Codexis(CDXS) Q3 2019 Earnings Call Transcript

Codexis  (CDXS 1.40%)
Q3 2019 Earnings Call
Nov 05, 2019, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Codexis third-quarter 2019 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Bruce Voss. Thank you.

Please go ahead, sir.

Bruce Voss -- Investor Relations

Thank you. This is Bruce Voss with LHA. Thank you all for participating in today's Codexis call to discuss third-quarter 2019 financial results and business progress. Joining me from Codexis are John Nicols, president and chief executive officer; and Ross Taylor, the company's chief financial officer.

During this call, management will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements made by management are not descriptions of historical facts regarding Codexis, they are forward-looking statements reflecting the beliefs and expectations of management as of November 5, 2019. You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the company's control and could materially affect actual results. For details about these risks, please see the quarterly news release that accompanies this call, as well as the company's SEC filings.

Codexis expressly disclaims any intent or obligation to update forward-looking statements, except as required by law. Now I'd like to turn the call over to John Nicols. John?

John Nicols -- President and Chief Executive Officer

Thanks, Bruce. Good afternoon, everyone, and thank you for joining us. I'm exceptionally proud of our strong performance for the third quarter. Revenues reached nearly $22 million, up 29% over the prior year, representing our highest quarterly sales in seven years and the highest quarterly revenues ever under our current business model.

The quarter delivered on the stepped-up revenue generation we promised for the second half of this year. That momentum continues into the fourth quarter, enabling us to confidently reaffirm our full-year revenue guidance of between $69 million and $72 million. Sales growth was spread nicely across our product and R&D revenue lines with growth of 23% and 35%, respectively, versus the prior year. The strong revenue performance, in combination with disciplined management of operating expenses, resulted in an operating profit in the quarter.

Our Performance Enzymes business segment powered the quarter with revenues up 68% year over year and comprising over $20 million of the company sales. In parallel, and importantly, we continued to expand our Performance Enzymes revenue generation over a growing set of customers and a diverse list of industrial verticals. This is core to showing success against the segment's mission to harness the untapped possibilities that are enabled by proteins and to prove that Codexis and our CodeEvolver protein engineering platform is the way to do so. Let's start with the momentum we delivered during the quarter in expanding and deepening our protein catalyst penetration in global pharmaceutical manufacturing.

Here, we are proud to share that five customers each contributed product sales of more than $1 million in the quarter. Merck again led the way with the use of our enzyme for their manufacture of the active ingredient in Januvia, followed by a notable contribution again from KYORIN Pharmaceutical for their manufacturing of vibegron, a treatment for overactive bladder. The same top-25 pharma customer we highlighted for the first time last quarter took another seven-digit product shipment in Q3, as they line up for their expected drug approval and launch in 2020. Novartis purchased nearly $2 million worth of one of our enzymes for one of their commercial drugs, noting that this is an infrequent manufacturing campaign that typically takes place less than once per year.

And rounding out the list of seven-digit product sales, one of the world's largest generic pharmaceutical companies continued their relatively consistent purchase of our protein catalyst for two of their commercial generic drugs. Our CodeEvolver licensing strategy was also a major highlight for the quarter. For the first time, we delivered material revenues from both the front end and the back end of CodeEvolver deals in the same quarter. The transfer of technology to our newest CodeEvolver licensee, Novartis, continues at an excellent pace.

A team of Novartis scientists has been working in our Redwood City, California labs for the last several months, learning from their peer Codexis scientists. In parallel, we have been transferring materials and establishing the Novartis CodeEvolver lab in Europe. These activities earned us several million dollars of R&D revenues from the Novartis CodeEvolver deal in the quarter. In addition, during Q3, we recognized a $2 million milestone payment from the GSK CodeEvolver license, the first of what we expect to be a growing stream of significant back-end revenue generated from our historical CodeEvolver licensees.

This milestone was associated with the advancement of an enzyme that is designed to improve a key step in the manufacturing process for one of GSK's commercial patented pharmaceuticals. More potential seven-digit milestone payments to Codexis are possible for this enzyme, should it continue to advance in its commercialization over the coming years. Continuing our growing penetration of Performance Enzymes into pharma manufacturing, we performed CodeEvolver R&D services with four other top 25 drug companies in the quarter. For three of these customers, we have started their first ever six-digit project work in the last few months.

