Codexis Inc (CDXS) 2010 Q3 法說會逐字稿

Welcome to Codexis Second Quarter 2010 Earnings Conference Call. I would now like to turn the call over to Doug Sheehy, Senior Vice President and General Counsel of Codexis Inc.

Thank you and good afternoon. Today after the market closed, we announced our fiscal third quarter 2010 financial results. The press release is available on the Investor Relations page of our Web site at codexis.com.

With me today are Alan Shaw, our President and CEO, and Bob Lawson, our CFO. During the course of this conference call, management will make a number of forward-looking statements which are statements regarding future events. These forward-looking statements include statements regarding Shell's potential validation of our biofuels milestones, recognition of milestone revenue from Shell in Q4 2010, future variability in our gross margins, our 2010 total revenue and adjusted EBITDA guidance, trends in our pharmaceutical revenue for 2010, our ability to extend our technology platform to future markets without significant additional investment, our belief that our pharmaceutical business will be a driver of future revenue and operating income growth, potential deployment of our technology in the Shell-Cosan joint venture, the timing of the closing of the Shell-Cosan joint venture, our belief that Shell will transfer their equity interest in Codexis to the Shell-Cosan joint venture, the timing of a potential partnership in carbon capture, our ability to apply our biofuels work to bio-based chemicals, and our intention to pursue chemical opportunities in the future.

These forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ significantly from these projected. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Please refer to our Form 10-Q filed with the Securities and Exchange Commission on August 6, 2010 for some of the important risk factors that could cause actual results to differ materially from the forward-looking statements made on this call. Except as required by law, we disclaim any obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after this call.

During this call today, we will discuss certain non-GAAP financial measures for comparison purposes only. The non-GAAP amount of adjusted EBITDA is calculated by adding depreciation, amortization, debt interest expense, income taxes and warrant-related costs and stock compensation to our net loss. This non-GAAP measure is an addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. Please refer to our press release today for a reconciliation of the non-GAAP financial measures to GAAP. Now I'll introduce Alan to discuss the quarter.

Good afternoon and thank you for joining us today. As you've seen in the two press releases today, it's an eventful time for Codexis. Third quarter financial results were outstanding with total revenue of $27.1 million up 35% versus third quarter last year, and adjusted EBITDA of $2.1 million compared to a loss of $2.7 million last year.

Revenue growth was driven by pharmaceutical product and service sales of $10.6 million compared to $5 million in quarter three 2009. We made our first large shipment of Intermediate for Boceprevir, Merck's promising hepatitis C drug and they are optimistic about the future potential of Boceprevir as it nears FDA approval.

Bioindustrial revenue grew 8% year-over-year as a result of the recognition of Shell milestones achieved and announced last quarter. More important, I'm very pleased to tell you our testing indicates we've achieved five more Shell milestones this quarter. When Shell validates our achievement, we'll have achieved seven of the eight 2010 Shell milestones.

conversion of cellulose to sugar, conversion of sugar to ethanol, and conversion of sugar to diesel fuel. Continued achievement of these milestones means we're on track towards commercialization of biofuels. Our carbon program under the ARPA-E Department of Energy grant we received earlier this year continued to make strong progress on the evolution of a carbonic anhydrase enzyme for use in separating carbon dioxide from post-combustion flue gas streams.

Our consistent progress on bioindustrials gives us the confidence to acquire Maxygen's directed evolution intellectual property portfolio. I'll talk more about the Maxygen transaction later in the call, but first, I'll turn to Bob to review our financial results in more detail.

Thanks, Alan. I'm very pleased to share Codexis' financial performance for the third quarter of 2010. Full revenues were a record $27.1 million, a 35% increase year-over-year. As Alan said, our pharmaceutical business led the growth with product revenue of $9.5 million for the third quarter, more than double the third quarter of 2009.

Merck was again our largest customer for the quarter with sales of Intermediate for Boceprevir of $4.5 million. We also enjoyed strong sales of atorvastatin intermediate to Pfizer and into generic manufacturers preparing for the patent expiration of Lipitor in 2011.

Our collaborative R&D revenue represents service contracts and royalties related to our pharmaceutical business. Those revenues were $1.1 million for the quarter, an increase of 150% year-over-year. This revenue was primarily from Merck and Teva.

Related party collaborative R&D revenues, which reflect reimbursement from Shell for biofuel R&D services and payments for achieving the technology milestones, were $16.2 million compared to $15 million in Q3 of last year. The year-over-year change in revenue reflects recognition of the two 2010 milestones we announced on our second quarter earnings call.

