimized enzymes that are used by some of the world’s largest pharmaceutical companies to reduce their costs and improve the efficiency and productivity of their manufacturing processes for small molecule therapeutics. We also use the CodeEvolver® technology platform to develop enzymes for the synthesis of nucleic acids such as DNA/RNA, including our ECO Synthesis™ manufacturing platform. We demonstrated gram-scale synthesis with the ECO Synthesis™ manufacturing platform in December 2023 and expect to begin pre-commercial customer testing in 2024. We anticipate that this will be followed by early commercial licenses to the ECO Synthesis™ manufacturing platform in 2025 and a full commercial launch in 2026.
Recent Developments
On February 13, 2024, we entered into a five-year loan and security agreement with Innovatus Life Sciences Lending Fund I, LP, an affiliate of Innovatus Capital Partners, LLC (“Innovatus”), for an aggregate principal amount of up to $40.0 million (the “Loan Agreement”) consisting of two tranches, of which the first tranche of $30.0 million was completed on execution of the Loan Agreement. We will be eligible to draw on the second tranche of $10.0 million upon achievement of certain milestones including certain pre-specified revenue thresholds. The two tranches collectively are referred to as the “Term Loans.”
Investing and Financing Activities
In March 2022, we entered into a Stock Purchase Agreement with seqWell Inc. (“seqWell), a privately held biotechnology company, pursuant to which we purchased 1,000,000 shares of seqWell's Series C preferred stock for $5.0 million. In September 2023, we purchased an additional 88,256 shares of seqWell's Series C-1 preferred stock and 44,128 common stock warrants for $0.4 million. As of December 31, 2023, we have 1,293,535 shares of seqWell's Series C and C-1 preferred stock that we have earned or purchased since executing the Stock Purchase Agreement with seqWell.
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In May 2021, we filed a Registration Statement on Form S-3 with the SEC, that automatically became effective upon its filing, under which we may sell common stock, preferred stock, debt securities, warrants, purchase contracts, and units from time to time in one or more offerings. On February 27, 2023, we filed a post-effective amendment to that Registration Statement on Form S-3. Pursuant to that post-effective amendment, we registered an aggregate $200.0 million of securities. In May 2021, we entered into an Equity Distribution Agreement (“EDA”) with Piper Sandler & Co (“PSC”), under which PSC, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the execution of the EDA up to a maximum of $50.0 million of shares of our common stock. Under the terms of the EDA, PSC may sell the shares at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended. During the year ended December 31, 2023, 3,079,421 shares of our common stock were issued and sold pursuant to the EDA for gross proceeds of $8.7 million, or $7.9 million in net proceeds after PSC's commissions and direct offering expenses of $0.7 million. As of December 31, 2023, $41.3 million of shares remained available for sale under the EDA. During the year ended December 31, 2022, no shares of our common stock were sold pursuant to the EDA.
In June 2020, we entered into a Stock Purchase Agreement with MAI, a privately held life sciences company, pursuant to which we purchased 1,587,050 shares of MAI's Series A preferred stock for $1.0 million. Mr. Nicols, our former President and CEO until August 2022, also joined MAI’s board of directors in June 2020 and remained on MAI's board until September 2023. Concurrently with our initial equity investment, we entered into a Master Collaboration and Research Agreement with MAI (the “MAI Agreement”), pursuant to which we performed services utilizing our CodeEvolver® directed evolution technology platform to improve DNA polymerase enzymes in exchange for compensation in the form of additional shares of MAI's Series A and B preferred stock. In April 2021, we purchased an additional 1,000,000 shares of MAI's Series A preferred stock for $0.6 million. In September 2021, we purchased 9,198,423 shares of MAI's Series B preferred stock for $7.0 million. As of December 31, 2023, we held 19,277,914 shares of MAI's Series A and B preferred stock that we have earned or purchased since executing the Stock Purchase Agreement with MAI.
Business Impact of COVID-19 and Sales of CDX-616 to Pfizer for PAXLOVID™
In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The impact of COVID-19 affected segments of the global economy and its continuing impacts may affect our operations, including the potential interruption of our supply chain. On May 11, 2023, the COVID-19 Public Health Emergency (“PHE”) declared under the Public Health Service Act expired. While COVID-19 is no longer considered a PHE, future surges or actions taken in response to COVID-19 or other PHEs may materially affect our products, supply chain or operations.