In addition, we are pleased at the pace of adoption that Porton Pharma Solutions is having with their much larger set of custom pharmaceutical manufacturing opportunities. That model is working well also as they appear to be nearing more sizable installations for our technology with their customers. Shifting to Performance Enzymes highlights in other markets. We had a relatively light quarter in the food industry, but our forward outlook in this sector continues to be encouraging.

Tate & Lyle continues to market their new TASTEVA M Stevia Sweetener aggressively, and they have shared with us enthusiastic product qualification responses from their wide customer base. The two newly initiated projects we discussed last quarter with Tate & Lyle and one other new customer each in different non-sweetener food ingredient applications are set up for growth in 4Q and 2020. In molecular diagnostics and molecular biology applications, once again, we delivered combined R&D revenues in excess of $750,000, with the two new clients and two new applications we highlighted last quarter. It's great to see momentum from these projects continue in Q3.

And even better, they are on top of revenues that are beginning to materialize in this fourth quarter for our DNA ligase for next-generation sequencing. Other exciting new clients and application opportunities in these and other industrial verticals continued to move toward revenue generation as well. As a highlight to the continued expansion and diversification of our Performance Enzyme customer base across both product and R&D revenue, 12 customers exceeded six digits in sales in Q3 and half of them contributed sales above the $1 million level. These are exciting times for the expansion of applicability for our Performance Enzymes business.

Shifting to our Novel Biotherapeutics segment. Sales to Nestle Health Sciences made up the full $1.5 million of segment revenues. As expected, these sales were lower than last year's segment sales as revenues and costs associated with CDX-6114 as a clinical candidate for phenylketonuria, or PKU, were negligible versus making up a large majority of sales in the same quarter last year. Nonetheless, that program continues well in our partner's hands, and we know that they have dosed PKU patients with CDX-6114 for the first time in recent months.

Biotherapeutic discovery work partnered with Nestle Health Science for another disease target made up the vast majority of the segment's revenues for the quarter, and that program's preclinical research results are quite encouraging as we close out the year. For our self-funded Novel Biotherapeutics pipeline, we continued to advance favorably across the entire list of targets. We remain on track and look forward to sharing details of the two product candidates we expect to achieve partnerable status around year-end. And lastly, I want to share our excitement with two events that demonstrate a coming of age of synthetic biology and its near infinite power to engineer new high-value proteins.

I'm truly proud of our team at Codexis for organizing a groundbreaking two-day Protein Engineering Forum held in Palo Alto, California last month. Attendance of more than 150 innovators for more than 50 mostly industrial institutions exceeded our expectations. This forum highlighted recent successes in enzymatic manufacturing, biologics discovery and agricultural and diagnostic applications, as well as technical progress in library generation, high-throughput screening and bioinformatics. We were thrilled to have Dr.

Frances Arnold as our keynote speaker. You may recall that Dr. Arnold received the 2018 Noble Prize in chemistry for her pioneering work in the directed evolution of enzymes. The high level of interest and the quality of discussions and presentations generated tremendous energy over the entire two days and inspired new ideas to expand the impact of proteins in the real world.

The event followed Codexis' leading participation and sponsorship at the Annual SynbioBeta Summit, arguably the world's largest gathering focused on advancing synthetic biology and its impact on mankind. Our participation included a main stage fireside chat between me and the Chief Technology Officer of Tate & Lyle and several workshops, highlighting CodeEvolver and our lead in the space in delivering a stream of real-world commercialization successes. The success of both events is truly a sign of the increased importance of synthetic biology and protein engineering, as well as the preeminent role Codexis enjoys in this leading-edge technology arena. With those remarks, let me now turn the call over to Ross Taylor, who has done a great job to get up to speed and impact Codexis during his first quarter as CFO.

Ross?

Ross Taylor -- Chief Financial Officer

Thank you, John. Total revenues for the third quarter of 2019 were $21.9 million, up 29% from $16.9 million in Q3 of 2018. Third quarter 2019 revenue included $20.4 million from the Performance Enzymes segment and $1.5 million from the Novel Biotherapeutics segment. Product revenue for the third quarter of 2019 increased by 23% to $10.4 million from $8.4 million a year ago, with the increase due to higher demand for enzymes for both generic and branded pharmaceutical products.

