We or our collaborators may not be able to initiate or continue clinical trials on a timely basis or at all for any product candidates we or our collaborators identify or develop if we or our collaborators are unable to locate and enroll a sufficient number of eligible patients to participate in the trials as required by applicable regulations or as needed to provide appropriate statistical power for a given trial. Additionally, some of our competitors may have ongoing clinical trials for product candidates that would treat the same indications as one or more of our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in our competitors’ clinical trials. Patient enrollment may also affected by many factors, including:

~~severity and difficulty of diagnosing of the disease under investigation;~~

~~size of the patient population and process for identifying subjects;~~

~~eligibility and exclusion criteria for the trial in question;~~

~~our or our collaborators’ ability to recruit clinical trial investigators with the appropriate competencies and experience;~~

~~design of the trial protocol;~~

~~availability and efficacy of approved medications or therapies, or other clinical trials, for the disease or condition under investigation;~~

~~perceived risks and benefits of the product candidate under trial or testing, or of the application of genome editing to human indications;~~

~~efforts to facilitate timely enrollment in clinical trials;~~

~~patient referral practices of physicians;~~

~~ability to obtain and maintain subject consent;~~

~~risk that enrolled subjects will drop out before completion of the trial;~~

~~ability to monitor patients adequately during and after treatment; and~~

~~proximity and availability of clinical trial sites for prospective patients.~~

We expect that some of our product candidates will focus on diseases with limited patient pools from which to draw for enrollment in clinical trials. The eligibility criteria of our clinical trials will further limit the pool of available trial participants. In addition to the factors identified above, patient enrollment in any clinical trials we or our collaborators may conduct may be adversely impacted by any negative outcomes our competitors may experience, including adverse side effects, clinical data showing inadequate efficacy or failures to obtain regulatory approval. Enrollment delays in clinical trials may result in increased development costs for any of our product candidates, which may cause the value of our company to decline and limit our ability to obtain additional financing. If we or our collaborators have difficulty enrolling a sufficient number of patients to conduct clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which may have an adverse effect on our results of operations and prospects.

Results of preclinical studies and early clinical trials of product candidates may not be predictive of results of later studies or trials. Our product candidates may not have favorable results in later clinical trials, if any, or receive regulatory approval.

Preclinical and clinical drug development is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the preclinical study or clinical trial process. Despite promising preclinical or clinical results, any product candidate can unexpectedly fail at any stage of preclinical or clinical development. The historical failure rate for product candidates in our industry is high. The results from preclinical studies or early clinical trials of a product candidate may not be predictive of the results from later preclinical studies or clinical trials, and interim results of a clinical

trial are not necessarily indicative of final results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy characteristics despite having progressed through preclinical studies and initial clinical trials.

Many companies in the biopharmaceutical and biotechnology industries have suffered significant setbacks at later stages of development after achieving positive results in early stages of development, and we may face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including previously unreported adverse events. Moreover, non-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain regulatory approval. Even if any product candidates progress to clinical trials, these product candidates may fail to show the safety and efficacy in clinical development required to obtain regulatory approval, despite the observation of positive results in animal studies. Our or our collaborators’ failure to replicate positive results from early research programs and preclinical or greenhouse studies may prevent us from further developing and commercializing those or other product candidates, which would limit our potential to generate revenues from them and harm our business and prospects.

For the foregoing reasons, we cannot be certain that any ongoing or future preclinical studies or clinical trials will be successful. Any safety or efficacy concerns observed in any one of our preclinical studies or clinical trials in a targeted area could limit the prospects for regulatory approval of product candidates in that and other areas, which could have a material adverse effect on our business and prospects.

If any of our product candidates do not work as intended or cause undesirable side effects, it could hinder or prevent receipt of regulatory approval or realization of commercial potential for them or our other product candidates and could substantially harm our business.

Our product candidates may be associated with serious adverse events, undesirable side effects or unexpected characteristics. Results of clinical trials could reveal severe or recurring side effects, toxicities or unexpected events. In addition to serious adverse events or side effects caused by product candidates we develop alone or with collaborators, the administration process or related procedures may also cause undesirable side effects. If any such events occur, clinical trials or commercial distribution of any product candidates or products we develop alone or with collaborators could be suspended or terminated, and our business and reputation could suffer substantial harm. Treatment-related side effects could affect patient recruitment and the ability of enrolled patients to complete the trial or result in potential liability claims. Regulatory authorities could order us or our collaborators to cease further development of, deny approval of or require us to cease selling any product candidates or products for any or all targeted indications. If we or our collaborators elect, or are required, to delay, suspend or terminate any clinical trial or commercialization efforts, the commercial prospects of such product candidates or products may be harmed, and our ability to generate product revenues from them or other product candidates that we develop may be delayed or eliminated.

Additionally, if we successfully develop a product candidate alone or with collaborators and it receives marketing approval, the FDA could require us to adopt a REMS to ensure that the benefits of treatment with such product candidate outweigh the risks for each potential patient, which may include, among other things, a communication plan to health care practitioners, patient education, extensive patient monitoring or distribution systems and processes that are highly controlled, restrictive and more costly than what is typical for the industry. We or our collaborators may also be required to adopt a REMS or engage in similar actions, such as patient education, certification of health care professionals or specific monitoring, if we or others later identify undesirable side effects caused by any product that we develop alone or with collaborators. Such identification could also have several additional significant negative consequences, such as:

~~regulatory authorities may suspend, withdraw or limit approvals of such product, or seek an injunction against its manufacture or distribution;~~

regulatory authorities may require additional warnings on the label, including “boxed” warnings, or issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product;

~~we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients;~~

~~we may be required to change the way a product is administered or conduct additional trials;~~

~~the product may become less competitive;~~

~~we or our collaborators may decide to remove the product from the marketplace;~~

~~we may be subject to fines, injunctions or the imposition of civil or criminal penalties;~~

~~we could be sued and be held liable for harm caused to patients; and~~

~~our reputation may suffer.~~

~~Any of these events could prevent us or our collaborators from achieving or maintaining market acceptance of any potential product.~~

Even if we obtain regulatory approval for any products that we develop alone or with collaborators, such products will remain subject to ongoing regulatory requirements, which may result in significant additional expense.

Even if products we develop alone or with collaborators receive regulatory approval, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, distribution, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information, among other things. Any regulatory approvals received for such products may also be subject to limitations on the approved indicated uses for which they may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing and surveillance studies. For example, the holder of an approved BLA in the United States is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. In the United States, the holder of an approved BLA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Similar provisions apply in the ~~EU.~~European Union. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. Similarly, in the EUEuropean Union any promotion of medicinal products is highly regulated and, depending on the specific jurisdiction involved, may require prior vetting by the competent national regulatory authority. In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP requirements and adherence to commitments made in the BLA or foreign marketing application.

If we, our collaborators or a regulatory agency discovers previously unknown problems with a product such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured or disagrees with the promotion, marketing or labeling of that product, a regulatory agency may impose restrictions relative to that product, the manufacturing facility or us or our collaborators, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.

Moreover, if any of our product candidates are approved, our product labeling, advertising, promotion and distribution will be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we or our collaborators fail to comply with applicable regulatory requirements following approval of any potential products we may develop, authorities may:

•issue an untitled enforcement letter or a warning letter asserting a violation of the law;

•seek an injunction, impose civil and criminal penalties, and impose monetary fines, restitution or disgorgement of profits or revenues;

•suspend or withdraw regulatory approval;

•suspend or terminate any ongoing clinical trials or implement requirements to conduct post-marketing studies or clinical trials;

•refuse to approve a pending BLA or comparable foreign marketing application (or any supplements thereto) submitted by us or our collaborators;

•restrict the labeling, marketing, distribution, use or manufacturing of products;

•seize or detain products or otherwise require the withdrawal or recall of products from the market;

•refuse to approve pending applications or supplements to approved applications that we or our collaborators submit;

•refuse to permit the import or export of products; or

•refuse to allow us or our collaborators to enter into government contracts.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our or our collaborators’ ability to commercialize products and our ability to generate revenues.

In addition, the FDA’s policies, and policies of foreign regulatory agencies, may change, and additional regulations may be enacted that could prevent, limit or delay regulatory approval of product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of biologics and spur innovation. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of guidance and review and approval of marketing applications. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose restrictions on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. If we ~~or our collaborators~~ are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may be subject to enforcement action and we may not achieve or sustain profitability.

Our business operations and future relationships with investigators, healthcare professionals, consultants, third-party payors, patient organizations and customers will be subject to applicable healthcare regulatory laws, which could expose us to penalties.

Our business operations and future arrangements with investigators, healthcare professionals, consultants, third-party payors, patient organizations and customers, may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we will conduct our operations, including how we research, market, sell and distribute our product candidates, if approved. Such laws include:

•the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or providing any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

•the U.S. federal false claims laws, including the civil False Claims Act, which, among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

•the U.S. federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying,

concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

•the U.S. federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the government information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners such as physician assistants and nurse practitioners, and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members;

•analogous U.S. state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our future business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and

•similar healthcare laws and regulations in the EU and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers and laws governing the privacy and security of certain protected information, such as the General Data Protection Regulation (“GDPR”), which imposes obligations and restrictions on the collection and use of personal data relating to individuals located in the European Economic Area (“EEA”) (including health data).

Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations.

The successful commercialization of product candidates developed by us or our partners will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage, reimbursement levels and pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for such product candidates, if approved, could limit our or our partners’ ability to market those products and decrease our ability to generate revenue.

The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford prescription medications such as our product candidates, assuming FDA approval. Our ability to achieve acceptable levels of coverage and reimbursement for products by governmental authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize our product candidates. Assuming we obtain coverage for our product candidates by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the United States, the EU or elsewhere will be available for our product candidates or any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs or biologics when an equivalent generic drug, biosimilar or a less expensive therapy is available. It is possible that a third-party payor may consider our product candidates as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our product candidates, pricing of existing third-party

therapeutics may limit the amount we will be able to charge for our product candidates. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in our product candidates. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates, and may not be able to obtain a satisfactory financial return on our product candidates.

No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases on short notice, and we believe that changes in these rules and regulations are likely.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries have and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our product candidates may be reduced compared with the United States and may be insufficient to generate commercially-reasonable revenue and profits.

Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of our product candidates due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and biologics and surgical procedures and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products.

Compliance with European Union chemical regulations could be costly and adversely affect our business and results of operations.

Some of our products are subject to the European Union regulatory regime known as The Registration, Evaluation and Authorization of Chemicals (“REACH”). REACH mandates that certain chemicals manufactured in, or imported into, the European Union be registered and evaluated for their potential effects on human health and the environment. Under REACH, we and our contract manufacturers located in the European Union are required to register certain of our products based on the quantity of such product imported into or manufactured in the European Union and on the product’s intended end-use. The registration, evaluation and authorization process under REACH can be costly and time consuming. Problems or delays in the registration, evaluation or authorization process under REACH could delay or prevent the manufacture of some of our products in, or the importation of some of our products into, the European Union, which could adversely affect our business and results of operations. In addition, if we or our ~~collaborators are unable~~contract manufacturers fail to ~~maintain regulatory compliance, marketing approval that has been obtained~~comply with REACH, we may be ~~lost.~~

Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new products from being developed or commercialized in a timely manner, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of agencies that fund research and development activities is subject to ~~the political process, which is inherently fluid and unpredictable.~~

~~Disruptions at the FDA and~~penalties or other agencies may also slow the time necessary for new drugs and biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions,enforcement actions, which could have a material adverse effect on our ~~business.~~business and results of operations.

~~Our product candidates for which we intend~~Risks Related to ~~seek approval as a biologic products may face competition sooner than anticipated.~~

~~The BCPIA enacted in the Patient Protection and Affordable Care Act, signed into law~~our Dependence on March 23, 2010, created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when the FDA will fully adopt processes intended to implement BPCIA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.Third Parties

We rely on third parties to conduct our clinical trials and perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development

programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.

We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. As a result, we are and expect to remain dependent on third parties to conduct clinical trials of our product candidates. Specifically, we expect CROs, clinical investigators, and consultants to play a significant role in the conduct of these trials and the

subsequent collection and analysis of data. However, we will not be able to control all aspects of their activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs and other third parties does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, clinical trial investigators and clinical trial sites. If we or any of our CROs or clinical trial sites fail to comply with applicable GCP requirements, the data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to stop and/or repeat clinical trials, which would delay the marketing approval process.

There is no guarantee that any such CROs, clinical trial investigators or other third parties on which we rely will devote adequate time and resources to our development activities or perform as contractually required. If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols or meet regulatory requirements, otherwise performs in a substandard manner, or terminates its engagement with us, the timelines for our development programs may be extended or delayed or our development activities may be suspended or terminated. If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in such clinical trials unless we are able to transfer those subjects to another qualified clinical trial site, which may be difficult or impossible. In addition, clinical trial investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA or comparable foreign regulatory authorities concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any marketing application we submit by the FDA or any comparable foreign regulatory authority. Any such delay or rejection could prevent us from commercializing our product candidates.

We contract with third parties for the manufacturing and supply of product candidates for use in preclinical testing and clinical trials and related services, which supply may become limited or interrupted or may not be of satisfactory quality and quantity.

We do not have any manufacturing facilities. We produce in our laboratory relatively small quantities of products for evaluation in our research programs. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates are approved. We currently have limited manufacturing arrangements and expect that each of our product candidates will only be covered by single source suppliers for the foreseeable future. This reliance increases the risk that we will not have sufficient quantities of our product candidates or products, if approved, or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

Furthermore, all entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in clinical trials must be manufactured in accordance with cGMP requirements. These regulations govern manufacturing processes and procedures, including record keeping, and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to the FDA’s cGMP regulations enforced by the FDA through its facilities inspection program. Comparable foreign regulatory authorities may require compliance with similar requirements. The facilities and quality systems of our third-party contractor manufacturers must pass a pre-approval inspection for compliance with the applicable regulations as a condition of marketing approval of our product candidates. We do not control the manufacturing activities of, and are completely dependent on, our contract manufacturers for compliance with cGMP regulations.

In the event that any of our manufacturers fails to comply with such requirements or to perform its obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third party, which we may not be able to do on commercially reasonable terms, if at all. In particular, any replacement of our manufacturers could require significant effort

and expertise because there may be a limited number of qualified replacements. In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may have difficulty transferring such skills or technology to another third party and a feasible alternative may not exist. In addition, certain of our product candidates and our own proprietary methods have never been produced or implemented outside of our company, and we may therefore experience delays to our development programs if and when we attempt to establish new third party manufacturing arrangements for these product candidates or methods. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our product candidates. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget.

Our or a third party’s failure to execute on our manufacturing requirements, do so on commercially reasonable terms and comply with cGMP could adversely affect our business in a number of ways, including:

▪an inability to initiate or continue clinical trials of our product candidates under development;

▪delay in submitting regulatory applications, or receiving marketing approvals, for our product candidates;

▪loss of the cooperation of future collaborators;

▪subjecting third-party manufacturing facilities or our manufacturing facilities to additional inspections by regulatory authorities;

▪requirements to cease development or to recall batches of our product candidates; and

▪in the event of approval to market and commercialize our product candidates, an inability to meet commercial demands for our product or any other future product candidates.

Risks Related to Intellectual Property and Information Technology

Our efforts to prosecute and protect our intellectual property may not be successful.

We will continue to file and prosecute patent applications and maintain trade secrets in an ongoing effort to protect our intellectual property. It is possible that our current patents, or patents which we may later acquire, may be successfully challenged or invalidated in whole or in part. It is also possible that we may not obtain issued patents from our pending patent applications or other inventions we seek to protect. We sometimes permit certain ~~intellectual property~~patents or patent applications to lapse or go abandoned under appropriate circumstances. Due to uncertainties inherent in prosecuting patent applications, sometimes patent applications are rejected, and we subsequently abandon them. It is also possible that we may develop proprietary products or technologies in the future that are not patentable or that the patents of others will limit or altogether preclude our ability to conduct business. In addition, any patent issued to us or to our licensor may provide us with little or no competitive advantage, in which case we may abandon such patent or license it to another ~~entity.~~entity, or terminate the license agreement.

Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop technology or products that are similar to ours or that compete with ours. Patent, trademark, copyright and trade secret laws afford only limited protection for our technology platform, services and products. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Despite our efforts to protect our proprietary rights, unauthorized parties have in the past attempted, and may in the future attempt, to operate under aspects of our intellectual property, technology, services or products or to obtain and use information that we regard as proprietary. Third parties may also design around our proprietary rights, which may render our protected technology, services and products less valuable, if the design around is favorably received in the marketplace. In addition, if any of our products, services or technology is covered by third-party patents or other intellectual property rights, we could be subject to various legal actions. We cannot assure you that our technology platform, services and products do not infringe patents held by others or that they will not in the future.

Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement, invalidity, misappropriation, or other claims.

Any such litigation could result in substantial costs and diversion of our resources. Moreover, any settlement of or adverse judgment resulting from litigation relating to intellectual property could require us to obtain a license to continue to

make, use or sell the products or technology that is the subject of the claim, or otherwise restrict or prohibit our use of the ~~technology.~~technology, product or services.

Our ability to compete may decline if we do not adequately protect our proprietary technologies or if we lose some of our intellectual property rights.

Our success depends in part on our ability to obtain patents and maintain adequate protection of our intellectual property for our technologies, services and ~~products and potential~~ products in the United States and other countries. We have adopted a strategy of seeking patent protection in the United States and in foreign countries with respect to certain of the technologies used in or relating to our services, products and processes. As such, as of December 31, ~~2018,~~2021, we owned or controlled approximately ~~1,100~~1,900 issued patents and pending patent applications in the United States and in various foreign jurisdictions. Our ~~intellectual property rights,~~patents and patent applications, if issued, as of December 31, ~~2018,~~2021, have terms that expire between ~~2019~~2022 and ~~2039.~~approximately 2042. We also have ~~license~~license rights to a number of issued patents and pending patent applications in the United States and in various foreign jurisdictions. Our owned and licensed patents and patent applications include those directed to our enabling technologies and to the methods and products that support our business in the ~~pharmaceuticals manufacturing~~biotherapeutics, molecular diagnostics, food and ~~complex chemistry~~other markets. We intend to continue to apply for patents relating to our technologies, methods, services and products as we deem appropriate.

~~Numerous patents~~Issuance of claims in ~~our portfolio~~patent applications and enforceability of such claims once issued involve complex legal and factual questions and, therefore, ~~enforceability~~we cannot ~~be predicted~~predict with any ~~certainty.~~certainty whether any of our issued patents will survive invalidity claims asserted by third parties. Issued patents and patents issuing from pending applications may be challenged, invalidated, or circumvented. Moreover, the United States Leahy-Smith America Invents Act (“AIA”), enacted in September 2011, brought significant changes to the United States patent system, which include a change to a “first to file” system from a “first to invent” system and changes to the procedures for challenging issued patents and disputing patent applications during the examination process, among other things. While interference proceedings are possible for patent claims filed prior to March 16, 2013, many of our filings will be subject to the post- and pre-grant proceedings set forth in the AIA, including citation of prior art and written statements by third parties, third party pre-issuance submissions, ex parte reexamination, inter partes review, post-grant review, and derivation proceedings. We may need to utilize the processes provided by the AIA for supplemental examination or patent reissuance. These proceedings could result in substantial cost to us even if the outcome is favorable. Even if successful, any interference may result in loss of certain claims. Any litigation or proceedings could divert our management's time and efforts. Even unsuccessful claims ~~filed~~brought by third parties could result in significant legal fees and other expenses, diversion of management time, and disruption in our business. Uncertainties resulting from initiation and continuation of any patent or related litigation could harm our ability to compete. We have not assessed the applicability of the AIA and new regulations on our patent portfolio. These changes could increase the costs and uncertainties surrounding the prosecution of our patent applications and the enforcement or defense of our patent rights.

Additional uncertainty may result from legal precedent handed down by the United States Federal Circuit Court and Supreme Court as they determine legal issues concerning the scope and construction of patent claims and inconsistent interpretation of patent laws by the lower courts. Accordingly, we cannot ensure that any of our pending patent applications will result in issued patents, or even if issued, predict the breadth of the claims upheld in our and other companies' patents. Given that the degree of future protection for our proprietary rights is uncertain, we cannot ensure that: (i) we were the first to invent the inventions covered by each of our pending applications, (ii) we were the first to file patent applications for these inventions, or (iii) the proprietary technologies we develop will be patentable. In addition, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our intellectual property is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in certain foreign countries where the local laws may not protect our proprietary rights as fully as in the United States. Moreover, third parties could practice our inventions in territories where we do not have patent protection. Such third parties may then try to import products made using our inventions into the United States or other ~~territories.~~countries. If competitors are able to use our technology, our ability to compete effectively could be harmed. In addition, others may independently develop and obtain patents for technologies that are similar to or superior to our technologies. If that happens, we may need to license these technologies, and we may not be able to obtain licenses on reasonable terms, if at all, which could cause harm to our business.

Third parties may claim that we are infringing their intellectual property rights or other proprietary rights, which may subject us to costly and time consuming litigation and prevent us from developing or commercializing our products.

Our commercial success also depends in part on our ability to operate without infringing patents and proprietary rights of third parties, and without breaching any licenses or other agreements that we have entered into with regard to our

technologies, services, products and business. We cannot ensure that patents have not been issued to third parties that could block our ability to obtain patents or to operate as we would like. There may be patents in some countries that, if valid, may block our ability to make, use or sell our products in those countries, or import our products into those countries, if we are unsuccessful in circumventing or

acquiring rights to these patents. There also may be claims in patent applications filed in some countries that, if granted and valid, may also block our ability to commercialize products or processes in these countries if we are unable to circumvent or license them.

The industries in which we operate and the biotechnology industry, in particular, are characterized by frequent and extensive litigation regarding patents and other intellectual property rights. Many biotechnology companies have employed intellectual property litigation as a way to gain a competitive advantage. Our involvement in litigation or other intellectual property proceedings inside and outside of the United States, to defend our intellectual property rights or as a result of alleged infringement of the rights of others, may divert our management’s time from focusing on business operations and could cause us to spend significant amounts of money. Any potential intellectual property litigation also could force us to do one or more of the following:

•stop selling or using our products or technologies that use the subject intellectual property;

•pay monetary damages or substantial royalties;

•grant cross-licenses to third parties relating to our patents or proprietary rights;

•obtain from the third party asserting its intellectual property rights a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; or

•redesign those products or processes that use any allegedly infringing technology, or relocate the operations relating to the allegedly infringing technology to another jurisdiction, which may result in significant cost or delay to us, could be technically infeasible or could prevent us from selling some of our products in the United States or other jurisdictions.

We are aware of some patents and patent applications relating to aspects of our technologies filed by, and issued to, third parties. We cannot assure you that if this third party intellectual property is asserted against us that we would ultimately prevail.

We may be involved in lawsuits to protect or enforce our ~~patents,~~intellectual property rights, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe our intellectual property rights or those of our licensors. To prevent infringement or unauthorized use, we have in the past filed, and may in the future be required to file, infringement claims, which can be expensive and time-consuming. ~~See Item 3, “Legal Proceedings.”~~ In addition, in ~~a patent~~an infringement proceeding, a court may decide that ~~a patent~~the intellectual property that we own or in-license is not valid, is unenforceable and/or is not infringed. In addition, in legal proceedings against a third party to enforce a patent directed at one of our technologies, services or products, the defendant could counterclaim that our patent is invalid and/or unenforceable in whole or in part. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a patent validity challenge include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could include an allegation that someone connected with prosecution of the patent withheld relevant information from the ~~USPTO~~United States Patent and Trademark Office (“USPTO”) or made a misleading statement during prosecution. Third parties may also raise similar claims before the USPTO, even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable, and prior art could render our patents or those of our licensors invalid. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on such product. Such a loss of patent protection would have a material adverse impact on our business.

Even if resolved in our favor, litigation or other legal proceedings relating to our intellectual property rights may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our expenses and reduce the resources available for operations and research and development activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace. Furthermore, because of the substantial amount of discovery

required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries where we do business do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual

property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property, particularly those relating to biotechnology and/or bioindustrial technologies. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. This could make it difficult for us to stop the infringement of our patents or misappropriation of our other intellectual property rights. Additionally, proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business.

If ~~we lose key personnel, including key management personnel, or are unable to attract and retain additional personnel as needed in the future, it could disrupt the operation of~~ our ~~business, delay our product development programs, harm our research and development efforts, and/or impact our ability to pursue and build collaborations.~~

Our business involves complex, global operations across a variety of markets and requires a management team and employee workforce that is knowledgeable in the many areas in which we operate. The loss of any key members of our management team or the failure to attract or retain other key employees who possess the requisite expertise for the conduct of our business could prevent us from developing and commercializing our products for our target markets and entering into collaborations or licensing arrangements to execute on our business strategy.

In addition, the loss of any key scientific staff, or the failure to attract or retain other key scientific employees, could prevent us from developing and commercializing our products for our target markets and entering into collaborations or licensing arrangements to execute on our business strategy. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among biotechnology and other technology-based businesses or due to the availability of personnel with the qualifications or experience necessary for our business. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience staffing constraints that will adversely affect our ability to meet the demands of our collaborators and customers in a timely fashion or to support our internal research and development programs. Competition for experienced scientists and other technical personnel from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms. All of our employees are at-will employees, which mean that either the employee or we may terminate their employment at any time.

Our planned activities will require additional expertise in specific industries and areas applicable to the products and processes developed through our technology platform or acquired through strategic or other transactions, especially in the end markets that we seek to penetrate. These activities will require the addition of new personnel, and the development of additional expertise by existing personnel. The inability to attract personnel with appropriate skills or to develop the necessary expertise could impair our ability to grow our business.

~~If our protein catalysts,~~biocatalysts, or the genes that code for our ~~protein catalysts,~~biocatalysts, are stolen, misappropriated or reverse engineered, others could use these biocatalysts or genes to produce competing products.

Third parties, including our contract manufacturers, customers and those involved in shipping our ~~proteincatalysts,~~biocatalysts, often have custody or control of our ~~proteincatalysts.~~biocatalysts. If our ~~proteincatalysts,~~biocatalysts, or the genes that code for our ~~proteincatalysts,~~biocatalysts, were stolen, misappropriated or reverse engineered, they could be used by other parties who may be able to reproduce these ~~proteincatalysts~~biocatalysts for their own commercial gain. If this were to occur, it may be difficult for us to challenge this type of use, especially in countries with limited intellectual property protection or in countries in which we do not have patents covering the misappropriated biocatalysts.

~~Confidentiality agreements with employees and others may not adequately prevent disclosures of trade secrets and other proprietary information.~~

We rely in part on trade secret protection to protect our confidential and proprietary information and processes. However, trade secrets are difficult to protect. We have taken measures to protect our trade secrets and proprietary information, but these measures may not be effective. We require employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements also generally provide that inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. Nevertheless, our proprietary information may be disclosed, third parties could reverse engineer our biocatalysts and others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

~~We may need additional capital in the future in order to expand our business.~~

Our future capital requirements may be substantial, particularly as we continue to develop our business. Although we believe that, based on our current level of operations, our existing cash, cash equivalents and equity securities will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months, we may need additional capital if our current plans and assumptions change. Our need for additional capital will depend on many factors, including the financial success of our biocatalysis business, our spending to develop and commercialize new and existing products and the amount of collaboration funding we may receive to help cover the cost of such expenditures, the effect of any acquisitions of other businesses, technologies or facilities that we may make or develop in the future, our spending on new market opportunities, including opportunities in the fine chemicals markets, and the filing, prosecution, enforcement and defense of patent claims. If our capital resources are insufficient to meet our capital requirements, and we are unable to enter into or maintain collaborations with partners that are able or willing to fund our development efforts or commercialize any products that we develop or enable, we will have to raise additional funds to continue the development of our technology and products and complete the commercialization of products, if any, resulting from our technologies. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. We may seek to obtain such additional capital through equity offerings, debt financings, credit facilities and/or strategic collaborations. If future financings involve the issuance of equity securities, our existing stockholders would suffer dilution. If we raise debt financing or enter into credit facilities, we may be subject to restrictive covenants that limit our ability to conduct our business. Strategic collaborations may also place restrictions on our business. We may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. If we fail to raise sufficient funds and fail to generate sufficient revenues to achieve planned gross margins and to control operating costs, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited. If this happens, we may be forced to delay or terminate research or development programs or the commercialization of products resulting from our technologies, curtail or cease operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.

~~If we are unable to comply with the terms of our credit facility, our business and financial condition would be materially and adversely affected.~~

On June 30, 2017 we entered into a credit facility ("Credit Facility") financing arrangement secured by a lien on substantially all of our personal property other than our intellectual property. Although we have made no loans or draws under the Credit Facility as of December 31, 2018, the Credit Facility includes affirmative and negative covenants including, among others, covenants requiring us to achieve consolidated product revenues at minimum levels and restricting our ability to transfer collateral, incur additional indebtedness, engage in mergers or acquisitions, pay dividends or make other distributions, make investments, create liens and sell assets. The Credit Facility also includes events of default including, among other things, our failure to pay any amounts due under the Credit Facility, a breach of covenants under the Credit Facility, our insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than $250,000 and a final judgment against us in an amount greater than $250,000. If an event of default occurs, it could cause our obligations to become immediately due and payable and our lender would be entitled to foreclose against the collateral securing the indebtedness, including our cash. If our indebtedness were to be accelerated, we may be unable to repay such debt and, therefore, such acceleration could materially and adversely affect our business and financial condition. For more information regarding our compliance with our financial covenants, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

~~Debt service obligation may place us at a competitive disadvantage in our industry.~~

Draws under the Credit Facility would create debt service obligations for us. Although we have not drawn on the Credit Facility to date, any future draws under the Credit Facility and the related debt service requirements could adversely affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities. For example, the Credit Facility presents the following risks, certain of which apply regardless of whether we draw on the Credit Facility:

we may be required to use a portion of our cash flow from operations to make debt service payments, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, product development efforts, research and development, and other general corporate requirements;

~~our interest expense could increase if prevailing interest rates increase, because a portion of draws which could be made under the Credit Facility bear interest at floating rates;~~

the Credit Facility could reduce our flexibility to adjust to changing business conditions or obtain additional financing to fund working capital, capital expenditures, product development efforts, research and development, and other general corporate requirements; and

restrictive covenants in our Credit Facility, which apply regardless of whether we draw down under the facility, limit our ability to, among other things, transfer collateral, incur additional indebtedness, engage in mergers or acquisitions, pay dividends or make other distributions, make investments, create liens and sell assets.

Our revenues, financial condition and results of operations may also be adversely affected if one or more of our customers is delayed in paying, or becomes unable to pay, for our delivered products on a timely basis.

Certain of our customers may become subject to financial and other challenges that affect their cash flow. If these customers fail to pay us on a timely basis it may cause our financial results to fluctuate. Failure by such customers to pay us on timely basis, or at all, would adversely impact our financial condition.

~~If goodwill or other long-lived assets become impaired we may be required to record a significant charge to earnings.~~

Our total assets reflect goodwill of $3.2 million and other long-lived assets of $5.8 million as of December 31, 2018. Under accounting principles generally accepted in the United States (“GAAP”), we review goodwill for impairment on at least an annual basis and at any interim date whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We review our long lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Events or changes in circumstances (i.e., information that indicates an impairment might exist) could include: a significant decrease in the market price of our common stock;current period cash flow losses or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the assets; slower growth rates in our industry; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the assets; loss of significant customers or partners; or the current expectation that the assets will more likely than not be sold or disposed of significantly before the end of their estimated useful life. We tested goodwill for impairment as of December 31, 2018. Based on our analysis, we determined that the fair value of goodwill at the reporting unit level exceeded their carrying value and that no impairment was necessary as of December 31, 2018. Nevertheless, we may experience additional events or changes in circumstances in the future that we determine to be indicators of impairment and that may in turn require us to undertake impairment analysis in future periods. Depending on the circumstances and judgments made at such future time, the outcome of the analysis may require us to recognize impairment.

We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or other long-lived assets is determined, resulting in an adverse impact on our financial position and results of operations.

~~Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported results of operations.~~

Financial accounting standards may change or their interpretation may change. A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change becomes effective. Changes to existing rules or the re-examining of current practices may adversely affect our reported financial results or the way we conduct our business. In particular, in order to be able to comply with the requirements of the revenue recognition standard under Accounting Standards Update (ASU) 2014-09 ~~Revenue from Contracts with Customers (Topic 606)~~ and related amendments (“ASC 606”), we have updated and enhanced our internal accounting processes and our internal controls over financial reporting. This has required, and will continue to require, additional investments by us, and may require incremental resources that could increase our operating costs in future periods. Further, the timing of recognition for our product sales under certain license and supply agreements and research and development revenues, on or after January 1, 2018, have been changed as a result of ASC 606.

~~If we are unable to maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.~~

Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to conduct a comprehensive evaluation of their disclosure controls and procedures over financial reporting. At the end of each fiscal year, we must perform an evaluation of our disclosure controls and procedures over financial reporting, include in our annual report the results of the evaluation, and have our external auditors publicly attest to such evaluation.

We have identified material weaknesses and other control deficiencies in the past, and while the material weaknesses have since been remediated, we cannot assure you that in the future additional material weaknesses or significant deficiencies will not exist or otherwise be discovered. If other deficiencies are discovered in the future, our ability to accurately report our financial position, results of operations or cash flows on timely basis could be impaired, which could result in late filings of our annual and quarterly reports under the Exchange Act, restatements of our consolidated financial statements, a decline in our stock price, suspension or delisting of our common stock by the Nasdaq Stock Market, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity.

We are dependent on information technology systems, infrastructure and data, and any failure of these systems could harm our business. Security breaches, loss of data, and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business, results of operations and financial condition.

Information technology helps us operate efficiently, interface with customers, maintain financial accuracy and efficiency, and accurately produce our financial statements. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach. If our data management systems do not effectively collect, store, process, and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human error, our ability to effectively plan, forecast, and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows, and the timeliness with which we report our internal and external operating results.

Our business may require us to use and store customer, employee, and business partner personally identifiable information (“PII”). This may include names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers, and payment account information. We require user names and passwords in order to access our information technology systems. We also use encryption and authentication technologies to secure the transmission and storage of data. These security measures may be compromised as a result of security breaches by unauthorized persons, employee error, malfeasance, faulty password management, or other irregularity, and result in persons obtaining unauthorized access to our data or accounts. Third parties may attempt to fraudulently induce employees or customers into disclosing user names, passwords, or other sensitive information, which may in turn be used to access our information technology systems. For example, our employees have received “phishing” emails and phone calls attempting to induce them to divulge passwords and other sensitive information.

We also rely on external vendors to supply and/or support certain aspects of our information technology systems. The systems of these external vendors may contain defects in design or manufacture or other problems that could unexpectedly compromise information security of our own systems, and we are dependent on these third parties to deploy appropriate security programs to protect their systems.

While we devote significant resources to network security, data encryption, and other security measures to protect our systems and data, these security measures cannot provide absolute security. We may experience a breach of our systems and may be unable to protect sensitive data. The costs to us to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs, and security vulnerabilities could be significant. Our efforts to address these problems may not be successful and could result in unexpected interruptions, delays, cessation of service, and harm to our business operations. Moreover, if a computer security breach affects our systems or results in the unauthorized release of PII, our reputation and brand could be materially damaged and use of our products and services could decrease. We would also be exposed to a risk of loss or litigation and potential liability, which could have a material adverse impact on our business, financial condition, results of operations, or cash flows.

~~Our business is subject to complex and evolving laws and regulations regarding privacy, data protection and other matters relating to information collection.~~

There are numerous state, federal and foreign laws, regulations, decisions, and directives regarding privacy and the collection, storage, transmission, use, processing, disclosure and protection of PII and other personal, customer, or other data, the scope of which is continually evolving and subject to differing interpretations. We may be subject to significant consequences, including penalties and fines, for any failure to comply with such laws, regulations and directives.

Furthermore, any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to comply with any federal, state or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, a loss of customer confidence, damage to our brand and reputation and a loss of customers, any of which could have an adverse effect on our business. In addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business or our reputation with customers. For example, some countries have adopted laws mandating that some PII regarding customers in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit PII processing to within individual countries could increase our operating costs significantly.

~~Our product gross margins are variable and may decline from quarter to quarter.~~

Our product gross margins have varied significantly in the past and may continue to fluctuate from quarter to quarter and year to year in the future due to a variety of factors, including product mix, pricing pressure from our pharmaceutical customers and competition from other products or technologies. This variability may have a material adverse impact on our operating results and financial condition and cause our stock price to decline.

~~We face risks associated with our international business.~~

While we have a limited number of employees located outside of the United States, we are and will continue to be dependent upon contract manufacturers located outside of the United States. In addition, we have customers and partners located outside of the United States. Conducting business internationally exposes us to a variety of risks, including:

~~changes in or interpretations of foreign regulations that may adversely affect our ability to sell our products, repatriate profits to the United States or operate our foreign-located facilities;~~

~~the imposition of tariffs;~~

~~the imposition of limitations on, or increase of, withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures;~~

~~the imposition of limitations on genetically-engineered products or processes and the production or sale of those products or processes in foreign countries;~~

~~currency exchange rate fluctuations;~~

~~uncertainties relating to foreign laws, regulations and legal proceedings including tax, import/export, anti-corruption and exchange control laws;~~

~~the availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us;~~

increased demands on our limited resources created by our operations may constrain the capabilities of our administrative and operational resources and restrict our ability to attract, train, manage and retain qualified management, technicians, scientists and other personnel;

~~economic or political instability in foreign countries;~~

~~difficulties associated with staffing and managing foreign operations; and~~

~~the need to comply with a variety of United States and foreign laws applicable to the conduct of international business, including import and export control laws and anti-corruption laws.~~

~~Compliance with European Union chemical regulations could be costly and adversely affect our business and results of operations.~~

Some of our products are subject to the European Union regulatory regime known as The Registration, Evaluation and Authorization of Chemicals (“REACH”). REACH mandates that certain chemicals manufactured in, or imported into, the European Union be registered and evaluated for their potential effects on human health and the environment. Under REACH, we and our contract manufacturers located in the European Union are required to register certain of our products based on the quantity of such product imported into or manufactured in the European Union and on the product’s intended end-use. The registration, evaluation and authorization process under REACH can be costly and time consuming. Problems or delays in the registration, evaluation or authorization process under REACH could delay or prevent the manufacture of some of our products in, or the importation of some of our products into, the European Union, which could adversely affect our business and results of operations. In addition, if we or our contract manufacturers fail to comply with REACH, we may be subject to penalties or other enforcement actions, which could have a material adverse effect on our business and results of operations.

Competitors and potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete or may use their greater resources to gain market share at our expense.

The biocatalysis industry and each of our target markets are characterized by rapid technological change. Our future success will depend on our ability to maintain a competitive position with respect to technological advances. In addition, as we enter new markets, we will face new competition and will need to adapt to competitive factors that may be different from those we face today.

We are aware that other companies, including Royal DSM, N.V. (“DSM”), BASF, and Novozymes have alternative methods for obtaining and generating genetic diversity or use mutagenesis techniques to produce genetic diversity. Academic institutions such as the California Institute of Technology, the Max Planck Institute and the Austrian Centre of Industrial Biotechnology are also working in this field. Technological development by others may result in our products and technologies, as well as products developed by our customers using our biocatalysts, becoming obsolete.

~~Our primary competitors in the biocatalysis for pharmaceutical products~~are companies marketing either conventional, non-enzymatic processes or biocatalytic enzymes to manufacturers of pharmaceutical intermediates and APIs, and also existing in-house technologies (both biocatalysts and conventional catalysts) within our client and potential client companies. The principal methods of competition and competitive differentiation in this market are price, product quality and performance, including manufacturing yield, safety and environmental benefits, and speed of delivery of product. Pharmaceutical manufacturers that use biocatalytic processes can face increased competition from manufacturers that use more conventional processes and/or manufacturers that are based in regions (such as India and China) with lower regulatory, safety and environmental costs.

The market for the manufacture and supply of APIs and intermediates is large with many established companies. These companies include many of our large innovator and generic pharmaceutical customers, such as Merck, GSK, Pfizer, Bristol Myers, Squibb and Teva Pharmaceutical Industries Ltd., which have significant internal research and development efforts directed at developing processes to manufacture APIs and intermediates. The processes used by these companies include classical conventional organic chemistry reactions, chemo catalytic reactions, biocatalytic reactions or combinations thereof. Our biocatalytic based manufacturing processes must compete with these internally developed routes. Additionally, we also face competition from companies developing and marketing conventional catalysts such as Solvias Inc., BASF and Takasago International Corporation.

The market for supplying enzymes for use in pharmaceutical manufacturing is quite fragmented. There is competition from large industrial enzyme companies, such as Novozymes, as well as subsidiaries of larger CRO/CMOs, such as DSM, Cambrex Corporation and Almac Group Ltd. There is also competition in the customized and optimized enzyme area from several smaller companies, such as BRAIN AG, Arzeda, c-LEcta GmbH, Gingko Bioworks, Zymergen, and Evocatal GmbH.

We entered the fine chemicals market in 2013, by applying our protein engineering technology in the food market. We face similar forms of competition in this market as in the pharmaceutical markets with the exception that the risk of losing opportunities to larger competitors in fine chemicals is greater given the larger scale of opportunities available in the fine chemicals market compared to the pharmaceutical market. Our significant competitors in the fine chemicals markets include companies that have been in these marketplaces for many years, such as DuPont Industrial Biosciences (DuPont Genencor), DSM, Novozymes and A.B. Enzymes. These companies have greater resources in these markets than we do and have long-term supply arrangements already in place with customers. Our ability to compete in these markets may be limited by our relatively late entrance. We also face competition in both the fine chemicals and pharmaceutical markets from emerging companies offering whole cell metabolic pathway approaches to these markets.

There are numerous companies that participate in the biotherapeutics market generally and the PKU market specifically. Many of these companies are large, successful and well-capitalized. BioMarin Pharmaceutical Inc. (“BioMarin”) and Daiichi Sankyo Company market Kuvan^® ~~in the United States, Europe and Japan for the treatment of a certain type of PKU. In addition, BioMarin gained US FDA approval in 2018 and began commercial sales of Palynziq~~^TM as an injectable enzyme substitution therapy for the potential treatment of PKU. Synlogic is developing SYNB1618 as a potential treatment for PKU, and in 2018, they completed a phase 1/2a clinical trial using SYNB1618. Takeda (who recently acquired Shire Plc), Genzyme / Sanofi S.A. and other companies market or are actively developing new enzyme therapeutics. There are numerous companies that are developing other forms of therapeutics, such as small molecules and gene therapies, which could compete with biotherapeutics.

Our ability to compete successfully in any of these markets will depend on our ability to develop proprietary products that reach the market in a timely manner and are technologically superior to and/or are less expensive than other products on the market. Many of our competitors have substantially greater production, financial, research and development, personnel and marketing resources than we do. They also started developing products earlier than we did, which may allow them to establish blocking intellectual property positions or bring products to market before we can. In addition, certain of our competitors may also benefit from local government subsidies and other incentives that are not available to us. As a result, our competitors may be able to develop competing and/or superior technologies and processes, and compete more aggressively and sustain that competition over a longer period of time than we could. Our technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors. We cannot be certain that any products we develop in the future will compare favorably to products offered by our competitors or that our existing or future products will compare favorably to any new products that are developed by our competitors. As more companies develop new intellectual property in our markets, the possibility of a competitor acquiring patent or other rights that may limit our products or potential products increases, which could lead to litigation.

Our limited resources relative to many of our competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and market share, adversely affect our results of operations and financial position, and prevent us from obtaining or maintaining profitability.

We must rely on our suppliers, contract manufacturers and customers to deliver timely and accurate information in order to accurately report our financial results in the time frame and manner required by law.

We need to receive timely, accurate and complete information from a number of third parties in order to accurately report our financial results on a timely basis. We rely on suppliers and certain contract manufacturers to provide us with timely and accurate information regarding our inventories and manufacturing cost information, and we rely on current and former collaborators to provide us with product sales and cost saving information in connection with royalties owed to us. Any failure to receive timely information from one or more of these third parties could require that we estimate a greater portion of our revenues and other operating performance metrics for the period, which could cause our reported financial results to be incorrect. Moreover, if the information that we receive is not accurate, our financial statements may be materially incorrect and may require restatement, and we may not receive the full amount of revenues that we are entitled to under these arrangements. Although we typically have audit rights with these parties, performing such an audit could be harmful to our collaborative relationships, expensive and time consuming and may not be sufficient to reveal any discrepancies in a timeframe consistent with our reporting requirements.

~~Our results of operations may be adversely affected by the results of regulatory tax examinations.~~

We are subject to value added tax, customs tax, sales and use tax, withholding tax, payroll tax, income tax and other taxes in connection with the operation of our business. Regulators from the various jurisdictions in which we operate periodically perform audits, and we are regularly subject to, and are currently undergoing, audits and assessments by tax authorities in the United States and foreign jurisdictions for prior tax years. Although we believe our tax estimates are reasonable, and we intend to defend our positions if necessary, the final outcome of tax audits and related proceedings is inherently uncertain and could be materially different than that reflected in our historical income tax provisions and accruals. Moreover, we could be subject to assessments of substantial additional taxes and/or fines or penalties relating to ongoing or future audits. The adverse resolution of any audits or related proceedings could have an adverse effect on our financial position and results of operations.

~~Business interruptions could delay us in the process of developing our products and could disrupt our sales.~~

Our headquarters is located in the San Francisco Bay Area near known earthquake fault zones and is vulnerable to significant damage from earthquakes. We are also vulnerable to other types of natural disasters and other events that could disrupt our operations, such as riot, civil disturbances, war, terrorist acts, flood, infections in our laboratory or production facilities or those of our contract manufacturers and other events beyond our control. We do not carry insurance for earthquakes and we may not

carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our cash flows and success as an overall business.

~~Ethical, legal and social concerns about genetically engineered products and processes could limit or prevent the use of our products, processes, and technologies and limit our revenues.~~

Some of our products and processes are genetically engineered or involve the use of genetically engineered products or genetic engineering technologies. If we and/or our collaborators are not able to overcome the ethical, legal, and social concerns relating to genetic engineering, our products and processes may not be accepted. Any of the risks discussed below could result in increased expenses, delays, or other impediments to our programs or the public acceptance and commercialization of products and processes dependent on our technologies or inventions. Our ability to develop and commercialize one or more of our technologies, products, or processes could be limited by the following factors:

public attitudes about the safety and environmental hazards of, and ethical concerns over, genetic research and genetically engineered products and processes, which could influence public acceptance of our technologies, products and processes;

public attitudes regarding, and potential changes to laws governing ownership of genetic material, which could harm our intellectual property rights with respect to our genetic material and discourage collaborators from supporting, developing, or commercializing our products, processes and technologies; and

governmental reaction to negative publicity concerning genetically modified organisms, which could result in greater government regulation of genetic research and derivative products. The subject of genetically modified organisms has received negative publicity, which has aroused public debate. This adverse publicity could lead to greater regulation and trade restrictions on imports of genetically altered products. The protein catalysts that we develop have significantly enhanced characteristics compared to those found in naturally occurring enzymes or microbes. While we produce our biocatalysts only for use in a controlled industrial environment, the release of such biocatalysts into uncontrolled environments could have unintended consequences. Any adverse effect resulting from such a release could have a material adverse effect on our business and financial condition, and we may have exposure to liability for any resulting harm.

~~If we engage in any acquisitions, we will incur a variety of costs and may potentially face numerous risks that could adversely affect our business and operations.~~

We have made acquisitions in the past, and if appropriate opportunities become available, we expect to acquire additional businesses, assets, technologies, or products to enhance our business in the future. For example, in October 2010, we acquired substantially all of the patents and other intellectual property rights associated with Maxygen’s directed evolution technology.

~~In connection with any future acquisitions, we could:~~

~~issue additional equity securities, which would dilute our current stockholders;~~

~~incur substantial debt to fund the acquisitions;~~

~~use our cash to fund the acquisitions; or~~

~~assume significant liabilities including litigation risk.~~

Acquisitions involve numerous risks, including problems integrating the purchased operations, technologies or products, unanticipated costs and other liabilities, diversion of management’s attention from our core businesses, adverse effects on existing business relationships with current and/or prospective collaborators, customers and/or suppliers, risks associated with entering markets in which we have no or limited prior experience and potential loss of key employees. We do not have extensive experience in managing the integration process and we may not be able to successfully integrate any businesses, assets, products, technologies, or personnel that we might acquire in the future without a significant expenditure of operating, financial and management resources, if at all. The integration process could divert management’s time from focusing on operating our business, result in a decline in employee morale and cause retention issues to arise from changes in compensation, reporting relationships, future prospects or the direction of the business. Acquisitions may also require us to record goodwill and non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to certain intangible assets, and incur large and immediate write offs and restructuring and other related expenses, all of which could harm our operating results and financial condition. In addition, we may acquire companies that have insufficient internal financial controls, which could impair our ability to integrate the acquired company and adversely impact our financial reporting. If we fail in our integration efforts with respect to any of our acquisitions and are unable to efficiently operate as a combined organization, our business and financial condition may be adversely affected.

We use hazardous materials in our business and we must comply with environmental laws and regulations. Any claims relating to improper handling, storage or disposal of these materials or noncompliance of applicable laws and regulations could be time consuming and costly and could adversely affect our business and results of operations.

Our research and development and commercial processes involve the use of hazardous materials, including chemical, radioactive, and biological materials. Our operations also produce hazardous waste. We cannot eliminate entirely the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state, local and foreign laws and regulations govern the use, manufacture, storage, handling and disposal of, and human exposure to, these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our total assets. Although we believe that our activities comply in all material respects with environmental laws, there can be no assurance that violations of environmental, health and safety laws will not occur in the future as a result of human error, accident, equipment failure or other causes. Compliance with applicable environmental laws and regulations may be expensive, and the failure to comply with past, present, or future laws could result in the imposition of fines, third party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production, or a cessation of operations, and our liability may exceed our total assets. Liability under environmental laws can be joint and several and without regard to comparative fault. Environmental laws could become more stringent over time imposing greater compliance costs and increasing risks and penalties associated with violations, which could impair our research, development or production efforts and harm our business. In addition, we may have to indemnify some of our customers or suppliers for losses related to our failure to comply with environmental laws, which could expose us to significant liabilities.

