Countdown To Codexis’ Day Of Reckoning

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It is earnings season and bio-catalyst developer Codexis (CDXS:  Nasdaq) is expected to report fourth quarter and year-end 2017 financial results in the coming weeks.  The three analysts who regularly publish estimates for the company expect a nickel profit in the quarter on $23 million in total sales of the company’s custom protein catalysts.  Codexis is still perfecting its proprietary platform technology called CodeEvolver, but has already delivered an array of unique enzymes that help drive critical biological processes for its customers.

Codexis does not have a good track record in terms of meeting the consensus estimate.  The company has only cleared the hurdle once in the last four quarters.  Despite the string of reporting disappointments, publishing analysts has held firm in their estimates.

Multiple use cases are part of the appeal for Codexis.  This is an advantage that smooths over near-term earnings shortfalls  –  at least in the hearts and minds of investors.  The company serves customers in the pharmaceutical, biotherapeutics, food, and beverage industries.  It protein catalysts create efficiencies in manufacturing processes and enhance end-product effectiveness.

For example, once a pharmaceutical company develops an effective compound, it must figure out how to manufacture it cost effectively at large scale.  The protein engineering knowledge of Codexis helps optimize the enzymes needed in the pharmaceutical company’s active ingredients.  The company played a role in the commercialization of Januvia, a popular drug for treatment of Type 2 diabetes made by Merck.  The company claims that the high-performance enzyme catalyst that was created by Codexis for Merck to increase the production efficiency.

Codexis does not always wait for a customer to come forward.  In 2014, the company announced the completion of development work on a novel enzyme for potential treatment of phenylketonurai.   Called PKU for short, this disease is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient.  When this happens, phenylalanine accumulates in the brain causing neurological issues such as seizures and behavioral problems.  Codexis has been able to prove its enzyme in animal studies.  With proof of concept behind it, the company is now seeking partners for a commercial product.

Codexis has already found a partner in the food and beverage industries.  One of the United Kingdom’s largest ingredients suppliers, Tate & Lyle, sought out Codexis for help with its manufacturing process.  The two have formed a partnership based on Codexis’ CodeEvolver platform.  The platform has helped improve the Tate & Lyle manufacturing process by designing highly engineered enzymes.

Codexis is expected to announce year-end results in the first week in March.  In the conference call that follows expect management to make comments on a mix of topics.  The partnership with Nestle Health Sciences that was inked earlier in 2017 will probably again be a focus of questions from analysts.  When the company reported financial results for the quarter ending September 2017, management had predicted that the Nestle relationship would contribute significantly to fourth quarter results.  Guidance for the fourth quarter 2017 was sales in a range of $50 million to $53 million.  That seems to have fallen on deaf ears among the analysts who cover the company, as they kept their predictions at significantly lower figures.  The countdown to Codexis management’s day of reckoning draws near.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.  Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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