Codexis Inc (CDXS) 2023 Q2 法說會逐字稿

Welcome to the Codexis Strategic Update Conference Call. (Operator Instructions) Please note that this event is being recorded. And now I will turn the call over to Carrie McKim, Director of Investor Relations. Please go ahead.

Thank you, operator. With me today are Dr. Stephen Dilly, Codexis President and Chief Executive Officer; Kevin Norrett, Chief Operating Officer; and Sri Ryali, Chief Financial Officer. During this call, management will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our guidance for 2023 revenue, product revenues and gross margin on product revenues as well as our strategies and prospects for revenue growth and successful execution of current and future programs and partnerships.

To the extent that statements contained in this call are not descriptions of historical facts regarding Codexis. They are forward-looking statements reflecting the beliefs and expectations of management as of the statement date, July 20, 2023. You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond Codexis control and that could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexis filings with the Securities and Exchange Commission. Codexis expressly disclaims any intent or obligation to update these forward-looking statements, except as required by law.

And now I'll turn the call over to Stephen.

Thank you, Carrie, and thanks, everyone, for joining today's call. Earlier this afternoon, we provided an update on our enhanced strategic focus areas. The decisions we announced were designed to build upon our company's existing strength in enzyme engineering and prioritize opportunities where we believe we have competitive advantages in markets with significant revenue potential. We wanted to take this time to discuss those decisions and the path forward in more detail. At its core, Codexis is built around our powerful enzyme evolution technology called CodeEvolver. While there are many potentially useful applications of our technology, our task is to focus on the application where we can command the most meaningful market share and drive maximum value.

Today, we believe that we've identified our killer app, namely enabling the commercial scale manufacturer of siRNA therapeutics through our enzyme catalyzed oligonucleotide or ECO Synthesis technology. We view this as an extremely valuable opportunity where we are in a uniquely strong position to win. And in addition to fully resourcing the development and optimization of the ECO Synthesis platform, we plan to continue growing our highly complementary pharmaceutical manufacturing business.

With the portfolio prioritization decisions that we'll walk through shortly, we've extended our projected cash runway to mid-2026 to help ensure that Codexis is purpose-built and well capitalized to realize the tremendous value potential ahead of us.

Moving to Slide 4. RNAi therapeutics have the potential to alter treatment paradigms for a host of widespread difficult-to-treat diseases. There are multiple categories of RNAi therapeutics, and while the ECO Synthesis technology has the potential to enable efficient manufacturing of many types, our initial focus is on siRNA, which are typically approximately 20 nucleotides in length. There are currently 5 FDA-approved siRNA medications, more than 40 in late-stage clinical trials and about 500 in development. It's absolutely clear that siRNA-based drugs are positioned to become an important part of the therapeutic armamentarium. Now while the first siRNAs were approved for rare indications, many of the agents in development and actually 1 of the approved drugs are targeted at large disease indications impacting millions of potential patients, including Alzheimer's, hyperlipidemia and hypertension.

It's also clear that there's a real issue with the scalability of the current chemical-based method of siRNA production to meet this wave of demand. We believe that our ECO Synthesis technology has the potential to address that challenge by providing scalable, sustainable and cost-effective alternative that acts as a complement to traditional phosphoramidite chemistry.

If we are successful, we believe that our ECO Synthesis platform has the potential to command a meaningful share of siRNA production and can be a significant driver of value creation far beyond anything else in our portfolio. Of course, we're not alone in seeing the value of an enzymatic solution to siRNA production, so we need to focus our efforts to maintain our lead in this important field.

Shifting to Slide 5. We actually started working on our ECO Synthesis technology about 2 years ago in response to multiple partners asking if we could develop an enzymatic solution to address the emerging supply and demand crisis in siRNA. It is by far the most technically challenging project we've undertaken to date. However, our long history of engineering an increasingly complex enzymes for large pharmaceutical customers has essentially been a 20-year setup enabling Codexis take on this highly technical challenge, and we've made sufficient progress to be confident that we can succeed.

Touching briefly on the platform itself. Our ECO Synthesis technology is a proprietary process and suite of high-performance enzymes engineered to synthesize RNAi without the use of a template. It's also designed to address the scalability limitations and chemical waste associated with current manufacturing techniques. The first public disclosure of our ECO Synthesis platform was at the TIDES USA meeting in May this year, where we demonstrated the first publicly shared enzymatic de novo RNAi synthesis.

