Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CDXS > SEC Filings for CDXS > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for CODEXIS INC

Form 10-Q for CODEXIS INC


7-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 2011 included in our Annual Report on Form 10-K filed with the SEC on March 5, 2012. This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,( the "Exchange Act"). These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," or "continue," and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled "Risk Factors," set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and elsewhere in this Report. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Overview

We are a producer of custom industrial enzymes. Our products enable novel, sustainable processes for the manufacture of biofuels, chemicals, and pharmaceutical ingredients.

We are developing our flagship CodeXyme™ cellulase enzymes to convert non-food plant material, which we call cellulosic biomass, into affordable sugars, which can then be converted into renewable fuels and chemicals. We intend to market CodeXyme™ cellulase enzymes to biofuels and chemicals manufacturers worldwide. We are also developing our own novel processes to manufacture certain specialty and bio-based commodity chemicals, which we intend to commercialize with strategic partners. The first of these products is CodeXol™ detergent alcohols. Detergent alcohols are used to manufacture surfactants, which are key, active cleaning ingredients in consumer products such as shampoos, liquid soaps and laundry detergents.

We have commercialized our technology, products and services in the pharmaceuticals market. There are currently over 50 pharmaceutical firms using our technology, products and services in their manufacturing process development, including the production of some of the world's bestselling and fastest growing drugs.

We create our products by applying our CodeEvolver™ directed evolution technology platform which introduces genetic mutations into microorganisms, giving rise to changes in the enzymes which they produce. Once we identify potentially beneficial mutations, we test combinations of these mutations until we have created variant enzymes that exhibit marketable performance characteristics superior to competitive products. This process allows us to make continuous, efficient improvements to the performance of our enzymes.

To date, we have generated revenues primarily from collaborative research and development funding, pharmaceutical product sales and government awards. Our revenues have increased in each of the last three fiscal years, growing from $82.9 million in 2009, to $107.1 million in 2010 to $123.9 million in 2011. However, our revenues of $80.4 million for the nine months ended September 30, 2012 are down by $10.0 million, or 11%, compared to our revenues of $90.4 million for the nine months ended September 30, 2011.

Most of our revenues since inception have been derived from collaborative research and development arrangements, which accounted for 78%, 66% and 58% of our revenues in 2009, 2010 and 2011, respectively. Collaborative research and development arrangements accounted for 60% and 61% of our revenues for the nine months ended September 30, 2011 and 2012, respectively.

Our collaborative research agreement with Shell was terminated effective August 31, 2012 and as a result we will no longer receive collaborative research and development revenue from Shell for all periods beginning after August 31, 2012, which will significantly decrease our revenues as compared to prior periods. See Note 3 to the condensed consolidated financial statements for more information regarding the termination of the collaborative research agreement with Shell. Collaborative research and development revenues received from Shell accounted for 76%, 62% and 51% of our revenues in 2009, 2010 and 2011, respectively. Collaborative research and development revenues received from Shell accounted for 52% and 56% of our revenues for the nine months ended September 30, 2011 and 2012, respectively. As a result of the termination of our collaborative research agreement with Shell, we will need to obtain other third party funding to support our advanced biofuels program. We are in early stage discussions with multiple parties about potential collaborations, but there can be no assurances that any of our discussions will lead to collaborations or that any new collaboration will fully substitute for the termination of the Shell collaboration. We currently do not expect to receive development funding from Raízen to support our advanced biofuels program, although Raízen will remain a target customer for CodeXyme™ should Raízen decide to build capacity for second generation ethanol in Brazil in the future.


Table of Contents

Our product sales accounted for 22%, 31% and 39% of our revenues in 2009, 2010 and 2011, respectively. Product sales accounted for 37% and 36% of our revenues for the nine months ended September 30, 2011 and 2012, respectively. Our product sales have increased in each of the last three fiscal years, from $18.6 million in 2009 to $32.8 million in 2010 and to $49.0 million in 2011. However, our product sales decreased from $33.5 million for the nine months ended September 30, 2011 to $29.1 million for the nine months ended September 30, 2012 as a result of delayed product orders from certain on-patent pharmaceuticals customers.

