UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20192020
OR
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-34705
________________________________________________________
Codexis, Inc.
(Exact name of registrant as specified in its charter)

Delaware71-0872999
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Delaware71-0872999
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

200 Penobscot Drive,Redwood City,California94063
(Address of principal executive offices)(Zip Code)

(650) 421-8100
(Registrant’sRegistrant's telephone number, including area code)code: (650) 421-8100
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of October 31, 2019,30, 2020, there were 58,518,10559,281,805 shares of the registrant’s Common Stock, par value $0.0001 per share, outstanding.






Codexis, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 20192020




TABLE OF CONTENTS

PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1.
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1:
Financial Statements (Unaudited)
43
54
65
87
109
ITEM 2:2.
3536
ITEM 3:3.
5156
ITEM 4:4.
5157
PART II. OTHER INFORMATION
ITEM 1:1.
5258
ITEM 1A:1A.
5258
ITEM 2:2.
5259
ITEM 3:3.
5259
ITEM 4:4.
5359
ITEM 5:5.
5359
ITEM 6:6.
5460
5561





PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Codexis, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In Thousands, Except Per Share Amounts)
September 30, 2019 December 31, 2018September 30, 2020December 31, 2019
Assets   Assets
Current assets:   Current assets:
Cash and cash equivalents$92,143
 $53,039
Cash and cash equivalents$71,516 $90,498 
Accounts receivable, net of allowances of $34 at September 30, 2019 and December 31, 201812,327
 11,551
Unbilled receivables, current2,317
 1,916
Restricted cash, currentRestricted cash, current633 661 
Financial assets:Financial assets:
Accounts receivableAccounts receivable10,711 9,063 
Contract assetsContract assets975 1,027 
Unbilled receivablesUnbilled receivables14,985 10,099 
Total Financial assets Total Financial assets26,671 20,189 
Less: allowances Less: allowances(74)(34)
Total Financial assets, net Total Financial assets, net26,597 20,155 
Inventories397
 589
Inventories737 371 
Prepaid expenses and other current assets1,553
 1,068
Prepaid expenses and other current assets3,450 2,520 
Contract assets1,193
 35
Total current assets109,930
 68,198
Total current assets102,933 114,205 
Restricted cash1,731
 1,446
Restricted cash1,062 1,062 
Equity securities—
 588
Investment in Equity SecuritiesInvestment in Equity Securities1,000 0 
Right-of-use assets - Operating leases, net24,542
 —
Right-of-use assets - Operating leases, net21,996 23,837 
Right-of-use assets - Finance leases, net321
 —
Right-of-use assets - Finance leases, net145 268 
Property and equipment, net6,241
 4,759
Property and equipment, net7,289 6,282 
Goodwill3,241
 3,241
Goodwill3,241 3,241 
Other non-current assets190
 1,051
Other non-current assets353 178 
Total assets$146,196
 $79,283
Total assets$138,019 $149,073 
Liabilities and Stockholders' Equity   Liabilities and Stockholders' Equity
Current liabilities:   Current liabilities:
Accounts payable$1,743
 $3,050
Accounts payable$2,499 $2,621 
Accrued compensation4,695
 5,272
Accrued compensation6,277 5,003 
Other accrued liabilities6,182
 4,855
Other accrued liabilities7,570 6,540 
Current portion of lease obligations - Operating leases893
 —
Current portion of lease obligations - Operating leases2,554 1,107 
Current portion of lease obligations - Finance leases122
 —
Current portion of lease obligations - Finance leases0 60 
Deferred revenue1,288
 4,936
Deferred revenue1,596 57 
Total current liabilities14,923
 18,113
Total current liabilities20,496 15,388 
Deferred revenue, net of current portion1,988
 3,352
Deferred revenue, net of current portion2,460 1,987 
Long-term lease obligations - Operating leases25,554
 —
Long-term lease obligations - Operating leases23,001 24,951 
Long-term lease obligations - Finance leases—
 61
Lease incentive obligation, net of current portion—
 35
Other long-term liabilities1,223
 1,416
Other long-term liabilities1,261 1,230 
Total liabilities43,688
 22,977
Total liabilities47,218 43,556 
   
Commitments and Contingencies (Note 11)


 


Commitments and Contingencies (Note 11)
Stockholders' equity:   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;
58,386 shares and 54,065 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		6
 5
Preferred stock, $0.0001 par value per share; 5,000 shares authorized, NaN issued and outstandingPreferred stock, $0.0001 par value per share; 5,000 shares authorized, NaN issued and outstanding0 0 
Common stock, $0.0001 par value per share; 100,000 shares authorized;
59,232 shares and 58,877 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
Common stock, $0.0001 par value per share; 100,000 shares authorized;
59,232 shares and 58,877 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
6 6 
Additional paid-in capital444,276
 386,775
Additional paid-in capital453,294 447,920 
Accumulated deficit(341,774) (330,474)Accumulated deficit(362,499)(342,409)
Total stockholders' equity102,508
 56,306
Total stockholders' equity90,801 105,517 
Total liabilities and stockholders' equity$146,196
 $79,283
Total liabilities and stockholders' equity$138,019 $149,073 
See accompanying notes to the unaudited condensed consolidated financial statements

3



Codexis, Inc.

Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Amounts)

Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020201920202019
Revenues:
 
    Revenues:
Product revenue$10,351
 $8,405
 $24,588
 $18,291
Product revenue$8,401 $10,351 $18,005 $24,588 
Research and development revenue11,555
 8,541
 25,220
 26,235
Research and development revenue9,984 11,555 30,018 25,220 
Total revenues21,906
 16,946
 49,808
 44,526
Total revenues18,385 21,906 48,023 49,808 
Costs and operating expenses:
 
    Costs and operating expenses:
Cost of product revenue5,067
 3,791
 12,230
 10,228
Cost of product revenue3,642 5,067 7,882 12,230 
Research and development8,711
 7,917
 25,000
 22,464
Research and development12,010 8,711 33,830 25,000 
Selling, general and administrative7,869
 7,344
 24,180
 22,485
Selling, general and administrative8,797 7,869 26,307 24,180 
Total costs and operating expenses21,647
 19,052
 61,410
 55,177
Total costs and operating expenses24,449 21,647 68,019 61,410 
Income (loss) from operations259
 (2,106) (11,602) (10,651)Income (loss) from operations(6,064)259 (19,996)(11,602)
Interest income480
 199
 929
 444
Interest income39 480 362 929 
Other expenses, net(403) (80) (615) (221)Other expenses, net(50)(403)(125)(615)
Income (loss) before income taxes336
 (1,987) (11,288) (10,428)Income (loss) before income taxes(6,075)336 (19,759)(11,288)
Provision for (benefit from) income taxes(7) 1
 12
 (11)Provision for (benefit from) income taxes19 (7)331 12 
Net Income (loss)$343
 $(1,988) $(11,300) $(10,417)
Net income (loss)Net income (loss)$(6,094)$343 $(20,090)$(11,300)
       
Net income (loss) per share, basic$0.01
 $(0.04) $(0.20) $(0.20)Net income (loss) per share, basic$(0.10)$0.01 $(0.34)$(0.20)
Net income (loss) per share, diluted$0.01
 $(0.04) $(0.20) $(0.20)Net income (loss) per share, diluted$(0.10)$0.01 $(0.34)$(0.20)
       
Weighted average common stock shares used in computing net income (loss) per share, basic58,287
 53,597
 55,818
 51,609
Weighted average common stock shares used in computing net income (loss) per share, basic59,061 58,287 58,984 55,818 
Weighted average common stock shares used in computing net income (loss) per share, diluted61,412
 53,597
 55,818
 51,609
Weighted average common stock shares used in computing net income (loss) per share, diluted59,061 61,412 58,984 55,818 



See accompanying notes to the unaudited condensed consolidated financial statements
4


Codexis, Inc.

Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In Thousands)

Common StockAdditional
paid-in
Capital		Accumulated DeficitTotal Stockholders' Equity
Three months ended September 30, 2020SharesAmount
Balance as of July 1, 202059,125 $6 $451,185 $(356,405)$94,786 
Exercise of stock options55 — 342 — 342 
Release of stock awards70 — — — — 
Employee stock-based compensation— — 1,941 — 1,941 
Non-employee stock-based compensation— — 43 — 43 
Taxes paid related to net share settlement of equity awards(18)— (217)— (217)
Net loss— — — (6,094)(6,094)
Balance as of September 30, 202059,232 $6 $453,294 $(362,499)$90,801 


Common StockAdditional
paid-in
Capital		Accumulated DeficitTotal Stockholders' Equity
Three months ended September 30, 2019SharesAmount
Balance as of July 1, 201957,940 $6 $440,795 $(342,117)$98,684 
Exercise of stock options441 — 1,778 — 1,778 
Release of stock awards8 — — — — 
Employee stock-based compensation— — 1,732 — 1,732 
Taxes paid related to net share settlement of equity awards(3)— (51)— (51)
Issuance of common stock, issuance costs— — (55)— (55)
Short swing profit settlement— — 77 — 77 
Net income— — — 343 343 
Balance as of September 30, 201958,386 $6 $444,276 $(341,774)$102,508 


See accompanying notes to the unaudited condensed consolidated financial statements
5




Codexis, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In Thousands)

  Common Stock Additional
paid-in
Capital		 Accumulated Other
Comprehensive
Income (Loss)		 Accumulated Deficit Total Stockholders' Equity
Three months ended September 30, 2019 Shares Amount    
             
