Codexis Inc (CDXS) 2023 Q4 法說會逐字稿

Welcome to the Codexis fourth quarter and full year 2023 earnings conference call. (Operator Instructions) Please note that this call is being recorded.

And now I'll 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; Sriram Ryali, Chief Financial Officer; and Stefan Lutz SVP of Research.

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 2024 revenue, product revenue and gross margin on product revenue 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, February 28, 2024. 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 productive controls 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. Seven months ago, we took decisive action to reduce our cash burn by more than 50% and execute on a clear prioritized strategy. We ended 2023 strongly with clear indications of strategic decisions we made last year translating into real momentum.

This was demonstrated by the series of exciting and validating announcements we made in December, specifically the achievement of gram scale synthesis with our ecosystems manufacturing platform, the completion of an exclusive licensing agreement without Deborah for our Codex HiCap RNA Polymerase and our purchase agreement with Nestlé for CDX-7108 .

We have continued their upward trajectory with a couple of positive updates already under our belting 2024. First, driven by the extremely encouraging technical progress we're making with the ECO Synthesis manufacturing platform that step-up gloves will describe later in this call.

We announced plans to initiate the construction schedule for our ECO Synthesis Innovation Lab. We expect this facility will be a hugely valuable resource to support technical and commercial advancement of our ECO Synthesis manufacturing platform. Additionally, the Innovation Lab is intended to enable us to provide addition GMP grade siRNA directly to innovators to support preclinical development of our product candidates.

As Kevin will describe, this gives us access to a critical part that growing siRNA ecosystem. Furthermore, we anticipate that the learnings from the ECO Synthesis Lab will enable us to move to in-house full-scale GMP siRNA production when types right.

Now, while the business case for acceleration of the ECO Synthesis Innovation Lab is compelling. We made sure to secure financial resources first by executing on a very carefully designed strategic debt financing with Innovatus Capital Partners.

Sriram, will describe the financial details in his comments but the punch line into the Innovatus deal fully funds, the construction operation of our ECO Synthesis Innovation Lab several years and strengthens our balance sheet and increases our operational flexibility for our projected run rate cash flow positivity around the end of 2026.

On the heels of that announcement, we were also delighted to welcome two additional members to our Strategic Advisory Board, further broadening the group's scope of relevant expertise to help guide our strategic direction.

Finally, we added more strength to our balance sheet just over the last few days when we announced the completion of an exclusive out-license or noncore assets this time with Roche Codexis newly engineered the double-stranded DNA ligase. As you can see we've done exactly what we said was going to do it even more right on the time lines be right.

As a result, we now have projected runway through positive cash flow expected around the end of 2026, an innovation engine with anticipated billion-dollar-plus market potential in our ecosystems manufacturing platform and an adjacent growing core pharmaceutical manufacturing business that generates cash and boost our relevant commercial reach.

Before I pass it off to Stefan and then Kevin to review our recent technical and commercial progress, let me share some thoughts of how we view the road ahead. Moving to slide 3, our past success starts with our long-standing pharmaceutical manufacturing business.

We've been working hard to return this coal business to an upward trajectory. And today, we're pleased to highlight anticipated 2024 product revenue growth of at least 10% from 2023.

Underpinned by our CodeEvolver directed evolution platform. The value of the technical expertise, credibility in commercial relationship we developed through this business is critical. Furthermore, the cash of pharmaceutical manufacturing minutes generates in valuable element of supporting our runway to breakeven and positive cash flow.

That said, we believe our ECO Synthesis manufacturing platform to enable commercial scale, manufacture of RNA therapeutics has true breakout potential transformed the value trajectory to Codexis. Big thing about Codexis, the synergy of the experience, mostly infrastructure, our pharmaceutical manufacturing business with these emerging opportunities, ECO Synthesis is manufacturing platform.

A beautiful example of that synergy is how we're approaching the commercialization of our double-stranded RNA ligase program, which is an important stepping stone on the way to fully enzymatic siRNA ligase.

To recap, the R&D ligase is designed to allow innovators to build only siRNA from several short fragments. That's important because both the cost impurity profile of dram that chemistry bill molecule increases with the lead construct.

The nice idea. But in order to turn it into a real commercial opportunity it has to be able to build an enzyme, optimizes specific reaction being driven and rapidly scale the manufacturing and supply to begin with the requirements and schedule of the customer.

