In March, the coronavirus pandemic forced Codexis (CDXS -0.71%) to temporarily close its research facilities. Although the company began reopening in May and expects to be close to full operating capacity by the end of the summer, the coronavirus pandemic had a negative impact on the business by delaying research projects and the recognition of research and development (R&D) revenue. 

It was pretty difficult to tell, though. In the second quarter of 2020, Codexis saw revenue jump 21% compared to the year-ago period, catalyzed by a 72% increase in collaboration revenue. The impressive quarter wouldn't have been possible without surging R&D revenue from Novartis and Takeda.

That said, given the company's business model, does it really matter for the small-cap stock? Here's what investors need to know about the latest operating results.

A fish jumping from a small fishbowl to a larger one.

Image source: Getty Images.

By the numbers

Codexis is an enzyme engineering company. Enzymes are biological catalysts that drive the chemical reactions that power all living things. They can also be used to improve the efficiency of industrial manufacturing processes, power diagnostic tests, treat diseases, and more. The business generates revenue from selling enzymes, collecting upfront and milestone payments from research collaborations, and licensing access to its enzyme engineering software platform, CodeEvolver. 

Ideally, investors should prioritize the long-term growth of product revenue, which tends to be high-margin, recurring (although not always in neat quarterly periods), and diverse. On the other hand, R&D revenue tends to be choppy, non-recurring, and concentrated within a handful of partnerships.

Codexis has struggled to grow product revenue in recent years (product revenue in 2020 might be lower than the total from 2017), but has leaned on surging R&D revenue to grow total revenue. That's fine so long as collaborations lead to commercialized products, although investors have to largely take a leap of faith in the interim. 

The "leap of faith" dilemma facing investors is reflected in second-quarter and first-half 2020 operating results. 


First Half 2020

First Half 2019

Change (YoY)

Product revenue

$9.6 million

$14.2 million


R&D revenue

$20.0 million

$13.7 million


Total revenue

$29.6 million

$27.9 million


Product gross margin



610 basis points

Operating income

($13.9 million)

($11.8 million)


Operating cash flow

($11.5 million)

($7.9 million)


Data source: SEC filing. YoY = Year over Year.

In the second quarter specifically, Codexis grew total revenue 21% compared to the year-ago period, but only due to significant payouts from Novartis and Takeda. Product revenue declined and R&D revenue would have, too, if not for the Novartis and Takeda collaborations.

That said, the composition of revenue and year-over-year trends aren't too surprising. Codexis expected revenue for the year to be biased toward collaborations. Initial full-year 2020 guidance, withdrawn due to the coronavirus pandemic, expected revenue of at least $78 million (up from $68.5 million in 2019) including about $26 million in product revenue (down from $29 million in 2019).

Looking ahead

Codexis made a point to highlight progress within its project pipeline, which includes enzyme engineering projects in drug manufacturing, R&D tools, food ingredients, industrial enzymes, and novel therapeutics. Investors should be encouraged by the pipeline's overall growth trend: 


First Half 2020

First Half 2018

First Half 2016

Partnered projects




Self-funded projects




Total projects




Data source: Codexis.

Adding more development-stage projects to the pipeline provides more opportunities to commercialize enzymes and, therefore, increase product revenue in the long run. But investors can't get too carried away. 

Codexis reported product revenue of $27 million in 2017, $26 million in 2018, and $29 million in 2019. Initial guidance expected full-year 2020 product revenue of only $26 million. In other words, a healthy pipeline doesn't mean much if it doesn't churn out commercialized products.

A boring quarter, but boring can be good in investing

Codexis had a relatively ho-hum second quarter, but boring can be a great thing for investors, especially during periods of economic uncertainty. 

It was encouraging to see R&D revenue offset overall weakness from the coronavirus pandemic. Likewise, surging collaboration revenue is helping to keep operating losses in check as the company scales operations and invests in its project pipeline. That said, investors can't forget that product revenue remains the most important metric for long-term success. Codexis still has more left to prove on that front, but it's putting together an encouraging effort.