Balance as of July 1, 2019 57,940
 $6
 $440,795
 $—
 $(342,117) $98,684
Exercise of stock options 441
 —
 1,778
 —
 —
 1,778
Release of stock awards 8
 —
 —
 —
 —
 —
Employee stock-based compensation —
 —
 1,732
 —
 —
 1,732
Taxes paid related to net share settlement of equity awards (3) —
 (51) —
 —
 (51)
Issuance of common stock, issuance costs —
 —
 (55) —
 —
 (55)
Short swing profit settlement —
 —
 77
 —
 —
 77
Net Income —
 —
 —
 —
 343
 343
Balance as of September 30, 2019 58,386
 $6
 $444,276
 $—
 $(341,774) $102,508
             
             
             
  Common Stock Additional
paid-in
Capital		 Accumulated Other
Comprehensive
Income (Loss)		 Accumulated Deficit Total Stockholders' Equity
Three months ended September 30, 2018 Shares Amount    
             
Balance as of July 1, 2018 53,508
 $5
 $380,551
 $—
 $(328,026) $52,530
Exercise of stock options 427
 —
 2,461
 —
 —
 2,461
Employee stock-based compensation —
 —
 1,770
 —
 —
 1,770
Net loss —
 —
 —
 —
 (1,988) (1,988)
Balance as of September 30, 2018 53,935
 $5
 $384,782
 $—
 $(330,014) $54,773
             
   
Common StockAdditional paid-in CapitalAccumulated DeficitTotal Stockholders' Equity
Nine months ended September 30, 2020SharesAmount
Balance as of January 1, 202058,877 $6 $447,920 $(342,409)$105,517 
Exercise of stock options87 — 539 — 539 
Release of stock awards370 — — — — 
Employee stock-based compensation— — 6,045— 6,045 
Non-employee stock-based compensation— — 47— 47 
Taxes paid related to net share settlement of equity awards(102)— (1,257)— (1,257)
Net loss— — — (20,090)(20,090)
Balance as of September 30, 202059,232 $6 $453,294 $(362,499)$90,801 


Common StockAdditional paid-in CapitalAccumulated DeficitTotal Stockholders' Equity
Nine months ended September 30, 2019SharesAmount
Balance as of January 1, 201954,065 $5 $386,775 $(330,474)$56,306 
Exercise of stock options970 — 4,621 — 4,621 
Release of stock awards449 — — — — 
Employee stock-based compensation— — 5,783 — 5,783 
Taxes paid related to net share settlement of equity awards(147)— (2,850)— (2,850)
Issuance of common stock, net of issuance costs of $1293,049 1 49,870 — 49,871 
Short swing profit settlement— — 77 — 77 
Net loss— — — (11,300)(11,300)
Balance as of September 30, 201958,386 $6 $444,276 $(341,774)$102,508 


See accompanying notes to the unaudited condensed consolidated financial statements


6


Codexis, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In Thousands)
  Common Stock Additional
paid-in
Capital		 Accumulated Other
Comprehensive
Income (Loss)		 Accumulated Deficit Total Stockholders' Equity
Nine months ended September 30, 2019 Shares Amount    
             
Balance as of January 1, 2019 54,065
 $5
 $386,775
 $—
 $(330,474) $56,306
Exercise of stock options 970
 —
 4,621
 —
 —
 4,621
Release of stock awards 449
 —
 —
 —
 —
 —
Employee stock-based compensation —
 —
 5,783
 —
 —
 5,783
Taxes paid related to net share settlement of equity awards (147) —
 (2,850) —
 —
 (2,850)
Issuance of common stock, net of issuance costs of $129 3,049
 1
 49,870
 —
 —
 49,871
Short swing profit settlement —
 —
 77
 —
 —
 77
Net loss —
 —
 —
 —
 (11,300) (11,300)
Balance as of September 30, 2019 58,386
 $6
 $444,276
 $—
 $(341,774) $102,508
             
             
             
             
  Common Stock Additional
paid-in
Capital		 Accumulated Other
Comprehensive
Income (Loss)		 Accumulated Deficit Total Stockholders' Equity
Nine months ended September 30, 2018 Shares Amount    
             
Balance as of January 1, 2018 48,365
 $5
 $340,079
 $(472) $(315,065) $24,547
Exercise of stock options 730
 —
 4,319
 —
 —
 4,319
Release of stock awards 824
 —
 —
 —
 —
 —
Employee stock-based compensation —
 —
 6,183
 —
 —
 6,183
Non-employee stock-based compensation —
 —
 24
 —
 —
 24
Taxes paid related to net share settlement of equity awards (297) —
 (3,140) —
 —
 (3,140)
Issuance of common stock, net of issuance costs of $179 4,313
 —
 37,317
 —
 —
 37,317
Cumulative effect of change in accounting principles (1)
 —
 —
 —
 472
 (4,532) (4,060)
Net loss —
 —
 —
 —
 (10,417) (10,417)
Balance as of September 30, 2018 53,935
 $5
 $384,782
 $—
 $(330,014) $54,773
             
(1) Cumulative effect of change in accounting principles included: 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 accompanying notes to the unaudited condensed consolidated financial statements




Codexis, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in Thousands)
Nine Months Ended September 30,
 20202019
Operating activities:
Net loss$(20,090)$(11,300)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation1,403 1,118 
Amortization expense - right-of-use assets - operating and finance leases1,964 2,231 
Gain on disposal of property and equipment0 (2)
Stock-based compensation6,092 5,783 
Allowance for credit losses40 0 
Loss on investment in equity securities0 526 
Changes in operating assets and liabilities:
Accounts receivable, net(1,648)(776)
Contract assets52 (1,158)
Unbilled receivables(4,886)385 
Inventories(366)192 
Prepaid expenses and other current assets(930)(485)
Other non-current assets(175)74 
Accounts payable(101)(1,294)
Accrued compensation1,274 (577)
Other accrued liabilities2,307 2,687 
Other long-term liabilities(1,920)(1,291)
Deferred revenue2,012 (5,012)
Net cash used in operating activities(14,972)(8,899)
Investing activities:
Purchase of property and equipment(2,260)(3,315)
Proceeds from disposal of property and equipment0 2 
Investment in equity securities(1,000)0 
Proceeds from the sale of investment securities0 62 
Net cash used in investing activities(3,260)(3,251)
Financing activities:
Proceeds from exercises of stock options539 4,621 
Proceeds from issuance of common stock in connection with private placement0 50,000 
Costs incurred in connection with private placement0 (129)
Payments of lease obligations - Finance leases(60)(180)
Recovery of short swing profit0 77 
Taxes paid related to net share settlement of equity awards(1,257)(2,850)
Net cash provided by (used in) financing activities(778)51,539 
Net increase (decrease) in cash, cash equivalents and restricted cash(19,010)39,389 
Cash, cash equivalents and restricted cash at the beginning of the period92,221 54,485 
Cash, cash equivalents and restricted cash at the end of the period$73,211 $93,874 
Supplemental disclosure of cash flow information
Interest paid$15 $16 
Income taxes paid$312 $5 
Purchase of property and equipment recorded in accounts payable and accrued expenses$289 $536 
 Nine Months Ended September 30,
 2019 2018
Operating activities:   
Net loss$(11,300) $(10,417)
Adjustments to reconcile net loss to net cash used in operating activities:   
Depreciation1,118
 812
Amortization expense - right-of-use assets - operating and finance leases2,231
 —
Gain on disposal of property and equipment(2) —
Stock-based compensation5,783
 6,207
Loss on investment in equity securities526
 20
Changes in operating assets and liabilities:   
Accounts receivable, net(776) 3,556
Unbilled receivables385
 —
Inventories192
 206
Prepaid expenses and other current assets(485) (1,188)
Contract assets(1,158) (1,868)
Other non-current assets74
 188
Accounts payable(1,294) (1,686)
Accrued compensation(577) 409
Other accrued liabilities2,687
 1,332
Other long-term liabilities(1,291) (710)
Deferred revenue(5,012) (10,235)
Net cash used in operating activities(8,899) (13,374)
Investing activities:
  
Purchase of property and equipment(3,315) (2,074)
Proceeds from disposal of property and equipment2
 1
Proceeds from the sale of investment securities62
 —
Net cash used in investing activities(3,251) (2,073)
Financing activities:   
Proceeds from exercises of stock options4,621
 4,319
Proceeds from issuance of common stock in connection with public offering, net of underwriting discounts and commission—
 37,497
Costs incurred in connection with public offering—
 (180)
Proceeds from issuance of common stock in connection with private placement50,000
 —
Costs incurred in connection with private placement(129) —
Payments of lease obligations - Finance leases(180) (178)
Recovery of short swing profit77
 —
Taxes paid related to net share settlement of equity awards(2,850) (3,140)
Net cash provided by financing activities51,539
 38,318
Net increase in cash, cash equivalents and restricted cash39,389
 22,871
Cash, cash equivalents and restricted cash at the beginning of the period54,485
 32,776
Cash, cash equivalents and restricted cash at the end of the period$93,874
 $55,647
    
Supplemental disclosure of cash flow information   
Interest paid$16
 $61
Income taxes paid$5
 $5
Purchase of property and equipment recorded in accounts payable and accrued expenses$536
 $420
7






The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets as of September 30, 20192020 and September 30, 20182019 to the total of the same such amounts shown above:
 Nine Months Ended September 30,
 2019 2018
Cash and cash equivalents$92,143
 $54,225
Restricted cash included in non-current assets1,731
 1,422
Total cash, cash equivalents and restricted cash at the end of the period$93,874
 $55,647


 September 30,
 20202019
Cash and cash equivalents$71,516 $92,143 
Restricted cash, current and non-current1,695 1,731 
Total cash, cash equivalents and restricted cash at the end of the period$73,211 $93,874 

See accompanying notes to the unaudited condensed consolidated financial statements

8



Codexis Inc.

Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Description of Business
In these notes to the unaudited condensed consolidated financial statements, the "Company," "we," "us,"“Company,” “we,” “us,” and "our"“our” refers to Codexis, Inc. and its subsidiaries on a consolidated basis.
We discover, develop and sell 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 we have been continuously improving since our inception in 2002, to commercialize an increasing number of novel proteins, 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 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 our large 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 developdeveloping 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 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.the Company.
We initially commercialized our CodeEvolver® protein engineering technology platform and products in the pharmaceuticals market, which remains oura primary business focus. Our customers, which include severalmany large global pharmaceutical companies, use our technology, products and services in their manufacturing processes and process development. We have also licensed our proprietary CodeEvolver® protein engineering technology platform to global pharmaceutical companies so that they may in turn use this technology to engineer enzymes for their own businesses. Most recently, in May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver® Agreement”) with Novartis Pharma AG (“Novartis”). The Novartis CodeEvolver® Agreement allows Novartis to use our proprietary CodeEvolver® protein engineering platform technology in the field of human healthcare.
WeAs evidence of our strategy to extend our technology beyond pharmaceutical manufacturing, we have also used the technology to develop protein catalysts and industrial enzymes for use in the fine chemicals market. The fine chemicals market consistsa wider set of industrial markets. These target industries consist of several large market verticals, including food and food ingredients, animal feed, consumer care, flavors, fragrances and agricultural chemicals. In addition, we are 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. In December 2019, we entered into a license agreement to provide Roche Sequencing Solutions, Inc. (“Roche”) with our first enzyme for this target market, the Company's EvoT4™ DNA ligase. In June 2020, we entered into a co-marketing and enzyme supply collaboration agreement with Alphazyme LLC for the production and co-marketing of enzymes for life science applications including, initially, high-fidelity DNA polymerase, T7 RNA polymerase and reverse transcriptase enzymes.
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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 notablybusiness. In October 2017, we entered into the "Nestlé Agreement” with Nestlé Health Science to advance CDX-6114, our lead programenzyme biotherapeutic product candidate 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") 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,March 2020, we entered into a strategic agreement (the "Porton Agreement") with Porton Pharma Solutions, Ltd. ("Porton") to license key elements of our CodeEvolver® protein engineering technology platform 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 for this application is a DNA ligase which we began marketing to customers in 2018.
In May 2019, we entered into a Platform Technology TransferStrategic Collaboration and License Agreement (the “Novartis CodeEvolver® (“Takeda Agreement”) with Novartis Pharma AGShire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited (“Novartis”Takeda”). The Novartis CodeEvolver® Agreement allows Novartis to use Codexis’ proprietary CodeEvolver® protein engineering platform technology in, for the fieldresearch and development of human healthcare.novel gene therapies for certain disease indications, including the treatment of lysosomal storage disorders and blood factor deficiencies.
Below are brief descriptions of our business segments (See Note 13, "Segment, Geographical and Other Revenue Information"):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, consumer care, 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
Our first lead program was for the potential treatment of PKUhyperphenylalaninemia (“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 collaborationglobal development, option and license agreement 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,In January 2020, we earned a milestone and recognized $3.0 million in revenues in the first quarter of 2019. Upon exercising its option, Nestlé Health Science has assumed all responsibilities for futureentered into a development agreement pursuant to which we and Nestlé Health Science are collaborating to advance a lead candidate targeting a gastro-intestinal disorder discovered through our Strategic Collaboration Agreement into pre-clinical and early clinical development and commercialization of CDX-6114, with the exception of the completion of an extension study, CDX-6114-004, whichstudies. The Strategic Collaboration Agreement was substantially completed in the third quarter of 2019.extended through December 2021. Using our CodeEvolver
We® protein engineering platform technology, we have also developed a pipeline of other biotherapeutic drug candidates, all of which are in preclinical development,development.
Our most recent achievement in novel biotherapeutics came in March 2020, when we announced a strategic collaboration and license agreement with Takeda in which we will collaborate with Takeda to research and develop protein sequences for use in gene therapy products for certain disease indications. Under the terms of the Takeda Agreement, we will generate novel gene sequences encoding protein variants tailored to enhance efficacy as a result of increased activity, stability, and cellular uptake using our CodeEvolver® protein engineering platform. Takeda will combine these improved transgenes with its gene therapy capabilities to generate novel candidates for the treatment of rare genetic disorders. We are currently collaborating on 3 initial programs for the treatment of Fabry disease, Pompe disease, and an unnamed blood factor deficiency. The Company is responsible for the creation of novel enzyme sequences for advancement as gene therapies into pre-clinical development. Takeda is responsible for the pre-clinical and clinical development and commercialization of gene therapy products resulting from the collaboration programs. Under the terms of the agreement, in addition to the 3 initial programs, Takeda may initiate up to 4 additional programs for separate target indications. In March 2020, we began research and development activities under the program plans and received a $8.5 million one-time, non-refundable cash payment.
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We expect to continue to make additional investments in our pipeline with the aim of advancing additional product candidates targeting other therapeutic areas.
Recent Financing ActivitiesFor additional discussion of our business segments, see Note 13, "Segment, Geographical and Other Revenue Information."
Business Update Regarding COVID-19
We are subject to risks and uncertainties as a result of the current COVID-19 pandemic. The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the U.S. economy and other economies worldwide. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and may not be accurately predicted, including the duration and severity of the pandemic and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
To date, we and our collaboration partners have been able to continue to supply our enzymes to our customers worldwide. However, we are dependent on our manufacturing and logistics partners and consequently, disruptions in operations of our partners and customers may affect our ability to supply enzymes to our customers. Furthermore, our ability to provide future research and development ("R&D") services will continue to be impacted as a result of governmental orders and any disruptions in operations of our customers with whom we collaborate. We believe that these disruptions have had a negative impact on revenue for the nine months ending September 30, 2020, although we are unable to fully determine and quantify the extent to which this pandemic has affected the amount and timing of our total revenues. The extent to which the pandemic may impact our business operations and operating results will continue to remain highly dependent on future developments, which are uncertain and cannot be predicted with confidence.
In June 2019, we entered into a Securities Purchase Agreement with an affiliatethe U.S., the impact of Casdin Capital, LLC (“Casdin”COVID-19, including governmental orders ("Orders") pursuant to which we issued and sold to Casdin 3,048,780 sharesgoverning the operation of businesses during the pandemic, caused the temporary closure of our common stockRedwood 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 in accordance with these Orders. In May 2020, we initiated limited R&D operations and have gradually ramped up operations such that we are currently utilizing the majority of our normal R&D capacity. Additionally, we have resumed small scale manufacturing at a purchase priceour Redwood City pilot plant in May 2020.
Our future results of $16.40 per share (the “Private Offering”). After deductingoperations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges faced by our customers. As of the date of issuance costs of $0.1 million from the Private Offering, our net proceeds were $49.9 million. See Note 10, "Capital Stock" to our unaudited condensed consolidated financial statements, for further details.the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations in the future is uncertain.



Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. The condensed consolidated balance sheet at December 31, 20182019 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements. The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 20192020 are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 20182019 Annual Report on Form 10-K and are updated below as necessary.
TheCertain prior year amounts have been reclassified to conform to 2020 presentation. In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance requiring implementation of a new impairment model applicable to financial assets measured at amortized cost which, among other things required that accounts receivable, contract assets, unbilled receivables and related allowances be reclassified as financial assets.
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Except as noted above, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly our financial position as of September 30, 2019,2020, results of our operations for the three and nine months ended September 30, 20192020 and 2018,2019, changes in stockholders' equity for the three and nine months ended September 30, 20192020 and 2018,2019, and cash flows for the nine months ended September 30, 20192020 and 2018.2019. The interim results are not necessarily indicative of the results for any future interim period or for the entire year. The results of the nine months ended September 30, 2020 reflect the adoption of certain accounting standards including: Accounting Standard Update ("ASU") 2016-02, "Leases2016-13, Financial Instruments - Credit Losses (Topic 842)" ("ASC 842) establishes326): Measurement of Credit Losses on Financial Instruments which added a right-of-use ("ROU")new impairment model that requires a lesseeapplicable to record a right-of-use assetour financial assets measured at amortized cost, and a lease obligation on(ii) ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the balance sheetTest for all leases with terms longer than 12 months.Goodwill Impairment, which adjusts testing for goodwill impairment. See "Recently Adopted Accounting Pronouncements"adopted accounting pronouncements" for details regarding the adoption of ASU 2016-02 effective January 1, 2019.these standards.
The unaudited interim condensed consolidated financial statements include the accounts of Codexis, Inc. and its wholly owned subsidiaries in the United States, India and the Netherlands.subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires managementus to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and liabilities, disclosuresexpenses and related disclosure of contingent liabilities at the date of the unaudited condensed 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, the interest rate used to adjust the promised amount of consideration for the effects of significant financial assets (comprised of accounts receivable, contract assets, and unbilled receivables), inventories, the valuation of marketable securities, 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 unaudited condensed consolidated financial statements. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain and may not be accurately predicted, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers, markets and economies.
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 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 as follows:
Allowance for credit losses from January 1, 2020
On and subsequent to January 1, 2020, our financial results reflect 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 financial assets measured at amortized costs which is comprised of accounts receivable, contract assets, and unbilled receivables. We have determined that our financial assets share similar risk characteristics including: (i) customer origination in the pharmaceutical and fine chemicals industry, (ii) similar historical credit loss pattern of customers (iii) no meaningful trade receivable differences in terms, (iv) similar historical credit loss experience and (v) our belief that the composition of certain assets are comparable to our historical portfolio used to develop loss history. As a result, we measured the allowance for 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 financial assets 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 assets not yet identified as impaired.
We derive our ACL by initially relying on our historical financial asset 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 determined current conditions differ from the conditions that existed for the period over which historical loss information was evaluated and (ii) by taking into consideration the changes in certain macroeconomic historical and forecasted information. We apply the ACL to past due financial assets and record charges to the ACL as a provision to credit loss expense in the Statement of Operations.
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Financial assets 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 qualitative or quantitative in nature and reflect changes related to relevant data.
In the three and nine months ended September 30, 2020, inputs to our CECL forecast incorporated forward-looking adjustments associated with the COVID-19 pandemic which we believe are appropriate to incorporate due to the uncertainty of the economic impact on cash flows from our financial assets.
Allowance for credit losses before January 1, 2020
Prior to January 1, 2020, the allowances for doubtful accounts reflected our best estimates of probable losses inherent in our accounts receivable and contract assets balances. The allowance determination was based on known troubled accounts, historical experience, and other currently available evidence. Uncollectible accounts receivable were written off against the allowance for doubtful accounts when all efforts to collect them have been exhausted. Recoveries were recognized when they were received.
Investment in Equity Securities
We own an equity investment in Molecular Assemblies, Inc. (“MAI”) which is a privately held company. Concurrently with our initial equity investment, John Nicols, our chief executive officer, joined MAI’s board of directors, and we entered into the MAI Agreement pursuant to which we will provide technical services and expertise in exchange for compensation in the form of additional shares of voting preferred stock. We and MAI envision entering into an arrangement to commercialize products developed under the MAI Agreement.
To analyze the fair value measurement of our equity investment in MAI, we perform a qualitative analysis using significant unobservable inputs. Significant changes to the unobservable inputs may result in a significantly higher or lower fair value estimate. We may value our equity investment based on significant recent arms-length equity transactions with sophisticated non-strategic unrelated new investors, providing the terms of these equity transactions are substantially similar to the equity transactions terms between the company and us. The impact of the difference in transaction terms on the market value of the portfolio company may be difficult or impossible to quantify.
We evaluate our investment for impairment when circumstances indicate that we may not be able to recover the carrying value. We impair our investment when we determine that there has been an “other-than-temporary” decline in MAI's estimated fair value compared to its carrying value. We calculate the estimated fair value of the investment using information from the company, which may include:
•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;
•Qualitative assessment of key management;
•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 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 the trading price of our stock on the Nasdaq Global Select Market. 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. We manage our business as 2 reporting units and we test goodwill for impairment at the reporting unit level. We allocated goodwill to the 2 reporting units using a relative fair value allocation methodology that primarily relied on our estimates of revenue and future earnings for each reporting unit. Using the relative fair value allocation methodology, we have determined that approximately 76% of goodwill was to be allocated to the Performance Enzymes segment and 24% allocated to the Novel
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Biotherapeutics segment. As a result of the calculation, $2.4 million of the goodwill is assigned to the Performance Enzymes segment and $0.8 million is assigned to the Novel Biotherapeutics segment. We test goodwill for impairment on an annual basis on the last day of the fourth fiscal quarter and, when specific circumstances dictate, between annual tests, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. During 2020 and 2019, we did not record impairment charges related to goodwill. We test for goodwill impairment is as follows:
Goodwill impairment testing from January 1, 2020
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. We test for impairment annually on a reporting unit basis, on the last day of the fourth fiscal quarter, and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying 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 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. Any excess of the reporting unit’s carrying amount of goodwill over its fair value is recognized as an impairment.
Goodwill impairment testing before January 1, 2020
Prior to January 1, 2020, the goodwill impairment test consisted of a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compared the fair value of each reporting unit to its carrying value. Using the relative fair value allocation methodology for assets and liabilities used in both of our reporting units, we compared 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 exceeded its carrying amount, goodwill of the reporting unit was considered not impaired, and the second step of the impairment test was not required. The second step, if required, compared the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. Implied fair value was the excess of the fair value of the reporting unit over the fair value of all identified or allocated assets and liabilities. Any excess of the reporting unit’s carrying amount goodwill over the respective implied fair value was recognized as an impairment.
Interim Goodwill Impairment Testing
We tested goodwill for impairment in the quarter ended September 30, 2020. Since late 2019, the COVID-19 pandemic has spread worldwide. The COVID-19 pandemic has caused a decline in global and domestic macroeconomic conditions, the general deterioration of the U.S. economy and other economies worldwide, all of which may negatively impact our overall financial performance, driving a reduction in our cash flows. We believe that the impact of the COVID-19 pandemic was a triggering event that gave rise to the need to perform a goodwill impairment test. We conducted a qualitative interim impairment assessment as of September 30, 2020, which included an evaluation of our cash flow projections to reflect the current economic environment, including the uncertainty surrounding the nature, timing, and extent of the impact of the pandemic in operating our business. We also considered the results of the prior quarters’ impairment test performed which reflected a significant cushion between the fair value and the carrying value for both of our reporting units. We determined that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying amount as of September 30, 2020. Therefore, an interim quantitative impairment test of our goodwill at the reporting unit level was not required to be performed.
Segment Reporting

We report 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, 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.
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
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Performance Enzymes segment consists of protein catalyst products and services with focus on pharmaceutical, food, molecular diagnostics, and other industrial markets.

Income Taxes
LeasesChanges to Tax Law
We determine if an arrangement isOn March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), P.L. 116-136,was passed into law, amending portions of certain relevant US tax laws. The CARES Act includes a lease at inception. Operating leases are included in right-of-use ("ROU") lease assets, current portionnumber of lease obligations,federal income tax law changes, including, but not limited to: (i) permitting net operating loss carrybacks to offset 100% of taxable income for taxable years beginning before 2021, (ii) accelerating alternative minimum tax credit refunds, (iii) temporarily increasing the allowable business interest deduction from 30% to 50% of adjusted taxable income, and long-term lease obligations(iv) providing a technical correction for depreciation related to qualified improvement property. The CARES Act had no impact on our balance sheets.unaudited condensed consolidated financial statements.
ROU lease assets represent our right to use an underlying asset for the lease term and lease obligations represent our obligation to make lease payments arising from the lease. Operating ROU lease assets and obligations are recognized at the commencement date based on the present value of the future minimum lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. We elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease obligations are not recognized for short-term leases.
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In FebruaryJune 2016, the FASB issued ASU 2016-02, "Leases2016-13, Financial Instruments - Credit Losses (Topic 842)" (“ASC 842”),326): Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting of leasing transactions by requiring lessees to recognize leases on balance sheets and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, "Land Easement Practical Expedient for Transition to Topic 842"; ASU 2018-10, "Codification Improvements to ASC 842, Leases"; and ASU 2018-11, "Leases (Topic 842): Targeted Improvements." The new standard establishes a right-of-use ("ROU") model that requires lessees to record a ROU asset and lease obligationsamends the FASB's guidance on the balance sheet for all leases with terms longer than 12 months. Leasesimpairment of financial instruments. The standard adds a new impairment model, known as CECL, which replaces the probable loss model. The CECL impairment model is based on estimates and forecasts of future conditions which requires recognition of a lifetime of expected credit losses at inception on financial assets measured at amortized costs. Our financial assets measured at amortized cost are classified as either finance or operating, with classification affecting the patterncomprised of accounts receivable, contract assets, and classification of expense recognition in the condensed consolidated statement of operations.unbilled receivables. We adopted the new standard on January 1, 2019in the first quarter of 2020 using a modified retrospective approach and effective date method. We also electedrequiring a cumulative-effect adjustment to the "package of practical expedients," which permit us not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to us. Upon adoption, for operating leases, we recognized $26.6 million of ROU assets and $27.6 million of lease obligations, which represents the present valueopening accumulated deficit as of the lease payments discounted using our incremental borrowing rate ("IBR")date of 6.6%. For finance leases, we recognized $0.5 millionadoption. The ASU establishes a new valuation account “allowance for credit losses” replacing the “allowance for doubtful accounts” in the consolidated balance sheet, which is used to adjust the amortized cost basis of ROU assets and $0.3 million of lease obligations which represents the present valuein presentation of the lease payments discounted using weighted-average implicit rate of 5.0%. These amounts were recorded innet amount expected to be collected. The adoption required certain additional disclosures but had no other impact on our unaudited condensed consolidated balance sheetfinancial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test 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 of a reporting unit to 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 goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments 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 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. We adopted the standard in the first quarter of 2019.2020 using a prospective approach. The adoption required certain additional disclosures but had no impact on our unaudited condensed consolidated financial statements.

In FebruaryAugust 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income2018-13, Fair Value Measurement (Topic 220) - Reclassification820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The primary focus of Certain Tax Effects from Accumulated Other Comprehensive Income”. Thisthe standard allows a reclassification from accumulatedis 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. The standard requires the use of the prospective method of transition for disclosures related to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop fair value measurements categorized within Level 3 of the fair value hierarchy, and narrative description of measurement uncertainty. All other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts 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 eitheramendments in the period of adoption orstandard are required to be adopted retrospectively. We adopted ASU 2018-02the standard in the first quarter of 2019,2020 and the adoption had no impact on our unaudited condensed consolidated financial statements.statements and related disclosures.