The cornerstone of the ECO Synthesis platform we're developing is a TdT polymerase enzyme engineered to recognize and incorporate modified driver nucleotides in order to incite siRNA. As you can see on Slide 6, we've already made robust progress in evolving this enzyme. We originally engineered the TdT polymerase from molecular assemblies to use in DNA synthesis. Separately, we thereafter explored whether we could apply TdTs, which naturally work with DNA to RNA instead. Our scientists have since worked out an elegant solution by engineering a TdT with high levels of activity, stability and promiscuity for the nucleotide being incorporated. This means that the enzyme has a vastly minimized preference for any specific nucleotide and essential characteristic given the number of structurally distinct RNAi building blocks.

Today, we are well beyond the halfway point in the necessary round of TdT evolution, and we expect to complete that phase of engineering during the second half of this year. As we continue to refine the platform and prepare it for potential commercial use, we look forward to sharing updates at scientific meetings and investor events.

Now with our projected cash runway to mid-2026, we are funded through commercialization of the ECO Synthesis platform, setting the path towards potential positive cash flow in 2027.

With that backdrop, let me recap the 4 things you will need to believe to share our excitement about the potential value of our ECO Synthesis platform listed on Slide 7. #1, an enormous wave of demand for RNAi therapeutics is coming. #2, the current phosphoramidite chemistry alone can't scale sufficiently to meet this RNAi manufacturing demand. Thirdly, an enzymatic synthesis route is a viable alternative to complement traditional manufacturing methods. And #4, Codexis is already ahead of the competition and has differentiated expertise and competitive advantages to capture this attractive market. And frankly, we've been digging into this for a while, and we've become increasingly confident on all 4 of those points.

Before Kevin dives into a bit of detail on the ECO Synthesis platform and our commercial strategy, I'd like to provide a brief recap of our recent prioritization efforts and what the road map looks like from here.

Moving to Slide 8. As I mentioned, pharmaceutical manufacturing is highly complementary to our work in RNAi synthesis. We anticipate a return to product revenue growth for this business in 2024, and combined with a robust pipeline of our customers' projects in Phase II and Phase III, we expect to drive potential growth over the next several years if new products gain FDA approval. We also have a rich existing library of customized enzymes, which will allow us to efficiently expand the business into the latter part of the decade. That said, enzymes users traditional biocatalysts have per product peak revenue of roughly $5 million a year, and the anticipated growth trajectory of this business is far more modest than the potential ECO Synthesis market. However, given the useful overlap in expertise, infrastructure and commercial reach, pharmaceutical manufacturing is a nice business to have. It generates positive cash flow and affords us credibility with a critical customer segment as we execute on the powerful ECO Synthesis opportunity.

We're also consolidating the rest of our life sciences assets and focusing only on the highly differentiated enzymes that solve the true unmet needs. After commercializing our first batch of products in this arena, we found that incrementally better enzymes just weren't enough for customers to disrupt existing workflows or for us to achieve meaningful market penetration. With that learning in mind, we took a hard look at our Life Sciences portfolio and made the decision to prioritize enzymes where there is limited competition and where sensitivity and accuracy matter. To that end, we will continue to focus efforts on our newly engineered DNA ligase and the Codexis high-cap RNA polymerase. We've received high levels of interest and engagement with each of these products because of their differentiation and their ability to be applied across multiple customer workflows.

Closing out our program updates. In biotherapeutics, we announced our plan to discontinue all preclinical discovery work, including both inborn errors of metabolism and gene therapy. We're also discontinuing our 50-50 development support of the CDX-7108 clinical program, and we're in active discussions with our partner, Nestle Health Science, about advancing the asset without our financial support.

While we continue to believe that enzymes have great potential for use as medicines, our leadership in team includes many drug development veterans, and we are acutely aware of the significant capital and time investment required in that arena. While our biotherapeutics programs provide nice validation of our technical capabilities, we are an enzyme engineering company.

In addition to streamlining our focus areas, we announced our decision to consolidate operations to our headquarters facility in Redwood City, California, and to reduce our headcount by approximately 25% to align with our portfolio priorities. While it was a difficult decision, this consideration was made much easier in that it allows us to direct our resources towards critical value-add activities and extends our projected cash runway to mid-2026. This gives us the time and the capital we need to build sustaining value through our ECO Synthesis platform, and helps us control our own destiny moving forward.

