Global Healthcare Conference. Very happy to be hosting the next company, one of the recent names I launched coverage on, Codexis, and we have Dr. Stephen Dilly, the President and CEO. Thanks so much for being here. Thank you. Now I know the story much better now that I cover you, so that means you're gonna get harder questions than last year. Let's dive right in. Your business model has really shifted since you joined the company. Maybe to start, can you give us a sense about how critical enzyme engineering is to building therapies? What know-how and expertise has Codexis developed in this space over the years? It's great to be here, Kristen. And, you know, what I'd like to do is turn that question around and say, "Where is enzyme engineering really important in drug development?" Because there are many, many drugs out there that you can make either enzymatically or chemically, and what we've been on a journey to find is which are the ones where enzymatic has the biggest advantage. Now, we have a lovely business in what we call pharma manufacturing, which is where we somewhat optimize enzymes for small molecule API production. But, you know, always there, there's a chemical alternative or others can build something equivalent. And what we've really focused on over the last few years is RNA production, mRNA through our HiQ polymerase, but then more recently, siRNA with the ECO Synthesis Platform. And that's great for us because it's about making relatively long sequences of nucleotides into an RNA construct, and the longer the construct, the better the enzymatic approach and the worse the chemical approach. Also, there's all the complexity around adding the modifications people are putting into their current therapeutics, and, you know, the very fact that it's hard means that the many years that we've spent working on this are relevant, and it's moved from building beautiful enzymes that do one thing to building cascades of enzymes that will work together to produce what you want. So that's really why we feel this is our sweet spot. So talking about RNAi, this is a space you're looking to pivot into. It's kind of mind-boggling when you think about the fact that some of these companies developing therapies, they're getting billions of dollars in market cap gains for proof-of-concept data for drugs that are relatively small, on the smaller side. So clearly, there's a lot of interest in RNAi right now, right? So maybe just take a step back. What are your thoughts about this drug class? Is it really taking off? Is it here to stay? Are we gonna see it keep growing? So I absolutely believe that the siRNA class is here to stay and is gonna be an important part of the armamentarium. It's really finding, you know, what its key advantages are and where it's gonna make a big impact. And one of the beauties of siRNA is the dosing schedule tends to be two or three or four times a year. That's really convenient, really good for compliance. The outcomes of the liver-targeted drugs have been really quite remarkable in terms of, you know, controlling virtually intractable hypertension with two injections a year, having a significant impact on very problematic lipid profiles, like, managing cardiovascular risk. So yeah, we've seen enough signals now that this is gonna be an important class of medicines. And I liken it to where monoclonal antibodies were at the start of the 2000s. You know, there were a few that had been approved, people started to understand how to make them, and then it could really lift off, and we believe there are something like 400 siRNAs in development right now, 30 or 40 of them in later-stage clinical trials. This is a coming wave of demand. So this is your classic story. You find a new modality, it works well, everybody wants to get on board and jump the train. However, easier said than done, right? Right ... when it comes to manufacturing. So I think it'd be, first, really useful to just understand how it's done today. Is it cumbersome? What are the limitations? Great. The way that siRNAs is made at the moment for marketed products is based around phosphoramidite chemistry, which is the way oligonucleotides have been constructed for about 40 years. It's largely optimized as a process. Not completely, there are still some places it can be improved, but the challenge of phosphoramidite chemistry is it's volumetrically quite inefficient. It relies on harsh chemistry with organic solvents. There's a significant issue around waste control, and it is super capital-intensive. You know, Agilent told us actually that they spent $728 million on building a plant in Colorado that will have a capacity of about a metric ton of siRNA. We see the demand of siRNA in 10 years' time being more like 30 metric tons. That, if people relied on scaling the chemistry, that would be a humongous capital investment, and by the way, every kilo of siRNA you make chemically is about four and a half tons of carbon emissions. So, you know, there's all kinds of impacts. When we talk to people in the space, whether it be CDMOs, whether it be innovative companies making siRNA, there's an acceptance that an