We believe Codexis is uniquely equipped to meet that challenge because we've been doing something extremely similar for a decade of all through our pharmaceutical manufacturing business. Look for some exciting news flow on our HiCap RNA ligase program in the second quarter.

And now I'd like to pass the call over to Stefan Lutz, Senior Vice President Research, to describe some very exciting progress on the ECO Synthesis manufacturing platform. Stefan?

Thank you, Stephen. I'd like to use my time today to briefly recap our recent progress on the ECO Synthesis, this manufacturing platform that outline what you should expect on the technical front in the coming months.

Shifting to Slide 4. As we announced in December, we achieved rapid scale synthesis with our ECO Synthesis manufacturing platform. This was a critical tactical milestone, providing proof of concept concept for the platform's capability of manufacturing and preparatory scale oligonucleotides composed of modified nucleotide building blocks typically used in RNAi therapeutics under process like conditions.

Our enzyme engineering teams have made tremendous progress in transforming native enzymes into high performance biocatalysts that together over a scalable process solution for siRNA manufacturing. In addition, there are two more reasons why hitting this grand scale benchmark is important.

Firstly, it has enabled ECO Synthesis to initiate an in-depth assessment of the impurity profile for oligonucleotides produced with an equal synthesis platform.

Secondly, it has provided a first data set of process related for parameters, informing early models of the manufacturing process and laying the foundation for a lot of platform development and process optimization efforts. The last two decades of experience have taught us that a solution to a difficult challenge sometimes lies in evolving the enzyme and sometimes it tweaking reaction conditions.

Experimental testing and validation of the ECO Synthesis platform allows us to refine our models and also enables us to leverage complementary and sometimes synergistic effect of enzyme engineering and process engineering.

It also sets the stage for the ECO Synthesis Innovation Lab, which takes these efforts to the next level by giving us a menu to further push scale and process development capabilities. Kevin will speak more to the value of this facility on the commercial side, but we expect that the data driven insights we gain will give us critical information to drive robust conversations with potential early access customers.

Since achieving grand scale synthesis, we've continued to boost the ECO Synthesis manufacturing platform with a particular focus on synthesizing longer strands of siRNA sequences. While we plan to share further technical update at the TIDES US meeting in May, we have been very pleased with the performance of the ecosystem manufacturing platform, which has been easily exceeding the sequence length previously achieved by competing and dramatic RNA synthesis technologies.

Based on this progress, the main TIDES conference will offer opportunity to talk about the linear synthesis of full line clinically-relevant siRNA that incorporates the different nucleotide modifications most frequently found in approved therapeutic assets today.

We plan to do this having used our ECO Synthesis manufacturing platform from the start of oligo, all the way moving to the Codexis products. When you take a step back, the progress we've made with the ECO Synthesis platform over the past year seems quite remarkable.

Yet this overnight success, might actually been 20 years in the making (inaudible) rapid technical advancement could not have been possible without our extensive history of engineering, technical and complex enzymes for a variety of pharma and life sciences applications.

Today, we're writing the book of enzymatic RNA manufacturing as we go and within less than a year since you are viewing our technology and last year's TIDES US meeting, we are on the cost of presenting an enzymatic synthesis of real siRNA therapeutic assets.

Beyond the ability to manufacture RNA oligonucleotides, our ECO Synthesis product road map includes the introduction of innovative new approaches and solutions for biotechnology production of key reagents such as [NQ piece] and starter oligos, as well as their underlying processes.

As you can see on slide 5, to help Codexis strategy in developing the ECO Synthesis technology, we were pleased to recently announce the appointment of Professor Masad Damha and Dr. Jim Lalonde, the company's strategic advisory board, joining John Maraganore, already the founder and former CEO of Alnylam Pharmaceuticals.

Board's expertise across the oligonucleotide synthesis and manufacturing provides critical insights to inform the continued development of our RNA manufacturing platform. While further process optimization and refinement of our ECO Synthesis manufacturing platform lies ahead. We are highly encouraged by our progress to date and look forward to sharing further updates throughout the year.

Kevin, over to you.

Thanks, Stefan. Before I provide an overview of our pharmaceutical manufacturing business and our commercial progress with the ECO Synthesis manufacturing platform. let me recap some of the recent business development announcements Stephen, mentioned.

Starting on slide 6. During our restructuring last year, we told you that our plan was to focus on our foundational revenue-generating bio-catalysis business for pharmaceutical manufacturing and to develop a potentially game changing ECO Synthesis manufacturing platform.