In JuneNovember 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation2018-18, Collaborative Arrangements (Topic 718)808): ImprovementsClarifying the Interaction Between Topic 808 and Topic 606. ASU 2018-18 provides guidance on how to Non-employee Share-Based Payment Accounting," which expandsassess whether certain transactions between collaborative arrangement participants should be accounted for within the scoperevenue recognition standard. The standard also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The standard is to be applied retrospectively to the date of the initial application of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments606 which also requires recognition of the cumulative effect of applying the amendments as an adjustment to employees) to include share-based payments issued to non-employees for goodsthe opening balance of retained earnings
15

of the later or services. Consequently, the accounting for share-based payments to non-employeesearliest annual period presented and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. The new standard is effective for fiscal years beginning after December 15, 2018, with early adoption permitted.the annual period inclusive of the initial application of Topic 606. We adopted ASU 2018-07the standard in the first quarter of 2019,2020 and the adoption had no impact on our unaudited condensed consolidated financial statements.
In July 2018, the FASB issued ASU 2018-09, "Codification Improvements”, which represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistenciesstatements and providing clarifications in current guidance. The amendments in this ASU include those made to: Subtopic 220-10, Income 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 of the amendments do not require transition guidance and will be effective upon

issuance. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. We adopted subtopics under ASU 2018-09 that are applicable to our company which included subtopics 718-740 and 820-10 in the first quarter of 2019, and the adoption had no impact on our unaudited condensed consolidated financial statements.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 unaudited condensed consolidated financial statements upon adoption.

In June 2016,December 2019, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses2019-12, Income Taxes (Topic 326)740): Measurement of Credit Losses on Financial Instruments," Simplifying the Accounting for Income Taxes which amends the FASB's guidance on the impairment of financial instruments.is intended to simplify various aspects related to accounting for income taxes. 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 financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test 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 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 goodwill on the carrying amount 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 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of adoption of ASU 2017-04 on our financial 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 ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early2020, with early adoption is permitted. The standard will be adopted upon the effective date for us beginning January 1, 2021. We are currently evaluating the impacteffects of adoption of ASU 2018-13the standard on our consolidated financial statements and related disclosures.

In November 2018,March 2020, the FASB issued ASU 2018-18, "Collaborative Arrangements2020-04, Reference Rate Reform (Topic 808)848): Clarifying Facilitation of the Interaction Between Topic 808Effects of Reference Rate Reform on Financial Reporting. The standard provides optional expedients and Topic 606." ASU 2018-18 provides guidance on howexceptions for applying GAAP to assess whether certaincontracts, hedging relationships, and other transactions between collaborative arrangement participants shouldin which the reference LIBOR or another reference rate are expected to be accounted for withindiscontinued as a result of the revenue recognition standard.Reference Rate Reform. 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 areis effective for fiscal yearsall entities. The standard may be adopted as of any date from the beginning afterof an interim period that includes or is subsequent to March 12, 2020 through December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted.31, 2022. We are currently evaluating the impacteffects of adoption of ASU 2018-18the standard on our consolidated financial statements.statements and related disclosures.

Note 3. Revenue Recognition
Disaggregation of Revenue
The following table provides information about disaggregated revenue from contracts with customers into the nature of the products and services and geographic regions, and includes a reconciliation of the disaggregated revenue with reportable segments. The geographic regions that are tracked are the Americas (United States, Canada and Latin America), EMEA (Europe, Middle East and Africa), and APAC (Australia, New Zealand, Southeast Asia and China).
Segment information is as follows (in thousands):
Three months ended September 30, 2020Three months ended September 30, 2019
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Major products and service:
       Product Revenue$8,401 $0 $8,401 $10,351 $0 $10,351 
Research and development revenue4,604 5,380 9,984 10,073 1,482 11,555 
Total revenues$13,005 $5,380 $18,385 $20,424 $1,482 $21,906 
Primary geographical markets:
Americas$3,209 $2,632 $5,841 $2,706 $0 $2,706 
EMEA2,141 2,748 4,889 10,723 1,482 12,205 
APAC7,655 0 7,655 6,995 0 6,995 
Total revenues$13,005 $5,380 $18,385 $20,424 $1,482 $21,906 


 Three months ended September 30, 2019 Three months ended September 30, 2018
(in thousands)Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total
Major products and service:           
       Product Revenue$10,351
 $—
 $10,351
 $8,405
 $—
 $8,405
Research and development revenue10,073
 1,482
 11,555
 3,720
 4,821
 8,541
Total revenues$20,424
 $1,482
 $21,906
 $12,125
 $4,821
 $16,946
            
Primary geographical markets:           
Americas$2,706
 $—
 $2,706
 $4,315
 $—
 $4,315
EMEA10,723
 1,482
 12,205
 1,453
 4,821
 6,274
APAC6,995
 —
 6,995
 6,357
 —
 6,357
Total revenues$20,424
 $1,482
 $21,906
 $12,125
 $4,821
 $16,946
16


Nine months ended September 30, 2020Nine months ended September 30, 2019
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Major products and service:
Product revenue$18,005 $0 $18,005 $24,588 $0 $24,588 
Research and development revenue13,380 16,638 30,018 16,512 8,708 25,220 
Total revenues$31,385 $16,638 $48,023 $41,100 $8,708 $49,808 
Primary geographical markets:
Americas$7,381 $10,591 $17,972 $9,620 $0 $9,620 
EMEA8,128 6,047 14,175 15,964 8,708 24,672 
APAC15,876 0 15,876 15,516 0 15,516 
Total revenues$31,385 $16,638 $48,023 $41,100 $8,708 $49,808 
 Nine months ended September 30, 2019 Nine months ended September 30, 2018
(in thousands)Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total
Major products and service:           
       Product Revenue$24,588
 $—
 $24,588
 $18,291
 $—
 $18,291
Research and development revenue16,512
 8,708
 25,220
 15,728
 10,507
 26,235
Total revenues$41,100
 $8,708
 $49,808
 $34,019
 $10,507
 $44,526
            
Primary geographical markets:           
Americas$9,620
 $—
 $9,620
 $13,968
 $—
 $13,968
EMEA15,964
 8,708
 24,672
 4,568
 10,507
 15,075
APAC15,516
 —
 15,516
 15,483
 —
 15,483
Total revenues$41,100
 $8,708
 $49,808
 $34,019
 $10,507
 $44,526


Contract Balances
The following table presents changes in thebalances of contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands):
 January 1, 2019 balance Additions 
Deductions (1)
 September 30, 2019 balance
Contract Assets$35
 7,142
 (5,984) $1,193
Unbilled receivables, current$1,916
 4,189
 (3,788) $2,317
Unbilled receivables, non-current (2)
$786
 —
 (786) $—
Contract Costs (2)
$42
 —
 (41) $1
Contract Liabilities: Deferred Revenue$8,288
 6,486
 (11,498) $3,276
September 30, 2020December 31, 2019
Contract Assets$975 $1,027 
Unbilled receivables$14,985 $10,099 
Contract Costs$130 $0 
Contract Liabilities: Deferred Revenue$4,056 $2,044 
(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.
(2)Included in non-current assets in our unaudited condensed consolidated balance sheets.
We had 0 asset impairment charges related to contract assets in the three and nine months ended September 30, 2020 and 2019.

During the nine months ended September 30, 2020, decreases in contract assets were primarily due to contract assets that were subsequently invoiced as our right to consideration for goods and services became unconditional. Increases in unbilled receivables were primarily due to the timing of billings. The increase in deferred revenue were primarily due to cash advances received in excess of revenue recognized.
During the three and nine months ended September 30, 2020 and 2019, we recognized the following revenues (in thousands):
Three months ended September 30,Nine months ended September 30,
2020201920202019
Amounts included in contract liabilities at the beginning of the period:
     Performance obligations satisfied$708 $5,092 $58 $4,948 
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods233 2,641 854 2,460 
Performance obligations satisfied from new activities in the period - contract revenue17,444 14,173 47,111 42,400 
Total revenues$18,385 $21,906 $48,023 $49,808 
Revenue recognized in the period from:Three months ended September 30, 2019 Nine months ended September 30, 2019
Amounts included in contract liabilities at the beginning of the period:   
     Performance obligations satisfied$5,092
 $4,948
Changes in the period:   
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods2,641
 2,460
Performance obligations satisfied from new activities in the period - contract revenue14,173
 42,400
Total revenue$21,906
 $49,808


Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations
17

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 September 30, 2019.

2020.
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.contracts (in thousands):
Remainder of 202020212022 and ThereafterTotal
Product Revenue$0 $364 $1,623 $1,987 
Research and development revenue558 1,012 499 2,069 
Total revenues$558 $1,376 $2,122 $4,056 
(in thousands)Remainder of 2019 2020 2021 and Thereafter Total
Product Revenue$—
 $365
 $1,623
 $1,988
Research and development revenue1,288
 —
 —
 1,288
Total$1,288
 $365
 $1,623
 $3,276


Note 4. Net Incomeincome (loss) per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding, less restricted stock awards ("RSAs") subject to forfeiture. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted averageweighted-average number of shares of common stock outstanding, less RSAs subject to forfeiture, plus all additional common stock shares that would have been outstanding, assuming dilutive potential common stock shares had been issued for other dilutive securities. For periods of net loss, diluted and basic net loss per share are identical since potential common stock shares are excluded from the calculation, as their effect was anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share during the three and nine months ended September 30, 20192020 and 20182019 (in thousands, except per share amounts):
Three months ended September 30,Nine months ended September 30,
2020201920202019
Numerator:
Net income (loss)(6,094)343 (20,090)(11,300)
Denominator:
Weighted average common stock shares used in computing net income (loss) per share, basic59,061 58,287 58,984 55,818 
Effect of dilutive shares0 3,125 0 0 
Weighted average common stock shares used in computing net income (loss) per share, diluted59,061 61,412 58,984 55,818 
Net income (loss) per share, basic$(0.10)$0.01 $(0.34)$(0.20)
Net income (loss) per share, diluted$(0.10)$0.01 $(0.34)$(0.20)
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Numerator:       
Net income (loss)$343
 $(1,988) $(11,300) $(10,417)
Denominator:       
Weighted average common stock shares used in computing net income (loss) per share, basic58,287
 53,597
 55,818
 51,609
Effect of dilutive shares3,125
 —
 —
 —
Weighted average common stock shares used in computing net income (loss) per share, diluted61,412
 53,597
 55,818
 51,609
Net income (loss) per share, basic$0.01
 $(0.04) $(0.20) $(0.20)
Net income (loss) per share, diluted$0.01
 $(0.04) $(0.20) $(0.20)


