CDXS - Checking Out Codexis

2023-10-05 14:11:41 ET

Summary

• Codexis, Inc. is undergoing a significant restructuring to reduce costs, refocus its developmental efforts and streamline its organization.
• The company's ECO platform to provide enzymes for RNA therapeutics shows some potential, but the company's cash burn rate remains concerning.
• Insider purchases and consolidation of operations may indicate a turnaround, but previous insider selling this year raises concerns about management's commitment.
• We take a look at the recent changes at this enzyme provider and provide an analysis around the company and stock in the paragraphs below.

Everyone thinks of changing the world, but no one thinks of changing himself. ”? Leo Tolstoy.

Today, we put Codexis, Inc. ( CDXS ) in the spotlight. The company supplies enzymes and other products to the biotech and healthcare industry. The company is in the middle of a restructuring focused on reducing costs and streamlining the organization as well as reprioritization of its developmental efforts. The stock recently had some insider purchases as well. Signs things might be turning around at the company? An analysis follows below.

Company Overview:

Codexis, Inc. is headquartered just outside of San Francisco in Redwood City, CA. The company's two main business divisions are Performance Enzymes and Novel Biotherapeutics. Codexis supplies a variety of different enzymes to the biopharma and biotech sector. The company also has a technology platform that is used to discover novel biotherapeutic drug candidates for targeted human diseases, as well as for molecular biology and in vitro diagnostic enzymes. The stock trades around two bucks a share and sports an approximate market capitalization of $140 million.

The company recently announced that will be consolidating operations to its headquarters facility. Management believes this will result in approximately $30 million in cumulative cash savings through 2031. Over the summer, leadership announced it would be laying off 25% of its staff as well to prioritize/focused on the advancement and marketing of its Enzyme-Catalyzed Oligonucleotide Synthesis or ECO platform and pharmaceutical manufacturing business. Management believes these changes will allow it to fund all operations through mid-2026.

Codexis' developing ECO platform is designed to enable the commercial scale manufacture of RNA interference or RNAI therapeutics, including small interfering RNA known as siRNA. It should be noted that just less than 500 RNA candidates are currently in development and that management has believes that demand for siRNA is projected to outpace current production capabilities in the coming years. Over 40 RNA candidates are in mid or late stage (Phase 2 and 3) development. This platform will enter pre-commercial testing with select customers of Codexis in 2024.

Second Quarter Results:

The company posted its second quarter numbers on August 3rd. Codexis delivered a GAAP loss of 17 cents a share, which was four cents above the consensus. Revenues dropped just over 44% on a year-over-year basis to $21.3 million. Core sales (outside of PAXLOVID related sales) rose from $14.6 million in the year ago period. $19.3 million of overall sales in the quarter came from Performance Enzymes and $2 million was from Novel Biotherapeutics.

Management provided FY2023 of between $30 million to $35 million from enzyme sales outside of revenues connected to PAXLOVID and an additional $21 million to $24 million of R&D sales for the fiscal year. In July of 2022, Codexis entered into an agreement with Pfizer ( PFE ) to supply it with a key enzyme used to produce PAXLOVID, a Covid treatment. As the pandemic has ebbed both Covid sales and PAXLOVID revenues have plummeted.

Analyst Commentary & Balance Sheet:

Since Codexis posted second quarter results, Piper Sandler ($14 price target), Stifel Nicolaus ($5 price target) and Craig-Hallum have all reiterated Buy ratings, while TD Cowen ($4 price target) has maintained its hold rating on the stock.

Approximately four percent of the outstanding shares in the stock are currently held short. The company's CFO purchased just under $20,000 worth of shares in mid-September. Three other insiders collectively bought just over $135,000 worth of shares in September as well. However, it should be noted that insiders sold more than $1.5 million worth of equity in total, and at much higher prices in January through April of this year. The company ended the second quarter with just over $90 million in cash and marketable securities on its balance sheet after posting a net loss of $11.7 million. Notably, not including enzyme sales related to PAXLOVID would have resulted in a net loss of $20.5 million. Codexis used just over $25 million in cash in the second quarter. The company has no long-term debt.

Verdict:

Codexis lost 45 cents a share in FY2022 on just over $138 million worth of sales. The current analyst firm consensus has losses more than doubling in FY2023 to just over a buck a share as revenues plunge by some 55%. The analyst community see the red ink getting pared to 75 cents a share in FY2024 as sale growth resumes in the high single digits.

Unprofitable small cap concerns going through significant changes aren't exactly in high fashion in the current market environment. While the company's emerging ECO platform seems to have significant potential, Codexis is going to be bleeding cash over the next couple of years while it goes through a significant set of changes. A large slug of insider selling before its reprioritization/restructuring announcements and selloff in its stock earlier this year doesn't provide much confidence in management keeping skin in the game.

The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking .”? Albert Einstein.

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