We also committed to monetizing products in our portfolio by leveraging partners with broader commercial reach. Since then, as Stefan noted, we have completed an exciting series of deals and announcements, and I view our consistent execution as confirmation that we are focusing our efforts on the right assets.

Our Codexis HiCap RNA Polymerase is a great example. Offering improved capping efficiency, reduce double-stranded RNA contamination, this enzyme represents a meaningful step up from the wild-type variants available in the market today. For Aldevron this product is compelling from both the scientific and commercial perspective, and they can maximize its value given their existing footprint in the mRNA manufacturing region.

From our standpoint, Aldevron offered strong terms and a rapid path to manufacturing the GMP version of this enzyme. Given Aldevron leadership in mRNA manufacturing and the evolving RNA manufacturing landscape, this is a valuable relationship to [Codexis]. We look forward to building a long-term partnership without that run in the broader Danaher family to come.

As seen on slide 7, we also announced the Nestlé Health Sciences purchase of CDX-7108, which followed our discontinuation of investment in biotherapeutics last July. Putting CDX-7108 in the hands of Nestlé allowed us to significantly reduce our cash burn going forward while providing an upfront payment of $5 million and the potential for additional payments upon reaching development milestones and eventual commercial roles.

Finally, we announced an exclusive global license agreement with Roche for our newly engineered double-stranded DNA ligase. Well receive mid single digit million combined upfront and technical milestone payments, importantly, returns on this deal or a healthy multiple of what it costs to develop this in.

These examples demonstrate our ability to find partners who can extend our commercial reach and to monetize high-value assets that are non-core to our business. Before I shift to covering our ECO Synthesis, manufacturing platform and upcoming milestones. I'd like to take a moment to share more about our foundational pharmaceutical manufacturing business.

Shifting to slide 8, with a customer approaches us about a potential enzyme project. The first step is to determine whether we have an off-the-shelf engineered enzyme that will fit their needs for whether a particular enzyme requires evolution to optimize it or the customer's API manufacturing process.

Over the last 10 years, we have generated thousands of enzyme variance across commonly-used enzyme class, which gives us the ability to identify existing variants that can be quickly manufactured in kilogram quantities to support for clinical development plans. When a customer requires some evolution of the selected enzyme, this ECO service business can usually be completed in less than six months and sometimes even in a few weeks.

Once the design meets the customer requirements, we generate gram level quantities to support the customer's process and formulation work for use in clinical trials. As the product enters the clinic, we can quickly scale the enzyme to kilogram quantities. While enzyme evolution fee for service is recognized as R&D revenue, our ultimate goal is to provide a customized enzyme product to support their future clinical trials and eventual commercial launch is our product breadth.

The process from enzyme very selections and potential evolution. And finally, to kilogram R&D production and take several years of a customer's product moves through clinical trial phases. Therefore, to continue driving long-term product revenue growth, we must fill the funnel with new design variance, screening programs and clinical stage products where one of our enzymes or enzyme classes can be used to replace chemical steps and reduce overall costs.

Over the years, we have also had experiences where an existing customer comes to us to develop an enzymatic route for a drug that is already commercially approved. In order to drive growth in all these areas, we have dedicated business development and key account management personnel. As a result, we've already seen an increase in new screening programs with new customers in the midsize pharma sector.

On slide 9, as I just mentioned, we both remain focused on filling the pipeline to sustain annual product revenue growth throughout the decade. That said, much of our expected product revenue growth for the next three years is based on enzymes that have already transitioned out of R&D and are moving to kilogram skills for further clinical trials.

Typically refer to these as niche programs in the customer has disclosed the drug candidates aimed and targeted indication to Codexis. This usually occurs when the drug candidate reaches Phase 2 or early Phase 3 clinical trials. Once we understand the drug candidate indication, we can better forecast the future enzyme production needs for late-stage clinical development and a potential commercial launch.

As you can see on this slide, we are currently selling custom engineered enzymes to pharmaceutical manufacturers for 12 of these new products. While these modest number of new programs fluctuates from year to year, as not all clinical programs are successful, our goal is to maintain a consistent number of pipeline programs to sustain future product revenue growth.

While we expect annual product revenue growth to be sustainable, all of these factors contribute to why quarter over quarter product revenue tends to be unpredictable. When we provide guidance at the start of each year, we typically have visibility into somewhere between 60% to 70% of our product revenues through a combination of binding and nonbinding customer forecasts as well as our understanding of new programs.