As Alan noted, we provided notice to Shell that our testing indicates achievement of five additional 2010 milestones this quarter. So we've now hit seven of our eight total 2010 milestones. Shell will independently validate the achievement of the milestones, and we expect to earn milestone revenue from them later in the year. We also recognized a $400,000 grant payment from the United States Department of Energy as part of a $4.7 million grant related to our carbon R&D program.

From an operational perspective, we generated pharmaceutical product gross margin of 10% compared to zero for the same quarter last year. Our product shipments this quarter were primarily intermediates for which margin rates are lower than enzymes. As we have said previously, we expect product gross margins to vary from quarter to quarter based on product mix. Margins in Q3 last year reflect the impact of the disposition of inventory related to the closure of our [Europe] facility.

R&D expenses of $13.1 million in the third quarter of 2010 compared to $12.2 million in the prior year. The increase was primarily attributable to depreciation expense related to capital spending for our biofuels program and higher stock-based compensation charges.

Our SG&A expenses decreased from $8.7 million last year to $7.9 million in Q3 2010 reflecting actions taken in the first half of the year to reduce discretionary spending and drive operational efficiency in our G&A functions.

As a result of the strong revenue growth and flat year-over-year operating expenses, adjusted EBITDA improved to $2.1 million in the third quarter compared to a loss of $2.7 million in the prior year. As a reminder, we calculate adjusted EBITDA by adding depreciation, amortization, net interest expense, income taxes, warrant-related costs and stock compensation to our net loss.

Our net loss decreased to $2.7 million in the quarter compared to a net loss of $6.2 million for the third quarter of 2009. That equates to a fully diluted loss per share of $0.08 per share for the quarter. Since our IPO occurred at the end of April, our weighted average shares outstanding increased from 26.6 million in the second quarter to 34.2 million this quarter.

Moving to cash flow and the balance sheet, we ended the quarter with approximately $99 million in cash and marketable securities compared to $100 million at the beginning of the quarter. Note in the third quarter cash balance does not include the impact of the $20 million we spent to acquire Maxygen's core technology IP portfolio. It also does not include the impact of paying off $4 million in debt which we did in October. We now have no debt.

Now to our updated outlook for the full year. As we've said before, the timing of large orders can create revenue and expense variability between quarters, so we'll only provide guidance for our annual results. We expect to update our total year guidance on a quarterly basis.

Based on our strong third quarter performance, we are raising our revenue guidance for the full year of 2010. Our previous guidance was for revenue of $94 million to $98 million. We now expect revenue of greater than $100 million.

We said previously that we expected adjusted EBITDA to be positive for the year, but we did not provide specific guidance as to how positive. We now expect adjusted EBITDA of greater than $7 million for the year.

We made two key assumptions underlying our increased revenue guidance. First, we assume that the strength of our pharmaceutical product revenue for the first nine months of the year will hold for full year 2010. Our pharmaceutical pipeline is providing us with good visibility for the remainder of the year. Note that our pharmaceutical revenue in Q3 was helped by the Boceprevir sales to Merck which won't repeat in Q4. Second, we expect Shell to validate our achievement of the five milestones for which we sent notice in Q3. I'll turn the call back over to Alan for an overview of our strategy.

Thanks, Bob. As you can see from our third quarter performance and increased guidance, we're on track for an outstanding year. We have a truly disruptive, proven and proprietary technology platform with a combination of bioinformatics, cutting edge biology, and process engineering expertise that gives us a unique advantage. Our proprietary technology platform applies to pharmaceuticals and biofuels today, and we believe that it can be leveraged in the areas of carbon capture, water treatment and the creation of bio-based chemicals, all large potential markets that we believe we can exploit without significant additional investment in our technology platform.

Our pharmaceutical business continues to gain momentum as we benefit from our expanding relationship with Merck and other innovators. Our shipment of Boceprevir intermediate to Merck this quarter was a significant milestone. As we scale our pharmaceutical business, we expect it to be a driver of company revenue and operating income growth in the near term.

We continue to make excellent progress with Shell in developing our technology for advanced biofuels as evidenced by our 2010 milestone performance. Let me put that achievement into context. Each year we agree on a set of technology progress milestones with Shell. We have a combination of regular and stretch targets. If we achieve those targets within the year, we earn a milestone payment.