As we position ourselves for success, we are hyper focused on building the right team, identifying where we can add value via our core capability and enzyme engineering and making our way up the value chain to command a greater share of potential profits. Today's announcement aimed at optimizing Codexis, and our enhanced strategy is all about clear prioritization, streamlining and focused execution on a core group of promising assets. And now I'll pass over to Kevin.

Thanks, Stephen. I'll focus my time today on why we are so bullish on the ECO Synthesis platform and what we expect on the path forward. To grasp the magnitude of this opportunity, it's critical to understand the trajectory of the anticipated demand for RNAi therapeutics in the coming years outlined on Slide 9. For context, we estimate current annual demand for RNAi oligos to be approximately 1,000 kilograms as RNAi therapeutics are primarily targeting rare orphan indications. However, as Stephen mentioned, there are more than 40 Phase II and Phase III clinical assets currently in development for large disease indications, which we define as those with prevalent populations of hundreds of thousands of patients to more than 1 million patients per year. Given this late-stage clinical pipeline, our market research estimates that demand for RNAi therapeutics could grow 20 to 30x by 2030.

Assuming a portion of these late-stage product candidates are approved, this could mean as much as 30,000 kilograms of demand will be required annually at peak penetration. Phosphoramidite chemistry has effectively enabled bench top RNAi manufacturing scale for many decades, but it has certain limitations that we believe will prevent it from scaling to support large-scale commercial manufacturing. First, it is limited in batch size to single-digit kilograms of production. Second, it requires the use of acetonitrile, a toxic solvent, to facilitate the reaction environment necessary to produce the RNAi. If phosphoramidite chemistry is used exclusively to meet the 30,000 kilograms of RNAi demand that we expect to come, acetonitrile use would grow to 20 million liters, a 20x increase over the 1 million liters used today. This spike would place a significant burden on the global acetonitrile supply chain and also generate massive volumes of hazardous and costly environmental waste.

In order to meet the coming wave of RNAi demand, phosphoramidite chemistry alone will not be sufficient, and an alternative enzymatic route must be made available.

Moving to Slide 10. We began developing a fully enzymatic approach to RNAi synthesis about 2 years ago. After we were approached by our existing pharmaceutical manufacturing customers, we're looking for a way to meet the coming RNAi demand in their own therapeutic pipelines. We believe our long-standing reputation and demonstrated experience in tackling difficult challenges in enzyme engineering separates us from the pack and makes us a natural choice. We already have ongoing R&D enzyme engineering projects with large and midsized pharmaceutical customers who have existing pipelines of RNAi therapeutics. These partners are well acquainted with our ability to perform extensive rounds of engineering necessary to achieve complex enzyme specifications, and they know that Codexis is uniquely equipped to develop an enzymatic solution to this problem.

Because our foundational pharmaceutical manufacturing business already involves working with large pharma companies, we also understand the big company mindsets, including how they move from discovery to development to commercial stage. Given our established track record of supporting scalable, efficient and cost-effective enzymes for the manufacturing of pharmaceutical products, we believe we have a significant competitive advantage over emerging players in the enzymatic RNAi synthesis space.

From a business standpoint, the ECO Synthesis opportunity draws upon our existing expertise, but is far more attractive in terms of potential value to Codexis and its customers. Pharmaceutical manufacturing requires one-to-one custom enzyme engineering projects, which involve significant time and resource investment on a per asset basis. The peak enzyme revenue potential is also limited to low single-digit millions annually per asset and customers can still rely upon traditional chemistry as a cost-effective way to scale the commercialization. The beauty of the ECO Synthesis technology we are developing, on the other hand, is that it has the potential to manufacture any siRNA strand without the need for project-based customization. That means that with 1 single platform and process, we have the potential to rapidly enable the manufacturer of tens to hundreds of kilograms of any custom siRNA strand per batch across multiple customers.

Further, the scale our solution can enable -- takes our technology from a nice-to-have option to an essential method to meet the coming demand.