We anticipate that our product revenues will decrease, but that our gross profit on product revenue will remain comparable with our historical gross profit levels subsequent to the November 2012 enzyme supply agreement we signed with Arch. Under the new arrangement, Arch agreed to exclusively purchase enzymes from us for use in the manufacture of certain of Arch's products. Arch will no longer produce APIs and intermediates for us to market and sell. We expect that selling our proprietary enzymes to Arch rather than selling the resulting APIs or intermediates that Arch manufactured for us will result in a decrease in our product revenues in all future periods but that our product gross profit will remain comparable with our historical product gross profit. For the year ended December 31, 2011 our product gross profit was $7.2 million and for the nine months ended September 30, 2012 and 2011 our product gross profit was $4.2 million and $4.8 million, respectively.

In the third quarter of 2012, we implemented a series of cost reduction measures including the termination of approximately 55% of our global workforce and the closing of our Singapore facility. We estimate we will incur $2.5 million in restructuring expenses related to these cost reduction measures including severance for terminated employees and other exit-related costs arising from contractual and other obligations. In the third quarter of 2012, we recorded $0.7 million of severance related expenses and we expect to record the remaining $1.8 million during the fourth quarter of 2012 and the first quarter of 2013.

We have continued to experience significant losses as we have invested heavily in research and development and administrative infrastructure in connection with the growth in our business. We intend to continue our investment in research and development. As of September 30, 2012, we had an accumulated deficit of $200.0 million. We incurred net losses of $20.3 million, $8.5 million and $16.6 million in the years ended December 31, 2009, 2010 and 2011, respectively and a net loss of $15.3 million for the nine months ended September 30, 2012.

Revenues during 2009, 2010 and 2011 were derived primarily from the pharmaceuticals and biofuels markets, and consisted of collaborative research and development revenues, product sales and government awards, which are separately identified in our condensed consolidated statements of operations.

Revenues and Operating Expenses

Revenues

Our revenues are comprised of collaborative research and development revenues, product revenues and government awards.

• Collaborative research and development revenues include license, technology access and exclusivity fees, FTE payments, milestones, royalties, and optimization and screening fees.

• Product revenues consist of sales of biocatalysts, intermediates, APIs, Codex Biocatalyst Panels and Kits.

• Government awards consist of payments from government entities. The terms of these awards generally provide us with cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period. Historically, we have received government awards from Germany, Singapore and the United States. We expect to bid on additional awards from the United States and other governments in the future.

Cost of Product Revenues

Cost of product revenues includes both internal and third-party fixed and variable costs including amortization of purchased technology, materials and supplies, labor, facilities and other overhead costs associated with our product revenues.

Research and Development Expenses

Research and development expenses consist of costs incurred for internal projects as well as partner-funded collaborative research and development activities. These costs include our direct and research-related overhead expenses, which include salaries and other personnel-related expenses (including stock-based compensation), occupancy-related costs, supplies, depreciation of facilities and laboratory equipment and amortization of acquired technologies, as well as research consultants, and are expensed as incurred. Costs to acquire technologies that are utilized in research and development and that have no alternative future use are expensed when incurred.


Table of Contents

Sales, General and Administrative Expenses

Sales, general and administrative expenses consist of compensation expenses (including stock-based compensation), hiring and training costs, consulting and service provider expenses (including patent counsel related costs), marketing costs, occupancy-related costs, depreciation and amortization expenses, travel and relocation costs and restructuring expenses.

Critical Accounting Policies and Estimates

The interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States and include our accounts and the accounts of our wholly-owned subsidiaries. The preparation of our condensed consolidated financial statements requires our management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the applicable periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our condensed consolidated financial statements, which, in turn, could change the results from those reported. Our management evaluates its estimates, assumptions and judgments on an ongoing basis. There have been no material changes to our critical accounting policies and estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Financial Operations Overview

The following table shows the amounts from our condensed consolidated statements
of operations for the periods presented (in thousands).



                                                      Three Months Ended September 30,            % of Total Revenues             Nine Months Ended September 30,            % of Total Revenues
                                                        2012                    2011              2012             2011            2012                    2011              2012             2011
Revenues:
Product                                            $         7,140         $        12,199             27 %           37 %    $        29,090         $        33,528             36 %           37 %
Collaborative research and development                      18,569                  19,201             70 %           58 %             49,049                  54,073             61 %           60 %
Government awards                                              632                   1,882              2 %            6 %              2,247                   2,771              3 %            3 %

Total revenues                                              26,341                  33,282            100 %          100 %             80,386                  90,372            100 %          100 %

