Codexis (CDXS) may be moving closer to profitability, after beating slowdown

Biosciences company Codexis, Inc. (NASDAQ: CDXS) has emerged stronger from a rough patch, supported mainly by the resilience of its partners to the virus crisis. The recent improvement in fiscal performance has raised hopes that the business is getting back on track and would turn profitable this year.

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After hitting an all-time high this week, shares of the Silicon Valley-based protein engineering firm withdrew slightly but continued to trade close to the peak. The value more than doubled in the past six months and that makes the stock look overvalued in relation to earnings. While a pullback is imminent in the coming weeks the long-term prospects remain bright, thanks to the favorable shift in market conditions and the growth of life science applications.

The company’s larger-volume manufacturing partners have remained largely unaffected, thereby reducing the impact of the COVID crisis on it. Currently, the R&D section is operating in full capacity, matching the pre-pandemic levels.

Strategic Tie-ups

Going forward, the management’s focus will be on partnerships with biotechnology and pharmaceutical companies, such as the ongoing tie-up with Merck & Company, Inc. (MRK) and Allergan plc. (AGN), to support the drug manufacturing process. On the development front, multiple therapeutics programs are currently progressing in collaboration with healthcare companies Nestle HealthScience and Takeda. A positive response from the FDA to Urovant Sciences’ vibegron, which is being developed with the support of Codexis, should catalyze the latter’s performance this year.

From Codexis’ Q3 2020 earnings conference call:

“As we look to 2021, yes, we believe long-term that we’re going to be accelerating product revenues as a class over the long – over a multiyear period well above our average – total average corporate revenue growth. And we hope and believe above our historic growth rate. Our historical growth rate of this company has been somewhere in the mid-teens. So what gives us that confidence is fundamentally long-term is the strength and stability of the historical sales that we’ve developed and commercialized over the years…”

Shot in the Arm

The business was affected by the coronavirus-linked disruption initially but got back on track in the latter part of the year as drug development activities resumed. It is estimated that in fiscal 2020, total revenues were in line with 2019 levels. But the bottom-line might come under pressure from an increase in operating expenses.

Codexis mainly depends on non-recurring revenues from medicine development partnerships, with product sales being the primary revenue source. So, it is essential to have a significant number of active partnerships to ensure smooth revenue flow, and the company looks on track in that respect. On the flip side, actual returns from such collaborations depend on the success of the respective clinical development programs and related factors like FDA approval and marketing.

Elusive Profit

Codexis slipped to a loss of $0.06 per share in the third quarter from earnings of $0.04 per share last year, reflecting a 16% contraction in revenues to $18.4 million. Still, the outcome brought cheer to shareholders as analysts were looking for a wider loss and slower revenue growth. The bottom-line either beat or matched estimates in each of the last four quarters.

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Read management/analysts’ comments on quarterly earnings reports

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Shares of Codexis traded slightly lower early Thursday, after closing the previous session down 3%. They have gained 18% since the beginning of the year and outperformed the market.