What happened

Shares of Codexis (NASDAQ:CDXS) fell as much as 20% today after the company reported fourth-quarter and full-year 2019 operating results. The enzyme engineering company missed its own projections for full-year 2019 revenue, whiffed on Wall Street's full-year 2019 revenue expectations, and issued disappointing full-year 2020 guidance.

Management told investors that the business will ramp up investments in drug development activities, which will lead to a significant increase in operating expenses. Codexis also expects full-year 2020 product revenue and product gross margin to decline compared to last year.

As of 12:36 a.m. EST, the small-cap stock had settled to a 14.6% loss.

A declining chart drawn on a chalkboard.

Image source: Getty Images.

So what

Codexis reported full-year 2019 revenue of $68.5 million. The company's own guidance expected at least $69 million, although Wall Street was expecting $71.1 million on average, according to numbers compiled by Yahoo! Finance.

The enzyme engineering company reported full-year 2019 product revenue of $29.5 million, which topped guidance by $0.5 million. However, product gross margin of 47% missed guidance by 100 basis points.

Codexis issued full-year 2020 guidance expecting revenue of $78 million to $82 million, product revenue of $25 million to $27 million, and product gross margin of 43% to 47%. Wall Street was expecting $82.5 million in total revenue.

Now what

Investors are concerned that product revenue, the most important category of revenue, will be stagnant for the fourth straight year. While Codexis still expects to achieve double-digit revenue growth in 2020, that will only be possible due to nonrecurring up-front and milestone payments earned from drug development deals. Simply put, investors and analysts will have to adjust to the company's shifting focus to drug development and wonder why product revenue is stuck.