R&D revenue for the 2019 third quarter increased 35% to $11.6 million, up from $8.5 million in Q3 of 2018. The increase was primarily due to revenues from the Novartis CodeEvolver agreement that we announced in May and a milestone payment from GSK from the GSK CodeEvolver agreement that John mentioned previously. These increases were partially offset by the prior-year completion of services to Tate & Lyle and lower development fees from the Nestle Health Science. R&D revenue for the third quarter of 2019 included $10.1 million from the Performance Enzymes segment and $1.5 million from the Novel Biotherapeutics segment.

Gross margin on product revenue for the third quarter of 2019 was 51%, compared to 55% a year ago, with the decrease due to changes in product mix. Turning to operating expenses. R&D expenses for the third quarter of 2019 were $8.7 million. This amount included $5.3 million from the Performance Enzymes segment and $3.1 million from the Novel Biotherapeutics segment.

The increase in R&D expenses from $7.9 million a year ago was primarily due to higher expenses related to headcount, occupancy-related costs and lab supplies, partially offset by lower outside services. SG&A expenses in Q3 were $7.9 million, which included $2.0 million from the Performance Enzymes segment and $0.7 million from the Novel Biotherapeutics segment. The remaining portion of SG&A expense of $5.4 million is included in corporate overhead expense and depreciation expense. The increase in SG&A expenses from $7.3 million a year ago was primarily due to an increase in costs associated with facilities and headcount, which were partially offset by lower outside services.

Net income for the third quarter of 2019 was $0.3 million or $0.01 per diluted share, which compares with a net loss for the third quarter of 2018 of $2.0 million or $0.04 per diluted share. On a non-GAAP basis, excluding noncash depreciation and stock-based compensation expense, adjusted net income for the third quarter of 2019 was $2.5 million or $0.04 per diluted share versus non-GAAP adjusted net income a year ago of $91,000 or $0.00 per share. Turning to the year-to-date financial results. Total revenues for the first nine months of 2019 were $49.8 million, up 12% from the first nine months of 2018.

Product revenue was $24.6 million. R&D revenues were $25.2 million and consisted of $16.5 million from the Performance Enzymes segment and $8.7 million from the Novel Biotherapeutics segment. Gross margin on product revenue for the first nine months of 2019 was 50%, compared with 44% for the prior-year period, with the change due to product mix. R&D expenses for the first 9 months of 2019 were $25.0 million, and SG&A expenses were $24.2 million.

We reported a net loss for the first nine months of 2019 of $11.3 million or $0.20 per share, which compares with a net loss for the first nine months of last year of $10.4 million or $0.20 per share. On a non-GAAP basis, the net loss for the first nine months of 2019 was $4.4 million or a loss of $0.08 per share versus a non-GAAP net loss for the first nine months of 2018 of $3.4 million or $0.07 per share. Cash and equivalents as of September 30 were $92 million, up from $53 million on December 31, 2018. This increase includes proceeds from the $50 million private placement that we completed in June.

As we noted in the press release, today, we are affirming the 2019 revenue guidance introduced on our conference call in February. We continue to expect total revenues for the year to be between $69 million and $72 million, which represents growth of 13% to 18% over 2018. We are maintaining our expectation for product sales to be in a range of $26 million to $29 million, and we are also affirming our expectation for gross margin on product sales to be between 48% and 52%. Lastly, with regards to operating expenses, year-to-date operating expenses of $49.2 million have trended modestly below our expectations so far this year.

We currently estimate operating expenses should be in a range of $68 million to $69 million for the full year, compared to our previous expectation of approximately $72 million. With that, I'll turn the call back to John.

John Nicols -- President and Chief Executive Officer

Thanks, Ross. Let me close my prepared remarks by highlighting the strategies that are driving our confidence to deliver consistent double-digit near- and longer-term revenue growth. Our strategy begins with a relentless focus on our CodeEvolver protein engineering platform technology. We were delighted with the reception at the Codexis sponsored events as we continue to expand and commercialize real-world applications for high-value proteins engineered with CodeEvolver at an ever accelerating pace.

