Executive Summary / Key Takeaways

• Strategic Transformation Underway: Codexis is undergoing a significant strategic pivot, transitioning from primarily an enzyme supplier to a full-service manufacturing innovator in oligonucleotide therapeutics, driven by its proprietary ECO Synthesis platform. This transformation is supported by recent leadership changes and a workforce reduction aimed at streamlining operations and focusing on high-growth areas.
• ECO Synthesis Platform: A Disruptive Technology: The ECO Synthesis platform offers substantial advantages over traditional phosphoramidite chemistry, including the potential for five times larger batches, 50% faster production, and 70% lower setup costs. Its ability to control stereochemistry and integrate with existing ligation methods positions it as a critical enabler for scalable and sustainable RNAi therapeutic manufacturing.
• Strengthened Financial Position and Clear Runway: A $37.8 million supply assurance agreement with Merck , expected in Q4 2025, combined with a 24% workforce reduction, is projected to extend Codexis' cash runway through 2027. This provides crucial capital for the commercialization of ECO Synthesis and the planned development of a GMP manufacturing facility.
• Dual Growth Strategy: While aggressively pursuing the ECO Synthesis and ligase businesses with 11 revenue-generating contracts and 40 more in the pipeline, Codexis maintains its profitable heritage Pharma Biocatalysis business. This segment, with 14 drugs in Phase III clinical trials, offers a stable foundation and favorable margins with minimal additional investment, supporting the higher-growth ECO initiatives.
• Execution, Not Invention, is Key: The company's immediate focus is on demonstrating the reproducibility, scalability, and regulatory acceptance of the ECO Synthesis platform through pilot-scale GLP production, securing a CDMO scale-up partner, and establishing a robust raw material supply chain. Success in these execution-focused milestones is expected to drive substantial revenue growth in the second half of 2025 and beyond, with a target of cash flow breakeven by the end of 2026.

The Dawn of a New Era: Codexis' Strategic Pivot

Codexis, Inc. (NASDAQ:CDXS), a biotechnology firm founded in 2002, has long been a specialist in enzymatic solutions, leveraging its proprietary CodeEvolver directed evolution technology platform to engineer high-performance enzymes. This foundational expertise has historically served the pharmaceutical industry by optimizing manufacturing processes for small molecule therapeutics, driving efficiencies through higher yields, increased purity, and reduced waste. The company's journey, marked by the acquisition of Maxygen's directed evolution technology in 2010, has now culminated in a pivotal strategic transformation: a focused shift towards becoming a full-service manufacturing innovator in the burgeoning field of oligonucleotide therapeutics.

This strategic evolution is not merely an incremental adjustment but a fundamental reorientation of Codexis' business model. The company is actively reducing its sales and marketing efforts in its heritage small molecule biocatalysis business, acknowledging changing market dynamics and pricing pressures that have diminished the return on investment for new enzyme development contracts in that segment. While this heritage business remains a crucial and profitable component, providing a stable foundation with 14 drugs in Phase III clinical trials expected to fuel growth with minimal additional investment, the future growth narrative is firmly centered on the Enzyme-Catalyzed Oligonucleotide (ECO) Synthesis platform. This platform, developed over the past two years, is designed to enable the large-scale, sustainable, and cost-effective manufacture of RNA interference (RNAi) therapeutics, a rapidly expanding class of medicines.

Technological Leadership: The ECO Synthesis Advantage

At the heart of Codexis' transformative strategy lies its ECO Synthesis platform, a testament to its deep-rooted expertise in enzyme engineering. This proprietary technology offers a first-of-its-kind enzymatic alternative to the traditional solid-phase oligonucleotide synthesis (SPOS) method, which has been the industry standard for over 40 years. The incumbent phosphoramidite chemistry is known for its high costs, significant waste generation, and scalability limitations, particularly as the demand for RNAi therapeutics grows for both rare and widespread disease indications.