~~We may be sued for product liability.~~

The design, development, manufacture and sale of our products involve an inherent risk of product liability claims and the associated adverse publicity. For example, we may be named directly in product liability suits relating to drugs that are produced using our enzymes or that incorporate our intermediates and APIs. The biocatalysts, pharmaceutical intermediates and APIs that we produce or are produced for us by our manufacturing partners could be subject to quality control or contamination issues of which we are not aware. Claims could be brought by various parties, including customers who are purchasing products directly from us, other companies who purchase products from our customers or by the end users of the drugs. We could also be named as co-parties in product liability suits that are brought against our contract manufacturers who manufacture our enzymes, pharmaceutical intermediates and APIs. Insurance coverage is expensive and may be difficult to obtain, and may not be available in the future on acceptable terms, or at all. We cannot assure you that any contract manufacturer that we have used in the past or shall use in the future has or will have adequate insurance coverage to cover against potential claims. In addition, although we currently maintain product liability insurance for our products in amounts we believe to be commercially reasonable, if the coverage limits of these insurance policies are not adequate, a claim brought against us, whether covered by insurance or not, could have a material adverse effect on our business, results of operations, financial condition and cash flows. This insurance may not provide adequate coverage against potential losses, and if claims or losses exceed our liability insurance coverage, we may go out of business. Moreover, we have agreed to indemnify some of our customers for certain claims that may arise out of the use of our products, which could expose us to significant liabilities.

~~Uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act could materially affect our tax obligations and effective tax rate.~~

The 2017 Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and significantly changed how the U.S. imposes income tax on multinational corporations. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a partially territorial system, and a one-time transition tax on the mandatory deemed repatriation of accumulated foreign earnings as of December 31, 2017. The U.S. Department of Treasury (“Treasury”) has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations in the period issued. The Tax Act requires complex computations not previously required under U.S. tax law. As of December 31, 2018, the application of accounting guidance for some of these items is still currently uncertain, as Treasury has yet to issue proposed or final regulations for many provisions of the Act. Further, compliance with the Tax Act and the accounting for such provisions require accumulation of information not previously required or regularly produced. As additional regulatory guidance is issued by the applicable taxing authorities, as accounting treatment is clarified, and as we perform additional analysis on the application of the law, our results may be different from our current amounts, which could materially affect our tax obligations and effective tax rate.

~~Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.~~

In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards (“NOLs”), to offset future taxable income. If the Internal Revenue Service challenges our analysis that our existing NOLs are not subject to limitations arising from previous ownership changes, our ability to utilize NOLs could be limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize a material portion of the NOLs reflected in our financial statements, even if we attain profitability.

Risks Related to Owning our Common Stock

We are subject to anti-takeover provisions in our certificate of incorporation and bylaws and under Delaware law that could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders.

Provisions in our amended and restated certificate of incorporation and our bylaws may delay or prevent an acquisition of us. Among other things, our amended and restated certificate of incorporation and bylaws provide for a board of directors which is divided into three classes, with staggered three-year terms and provide that all stockholder action must be effected at a duly called meeting of the stockholders and not by a consent in writing, and further provide that only our board of directors, the chairman of the board of directors, our chief executive officer or president may call a special meeting of the stockholders. In addition, our amended and restated certificate of incorporation allows our board of directors, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These provisions may also frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management team. Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law which prohibits, with some exceptions, stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Finally, our charter documents establish advanced notice requirements for nominations for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings. Although we believe these provisions together provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer to acquire our company may be considered beneficial by some stockholders.

~~Concentration~~Our quarterly or annual operating results may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of ~~ownership among our existing officers, directors and principal stockholders may prevent other stockholders from influencing significant corporate decisions and depress~~research analysts or investors, which could cause our stock ~~price.~~

Based on the number of shares outstanding as of December 31, 2018, our officers, directors and stockholders who hold at least 5% of our stock together beneficially own approximately 40% of our outstanding common stock. If these officers, directors, and principal stockholders or a group of our principal stockholders act together, they will be ableprice to exert a significant degree of influence over our management and affairs and control matters requiring stockholder approval, including the election of directors and approval of mergers or other business combination transactions. The interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders. For instance, officers, directors, and principal stockholders, acting together, could cause us to enter into transactions or agreements that we would not otherwise consider. Similarly, this concentration of ownership may have the effect of delaying or preventing a change in control of our company otherwise favored by our other stockholders. As of December 31, 2018, one stockholder beneficially owned approximately 12% of our common stock.decline.

Our ~~share price may be volatile which may cause the value of our common stock to decline and subject us to securities class action litigation.~~

~~The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:~~

~~actual or anticipated fluctuations in our~~ financial condition and operating ~~results;~~

results have varied significantly in the ~~position~~past and may continue to fluctuate from quarter to quarter and year to year in the future due to a variety of factors, many of which are beyond our ~~cash, cash equivalents and equity securities;~~

~~actual or anticipated changes in our growth rate relative~~control. Factors relating to our ~~competitors;~~

~~actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;~~

~~announcements of technological innovations by us, our collaborators or our competitors;~~

~~announcements by us, our collaborators or our competitors of significant acquisitions or dispositions, strategic partnerships, joint ventures or capital commitments;~~

~~additions or losses of one or more significant pharmaceutical products;~~

~~announcements or developments regarding pharmaceutical products manufactured using our protein catalysts and intermediates;~~

~~the entry into, modification or termination of collaborative arrangements;~~

~~additions or losses of customers;~~

~~additions or departures of key management or scientific personnel;~~

~~competition from existing products or new products~~business that may ~~emerge;~~contribute to these fluctuations include the following factors, as well as other factors described elsewhere in this report:

~~issuance of new or updated research reports by securities or industry analysts;~~

~~fluctuations in the valuation of companies perceived by investors to be comparable to us;~~

~~disputes or other developments related to proprietary rights, including patent litigation and~~ •our ability to ~~obtain patent protection for~~ achieve or maintain profitability;

•our ~~technologies;~~

~~contractual disputes or litigation~~relationships with, ~~our partners, customers or suppliers;~~

~~announcement or expectation of additional financing efforts;~~

~~sales of our common stock by us, our insiders or our other stockholders;~~

~~share price~~ and ~~volume fluctuations attributable to inconsistent trading volume levels of our shares;~~

~~general market conditions~~dependence on, collaborators in our ~~industry; and~~principal markets;

~~general economic and market conditions,~~

•our dependence on a limited number of customers, including ~~the recent financial crisis.~~Pfizer;

~~Furthermore, the stock markets~~•our product supply agreements with customers have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of shares of our common stock. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

~~We may incur losses associated with currency fluctuations and~~finite duration, may not be ~~able~~extended or renewed and generally do not require the customer to ~~effectively hedge~~purchase any particular quantity or quantities of our ~~exposure.~~products;

~~Our operating results and cash flows are subject~~•with respect to ~~volatility~~customers purchasing our products for the manufacture of active pharmaceutical products (API) for which they have exclusivity due to ~~fluctuations in foreign currency exchange rates. Our primary exposure to fluctuations in foreign currency exchange rates relates to cash denominated in currencies other than~~patent protection, the ~~U.S. dollar. The weakening~~termination or expiration of foreign currencies relative to the United States dollar adversely affects our foreign currency-denominated cash. In periods when the United States dollar declines in value as compared to the foreign currencies in which we incur expenses, our foreign-currency based cash decrease when translated into United States dollars. Conversely, the strengthening of foreign currencies relative to the United States dollar will generally be beneficial to our foreign currency-denominated cash when translated into United States dollars.

~~The effect of a 10% unfavorable change in exchange rates on foreign denominated receivables~~such patent protection and ~~cash as of December 31, 2018 would have had foreign exchange losses of approximately $0.1 million recognized as a component of other expense in our consolidated statement of operations.~~

~~We do not engage in foreign currency hedging transactions,~~any resulting generic competition may materially and ~~as a result, unfavorable movements in foreign currency exchange rates may have an adverse financial impact, which could materially~~ adversely affect our revenues, financial condition or results of ~~operations. See “Item 7A. Quantitative~~operations;

•our dependence on a limited number of products in our performance enzymes business;

•our reliance on a limited number of contract manufacturers for large scale production of substantially all of our enzyme products;

•our ability to develop and ~~Qualitative Disclosures About Market Risk”~~successfully commercialize new products for the markets we serve;

•our ability to obtain additional ~~discussion~~development partners for our novel biotherapeutic programs;

•potential of Nestlé Health Science or Takeda terminating any development program under their license agreements with us;

•potential of GSK, Merck, Novartis or any other performance enzyme customer terminating their agreements with us;

•our ability to deploy our technology platform in the fine chemicals market;

•the success of our customers’ products in the market and the ability of such customers to obtain regulatory approvals for products and processes;

•our or our customers’ ability to obtain regulatory approval for the sale and manufacturing of food products using our enzymes;

•our ability to deploy our technology platform in life science tools markets;

•our ability to successfully achieve domestic and foreign regulatory approval for product candidates;

•our ability to successfully design and execute clinical testing at a reasonable cost and on an acceptable time-frame;

•our dependence on product candidates which could unexpectedly fail at any stage of preclinical or clinical development;

•our dependence on product candidates which may lack the ~~impact~~ability to work as intended or cause undesirable side effects;

•our dependency on third parties to conduct clinical trials, research, and preclinical studies;

•our ability to successfully prosecute and protect our intellectual property;

•our ability to compete if we do not adequately protect our proprietary technologies or if we lose some of ~~foreign exchange risk.~~our intellectual property rights;

•our ability to avoid infringing the intellectual property rights of third parties;

•our involvement in lawsuits to protect or enforce our patents or other intellectual property rights;

•our ability to enforce our intellectual property rights throughout the world;

•our dependence on, and the need to attract and retain, key management and other personnel;

•our ability to prevent the theft or misappropriation of our biocatalysts, the genes that code for our biocatalysts, know-how or technologies;

•our ability to protect our trade secrets and other proprietary information from disclosure by employees and others;

•our ability to obtain substantial additional capital that may be necessary to expand our business;

•our ability to comply with the terms of our credit facility;

•our ability to timely pay debt service obligations;

•our customers’ ability to pay amounts owed to us in a timely manner;

•our ability to avoid charges to earnings as a result of any impairment of goodwill, intangible assets or other long-lived assets;

•changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported results of operations;

•our ability to maintain effective internal control over financial reporting;

•our dependency on information technology systems, infrastructure and data;

•our ability to control and to improve product gross margins;

•our ability to protect against risks associated with the international aspects of our business;

•the cost of compliance with European Union chemical regulations;

•potential advantages that our competitors and potential competitors may have in securing funding or developing products;

•our ability to accurately report our financial results in a timely manner;

•results of regulatory tax examinations;

•business interruptions due to natural disasters, disease outbreaks or other events beyond our control;

•public concerns about the ethical, legal and social ramifications of genetically engineered products and processes;

•our ability to integrate our current business with any businesses that we may acquire in the future;

•our ability to properly handle and dispose of hazardous materials in our business;

•potential product liability claims;

•changes to tax law and related regulations could materially affect our tax obligations and effective tax rate; and

•our ability to use our net operating loss carryforwards to offset future taxable income.

Due to the various factors mentioned above, and others, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.

We do not intend to pay cash dividends for the foreseeable future.

We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant.

General Risk Factors

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock in a negative manner, our stock price would likely decline. If one or

more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

We ~~incur significant costs as~~face risks associated with our international business.

While we have a ~~result~~limited number of ~~operating as~~employees located outside of the United States, we are and will continue to be dependent upon contract manufacturers located outside of the United States. In addition, we have customers and partners located outside of the United States. Conducting business internationally exposes us to a ~~public company, and~~variety of risks, including:

•changes in or interpretations of foreign regulations that may adversely affect our ~~management is required~~ability to ~~devote substantial time~~sell our products, repatriate profits to ~~compliance initiatives.~~the United States or operate our foreign-located facilities;

~~As a public company, we incur significant legal, accounting~~•the imposition of tariffs;

•the imposition of limitations on, or increase of, withholding and other ~~expenses. In addition,~~ taxes on remittances and other payments by foreign subsidiaries or joint ventures;

•the ~~Sarbanes-Oxley Act~~imposition of limitations on genetically-engineered products or processes and the ~~Dodd-Frank Wall Street Reform~~production or sale of those products or processes in foreign countries;

•currency exchange rate fluctuations;

•uncertainties relating to foreign laws, regulations and ~~Consumer Protection Act, as well as related rules implemented~~legal proceedings including tax, import/export, anti-corruption and exchange control laws;

•the availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us;

•increased demands on our limited resources created by our operations may constrain the ~~Securities~~capabilities of our administrative and ~~Exchange Commission~~operational resources and ~~the Nasdaq Stock Market, impose various requirements on public companies that require~~restrict our ability to attract, train, manage and retain qualified management, technicians, scientists and other ~~personnel~~personnel;

•economic or political instability in foreign countries;

•difficulties associated with staffing and managing foreign operations; and

•the need to ~~devote~~comply with a ~~substantial amount~~variety of ~~time~~United States and foreign laws applicable to ~~compliance initiatives.~~the conduct of international business, including import and export control laws and anti-corruption laws.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant management time on compliance-related issues. Moreover, if we are not able to maintain compliance with the requirements of Section 404, our stock price could decline, and we could face sanctions, delisting or investigations by the Nasdaq Global Market,

Business interruptions resulting from disasters or other disturbances could delay us in the process of developing our products and could disrupt our sales. Our business continuity and disaster recovery plans may not adequately protect us from a serious disaster or other disturbance.

Our headquarters and other facilities are located in the San Francisco Bay Area, which in the past has experienced both severe earthquakes and wildfires. Earthquakes, wildfires or other natural disasters could severely disrupt our operations, and have a material adverse ~~effects~~effect on our business, ~~reputation,~~ results of operations, financial condition and prospects. We are also vulnerable to other types of disasters and other events that could disrupt our operations, such as riot, civil disturbances, war, terrorist acts, infections in our laboratory or ~~liquidity.~~production facilities or those of our customers or contract manufacturers and other events beyond our control. If a natural disaster or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans. We do not carry insurance for earthquakes and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our cash flows and success as an overall business.

Confidentiality agreements with employees and others may not adequately prevent disclosures of trade secrets and other proprietary information.

We rely in part on trade secret and confidentiality protection to protect our confidential and proprietary information and processes. However, trade secrets and confidential information are difficult to protect. We have taken measures to protect our trade secrets and confidential and proprietary information, but these measures may not be effective. We require employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements also generally provide that inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. Nevertheless, our confidential and proprietary information may be disclosed, third parties could reverse engineer our biocatalysts and others may independently develop substantially equivalent confidential and proprietary information and techniques or otherwise gain access to our trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our confidential and proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

Our business may require us to use and store personal information of our customers, employees, and business partners. This may include names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers, and payment account information. We require usernames and passwords in order to access our information technology systems. We also use encryption and authentication technologies to secure the transmission and storage of data. However, these security measures may be compromised as a result of security breaches by unauthorized persons, employee error, malfeasance, faulty password management, or other irregularity, and result in persons obtaining unauthorized access to our data or accounts. Third parties may attempt to fraudulently induce employees or customers into disclosing usernames, passwords, or other sensitive information, which may in turn be used to access our information technology systems. For example, our employees have received “phishing” emails and phone calls attempting to induce them to divulge passwords and other sensitive information.

In addition, unauthorized persons may attempt to hack into our products or systems to obtain personal data relating to employees and other individuals, our confidential or proprietary information or confidential information we hold on behalf of third parties. We also rely on external vendors to supply and/or support certain aspects of our information technology systems. The systems of these external vendors may contain defects in design or manufacture or other problems that could unexpectedly compromise information security of our own systems, and we are dependent on these third parties to deploy appropriate security programs to protect their systems. If we or our third-party vendors were to experience a significant cybersecurity breach of our or their information systems or data, the costs associated with the investigation, remediation and potential notification of the breach to counter-parties and data subjects could be material. Our remediation efforts may not be successful. Further, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss, corruption or unauthorized disclosure of our trade secrets, personal information or other proprietary or sensitive information or other similar disruptions. Attacks upon information technology systems are also increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. As a result of the COVID-19 pandemic, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. We have programs in place to detect, contain, and respond to data security incidents, and we make ongoing improvements to our information-sharing products in order to minimize vulnerabilities, in accordance with industry and regulatory standards. However, because the techniques used to obtain unauthorized access to or sabotage systems change frequently and may be difficult to detect, we may not be able to anticipate and prevent these intrusions or mitigate them when and if they occur.

If a security breach or other incident were to result in the unauthorized access to or unauthorized use, disclosure, release or other processing of personal information, it may be necessary to notify individuals, governmental authorities, supervisory bodies, the media and other parties pursuant to privacy and security laws. Any security compromise affecting us, our service providers, vendors, strategic partners, other contractors, consultants, or our industry, whether real or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures and lead to regulatory scrutiny. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential or proprietary or personal information, we could incur liability, including litigation exposure, penalties and fines, we could become the subject of regulatory action or investigation, our competitive position could be harmed and the further development of our products could be delayed. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our business. Furthermore, federal, state and international laws and regulations can expose us to enforcement actions and investigations by regulatory authorities, and potentially result in regulatory penalties, fines and significant legal liability, if our information technology security efforts

fail. We may also be exposed to a risk of loss or litigation and potential liability, which could materially and adversely affect our business, results of operations and financial condition.

Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business, results of operations, and financial condition.

The global data protection landscape is rapidly evolving, and we are or may become subject to state, federal and foreign laws, regulations, decisions, and directives governing the privacy, security, collection, storage, transmission, use, processing, retention and disclosure of personal information. Any failure or perceived failure by us to comply with applicable laws or regulations, our internal policies and procedures or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third parties and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.

In the United States, HIPAA imposes, among other things, certain standards relating to the privacy, security, transmission and breach reporting of individually identifiable health information. Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. For example, the CCPA went into effect on January 1, 2020 , and introduces new compliance burdens on organizations doing business in California that collect personal information about California residents. It creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. Further, the CPRA recently passed in California. The CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. Similar laws have passed in Virginia and Colorado, and have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States.These developments increase our compliance burden and our risk, including risks of regulatory fines, litigation and associated reputational harm. Any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.

Furthermore, the Federal Trade Commission (“FTC”) and many state Attorneys General continue to enforce federal and state consumer protection laws against companies for online collection, use, dissemination and security practices that appear to be unfair or deceptive. For example, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.

In Europe, the GDPR went into effect in May 2018 and imposes strict requirements for processing the personal data of individuals within the EEA. The GDPR imposes stringent requirements for controllers and processors of personal data and increases our obligations, for example, by imposing higher standards when obtaining consent from individuals to process their personal data, requiring more robust disclosures to individuals, strengthening individual data rights, shortening timelines for data breach notifications, limiting retention periods and secondary use of information, increasing requirements pertaining to health data as well as pseudonymized (i.e., key-coded) data, and imposing additional obligations when we contract with third-party processors in connection with the processing of personal data. The GDPR provides that EEA member states may make their own additional laws and regulations limiting the processing of genetic, biometric, or health data, which could limit our ability to use and share personal data or could cause our costs to increase and harm our business and financial condition. Failure to comply with the requirements of the GDPR can result in fines of up to the greater of €20 million and 4% of the total worldwide annual turnover of the preceding financial year and other administrative penalties. If we are required to comply with the new data protection rules imposed by GDPR, such compliance may be onerous and adversely affect our business, financial condition, and results of operations. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EU and the United States remains uncertain. For example, in July 2020, the Court of Justice of the EU (“CJEU”) limited how organizations could lawfully transfer personal data from the EU/EEA to the United States by

invalidating the Privacy Shield for purposes of international transfers and imposing further restrictions on the use of standard contractual clauses (“SCCs”). The European Commission issued revised SCCs on June 4, 2021 to account for the decision of the CJEU and recommendations made by the European Data Protection Board. The revised SCCs must be used for relevant new data transfers from September 27, 2021; existing standard contractual clauses arrangements must be migrated to the revised clauses by December 27, 2022. The new SCCs apply only to the transfer of personal data outside of the EEA and not the United Kingdom; the United Kingdom’s Information Commissioner’s Office launched a public consultation on its draft revised data transfers mechanisms in August 2021. There is some uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can be relied on for data transfers to non-EEA entities subject to the GDPR. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.

Further, from January 1, 2021, companies have had to comply with the GDPR and also the United Kingdom GDPR (“UK GDPR”), which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR, i.e., fines up to the greater of €20 million (or up to £17.5 million for UK) or 4% of global turnover. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is unclear how United Kingdom data protection laws and regulations will develop in the medium to longer term. The European Commission has adopted an adequacy decision in favor of the United Kingdom, enabling data transfers from EU member states to the United Kingdom without additional safeguards. However, the UK adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews or extends that decision.

Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business or our reputation with customers. For example, some countries have adopted laws mandating that certain personal information regarding customers in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit Personal Information processing to within individual countries could increase our operating costs significantly. Any failure, or perceived failure, by us to comply with federal, state or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, a loss of customer confidence, damage to our brand and reputation and a loss of customers, any of which could have an adverse effect on our business.

Evolving expectations around corporate responsibility practices, specifically related to environmental, social and governance (“ESG”) matters, may expose us to reputational and other risks.

Investors, stockholders, customers, suppliers and other third parties are increasingly focusing on ESG and corporate social responsibility endeavors and reporting. Companies that do not adapt to or comply with the evolving investor or stakeholder expectations and standards, or which are perceived to have not responded appropriately, may suffer from reputational damage and result in the business, financial condition and/or stock price of a company being materially and adversely affected. Further, this increased focus on ESG issues may result in new regulations and/or third-party requirements that could adversely impact our business, or certain shareholders reducing or eliminating their holdings of our stock. Additionally, an allegation or perception that we have not taken sufficient action in these areas could negatively harm our reputation.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Facilities

Our headquarters are located in Redwood City, California, where we lease approximately ~~107,200~~77,300 square feet of office and laboratory space.

Our lease (“RWC Lease”) with Metropolitan Life Insurance Company (“MetLife”) includes approximately 28,200 square feet of space located at 200 and 220 Penobscot Drive, Redwood City, California (the ~~“Penobscot~~“200/220 Penobscot Space”), approximately 37,900 square feet of space located at 400 Penobscot Drive, Redwood City, California (the ~~“Building 2~~“400 Penobscot Space”) (the 200/220 Penobscot Space and the 400 Penobscot Space are collectively referred to as the “Penobscot Space”), and approximately 11,200 square feet of space located at 501 Chesapeake Drive, Redwood City, California ~~(“501 Chesapeake~~(the “Chesapeake Space”)~~, and approximately 29,900 square feet of space located at 101 Saginaw Drive,~~.

We entered into the initial lease with MetLife for our facilities in Redwood City ~~California (the “Saginaw Space”). Through December 31, 2018, there have~~in 2004 and the RWC lease has been ~~seven amendments~~amended multiple times since then to adjust the ~~Lease. Through November 30, 2019, we will continue to sublease approximately 26,500 square feet~~leased space and terms of the ~~Saginaw Space to a subtenant and we will continue to sublease approximately 13,000 square feet of the Penobscot Space to a different subtenant.~~

RWC Lease. In ~~January~~February 2019, we entered into an Eighth Amendment to the RWC Lease ~~( the~~(the “Eighth Amendment”) with MetLife with respect to the Penobscot ~~Space, the Building 2~~ Space and the 501 Chesapeake Space to extend the term of the RWC Lease for additional periods. Pursuant to the Eighth Amendment, the term of the lease of the Penobscot Space ~~and the Building 2 Space~~ has been extended through May 2027. The lease term for the 501 Chesapeake Space has been extended to May 2029. We have ~~two consecutive options~~one (1) option to extend the term of the lease for the Penobscot Space for five (5) years, and one (1) separate option to extend the ~~Building 2 Space and~~term of the lease for the 501 Chesapeake Space for anfive (5) years.

In May 2021, we entered into a short-term office lease ~~on the Saginaw Space~~with The Inside Source, Inc., to sublease approximately 3,313 square feet of office space in a building located at 985 Industrial Blvd.. San Carlos, California. This lease will expire ~~on January 30, 2020.~~in April 2022.

We believe that the facilities that we currently lease in Redwood City and San Carlos, California are adequate for our needs for the immediate future and that, should it be needed, additional space can be leased to accommodate any future growth.

ITEM 3. LEGAL PROCEEDINGS

We are currently not ~~currently~~ a party to any material pending litigation or other material legal proceedings.

stipulated to a judgment of patent infringement of all asserted patents against EnzymeWorks, and a permanent injunction barring any future infringement. The remaining claims against EnzymeWorks, and all claims against Junhua Tao, and Andrew Tao including trade secret misappropriation, breach of contract and voidable transfer have been dismissed with prejudice. EnzymeWorks appealed the sanctions levied against them by Judge Orrick to the Federal Circuit and filed its opening brief on May 30, 2018. On July 9, 2018, Codexis filed its response brief, and EnzymeWorks filed its reply on July 30, 2018. On February 8, 2019, the Federal Circuit panel of judges assigned to the case issued an opinion affirming the lower court’s ruling and remanding the case to the lower court on jurisdictional grounds to vacate the order to which the parties had earlier stipulated.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is quoted on the Nasdaq Global Select Market (“Nasdaq”), under the symbol “CDXS.” The following table sets forth the high and low sales prices per share of the common stock as reported on Nasdaq. Such quotations represent inter dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions.

Fiscal 2018 High Low
First Quarter $ 13.60
$ 7.95
Second Quarter 16.80
9.30
Third Quarter 19.60
12.85
Fourth Quarter 23.05
14.05

Fiscal 2017 High Low
First Quarter $ 5.29
$ 3.60
Second Quarter 5.45
3.95
Third Quarter 6.70
4.80
Fourth Quarter 8.55
5.70

As of February ~~22, 2019,~~24, 2022, there were approximately ~~132~~129 stockholders of record. A substantially greater number of stockholders may be “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

Dividend Policy

We have never declared or paid cash dividends on our common stock, and we currently do not plan to declare dividends on shares of our common stock in the foreseeable future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. In addition, unless waived, the terms of our Credit Facility prohibit us from paying any cash dividends or making other distributions. The payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors deemed relevant by our board of directors.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by this item concerning securities authorized for issuance under equity compensation plans is incorporated by reference from the information that will be set forth in the Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held in 2022 (the “2022 Proxy Statement”) under the heading “Executive Compensation—Equity Compensation Plan Information.”

Stock Price Performance Graph

The following tabular information and graph compare our total common stock return with the total return for (i) the Nasdaq Composite Index and (ii) the Nasdaq Biotechnology Index for the period December 31, ~~2013~~2016 through December 31, ~~2018.~~2021. The figures represented below assume an investment of $100 in our common stock at the closing price on December 31, ~~2013~~2016 and in the Nasdaq Composite Index and the Nasdaq Biotechnology Index on December 31, ~~2013~~2016 and the reinvestment of dividends into shares of common stock. The comparisons in the table and graph are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock. The tabular information and graph shall not be deemed “soliciting material” or to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act.


		December 31,
$100 investment in stock or index	Ticker		2016		2017		2018		2019		2020		2021
Codexis, Inc.	CDXS		$	100.00	$	181.52	$	363.04	$	347.61	$	474.57	$	679.78
Nasdaq Composite Total Return	XCMP		$	100.00	$	129.63	$	125.95	$	172.17	$	249.51	$	304.84
Nasdaq Biotechnology (Total Return) Index	XNBI		$	100.00	$	121.64	$	110.86	$	138.69	$	175.33	$	175.37

December 31,
$100 investment in stock or index Ticker 2013 2014 2015 2016 2017 2018
Codexis, Inc. CDXS $ 100.00
$ 180.00
$ 302.14
$ 328.57
$ 596.43
$ 1,192.86
Nasdaq Composite Total Return XCMP $ 100.00
$ 114.75
$ 122.74
$ 133.62
$ 173.22
$ 168.30
Nasdaq Biotechnology (Total Return) Index XNBI $ 100.00
$ 136.28
$ 152.32
$ 119.80
$ 145.71
$ 132.80

Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

During the year ended December 31, 2021, we did not issue or sell any unregistered securities not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

Issuer Purchases of Equity Securities

None.

ITEM 6. ~~SELECTED FINANCIAL DATA~~

The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data in this section is not intended to replace our consolidated financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results.

~~We derived the consolidated statements of operations data for the fiscal years ended December 31,~~ ~~2018~~, ~~2017, and~~ ~~2016~~ ~~and the consolidated balance sheets data as of December 31,~~ ~~2018~~ ~~and~~ ~~2017~~ ~~from our audited consolidated financial statements appearing elsewhere in this filing. The consolidated statements of operations data for the fiscal years ended December 31,~~ ~~2015~~ ~~and~~ ~~2014~~ ~~and the consolidated balance sheets data as of December 31,~~ ~~2016~~, ~~2015~~ ~~and~~ ~~2014~~ have been derived from our audited consolidated financial statements not included in this filing. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included herein.

~~SELECTED CONSOLIDATED FINANCIAL DATA~~[RESERVED]

Year Ended December 31,
2018 2017 2016 2015 2014

₍₁₎

(In Thousands, Except Per Share Amounts)
Consolidated Statements of Operations Data:
Revenues:
Product revenue $ 25,590
$ 26,685
$ 15,321
$ 11,376
$ 13,064
Research and development revenue 35,004
23,339
33,516
30,428
22,243
Total revenues 60,594
50,024
48,837
41,804
35,307
Costs and operating expenses:
Cost of product revenue 12,620
14,327
9,753
6,586
9,726
Research and development 29,978
29,659
22,229
20,673
22,755
Selling, general and administrative 29,291
29,008
25,419
22,315
21,937
Total costs and operating expenses 71,889
72,994
57,401
49,574
54,418
Loss from operations (11,295 ) (22,970 ) (8,564 ) (7,770 ) (19,111 )
Interest income 671
147
60
19
18
Other expenses, net (291 ) (92 ) (94 ) (168 ) (234 )
Loss before income taxes (10,915 ) (22,915 ) (8,598 ) (7,919 ) (19,327 )
Provision for (benefit from) income taxes (37 ) 81
(40 ) (338 ) (256 )
Net loss $ (10,878 ) $ (22,996 ) $ (8,558 ) $ (7,581 ) $ (19,071 )
Net loss per share, basic and diluted $ (0.21 ) $ (0.50 ) $ (0.21 ) $ (0.19 ) $ (0.50 )
Weighted average common shares used in computing net loss per share, basic and diluted 52,205
46,228
40,629
39,438
38,209

(1) Financial results for year ended December 31, 2018, as compared to the years ended December 31, 2017, 2016, 2015, and 2014 reflect the effects of adopting ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” and the related amendments (ASC 606), which provided a new basis of accounting for our revenue arrangements during fiscal year 2018. The adoption of ASC 606 limits the comparability of revenue and certain expenses, including revenues and costs and operating expenses, presented in the results of operations for the year ended December 31, 2018 when compared to the years ended December 31, 2017, 2016, 2015, and 2014. For additional information regarding the impact from adoption of this accounting standard, see Note 3, “Revenue Recognition” to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

December 31,
2018 2017 2016 2015 2014
Consolidated Balance Sheets Data: (In Thousands)
Cash, cash equivalents and restricted cash $ 54,485
$ 32,776
$ 20,864
$ 24,060
$ 27,198
Working capital 50,085
20,087
14,860
17,998
19,272
Total assets 79,283
53,625
35,648
44,647
48,122
Total liabilities 22,977
29,078
16,549
21,768
21,811
Total stockholders’ equity 56,306
24,547
19,099
22,879
26,311

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our audited ~~consolidated financial statements~~Consolidated Financial Statements and the related ~~notes~~Notes that appear elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 21E of the Exchange Act. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors,” set forth in Part I, Item 1A of this Annual Report on Form 10-K and elsewhere in this report. The forward-looking statements in this Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Annual Report on Form 10-K.

Business Overview

We discover, develop and sell enzymes and other proteins that deliver value to our clients in a growing set of industries. We view proteins as a vast, largely untapped source of value-creating ~~materials,~~products, and we are using our proven technologies, which we have been continuously improving ~~over~~since our ~~sixteen year history,~~inception in 2002, to commercialize an increasing number of novel ~~proteins,~~enzymes, both as proprietary Codexis products and in partnership with our customers.

We are a pioneer in ~~the~~ harnessing of computational technologies to drive biology advancements. Since ~~our inception in~~ 2002, we have made substantial investments in the development of our CodeEvolver^®protein engineering technology platform, the primary source of our competitive advantage. Our technology platform is powered by proprietary, artificial intelligence-based, computational algorithms that rapidly mine the structural and performance attributes of our large and continuously growing library of protein ~~variants’ performance attributes.~~variants. These computational outputs enable increasingly reliable predictions for next generation protein variants to be engineered, enabling time- and cost-efficient delivery of the targeted performance ~~enhancements in a time-efficient manner.~~enhancements. In addition to its computational prowess, our CodeEvolver^® protein engineering technology platform integrates additional modular competencies, including robotic high-throughput screening and genomic sequencing, organic chemistry and ~~process~~bioprocess development which are all coordinated to ~~create our~~rapidly innovate novel, ~~protein innovations.~~fit-for-purpose products.

~~Our approach to~~The core historical application of the technology has been in developing commercially viable biocatalytic manufacturing processes for more sustainable production of complex chemicals. It begins by conceptually designing the most cost-effective and practical process for a targeted product. We then develop optimized ~~protein catalysts~~biocatalysts to enable ~~that~~the designed process, ~~design~~ using our CodeEvolver^® ~~protein engineering platform technology.~~ platform. Engineered ~~protein catalyst~~biocatalyst candidates, -numbering many thousands for each ~~protein engineering~~ project, - are then rapidly screened and validated inusing high throughput ~~screening~~methods under ~~relevant manufacturing~~process-relevant operating conditions. This approach results in an optimized ~~protein catalyst enabling~~biocatalyst that enables cost-efficient processes that ~~typically~~ are relatively simple to run in conventional manufacturing equipment. This also allows for ~~the~~ efficient technical transfer of our ~~process~~processes to our manufacturing partners.

~~The successful embodiment of our CodeEvolver~~^® protein engineering technology platform in commercial manufacturing processes requires well-integrated expertise in a number of technical disciplines. In addition to those directly involved in practicing our CodeEvolver^® protein engineering platform technology, such as molecular biology, enzymology, microbiology, cellular engineering, metabolic engineering, bioinformatics, biochemistry and high throughput analytical chemistry, our process development projects also involve integrated expertise in organic chemistry, chemical process development, chemical engineering, fermentation process development and fermentation engineering. Our integrated, multi-disciplinary approach to biocatalyst and process development is a critical success factor for our company.

We initially commercialized our CodeEvolver^® protein engineering technology platform and products in the manufacture of small molecule pharmaceuticals, ~~market,~~ which remains ~~our~~a primary business focus. Our customers, which include ~~several~~many large, global pharmaceutical companies, use our technology, products and services in their process development and in manufacturing. Additionally, we have licensed our proprietary CodeEvolver® protein engineering technology platform to global pharmaceutical companies enabling them to use this technology, in house, to engineer enzymes for their own businesses. In May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver® Agreement”) with Novartis. The Novartis CodeEvolver® Agreement (Codexis’ third such agreement with large pharma companies) allows Novartis to use our proprietary CodeEvolver® protein engineering platform technology in the field of human healthcare.

As evidence of our strategy to extend our technology beyond pharmaceutical manufacturing, ~~processes and process development.~~

Wewe have also used the technology to develop ~~protein catalysts~~biocatalysts and enzyme products for use in ~~the fine chemicals market. The fine chemicals market consists~~a broader set of industrial markets, including several large ~~market~~ verticals, ~~including~~such as food, feed, consumer care and ~~food ingredients, animal feed, flavors, fragrances~~fine chemicals. In addition, we are using our technology to develop enzymes for various life science related applications, such as next generation sequencing (“NGS”) and ~~agricultural chemicals.~~polymerase chain reaction (“PCR/qPCR”) for in vitro molecular diagnostic and genomic research applications. In December 2019, we entered into a license agreement to provide Roche Sequencing Solutions, Inc. with our first enzyme for this target market: the Company’s EvoT4™ DNA ligase. In June 2020, we also entered into a Master Collaboration and Research Agreement with MAI (the “MAI Agreement”) pursuant to which we are leveraging our CodeEvolver® platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis.

~~We have also begun~~

Approximately six years ago, we began using the CodeEvolver^® protein engineering technology platform to develop early stage, novel biotherapeutic product candidates, both ~~for our~~in partnership with customers and for our own ~~business, most notably our lead~~proprietary Codexis drug candidates. Our first program was for the

potential treatment of phenylketonuria ("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 entered into a Global Development, Option and License Agreement (the ~~"Nestlé Agreement"~~“Nestlé License Agreement”) with Societé des Produits Nestlé S.A., formerly known as Nestec Ltd. ("(“Nestlé Health Science"), to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive license to develop and commercialize CDX-6114. Also in October 2017, we entered into the Nestlé SCA pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver® platform technology to develop other novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas. In March 2020, we entered into a Strategic Collaboration and License Agreement (“Takeda Agreement”) with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”), for the research and development of novel gene therapies for certain disease indications, including the treatment of lysosomal storage disorders and a blood factor deficiency.

See Note ~~16, “Subsequent Events”~~5, "Collaborative Arrangements" in the ~~notes~~Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for ~~details.~~further information.

Recent Development - Pfizer (PAXLOVID™)

In ~~April 2018,~~the first and second quarters of 2021, we ~~entered into a strategic agreement (the "Porton Agreement"~~began to receive purchase orders from Pfizer, Inc. (“Pfizer”) ~~with Porton Pharma Solutions, Ltd. ("Porton") to license key elements~~for large quantities of our ~~platform technology to Porton’s global custom~~proprietary enzyme product, CDX-616, for use by Pfizer in the manufacture of a critical intermediate ~~and~~for its proprietary active pharmaceutical ~~ingredients ("API"~~ingredient, nirmatrelvir. Pfizer markets, sells and distributes nirmatrelvir, in combination with the active pharmaceutical ingredient ritonavir, as its PAXLOVID™ (nirmatrelvir tablets; ritonavir tablets) product, which received emergency use authorization by the U.S. Food and Drug Administration (“FDA”) ~~development~~in late 2021 for the treatment of COVID-19 in humans.

In 2021, we recognized approximately $34.5 million in revenue from the sale of quantities of CDX-616 to Pfizer. In addition, as of December 31, 2021, we have received additional purchase orders from Pfizer for delivery of a significant quantity of CDX-616 in 2022. We have received and ~~manufacturing business. This gives us access~~currently expect to receive additional purchase orders from Pfizer for significant quantities of CDX-616 during the course of 2022 for delivery in 2022 and 2023. As of December 31, 2021, we have not yet executed a ~~wide variety~~long-term purchase and sale agreement with Pfizer for CDX-616; with or without a long-term purchase and sale agreement, we currently expect that future orders for quantities of ~~small~~CDX-616 by Pfizer will continue to be based on the needs of Pfizer for quantities of CDX-616 and ~~medium-sized pharmaceutical customers.~~

~~We are also using our technology to develop enzymes for customers using next generation sequencing ("NGS") and polymerase chain reaction ("PCR/qPCR") for~~ ~~in vitro~~ ~~molecular diagnostic and genomic research applications. Our first enzyme is a ligase which we began marketing to customers in 2018.~~there will be no minimum purchase obligation on the part of Pfizer.

Business Segments

We manage our business as two business segments: Performance Enzymes and Novel Biotherapeutics. See Note 15, ~~"Segment,~~“Segment, Geographical and Other Revenue ~~Information"~~Information” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

Performance Enzymes

We initially commercialized our CodeEvolver^® protein engineering technology platform and products in the manufacture of small molecule 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, feed, consumer care, and ~~food ingredients, animal feed, flavors, fragrances, and agricultural~~fine chemicals. We also use our technology in the life sciences markets to develop enzymes for customers using NGS and PCR/qPCR for in vitro molecular diagnostic and molecular biology research applications. In April 2018, we entered into the Porton Agreement related to our strategic collaboration with Porton to license key elements of our world-leading biocatalyst technology for use in Porton’s global custom intermediateapplications, as well DNA/RNA synthesis and ~~API development and manufacturing business.~~

health monitoring 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~~immunogenicity.

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 ~~lead program~~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 such as the Delta and Omicron 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.

In the United States, the impact of COVID-19, including governmental orders (“Orders”) governing the operation of businesses during the pandemic, caused the temporary closure of our Redwood City, California facilities and has disrupted our R&D operations. R&D operations for several projects were temporarily suspended from mid-March 2020 through the end of April 2020 in accordance with these Orders. In May 2020, we re-initiated limited R&D operations and have ramped up operations such that we are currently utilizing our normal R&D capacity while following county, state and federal COVID-19 guidance for the ~~potential treatment~~protection of ~~hyperphenylalaninemia (“HPA”) (also referred~~our employees. Additionally, we resumed manufacturing at our Redwood City pilot plant in May 2020.

To date, we and our collaboration partners have been able to continue to supply our enzymes to our customers worldwide, however, there can be no guarantee this will continue. Furthermore, our ability to provide future R&D services will continue to be impacted as ~~PKU)~~a result of governmental orders and any disruptions in ~~humans. PKU is an inherited metabolic disorder in~~operations of our customers with whom we collaborate. We believe that these disruptions have had a minimal impact on revenue for the year ended December 31, 2021. The extent to which the ~~enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient. In October 2017, we announced a strategic collaboration~~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 Nestlé Health Science to advance CDX-6114, our own novel orally administrable enzyme therapeutic candidate for the potential treatment of PKU. 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, which was conducted in Australia. In November 2018, we announced top-line results from the Phase 1a study in healthy volunteers with CDX-6114. In December 2018, Nestlé Health Science became obligated to pay us an additional $1.0 million within 60 days after the achievement of a milestone relating to formulation of CDX-6114. In January 2019, we received notice from the U.S. Food and Drug Administration (the “FDA”) that it had completed its review of our investigational new drug application (“IND”) for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sub-licensable license for the global development and commercialization of CDX-6114 for the management of PKU. confidence.

As a result of the ~~option exercise, Nestlé Health Science is obligated to pay us $3.0 million within 60 days after exercise~~COVID-19 pandemic we have received purchase orders from Pfizer for large quantities of our proprietary enzyme product, CDX-616, for use by Pfizer in the ~~option. Upon exercising~~manufacture of a critical intermediate for its ~~option, Nestlé Health Science has assumed all responsibilities for future clinical development and commercialization of CDX-6114,~~proprietary active pharmaceutical ingredient, nirmatrelvir, used by Pfizer in combination with the ~~exception~~active pharmaceutical ingredient ritonavir, as its PAXLOVID™ (nirmatrelvir tablets; ritonavir tablets) product for the treatment of ~~the completion of an extension study, CDX - 6114-004, which is expected to be completed~~COVID-19 infections in ~~the second quarter of 2019. See Note 16, “Subsequent Events”~~humans. These purchase orders have had substantial impact on our revenue in ~~the notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for details.~~

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.2021.

For ~~further description of our business segments, see Note 15, "Segment, Geographical and Other Revenue Information,"~~additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included in ~~the Notes to Condensed Consolidated Financial Statements set forth in Item 8 of~~ this Annual Report on Form 10-K.

~~Results~~Recent Investing and Financing Activities

In June 2020, we entered into a Stock Purchase Agreement with MAI pursuant to which we purchased 1,587,050 shares of ~~Operations Overview~~MAI's Series A preferred stock for $1.0 million. In connection with the transaction, John Nicols, our President and Chief Executive Officer, also joined MAI’s board of directors. Concurrently with our initial equity investment, we entered into the MAI Agreement pursuant to which we are performing services utilizing our CodeEvolver® protein engineering platform technology to improve DNA polymerase enzymes in exchange for compensation in the form of additional shares of MAI's Series A preferred stock. In April 2021, we purchased an additional 1,000,000 shares of MAI's Series A preferred stock for $0.6 million. In September 2021, we purchased 9,198,423 shares of MAI's Series B preferred stock for $7.0 million. As of December 31, 2021, we have 16,705,320 shares of MAI's Series A and B preferred stock that we have earned or purchased since executing the Stock Purchase Agreement with MAI.

~~On January 1, 2018,~~In November 2020, we ~~adopted Accounting Standards Update,~~announced the SynBio Innovation Accelerator (“Accelerator”) collaboration with Casdin Capital, LLC ("Casdin"). The goal of the Accelerator is to fund the early-stage companies with disruptive technology platforms or ~~ASU, 2014-09 “Revenue~~unique product development capabilities in the field of synthetic and industrial biotechnology. The first investment by Codexis associated with the Accelerator collaboration was made in Arzeda Corp., a privately-held computational protein design company that focuses on computational approaches to designing novel enzyme functionality. We invested $1.0 million in Arzeda and received a convertible subordinated note issued by Arzeda Corp. 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.

In December 2020, we completed an underwritten public offering of 4,928,572 shares of our common stock, par value $0.0001 per share, at a public offering price of $17.50 per share. The net proceeds to us were approximately $80.8 million after deducting offering costs, underwriting discounts and commissions and other offering expenses of $5.5 million.

In May 2021, we filed a Registration Statement on Form S-3 with the SEC, that automatically became effective upon its filing, under which we may sell common stock, preferred stock, debt securities, warrants, purchase contracts, and units from ~~Contracts~~time to time in one or more offerings. In May 2021, we entered into an Equity Distribution Agreement ("EDA") with ~~Customers (Topic 606)”~~Piper Sandler & Co ("PSC"), under which PSC, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the ~~related amendments (“ASC 606”).~~execution of the EDA up to a maximum of $50.0 million of shares of our common stock. Under the ~~modified retrospective~~terms of the EDA, PSC may sell the shares at market prices by any method we applied the new standard to contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continuethat is deemed to be ~~reported~~an "at the market offering" as defined in ~~accordance with our historic accounting~~Rule 415 under ~~ASU 2009-13~~ ~~“Revenue Recognition”(Topic 605)”. The adoption~~the Securities Act of ~~ASC 606 limits the comparability of revenue and certain expenses, including revenues and costs and operating expenses, presented in the results of operations for~~1933, as amended. During the year ended December 31, ~~2018 when compared~~2021, no shares of our common stock were issued pursuant to the ~~years ended December 31, 2017 and 2016. For additional information regarding the adoption~~EDA.

Results of ~~this accounting standard, see Note 2, “Summary of Significant Accounting Policies”, to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.~~Operations Overview

Revenues ~~were $60.6~~were $104.8 million in ~~2018,~~2021, a ~~21%~~52% increase from ~~$50.0~~$69.1 million in ~~2017.~~2020. Product revenue, which consists primarily of sales of ~~protein catalysts,~~biocatalysts, pharmaceutical intermediates, and Codex^® ~~Biocatalyst Panels~~ biocatalyst panels and ~~Kits,~~kits, was ~~$25.6~~$70.7 million in ~~2018, a decrease~~2021, an increase of 4%134% compared with ~~$26.7~~$30.2 million in ~~2017.~~2020. The ~~decrease~~increase in product revenue iswas primarily due to ~~variability~~$34.5 million in revenue from Pfizer related to the purchase of our ~~customers’ manufacturing schedules.~~performance enzyme products and an increase in demand for enzymes used in the manufacture of branded pharmaceutical products.

Research and development revenues, which include license, technology access and exclusivity fees, research service fees, milestone payments, royalties, and optimization and screening fees, ~~totaled $35.0~~totaled $34.1 million in ~~2018, an increase of 50%,~~2021, a 12% decrease compared with ~~$23.3~~$38.8 million in ~~2017.~~2020. The increase is primarily due to revenues from our collaborative arrangements with Nestlé Health Science for the development of CDX-6114 and development of novel enzymes for Nestlé Health Science under our Strategic Collaboration Agreement,decrease in research and development revenue was primarily due to lower license fees from ~~Tate & Lyle~~Takeda under the Takeda Agreement and ~~Merck, and recognition of a~~lower revenues from Novartis under the Novartis CodeEvolver® Agreement recognized this year compared to the prior year, partially offset by higher license ~~fee and technology transfer~~fees from ~~Porton.~~other existing collaboration agreements.

Our products’ profitability is affected by many factors including the ~~margin~~mix of ~~profit on~~ products we sell. Our profit margins are affected by many factors including the costs of internal and third-party fixed and variable costs, including materials and supplies, labor, facilities and other overhead costs. Profit margin data is used as a management performance measure to provide additional information regarding our results of operations on a consolidated basis. Product gross margins increased to ~~51%~~69% in ~~2018,~~2021, compared to ~~46%~~55% in ~~2017~~2020 due to improved product mix resulting from sales ~~mix.~~to Pfizer and an increase in customer demand for branded pharmaceutical products.

Research and development expenses were ~~$30.0~~$55.9 million in ~~2018,~~2021, an increase of 1%26% from ~~$29.7~~$44.2 million in ~~2017.~~2020. The increase was primarily due to an increase in costs associated with higher headcount, higher ~~allocable expenses, increases in~~ lab supplies, higher depreciation and ~~stock compensation expense and were~~other outside services, partially offset by a decrease in costs associated with outside services ~~which were mostly related~~relating to ~~prior year development costs for project CDX-6114.~~Chemistry, Manufacturing and Controls ("CMC") and regulatory expenses.

Selling, general and administrative expenses were ~~$29.3~~$49.3 million in ~~2018,~~2021, an increase of 1%41% compared to ~~$29.0~~$35.0 million in ~~2017.~~2020. The increase was primarily due to ~~increases~~an increase in costs associated with a higher headcount, ~~consulting~~increase in legal fees, higher stock-based compensation costs, higher outside and ~~outside~~temporary services, ~~accounting fees, recruiting fees, and stock compensation expenses which were~~ partially offset by ~~a reduction in legal expenses related to 2017 activities and~~lower allocable expenses.

Net loss was ~~$10.9~~$21.3 million, or a net loss of ~~$0.21~~$0.33 per share, in ~~2018~~2021 compared to a net loss of ~~$23.0~~$24.0 million, or a net loss of ~~$0.50~~$0.40 per share, in ~~2017.~~2020. The ~~decreases~~decrease in net loss ~~and net loss per share are~~was primarily ~~attributable~~related to ~~a net~~an increase in product revenue with higher margins, partially offset by higher operating expenses and ~~reductions in product costs. The net increase in revenue is primarily attributed to~~lower research and development ~~revenue from Nestlé Health Science and Tate & Lyle partially offset by a decrease in product revenue. The reduction in product costs reflected the sale of higher gross margin products.~~revenues.

Cash and cash equivalents ~~increased~~decreased to ~~$53.0~~$116.8 million as of December 31, ~~2018~~2021 compared to ~~$31.2~~$149.1 million as of December 31, ~~2017.~~2020. In addition, net cash used in operations was ~~$14.1~~$14.3 million in ~~2018,~~2021, as compared to net cash used in operations of ~~$8.8~~$16.5 million in ~~2017.~~2020. We believe that based on our current level of operations, our existing cash and cash equivalents ~~and equity securities~~ will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months.