As a result of the COVID-19 pandemic, in 2021 and 2022 we received purchase orders from Pfizer Inc. (“Pfizer”) for large quantities of our proprietary enzyme product, CDX-616, for use by Pfizer in the manufacture of a critical intermediate for its proprietary API, nirmatrelvir, used by Pfizer in combination with the API ritonavir, as its PAXLOVID™ (nirmatrelvir tablets; ritonavir tablets) product for the treatment of COVID-19 infections in humans. We are a party to an Enzyme Supply Agreement with Pfizer Ireland Pharmaceuticals, a subsidiary of Pfizer, Inc. (the “Pfizer Supply Agreement”), covering the manufacture, sale and purchase of CDX-616 for use by Pfizer in the manufacture of nirmatrelvir. Under the terms of the Pfizer Supply Agreement, Pfizer paid us a fee of $25.9 million in August 2022 which was recorded as deferred revenue. Pursuant to the agreement, 90% of the fee ($23.3 million) is creditable against (i) future orders of CDX-616 used to manufacture its PAXLOVID™ with shipment dates prior to December 31, 2023, and (ii) fees associated with any new development and licensing agreements with Pfizer entered into prior to April 4, 2023. On March 31, 2023, we entered into a license agreement whereby Pfizer utilized a portion of the $23.3 million credit towards a license to develop future product candidates, for which we recognized $5.0 million as non-cash research and development revenue during the second quarter of 2023. Pfizer's ability to utilize the credit under item (i) above expired on December 31, 2023, and under item (ii) above expired on April 4, 2023. 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. The sale of CDX-616 to Pfizer had a substantial impact on our revenues in 2021 and 2022, and to a lesser extent in 2023. Potential revenues in future years from our sales of CDX-616 to Pfizer and other potential customers (including sublicensees of Pfizer technology from The Medicine Patent Pool) are subject to a number of factors which are outside of our control and could reduce or eliminate our sales of CDX-616.
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RESULTS OF OPERATIONS
The following table shows the amounts from our consolidated statements of operations for the periods presented (in thousands, except percentages):
 Year Ended December 31,% of Total Revenues
 202320222021202320222021
Revenues:
Product revenue$42,906 $116,676 $70,657 61 %84 %67 %
Research and development revenue27,237 21,914 34,097 39 %16 %33 %
Total revenues70,143 138,590 104,754 100 %100 %100 %
Costs and operating expenses:
Cost of product revenue12,809 38,033 22,209 18 %27 %21 %
Research and development58,885 80,099 55,919 84 %58 %53 %
Selling, general and administrative53,250 52,172 49,323 76 %38 %47 %
Restructuring charges3,284 3,167 — %%— %
Asset impairment and other charges9,984 — — 14 %— %— %
Total costs and operating expenses138,212 173,471 127,451 197 %125 %121 %
Loss from operations(68,069)(34,881)(22,697)(97)%(25)%(21)%
Interest income4,172 1,441 459 %%— %
Other income (expense), net(12,274)124 1,148 (17)%— %%
Loss before income taxes(76,171)(33,316)(21,090)(108)%(24)%(20)%
Provision for income taxes69 276 189 — %— %— %
Net loss$(76,240)$(33,592)$(21,279)(108)%(24)%(20)%
Revenues
Our revenues consist of product revenue and research and development 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.
Revenues are as follows (in thousands, except percentages):
Change
 Year Ended December 31, 20232022
202320222021$%$%
Product revenue$42,906 $116,676 $70,657 $(73,770)(63)%$46,019 65 %
Research and development revenue27,237 21,914 34,097 5,323 24 %(12,183)(36)%
Total revenues$70,143 $138,590 $104,754 $(68,447)(49)%$33,836 32 %
Revenues typically fluctuate on a quarterly basis due to the variability in our customers' manufacturing schedules and the timing of our customers' clinical trials. 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.
We accept purchase orders for deliveries covering periods from one day up to 14 months from the date on which the order is placed. However, some of our purchase orders can be revised or cancelled by the customer without penalty. 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.
2023 compared to 2022
Total revenues decreased by $68.4 million in 2023 to $70.1 million, as compared to 2022. The decrease was driven by lower product revenue as compared to the prior year.
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Product revenue was $42.9 million in 2023, a decrease of 63% compared with $116.7 million in 2022. The decrease in product revenue was primarily due to decreased sales of CDX-616 to Pfizer. This decrease was partially offset by $8.2 million release of prior year's deferrals related to Pfizer's fee, $3.2 million release of prior periods' product revenue deferrals due to early termination of the enzyme supply obligations to a customer and $1.3 million of product revenue recognized as settlement fee pursuant to the enzyme supply agreement with the same customer.
Research and development revenue increased by $5.3 million in 2023 to $27.2 million, or 24% compared with $21.9 million in 2022, primarily due to higher revenue from the Pfizer license agreement and from Nestlé Health Science under the Nestlé SCA and development agreement and the Acquisition Agreement, which was partially offset by lower research and development fees from existing collaboration agreements being recognized in 2023 as compared to the prior year.