Proprietary artificial intelligence competencies are at the core of our ability to discover proteins that meets customer needs. The cutting-edge synthetic biology practiced by the dynamic scientific teams at Codexis, together with the constantly improving CodeEvolver platform, continues to demonstrate our prowess in rapidly discovering and commercializing novel high-performing proteins. Our ability to produce such exceptional financial results for the quarter further reinforces our confidence in our strategies. We continued to make progress growing and penetrating deeper into pharmaceutical manufacturing, as well as layering on growing revenues in new Performance Enzyme verticals like food, molecular diagnostics and molecular biology, plus we're confident that other new applications would develop on top as well.

In Novel Biotherapeutics, we are further validating the ability of CodeEvolver to discover and develop differentiated patentable new drug candidates as we watch our partner advance our first clinical drug candidate, and we bring at least two other programs to partnerable status around year-end. Our balance sheet featured more than $90 million in cash at quarter close, and we are extremely well positioned to capitalize on a variety of high-value growth opportunities afforded by our talented Codexis team and the versatility of our CodeEvolver technology. As a final note, we will be introducing 2020 financial guidance on our next conference call in February when we discuss our 2019 fourth-quarter and full-year results. With that overview, I'd like to open the call for questions.

Operator?

Questions & Answers:

Operator

[Operator instructions]

John Nicols -- President and Chief Executive Officer

While we're waiting for our first question, I'd like to alert you of our busy investments conference schedule. We'll be participating in the Craig-Hallum Alpha Select Conference next Tuesday, November 12, in New York; and we'll be at the Stephens Nashville Investment conference the following day. We'll be presenting at the Stifel Healthcare Conference on Wednesday, November 20, 2019, in New York; and we'll be at the Canaccord Genuity 2019 Medical Technology & Diagnostics Forum the following day, also in New York. Webcasts of our presentations at the Stephens and Stifel Conferences will be posted to the Investors sections of codexis.com.

For those of you heading to San Francisco for the Annual J.P. Morgan Healthcare Conference in January, please contact LHA to work with them to arrange one-on-one meetings with us during that conference. OK, operator, we're ready for the first question.

Operator

Our first question comes from Brandon Couillard with Jefferies. Your line is open.

Brandon Couillard -- Jefferies -- Analyst

Hey, thanks. Good afternoon. John, would like to start with the food business. You mentioned it was a little bit light in the quarter.

Could you just share with us an update of where Tate stands with their Stevia ramp, what inning that's in? And at what point do you think we can begin to ramp toward that $10 million number you kind of talked about in terms of the revenue potential for that product at steady state?

John Nicols -- President and Chief Executive Officer

Yeah, it's early days still. Tate & Lyle continues to very assertively market and position that product within their suite in their portfolio, and they continue to encourage us with qualitative inputs about how their customers are receiving the new better-tasting TASTEVA M Stevia sweetener. And so -- but the volume ramp has yet to really kick in. We had a little bit of inventory build that they were working down through the most recent quarter, and we'll get as much color and quality as we can from Tate & Lyle about what they expect in calendar year 2020 as we finish this year and come back forward to you in February and talk about 2020 guidance.

But we're certainly expecting that their growth will ramp, and the question just really is just what is that slope of curve and how quickly can they penetrate their markets. It's pretty hard to see at this very early date, but we continue to be encouraged by the long-term prospects of the kind of product growth sales of reaching the top of our list in the not-too-distant future, Brandon.

Brandon Couillard -- Jefferies -- Analyst

Next in, on the Biotherapeutics side, I understand you may -- you want to hold off to share a little bit more color, but any qualitative color you can share with us in terms of the nature of your conversations with other third parties, the quality of conversations and perhaps list of partners you may be talking to relative to where you stood with 6114 the first time around? And then, in general, how many teams do you have working on discovery programs today and talk about maybe your capacity in terms of number of compounds you can really thoroughly investigate with the team right now?

John Nicols -- President and Chief Executive Officer

Yeah, good question. So partnerable status means that we've gotten our asset preclinically validated with preclinical research results that show the differentiation of our product versus the disease needs and/or competitive products that may be out in the market. So -- plus, of course, getting our patentability in a row. So that doesn't presume that we're in conversations with clients to reach this partnerable status.

