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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-34705
___________________________
Codexis, Inc.
(Exact name of registrant as specified in its charter)
_____________________________________________
Delaware 71-0872999
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
200 Penobscot Drive, Redwood City, California
 94063
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (650) 421-8100

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTradingName of Each Exchange on Which Registered
Symbol(s)
Common Stock, par value $0.0001 per shareCDXSThe Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of November 1, 2022, there were 65,687,012 shares of the registrant’s Common Stock, par value $0.0001 per share, outstanding.
1





Codexis, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2022


TABLE OF CONTENTS
 PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.

2



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Codexis, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In Thousands, Except Per Share Amounts)
September 30, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$108,689 $116,797 
Restricted cash, current528 579 
Financial assets:
Accounts receivable16,527 24,953 
Contract assets5,867 4,557 
Unbilled receivables7,490 8,558 
   Total financial assets29,884 38,068 
        Less: allowances(109)(416)
        Total financial assets, net29,775 37,652 
Inventories1,623 1,160 
Prepaid expenses and other current assets5,382 5,700 
Total current assets145,997 161,888 
Restricted cash1,520 1,519 
Investment in non-marketable equity securities ($13,921 and $12,713 with a related party)
20,510 14,002 
Right-of-use assets - Operating leases, net40,493 44,095 
Right-of-use assets - Finance leases, net 17 
Property and equipment, net23,319 21,345 
Goodwill3,241 3,241 
Other non-current assets208 276 
Total assets$235,288 $246,383 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$2,621 $2,995 
Accrued compensation9,463 11,119 
Other accrued liabilities12,992 12,578 
Current portion of lease obligations - Operating leases5,230 4,093 
Deferred revenue ($0 and $245 to a related party)
1,602 2,586 
Total current liabilities31,908 33,371 
Deferred revenue, net of current portion8,238 3,749 
Long-term lease obligations - Operating leases39,655 43,561 
Other long-term liabilities1,356 1,311 
Total liabilities81,157 81,992 
Commitments and Contingencies (Note 10)
Stockholders' equity:
Preferred stock, $0.0001 par value per share; 5,000 shares authorized, none issued and outstanding
  
Common stock, $0.0001 par value per share; 100,000 shares authorized;
65,613 shares and 65,109 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
6 6 
Additional paid-in capital562,811 552,083 
Accumulated deficit(408,686)(387,698)
Total stockholders' equity154,131 164,391 
Total liabilities and stockholders' equity$235,288 $246,383 

See accompanying notes to the unaudited condensed consolidated financial statements.
3



Codexis, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Amounts)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Revenues:
Product revenue ($215, $0, $358 and $0 from a
related party)
$28,042 $28,731 $93,376 $53,674 
Research and development revenue ($1,000, $199,
$1,245 and $675 from a related party)
6,428 8,038 14,839 26,579 
Total revenues34,470 36,769 108,215 80,253 
Costs and operating expenses:
Cost of product revenue9,786 6,867 29,577 15,403 
Research and development21,821 15,165 60,410 39,562 
Selling, general and administrative13,499 13,407 39,859 37,600 
Total costs and operating expenses45,106 35,439 129,846 92,565 
Income (loss) from operations(10,636)1,330 (21,631)(12,312)
Interest income436 41 618 424 
Other income, net216 983 150 920 
Income (loss) before income taxes(9,984)2,354 (20,863)(10,968)
Provision for income taxes8 110 125 121 
Net income (loss)$(9,992)$2,244 $(20,988)$(11,089)
Net income (loss) per share, basic$(0.15)$0.03 $(0.32)$(0.17)
Net income (loss) per share, diluted$(0.15)$0.03 $(0.32)$(0.17)
Weighted average common stock shares used in computing net income (loss) per share, basic65,426 64,628 65,271 64,452 
Weighted average common stock shares used in computing net income (loss) per share, diluted65,426 67,741 65,271 64,452 
See accompanying notes to the unaudited condensed consolidated financial statements.
4