In June 2017, we entered into a loan and security agreement with Western Alliance Bank that ~~allows~~allowed us to borrow up to $10.0 million under a term loan, and allow us to borrow up to $5.0 million under a revolving credit facility with 80% of certain eligible accounts receivable as a borrowing base (the ~~"Credit Facility"~~“Credit Facility”). Obligations under the Credit Facility are secured by a lien on substantially all of our personal property other

than our intellectual property. In September ~~2018,~~2021, we entered into ~~a Fourth~~the Ninth Amendment to the Credit Facility whereby ~~the~~we may draw ~~period~~ on the term debt ~~was extended to September 30, 2019. We may draw on~~and the ~~Term Debt~~Revolving Line of Credit at any time prior to ~~September 30, 2019,~~December 31, 2021 and October 1, 2024, respectively. Draws on the term debt are subject to customary conditions for ~~funding including, among others, that no event of default exists.~~funding. Our ability to take draws on the term debt expired on December 31, 2021. As of December 31, ~~2018,~~2021, no amounts were borrowed under the Credit Facility and we were in compliance with the covenants for the Credit Facility. See Note 13, ~~"Commitments~~“Commitments and ~~Contingencies"~~ Contingencies” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

~~Below is an overview of our results of operations by business segments:~~

~~Performance Enzymes~~

Revenues increased by $4.7 million, or 11%, to $47.1 million in 2018, compared to 2017. The increase in revenues was due primarily to an increase in research and development revenue from Tate & Lyle and Novartis, and the recognition of a license fee and technology transfer from Porton. These increases were partially offset by a decrease in product revenue due to the variability in our customers’ manufacturing schedules.

Product gross margins were 51% in 2018, compared to 46% in the corresponding period in 2017. The increase in product gross margins was primarily due an increase in sales of higher margin products combined with a decrease in sales of lower margin products over the prior fiscal period.

Research and development expense increased $2.1 million, or 12%, to $18.9 million in 2018, compared to 2017, due primarily to an increase in costs associated with higher headcount, an increase in lab supplies and stock compensation expenses and an increase related to activities under the Tate and Lyle and Novartis collaboration agreements.

Selling, general and administrative expense increased by $0.2 million, or 2%, to $7.5 million in 2018, compared to the year of 2017, due primarily to an increase in costs associated with higher headcount.

~~Novel Biotherapeutics~~

Research and development revenue in 2018 was $13.5 million. Revenues in the Novel Biotherapeutics segment are derived entirely from research and development revenue relating to the development of our CDX-6114 product candidate in collaboration with Nestlé Health Science. In 2017, we signed a global development, option and license agreement with Nestlé Health Science and, thus, we had no revenues in the Novel Biotherapeutics segment prior to 2017.

~~Research and development expense decreased $1.9 million, or 16%, to $10.2 million in 2018, compared to 2017, due primarily to activities related to the development of our CDX-6114 in the prior year.~~

Selling, general and administrative expense was $0.8 million in 2018, compared to zero in 2017. This consisted of the allocated employee costs related to the development of our CDX-6114 product candidate and other product candidates in our Novel Biotherapeutics pipeline. De minimis selling, general and administrative expense incurred in 2017 were not allocated to the biotherapeutics segment.

~~Below is an overview of our collaborative arrangements:~~

~~GSK Platform Technology Transfer, Collaboration and License Agreement~~

~~In July 2014, we entered into a CodeEvolver~~^® ~~protein engineering platform technology transfer collaboration and license agreement (the "GSK CodeEvolver~~^®~~Agreement") with GlaxoSmithKline ("GSK"). Pursuant to the terms of the agreement, we granted GSK a non-exclusive license to use the CodeEvolver~~^® ~~protein engineering platform technology to develop novel enzymes for use in the manufacture of GSK's pharmaceutical and health care products.~~

~~We received an upfront fee upon the execution of the agreement in July 2014 and milestone payments in each of the years from 2014 through April 2016. We completed the transfer of the CodeEvolver~~^®protein engineering platform technology to GSK in April 2016 and all revenues relating to the technology transfer have been recognized as of April 2016. We have the potential to receive additional cumulative contingent payments that range from $5.75 million to $38.5 million per project based on GSK’s successful application of the licensed technology. We are also eligible to receive royalties based on net sales of GSK’s sales of licensed enzyme products that are currently not being recognized.

~~Merck Platform Technology Transfer and License Agreement~~

~~In August 2015, we entered into a CodeEvolver~~^® ~~platform technology transfer collaboration and license agreement (the "Merck CodeEvolver~~^®~~Agreement") with Merck, Sharp & Dohme ("Merck") which allows Merck to use the CodeEvolver~~^®~~protein engineering technology platform in the field of human and animal healthcare.~~

~~We received a $5.0 million up-front license fee upon execution of the Merck CodeEvolver~~^® Agreement, and milestone payments in September 2015 and in September 2016, when we completed the transfer of the engineering platform technology. Additionally, we recognized research and development revenues of $4.1 million, $3.6 million, and $3.0 million in 2018, 2017 and 2016, respectively, for various research projects under our collaborative arrangement.

We have the potential to receive payments of up to a maximum of $15.0 million for each commercial API that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver^® protein engineering technology platform. The API payments, which are currently not recognized as revenue, are based on quantity of API developed and manufactured by Merck and will be recognized as usage-based royalties. In February 2019, we have signed a new agreement with Merck to install certain CodeEvolver^® ~~protein engineering technology upgrades into Merck’s platform license installation and will maintain those upgrades for a multi-year term.~~

~~In October 2018, we entered into an amendment to the Merck CodeEvolver~~^® ~~Agreement whereby we amended certain licensing provisions and one exhibit. In January 2019, we entered into an amendment to the Merck CodeEvolver~~^® ~~Agreement whereby we will install certain CodeEvolver~~^®~~protein engineering technology upgrades into Merck’s platform license installation and maintain those upgrades for a multi-year term.~~

~~Global Development, Option and License Agreement and Strategic Collaboration Agreement~~

In October 2017, we entered into the Nestlé Agreement with Nestlé Health Science and, solely for the purpose of the integration and the dispute resolution clauses of the Agreement, Nestlé Health Science S.A., to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU.

We received an upfront cash payment of $14.0 million upon the execution of the Nestlé Agreement and a $4.0 million milestone payment 60 days after dosing the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114 for the potential treatment of PKU. The $4.0 million milestone payment that was triggered by the initiation of the trial was received in September 2018. The upfront payment and the variable consideration relating to the progress payment of $4.0 million are being recognized over time as the development work is being performed. Revenue is being recognized using a single measure of progress that depicts our performance in transferring control of the services, which is based on the ratio of level of effort incurred to date compared to the total estimated level of effort required to complete all performance obligations under the agreement. We recognized development fees of $9.9 million in 2018 as research and development revenue and $7.2 million in 2017. We had deferred revenue under this agreement of $1.9 million at December 31, 2018 and $6.8 million at December 31, 2017.

In December 2018, Nestlé Health Science became obligated to pay us an additional $1.0 million within 60 days after the achievement of a milestone relating to formulation of CDX-6114. In January 2019, we received notice from the U.S. Food and Drug Administration (the “FDA”) that it had completed its review of our investigational new drug application (“IND”) for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sub-licensable license for the global development and commercialization of CDX-6114 for the management of PKU. As a result of the option exercise, Nestlé Health Science is obligated to pay us $3.0 million within 60 days after exercise of the option. Upon exercising its option, Nestlé Health Science has assumed all responsibilities for future clinical development and commercialization of CDX-6114, with the exception of the completion of an extension study, CDX - 6114-004, which is expected to be completed in the second quarter of 2019. See Note 16, “Subsequent Events” in the notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for details.

We are also eligible to receive payments from Nestlé Health Science under the Nestlé Agreement that include (i) development and approval milestones of up to $86.0 million, (ii) sales-based milestones of up to $250.0 million in the aggregate, which aggregate amount is achievable if net sales exceed $1.0 billion in a single year, and (iii) tiered royalties, at percentages ranging from the middle single digits to low double-digits, of net sales of Product.

In addition to the Nestlé Agreement, we and Nestlé Health Science concurrently entered into a Strategic Collaboration Agreement (the “Strategic Collaboration Agreement”) pursuant to which we and Nestlé Health Science will collaborate to leverage the CodeEvolver^® protein engineering technology platform to develop novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas. Under the Strategic Collaboration Agreement, we received an

upfront payment of $1.2 million in 2017 and an incremental $0.6 million payment in September 2018 for additional services. We recognized research and development fees of $3.6 million and $0.5 million in 2018 and 2017, respectively. As of December 31, 2018 and 2017, we had deferred revenue of $0.8 million and $1.1 million, respectively.

~~Strategic Collaboration Agreement~~

In April 2018, we entered into the Porton Agreement with Porton to license key elements of Codexis’ biocatalyst technology for use in Porton’s global custom intermediate and API development and manufacturing business. Under the Porton Agreement, we are eligible to receive annual collaboration fees and research and development revenues. We received an initial collaboration fee of $0.5 million within 30 days of the effective date of the agreement. As of December 31, 2018, we completed the technical transfer and we recognized revenue of $2.8 million in 2018 as research and development revenue. Revenue relating to the functional license provided to Porton was recognized at a point in time when control of the license transferred and technology transfer to the customer. We have the potential to receive performance payments based on products produced by Porton using our company’s technology under the license agreement.

Recent Accounting Pronouncements

For information on recent accounting pronouncements, see Note 2, “Summary of Significant Accounting Policies”, in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

~~Financial results for the year ended December 31, 2018, as compared to the year ended December 31, 2017, reflect the effects of adopting ASU 2014-09,~~ ~~“Revenue from Contracts with Customers (Topic 606),” and the related amendments (“ASC 606”), which provided a new basis of accounting for our revenue arrangements during fiscal 2018.~~

The adoption of ASC 606 limits the comparability of revenue and certain expenses, including revenues and costs and operating expenses, presented in the results of operations for the year ended December 31, 2018 when compared to the year ended December 31, 2017. For additional information regarding the impact from adoption of this accounting standard, see Note 3, “Revenue Recognition” to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

Results of Operations

The following table shows the amounts from our consolidated statements of operations for the periods presented (in thousands, except percentages):


	Year Ended December 31,									% of Total Revenues							Year Ended December 31,						% of Total Revenues
	2018			2017			2016			2018		2017		2016			2021		2020		2019		2021		2020		2019
Revenues:																Revenues:
Product revenue	$	25,590		$	26,685		$	15,321		42	%	53	%	31	%	Product revenue	$	70,657	$	30,220	$	29,465	67	%	44	%	43	%
Research and development revenue	35,004			23,339			33,516			58	%	47	%	69	%	Research and development revenue	34,097		38,836		38,993		33	%	56	%	57	%
Total revenues	60,594			50,024			48,837			100	%	100	%	100	%	Total revenues	104,754		69,056		68,458		100	%	100	%	100	%
Costs and operating expenses:																Costs and operating expenses:
Cost of product revenue	12,620			14,327			9,753			21	%	29	%	20	%	Cost of product revenue	22,209		13,742		15,632		21	%	20	%	23	%
Research and development	29,978			29,659			22,229			50	%	59	%	46	%	Research and development	55,919		44,185		33,873		53	%	64	%	49	%
Selling, general and administrative	29,291			29,008			25,419			48	%	58	%	52	%	Selling, general and administrative	49,323		35,049		31,502		47	%	51	%	46	%
Total costs and operating expenses	71,889			72,994			57,401			119	%	146	%	118	%	Total costs and operating expenses	127,451		92,976		81,007		121	%	135	%	118	%
Loss from operations	(11,295		)	(22,970		)	(8,564		)	(19	)%	(46	)%	(18	)%	Loss from operations	(22,697)		(23,920)		(12,549)		(21)	%	(35)	%	(18)	%
Interest income	671			147			60			1	%	—	%	—	%	Interest income	459		405		1,287		—	%	1	%	2	%
Other expense, net	(291		)	(92		)	(94		)	—	%	—	%	—	%
Other income (expense), net																Other income (expense), net	1,148		(156)		(656)		1	%	—	%	(1)	%
Loss before income taxes	(10,915		)	(22,915		)	(8,598		)	(18	)%	(46	)%	(18	)%	Loss before income taxes	(21,090)		(23,671)		(11,918)		(20)	%	(34)	%	(17)	%
Provision for (benefit from) income taxes	(37		)	81			(40		)	—	%	—	%	—	%
Provision for income taxes																Provision for income taxes	189		339		17		—	%	—	%	—	%
Net loss	$	(10,878	)	$	(22,996	)	$	(8,558	)	(18	)%	(46	)%	(18	)%	Net loss	$	(21,279)	$	(24,010)	$	(11,935)	(20)	%	(34)	%	(17)	%

Revenues

Our revenues ~~are comprised~~consist of product revenue and research and development revenue as follows:


•	~~Product revenue consist of sales of protein catalysts, pharmaceutical intermediates, and Codex~~^® ~~Biocatalyst Panels and Kits.~~

•Product revenue consist of sales of biocatalysts, pharmaceutical intermediates, and Codex® biocatalyst panels and kits.

•Research and development revenue include license, technology access and exclusivity fees, research services fees, milestone payments, royalties, optimization and screening ~~fees, and revenue sharing arrangement based upon sales of licensed products by our former revenue sharing partner, Exela PharmSci, Inc. (“Exela”) in 2017 and 2016.~~fees.

Revenues isare as follows (in thousands, except percentages):

Change
Year Ended December 31, 2018 2017
2018 2017 2016 $ % $ %
Product revenue $ 25,590
$ 26,685
$ 15,321
$ (1,095 ) (4)% $ 11,364
74%
Research and development revenue 35,004
23,339
33,516
11,665
50% (10,177 ) (30)%
Total revenues $ 60,594
$ 50,024
$ 48,837
$ 10,570
21% $ 1,187
2%


							Change
	Year Ended December 31,						2021				2020
	2021		2020		2019		$		%		$		%
Product revenue	$	70,657	$	30,220	$	29,465	$	40,437	134	%	$	755	3	%
Research and development revenue	34,097		38,836		38,993		(4,739)		(12)	%	(157)		—	%
Total revenues	$	104,754	$	69,056	$	68,458	$	35,698	52	%	$	598	1	%

Revenues typically fluctuate on a quarterly basis due to the variability in our customers' manufacturing schedules and the timing of our customers' clinical trials. In addition, we have limited internal capacity to manufacture enzymes. As a result, we are dependent upon the performance and capacity of third party manufacturers for the commercial scale manufacturing of the enzymes used in our pharmaceutical and fine chemicals business.

We accept purchase orders for deliveries covering periods from one day up to ~~approximately one year~~14 months from the date on which the order is placed. However, ~~a majority~~some of ~~the~~our purchase orders can be revised or cancelled by the customer without penalty. Considering

these industry practices and our experience, we do not believe the total of customer purchase orders outstanding (backlog) provides meaningful information that can be relied on to predict actual sales for future periods.

~~2018~~2021 compared to ~~2017~~2020

Total revenues increased by ~~$10.6~~$35.7 million in ~~2018~~2021 to ~~$60.6~~$104.8 million, as compared to ~~2017.~~2020. The increase was driven by growth in product revenue of $40.4 million, or 134%, but partially offset by a decrease in research and development revenue of ~~$11.7~~$4.7 million, or ~~50%, partially offset by a decrease of $1.1 million in product revenue.~~12%.

Product ~~revenue,~~revenues, which consist primarily of sales of ~~protein catalysts,~~biocatalysts, pharmaceutical intermediates, and Codex^® ~~Biocatalyst Panels~~ biocatalyst panels and ~~Kits,~~kits, were ~~$25.6~~$70.7 million in ~~2018, a decrease~~2021, an increase of 4%134% compared with ~~$26.7~~$30.2 million in ~~2017.~~ 2020. The ~~decrease~~increase in product revenue was primarily due to ~~variability~~$34.5 million in ~~our customers’ manufacturing schedules.~~revenue from Pfizer and an increase in demand for enzymes used in the manufacture of branded pharmaceutical products.

Research and development revenue ~~increased~~decreased by ~~$11.7~~$4.7 million in ~~2018~~2021 to ~~$35.0~~$34.1 million, asor 12% compared ~~to 2017,~~with $38.8 million in 2020, primarily due to ~~revenues from our arrangements with Nestlé Health Science for the development of CDX-6114~~lower license and ~~development of novel enzymes for Nestlé Health Science under our Strategic Collaboration Agreement,~~ research and development ~~revenue~~fees from ~~Tate & Lyle, Merck~~Takeda under the Takeda Agreement and lower revenues from the Novartis ~~and on the recognition of a functional license fee and technology transfer from Porton.~~

~~2017~~CodeEvolver® Agreement recognized this year compared to ~~2016~~the prior year, partially offset by higher license fees from other existing collaboration agreements.

2020 compared to 2019

Total revenues increased by ~~$1.2~~$0.6 million in ~~2017~~2020 to ~~$50.0~~$69.1 million, as compared to ~~2016.~~2019. The increase was driven by ~~an increase~~growth in product revenue of ~~$11.4~~$0.8 million, or ~~74%~~3%, offset by a decrease ~~of $10.2 million~~ in research and development ~~revenue.~~revenue of $0.2 million or nominal percent.

Product ~~revenue, which consist primarily of sales of protein catalysts, pharmaceutical intermediates, and Codex~~^® ~~Biocatalyst Panels and Kits,~~revenues were ~~$26.7~~$30.2 million in ~~2017,~~2020, an increase of ~~74%~~3% compared with ~~$15.3~~$29.5 million in ~~2016.~~2019. The increase ~~was~~in product revenue is primarily due to higher customer demand for enzymes used in ~~2017 as compared to 2016, in particular higher sales~~the manufacture of ~~enzymes to the existing 2016 customer base.~~branded pharmaceutical products.

Research and development ~~revenue~~revenues decreased by ~~$10.2~~$0.2 million in ~~2017~~2020 to ~~$23.3~~$38.8 million as compared ~~to 2016. The revenue decrease~~with 39.0 million in ~~2017 was~~2019, primarily due to ~~the absence of $22.5 million of non-recurring~~lower revenues from the ~~technology transfer of our proprietary CodeEvolver~~^® ~~protein engineering platform technology to Merck~~Novartis CodeEvolver® Agreement, a prior year functional license fee revenue from Nestlé Health Science, and ~~GSK in 2016, which was comprised of~~ a prior year milestone payment ~~of $8.0 million from Merck, a milestone payment of $7.5 million~~ from GSK ~~and $7.0 million in~~under the GSK CodeEvolver® Agreement, partially offset by the recognition of license fees from Takeda under ~~both agreements. The~~the Takeda Agreement, and recognition of functional license fees revenue decrease in 2017 was partially offset by revenues of $13.1 million for research services under our agreements with Nestlé Health Sciences, Tate & Lyle, Novartis, and revenue sharing arrangement revenues from ~~Exela.~~Porton.

Cost and Operating Expenses (in thousands, except percentages):


							Change
	Year Ended December 31,						2021				2020
	2021		2020		2019		$		%		$		%
Cost of product revenue	$	22,209	$	13,742	$	15,632	$	8,467	62	%	$	(1,890)	(12)	%
Research and development	55,919		44,185		33,873		11,734		26	%	10,312		30	%
Selling, general and administrative	49,323		35,049		31,502		14,274		41	%	3,547		11	%
Total costs and operating expenses	$	127,451	$	92,976	$	81,007	$	34,475	37	%	$	11,969	15	%

Change
Year Ended December 31, 2018 2017
2018 2017 2016 $ % $ %
Cost of product revenue $ 12,620
$ 14,327
$ 9,753
$ (1,707 ) (12)% $ 4,574
47%
Research and development 29,978
29,659
22,229
319
1% 7,430
33%
Selling, general and administrative 29,291
29,008
25,419
283
1% 3,589
14%
Total costs and operating expenses $ 71,889
$ 72,994
$ 57,401
$ (1,105 ) (2)% $ 15,593
27%

Cost of Product Revenue and Product Gross Margin

Our ~~revenues from~~ product ~~revenue~~revenues are derived entirely from our Performance Enzymes segment. Revenues from the Novel Biotherapeutics segment are only from collaborative research and development ~~activities and not from product revenue.~~activities.

The following table shows the amounts of our product revenue, cost of product revenue, product gross profit and product gross margin from our consolidated statements of operations for the years ended (in thousands, except percentages):


	Year Ended December 31,						Change				Year Ended December 31,						Change
	2021			2020			$		%		2020			2019			$		%
Product revenue	$	70,657		$	30,220		$	40,437	134	%	$	30,220		$	29,465		$	755	3	%
Cost of product revenue (1)	22,209			13,742			8,467		62	%	13,742			15,632			(1,890)		(12)	%
Product gross profit	$	48,448		$	16,478		$	31,970	194	%	$	16,478		$	13,833		$	2,645	19	%
Product gross margin (%) (2)	69		%	55		%					55		%	47		%

Year Ended December 31, Change Year Ended December 31, Change
2018 2017 $ % 2017 2016 $ %
Product revenue $ 25,590
$ 26,685
$ (1,095 ) (4)% $ 26,685
$ 15,321
$ 11,364
74%
Cost of product revenue ⁽¹⁾
12,620
14,327
(1,707 ) (12)% 14,327
9,753
4,574
47%
Product gross profit $ 12,970
$ 12,358
$ 612
5% $ 12,358
$ 5,568
$ 6,790
122%
Product gross margin (%)⁽²⁾
51 % 46 % 46 % 36 %

⁽¹⁾ Cost of product revenue comprises both internal and third-party fixed and variable costs, including materials and supplies, labor, facilities and other overhead costs associated with our product revenue.

⁽²⁾ Product gross margin is used as a performance measure to provide additional information regarding our results of operations on a consolidated basis.

~~2018~~2021 compared to ~~2017~~2020

Cost of product revenue increased by $8.5 million in 2021 to $22.2 million, as compared to 2020. The increase was primarily due to a higher volume of product sales and variations in product mix. The product gross margin increased to 69% in 2021 as compared to 55% in 2020, primarily due to the sale of higher margin branded products.

2020 compared to 2019

Cost of product revenue decreased by ~~$1.7~~$1.9 million in ~~2018~~2020 to ~~$12.6~~$13.7 million, as compared to ~~2017.~~2019. The decrease was primarily due to ~~a reduction in~~lower costs compared to costs associated with ~~a reduction in~~prior year product revenue. ~~Product~~The product gross margin increased to ~~51%~~55% in ~~2018~~2020 as compared to ~~46%~~47% in ~~2017 due to the change in sales mix as we had an increase in sales of higher margin products in 2018 compared to 2017.~~

~~2017 compared to 2016~~

Cost of product revenue increased by $4.6 million in 2017 to $14.3 million, as compared to 2016. The increase was primarily due to higher product revenue from increased customer demand. Product gross margin increased to 46% in 2017 as compared to 36% in 20162019 due to improved ~~sales~~product mix.

Research and Development Expenses

Research and development expenses consist of costs incurred for internal projects as well as collaborative research and development activities. These costs primarily consist of (i) employee-related costs, which include salaries and other personnel-related expenses (including stock-based compensation), (ii) various allocable expenses, which include occupancy-related costs, supplies, depreciation of facilities and laboratory equipment, and (iii) external costs. Research and development expenses are expensed when incurred.

~~2018~~2021 compared to ~~2017~~2020

Research and development expenses were ~~$30.0~~$55.9 million in ~~2018~~2021 compared to ~~$29.7~~$44.2 million in ~~2017,~~2020, an increase of ~~$0.3~~$11.7 million, or 1%26%. The increase was primarily due to ~~$1.9~~$7.6 million in costs associated with higher headcount, $0.8 million in higher stock-based compensation expenses, $2.6 million in higher lab supplies, $2.2 million in higher allocable expenses, $1.1 million increase in outside services, and $1.0 million in higher depreciation expenses, partially offset by a $3.7 million decrease in costs associated with outside services related to CMC and regulatory expenses.

2020 compared to 2019

Research and development expenses were $44.2 million in 2020 compared to $33.9 million in 2019, an increase of $10.3 million, or 30%. The increase was primarily due to $5.0 million in costs associated with outside services relating to CMC and regulatory expenses, $3.4 million in costs associated with higher headcount, $1.5 million in higher allocable expenses which include occupancy-related costs and supplies, ~~and increases of $0.7~~$0.4 million in ~~lab supplies, $0.6~~higher outside services, and $0.3 million in ~~stock compensation expenses,~~higher depreciation expense and ~~$1.0 million increase in repairs and maintenance costs, outside consultants and travel costs. These increases~~ were partially offset by a decrease of ~~$4.9 million in outside services which were mostly related to prior year development costs for project CDX-6114.~~

~~2017 compared to 2016~~

Research and development expenses were $29.7 million in 2017 compared to $22.2 million in 2016, an increase of $7.4 million or 33%. The increase was primarily due to a $7.2 million increase in outside services, which were mostly related to the development project for CDX-6114, an increase of $1.5 million in costs associated with higher headcount relating to additional research and development projects, including the development of CDX-6114, and an increase of $0.7$0.4 million in lab ~~supplies, which were partially offset by lower amortization of intangibles.~~supply expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of employee-related costs, which include salaries and other personnel-related expenses (including stock-based compensation), hiring and training costs, consulting and outside services expenses (including audit and legal counsel related costs), marketing costs, building lease costs, and depreciation and amortization expenses.

~~2018~~

2021 compared to ~~2017~~2020

Selling, general and administrative expenses were ~~$29.3~~$49.3 million in ~~2018~~2021 compared to ~~$29.0~~$35.0 million in ~~2017,~~2020, an increase of ~~$0.3~~$14.3 million, or 1%41%. The increase was primarily due to an increase of $6.6 million in costs associated with higher headcount to support our growth, $3.1 million in higher stock-based compensation costs, $5.1 million increase in legal fees, $1.1 million in higher outside and temporary services, $1.0 million in higher facilities cost, and $0.4 million increase in allowance for credit losses, partially offset by a decrease of $3.0 million in allocable expenses.

2020 compared to 2019

Selling, general and administrative expenses were $35.0 million in 2020 compared to $31.5 million in 2019, an increase of $3.5 million or 11%. The increase was primarily due to increases of ~~$1.2~~$1.7 million in salaries and personnel costs associated with higher headcount, ~~$1.0~~$0.6 million in ~~consulting~~stock-based compensation expense, $0.8 million in consultants costs, $0.8 million in legal and accounting fees, $0.7 million in facilities costs, $0.7 million in outside and temporary services, and $0.4 million in ~~recruiting fees, $0.3 million in accounting fees and $0.2 million in stock compensation expense~~licensed technology, which were partially offset by ~~a decrease~~decreases of ~~$1.1~~$1.6 million in allocable expenses and ~~$1.8~~$0.8 million in ~~legal expenses related to 2017 activities.~~travel expenses.

~~2017~~Interest Income and Other Income (Expense), net (in thousands, except percentages):


							Change
	Year Ended December 31,						2021				2020
	2021		2020		2019		$		%		$		%
Interest income	$	459	$	405	$	1,287	$	54	13	%	$	(882)	(69)	%
Other income (expense), net	1,148		(156)		(656)		1,304		836	%	500		76	%
Total other income (expense), net	$	1,607	$	249	$	631	$	1,358	545	%	$	(382)	(61)	%

Interest Income

Interest income increased by $0.1 million in 2021 compared to ~~2016~~

~~Selling, general and administrative expenses were $29.0~~2020, primarily due to earned interest income on a non-marketable debt security, partially offset by a reduction in interest income from lower average interest rates on lower average cash balances. Interest income decreased by $0.9 million in ~~2017~~2020 compared to ~~$25.4~~2019, primarily due to lower average interest rates on declining average cash balances.

Other Income (Expense), net

Other income (expense), net, increased by $1.3 million in ~~2016, an increase~~2021 compared to 2020, primarily due to a $1.0 million gain from remeasurement on the carrying value of ~~$3.6~~our investment in MAI. Other expense decreased by $0.5 million ~~or 14%.~~ in 2020 compared to 2019, primarily due to a $0.5 million write-down in the fair value of our investment in CO2 Solutions and fluctuations in foreign currency in 2019.

Provision for Income Taxes (in thousands, except percentages):


							Change
	Year Ended December 31,						2021				2020
	2021		2020		2019		$		%		$	%
Provision for income taxes	$	189	$	339	$	17	$	(150)	(44)	%	322	1,894	%

The ~~increase~~provision for income taxes for 2021 was primarily due to ~~an increase~~the income tax withholding imposed by foreign taxing authorities on income earned in certain countries outside of ~~$1.9 million in costs associated with higher headcount, including stock-based compensation costs, an increase~~the Unites States and remitted to the Unites States and the accrual of ~~$1.2 million in legal expenses relating to intellectual property~~interest and ~~higher consulting fees, partially offset by lower depreciation expense.~~

~~Other Income (Expense), net~~ ~~(in thousands, except percentages):~~

Change
Year Ended December 31, 2018 2017
2018 2017 2016 $ % $ %
Interest income $ 671
$ 147
$ 60
$ 524
356% $ 87
145%
Other expense, net (291 ) (92 ) (94 ) 199
216% (2 ) (2)%
Total other income (expense), net $ 380
$ 55
$ (34 ) $ 325
591% $ 89
262%

~~Interest Income~~

~~Interest income increased by $0.5 million in 2018 compared to 2017, and increased by $87 thousand in 2017 compared to 2016. The changes were primarily due to higher interest rates~~penalties on ~~higher levels of cash, cash equivalents and short-term investment portfolio balances.~~

~~Other Expense~~

Other expense increased by $0.2 million in 2018 compared to 2017 primarily due to an unrealized loss of $83 thousand related to our investment in CO2 Solutions and expenses due to fluctuations in foreign currency. Other expense decreased by $2 thousand in 2017 compared to 2016, primarily due to fluctuations in foreign currency.

~~Provision for (benefit from) Income Taxes~~ ~~(in thousands, except percentages):~~

Change
Year Ended December 31, 2018 2017
2018 2017 2016 $ % $ %
Provision for (benefit from) income taxes $ (37 ) $ 81
$ (40 ) $ 118
146% $ (121 ) (303)%

~~The benefit from income taxes for 2018 is primarily related to a net loss from our foreign operations and a reduction in the deferred~~historic uncertain tax ~~liability for accrued future withholding taxes on dividends.~~positions. The provision for income taxes in ~~2017 is~~2020 was primarily

~~related~~ due to ~~taxes on~~ foreign ~~earnings and an increase in the deferred tax liability for accrued future~~ withholding taxes on ~~dividends.~~certain sales to non-U.S. customers. The ~~benefit from~~provision for income taxes ~~for 2016 is~~in 2019 was primarily ~~related~~due to ~~a reduction in~~ the ~~deferred~~accrual of interest and penalties on historic uncertain tax liability for accrued future withholding taxes on dividends. We continue to maintain a full valuation allowance against our net deferred tax assets as we believe that it is more likely than not that the majority of our deferred tax assets will not be realized.positions.

Net Loss

Net loss for ~~2018 was $10.9~~2021 was $21.3 million, or a net loss per basic and diluted share of ~~$0.21. This compares~~$0.33. This compared to a net loss of ~~$23.0~~$24.0 million, or ~~a net loss~~$0.40 per basic and diluted share ~~of $0.50~~ for ~~2017.~~2020. The ~~decreases~~decrease in net loss iswas primarily ~~attributable~~related to an increase in product revenue with higher margins, partially offset by higher operating expenses and lower research and development revenues.

The net loss for 2020 was $24.0 million, or $0.40 per basic and diluted share. This compared to a net loss of $11.9 million, or $0.21 per basic and diluted share for 2019. The increase in ~~revenue~~net loss was primarily related to an increase in costs associated with outside services relating to CMC and ~~reductions~~regulatory expenses, higher headcount, higher consultants, higher stock compensation expenses and higher facility expense.

Results of Operations by Segment (in thousands, except percentages)

Revenues by segment


	Year Ended December 31, 2021						Year Ended December 31, 2020						Change
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes				Novel Biotherapeutics
													$		%		$		%
Revenues:
Product revenue	$	70,657	$	—	$	70,657	$	30,220	$	—	$	30,220	$	40,437	134	%	$	—	—	%
Research and development revenue	19,858		14,239		34,097		17,886		20,950		38,836		1,972		11	%	(6,711)		(32)	%
Total revenues	$	90,515	$	14,239	$	104,754	$	48,106	$	20,950	$	69,056	$	42,409	88	%	$	(6,711)	(32)	%


	Year Ended December 31, 2020						Year Ended December 31, 2019						Change
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes				Novel Biotherapeutics
													$		%		$		%
Revenues:
Product revenue	$	30,220	$	—	$	30,220	$	29,465	$	—	$	29,465	$	755	3	%	$	—	—	%
Research and development revenue	17,886		20,950		38,836		28,691		10,302		38,993		(10,805)		(38)	%	10,648		103	%
Total revenues	$	48,106	$	20,950	$	69,056	$	58,156	$	10,302	$	68,458	$	(10,050)	(17)	%	$	10,648	103	%

2021 compared to 2020

Revenues from the Performance Enzymes segment increased by $42.4 million, or 88%, to $90.5 million in 2021, compared to $48.1 million in 2020. The increase in product ~~costs.~~revenue of $40.4 million, or 134%, to $70.7 million in 2021, compared to $30.2 million in 2020 was primarily due to $34.5 million in revenue from Pfizer and higher customer demand for enzymes used in the manufacture of branded pharmaceutical products. The ~~net~~ increase in research and development revenue isof $2.0 million, or 11%, to $19.9 million in 2021, compared to $17.9 million in 2020 was primarily ~~attributed~~due to higher licenses fees from existing collaboration arrangements, partially offset by lower revenues from Novartis under the Novartis CodeEvolver® Agreement.

Revenues from the Novel Biotherapeutics segment decreased by $6.7 million, or 32%, to $14.2 million in 2021, compared to $21.0 million in 2020. The decrease in revenue was primarily due to lower license and research and development fees from Takeda under the Takeda Agreement recognized this year compared to the prior year and a decrease in research and development revenue from Nestlé Health Science ~~and Tate & Lyle partially offset by a decrease in product revenue due~~compared to variability in our customers’ manufacturing schedules. The reduction in product costs reflected the sale of higher gross margins products partially offset by lower costs associated with the reduction in product revenue.last year.

~~The increase in net loss for 2017 over a net loss of $8.6 million, or a net loss per basic and diluted share of $0.21, for 2016 is primarily related~~2020 compared to ~~a decrease in research and development revenues and an increase in research and development expenses which were partially offset by an increase in product revenue.~~2019

~~Results of Operations by Segment~~ ~~(in thousands, except percentages)~~

~~Revenues by segment~~

Revenues from the Performance Enzymes segment ~~increased~~decreased by ~~$4.7~~$10.1 million, or ~~11%~~17%, to ~~$47.1~~$48.1 million in ~~2018,~~2020, compared to ~~$42.3~~$58.2 million in ~~2017~~2019. The increase in product revenue of $0.8 million, or 3%, to $30.2 million in 2020, compared to $29.5 million in 2019, was primarily due to ~~an increase~~higher customer demand for enzymes used in the manufacture of branded pharmaceutical products. The decrease in research and development revenue of $10.8 million, or 38%, to $17.9 million in 2020, compared to $28.7 million in 2019 was primarily due to lower revenues from ~~Tate & Lyle,~~Novartis under the Novartis CodeEvolver® Agreement, a prior year milestone payment from GSK under the GSK CodeEvolver® Agreement, and lower license fees and revenue from Merck, ~~and Novartis, and on~~partially offset by the recognition of a functional license ~~fee~~fees revenue from ~~Porton. This increase was partially offset by a decrease~~Porton in ~~product revenue primarily due to variability in our customers’ manufacturing schedules.~~2020.

Revenues from the Novel Biotherapeutics segment increased by ~~$5.8~~$10.6 million, or ~~76%~~103%, to ~~$13.5~~$21.0 million in ~~2018,~~2020, compared to ~~$7.7~~$10.3 million in ~~2017. Revenues~~2019. The increase in revenue was primarily due to recognition of license fees from Takeda under the ~~Novel Biotherapeutics segment are derived primarily from research and development~~Takeda Agreement, partially offset by a decrease in prior year functional license fee revenue ~~relating to the development of our CDX-6114 product candidate in collaboration with Nestlé Health Science. Our dependence on revenues generated~~ from Nestlé Health ~~Science, if lost, would have a material adverse effect on the Novel Biotherapeutics segment.~~Science.

Costs and operating expenses by segment

Year Ended December 31, 2018 Year Ended December 31, 2017 Change
Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics
$ % $ %
Cost of product revenue $ 12,620
$ —
$ 12,620
$ 14,327
$ —
$ 14,327
$ (1,707 ) (12)% $ —
—%
Research and development⁽¹⁾
18,924
10,185
29,109
16,847
12,107
28,954
2,077
12% (1,922 ) (16)%
Selling, general and administrative⁽¹⁾
7,538
771
8,309
7,371
—
7,371
167
2% 771
100%
Total segment costs and operating expenses $ 39,082
$ 10,956
50,038
$ 38,545
$ 12,107
50,652
$ 537
1% $ (1,151 ) (10)%
Corporate costs 20,704
21,300

Depreciation 1,147
1,042

Total costs and operating expenses $ 71,889
$ 72,994

^{Year Ended December 31, 2021 Year Ended December 31, 2020 Change
Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics
$ % $ %
Cost of product revenue $ 22,209 $ — $ 22,209 $ 13,742 $ — $ 13,742 $ 8,467 62% $ — —%
Research and development(1) 23,140 30,219 53,359 20,923 21,705 42,628 2,217 11% 8,514 39%
Selling, general and administrative(1) 12,105 2,755 14,860 9,597 2,355 11,952 2,508 26% 400 17%
Total segment costs and operating expenses $ 57,454 $ 32,974 90,428 $ 44,262 $ 24,060 68,322 $ 13,192 30% $ 8,914 37%
Corporate costs(2) 33,808 22,555
Unallocated depreciation and amortization 3,215 2,099
Total costs and operating expenses $ 127,451 $ 92,976

(1)}Research and development expenses and ~~Selling,~~selling, general and administrative expenses exclude ~~depreciation.~~depreciation and amortization of finance leases.
(2) Corporate costs include unallocated selling, general and administrative expenses.


	Year Ended December 31, 2020						Year Ended December 31, 2019						Change
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes			Novel Biotherapeutics
													$		%	$		%
Cost of product revenue	$	13,742	$	—	$	13,742	$	15,632	$	—	$	15,632	$	(1,890)	(12)%	$	—	—%
Research and development(1)	20,923		21,705		42,628		19,380		13,278		32,658		1,543		8%	8,427		63%
Selling, general and administrative(1)	9,597		2,355		11,952		8,462		2,222		10,684		1,135		13%	133		6%
Total segment costs and operating expenses	$	44,262	$	24,060	68,322		$	43,474	$	15,500	58,974		$	788	2%	$	8,560	55%
Corporate costs(2)					22,555						20,255
Unallocated depreciation and amortization					2,099						1,778
Total costs and operating expenses					$	92,976					$	81,007

(1) Research and development expenses and selling, general and administrative expenses exclude depreciation and amortization of finance leases.
(2) Corporate costs include unallocated selling, general and administrative expenses.

For a discussion of product cost of revenue, see “Results of Operations”.

2021 compared to 2020

Research and development expense in the Performance Enzymes segment increased by $2.2 million, or 11%, to $23.1 million in 2021, compared to $20.9 million in 2020. The increase was primarily due to an increase in costs associated with higher headcount, higher outside services expenses, and higher lab supplies, partially offset by lower allocable expenses.

Selling, general and administrative expense in the Performance Enzymes segment increased by $2.5 million, or 26%, to $12.1 million in 2021, compared to $9.6 million in 2020. The increase was primarily due to an increase in costs associated with higher headcount and allocable expenses, partially offset by lower outside services expenses.

Research and development expense in the Novel Biotherapeutics segment increased by $8.5 million, or 39%, to $30.2 million in 2021, compared to $21.7 million in 2020. The increase was primarily due to higher costs associated with higher headcount and allocable expenses but partially offset by reduction in costs associated with outside services relating to CMC and regulatory expenses.

Selling, general and administrative expense in the Novel Biotherapeutics segment increased by $0.4 million, or 17%, to $2.8 million in 2021, compared to $2.4 million in 2020. The increase was primarily due to increase in costs associated with higher headcount and higher allocable expenses, partially offset by lower outside services expenses.

2020 compared to 2019

Research and development expense in the Performance Enzymes segment increased by ~~$2.1~~$1.5 million, or ~~12%~~8%, to ~~$18.9~~$20.9 million in ~~2018,~~2020, compared to ~~$16.8~~$19.4 million in ~~2017.~~2019. The increase was primarily due to ~~$2.2 million~~an increase in costs associated with ~~increased~~higher headcount, ~~$0.6 million in lab supplies costs~~higher stock-based compensation expense, higher repairs and ~~$0.5 million in stock compensation expenses. These increases~~maintenance expense, and were partially offset by ~~a decrease of $1.2 million in~~lower lab supply expenses and lower allocable ~~expenses, which include occupancy-related costs, supplies, and depreciation expense.~~expenses.

Selling, general and administrative expense in the Performance Enzymes segment increased by ~~$0.2~~$1.1 million, or 2%13%, to ~~$7.5~~$9.6 million in ~~2018,~~2020, compared to ~~$7.4~~$8.5 million in ~~2017.~~2019. The increase was primarily due to ~~$0.8 million~~an increase in ~~higher~~ costs associated with ~~increased headcount,~~licensed technology, outside services, stock-based compensation expense, and higher allocable expenses which were partially offset by ~~a decrease of $0.4 million in~~ lower ~~allocable expenses and $0.2 million in lower stock compensation expense.~~travel expenses.

Research and development expense in the Novel Biotherapeutics segment ~~decreased~~increased by ~~$1.9~~$8.4 million, or ~~16%~~63%, to ~~$10.2~~$21.7 million in ~~2018,~~2020, compared to ~~$12.1~~$13.3 million in ~~2017.~~2019. The ~~decrease~~increase was primarily due to $4.9 million in lower costs associated with a reduction in the outside research and development services used in the development of the CDX-6114 product candidate. The decrease was partially offset by a $2.3 million increase in allocable expenses, a $0.6 millionan increase in costs associated with outside services relating to CMC and regulatory expenses for CDX-7108 which we are developing pursuant to our development agreement with Nestlé Health Science, higher headcount, higher outside services, and ~~a $0.1 million increase in stock compensation~~higher allocable expenses and were partially offset by lower lab supply expenses and consultant expense.

Selling, general and administrative expense in the Novel Biotherapeutics segment ~~was $0.8~~increased by $0.1 million, or 6%, to $2.4 million in ~~2018 and primarily consisted of $0.5~~2020, compared to $2.2 million in ~~allocable costs and $0.2 million~~2019. The increase was primarily due to an increase in costs associated with ~~headcount. Selling, general~~headcount, licensed technology, consultants and ~~administrative~~stock-based compensation expense ~~in the Novel Biotherapeutics segment was zero in 2017. De minimis selling, general~~which were partially offset by lower allocable expenses, outside services, and ~~administrative expense incurred in 2017 were not allocated to the biotherapeutics segment.~~travel expenses.

Income (loss) from operations by segment


	Year Ended December 31, 2021						Year Ended December 31, 2020						Change
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes			Novel Biotherapeutics
													$		%	$		%
Income (loss) from operations	$	33,061	$	(18,735)	$	14,326	$	3,844	$	(3,110)	$	734	$	29,217	760%	$	(15,625)	(502)%


	Year Ended December 31, 2020						Year Ended December 31, 2019						Change
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes			Novel Biotherapeutics
													$		%	$		%
Income (loss) from operations	$	3,844	$	(3,110)	$	734	$	14,682	$	(5,198)	$	9,484	$	(10,838)	(74)%	$	2,088	40%

2021 compared to 2020

Income from operations in the Performance Enzymes segment increased ~~$4.2~~by $29.2 million, or ~~111%~~760%, to ~~$8.0~~$33.1 million, in ~~2018,~~2021, compared to $3.8 million in ~~2017.~~2020. The increase in income from operations was primarily due to ~~an increase in~~higher product revenue and research and development revenue, ~~a reduction in product costs associated with a decline in product revenue and a reduction in product costs associated with the sale of higher margin products. These were~~ partially offset by ~~a decrease in product revenues~~higher costs and ~~an increase in research and development costs.~~operating expenses.

~~Income~~Loss from operations in the Novel Biotherapeutics segment increased ~~$7.0~~by $15.6 million, or ~~158%~~502%, to ~~$2.6~~$18.7 million in ~~2018~~2021 compared to a loss from operations of $3.1 million in ~~2017.~~2020. The increase in loss from operations was primarily due to lower

research and development revenue from Takeda under the Takeda Agreement and decrease in research and development revenue from Nestlé Health Science, and higher research and development expenses associated with higher headcount and allocable expenses.

2020 compared to 2019

Income from operations in the Performance Enzymes segment decreased by $10.8 million, or 74%, to $3.8 million, in 2020, compared to $14.7 million in 2019. The decrease in income from operations was primarily due to decrease in research and development revenue and increases in research and development costs and selling, general and administrative expenses.

Loss from operations in the Novel Biotherapeutics segment decreased by $2.1 million, or 40%, to $3.1 million in 2020 compared to a loss from operations of $5.2 million in 2019. The decrease in loss from operation was primarily due to ~~$5.8 million~~the recognition of license fees from Takeda under the Takeda Agreement, partially offset by a decrease in prior year functional license fee revenue from ~~the development of our CDX-6114 product candidate in collaboration with~~ Nestlé Health Science, ~~partially offset by lower~~an increase in costs associated with ~~a reduction in the~~ outside ~~research~~services relating to CMC and ~~development~~regulatory expenses, higher headcount, higher outside services, ~~used in the CDX-6114 product candidate development.~~and higher allocable expenses.

Previously, we had only one business segment. As our biotherapeutics business has emerged as a significant opportunity for us, effective in 2018, we formed Novel Biotherapeutics as a new business segment. The Novel Biotherapeutics segment focuses on new opportunities in the pharmaceutical industry to discover or improve novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions. The Performance Enzymes segment consists of the existing protein catalyst products and services with focus on pharmaceutical, food, molecular diagnostics, and other industrial markets. See Note 15, "Segment, Geographical and Other Revenue Information" in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for information about revenues by geographic area, long-lived assets by geographic area, and revenues by major customers.

Liquidity and Capital Resources

Liquidity is the measurement of our ability to meet working capital needs and to fund capital expenditures. We have historically funded our operations primarily through cash generated from operations, stock option exercises and public and private offerings of our common stock. We also have the ability to borrow up to ~~$15.0~~$5.0 million under our Credit Facility. We actively manage our cash usage and investment of liquid cash to ensure the maintenance of sufficient funds to meet our working capital needs. ~~The majority of our~~Our cash and cash equivalents are held in ~~U.S. banks, and our foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short-term operating expenses.~~U.S banks.

The following summarizes our cash and cash equivalents balance and working capital as of December 31, ~~2018, 2017~~2021, 2020 and ~~2016:~~2019 (in thousands):


	December 31,
	2021		2020		2019
Cash and cash equivalents	$	116,797	$	149,117	$	90,498
Working capital	$	128,517	$	159,442	$	98,817

Sources of Capital

December 31,
(In Thousands) 2018 2017 2016
Cash and cash equivalents $ 53,039
$ 31,219
$ 19,240
Working capital 50,085
20,087
14,860

In addition to our existing cash and cash equivalents, we are eligible to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain royalty payments under our collaboration agreements. Our ability to earn these milestone and contingent payments and the timing of achieving these milestones is primarily dependent upon the outcome of our collaborators’ research and development activities and is uncertain at this ~~time. In the third quarter of 2016, we completed the final phase in the transfer of CodeEvolver~~^®~~technology to Merck under~~time. Under the Merck CodeEvolver^®~~Agreement. Following the completion of the technology transfer to Merck,~~Agreement, we are ~~now~~ eligible to receive payments of up to $15.0 million for each commercial API that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver^® technology. In addition, under the GSK CodeEvolver® Agreement, depending upon GSK's successful application of the licensed technology, we have the potential to receive additional contingent payments that range from $5.75 million to $38.5 million per project.

In May 2019, we entered into a Platform Technology Transfer and License Agreement with Novartis. The Novartis CodeEvolver® Agreement allows Novartis to use Codexis’ proprietary CodeEvolver® protein engineering platform technology in the field of human healthcare. Pursuant to the agreement, we received an upfront payment of $5.0 million shortly after the effective date. We completed the second technology milestone transfer under the agreement and received a milestone payment of $4.0 million in 2020. We have also received aggregate of $5.0 million for the completion of the third technology milestone in 2021. In consideration for the continued disclosure and license of improvements to the technology and materials during a multi-year period that began on the conclusion of the Technology Transfer Period (“Improvements Term”), Novartis will pay Codexis an additional $8.0 million in aggregate over four years.

In October 2017, we entered into the Nestlé License Agreement with Nestlé Health Science. Pursuant to the Nestlé License Agreement, Nestlé Health Science paid us an upfront cash payment and milestone payments after dosing the first subjects in a first-in-human Phase 1a dose-escalation trail with CDX-6114 and achievement of a formulation relating to CDX-6114. We are also eligible to receive payments from Nestlé Health Science under the Nestlé License Agreement that include (i) development and approval milestones of up to $85.0 million, (ii) sales-based milestones of up to $250.0 million in the aggregate, which aggregate amount is achievable if net sales exceed $1.0 billion in a single year, and (iii) tiered royalties, at percentages ranging from the mid-single digits to low double-digits, of net sales of product.

We are actively collaborating with new and existing customers in the pharmaceutical and food industries. We believe that we can utilize our current products and services, and develop new products and services, to increase our revenues and gross margins in future periods.

We have historically experienced negative cash flows from operations as we continue to invest in key technology development projects and improvements to our CodeEvolver^®protein engineering technology platform, and expand our business development and collaboration with new customers. Our cash flows from operations will continue to be affected principally by product sales and product gross margins, sales from licensing our technology to major pharmaceutical companies, ~~product sales~~ and collaborative

research and development services provided to customers, as well as our headcount costs, primarily in research and development. Our primary source of cash flows from operating activities is cash receipts from our customers for purchases of products, collaborative research and development services, and licensing our technology to major pharmaceutical ~~companies, and our customers for purchases of products and/or collaborative research and development services.~~companies. Our largest uses of cash from operating activities are for employee-related expenditures, rent payments, inventory purchases to support our product sales and non-payroll research and development costs.

~~On December 9, 2016,~~Equity Distribution Agreement

In May 2021, we ~~filed a registration statement on Form S-3~~entered into an Equity Distribution Agreement ("EDA") with ~~the SEC,~~Piper Sandler & Co ("PSC"), under which PSC, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell ~~an aggregate~~over a three-year period from the execution of the EDA up to ~~$80.0~~a maximum of $50.0 million of shares of our common ~~stock, preferred stock, debt securities, warrants, purchase contract and/or units. The SEC declared~~stock. During the ~~registration statement effective on January 10, 2017. Subsequently, in April 2017, we completed an underwritten public offering of approximately 6.3 million~~year ended December 31, 2021, no shares of our common stock ~~at an offering price~~were issued pursuant to the EDA. As of ~~$4.00 per share. The net proceeds to us were approximately $23.8~~December 31, 2021, $50.0 million ~~after deducting offering costs and~~of shares remained available for sale under the ~~underwriting discounts and commissions. In April 2018, we completed an underwritten public offering of 4.3 million shares~~EDA. Sales of our common stock ~~at a public offering price~~under this arrangement could be subject to business, economic or competitive uncertainties and contingencies, many of ~~$9.25 per share resulting in net proceeds~~which may be beyond our control, and which could cause actual results from the sale of ~~approximately $37.3 million after deducting the underwriting discounts and commissions.~~our common stock to differ materially from expectations.