Maintaining this visibility is why we need to continue our efforts across business development and key accounting. Keep in mind that customers, which are primarily procurement and manufacturing leaders, will make changes of their forecasted enzyme needs when they see changes in product demand for when they stockpile to avoid drug shortages.

When you look at historical quarterly product revenues, there is no consistent trend or clear seasonality to the ebbs and flows of this business. As a result, our sense of future demand comes down to active customer communication and overall market monitor.

As a reminder, we currently sell custom engineered enzymes for 16 commercial drugs across large indications, including cancer, diabetes, and neurological disorders. More than 50% of our product revenues come from three enzymes, which we are selling to four large pharma customers, IE is the big three. If our pipeline of new programs continues to be successful in clinical development, we expect the big three to become the big six or seven driving the majority of the product revenues in the future.

Turning to our ECO Synthesis manufacturing platform on slide 10, as Stefan mentioned, we are looking forward to an important presentation at the TIDES US in May. Between the expected demonstration of a full and enzymatically since science siRNA and then build out the ECO Synthesis Innovation Lab, we anticipate that our interactions with potential customers will rapidly shift from theoretical conversations to concrete demonstrations of our capabilities.

And we remain on track for our first early access customers in the second half of this year. Ideally, one of these customers will translate into an early commercial license in 2025.

Technical progress and Stefan and his team presented at TIDES EU in November has already allowed us to begin conversations about access to the platform with several large pharma and large CDMO customers. In addition, we anticipate the innovation that will enable us to provide sufficient GMP-grade siRNA directly to innovators which supports the preclinical development of their product candidates.

Having the ability to license the ECO Synthesis manufacturing platform to large pharma and large CMO customers, along with the ability to provide a complete solution for smaller pharma customers enhances our ability to win market share from different segments. And really excited because the ECO Synthesis Innovation Lab provides us the blueprint for the potential future production of GMP-grade SIT.

Finally, I am thrilled that we anticipate offering a near term solution to our future potential ECO Synthesis manufacturing platform customers with our double-stranded ECO RNA1 ligase, which we plan to make available for customers in the second half this year. The ability to provide customers with a double-stranded RNA ligase solution allows them to build Poland siRNA from several short fragments that we join together.

This directly reduces the cost and impurities from the bus for M&A chemistry built molecules of increasing ligase. Recall that we already have multiple customers double-stranded RNA ligase programs ongoing with major players in this space.

The important takeaway from today is that we have many ways to engage customers and win with the progress we have made with our enzymatic approaches to RNAi manufacture.

With that, I'll turn the call over to Sri to discuss our financial results in 2024 guidance.

Thank you, Kevin, and good afternoon, everyone. Before we dive into the fourth quarter and full year 2023 financials, I'd like to reiterate Steven's commentary on the recent loan agreement with Novartis on slide 11 through the rapid technical progress we've made with ECO Synthesis manufacturing platform and the increased commercial engagement and see that this is the right time to accelerate our technology value creation.

Importantly, the agreement with an immodest achieved each of the key financial goals we highlighted during our conference call a few weeks ago. We estimate that the cost to build out and operate the ECO Synthesis Innovation Lab for the next few years will be approximately $10 million.

This means that most of the proceeds from this financing will remain on our balance sheet. This facility will put us in the best position possible to drive rapid uptake of our ECO Synthesis manufacturing platform, we have secured the capital to get it up and running for the next few years.

Moving to slide 12. We released our fourth quarter and full year 2023 financial results press release earlier this afternoon, which is available on our Investor Relations website. Our results are in line with the 8-K pre-announcement we issued in January.

So I'd like to call out a few highlights starting with the fourth quarter. Total revenues with enzyme sales related to tax loaded for $18.4 million for the fourth quarter of 2023 compared to $13 million from the prior year. Product revenues, excluding enzyme sales related to pack slogan for $9.9 million for the fourth quarter compared to $5.9 million in the prior year.

Turning to R&D revenues, we reported $8.5 million in Q4 compared to $7.1 million last year. Product gross margin, excluding enzyme sales related to PAXLOVID was 71% this quarter compared to 44% in the fourth quarter of 2022.

Briefly turning to expenses. R&D expenses for the fourth quarter of 2023, grew $11.2 million compared to $19.7 billion last year. SG&A expenses were $4.2 million compared to $12.3 million in the fourth quarter of 2022.

