Segment, Geographical and Other Revenue Information

Segment Information

As discussed in Note 2, "Basis of Presentation and Summary of Significant Accounting Policies," beginning in 2018, we identified our biotherapeutics business as a standalone business segment. Our two reportable business segments as of January 1, 2018, consisted of Performance Enzymes and Novel Biotherapeutics.

We report corporate-related expenses such as legal, accounting, information technology, and other costs that are not otherwise included in our reportable business segments as "Corporate costs." All items not included in income (loss) from operations are excluded from the business segments.

We manage our assets on a total company basis, not by business segment, as the majority of our operating assets are shared or commingled. Our CODM does not review asset information by business segment in assessing performance or allocating resources, and accordingly, we do not report asset information by business segment.

Performance Enzymes

We initially commercialized our CodeEvolver^® protein engineering technology platform and products in the pharmaceuticals market, and to date this continues to be our largest market served. Our customers, which include many large global pharmaceutical companies, use our technology, products and services in their manufacturing processes and process development. We have also used the technology to develop customized enzymes for use in other industrial markets. These markets consist of several large industrial verticals, including food and food ingredients, animal feed, flavors, fragrances, and agricultural chemicals. We also use our technology to develop enzymes for customers using NGS and PCR/qPCR for in vitro molecular diagnostic and molecular biology research applications.

Novel Biotherapeutics

We are also targeting new opportunities in the pharmaceutical industry to discover, improve, and/or develop biotherapeutic drug candidates. We believe that our CodeEvolver^® protein engineering platform technology can be used to discover novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions. Similarly, we believe that we can deploy our platform technology to improve specific characteristics of a customer’s pre-existing biotherapeutic drug candidate, such as its activity, stability or immunogenicity. Most notable is our lead program for the potential treatment of PKU in humans. PKU is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient. In October 2017, we announced a strategic collaboration with Nestlé Health Science to advance CDX-6114, our own novel orally administrable enzyme therapeutic candidate for the potential treatment of PKU disease. In July 2018, we announced that we had dosed the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114. On November 8, 2018, we announced top-line results from the Phase 1a study in healthy volunteers with CDX-6114. We have also developed a pipeline of other biotherapeutic drug candidates in which we expect to continue to make additional investments with the aim of advancing additional product candidates targeting other therapeutic areas. For the three and nine months ended September 30, 2018, all revenues related to the Novel Biotherapeutics segment were generated from our collaboration with Nestlé Health Science. There was no revenue related to the Novel Biotherapeutics segment for the three and nine months ended September 30, 2017.

Our CODM regularly reviews our segments and the approach provided by management for performance evaluation and resource allocation.

In the second quarter of 2018, we made a change in the segment measurement for allocating operating expenses between our two reporting segments. The remaining expenses have been allocated to corporate costs. This change in measurement only impacts our segment disclosures, and it has no impact on our overall consolidated financial statements.

We revised the allocation of operating expenses between the two segments based on better insight and improved judgment during the second quarter of 2018. Operating expenses that directly support the segment activity are allocated based on segment headcount, revenue contribution or activity of the business units within the segments, based on the corporate activity type provided to the segment. The expense allocation excludes certain corporate costs that are separately managed from the segments.

Management believes that the current allocation of research and development expenses provides a more accurate presentation of how the segments utilize research and development support activities as compared to the method previously used. This provides the CODM with more meaningful segment profitability reporting to support operating decisions and allocate resources.

Following the change, we reclassified the research and development cost of $0.3 million from Performance Enzyme to Novel Biotherapeutics for the three months ended March 31, 2018 and we reclassified research and development cost of $0.1 million from Novel Biotherapeutics to Performance Enzyme for the three months ended March 31, 2017.

Segment results for the three and nine months ended September 30, 2018 and 2017 have been revised to reflect this change in operating segment measurement.

