A Tough Road Ahead for This Big Pharma Partner: Codexis, Inc. (CDXS), Royal Dutch Shell plc (ADR) (RDS.A)

Page 1 of 2

Bio-based enzyme producer Codexis, Inc. (NASDAQ:CDXS) reported financial results for the fourth quarter and full-year 2012 last week. How did things go? Well, the company was clearly set back after Royal Dutch Shell plc (ADR) (NYSE:RDS.A) axed a partnership between the two earlier in the year. What was more surprising for investors was the pullback in pharmaceutical revenue, which is by far the company’s most mature revenue stream. Is all hope lost for this once-promising sustainable chemical enabler?

Royal Dutch Shell plc (ADR) (NYSE:RDS-A)Financials
Here are the dismal results:

4Q12 4Q11 2012 2011
Product sales $6.83 $15.49 $35.92 $49.02
Total revenue $7.91 $33.49 $88.3 $123.86
Total expenses $23.66 $38.40 $118.81 $139.77
Net loss $15.54 $5.30 $30.86 $16.55

Source: Codexis, all figures in millions.

It doesn’t take many calculations to see that Codexis, Inc. (NASDAQ:CDXS) had a lousy year without Royal Dutch Shell plc (ADR) (NYSE:RDS.A)’s deep pockets, which provided the bulk of revenue in years past. After a series of cost reduction steps by a transformed management team, Codexis had to focus its limited capital and personnel on core areas. Even that didn’t help a big drop in pharmaceutical revenue, which was not spared from restructuring.

A few bright spots include ending the year with more cash than anticipated ($49 million) and several small partnerships for enzyme kits, which management believes can make up an important revenue stream in the next few years. Unfortunately for investors hoping that Codexis, Inc. (NASDAQ:CDXS) would turn a corner and post a profit sooner rather than later, the company’s plans have encountered a serious setback.

Outlook
Management is guiding for pharmaceutical revenue between $35 million and $40 million. Codexis will also focus on higher-margin enzymes, rather than pharmaceutical intermediates, to boost total gross product margin from 15% last year to between 30% and 35% this year. For instance, a recent deal with Arch Labs calls for Codexis to provide enzymes while its partner will provide the intermediates. Still, without a strategic partner on board, the company expects to burn between $12 million and $16 million for the year.

Several small royalty streams will help boost pharmaceutical sales. After receiving FDA approval for a new production process, Merck & Co., Inc. (NYSE:MRK) will begin biomanufacturing sitagliptin with pharmaceutical intermediates supplied by Codexis. Sitagliptin is the active pharmaceutical ingredient in the blockbuster diabetes franchise Januvia/Janumet, which had $5.75 billion in worldwide sales in 2012. The companies also work together to produce Victrelis, a potential blockbuster hepatitis C drug.

Codexis will also receive a milestone payment and recurring royalties from Exela Pharma and Hikma Pharmaceuticals, which had its argatroban injection approved by the FDA. Management admitted that while the company’s products will still enable the production of generic drugs, they will increasingly focus on innovator drugs due to a focus on margins.

The company will complete its CodeXol Detergent Alcohol pilot plant in Rivalta, Italy, in the first half of the year. On the conference call, CEO John Nichols said that Codexis’ strains “approximately meet” industry specifications for products. Landing a consumer products partner will depend on actual results, but the absence of a partner thus far may speak for itself.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!