enzymatic, aqueous-based solution is needed. It's just convincing people it's ready for prime time. ... Okay, so why can the approach that Codexis is taking maybe step in here and think about how to address today's current landscape, but also preparing for this future where the demand is just gonna be way higher than what the capabilities can do? And also, to that point, you have to show that your process is either comparable or superior, of course. Yeah. Because at the end of the day, these are therapies going into patients, so how does one do that? Right. So I'm gonna start at the end and work backwards. Okay. If I may, with that, that question. So what we're working on right now is with various different innovator companies, parallel processing, making the same siRNA molecule chemically, making it enzymatically, and also doing a couple of intermediate steps. Because, yep, chemistry gets worse as you go longer in the construct, so there's an approach of making short constructs and ligating them together using an RNA ligase. And so we're playing with various different siRNA molecules with collaborations and making four versions: a chemical version, an enzymatic version, chemical shortmers stitched together enzymatically, enzymatic shortmers stitched together enzymatically. And the punchline will be that they all look exactly the same. And that, to us, is important because we're trying to build a bridge to attack the current demand as well as the future demand. I think it's generally accepted that, you know, if we get on board with a preclinical model with an optimized enzymatic process, we can ride it all the way through development. But, you know, I'm maybe not that patient, because that takes, you know, seven or eight years. That's a sector of the market we absolutely have to address, but I'm interested in how do we actually help to supply the demand for the existing drugs? And some of that is walking drugs from a current chemical synthesis through a ligation, an optimized ligation step, then to an enzymatic process with ligation, then to fully enzymatic. And, you know, that's really gonna be the skill to show the analytical bridge for all of those steps. Okay, so the ECO Synthesis is described as a versatile toolkit. There are different ways that you can generate revenue and collaborations with your partners. Can you just give a sense of these different things you're offering? Right. So all of these things are either existing or coming very soon, so we're in a position where we can talk about them. So, if a company is currently doing chemical synthesis and has decided on a ligation step, what we're able to advise them is to look at their molecule, say, "Here are the sectors, sections I'd make. Here's what we call our shortmer strategy, 'Here's how I'd make the four chunks that you stitch together into an siRNA. And by the way, either off the shelf, here is a ligase that is nearly perfect for the specific reaction you want to do,'" or we can go away for a few weeks or months and optimize to the very reaction they want to do. Then there's when we get earlier, we can look at molecules and say, "Well, you know, which bits of that make sense to make enzymatically? Which bits right now make sense to make chemically? How do you stitch those together?" And sometimes it's gonna be end-to-end enzymatically from soup to nuts, so that's what we call the pure sequential synthesis, or that's the full ECO platform. And so the beauty of it is, and that's why we're doing the presentation through Will at TIDES Europe, is to show that we can arrive at the same endpoint very flexibly across all the different tools in our toolkits. Because we have polymerases, we have ligases, we have conjugation strategies. It all fits together very nicely. Okay, and then in terms of this roadmap, where are you today? And I definitely wanna touch on TIDES in a little bit. So the roadmap, where we are today is we're sitting on a company with a heritage in pharma manufacturing, where we've done really hard work to turn our API production business, our biocatalysis business, back to profitable growth, right? Very pleased with that because that provides us with the funding and the, yeah, the fuel to really do what we want to do in the ECO platform. We've got the RNA ligase already with several customers signed up, more to come. We're now starting to see initial customers talking about their repeat larger orders, which is great. And the reason I bang on about that is if you put together the pharma manufacturing with its growth trajectory, and you add the ligase business with existing customers and projected future orders, Codexis becomes profitable and growing, and we think that happens by the end of 2026, and that can be achieved with our current cash reserves. So that's beautiful because it then lets us play the long game around the ECO Synthesis Platform. Where we are with that is we are talking to many players, the big innovator companies, the therapeutics companies that have many assets in their pipeline. Then we're talking to the CDMOs, the big-scaled CDMOs that currently make those siRNAs chemically, about how can they adopt our ligase, how can they start to build on their platform? And then we're talking to CDMOs that would like to get a piece of this market and want to build in de novo. And finally, the small innovator companies that are finding it really, really hard to get their siRNA at a reasonable price from the existing suppliers because their volume is too low. So if you need to buy a metric tonne that Agilent will gladly sort of service your demand. If you wanna buy half a kilo, it's harder, price goes up. Yeah. Well, we want the field to move into larger indications now that there's proof of concept, so I'd prefer the option where I'm spending less money? Yeah, it's spending less money, and, you know, our other thing is, if we are gonna follow the fate of the drug candidates that we're making, you know, we have to spread our bets wide enough that, you know, probabilistically we do well, some of them are gonna succeed. Partly that is, you know, a play where we identify molecules that we want to make ourselves, starting in our GLP innovation lab, and then scaling through GMP production. But also putting our technology in the hands of others so they can supply a pipeline with it. So, you know, there's several different business models that we have to pursue in parallel here. Okay. So while it's still early on in development, what gives you confidence that the changes are already supporting your thesis that ECO Synthesis could be more scalable, reduce waste, have higher purity, among all the other valuable economic arguments? So we start off with, you know, any kind of analysis of waste and productivity, you have to look at the whole system, and it's quite tempting just to look at the little engine that can, which is the ECO Synthesis Platform with the polymerase and, you know, you adding the NQP to that. But you have to ask questions like, "Where will the nucleotide quadraphosphates come from in the future?" and all that. So we're actually now throwing a slightly wider rug over this and looking at the raw material supply, as well as the little production machinery as itself. So there is an interesting opportunity for Codexis in the enzymatic production of nucleotide triphosphates and nucleotide quadraphosphates, which we're currently looking at right now. And nucleotide triphosphates are really interesting because... For two reasons: one, they're what people make mRNA out of, and being able to source those enzymatically about an order of magnitude cheaper than the chemical route, we see as very useful and it might a market opportunity. The other nice thing about NTPs is they're the next step, the step before NQPs, which is a building block of our process. So we get that initial part nailed down. Then it's about the looking at the scalability of the ECO platform itself, and we're now at the sort of multiple gram scale where you can extrapolate. We've done enough enzyme engineering to say, you know, things that happen at this scale tend to scale linearly, so we're able to model in significant detail. In the next couple of months, the GLP facility comes on stream in Redwood City, and that'll get us upped into the sort of tens to hundreds of grams, and then we go from there. So we really are now, you know, on the playing field of scalability. Okay. I wanna talk about TIDES next, but before I ask you about what you'll have there, I think this is a conference that's very focused for the medical community, but one investors are less familiar with. So can you first tell us what the meeting is? Who are the folks that tend to go to it? Right. So TIDES is, it's short for nucleotides or oligonucleotides. Clever. It took me a few weeks to work that one out as well. It's a meeting that's held three times a year. There's TIDES US, there's TIDES Asia, and TIDES Europe, and many of the same people show up. It's really an industry meeting. It's also got academic attendance. It's people that it's very techy. It's about people that are looking at interesting new ways of making oligonucleotides. You know, it's a relatively you know conservative bunch that go there, but you know, let's say the reception we've been having recently is very enthusiastic. Now, the next meeting that's coming up in early November is the TIDES Europe cycle, right? So a year ago, where we were was actually demonstrating that sequential enzymatic addition of building blocks was possible for RNA constructs, and so we. You know, at TIDES Europe in 2023, we unveiled essentially five sequential steps, and we showed at sort of, you know, trace scale that we could do that. Then by the end of 2023, we showed gram scale for a modest construct. I think it was a sevenmer at the time. Great. Then there was the TIDES US meeting, which was in May this year, where we showed full-length constructs of two different siRNA molecules, one of them made sequentially, the other one made with ligation steps. So TIDES Europe, this is where we're gonna be showing chemical, enzymatic, intermediate, all the same, and hopefully with other people's logos on our presentations. Yeah, let's talk about that. As long as I've known you, you've been a very humble person, always, you know, wanting the data to, of course, back up your own thesis, right? So on your last earnings call, I thought you had a pretty bold statement of confidence, and you said that you're gonna show continued validation of ECO Synthesis, expressing excitement along with customers and partners. I mean, just to have a statement like that just a few months out of a, a program, you gotta feel- you gotta be feeling pretty good about it, right? So what are you able to tell us about what this presentation is going to entail, and why do people need to learn about this ahead of TIDES? So the important punchline on the presentation is gonna be the similarity of the molecules made by- Mm-hmm Different routes of real live constructs that people care about, because it will allow people to see the bridge into existing products on the market, right? Where the demand curve is gonna exceed the chemical supply curve. And, you know, that accelerates our value trajectory quite significantly into getting a piece of the real drugs now that have, you know, high levels of demand. Okay, I like it. So coming out of this conference, recognize there might not be hundreds of investors in the room, but I can sure bet there's gonna be a lot of people that care about building siRNA. So how do you think this presentation is going to help for further opportunities down the road in front of this audience? On one hand, you're further validating ECO Synthesis, and then on the other, all the audience is desperate to find ways to make better therapies, right? Well, they are, but we also, because of the very technical nature of the meeting, we have to explain maybe better than we have in the past exactly what just happened, right, and the significance of it. And so we find we have to join the dots for people an awful lot, right? And I think that's absolutely to be expected for an investor audience that is largely used to looking at therapeutics and betting on therapeutics- Right ... and binary outcomes. We're not like that. We're betting on a whole field. We're showing a technology. And, you know, in many ways, what we're doing is a lot more like a high-tech play than it is like a biotech play, in that we're building something that's relatively complex, innovative, but can service a broad landscape. And there isn't a sort of binary event where we can say, "Ta-da!" This kind of gets better, and it gets better, and it gets better. And, you know, the sophistication, the engagement that we see in our partnering discussions is actually often significantly ahead of the understanding in the investment community, and that's kind of good because we know the investment community will get there eventually. Yeah. I love in your corporate deck, you have a lot of specific examples of what the revenue stream could look like. I think big picture, you talk about the fact that a lot of these, there are gonna be more and more RNAi drugs that come to the market, some in rare diseases, some in large. I mean, frankly, the way I look at it is you really need to just work with one of these to justify multiple upside to your valuation. So I wanted to see if you can give us, like, an illustrative example of hypotheticals of maybe like a, what a large market indication could look like in terms of a revenue stream for Codexis, and then maybe one that's a little bit smaller. Yeah, absolutely. So, you know, we've grown up grounded in a business where we supply an enzyme for a small molecule API, and it will be $5 million annual revenue, and we're very happy, right? We built a business around that with multiples. We then... The next step up is the ligase, where the price point on our, you know, exquisitely developed, RNA ligases moves from, you know, the thousands of dollars per kilo to thousands of dollars per gram. So it's orders of magnitude, more expensive, but also has to be, you know, more refined, but we can scale it, much more feasibly on a given footprint. A decent ligation step, an optimized ligation step, can improve a chemical process by about 20%, and that's because it allows you to make shorter chemical constructs, ligate them together, improve your yield, improve your purity, and therefore, reduce your downstream processing needs. So, you know, that's 20% of cost of goods on a run rate that's averaging around 10% for products in the market right now. So if you're looking at a billion-dollar drug, that's $100 million of cost of goods. That's a $20 million improvement right there for us with the ligase step. So you're talking bigger per drug than the pharma manufacturing. Then you get into saying, well, when we look at the, you know, the blockbuster drugs, you know, you're looking at things that could be $5 or $10 billion, you're getting to the range where a ligation strategy could get us in the $30-$50 million annual revenue per product for big drugs, right? And that's a very feasible regulatory track because some of those drugs are already using ligation. We can do it better, and that's a relatively easy step. When you talk about the full ECO platform, we are then looking at the opportunity of providing the siRNA. So you take the 10% cost of goods run rate, you know, that then gets us right up to the sort of $100 million opportunity in a billion-dollar drug and upwards from there. And what we're seeing now is, you know, margins improving as we optimize our process. We're already at a level of optimization that makes us comparable to the technology that's been around for 30 or 40 years. And particularly as we bring things like the enzymatic synthesis of the nucleotide tetraphosphate building blocks, we should end up being significantly more cost-effective and significantly more volumetrically efficient. In other words, you can do it in a smaller plant, and then there's all the implications of a greener process and the expense of waste disposal going way down.... So we're pretty happy right now, as you can tell. Just takes one. Yeah, just takes one. But we hope for more than one, of course. There'll be more than one, yeah. Are your partners likely to be those that are earlier stage development, or could this platform potentially be applicable for say, a company developing a drug that's already in development, but they're thinking about potential commercialization, and they may wanna switch their process? If it is the latter, what kind of comparability or work needs to be done? So right now, with our, you know, our first ligation customer, significant customer, was a product that was moving from phase two to phase three. And there's a reason for that, because then there's the demand of scale. They needed to scale up. They started to really worry about the efficiency of the production. We are being asked to make commercial products right now by the people that are, you know, selling them, therefore, you know, they must believe there's something in this as well, and there's a route into those markets. And really, what's the trigger? The pain point will be when they start to get data suggesting utility in big indications and needing to optimize and scale by orders of magnitude. So, what does the regulatory path look like? Well, it needs to be precedented. There's already the precedent of ligation steps. siRNA is regulated by CDER, the drugs division. They have an interesting approach based on a sort of small molecule philosophy about which bits of the process need to be done under GMP and which ones don't, just to have adequate quality controls, which does actually open the door to a ligation substitution and then actually a ligation initiation, and eventually stepwise moving to fully enzymatic. We're actually in conversation right now about what that looks like in detail. Okay. So clearly it seems there's this massive disconnect. People are very excited about the siRNA therapeutics and development, but they're not appreciating what it's gonna take for these companies to get there, right? Which is something that you're very adamant about. So, in light of this disconnect, why do you think investors need to walk away understanding this space in more detail, and why is this the optimal time? Okay, so why is there a disconnect? You know, I've lived this quite a lot over the last year or so. There was initially a high level of skepticism of the need for an enzymatic approach to siRNA. Yeah. And there was a good reason for that, which was some of the big companies had actually overbuilt capacity for the existing- Mm ... market. You know, that they was finding it difficult to actually fill some of the facilities that had been there. There was also the precedent of cell and gene therapy, where, you know, everyone was building everything, and there was gonna be this unmet need, and there's an awful lot of empty capacity right now. So why is this different? Well, what we spotted was increasingly, you know, it was people trying to get their drugs supplied for early preclinical and then early clinical development that were having the real problem. And, we heard examples of companies paying, you know, $5 million a kilo for non-GMP product, and it's just ridiculous because the capacity wasn't there. So that's what tells me that there is an opportunity here. And then when it's the people that you think would be fat and happy because they've got their production nailed down, coming to talk to us quietly behind the coffee machine, saying, "Can you make this enzymatically?" That says, yeah, there is a coming problem. People do not like to talk about their big problems, right? So if you are selling, you know, potentially, or talking about selling $1 billion of a drug in the future, you're not gonna advertise the fact that you're not entirely sure how you're gonna supply it yet, right? So we have... That's why we have a lot of background, confidential conversations with the guys in the CMC chain. I use the word guys as a broad term, right? Mm. In the CMC chain, that have that problem, you know, in- Yeah ... in front of them, and they're trying to address it. All right, well, we're gonna stay focused and see the data at TIDES and, you know, hear that enthusiasm, I think, even more based on what you've said, so thank you so much for your support and being here. Really appreciate it. And thank you for covering us. Take care.