As shown on Slide 11, in direct comparison of phosphoramidite chemistry, the ECO Synthesis platform we are developing presents several potential advantages when manufacturing at commercial scale. As I just mentioned, our potential solution offers an efficient way to manufacture large volumes of high-purity RNAi. By using aqueous reactions, our platform also avoids the need for acetonitrile and should significantly decrease chemical waste streams and associated disposal costs.

In addition to scalability limitations and low purity output, phosphoramidite chemistry also requires a massive capital and infrastructure investment early in the clinical development process. The ECO Synthesis platform we are developing, however, may be utilized in small molecule manufacturing facilities potentially obviating the need for a significant early-stage capital investment in manufacturing. phosphoramidite chemistry does a great job as the workhorse to manufacture RNAi at small bench top scale. In parallel to that, we believe the ECO Synthesis platform opportunity lies in enabling a large-scale manufacturer of RNAi therapeutics. As is often the case when the new technologies introduced to the market, we expect the 2 methods to coexist working in harmony to serve different purposes within the ecosystem.

Let me take a moment to describe how all of this translates into the total addressable market for the synthesis of RNAi therapeutics, and how we view the specific ECO Synthesis platform revenue potential as outlined on Slide 12. I mentioned greater than 40 clinical assets in late-stage development targeting large disease indications like cardiovascular disease and Alzheimer's. If we assume an approval rate for late-stage clinical programs of approximately 1/3, there could be 15 approved RNAi therapeutics for large indications by 2030. If each patient requires roughly 1 gram of RNAi therapy for treatment on an annual basis, and we assume an average treated population of approximately 2 million patients per indication, peak annual RNAi therapeutic demand would hover around 2,000 kilograms per asset. With 15 drugs approved by 2030, peak annual RNAi therapeutic demand could reach 30,000 kilograms.

Based on what we are hearing from industry-leading CDMOs and experts within the large pharmaceutical companies, we estimate the cost to manufacture RNAi therapies today to be between $250,000 up to $1 million per kilogram. That number depends on several factors, but if we assume phosphoramidite chemistry continues to be optimized over the next decade, we estimate that figure will be closer to the lower end of that range.

With the potential for as much as 30,000 kilograms of annual demand at manufacturing cost of $250,000 per kilogram, we estimate the total addressable market for peak annual RNAi therapeutic demand could be as high as $7.5 billion.

There is a critical need for an enzymatic sensitive solution that offers a scalable, sustainable alternative to phosphoramidite chemistry, and conservatively, if the ECO Synthesis platform can capture even an estimated modest percentage of that, it has the potential to result in a significant revenue opportunity of $1 billion by the early part of next decade. It's clear that this platform offers the most significant revenue potential of any program in Codexis' history.

Moving to Slide 13. We plan to demonstrate brand scale synthesis of our ECO Synthesis technology by the end of this year. This critical milestone provides a key point of technical validation of our platform and it enables us to begin precommercial testing with select customers in 2024. We have learned over time that early customer feedback can provide valuable perspectives to ensure we build a product they actually want and believe in. We will take these insights into further process development as we prepare for the ECO Synthesis platform commercial launch, which we anticipate by 2026.

While we continue to develop the fully enzymatic route, we plan to enter the RNAi therapeutics manufacturing market via our double-stranded RNA ligase. Our double-stranded RNA ligase offers an intermediate step that allows for the connection of short RNAi fragments generated from phosphoramidite chemistry or other methods to form full length RNAi. This enzyme is expected to be made available to customers by the end of 2024 and provides an important bridge both technically and commercially until the ECO Synthesis platform is fully developed.

In conclusion, we are excited to be focused on this incredible opportunity. The ECO Synthesis technology platform is where Codexis' core technical competency and existing commercial infrastructure come together, positioning us to potentially capture massive value in a market facing significant challenges to meet future anticipated demand. We are well on our way to demonstrating full proof of concept, and we look forward to keeping you up to date on our technical progress.

With that, I will turn the call over to Sri to discuss the financials.

Thank you, Kevin, and good afternoon, everyone. As Stephen and Kevin both mentioned, the actions we announced today, which were recently approved by our Board and are outlined on Slide 14, strengthen our financial position by extending our cash runway to the middle of 2026, enabling us to focus on key priorities, our ECO Synthesis platform and the return to growth of our pharmaceutical manufacturing business.