Credit Facility

In June 2017, we entered into the Credit Facility with Western Alliance Bank which consists of term debt for loans that ~~allow~~allowed us to borrow up to $10.0 million and a revolving credit facility that allows us to borrow up to $5.0 million with a certain eligible accounts receivable borrowing base of 80% of eligible accounts receivable. In September ~~2018,~~2021, we entered into ~~a Fourth~~the Ninth Amendment to the Credit Facility whereby ~~the draw period on the term debt was extended to September 30, 2019. We~~we may draw on the ~~term debt~~Term Debt and the Revolving Line of Credit at any time prior to ~~September 30, 2019,~~ December 31, 2021 and October 1, 2024, respectively, subject to customary conditions for funding including, among others, that no event of default exists. Draws on the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property. ~~We may draw on the revolving line of credit at any time prior to the maturity date.~~ On October 1, ~~2022, any~~2024, loans ~~for~~drawn under the Term Debt mature and the Revolving Line of Credit ~~terminates. No~~terminate. Our right to take draws on the term debt expired on December 31, 2021 and no amounts were drawn ~~down~~ under the ~~credit facility~~Credit Facility as of December 31, ~~2018. At December 31, 2018, we were in compliance with the covenants for the Credit Facility.~~2021. The Credit Facility requires us to maintain compliance with certain financial covenants including attainment of certain lender-approved projections or maintenance of certain minimum cash levels. Restrictive covenants in the Credit Facility restrict the payment of dividends or other distributions. At December 31, 2021, we were in compliance with the covenants for the Credit Facility. For additional information about our contractual obligations, see Note 13, ~~"Commitments~~“Commitments and ~~Contingencies"~~Contingencies” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

In October 2017, we entered into the Nestlé Agreement with Nestlé Health Science. Pursuant to the Nestlé Agreement, Nestlé Health Science paid us an upfront cash payment of $14.0 million. 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 for the potential treatment of PKU. The initiation of the trial triggered a $4.0 million milestone payment from Nestlé Health Science which was paid in September 2018. In December 2018, Nestlé Health Science became obligated to pay us an additional $1.0 million within 60 days after the achievement of a milestone relating to formulation of CDX-6114. In January 2019, we received notice from the U.S. Food and Drug Administration (the “FDA”) that it had completed its review of our investigational new drug application (“IND”) for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sub-licensable license for the global development and commercialization of CDX-6114 for the management of PKU. As a result of the option exercise, Nestlé Health Science is obligated to pay us $3.0 million within 60 days after exercise of the option. Upon exercising its option, Nestlé Health Science has assumed all responsibilities for future clinical development and commercialization of CDX-6114, with the exception of the completion of an extension study, CDX - 6114-004, which is expected to be completed in the second quarter of 2019. See Note 16, “Subsequent Events” in the notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for details. Other potential payments from Nestlé Health Science to us under the Nestlé Agreement include (i) development and approval milestones of up to $86.0 million, (ii) sales-based milestones of up to $250.0 million in the aggregate, which aggregate amount is achievable if net sales exceed $1.0 billion in a single year, and (iii) tiered royalties, at percentages ranging from the middle single digits to low double-digits, of net sales of Product.

As of December 31, 2018, we had cash and cash equivalents of $53.0 million and $15.0 million available to borrow under our Credit Facility. Our liquidity is dependent upon our cash and cash equivalents, cash flows provided by operating activities and the continued availability of borrowings under our Credit Facility. We may need additional capital if our current plans and assumptions change. Our need for additional capital will depend on many factors, including the financial success of our business, the spending required to develop and commercialize new and existing products, the effect of any acquisitions of other businesses, technologies or facilities that we may make or develop in the future, our spending on new market opportunities, and the potential costs for the filing, prosecution, enforcement and defense of patent claims, if necessary.

We believe that, based on our current level of operations, our existing cash and cash equivalents will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months.

However, we may need additional capital if our current plans and assumptions change. In addition, we may choose to seek other sources of capital even if we believe we have generated sufficient cash flows to support our operating needs. Our need for additional capital will depend on many factors, including the financial success of our business, the spending required to develop and commercialize new and existing products, the effect of any acquisitions of other businesses, technologies or facilities that we may make or develop in the future, our spending on new market opportunities, and the potential costs for the filing, prosecution, enforcement and defense of patent claims, if necessary. If our capital resources are insufficient to meet our capital requirements, and we are unable to enter into or maintain collaborations with partners that are able or willing to fund our development efforts or commercialize any products that we develop or enable, we will have to raise additional funds to continue the development of our technology and products and complete the commercialization of products, if any, resulting from our technologies. If future financings involve the issuance of equity securities, our existing stockholders would suffer dilution. If we raise debt financing or enter into credit facilities, we may be subject to restrictive covenants that limit our ability to conduct our business. We may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. If we fail to raise sufficient funds and fail to generate sufficient revenues to achieve planned gross margins and to control operating costs, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited. If this happens, we may be forced to delay or terminate research or development programs or the commercialization of products resulting from our technologies, curtail or cease operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.

Cash Flows

The following is a summary of cash flows for the years ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016:~~

Year Ended December 31,
(In Thousands) 2018 2017 2016
Net cash used in operating activities $ (14,094 ) $ (8,755 ) $ (1,860 )
Net cash used in investing activities (2,766 ) (983 ) (846 )
Net cash provided by (used in) financing activities 38,569
21,650
(490 )
Net increase (decrease) in cash, cash equivalents and restricted cash $ 21,709
$ 11,912
$ (3,196 )
2019 (in thousands):


	Year Ended December 31,
	2021		2020		2019
Net cash used in operating activities	$	(14,267)	$	(16,464)	$	(12,560)
Net cash used in investing activities	(21,422)		(5,748)		(3,665)
Net cash provided by financing activities	3,767		80,808		53,961
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(31,922)	$	58,596	$	37,736

Cash Flows from Operating Activities

Cash used in operating activities was $14.3 million in 2021, which resulted from a net loss of $21.3 million adjusted for non-cash charges for depreciation of $3.1 million, right-of-use ("ROU") lease asset amortization expense of $2.8 million, stock-based compensation of $11.6 million, $0.3 million allowance for credit losses, partially offset by equity securities earned from research and development activities of $2.0 million and unrealized gain on non-marketable securities of $1.3 million. Additionally, changes in operating assets and liabilities were $7.6 million. The net change in operating assets and liabilities included a decrease in other long-term liabilities of $4.1 million, increase in financial assets of $9.2 million, increase in prepaid expenses and other assets of $2.3 million, increase in inventories of $0.2 million, partially offset by increase in accrued compensation and other accrued liabilities of $6.6 million, increase in deferred revenue of $1.3 million and increase of $0.3 million in accounts payable.

Cash used in operating activities was ~~$14.1~~$16.5 million in ~~2018,~~2020, which resulted from a net loss of ~~$10.9~~$24.0 million adjusted for non-cash charges for depreciation of ~~$1.1~~$2.0 million, ROU lease asset amortization expense of $2.6 million and stock-based compensation of ~~$7.9~~$7.7 million, as well as changes in operating assets and liabilities. The net change in operating assets and liabilities included decreases in other long-term liabilities of $2.6 million and combined increases in financial assets of $8.7 million, prepaid expenses and other assets of $1.0 million, as well as accrued compensation and other accrued liabilities of $6.2 million and deferred revenue of $2.7 million.

Cash used in operating activities was $12.6 million in 2019, which resulted from a net loss of $11.9 million adjusted for non-cash charges for depreciation of $1.6 million, ROU lease asset amortization expense of $3.0 million and stock-based compensation of $6.9 million, as well as changes in operating assets and liabilities. The net change in operating assets and liabilities included decreases in deferred revenue of ~~$10.6 million primarily related to the Nestlé Agreement, and a combined increase in accounts receivable and unbilled receivables of $1.4 million.~~

~~Cash used in operating activities was $8.8 million in 2017, which resulted from a net loss of $23.0 million adjusted for non-cash depreciation of $1.0~~$6.2 million and ~~stock-based compensation~~in other long-term liabilities of ~~$7.1~~$1.2 million, and combined increases in financial assets of $5.9 million, prepaid expenses and other assets of $1.3 million, as well as ~~changes in operating assets~~accrued compensation and liabilities. The net change in operating assets and liabilities included increases in deferred revenue of $11.0 million primarily related to the Nestlé Agreement, an increase in accounts receivable and unbilled accounts receivables of $5.7 million, and an increase in other accrued liabilities of ~~$1.4 million, offset by lower accounts payable of $0.8 million due to the timing of payment of invoices.~~$2.2 million.

Cash used in operating activities was $1.9 million in 2016, which resulted from a net loss of $8.6 million adjusted for non-cash depreciation and amortization of $4.5 million and stock-based compensation of $5.7 million, as well as changes in operating assets and liabilities. The net change in operating assets and liabilities included decreases in deferred revenue of $6.4 million primarily related to revenue recognition on the achievement of milestones from collaborative arrangements with Merck and GSK, partially offset by a decrease in accounts receivable of $1.4 million, and increases in accrued compensation of $1.0 million primarily due to higher payroll costs and higher accounts payable of $0.9 million due to the timing of payment of invoices.

Cash Flows from Investing Activities

Cash used in investing activities was ~~$2.8~~$21.4 million in ~~2018~~2021 primarily due to the purchase of property and ~~equipment. We expect our capital spending including replacement~~equipment of $13.8 million and ~~upgrades~~for the purchase of ~~lab equipment~~1,000,000 shares of MAI's Series A preferred stock in April 2021 and ~~information technology equipment will be higher~~9,198,423 shares of MAI's Series B preferred stock in ~~2019 as compared to 2018.~~September 2021 for $7.6 million.

Cash used in investing activities was ~~$1.0~~$5.7 million in ~~2017,~~2020 primarily due to the purchase of property and ~~equipment.~~equipment of $3.7 million, and investments in non-marketable equity securities of $1.0 million and non-marketable debt securities of $1.0 million.

Cash used in investing activities was ~~$0.8~~$3.7 million in ~~2016,~~2019 primarily due to the purchase of property and ~~equipment.~~equipment of $3.7 million and partially offset by proceeds from sale of CO2 investment securities of $0.1 million.

Cash Flows from Financing Activities

Cash provided by financing activities was ~~$38.6~~$3.8 million in ~~2018,~~2021, primarily due to $5.2 million of proceeds from exercises of stock options, partially offset by $1.2 million for taxes paid related to net share settlement of equity awards and $0.2 million of costs incurred in connection with the EDA.

Cash provided by financing activities was $80.8 million in 2020, primarily due to $80.8 million net proceeds from our offering of common stock after deducting underwriting discounts and commission and related costs and proceeds from the exercises of employee stock options which were partially offset by the payment of taxes related to the net share settlement of equity ~~awards.~~awards

Cash provided by financing activities was ~~$21.7~~$54.0 million in ~~2017,~~2019, primarily due to net proceeds from our private offering of common stock after deducting underwriting discounts and commission and related costs and proceeds from the exercises of employee stock options which were partially offset by the payment of taxes related to the net share settlement of equity awards.

Cash used in financing activities was $0.5 million in 2016, which was the result of the payment of taxes related to the net share settlement of equity awards, partially offset by the proceeds from the exercises of employee stock options.

~~Contractual Obligations~~

~~The following table summarizes our significant contractual obligations at December 31, 2018 (in thousands):~~

Payments due by period
Total Less than 1 year 1 to 3 years 4 to 5 years More than 5 years
Capital lease obligations $ 313
$ 252
$ 61
$ —
$ —
Operating leases obligations ⁽¹⁾
4,523
3,280
1,202
41
—
Total ⁽²⁾
$ 4,836
$ 3,532
$ 1,263
$ 41
$ —

⁽¹⁾

Represents future minimum lease payments under non-cancellable operating leases in effect as of December 31, 2018 for our facilities in Redwood City, California. The minimum lease payments above do not include common area maintenance charges or real estate taxes. Minimum payments have not been reduced by future minimum sublease rentals of $0.9 million to be received under non-cancellable subleases.


⁽²⁾	~~Excludes $0.7 million of uncertain tax liabilities for which we cannot make a reasonably reliable estimate of the period of cash settlement.~~

In February 2019, we entered into the eighth lease amendment ("Eighth Amendment") with MetLife for our buildings to extend the lease term to another 88 months except for building 101. The various terms for the remaining spaces under the Eighth Amendment have expiration dates that range from May 2027 to May 2029. See Note 16, “Subsequent Events” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for additional information. Future minimum lease payments under the Eighth Amendment are as follows (in thousands):

Payments due by period
Total Less than 1 year 1 to 3 years 4 to 5 years More than 5 years
Operating leases obligations $ 32,865
$ —
$ 5,812
$ 8,833
$ 18,220

~~Other Commitments~~

We have other commitments related to supply and service arrangements entered into in the normal course of business. For additional information about other commitments, see Note 13 "Commitments and Contingencies" in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K. Future minimum payments reflect amounts those obligations are expected to have on our liquidity and cash flows in future period and include obligations subject to risk of cancellation by us (in thousands):

Other Commitment Agreement Type Agreement Date Future Minimum Payment
Manufacture and supply agreement with expected future payment date of December, 2022 April 2016 $ 1,458
Service agreement for stability study July 2017 331
Service agreement for clinical trial December 2017 1,258
Total other commitments
$ 3,047

~~Credit Facility~~

In June 2017, we entered into a credit facility (“Credit Facility”) consisting of term loans (“Term Debt”) up to $10.0 million, and advances (“Advances”) under a revolving line of credit (“Revolving Line of Credit”) up to $5.0 million with an accounts receivable borrowing base of 80% of eligible accounts receivable. At December 31, 2018, we have not drawn from the Credit Facility. We may draw on the Revolving Line of Credit at any time prior to the September 30, 2019 maturity date. On October 1, 2022, loans drawn under the Term Debt mature and the Revolving Line of Credit terminates. Loans made under the Term Debt bear interest through maturity at a variable rate based upon the LIBOR rate plus 3.6%. Advances made under the Revolving Line of Credit bear interest at a variable annual rate equal to the greater of (i) 1.00% above the prime rate and (ii) 5.00%.

Our obligations under the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property. The Credit Facility includes a number of customary covenants and restrictive financial covenants including meeting minimum product revenues levels and maintaining certain minimum cash levels with the lender. The Credit Facility’s financial covenants restrict the ability of the Company to transfer collateral, incur additional indebtedness, engage in mergers or acquisitions, pay dividends or make other distributions, make investments, create liens, sell assets, or sell certain assets held at foreign subsidiaries. A failure to comply with these covenants could permit the lender to exercise remedies against us and the collateral securing the Credit Facility, including foreclosure of our properties securing the Credit Facilities and our cash. At December 31, 2018, we were in compliance with the covenants for the Credit Facility.

For additional information about our credit facility, see Note 13 "Commitments and Contingencies" in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of December 31, ~~2018,~~2021, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K as promulgated by the SEC.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States and include our accounts and the accounts of our ~~wholly-owned~~wholly owned subsidiaries. The preparation of our consolidated financial statements requires our management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the applicable periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could change the results from those reported. Our management evaluates its estimates, assumptions and judgments on an ongoing basis.

The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

Revenue Recognition

~~Policy from January 1, 2018~~

~~On January 1, 2018, we adopted the provisions of ASU 2014-09,~~ ~~"Revenue from Contracts with Customers (Topic 606)” and the related amendments (“ASC 606”). The guidance provides a unified model to determine how revenue is recognized.~~

Our revenues are derived primarily from product revenue and collaborative research and development agreements. The majority of our contracts with customers typically contain multiple products and services. We account for individual products and services separately if they are distinct-that is, if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer.

constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each performance obligation.

The majority of our collaborative contracts contain multiple revenue streams such as ~~up-front~~upfront and/or annual license fees, ~~fees for full time employee ("FTE")~~ research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage, among others. We determine the stand-alone selling price ~~("SSP"~~(“SSP”) and allocate consideration to distinct performance obligations. Typically, we base our SSPs on our historical sales. If an SSP is not directly observable, then we estimate the SSP taking into consideration market conditions, forecasted sales, entity-specific factors and available information about the customer. We estimate the SSP for license rights by using a discounted cash flow method which includes the following key assumptions: the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success. For licenses that have been previously sold to other customers, we use historical information to determine SSP.

We account for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Non-cancellable purchase orders received from customers to deliver a specific quantity of product, when combined with our order confirmation, in exchange for future consideration, create enforceable rights and obligations on both parties and constitute a contract with a customer.

We measure revenue based on the consideration specified in the contract with each customer, net of any sales incentives and taxes collected on behalf of government authorities. We recognize revenue in a manner that best depicts the transfer of promised goods or services to the customer, when control of the product or service is transferred to a customer. We make significant judgments when determining the appropriate timing of revenue recognition.

The following is a description of principal activities from which we generate revenue:

Product Revenue

Product revenue consist of sales of ~~protein catalysts,~~biocatalysts, pharmaceutical intermediates and Codex^® ~~Biocatalyst Panels~~ biocatalyst panels and ~~Kits.~~kits. A majority of our product revenue is made pursuant to purchase orders or supply agreements and is recognized either at a point in time when the control of the product has been transferred to the customer typically upon ~~shipment. For some of the products that we develop, we recognize revenue~~shipment or over time as the product is manufactured because we have a right to payment from the customer under a binding, non-cancellable purchase order, and there is no alternate use of the product for us as it is specifically made for the customer’s use.

additional goods or services at their normal SSPs, we would likely determine that the option is not a material right and, therefore, account for it as a separate performance obligation when the customer exercises the option. We primarily account for options which provide material rights using the alternative approach available under ASC 606, as we concluded we meet the criteria for using the alternative approach. Therefore, the transaction price is calculated as the expected consideration to be received for all the goods and services we expect to provide. We update the transaction price for expected consideration, subject to constraint, each reporting period if our estimate of future goods to be ordered by customers change.

Research and Development Revenues

We perform research and development activities as specified in each respective customer agreement. We identify each performance obligation in our research and development agreements at contract inception. We allocate the consideration to each distinct performance obligation based on the estimated SSP of each performance obligation. Performance obligations included in our research and services agreements typically include research and development services for a specified term, periodic reports and small samples of enzyme produced.

The majority of our research and development agreements are based on a contractual rate per ~~FTE~~dedicated project team working on the project. The underlying product that we develop for customers does not create an asset with an alternative use to us and the customer receives benefits as we perform the work towards completion. Thus, our performance obligations are generally satisfied over time as the service is performed. We utilize an appropriate method of measuring progress towards the completion of our performance obligations to determine the timing of revenue recognition. For each performance obligation that is satisfied over time, we recognize revenue using a single measure of progress, typically based on ~~FTE~~ hours incurred.

Our contracts frequently provide customers with rights to use or access our products or technology, along with other promises or performance obligations. Under ASC 606, we must first determine whether the license is distinct from other promises, such as our promise to perform research and development services. If we determine that the customer cannot benefit from the license without our services, the license will be accounted for as combined with the other performance obligations. If we determine that a license is distinct, we would recognize an allocable portion of the transaction price when the license is transferred to the customer, and the customer can use and benefit from it. We estimate the SSP for license rights by using historical information if licenses have been previously sold to customers and for new licenses, we consider multiple methods, a discounted cash flow method which includes the following key assumptions: the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success. ~~For licenses that have been previously sold to other customers, we use historical information to determine SSP.~~

At the inception of each arrangement that includes variable consideration such as development milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment.

Our CodeEvolver^® platform technology transfer collaboration agreements typically include license fees, upfront fees, and variable consideration in the form of milestone payments, and sales or usage-based royalties. We have recognized revenues from our platform technology transfer agreements over time.

We also have an agreement under which we have granted a functional license to some elements of our biocatalyst technology. We will recognize revenues for the functional license at a point in time when the control of the license transfers to the customer.

For license agreements that include sales or usage-based royalty payments to us for which the license is the predominant item to which the royalty relates, we do not recognize revenue until the underlying sales of the product or usage has occurred. At the end of each reporting period, we estimate the royalty amount. We recognize revenue at the later of (i) when the related sale of the product occurs, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied.

We recognized revenues from a revenue sharing arrangement based upon sales of licensed products by our revenue sharing partner Exela PharmSci, Inc. (“Exela”) see Note 14 “Related Party Transactions” in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K. We recognized revenues net of product and selling costs

upon notification from our revenue sharing partner of our portion of net profit based on the contractual percentage from the sale of licensed product. The revenue sharing arrangement was terminated in December 2017.

~~Policy before January 1, 2018~~

We recognize revenue from the sale of our products, collaborative research and development agreements and revenue sharing arrangements. Revenue is recognized when the related costs are incurred and the four basic criteria of revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Where the revenue recognition criteria are not met, we defer the recognition of revenue by recording deferred revenue until such time that all criteria of revenue recognition are met.

We account for revenues from multiple element arrangements, such as license and platform technology transfer agreements in which a licensee may purchase several deliverables, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605-25, “Multiple Element Arrangements.” For new or materially amended multiple element arrangements, we identify the deliverables at the inception of the arrangement and each deliverable within a multiple deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. Revenue allocated to each element is then recognized based on when the basic four revenue recognition criteria are met for each element.

Where a portion of non-refundable up-front fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as revenue ratably over the term of our estimated performance period under the agreement or using the proportional performance method based on the ratio of the level of effort incurred to date compared to the total estimated level of effort required to complete our performance obligations under the agreement. Determining the total estimated level of effort required to complete all performance obligations requires management judgment and estimation including assumptions regarding the number of internal hours required to complete the project and external effort incurred. We determine the estimated performance periods, and they are periodically reviewed based on the progress of the related program. The effect of any change made to an estimated performance period and, therefore, to revenue recognized, would occur on a prospective basis in the period that the change was made.

~~Product Sales~~

~~Product sales consist of sales of protein catalysts, pharmaceutical intermediates, and Codex~~^® Biocatalyst Panels and Kits. Product sales are recognized once passage of title and risk of loss has occurred and contractually specified acceptance criteria, if any, have been met, provided all other revenue recognition criteria have also been met. Shipping and handling costs charged to customers are recorded as revenue.

~~Research and Development Revenues~~

Collaborative research and development agreements typically provide us with multiple revenue streams, including: research services fees for full time employee (“FTE”) research services, up-front license fees, technology access, contingent payments upon achievement of contractual criteria, and royalty fees based on the licensee’s product sales or cost savings achieved by our customers.

We perform collaborative research and development activities as specified in each respective customer agreement. Payments for services received are not refundable. Certain research agreements are based on a contractual reimbursement rate per FTE working on the project. We recognize revenue from research services as those services are performed over the contractual performance periods. When up-front payments are combined with FTE services in a single unit of accounting, we recognize the up-front payments using the proportionate performance method of revenue recognition based upon the actual amount of research labor hours incurred relative to the amount of the total expected labor hours to be incurred by us, up to the amount of cash received. In cases where the planned levels of research services fluctuate substantially over the research term, we are required to make estimates of the total hours required to perform our obligations.

We recognize research and development revenues from non-refundable, up-front license fees or technology access payments that are not dependent on any future performance by us when such amounts are earned. If we have continuing obligations to perform under the arrangement, such fees are recorded as deferred revenues and recognized over the estimated period of continuing performance. Estimated performance periods are periodically reviewed based on the progress of the related program. The effect of any change made to an estimated performance period, and therefore to revenue recognized, would occur on a prospective basis in the period that the change was made.

A payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is an event (i) that can only be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance, (ii) for which there is, as of the date the arrangement is entered into, substantive uncertainty that the event will be achieved and (iii) results in additional payments being due to us. Milestones are considered substantive when the consideration earned from the achievement of the milestone (i) is commensurate with either our performance to achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from its performance, (ii) relates solely to past performance and (iii) is reasonable relative to all deliverable and payment terms in the arrangement.

We recognize revenue from other contingent payments based on passage of time or when earned as the result of a customer’s performance in accordance with the contractual terms and when such payments can be reasonably estimated and collectability of such payments is reasonably assured.

We recognize revenue from royalties based on licensees’ sales of our products or products using our technologies. Royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured. For the majority of our royalty revenue, estimates are made using notification of the sale of licensed products from the licensees.

Stock-Based Compensation

We use the Black-Scholes-Merton option pricing model to estimate the fair value of options granted under our equity incentive plans. The Black-Scholes-Merton option pricing model requires the use of assumptions, including the expected term of the award and the expected stock price volatility. The expected term is based on historical exercise behavior on similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. We use historical volatility to estimate expected stock price volatility. The risk-free rate assumption is based on United States Treasury instruments whose terms are consistent with the expected term of the stock options. The expected dividend assumption is based on our history and expectation of dividend payouts.

Restricted Stock Units ~~("RSUs"~~(“RSUs”) ~~and~~, Restricted Stock Awards ~~("RSAs"~~(“RSAs”) and performance-contingent restricted stock units (“PSUs”) are measured based on the fair market values of the underlying stock on the dates of grant. Performance based options ~~("PBOs") and performance-contingent restricted stock units ("PSUs"~~(“PBOs”) are measured using Black-Scholes-Merton option pricing model. The vesting of PBOs and PSUs awarded is conditioned upon the attainment of one or more performance objectives over a specified period and upon continued employment through the applicable vesting date. At the end of the performance period, shares of stock subject to the PBOs and PSUs vest based upon both the level of achievement of performance objectives within the performance period and continued employment through the applicable vesting date.

Stock-based compensation expense is calculated based on awards ultimately expected to vest and is reduced for estimated forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated annual forfeiture rates for stock options, RSUs, PSUs, PBOs, and RSAs are based on historical forfeiture experience.

recorded over the requisite service period based on management's best estimate as to whether it is probable that the shares awarded are expected to vest. Management assesses the probability of the performance milestones being met on a continuous basis.

~~Impairment of Long-Lived Assets~~Lease Accounting

We ~~evaluate~~determine if an arrangement is a lease at inception. Where an arrangement is a lease we determine if it is an operating lease or a finance lease. At lease commencement, we record a lease liability and corresponding ROU asset. Lease liabilities represent the ~~carrying~~present value of ~~long-lived~~our future lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of our lease liability is determined using our incremental collateralized borrowing rate at lease inception. ROU assets ~~including property and equipment, whenever events, changes in business circumstances or~~represent our ~~planned~~right to control the use of ~~long-lived assets indicate~~the leased asset during the lease and are recognized in an amount equal to the lease liability for leases with an initial term greater than 12 months. Over the lease term we use the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized to consolidated statement of operations in a manner that ~~their carrying amounts may~~results in straight-line expense recognition.

We elected to apply the practical expedient for short-term leases and accordingly do not ~~be fully recoverable~~apply lease recognition requirements for short-term leases. Instead, we recognize payments related to these arrangements in the consolidated statement of operations as lease costs on a straight-line basis over the lease term.

Investment in Non-Marketable Securities

Investment in Non-Marketable Equity Securities

We measure investments in non-marketable equity securities without a readily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or ~~that their useful lives~~minus changes resulting from observable price changes on a non-recurring basis. Gains and losses on these securities are ~~no longer appropriate. If~~recognized in other income (expense), net.

Investment in Non-Marketable Debt Securities

We measure available for sale investments in non-marketable debt at fair value. Unrealized gains and losses on these ~~facts and circumstances exist,~~securities are recognized in other comprehensive income until realized. Non-marketable debt securities are classified as available-for-sale securities.

We classify non-marketable debt securities as Level 3 in the fair value hierarchy because we ~~assess for recovery by comparing~~estimate the ~~carrying values of long-lived assets with their future net undiscounted cash flows. If the comparison indicates that impairment exists, long-lived assets are written down to their respective~~ fair value based on ~~discounted cash flows. Significant management judgment is required in~~a qualitative analysis using the ~~forecast of future operating results that are used in the preparation of expected undiscounted cash flows.~~

~~No impairment charges for long-lived assets were recorded during the year ended December 31, 2018, 2017~~most recent observable transaction price and ~~2016.~~

~~Goodwill~~

~~Goodwill represents the excess~~other significant unobservable inputs including volatility, rights, and obligations of the ~~consideration transferred over~~securities we hold. Significant changes to the unobservable inputs may result in a significantly higher or lower fair value estimate. We may value these securities based on significant recent arms-length transactions with sophisticated non-strategic unrelated new investors.

We evaluate both equity and debt securities for impairment when circumstances indicate that we may not be able to recover the carrying value. We may impair these securities and establish an allowance for a credit loss when we determine that there has been an “other-than-temporary” decline in estimated fair value of ~~net assets of businesses acquired and is assigned~~the debt or equity security compared to ~~reporting units.~~its carrying value. We ~~test goodwill for impairment considering amongst other things, whether there have been sustained declines in our share price. If we conclude it is more likely than not that~~calculate the estimated fair value of ~~a reporting unit is less than its carrying amount, a quantitative fair value test is performed. In~~these securities using information from the ~~first quarter of 2018, we determined that we operate in two segments~~investee, which may include:

•Audited and ~~accordingly we re-evaluated our assessment~~unaudited financial statements;

•Projected technological developments of the ~~number~~company;

•Projected ability of ~~reporting units. We concluded~~the company to service its debt obligations;

•If a deemed liquidation event were to occur;

•Current fundraising transactions;

•Current ability of the company to raise additional financing if needed;

•Changes in the economic environment which may have a material impact on the operating results of the company;

•Contractual rights, obligations or restrictions associated with the investment; and

•Other factors deemed relevant by our management to assess valuation.

•The valuation may be reduced if the company's potential has deteriorated significantly. If the factors that ~~we have two reporting units that reflect our operating segments~~led to a reduction in valuation are overcome, the valuation may be readjusted.

Recent Accounting Pronouncements

See Note 2, “Basis of Presentation and ~~accordingly, we tested goodwill for impairment at~~Summary ofSignificant Accounting Policies” in the ~~reporting unit level. Historically, assets are jointly used by the segments, are not separable, and are not identified by reporting unit. In order to assign the amount of goodwill~~Notes to the ~~two reporting units, we used~~Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for a ~~relative fair value allocation methodology that primarily relied~~full description of recent accounting standards, including the respective dates of adoption and effects on our estimates of revenue and future earnings for each reporting units. Using the relative fair value allocation methodology, we have determined that approximately 76% of goodwill is allocated to the Performance Enzymes segment and 24% is allocated to the Novel Biotherapeutics segment. As a result of the calculation, $2.4 million of the goodwill was assigned to the Performance Enzymes segment and $0.8 million was assigned to the Novel Biotherapeutics segment. There were no changes in the amount of goodwill assigned to each reporting unit at the end of the year. During 2018, 2017 and 2016, we did not record impairment charges related to goodwill.

~~Income Taxes~~

We use the liability method of accounting for income taxes, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount that will more likely than not be realized.

~~We make certain estimates and judgments in determining income tax expense for~~consolidated financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenues and expenses for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized on a jurisdiction by jurisdiction basis. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income in the future. We have recorded a valuation allowance against these deferred tax assets in jurisdictions where ultimate realization of deferred tax assets is more likely than not to occur. As of December 31, 2018, we maintain a full valuation allowance in all jurisdictions against the net deferred tax assets as we believe that it is more likely than not that the majority of deferred tax assets will not be realized.

We make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation allowance may be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the statementsposition, results of operations ~~for the periods in which the adjustment is determined to be required.~~and cash flows.

We account for uncertainty in income taxes as required by the provisions of ASC Topic 740, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual outcomes.

The Tax Reform Act of 1986 and similar state provisions limit the use of net operating loss (“NOL”) carryforwards in certain situations where equity transactions result in a change of ownership as defined by Internal Revenue Code Section 382. In the event we should experience such a change of ownership, utilization of our federal and state NOL carryforwards could be limited. We performed an analysis in 2018 and determined that there was not a limitation that would result in the expiration of carryforwards before they are utilized.

The adoption of ASC 606 primarily resulted in less cumulative revenue recognized as of January 1, 2018, which in turn generated an increase in net deferred tax assets. As we fully reserve our net deferred tax assets in the jurisdictions impacted by the adoption of ASC 606, this impact was offset by a corresponding increase to the valuation allowance.

~~We maintain a full valuation allowance against net deferred tax assets as we believe that it is more likely than not that the majority of deferred tax assets will not be realized.~~

~~Changes to Tax Law~~

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, (i) reducing the U.S. federal statutory tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain un-repatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S federal income taxes on dividends from foreign subsidiaries; (iv) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (v) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (vi) creating the base erosion anti-abuse tax (“BEAT”), a new minimum tax; (vii) creating a tax on global intangible low-taxed income (“GILTI”) of foreign subsidiaries; (viii) creating a new limitation on deductible interest expense; (ix) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (x) modifying the officer’s compensation limitation.

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided a measurement period of up to one year from the enactment date of the Tax Act for companies to complete the accounting for the Tax Act and its related impacts. In 2018, we completed its accounting for the Tax Act. The income tax effects of the Tax Act for which the accounting is now completed include: the impact of the transition tax, the revaluation of deferred tax assets and liabilities to reflect the 21% corporate tax rate, and the impact to the aforementioned items on state income taxes. We have completed our accounting for the income tax effects under the Tax Act that are relevant to us and required to be recorded and disclosed pursuant to FASB ASC 740, Income Taxes. Accordingly, any and all provisional amounts previously recorded in accordance with SEC Staff Accounting Bulletin No. 118 have been adjusted to reflect their final amounts.

Because ASC 740-10-25-47 requires the effect of a change in tax laws or rates to be recognized as of the date of enactment, we remeasured our deferred tax assets and liabilities, and offsetting valuation allowance in 2017. There was no impact to tax expense as the remeasurement of net deferred tax assets was completely offset by a corresponding change in valuation allowance. The reduction to U.S. deferred tax assets and the offsetting valuation allowance was $34.1 million.

Beginning in 2018, the GILTI provisions in the Tax Act require us to include, in our U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Per guidance issued by the FASB, companies can either account for deferred taxes related to GILTI or treat tax arising from GILTI as a period cost. Both are acceptable methods subject to an accounting policy election. At December 31, 2018, we finalized our policy and have elected to use the period cost method for GILTI. In 2018, we did not incur any GILTI inclusion as our foreign subsidiaries generated losses.

The BEAT provisions in the Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum base erosion anti-abuse tax if greater than regular tax. In 2018, our company was not subject to BEAT as it did not meet the requirements to be subject to BEAT.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity

~~We had~~Our unrestricted cash and cash equivalents ~~totaling $53.0~~total $116.8 million at December 31, ~~2018. These~~2021. We primarily invest these amounts ~~were invested primarily~~ in money market funds ~~and~~which are held for working capital purposes. We do not enter into investments for trading or speculative purposes. ~~We believe we do not have material exposure to changes~~As of December 31, 2021, the effect of a hypothetical 10% decrease in ~~fair value as a result of changes in interest rates. Declines in~~market interest rates ~~however, will reduce~~would have an immaterial impact on a potential loss in future ~~investment income. If overall~~interest income and cash flows.

In June 2017, we entered into a Credit Facility with Western Alliance Bank consisting of term loans up to $10.0 million, and advances under a revolving line of credit up to $5.0 million. Term loans made under the Term Debt bear interest at variable rate through maturity at the greater of (i) 3.75% or (ii) the sum of (A) Index Rate (prime rate published in the Money Rates section of the Western Edition of The Wall Street Journal plus (B) 0.50%. Advances made under the Revolving Line of Credit bear interest at a variable annual rate equal to the greater of (i) 4.25% or (ii) the sum of (A) the prime rate plus (B) 1.00%. Increases in these variable interest rates ~~fell by 10% in 2018,~~will increase our future interest expense and decrease our results of operations and cash ~~flows~~flows. Our right to take draws on the long term debt expired on December 31, 2021 and no amounts were drawn under the Credit Facility as of December 31, 2021. Our exposure to interest rates risk relates to our 2017 Credit Facility with variable interest rates, where an increase in interest rates may result in higher borrowing costs. Since we have no outstanding borrowings under our 2017 Credit Facility as of December 31, 2021, the effect of a hypothetical 10% change in interest rates would not ~~be materially affected.~~have any impact on our interest expense.

Foreign Currency Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. In periods when the ~~United States dollar~~USD declines in value as compared to the foreign currencies in which we incur expenses, our foreign-currency based expenses increase when translated into United States dollars. Although substantially all of our sales are denominated in United States dollars, future fluctuations in the value of the ~~United States dollar~~USD may affect the price

competitiveness of our products outside the United States. ~~The~~Our most significant foreign currency exposure is due to non-functional currency denominated monetary assets, primarily currencies denominated in other than their functional currency. These non-functional currency denominated monetary assets are subject to re-measurement which may create fluctuations in other expense, net, a component in our consolidated statement of operations and in the fair value of the assets in the consolidated balance sheets. As of December 31, 2021, the effect of a hypothetical 10% unfavorable change in exchange rates on ~~foreign~~currencies denominated ~~receivables and cash as of December 31, 2018~~in other than their functional currency would ~~have had foreign exchange losses of approximately $0.1 million recognized as~~result in a ~~component of other expense~~potential loss in future earnings in our consolidated statement of ~~operations.~~operations and a reduction in the fair value of the assets of approximately $46 thousand. We did not engage in hedging transactions in ~~2018, 2017~~2021, 2020 and ~~2016.~~2019.

Investment in Non-Marketable Equity ~~Price Risk~~Securities

~~As described further~~We own investments in ~~Note 6~~non-marketable equity securities without readily determinable fair values. We may value these equity securities based on significant recent arms-length equity transactions with sophisticated non-strategic unrelated investors, providing the terms of these security transactions are substantially similar to the ~~Consolidated Financial Statements, we have an investment~~security transactions terms between the investors and us. The impact of the difference in ~~common shares of CO~~₂ ~~Solutions Inc., a company based in Quebec, Canada (“CO~~₂ ~~Solutions”), whose shares are publicly traded in Canada~~transaction terms on the ~~TSX Venture Exchange. As of December 31, 2018, the fair~~market value of ~~our investment in CO~~₂ ~~Solutions’ common stock was $0.6 million.~~the portfolio company may be difficult or impossible to quantify.

~~This investment is exposed to fluctuations in both the market price of CO~~₂ ~~Solutions’ common shares and changes in the exchange rates between the United States dollar and the Canadian dollar. The effect of a 10% adverse change in the market price of CO~~₂ Solutions’ common shares as of December 31, 2018 would have been a loss of approximately $0.1 million, recognized as a component of other expense in our consolidated statements of operations. The effect of a 10% unfavorable change in the exchange rates between the United States dollar and the Canadian dollar as of December 31, 2018 would have been a loss of approximately $0.1 million, recognized as a component of other expense in our consolidated statements of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Codexis, Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Reports of Independent Registered Public Accounting Firm (BDO USA, LLP; San Jose, CA; PCAOB ID: 243)		7880
Consolidated Balance Sheets		8083
Consolidated Statements of Operations		8184
~~Consolidated Statements of Comprehensive Loss~~		82
Consolidated Statements of Stockholders' Equity	8385
Consolidated Statements of Cash Flows		8486
Notes to Consolidated Financial Statements		8587

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Codexis, Inc.

Redwood City, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Codexis, Inc. (the “Company”) ~~and subsidiaries~~ as of December 31, ~~2018~~2021 and ~~2017,~~2020, the related consolidated statements of operations, ~~comprehensive loss,~~ stockholders’ equity, and cash flows for each of the three years in the period ended December 31, ~~2018,~~2021, and the related notes (collectively referred to as the ~~“consolidated financial statements”~~“Consolidated Financial Statements”). In our opinion, the ~~consolidated financial statements~~Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company ~~and subsidiaries~~ at December 31, ~~2018~~2021 and ~~2017,~~2020, and the results of ~~their~~its operations and ~~their~~its cash flows for each of the three years in the period ended December 31, ~~2018,~~2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, ~~2018,~~2021, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated ~~March 1, 2019~~February 28, 2022 expressed an unqualified opinion thereon.

~~Change in Accounting Principle~~

As discussed in Notes 2 and 3 to the consolidated financial statements, the Company has changed its accounting method for recognizing revenue from contracts with customers in fiscal year 2018 due to the adoption of Topic 606: Revenue from Contracts with Customers.

Basis for Opinion

These ~~consolidated financial statements~~Consolidated Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s ~~consolidated financial statements~~Consolidated Financial Statements based on our audits. We are a public accounting firm registered with the ~~PCAOB~~Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ~~consolidated financial statements~~Consolidated Financial Statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the ~~consolidated financial statements,~~Consolidated Financial Statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the ~~consolidated financial statements.~~Consolidated Financial Statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the ~~consolidated financial statements.~~Consolidated Financial Statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the Consolidated Financial Statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the Consolidated Financial Statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the Consolidated Financial Statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition

As described in Notes 2 and 3 to the Consolidated Financial Statements, the Company recognizes revenue in a manner that best depicts the transfer of promised goods or services to the customer, when control of the product or service is transferred to a customer. The Company's contracts with customers include enzyme supply, licensing, and collaborative research and development agreements. Contracts with customers may contain multiple performance obligations and may contain up-front or annual license fees, fees for full time employee research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage. The Company makes significant judgments in determining revenue recognition for customer contracts.

We identified management’s significant judgments and estimates related to revenue recognition for contracts with customers as a critical audit matter. Auditing the evaluation of distinct performance obligations, determination and estimation of material

rights, determination of standalone selling prices, determination of the pattern of transfer of control for each distinct performance obligation and estimation of variable consideration required significant audit effort and subjective judgments in evaluating management's estimates.

The primary procedures we performed to address this critical audit matter included:

•Testing the design and operating effectiveness of internal controls relating to the identification of distinct performance obligations and material rights, the determination of the timing of revenue recognition, the estimation of standalone selling prices, and the estimation of variable consideration.

•Examining a sample of revenue contracts and other source documents to test management's identification of significant terms for completeness, including the identification of distinct performance obligations, material rights and variable consideration including sending confirmations to a sample of customers to confirm our understanding of the parties’ rights and obligations.

•Assessing the reasonableness of management's estimates and assumptions used in determining stand-alone selling prices for new products and services and those products and services that are not sold separately.

•Evaluating the reasonableness of management’s judgments and estimates used to assess the stand-alone selling prices for new functional licenses when granted to customers as part of contracts containing multiple performance obligations.

•Evaluating the reasonableness and accuracy of management’s judgments and estimates used in accounting for identified material rights, including transactions accounted for under the alternative approach to estimating the standalone selling price of a material right. This includes testing management’s estimates of the expected consideration from the customer’s exercise of options.

•Assessing the reasonableness of management’s judgments and estimates to calculate variable consideration, and the timing of recognizing the related revenue subject to any constraints.

•Evaluating the appropriateness of management’s determination of whether identified performance obligations meet the criteria for over-time revenue recognition, including whether certain products and services have alternative use.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2013.

San Jose, California

~~March 1, 2019~~February 28, 2022

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Codexis, Inc.

Redwood City, California

Opinion on Internal Control over Financial Reporting

We have audited Codexis, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, ~~2018,~~2021, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2018,~~2021, based on the COSO ~~criteria.~~criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company ~~and subsidiaries~~ as of December 31, ~~2018~~2021 and ~~2017,~~2020, the related consolidated statements of operations, ~~comprehensive loss,~~ stockholders’ equity, and cash flows for each of the three years in the period ended December 31, ~~2018~~2021, and the related notes, and our report dated ~~March 1, 2019~~February 28, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

San Jose, California

~~March 1, 2019~~

February 28, 2022

Codexis, Inc.

Consolidated Balance Sheets

(In Thousands, Except Per Share Amounts)


	December 31,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	116,797	$	149,117
Restricted cash, current	579		638
Investment in non-marketable debt security	—		1,000
Financial assets:
Accounts receivable	24,953		13,894
Contract assets ($0 and $450 from a related party)	4,557		4,526
Unbilled receivables	8,558		10,942
Total financial assets	38,068		29,362
Less: allowances	(416)		(74)
Total financial assets, net	37,652		29,288
Inventories	1,160		964
Prepaid expenses and other current assets	5,700		3,416
Total current assets	161,888		184,423
Restricted cash	1,519		1,062
Investment in non-marketable equity securities ($12,713 and $1,450 with a related party)	14,002		1,450
Right-of-use assets - Operating leases, net	44,095		21,382
Right-of-use assets - Finance leases, net	17		119
Property and equipment, net	21,345		9,675
Goodwill	3,241		3,241
Other non-current assets	276		294
Total assets	$	246,383	$	221,646
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,995	$	2,970
Accrued compensation	11,119		7,288
Other accrued liabilities	12,578		10,272
Current portion of lease obligations - Operating leases	4,093		2,627
Deferred revenue ($245 and $0 to a related party)	2,586		1,824
Total current liabilities	33,371		24,981
Deferred revenue, net of current portion	3,749		2,967
Long-term lease obligations, Operating leases	43,561		22,324
Other long-term liabilities	1,311		1,271
Total liabilities	81,992		51,543
Commitments and contingencies (Note 13)	0		0
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; 65,109 and 64,283 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively	6		6
Additional paid-in capital	552,083		536,516
Accumulated deficit	(387,698)		(366,419)
Total stockholders’ equity	164,391		170,103
Total liabilities and stockholders’ equity	$	246,383	$	221,646

See accompanying notes to consolidated financial statements

December 31,
2018 2017
Assets
Current assets:
Cash and cash equivalents $ 53,039
$ 31,219
Accounts receivable, net of allowances of $34 at December 31, 2018 and 2017 11,551
11,447
Unbilled receivables, current 1,916
353
Inventories 589
1,036
Prepaid expenses and other current assets 1,068
984
Contract assets 35
—
Total current assets 68,198
45,039
Restricted cash 1,446
1,557
Equity securities 588
671
Property and equipment, net 4,759
2,815
Goodwill 3,241
3,241
Other non-current assets 1,051
302
Total assets $ 79,283
$ 53,625
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 3,050
$ 3,545
Accrued compensation 5,272
4,753
Other accrued liabilities 4,855
4,362
Deferred revenue 4,936
12,292
Total current liabilities 18,113
24,952
Deferred revenue, net of current portion 3,352
1,501
Lease incentive obligation, net of current portion 35
460
Capital lease obligation, net of current portion 61
302
Other long-term liabilities 1,416
1,863
Total liabilities 22,977
29,078

Commitments and contingencies (Note 13)

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; 54,065 and 48,365 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively 5
5
Additional paid-in capital 386,775
340,079
Accumulated other comprehensive loss —
(472 )
Accumulated deficit (330,474 ) (315,065 )
Total stockholders’ equity 56,306
24,547
Total liabilities and stockholders’ equity $ 79,283
$ 53,625

~~See Accompanying Notes to Consolidated Financial Statements~~

Codexis, Inc.

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)


	Year Ended December 31,
	2021		2020		2019
Revenues:
Product revenue	$	70,657	$	30,220	$	29,465
Research and development revenue ($1,955, $900 and $0 from a related party)	34,097		38,836		38,993
Total revenues	104,754		69,056		68,458
Costs and operating expenses:
Cost of product revenue	22,209		13,742		15,632
Research and development	55,919		44,185		33,873
Selling, general and administrative	49,323		35,049		31,502
Total costs and operating expenses	127,451		92,976		81,007
Loss from operations	(22,697)		(23,920)		(12,549)
Interest income	459		405		1,287
Other income (expense), net ($983, $0 and $0 from a related party)	1,148		(156)		(656)
Loss before income taxes	(21,090)		(23,671)		(11,918)
Provision for income taxes	189		339		17
Net loss	$	(21,279)	$	(24,010)	$	(11,935)

Net loss per share, basic and diluted	$	(0.33)	$	(0.40)	$	(0.21)
Weighted average common stock shares used in computing net loss per share, basic and diluted	64,568		59,360		56,525

See accompanying notes to consolidated financial statements

Year Ended December 31,
2018 2017 2016
Revenues:
Product revenue $ 25,590
$ 26,685
$ 15,321
Research and development revenue 35,004
23,339
33,516
Total revenues 60,594
50,024
48,837
Costs and operating expenses:
Cost of product revenue 12,620
14,327
9,753
Research and development 29,978
29,659
22,229
Selling, general and administrative 29,291
29,008
25,419
Total costs and operating expenses 71,889
72,994
57,401
Loss from operations (11,295 ) (22,970 ) (8,564 )
Interest income 671
147
60
Other expenses, net (291 ) (92 ) (94 )
Loss before income taxes (10,915 ) (22,915 ) (8,598 )
Provision for (benefit from) income taxes (37 ) 81
(40 )
Net loss $ (10,878 ) $ (22,996 ) $ (8,558 )

Net loss per share, basic and diluted $ (0.21 ) $ (0.50 ) $ (0.21 )
Weighted average common stock shares used in computing net loss per share, basic and diluted 52,205
46,228
40,629

~~See Accompanying Notes to Consolidated Financial Statements~~

~~Codexis, Inc.~~

~~Consolidated Statements of Comprehensive Loss~~

~~(In Thousands)~~

Year Ended December 31,
2018 2017 2016
Net loss $ (10,878 ) $ (22,996 ) $ (8,558 )
Other comprehensive loss:
Unrealized loss on equity securities, net of tax ⁽¹⁾
—
(472 ) (405 )
Other comprehensive loss —
(472 ) (405 )
Total comprehensive loss $ (10,878 ) $ (23,468 ) $ (8,963 )

⁽¹⁾In 2018, we adopted Accounting Standards Update No. 2016-01 (Subtopic 825-10) and recorded a cumulative-effect reclassification $0.5 million unrealized loss on equity securities from other accumulated comprehensive loss to the beginning accumulated deficit. See Note 2 “Summary of Significant Accounting Policies” in the Accompanying Notes to the Consolidated Financial Statements for more information.

~~See Accompanying Notes to Consolidated Financial Statements~~

Codexis, Inc.