On some of the areas, we consistently show where we are with our Biotherapeutics preclinical research data to get kind of an ongoing and a continuous sense of how strategic companies in the marketplace are seeing the data that we're generating. But between sharing with you that we may have a partnered event or that we have the kind of data that's going to be driving preclinical value, we're going to be showing that kind of data as we finish this year, maybe into early next year, it's very close. So very encouraged. The success of data generation, the discovery candidates that are coming out of the R&D team are very impressive across effectively the entire pipeline, both in partnership with Nestle, as well as the four lead programs that we've been working on now for a little over a year.

Those have advanced from candidate generation into preclinical research trials. Those preclinical research trials on average have done very well to validate the kind of data that we believe we'll need to have a differentiable preclinical candidate to proceed toward the clinic. So we're really excited with how well our Biotherapeutics discovery pipeline is advancing. Your final question with regards to the number of teams or kind of the R&D capacity that we're applying, both for the whole company and the percentage that we're targeting for the therapeutics pipeline.

Today, the company is operating roughly 15 or 16 parallel protein engineering teams. So in effect, inside the labs of the office building that we're in right here, we are working on 16 brand-new-to-the-world protein molecules right now. As we've highlighted many times, the speed with which we can discover protein molecules that hit demanding real-world targets is accelerating. So those -- that same number of teams can discover more molecules going forward versus yesterday.

And of those 15 or 16 teams, roughly 30% or five or so of those teams are focused on biotherapeutics pipeline right now. The other 10 are mostly working on funded projects for the Performance Enzymes business, but we also continue to do some minor share of those 10 other teams for Performance Enzymes we're self-funding. For example, the two programs for the next-generation sequencing area, we continued to invest in making our DNA ligase product even better. And we are nearing the launch of the second product, the DNA polymerase, for the next-generation sequencing market as well.

Brandon Couillard -- Jefferies -- Analyst

Thanks. That's helpful. And then just one for Ross. The guidance for the year implies product revenues in the fourth quarter of only about $1.5 million to $4.5 million, which would be the lowest quarterly number in some time.

Can you just help us with some of the puts and takes and how realistic that, that is for 4Q?

Ross Taylor -- Chief Financial Officer

Well, I think where we are year to date for product sales, I think the higher end of that guidance range is probably more realistic as opposed to the lower end. At the same time, I think we had a really strong quarter in terms of product sales. The business is a little bit unpredictable. So we just weren't real comfortable bringing that range up at this point.

Brandon Couillard -- Jefferies -- Analyst

Very good. Thank you.

Operator

Our next question comes from Matt Hewitt with Craig-Hallum Capital. Your line is open.

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

Good afternoon, and congratulations on the continued strong performance. First up, on the food, the non-sweetener food segment there, last quarter, you had a couple of new projects there. Sounds like there was a little bit of a pause here. Is that a function of those customers going back to their teams kind of figuring out where they stand? And do you expect that to come back in Q1? And how -- maybe walk through that process a little bit?

John Nicols -- President and Chief Executive Officer

Yeah. Yeah, I think you got it at a high level. So the work with those two applications, one with Tate & Lyle and one with another client, that we're not at liberty to disclose yet, took place in the third quarter. We generated modest revenues, less than $1 million in combination for those two projects combined back in the third quarter.

And there, we did -- we used CodeEvolver to create candidates that could be validated downstream with those clients. And so really, it's a natural kind of short-term pause for the customers to go test and naturally trial it and get a sense for how the food ingredient and/or the process that makes that food ingredient is performing in the customer's hand. So while it didn't really generate any significant revenue or much significant revenue in the third quarter, like I commented in the prepared remarks, we continue to be encouraged that even in the fourth quarter and certainly into next year, those two project areas are going to become bigger contributors for us. So it's still quite encouraging.

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

That's great. And then regarding the PKU opportunity, I think its Phase 1b is expected to be completed by the end of the year. Does the completion trigger a milestone? Or is it starting Phase 2. Just walk us through what the next trigger would be on a milestone payment?

John Nicols -- President and Chief Executive Officer

Yeah, the next trigger is the completion of a Phase 1b patient trial. And so it -- I think you had mentioned that it would be done by the end of this year. That's not true. There's some possibility that it could be done toward the end of next year, it may not be done until 2021.

And we'll sharpen that for you as we come forward with clarity about our 2020 guidance in the beginning of next year. But at the point at which that Phase 1b trial is completed, that's when the milestone payment to Codexis is triggered, and that's a $5 million milestone payment.