2022 compared to 2021
Total revenues increased by $33.8 million in 2022 to $138.6 million, as compared to 2021. The increase was driven by growth in product revenue of $46.0 million, or 65%, partially offset by a decrease in research and development revenue of $12.2 million, or 36%.
Product revenue was $116.7 million in 2022, an increase of 65% compared with $70.7 million in 2021. The increase in product revenue was primarily due to $40.9 million higher revenue from Pfizer sales related to the purchase of CDX-616.
Research and development revenue decreased by $12.2 million in 2022 to $21.9 million, or 36% compared with $34.1 million in 2021, primarily due to lower license fees from Takeda, decreased revenue from milestone payments received from GSK in 2021 and lower research and development fees from other existing collaboration agreements being recognized in 2022 as compared to the prior year. A portion of our research and development revenue in 2022 and 2021 was paid to us by MAI in the form of additional shares of MAI Series A and Series B preferred stock. We received an aggregate of 1,587,049 and 3,491,505 shares of MAI's Series A and B preferred stock for the years ended December 31, 2022 and 2021, respectively.
Costs and Operating Expenses (in thousands, except percentages):
Change
 Year Ended December 31, 20232022
202320222021$%$%
Cost of product revenue$12,809 $38,033 $22,209 $(25,224)(66)%$15,824 71 %
Research and development58,885 80,099 55,919 (21,214)(26)%24,180 43 %
Selling, general and administrative53,250 52,172 49,323 1,078 %2,849 %
Restructuring charges3,284 3,167 — 117 %3,167 100 %
Asset impairment and other charges9,984 — — 9,984 100 %— — %
Total costs and operating expenses$138,212 $173,471 $127,451 $(35,259)(20)%$46,020 36 %
Costs of Product Revenue and Product Gross Margin
The following table shows the amounts of our product revenue, cost of product revenue, product gross profit and product gross margin from our consolidated statements of operations (in thousands, except percentages):
Year Ended
December 31,
ChangeYear Ended
December 31,
Change
20232022$%20222021$%
Product revenue$42,906 $116,676 $(73,770)(63)%$116,676 $70,657 $46,019 65 %
Cost of product revenue(1)
12,809 38,033 (25,224)(66)%38,033 22,209 15,824 71 %
Product gross profit$30,097 $78,643 $(48,546)(62)%$78,643 $48,448 $30,195 62 %
Product gross margin (%)(2)
70 %67 %67 %69 %
(1) Cost of product revenue comprises 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.
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2023 compared to 2022
Cost of product revenue decreased by $25.2 million in 2023 to $12.8 million, as compared to 2022. The decrease was primarily due to lower volume of product sales as compared to prior year. Product gross margins increased to 70% in 2023 as compared to 67% in 2022, primarily due to product revenue recognized with no related costs in 2023 related to the utilization of Pfizer's fee and early termination of an enzyme supply agreement with a customer, and was partially offset by variability in the product mix.
2022 compared to 2021
Cost of product revenue increased by $15.8 million in 2022 to $38.0 million, as compared to 2021. The increase was primarily due to a higher volume of product sales and variations in product mix. Product gross margins decreased to 67% in 2022 as compared to 69% in 2021, primarily due to variations in product mix, variation in prices per volume sold and higher shipping costs. Some of these cost increases are a result of the impact of inflation and supply chain pressures seen in 2022.
Research and Development Expenses 
Research and development expenses consist of costs incurred for internal projects as well as collaborative research and development activities. These costs primarily consist of (i) employee-related costs, which include salaries and other personnel-related expenses (including stock-based compensation), (ii) various allocable expenses, which include occupancy-related costs, supplies, depreciation of facilities and laboratory equipment, and (iii) external costs. Research and development expenses are expensed when incurred.
2023 compared to 2022
Research and development expenses were $58.9 million in 2023 compared to $80.1 million in 2022, a decrease of $21.2 million, or 26%. This decrease was primarily due $10.0 million decrease in costs associated with lower headcount, $6.4 million decrease in outside services and Chemistry, Manufacturing and Controls (“CMC”) and regulatory expense, $4.1 million in lower lab supplies expense, $1.3 million in lower stock comp expense, and $1.0 million decrease in lease costs due to the assignment of our San Carlos facility lease. These were partially offset by $1.7 million in higher allocable costs.
2022 compared to 2021
Research and development expenses were $80.1 million in 2022 compared to $55.9 million in 2021, an increase of $24.2 million, or 43%. The increase was primarily due to an increase of $7.4 million in costs associated with higher headcount, $4.8 million in higher facilities and repair and maintenance expenses, $5.3 million increase in outside services and CMC and regulatory expenses, $2.6 million in higher lab supplies, $2.1 million in higher depreciation expenses, $1.1 million in higher stock-based compensation expenses and $0.7 million in higher allocable expenses. Some of these cost increases are a result of the impact of inflation seen in 2022.