Consolidated Statements of Stockholders’ Equity

(In Thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
December 31, 2018	54,065	$	5	$	386,775	$	(330,474)	$	56,306
Exercise of stock options	1,466	—		7,099		—		7,099
Release of stock awards	449	—		—		—		—
Employee stock-based compensation	—	—		6,943		—		6,943
Taxes paid related to net share settlement of equity awards	(152)	—		(2,850)		—		(2,850)
Issuance of common stock, net of issuance costs of $123	3,049	1		49,876		—		49,877
Short swing profit settlement	—	—		77		—		77
Net loss	—	—		—		(11,935)		(11,935)
December 31, 2019	58,877	6		447,920		(342,409)		105,517
Exercise of stock options	210	—		1,323		—		1,323
Release of stock awards	370	—		—		—		—
Employee stock-based compensation	—	—		7,622		—		7,622
Non-employee stock-based compensation	—	—		106		—		106
Taxes paid related to net share settlement of equity awards	(103)	—		(1,257)		—		(1,257)
Issuance of common stock, net of issuance costs of $5,448	4,929	—		80,802		—		80,802
Net loss	—	—		—		(24,010)		(24,010)
December 31, 2020	64,283	6		536,516		(366,419)		170,103
Exercise of stock options	699	—		5,180		—		5,180
Release of stock awards	181	—		—		—		—
Employee stock-based compensation	—	—		11,346		—		11,346
Non-employee stock-based compensation	—	—		247		—		247
Taxes paid related to net share settlement of equity awards	(54)	—		(1,206)		—		(1,206)

Net loss	—	—		—		(21,279)		(21,279)
December 31, 2021	65,109	$	6	$	552,083	$	(387,698)	$	164,391

See accompanying notes to consolidated financial statements

Common Stock
Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Income (Loss)

Accumulated
Deficit
Total
Stockholders’
Equity
Shares Amount
December 31, 2015 40,343
$ 4
$ 305,981
$ 405
$ (283,511 ) $ 22,879
Exercise of stock options 398
—
1,034
—
—
1,034
Release of stock awards 911
—
—
—
—
—
Employee stock-based compensation —
—
5,673
—
—
5,673
Taxes paid related to net share settlement of equity awards (397 ) —
(1,524 ) —
—
(1,524 )
Total comprehensive loss —
—
—
(405 ) (8,558 ) (8,963 )
December 31, 2016 41,255
4
311,164
—
(292,069 ) 19,099
Exercise of stock options 86
—
266
—
—
266
Release of stock awards 1,096
—
—
—
—
—
Employee stock-based compensation —
—
7,048
—
—
7,048
Non-employee stock-based compensation —
—
43
—
—
43
Taxes paid related to net share settlement of equity awards (397 ) —
(1,670 ) —
—
(1,670 )
Issuance of common stock, net of issuance costs 6,325
1
23,228
—
—
23,229
Total comprehensive loss —
—
—
(472 ) (22,996 ) (23,468 )
December 31, 2017 48,365
5
340,079
(472 ) (315,065 ) 24,547
Exercise of stock options 856
—
4,680
—
—
4,680
Release of stock awards 832
—
—
—
—
—
Employee stock-based compensation —
—
7,865
—
—
7,865
Non-employee stock-based compensation —
—
24
—
—
24
Taxes paid related to net share settlement of equity awards (301 ) —
(3,190 ) —
—
(3,190 )
Issuance of common stock, net of issuance costs 4,313
—
37,317
—
—
37,317
Cumulative effect of change in accounting principles ⁽¹⁾
—
—
—
472
(4,531 ) (4,059 )
Net Loss —
—
—
—
(10,878 ) $ (10,878 )
December 31, 2018 54,065
$ 5
$ 386,775
$ —
$ (330,474 ) $ 56,306

⁽¹⁾ Cumulative effect of change in accounting principles includes: Accounting Standards Update 2014-9 (Topic 606), of $4.1 million and Accounting Standards Update 2016-01 (Subtopic 825-10), of $0.5 million. See Note 2 “Summary of Significant Accounting Policies” in the Accompanying Notes to the Consolidated Financial Statements for more information.

~~See Accompanying Notes to Consolidated Financial Statements~~

Codexis, Inc.

Consolidated Statements of Cash Flows

(In Thousands)


	Year Ended December 31,
	2021		2020		2019
Operating activities:
Net loss	$	(21,279)	$	(24,010)	$	(11,935)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	3,113		1,950		1,570
Amortization expense - right-of-use assets - operating and finance leases	2,834		2,604		2,987
Stock-based compensation	11,593		7,728		6,943
Allowance for credit losses	342		40		—
Equity securities earned from research and development activities from a related party	(1,955)		(900)		—
Unrealized gain on non-marketable securities (($983) from a related party)	(1,272)		—		—
Other non-cash items	(19)		15		525
Changes in operating assets and liabilities:
Financial assets ($0, ($450) and ($332) from a related party)	(9,156)		(8,723)		(5,867)
Inventories	(196)		(593)		217
Prepaid expenses and other assets	(2,268)		(1,012)		(1,324)
Accounts payable	268		101		(428)
Accrued compensation and other accrued liabilities	6,575		6,175		2,205
Other long-term liabilities	(4,147)		(2,586)		(1,210)
Deferred revenue ($245, $0 and $0 to a related party)	1,300		2,747		(6,243)
Net cash used in operating activities	(14,267)		(16,464)		(12,560)
Investing activities:
Purchase of property and equipment	(13,828)		(3,748)		(3,730)
Proceeds from sale of property and equipment	36		—		3
Proceeds from sale of investment securities	—		—		62
Investment in non-marketable securities (($7,630) and ($1,000) in a related party)	(7,630)		(2,000)		—
Net cash used in investing activities	(21,422)		(5,748)		(3,665)
Financing activities:
Proceeds from exercises of stock options	5,180		1,323		7,099
Proceeds from issuance of common stock in connection with public offering	—		86,250		—
Costs incurred in connection with equity financing	(207)		(5,448)		(123)
Proceeds from issuance of common stock in connection with private offering	—		—		50,000
Payments of lease obligations - Finance leases	—		(60)		(242)
Recovery of short swing profit	—		—		77
Taxes paid related to net share settlement of equity awards	(1,206)		(1,257)		(2,850)
Net cash provided by financing activities	3,767		80,808		53,961
Net increase (decrease) in cash, cash equivalents and restricted cash	(31,922)		58,596		37,736
Cash, cash equivalents and restricted cash at the beginning of the year	150,817		92,221		54,485
Cash, cash equivalents and restricted cash at the end of the year	$	118,895	$	150,817	$	92,221

Supplemental disclosure of cash flow information:
Interest paid	$	14	$	52	$	49
Income taxes	$	102	$	312	$	5
Supplemental non-cash investing and financing activities:
Capital expenditures incurred but not yet paid	$	2,533	$	1,750	$	140

Year Ended December 31,
2018
2017
2016
Operating activities:

Net loss $ (10,878 )
$ (22,996 )
$ (8,558 )
Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of intangible assets —

—

2,812
Depreciation 1,147

1,042

1,734
Stock-based compensation 7,889

7,091

5,673
Loss (gain) on disposal of property and equipment 8

9

(42 )
Loss on investment securities 83

—

—
Gain from extinguishment of asset retirement obligation —

(207 )
—
Changes in operating assets and liabilities:

Accounts receivable, net 960

(5,298 )
1,405
Inventories 447
(210 ) 167
Prepaid expenses and other current assets (37 ) 157
7
Contract assets (35 ) —
—
Unbilled receivables (2,349 ) (353 ) —
Other non-current assets 228

(44 )
52
Accounts payable (524 )
(801 )
942
Accrued compensation 519

439

983
Other accrued liabilities (17 )
1,399

(593 )
Other long-term liabilities (904 )
—
—
Deferred revenue (10,631 )
11,017

(6,442 )
Net cash used in operating activities (14,094 )
(8,755 )
(1,860 )
Investing activities:

Purchase of property and equipment (2,768 )
(985 )
(888 )
Proceeds from disposal of property and equipment 2

2

42
Net cash used in investing activities (2,766 )
(983 )
(846 )
Financing activities:

Proceeds from exercises of stock options 4,680

266

1,034
Proceeds from issuance of common stock in connection with public offering, net of underwriting discounts and commission 37,497
23,782

—
Costs incurred in connection with public offering (180 )
(553 )
—
Principal payments on capital lease obligations (238 )
(175 )
—
Taxes paid related to net share settlement of equity awards (3,190 )
(1,670 )
(1,524 )
Net cash provided by (used in) financing activities 38,569

21,650

(490 )
Net increase (decrease) in cash, cash equivalents and restricted cash
21,709

11,912

(3,196 )
Cash, cash equivalents and restricted cash at the beginning of the year
32,776

20,864

24,060
Cash, cash equivalents and restricted cash at the end of the year
$ 54,485

$ 32,776

$ 20,864

Supplemental disclosure of cash flow information:

Interest paid $ 84

$ 141

$ 14
Income taxes $ 5

$ 32

$ 5
Supplemental non-cash financing activities:

Equipment acquired under capital leases $ —

$ 862

$ —
Capital expenditures incurred but not yet paid $ 300

$ 42

$ 125

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown above (in thousands):


	Year Ended December 31,
	2021		2020		2019
Cash and cash equivalents	$	116,797	$	149,117	$	90,498
Restricted cash, current and non-current	2,098		1,700		1,723
Total cash, cash equivalents and restricted cash at the end of the period	$	118,895	$	150,817	$	92,221

See accompanying notes to consolidated financial statements

Year Ended December 31,
2018 2017 2016
Cash and cash equivalents $ 53,039
$ 31,219
$ 19,240
Restricted cash included in non-current assets 1,446
1,557
1,624
Total cash, cash equivalents and restricted cash at the end of the period $ 54,485
$ 32,776
$ 20,864

~~See Accompanying Notes to Consolidated Financial Statements~~

Codexis, Inc.

Notes to Consolidated Financial Statements

Note 1. Description of Business

In these notes to the ~~consolidated financial statements,~~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. We view proteins as a vast untapped source of value-creating materials, and we are using our proven technologies, which have been continuously improved over our fifteen year history,~~industries to commercialize an increasing number of novel ~~proteins,~~enzymes, both as proprietary Codexis products and in partnership with our customers.

We report our financial results based on 2 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 ~~a pioneer in the harnessing of computational technologies~~subject to ~~drive biology advancements. Over the last fifteen years, we have made substantial investments in the development of our CodeEvolver~~^® protein engineering technology platform, the primary source of our competitive advantage. Our technology platform is powered by proprietary, artificial intelligence-based, computational algorithms that rapidly mine our largerisks and continuously growing library of protein variants’ performance attributes. These computational outputs enable increasingly reliable predictions for next generation protein variants to be engineered, enabling delivery of targeted performance enhancements in a time-efficient manner. In addition to its computational prowess, our CodeEvolver^® protein engineering technology platform integrates additional modular competencies, including robotic high-throughput screening and genomic sequencing, organic chemistry and process development which are all coordinated to create our novel protein innovations.

Our approach to developing commercially viable biocatalytic manufacturing processes begins by conceptually designing the most cost-effective and practical process for a targeted product. We then develop optimized protein catalysts to enable that process design, using our CodeEvolver^® protein engineering platform technology. Engineered protein catalyst candidates - many thousands for each protein engineering project - are then rapidly screened and validated in high throughput screening under relevant manufacturing operating conditions. This approach results in an optimized protein catalyst enabling cost-efficient processes that typically are relatively simple to run in conventional manufacturing equipment. This also allows for the efficient technical transfer of our process to our manufacturing partners.

~~The successful embodiment of our CodeEvolver~~^® protein engineering technology platform in commercial manufacturing processes requires well-integrated expertise in a number of technical disciplines. In addition to those directly involved in practicing our CodeEvolver^® ~~protein engineering platform technology, such~~uncertainties as molecular biology, enzymology, microbiology, cellular engineering, metabolic engineering, bioinformatics, biochemistry and high throughput analytical chemistry, our process development projects also involve integrated expertise in organic chemistry, chemical process development, chemical engineering, fermentation process development and fermentation engineering. Our integrated, multi-disciplinary approach to biocatalyst and process development is a critical success factor for our company.

~~We initially commercialized our CodeEvolver~~^® protein engineering technology platform and products in the pharmaceuticals market, which remains our primary business focus. 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 protein catalysts for use in the fine chemicals market. The fine chemicals market consists of several large market verticals, including food and food ingredients, animal feed, flavors, fragrances, and agricultural chemicals.

~~We have also begun using the CodeEvolver~~^® protein engineering technology platform to develop early stage, novel biotherapeutic product candidates, both for our customers and for our own business, most notably 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 entered into a Global Development, Option and License Agreement with Nestec, Ltd. (“Nestlé Health Science”) to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive license to develop and commercialize CDX-6114.

In April 2018, we entered into a strategic agreement (the "Porton Agreement") with Porton Pharma Solutions, Ltd. ("Porton") to license key elements of our platform technology to Porton’s global custom intermediate and active pharmaceutical ingredients ("API") development and manufacturing business. This gives us access to a wide variety of small and medium-sized pharmaceutical customers.

~~We are also using our technology to develop enzymes for customers using next generation sequencing ("NGS") and polymerase chain reaction ("PCR/qPCR") for~~ ~~in vitro~~ ~~molecular diagnostic and genomic research applications. Our first enzyme is a ligase~~ ~~which we began marketing to customers in 2018.~~

~~Below are brief descriptions of our business segments:~~

~~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. In April 2018, we entered into the Porton Agreement related to our strategic collaboration with Porton to license key elements of our world-leading biocatalyst technology for use in Porton’s global custom intermediate and API development and manufacturing business.

~~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 hyperphenylalaninemia (“HPA”) (also referred to as 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. 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, which was conducted in Australia. In November 2018, we announced top-line results from the Phase 1a study in healthy volunteers with CDX-6114. In December 2018, Nestlé Health Science became obligated to pay us an additional $1.0 million within 60 days after the achievement of a milestone relating to formulation of CDX-6114. In January 2019, we received notice from the U.S. Food and Drug Administration (the “FDA”) that it had completed its review of our investigational new drug application (“IND”) for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sub-licensable license for the global development and commercialization of CDX-6114 for the management of PKU. As a result of the ~~option exercise, Nestlé Health Science~~current COVID-19 pandemic. The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is ~~obligated~~affecting our employees, communities and business operations, as well as the U.S. economy and other economies worldwide. The full extent to ~~pay us $3.0 million within 60 days after exercise~~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 ~~option. Upon exercising its option, Nestlé Health Science has assumed all responsibilities for future clinical development~~pandemic, the prevalence of more contagious and ~~commercialization of CDX-6114, with~~or virulent variants such as the ~~exception~~Delta and Omicron variants, and the extent and severity of the ~~completion~~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.

In the United States, the impact of ~~an extension study, CDX - 6114-004, which is expected to be completed~~COVID-19, including Orders governing the operation of businesses during the pandemic, caused the temporary closure of our Redwood City, California facilities and disrupted our R&D operations in 2020. R&D operations for several projects were temporarily suspended from mid-March 2020 through the ~~second quarter~~end of ~~2019. See Note 16, “Subsequent Events”~~April 2020 in accordance with these Orders. In May 2020, we initiated limited R&D operations and resumed manufacturing operations at our Redwood City pilot plant and have ramped up operations such that we are currently utilizing our normal R&D capacity while following county, state and federal COVID-19 guidance for ~~additional details. Other potential payments from Nestlé Health Science to us under~~ the ~~Nestlé Agreement include (i) development~~protection of our employees.

To date, we and approval milestones of up to $86.0 million, (ii) sales-based milestones of up to $250.0 million in the aggregate, which aggregate amount is achievable if net sales exceed $1.0 billion in a single year, and (iii) tiered royalties, at percentages ranging from the middle single digits to low double-digits, of net sales of Product.

Weour collaboration partners have ~~also developed a pipeline of other biotherapeutic drug candidates in which we expect~~been able to continue to ~~make additional investments with the aim~~supply our enzymes to our customers worldwide, however, there can be no guarantee this will continue. Furthermore, our ability to provide future research and development ("R&D") services may continue to be impacted as a result of ~~advancing additional product candidates targeting other therapeutic areas.~~

~~For additional discussion~~governmental orders ("Orders") and 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 year ended December 31, 2021. The extent to which the pandemic may impact our business ~~segments, see Note 15, "Segment, Geographical~~operations and ~~Other Revenue Information."~~operating results will continue to remain highly dependent on future developments, which are uncertain and cannot be predicted with confidence.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ~~(“GAAP”~~("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ~~(“SEC”~~("SEC") and include the accounts of Codexis, Inc. and its wholly-owned subsidiaries.

Certain prior year amounts have been reclassified in the Consolidated Statements of Cash Flows to conform to the 2021 presentation, however these reclassifications had no effect on the reported results of operations.

The consolidated financial statements include the accounts of Codexis, Inc. and its wholly owned subsidiaries. All ~~significant~~ intercompany balances and transactions have been eliminated in consolidation.

~~Comprehensive income or loss~~

~~Comprehensive loss is equivalent to net loss in 2018 because after adopting Accounting Standards Update No. 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~." (“Subtopic 825-10”), we do not have any other transactions recorded under comprehensive loss. Prior to our adoption of Subtopic 825-10, and for the year ended in December 31, 2017 and 2016, comprehensive loss included unrealized gains and unrealized losses from our equity investment in equity securities. See “Recently adopted accounting pronouncements” ~~below for additional information.~~

~~Certain prior year amounts have been reclassified to conform to 2018 presentation. These changes and reclassifications did not impact net loss or comprehensive loss.~~

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires ~~management~~us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and ~~liabilities, disclosures~~expenses and related disclosure of contingent ~~liabilities at the date of the consolidated financial statements,~~assets and ~~the reported amounts of revenue and expenses during the reporting period.~~liabilities. We regularly assess these estimates which primarily affect revenue recognition, ~~accounts receivable,~~

inventories, ~~the~~ valuation of equity ~~securities,~~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.

Segment Reporting

We report ~~two~~2 business segments, Performance Enzymes and Novel Biotherapeutics, which are based on our operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker ~~("CODM"),~~ or decision making group (“CODM”), in deciding how to allocate resources, and in assessing performance. Our CODM is our Chief Executive Officer. Our business segments are primarily based on our organizational structure and our operating results as used by our CODM in assessing performance and allocating resources for ~~our company.~~the Company. We do not allocate or evaluate assets by segment.

Previously, we had only one business segment. As our biotherapeutics business has emerged as a significant opportunity for us, effective in 2018, we formed Novel Biotherapeutics as a new business segment. The Novel Biotherapeutics segment focuses on new opportunities in the pharmaceutical industry to discover or improve 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. The Performance Enzymes segment consists of ~~the existing protein catalyst~~biocatalyst products and services with focus on pharmaceutical, food, molecular diagnostics, and other industrial markets.

Foreign Currency Translation

The ~~United States dollar~~USD is the functional currency for our operations outside the United States. Accordingly, ~~nonmonetary~~non-monetary assets and liabilities originally acquired or assumed in other currencies are recorded in ~~United States dollars~~USD at the exchange rates in effect at the date they were acquired or assumed. Monetary assets and liabilities denominated in other currencies are translated into United States dollars at the exchange rates in effect at the balance sheet date. Translation adjustments are recorded in other expense in the consolidated statements of operations. Gains and losses realized from ~~non-U.S. dollar~~non-USD transactions, including intercompany balances not considered as permanent investments, denominated in currencies other than an entity’s functional currency are included in other expense in the accompanying consolidated statements of operations.

Revenue Recognition

~~Policy from January 1, 2018~~

~~On January 1, 2018, we adopted the provisions of Accounting Standards Update (ASU) 2014-09, "Revenue from Contracts with Customers (Topic 606)~~ ~~and the related amendments (“ASC 606”). The guidance provides a unified model to determine how revenue is recognized.~~

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our product revenue and collaborative research and development agreements, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each performance obligation.

The majority of our collaborative contracts contain multiple revenue streams such as ~~up-front~~upfront and/or annual license fees, fees for ~~full time employee ("FTE")~~ research and development services, contingent milestone payments upon achievement of contractual criteria, and royalty fees based on the licensees' product revenue or usage, among others. We determine the stand-alone selling price ~~("SSP"~~(“SSP”) and allocate consideration to distinct performance obligations. Typically, we base our SSPs on our historical sales. If an SSP is not directly observable, then we estimate the SSP taking into consideration market conditions, forecasted sales, entity-specific factors and available information about the customer. We estimate the SSP for license rights by using historical information if licenses have been previously sold to customers and for new licenses, we consider multiple methods, including a discounted cash flow method which includes the following key assumptions: the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success. ~~For licenses that have been previously sold to other customers, we use historical information to determine SSP.~~

The following is a description of principal activities from which we generate revenue:

Product Revenue

Certain of our agreements provide options to customers which they can exercise at a future date, such as the option to purchase our product during the contract duration at discounted prices and an option to extend their contract, among others. In accounting for customer options, we determine whether an option is a material right and this requires us to exercise significant judgment. If a contract provides the customer an option to acquire additional goods or services at a discount that exceeds the range of discounts that we typically give for that product or service for the same class of customer, or if the option provides the customer certain additional goods or services for free, the option may be considered a material right. If the contract gives the customer the option to acquire additional goods or services at their normal SSPs, we would likely determine that the option is not a material right and, therefore, account for it as a separate performance obligation when the customer exercises the option. We primarily account for options which provide material rights using the alternative approach available ~~under ASC 606,~~pursuant to the applicable accounting guidance, as we

concluded we meet the criteria for using the alternative approach. Therefore, the transaction price is calculated as the expected consideration to be received for all the goods and services we expect to provide under the contract. We update the transaction price for expected consideration, subject to constraint, each reporting period if our ~~estimate~~estimates of future goods to be ordered by customers change.

Research and Development Revenues

Our contracts frequently provide customers with rights to use or access our products or technology, along with other promises or performance obligations. ~~Under ASC 606, we~~We must first determine whether the license is distinct from other promises, such as our promise to manufacture a product. If we determine that the customer cannot benefit from the license without our manufacturing capability, the license will be accounted for as combined with the other performance obligations. If we determine that a license is distinct and has significant standalone functionality, we would recognize revenues from a functional license at a point in time when the license is transferred to the customer, and the customer can use and benefit from it. We estimate the SSP for license rights by using historical information if licenses have been previously sold to customers and for new licenses, we consider multiple methods, including a discounted cash flow method which includes the following key assumptions: the development timelines, revenue forecasts, commercialization expenses, discount rate, and the probability of technical and regulatory success. For licenses that have been previously sold to other customers, we use historical information to determine SSP.

recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment.

We also have an agreement under which we have granted a functional license to some elements of our biocatalyst technology. We recognize revenues for the functional license at a point in time when the control of the license and technology transfers to the customer.

For license agreements that include sales or usage-based royalty payments to us, we do not recognize revenue until the underlying sales of the product or usage has occurred. At the end of each reporting period, we estimate the royalty amount. We recognize revenue at the later of (i) when the related sale of the product occurs, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied.

Practical Expedients, Elections, and Exemptions

We apply certain practical expedients available which permit us not to adjust the amount of consideration for the effects of a significant financing component if, at contract inception, the expected period between the transfer of promised goods or services and customer payment is one year or less.

We perform monthly services under our research and development agreements, and we use a practical expedient permitting us to recognize revenue at the same time that we have the right to invoice our customer for monthly services completed to date.

We have elected to treat shipping and handling activities as fulfillment costs.

We have elected to record revenue net of sales and other similar taxes.

Contract Assets

Contract assets include amounts related to our contractual right to consideration for completed performance obligations not yet invoiced. ~~The contract~~Contract assets are reclassified to receivables when the rights become unconditional.

Contract Liabilities

Contract liabilities are recorded as deferred revenues and include payments received in advance of performance under the contract. Contract liabilities are realized when the development services are provided to the customer or control of the products has been transferred to the customer. A portion of our contract liabilities relate to supply arrangements that contain material rights that are recognized using the alternative method, under which the aggregate amount invoiced to the customer for shipped products, including ~~annual~~contractual fees, is higher than the amount of revenue recognized based on the transaction price allocated to the shipped products.

Contract Costs

~~ASC 606 requires the recognition of an~~We recognize a non-current asset for the incremental costs of obtaining a contract with a customer if the entity expects to recover such costs. Incremental costs are costs that would not have been incurred if the contract had not been obtained. Examples of contract costs are commissions paid to sales personnel. We do not typically incur significant incremental costs because the compensation of our salespeople ~~are~~is not based on contracts closed but on a mixture of company goals, individual goals, and sales goals. If a commission paid is directly related to obtaining a specific contract, our policy is to capitalize and amortize such costs on a systematic basis, consistent with the pattern of transfer of the good or service to which the asset relates.

Contract costs are reported in other non-current assets.

~~Revenue Recognition Policy before January 1, 2018~~

~~Product Sales~~

~~Research and Development Revenues~~

Cost of Product Revenue

Cost of product revenue comprises both internal and third party fixed and variable costs including materials and supplies, labor, facilities, and other overhead costs associated with our product sales. Shipping costs are included in our cost of product revenue. Such charges were not significant in any of the periods presented.

Fulfillment costs, such as shipping and handling, are recognized at a point in time and are included in cost of product sales.

Cost of Research and Development Services

Cost of research and development services related to ~~FTE~~ services under research and development agreements approximate the research funding over the term of the respective agreements and is included in research and development expense. Costs of

services provided under license and platform technology transfer agreements are included in research and development expenses and are expensed in the periods in which such costs are incurred.

Research and Development Expenses

Research and development expenses consist of costs incurred for internal projects and partner-funded collaborative research and development activities, as well as license and platform technology transfer agreements, as mentioned above. These costs include our direct and research-related overhead expenses, which include salaries and other personnel-related expenses (including stock-based compensation), occupancy-related costs, supplies, and depreciation of facilities and laboratory

equipment, as well as external costs, and are expensed as incurred. Costs to acquire technologies that are utilized in research and development and that have no alternative future use are expensed when incurred.

Advertising

Advertising costs are expensed as incurred and included in selling, general and administrative expenses in the consolidated statements of operations. Advertising costs were ~~$0.5~~$0.3 million, ~~in 2018, $0.7~~$0.3 million ~~in 2017~~ and $0.5 million in ~~2016.~~the years ended December 31, 2021, 2020 and 2019, respectively.

Stock-Based Compensation

Restricted Stock Units ("(“RSUs") ~~and~~, Restricted Stock Awards ~~("RSAs"~~(“RSAs”) and performance-contingent restricted stock units (“PSUs”) are measured based on the fair market values of the underlying stock on the dates of grant. Performance based options ~~("PBOs") and performance-contingent restricted stock units ("PSUs"~~(“PBOs”) are measured using Black-Scholes-Merton option pricing model. The vesting of PBOs and PSUs awarded is conditioned upon the attainment of one or more performance objectives over a specified period and upon continued employment through the applicable vesting date. At the end of the performance period, shares of stock subject to the PBOs and PSUs vest based upon both the level of achievement of performance objectives within the performance period and continued employment through the applicable vesting date.

The estimated fair value of stock options, RSUs and RSAs are expensed on a straight-line basis over the vesting term of the grant and the estimated fair value of PSUs and PBOs are expensed using an accelerated method over the term of the award once management has determined that it is probable that the performance objective will be achieved. Compensation expense is recorded over the requisite service period based on management's best estimate as to whether it is probable that the shares awarded are expected to vest. Management assesses the probability of the performance milestones being met on a continuous basis.

Cash and Cash Equivalents

We consider all highly liquid investments with maturity dates of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market funds. The majority of cash and cash equivalents is maintained with major financial institutions in the United States. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits. Cash and cash equivalents totaled $53.0 million and comprised of cash of $21.8 million and money market funds of $31.2 million at December 31, 2018. Cash and cash equivalents totaled $31.2 million, comprised of cash of $24.4 million and money market funds of $6.8 million at December 31, 2017.

Restricted Cash

In 2016, we began the process of liquidating our Indian subsidiary. The local legal requirements for liquidation required us to maintain our subsidiary's cash balance in an account managed by a legal trustee to satisfy our financial obligations. This balance is recorded as ~~non-current~~current restricted cash on the consolidated balance sheets ~~and totaled $0.7~~of $0.6 million atas of December 31, ~~2018~~2021 and ~~$0.8 million at December 31, 2017.~~2020.

Pursuant to the terms of a lease agreement for our Redwood City, CA facilities, we obtained a letter of credit collateralized by cash deposit balances of ~~$0.7~~$1.1 million as of December 31, ~~2018~~2021 and ~~$0.8~~2020. Pursuant to the terms of our new lease agreement for our San Carlos, CA facility, we also obtained a letter of credit collateralized by cash deposit balances of $0.5 million atas of December 31, ~~2017.~~2021. These cash ~~deposit~~deposits balances are recorded as non-current restricted cash on the consolidated balance sheets. ~~See~~For additional information, see Note 13, “Commitments and Contingencies”. ~~In January 2019, we entered into the Eighth Amendment to the Lease for our Redwood City, CA facilities and,~~

~~as a result, our letters of credit will be collateralized by a cash deposit balance of $1.1 million in 2019. See Note 16, “Subsequent Events” for additional information.~~

~~Equity Securities~~

We invest in equity securities that are carried at estimated fair value with changes in fair value recognized within earnings. Equity securities with remaining maturities of greater than one year or which we currently do not intend to sell are classified as long-term. See Note 6, “Cash Equivalents and Equity Securities.”

Unrealized holding gains and losses (the adjustment to fair value) and realized gains and losses are included in other income (expense) in the consolidated statement of operations subsequent to the adoption of ASU 2016-01 starting on January 1, 2018.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and we consider counterparty credit risk in our assessment of fair value. Carrying amounts of financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate their fair values as of the balance sheet dates because of their short maturities.

The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

•Level 1: Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

•Level 2: Inputs that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

•Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

~~See Note 7, “Fair Value Measurements” for additional details.~~

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and unbilled receivables, contract assets, ~~equity~~non-marketable securities, and restricted cash. Cash that is not required for immediate operating needs is invested principally in money market funds. Cash and cash equivalents are invested through banks and other financial institutions in the United States, India, and the Netherlands. Such deposits in those countries may be in excess of insured limits.

~~Accounts Receivable~~ The Company has not experienced material losses on its deposits of cash and ~~Allowance for Doubtful Accounts~~cash equivalents.

We perform ongoing credit evaluations of our customer's financial condition whenever deemed necessary. We maintain an allowance for doubtful accounts based on the expected collectability of all financial assets, which takes into consideration an analysis of historical bad debts, specific customer creditworthiness and current economic trends. As of December 31, 2021, we had one customer that accounted for 62% of our accounts receivable balance. As of December 31, 2020, three customers accounted for 70% of our accounts receivable balance. We believe the accounts receivable balances from our largest customers do not represent a significant credit risk, based on cash flow forecasts, balance sheet analysis, and past collection experience.

Financial Assets and Allowances

We currently sell enzymes primarily to pharmaceutical and fine chemicals companies throughout the world by the extension of trade credit terms based on an assessment of each customer's financial condition. Trade credit terms are generally offered without collateral and may include an insignificant discount for prompt payment for specific customers. To manage our credit exposure, we perform ongoing evaluations of our customers' financial conditions. In addition, accounts receivable ~~includes~~include amounts owed to us under our collaborative research and development agreements.

We recognize accounts receivable at invoiced amounts and we maintain a valuation allowance for ~~doubtful accounts.~~

~~The allowances for doubtful~~credit losses using an impairment model (known as the “current expected credit loss model” or “CECL”) based on estimates and forecasts of future conditions requiring recognition of a lifetime of expected credit losses at inception on our financing receivables measured at amortized costs which consisted of accounts ~~reflect~~receivable, contract assets, and unbilled receivables. We have determined that our ~~best estimates of probable losses inherent~~financing receivables share similar risk characteristics including: (i) customer origination in the ~~accounts~~pharmaceutical and fine chemicals industry, (ii) similar historical credit loss pattern of customers (iii) no meaningful trade receivable ~~and contract assets’ balances. We determine the allowances based on known troubled accounts,~~differences in terms, (iv) similar historical credit loss experience and ~~other currently available evidence. Uncollectible accounts receivables and contract~~(v) our belief that the composition of certain assets are ~~written off against~~comparable to our

historical portfolio used to develop loss history. As a result, we measured the allowance for ~~doubtful accounts when~~credit loss (“ACL”) on a collective basis. Our ACL methodology considers how long the asset has been past due, the financial condition of the customers, which includes ongoing quarterly evaluations and assessments of changes in customer credit ratings, and other market data that we believe are relevant to the collectability of the assets. Nearly all ~~efforts~~financing receivables are due from customers that are highly rated by major rating agencies and have a long history of no credit loss. We derive our ACL by establishing an impairment rate attributable to ~~collect them~~assets not yet identified as impaired.

We derive our ACL by initially relying on our historical financing receivable loss rate which contemplates the full contractual life of the assets sharing similar risk characteristics, adjusted to reflect (i) the extent to which we have ~~been exhausted. Recoveries are recognized when they are received.~~

~~Actual collection losses may~~determined current conditions differ from ~~our estimates~~the conditions that existed for the period over which historical loss information was evaluated and ~~could~~(ii) by taking into consideration the changes in certain macroeconomic historical and forecasted information. We apply the ACL to past due financing receivables and record charges to the ACL as a provision to credit loss expense in the Statement of Operations. Financing receivables we identify as uncollectible are also charged against the ACL. We adjust the impairment rate to reflect the extent to which we have determined current conditions differ from the conditions that existed for the period over which historical loss information was evaluated. Adjustments to historical loss information may be ~~material~~qualitative or quantitative in nature and reflect changes related to ~~our consolidated financial position, results of operations, and cash flows.~~relevant data.

Unbilled ~~receivable~~Receivable

~~Pursuant to ASC 606, the~~The timing of revenue recognition may differ from the timing of invoicing to our customers. When we satisfy (or partially satisfy) a performance obligation, prior to being able to invoice the customer, we recognize an unbilled receivable when the right to consideration is unconditional. ~~As of December 31, 2018, we recorded a total of unbilled receivables of $2.7 million included on our consolidated balance sheets.~~

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using a weighted-average approach, assuming full absorption of direct and indirect manufacturing costs, or based on cost of purchasing from our vendors. If inventory costs exceed expected net realizable value due to obsolescence or lack of demand, valuation adjustments are recorded for the difference between the cost and the expected net realizable value.

Concentrations of Supply Risk

We rely on a limited number of suppliers for our products. We believe that other vendors would be able to provide similar products; however, the qualification of such vendors may require substantial start-up time. In order to mitigate any adverse impacts from a disruption of supply, we attempt to maintain an adequate supply of critical single-sourced materials. For certain materials, our vendors maintain a supply for us. We outsource the large scale manufacturing of our products to contract manufacturers with facilities in Austria and Italy.

Property and Equipment

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization ~~and depreciated~~calculated using the straight-line method over their estimated useful lives as follows:



			Asset classification			Estimated useful life
			Laboratory equipment			5 years
			Computer equipment and software			3 to 5 years
			Office equipment and furniture			5 years
			Leasehold improvements			Lesser of useful life or lease term

Property and equipment classified as construction in process includes equipment that has been received but not yet placed in service. Normal repairs and maintenance costs are expensed as incurred.

Impairment of Long-Lived Assets

~~Our tangible long-lived assets consist primarily of property and equipment.~~

~~In the first quarter of 2018, we determined that we operate in two segments.~~ We have not identified property and equipment by segment since these assets are shared or commingled. We evaluate the carrying ~~value~~values of long-lived assets, ~~including~~which include property and equipment and right-of-use assets, whenever events, changes in business circumstances or our planned use of long-lived assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. If these facts and circumstances exist, we assess for recovery by comparing the carrying values of long-lived assets with their future net undiscounted cash flows. If the comparison indicates that impairment exists, long-lived assets are written down to their respective fair values based on discounted cash flows. Significant

management judgment is required in the forecast of future operating results that are used in the preparation of unexpected undiscounted cash flows.

As of December 31, ~~2018~~2021 and ~~2017,~~2020, there were no events or changes in circumstances which indicated that the carrying amount of our ~~Asset Group~~asset group might not be recoverable. No impairment charges for long-lived assets were recorded during the years ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016.~~2019.

Investment in Non-Marketable Securities

Investment in Non-Marketable Equity Securities

We measure investments in non-marketable equity securities without a readily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or minus changes resulting from observable price changes on a non-recurring basis. Gains and losses on these securities are recognized in other income (expense), net.

Investment in Non-Marketable Debt Securities

We measure available-for-sale investments in non-marketable debt at fair value. Unrealized gains and losses on these securities are recognized in other comprehensive income until realized. Non-marketable debt securities are classified as available-for-sale securities.

We classify non-marketable debt securities as 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. Significant changes to the unobservable inputs may result in a significantly higher or lower fair value estimate. We may value these securities based on significant recent arms-length transactions with sophisticated non-strategic unrelated new investors.

•Audited and unaudited financial statements;

•Projected technological developments of the company;

•Projected ability of the company to service its debt obligations;

•If a deemed liquidation event were to occur;

•Current fundraising transactions;

•Current ability of the company to raise additional financing if needed;

•Changes in the economic environment which may have a material impact on the operating results of the company;

•Contractual rights, obligations or restrictions associated with the investment; and

•Other factors deemed relevant by our management to assess valuation.

•The valuation may be reduced if the company's potential has deteriorated significantly. If the factors that led to a reduction in valuation are overcome, the valuation may be readjusted.

Goodwill

Goodwill represents the excess of the consideration transferred over the fair value of net assets of businesses acquired and is assigned to reporting units. We test goodwill for impairment considering amongst other things, whether there have been

sustained declines in our share price. If we conclude it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative fair value test is performed. ~~In the first quarter of 2018, we determined that we operate in two segments and accordingly we re-evaluated~~We manage our ~~assessment of the number of reporting units. We concluded that we have two~~business as 2 reporting units ~~that reflect our operating segments~~ and ~~accordingly,~~ we ~~tested~~test goodwill for impairment at the reporting unit level. ~~Historically, assets are jointly used by the segments, are not separable, and are not identified by reporting unit. In order to assign the amount of~~We allocated goodwill to the ~~two~~2 reporting units ~~we used~~using a relative fair value allocation methodology that primarily relied on our estimates of revenue and future earnings for each reporting ~~units.~~unit. Using the relative fair value allocation methodology, we have determined that ~~approximately~~approximately $2.4 million, or 76%, of the goodwill is allocated to the Performance Enzymes segment and ~~24% is allocated to the Novel Biotherapeutics segment. As a result of the calculation, $2.4 million of the goodwill was assigned to the Performance Enzymes segment and~~ $0.8 million, ~~was~~or 24%, is assigned to the Novel Biotherapeutics segment. ~~There were no changes in the amount of~~

We test goodwill ~~assigned to each~~for impairment annually on a reporting unit atbasis, on the ~~end~~last day of the ~~year.~~

~~The goodwill impairment test consists of a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares~~fourth fiscal quarter, and between annual tests if events and circumstances indicate it is more likely than not that the fair value of ~~each~~a reporting unit tois less than its carrying ~~value.~~amount. The annual impairment test is completed using either: a qualitative “Step 0” assessment based on reviewing relevant events and circumstances; or a quantitative “Step 1” assessment, which determines the fair value of the reporting unit. To the extent the carrying amount of a reporting unit is less than its estimated fair value, an impairment charge is recorded. Using the relative fair value allocation methodology for assets and liabilities used in both of our reporting units, we ~~compared~~compare the allocated carrying amount of each reporting unit’s net assets and the assigned goodwill to its fair value. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is not required. The second step, if required, compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. Implied fair value is the excess of the fair value of the reporting unit over the fair value of all identified or allocated assets and liabilities.impaired. Any excess of the reporting unit’s carrying amount of goodwill over ~~the respective implied~~its fair value is recognized as an impairment. During ~~2018, 2017~~2021, 2020 and ~~2016,~~2019, we did not record impairment charges related to goodwill.

Lease Accounting

We ~~test goodwill for impairment on~~determine if an ~~annual basis on~~arrangement is a lease at inception. Where an arrangement is a lease, we determine if it is an operating lease or a finance lease. At lease commencement, we record a lease liability and ROU asset. Lease liabilities represent the ~~last day~~present value of our future lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of our lease liability is determined using our incremental collateralized borrowing rate at lease inception. ROU assets represent our right to control the use of the ~~fourth fiscal quarter~~leased asset during the lease and ~~when specific circumstances dictate, between annual tests by first assessing qualitative factors~~are recognized in an amount equal to ~~determine whether it~~the lease liability for leases with an initial term greater than 12 months. Over the lease term, we use the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is ~~more likely than~~amortized to the consolidated statement of operations in a manner that results in straight-line expense recognition. We do not ~~that the fair value of a reporting unit is less than its carrying amount. During 2018, 2017 and 2016,~~apply lease recognition requirements for short-term leases. Instead, we ~~did not record impairment charges~~recognize payments related to ~~goodwill.~~these arrangements in the consolidated statement of operations as lease costs on a straight-line basis over the lease term.

Income Taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits and deductions and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenues and expenses for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized on a jurisdiction by jurisdiction basis. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income in the future. We have recorded a valuation allowance against these deferred tax assets in jurisdictions where ultimate realization of deferred tax assets is more likely than not to occur. As of December 31, ~~2018,~~2021, we maintain a full valuation allowance in all jurisdictions against the net deferred tax assets as we believe that it is more likely than not that the majority of deferred tax assets will not be realized.

We make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates. Should the actual amounts differ from our estimates, the amount of our valuation allowance may be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the statements of operations for the periods in which the adjustment is determined to be required.

We account for uncertainty in income taxes as required by the provisions of ASU 2009-06, Income Taxes (Topic 740) ”Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic ~~Entities”~~Entities, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to

determine the probability of various possible outcomes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual outcomes.

The Tax Reform Act of 1986 and similar state provisions limit the use of net operating loss (“NOL”) carryforwards in

certain situations where equity transactions result in a change of ownership as defined by Internal Revenue Code Section 382. In the event we should experience such a change of ownership, utilization of our federal and state NOL carryforwards could be limited.

The adoption of ASC 606 primarily resulted in less revenue recognized as of January 1, 2018, which in turn generated an increase in net deferred tax assets. As we fully reserve our net deferred tax assets in the jurisdictions impacted by the adoption of ASC 606, this impact was offset by a corresponding increase to the valuation allowance.

We recognized income tax benefit of $37 thousand, income tax provision of $81 thousand and income tax benefit of $40 thousand for the years ended December 31, 2018, 2017 and 2016, respectively. The income tax benefits were due to a net loss from our foreign operation and a reduction in the deferred tax liability for accrued future withholding taxes on dividends. We continue to maintain a full valuation allowance against our net deferred tax assets as we believe that it is more likely than not that the majority of our deferred tax assets will not be realized.

~~Changes to Tax Law~~

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided a measurement period of up to one year from the enactment date of the Tax Act for companies to complete the accounting for the Tax Act and its related impacts. In 2018, we completed our accounting for the Tax Act. The income tax effects of the Tax Act for which the accounting is now complete include: the impact of the transition tax, the revaluation of deferred tax assets and liabilities to reflect the 21% corporate tax rate, and the impact to the aforementioned items on state income taxes. We have completed our accounting for the income tax effects under the Tax Act that are relevant to us and required to be recorded and disclosed pursuant to FASB ASC 740, Income Taxes. Accordingly, any and all provisional amounts previously recorded in accordance with SEC Staff Accounting Bulletin No. 118 have been adjusted to reflect their final amounts.

~~Recent~~ Accounting Pronouncements

Recently adopted accounting ~~pronouncement~~pronouncements

In ~~May 2014,~~December 2019, the FASB issued ASU ~~2014-09, "Revenue from Contracts with Customers~~2019-12, Income Taxes (Topic ~~606)" ,~~ ~~(“ASC 606”), amending revenue recognition guidance and requiring more detailed disclosures~~740): Simplifying the Accounting for Income Taxes which is intended to ~~enable users of financial statements~~simplify various aspects related to ~~understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers~~accounting for income taxes. The standard is effective for ~~annual~~fiscal years, and interim ~~reporting~~ periods within those years, beginning after December 15, ~~2017,~~2020, with early adoption ~~permitted for public companies effective for annual and interim reporting periods~~permitted. The standard was adopted beginning ~~after December 15, 2016. We have adopted the provisions of ASC 606 and the related amendments, effective~~ January 1, ~~2018, using the modified~~2021 on a retrospective ~~transition method. We recognized the cumulative effect~~basis. The adoption of ~~applying the new revenue standard~~ASU 2019-12 did not have an impact on our consolidated financial statements and recognized a $4.1 million increase to the opening balance of the accumulated deficit at the beginning of 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for the period presented. See Note 3, "Revenue Recognition" for more details.related disclosures.

In ~~January 2016,~~October 2020, the FASB issued ASU No. ~~2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement~~2020-10, Codification Improvements. ASU 2020-10 provides amendments to a wide variety of ~~Financial Assets and Financial Liabilities" (“Subtopic 825-10”). This guidance principally affects~~topics in the FASB’s Accounting Standards Codification, which applies to all reporting entities within the scope of the affected accounting standards for equity investments, financial liabilities where the fair value option has been elected, and the presentation and disclosure requirements for financial instruments. Upon the effective date of this new guidance, all equity investments in unconsolidated entities, other than those accounted for using the equity method of accounting, will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification and therefore no changes in fair value will be reported in other comprehensive income (loss) for equity securities with readily determinable fair values. This new guidance primarily impacts our accounting for equity investments. In February 2018, the FASB issued ASU 2018-03, "Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, that clarifies the guidance in ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10)~~." Prior to the adoption of ASC 825, we recognized unrealized holding gains and losses from our equity investment in CO2 Solutions in other comprehensive loss.~~guidance. We adopted ~~ASC 825 in~~ the first quarter of 2018 using a modified retrospective approach by means of a cumulative-effect adjustment to accumulated deficit. Upon adoption of ASC 825, we reclassified $0.5 million of unrealized loss (net of $0.6 million tax) from other accumulated comprehensive loss to beginning accumulated deficit. Any changes in the fair value of our equity investments, except those accounted for under the equity method, will be recognized in earningsstandard on ~~a prospective basis.~~

~~In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts~~January 1, 2021 and ~~Cash Payments~~" (“ASC 230”), which provides the FASB's guidance on certain cash flow statements items. ASC 230 is effective for fiscal reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. We adopted ASC 230 in the first quarter of 2018, and the adoptionit had no impact on our ~~annual~~ consolidated financial ~~statements.~~

~~In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230) Restricted Cash a consensus of the FASB Emerging Issues Task Force”~~ ~~(“ASC 230”). The standard requires restricted cash~~statements and restricted cash equivalents to be included with cash and cash equivalents on the statement of cash flows. We adopted ASU 2016-18 in the first quarter of 2018 and the adoption had no material impact on our annual consolidated financial statements. The effect of the adoption of ASC 230 on our consolidated statements of cash flows was to include restricted cash balances in the beginning and end of period balances of cash and cash equivalents and restricted cash. The change in restricted cash was previously disclosed in operating and investing activities in the consolidated statements of cash flows.

~~In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business”~~ ~~(“ASC 805”)~~. The guidance requires the use of a framework to determine whether a set of assets and activities constitutes an acquired or a sold business. The guidance is effective for fiscal reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. The amendments should be applied prospectively as of the beginning of the period of adoption. We adopted ASC 805 in the first quarter of 2018, and the adoption had no impact on our annual consolidated financial statements.

~~In May 2017, the FASB issued ASU No. 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”~~ ~~(“ASC 718”)~~. The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The new standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. We adopted ASC 718 in the first quarter of 2018 and the adoption had no impact on our annual consolidated financial statements.

~~In March 2018, the FASB issued ASU 2018-05, "Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118~~" (“ASC 740”) which amends Topic 740 by incorporating the SEC Staff Accounting Bulletin No. 118 (SAB 118) issued on December 22, 2017. SAB 118 provides guidance on accounting for the effects of the Tax Cuts and Jobs Act (Tax Reform) and allows a company to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. See Income Taxes section above for additional information.related disclosures.

Recently issued accounting pronouncements not yet adopted

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

In ~~February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)"~~ (“ASC 842”), which replaces prior lease guidance (“ASC 840”). This guidance establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statement of Operations. The guidance also eliminates today’s real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Entities have the option to use certain practical expedients. Full retrospective application is prohibited. ASC 842 is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. In July 2018, the FASB issued ASU 2018-10, "~~Codification Improvements to ASC 842, Leases~~." These amendments affect narrow aspects of the guidance issued in the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under ASC 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under ASC 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions. For entities that have not adopted ASC 842, the effective date and transition requirements will be the same as the effective date and transition requirements in ASC 842. The FASB also issued ASU 2018-11, ~~"Leases (Topic 842): Targeted Improvements."~~ These amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840, Leases). The amendments also provide lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under ASC 606 and certain criteria are met. If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with ASC 606. Otherwise, the entity must account for the combined component as an operating lease in accordance with ASC 842. For entities that have not adopted ASC 842 before the issuance of ASU No. 2018-11, the effective date and transition requirements for the amendments related to separating components of a contract are the same as the effective date and transition requirements in ASU No. 2016-02. We plan to adopt ASC 842 on January 1, 2019 using a modified retrospective approach and effective date method per adoption of ASU 2018-11. We will recognize and measure all leases within the scope of the standard that exist as of January 1, 2017, beginning of the earliest period, as if the standard had always been applied, subject to the practical expedients and transition relief in “Practical Expedients” section. In the current period, we evaluated the practical expedients elections and on adoption, and may apply a practical expedient in which an entity need not reassess whether any expired or existing contracts are or contain leases; An entity need not reassess the lease classification for any expired or existing leases (for example, all existing leases that were classified as operating leases in accordance with ASC 840 will be classified as operating leases, and all existing leases that were classified as capital leases in accordance with ASC 840 will be classified as finance leases); An entity need not reassess initial direct costs for any existing leases. We started the transition plan in the third quarter of 2018 and continued to perform the scoping work in the fourth quarter of 2018. We identified a total of 13 lease agreements that are subject to ASC 842 and seven of them meet the short-term lease exception. We completed the full analysis by January, 2019 and we evaluated the right-of-use (ROU) assets and lease liability using the incremental borrowing rate (IBR) at December 31, 2018 because the implicit rate is not readily determinable in the lease agreement. Upon adoption of ASC 842, all existing leases will be classified as either operating lease or finance lease. We expect to record a range from $20 million to $30 million of ROU assets and liabilities for operating leases and a range from $0.1 million to $0.8 million of ROU assets and liabilities for finance leases in

~~the balance sheet during the first quarter of 2019. This analysis was inclusive of the eighth amendment to the lease agreement disclosed in Note 16, “Subsequent Events.”~~

~~In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,~~" which amends the FASB's guidance on the impairment of financial instruments. The standard adds a new impairment model (known as the "current expected credit loss model") that is based on expected losses rather than incurred losses. ASU 2016-13 is effective for annual reporting periods ending after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements and related disclosures.

