What happened
There's been no stopping Codexis (CDXS +1.33%) stock lately -- it gained more than 19% last month, according to data provided by S&P Global Market Intelligence. Shares of the enzyme designer have now gained a whopping 209% in the last year as Wall Street realizes it's been overlooking the small-cap biotech company's growth potential.
In August Codexis reported strong second-quarter and first-half 2018 earnings, announced that Tate & Lyle commercialized the second food ingredient manufactured using enzymes supplied by the company, and provided an update on the first-ever clinical trial using proprietary enzymes engineered using its platform.
Image source: Getty Images.
So what
The terms "biotech" and "biopharma" often get used interchangeably, but biopharmaceuticals aren't the only products that qualify as biotechnology. Codexis serves as a great illustration of that, as it straddles industrial biotech and biopharma. The company honed its technology platform -- a high-throughput version of the design, build, test cycle growing more commonplace in synthetic biology and leaning heavily on machine learning -- over the years supplying enzymes that improved the manufacturing processes of pharmaceutical ingredients. But that barely scratches the surface of the market opportunity for enzymes.
Today, Codexis supplies enzymes to its historical niche and food manufacturing operations (an important high-volume, high-margin opportunity), but it could soon expand to several industrial applications as well. The company is also eager to grow its presence in next-generation sequencing (NGS) markets for reading DNA and, as its recent foray into the clinic demonstrates, therapeutics. It also sells licenses to its proprietary software platform allowing companies to design their own enzymes. The business model appears to be finding its groove recently.
|
Metric |
First Half 2018 |
First Half 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Total revenue |
$27.6 million |
$18.3 million |
51% |
|
Product revenue |
$9.9 million |
$12.2 million |
(19%) |
|
Research and development revenue |
$17.7 million |
$6.1 million |
188% |
|
Operating income |
($8.5 million) |
($13.8 million) |
N/A |
|
Net income |
($8.4 million) |
($13.7 million) |
N/A |
|
Operating cash flow |
($12.1 million) |
($11.5 million) |
N/A |
Data source: SEC filing.
The business still has a ways to go before achieving profitability, but Wall Street thinks the number of high-margin shots on goal will deliver sustainable profits in the future. Product gross margin in the first half of 2018 settled at 35%, which was historically low. And although product revenue fell compared to the year-ago period, the full-year 2018 total is expected to match that from 2017.
More importantly, the Tate & Lyle food ingredient launched in the second quarter was a zero-calorie stevia sweetener, which has blockbuster potential. That bodes well for Codexis, which supplies an enzyme used to produce the sweetener, as it tags along for the ride.
Codexis also announced that a phase 1a clinical trial evaluating CDX-6114 as a potential treatment for phenylketonuria dosed three of four cohorts as of early August. It's on track to report top-line results before the end of 2018. If results are promising, then the company will have another high-potential opportunity in front of it -- and be set to receive a milestone payment from its development partner.
Now what
The business is firing on all cylinders right now. Management expects full-year 2018 total revenue in the neighborhood of $61.5 million (representing 22% growth from last year), product revenue of around $26.5 million, and product gross margin of about 46.5%.
Throw in an exciting opportunity in food ingredients (by far the largest overall product opportunity for the company to date) that should begin delivering growth in the second half of 2018, soaring licensing revenue, and the fact the first-ever clinical trial is on pace to report top-line results by the end of the year, and it's easy to see why the stock has been unstoppable lately.