Selling, General 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.
2023 compared to 2022
Selling, general and administrative expenses were $53.3 million in 2023 compared to $52.2 million in 2022, an increase of $1.1 million, or 2%. This increase was primarily due to $3.6 million higher in payroll-based expenses, $0.6 million in higher legal expense, $0.4 million in higher repairs and maintenance expense, and $0.3 million in higher consulting and outside services. This was partially offset by $3.2 million lower stock based compensation expense and $0.4 million in lower allocable expenses.
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2022 compared to 2021
Selling, general and administrative expenses were $52.2 million in 2022 compared to $49.3 million in 2021, an increase of $2.8 million, or 6%. The increase was primarily due to an increase of $6.0 million in costs associated with higher headcount, $1.8 million in higher stock-based compensation costs, $0.8 million in higher outside and temporary services, which was partially offset by a decrease of $3.5 million in allocable expenses due to higher expenses allocated to research and development activities in 2022 and $3.3 million in lower legal fees. Some of these cost increases are a result of the impact of inflation seen in 2022.
Restructuring Charges
Restructuring charges consist of employee severance and other termination benefits due to workforce reduction plans that were initiated during the third quarter of 2023 and in the fourth quarter of 2022. Restructuring charges were $3.3 million and $3.2 million for the years ended December 31, 2023 and 2022, respectively.
Asset Impairment and Other Charges
Asset impairment and other charges for the year ended December 31, 2023 were $10.0 million, consisting of a $9.2 million long-lived asset impairment charge and a $0.8 million goodwill impairment charge, all of which are non-cash charges. No asset impairment charges were recorded for the years ended December 31, 2022 or 2021.
Interest Income and Other Income (Expense), net (in thousands, except percentages):
Change
 Year Ended December 31, 20232022
202320222021$%$%
Interest income$4,172 $1,441 $459 $2,731 190 %$982 214 %
Other income (expense), net(12,274)124 1,148 (12,398)(9,998)%(1,024)(89)%
Total other income (expense), net$(8,102)$1,565 $1,607 $(9,667)(618)%$(42)(3)%
Interest Income
Interest income increased by $2.7 million in 2023 compared to 2022, primarily due to higher average interest rates on cash balances. Interest income increased by $1.0 million in 2022 compared to 2021, primarily due to higher average interest rates on cash balances, and was partially offset by earned interest income on a non-marketable debt security in the prior year.
Other Income (Expense), net
Other income (expense), net, decreased by $12.4 million in 2023 compared to 2022, primarily due to impairment of our investments in MAI, seqWell and Arzeda. Other income (expense), net, decreased by $1.0 million in 2022 compared to 2021, primarily due to a lower gain from remeasurement on the carrying value of our investment in MAI recognized in 2022 as compared to 2021.
Provision for Income Taxes (in thousands, except percentages):
Change
 Year Ended December 31,20232022
202320222021$%$%
Provision for income taxes$69 $276 $189 $(207)(75)%$87 46 %
The provision for income taxes in 2023 was primarily for current year state income taxes and the accrual of interest and penalties on historic uncertain tax positions.
The provision for income taxes in 2022 was primarily due to the income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of the Unites Stated and remitted to the United States and the accrual of interest and penalties on historic uncertain tax positions, as well as current year state income taxes.
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Starting in 2022, changes to Internal Revenue Code Section 174 made by the Tax Cuts and Jobs Act of 2017 no longer permit an immediate deduction for research and development expenditures in the tax year that such costs are incurred. As a result, the Company capitalized such costs in its 2022 income tax provision resulting in an increase in deferred tax assets and state income taxes. However, as we have recorded a full valuation allowance on our deferred tax assets, this did not have an impact on our net deferred tax assets.
The provision for income taxes in 2021 was primarily due to the income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of the Unites Stated and remitted to the United States and the accrual of interest and penalties on historic uncertain tax positions.
Net Loss
Net loss for 2023 was $76.2 million, or a net loss per basic and diluted share of $1.12. This compared to a net loss of $33.6 million, or $0.51 per basic and diluted share for 2022. The increase in net loss was primarily related to lower product revenues from CDX-616 and one-time charges recognized during 2023 related to asset impairment, including impairment in our investments in non-marketable equity securities, and restructuring charges, which was partially offset by lower operating expenses in 2023.
Net loss for 2022 was $33.6 million, or a net loss per basic and diluted share of $0.51. This compared to a net loss of $21.3 million, or $0.33 per basic and diluted share for 2021. The increase in net loss was primarily related to lower research and development revenues and higher operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the measurement of our ability to meet working capital needs and to fund capital expenditures. We have historically funded our operations primarily through cash generated from operations, stock option exercises and public and private offerings of our common stock. In addition, pursuant to the Loan Agreement, we received $30.0 million from Innovatus, as Lender, on February 13, 2024 and may become eligible to borrow up to an additional $10.0 million upon the achievement of certain financial milestones. We actively manage our cash usage and investment of liquid cash to ensure the maintenance of sufficient funds to meet our working capital needs. Our cash and cash equivalents are held in U.S. banks.