~~In January 2017, the~~May 2021, FASB issued ASU No. ~~2017-04, "Intangibles - Goodwill~~2021-04, Earnings Per Share (Topic 260), Debt—Modifications and ~~Other~~Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic ~~350): Simplifying~~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 ~~Test~~Emerging Issues Task Force. The standard establishes a principles-based framework in accounting for ~~Goodwill Impairment."~~ ~~The amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value~~modifications of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwillfreestanding equity-classified written call options on the ~~carrying amount~~basis of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2economic substance of the ~~goodwill impairment test. An entity still has~~underlying transaction. The standard also requires incremental financial statement disclosures. The standard affects entities that present earnings per share in accordance with the ~~option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.~~guidance in Topic 260, Earnings Per Share. The ~~new~~ standard is effective for fiscal years beginning after December 15, ~~2019,~~2021, including interim periods within those fiscal years with early adoption ~~permitted.~~is permitted by applying the standard as of the beginning of the fiscal year that includes that interim period. The standard may be adopted prospectively for modifications or exchanges occurring on or after the effective date. We ~~do not expect~~have evaluated that the adoption of ~~this standard to~~ASU 2021-04 will not have ~~a material~~an impact on our consolidated financial statements and related disclosures.

In ~~February 2018, the~~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. ~~2018-02,~~ ~~“Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. This standard allows a reclassification from accumulated other comprehensive income~~2020-06 August 2020 Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to ~~retained earnings for stranded tax effects resulting from~~reduce the ~~Tax Cuts~~complexity and Jobs Act and requires certain disclosures about stranded tax effects and will be effective for us beginning January 1, 2019 and should be applied either in the period of adoption or retrospectively. Early adoption is permitted. We do not expect this standard to ~~have any impact on our consolidated financial statements.~~

~~In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,~~" which expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently,simplify the accounting for ~~share-based payments to nonemployees~~convertible debt instruments and ~~employees will be substantially aligned.~~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. The ~~ASU supersedes Subtopic 505-50,~~ ~~Equity—Equity-Based Payments to Non-Employees. The new~~ standard is effective the for fiscal years beginning after December 15, ~~2018,~~2021, and interim periods within those fiscal years, with early adoption ~~permitted.~~permitted for fiscal periods beginning after December 15, 2020. The standard may be adopted on a modified retrospective or fully retrospective method of transition and on adoption, entities may irrevocably elect the fair value option in accordance with Subtopic 825-10, Financial Instruments—Overall, for any financial instrument that is a convertible security. We ~~do not expect~~have evaluated that the adoption of ~~this standard to~~ASU 2020-06 will not have ~~a material~~an impact on our consolidated financial statements and related disclosures.

In ~~July 2018,~~March 2020, the FASB issued ASU ~~2018-09,~~ ~~"Codification Improvements”,~~ which represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. The amendments in this ASU include those made to: Subtopic 220-10, I~~ncome Statement-Reporting Comprehensive Income-Overall; Subtopic 470-50,~~ ~~Debt-Modifications and Extinguishments;~~ ~~Subtopic 480-10,~~ ~~Distinguishing Liabilities from Equity-Overall;~~ ~~Subtopic 718-740,~~ ~~Compensation-Stock Compensation-Income Taxes;~~ ~~Subtopic 805-740, Business Combinations-Income Taxes; Subtopic 815-10,~~ ~~Derivatives and Hedging-Overall;~~ ~~Subtopic 820-10,~~ ~~Fair Value Measurement-Overall;~~ ~~Subtopic 940-405,~~ ~~Financial Services-Brokers and Dealers-Liabilities; and Subtopic 962-325,~~ ~~Plan Accounting-Defined Contribution Pension Plans-Investments-Other.~~ ~~The transition and effective date guidance is based on the facts and circumstances of each amendment. Some~~2020-04, Reference Rate Reform (Topic 848): Facilitation of the ~~amendments do not require transition guidance~~Effects of Reference Rate Reform on Financial Reporting. The standard provides optional expedients and ~~will~~exceptions for applying GAAP to contracts, hedging relationships, and other transactions in which the reference LIBOR or another reference rate are expected to be ~~effective upon issuance. However, many~~discontinued as a result of the ~~amendments do~~Reference Rate Reform. The standard is effective for all entities. The standard may be adopted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2022, on a prospective basis. We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to elect the optional expedients for contract modification; however, we believe that the adoption of ASU 2020-04 will have ~~transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. We do not expect this standard to have any material~~no significant impact on our consolidated financial ~~statements.~~statements and related disclosures.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~"Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement."~~ The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. In general, the amendments in this standard are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. We do not expect this standard to have any material impact on our consolidated financial statements.

~~In November 2018, the FASB issued ASU 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606.~~" ASU 2018-18 provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. The ASU also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. In general, for public companies, the amendments in this standard are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. We do not expect this standard to have any material impact on our consolidated financial statements.

~~In November 2018, the FASB issued ASU 2018-19,~~ ~~"Codification Improvements to Topic 326, Financial Instruments—Credit Losses."~~ ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard. In general, the amendments in this standard are effective for public business entities that meet the definition of a SEC filer for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We do not expect this standard to have any material impact on our consolidated financial statements.

Note 3.Revenue Recognition

On January 1, 2018, we adopted ASC 606, applying the modified retrospective method to all contracts that were not completed as of that date. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior period results are not adjusted and continue to be reported under the accounting standards in effect for the prior period. We recorded an increase to opening accumulated deficit of $4.1 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606. The impact on revenue for the year ended December 31, 2018 was an increase of $5.0 million as a result of adopting ASC 606. The increase in revenues from the adoption of ASC 606 was primarily due to revenue from a product that was recognized over time as we have a right to payment from the customer under a binding, non-cancellable purchase order, and there is no alternate use of the product for us as it is specifically for the customer’s use, and revenues from research and development contracts that were recognized when we had the right to invoice our customers for monthly services completed to date. Also, revenue from a distinct, functional license granted on January 1, 2018 contributed to the increase in revenue from the adoption of ASC 606.

We are entitled to certain future milestone payments under our collaborative arrangements. Such milestone payments represent variable consideration that was fully constrained as the realization of the variable consideration is highly uncertain.

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~~for 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).

We identified our biotherapeutics business as a standalone business segment in the beginning of 2018 and revenues related to the Novel Biotherapeutics segment were first generated in 2017. Therefore, segment information for fiscal year 2016 is not provided.

Segment information for each of the fiscal ~~year 2018 is~~years are as follows (in thousands):


	Year Ended December 31, 2021
	Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product revenue	$	70,657	$	—	$	70,657
Research and development revenue	19,858		14,239		34,097
Total revenues	$	90,515	$	14,239	$	104,754

Primary geographical markets:
Americas	$	16,114	$	7,367	$	23,481
EMEA	13,315		6,872		20,187
APAC	61,086		—		61,086
Total revenues	$	90,515	$	14,239	$	104,754


	Year Ended December 31, 2020
	Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product revenue	$	30,220	$	—	$	30,220
Research and development revenue	17,886		20,950		38,836
Total revenues	$	48,106	$	20,950	$	69,056

Primary geographical markets:
Americas	$	11,111	$	13,241	$	24,352
EMEA	11,548		7,709		19,257
APAC	25,447		—		25,447
Total revenues	$	48,106	$	20,950	$	69,056

Year Ended December 31, 2018
Performance Enzymes Novel Biotherapeutics Total
Major products and service:
Product Revenue $ 25,590
$ —
$ 25,590
Research and development revenue 21,483
13,521
35,004
Total revenues $ 47,073
$ 13,521
$ 60,594

Primary geographical markets:
Americas $ 15,332
$ 38
$ 15,370
EMEA 8,878
13,483
22,361
APAC 22,863
—
22,863
Total revenues $ 47,073
$ 13,521
$ 60,594

~~Segment information for fiscal year 2017 is as follows (in thousands):~~

Year Ended December 31, 2017
Performance Enzymes Novel Biotherapeutics Total
Major products and service:
Product Revenue $ 26,685
$ —
$ 26,685
Research and development revenue 15,648
7,691
23,339
Total revenues $ 42,333
$ 7,691
$ 50,024

Primary geographical markets:
Americas $ 15,575
$ —
$ 15,575
EMEA 11,919
7,691
19,610
APAC 14,839
—
14,839
Total revenues $ 42,333
$ 7,691
$ 50,024

The following table shows the reconciliation of contract liabilities from what was disclosed in the Form 10-K for the year ended December 31, 2017 and gives effect to the modified retrospective adoption of the revenue guidance on January 1, 2018 (in thousands):

Balance
Deferred Revenue, balance at December 31, 2017 $ 13,793
Changes in estimated consideration —
Unsatisfied performance obligations $ 5,173
Deferred Revenue, balance at January 1, 2018 $ 18,966


	Year Ended December 31, 2019
	Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product revenue	$	29,465	$	—	$	29,465
Research and development revenue	28,691		10,302		38,993
Total revenues	$	58,156	$	10,302	$	68,458

Primary geographical markets:
Americas	$	13,039	$	—	$	13,039
EMEA	26,831		10,302		37,133
APAC	18,286		—		18,286
Total revenues	$	58,156	$	10,302	$	68,458

Contract Balances

The following table presents ~~changes in the~~balances of contract assets, unbilled ~~receivable,~~receivables, contract costs, and contract liabilities (in thousands):

January 1, 2018 balance Additions
Deductions ⁽¹⁾
December 31, 2018
Contract Assets $ —
8,934
(8,899 ) $ 35
Unbilled receivables, current $ —
2,908
(992 ) $ 1,916
Unbilled receivables, non-current $ —
786
—
$ 786
Contract Costs $ 239
—
(197 ) $ 42
Contract Liabilities: Deferred Revenue $ 18,966
6,446
(17,124 ) $ 8,288

⁽¹⁾The asset or liability balances are presented as a net position per contract and accordingly the deductions column includes the netting effect of presenting each contract on a net position basis as either a net liability or asset.


	December 31, 2021		December 31, 2020
Contract assets	$	4,557	$	4,526
Unbilled receivables	$	8,558	$	10,942
Contract costs	$	56	$	90
Contract liabilities: deferred revenue	$	6,335	$	4,791

We recognize accounts receivable when we have an unconditional right to recognize revenue and have issued an invoice to the customer. Our payment terms are generally between 30 and 90 days. We recognize unbilled receivables when we have an unconditional right to recognize revenue and have not issued an invoice to our customer. Unbilled receivables ~~current~~ are transferred to accounts receivable on issuance of an invoice. Unbilled receivables ~~non-current are transferred to accounts receivable on issuance of an invoice; payment is expected from the customer thereon. Unbilled receivables~~ are classified separately on the consolidated balance ~~sheet~~sheets as assets. We maintain a valuation allowance on accounts receivables and unbilled receivables.

Contract assets represent our right to recognize revenue for custom products with no alternate use and under binding non-cancellable ~~purchase orders~~contracts and are largely related to our procurement of product. We recognize contract assets when we have a conditional right to recognize revenue. The ~~delivery pattern~~transfer of control of certain of products occurs in advance of the invoicing process, which generates contract assets. In addition, we recognize a contract asset related to milestones not eligible for royalty accounting when we assess it is probable of being achieved and there will be no significant reversal of cumulative revenues. Contract assets are classified separately on the consolidated balance ~~sheet~~sheets as an asset and transferred to accounts ~~receivable~~receivables when our rights to payment become unconditional.

Contract liabilities, or deferred revenue, represent our obligation to transfer a product or service to the customer, and for which we have received consideration from the customer. We recognize a contract liability when we receive advance customer payments under development agreements for research and development services, upfront license payments, and from upfront customer payments received under product supply agreements. Contract liabilities are classified as a liability on the consolidated balance sheet.

Contract costs relate to incremental costs of obtaining a contract with a customer. Contract costs are amortized along with the associated revenue over the term of the contract.

WeDuring the years ended December 31, 2021, 2020 and 2019, we had no asset impairment charges related to contract ~~assets in the period.~~assets.

~~During the year ended December 31, 2018, we~~We recognized the following revenues (in thousands):

Revenue recognized in the period for: Year Ended December 31, 2018
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied $ 13,615
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods 374
Performance obligations satisfied from new activities in the period - contract revenue 46,605
Total revenue $ 60,594


	Year Ended December 31,
Revenue recognized in the period for:	2021		2020
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied	$	1,858	$	57
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods	7,645		774
Performance obligations satisfied from new activities in the period - contract revenue	95,251		68,225
Total revenues	$	104,754	$	69,056

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 ~~period.~~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 December 31, ~~2018. We did not recognize any revenue from performance obligations satisfied in previous periods.~~2021.

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 (in thousands):


	2022		2023		2024		2025 and Thereafter		Total
Product revenue	$	89	$	87	$	120	$	2,985	$	3,281
Research and development revenue	2,497		557		—		—		3,054
Total revenues	$	2,586	$	644	$	120	$	2,985	$	6,335

2019 2020 2021 2022 and Thereafter Total
Product Revenue $ 2,201
$ 1,729
$ 1,623
$ —
$ 5,553
Research and development revenue 2,735
—
—
—
2,735
Total revenues $ 4,936
$ 1,729
$ 1,623
$ —
$ 8,288

~~Practical Expedients, Elections, and Exemptions~~

We used a practical expedient available under ASC 606 which permits us to consider the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.

We also used a practical expedient available under ASC 606 which permits us not to adjust the amount of consideration for the effects of a significant financing component if, at contract inception, the expected period between the transfer of promised goods or services and customer payment is one year or less.

We perform monthly services under our research and development agreements and we use a practical expedient available under ASC 606 permitting us to recognize revenue at the same time that we have the right to invoice our customer for monthly services completed to date.

~~We have elected to treat shipping and handling activities as fulfillment costs.~~

~~Additionally, we have elected to record revenue net of sales and other similar taxes.~~

~~Impact on Financial Statements~~

~~In accordance with ASC 606, the disclosure of the impact of adoption to our consolidated statements of operations and balance sheets was as follows (in thousands, except per share amounts):~~

Year Ended December 31, 2018
As reported
Adjustments
Balances without adoption of
ASC 606
Revenues:

Product revenue $ 25,590

$ (3,422 )
$ 22,168
Research and development revenue 35,004

(1,609 )
33,395
Total revenues 60,594

(5,031 )
55,563
Costs and operating expenses:

Cost of product revenue 12,620

(285 )
12,335
Research and development 29,978

(196 )
29,782
Selling, general and administrative 29,291

—

29,291
Total costs and operating expenses 71,889

(481 )
71,408
Loss from operations (11,295 )
(4,550 )
(15,845 )
Interest income 671

—

671
Other expenses (291 )
—

(291 )
Loss before income taxes (10,915 )
(4,550 )
(15,465 )
Provision for (benefit from) income taxes (37 )
—

(37 )
Net loss $ (10,878 )
$ (4,550 )
$ (15,428 )

Net loss per share, basic and diluted $ (0.21 )
$ (0.09 )
$ (0.30 )
Weighted average common shares used in computing net loss per share, basic and diluted 52,205

52,205

December 31, 2018
As reported
Adjustments
Balances without adoption of
ASC 606
Assets

Accounts receivable $ 11,551

$ (1,253 )
$ 10,298
Unbilled receivables, current 1,916

(1,916 )
—
Contract assets 35

(35 )
—
Inventories 589

1

590
Unbilled receivables, non-current 786
(786 ) —
Other non-current assets 265

(42 )
223
Liabilities

Other accrued liabilities 4,855

(520 )
4,335
Deferred revenue - current 4,936

(1,574 )
3,362
Deferred revenue - non-current 3,352

(1,445 )
1,907
Stockholders' equity

Accumulated deficit (330,474 )
(492 )
(330,966 )

Note 4. Net Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding, less ~~RSAs~~restricted stock awards (“RSAs”) subject to forfeiture. Diluted net loss per share is computed by dividing net 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. For all periods presented, diluted and basic net ~~losses~~loss per share are identical since potential common stock shares are excluded from the calculation, as their effect was anti-dilutive.

Anti-Dilutive Securities

In periods of net loss, the weighted average number of shares outstanding, ~~related to potentially dilutive securities,~~ prior to the application of the treasury stock method, ~~are excluded~~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 shares were not ~~included~~considered in the computation of diluted net loss per share because their effect was anti-dilutive (in thousands):


	Year Ended December 31,
	2021	2020	2019
Shares issuable under the Equity Incentive Plan	5,215	5,348	4,763

Year Ended December 31,
2018 2017 2016
Shares issuable under Equity Incentive Plan 6,339
6,882
5,567
Shares issuable upon the conversion of warrants —
—
73
Total anti-dilutive securities 6,339
6,882
5,640

Note 5. Collaborative Arrangements

Deferred revenue amounts discussed herein as of December 31, 2017 are derived from our Form 10-K for the year ended December 31, 2017. On January 1, 2018 we adopted Topic 606 and subsequently adjusted deferred revenue to give effect to the modified retrospective adoption of the revenue guidance. See Note 3, “Revenue Recognition” for additional information.

GSK Platform Technology Transfer, Collaboration and License Agreement

In July 2014, we entered into a CodeEvolver^® protein engineering platform technology transfer collaboration and license agreement (the ~~"GSK~~“GSK CodeEvolver^®~~Agreement"~~Agreement”) with ~~GlaxoSmithKline ("GSK").~~GSK. Pursuant to the terms of the agreement, we granted GSK a non-exclusive license to use the CodeEvolver^® protein engineering platform technology to develop novel enzymes for use in the manufacture of GSK's pharmaceutical and health care products.

~~We received an upfront fee upon the execution of the agreement in July 2014 and milestone payments in each of the years from 2014 through April 2016.~~ We completed the transfer of the CodeEvolver^®protein engineering platform technology to GSK in April 2016 and all revenues relating to the technology transfer have been recognized as of April 2016. WeDepending upon GSK's successful application of the licensed technology, we have the potential to receive additional ~~cumulative~~ contingent payments that range from $5.75 million to $38.5 million per ~~project based on GSK’s successful application~~project.

In 2019, we received a $2.0 million milestone payment relating to the advancement of an enzyme developed by GSK using our CodeEvolver® protein engineering platform technology. In 2021, we received 2 additional milestone payments from GSK under the ~~licensed technology.~~agreement. We ~~are also eligible to receive royalties based on net sales~~recognized research and development revenue of ~~GSK’s sales of licensed enzyme products that are currently not being recognized.~~$4.3 million, nil, and $2.0 million in the years ended December 31, 2021, 2020, and 2019, respectively.

Merck Platform Technology Transfer and License Agreement

In August 2015, we entered into a CodeEvolver^® platform technology transfer collaboration and license agreement (the ~~"Merck~~“Merck CodeEvolver^®~~Agreement"~~Agreement”) with Merck, Sharp & Dohme ~~("Merck"~~(“Merck”) which allows Merck to use the CodeEvolver^®protein engineering technology platform in the field of human and animal healthcare.

~~We received a $5.0 million up-front license fee upon execution~~ In 2016, we completed the final phase in the transfer of CodeEvolver® technology to Merck under the Merck CodeEvolver^® ~~Agreement, and milestone payments in September 2015 and in September 2016, when we completed the transfer of the engineering platform technology.~~ Agreement.

We recognized research and development revenues ~~of $4.1~~of $0.6 million ~~$3.6~~, $3.1 million, and ~~$3.0~~$4.0 million in ~~2018, 2017~~the years ended December 31, 2021, 2020 and ~~2016,~~2019, respectively, for various research projects under our collaborative arrangement.

We have the potential to receive payments of up to a maximum of $15.0 million for each commercial active pharmaceutical ingredient ~~("API"~~(“API”) that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver^® protein engineering technology platform. The API payments, which are currently not recognized in revenue, are based on the quantity of API developed and manufactured by Merck and will be recognized as usage-based royalties.

In October 2018, we entered into an amendment to the Merck CodeEvolver^® Agreement ~~whereby we~~which amended certain licensing provisions and one exhibit. In January 2019, we ~~entered into an amendment to~~amended the Merck CodeEvolver^® Agreement ~~whereby we will~~to install certain CodeEvolver^®protein engineering technology upgrades into Merck’s platform license installation and maintain those upgrades for a multi-year ~~term.~~term expiring in January 2022. The license installation was completed in 2019 and we recognized $0.9 million as license fee revenue accordingly under the amendment. We recognized $0.1 million, $0.1 million and $0.9 million in research and development revenues under the terms of the amendment in 2021, 2020 and 2019 respectively.

Merck Sitagliptin Catalyst Supply Agreement

In February 2012, we entered into a five-year Sitagliptin Catalyst Supply Agreement (“Sitagliptin ~~Catalyst~~ Supply Agreement”) with Merck whereby Merck may obtain commercial scale enzyme for use in the manufacture of Januvia^®, its product based on the active ingredient Sitagliptin. In December 2015, Merck exercised its ~~option~~options under the terms of the Sitagliptin Catalyst Supply Agreement to extend the agreement for an additional five years through February 2022. In September 2021, the Sitagliptin Catalyst Supply Agreement was amended to extend the agreement through December 2026.

Effective as of January 2016, we and Merck amended the Sitagliptin ~~Catalyst~~ Supply Agreement to prospectively provide for variable pricing based on the cumulative volume of sitagliptin ~~catalyst~~enzyme purchased by Merck and to allow Merck to purchase a percentage of its requirements for sitagliptin catalyst from a specified third-party supplier. Merck received a distinct, functional license to manufacture a portion of its demand beginning January 1, 2018, which we recognized as research and development revenue. We recognized research and development revenues of $1.3 million, $1.3 million and $1.3 million in 2018, 2017 and 2016, respectively.

~~In June 2017, we completed a contractual milestone by qualifying the specified third-party enzyme supplier and recognized $0.3 million as research and development revenues.~~

Merck. We have determined that the variable pricing, which provides a discount based on the cumulative volume of ~~sitagliptin~~Sitagliptin catalyst purchased by Merck, provides Merck material rights and we are recognizing product revenues over time using the alternative method. Under the alternative approach, we estimate the total expected consideration and allocate it proportionately with the expected sales.

The Sitagliptin Catalyst Supply Agreement requires Merck to pay an annual fee for the rights to the sitagliptin technology each year for the term of the Sitagliptin Catalyst Supply Agreement. Amounts of annual license fees are based on contractually agreed prices and are on a declining scale over the term of the contract.

~~We had a deferred revenue balance from Merck of $3.6 million at December 31, 2018 and $1.5 million at December 31, 2017.~~ Pursuant to the terms of the Sitagliptin ~~Catalyst~~ Supply Agreement, Merck may purchase supply of sitagliptin enzyme from us for a fee based on contractually stated ~~prices and we~~prices. We recognized ~~$12.3~~ $9.8 million ~~$9.0~~, $13.4 million and ~~$5.9~~$15.1 million ~~in 2018, 2017 and 2016, respectively,~~ in product revenue under this ~~agreement.~~contract for the years ended December 31, 2021, 2020 and 2019, respectively. Revenues recognized by us under the Sitagliptin Supply Agreement comprised 9%, 19%, and 22% of our total revenues for the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021, we recorded revenue of $2.8 million from sitagliptin enzyme sales that were recognized over time based on the progress of the manufacturing process. These products will be shipped within the six months period following the end of the quarter.

Enzyme Supply Agreement

In November 2016, we entered into a supply agreement whereby our customer may purchase quantities of one of our proprietary enzymes for use in its commercial manufacture of a product. Pursuant to the supply agreement, we received an upfront payment ~~of $0.8 million~~ in December 2016 which ~~we accordingly~~was recorded as deferred ~~revenues.~~revenue. Such upfront payment will be recognized over the period of the supply agreement as the customer purchases our proprietary enzyme. We additionally have determined that the volume discounts under the supply agreement ~~provides~~provide the customer material rights and we are recognizing revenues using the alternative method. As of December 31, ~~2018~~2021 and ~~2017,~~2020, we had deferred revenue balances from the supply agreement of ~~$2.0~~$2.6 million and ~~$0.7 million, respectively.~~$2.0 million.

Research and Development Agreement

In March 2017, we entered into a multi-year research and development services agreement with Tate & Lyle Ingredients Americas LLC ("(“Tate & ~~Lyle"~~Lyle”) to develop enzymes for use in the manufacture of Tate & Lyle’s zero-calorie TASTEVA^® M Stevia sweetener. Under the agreement, we received an upfront payment ~~of $3.0 million,~~ which was ~~originally~~ recognized ratably over the maximum term of the ~~services~~service period of 21 months. ~~Beginning January 1, 2018,~~

Commercial Agreement

In April 2019, we ~~are recognizing revenue using~~ entered into a ~~single measure of progress that depicts our performance in transferring the services. During the second quarter of 2018,~~multi-year commercial agreement with Tate & Lyle ~~opted~~under which Tate & Lyle has received an exclusive license to ~~obtain additional development services that~~use a suite of Codexis novel performance enzymes in the manufacture of Tate & Lyle’s zero-calorie stevia sweetener, TASTEVA® M, and other stevia products. Under the agreement, we ~~completed by June 30, 2018~~will supply Tate & Lyle with its requirements for these enzymes over a multiple year period and receive royalties on stevia products. In November 2020, we ~~earned~~

100

amended the commercial agreement based on Tate & Lyle's intent to use a specific Codexis novel performance enzyme in its production of TASTEVA® M Stevia Sweetener and became eligible to receive milestone payments ~~upon completion~~ of up to $1.1 million. In the ~~services. We recognized $7.1~~fourth quarter of 2020, we became eligible to receive a milestone payment of $0.4 million ~~and $3.2 million of revenue~~which we subsequently received in 2018 and 2017, respectively, for research and development services under the research and development agreement. As of December 31, 2018 and 2017, we had deferred revenue from the development services agreement of zero and $3.1 million, respectively.

February 2021.

Global Development, Option and License Agreement and Strategic Collaboration Agreement

In October 2017, we entered into ~~a Global Development, Option and~~the Nestlé License Agreement ~~(the "Nestlé Agreement")~~ with ~~Nestec Ltd. ("~~Nestlé Health ~~Science")~~Science and, solely for the purpose of the integration and the dispute resolution clauses of the Nestlé License Agreement, Nestlé Health Science S.A., to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU.

We received an upfront cash payment of $14.0 million in 2017 upon the execution of the Nestlé License Agreement, ~~and~~ a $4.0 million milestone payment ~~60 days~~received in 2018 after dosing the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114, ~~for the potential treatment of PKU. The $4.0~~and a $1.0 million milestone payment ~~that was triggered by the initiation of the trial was~~ received in ~~September 2018.~~2019 upon achievement of a milestone relating to formulation of CDX-6114. The upfront payment and the variable consideration relating to the progress payment of $4.0 million ~~are being~~and a milestone payment of $1.0 million were recognized over time as the development work ~~is being~~was performed. Revenue ~~is being~~was recognized using a single measure of progress that ~~depicts~~depicted our performance in transferring control of the services, which iswas based on the ratio of level of effort incurred to date compared to the total estimated level of effort required to complete all performance obligations under the agreement. We recognized ~~development fees of $9.9~~nil, $13 thousand and $1.9 million in ~~2018 as~~ research and development revenue in 2021, 2020 and $7.2 million in 2017. We had deferred revenue related to the development fees attributed to the milestone payment and up-front fees of $1.9 million at December 31, 2018 and $6.8 million at December 31, 2017.2019, respectively.

~~In December 2018, Nestlé Health Science became obligated to pay us an additional $1.0 million within 60 days after the achievement of a milestone relating to formulation of CDX-6114.~~ In January 2019, we received notice from the ~~U.S. Food and Drug Administration (the “FDA”)~~FDA that it had completed its review of our ~~investigational new drug application (“IND”)~~IND for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sub-licensable license for the global development and commercialization of CDX-6114 for the management of ~~PKU. As a result~~PKU and made an option payment of ~~the option exercise, Nestlé Health Science is obligated to pay us~~ $3.0 million ~~within 60 days after exercise of the option.~~which we recognized as research and development revenue in 2019. Upon exercising its option, Nestlé Health Science ~~has~~ assumed all responsibilities for future clinical development and commercialization of ~~CDX-6114, with the exception of the completion of an extension study, CDX - 6114-004, which is expected~~CDX-6114. We are also eligible to be completed in the second quarter of 2019. See Note 16, “Subsequent Events” in the notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K for details. Other potentialreceive payments from Nestlé Health Science ~~to us~~ under the Nestlé License Agreement that include (i) development and approval milestones of up to ~~$86.0~~$85.0 million, (ii) sales-based milestones of up to $250.0 million in the aggregate, which aggregate amount is achievable if net sales exceed $1.0 billion in a single year, and (iii) tiered royalties, at percentages ranging from the ~~middle single~~mid-single digits to low double-digits of net sales of ~~Product.~~product.

In ~~addition to~~October 2017, we entered into the Nestlé ~~Agreement, we and Nestlé Health Science concurrently entered into a Strategic Collaboration Agreement (the “Strategic Collaboration Agreement”)~~SCA pursuant to which we and Nestlé Health Science ~~will collaborate~~are collaborating to leverage the CodeEvolver^® protein engineering technology platform to develop novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas. The term of the Nestlé SCA has been extended through December 2022.

In January 2020, we entered into a development agreement with Nestlé Health Science pursuant to which we and Nestlé Health Science are collaborating to advance a lead candidate, CDX-7108, targeting a gastrointestinal disorder discovered through our Nestlé SCA into preclinical and early clinical studies. During 2021, we, together with Nestlé Health Science, continued to advance CDX-7108 towards initiation of a Phase 1 clinical trial with the first subject being dosed in November 2021.

Under the ~~Strategic Collaboration Agreement,~~Nestlé SCA and the development agreement, we ~~received an upfront payment of $1.2~~recognized $6.9 million, ~~in 2017~~$7.9 million and ~~an incremental $0.6~~$5.4 million ~~payment~~ in ~~September 2018 for additional services. We recognized~~ research and development ~~fees of $3.6 million and $0.5 million in 2018 and 2017, respectively. As of~~revenue for the years ended December 31, ~~2018~~2021, 2020 and ~~2017, we had deferred revenue of $0.8 million and $1.1 million,~~2019, respectively.

Strategic Collaboration Agreement

In April 2018, we entered into the Porton Agreement with Porton to license key elements of ~~Codexis’~~our biocatalyst technology for use in Porton’s global custom intermediate and API development and manufacturing ~~business.~~business. Under the Porton Agreement, we are eligible to receive annual collaboration fees and research and development revenues. We ~~have the potential to receive performance payments based on products produced by Porton using our company technology under the license agreement. We~~ received an initial collaboration ~~fee~~payments of $0.5 million and $0.5 million within 30 days of the effective date and on the first anniversary of the ~~agreement. As~~effective date of ~~December 31, 2018, we~~the Porton Agreement, respectively. We also received annual collaboration payments of $1.0 million each during the first through third anniversaries of the effective date of the Porton Agreement and are eligible to receive $1.0 million on the fourth anniversary of the effective date of the Porton Agreement. We completed the technical transfer in the fourth quarter of 2018 and werecognized the related revenue in 2018. We recognized revenue ~~of $2.8 million in 2018 as research and development revenue. Revenue relating~~related to the functional license provided to Porton ~~was recognized~~ at a point in time when control of the license was transferred to the customer. We recognized research and development revenue related to the Porton Agreement of $1.1 million, $1.1 million and nil in the years ended December 31, 2021, 2020 and 2019, respectively.

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Platform Technology Transfer and License Agreement

In May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver® Agreement”) with Novartis. The Agreement allows Novartis to use our proprietary CodeEvolver® protein engineering platform technology in the field of human healthcare. In July 2021, we announced the completion of the technology transfer period during which we transferred our CodeEvolver® protein engineering platform technology to Novartis (the “Technology Transfer Period”). As a part of this technology transfer, the Company provided to Novartis our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms. In addition, our teams and Novartis scientists participated in technology training sessions and collaborative research projects at our laboratories in Redwood City, California and at a designated Novartis laboratory in Basel, Switzerland. Novartis has now installed the CodeEvolver® protein engineering platform technology at its designated laboratory.

Pursuant to the agreement, we received an upfront payment of $5.0 million shortly after the effective date of the Novartis CodeEvolver® Agreement. We completed the second technology milestone transfer under the agreement in 2020 and received a milestone payment of $4.0 million. We have also received an aggregate of $5.0 million for the completion of the third technology milestone in 2021 In consideration for the continued disclosure and license of improvements to the technology and materials during a multi-year period that began on the conclusion of the Technology Transfer Period (“Improvements Term”), Novartis will pay Codexis annual payments over four years which amount to an additional $8.0 million in aggregate. The Company also has the potential to receive quantity-dependent, usage payments for each API that is manufactured by Novartis using one or more enzymes that have been developed or are in development using the CodeEvolver® protein engineering platform technology during the period that began on the conclusion of the Technology Transfer Period and ends on the expiration date of the last to expire licensed patent. Revenue for the combined initial license and technology transfer performance obligation was recognized using a single measure of progress that depicted our performance in transferring control of the services. Revenue allocated to improvements made during the Improvements Term are being recognized during the Improvement Term.

We recognized $1.6 million, $6.2 million and $11.3 million in research and development revenue in the year ended December 31, 2021, 2020 and 2019, respectively.

License Agreement

In December 2019, we entered a license agreement with Roche Sequencing Solutions, Inc. (“Roche”) to provide Roche with our EvoT4 DNA™ ligase high-performance molecular diagnostic enzyme. The royalty bearing license grants Roche worldwide rights to include the EvoT4 DNA™ ligase in its nucleic acid sequencing products and workflows. Under the license agreement, we received an initial collaboration fee payment of $0.8 million within 45 days of the effective date of the agreement, and we received an additional $0.9 million milestone payment after the completion of technology transfer in October 2020. The agreement also contemplates milestone payments to Codexis upon the achievement of various development and commercialization events and royalty payments from commercial sales of the enzyme. We recognized research and development fees of $0.9 million and $0.9 million for the years ended December 31, 2021 and 2020, respectively.

Strategic Collaboration and License Agreement

In March 2020, we entered into a Strategic Collaboration and License Agreement (the “Takeda Agreement”) with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Co. Ltd. (“Takeda”) under which we are collaborating to research and develop protein sequences for use in gene therapy products for certain diseases (each, a “Field”) in accordance with each applicable program plan (each, a “Program Plan”).

On execution of the Takeda Agreement in March 2020, we received an upfront nonrefundable cash payment of $8.5 million and we initiated activities under three Program Plans for Fabry Disease, Pompe Disease, and an undisclosed blood factor deficiency respectively (the “Initial Programs”). In May 2021, Takeda elected to exercise its option to initiate an additional program for a certain undisclosed rare genetic disorder; as a result, we received the option exercise fee during the third quarter of 2021. Pursuant to the Takeda Agreement, we are eligible to receive other payments that include (i) reimbursement of research and development fees and preclinical development milestones for the three initial programs of $10.5 million, in aggregate, and $8.3 million for the fourth program, (ii) clinical development and commercialization-based milestones, per target gene, of up to $100.0 million and (iii) tiered royalty payments based on net sales of applicable products at percentages ranging from the mid-single digits to low single-digits.

Revenue recognized relating to the functional licenses provided to Takeda was recognized at a point in time when the control of the license transferred to the customer. We recognized research and development revenue related to the Takeda Agreement of $7.4 million and $13.2 million in the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, we had deferred revenue balances of $2.2 million and $1.5 million, respectively.

102

Master Collaboration and Research Agreement and Stock Purchase Agreement

In June 2020, we entered into a Stock Purchase Agreement with MAI in which we purchased 1,587,050 shares of MAI's Series A preferred stock for $1.0 million. In connection with the June 2020, transaction, John Nicols, our President and Chief Executive Officer, joined MAI’s board of directors. For additional information, see Note 14, "Related Party Transactions".

Concurrent with our initial equity investment, we entered into a Master Collaboration and Research Agreement with MAI (the “MAI Agreement”) in June 2020, pursuant to which we are performing services utilizing our CodeEvolver® protein engineering platform technology to improve DNA polymerase enzymes in exchange for compensation in the form of additional shares of MAI's preferred stock. Based on these services, the Company is eligible to earn additional shares of MAI's preferred stock. MAI will combine its advanced chemistries with our enzymes to drive the process to commercialization. We are eligible to earn such non-monetary payments over 14 months, and any such shares would be issued thirty days in arrears after each calendar quarter-end. We are also eligible to receive amounts for bonuses, targets and milestones on achievement of timeline and project goals specified in the statement of work ("SOW"). Payments for bonuses, targets and milestones on achievement of timeline and project goals are to be issued thirty days after the Company provides notification of completion. Under the MAI Agreement, we will have the right to use and sell the engineered enzymes to third parties for any purpose other than for the synthesis of native DNA. Under the MAI Agreement, we would make a $0.5 million payment to MAI upon our achievement of a milestone of $5.0 million in aggregate commercial sales to third parties of the engineered enzymes or any product incorporating or derived from the engineered enzymes for any purpose other than the synthesis of native DNA. The MAI Agreement contemplates that we and MAI will enter into a Commercialization and Enzyme Supply Agreement (the “CESA”) within six months following the completion of certain timelines specified in the SOW. In addition, we and MAI have agreed to certain terms to be contained within the CESA in the event that the CESA becomes executed in the future. Those include: (a) that MAI would receive an exclusive license to use the DNA polymerase enzymes engineering by us under the MAI Agreement in the synthesis of native DNA and a non-exclusive license to use these enzymes for research and development on the synthesis of non-native DNA, and (b) we would become the exclusive manufacturer of these enzymes for MAI, its affiliates and licensees.

We received 3,491,505 and 714,171 shares of MAI's Series A and B preferred stock and recognized $2.0 million and $0.9 million from these services in the years ended December 31, 2021 and 2020, respectively. Payment for the services rendered was received in the form of additional MAI Series A and Series B preferred stock.

Pfizer purchase orders

In the first and second quarters of 2021, we began to receive purchase orders from Pfizer, Inc. (“Pfizer”) for large quantities of our proprietary enzyme product, CDX-616, for use by Pfizer in the manufacture of a critical intermediate for its proprietary active pharmaceutical ingredient, nirmatrelvir.Pfizer markets, sells and distributes nirmatrelvir, in combination with the active pharmaceutical ingredient ritonavir, as its PAXLOVID™ (nirmatrelvir tablets; ritonavir tablets) product, which received emergency use authorization by the U.S. Food and Drug Administration (“FDA”) in late 2021 for the treatment of COVID-19 infections in humans.

We recognized product revenue of $34.5 million from the sale of quantities of CDX-616 enzyme products to Pfizer in 2021. Revenues recognized by us from the sale to Pfizer comprised 33% of our total revenues for the year ended December 31, 2021. As of December 31, 2021, we recorded revenue and contract assets of $1.7 million from the sale of this enzyme product that were recognized over time based on the progress of the manufacturing process.

Note 6. ~~Cash Equivalents~~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 ~~Equity Securities~~

~~Cash equivalents~~other significant unobservable inputs including volatility, rights, and ~~equity securities at December 31, 2018 and 2017 consisted~~obligations of the ~~following (in thousands):~~securities we hold.

December 31, 2018
Adjusted Cost
Gross Unrealized Gains ⁽³⁾
Gross Unrealized Losses (3)
Estimated
Fair Value

Average
Contractual
Maturities
(in days)
Money market funds ⁽¹⁾
$ 31,225
$ —
$ —
$ 31,225
n/a
Common shares of CO₂ Solutions ⁽²⁾
563
25
—
588
n/a
Total $ 31,788
$ 25
$ —
$ 31,813

December 31, 2017
Adjusted Cost Gross Unrealized Gains (3) Gross Unrealized Losses (3)
Estimated
Fair Value

Average
Contractual
Maturities
(in days)
Money market funds ⁽¹⁾
$ 6,778
$ —
$ —
$ 6,778
n/a
Common shares of CO₂ Solutions ⁽²⁾
563
108
—
671
n/a
Total $ 7,341
$ 108
$ —
$ 7,449

⁽¹⁾~~Money market funds are classified in cash and cash equivalents~~We determine gains or losses on ~~our consolidated balance sheets.~~

⁽²⁾~~Common shares~~the sale or extinguishment of CO₂ ~~Solutions are classified in equity~~non-marketable debt securities ~~on our consolidated balance sheets.~~

⁽³⁾Asusing a ~~result of adopting ASU 2016-01, in 2018 and thereafter gross unrealized~~specific identification method. Unrealized gains and ~~gross unrealized~~ losses ~~related to our investment in CO~~₂ ~~Solutions were recognized in~~from bifurcated embedded derivatives, which represent share-settled redemption features, are recorded as other expense, net, in the consolidated statements of operations. ~~Prior to 2018 gross unrealized~~Unrealized gains and ~~gross unrealized~~ losses ~~related to~~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 (expense), net.

103

In November 2020, we purchased convertible subordinated notes issued by Arzeda Corp., an early-stage computational protein design company, for $1.0 million. The investment was classified as available-for-sale non-marketable interest-bearing debt securities with a carrying value of $1.0 million as of December 31, 2020. 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 year ended December 31, 2021, we recognized $0.3 million in interest income from interest earned on our investment in CO₂ ~~Solutions~~this debt security.

There were ~~recorded~~no investments in ~~accumulated other comprehensive loss on the balance sheet.~~

non-marketable debt securities at December 31, 2021.As of December 31, ~~2018,~~2020, the ~~total cash~~adjusted cost, carrying value and ~~cash equivalents balance~~fair value of ~~$53.0 million was comprised of money~~the non-marketable debt security is the following (in thousands):


	December 31, 2020
	Adjusted Cost and Carrying Value		Fair Value
Non-marketable debt securities due in 1 year or less	$	1,000	$	1,000

Non-Marketable Equity Securities

Our non-marketable equity securities are investments in privately held companies without readily determinable market ~~funds of $31.2 million~~value and cash of $21.8 million held with major financial institutions worldwide. As of December 31, 2017, the total cash and cash equivalents balance of $31.2 million was comprised of money market funds of $6.8 million and cash of $24.4 million held with major financial institutions worldwide.

~~In December 2009, we purchased 10,000,000 common shares of CO~~₂ ~~Solutions, a company based in Quebec, Canada, whose shares are publicly traded in Canada on TSX Venture Exchange. Our purchase represented approximately 16.6% of CO~~₂ Solutions’ total common shares outstanding at the time of investment and was made in a private placement subject to a four-month statutory resale restriction. This restriction expired on April 15, 2010. Our investment in CO₂ ~~Solutions is recorded at its fair value. See Note 7, “Fair Value Measurements.” Through December 31, 2018, we concluded that we did not have the ability to exercise significant influence over CO~~₂ ~~Solutions’ operating and financial policies.~~

~~On January 1, 2018, we adopted ASU 2016-01. Upon adoption, we reclassified the $0.5 million net unrealized loss from accumulated other comprehensive loss~~primarily relate to our ~~opening accumulated deficit.~~

~~In 2018,~~investments in MAI and Arzeda Corp. 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 security 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 ~~recognized an unrealized loss~~estimate the fair value of ~~$84 thousand related to our investment in CO~~₂ ~~Solutions in~~these 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 ~~expense,~~income (expense), net in the consolidated statements of operations.

For the year ended December 31, 2021, we recognized a $1.0 million unrealized gain in other income (expense), net, in the consolidated statements of operations, and included as adjustment to the carrying value of our investment in MAI based on an analysis of observed transaction price from MAI's recent round of financing during the third and fourth quarter of 2021. There was no remeasurement event for our investment in MAI and Arzeda Corp that occurred during the remainder of 2021. We recognized no realized gains or losses during the years ended December 31, 2021 and 2020. The carrying value of our investment in MAI was $12.7 million and $1.5 million at December 31, 2021 and December 31, 2020, respectively. The carrying value of our investment in Arzeda Corp. was $1.3 million at December 31, 2021.

The following table presents the carrying value of non-marketable equity securities (in thousands):


	December 31, 2021		December 31, 2020
Non-marketable equity securities	$	14,002	$	1,450

Note 7. Fair Value Measurements

The following tables present the financial instruments that were measured at fair value on a recurring basis at December 31, ~~2018~~2021 and ~~2017~~2020 by level within the fair value hierarchy (in thousands):


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Money market funds	$	86,095	$	—	$	—	$	86,095


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Money market funds	$	127,567	$	—	$	—	$	127,567
Non-marketable debt security	—		—		1,000		1,000
Total	$	127,567	$	—	$	1,000	$	128,567

December 31, 2018
Level 1 Level 2 Level 3 Total
Money market funds $ 31,225
$ —
$ —
$ 31,225
Common shares of CO₂ Solutions
588
—
—
588
Total $ 31,813
$ —
$ —
$ 31,813

December 31, 2017
Level 1 Level 2 Level 3 Total
Money market funds $ 6,778
$ —
$ —

$ 6,778
Common shares of CO₂ Solutions
—

671
—
671
Total $ 6,778
$ 671
$ —
$ 7,449

~~We determine~~During the ~~fair value of Level 1 and Level 2 assets using quoted prices in active markets for identical assets. We estimated the fair value of our investment in 10,000,000 common shares of CO~~₂ ~~Solutions using the market value of common shares as determined by trading on the TSX Venture Exchange, and we classified our investment in CO~~₂~~Solutions within the fair value hierarchy as Level 1 and Level 2, at~~years ended December 31, ~~2018~~2021 and ~~December 31, 2017, respectively, using the quoted prices in an active market to determine their fair value.~~2020, we did not recognize any significant credit losses nor other-than-temporary impairment losses on non-marketable securities.

A review of the fair value hierarchy classifications of our investments is conducted annually. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets. Reclassifications are reported as transfers in or transfers out of the applicable level at end of the calendar year in which the reclassifications occur. In the fourth quarter of 2018, we reclassified the $0.6 million fair value of the investment in the common shares of CO₂ Solutions from Level 2 to Level 1 within the fair value hierarchy since we concluded that there was a sufficient level of transactional frequency and trading volume to indicate that the pricing information was representative of its fair value on an ongoing basis. (See also Note 6, “Cash Equivalents and Equity Securities” for additional information.)

104

Note 8. Balance ~~Sheets~~Sheet Details

~~Accounts receivable~~Cash Equivalents

~~The~~Cash equivalents consisted of the following ~~is a summary of activity in our allowance for doubtful accounts for the periods presented~~ (in thousands):


	December 31, 2021				December 31, 2020
	Adjusted Cost		Estimated Fair Value		Adjusted Cost		Estimated Fair Value
Money market funds (1)	$	86,095	$	86,095	$	127,567	$	127,567

(1) Money market funds are classified in cash and cash equivalents on our consolidated balance sheets. Average contractual maturities (in days) is not applicable.

December 31,
2018 2017 2016
Allowance - beginning of period $ (34 ) $ (421 ) $ (421 )
Write-offs and other ⁽¹⁾
—
387
—
Allowance - end of period $ (34 ) $ (34 ) $ (421 )

⁽¹⁾~~The change in allowance for doubtful accounts was mainly related to~~As of December 31, 2021, the ~~write-off~~total cash and cash equivalents balance of ~~receivables from a foreign customer.~~$116.8 million consisted of money market funds of $86.1 million and cash of $30.7 million held with major financial institutions. As of December 31, 2020, the total cash and cash equivalents balance of $149.1 million consisted of money market funds of $127.6 million and cash of $21.5 million held with major financial institutions.

Inventories

Inventories consisted of the following (in thousands):


	December 31,
	2021		2020
Raw materials	$	49	$	77
Work in process	65		82
Finished goods	1,046		805
Inventories	$	1,160	$	964

December 31,
2018 2017
Raw materials $ 165
$ 158
Work in process 47
53
Finished goods 377
825
Inventories $ 589
$ 1,036
Inventories are recorded net of reserves of $1.4 million and $1.5 million as of December 31, 2021 and December 31, 2020 respectively.

Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):


	December 31,
	2021		2020
Laboratory equipment (1)	$	33,101	$	25,468
Leasehold improvements	16,117		10,785
Computer equipment and software	3,481		3,192
Office equipment and furniture	1,297		1,246
Construction in progress (2)	3,231		2,357
Property and equipment	57,227		43,048
Less: accumulated depreciation and amortization	(35,882)		(33,373)

Property and equipment, net	$	21,345	$	9,675

December 31,
2018 2017
Laboratory equipment ⁽¹⁾
$ 21,328
$ 19,777
Leasehold improvements 10,359
10,327
Computer equipment and software 3,954
3,695
Office equipment and furniture 1,272
1,185
Construction in progress ⁽²⁾
939
85
Property and equipment 37,852
35,069
Less: accumulated depreciation and amortization (33,093 ) (32,254 )
Property and equipment, net $ 4,759
$ 2,815

⁽¹⁾Fully depreciated ~~laboratory~~property and equipment with a cost of ~~$0.3~~$0.6 million and ~~$0.2~~$1.8 million were retired during ~~2018~~the years ended December 31, 2021 and ~~2017,~~2020, respectively.

⁽²⁾Construction in progress includes equipment received but not yet placed into service pending installation.

105

Depreciation expense included in both research and development expenses and selling, general and administrative expenses in the consolidated statements of operations was as follows (in thousands):


	Year Ended December 31,
	2021		2020		2019
Depreciation expense	$	3,113	$	1,950	$	1,570

Goodwill

Goodwill had a carrying value of ~~approximately of~~ $3.2 million as of December 31, ~~2018~~2021 and ~~2017.~~

2020.

Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):


	December 31,
	2021		2020
Accrued purchases	$	6,755	$	7,170
Accrued professional and outside service fees	5,147		2,589
Other	676		513
Total	$	12,578	$	10,272

December 31,
2018 2017
Accrued purchases $ 1,492
$ 941
Accrued professional and outside service fees 2,020
2,393
Deferred rent 343
258
Lease incentive obligation 425
425
Other 575
345
Total $ 4,855
$ 4,362

Note 9. Stock-based Compensation

Equity Incentive Plans

In ~~March 2010,~~2019, our board of directors (the "Board") and stockholders approved the ~~2010 Equity~~2019 Incentive Award Plan (the ~~"2010~~"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.

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"), ~~which became effective upon~~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 ~~completion~~Company or any parent or subsidiary, as well as members of ~~our initial public offering in April 2010.~~ the Board.

The number of shares of our common stock available for issuance under the ~~2010~~2019 Plan is equal to ~~1,100,000~~the sum of (i) 7,897,144 shares ~~plus~~and (ii) any shares ~~of common stock reserved for future grant or issuance~~subject to awards granted under our 2002 Stock Plan (the “2002 Plan”) that remained unissued at the time of completion of the initial public offering. The 2010 Plan also provides for automatic annual increases in the number of shares reserved for future issuance. All grants will reduce the 2010 Plan ~~reserve by one share for every share granted. As~~that were outstanding as of ~~December 31, 2018, total~~April 22, 2019 and thereafter terminate, expire, lapse or are forfeited; provided that no more than 14,000,000 shares ~~remaining available~~may be issued upon the exercise of incentive stock options (“ISOs”). In June 2019, 8.1 million shares authorized for issuance under the ~~2010~~2019 Plan were ~~approximately 7.9 million shares.~~registered under the Securities Act of 1933, as amended (the “Securities Act”).

The 2010 Plan ~~provides~~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.

As of December 31, 2021, total shares remaining available for issuance under the 2019 Plan were 5.9 million shares.

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 10ten years and vest over 4four 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.

106

Restricted Stock Units ~~(RSUs)~~("RSUs")

We also grant employees RSUs, which generally vest over either a three year period with ~~one-third~~33% of the shares subject to the RSUs vesting on each yearly anniversary of the vesting commencement date or over a ~~four year~~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)~~("PSUs") and Performance Based Options ~~(PBOs)~~("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~~2 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.