Codexis, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In Thousands)
Common StockAdditional
Paid-in
Capital
Accumulated DeficitTotal Stockholders' Equity
Three Months Ended September 30, 2022SharesAmount
Balance as of July 1, 2022
65,494 $6 $558,147 $(398,694)$159,459 
Exercise of stock options77 — 180 — 180 
Release of stock awards47 — — — — 
Employee stock-based compensation— — 4,516 — 4,516 
Non-employee stock-based compensation— — 15 — 15 
Taxes paid related to net share settlement of equity awards(5)— (47)— (47)
Net loss— — — (9,992)(9,992)
Balance as of September 30, 2022
65,613 $6 $562,811 $(408,686)$154,131 
Common StockAdditional
Paid-in
Capital
Accumulated DeficitTotal Stockholders' Equity
Three Months Ended September 30, 2021SharesAmount
Balance as of July 1, 2021
64,623 $6 $542,519 $(379,752)$162,773 
Exercise of stock options210 — 1,022 — 1,022 
Employee stock-based compensation— — 2,955 — 2,955 
Non-employee stock-based compensation— — 61 — 61 
Net income— — — 2,244 2,244 
Balance as of September 30, 2021
64,833 $6 $546,557 $(377,508)$169,055 
See accompanying notes to the unaudited condensed consolidated financial statements.
5



Codexis, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In Thousands)
Common StockAdditional
Paid-in
Capital
Accumulated DeficitTotal Stockholders' Equity
Nine Months Ended September 30, 2022SharesAmount
Balance as of January 1, 2022
65,109 $6 $552,083 $(387,698)$164,391 
Exercise of stock options252 — 612 — 612 
Release of stock awards332 — — — — 
Employee stock-based compensation— — 11,467 — 11,467 
Non-employee stock-based compensation— — 133 — 133 
Taxes paid related to net share settlement of equity awards(80)— (1,484)— (1,484)
Net loss— — — (20,988)(20,988)
Balance as of September 30, 2022
65,613 $6 $562,811 $(408,686)$154,131 


Common StockAdditional
Paid-in
Capital
Accumulated DeficitTotal Stockholders' Equity
Nine Months Ended September 30, 2021SharesAmount
Balance as of January 1, 2021
64,283 $6 $536,516 $(366,419)$170,103 
Exercise of stock options423 — 2,700 — 2,700 
Release of stock awards181 — — — — 
Employee stock-based compensation— — 8,360 — 8,360 
Non-employee stock-based compensation— — 187 — 187 
Taxes paid related to net share settlement of equity awards(54)— (1,206)— (1,206)
Net loss— — — (11,089)(11,089)
Balance as of September 30, 2021
64,833 $6 $546,557 $(377,508)$169,055 

See accompanying notes to the unaudited condensed consolidated financial statements.
6



Codexis, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
Nine Months Ended September 30,
 20222021
Operating activities:
Net loss$(20,988)$(11,089)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation3,961 2,143 
Amortization expense - right-of-use assets - operating and finance leases3,618 1,980 
Stock-based compensation11,600 8,547 
Provision (recovery) for credit losses(307) 
Equity securities earned from research and development activities from a related party(1,245)(675)
Unrealized gain on non-marketable securities(208)(1,033)
Other non-cash items(29)(19)
Changes in operating assets and liabilities:
Financial assets8,184 (19,633)
Inventories(463)(120)
Prepaid expenses and other assets429 (1,195)
Accounts payable(351)575 
Accrued compensation and other accrued liabilities2,279 7,036 
Other long-term liabilities(3,863)(2,324)
Deferred revenue3,750 880 
Net cash provided by (used in) operating activities6,367 (14,927)
Investing activities:
Purchase of property and equipment(8,340)(8,348)
Proceeds from sale of property and equipment29 36 
Investment in non-marketable securities(5,300)(7,630)
Net cash used in investing activities(13,611)(15,942)
Financing activities:
Proceeds from exercises of stock options612 2,700 
Costs incurred in connection with equity financing(42)(153)
Taxes paid related to net share settlement of equity awards(1,484)(1,206)
Net cash provided by (used in) financing activities(914)1,341 
Net decrease in cash, cash equivalents and restricted cash(8,158)(29,528)
Cash, cash equivalents and restricted cash at the beginning of the period118,895 150,817 
Cash, cash equivalents and restricted cash at the end of the period$110,737 $121,289 
Supplemental disclosure of cash flow information:
Interest paid$22 $6 
Income taxes paid$100 $101 
Supplemental non-cash investing and financing activities:
Capital expenditures incurred but not yet paid$128 $2,012 