Anti-Dilutive Securities
The following shares were not considered in the computation of diluted net income (loss) per share because their effect was anti-dilutive (in thousands):
 Three months ended September 30,Nine months ended September 30,
 2020201920202019
Shares issuable under the Equity Incentive Plan5,1821,0195,1825,623
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Shares of common stock issuable pursuant to equity awards outstanding under the Equity Incentive Plan1,019
 7,607
 5,623 7,607

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Note 5. 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 if any, of a limited setGSK's sales of licensed enzyme products developed by GSK using our CodeEvolver® protein engineering platform technology.that are currently not being recognized.
In September 2019, we received notification from GSK that a $2.0 million milestone relating topayment on the advancement of an enzyme developed by GSK using our CodeEvolver®protein engineering platform technology has been achieved, triggering a $2.0 million milestone payment to Codexis from GSK.technology. We recognized 0 research and development revenue of $2.0 million for the milestone payment for the three and nine months ended September 30, 2019, respectively,2020 compared to 0$2.0 million for the three and nine months ended September 30, 2018, respectively, as research and development revenue.2019.

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 an upfrontup-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 $1.0 million and $3.0 million for the three and nine months ended September 30, 2019, respectively, compared to $1.1 million and $3.0 million for the three and nine months ended September 30, 2018, 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") that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver® protein engineering technology platform. These potentialThe 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. We recognized 0 usage-based royalties in both the three and nine months ended September 30, 2019.
In January 2019, we entered into an amendment to the Merck CodeEvolver® Agreement whereby we installedto install certain CodeEvolver®protein engineering technology upgrades into Merck’s platform license. Pursuant to the agreement, we willlicense installation and maintain those upgrades for a multi-year term. The license installation was completed in 2019 and we recognized $0.1 million and $1.0 million in the three and nine months ended September 30, 2019 as a license fee revenue accordingly under the amendment. Pursuant to the agreement, Merck has options to future technology enhancements for a specified fee. As of September 30, 2020, Merck has not exercised its option for technology enhancements.
We recognized research and development revenues of $0.1$1.1 million and $1.0$2.1 million for the three and nine months ended September 30, 2020, respectively, compared to $1.1 million and $4.0 million for the three and nine months ended September 30, 2019, respectively, under the amendment.Merck CodeEvolver® Agreement.
Merck Sitagliptin Catalyst Supply Agreement
In February 2012, we entered into a five-year Sitagliptin Catalyst Supply Agreement ("(“Sitagliptin Catalyst Supply Agreement"Agreement”) with Merck whereby Merck may obtain commercial scale substanceenzyme for use in the manufacture of Januvia®, its product based on the active ingredient sitagliptin. In December 2015, Merck exercised its option under the terms of the Sitagliptinsitagliptin Catalyst Supply Agreement to extend the agreement for an additional five years through February 2022.
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 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. Under this agreement, we recognized 0 research and development revenue for the three and nine months ended September 30, 2019, compared to 0 and $1.3 million for the three and nine months ended September 30, 2018, respectively.
We have determined that the variable pricing, which provides a discount based on the cumulative volume of sitagliptin catalyst purchased by Merck, provides Merck material rights and we are recognizing product revenues using the alternative
19