In ~~the first quarter of 2018,~~2021, we awarded PSUs ("~~2018~~2021 PSUs") and PBOs ("~~2018~~2021 PBOs"), each of which ~~commence~~commenced vesting based upon the achievement of various weighted performance goals, including ~~core business~~corporate revenue, ~~growth, cash balance,~~performance enzyme segment gross margin, major new ~~licensing collaborations, new research~~biotherapeutics publicity events, strategic performance enzyme and ~~development service revenue arrangements,~~biotherapeutics deliverables, safety, and technology ~~advancement~~ and ~~novel therapeutic enzymes advancement.~~strategic plan development. As of December 31, ~~2018,~~2021, we estimated that the ~~2018~~2021 PSUs and ~~2018~~2021 PBOs performance goals would be achieved at ~~118%~~146% and 73% of the target level, respectively, and recognized stock-based compensation expenses accordingly.

In ~~2017,~~2020, we awarded PSUs ("~~2017~~2020 PSUs") and PBOs ("~~2017~~2020 PBOs"), each of which ~~commence~~commenced vesting based upon the achievement of various weighted performance goals, including corporate revenue, ~~growth, fundraising, service revenue,~~performance enzyme segment gross margin, major new ~~platform license revenue,~~biotherapeutics publicity events, strategic performance enzyme and biotherapeutics deliverables, and strategic ~~advancement of biotherapeutics pipeline.~~plan development. In the first quarter of ~~2018,~~2021, we determined that the ~~2017 PSU~~2020 PSUs and ~~PBO~~2020 PBOs performance goals had been achieved at ~~134.2%~~88% and 44% of the target level, respectively, and recognized the stock-based compensation expenses accordingly. Accordingly, ~~one-half~~50% of the shares underlying the ~~2017~~2020 PSUs and PBOs vested in the first quarter of ~~2018~~2021 and ~~one-half~~50% of the shares underlying the ~~2017~~2020 PSUs and PBOs will vest in the first quarter of ~~2019,~~2022, in each case, subject to the recipient’s continued service on each vesting date.

In ~~2016,~~2019, we awarded PSUs ("~~2016~~2019 PSUs") and PBOs ("2019 PBOs"), each of which commenced vesting based upon the achievement of various weighted performance goals, including sustained revenue and performance enzyme growth, ~~non-GAAP net income growth, new licensing collaborations, new research~~strategic advancement of biotherapeutics, cash balance and ~~development service revenue arrangements and novel therapeutic enzymes advancement.~~strategic plan development. In the first quarter of ~~2017,~~2020, we determined that the ~~2016 PSU~~2019 PSUs and 2019 PBOs performance goals had been achieved at ~~142.3%~~84% and 42% of the target level, respectively, and recognized the stock-based compensation expenses accordingly. Accordingly, ~~one-half~~50% of the shares underlying the ~~2016~~2019 PSUs and PBOs vested in the first quarter of ~~each~~2020 and 50% of ~~2017~~the shares underlying the 2019 PSUs and ~~2018,~~PBOs vested in the first quarter of 2021, in each case subject to the recipient’s continued service on each vesting date. ~~No PBOs were awarded in 2016.~~

Stock-Based Compensation ~~Expense:~~Expense

107

Stock-based compensation expense is included in the consolidated statements of operations as follows (in thousands):


	Year Ended December 31,
	2021		2020		2019
Research and development	$	2,353	$	1,620	$	1,562
Selling, general and administrative	9,240		6,108		5,381
Total	$	11,593	$	7,728	$	6,943

Year Ended December 31,
2018 2017 2016
Research and development $ 2,055
$ 1,444
$ 1,033
Selling, general and administrative 5,834
5,647
4,640
Total $ 7,889
$ 7,091
$ 5,673

The following table presents total stock-based compensation expense by security type included in the consolidated statements of operations (in thousands):

Year Ended December 31,
2018 2017 2016
Stock options $ 1,975
$ 1,554
$ 1,102
RSUs and RSAs 1,770
1,888
2,043
PSUs 1,511
1,792
2,528
PBOs 2,633
1,857
—
Total $ 7,889
$ 7,091
$ 5,673


	Year Ended December 31,
	2021		2020		2019
Stock options	$	2,764	$	2,381	$	2,149
RSUs and RSAs	2,768		2,231		1,805
PSUs	2,333		1,160		1,087
PBOs	3,728		1,956		1,902
Total	$	11,593	$	7,728	$	6,943

Grant Award Activities:

Stock Option Awards

We estimated the fair value of stock options using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarizes the weighted-average assumptions used to estimate the fair value of employee and non-employee stock options granted:


	Year Ended December 31,
	2021		2020		2019
Expected life (years)	5.6		5.3		5.6
Volatility	52.5	%	50.4	%	55.3	%
Risk-free interest rate	0.8	%	1.0	%	2.4	%
Expected dividend yield	0.0	%	0.0	%	0.0	%

The following summarizes the weighted-average assumptions used to estimate the fair value of 9,000 and 76,000 shares of stock options granted to non-employees for services valued at $0.1 million and $0.4 million during the years ended December 31, 2021 and 2020 respectively:


	Year Ended December 31,
	2021		2020
Expected life (years)	5.6		5.4
Volatility	54.1	%	51.6	%
Risk-free interest rate	0.9	%	0.4	%
Expected dividend yield	0.0	%	0.0	%

The weighted average grant date fair value per share of non-employee stock options granted respectively in 2021 and 2020 was $11.29 and $5.04. The Company did not grant shares of stock options to non-employees during the year ended December 31, 2019.

108

The following tables summarizes stock option activities:


	Number of Shares	Weighted Average Exercise Price Per Share
	(In Thousands)
Outstanding at December 31, 2018	4,112	$	4.81
Granted	406	$	20.68
Exercised	(1,045)	$	4.50
Forfeited/Expired	(326)	$	11.01
Outstanding at December 31, 2019	3,147	$	6.31
Granted	496	$	13.30
Exercised	(210)	$	6.30
Forfeited/Expired	(48)	$	16.71
Outstanding at December 31, 2020	3,385	$	7.19
Granted	286	$	26.85
Exercised	(664)	$	6.96
Forfeited/Expired	(72)	$	17.99
Outstanding at December 31, 2021	2,935	$	8.90


	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In Thousands)			(In Years)	(In Thousands)
Outstanding at December 31, 2021	2,935	$	8.90	5.0	$	65,963
Exercisable at December 31, 2021	2,861	$	8.56	4.9	$	65,186
Vested and expected to vest at December 31, 2021	2,338	$	5.99	4.2	$	59,103

The weighted average grant date fair value per share of employee stock options granted in 2021, 2020 and 2019 were $12.80, $6.03 and $10.77, respectively. The total intrinsic value of options exercised in 2021, 2020 and 2019 were $14.9 million, $1.8 million and $13.6 million, respectively.

As of December 31, 2021, there was $4.4 million of unrecognized stock-based compensation, net of expected forfeitures, related to unvested stock options, which we expect to recognize over a weighted average period of 2.4 years.

109

Restricted Stock Awards ("RSAs")

The following table summarizes RSA activities:


	Number of Shares	Weighted Average Grant Date Fair Value Per Share
	(In Thousands)
Non-vested balance at December 31, 2018	55	$	12.83
Granted	40	$	17.18
Vested	(56)	$	12.83
Forfeited/Expired	(4)	$	17.18
Non-vested balance at December 31, 2019	35	$	17.18
Granted	96	$	11.44
Vested	(35)	$	17.18

Non-vested balance at December 31, 2020	96	$	11.44
Granted	46	$	21.91
Vested	(62)	$	11.31
Non-vested balance at December 31, 2021	80	$	17.53

The total fair value, as of the vesting date, of RSAs vested in fiscal 2021, 2020 and 2019 were $1.3 million, $0.4 million and $1.0 million respectively.

As of December 31, 2021, there was $0.7 million of unrecognized stock-based compensation cost related to non-vested RSAs, which we expect to recognize over a weighted average period of 1.1 years.

Restricted Stock Units ("RSUs")

The following table summarizes RSU activities:


	Number of Shares	Weighted Average Grant Date Fair Value Per Share
	(In Thousands)
Non-vested balance at December 31, 2018	348	$	5.66
Granted	72	$	19.19
Vested	(210)	$	5.03
Forfeited/Expired	(9)	$	13.60
Non-vested balance at December 31, 2019	201	$	10.76
Granted	156	$	14.22
Vested	(168)	$	10.05
Forfeited/Expired	(13)	$	15.16
Non-vested balance at December 31, 2020	176	$	14.17
Granted	163	$	26.59
Vested	(70)	$	13.57
Forfeited/Expired	(37)	$	21.89
Non-vested balance at December 31, 2021	232	$	21.83

The total fair value, as of the vesting date, of RSUs vested in fiscal 2021, 2020 and 2019 were $1.8 million, $2.1 million and $4.1 million respectively.

As of December 31, 2021, there was $2.8 million of unrecognized stock-based compensation cost related to non-vested RSUs, which we expect to recognize over a weighted average period of 1.6 years.

110

Performance-Contingent Restricted Stock Units ("PSUs")

The following table summarizes PSU activities:


	Number of Shares	Weighted Average Grant Date Fair Value Per Share
	(In Thousands)
Non-vested balance at December 31, 2018	240	$	7.48
Granted	95	$	14.98
Vested	(200)	$	6.58
Forfeited/Expired	(15)	$	15.58
Non-vested balance at December 31, 2019	120	$	13.88
Granted	124	$	13.59
Vested	(107)	$	11.28
Forfeited/Expired	(6)	$	21.80
Non-vested balance at December 31, 2020	131	$	15.34
Granted	82	$	26.16
Vested	(66)	$	16.14
Forfeited/Expired	(19)	$	19.38
Non-vested balance at December 31, 2021	128	$	21.24

The total fair value, as of the vesting date, of PSUs vested in the years ended December 31, 2021, 2020, and 2019 were $1.3 million, $1.3 million, and $3.8 million, respectively.

As of December 31, 2021, there was $1.0 million of unrecognized stock-based compensation cost related to non-vested PSUs, which we expect to recognize over a weighted average period of 0.5 years.

Performance Based Options ("PBOs")

We estimated the fair value of PBOs using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarize the ranges of weighted-average assumptions used to estimate the fair value of employee stock options granted:


	Year Ended December 31,
	2021		2020		2019
Expected life (years)	5.5		5.3		5.6
Volatility	51.9	%	49.9	%	55.8	%
Risk-free interest rate	0.7	%	1.3	%	2.5	%
Expected dividend yield	0.0	%	0.0	%	0.0	%

111

Year Ended December 31,
2018 2017 2016
Expected life (years) 5.6
5.4
5.3
Volatility 60.0 % 62.2 % 64.2 %
Risk-free interest rate 2.7 % 2.0 % 1.3 %
Expected dividend yield 0.0 % 0.0 % 0.0 %

In October 2017, we granted an option to purchase 11,100 shares of common stock to a non-employee as compensation for services valued at $48 thousand with the following assumptions used to estimate the fair value of non-employee stock options: (i) volatility rate at 60.6%, risk-free interest rate of 2.4% and (ii) no expected dividend yield. The option vested over a period of six months with one-sixth of total number of shares subject to the option vesting on each one month anniversary of the grant date. During the year ended December 31, 2018 and December 31, 2016, we did not grant any options to purchase shares of common stock to non-employees.

The following tables summarizes ~~stock option~~PBO activities:


	Number of Shares	Weighted Average Grant Date Fair Value Per Share
	(In Thousands)
Outstanding at December 31, 2018	1,582	$	3.47
Granted	718	$	11.44
Exercised	(422)	$	3.17
Forfeited/Expired	(618)	$	10.34
Outstanding at December 31, 2019	1,260	$	4.75
Granted	689	$	6.37

Forfeited/Expired	(389)	$	6.42
Outstanding at December 31, 2020	1,560	$	5.05
Granted	433	$	12.23
Exercised	(35)	$	9.02
Forfeited/Expired	(118)	$	12.23
Outstanding at December 31, 2021	1,840	$	4.11


	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In Thousands)			(In Years)	(In Thousands)
Exercisable at December 31, 2021	1,374	$	9.08	6.0	$	30,809
Vested and expected to vest at December 31, 2021	1,784	$	12.11	6.6	$	34,263

Number
of
Shares Weighted
Average
Exercise Price Per Share
(In Thousands)
Outstanding at December 31, 2015 3,918
$ 4.49
Granted 971
$ 4.16
Exercised (398 ) $ 2.60
Forfeited/Expired (601 ) $ 5.76
Outstanding at December 31, 2016 3,890
$ 4.40
Granted 856
$ 4.57
Exercised (86 ) $ 3.10
Forfeited/Expired (81 ) $ 7.72
Outstanding at December 31, 2017 4,579
$ 4.40
Granted 645
$ 9.56
Exercised (772 ) $ 5.56
Forfeited/Expired (340 ) $ 6.66
Outstanding at December 31, 2018 4,112
$ 4.81

Exercisable at December 31, 2018 2,876
$ 3.83
Vested and expected to vest at December 31, 2018 3,954
$ 4.69

Number
of
Shares Weighted
Average
Exercise Price Per Share Weighted
Average
Remaining
Contractual Term Aggregate Intrinsic
Value
(In Thousands) (In Years) (In Thousands)
Outstanding at December 31, 2018 4,112
$ 4.81
6.23 $ 48,927
Exercisable at December 31, 2018 2,876
$ 3.83
5.25 $ 37,005
Vested and expected to vest at December 31, 2018 3,954
$ 4.69
6.13 $ 47,503

The weighted average grant date fair value per share of stock options granted in 2018, 2017 and 2016 were $5.34, $2.51 and $2.32, respectively. The total intrinsic value of options exercised in 2018, 2017 and 2016 were $7.6 million, $0.2 million and $0.6 million, respectively.

~~As of December 31, 2018, there was $3.5 million of unrecognized stock-based compensation cost related to non-vested options, which we expect to recognize over a weighted average period of 2.5 years.~~

~~Restricted Stock Awards (RSAs)~~

~~The following table summarizes RSA activities:~~

Number
of
Shares Weighted Average
Grant Date
Fair Value
Per Share
(In Thousands)
Non-vested balance at December 31, 2015 480
$ 3.29
Granted 185
$ 4.21
Vested (435 ) $ 3.40
Non-vested balance at December 31, 2016 230
$ 3.82
Granted 143
$ 4.75
Vested (214 ) $ 3.81
Non-vested balance at December 31, 2017 159
$ 4.68
Granted 47
$ 14.35
Vested (151 ) $ 4.71
Non-vested balance at December 31, 2018 55
$ 12.83

The weighted average grant date fair value per share of RSAs granted in 2018, 2017 and 2016 were $14.35, $4.75 and $4.21, respectively. The total fair value of RSAs vested in fiscal 2018, 2017 and 2016 were $2.1 million, $1.0 million and $1.8 million respectively.

~~As of December 31, 2018, there was $0.3 million of unrecognized stock-based compensation cost related to non-vested RSAs, which we expect to recognize over a weighted average period of 0.4 years.~~

~~Restricted Stock Units (RSUs)~~

~~The following table summarizes RSU activities:~~

Number
of
Shares Weighted Average
Grant Date
Fair Value
Per Share
(In Thousands)
Non-vested balance at January 1, 2016 545
$ 3.15
Granted 330
$ 4.10
Vested (243 ) $ 3.11
Forfeited/Expired (15 ) $ 2.74
Non-vested balance at December 31, 2016 617
$ 3.69
Granted 275
$ 4.22
Vested (302 ) $ 3.40
Forfeited/Expired (30 ) $ 4.12
Non-vested balance at December 31, 2017 560
$ 4.08
Granted 86
$ 10.56
Vested (290 ) $ 4.09
Forfeited/Expired (8 ) $ 4.73
Non-vested balance at December 31, 2018 348
$ 5.66

The weighted average grant date fair value per share of RSUs granted in 2018, 2017 and 2016 were $10.56, $4.22 and $4.10, respectively. The total fair value of RSUs vested in fiscal 2018, 2017 and 2016 were $2.9 million, $1.3 million and $1.0 million respectively.

~~As of December 31, 2018, there was $1.0 million of unrecognized stock-based compensation cost related to non-vested RSUs, which we expect to recognize over a weighted average period of 1.1 years.~~

~~Performance-Contingent Restricted Stock Units (PSUs)~~

~~The following table summarizes PSU activities:~~

Number
of
Shares Weighted Average
Grant Date
Fair Value
Per Share
(In Thousands)
Non-vested balance at January 1, 2016 989
$ 2.94
Granted 629
$ 4.10
Vested (482 ) $ 2.89
Forfeited/Expired (305 ) $ 2.82
Non-vested balance at January 1, 2017 831
$ 3.88
Granted 276
$ 4.25
Vested (651 ) $ 3.84
Forfeited/Expired (27 ) $ 3.65
Non-vested balance at January 1, 2018 429
$ 4.20
Granted 306
$ 6.71
Vested (495 ) $ 4.16
Non-vested balance at December 31, 2018 240
$ 7.48

The weighted average grant date fair value per share of PSUs granted in 2018, 2017 and 2016 were $6.71, $4.25 and $4.10, respectively. The total fair value of PSUs vested in fiscal 2018, 2017, and 2016 were $5.4 million, $2.7 million, and $1.8 million, respectively.

~~As of December 31, 2018, there was $0.6 million of unrecognized stock-based compensation cost related to non-vested PSUs, which we expect to recognize over a weighted average period of 0.5 years.~~

~~Performance Based Options (PBOs)~~

We estimated the fair value of PBO using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarize the ranges of weighted-average assumptions used to estimate the fair value of employee stock options granted:

Year Ended December 31,
2018 2017 2016
Expected life (years) 5.63
5.33
—
Volatility 60.3 % 62.3 % —
Risk-free interest rate 5.6 % 5.3 % —
Expected dividend yield 0.0 % 0.0 % —

~~The following table summarizes PBO activities in 2018:~~

Number of Shares Weighted Average Grant Date Fair Value Per Share
(in thousands)
Outstanding at December 31, 2016 —
$ —
Granted 1,720
$ 2.54
Outstanding at December 31, 2017 1,720
$ 2.54
Granted 1,200
$ 5.02
Exercised (84 ) $ 2.54
Forfeited (1,254 ) $ 3.73
Outstanding at December 31, 2018 1,582
$ 3.47

Number
of
Shares Weighted
Average
Exercise Price Per Share Weighted
Average
Remaining
Contractual Term Aggregate Intrinsic
Value
(In Thousands) (In Years) (In Thousands)
Exercisable at December 31, 2018 493
$ 4.60
5.60 $ 5,968
Vested and expected to vest at December 31, 2018 1,582
$ 6.24
5.44 $ 16,553

The total fair value of exercised PBOs for 2021, 2020 and 2019, was ~~$0.2~~$0.3 million, ~~for 2018, zero for 2017~~nil and ~~zero for 2016.~~ $1.3 million, respectively.

As of December 31, ~~2018,~~2021, there was ~~$1.2~~$1.3 million of unrecognized stock-based compensation cost related to non-vested PBOs, which we expect to recognize over a weighted average period of ~~0.9~~1.0 years.

Note 10. Capital Stock

Equity Distribution Agreement

We filed a Registration Statement on Form S-3 with the SEC, under which we may sell common stock, preferred stock, debt securities, warrants, purchase contracts, and units from time to time in one or more offerings. The registration statement became effective on May 7, 2021. In May 2021, we entered into an Equity Distribution Agreement ("EDA") with Piper Sandler & Co ("PSC"), under which PSC, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the execution of the EDA up to a maximum of $50.0 million of shares of our common stock. Under the terms of the EDA, PSC may sell the shares at market prices by any method that is deemed to be an“at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended.

We are not required to sell any shares at any time during the term of the EDA. The EDA will terminate upon the earlier of: (i) the issuance and sale of all shares through PSC on the terms and conditions of the EDA, or (ii) the termination of the EDA in accordance with its terms. Either party may terminate the EDA at any time upon written notification to the other party in accordance with the EDA, and upon such notification, the offering will terminate. Under no circumstances shall any shares be sold pursuant to the EDA after the date which is three years after the registration statement is first declared effective by the SEC. We agreed to pay PSC a commission of 3% of the gross sales price of any shares sold pursuant to the EDA. With the exception of certain expenses, we will pay PSC up to 8% of the gross sales price of the shares sold pursuant to the EDA for a combined amount of commission and reimbursement of PSC's expenses and fees.

During the year ended December 31, 2021, no shares of our common stock were issued pursuant to the EDA. As of December 31, 2021, $50.0 million of shares remained available for sale under the EDA.

112

Public ~~Offering~~

Offerings

In ~~April 2018,~~December 2020, we completed an underwritten public offering ~~of 4,312,500~~in which we issued and sold 4.9 million shares of our common stock, ~~including the exercise in full by the underwriters of their option to purchase 562,500 of our shares,~~par value $0.0001 per share, at a public offering price of ~~$9.25~~$17.50 per share. We received gross proceeds of $86.3 million, net of underwriting discounts and commissions of $5.2 million and direct offering expenses of $0.3 million for net proceeds of $80.8 million.

Private Placement

In June 2019, we entered into a Securities Purchase Agreement with an affiliate of Casdin Capital, LLC ("Casdin") pursuant to which we issued and sold to Casdin 3,048,780 shares of our common stock at a purchase price of $16.40 per share. After deducting issuance costs of $0.1 million from the ~~underwriting discounts and commissions and estimated offering expenses,~~Private Offering, our net proceeds were ~~approximately $37.3~~$49.9 million.

The Private Offering was exempt from registration pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) the Securities Act, and Regulation D under the Securities Act.

Note 11. 401(k) Plan

In January 2005, we implemented a 401(k) Plan covering certain employees. Currently, all of our United States based employees over the age of 18 are eligible to participate in the 401(k) Plan. Under the 401(k) Plan, eligible employees may elect to reduce their current compensation up to a certain annual limit and contribute these amounts to the 401(k) Plan. We may make matching or other contributions to the 401(k) Plan on behalf of eligible employees. We recorded employer matching contributions expense of ~~$0.6~~$1.1 million, ~~$0.6~~ $0.8 million, and ~~$0.4~~$0.7 million in ~~2018, 2017,~~the years ended December 31, 2021, 2020, and ~~2016,~~2019, respectively.

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Note 12. Income Taxes

Our loss before provision for (benefit from) income taxes ~~was~~were as follows (in thousands):


	Year Ended December 31,
	2021		2020		2019
United States	$	(21,037)	$	(23,452)	$	(11,751)
Foreign	(53)		(219)		(167)
Loss before provision for income taxes	$	(21,090)	$	(23,671)	$	(11,918)

Year Ended December 31,
2018 2017 2016
United States $ (10,653 ) $ (22,994 ) $ (8,174 )
Foreign (262 ) 79
(424 )
Loss before provision for income taxes $ (10,915 ) $ (22,915 ) $ (8,598 )

The tax provision ~~(benefit from)~~ for the years ended December 31, ~~2018, 2017~~2021, 2020 and ~~2016~~2019 consists primarily of taxes attributable to foreign operations. The components of the provision for income taxes are as follows (in thousands):


	Year Ended December 31,
	2021		2020		2019
Current provision:
State	$	—	$	5	$	5
Foreign	198		342		18
Total current provision	$	198	$	347	$	23
Deferred benefit:
Foreign	(9)		(8)		(6)
Total deferred benefit	$	(9)	$	(8)	$	(6)
Provision for income taxes	$	189	$	339	$	17

Year Ended December 31,
2018 2017 2016
Current provision (benefit):
Federal $ —
$ —
$ —
State 5
5
5
Foreign (13 ) 64
(14 )
Total current provision (benefit) (8 ) 69
(9 )
Deferred provision (benefit):
Federal —
—
—
State —
—
—
Foreign (29 ) 12
(31 )
Total deferred provision (benefit) (29 ) 12
(31 )
Provision for (benefit from) income taxes $ (37 ) $ 81
$ (40 )

Reconciliation of the provision for income taxes calculated at the statutory rate to our provision for ~~(benefit from)~~ income taxes is as follows (in thousands):

Year Ended December 31,
2018 2017 2016
Tax benefit at federal statutory rate $ (2,292 ) $ (7,791 ) $ (2,924 )
State taxes 222
48
127
Research and development credits (499 ) (399 ) (161 )
Foreign operations taxed at different rates (17 ) (2 ) 30
Stock-based compensation (2,587 ) (216 ) 327
Other nondeductible items (3 ) 326
405
Executive compensation 838
73
255
Change in valuation allowance 4,301
(26,058 ) 1,901
Change in statutory tax rate —
34,100
—
Provision for (benefit from) income taxes $ (37 ) $ 81
$ (40 )


	Year Ended December 31,
	2021		2020		2019
Tax benefit at federal statutory rate	$	(4,429)	$	(4,971)	$	(2,503)
State taxes	(2,235)		(708)		(1,120)
Research and development credits	(1,132)		(811)		(693)
Foreign operations taxed at different rates	80		245		1
Stock-based compensation	(2,698)		140		(3,599)
Other nondeductible items	711		61		498
Executive compensation	257		24		872
Change in valuation allowance	9,635		6,359		6,561

Provision for income taxes	$	189	$	339	$	17

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

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Significant components of our deferred tax assets and liabilities are as follows (in thousands):

December 31,
2018 2017
Deferred tax assets:
Net operating losses $ 60,455
$ 53,901
Credits 7,174
6,221
Deferred revenues 1,879
3,334
Stock-based compensation 2,967
2,872
Reserves and accruals 1,876
2,028
Depreciation 1,376
1,573
Intangible assets 2,557
3,172
Capital losses 576
576
Unrealized gain/loss 297
295
Other assets 83
78
Total deferred tax assets: 79,240
74,050
Deferred tax liabilities:
Other (64 ) (115 )
Total deferred tax liabilities: (64 ) (115 )
Valuation allowance (79,222 ) (74,010 )
Net deferred tax liabilities $ (46 ) $ (75 )


	December 31,
	2021		2020
Deferred tax assets:
Net operating losses	$	78,525	$	72,530
Credits	11,895		9,914
Deferred revenues	1,490		1,080
Stock-based compensation	3,946		2,576
Reserves and accruals	2,928		1,914
Depreciation	514		1,115
Intangible assets	1,356		1,714
Capital losses	26		25
Unrealized gain/loss	418		400
Lease liability	11,206		5,626
Other assets	122		100
Total deferred tax assets:	112,426		96,994
Valuation allowance	(101,762)		(92,126)
Deferred tax liabilities:
Right-of-use assets	(10,373)		(4,848)
Other	(314)		(52)
Total deferred tax liabilities:	(10,687)		(4,900)
Net deferred tax liabilities	$	(23)	$	(32)

ASC ~~Topic~~ 740 requires that the tax benefit of NOLs, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a valuation allowance against our deferred tax assets. Accordingly, the net deferred tax assets in all our jurisdictions have been fully reserved by a valuation allowance. The change in valuation allowance differs from the amount included the rate reconciliation table due to the deferred tax impact of the adoption of ASC 606, which resulted in a $0.9 million adjustment to opening accumulated deficit before the offsetting change in valuation allowance. The net valuation allowance increased by ~~$5.2~~$9.6 million during the year ended December 31, ~~2018; and decreased~~2021, increased by ~~$20.4~~$6.4 million during the year ended December 31, ~~2017;~~2020, and increased by ~~$1.9~~$6.5 million during the year ended December 31, ~~2016, respectively.~~2019. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.

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The following table sets forth our federal, state and foreign NOL carryforwards and federal research and development tax credits as of December 31, ~~2018~~2021 (in thousands):

December 31, 2018
Amount
Expiration
Years
Net operating losses, federal $ 254,208
2022-2038
Net operating losses, state 115,420
2018-2038
Tax credits, federal 7,430
2022-2038
Tax credits, state 9,121
Do not expire
Net operating losses, foreign 383
Various


	December 31, 2021
	Amount		Expiration Years
Net operating losses, federal	$	224,475	2022-2037
Net operating losses, federal	$	108,314	Do not expire
Net operating losses, state	$	138,770	2028-2041
Tax credits, federal	$	12,917	2023-2041
Tax credits, state	$	14,126	Do not expire
Net operating losses, foreign	$	—	Various

Current U.S. federal and California tax laws include substantial restrictions on the utilization of NOLs and tax credit carryforwards in the event of an ownership change of a corporation. Accordingly, the Company's ability to utilize NOLs and tax

credit carryforwards may be limited as a result of such ownership changes. We performed an analysis in ~~2018~~2020 and determined that there was not a limitation that would result in the expiration of carryforwards before they are utilized.

Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC ~~Topic~~ 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources ~~including gain from available-for-sale securities recorded as a component of other comprehensive income,~~ is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. ~~For the year ended December 31, 2018, we did not record a tax expense in other comprehensive income related to available-for-sale securities.~~

In 2014, we determined that the undistributed earnings of our India subsidiary will be repatriated to the United States, and accordingly, we have provided a deferred tax liability totaling ~~$0.1 million~~ $23 thousand and $32 thousand as of December 31, ~~2018,~~2021 and 2020 respectively, for local taxes that would be incurred upon repatriation. We have not provided for U.S. federal and state income taxes on all of the remaining non-U.S. subsidiaries’ undistributed earnings as of December 31, 2018 as the remaining foreign jurisdictions are in an accumulative loss position.

We apply the provisions of ASC ~~Topic~~ 740 to account for ~~uncertainty in~~uncertain income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Rollforward Table (at Gross): As of
December 31,
2018 2017 2016
Balance at beginning of year $ 9,422
$ 8,566
$ 8,152
Additions based on tax positions related to current year 1,087
880
459
Reductions to tax provision of prior years (529 ) (24 ) (45 )
Balance at end of year $ 9,980
$ 9,422
$ 8,566


	December 31,
	2021		2020		2019
Balance at beginning of year	$	12,683	$	11,330	$	9,980
Additions based on tax positions related to current year	2,206		1,357		1,362
Additions to tax position of prior years	372		—		—
Reductions to tax position of prior years	—		(4)		(12)
Balance at end of year	$	15,261	$	12,683	$	11,330

We recognize interest and penalties as a component of our income tax expense. Total interest and penalties recognized in the consolidated ~~statement~~statements of operations ~~was $37~~were $61 thousand, ~~$31~~$39 thousand and ~~$35~~$32 thousand ~~respectively,~~ in ~~2018, 2017~~2021, 2020 and ~~2016.~~2019, respectively. Total penalties and interest recognized in the balance sheet was $0.5 million, $0.4 million and ~~$0.3~~$0.4 million ~~respectively, in 2018~~as of December 31, 2021, 2020 and ~~2017.~~2019, respectively. The total unrecognized tax benefits that, if recognized currently, would impact our company’s effective tax rate were $0.3 million ~~and $0.4 million~~ as of December 31, ~~2018~~2021, 2020 and ~~2017, respectively.~~2019. We do not expect any material changes to our uncertain tax positions within the next 12 months. We are not subject to examination by United States federal or state tax authorities for years prior to 2002 and foreign tax authorities for years prior to ~~2012.~~2014.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. The Act made broad and complex changes to the U.S. tax code, including, but not limited to, (i) reducing the U.S. federal statutory tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain un-repatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S federal income taxes on dividends from foreign subsidiaries; (iv) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (v) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (vi) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (vii) creating a tax on global intangible low-taxed income (GILTI) of foreign subsidiaries; (viii) creating a new limitation on deductible interest expense; (ix) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (x) modifying the officer’s compensation limitation.

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In December 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provided a measurement period of up to one year from the enactment date of the Tax Act for companies to complete the accounting for the Tax Act and its related impacts. In 2018, we completed our accounting for the Tax Act. The income tax effects of the Tax Act for which the accounting is now completed include: the impact of the transition tax, the revaluation of deferred tax assets and liabilities to reflect the 21% corporate tax rate, and the impact to the aforementioned items on state income taxes. We have completed our accounting for the income tax effects under the Tax Act that are relevant to us and required to be recorded and disclosed pursuant to FASB ASC 740, Income Taxes. Accordingly, any and all provisional amounts previously recorded in accordance with SEC Staff Accounting Bulletin No. 118 have been adjusted to reflect their final amounts.

Beginning in 2018, the GILTI provisions in the Tax Act require us to include, in our U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Per guidance issued by the FASB, companies can either account for deferred taxes related to GILTI or treat tax arising from GILTI as a period cost. Both are acceptable methods subject to an accounting policy election. On December 31, 2018, we finalized our policy and have elected to use the period cost method for GILTI. In 2018, we did not incur any GILTI inclusion as our foreign subsidiaries generated losses.

Note 13. Commitments and Contingencies

Operating Leases

Our headquarters are located in Redwood City, California, where we occupy approximately ~~107,200~~77,300 square feet of office and laboratory space in ~~four~~multiple buildings within the same business park of Metropolitan Life Insurance Company ("MetLife"). Our lease ~~(“Lease”)~~agreement with MetLife ("RWC Lease") includes approximately 28,200 square feet of space located at 200 and 220 Penobscot Drive, Redwood City, California (the ~~“Penobscot~~“200/220 Penobscot Space”), and approximately 37,900 square feet of space located at 400 Penobscot Drive, Redwood City, California (the ~~“Building 2~~“400 Penobscot Space”) (the 200/220 Penobscot Space and the 400 Penobscot Space are collectively referred to as the “Penobscot Space”), and approximately 11,200 square feet of space located at 501 Chesapeake Drive, Redwood City, California (the “501 Chesapeake Space”)~~, and~~.

Until the end of January 2020, we also leased approximately 29,900 square feet of space located at 101 Saginaw Drive, Redwood City, California (the “Saginaw Space”). During January 2020, we subleased approximately 26,500 square feet of the Saginaw Space to Minerva Surgical, Inc. The lease and sublease for the Saginaw Space both expired at the end of January 2020. During the period from February 1, 2020 through April 30, 2020, we subleased approximately 3,400 square feet at 101 Saginaw Drive from Minerva Surgical, Inc. The sublease expired at the end of April 2020.

We entered into the initial lease with MetLife for ~~a portion of this space~~our facilities in Redwood City in 2004 and the ~~lease~~RWC Lease has been amended multiple times since then to adjust the leased space and ~~amend the~~ terms of the Lease, with the lease amendment ("Seventh Amendment") in October 2016 which, for one of our buildings, waived our existing asset retirement obligation, and extended the lease term to January 2022. The various terms for the spaces under the lease have expiration dates that range from January 2020 through January 2022. Beginning in February 2014, we have subleased certain office and laboratory space to different subtenants with separate options to extend the subleases. These subleases will expire in November 2019.

Lease. In February 2019, we entered into ~~the eighth amendment~~an Eighth Amendment to the Lease ~~("Eighth Amendment"~~(the “Eighth Amendment”) with MetLife with respect to ~~extend the lease terms for the Penobscot Space, the Building 2 Space and the Chesapeake Space for another 88 months. The lease on the Saginaw Space will expire in January 2020. The lease terms for~~ the Penobscot Space and ~~Building 2~~the 501 Chesapeake Space ~~have an expiration date~~to extend the term of the Lease for additional periods. Pursuant to the Eighth Amendment, the term of the lease of the Penobscot Space has been extended through May 2027. The lease term for the 501 Chesapeake Space has ~~an expiration date of~~been extended to May 2029. ~~Refer~~We have 1 (1) option to ~~Note 16, "Subsequent Events" for more details.~~

We incurred $3.6 million of capital improvement costs related to the facilities leased from MetLife through December 31, 2012. During 2011 and 2012, we requested and received $3.1 million of reimbursements from the landlord for the tenant improvement and HVAC allowances for the completed construction. The reimbursements were recorded once cash was received and are amortized on a straight line basis overextend the term of the lease for the Penobscot Space for five (5) years, and 1 (1) separate option to extend the term of the lease for the 501 Chesapeake Space for five (5) years.

Pursuant to the terms of the RWC Lease, we exercised our right to deliver a letter of credit in lieu of a security deposit. The letter of credit is collateralized by deposit balances held by the bank in the amount of $1.1 million as ~~a reduction in rent expense. The remaining lease incentive obligations were $0.5 million and $0.9 million at~~of December 31, ~~2018~~2021 and ~~2017, respectively,~~2020, and are ~~reflected~~recorded as ~~liabilities~~non-current restricted cash on the consolidated balance sheets. ~~Rent expense~~

We entered into a short-term office lease in San Carlos, California during the second quarter of 2021 and this lease will expire in April 2022. Our remaining future commitment pursuant to this lease is $40 thousand as of December 31, 2021.

In January 2021, we entered into a lease agreement with ARE-San Francisco No. 63, LLC (“ARE”) to lease a portion of a facility comprising approximately 36,593 rentable square feet in San Carlos, California to serve as additional office and research and development laboratory space (the “San Carlos Space”). The budget provided a net tenant improvement allowance of $6.3 million and an additional allowance of up to $2.7 million. ARE will have an enforceable right to payment by us in the form of equal monthly additional rent payments at a certain interest rate through the lease term for the ~~Redwood City properties is recognized on~~additional allowance. The terms include an initial annualized base rent of $2.5 million, subject to scheduled 3% annual rent increases, an annualized additional allowance payment of $0.4 million, plus certain operating expenses. The lease has a ~~straight-line basis over~~10-year term from the lease commencement date with 1 option to extend the term for an additional period of 5 years. We have provided ARE with a $0.5 million security deposit in the form of a letter of credit. We have the right to sublease the facility, subject to landlord consent. We commenced occupancy of the ~~lease.~~San Carlos Space in December 2021 and recognized the right of use asset and the corresponding operating lease liability.

We are required to restore certain areas of the Redwood City and San Carlos facilities that we are renting to their original form. We are expensing the asset retirement obligation over the terms of the respective leases. We review the estimated obligation each reporting period and make adjustments if our estimates change. We recorded asset retirement obligations of $0.4 million and $0.2 million as of December 31, ~~2018~~2021 and ~~2017,~~2020, respectively, which are included in other liabilities on the consolidated balance sheets. Accretion expense related to our asset retirement obligations was nominal in ~~2018~~2021 and ~~2017.~~2020.

Lease and other information

117

~~Pursuant~~Lease costs, amounts included in measurement of lease obligations and other information related to non-cancellable operating leases and finance leases for the ~~terms~~years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):


	Year Ended December 31,
	2021		2020		2019
Amortization of right-of-use assets	$	106	$	152	$	217
Interest on lease obligations	—		1		10
Finance lease costs	106		153		227
Operating lease cost	4,396		3,879		4,556
Short-term lease costs (1)	70		47		—
Sublease income	—		(55)		(957)
Total lease cost (2)	$	4,572	$	4,024	$	3,826
(1) Short-term lease costs on leases with terms of over one month and less than one year.
(2) The Company had no variable lease costs.

Amounts included in measurement of ~~the 7th amended~~ lease agreement, we exercised our right to deliver a letter of credit in lieu of a security deposit. The letter of credit is collateralized by deposit balances held by the bank in the amount of $0.7 million asobligations:


	Year Ended December 31,
	2021		2020			2019
Cash paid:
Operating cash flows from operating leases	$	4,197	$	2,816		$	3,279
Operating cash flow from finance leases	$	—	$	1		$	10
Financing cash flows from finance leases	$	—	$	60		$	242
Non-cash activity:
Operating Lease - Right-of-use assets obtained in exchange for lease liabilities	$	25,445	$	—		$	26,617
Finance Lease - Right-of-use assets obtained in exchange for lease liabilities	$	—	$	—		$	493

			Operating Lease			Finance Lease
Other information:
Weighted-average remaining lease term (in years)			7.9 years			—
Weighted-average discount rate			5.6		%	—

As of December 31, ~~2018 and 2017, which is recorded as non-current restricted~~2021, our maturity analysis of annual undiscounted cash ~~on the consolidated balance sheets. See Note 13, “Commitments and Contingencies.” Pursuant to the terms~~flows of the ~~Eighth Amendment, the amended letter of credit in the amount of $1.1 million is collateralized by deposit balances held by the bank in 2019.~~

~~Rent expense was $3.2 million, $3.2 million and $2.9 million in 2018, 2017 and 2016, respectively, partially offset by sublease income of $1.1 million, $1.4 million and $1.2 million, respectively.~~

~~Capital Leases~~

In December 2016, we entered into a three-year financing lease agreement with a third party supplier for the purchase of laboratory equipment that was partially financed through a capital lease of approximately $0.4 million. The lease became effective upon delivery of the equipment, which occurred in February 2017, and the term of the lease is three years from the effective date. This financing agreement was accounted for as a capital lease due to the bargain purchase option at the end of the lease.

In April 2017, we entered into a three-year financing lease agreement with a third party supplier for the purchase of information technology equipment for approximately $0.3 million. The effective date of the lease was May 19, 2017 and the term of the lease is three years. This financing agreement was accounted for as a capital lease due to the bargain purchase option at the end of the lease.

~~Leases~~

~~Future minimum payments under~~ non-cancellable ~~capital and~~ operating leases ~~at December 31, 2018~~ are as follows (in thousands):


Years ending December 31,	Operating Leases
2022	$	6,500
2023	7,571
2024	7,785
2025	8,007
2026	8,235
Thereafter	20,718
Total minimum lease payments	58,816
Less: imputed interest	11,162
Lease obligations	$	47,654

Years ending December 31, Capital Leases Operating Leases
2019 $ 252
$ 3,280
2020 61
712
2021 —
490
2022 —
41
2023 —
—
Total minimum lease payments ⁽¹⁾
313
$ 4,523
Less: amount representing interest (10 )
Present value of capital lease obligations 303

Less: current portion (242 )
Long-term portion of capital leases $ 61


⁽¹⁾	~~Minimum payments have not been reduced by future minimum sublease rentals of $0.9 million to be received under non-cancellable subleases.~~

Other Commitments

We enter into supply and service arrangements in the normal course of business. Supply arrangements are primarily for fixed-price manufacture and supply. Service agreements are primarily for the development of manufacturing processes and certain studies. Commitments under service agreements are subject to cancellation at our discretion which may require payment

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of certain cancellation fees. The timing of completion of service arrangements is subject to variability in estimates of the time required to complete the work.

The following table provides quantitative data regarding our other commitments. Future minimum payments reflect amounts that we expect to pay including potential obligations under services agreements subject to risk of cancellation by us (in thousands):

Other Commitment Agreement Type

Agreement Date

Future Minimum Payment

Manufacture and supply agreement with expected future payment date of December 2022

April 2016

101

Development and manufacturing services agreements

September 2019

2,469

Facility maintenance agreement

September 2021

1,475

Total other commitments

4,045

Credit Facility

~~Effective~~In June 30, 2017, we entered into a credit facility (the ~~“Credit Facility”~~"Credit Facility") with Western Alliance Bank consisting of term loans (“Term Debt”) ~~totaling~~ up to $10.0 million, and advances ~~(“Advances”~~("Advances") under a revolving line of credit (“("Revolving Line of ~~Credit”~~Credit") ~~totaling~~ up to $5.0 million with an accounts receivable borrowing base of 80% of eligible accounts receivable. ~~At December 31, 2018, we have not drawn from the Credit Facility.~~ In September ~~2018,~~2021, we entered into ~~a Fourth~~the Ninth Amendment to the Credit Facility whereby ~~the draw period on the term debt was extended to September 30, 2019. We~~we may draw on the Term Debt ~~at any time prior to September 30, 2019, subject to customary conditions for funding including, among others that no event of default exists. We may draw on~~and the Revolving Line of Credit at any time prior to December 31, 2021 and October 1, 2024, respectively. The right to take draws on the ~~maturity date.~~Term Debt expired on December 31, 2021 and no amounts were drawn under the Credit Facility as of December 31, 2021. On October 1, ~~2022, any~~2024, loans ~~for Term Debt mature and~~drawn under the Revolving Line of Credit ~~terminates. The Term Debt bears interest through maturity at a variable rate based on the London Interbank Offered Rate plus 3.60%.~~ terminate.Advances made under the Revolving Line of Credit bear interest at a variable annual rate equal to the equal to the greater of (i) ~~1.00% above~~4.25% or (ii) the sum of (A) the prime rate ~~and (ii) 5.00%~~plus (B) 1.00%.

The Credit Facility allows for interest-only payments on the Term Debt through November 1, 2020. Monthly payments of principal and interest on the Term Debt are required following the applicable amortization date. We may elect to prepay in full the Term Debt and Advances under the Revolving Line of Credit at any time. Prepayments of Term Debt and early termination of the Revolving Line of Credit are subject to prepayment and final payment fees are as follows:



	~~Term Debt~~	~~Revolving Line of Credit~~
~~Through and including the first anniversary of the funding date of the first Term Debt drawn~~	~~2.0%~~
~~After the first anniversary of the funding date of the first Term Debt drawn and before the maturity date~~	~~1.0%~~
~~On the earliest to occur of the maturity date, the acceleration of Term Debt drawn or prepayment of Term Debt drawn~~	~~5.5%~~
~~Through and including the first anniversary of the closing date~~		~~3.0%~~
~~After the first anniversary of the closing date through and including the second anniversary of the closing date~~		~~2.0%~~
~~After the second anniversary of the closing date through and including the third anniversary of the closing date~~		~~1.0%~~

Our obligations under the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property. The Credit Facility includes a number of customary covenants and ~~restrictions which require us to comply with certain~~restrictive financial covenants including ~~achieving consolidated~~meeting minimum product ~~revenues~~revenue levels ~~at minimum levels as set forth in the Credit Facility through December 2018~~ and ~~on and after January 2019, in each case unless we maintain~~maintaining certain minimum cash levels with the ~~lender in an amount equal to or greater than six times~~lender. The Credit Facility's financial covenants restrict the ~~sum~~ability of the average six-month trailing operating cash flow net outlay plus the average monthly principal due and payable in the immediately succeeding three-month period. The Credit Facility places various restrictions on our company’s transferringCompany to transfer collateral, ~~incurring~~incur additional indebtedness, ~~engaging~~engage in mergers or acquisitions, ~~paying~~pay dividends or ~~making~~make other distributions, ~~making~~make investments, ~~creating~~create liens, ~~and selling~~sell assets, ~~and permitted~~or sell certain assets ~~to be~~ held at foreign ~~subsidiaries above specified caps, in each case subject to certain exceptions.~~subsidiaries. A failure to comply with these covenants could permit the lender to exercise remedies against us and the collateral securing the Credit Facility, including foreclosure of our properties securing the Credit ~~Facilities~~Facility and our cash. At December 31, ~~2018,~~2021, we were in compliance with the covenants for the Credit Facility.

As further discussed in Note 16, “Subsequent Events”, in February 2019, we entered into the eighth lease amendment of our business premises (the “Eighth Amendment”). Pursuant to the terms of the Eighth Amendment, we exercised an option to deliver a $1.1 million letter of credit to the lessor in lieu of a security deposit. In January 2019, we entered into the Fifth Amendment to the Credit Facility, which amended certain restrictive covenants with respect to letters of credit made in connection with the leasing of real property.

Legal Proceedings

We are not currently a party to any material pending litigation or other material legal proceedings.

In February 2018, we and EnzymeWorks, Inc. (U.S.), Suzhou Hanmei Biotechnology Co. Ltd, d/b/a EnzymeWorks, Inc. (China) (collectively, "EnzymeWorks"), Junhua Tao, and Andrew Tao reached a settlement concerning the lawsuit filed by us in February 2016 against EnzymeWorks, Junhua Tao, and Andrew Tao in the United States District Court for the Northern District of California. The parties have entered into a settlement agreement, the terms of which are confidential. The parties have also stipulated to a judgment of patent infringement of all asserted patents against EnzymeWorks, and a permanent injunction barring any future infringement. The remaining claims against EnzymeWorks, and all claims against Junhua Tao, and Andrew Tao including trade secret misappropriation, breach of contract and voidable transfer have been dismissed with prejudice. EnzymeWorks appealed the sanctions levied against them by Judge Orrick to the Federal Circuit and filed its opening brief on May 30, 2018. On July 9, 2018, Codexis filed its response brief, and EnzymeWorks filed its reply on July 30, 2018. On February 8, 2019, the Federal Circuit panel of judges assigned to the case issued an opinion affirming the lower court’s ruling and remanding the case to the lower court on jurisdictional grounds to vacate the order to which the parties had earlier stipulated.

Indemnifications

We are required to recognize a liability for the fair value of any obligations we assume upon the issuance of a guarantee. We have certain agreements with licensors, licensees and collaborators that contain indemnification provisions. In such provisions, we typically agree to indemnify the licensor, licensee and collaborator against certain types of third party claims. The maximum amount of the indemnifications is not limited. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. There were no accruals for expenses related to indemnification issues for any periods presented.

Note 14. Related Party Transactions

~~Exela PharmSci,~~Molecular Assemblies, Inc. ~~(“Exela”)~~

In June 2020, we entered into a ~~commercialization agreement~~Stock Purchase Agreement with ~~Exela in 2007. Under~~MAI pursuant to which we purchased 1,587,050 shares of MAI's Series A preferred stock for $1.0 million. In connection with the ~~license agreement, as amended,~~transaction, John Nicols, our President and Chief Executive Officer, also joined MAI’s board of directors. Concurrently with our initial equity investment, we ~~and Exela cross-licensed certain~~entered into the MAI Agreement with MAI, pursuant to which we are performing services utilizing our CodeEvolver® protein engineering platform technology ~~relating~~ to ~~the manufacture of argatroban, an API,~~improve DNA polymerase enzymes in exchange for ~~rights to certain sublicensing fees or development payments and profit sharing. The revenue sharing arrangement was terminated in December 2017.~~

Thomas R. Baruch, one of our directors, serves on the board of directors of Exela, and is a retired general partner in Presidio Partners 2007, L.P., which owns over 10% of Exela’s outstanding capital stock. As such, Mr. Baruch has an indirect pecuniary interestcompensation in the form of additional shares of ~~Exela held by Presidio Partners 2007, L.P.~~MAI's Series A preferred stock. In April 2021, we purchased an additional 1,000,000 shares of MAI's Series A preferred stock for $0.6 million. In September 2021, we purchased 9,198,423 shares of MAI's Series B preferred stock for $7.0 million.In the

119

fourth quarter of 2021, we became eligible to receive the primary milestone payment of $1.0 million which we received in the form of additional of 1,587,049 Series B preferred stock during December 2021.

We ~~had no revenue from transactions with Exela in 2018. We~~ recognized ~~$2.6~~$2.0 million and $0.9 million in ~~2017 and $2.2 million in 2016 as~~ research and development revenue from transactions with ~~Exela.~~MAI in the years ended December 31, 2021 and 2020, respectively. We ~~had no receivables~~received 3,491,505 and 714,171 shares of MAI's Series A and B preferred stock from research and development services we provided to MAI for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we have 16,705,320 shares of MAI's Series A and B preferred stock that we have earned or purchased since executing the Stock Purchase Agreement with MAI.