The ECO Synthesis platform is engineered to overcome these challenges, delivering measurable and quantifiable advantages. Modeling indicates that this technology can enable batches that are five times larger, is 50% faster in production, and costs 70% less to stand up compared to phosphoramidite chemistry. These benefits are critical for drug innovators facing projected significant future material demand for their siRNA drugs. The platform supports two complementary approaches: sequential enzymatic synthesis, which builds RNA strands one nucleotide at a time, and enzymatic ligation, which stitches together fragments of chemically and/or enzymatically synthesized RNA.

A key differentiator is Codexis' ability to control stereochemistry during oligonucleotide synthesis, a feature largely unachievable with existing chemical methods that produce mixtures of mirror images with varying therapeutic potency. The enzymatic approach provides a high degree of control over chirality, offering customers the choice to define the composition of their oligo products, potentially boosting therapeutic potency and market position. Furthermore, the company's proprietary machine learning tool for optimized ligase selection and fragment design has demonstrated significant improvements, outperforming traditional fragment selection by four to sixfold and increasing the probability of identifying fragment designs for efficient ligation with greater than 90% efficiency. This innovation shortens process development time and lowers costs for customers.

The CodeEvolver platform, Codexis' core enzyme engineering technology, is instrumental in achieving these breakthroughs. It uniquely empowers scientists to overcome nature's limitations, enabling the substantial enzyme modifications required for the at-scale process needs of ECO Synthesis. This includes engineering a highly efficient terminal deoxynucleotidyl transferase (TdT) enzyme for nucleotide incorporation and an optimized phosphatase for deblocking, both critical for the iterative oligo extension cycle. The process operates under mild, aqueous conditions, reducing solvent use, waste, and complexity, while demonstrating a 99% average coupling efficiency across enzymatic sequential synthesis cycles and compatibility with various modified nucleotides.

Competitive Landscape and Strategic Positioning

The biotechnology and enzyme engineering sectors are intensely competitive, with Codexis facing rivals across various segments. In the broader enzyme market, companies like Novozymes A/S (NVZMY), DuPont Industrial Biosciences (DD), and DSM (DSFIR) present formidable competition with their substantial resources and diversified portfolios. These larger players often have established global presences and broader ranges of standardized enzyme solutions. However, Codexis differentiates itself through its specialized focus on custom biocatalysts and protein engineering, offering greater depth of customization for targeted pharmaceutical applications.

In the performance enzymes for pharmaceutical products market, Codexis competes with companies marketing conventional non-enzymatic processes, manufacturers of pharmaceutical intermediates and APIs, and existing in-house technologies within client companies. The principal competitive factors here are price, product quality, performance (including manufacturing yield, safety, and environmental benefits), and speed of delivery. While large industrial enzyme companies like Novozymes and DuPont, and CDMO subsidiaries like DSM-Firmenich AG, Cambrex Corporation, and Lonza Group (LZAGY), also operate in this space, Codexis' CodeEvolver platform allows it to solve complex problems that competitors often cannot, leading to a "gold standard" reputation in enzyme engineering.

The emerging RNAi therapeutics manufacturing market, where ECO Synthesis is positioned, presents a distinct competitive arena. The current industry standard is solid-phase oligonucleotide synthesis using phosphoramidite chemistry, with primary competitors including CDMOs like Agilent Technologies (A), which have made significant capital investments in this traditional method. Incremental improvements to phosphoramidite chemistry, such as ligation-based approaches and liquid-phase synthesis, are also being pursued by CDMOs and large pharmaceutical companies. Furthermore, early-stage competitors like EnPlusOne Biosciences and a UK-based consortium are also pursuing fully enzymatic approaches.

Codexis' strategic positioning in this evolving landscape is multifaceted. Its ligase business, which enhances conventional chemical siRNA synthesis, directly competes on performance against existing alternatives, offering a "better mousetrap" that has attracted customers who previously failed to achieve desired performance from competitor and wild-type ligases. This ligase business serves as a crucial "bridge" to the full ECO Synthesis platform.