Our primary uses of capital for the foreseeable future, including the next 12 months, are for compensation and related expenses, research and development expenses including manufacturing costs, laboratory and related supplies, legal and other regulatory expenses, and general overhead costs.
The following summarizes our cash and cash equivalents balance and working capital as of December 31, 2023, 2022 and 2021 (in thousands):
 December 31,
202320222021
Cash and cash equivalents$65,116 $113,984 $116,797 
Working capital$57,636 $113,828 $128,517 
Sources of Capital
In addition to our existing cash and cash equivalents and revenue generated through our existing operations, we are eligible to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain royalty payments under our collaboration agreements with Merck, Nestlé, and Novartis of up to $59.0 million in aggregate. In addition, under the GSK CodeEvolver® Agreement, we have the potential to receive additional contingent payments that range from $5.8 million to $38.5 million per project. Our ability to earn these milestone and contingent payments and the timing of achieving these milestones is primarily dependent upon the outcome of our collaborators’ research and development activities and is uncertain at this time.
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In addition, pursuant to the terms of the Pfizer Supply Agreement, Pfizer paid us a fee of $25.9 million in August 2022 which was recorded as deferred revenue. Pursuant to the agreement, 90% of the fee ($23.3 million) is creditable against (i) future orders of CDX-616 used to manufacture its PAXLOVID™ with shipment dates prior to December 31, 2023, and (ii) fees associated with any new development and licensing agreements with Pfizer entered into prior to April 4, 2023. Subsequent to the end of the first quarter of 2023, we entered into a license agreement whereby Pfizer utilized a portion of the $23.3 million credit towards a license to develop future product candidates, for which we recognized $5.0 million as non-cash research and development revenue during the second quarter of 2023. Pfizer's ability to utilize the credit under item (i) above expired on December 31, 2023, and under item (ii) above expired on April 4, 2023. Up to 50% of any portion of the $25.9 million which has not been credited under items (i) and (ii) is creditable against future orders of CDX-616 used to manufacture PAXLOVID™ with shipment dates in 2024, and any portion of the fee that is not utilized within the specific period will be forfeited and recognized as revenue.
We have historically experienced negative cash flows from operations as we continue to invest in key technology development projects and improvements to our CodeEvolver® technology platform, develop and commercialize new and existing products including our ECO Synthesis™ manufacturing platform and expand our business development and collaboration with new customers. Our cash flows from operations will continue to be affected principally by product sales and product gross margins, sales from licensing our technology to major pharmaceutical companies, and collaborative research and development services provided to customers, as well as our headcount costs, primarily in research and development. Our primary source of cash flows from operating activities is cash receipts from our customers for purchases of products, collaborative research and development services, and licensing our technology to major pharmaceutical companies. Our largest uses of cash from operating activities are for employee-related expenditures, rent payments, inventory purchases to support our product sales and non-payroll research and development costs.
Loan Agreement and Term Loans
On February 13, 2024, we entered into the Loan Agreement with Innovatus consisting of two tranches, of which the first tranche of $30.0 million was completed upon execution of the Loan Agreement. We will be eligible to draw on the second tranche of $10.0 million upon achievement of certain milestones including certain pre-specified revenue thresholds. The Term Loan carries an interest-only period of 36 months and will bear an interest at a floating rate of the sum of (a) the greater of (i) prime rate and (ii) 7.50%, plus (b) 3.25%.
Equity Distribution Agreement
In May 2021, we entered into an Equity Distribution Agreement (“EDA) with Piper Sandler & Co (“PSC), under which PSC, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the execution of the EDA up to a maximum of $50.0 million of shares of our common stock. During the year ended December 31, 2023, 3,079,421 shares of our common stock were issued and sold pursuant to the EDA, all during the first half of 2023, and we received net proceeds of $7.9 million. As of December 31, 2023, $41.3 million of shares remained available for sale under the EDA. Sales of our common stock under this arrangement could be subject to business, economic or competitive uncertainties 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.
Liquidity
We believe that our existing cash and cash equivalents, combined with our future expectations for product revenues, research and development revenue, and expense management will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our capital resources sooner than we expect.