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 0 at September 30, 2019 and $3.6 million at December 31, 2018. In addition, pursuantPursuant to the terms of the Sitagliptin Catalyst Supply Agreement, weMerck may purchase supply from us for a fee based on contractually stated prices. We recognized $3.6revenue of $3.2 million and $11.4$7.0 million for the three and nine months ended September 30, 2019,2020, respectively, compared to $3.4$3.6 million and $10.7$11.4 million forin the three and nine months ended September 30, 2018,2019, respectively, in product revenue under this agreement.
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 accordinglywas recorded as deferred revenue.revenues. 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 the customer material rights and we are recognizing revenues using the alternative method. As of September 30, 20192020 and December 31, 2018,2019, we had deferred revenue balances from the supply agreement of $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") 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 recognized ratably over the maximum term of the services period of 21 months. Beginning January 1, 2018, we recognized revenue using a single measure of progress that depicted our performance in transferring the services. During the second quarter of 2018, Tate & Lyle opted to obtain additional development services that we completed by June 30, 2018 and we earned milestone payments upon completion of the services. We recognized revenue of 0 and $50 thousand for the three and nine months ended September 30, 2019, respectively, compared to $1.3 million and $7.1 million for the three and nine months ended September 30, 2018, respectively, for research and development services under the research and development agreement.
Global Development, Option and License Agreement andAgreement; Strategic Collaboration Agreement; Development Agreement
In October 2017, we entered into a Global Development, Option and License Agreement (the "Nestlé Agreement"“Nestlé Agreement”) with Société des Produits Nestlé (formerly known as Nestec Ltd. (") (“Nestlé Health Science"Science”) and, solely for the purpose of the integration and the dispute resolution clauses of the Nestlé 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 Agreement, a $4.0 million milestone payment after dosing the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114, and a $1.0 million milestone payment upon achievement of a milestone relating to formulation of CDX-6114. The $4.0 million milestone payment that was triggered by the initiation of the trial was received in September 2018 and the $1.0 million milestone payment that was triggered by the achievement of a formulation relating to CDX-6114 was received in February 2019. The upfront payment and the variable consideration relating to the progress payment of $4.0 million and milestone payment of $1.0 million are beingwere recognized over time as the development work is beingwas performed. Revenue is beingwas recognized using a single measure of progress that depictsdepicted 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 0minal research and development fees ofrevenue for the three and nine months ended September 30, 2020, respectively, compared to $0.1 million and $1.8 million for the three and nine months ended September 30, 2019, respectively, compared to $3.7 million and $8.1 million for the three and nine months ended September 30, 2018, respectively, as research and development revenue. We had deferred revenue related to the development fees attributed to the milestone payment and upfront fees of $50 thousand at September 30, 2019 and $1.9 million at December 31, 2018.respectively.
In January 2019, we received notice from the FDA that it had completed its review of our INDinvestigational 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. The option payment ofPKU and paid us $3.0 million waswhich we recognized in the first quarter of 2019 as research and development fees.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 was substantially completed in the secondfourth quarter of 2019. Other potential payments from Nestlé Health Science to us under the Nestlé Agreement 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 middle single digits to low double-digits, of net sales of product.
In addition to the Nestlé Agreement,October 2017, we and Nestlé Health Science concurrentlyalso entered into a Strategic Collaboration Agreement (the "Strategic“Strategic Collaboration Agreement"Agreement”) with Nestlé Health Science pursuant to which we and Nestlé Health Science will collaborateare 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. Under the Strategic Collaboration Agreement, we received an upfront payment of $1.2 million in 2017 and an incremental payment of $0.6 million payment in September 2018 for additional services. WeThe Strategic Collaboration Agreement has been extended through December 2021.
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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 targeting a gastro-intestinal disorder discovered through our Strategic Collaboration Agreement into pre-clinical and early clinical studies.
Under the Strategic Collaboration Agreement and development agreement, we recognized research and development fees of $1.4$2.8 million and $3.9$6.1 million for the three and nine months ended September 30, 2019,2020, respectively, compared to $1.2$1.4 million and $2.4$3.9 million forin the three and nine months ended September 30, 2018,2019, respectively. We had deferred revenue of $25 thousand and $0.8 million at September 30, 2019 and December 31, 2018, 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. 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 andof the Porton Agreement, $1.5 million upon the first anniversary of the effective date of the agreement, and $1.0 million upon the second anniversary of the effective date of the agreement and we are eligible to receive $1.0 million on the third anniversary of the effective date of the agreement. We completed the technicaltechnical transfer in the fourth quarter of 2018. Revenue relating2018 and recognized $2.8 million in research and development revenue. We recognized revenue 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.
Commercial We recognized research and development revenue related to the Porton Agreement
In April of NaN and $1.1 million in the three and nine months ended September 30, 2020, respectively, and 0 revenue in the three and nine months ended September 30, 2019. As of September 30, 2020 and December 31, 2019, we entered into a multi-year commercialhad deferred revenue balances related to the strategic collaboration agreement with Tate & Lyle under which Tate & Lyle has received an exclusive license to use a suite of Codexis novel performance enzymes in the manufacture of Tate & Lyle’s zero-calorie stevia sweetener, TASTEVA® M,$0.1 million and other stevia products. Under the agreement, we will supply Tate & Lyle with its requirements for these enzymes over a multiple year period and receive royalties on stevia products.NaN, respectively. 
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 Pharma AG (“Novartis”). The Agreement allows Novartis to use Codexis’our proprietary CodeEvolver® protein engineering platform technology in the field of human healthcare. Under the Novartis CodeEvolver® Agreement, we will transfer Codexis'are transferring our proprietary CodeEvolver® protein engineering platform technology to Novartis over approximately 2023 months, starting with the date on which we commencecommenced the technology transfer (the “Technology Transfer Period”). As a part of this technology transfer, our company will providethe Company provided to Novartis Codexis’our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms. In addition, teams of Codexisthe Company and Novartis scientists will participateparticipated in technology training sessions and collaborative research projects at Codexis’our laboratories in Redwood City, California and at a designated Novartis laboratory in Basel, Switzerland. Upon completion of technology transfer, Novartis will have the CodeEvolver® protein engineering platform technology installed at its designated laboratory.
Pursuant to the agreement, we received an upfront payment of $5$5.0 million shortly after the effective date of the Novartis CodeEvolver® Agreement.Agreement. In the second quarter of 2020, we completed the second technology milestone transfer under the agreement and became eligible to receive a milestone payment of $4.0 million, which we subsequently received in July 2020. We are entitled eligible to receive an additional $4 million subject to satisfactory completion of the second technology transfer milestone and an additional $5$5.0 million upon satisfactory completion of the third technology transfer milestone. In consideration for the continued disclosure and license of improvements to the Codexisour technology and materials during a multi-year period that begins on the conclusion of the Technology Transfer Period, (“Improvements Term”), Novartis will pay Codexisus annual payments which amount to an additional $8$8.0 million. CodexisThe 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 begins on the conclusion of the Technology Transfer Period and ends on the expiration date of the last to expire licensed patent. These product-related usage payments, if any, will be paid by Novartis to Codexisus for each quarter that Novartis manufactures API using a CodeEvolver®-developed enzyme. The usage payments will be based on the total volume of API produced using the CodeEvolver®-developed enzyme. These usage payments can begin in the clinical stage and will extend throughout the commercial life of each API. Revenue for the combined initial license and technology transfer performance obligation, which is expected to occur over twentytwenty-three months, 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 the performance obligation relating to the combined initial license and technology transfer. Revenue allocated to future improvements will be recognized during the Improvement Term. We recognized $0.9 million and $4.1 million in research and development revenue for the three and nine months ended September 30, 2020, respectively, compared to $3.8 million in revenue for the three and nine months ended September 30, 2019 from the Novartis CodeEvolver® Agreement.
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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 within 45 days of the effective date of the agreement and we are eligible to receive an additional milestone within 60 days after the completion of technology transfer. The agreement also contemplates milestone payments to the Company 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 $0.1 million and $0.9 million for the three and nine months ended September 30, 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 will 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”).
In March 2020, we received an up-front nonrefundable cash payment of $8.5 million and we initiated activities under three Program Plans for Fabry Disease, Pompe Disease, and an unnamed blood factor deficiency respectively (the “Initial Programs”). We are primarily responsible for the research and development of protein sequences under the Program Plans (the “Protein Sequences”) and we are eligible to earn $18.3 million of research and development fees and pre-clinical milestone payments for the Initial Programs. Takeda has the right, but not the obligation, to develop, manufacture and commercialize gene therapy products that include nucleic acid sequences that encode the Protein Sequences (“Products”) at their expense. Takeda has the right to a certain number of additional disease indications (“Reserved Target Indications”) for a limited period in which Takeda may initiate a Program Plan for one or more Reserved Target Indications (“Additional/Option Program,” with Initial Programs, the “Programs”), provided, (a) if Takeda elects to initiate an Additional/Option Program while the parties are collaborating on three other Programs at the time of such election, or (b) if Takeda elects to initiate an Additional/Option Program using the last remaining Reserved Target Indication, then Takeda must pay us an option exercise fee to initiate such Additional/Option Program. We will own all rights to the Protein Sequences and corresponding nucleic acid sequences and related intellectual property rights and Takeda will own all rights to Products and related intellectual property rights.
We granted to Takeda an exclusive, worldwide, royalty-bearing, sublicensable license to use the Protein Sequences and their corresponding nucleic acid sequences to develop, manufacture and commercialize the applicable Products in the applicable Field. We also granted to Takeda a limited non-exclusive, worldwide, sublicensable license (a) to research the Protein Sequences within or outside the applicable Fields and (b) to research the Products outside of the applicable Fields, which such rights exclude Takeda's right to perform any Investigational New Drug-enabling activities. The licenses to research the Protein Sequences expire after a pre-determined period of time.
The term of the Takeda Agreement begins on the Effective Date and continues on a Product-by-Product and country-by-country basis, until the expiration of Takeda’s obligation to pay royalties to the Company with respect to that Product in that country. The Takeda Agreement expires in its entirety upon the expiration of Takeda’s obligation to pay royalties to the Company with respect to the Products in all countries worldwide. Subject to the terms of the Takeda Agreement, and after the first anniversary of the Effective Date with respect to the Initial Programs or after the first anniversary of confirmation of the applicable Program Plan by the parties with respect to the Additional/Option Programs, Takeda may terminate a Program upon specified prior written notice to the Company. Subject to the terms of the Takeda Agreement, Takeda may terminate the Takeda Agreement, at will, on a Product-by-Product basis upon specified prior written notice to the Company and the Takeda Agreement in its entirety upon specified prior written notice to the Company. Subject to the terms of the Takeda Agreement, Takeda may terminate the Takeda Agreement on a Product-by-Product basis for safety reasons upon specified prior written notice to the Company. Either party may terminate the Takeda Agreement for an uncured material breach by the other party, or the other party’s insolvency or bankruptcy.
We are eligible to receive certain development and commercialization milestone payments up to $100.0 million per target gene, the modulation of which would lead to the treatment of the disease indications by the applicable Product. We are also eligible to receive tiered royalties based on net sales of Products at percentages ranging from the middle-single digits to low single-digits. We recognized research and development revenue related to the Takeda Agreement of $2.6 million and $10.6 million in the three and nine months ended September 30, 2020, respectively. As of September 30, 2019,2020, we had a deferred revenue balance of $1.2$1.9 million from Takeda.
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Master Collaboration and Research Agreement and Stock Purchase Agreement
In June 2020, we entered into a Stock Purchase Agreement with Molecular Assemblies, Inc. ("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 Novartistransaction, our chief executive officer, John Nicols, also joined MAI’s board of directors.
At the same time, we entered into a Master Collaboration and Research Agreement (the “MAI Agreement”) with MAI to engineer DNA polymerase enzymes to deliver differentiated and cost-effective solutions for the enzymatic synthesis of DNA. Under the MAI Agreement and its related statement of work (“SOW”), we will apply our CodeEvolver®Agreement. protein engineering platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis. Based on these services, the Company is eligible to earn additional shares of MAI's Series A preferred stock. MAI will combine its advanced chemistries with our enzymes to drive the process to commercialization. Under the MAI Agreement and its associated SOW, we will engage in research and development activities to engineer DNA polymerase enzymes for the enzymatic synthesis of DNA in exchange for monthly fees in the form of shares of Series A preferred stock in MAI. We are eligible to earn such non-monetary payments over ten to thirteen 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 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. We did not receive any shares of MAI's Series A preferred stock based on services provided in the nine months ended September 30, 2020. 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 pursuant to the MAI Agreement 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 recognized $0.5 million in research and development revenue in the three and nine months ended September 30, 2020 from transactions with MAI. At September 30, 2020, we had $0.5 million of financial assets due from MAI. Payment for the services was subsequently received in form of additional Series A preferred stock of MAI in October.

Note 6. Cash Equivalents and MarketableEquity Securities
Cash equivalents and marketable securities at September 30, 20192020 and at December 31, 20182019 consisted of the following (in thousands):
 September 30, 2019
 Adjusted Cost 
Gross Unrealized
Gains (3)
 
Gross Unrealized
Losses(3)
 Estimated
Fair Value
Money market funds (1)
$73,450
 $—
 $—
 $73,450


 December 31, 2018
 Adjusted Cost 
Gross Unrealized
Gains(3)
 
Gross Unrealized
Losses(3)
 Estimated
Fair Value
Money market funds (1)
$31,225
 $—
 $—
 $31,225
Common shares of CO2 Solutions (2)
563
 25
 —
 588
Total$31,788
 $25
 $—
 $31,813

