Sustainable Enzyme Engineering Will Power Expanding Biopharma Opportunities

Key Takeaways

• Powerful demand for sustainable biocatalysis and advancements in RNA therapeutics are driving transformative revenue and margin opportunities beyond current forecasts.
  
• Codexis' expansion, internalized supply chain, and reputation as a gold-standard partner are setting the stage for accelerated growth and industry-leading profitability.
  
• Revenue unpredictability, capital-intensive scaling, reliance on external partners, rising competition, and mounting regulatory demands threaten sustainable growth and margin stability.

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.

• Analyst consensus expects ECO Synthesis revenue to ramp as projects mature, but the surging pipeline of over 40 customer engagements and Codexis' plans to rapidly expand capacity suggest revenue growth could outpace expectations, driving much higher topline growth and faster operational leverage.
  
• While consensus anticipates margin gains as GMP scale emerges, Codexis' strategy to internalize more of the supply chain-building its own GMP and GLP capabilities for siRNA and maintaining customers throughout the value journey-positions the company to capture a much larger share of value and achieve industry-leading gross margins more quickly.
  
• Codexis is benefiting from powerful demand tailwinds as pharma and biotech customers face growing regulatory and commercial pressure to adopt greener, more sustainable enzyme-driven manufacturing, accelerating conversion to biocatalysis and expanding the company's total addressable market well beyond analyst forecasts; this will have a transformative impact on long-term revenue and margin opportunity.
  
• The adoption of precision RNA, mRNA, and gene therapeutics is creating a new class of customized high-value enzyme solutions, with Codexis' CodeEvolver and ECO Synthesis platforms uniquely enabling fast, tailored development-creating the potential for long-lived, high-margin recurring revenue streams that the Street has yet to fully model into earnings.
  
• Codexis' growing scale and reputation as the "gold standard" in enzyme engineering is creating a network effect, allowing the company to become the partner of choice for large pharma, CDMOs, and emerging biotech worldwide, which is likely to translate into accelerating new business wins, increased pricing power, and sustainable earnings outperformance.

Codexis Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Codexis compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Codexis's revenue will grow by 37.1% annually over the next 3 years.
• Even the bullish 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 -113.7% to the average US Life Sciences industry of 12.8% in 3 years.
• If Codexis's profit margin were to converge on the industry average, you could expect earnings to reach $18.9 million (and earnings per share of $0.17) by about August 2028, up from $-65.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 80.0x on those 2028 earnings, up from -4.0x today. This future PE is greater than the current PE for the US Life Sciences industry at 29.3x.
• 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 7.64%, as per the Simply Wall St company report.

Codexis Future Earnings Per Share Growth

Risks

• Codexis's revenue remains highly unpredictable due to significant variability in customer manufacturing schedules and order timing, leading to continued quarter-to-quarter lumpiness and limited visibility, which could impact stability in top-line revenue and earnings.
  
• The company's path to scaling its ECO platform is capital-intensive, and with rising global interest rates and higher cost of capital, accessing additional funding for R&D or facility buildout may become more expensive, increasing financial pressure and potentially delaying profitability.
  
• Codexis is focused on locking in early-stage projects with the hope that some will become commercial successes, but high clinical attrition rates and dependency on partners advancing through clinical trials could result in fewer projects reaching late-stage revenue, causing a shortfall in projected long-term revenue growth.
  
• The competitive landscape is intensifying, as larger biotechnology and pharma companies accelerate AI-driven protein engineering efforts and other entrants innovate in enzyme technology, threatening Codexis's competitive moat and possibly resulting in pricing pressure or customer loss, which would negatively impact future revenues and margins.
  
• The growing complexity of regulatory requirements for biotechnology manufacturing increases the risk of delays and added compliance costs, which could extend timelines for new product commercialization and materially affect Codexis's ability to realize timely returns and sustain positive net margins.

Valuation

• The assumed bullish price target for Codexis is $11.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Codexis's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• 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 $3.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $147.3 million, earnings will come to $18.9 million, and it would be trading on a PE ratio of 80.0x, assuming you use a discount rate of 7.6%.
• Given the current share price of $2.87, the bullish analyst price target of $11.0 is 73.9% 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.