7



The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets as of September 30, 2022 and 2021 to the total of the same such amounts shown above in the unaudited condensed consolidated statements of cash flows:

 September 30,
 20222021
Cash and cash equivalents$108,689 $119,189 
Restricted cash, current and non-current 2,048 2,100 
Total cash, cash equivalents and restricted cash$110,737 $121,289 
See accompanying notes to the unaudited condensed consolidated financial statements.
8



Codexis Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of Business
In these notes to the unaudited condensed consolidated financial statements, the “Company,” “we,” “us,” and “our” refers to Codexis, Inc. and its subsidiaries on a consolidated basis.
We discover, develop and sell enzymes and other proteins that deliver value to our clients in a growing set of industries to commercialize an increasing number of novel enzymes, both as proprietary Codexis products and in partnership with our customers.
We report our financial results based on two reportable segments: Performance Enzymes and Novel Biotherapeutics. The segment information aligns with how the chief operating decision maker (CODM), who is our Chief Executive Officer (CEO), reviews and manages the business.
Business Update Regarding COVID-19
We are subject to risks and uncertainties as a result of the current COVID-19 pandemic. The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the U.S. economy and other economies worldwide. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and may not be accurately predicted, including the duration and severity of the pandemic, the prevalence of more contagious and or virulent variants, and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
To date, we and our collaboration partners have been able to continue to supply our enzymes to our customers worldwide. However, we are dependent on our manufacturing and logistics partners and consequently, disruptions in operations of our partners and customers may affect our ability to supply enzymes to our customers. Furthermore, our ability to provide future R&D services may continue to be impacted by any disruptions in operations of our customers with whom we collaborate. We believe that these disruptions have had a minimal impact on revenue for the three and nine months ended September 30, 2022. The extent to which the pandemic may impact our business operations and operating results will continue to remain highly dependent on future developments, which are uncertain and cannot be predicted with confidence. Should these disruptions escalate in the future, they may negatively and materially impact our business, results of operations and financial condition.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial information but does not include all the information and notes required by GAAP for complete financial statements. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2021. The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements. The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022 and 2021, are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 2021 Annual Report on Form 10-K and are updated below as necessary. There have been no significant changes in our significant accounting policies or critical accounting estimates since December 31, 2021.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly our financial position as of September 30, 2022, results of our operations for the three and nine months ended September 30, 2022 and 2021, changes in stockholders' equity for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The interim results are not necessarily indicative of the results for any future interim period or for the entire year.
9


The unaudited condensed consolidated financial statements include the accounts of Codexis, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. We regularly assess these estimates which primarily affect revenue recognition, inventories, valuation of equity investments, goodwill arising out of business acquisitions, accrued liabilities, stock awards, and the valuation allowances associated with deferred tax assets. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, and may not be accurately predicted, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers, markets and economies.
Accounting Pronouncements
Recently adopted accounting pronouncements
In May 2021, FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force. The standard establishes a principles-based framework in accounting for modifications of freestanding equity-classified written call options on the basis of the economic substance of the underlying transaction. The standard also requires incremental financial statement disclosures. The standard affects entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share. We adopted the standard on January 1, 2022 on a prospective basis. The adoption of this standard had no impact on our Unaudited Condensed Consolidated Financial Statements and related disclosures.
In August 2020, FASB issued ASU No 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) No. 2020-06 August 2020 Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to reduce the complexity and to simplify the accounting for convertible debt instruments and convertible preferred stock, and the derivatives scope exception for contracts in an entity's own equity. In addition, the guidance on calculating diluted earnings per share has been simplified and made more internally consistent. We adopted the standard on January 1, 2022 on a modified retrospective basis. The adoption of this standard had no impact on our Unaudited Condensed Consolidated Financial Statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions in which the reference LIBOR or another reference rate are expected to be discontinued as a result of the Reference Rate Reform. We adopted the standard on January 1, 2022 on a prospective basis. The adoption of this standard had no significant impact on our Unaudited Condensed Consolidated Financial Statements and related disclosures.
Recently issued accounting pronouncements not yet adopted
There have been no other recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended September 30, 2022, that are of significance or potential significance to us.
10