Earning milestone revenue requires high performance in a short timeframe. While we expect to hit all targets eventually, we only expected 80% of the regular targets and 50% of the stretch targets within the year. So hitting a 100% of our regular and 75% of our stretch milestones is a big win for Codexis and for Shell and means we are ahead of peers towards our commercialization goals.

We are Shell's biofuel enabling partner and look forward to deploying our technology to maximize the enormous potential of the Shell-Cosan joint venture which we expect will be closed before the end of the year. We are fortunate to be partnered with Shell, already the world's largest distributor of biofuels.

In addition to adding even more distribution, Shell-Cosan will be one of the world's largest producers of biofuels. As we said before, Shell will transfer their equity ownership of Codexis to the joint venture when it closes. So, in short, we expect the world's largest sugar cane based biofuel company to be the second largest equity owner of Codexis, an enviable position.

Rapid progress on our Shell program combined with the vast potential of Shell-Cosan gives us the confidence to eliminate our biofuel royalty agreement with Maxygen by acquiring Maxygen's directed evolution intellectual property portfolio. As most of you know, we license our underlying gene shuffling technology for Maxygen when Codexis was formed in 2002 with rights to apply it in certain fields. We subsequently licensed the technology for a wider spectrum of biofuel applications for which we agreed to pay Maxygen a 20% royalty on certain payments including milestones. All payment obligations to Maxygen will cease with this transaction.

In carbon capture, we're working on under a $4.7 million ARPA-E grant from the Department of Energy to evolve a carbonic anhydrase enzyme for use in cost effective separating carbon dioxide from post-combustion flue gas streams for sequestration of beneficial use in areas like enhanced oil recovery or production of cement. We're seeking a big brother partner similar to Shell for carbon and hope to enter in partnership before the end of the year.

In the area of chemicals, our working fuels can be applied to the reduction of bio bits to chemicals. The transaction with Maxygen expands our rights in the chemicals field, and we intend to pursue chemical opportunities in the months ahead. And importantly, while we are exclusive to Shell in biofuels, we own and retain the right to exploit technology developed under our Shell research program in fields other than biofuels, namely, chemicals.

one, elimination of future biofuel royalties as we anticipate growth with Shell-Cosan; two, rights to new fields, notably, all chemical fields where we can apply our technology; three, ownership of our underlying IP ensuring we're in control of enforcement and subject to the impact of any potential changes in Maxygen corporate ownership.

I want to be clear. As we said when we went public, we've advanced the technology well beyond what we licensed from Maxygen years ago. We didn't need to do this deal. We chose to do it to realize the full benefits of our potential in Brazil and beyond.

We're doing a lot. And while the opportunities in front of us are many, our business model is quite simple. First, focus on what we do best using our proprietary technology platform to solve real world problems and create economic advantage. We're not a technology push company but a market-backed enterprise working to solve some of the world's largest challenges.

It's a single platform with multiple market applications and without the need for significant additional investment. The same platform that created the enzyme for Boceprevir delivered on five more Shell milestones and created the enzyme working at lab scale to capture carbon.

Second, partner with world leading customers and global partners with the capital to develop and commercialize the technology in the multi-billion dollar markets to which it applies. Exploiting such large market opportunities requires billions of dollars of capital and access to huge global markets. Working with customers like Merck and a partner like Shell are essential to realizing our potential.

Third, retain compelling economic benefits on the backend. Our agreement with Shell stipulates royalties on every gallon of fuel produced and sold using our technology. And as our technical and financial strength has increased, so has our leverage with potential future partners.

In my eight years leading this company, I've never felt better about our current performance or our future potential. I'm proud of the performance we delivered in the third quarter, and I know we will build on this momentum as we continue to commercialize our technology and grow the company. I want to thank our employees for another great quarter and thank our shareholders for you continued support. And now, we'd like to turn it over to you to your questions.

(Operator Instructions)

Your first question is from the line of Ed Westlake with Credit Suisse. Please proceed.

Hey, good afternoon. Congratulations on the results, a little ahead of I guess expectations at this time of the year and raised guidance. On Maxygen, if you think about it, I know you laid out three. Is it more we should think about it that you're more confident in the revenue that you're going to be able to generate there for -- you were valuing the option, valuing and don't want to give it up to Maxygen, or is it the value that you can capture in chemicals is really driving the decision?