Through our first quarter post reduction enforce and excluding impairment and restructuring charges, you can see that expenses are down year over year and operating losses improved significantly. This was also our lowest quarter of cash burn, consistent with our expectations following the decision to streamline our portfolio to consolidate facilities last year.

Now you review a key elements of our full year 2023 financial results. Total revenues for fiscal year 2023, splitting enzyme sales related to tax globally for $62 million compared to $63.2 billion in 2022. Full year 2023 product revenues, splitting enzyme sales related tax loaded for $34.8 million compared to $41.3 million from the prior year.

Before shifting to 2024 guidance, I want to share a closer look at our 2023 revenues. On slide 13, this graph shows the distribution of our 2023 product revenue by major categories. In 2023 for the $34.8 million in product revenue excluding PAXLOVID, roughly 50% came from the big three commercial property manufacturing products that Kevin referenced.

Outside of that, approximately 3% came from sales of enzymes we supplied for other commercially approved products, 45% are brands that we currently supply in clinical trials, 5% was for generics, 11% came from food and feed, and 6%, which from life sciences and other programs.

We've built a nice pharmaceutical manufacturing pipeline with our enzymes currently supplying the 12 game programs that Kevin referenced. As a result, looking ahead, we expect reduced concentration in our 2024 product revenue base.

Now turning to guidance on slide 14. Excluding revenue related to actual, we'd expect product revenues to be in the range of $38 million, $42 million, indicating our expectation of at least approximately 10% year over year growth at the low end of this range.

Excluding the benefit 2023 from accelerating deferred revenue and milestone due to exiting the food feed business, which is approximately $3.9 million, our model would actually indicate 2024 product sales growth of more than 20% versus 2023 at the low end of our guidance range.

To help with modeling, based on our current visibility to the timing of customer orders, we expect our revenues will be weighted towards the second half of the year with Q2 anticipated to be our lowest quarter of the year. This is the opposite of what we saw in 2023 for our revenues were weighted towards the first half of the year.

We'll provide additional detail on anticipated quarterly revenue distribution as we advance throughout the year. Moving to slide 15, we expect R&D revenues to either range of $18 million to $22 million, which includes roughly $7 billion from recent development deals with Roche and Aldevron.

While R&D revenues are down year over year, it's important to note that 2023 R&D revenues included $6.1 million for biotherapeutics business, $7 million of non-cash revenue related to Pfizer, applying a portion of the retainer fee credits would you program. Excluding these items, we are actually projecting to increase R&D revenues of approximately 28% year over year at the low average for our core business.

We are projecting roughly equivalent about for business development transactions and R&D revenues for 2023, 2024. Shifting to slide 16, when you take our product and R&D revenue guidance together, our 2024 total revenue guidance equates to a range $56 million to $64 million dollars.

This range excludes revenue from product sales related to PAXLOVID. Gross margin on product revenue is expected to be in the range of 58% to 63%.

Including our anticipated build-out of the ECO Synthesis Innovation Lab, we continue to expect that our existing cash and cash equivalents, combined with our future expectations for product revenues, R&D revenues, and expense management will be sufficient to fund our planned operations through cash flow breakeven around the end of 2026.

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

Thank you, Sri, and thank you to Stephan and Kevin for those exciting updates. You have lots of companies out there are either all innovation of all execution. We built a well oiled organization as well.

With a greatly reduced burn rate and growing base business grounded in solid customers and a disruptive platform with enormous potential upside, Codexis has all the components in place to become a breakout story. I encourage you to stay tuned for an exciting year ahead.

I would be happy to take your questions. Operator?

(Operator Instructions)

Brandon Couillard, Jefferies.

Hi guys. This is Kayla on for Brandon and thanks for taking the question. I guess just starting off with the Roche partnership for the new double-stranded DNA ligase. Any more color you can share on economics or deal structure? And then how big could this be over time for Codexis and how similar or different for the evo T4 DNA ligase, prior deal is this.

Sure, this is Kevin. So give you a little more color on the deal. This was really exciting deal for us, we love this deal because it really was about monetizing these non-core assets in terms of getting cash upfront. So there is no back end royalties associated with this product.

We were focused on that aspect because we're exiting the genomics business and we really have a lack of control in terms of their product cycle. And we've learned that from the evo T4 experience.

We love the fact that Roche came back to us again, their blue chip partner, if they asked us to come back and do it again, the economics here work really favorable in terms of a total return on investment with, you know, a couple of years of evolution to move on to a mid-single digit a product for a deal. So we love it.