The company views CDMOs as "ideal first movers" for ECO Synthesis because they understand the time required to ramp up capacity and are eager to build infrastructure to meet future siRNA manufacturing demand. Collaborations with CDMOs like Bachem, Nitto Avecia (NDEKY), and ST Pharm, who have validated the transferability of Codexis' ligation processes to their in-house facilities, underscore the platform's robustness and ease of adoption. This model benefits both Codexis and the CDMOs, as Codexis can funnel drug innovator customers to its CDMO partners for commercial scale-up.

Codexis' competitive advantages stem from its proprietary CodeEvolver platform, which enables rapid and targeted enzyme optimization, and its deep expertise in biocatalyst development. This translates into enhanced efficiency in manufacturing processes, potentially leading to superior margins through reduced waste and faster innovation cycles. The ability to control chirality and the proven performance of its ligase in 3-kilogram batch production further solidify its technological moat.

However, vulnerabilities exist, including a history of net losses and dependence on a limited number of customers, which can lead to revenue volatility. The ECO Synthesis platform, while promising, is based on novel ideas and technologies that are largely unproven at commercial scale, posing risks of delays or failures that could hinder growth. Competitors with greater resources could also develop products that make Codexis' offerings obsolete. Despite these challenges, Codexis' strategic focus on innovation, sustainability, and market expansion, coupled with its commitment to cost control, positions it to capitalize on the increasing adoption of biocatalysis in various sectors.

Financial Performance and Operational Momentum

Codexis has demonstrated a mixed financial performance in recent periods, reflecting its ongoing strategic transition. For the nine months ended September 30, 2025, total revenues decreased to $31.47 million from $37.88 million in the prior year period. This decline was primarily driven by a $6.72 million decrease in product revenue, which fell to $20.25 million, largely due to variability in customers' manufacturing schedules and clinical trial progression. Research and development revenue, however, saw a modest increase to $11.23 million from $10.92 million, primarily due to higher license and milestone revenue recognized in 2025, partially offset by a $6 million one-time revenue from a Roche (RHHBY) licensing agreement in Q1 2024 that did not recur.

Despite the revenue fluctuations, product gross margins improved, reaching 64% for both the three and nine months ended September 30, 2025, up from 61% and 53% respectively in the corresponding prior year periods. This improvement is attributed to a strategic shift in sales toward more profitable products and declines in less profitable legacy products.

Operating expenses have seen strategic adjustments. Research and development expenses increased by $6.42 million to $40.59 million for the nine months ended September 30, 2025, driven by higher employee-related costs, lab supplies, and allocable costs, reflecting the company's investment in the ECO Synthesis platform. Conversely, selling, general and administrative expenses decreased by $6.21 million to $35.89 million, primarily due to lower stock-based compensation, legal costs, consulting, and outside services. The net loss for the nine months ended September 30, 2025, was $53.58 million, a slight decrease from $54.90 million in the prior year, primarily due to lower operating expenses.

The company's liquidity has been significantly bolstered by strategic financing activities. As of September 30, 2025, Codexis held $58.7 million in cash, cash equivalents, and investments. A critical development in October 2025 was the signing of a $37.8 million enzyme supply assurance agreement with Merck , with the payment expected in Q4 2025. This non-dilutive cash infusion, combined with a recent workforce reduction of approximately 24% (expected to reduce burn by 25%), is projected to extend the company's cash runway through 2027. This provides crucial capital to execute on business plans, including the development of a GMP manufacturing facility.

Outlook and Strategic Roadmap

Codexis is poised for a transformative period, with a clear strategic roadmap focused on the commercialization of its ECO Synthesis platform. The company has reiterated its 2025 revenue guidance in the range of $64 million to $68 million, expecting double-digit revenue growth across its entire revenue base. This growth is anticipated to be heavily weighted towards the second half of the year, driven by the signing and execution of contracts in the ligase and ECO Synthesis businesses. Management is confident in achieving or slightly exceeding the top end of this guidance, particularly with the Merck agreement.

