Aside from a former partnership with Royal Dutch Shell plc (ADR) (NYSE:RDS-A), industrial biotechnology company Codexis, Inc. (NASDAQ:CDXS) has had much more success courting pharmaceutical partners than those involved in fuels and chemicals. The company's enzymes and pharmaceutical intermediates are featured in processes for innovator products such as Januvia/Janumet from Merck & Co., Inc. (NYSE:MRK), former innovator products such as Lipitor from Pfizer Inc. (NYSE:PFE), and generics from Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and DSM. The company's fortunes may change soon with the unveiling of its latest generation of cellulase enzymes. Is a commercial partner just around the corner?
What's a cellulase enzyme? Before we get into the news let's take a step back and address the elephant in the room: What the heck is a cellulase enzyme?! An enzyme is a complex molecule that improves or enables a chemical reaction at a lower level of energy, thus saving time and money. For instance, Codexis and Merck & Co., Inc. (NYSE:MRK)'s new process for Januvia increased yield by 13%, productivity by 53%, and reduced waste by 19%.
Processes in chemical engineering can be completed in three ways: by increasing the amount of heat or pressure, aka "brute force"; by utilizing a catalyst or enzyme; or by a combination of each. Therefore, the point of cellulase enzymes is to break down cellulose and hemicellulose, natural polymers found in biomass, into their basic units during a "brute force" process called hydrolysis. Depending on the type of biomass these units can be sugars such as glucose (corn), sucrose (sugarcane), or xylose (wood crops).
When you hear about cellulosic biofuels and wonder why they haven't gone mainstream yet, cellulase enzymes are to blame. While enzymes increase process yield and profitability and reduce waste, their efficiency is affected by operating parameters such as pH, temperature, and pressure. Cellulosic fuels and chemicals won't be economically viable until enzymes can unlock the sugars mentioned above at a low enough cost. The possibility of incredibly efficient industrial processes has been "a few years away" for a long time as enzymes were coaxed to work in a wider range of operating parameters. Now companies such as Codexis, Inc. (NASDAQ:CDXS), Novozymes, Genencor, and Dyadic are finally breaking down the door.
X marks the spot CEO John Nichols mentioned that the company's CodeXyme enzymes had achieved 85% conversion of corn stover at 1% loading (1 g enzyme/100 g cellulose) on the conference call discussing 2012 financial results a few weeks ago. No one seemed to care at the time given the dim 2013 outlook, but characteristics like that would have given the company the market's leading enzymes. I made a cautionary note of this overlooked statement in the earnings recap, although admittedly I'm a bit more in tune with the industry as a bioprocess engineer and investor. Of course, leading enzymes mean little without a commercial partner.
Whether Nichols meant to hint at the latest generation of cellulase enzymes or couldn't contain his excitement will never be known, but Codexis, Inc. (NASDAQ:CDXS) released more data on the products Tuesday. Depending on the source of biomass the company's CodeXyme 4 and CodeXyme 4X enzymes increase performance by 10%-20% over CodeXyme 3 generation enzymes. The "X" in "4X" stands for xylose, a sugar the company was able to unlock in its latest generation enzyme: