ECO Synthesis Launch In 2025 Will Unlock Pharma Contracts

Key Takeaways

• Transitioning to commercial execution with ECO Synthesis and partnerships enhances revenue growth by securing new contracts and expanding into pharma and biotech segments.
  
• GMP production and collaborations with siRNA drug innovators drive long-term profitability, supporting future large-scale manufacturing and revenue sustainability.
  
• Codexis' transition to new revenue streams introduces risks like milestone dependencies, potential margin volatility, and increased costs affecting short-term earnings and investor confidence.

Catalysts

Provides enzymatic solutions for therapeutics manufacturing, leveraging its proprietary CodeEvolver technology platform to discover, develop, and enhance novel enzymes in the United States, Canada, Latin America, Europe, the Middle East, Africa, Australia, New Zealand, Southeast Asia, and China.

• The ECO Synthesis platform's transition from development to commercial execution in 2025 signifies a major revenue opportunity as it moves from feasibility studies to revenue-generating contracts, impacting overall revenue growth.
  
• The strategic focus on expanding the pharma biocatalysis business into mid-tier pharma and large biotech segments promises enhanced revenue streams, while securing new biocatalysis contracts is expected to bolster financial performance and margins.
  
• The completion of the ECO Innovation Lab and subsequent readiness to sign and execute development contracts suggests near-term revenue contributions from the oligonucleotide synthesis market, positively impacting earnings and revenue.
  
• Advancing towards a full-scale GMP production and securing a CDMO scale-up partner will unlock higher margins and revenue potential by enabling large-scale manufacture in 2025, crucial for sustaining strong revenue growth and commercialization efforts.
  
• Strategic partnerships and collaborations with major siRNA drug innovators facilitate long-term revenue and profitability growth as revenue from services matures alongside increased customer engagement across the ECO Synthesis platform.

Codexis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Codexis's revenue will grow by 23.1% annually over the next 3 years.
• Analysts are not forecasting that Codexis will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Codexis's profit margin will increase from -110.0% to the average US Life Sciences industry of 12.9% in 3 years.
• If Codexis's profit margin were to converge on the industry average, you could expect earnings to reach $14.3 million (and earnings per share of $0.14) by about May 2028, up from $-65.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 64.3x on those 2028 earnings, up from -3.0x today. This future PE is greater than the current PE for the US Life Sciences industry at 37.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.39%, as per the Simply Wall St company report.

Codexis Future Earnings Per Share Growth

Risks

• Codexis' transition to a new business model is still in progress, with 2024 being a transition year and the company expecting revenue growth from its new platforms starting in 2025. This introduces uncertainty in short-term revenue stability and growth potential as the new revenue streams mature.
  
• The company's dependence on achieving key milestones and partnerships to drive the commercial success of its ECO Synthesis platform presents a risk. Failure to secure a CDMO scale-up partner or establish an internal GMP facility could impact future revenue and profit projections.
  
• Codexis relies heavily on industry partnerships and confidentiality demands from partners may limit transparency in contract wins, creating uncertainty in investor sentiment and affecting market perceptions of future earnings.
  
• The shift from COD shares CODPAXLOVID revenue and changes in product mix resulted in decreased product gross margins, indicating potential volatility in net margins as Codexis repositions its business to focus on newer, emerging technologies.
  
• Increased R&D and SG&A expenses, driven by product development costs and executive changes, respectively, could pressure short-term earnings until new revenue streams can offset these expenditures and improve overall financial health.

Valuation

• The analysts have a consensus price target of $7.333 for Codexis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $11.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $110.7 million, earnings will come to $14.3 million, and it would be trading on a PE ratio of 64.3x, assuming you use a discount rate of 7.4%.
• Given the current share price of $2.33, the analyst price target of $7.33 is 68.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.