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

$5 million. OK. That was going to be my next question. So that's great.

Thanks very much. Congratulations on the strong quarter.

Operator

Our next question comes from Doug Schenkel with Cowen. Your line is open.

Doug Schenkel -- Cowen and Company -- Analyst

Hey, good afternoon, guys. Maybe just a follow-up to the last question on Nestle. So according to clinicaltrials.gov, Nestle initiated a 20-patient Phase 1 PKU study in early September. I'm just curious, like, is that what was expected? Maybe this is a naive question, but I thought normally because this is a rare disease situation that you might be able to move right to Phase 2a.

So I'm just curious if this is all as expected and if the initiation of this small study was something that was suggested by the FDA or whether Nestle is just conducting additional pharmacodynamic study, a pharmacodynamic study to have a better handle on the dosing?

John Nicols -- President and Chief Executive Officer

Yeah, this was certainly not dictated. This was expected as the ongoing clinical plan for CDX-6114 by Nestle for the get-go. This has what we've been expecting them to do. They've been running it according to plan, and I think that they're on the right clinical plan.

And we're involved. Of course, they're running it. It's their expense, it's their control. But we think the way they're running the trials and how they plan to do the ongoing clinical trials through this trial and beyond, assuming the data continues to bear out positively, is very appropriate and the right way to run this clinical program.

Doug Schenkel -- Cowen and Company -- Analyst

OK. All right. That's helpful. And then one on the quarter, and then I just want to go back to guidance.

In the quarter, obviously, almost every line item was a bit better than expected. The one line that was maybe a little bit light of forecast was gross margin. Was that just a function of mix? Or was there anything else going on there?

Ross Taylor -- Chief Financial Officer

Yeah, that's purely just product mix.

Doug Schenkel -- Cowen and Company -- Analyst

Yup. OK. That makes sense. And then on guidance, if we go back to the Q2 call, you indicated you expected the split of second half revenue to really be 40% Q3, 60% Q4.

Based on guidance now, which was reiterated for the year, it now seems like you're expecting this to be about 50-50. I guess I point out these facts just largely because I'm wondering if you're basically positioning Q3 strength as really just a function of pulling forward revenue from the fourth quarter? Or would you say that you're tracking ahead of plan? It feels like you're tracking ahead of plan, and maybe you're just being conservative recognizing the inherent lumpiness of the business, but I just want to make sure.

Ross Taylor -- Chief Financial Officer

Yeah, I think a couple of things there. I mean, we did keep our total revenue guidance the same, as well as the product revenue guidance. And even though we did very well in the third quarter, did better than we expected, we still do have a big number to accomplish here in Q4. We have to get $20 million plus in revenue here in Q4.

I mentioned before, and I'm sure you guys have heard this in past quarters, past years, I mean, the business is a bit volatile quarter to quarter. We do have reasonably good visibility for results this quarter. But at the same time, we think we still have a fairly big hurdle to accomplish. And again, we've kept our total revenue guidance the same, and we think that's very reasonable at this point.

Doug Schenkel -- Cowen and Company -- Analyst

OK. All right. That's all super helpful. Thank you for taking the questions.

Operator

[Operator instructions] Our next question comes from RK with Wainwright. Your line is open.

RK -- H.C. Wainwright and Company -- Analyst

Good evening, folks. Most of my questions have been answered, but there are a couple of them. To start off, you were talking about Porton Pharma partnership. Trying to understand what's the status there regarding finalizing the tech transfer and also potentially them starting to use products from the CodeEvolver in their manufacturing processes.

If you have said some commentary before, I apologize, I got on the call a little late.

John Nicols -- President and Chief Executive Officer

No problem. Yeah, the partnership with Porton is going very nicely. So we're a little over a year into the partnership. The technology transfer demands for that partnership were modest.

Nothing like what we're doing right now with -- with Novartis because in the case of Porton, we just set them up with screening capabilities and library capabilities. No protein engineering like we're doing with Novartis. So the technology transfer has been done quite some time ago, certainly well before the end of last year. So they've just been out running the model.