Great. And then just pushing over to HiCap or a preliminary agreement with Aldevron pretty recent, but any update or feedback you can provide that you've heard since the deal was announced and then you can quantify at all the contribution at end '24.

So I'll let Sri comment on some of the contribution in '24, but the feedback we have received from external parties and from the investment community is very positive in terms of the partnering aspect without Aldevron. They're a leader in the mRNA space and certainly can extend our commercial reach in this space that is growing with the HiCap RNA preliminaries.

(inaudible)

Yeah, in terms '24 that RND revenue, our guidance includes a total of $7 million across business development deals, and that's inclusive of Roche Aldevron and as Kevin said, Roche's mid single digit millions in terms milestone payments and tactical payments, tactical milestone payments upfront. And that remainder of it is Aldevron which we previously said was low single digit billion upfront.

Great. Thank you.

Dan Arias, Stifel.

Hey, guys, this is Evan on for Dan. My biggest question, I mean, it's kind of along the same lines. So it's like I'm trying to think about this business kind of over '24 and '25 because the product will generate much revenue, if at all from ECO Synthesis is from '25.

So if I kind of just look at '24, I have in my model, and I think that's what you guys have talked about is $9 million from Pfizer and that goes into your product revenues. Now you're talking about $7 million this year from Roche and Aldevron.

Are there any revenues this year? Or I guess one question is, are there any revenues this year from on nationally health sciences. And then as I think about kind of moving on to just '25, I know you don't have visibility on that on everything, but like are these numbers is $7 million from Roche and Aldevron.

And yes, if Pfizer is going to go away as you kind of think about like going on at '25 what's kind of the baseline like what how should we look at it from my '24, they are revenues just going to go down again in '25 just trying to get a baseline of how we should be thinking about the progression here?

I think about revenues in terms of the components. So if you think about product sales and take Pfizer out of the equation for that $9 million that you mentioned, that's correct.

We do expect to book a $9 billion accounting for revenue in Q4 2024. And as an artifact of the retainer fee, that should be the last to be accounted for that, it's non-cash. So the guidance we've given excludes that.

But we're expecting product sales to grow low double digit CAGR through the end of the decade. It goes to the comments Kevin made earlier about the progression of the pharma manufacturing pipeline and expecting less concentration in our revenue from the big three pharma manufacturing customers to more of the pipeline programs that could take us to the big six or big seven.

We do see product growth. Moving along at year over year to the end of the decade and then growing even more once we launch ECO Synthesis platform. Another key contributor to product growth is the double-stranded RNA ligase or the ecoRNA ligase, which we expect to be commercially available in the second half of this year will also be a key contributor product revenue over time.

Our R&D revenue, if you looked at the picture that we had up, you can see that year over year in terms of the core business, when you back out the deals, we actually are projecting close to 30% growth. And that comes from finding new customers for new services and new programs that over time will translate into future product sales growth. We've been good add to that.

(inaudible)

Yeah, I guess so that makes a lot of sense, particularly on the product revenue side on the R&D revenue side. So and last year or this year, you had $5.6 million investing. Now that run this year, you're forecasting $7 million. And I guess the one question I asked earlier.

So is there anything from come from nationally in there? And then also the $7 million that you're going to get this year, do you have any visibility until to what that looks like in 2025? And because I guess it is kind of that is just going to go away. That's the core of my question.

So the current guidance does not contemplate additional milestones from that sale, though it could be potentially in a way. In terms of your question on the $7 million, both of those were upfront payments related to deals.

So those are one-time payments that don't expect to continue because those deals don't have additional milestones beyond those that with Aldevron, there are royalties that are tied to sales of HiCap. Those should show up in our revenues over time as well as Aldevron launches and products.

Okay. That makes a lot of sense. So the right way to think about it is that your guide for this year is at the midpoint $20 million bucks. I want to take the $7 million out from the upfront payments to kind of get my baseline and then I can embed some sort of just growth plus potential for [ness] Aldevron royalties. Is that kind of the right way to think about it.

I think that's fair.

Okay. I'll pass it on. Thank you.

Steven Mah, TD Cowen.

Great. Thanks for taking the questions. Just a few follow-ups here. On the T4 ligase deal with Roche, how much of the product guide is Roche product sales from their NGS kits? Was it just going to be all upfront.

The deal strictly upfront and style and structure in terms of an out-license, it's really much more of an asset purchase. So the deal is more upfront and technical term or tech transfer milestones associated all recognized in 2024.