Note 3. Revenue Recognition
Disaggregation of Revenue
The following table provides information about disaggregated revenue from contracts with customers into the nature of the products and services, and geographic regions, and includes a reconciliation of the disaggregated revenue with reportable segments. The geographic regions that are tracked are the Americas (United States, Canada, and Latin America), EMEA (Europe, Middle East, and Africa), and APAC (Australia, New Zealand, Southeast Asia, and China).
Segment information is as follows (in thousands):
Three Months Ended September 30, 2022Three Months Ended September 30, 2021
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Major products and service:
       Product revenue$28,042 $ $28,042 $28,731 $ $28,731 
Research and development revenue3,104 3,324 6,428 3,853 4,185 8,038 
Total revenues$31,146 $3,324 $34,470 $32,584 $4,185 $36,769 
Primary geographical markets:
Americas$3,654 $1,168 $4,822 $5,999 $1,817 $7,816 
EMEA3,831 2,156 5,987 2,317 2,368 4,685 
APAC23,661  23,661 24,268  24,268 
Total revenues$31,146 $3,324 $34,470 $32,584 $4,185 $36,769 
Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Major products and service:
       Product revenue$93,376 $ $93,376 $53,674 $ $53,674 
Research and development revenue7,398 7,441 14,839 14,723 11,856 26,579 
Total revenues$100,774 $7,441 $108,215 $68,397 $11,856 $80,253 
Primary geographical markets:
Americas$8,514 $3,653 $12,167 $12,573 $6,015 $18,588 
EMEA11,017 3,788 14,805 11,294 5,841 17,135 
APAC81,243  81,243 44,530  44,530 
Total revenues$100,774 $7,441 $108,215 $68,397 $11,856 $80,253 
Contract Balances
The following table presents balances of contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands):
September 30, 2022December 31, 2021
Contract assets$5,867 $4,557 
Unbilled receivables$7,490 $8,558 
Contract costs$28 $56 
Contract liabilities: deferred revenue$9,840 $6,335 
We had no asset impairment charges related to financial assets in the three and nine months ended September 30, 2022 and 2021.
11


The increase in contract assets was primarily due to increases in product revenue from contracts subject to over time revenue recognition. The decrease in unbilled receivables was primarily due to the timing of billings. The increase in deferred revenue was primarily due to the receipt of the $25.9 million fee from Pfizer in August 2022, pursuant to the terms of the Enzyme Supply Agreement (the “Pfizer Supply Agreement”) that was executed in July 2022, which was partially offset by the recognition of $19.4 million in contract assets relating to the same performance obligation within the same agreement.
We recognized the following revenues (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
Revenue recognized in the period for:2022202120222021
Amounts included in contract liabilities at the beginning of the period:
     Performance obligations satisfied$889 $658 $1,694 $1,997 
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods495 1,521 365 5,848 
Performance obligations satisfied from new activities in the period - contract revenue33,086 34,590 106,156 72,408 
Total revenues$34,470 $36,769 $108,215 $80,253 
Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting periods. The estimated revenue does not include contracts with original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of September 30, 2022.
The balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts as of September 30, 2022 (in thousands):
Remainder of 2022
20232024
2025 and Thereafter
Total
Product revenue$5 $127 $5,276 $2,962 $8,370 
Research and development revenue423 1,047   1,470 
Total revenues$428 $1,174 $5,276 $2,962 $9,840 
Note 4. Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding, less restricted stock awards (“RSAs”) subject to forfeiture. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock shares outstanding, less RSAs subject to forfeiture, plus all additional common shares that would have been outstanding, assuming dilutive potential common stock shares had been issued for other dilutive securities.
Anti-Dilutive Securities
In periods of net loss, the weighted average number of shares outstanding, prior to the application of the treasury stock method, excludes potentially dilutive securities from the computation of diluted net loss per common share because including such shares would have an anti-dilutive effect.
The following table sets forth the computation of basic and diluted net income (loss) per share during the three and nine months ended September 30, 2022 and 2021 (in thousands, except per share amounts):
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Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Numerator:
Net income (loss)$(9,992)$2,244 $(20,988)$(11,089)
Denominator:
Weighted average common stock shares used in computing net income (loss) per share, basic65,426 64,628 65,271 64,452 
Effect of dilutive shares 3,113   
Weighted average common stock shares used in computing net income (loss) per share, diluted65,426 67,741 65,271 64,452 
Net income (loss) per share, basic$(0.15)$0.03 $(0.32)$(0.17)
Net income (loss) per share, diluted$(0.15)$0.03 $(0.32)$(0.17)
The following shares were not considered in the computation of diluted net income (loss) per share because their effect was anti-dilutive (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Shares issuable under the Equity Incentive Plan6,6044516,6045,148