The carrying value of our investment in MAI Series A and B preferred stock was $12.7 million and $1.5 million at December 31, ~~2018~~2021 and ~~$1.6~~2020, respectively. We had $0.2 million and nil in deferred revenue as of ~~receivables~~December 31, 2021 and 2020, respectively, and nil and $0.5 million in contract assets due from ~~Exela at~~MAI for services rendered as of December 31, ~~2017.~~2021 and 2020, respectively. Payment for the services rendered was received in the form of additional Series A and Series B preferred stock. For additional information, see Note 5, "Collaborative Arrangements".

AstraZeneca PLC

Pam P. Cheng, who served as a member of our board of directors until June 2020, joined AstraZeneca PLC as Executive Vice President, Operations and Information Technology in June 2015. We ~~sell~~sold biocatalyst products to AstraZeneca PLC ~~to Alfa Aesar, which is a~~and its controlled purchasing ~~agent of AstraZeneca PLC,~~agents and ~~also to Asymchem Life Science Co, Ltd, which is a~~ contract ~~manufacturer for AstraZeneca PLC.~~

manufacturers. We recognized product revenue of $0.6 million in 2018, $0.1 million in 2017 and de minimis revenue in 2016 from transactions with AstraZeneca PLC. We recognized no revenue from transactions with Alfa Aesar in 2018 and 2017 and $0.4 million of product revenue in 2016. We recognized de minimis revenue from Asymchem Life Science Co, Ltd in 2018, $75 thousand in 2017, and de minimis revenue in 2016. At December 31, 2018, we had $0.2 million of receivables and at December 31, 2017,

~~we had~~ $0.1 million of ~~receivables due~~revenue in 2020, through the date of Ms. Cheng's departure from ~~AstraZeneca, PLC. At~~our board of directors. As of December 31, ~~2018,~~2020, we had no receivables from AstraZeneca PLC and ~~at December 31, 2017, we had $0.1 million of receivables due from Asymchem Life Science Co, Ltd. At December 31, 2018~~its controlled purchasing agents and ~~2017, we had no receivables due from Alfa Aesar.~~contract manufacturers that was generated during the related party period.

Note 15. 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~~We manage our ~~biotherapeutics~~ business as ~~a standalone~~2 business ~~segment. Our two reportable business segments as of January 1, 2018, consisted of~~segments: Performance Enzymes and Novel Biotherapeutics. Our chief operating decision maker ("CODM") is our Chief Executive Officer. Our business segments are primarily based on our organizational structure and our operating results as used by our CODM in assessing performance and allocating resources for the Company.

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~~Factors considered in determining the ~~pharmaceuticals market, and to date this continues to be our largest market served. Our customers, which~~2 reportable segments of the Company 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~~nature 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. 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, which was conducted in Australia. In November 2018, we announced top-line results from the Phase 1a study in healthy volunteers with CDX-6114. In December 2018, Nestlé Health Science became obligated to pay us an additional $1.0 million within 60 days after the achievement of a milestone relating to formulation of CDX-6114. In January 2019, we received notice from the U.S. Food and Drug Administration (the “FDA”) that it had completed its review of our investigational new drug application (“IND”) for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive license for the global development and commercialization of CDX-6114 forbusiness activities, the management structure directly accountable to our CODM for operating and administrative activities, availability of ~~PKU. The exercise of the option triggers a $3 million milestone payment. Upon exercising its option, Nestlé Health Science has assumed all responsibilities for future clinical development~~discrete financial information and commercialization of CDX-6114, with the exception of the completion of an extension study, CDX - 6114-004, which is expected to be completed in the second quarter of 2019. See Note 16, “Subsequent Events” in the notesinformation presented to the ~~Consolidated Financial Statements set forth in Item 8~~Board of ~~this Annual Report on Form 10-K for details.~~

For the year ended December 31, 2018, primarily all revenues related to the Novel Biotherapeutics segment were generated from our collaboration with customer projects. There was no revenue related to the Novel Biotherapeutics segment in the year ended December 31, 2017. Novel Biotherapeutics had no operational activity in the year ended December 31, 2016.

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

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. This provides the CODM with more meaningful segment profitability reporting to support operating decisions and allocate resources.

120

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


	Year Ended December 31, 2021						Year Ended December 31, 2020
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Revenues:
Product revenue	$	70,657	$	—	$	70,657	$	30,220	$	—	$	30,220
Research and development revenue	19,858		14,239		34,097		17,886		20,950		38,836
Total revenues	90,515		14,239		104,754		48,106		20,950		69,056
Costs and operating expenses:
Cost of product revenue	22,209		—		22,209		13,742		—		13,742
Research and development (1)	23,140		30,219		53,359		20,923		21,705		42,628
Selling, general and administrative(1)	12,105		2,755		14,860		9,597		2,355		11,952
Total segment costs and operating expenses	57,454		32,974		90,428		44,262		24,060		68,322
Income (loss) from operations	$	33,061	$	(18,735)	14,326		$	3,844	$	(3,110)	734
Corporate costs (2)					(32,201)						(22,306)
Depreciation and amortization					(3,215)						(2,099)
Loss before income taxes					$	(21,090)					$	(23,671)

Year Ended December 31, 2018
Year Ended December 31, 2017

Performance Enzymes
Novel Biotherapeutics
Total
Performance Enzymes
Novel Biotherapeutics
Total
Revenues:

Product revenue
$ 25,590

$ —

$ 25,590

$ 26,685

$ —

$ 26,685
Research and development revenue
21,483

13,521

35,004

15,648

7,691

23,339
Total revenues
47,073

13,521

60,594

42,333

7,691

50,024
Costs and operating expenses:

Cost of product revenue
12,620

—

12,620

14,327

—

14,327
Research and development⁽¹⁾

18,924

10,185

29,109

16,847

12,107

28,954
Selling, general and administrative
7,538

771

8,309

7,371

—

7,371
Total segment costs and operating expenses
39,082

10,956

50,038

38,545

12,107

50,652
Income (loss) from operations
$ 7,991

$ 2,565

$ 10,556

$ 3,788

$ (4,416 )
$ (628 )
Corporate costs⁽²⁾

(20,324 )

(21,245 )
Depreciation

(1,147 )

(1,042 )
Loss before income taxes

$ (10,915 )

$ (22,915 )

⁽¹⁾Research and development expenses and ~~Selling,~~selling, general and administrative expenses exclude ~~depreciation.~~depreciation and amortization of finance leases.

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


	Year Ended December 31, 2020						Year Ended December 31, 2019
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Revenues:
Product revenue	$	30,220	$	—	$	30,220	$	29,465	$	—	$	29,465
Research and development revenue	17,886		20,950		38,836		28,691		10,302		38,993
Total revenues	48,106		20,950		69,056		58,156		10,302		68,458
Costs and operating expenses:
Cost of product revenue	13,742		—		13,742		15,632		—		15,632
Research and development (1)	20,923		21,705		42,628		19,380		13,278		32,658
Selling, general and administrative(1)	9,597		2,355		11,952		8,462		2,222		10,684
Total segment costs and operating expenses	44,262		24,060		68,322		43,474		15,500		58,974
Income (loss) from operations	$	3,844	$	(3,110)	734		$	14,682	$	(5,198)	9,484
Corporate costs (2)					(22,306)						(19,624)
Depreciation and amortization					(2,099)						(1,778)
Loss before income taxes					$	(23,671)					$	(11,918)

(1) For the years ended December 31, 2020 and ~~expenses.~~2019, research and development expenses and selling, general and administrative expenses exclude depreciation and amortization of finance leases.

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

121

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

2018 2017
Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total
Stock-based compensation $ 2,591
$ 338
$ 2,929
$ 2,306
$ 208
$ 2,514


	Year Ended December 31,
	2021		2020		2019
Performance Enzymes	$	4,514	$	2,970	$	2,303
Novel Biotherapeutics	1,100		768		695
Corporate cost	5,979		3,990		3,945
Total	$	11,593	$	7,728	$	6,943

Significant Customers

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


	Percentage of Total Revenues For the Year Ended December 31,
	2021		2020		2019
Customer A	33	%	*		*
Customer B	11	%	26	%	28	%
Customer C	*		19	%	*
Customer D	*		11	%	15	%
Customer E	*		*		23	%

* Percentage was less than 10%

Percentage of Total Revenues
For The Years Ended December 31,
2018 2017 2016
Merck 29 % 28 % 47 %
Nestlé Health Science 22 % 15 % *
Tate & Lyle 13 % 11 % *
Novartis *
14 % *
GSK *
*
22 %

Customers that each accounted for 10% or more of ~~our~~ accounts receivable ~~balance for~~balances as of the ~~period~~periods presented ~~were~~ as follows:

Percentage of Accounts Receivables
As Of December 31,
2018 2017
Merck 37 % 31 %
Nestlé Health Science 17 % *
Tate & Lyle *
16 %
Novartis 11 % 15 %
Kyorin Pharmaceutical Co Ltd 16 % *
Exela PharmaSci, Inc. *
14 %


	As of December 31,
	2021		2020
Customer A	62	%	*
Customer B	*		32	%
Customer D	*		13	%
Customer E	*		25	%

* Percentage was less than 10%

~~Geographic~~Geographical Information

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


	Year Ended December 31,
	2021		2020		2019
Revenues
Americas	$	23,481	$	24,352	$	13,039
EMEA	20,187		19,257		37,133
APAC	61,086		25,447		18,286
Total revenues	$	104,754	$	69,056	$	68,458

Year Ended December 31,
2018 2017 2016
Revenues
Americas $ 15,370
$ 15,575
$ 23,126
EMEA 22,361
19,610
17,138
APAC 22,863
14,839
8,573
Total revenues $ 60,594
$ 50,024
$ 48,837

Identifiable long-lived assets by location ~~and goodwill by reporting unit as of year-end~~ were as follows (in thousands):


	December 31,
	2021		2020
United States	$	65,457	$	31,176

122

December 31,
2018 2017
Long-lived assets
United States $ 4,759
$ 2,815
Identifiable goodwill was as follows (in thousands):`


	December 31, 2021						December 31, 2020
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Goodwill	$	2,463	$	778	$	3,241	$	2,463	$	778	$	3,241

December 31, 2018
Performance Enzymes Novel Biotherapeutics Total

Goodwill $ 2,463
$ 778
$ 3,241

Note 16.~~Subsequent Events~~ Allowance for Credit Losses

~~Operating Leases~~The following summarizes the receivables allowance for credit losses (in thousands):


	December 31,
	2021		2020		2019
Balance at beginning of period	$	74	$	34	$	34
Provision for credit losses	342		40		—
Balance at end of period	$	416	$	74	$	34

In February 2019, we entered into the eighth lease amendment ("Eighth Amendment") with MetLife to extend the lease term for the Penobscot Space, the Building 2 Space and the 501 Chesapeake Space for another 88 months. The various terms for these properties have expiration dates that range from May 2027 to May 2029. The terms include an optional renewal period of 5 years after the expiration date based on fair market rates for comparable transactions in the geographic area described in the Eighth Amendment. The Eighth Amendment requires us to install certain improvements to the buildings. On completion of the improvements to the building, the landlord will reimburse us up to a contractually specified amount and the landlord will become the owner of the improvements. Pursuant to the terms of the Eighth Amendment, we exercised our right to deliver a letter of credit in lieu of a security deposit. The letters of credit are collateralized by deposit balances held by the bank in the amount of $1.1 million in 2019. These deposits will be recorded as restricted cash on the consolidated balance sheets. Total future minimum lease payments under the Eighth Amendment is $32.9 million.

~~FDA Approval and Nestlé Health Science Exercises Option for Exclusive Global License to CDX-6114~~

In January 2019, we received notice from the U.S. Food and Drug Administration (the “FDA”) that it had completed its review of our investigational new drug application (“IND”) for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States.

In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sublicensable license to develop and commercialize certain products based on the our novel, orally delivered enzyme IND for the management of phenylketonuria. Nestlé Health Science was granted this option under the Development, Option and Licensing Agreement with Codexis announced in October 2017. The exercise of the option triggered a $3 million milestone payment from Nestlé Health Science to Codexis. Upon exercising its option, Nestlé Health Science has assumed all responsibilities for future clinical development and commercialization of CDX-6114, with the exception of the completion of an extension study, CDX - 6114-004, which is expected to be completed in the second quarter of 2019.

~~Selected Quarterly Financial Data (Unaudited)~~

The following ~~table provides the selected quarterly financial data for 2018 and 2017:~~tables below summarizes accounts receivable by aging category (in thousands):

~~Condensed Consolidated Statements of Operations~~


	December 31, 2021
	31-60 Days		61-90 Days		91 Days and over		Total over 31 Days		Current		Total balance
Accounts receivable	$	536	$	569	$	1,151	$	2,256	$	22,697	$	24,953

	December 31, 2020
	31-60 Days		61-90 Days		91 Days and over		Total over 31 Days		Current		Total balance
Accounts receivable	$	489	$	7	$	—	$	496	$	13,398	$	13,894

~~(In Thousands, Except Per Share Amounts)~~

123

Quarter Ended ⁽¹⁾

December 31, 2018 ⁽³⁾
September 30,
2018 June 30,
2018 March 31,
2018
December 31, 2017 ⁽³⁾
September 30,
2017 June 30,
2017 March 31,
2017

Revenues:
Product revenue $ 7,299
$ 8,405
$ 3,723
$ 6,163
$ 7,551
$ 6,948
$ 6,600
$ 5,586
Research and development revenue 8,769
8,541
9,815
7,879
14,171
3,036
3,747
2,385
Total revenues $ 16,068
$ 16,946
$ 13,538
$ 14,042
$ 21,722
$ 9,984
$ 10,347
$ 7,971
Costs and operating expenses:
Cost of product revenue $ 2,393
$ 3,791
$ 2,611
$ 3,825
$ 3,559
$ 3,976
$ 3,790
$ 3,002
Research and development 7,513
7,917
7,370
7,178
9,417
8,055
6,348
5,839
Selling, general and administrative 6,806
7,344
7,395
7,746
7,867
7,989
6,546
6,606
Total costs and operating expenses $ 16,712
$ 19,052
$ 17,376
$ 18,749
$ 20,843
$ 20,020
$ 16,684
$ 15,447
Income (loss) from operations $ (644 ) $ (2,106 ) $ (3,838 ) $ (4,707 ) $ 879
$ (10,036 ) $ (6,337 ) $ (7,476 )
Income (loss) before income taxes $ (486 ) $ (1,987 ) $ (3,746 ) $ (4,696 ) $ 919
$ (10,076 ) $ (6,322 ) $ (7,436 )
Net income (loss) $ (461 ) $ (1,988 ) $ (3,735 ) $ (4,694 ) $ 970
$ (10,226 ) $ (6,280 ) $ (7,460 )
Net income (loss) per share, basic $ (0.01 ) $ (0.04 ) $ (0.07 ) $ (0.10 ) $ 0.02
$ (0.21 ) $ (0.13 ) $ (0.18 )
Net income (loss) per share, diluted $ (0.01 ) $ (0.04 ) $ (0.07 ) $ (0.10 ) $ 0.02
$ (0.21 ) $ (0.13 ) $ (0.18 )
Weighted average common shares used in computing net income (loss) per share, basic ⁽²⁾
53,973
53,597
52,787
48,385
48,187
48,147
47,232
41,250
Weighted average common shares used in computing net income (loss) per share, diluted⁽²⁾
53,973
53,597
52,787
48,385
50,599
48,147
47,232
41,250



	⁽¹⁾	~~Amounts were computed independently for each quarter, and the sum of the quarters may not total the annual amounts due to rounding differences.~~
	⁽²⁾	~~The full year net loss per share of common stock, basic and diluted, may not equal the sum of the quarters due to weighting of outstanding shares.~~
	⁽³⁾	PSUs, PBOs, and cash bonus awards are granted to certain employees and executives and are subject to our performance in achieving pre-determined criteria approved by our board of directors. Based on the actual achievement of the annual goals, we updated the calculation of the annual expense in the fourth quarter which resulted in true-up adjustments of approximately $(0.5) million in 2018 and $0.1 million in 2017, primarily in selling, general and administrative expense.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our disclosure committee, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, ~~2018.~~2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, ~~2018~~2021 at the reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with United States generally accepted accounting principles.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, ~~2018~~2021 based on the guidelines established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ~~(COSO)~~("COSO"). Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, ~~2018.~~2021. We reviewed the results of management’s assessment with our Audit Committee.

Our internal control over financial reporting as of December 31, ~~2018~~2021 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this Annual Report.

Inherent Limitations on Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, even if determined effective and no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives to prevent or detect misstatements. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act, which occurred during the fourth fiscal quarter of the year ended December 31, ~~2018,~~2021, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Effective January 1, 2018, we adopted the provisions of Accounting Standards Update (ASU) 2014-09, "Revenue from Contracts with Customers (Topic 606)~~ and the related amendments (“ASC 606”). In response, we have updated and enhanced our internal accounting processes and our internal controls over financial reporting to ensure that we maintain adequate internal controls over financial reporting. This has required, and will continue to require, additional investments by us. There were no other significant changes to our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

124

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item concerning our directors, executive officers, compliance with Section 16 of the Exchange Act, our code of ethics and our Nominating and Corporate Governance Committee, and our Audit Committee is incorporated by reference from the information that will be set forth in the sections under the headings “Election of Directors,” “Other Matters—Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance Matters” in ~~our Definitive~~the 2022 Proxy ~~Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held in 2019 (the “2019 Proxy Statement”).~~Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item concerning executive compensation is incorporated by reference from the information that will be set forth in the ~~2019~~2022 Proxy Statement under the headings “Executive Compensation,” and “Corporate Governance Matters.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item concerning securities authorized for issuance under equity compensation plans and security ownership of certain beneficial owners and management is incorporated by reference from the information that will be set forth in the ~~2019~~2022 Proxy Statement under the headings “Executive Compensation—Equity Compensation Plan Information” and “Information Concerning Voting and Solicitation—Security Ownership of Certain Beneficial Owners and Management.”

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,

AND DIRECTOR INDEPENDENCE

The information required by this item concerning transactions with related persons and director independence is incorporated by reference from the information that will be set forth in the ~~2019~~2022 Proxy Statement under the headings “Certain Relationships and Related Transactions” and “Corporate Governance Matters.”

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference from the information that will be set forth in the ~~2019~~2022 Proxy Statement under the heading “Ratification of Independent Registered Public Accounting Firm—Principal Accounting Fees and Services.”

125

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1.Financial Statements: See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on Form 10-K

2.Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.

126

EXHIBIT INDEX


Exhibit No.						Description

3.1						Amended and Restated Certificate of Incorporation of Codexis, Inc. filed with the Secretary of the State of the State of Delaware on April 27, 2010 and effective as of April 27, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed on May 28, 2010).

3.2						Certificate of Designations of Series A Junior Participating Preferred Stock of Codexis, Inc., filed with the Secretary of State of the State of Delaware on September 4, 2012 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on September 4, 2012).

3.3						Amended and Restated Bylaws of Codexis, Inc. effective as of April 27, 2010 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed on May 28, 2010).

4.1						Reference is made to Exhibits 3.1 through 3.3.

4.2						Form of the Company’s Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 9, 2012).

4.3						Description of Codexis' Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

10.1A*						Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of February 1, 2004.

10.1B*						Amendment to Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of June 1, 2004.

10.1C*						Amendment to Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of March 9, 2007.

10.1D*						Amendment to Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of March 31, 2008.

10.1E						Fourth Amendment to Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of September 17, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, filed on November 4, 2010).

10.1F						Fifth Amendment to Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of March 16, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed on May 6, 2011).

10.1G						Sixth Amendment to Lease by and between the Company and Metropolitan Life Insurance Company dated as of September 27, 2012 (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed on November 7, 2012).

10.1H						Seventh Amendment to Lease by and between the Company and Metropolitan Life Insurance Company dated as of October 11, 2016 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, filed on November 8, 2016).

127


Exhibit No.						Description
10.1I***						Eighth Amendment to Lease, dated as of February 8, 2019, by and between the Company and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed on May 8, 2019).


10.2+*						Codexis, Inc. 2010 Equity Incentive Award Plan and Form of Stock Option Agreement.

10.3A+						Codexis, Inc. 2019 Incentive Award Plan (incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 (File No. 333-232262) filed with the SEC on June 21, 2019).

10.3B+						Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under 2019 Incentive Award Plan (incorporated by reference to Exhibit 99.2 to the Company's Registration Statement on Form S-8 (File No. 333-232262) filed with the SEC on June 21, 2019).

10.3C+						Form of Stock Option Grant Notice and Stock Option Agreement under 2019 Incentive Award Plan (incorporated by reference to Exhibit 99.3 to the Company's Registration Statement on Form S-8 (File No. 333-232262) filed with the SEC on June 21, 2019).

10.3D+						Form of Stock Option Grant Notice and Stock Option Agreement under 2019 Incentive Award Plan (incorporated by reference to Exhibit 99.4 to the Company's Registration Statement on Form S-8 (File No. 333-232262) filed with the SEC on June 21, 2019).

10.3E+						Form of Performance Stock Unit Award Grant Notice and Performance Stock Unit Award Agreement under 2019 Incentive Award Plan (incorporated by reference to Exhibit 99.5 to the Company's Registration Statement on Form S-8 (File No. 333-232262) filed with the SEC on June 21, 2019).

10.3F+						Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement under 2019 Incentive Award Plan (incorporated by reference to Exhibit 99.6 to the Company's Registration Statement on Form S-8 (File No. 333-232262) filed with the SEC on June 21, 2019).

10.4*						Form of Indemnification Agreement between the Company and each of its directors, officers and certain employees.

10.5+						Form of Amended and Restated Change in Control Severance Agreement between the Company and certain of its officers (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed on November 6, 2019).

10.6						Asset Purchase Agreement, dated October 28, 2010, by and among the Company, Codexis Mayflower Holdings, LLC and Maxygen, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on October 28, 2010).

10.7A†						Manufacture and Supply Agreement, dated May 16, 2011, by and between the Company and Lactosan GmbH & Co. KG (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed on August 3, 2011).

10.7B						Amendment No. 1 to the Manufacture and Supply Agreement by and between the Company and Lactosan GmbH & Co. KG dated as of March 9, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed on May 10, 2012).

10.8+						Employment Agreement by and between the Company and Ross Taylor effective as of August 4, 2019 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed on November 6, 2019).

10.9A+						Employment Agreement by and between the Company and John Nicols effective as of May 28, 2012 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 9, 2012).

128


Exhibit No.						Description

10.9B+						John Nicols Stock Option Grant Notice and Stock Option Agreement dated June 13, 2012 between John J. Nicols and the Company (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 9, 2012).

10.9C+						Amendment to Employment Agreement between the Company and John Nicols, dated April 21, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed on August 9, 2016).

10.9D+						Amendment to Employment Agreement between the Company and John Nicols, dated November 16, 2017 (incorporated by reference to Exhibit 10.8E to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed on March 15, 2018).

10.9E+						Amendment to Employment Agreement between the Company and John Nicols, effective as of June 28, 2019, (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed on November 6, 2019).

10.10A†						Sitagliptin Catalyst Supply Agreement by and between Merck Sharp and Dohme Corp. and the Company dated as of February 1, 2012 (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed on April 2, 2013).

10.10B†						Amendment to Sitagliptin Catalyst Supply Agreement between Merck Sharp and Dohme Corp. and the Company dated as of October 1, 2013 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, filed on November 12, 2013).

10.10C						Amendment No. 2 to Sitagliptin Catalyst Supply Agreement between Merck Sharp and Dohme Corp. and the Company dated as of February 25, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015).

10.10D						Amendment No. 3 to Sitagliptin Catalysts Supply Agreement between Merck Sharp and Dohme Corp. and the Company dated as of December 17, 2015 (incorporated by reference to Exhibit 10.11D to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed on March 8, 2016).

10.10E						Amendment No. 4 to Sitagliptin Catalysts Supply Agreement, effective as of January 1, 2016, by and between the Company and Merck Sharp and Dohme Corp. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, filed on November 8, 2016).

10.10F						Amendment No. 5 to Sitagliptin Catalysts Supply Agreement, effective as of July 1, 2021, by and between the Company and Merck Sharp and Dohme Corp. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed on November 5, 2021).

10.11A†						Global Development, Option and License Agreement by and among the Company, Societé des Produits Nestlé S.A., formerly known as Nestec Ltd. (“Nestlé Health Science”), effective as of October 12, 2017 (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 , filed on March 15, 2018 ).

10.11B†						Amendment No. 1 to Global Development, Option and License Agreement by and among the Company, Nestec Ltd. and Nestlé Amendment No. 1 to Global Development, Option and License Agreement by and among the Company, Nestec Ltd. and Nestlé Health Science S.A., effective as of July 26, 2018.(incorporated by reference to Exhibit 10.12B to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on March 3, 2019). Science S.A., effective as of July 26, 2018.

10.11C†						Letter Agreement to Global Development, Option and License Agreement by and among the Company, Nestec Ltd. and Nestlé Health Science S.A., effective as of December 12, 2018. (incorporated by reference to Exhibit 10.12C to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on March 3, 2019).

129


Exhibit No.						Description
10.12A†						Platform Technology Transfer, Collaboration and License Agreement by and between the Company and GlaxoSmithKline Intellectual Property Limited, effective as of July 10, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 31, 2014, filed on November 6, 2014).

10.12B†						Letter Agreement, effective as of February 21, 2020, by and between Codexis, Inc. and GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed on May 8, 2020).

10.13A***						Platform Technology Transfer and License Agreement by and between the Company and Merck Sharp & Dohme Corp., dated as of August 3, 2015.

10.13B†						Amendment No. 1 to Platform Technology Transfer and License Agreement by and between the Company and Merck Sharp & Dohme Corp., dated as of October 10, 2018, incorporated by reference to Exhibit 10.14A to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on March 3, 2019).

10.13C***						Amendment No. 2 to Platform Technology Transfer and License Agreement by and between Merck and the Company dated as of January 1, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed on May 8, 2019).

10.14***						Platform Technology Transfer and License Agreement, dated May 2, 2019, by and between the Company and Novartis Pharma AG (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed on August 6, 2019).

10.15***						Strategic Collaboration and License Agreement by and between Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited and the Company, dated March 23, 2020 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed on May 8, 2020).

10.16A†						Loan and Security Agreement effective as of June 30, 2017 by and between the Company and Western Alliance Bank (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed on August 9, 2017).

10.16B†						First Amendment to Loan and Security Agreement effective as of September 28, 2017 by and between the Company and Western Alliance Bank (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, filed on November 9, 2017).

10.16C†						Second Amendment to Loan and Security Agreement effective as of November 7, 2017 by and between the Company and Western Alliance Bank (incorporated by reference to Exhibit 10.15B to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed on March 15, 2018).

10.16D†						Third Amendment to Loan and Security Agreement by and between the Company and Western Alliance Bank dated as of June 29, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, filed on August 9, 2018).

10.16E†						Fourth Amendment to Loan and Security Agreement effective as of September 28, 2018 by and between the Company and Western Alliance Bank (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed on November 9, 2018).

10.16F						Fifth Amendment to Loan and Security Agreement effective as of January 23, 2019 by and between the Company and Western Alliance Bank (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed on May 8, 2019).

130


Exhibit No.						Description
10.16G						Sixth Amendment to Loan and Security Agreement by and between the Company and Western Alliance Bank dated as of July 11, 2019 (incorporated by reference to Exhibit 10.1A to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed on November 6, 2019).

10.16H						Seventh Amendment to Loan and Security Agreement by and between the Company and Western Alliance Bank dated as of September 30, 2019 (incorporated by reference to Exhibit 10.1B to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed on November 6, 2019).

10.16I						Eighth Amendment to Loan and Security Agreement by and between the Company and Western Alliance Bank dated as of September 30, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed on November 6, 2020.)

10.16J						Ninth Amendment to Loan and Security Agreement by and between the Company and Western Alliance Bank dated as of September 30, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed on November 5, 2021 ).

10.17						Lease Agreement by and between the Company and ARE-SAN FRANCISCO NO. 63, LLC dated as of January 29, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed on May 7, 2021).

23.1						Consent of BDO USA, LLP, independent registered public accounting firm.

24.1						Power of Attorney (see signature page to this Annual Report on Form ~~10-K~~10-K).


2.31.1	~~Exhibits:~~	Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1**		Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.

101		The ~~exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this~~following materials from Registrant’s Annual Report on Form ~~10-K.~~10-K for the fiscal year ended December 31, 2021 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) Consolidated Balance Sheets at December 31, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations for the years ended December 31, 2021, December 31, 2020 and December 31, 2019, (iii) Consolidated Statements of Cash Flows for the years ended December 31, 2021, December 31, 2020 and December 31, 2019, (vi) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, December 31, 2020 and December 31, 2019 and (vii) Notes to Consolidated Financial Statements.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

131


Exhibit No.						Description
104						The cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, formatted in Inline XBRL and contained in Exhibit 101.

+ Indicates a management contract or compensatory plan or arrangement.

† Confidential treatment has been granted for certain information contained in this exhibit. Such information has been omitted and filed separately with the Securities and Exchange Commission.

* Filed as exhibits to the registrant’s Registration Statement on Form S-1 (File No. 333-164044), effective April 21, 2010, and incorporated herein by reference.

** Pursuant to Item 601(b)(32) of Regulation S-K this exhibit is furnished rather than filed with this report.

*** Portions of the exhibit, marked by brackets, have been omitted because the omitted information is (i) not material and (ii) would be competitively harmful if publicly disclosed.

ITEM 16. FORM 10-K SUMMARY

~~None.~~Not applicable.

~~EXHIBIT INDEX~~

132



~~Exhibit~~ ~~No.~~		~~Description~~

~~3.1~~		Amended and Restated Certificate of Incorporation of Codexis, Inc. filed with the Secretary of the State of the State of Delaware on April 27, 2010 and effective as of April 27, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed on May 28, 2010).

~~3.2~~		Certificate of Designations of Series A Junior Participating Preferred Stock of Codexis, Inc., filed with the Secretary of State of the State of Delaware on September 4, 2012 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on September 4, 2012).

~~3.3~~		Amended and Restated Bylaws of Codexis, Inc. effective as of April 27, 2010 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed on May 28, 2010).

~~4.1~~		~~Reference is made to Exhibits 3.1 through 3.3.~~

~~4.2~~		Form of the Company’s Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on From 10-Q for the quarter ended June 30, 2012, filed on August 9, 2012).

10.1A*		~~Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of February 1, 2004.~~

10.1B*		~~Amendment to Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of June 1, 2004.~~

10.1C*		~~Amendment to Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of March 9, 2007.~~

10.1D*		~~Amendment to Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of March 31, 2008.~~

~~10.1E~~		Fourth Amendment to Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of September 17, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, filed on November 4, 2010).

~~10.1F~~		Fifth Amendment to Lease Agreement by and between the Company and Metropolitan Life Insurance Company dated as of March 16, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed on May 6, 2011).

~~10.1G~~		Sixth Amendment to Lease by and between the Company and Metropolitan Life Insurance Company dated as of September 27, 2012 (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed on November 7, 2012).

~~10.1H~~		Seventh Amendment to Lease by and between the Company and Metropolitan Life Insurance Company dated as of October 11, 2016 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, filed on November 8, 2016).

10.2+*		~~Codexis, Inc. 2002 Stock Plan, as amended, and Form of Stock Option Agreement.~~

10.3+*		~~Codexis, Inc. 2010 Equity Incentive Award Plan and Form of Stock Option Agreement.~~

10.4*		~~Form of Indemnification Agreement between the Company and each of its directors, officers and certain employees.~~

10.5A+*		~~Form of Change of Control Severance Agreement between the Company and certain of its officers.~~



~~Exhibit~~ ~~No.~~		~~Description~~
~~10.5B+~~		Form of Amended and Restated Change of Control Severance Agreement by and between Codexis, Inc. and certain of its officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on October 14, 2016).

~~10.5C+~~		Form of Amendment to Change of Control Severance Agreement by and between Codexis, Inc. and certain of its officers (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 15, 2018).

~~10.6~~		Asset Purchase Agreement, dated October 28, 2010, by and among the Company, Codexis Mayflower Holdings, LLC and Maxygen, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on October 28, 2010).

~~10.7A†~~		Manufacture and Supply Agreement, dated May 16, 2011, by and between the Company and Lactosan GmbH & Co. KG (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed on August 3, 2011).

~~10.7B~~		Amendment No. 1 to the Manufacture and Supply Agreement by and between the Company and Lactosan GmbH & Co. KG dated as of March 9, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed on May 10, 2012).

~~10.8A+~~		Offer Letter, dated as of October 12, 2016, by and between the Company and Michael Aldridge (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016).

~~10.8B+~~		~~Separation Agreement by and between Michael Aldridge and the Company, dated August 17, 2018.~~

~~10.9+~~		Offer Letter Agreement by and between the Company and Gordon Sangster effective as of July 11, 2014 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 31, 2014, filed on November 6, 2014).

~~10.10A+~~		Employment Agreement by and between the Company and John Nicols effective as of May 28, 2012 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 9, 2012).

~~10.10B+~~		John Nicols Stock Option Grant Notice and Stock Option Agreement dated June 13, 2012 between John J. Nicols and the Company (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 9, 2012).

~~10.10C+~~		John Nicols Restricted Stock Grant Notice and Restricted Stock Agreement dated June 13, 2012 between John J. Nicols and the Company (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 9, 2012).

~~10.10D+~~		Amendment to Employment Agreement between the Company and John Nicols, dated April 21, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016).

~~10.10E+~~		Amendment to Employment Agreement between the Company and John Nicols, dated November 16, 2017 (incorporated by reference to Exhibit 10.8E to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed on March 15, 2018).

~~10.11A†~~		Sitagliptin Catalyst Supply Agreement by and between Merck Sharp and Dohme Corp. and the Company dated as of February 1, 2012 (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed on April 2, 2013).

~~10.11B†~~		Amendment to Sitagliptin Catalyst Supply Agreement between Merck Sharp and Dohme Corp. and the Company dated as of October 1, 2013 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, filed on November 12, 2013).

~~10.11C~~		Amendment No. 2 to Sitagliptin Catalyst Supply Agreement between Merck Sharp and Dohme Corp. and the Company dated as of February 25, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015).



~~Exhibit~~ ~~No.~~		~~Description~~

~~10.11D~~		Amendment No. 3 to Sitagliptin Catalysts Supply Agreement between Merck Sharp and Dohme Corp. and the Company dated as of December 17, 2015 (incorporated by reference to Exhibit 10.11D to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed on March 8, 2016).

~~10.11E~~		Amendment No. 4 to Sitagliptin Catalysts Supply Agreement, effective as of January 1, 2016, by and between the Company and Merck Sharp and Dohme Corp. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, filed on November 8, 2016).

~~10.12A†~~		Global Development, Option and License Agreement by and among the Company, Nestec Ltd. and Nestlé Health Science S.A., effective as of October 12, 2017 (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017).

~~10.12B†~~		~~Amendment No. 1 to Global Development, Option and License Agreement by and among the Company, Nestec Ltd. and Nestlé Health Science S.A., effective as of July 26, 2018.~~

~~10.12C†~~		~~Letter Agreement to Global Development, Option and License Agreement by and among the Company, Nestec Ltd. and Nestle Health Science S.A., effective as of December 12, 2018.~~

~~10.13†~~		Platform Technology Transfer, Collaboration and License Agreement by and between the Company and GlaxoSmithKline Intellectual Property Limited, effective as of July 10, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 31, 2014, filed on November 6, 2014).

~~10.14†~~		Platform Technology Transfer and License Agreement by and between the Company and Merck Sharp & Dohme Corp., dated as of August 3, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 31, 2015, filed on November 6, 2015).

~~10.14A†~~		~~Amendment No. 1 to Platform Technology Transfer and License Agreement by and between the Company and Merck Sharp & Dohme Corp., dated as of October 10, 2018.~~

~~10.15†~~		Loan and Security Agreement effective as of June 30, 2017 by and between the Company and Western Alliance Bank (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017).

~~10.15A†~~		First Amendment to Loan and Security Agreement effective as of September 28, 2017 by and between the Company and Western Alliance Bank (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017).

~~10.15B†~~		Second Amendment to Loan and Security Agreement effective as of November 7, 2017 by and between the Company and Western Alliance Bank (incorporated by reference to Exhibit 10.15B to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 15, 2018).

~~10.15C†~~		Third Amendment to Loan and Security Agreement by and between the Company and Western Alliance Bank dated as of June 29, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, filed August 9, 2018).

~~10.15D†~~		Fourth Amendment to Loan and Security Agreement effective as of September 28, 2018 by and between the Company and Western Alliance Bank (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed November 9, 2018).

~~12.1~~		~~Statement Regarding the Computation of Ratio of Earnings to Fixed Charges.~~

~~21.1~~		~~List of Subsidiaries.~~

~~23.1~~		~~Consent of BDO USA, LLP, independent registered public accounting firm.~~

~~24.1~~		~~Power of Attorney (see signature page to this Annual Report on Form 10-K).~~



~~Exhibit~~ ~~No.~~		~~Description~~
~~31.1~~		~~Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.~~

~~31.2~~		~~Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.~~

32.1**		~~Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.~~

~~101~~		The following materials from Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Consolidated Balance Sheets at December 31, 2018 and December 31, 2017, (ii) Consolidated Statements of Income for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, (iii) Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, (v) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, December 31, 2017 and December 31, 2016 and (vi) Notes to Consolidated Financial Statements.


+	~~Indicates a management contract or compensatory plan or arrangement.~~


†	~~Confidential treatment has been granted for certain information contained in this exhibit. Such information has been omitted and filed separately with the Securities and Exchange Commission.~~


*	~~Filed as exhibits to the registrant’s Registration Statement on Form S-1 (File No. 333-164044), effective April 21, 2010, and incorporated herein by reference.~~


**	~~Pursuant to Item 601(b)(32) of Regulation S-K this exhibit is furnished rather than filed with this report.~~

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


				CODEXIS, INC.

Date:			February 28, 2022	~~CODEXIS, INC.~~
By:
~~Date:~~	~~March 1, 2019~~	~~By:~~	/s/ John J. Nicols
					President and Chief Executive Officer
					(Principal Executive Officer)

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and appoints John J. Nicols, ~~Gordon T. B. Sangster,~~Ross Taylor and Richard A. Sabalot, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this annual report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

SIGNATURE

TITLE

DATE

/s/ John J. Nicols

President, Chief Executive Officer and Director (Principal Executive Officer)

Date:

~~March 1, 2019~~February 28, 2022

John J. Nicols

/s/ ~~Gordon T. B. Sangster~~Ross Taylor

Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Date:

~~March 1, 2019~~February 28, 2022

~~Gordon T. B. Sangster~~Ross Taylor

/s/ ~~Bernard J. Kelley~~Byron L. Dorgan

Chairman of the Board of Directors

Date:

~~March 1, 2019~~February 28, 2022

~~Bernard J. Kelley~~

~~/s/ Thomas R. Baruch~~

~~Chairman Emeritus, Director~~

~~Date:~~

~~March 1, 2019~~

~~Thomas R. Baruch~~

~~/s/ Pam P. Cheng~~

~~Director~~

~~Date:~~

~~March 1, 2019~~

~~Pam P. Cheng~~

~~/s/~~ Byron L. Dorgan

~~Director~~

~~Date:~~

~~March 1, 2019~~

~~Byron L. Dorgan~~

/s/ Jennifer Aaker

Director

Date:

February 28, 2022

~~/s/ Kathleen S. Glaub~~Jennifer Aaker

~~Director~~

~~Date:~~

~~March 1, 2019~~

~~Kathleen S. Glaub~~

/s/ Stephen Dilly

Director

Date:

February 28, 2022

Stephen Dilly

/s/ Esther Martinborough

Director

Date:

February 28, 2022

Esther Martinborough

/s/ Alison Moore

Director

Date:

February 28, 2022

Alison Moore

/s/ David V. Smith

Director

Date:

~~March 1, 2019~~February 28, 2022

David V. Smith

/s/ Dennis P. Wolf

Director

Date:

~~March 1, 2019~~February 28, 2022

Dennis P. Wolf

/s/ Patrick Y. Yang

Director

Date:

~~March 1, 2019~~February 28, 2022

Patrick Y. Yang

~~136~~

133



Delaware						71-0872999
(State or other ~~Jurisdiction~~jurisdiction of ~~Incorporation~~ incorporation or ~~Organization)~~ organization)						(I.R.S. Employer Identification No.)

200 Penobscot Drive, Redwood City, California						94063
(Address of ~~Principal Executive Offices)~~principal executive offices)						(Zip Code)



Title of Each Class:	Trading Symbols(s):	Name of Each Exchange on which Registered:
Common Stock, par value $0.0001 per share	CDXS	The Nasdaq Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act: None



ý☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


•	~~Licensing our CodeEvolver~~^® ~~protein engineering technology platform.~~ ~~We intend to continue to pursue opportunities to license our CodeEvolver~~^® ~~protein engineering technology platform to third parties so they can create cost-saving protein catalyst solutions utilizing their own in-house protein engineering capability.~~


	Percentage of Total Revenues For the Years Ended December 31.
Customers:	2021		2020		2019
Customer A	33	%	*		*
Customer B	11	%	26	%	28	%
Customer C	*		19	%	*
Customer D	*		11	%	15	%
Customer E	*		*		23	%
* Percentage was less than 10%


•	~~Our efforts to use CodeEvolver~~^® protein engineering technology platform to generate new lead biotherapeutic candidates, whether under our collaboration with Nestlé Health Science or otherwise, may not be successful in creating candidates of value.



Fiscal 2018	High		Low
First Quarter	$	13.60	$	7.95
Second Quarter	16.80		9.30
Third Quarter	19.60		12.85
Fourth Quarter	23.05		14.05



Fiscal 2017	High		Low
First Quarter	$	5.29	$	3.60
Second Quarter	5.45		3.95
Third Quarter	6.70		4.80
Fourth Quarter	8.55		5.70



	Year Ended December 31, 2018						Year Ended December 31, 2017						Change
	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes				Novel Biotherapeutics
													$			%	$		%
Revenues:
Product revenue	$	25,590	$	—	$	25,590	$	26,685	$	—	$	26,685	$	(1,095	)	(4)%	$	—	—%
Research and development revenue	21,483		13,521		35,004		15,648		7,691		23,339		5,835			37%	5,830		76%
Total revenues	$	47,073	$	13,521	$	60,594	$	42,333	$	7,691	$	50,024	$	4,740		11%	$	5,830	76%



	Payments due by period
	Total		Less than 1 year		1 to 3 years		4 to 5 years		More than 5 years
Capital lease obligations	$	313	$	252	$	61	$	—	$	—
Operating leases obligations ⁽¹⁾	4,523		3,280		1,202		41		—
Total ⁽²⁾	$	4,836	$	3,532	$	1,263	$	41	$	—



	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity
December 31, 2015	40,343		$	4	$	305,981		$	405		$	(283,511	)	$	22,879
Exercise of stock options	398		—		1,034			—			—			1,034
Release of stock awards	911		—		—			—			—			—
Employee stock-based compensation	—		—		5,673			—			—			5,673
Taxes paid related to net share settlement of equity awards	(397	)	—		(1,524		)	—			—			(1,524		)
Total comprehensive loss	—		—		—			(405		)	(8,558		)	(8,963		)
December 31, 2016	41,255		4		311,164			—			(292,069		)	19,099
Exercise of stock options	86		—		266			—			—			266
Release of stock awards	1,096		—		—			—			—			—
Employee stock-based compensation	—		—		7,048			—			—			7,048
Non-employee stock-based compensation	—		—		43			—			—			43
Taxes paid related to net share settlement of equity awards	(397	)	—		(1,670		)	—			—			(1,670		)
Issuance of common stock, net of issuance costs	6,325		1		23,228			—			—			23,229
Total comprehensive loss	—		—		—			(472		)	(22,996		)	(23,468		)
December 31, 2017	48,365		5		340,079			(472		)	(315,065		)	24,547
Exercise of stock options	856		—		4,680			—			—			4,680
Release of stock awards	832		—		—			—			—			—
Employee stock-based compensation	—		—		7,865			—			—			7,865
Non-employee stock-based compensation	—		—		24			—			—			24
Taxes paid related to net share settlement of equity awards	(301	)	—		(3,190		)	—			—			(3,190		)
Issuance of common stock, net of issuance costs	4,313		—		37,317			—			—			37,317
Cumulative effect of change in accounting principles ⁽¹⁾	—		—		—			472			(4,531		)	(4,059		)
Net Loss	—		—		—			—			(10,878		)	$	(10,878	)
December 31, 2018	54,065		$	5	$	386,775		$	—		$	(330,474	)	$	56,306

⁽¹⁾ Cumulative effect of change in accounting principles includes: Accounting Standards Update 2014-9 (Topic 606), of $4.1 million and Accounting Standards Update 2016-01 (Subtopic 825-10), of $0.5 million. See Note 2 “Summary of Significant Accounting Policies” in the Accompanying Notes to the Consolidated Financial Statements for more information.



	Balance
Deferred Revenue, balance at December 31, 2017	$	13,793
Changes in estimated consideration	—
Unsatisfied performance obligations	$	5,173
Deferred Revenue, balance at January 1, 2018	$	18,966



	January 1, 2018 balance		Additions	Deductions ⁽¹⁾		December 31, 2018
Contract Assets	$	—	8,934	(8,899	)	$	35
Unbilled receivables, current	$	—	2,908	(992	)	$	1,916
Unbilled receivables, non-current	$	—	786	—		$	786
Contract Costs	$	239	—	(197	)	$	42
Contract Liabilities: Deferred Revenue	$	18,966	6,446	(17,124	)	$	8,288



	Year Ended December 31, 2018
	As reported			Adjustments			Balances without adoption of ASC 606
Revenues:
Product revenue	$	25,590		$	(3,422	)	$	22,168
Research and development revenue	35,004			(1,609		)	33,395
Total revenues	60,594			(5,031		)	55,563
Costs and operating expenses:
Cost of product revenue	12,620			(285		)	12,335
Research and development	29,978			(196		)	29,782
Selling, general and administrative	29,291			—			29,291
Total costs and operating expenses	71,889			(481		)	71,408
Loss from operations	(11,295		)	(4,550		)	(15,845		)
Interest income	671			—			671
Other expenses	(291		)	—			(291		)
Loss before income taxes	(10,915		)	(4,550		)	(15,465		)
Provision for (benefit from) income taxes	(37		)	—			(37		)
Net loss	$	(10,878	)	$	(4,550	)	$	(15,428	)

Net loss per share, basic and diluted	$	(0.21	)	$	(0.09	)	$	(0.30	)
Weighted average common shares used in computing net loss per share, basic and diluted	52,205						52,205



	December 31, 2018
	Adjusted Cost		Gross Unrealized Gains ⁽³⁾		Gross Unrealized Losses (3)		Estimated Fair Value		Average Contractual Maturities
									(in days)
Money market funds ⁽¹⁾	$	31,225	$	—	$	—	$	31,225	n/a
Common shares of CO₂ Solutions ⁽²⁾	563		25		—		588		n/a
Total	$	31,788	$	25	$	—	$	31,813



	December 31, 2017
	Adjusted Cost		Gross Unrealized Gains (3)		Gross Unrealized Losses (3)		Estimated Fair Value		Average Contractual Maturities
									(in days)
Money market funds ⁽¹⁾	$	6,778	$	—	$	—	$	6,778	n/a
Common shares of CO₂ Solutions ⁽²⁾	563		108		—		671		n/a
Total	$	7,341	$	108	$	—	$	7,449



	Number of Shares		Weighted Average Grant Date Fair Value Per Share
	(in thousands)
Outstanding at December 31, 2016	—		$	—
Granted	1,720		$	2.54
Outstanding at December 31, 2017	1,720		$	2.54
Granted	1,200		$	5.02
Exercised	(84	)	$	2.54
Forfeited	(1,254	)	$	3.73
Outstanding at December 31, 2018	1,582		$	3.47



	Rollforward Table (at Gross): As of
	December 31,
	2018			2017			2016
Balance at beginning of year	$	9,422		$	8,566		$	8,152
Additions based on tax positions related to current year	1,087			880			459
Reductions to tax provision of prior years	(529		)	(24		)	(45		)
Balance at end of year	$	9,980		$	9,422		$	8,566



Years ending December 31,	Capital Leases			Operating Leases
2019	$	252		$	3,280
2020	61			712
2021	—			490
2022	—			41
2023	—			—
Total minimum lease payments ⁽¹⁾	313			$	4,523
Less: amount representing interest	(10		)
Present value of capital lease obligations	303
Less: current portion	(242		)
Long-term portion of capital leases	$	61



	Quarter Ended ⁽¹⁾
	December 31, 2018 ⁽³⁾			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017 ⁽³⁾		September 30, 2017			June 30, 2017			March 31, 2017

Revenues:
Product revenue	$	7,299		$	8,405		$	3,723		$	6,163		$	7,551	$	6,948		$	6,600		$	5,586
Research and development revenue	8,769			8,541			9,815			7,879			14,171		3,036			3,747			2,385
Total revenues	$	16,068		$	16,946		$	13,538		$	14,042		$	21,722	$	9,984		$	10,347		$	7,971
Costs and operating expenses:
Cost of product revenue	$	2,393		$	3,791		$	2,611		$	3,825		$	3,559	$	3,976		$	3,790		$	3,002
Research and development	7,513			7,917			7,370			7,178			9,417		8,055			6,348			5,839
Selling, general and administrative	6,806			7,344			7,395			7,746			7,867		7,989			6,546			6,606
Total costs and operating expenses	$	16,712		$	19,052		$	17,376		$	18,749		$	20,843	$	20,020		$	16,684		$	15,447
Income (loss) from operations	$	(644	)	$	(2,106	)	$	(3,838	)	$	(4,707	)	$	879	$	(10,036	)	$	(6,337	)	$	(7,476	)
Income (loss) before income taxes	$	(486	)	$	(1,987	)	$	(3,746	)	$	(4,696	)	$	919	$	(10,076	)	$	(6,322	)	$	(7,436	)
Net income (loss)	$	(461	)	$	(1,988	)	$	(3,735	)	$	(4,694	)	$	970	$	(10,226	)	$	(6,280	)	$	(7,460	)
Net income (loss) per share, basic	$	(0.01	)	$	(0.04	)	$	(0.07	)	$	(0.10	)	$	0.02	$	(0.21	)	$	(0.13	)	$	(0.18	)
Net income (loss) per share, diluted	$	(0.01	)	$	(0.04	)	$	(0.07	)	$	(0.10	)	$	0.02	$	(0.21	)	$	(0.13	)	$	(0.18	)
Weighted average common shares used in computing net income (loss) per share, basic ⁽²⁾	53,973			53,597			52,787			48,385			48,187		48,147			47,232			41,250
Weighted average common shares used in computing net income (loss) per share, diluted⁽²⁾	53,973			53,597			52,787			48,385			50,599		48,147			47,232			41,250