And just to reinforce the model, Porton sees many, many more pharmaceutical manufacturing opportunities than Codexis does. That's their business, is pharmaceutical manufacturing. So they bid on many different projects every month. And the model is for them to be very rapid and efficient in screening our existing biocatalysts, protein catalysts, against those much larger set of manufacturing opportunities.

And they've done a great job with that. They're very efficient. They're great chemists. We're very collaborative with them.

We talk routinely about the kind of screening results that they get. We talk about whether it warrants doing protein engineering back here in Redwood City to support them. And with that -- with -- now with that traction and with their growing experience with protein-based catalytic processes, we're now starting to see them see real prospects to get our technology installed. So we're quite encouraged.

We're very pleased. They're a very, very competent, western-oriented, sophisticated partner, and we're continuing to hope for and look forward to growing things with growing business with Porton.

RK -- H.C. Wainwright and Company -- Analyst

Regarding CodeEvolver licenses. So I think we have -- we were -- I was under the impression that between 12 and 18 months, we'll get a new license started. So where are we on that track at this point? Should we expect something within the next six months in terms of initiating a new CodeEvolver license?

John Nicols -- President and Chief Executive Officer

No, I wouldn't want to set your expectation for another CodeEvolver licensing deal to be struck that quickly, RK, or any other investor. It takes quite some time to -- for the client themselves to build the business case that justifies the kind of expense that the CodeEvolver license entails, not only the licensing fees to Codexis, but also the investment in some equipment, the dedication of laboratory footprint and the hiring of at least a dozen or more employees to run the operations. So it's a big investment decision. And as we've witnessed with all three of our CodeEvolver partners, it takes them some time to validate the applicability.

It usually means that they're working on projects with us to show that the technology works against their kind of molecules that they're trying to commercialize. So just a little bit of a long-winded answer. We're having excellent progress, as you've heard consistently, to widen our penetration of big pharmaceutical customers who theoretically could justify a CodeEvolver license investment. We're getting more and more business, doing more and more CodeEvolver work with a larger number of these companies, and those are all just the right steps to build the business case and to ultimately bear fruit for other CodeEvolver investments beyond Merck, GSK and Novartis.

So we'll keep you posted. We're working that process as assertively and as effectively as possible. I wouldn't expect anything as quickly as you had hoped for in your question.

RK -- H.C. Wainwright and Company -- Analyst

No, no. OK. Then regarding -- you were talking about widening the -- widening revenue streams or, in that sense, you were talking about how this quarter, there were seven customers who contributed $1 million or more. So how sustainable are these revenue streams and what potentially could be the throws and puts for these revenue streams over the next quarters or year?

John Nicols -- President and Chief Executive Officer

Yeah. I mean, of the seven, we've got Novartis, Merck, Nestle, and these are solid, consistently growing, consistently contributing climate for us. I highlighted a leading -- world-leading generic manufacturer, their products are commercial -- or enzymes are commercial. So that's a pretty steady, sustainable revenue base.

Another one of the $1 million-plus pharmaceutical customers, I've mentioned them two quarters in a row where they lifted $1 million-or-more of product sales, lining up for their approval. They've already gotten positive Phase 3 data. So it's highly likely they will get the approval and launch. So -- but we would be waiting for them to launch and get traction in their markets.

So assuming all that happens, that will be a very sustainable multimillion dollar revenue generator for the company. I did put some color into a relatively spotty $2 million product shipment to Novartis in the quarter. This is a relatively small commercial active ingredient for Novartis. So they don't manufacture their product routinely.

They manufacture it in batches and usually not as frequently as once per year. So we had that occur in the third quarter of this year. And probably that won't occur again until possibly next year, but maybe the year after that. So that's not as consistent of a revenue generator as -- certainly not on a quarterly basis as the others that I highlighted.

So I think that's a fairly detailed answer, RK, to give you and other investors some confidence that these -- when they reach this multi -- when they reach this $1 million plus status, they generally are in a stage of sustainability, not always, but generally, and that growing that list of $1 million-plus clients is a great sign on average of growing the sustainable revenue base of the company.

RK -- H.C. Wainwright and Company -- Analyst

Thank you. Thank you for taking all of my questions.

Operator

Our next question comes from Marc Silk with Silk Investment Advisors. Your line is open.