Great question, Ed. Nice to speak to you again. It's actually both, Ed, and I don't want any confusion on this. Let's deal with the biofuel royalty first. It's the easiest answer. Absolutely. In agreeing and in taking the license from Maxygen, we agreed at the time to give them essentially 20% of all future earnings related to fuels. With Shell-Cosan the game has changed significantly. And to be honest with you, we see rapid acceleration and deployment of our technology in Brazil on the back of Shell-Cosan, and I think 20% is a lot to leave on the table.

Secondly, this is very important. The license we have with Shell is exactly that; it's a license. It's not assignment. Codexis owns all intellectual property developed under the Shell program. Shell merely gets, and I say that somewhat tongue in cheek, they get an exclusivity in the field of transportation fuel. That does not extend to chemicals.

Everything we've developed for Shell in the last three years, which is the product of considerable investment, can be directly applied to the field of bio-based chemicals. [Emirates] recently IPOd and called its $700 million valuation based entirely on bio-based chemicals. We believe we have a superior technology and a superior product portfolio, and we can access that directly on the back of the work we've done with Shell, and we are now free to do it following this transaction today.

And then maybe just a follow-on from Bob. Just this is around working capital. You had a big drop in -- well, you had a big usage of working capital in the first half of the year and you're starting to get it back now in Q3. Should we expect that you'd get it back in Q4, you know, to keep working capital flat through the year?

Yes. We said that I think in our Q2 call and we thought we'd be roughly flat for the second half of the year. We continue to expect that to be the case.

Sorry, to be flat relative or do you think you'll get back some of the working capital builds that you had in the first half?

Yes, I'd expect we'll get a little bit back. I'd expect -- we haven't guided for cash, but we expect we'll be relatively flat on cash for the remainder of the year.

Thank you.

Your next question is from the line of Michael Cox with Piper Jaffrey. Please proceed.

Thanks and congratulations on a great quarter, guys.

Thanks, Mike.

My first question's on the pharma side. I was wondering if you could maybe give a little more color on the dip in product margin. Was that tied to that Boceprevir shipment or was there something else specific to the quarter?

Hey, Mike, it's really the nature of what we shipped. Our pharma sales this quarter from a product sale this quarter were principally all intermediates. And as we've talked about it, if we shipped the enzyme used to produce the intermediate, our margin rate is higher, margin percentage is higher. If we ship the intermediate that the enzyme is used to produce, we are in lower margins. And Boceprevir is actually an intermediate; it's not an enzyme sale.

And so, that coupled with our innovator generic mix for the quarter dampened our margin rates a bit. And as I think we've said before, I expect we'll have some lumpiness quarter-to-quarter on an ongoing basis depending no both generic versus innovator mix and on the mix of enzyme sales versus intermediate sales.

Okay. That's helpful. And on the biofuel commercialization, I know that the focus has sort of shifted to the Shell-Cosan which is quite confident will be you tied up here before yearend. But I'd also be curious on your thoughts on the Shell-Iogen facility in Canada. Has that been -- what are your thoughts on that and their plan?

Well, certainly -- it's Alan here. And certainly, in terms of Brazil, you're absolutely right. The Shell-Cosan is a game changer, not just for Codexis, but actually for the industry. I think it's just dwarfed everybody else's activities in this sphere since Shell I think is still in a march on the entire industry, and we're going to be at the heart of that.

But actually, Iogen's progressing very well. Our enzyme production system, which is known as C1 which is proprietary to us, is adding considerable value to Shell's North America program which as you know is focused on wheat straw as a substrate. And that system has already been transferred or is in the process of being transferred off to Canada. So, in fact, that program is actually well on track.

I have no visibility on when investments will be made in large scale production facilities. I believe the large scale or world scale plant, Shell still have intentions of having that in place for 2015. As to its smaller facility, I think there has been some discussion about where the ideal site is. I believe that they'll consider an alternative site in Canada as opposed to the Saskatchewan site.

But in terms of the role we play, our technology is actually ahead of plan, and of course, that has to be true, Mike, if you think about it, because we just delivered on another five technical milestones, and that's seven from eight. And the bulk of those refer to this [scarification] project which is almost entirely linked to the Iogen project.

Okay. Great. And my last question is on the Shell-Cosan side. Under the assumption that the JV is finalized before yearend, have you used that as a baseline? When would you envision the first potential commercial scale revenue, be it in Gen One I guess is probably the most likely near-term opportunity? Could that be in 2011 or would you be targeting early 2012 for that?