Oh yes, sorry, I might have missed it. I would have some connection difficulties, but there is no royalty rate with the Roche legacy deal.

It's just a basically out-licensing.

Yes straight upfront to-date.

Okay. Understood. I appreciate the color. And then a last one on the product revenue guide. Can you remind us if there's going to be a contribution from Aldevron in terms of royalties and others that kind of an upfront component and also on the double-stranded RNA ligase, if there's going to be any product revenue contribution in 2024? And then also, can you remind us what the expected TAM of each of these new opportunities are? Thank you.

Sure. So from a revenue standpoint from Aldevron in 2024, they are already selling in the marketplace in terms of an RUO version of the enzymes, which we have today. So we're expecting a simple, we said before is that, the high double digit royalty associated with that comment.

We're just starting to see that come through in 2024. With regards to 2025 and beyond, we're expecting them to move into a GMP version where it's also a very healthy royalty associated with that from a product revenue standpoint.

And then the second part would be (multiple speakers) double-stranded RNA ligase, we actually are getting very close to having some early customer orders associated with that ligase, we've been out there testing in the marketplace through caller talking about first half of this year with early access customer testing. Some of that has gone well and we are looking to make that more widely available in the second half of this year.

So we expect some contribution this year and some of those double-stranded RNA ligase sticking on point with the second half of this year and then in '25, '26 certainly growth beyond that.

Great. I think can you remind us what the expected TAM's of high cap and double-stranded RNA ligase are? Thank you.

For (inaudible) for the HiCap RNA preliminaries in terms of probably somewhere in the $200 million to $300 million range in our conversations with both the large players there have a good handle on that and that's sort of how we modeled the deal specifics.

As regards to the TAM, RNA ligase is tied to where we are from a phosphor M&A chemistry standpoint and SR&A buildup member. This has a significant impact in terms of cost reduction, you got software, dominant chemistry gets very inefficient in the longer strands of siRNA or time.

So being able to stitch together, when you're talking about five, six, seven [rowers] to be able to get to a 21 rowers is very affected. So I don't have a number to provide around the total addressable market there yet other than to say it's growing with the SR&A market and expanding precipitously.

Do you have any sense right now for the phosphoramidite chemistry market right now for RNA?

Well, we're projecting that there's back to our projections 400 products in clinical development, growing from somewhere around 1,000 kilograms today to 30,000 kilograms by the end of the decade. So that's what we use in terms of our thinking around the RNA ligase it's fitting into that, potential total addressable market, assuming all those move through clinical trials and will continue to come into the pipeline.

Great. Appreciate the color. Thank you.

Jacob Johnson, Stephens.

Hey, thanks good evening, congrats on the quarter and the outlook. Maybe just sticking with the modeling question, Sri, if we kind of 4Q expense trends as a jumping off point, anything to out as we think about OpEx trends in 2024?

I guess specifically maybe around the ECO Synthesis investment you're making?

Yeah, Jacob, I do think that the Q4 OpEx is a good barometer for how the run rate will look like in 2024. We expect that base actually come down a bit, but then be offset by some incremental investments and ECO including the Eco Lab later this year. I think that's a fair barometer.

Thanks, for that. And then maybe for Kevin, you've partnered off the DNA ligase, the Nestle stuff the RNA preliminaries, anything else kind of major on the partnering front, or was that the kind of heavy lift? And maybe just along the same lines, is there anything else contemplated in guidance this year from any additional partnering activities?

I'll let Sri, speak to the guidance aspect of the things that we've been talking about are the remainders of the genomics portfolio, which really encompasses our three other launched and science as well as a host that we had in development. And we're in various conversations with multiple folks around those.

Again, blue chip players that come to the table as they've been looking for engineered variants of this and sort of highlights the value that we're able to create out of this, the remainder of the portfolio that could help extend our cash runway, but put into the guidance that you have.

Your guidance really reflects the deals that we've already announced and the additional programs that Kevin mentioned would likely be slower determinate of upfront payments from the what you've already completed.

Got it. Thanks for taking the question, guys.

Matt Hewitt, Craig-Hallum Capital Group.

Good afternoon, and thanks for taking the questions. Maybe the first one following your success with the gram scale and you obviously got the presentation at times. But as we look to the back half of the year and as after you've started to get this into the hands of some potential customers it.