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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. 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. If our capital resources are insufficient to meet our capital requirements, and we are unable to enter into or maintain collaborations with partners that are able or willing to fund our development efforts or commercialize any products that we develop or enable, we will have to raise additional funds to continue the development of our technology and products and complete the commercialization of products, if any, resulting from our technologies. If future financings involve the issuance of equity securities, our existing stockholders would suffer dilution. 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. If we fail to raise sufficient funds and fail to generate sufficient revenues to achieve planned gross margins and to control operating costs, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited. If this happens, we may be forced to delay or terminate development of new products or services, such as our ECO Synthesis manufacturing platform, or the commercialization of products resulting from our technologies, curtail or cease operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.
Cash Flows
The following is a summary of cash flows for the years ended December 31, 2023, 2022 and 2021 (in thousands):
 Year Ended December 31,
202320222021
Net cash provided by (used in) operating activities$(52,638)$11,284 $(14,267)
Net cash used in investing activities(4,858)(13,578)(21,422)
Net cash provided by (used in) financing activities8,167 (575)3,767 
Net decrease in cash, cash equivalents and restricted cash
$(49,329)$(2,869)$(31,922)
Cash Flows from Operating Activities
The $63.9 million decrease in net cash provided by operating activities in 2023 as compared to 2022 was primarily due to the net effect of decreases in cash received from our customers due to lower revenue in 2023 and with 2022 benefiting from the receipt of a $25.9 million fee from Pfizer that is creditable against future orders, partially offset by decreases in cash paid for cost of revenues and operating expenses.
The $25.6 million increase in net cash provided by operating activities in 2022 as compared to 2021 was primarily due to the receipt of a $25.9 million fee from Pfizer in August 2022 creditable against future orders and increases in cash received from revenue, which was partially offset by increased payments associated with higher operating costs.
Cash Flows from Investing Activities
The $8.7 million decrease in net cash used in investing activities in 2023 as compared to 2022 was primarily due to higher cash utilized for additional investments in equity securities and purchases of property and equipment in the prior year.
The $7.8 million decrease in net cash used in investing activities in 2022 as compared to 2021 was primarily due to higher cash utilized for additional investments in equity securities and purchases of property and equipment in 2021.
Cash Flows from Financing Activities
The $8.7 million increase in net cash provided by financing activities in 2023 as compared to 2022 was primarily due to proceeds from issuance of common stock under the EDA and lower cash paid on taxes related to net share settlement of equity awards.
The $4.3 million decrease in net cash provided by financing activities in 2022 as compared to 2021 was primarily due to higher cash paid on taxes related to net share settlement of equity awards and lower proceeds from exercises of stock options.
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OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2023, we had no off-balance sheet arrangements as defined in Item 303 of Regulation S-K as promulgated by the SEC.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States and include our accounts and the accounts of our wholly owned subsidiaries. The preparation of our consolidated financial statements requires our management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the applicable periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could change the results from those reported. Our management evaluates its estimates, assumptions and judgments on an ongoing basis.
The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below.
Revenue Recognition
Our revenues are derived primarily from product revenue and collaborative research and development agreements. The majority of our contracts with customers typically contain multiple products and services.
The majority of our collaborative contracts contain multiple revenue streams such as upfront and/or annual license fees, research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage, among others. We determine the stand-alone selling price (“SSP”) and allocate consideration to distinct performance obligations.
We measure revenue based on the consideration specified in the contract with each customer, net of any sales incentives and taxes collected on behalf of government authorities. We recognize revenue in a manner that best depicts the transfer of promised goods or services to the customer, when control of the product or service is transferred to a customer. We make significant judgments when determining the appropriate timing of revenue recognition.
Product Revenue
Certain of our agreements provide options to customers which they can exercise at a future date, such as the option to purchase our product during the contract duration at discounted prices and an option to extend their contract, among others. In accounting for customer options, we determine whether an option is a material right and this requires us to exercise significant judgment. If a contract provides the customer an option to acquire additional goods or services at a discount that exceeds the range of discounts that we typically give for that product or service, or if the option provides the customer certain additional goods or services for free, the option may be considered a material right. If the contract gives the customer the option to acquire additional goods or services at their normal SSPs, we would likely determine that the option is not a material right and, therefore, account for it as a separate performance obligation when the customer exercises the option. We primarily account for options which provide material rights using the alternative approach available under the Accounting Standards Codification (“ASC”) 606, as we concluded we meet the criteria for using the alternative approach. Therefore, the transaction price is calculated as the expected consideration to be received for all the goods and services we expect to provide. We update the transaction price for expected consideration, subject to constraint, each reporting period if our estimate of future goods to be ordered by customers change. Estimating expected consideration to be received under the alternative approach involves significant judgment.
Research and Development Revenue
The majority of our research and development agreements are based on a contractual rate per dedicated project team working on the project. The underlying product that we develop for customers does not create an asset with an alternative use to us and the customer receives benefits as we perform the work towards completion. Thus, our performance obligations are generally satisfied over time as the service is performed. We utilize an appropriate method of measuring progress towards the completion of our performance obligations to determine the timing of revenue recognition. For each performance obligation that is satisfied over time, we recognize revenue using a single measure of progress either based on hours incurred or output of services provided.