Costs and operating expenses:
Cost of product revenues                                     6,397                   9,958             24 %           30 %             24,868                  28,713             31 %           32 %
Research and development                                    14,191                  16,786             54 %           50 %             46,190                  45,502             57 %           50 %
Sales, general and administrative                            7,909                   8,871             30 %           27 %             24,093                  27,160             30 %           30 %

Total costs and operating expenses                          28,497                  35,615            108 %          107 %             95,151                 101,375            118 %          112 %

Loss from operations                                        (2,156 )                (2,333 )           nm             nm              (14,765 )               (11,003 )           nm             nm
Interest income                                                 61                      76              0 %            0 %                210                     195              0 %            0 %
Other expenses                                                 (45 )                  (411 )           nm             nm                 (320 )                  (378 )           nm             nm

Loss before provision for income taxes                      (2,140 )                (2,668 )           nm             nm              (14,875 )               (11,186 )           nm             nm
Provision for income taxes                                     169                      74              1 %            0 %                443                      68              1 %            0 %

Net loss                                           $        (2,309 )       $        (2,742 )           nm             nm      $       (15,318 )       $       (11,254 )           nm             nm


Table of Contents

Three months ended September 30, 2012 compared to three months ended September 30, 2011

Revenues



                                            Three Months Ended September 30,                Change
(In Thousands)                                 2012                  2011               $             %
Product                                   $         7,140       $        12,199      $ (5,059 )       (41 %)
Collaborative research and development             18,569                19,201          (632 )        (3 %)
Government awards                                     632                 1,882        (1,250 )       (66 %)

Total revenues                            $        26,341       $        33,282      $ (6,941 )       (21 %)

Revenues decreased during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 due to decreased revenues from all three revenue categories including product sales, collaborative research and development projects, and government awards.

Product revenues decreased $5.1 million during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 primarily due to decreased sales of our statin-family of products and products used in on-patent pharmaceuticals in hepatitis C and diabetic therapies.

Collaborative research and development revenues decreased $0.6 million during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 primarily due to a reduction of $1.4 million due to the termination of our collaborations in carbon management in December 2011, partially offset by a $0.2 million increase in our collaboration with Shell and a $0.4 million increase from collaborations with our pharmaceuticals customers.

Our collaborative research and development revenues with Shell increased $0.2 million during the three months ended September 30, 2012 compared to the three months ended September 30, 2011, due to the agreed upon final invoicing for our research efforts at the termination of the collaborative research agreement with Shell. We will receive no further collaborative research and development revenue from Shell.

Government award revenues decreased $1.3 million during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 as our award from the U.S. Department of Energy, or DOE, under the ARPA-E Recovery Act program expired June 30, 2012, and our award revenue from the Singapore Economic Development Board, or EDB, decreased $0.7 million. Our award revenue from the DOE was $0.6 million in the three months ended September 30, 2011. Our award from the EDB was $0.6 million during the three months ended September 30, 2012 compared to $1.3 million in three months ended September 30, 2011. We will receive no further EDB award revenue subsequent to our announcement in September 2012 to close our Singapore facility.

Our top five customers accounted for 89% and 81% of our total revenues for the three months ended September 30, 2012 and 2011, respectively. Shell accounted for 66% and 52% of our total revenues for the three months ended September 30, 2012 and 2011, respectively.


Table of Contents

Cost of Product Revenues



                             Three Months Ended September 30,                 Change
(In Thousands)                2012                      2011               $            %
Cost of revenues:
Product                  $         6,397           $         9,958      $ (3,561 )      (36 %)

Gross profit:
Product                  $           743           $         2,241      $ (1,498 )      (67 %)

Product gross margin %                10 %                      18 %

Our cost of product revenues decreased $3.6 million during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 primarily due to the $5.1 million decrease in our product sales. Gross margins decreased from 18% to 10% during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 primarily due to a decrease in product sales of our on-patent, higher margin products in the third quarter of 2012.