The following table provides financial information by our reportable business segments along with a reconciliation to consolidated loss before income taxes (in thousands):



	Three months ended September 30, 2018							Three months ended September 30, 2017
	Performance Enzymes		Novel Biotherapeutics		Total			Performance Enzymes			Novel Biotherapeutics			Total
Revenues:
Product revenue	$	8,405	$	—	$	8,405		$	6,948		$	—		$	6,948
Research and development revenue	3,720		4,821		8,541			3,036			—			3,036
Total revenues	12,125		4,821		16,946			9,984			—			9,984
Costs and operating expenses:
Cost of product revenue	3,791		—		3,791			3,976			—			3,976
Research and development⁽¹⁾	4,758		2,920		7,678			4,410			3,474			7,884
Selling, general and administrative	1,870		165		2,035			1,649			—			1,649
Total segment costs and operating expenses	10,419		3,085		13,504			10,035			3,474			13,509
Income (loss) from operations	$	1,706	$	1,736	$	3,442		$	(51	)	$	(3,474	)	$	(3,525	)
Corporate costs⁽²⁾					(5,120		)							(6,310		)
Depreciation					(309		)							(241		)
Loss before income taxes					$	(1,987	)							$	(10,076	)

⁽¹⁾Research and development expenses exclude depreciation.

⁽²⁾Corporate costs include unallocated selling, general and administrative expense, interest income, and other income and expenses.



	Nine months ended September 30, 2018							Nine months ended September 30, 2017
	Performance Enzymes		Novel Biotherapeutics		Total			Performance Enzymes			Novel Biotherapeutics			Total
Revenues:
Product revenue	$	18,291	$	—	$	18,291		$	19,134		$	—		$	19,134
Research and development revenue	15,728		10,507		26,235			9,167			—			9,167
Total revenues	34,019		10,507		44,526			28,301			—			28,301
Costs and operating expenses:
Cost of product revenue	10,228		—		10,228			10,768			—			10,768
Research and development⁽¹⁾	14,548		7,294		21,842			12,582			7,134			19,716
Selling, general and administrative	5,695		615		6,310			5,238			—			5,238
Total segment costs and operating expenses	30,471		7,909		38,380			28,588			7,134			35,722
Income (loss) from operations	$	3,548	$	2,598	$	6,146		$	(287	)	$	(7,134	)	$	(7,421	)
Corporate costs⁽²⁾					(15,762		)							(15,618		)
Depreciation					(812		)							(795		)
Loss before income taxes					$	(10,428	)							$	(23,834	)

⁽¹⁾Research and development expenses exclude depreciation.

⁽²⁾Corporate costs include unallocated selling, general and administrative expense, interest income, and other income and expenses.

The following table provides stock-based compensation expense included in income (loss) from operations by segment (in thousands):



	Three months ended September 30, 2018						Three months ended September 30, 2017
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Stock-based compensation	$	354	$	97	$	451	$	607	$	55	$	662



	Nine months ended September 30, 2018						Nine months ended September 30, 2017
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Stock-based compensation	$	2,005	$	243	$	2,248	$	1,670	$	154	$	1,824

Significant Customers

Customers that each contributed 10% or more of our total revenues were as follows:



	Percentage of Total Revenues for the
	Three Months Ended September 30,		Nine Months Ended September 30,
	2018	2017	2018	2017
Customer A	27%	27%	33%	37%
Customer B	28%	*	24%	*
Customer C	10%	11%	17%	11%
Customer D	15%	29%	11%	18%
Customer E	*	10%	*	*

Customers that each contributed 10% or more of our total accounts receivable had the following balances as of the periods presented:



	Percentage of Accounts Receivables at
	September 30, 2018	December 31, 2017
Customer A	45%	31%
Customer B	10%	*
Customer C	*	16%
Customer D	10%	15%
Customer F	*	14%
Customer G	11%	*

* Less than 10% of the period presented

Geographical Information

Geographic revenues are identified by the location of the customer and consist of the following (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Revenues
Americas	$	4,315	$	3,606	$	13,968	$	9,795
EMEA	6,274		3,415		15,075		8,581
APAC	6,357		2,963		15,483		9,925
Total revenues	$	16,946	$	9,984	$	44,526	$	28,301

Identifiable long-lived assets as follows (in percentage):



Long-lived assets:	September 30, 2018		December 31, 2017
United States	100	%	100	%