Marc Silk -- Silk Investment Advisors -- Analyst

Thank you for taking my questions. So John, the first one is, no matter who wins in 2020's election, the big focus will be on reducing the cost of medication to the masses, which will impact biopharma's gross margins. How could this shift impact Codexis?

John Nicols -- President and Chief Executive Officer

Yeah, boy, that's a softball. Thanks. It's definitely a modest tailwind for the company that has -- big pharma, in particular, has pricing pressures impacting their margins, that one place they can turn is to the cost of manufacturing. And that's exactly what our technology enables, is to, properly applied, our technology can enable a step change in the cost of the active ingredient, which is the largest cost component of pretty much every drug out there.

So we see this as an underpinning that's enabling the strength of our core business, the Performance Enzymes, for our pharmaceutical manufacturing, and we're encouraged by it. We see a little more support for process engineering within big pharma, in general, which then enables more sophisticated, higher capacity teams to work with us and our technology.

Marc Silk -- Silk Investment Advisors -- Analyst

Well, if that's the case, hopefully, the baby doesn't get thrown out of the bathwater if that -- these prices do go lower. Next question, with the rise of the plant-based meat products from the likes of Beyond Meat, is there any opportunity there? Have people kind of reached out to you? I just was kind of curious.

John Nicols -- President and Chief Executive Officer

Yeah, it's a really exciting trend in the wider synthetic biology world that companies like Beyond Meat, Impossible Burger, there's other biosynthetic pathways to natural things that we're used to consuming that are being -- that are having some success in the world. So we find this as a very interesting class. These companies are relatively new, and their penetration in markets is relatively new, but this could be a prospect space for the company. It hasn't been so far, certainly not materially, but this is an area that we're watching, and we'll see how Codexis' role in that unfolds over time.

Marc Silk -- Silk Investment Advisors -- Analyst

That's interesting. And for the life of me, I'm still trying to figure out why your stock got pummeled last quarter, whether they didn't think you're going to hit your guidance? I think that question is answered. But more importantly, let's say it was that you were going to increase the amount of projects you are self-funding, which obviously increases the costs near term, but also increases your revenue potential in the future. So I would assume that the shift to the self-funding and less partnerships is something where with your knowledge, you can kind of figure out, because you have all the answers, where you'll know which ones make sense to self-fund and then which ones might be more beneficial to partnerships.

Is that kind of -- am I thinking correctly?

John Nicols -- President and Chief Executive Officer

Yeah. Yeah. Five or six years ago, we didn't self-fund anything. Today, close to half of our R&D capacity is toward self-funded projects, not quite half, but close.

And we've got a great batting average of picking some winners, right? In the beginning of our Stevia story, it was a self investment, and then we brought it to Tate & Lyle and made the deal with Tate & Lyle. The PK -- the orally administrable enzyme for phenylketonuria disease, that was a self investment until we made the deal with Nestle. So we are priding ourselves with a great batting average. And we think we can continue that.

And clearly, when we self invest, it puts us in a stronger position to monetize the asset in a higher value way for Codexis and its shareholders. So that's increasingly what we're doing. But at the end of the day, a lot of times, the best way to go forward is a funded partnership to spread the risk, to give us some short-term cost cover. So we've got a very nice mix of both.

Marc Silk -- Silk Investment Advisors -- Analyst

Great. And I do appreciate that you and the other insider are buying shares back to just basically saying, listen, this is overdone and I have enough confidence in the company to put my money where my mouth is. So congratulations on a good quarter and continued success.

Operator

This concludes the question-and-answer session. I'd now like to turn the call back over to John Nicols for closing remarks.

John Nicols -- President and Chief Executive Officer

OK. Thanks, everyone, for your questions. We're very excited about our results for the quarter and our outlook for the remainder of 2019 and beyond. We look forward to providing ongoing progress updates to you.

And in the meantime, everyone, have a great day. Thanks.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Bruce Voss -- Investor Relations

John Nicols -- President and Chief Executive Officer

Ross Taylor -- Chief Financial Officer

Brandon Couillard -- Jefferies -- Analyst

Matt Hewitt -- Craig-Hallum Capital Group LLC -- Analyst

Doug Schenkel -- Cowen and Company -- Analyst

RK -- H.C. Wainwright and Company -- Analyst

Marc Silk -- Silk Investment Advisors -- Analyst

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