Note 5. Investments in Non-Marketable Securities
Non-Marketable Debt Securities
We classify non-marketable debt securities, which are accounted for as available-for-sale, within Level 3 in the fair value hierarchy because we estimate the fair value based on a qualitative analysis using the most recent observable transaction price and other significant unobservable inputs including volatility, rights, and obligations of the securities we hold.
We determine gains or losses on the sale or extinguishment of non-marketable debt securities using a specific identification method. Unrealized gains and losses from bifurcated embedded derivatives, which represent share-settled redemption features, are recorded as other expense, net, in the unaudited condensed consolidated statements of operations. Unrealized gains and losses on non-marketable debt securities are recorded as a component of other comprehensive loss until realized. Realized gains or losses are recorded as a component of other income, net.
In November 2020, we purchased convertible subordinated notes issued by Arzeda Corp. (“Arzeda”), an early-stage computational protein design company, for $1.0 million and the investment was classified as available-for-sale non-marketable interest-bearing debt securities. In July 2021, we converted the non-marketable debt security with a carrying value of $1.3 million into 207,070 shares of Series B-2 preferred stock of Arzeda Corp. During the three and nine months ended September 30, 2021, we recognized nil and $0.3 million, respectively, in interest income from interest earned on our investment in this debt security.
There were no investments in non-marketable debt securities as of September 30, 2022 and December 31, 2021.
Non-Marketable Equity Securities
In March 2022, we entered into a Stock Purchase Agreement with seqWell, Inc. (“seqWell”), a privately held biotechnology company, pursuant to which we purchased 1,000,000 shares of seqWell's Series C preferred stock for $5.0 million.
Our non-marketable equity securities are investments in privately held companies without readily determinable market value. These investments are accounted for under the measurement alternative and are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes for identical or similar securities of the same issuer. Non-marketable equity securities are measured at fair value on a non-recurring basis and classified within Level 2 in the fair value hierarchy because we estimate the fair value of these investments using the observable transaction price paid by third party investors for the same or similar security of the same issuers. We adjust the carrying value of non-marketable equity securities which have been remeasured during the period and recognize resulting gains or losses as a component of other income, net in the unaudited condensed consolidated statements of operations.
13