We're targeting in early 2012. I can't confirm that that is of real interest to Shell-Cosan. It's the obvious target. It doesn't require any additional capital. It's merely an improvement of an existing strain, a strain that they had for many years. And I would expect to see significant activity, sure, 2011 and with a view to get that into the plant in 2012.

Very good. Well, thanks again.

Your next question is from the line of Weston Twigg with Pacific Crest. Please proceed.

Thanks. Just a follow-up on that question about the Gen One ethanol revenue, would that revenue primarily be royalties or would there be product sales as well?

That revenue because it is linked to a fermentation process will be essentially royalty revenue. The significant revenue that we would see from product sales is either going to be sales of enzymes for second generation or the sale of product which could be related to the diesel program.

Okay. And that leads me to my next question. You've been talking about diesel more frequently lately. When do you expect that program to ramp in terms of revenue?

There is a proposal for an acceleration of that program. It will require some additional capital. But it is essentially a fermentation process and could be a plug and play for existing fermentation capacity in Brazil. So certainly, capital is not an issue.

The technology is ready to be transferred to pilot. We've made significant progress on that project this year. And of course, that's the technology which we could directly exploit in the bio-based chemical field because diesel molecules are almost identical to a number of major billion dollar chemicals that are sold in the (inaudible) industry. So we're not able to give a clear answer on that question today. But I would expect some additional news related to that program early in 2011.

Okay. And then, just finally on the chemical side, so it sounds like what you're talking about is converting sugars to high value chemicals that are currently produced from petroleum-based feedstock, and just wondering -- you mentioned you may start that program in 2011. I'm just wondering if you have a [closer] timeline or if you're just waiting to find the right partner, how far along that might be?

Our business strategy has been consistent across virtually all of our markets, big brother partner works for us. It's a proven business model for Codexis and we're starting to realize the real benefits of it with Shell and Shell-Cosan. I think you could expect us to be looking for big brother partners in the bio-based chemical field. And as I said, I'd like to say we could say more about that next year.

biofuels and bio-based chemicals, all from a single source in a single country, Brazil.

So I would expect to see increased activity for Codexis in Brazil. We're in an enviable position having Shell-Cosan as our partner, one of the world's largest sugar producers. And most importantly, bio-based chemicals is outside the Shell relationship and gives us direct access to final product sales.

Very helpful. Thank you.

Your next question is from the line of Vishal Shah with Barclays Capital. Please proceed.

Hi, this is actually [Anthony Kitt] taking over for Vishal Shah today. Congratulations on a great quarter. I just have a couple of quick questions. First is in regards to the pharma business. I was just wondering how many drugs you guys have in the pipeline right now and, you know, between innovators and generics are?

Anthony, two things. I think we talked about when we were on the road to go public back in April, 34 drugs in our pipeline. And what I would say is the pipeline hasn't changed a lot from that number. But what's important is we've had some significant ones move through the pipeline to a stage where we're starting to earn some revenue on.

We talked about last quarter a couple of (inaudible - background noise) shipment of [sitagliptin] which goes into Merck's type 2 diabetes drug [genovia] and this quarter a $4.5 million shipment of intermediate for Boceprevir which is Merck's new hepatitis C drug. That drug has not yet received FDA approval but it's the first of its kind in the market so has enormous potential and results I think in the clinic today have been quite encouraging. So we're optimistic about the potential of Boceprevir.

So as I think about the pharma pipeline in general, there's an element of growing the pipeline. And we remain focused on growing the pipeline. I think probably, and more importantly, the size of the pipeline or whether the things [in them], how close are they to commercialization. And we've got in that regard I'd say a healthy pipeline of opportunities as we look forward.

Okay. Great. Also, another question is I understand that you guys are having all this great progress and everything's happening. But do you guys -- I mean I understand that the chemical's been -- you mentioned that you guys are going to try to start in 2011? But what about the current management or the water treatment businesses that you guys talked about before?

Sure. Let's deal with carbon. Going back to the IPO, we've been consistent on carbon. It's a major market opportunity for us. Admittedly, it's somewhat dependent on government legislation. But it's stronger and remains strong in Europe, and there are some major players in the world who are still investing considerable capital into cleaning up coal essentially and getting coal fired power stations fit for purpose in the modern world.

We are actively in discussions with a world leading manufacture engineering company in the power generation sector. And we remain on track to make an announcement that we are moving a project forward towards validation and ultimate commercialization with what we call a big brother carbon company before the end of this calendar year.