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Our contracts frequently provide customers with rights to use or access our products or technology, along with other promises or performance obligations. If we determine that the customer cannot benefit from the license without our services, the license will be accounted for as combined with the other performance obligations. If we determine that a license is distinct, we would recognize an allocable portion of the transaction price when the license is transferred to the customer, and the customer can use and benefit from it. We estimate the SSP for license rights by using historical information if licenses have been previously sold to customers and for new licenses, we consider multiple methods, a discounted cash flow method which includes the following key assumptions: the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success.
At the inception of each arrangement that includes variable consideration such as development milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.
Our CodeEvolver® platform technology transfer collaboration agreements typically include license fees, upfront fees, and variable consideration in the form of milestone payments, and sales or usage-based royalties. We have recognized revenues from our platform technology transfer agreements over time.
We also have an agreement under which we have granted a functional license to some elements of our biocatalyst technology. We will recognize revenues for the functional license at a point in time when the control of the license transfers to the customer.
For license agreements that include sales or usage-based royalty payments to us for which the license is the predominant item to which the royalty relates, we do not recognize revenue until the underlying sales of the product or usage has occurred. At the end of each reporting period, we estimate the royalty amount. We recognize revenue at the later of (i) when the related sale of the product occurs, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied.
Investment in Non-Marketable Securities
Investment in Non-Marketable Equity Securities
We measure investments in non-marketable equity securities without a readily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or minus changes resulting from observable price changes on a non-recurring basis. Gains and losses on these securities are recognized in other income (expense), net.
We evaluate equity securities for impairment when circumstances indicate that we may not be able to recover the carrying value. We may impair these securities and establish an allowance for a credit loss when we determine that there has been an “other-than-temporary” decline in estimated fair value of the debt or equity security compared to its carrying value. We calculate the estimated fair value of these securities using information from the investee, which may include:
Audited and unaudited financial statements;
Projected technological developments of the company;
Projected ability of the company to service its debt obligations;
If a deemed liquidation event were to occur;
Current fundraising transactions;
Current ability of the company to raise additional financing if needed;
Changes in the economic environment which may have a material impact on the operating results of the company;
Contractual rights, obligations or restrictions associated with the investment; and
Other factors deemed relevant by our management to assess valuation.
The valuation may be reduced if the company's potential has deteriorated significantly. If the factors that led to a reduction in valuation are overcome, the valuation may be readjusted.
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Impairment of Long-Lived Assets
We evaluate the carrying values of long-lived assets, which include property and equipment and right-of-use assets, whenever events, changes in business circumstances or our planned use of long-lived assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. If these facts and circumstances exist, we assess for recovery by comparing the carrying values of long-lived assets with the future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measure by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Recent Accounting Pronouncements
See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for a full description of recent accounting standards, including the respective dates of adoption and effects on our consolidated financial position, results of operations and cash flows.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
Our unrestricted cash and cash equivalents total $65.1 million at December 31, 2023. We primarily invest these amounts in money market funds which are held for working capital purposes. We do not enter into investments for trading or speculative purposes. As of December 31, 2023, the effect of a hypothetical 10% decrease in market interest rates would have an $0.3 million impact on a potential loss in future interest income and cash flows.
Foreign Currency Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. In periods when the United States dollar (USD”) declines in value as compared to the foreign currencies in which we incur expenses, our foreign-currency based expenses increase when translated into USD. Although substantially all of our sales are denominated in USD, future fluctuations in the value of the USD may affect the price competitiveness of our products outside the United States. Our most significant foreign currency exposure is due to non-functional currency denominated monetary assets, primarily currencies denominated in other than their functional currency. These non-functional currency denominated monetary assets are subject to re-measurement which may create fluctuations in other expense, net, a component in our consolidated statement of operations and in the fair value of the assets in the consolidated balance sheets. As of December 31, 2023, the effect of a hypothetical 10% unfavorable change in exchange rates on currencies denominated in other than their functional currency would result in a potential loss in future earnings in our consolidated statement of operations and a reduction in the fair value of the assets of approximately $41 thousand.
Investment in Non-Marketable Equity Securities
We own investments in non-marketable equity securities without readily determinable fair values. We may value these equity securities based on significant recent arms-length equity transactions with sophisticated non-strategic unrelated investors, providing the terms of these security transactions are substantially similar to the security transactions terms between the investors and us. The impact of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to quantify.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Codexis, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
Reports of Independent Registered Public Accounting Firm (BDO USA, P.C.; San Francisco, CA; PCAOB ID: 243)

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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Codexis, Inc.