Let me dive into some specifics on expected timing and the anticipated savings associated with the decisions we just outlined. The majority of our headcount reduction of approximately 25% of our workforce is expected to be complete by September 30, 2023. This allows sufficient time to transition the workflows associated with each of the impacted programs, and we should begin to realize associated savings in the fourth quarter of this year.

The operational consolidation for our headquarters facility in Redwood City, California, is expected to be complete in the second half of this year. As a result of these changes, we anticipate a reduction of annual expenses by approximately $15 million in R&D and $5 million in SG&A, reflecting lower headcount and facility expenses.

We expect to incur a restructuring charge of roughly $3 million in the third quarter of this year related to the reduction in force. A key element of the savings stemming from the strategic update is that we will not incur a significant ramp-up in costs originally anticipated as part of increasing spend related to the CDX-7108 Phase II clinical trial initiation and CMC scale-up activities. We also estimate that we are avoiding more than $100 million in third-party spend associated with our continued investment to develop CDX-7108 through Phase III.

Additionally, we will recognize savings resulting from the elimination of costs associated with preclinical activities for programs in gene therapy and inborn errors of metabolism.

Turning to our financials on Slide 15. We plan to report results for the second quarter of 2023 post market on August 3. But today, we are sharing select preliminary metrics as well as updated financial guidance. Please note that we and our auditors have not yet completed the preparation of our financial statements for the second quarter of 2023. And as a result, final reported results may differ materially from the preliminary results described here. Total revenues for the second quarter of 2023 are expected to be in the range of $21 million to $22 million. This includes anticipated product revenues in the range of $11 million to $12 million, and R&D revenues of approximately $10 million.

Shifting to guidance on Slide 16. We continue to expect full year 2023 product revenues to be in the range of $30 million to $35 million, excluding enzyme sales related to PAXLOVID. As you think about modeling the rest of this year, recall that our pharmaceutical manufacturing business tends to be varied quarter-to-quarter. This is due to timing dynamics associated with customer orders, including, for example, prelaunch inventory builds in 1 year, followed by no orders during the following year.

The second quarter represents strong product revenue. But given the inherent lumpiness of this business, we are confident in reaffirming our full year guidance range. Looking ahead to the rest of 2023, and based on the visibility we have today, we anticipate a decline in product revenues from Q2 to Q3, with the expectation that fourth quarter product revenues will be more in line with the second quarter. We also continue to expect product gross margin to be in the range of 55% to 65%, excluding enzyme sales related to PAXLOVID, the same guidance range we issued in our first quarter earnings release on May 4.

We are adjusting our 2023 R&D revenue guidance based on the strategic priorities and actions announced today. We now expect R&D revenues to be in a range of $21 million to $24 million. Down from prior guidance of $28 million to $33 million. This decrease is primarily due to the discontinuation of investment in the CDX-7108 clinical development program, our biotherapeutics R&D revenues reflect the reimbursement of approximately 50% of our costs. And although R&D revenues are down, renewing these costs actually improves our bottom line by reducing our overall cash burn.

As of June 30, 2023, we had $92.1 million in cash and cash equivalents, providing anticipated runway to mid-2026. We expect these resources to be sufficient to fund the planned milestones Kevin outlined for the advancement and commercialization of our ECO Synthesis platform. And now I'll turn the call back to Stephen.

Thank you, Sri. In closing, the ECO Synthesis platform applies our foundational strength in enzyme engineering through an enormous commercial opportunity. The actions we're taking today set Codexis up for real revenue generation potential within the next 2 to 5 years by affording us the cash runway and resources we need to execute on this world-leading application. Now we'd be happy to take your questions. Operator?

(Operator Instructions) Our first question comes from the line of Allison Bratzel with Piper Sandler.

Thanks for holding this call. So I think, first, it would be helpful if you could kind of frame for us how do you see ECO Synthesis fitting into the existing RNAi manufacturing landscape today. What gives you confidence that the 2 kind of systems or standards can coexist? And how do you anticipate that this is going to evolve over the next decade and thereafter?

Thanks Stephen here. I'll take that question. First of all, we -- I'd reiterate what Kevin said that phosphoramidite chemistry is highly evolved. It's been around for 40 years. We expect it's going to play a continuing role in the RNAi landscape. And we know what it's good at. It's really good at making small quantities rapidly. You can plug on almost any nucleotide or modified nucleotide that you want to. It's a very flexible system, and it's also really good at making short fragments. But what is the gap in phosphoramidite chemistry is when we try to make long strings of RNA or you try to scale it up. And one of the factors in that is like the 5-kilogram physical limitation in batch size, [20,000] of kilos is a real problem. And so we see our entry as addressing those pain points.