Key milestones for 2025 include achieving pilot-scale GLP-grade siRNA production in the ECO Innovation Lab, securing a GMP scale-up partner, and establishing a robust raw material supply chain, especially for NQPs. These steps are crucial for demonstrating a secure path forward for partners and removing barriers to customer adoption. The company anticipates entering a partnership with a large-scale CDMO in the near term to synthesize GMP-grade siRNA drug substance. Furthermore, Codexis plans to build its own kilogram-scale GMP facility, which, while not a massive immediate spend, is viewed as an accelerator for major revenues and will be funded incrementally, with capital costs weighted towards 2026 and operating costs towards late 2026/2027.

The long-term vision involves locking in as many early-phase products as possible onto the ECO platform, anticipating compelling returns as these assets mature into late-phase and commercial drugs. The company aims to be the direct supplier of siRNA, competing on quality, timeliness, and cost. For smaller drug innovators, Codexis intends to be a full development partner, offering not just cost-effective drug supply but also analytical and regulatory support, shifting the market opportunity from production cost to asset value.

Leadership changes, with Alison Moore succeeding Stephen Dilly as CEO and Dilly transitioning to Executive Chair, are intended to align the organization with this strategic focus. Moore's deep experience in process development, manufacturing, and supply chain management, particularly in scaling genomic medicines, is expected to be instrumental in executing the ECO Synthesis strategy. The reconfigured sales force under Britton Jimenez will further expand the customer base in oligonucleotide therapeutics.

Risks and Considerations

Despite the promising outlook, investors should be mindful of several risks. Codexis has a history of net losses, with an accumulated deficit of $616.4 million as of September 30, 2025, and may not achieve or maintain profitability. The ECO Synthesis platform, while innovative, is based on novel technologies that are largely unproven at commercial scale, and failure to validate performance or demonstrate regulatory acceptance could impede customer adoption.

The company's dependence on a limited number of customers, with 55% of total revenue from customers contributing 10% or more in the nine months ended September 30, 2025, exposes it to significant revenue fluctuations if these relationships are lost or curtailed. The unpredictability of customer orders and revenue recognition, particularly in the heritage business, can lead to quarter-to-quarter variability in operating results.

Strategic shifts inherently carry risks, including the possibility of failing to capitalize on other potentially more profitable opportunities. The workforce reduction, while aimed at streamlining, may introduce execution risks during the transition. Furthermore, the company operates in a highly regulated industry and uses hazardous materials, exposing it to regulatory compliance risks and potential liabilities. Intellectual property protection is crucial, and challenges to patents or claims of infringement by third parties could result in costly litigation and hinder commercialization efforts.

Conclusion

Codexis stands at a pivotal juncture, transforming its business to capitalize on the burgeoning RNAi therapeutics market through its innovative ECO Synthesis platform. The company's deep expertise in enzyme engineering, embodied by its CodeEvolver technology, provides a distinct competitive advantage, offering quantifiable benefits in scalability, speed, cost, and product quality over traditional manufacturing methods. The recent Merck (MRK) agreement and strategic restructuring have significantly strengthened its financial position, providing a clear runway to execute its ambitious commercialization plans and achieve cash flow breakeven by the end of 2026.

While the path forward involves inherent risks associated with a disruptive technology and customer concentration, Codexis' dual strategy of leveraging its stable, profitable heritage business while aggressively pursuing the high-growth ECO Synthesis opportunity appears well-conceived. The focus on execution, validated by early customer engagements and CDMO collaborations, underscores management's confidence in translating technological prowess into meaningful commercial traction. For discerning investors, Codexis presents a compelling narrative of a company engineering a greener, more efficient future for RNAi therapeutics, with its technological leadership and strategic clarity positioning it for long-term value creation.