Redwood City, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Codexis, Inc. (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 28, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
As described in Notes 2, 3 and 5 to the consolidated financial statements, the Company enters into contracts with customers that include enzyme supply, licensing, and collaborative research and development agreements. Certain contracts with customers may contain multiple performance obligations, options, up-front and/or annual license fees, fees for research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage. The Company recognizes revenue in a manner that best depicts the transfer of promised goods or services to the customer when control of the product or service is transferred to a customer. The Company makes significant judgments in determining revenue recognition for certain customer contracts.
We identified the evaluation of management’s accounting for revenue from certain new and amended contracts with customers as a critical audit matter due to significant judgments and estimates involved in the identification of distinct performance obligations, allocation of transaction price to distinct performance obligations, determination and estimation of material rights, determination of the pattern of transfer of control for each distinct performance obligation and estimation of variable consideration. Auditing these elements involved especially subjective and complex auditor judgments due to the nature and extent of audit effort required.
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The primary procedures we performed to address this critical audit matter included:
Testing the design, implementation and operating effectiveness of internal controls relating to the Company's accounting for certain new and amended revenue contracts, including controls over identification of distinct performance obligations and material rights, the determination of the timing of revenue recognition, allocation of transaction price to distinct performance obligations, and the estimation of variable consideration.
Examining a sample of these contracts to test management's identification of significant terms for completeness, including the identification of distinct performance obligations, material rights and variable consideration.
Evaluating the reasonableness and accuracy of management’s judgments and estimates used in identification and accounting for material rights.
Assessing the reasonableness of management’s judgments and estimates to calculate variable consideration, and the timing of recognizing the related revenue subject to any constraints.
Evaluating the appropriateness of management’s allocation of the transaction price to the distinct performance obligations and determination of whether identified performance obligations meet the criteria for over-time revenue recognition.

/s/ BDO USA, P.C.
We have served as the Company's auditor since 2013.

San Francisco, California
February 28, 2024
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Codexis, Inc.
Redwood City, California
Opinion on Internal Control over Financial Reporting
We have audited Codexis, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated February 28, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Controls and Procedures”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, P.C.

San Francisco, California
February 28, 2024
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Codexis, Inc.
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
 December 31,
 20232022
Assets
Current assets:
Cash and cash equivalents$65,116 $113,984 
Restricted cash, current519 521 
Financial assets:
Accounts receivable10,036 31,904 
Contract assets815 2,116 
Unbilled receivables9,142 7,016 
Total financial assets19,993 41,036 
Less: allowances(65)(163)
Total financial assets, net19,928 40,873 
Inventories2,685 2,029 
Prepaid expenses and other current assets5,218 5,487 
Total current assets93,466 162,894 
Restricted cash1,062 1,521 
Investment in non-marketable equity securities ($0 and $13,921 with a related party)
9,700 20,510 
Right-of-use assets - Operating leases, net13,137 39,263 
Property and equipment, net15,487 22,614 
Goodwill2,463 3,241 
Other non-current assets1,246 350 
Total assets$136,561 $250,393 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$5,947 $3,246 
Accrued compensation11,246 11,453 
Other accrued liabilities4,735 15,279 
Current portion of lease obligations - Operating leases3,781 5,360 
Deferred revenue10,121 13,728 
Total current liabilities35,830 49,066 
Deferred revenue, net of current portion640 16,881 
Long-term lease obligations - Operating leases12,243 38,278 
Other long-term liabilities1,233 1,371 
Total liabilities49,946 105,596 
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.0001 par value per share; 5,000 shares authorized, none issued and outstanding
  
Common stock, $0.0001 par value per share; 200,000 shares authorized; 69,905 and 65,811 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively
7 6 
Additional paid-in capital584,138 566,081 
Accumulated deficit(497,530)(421,290)
Total stockholders’ equity86,615 144,797 
Total liabilities and stockholders’ equity$136,561 $250,393 

See accompanying notes to consolidated financial statements
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Codexis, Inc.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
 
 Year Ended December 31,
 202320222021
Revenues:
Product revenue ($0, $514 and $0 from a related party)
$42,906 $116,676 $70,657 
Research and development revenue ($0, $1,245 and $1,955 from a related party)
27,237 21,914 34,097 
Total revenues70,143 138,590 104,754 
Costs and operating expenses:
Cost of product revenue12,809 38,033 22,209 
Research and development58,885 80,099 55,919 
Selling, general and administrative53,250 52,172 49,323 
Restructuring charges3,284 3,167  
Asset impairment and other charges9,984   
Total costs and operating expenses138,212 173,471 127,451 
Loss from operations(68,069)(34,881)(22,697)
Interest income4,172 1,441 459 
Other income (expense), net ($0, $208 and $983 from a related party)
(12,274)124