What are your thoughts as far as the model? Will you kind of stick with us standard upfront milestone sales based model, will it depend upon the potential customers, are you hoping to standardize those contracts across the number of customers that you ultimately sign of? Just how should we be thinking about the ECO Synthesis sales model.

So that's a great question, Matt. It actually does segment with a category of customers. One of them is, you know, the one we've been talking about for a while, which is the CDMO where we're enabling them to supply multiple customers. Kevin can talk about that.

The other one is looking at the innovative pharma where they're looking at a single product that they're trying to scale. The other one that's become apparent recently is enabled by the new ECO Synthesis Lab, which is our ability to directly supply siRNA, GLP grade at sort of multiple gram scale.

And that enables them to go through their early development steps and then we talk about how we scale. And so what we need is a template for the fit, each of those. And some of it's going to be upfront, some carryover licensing for the technology, but some of it's also going to be sharing assets Kevin, you will see on that.

The only thing I would add is and then of course, as part of that will be sales of reagents and materials to support the licensees on an ongoing basis. So and I think Stephen hit the nail on the head. One of the things that the ECO innovation that really offers now is the ability to hit the small and medium-sized pharma segment that was going to be difficult because they wanted a path from preclinical all the way through to GMP.

And so I think the ability to do that now and to be able to sell actually full-fledged product data that not just re-agents and materials field support that really opens up this whole other customer segments.

Got it. That's helpful. Thanks. And then maybe just a balance sheet item. Cash balance today, if I'm running the math right, you see exited the year with $65 million, $29 million from innovative $5 million from Nestle, $1million, $2 million from Roche. You basically have $100 million-minus whatever you burn so far this quarter? Do I have the math right there?

Yeah, that's pretty good. One on [average], I would just clarify that we're expecting in mid single digit millions in terms of client upfront technical milestone checks.

Okay, great. Thank you.

Dan Arias, Stifel.

Hey, guys. Sorry, thanks for the follow-up. I just wanted to make sure I had a couple of things right, and this is particularly so related to Aldevron and Roche deals.

So for Aldevron, I just wanted to make sure I understand that you had roughly $5 million of the upfront payment at these is mid-single digits and did you say that there is a high double digit royalty on sales and whatever the number is.

Are those royalty payments, are those are sales-based payments, is there any of that baked into the guidance? And then on the double-standard ligase based, just to make sure I understand exactly how this deal works you are.

It does sound like you're monetizing the assets, but you are asking will also be generating a product based revenues on it going forward. Can you just explain how that's going to work just so I have a straight my head. Thanks.

So remember, there's a double-stranded DNA ligase and there's a double-stranded RNA ligase. The DNA ligase is exactly what you said it's an asset sale. So it's cash is that as an out-licensing deal with Roche imported promise, right. So it's simply money on the barrel head. And then we have no further sort of some interest in it.

With Aldevron, it was a low single digit upfront, but then a healthy double digit royalty. What we're saying when we mean high double digit is not [$10 million] . We don't mean $99 million but we don't mean $10 million, we going to be there somewhere.

And when a double-stranded RNA ligase that is a really exciting product because that's the same product we can make the program we can sell to multiple customers where we will be getting upfront enzyme payments and potentially royalties. And you have significant slide rigs down there.

So we see here back to the question earlier around the TAM. We see that in the real high double digits potential for that, that enzyme class over the next coming years. That's big for us.

I would say just add to that, one of the things as we've gone through our customer conversations this really has become much more of a meaningful business segment for us in terms of sort of in terms of potential opportunity because this is their first step in cost for M&A.

So it's an immediate cost reducer and an immediate impact, whereas ECO Synthesis, as we know, we're going to be talking about that launching in '26. We need to bring people into the fold of a full enzymatic way of sensitizing siRNA.

So it's a much easier less in terms of getting customers over the hump in terms of buying into the proposition there. One thing to add is that any royalties from the Aldevron deal would likely show up in our R&D revenue line and not products revenue.

Super. And did you say how much is embedded in the guide for each of those things or not yet? Or if you haven't --

On the upfront, we said that the low single digit millions is embedded in the argue with you. We haven't broken out the royalties.

Okay, great. Thanks so much.

Thank you. There are no further questions at this time. I'll turn the call back over to Stephen Dilly for closing remarks.

Well, thank you again for joining us today, Sri, Kevin, Carrie and I are looking forward to meeting many of you in person at the upcoming Cowen Conference in Boston next week. But thanks for participation today.

Thank you. This concludes today's call. You may now disconnect.