For the three months ended September 30, 2022, we recognized a $0.2 million unrealized gain in other income, net, and included as adjustment to the carrying value of our investment in MAI, for the remeasurement of the additional 1,587,049 shares of Series B preferred stock received as milestone payment during the three months ended September 30, 2022 based on the latest observed transaction price of MAI's preferred stock. See Note 11 “Related Party Transactions” for additional information on our investment in MAI. For the three months ended September 30, 2021, we recognized a $0.7 million unrealized gain in other income, net, due to an adjustment to the carrying value of our investment in MAI based on an analysis of observed transaction price from MAI's round of financing during the third quarter of 2021. There was no remeasurement event for our investments in MAI and in other non-marketable equity securities that occurred during the remainder of 2022 and 2021. We recognized no realized gains or losses during the three and nine months ended September 30, 2022 and 2021.
The following table presents the carrying value of our non-marketable equity securities (in thousands):
 September 30, 2022December 31, 2021
Molecular Assemblies, Inc. (“MAI”)
$13,921 $12,713 
seqWell5,000  
Arzeda1,289 1,289 
Other investments in non-marketable equity securities300  
Total non-marketable equity securities$20,510 $14,002 
Note 6. Fair Value Measurements
The following tables present the financial instruments that were measured at fair value on a recurring basis within the fair value hierarchy (in thousands):
 September 30, 2022
 Level 1Level 2Level 3Total
Money market funds $83,599 $ $ $83,599 
 December 31, 2021
 Level 1Level 2Level 3Total
Money market funds $86,095 $ $ $86,095 
During the three and nine months ended September 30, 2022 and 2021, we did not recognize any significant credit losses nor other-than-temporary impairment losses on non-marketable securities.
Note 7. Balance Sheets Details
Cash Equivalents
Cash equivalents as of September 30, 2022 and December 31, 2021, consisted of the following (in thousands):
 September 30, 2022December 31, 2021
 Adjusted CostEstimated Fair ValueAdjusted CostEstimated Fair Value
Money market funds (1)
$83,599 $83,599 $86,095 $86,095 
(1) Money market funds are classified in cash and cash equivalents on our unaudited consolidated balance sheets. Average contractual maturities (in days) is not applicable.
As of September 30, 2022, the total cash and cash equivalents balance of $108.7 million consisted of money market funds of $83.6 million and cash of $25.1 million held with major financial institutions. As of December 31, 2021, the total cash and cash equivalents balance of $116.8 million consisted of money market funds of $86.1 million and cash of $30.7 million held with major financial institutions.
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Inventories
Inventories consisted of the following (in thousands):
September 30, 2022December 31, 2021
Raw materials$49 $49 
Work-in-process22 65 
Finished goods1,552 1,046 
    Inventories$1,623 $1,160 
Inventories are recorded net of reserves of $1.3 million and $1.4 million as of September 30, 2022 and December 31, 2021, respectively.
Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
September 30, 2022December 31, 2021
Laboratory equipment$39,355 $33,101 
Leasehold improvements16,617 16,117 
Computer equipment and software3,912 3,481 
Office equipment and furniture1,326 1,297 
Construction in progress1,459 3,231 
Property and equipment62,669 57,227 
       Less: accumulated depreciation and amortization(39,350)(35,882)
     Property and equipment, net$23,319 $21,345 
Depreciation expense included in both research and development expenses and selling, general and administrative expenses in the unaudited condensed consolidated statements of operations was as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Depreciation expense$1,405 $768 $3,961 $2,143 
Goodwill
Goodwill had a carrying value of $3.2 million as of September 30, 2022 and December 31, 2021.
Other Accrued Liabilities
Other accrued liabilities consisted of the following (in thousands):
September 30, 2022December 31, 2021
Accrued purchases $7,573 $6,755 
Accrued professional and outside service fees4,276 5,147 
Other1,143 676 
     Total$12,992 $12,578 
Note 8. Stock-based Compensation
Equity Incentive Plans
In 2019, our board of directors (the "Board") and stockholders approved the 2019 Incentive Award Plan (the "2019 Plan"). The 2019 Plan superseded and replaced in its entirety our 2010 Equity Incentive Plan (the “2010 Plan”) which was effective in March 2010, and no further awards will be granted under the 2010 Plan; however, the terms and conditions of the 2010 Plan will continue to govern any outstanding awards thereunder.
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The 2019 Plan provides for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance-contingent restricted stock units ("PSUs"), performance based options ("PBOs"), other stock or cash based awards and dividend equivalents to eligible employees and consultants of the Company or any parent or subsidiary, as well as members of the Board.