First of all, the RNA ligase, the double-stranded RNA ligase that we'll be introducing commercially next year, we already have versions of it in collaboration with some of the RNAi players right now, but broadly introduced next year, will allow phosphoramidite chemistry-based companies to make shorter strands of, say, 5 or 6 and bolt them together in a very efficient way.

And what that will do is be an entry point into the market that makes their current offering more efficient, more cost effective, more scalable. And then behind that, we will introduce the full ECO Synthesis platform through a program of alpha and beta testing that Kevin touched on. And so there will be an enzymatic option for scaling up. And what I like to think back to is my days as a person leading big development portfolios in large companies. And when you're doing that, you have to think about the capital investment, particularly when the risks are high. And the big problem with RNAi right now is that if you're thinking of moving forward into a big indication, you have to put down a massive capital investment early. And we hear numbers like Agilent building a plant that costs $750 million that will be capable of making about 1,000 kilos. Alnylam, we know are also investing heavily in that type of infrastructure.

Now what ECO Synthesis does is it allows companies to use their existing small molecule facilities to scale up so you don't have that big barrier to entry of capital investment. And so that's why we think that it's rational to consider that we could command something similar in terms of economics to the current phosphoramidite. So we see a step-wise process, starts off where we're enabling them, making them better, then we're providing an alternative. And eventually, we could provide them the complete solution from start to finish. And the other part of that is, we think it's really important that we build the analytical bridge to allow products that are already in development or even approved based on phosphoramidite chemistry to move over to the ECO Synthesis platform. So you can imagine an example where they were treating a small indication. They get evidence that they have potential in a broader indication, scaling is an issue and it's worth going through the regulatory process to shift horses, if you like.

So we see it as a very sort of stepwise process, which is a great thing. We don't have to wait until it's all done before we can get involved in the market.

Great. That's very helpful. Maybe just another 1 for you guys. You walked through the anticipated news flow for the ECO Synthesis platform catalysts, I think, between now and 2025. I guess could you kind of help frame which you see as the major value inflections for the platform? And just kind of when we can get kind of line of sight into the market opportunity here?

First time that we show you grand-scale synthesis of full-length siRNA purely using the ECO platform will be super important, right? And that's what we're aiming for by the end of this year. The next one is, as we get feedback and adoption next year from the alpha testing of the ECO platform, and then it really takes off from there, the next 1 being the introduction of the double standard RNA ligase. And that's actually the newly engineered one beyond the one that's already in use, right?

Right. This is Kevin, maybe I could just add as well as that success associated with the alpha and beta testing in '24, gaining a valuable set of insights that I talked about in terms of further tweaking of the platform, we could see some early commercial licenses to the technology and adoption from smaller scale partners in the '25 timeframe, but we're planning for a full commercial launch in 2026.

Got it. That's helpful. And that kind of leads in to my last question here. Just hoping any color you could provide on some of those assumptions that wouldn't be your updated cash flow guidance. I understand the cost cutting and things you outlined near term, but I think you also kind of talked about the potential for large-scale commercialization by 2026. And I think I heard you both the potential for cash flow positivity in 2027. So just -- can you kind of walk us through your assumptions there, and kind of how we should think about that kind of cadence?

Sure, Alli. This is Sri, happy to take that. I think biggest difference from how we were thinking about our burn before when we were working on a number of different programs as we've reduced that burn by over half over the next several years, including the discontinuation of our investment in biotherapeutics to get to cash flow through middle of 2026 and potentially positive cash flow in 2027, that assumes the return to growth in pharmaceutical manufacturing, which we're confident of, as well as the commercialization of the ECO Synthesis platform and the time lines that Kevin has even discussed. So those are the key drivers of our updated financial forecast.

(Operator Instructions) Our next question comes from the line of Dan Arias with Stifel.

As we sort of digest the changes and the makeup of the company, what percentage of the commercial effort is going to be going towards ECO Synthesis going forward? How much of the R&D and how much of the SG&A goes that direction versus the existing programs that you're keeping?