In terms of water treatment, it hasn't received the same level of attention, and that's largely because we're very focused. Even one might seem to think we're already spread over a number of industries. But I would remind you this is a single platform we have here, and it's not that much extra work to look at a multibillion dollar bio-based chemical in addition to a multibillion dollar diesel opportunity.

Water treatment is a little bit different. And to be honest, it's just not at the top of our list. I would like to think we can allocate resources towards water treatment possibly next year, but we're not making any commitments today on that.

Okay. Thank you. Thank you so much.

(Operator Instructions)

Your next question is from the line of Cory Garcia with Raymond James. Please proceed.

Good afternoon, fellows. Just sort of I guess a follow-up or really a clarification to the Shell-Cosan deal which obviously it may be a little premature given that it hasn't closed. But with reference to sort of the rapid acceleration obviously coming primarily on the Gen One front, would you be able to provide any color at this point in terms of the Gen Two side whether or not you could see sort of that timeline I guess fast-track from what would initially have been your thoughts working with Iogen?

Yes, I'll try and be as helpful as I can. Firstly, I'd like to just clarify what we mean by the deal closing. The definitive agreement was signed a couple of months ago, so the deal is essentially done. All that we're waiting for is regulatory approval in a number of countries and it's not anticipated for that to be anything more than a rubber stamp.

Shell themselves have announced in third quarter results today that they'll be making a $1.6 billion contribution and that will be recorded. So if Shell's CEO is prepared to say that publicly, I think we should have a very high confidence that this deal will be cleared. We obviously have to wait for that to happen before we can disclose confidential information and that is to protect Codexis and our shareholders and actually to protect Shell and Cosan.

In terms of second generation, there's a huge opportunity in Brazil. Two-thirds of sugar cane is actually waste carbon. They burn one-third of it [in cords for Cogen] but it's in very, very old antiquated plant. And another third is actually left on the field. So two-thirds of the carbon in sugar cane is currently not converted into either sugar or ethanol. So, a very large opportunity.

Cosan have high expectations of accelerating the deployment of our technology, our cellulose technology, the same technology that's going up to Canada albeit on a different substrate which is no concern whatsoever for us because our technology is substrate agnostic. They need us to convert that two-thirds into additional sugar or additional ethanol because sugar is going to get squeezed going forward. There is an increasing demand for sugar, increasing demand for ethanol from sugar, and there's going to be a real supply crunch on sugar.

So every extra pound of sugar that Cosan can get out of existing plantations essentially goes straight on to the bottom line. So we have a very high confidence that Cosan will deploy the necessary resources to get our second generation technology in Brazil as quickly as possible. I would say 2103 as opposed to 2014.

All right. Really looking forward to that rubber stamp. Great quarter, guys.

So are we. Thank you.

Your next question is from the line of Ed Westlake with Credit Suisse. Please proceed.

Just a follow-on in pharma, any progress in terms of, you know, obviously good progress on the existing drugs with the existing companies that you work with, but you know, perhaps signing up new customers perhaps in Europe.

I'd describe that as encouraging progress, nothing specific that we want to talk about yet. But we announced at a big pharma trade show in Paris the launch of mini panels where as you know we've historically shipped 96 gold plates to customers to allow to test enzymes, and we've historically gone through a multi-month evolution program for those customers as we evolve enzymes for them.

What we found is, increasingly, customers are interested in sort of a quick and dirty proof of concept kind of thing. And so, we've launched panels that are easier for customers to use -- sort of for them to use and I'd expect on an ongoing basis that may accelerate some of the things in our pipeline.

I'd say we've also made some changes in our customer interactions around our intellectual property restrictions that we've had before. That have been very well received by particularly some European innovators.

So I'm encouraged. It's early days but I'm encouraged there are some things that are moving forward that we'll more be able to talk about in the future.

And so, you categorize the reception to that launch as a positive early days?

Yes, absolutely.

Thank you.

Gentlemen, there are no other questions at this time.

Okay. Well, thank you, team. And thank you, all, for joining us this afternoon. We feel great about the quarter and the outlook for the year. We're thrilled about the growth of our pharmaceutical business and our path to commercialization of biofuels.

In summary, we are very excited about our progress to date and the success of our proprietary platform technology in both the pharmaceutical and advanced biofuel markets. Overall, we are very encouraged regarding our prospects and our opportunity for growth. We appreciate your continued support and interest in Codexis, and we look forward to providing an update on our future progress. Thank you.