You’ve probably heard those advertisements for “the power of protein,” referring to the addition of enzymes to detergent.
You’ve probably heard those advertisements for “the power of protein,” referring to the addition of enzymes to detergent. Enzymes are used in plenty of commercial products, as well as us in industrial manufacturing processes. There are a number of big players in the enzyme industry, including DSM, Novozymes, DowDuPont via Genencor, Biocatalysts and others. But one small company, Codexis, based in Redwood City, Calif., is catching the interest of some investors. Maxx Chatsko, writing for The Motley Fool, profiles the company.
The company describes itself as “a world leader in providing unique, state-of-the-art enzyme optimization services and developing biocatalyst products.” It uses what it dubs CodeEvolver, a protein engineering platform that allows the company to quickly develop optimized enzymes, then produce it, test it and integrate that data into its next design phase via machine learning.
Chatsko writes, “While those technological capabilities represent the minimum level of competence needed to run an enzyme business in 2017, Codexis has focused almost exclusively on a single niche since mid-2012: supplying enzymes to pharma customers for manufacturing small molecule drugs. By contrast, peers garner a majority of their business in less risky and less regulated enzyme applications such as food and materials manufacturing. But luckily, the gamble paid off for Codexis.”
The company has a market cap of about $335 million. Similar to how the people during the Gold Rush to really make money weren’t the miners, but the suppliers of pickaxes, scales, sluices and other tools for mining, Codexis has business relationships with 15 of the top 20 pharmaceutical companies worldwide, including Merck and GlaxoSmithKline.
On Oct. 12, the company announced it had inked a strategic collaboration deal with Nestle Health Science. It includes an option for global development of Codexis’ enzyme CDX-6114 for the management of pheylketonuria (PKU), an orphan metabolic disorder. Also, Nestle will have strategic access to CodeEvolver. Nestle made an upfront payment of $14 million, and Codexis will be eligible for milestones related to CDX-6114 as well as tiered royalties on product sales.
Company executives expect total revenue to hit around $53 million this year, up from $35 million in 2014. Chatsko notes the company has three ways to generate revenue: product revenue, such as sales of enzymes, panels and kits; R&D revenue, including R&D cost reimbursement, milestones, and upfront licensing fees; and revenue sharing, which is becoming less and less of a factor, which is now only a collaboration with Exela PharmSci.
He writes, “Product revenue is the most reliable source of sales each quarter. Consider that in the first half of 2017, product revenue hit $12.1 million, up 74 percent from the first half of last year. The best part: There weren’t any big, one-time orders driving the gains—just more customers. After recently raising guidance, management expects product revenue of up to $27 million this year.”
The company is also working to expand out of its niche and over the next few years develop at least five revenue streams, including enzymes for pharma manufacturing, novel biotherapeutics, enzymes for food ingredient manufacturing, enzymes for molecular diagnostics, and enzymes for industrial applications.
Chatsko writes, “Codexis offers impressive growth, high margins, ample expansion opportunities, and a stock that is flying under the radar. That’s why, at a market cap of just $335 million, this is one small-cap stock begging to be bought.”