Sure. This is Kevin. Dan. I say the majority of it, we do have a couple of other key enzymes that we are still working towards launching. One is the double-stranded DNA ligase, which we brought out for alpha and beta testing earlier this year at AGBT. We are looking, as part of that and our high cap RNA polymerase to leverage channel partners in terms of downstream sales support through licensing efforts. So again, the majority of the efforts around commercialization will be centered on an ECO Synthesis platform. You want to add anything, Stephen?

I'll just chip in there and say what we're trying to do here is we're trying to focus our forces to really be impactful. And so we're playing on the synergy between the pharma manufacturing commercialization footprint where we're talking to the same customers and pulling through the conversations about RNAi. In the other parts of our universe like Life Sciences enzymes, I'd emphasize the fact what we're trying to do is use other people's channels.

Yes.

And we're looking at -- I mean, Kevin, you're looking at exclusive relationships there. So it's very de minimis in terms of the amount of investment we have to make. And in the biotherapeutics arena, we don't actually think there's 0 value there. We think we can realize some value over time, but it's sticking to our guns in enzyme engineering, and really relying on partners to do the development investment, and we will command some economics that are appropriate to that. and so, Sri?

And similarly, on the R&D side, our focus is very much around the ECO platform. Just as a reminder, the R&D work that we're doing in pharmaceutical manufacturing is largely funded by partners which you see in our R&D revenue line. So the work that we're funding ourselves in R&D is focused on ECO Synthesis.

Okay. Okay. So it sounds like the high temp, high start high cap those are all still products that you'll be putting into the market, but it also does sound like you're scaling back a little bit of the life sciences effort, if I'm understanding that correctly?

No, I think you're absolutely right, Dan. It's scaling back in terms of focus, focus on those enzymes where we can make a big difference, and we think the high cap, we think the double-stranded DNA ligase and the focusing on the launch around the double-stranded RNA ligase and ensuring those go off without a hitch. In terms of Hot Start DNA polymerase, those are things that are within our portfolio, but, quite frankly, I don't think they're differentiated enough. So we focused our efforts on those 3 enzymes in terms of generating penetration with potential downstream channel partners. As Stephen mentioned, we're in various different discussions around exclusive licensing of several of those and think that they're better equipped with their existing sales force to be able to do that, whereas we want to leverage our pharma manufacturing field force to be able to focus on awareness and driving that around the ECO Synthesis platform.

Right. And you don't win in these markets by sort of being superficial. You have to understand them intimately, understand the barriers to adoption, understand the drivers. And already, it's being a huge pleasure to be able to dig deep and how does this ecosystem work? What do people need, who should we be playing with? How do we get in there early in a way that we just couldn't when we were trying to do so many more things. So we're already feeling the benefits.

Okay. Okay. Just last 1 last quick one. Anything that changes with the relationship or the partnership with molecular assembly?

No. We're very happy with that partnership. We see it as great technical validation of the original old TdT enzyme pointed a DNA oligose. And similarly, we're also very happy with our relationship with SQL around the transpose.

Yes. We still expect that transposes to finish evolution and get into the market sometime in '24. So certainly, I've been very pleased with the efforts there.

Yes.

Our next question comes from the line of Chad Wiatrowski with TD Cowen.

Chad on for Steven Mah. Just with regards to the reduction in headcount, can you give some color on what portion of that 25% was in the biotherapeutics segment?

So about 2/3 of the headcount reduction was related to the discontinuation of our efforts in biotherapeutics.

Got it. So just given that, do you feel comfortable that you have the R&D team in place today to get you to some of those value inflection points? Or do you see that expanding in the future?

So we have the R&D people in place to do right now what we need to do right now. In the future, we're going to have to continue to evolve the team. We're going to have to add modestly around things like our chemistry capability, around our engineering capability, and some of this defines the product offering itself. And one of the areas that we're really quite interested in is, for instance, working with technology partners around a bench top version of this, but also then working with the other type of technology partners around making full-scale synthesis kits. And so some of that will be make, some of that will be buy, but it's all within our wherewithal in terms of funding right now with this new focused approach. Sri?

Yes. Just to add, the additional resources that Stephen commented on are contemplated in our runway guidance that we funded to the middle of 2026 to get through these critical milestones.

Got it. Really helpful.

