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

(Tiny) rays of hope
Before we dig into this, let’s start by saying that even great technology with science on its side can be restrained by poor financials and execution. Without big partnerships in place, management will have to choose research projects based solely on immediate financial returns, not the long-term viability of the project. One example: The company recently released incredible results for its proprietary carbonic anhydrase enzyme for carbon capture, but it will likely go unfunded for the foreseeable future.

Nonetheless, there are several reasons to believe that Codexis can successfully court commercialization partners for its cellulase enzymes. Here are the biggest two to consider:

1. Competitive enzymes
Nichols boasted that the latest CodeXyme cellulase enzyme could achieve 85% conversion of corn stover with just 1% loading (1 g enzyme/100 g cellulose). If those numbers are to be believed, then Codexis can certainly compete with larger customers. For instance, enzyme industry leader Novozymes — a spinoff of Novo Nordisk A/S (ADR) (NYSE:NVO) — needs 3.5% loading to achieve 85% conversion of corn stover at similar conditions for its top cellulase enzyme Ctec 3.

2. Platform insulated from patent disputes
In a worst-case scenario, Novozymes and Genencor, owned by E I Du Pont De Nemours And Co (NYSE:DD), would certainly entertain the thought of fighting over Codexis’ assets. Novozymes didn’t hesitate at the opportunity to buy Iogen’s industrial enzyme business earlier this year, so the idea is not as wishful as it sounds. Competition is incredibly fierce.

The two competitors are both much larger than Codexis, but both use Tricoderma fungi as the host microbe for their cellulase enzymes. Google the term “Genencor Novozymes lawsuit” and you’ll see that both companies feel entitled to the strain as the base of their competing technology platforms.

At the very least Codexis is in the clear from lawsuits with its C1 technology, which utilizes Myceliophthora thermophila (previously known as Chrysosporium lucknowense) licensed from Dyadic. The fungi have repeatedly been shown to outperform their Tricoderma counterparts and were even featured in a high-profile article in Nature Biotechnology, which was co-authored by several Novozymes employees.

Foolish bottom line
It doesn’t take much to see that Codexis is against the ropes for 2013 and may never recover. Therefore, it doesn’t make sense to start a position in the company without serious progress on commercialization partners for its CodeXol detergent alcohols and CodeXyme cellulase enzymes. If you do, make sure you understand that you may lose your entire investment.

The article A Tough Road Ahead for This Big Pharma Partner originally appeared on and is written by Maxx Chatsko.

Fool contributor Maxx Chatsko owns shares of Codexis . Check out his personal portfolio, his CAPS page, or follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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