Codexis (CDXS): A Pure Play Synthetic Biology Stock
In an article last week we discussed some of the setbacks that 3 publicly traded synthetic biology companies are going through in an attempt to use modified organisms to produce various chemicals and fuels. After some initial setbacks that haven’t been too kind to investors, it seems that each of these 3 companies is trying to reinvent themselves in an attempt to deal with lower oil prices and the high capital requirements that commodity production demands. Synthetic biology company Intrexon (XON) took a different approach and licensed out their synbio platform across multiple industries in order to significantly reduce capital requirements and operational risks. Another publicly traded synthetic biology company, Codexis (CDXS), seems to have successfully reinvented themselves and is pursuing this very same business model as Intrexon which seems to have attracted the attention of investors lately.
Silicon valley based Codexis was founded in 2002 and took their first found of funding in 2006 totaling $37 million. In 2010 Codexis had an IPO and since then the shares have lost -67% of their value giving the Company a market cap of around $181 million. The Company was originally focused on converting biomass to biofuels with Shell, however, in 2012 it was announced that Codexis would not receive any further funding from Shell for their biofuel efforts. The impact of losing Shell as a customer significantly affected their revenues as seen below:
Following the Shell divorce, Codexis then changed their business focus to the pharmaceuticals industry and in July of 2014, they signed their first platform licensing agreement with GlaxoSmithKline (GSK). The Company is now working with 18 of the top 20 global pharmaceutical companies including Merck, Pfizer, and Novartis.
GSK licensed from Codexis the CodeEvolver® directed evolution technology platform, which introduces genetic mutations into microorganisms to create new biocatalysts that may or may not exist in nature. Biocatalysts are enzymes or microbes that initiate and/or accelerate chemical reactions and are used in many big pharma drugs. All enzymes are proteins, therefore the Codexis platform is also called the CodeEvolver protein engineering platform. One iteration for the platform can be seen below when the need for a biocatalyst is identified and then Codexis delivers a fully optimized biocatalyst in less than 8 months:
If you had invested in Codexis when they first had their IPO in 2010, you would have already lost half your capital as of today, however, if you bought CDXS exactly 1 year ago, you would be up +200%. In either case, the share price reflects guidance given by Codexis for 2015 revenues of between $39-42 million with a 70-75% gross profit margin. These are some sizable revenue numbers for a < $200 million market cap company. CDXS had $22 million in cash on hand as of their last Q1-2015 filing. Investors who have been in the company for the long haul have surely grown impatient with the $282 million deficit accrued up to this point and are counting on this platform to begin paying a return on their investment. Based on the latest share price action, investors seem to think that Codexis is on the right track now.
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