And that makes some really conservative assumptions around not getting anything for biotherapeutics product. We are taking very conservative views of our revenue streams on some of the life sciences stuff. So we've kicked the tires on this sort of assertion that we are funded to mid-26s, and we're very confident in it.

(Operator Instructions) Our next question comes from the line of Jacob Johnson with Stephens.

Just for Sri first, just maybe a point of clarification on the updated guidance. It sounds like the reduction in R&D revenue is really related to these kind of internal efforts or the initiatives you've outlined today. But inevitably, people are worried about the funding backdrop and the macro. I'm just curious if there's anything you -- any change you saw there that impacted that guidance or if this is kind of purely the result of the actions you're taking?

Yes. It's entirely the result of the actions we're taking around discontinuation of the biotherapeutics program. So we're no longer going to collect 50% reimbursement of costs as those costs are no longer part of our go-forward plan. So it's a net benefit to our cash burn.

Okay. Got it. And then maybe for Stephen, just on CDX-7108, the avoiding the costs related to that. Can you just talk about is that something that Nestle would like to wholly own, and could you get some back-end economics? I'm guessing you're probably in conversations about right now, so maybe there's not too much you can share. But just kind of curious what that relationship looks like going forward for that drug.

Sure. I'll comment gently because I -- you're absolutely right that we are in conversation with Nestle around the appropriate go-forward pathway. Now both Nestle and Codexis agreed that this is a potentially valuable drug. There's an obvious position for it in (inaudible) as the addition of CDX-7108 to Zenpep to increase the lipase activity makes absolute sense. It's also clear that it aligns much more closely with their mission and their core capabilities than it does with ours. And while they would like us to carry 50% of the funding burden through the future, we've communicated that, that is not an option. Now the other thing that is a contractual fact is that neither party can move forward without the other. And so we need to come to an arrangement. And yes, we do see that there is potential for realizing significant value down the line, but much more in the context of a classic out-licensing arrangement.

And just to reiterate, none of those potential economics are in our cash runway guidance.

So that's entirely upside, yes.

Our next question comes from the line of Matt Hewitt with Craig-Hallum.

Maybe first up, with the platform being ready next year for, I think, at least from a beta testing standpoint, will it be possible for you to get spec-ed into some of the later-stage programs? Or when you're ready to go, will you be focusing more on future programs?

Great question. What's different about this compared to classic pharma manufacturing is that, as Kevin intimated, sometimes just scaling the conventional method is not going to be feasible, right? The barriers to entry, it takes a while to get a plant up and running, and all the rest of it. So we believe there is significantly greater rationale for actually switching from 1 to the other in late-stage programs.

Now in order for that to happen in a credible way, we need to show that our approach has clear approval from the regulator. There's an analytical bridge in place. And so that's why 1 of the milestones that we're going to emphasize is the first time an IND is accepted using the ECO Synthesis platform. But the other thing is it makes any siRNA. So therefore, proof of the platform is real validation broadly. And so that's 1 of the work streams that the team is on is building that bridge from phosphoramidite chemistry in Phase II or Phase III or even an early commercialization to the ECO Synthesis platform. Now it's much easier if a company adopts ECO Synthesis as soon as they go into clinical development, and they've done their tox studies with an ECO produced molecule and so on, but that will take longer. And the difference is if we get on board with early development starting '24 and '25, those will hit the market in the early 2030s. Whereas if we want to be realizing significant revenue, and I mean, significant revenue early, we need to really underwrite that analytical bridge I've been describing.

Got it. And then maybe 1 question. I understand the decision with CDX-7108. Where does things sit with 6114? Is that partnership still in place? And if you could provide an update there, that would be great.

Yes, 6114 is actually a really good model for where we want to go with 7108 and that it was a pure out-licensing. And so Nestle is considering to -- continuing to chug forward with 6114. And we'll report whenever we know what's happening there with new milestones.

Yes, we're waiting further updates on its development.

There are no further questions in the queue. I'd like to hand the call back to Dr. Stephen Dilly for closing remarks.

Thank you. Thanks again for joining us today, especially at short notice. We'll issue our second quarter 2023 earnings press release on August 3. And we do plan to host an ECO Synthesis platform-focused investor event later this year. So please be on the lookout for details there. And we really do look forward to keeping you updated on Codexis' progress.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.