Operating Expenses



                                            Three Months Ended September 30,                Change
(In Thousands)                                 2012                  2011               $             %
Research and development                  $        14,191       $        16,786      $ (2,595 )       (15 %)
Sales, general and administrative                   7,909                 8,871          (962 )       (11 %)

Total operating expenses                  $        22,100       $        25,657      $ (3,557 )       (14 %)

Research and Development. Research and development expenses decreased $2.6 million during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 primarily due to a $1.4 million decrease in employee compensation costs related to restructuring actions in the third quarter of 2012 partially offset by $0.7 million in termination benefits resulting from our third quarter restructuring efforts. Lab supply cost decreased $0.7 million and outside services decreased $0.4 million as a result of the termination of the Shell research collaboration. We reduced travel cost by $0.3 million compared to the three months ended September 30, 2011 as part of our cost control efforts. Research and development expenses included stock-based compensation expense of $0.7 million and $1.0 million during the three months ended September 30, 2012 and 2011, respectively.

Sales, General and Administrative. Sales, general and administrative expenses decreased $1.0 million during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 primarily due to a $0.6 million decrease in compensation costs as a result of restructuring actions in the first quarter of 2012 partially offset by one-time severance costs of the restructuring actions in the third quarter of 2012. Stock compensation costs decreased $0.8 million during the three months ended September 30, 2012, primarily due to the departure of our former Chief Executive Officer and our former Chief Financial Officer in the first quarter of 2012. We also decreased spending on consultants and other outside services by $0.2 million. Travel costs decreased $0.1 million. These decreased expenses were partially offset by a $0.8 million expense for an other-than-temporary impairment of our equity investment in CO2 Solutions recognized in the three months ended September 30, 2012. Sales, general and administrative expenses included stock-based compensation expense of $0.8 million and $1.6 million during the three months ended September 30, 2012 and 2011, respectively.


Table of Contents

Restructuring Charges All Plans

The table below summarizes the changes in our restructuring accrual for all
restructuring plans during the three months ended September 30, 2012 (in
thousands):



                                                   Severance, benefits and
                                                   related personnel costs
      Balance at June 30, 2012                    $                      68
      Restructuring charges                                             715
      Adjustments to previously accrued charges                         (11 )
      Cash payments                                                      (6 )

      Balance at September 30, 2012               $                     766

During the first quarter of 2012, our board of directors approved and committed to a restructuring plan ("Q1 2012 Restructuring Plan") to reduce our cost structure which included employee terminations in Hungary and the United States. The total cost of the Q1 2012 Restructuring Plan was estimated at $567,000, comprised of employee severance and other termination benefits. As of September 30, 2012, planned costs of $572,000 have been recognized in sales, general and administrative expenses on our condensed consolidated statements of operations. During the three months ended September 30, 2012, we recorded $9,000 of restructuring expenses under the plan, made cash payments of $6,000 and recorded $11,000 of reductions to previously recorded charges with the remaining $60,000 recorded as accrued compensation on our condensed consolidated balance sheet. We do not anticipate recording any further charges under this restructuring plan. We anticipated that all costs under the Q1 2012 Restructuring Plan will be paid by December 31, 2012. The table below summarizes the changes in our restructuring accrual for the Q1 2012 Restructuring Plan (in thousands):

                                                   Severance, benefits and
                                                   related personnel costs
      Balance at June 30, 2012                    $                      68
      Restructuring charges                                               9
      Adjustments to previously accrued charges                         (11 )
      Cash payments                                                      (6 )

      Balance at September 30, 2012               $                      60


Table of Contents

During the third quarter of 2012, our board of directors approved and committed to a restructuring plan ("Q3 2012 Restructuring Plan") to reduce our cost structure which included employee terminations in the United States and Singapore and the closing of our Singapore facility. The total estimated cost of the Q3 2012 Restructuring Plan is $2.5 million, comprised of employee severance and other termination benefits, facility lease termination costs and equipment disposal. As of September 30, 2012, planned costs of $43,000 have been recognized in sales, general and administrative expenses and $663,000 have been recognized in research and development on our condensed consolidated statements of operations. We have made no cash payments as of September 30, 2012 with $706,000 recorded in accrued compensation on our condensed consolidated balance sheet as of September 30, 2012. We anticipate recording the remaining planned costs of $1.8 million under this restructuring plan during the fourth quarter of 2012 and the first quarter of 2013. We anticipated that all costs under the Q3 2012 Restructuring Plan will be paid by the first half of 2013. The table below summarizes the changes in our restructuring accrual for the Q3 2012 Restructuring Plan (in thousands):

                                               Severance, benefits
                                                   and related
                                                 personnel costs
              Restructuring charges           $                 706
              Cash payments                                      -

              Balance at September 30, 2012   $                 706

. . .
  Add CDXS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CDXS - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.