The number of shares of our common stock available for issuance under the 2019 Plan is equal to the sum of (i) 7,897,144 shares, and (ii) any shares subject to awards granted under the 2010 Plan that were outstanding as of April 22, 2019 and thereafter terminate, expire, lapse or are forfeited; provided that no more than 14,000,000 shares may be issued upon the exercise of incentive stock options (“ISOs”). In June 2019, 8.1 million shares authorized for issuance under the 2019 Plan were registered under the Securities Act of 1933, as amended (the “Securities Act”).
The 2010 Plan provided for the grant of incentive stock options, non-statutory stock options, RSUs, RSAs, PSUs, PBOs, stock appreciation rights, and stock purchase rights to our employees, non-employee directors and consultants.
Stock Options
The option exercise price for incentive stock options must be at least 100% of the fair value of our common stock on the date of grant and the option exercise price for non-statutory stock options is at least 85% of the fair value of our common stock on the date of grant, as determined by the Board. If, at the time of a grant, the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all of our outstanding capital stock, the exercise price for these options must be at least 110% of the fair value of the underlying common stock. Stock options granted to employees generally have a maximum term of ten years and vest over four years from the date of grant, of which 25% vest at the end of one year, and 75% vest monthly over the remaining three years. We may grant options with different vesting terms from time to time. Unless an employee's termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier.
Restricted Stock Units ("RSUs")
We also grant employees RSUs, which generally vest over either a three year period with 33% of the shares subject to the RSUs vesting on each yearly anniversary of the vesting commencement date or over a four year period with 25% of the shares subject to the RSU vesting on each yearly anniversary of the vesting commencement date, in each case contingent upon such employee’s continued service on such vesting date. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. We may grant RSUs with different vesting terms from time to time.
Performance-contingent Restricted Stock Units ("PSUs") and Performance Based Options ("PBOs")
The compensation committee of the Board approved, solely in respect of non-executive employees, delegated to our Chief Executive Officer the authority to approve grants of PSUs. The compensation committee of the Board also approved grants of PBOs and PSUs to our executives. The PSUs and PBOs vest based upon both the successful achievement of certain corporate operating milestones in specified timelines and continued employment through the applicable vesting date. When the performance goals are deemed to be probable of achievement for these types of awards, recognition of stock-based compensation expense commences. Once the number of shares eligible to vest is determined, those shares vest in two equal installments with 50% vesting upon achievement and the remaining 50% vesting on the first anniversary of achievement, in each case, subject to the recipient’s continued service through the applicable vesting date. If the performance goals are achieved at the threshold level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to half the number of PSUs granted and one-quarter the number of shares underlying the PBOs granted. If the performance goals are achieved at the target level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to the number of PSUs granted and half of the shares underlying the PBOs granted. If the performance goals are achieved at the superior level, the number of shares eligible to vest in respect of the PSUs would be equal to two times the number of PSUs granted and equal to the number of PBOs granted. The number of shares issuable upon achievement of the performance goals at the levels between the threshold and target levels for the PSUs and PBOs or between the target level and superior levels for the PSUs would be determined using linear interpolation. Achievement below the threshold level would result in no shares being eligible to vest in respect of the PSUs and PBOs.
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In the first quarter of 2022, we awarded PSUs ("2022 PSUs") and PBOs ("2022 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including total revenues, research and development revenue, product revenue (excluding sales of CDX-616 to Pfizer for its use in the manufacture of a critical intermediate for nirmatrelvir, an active pharmaceutical ingredient (API) in its PAXLOVID™ product), operating expenses excluding cost of product revenue, strategic performance enzyme deliverables, strategic biotherapeutics deliverables, organization and infrastructure upgrades, corporate developments, and significant events that can be publicly announced, subject to the recipient's continued service. As of September 30, 2022, we estimated that the 2022 PSUs and 2022 PBOs performance goals would be achieved at 97% and 49% of the target level, respectively, and recognized stock-based compensation expenses accordingly.
In 2021, we awarded PSUs ("2021 PSUs") and PBOs ("2021 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including total revenues, product revenue, performance enzymes pipeline advancements, biotherapeutics pipeline advancements, organization and infrastructure upgrades, and sig