 September 30, 2020December 31, 2019
 Adjusted CostEstimated
Fair Value		Adjusted CostEstimated Fair Value
Money market funds (1)
$51,488 $51,488 $71,248 $71,248 
(1) Money market funds are classified in cash and cash equivalents on our unaudited condensed consolidated balance sheets.
(1) Money market funds are classified in cash and cash equivalents on our unaudited condensed consolidated balance sheets.
(2) Common shares of CO2 Solutions are classified in equity securities on our unaudited condensed consolidated balance sheets.
(3) As a result of adopting ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities", in 2018 and thereafter gross unrealized gains and gross unrealized losses related to our investment in CO2 Solutions were recognized in other expense, in our unaudited condensed consolidated statements of operations.
As of September 30, 2019,2020, the total cash and cash equivalents balance of $92.1$71.5 million was comprised of money market funds of $73.5$51.5 million and cash of $18.6$20.0 million held with major financial institutions worldwide. As of December 31, 2018,2019, the total cash and cash equivalents balance of $53.0$90.5 million was comprised of money market funds of $31.2$71.2 million and cash of $21.8$19.3 million held with major financial institutions worldwide.
In December 2009, we purchased 10,000,000 common sharesInvestment in Equity Securities
No single investor in MAI holds 20% or more of CO2 Solutions, a company based in Quebec, Canada, whose shares were publicly traded in Canada on the TSX Venture Exchange until September 17, 2019 and are currently listed on NEX board, which is a separate board of TSX Venture Exchange.voting stock. Our purchaseinvestment represented approximately 16.6%4% of CO2 Solutions’ total common shares outstandingMAI's voting stock at the time of the transaction. Concurrently with our initial equity investment, John Nicols, our chief executive officer, joined MAI’s board of directors, and was madewe entered into the MAI Agreement pursuant to which we will provide technical services and expertise in a private placement subject to a four-month statutory resale restriction. This restriction expired on April 15, 2010. Our investmentexchange for compensation in CO2 Solutions is recorded at its fair value. See Note 7, “Fair Value Measurements.” Through September 30, 2019, we concluded that we did not have the ability to exercise significant influence over CO2 Solutions’ operating and financial policies.
In the quarter ended September 30, 2019, we sold 1.3 million commonform of additional shares of our investment in CO2 Solutions and received proceeds of $0.1 million. At September 30, 2019, we reviewed our investmentvoting preferred stock. We recorded no impairments or upward adjustments due to observable price changes in the common shares of CO2 Solutions. Concurrent with CO2 Solutions' announcement to file under the Bankruptcy and Insolvency Act (Canada) and a suspension in trading of its equity securities, there was no observable market pricing available at September 30, 2019. We assessed that the fair value of the investment and concluded to write down the investment to 0. Previously, we had assessed the fair value of the investment using readily quantifiable market data. We recognized a $0.4 million and a $0.5 million loss, respectively in the three and nine months ended
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September 30, 2019.2020. The losscarrying amount of the investment was included in other expenses, net in the unaudited condensed consolidated statement of operations.
We recognized a loss of $25 thousand and $20 thousand, respectively, in the three and nine months ended$1.0 million at September 30, 2018.The loss was included in other expenses, net in the unaudited condensed consolidated statement of operations. On January 1, 2018, we adopted ASU 2016-01. Upon adoption, we reclassified the $0.5 million net unrealized loss on our investment from accumulated other comprehensive loss to our opening accumulated deficit.2020. For additional information, see Note 12, "Related Party Transactions."


Note 7. Fair Value Measurements
The following tables present the financial instruments that were measured at fair value on a recurring basis at September 30, 20192020 and December 31, 20182019 by level within the fair value hierarchy (in thousands):
 September 30, 2019
 Level 1 Level 2 Level 3 Total
Money market funds$73,450
 $—
 $—
 $73,450
 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$31,856
 $—
 $—
 $31,813


 September 30, 2020
 Level 1Level 2Level 3Total
Money market funds$51,488 $— $— $51,488 
We determine the fair value of Level 1 assets using quoted prices in active markets for identical assets. At December 31, 2018, we estimated the fair value of our investment in 10,000,000 common shares of CO2 Solutions using the market value of common shares as determined by trading on the TSX Venture Exchange, and we classified our investment in CO2 Solutions within the fair value hierarchy as Level 1 at December 31, 2018 using the quoted prices in an active market to determine their fair value.
 December 31, 2019
 Level 1Level 2Level 3Total
Money market funds$71,248 $— $— $71,248 
In the quarter ended September 30, 2019, we reviewed our investment in the common shares of CO2 Solutions. Concurrent with CO2 Solutions' announcement to file under the Bankruptcy and Insolvency Act (Canada) and a suspension in trading of its equity securities, there was no observable market pricing available at September 30, 2019. We assessed the fair value of the investment and concluded to write down the investment to 0. We recognized a $0.4 million and a $0.5 million loss, respectively in the three and nine months ended September 30, 2019 in other expenses, net in the unaudited condensed consolidated statement of operations. For information see Note 6. "Cash Equivalents and Marketable Securities".

Note 8. Balance Sheets Details
Inventories
Inventories consisted of the following (in thousands):
September 30, 2020December 31, 2019
Raw materials$77 $7 
Work-in-process28 26 
Finished goods632 338 
    Inventories$737 $371 
 September 30, 2019 December 31, 2018
Raw materials$7
 $165
Work-in-process52
 47
Finished goods338
 377
    Inventories$397
 $589


Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
September 30, 2020December 31, 2019
Laboratory equipment$24,837 $23,561 
Leasehold improvements10,774 10,804 
Computer equipment and software3,134 3,016 
Office equipment and furniture1,175 1,461 
Construction in progress602 691 
Property and equipment40,522 39,533 
       Less: accumulated depreciation and amortization(33,233)(33,251)
     Property and equipment, net$7,289 $6,282 
 September 30, 2019 December 31, 2018
Laboratory equipment$23,266
 $21,328
Leasehold improvements10,899
 10,359
Computer equipment and software3,806
 3,954
Office equipment and furniture1,461
 1,272
Construction in progress488
 939
Property and equipment39,920
 37,852
       Less: accumulated depreciation and amortization(33,679) (33,093)
     Property and equipment, net$6,241
 $4,759


Goodwill
Goodwill had a carrying value of approximately $3.2 million as of September 30, 20192020 and December 31, 2018.2019.
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Other Accrued Liabilities
Other accrued liabilities consisted of the following (in thousands):
September 30, 2020December 31, 2019
Accrued purchases$3,810 $4,386 
Accrued professional and outside service fees3,142 1,802 
Other618 352 
     Total$7,570 $6,540 
 September 30, 2019 December 31, 2018
Accrued purchases$3,894
 $1,492
Accrued professional and outside service fees1,833
 2,020
Deferred rent—
 343
Lease incentive obligation—
 425
Other455
 575
     Total$6,182
 $4,855


Note 9. Stock-BasedStock-based Compensation
Equity Incentive Plans
In June 2019, our board of directors (the "Board") and stockholders approved the 2019 Incentive Award Plan (the "2019 Plan"). The 2019 Plan supersedessuperseded and replacesreplaced 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 2010 Plan provided for the grant of incentive stock options, non-statutory stock options, restricted stock units ("RSUs"), restricted stock awards ("RSAs"), performance-contingent restricted stock units ("PSUs"), performance based options ("PBOs"), stock appreciation rights, and stock purchase rights to our employees, non-employee directors and consultants.
The number of shares of our common stock available for issuance under the 2019 Plan is equal to the sum of (i) 7,897,144 shares, and (ii) any shares subject to awards granted under the 2010 Plan that were outstanding as of April 22, 2019 and thereafter terminate, expire, lapse or are forfeited; provided that no more than 14,000,000 shares may be issued upon the exercise of incentive stock options (“ISOs”). In June 2019, 8.1 million shares authorized for issuance under the 2019 Plan were registered under the Securities Act of 1933, as amended (the “Securities Act”).
The 2019 Plan provides for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock or cash based awards and dividend equivalents to eligible employees and consultants of the Company or any parent or subsidiary, as well as members of the Board.
The 2010 Plan provided for the grant of incentive stock options, non-statutory stock options, restricted stock units ("RSUs"), restricted stock awards ("RSAs"), performance-contingent restricted stock units ("PSUs"), performance based options ("PBOs"), stock appreciation rights, and stock purchase rights to our employees, non-employee directors and consultants.
Stock Options
The option exercise price for incentive stock options ismust 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 10 years and vest over a four year periodyears from the date of grant, of which 25% vest at the end of one year, and 75% vest monthly over the remaining three years. We may grant options with different vesting terms from time to time. Unless an employee's termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier.
Restricted Stock Units (RSUs)
We also grant employees RSUs, which generally vest over either a three year period with one-third of the shares subject to the RSUs vesting on each yearly anniversary of the vesting commencement date or over a four year period with 25% of the shares subject to the RSU vesting on each yearly anniversary of the vesting commencement date, in each case contingent upon such employee’s continued service on such vesting date. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. We may grant RSUs with different vesting terms from time to time.
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Performance-contingent Restricted Stock Units (PSUs) and Performance Based Options (PBOs)
The compensation committee of the Board approved, solely in respect ofWe also grant our executives and our non-executive employees PSUs, and delegated towe grant 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.executives PBOs. 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 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 0 shares being eligible to vest in respect of the PSUs and PBOs.
In the first quarterhalf of 2019,2020, we awarded PSUs ("20192020 PSUs") and PBOs ("20192020 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including sustained revenue and performance enzyme growth, strategic advancements of biotherapeutics pipeline, safety and technology development. As of September 30, 2020, we estimated that the 2020 PSUs and 2020 PBOs performance goals would be achieved at 100% of the target level, and recognized expenses accordingly.
In 2019, we awarded PSUs ("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, strategic advancement of biotherapeutics, cash balance and strategic plan development. AsIn the first quarter of September 30, 2019,2020, we estimateddetermined that the 2019 PSUs and 2019 PBOs performance goals would behad been achieved at 113%106% of the target level, and recognized expenses accordingly. Accordingly, 50% of the shares underlying the 2019 PSUs and PBOs vested in the first quarter of 2020 and 50% of the shares underlying the 2019 PSUs and PBOs will vest in the first quarter of 2021, in each case subject to the recipient’s continued service on each vesting date.
In 2018, we awarded PSUs ("2018 PSUs") and PBOs ("2018 PBOs"), each of which commenced vesting based upon the achievement of various weighted performance goals, including core business revenue growth, cash balance, new licensing collaborations, new research and development service revenue arrangements, technology advancement and novel therapeutic enzymes advancement. In the first quarter of 2019, we determined that the 2018 PSUs and 2018 PBOs performance goals had been achieved at 118% of the target level, and recognized expenses accordingly. Accordingly, one-half50% of the shares underlying the 2018 PSUs and PBOs vested in the first quarter of 2019 and one-half50% of the shares underlying the 2018 PSUs and PBOs will vestvested in the first quarter of 2020, in each case subject to the recipient’s continued service on each vesting date.
In 2017, we awarded PSUs ("2017 PSUs") and PBOs ("2017 PBOs"), each of which commenced vesting based upon the achievement of various weighted performance goals, including revenue growth, fundraising, service revenue, new platform license revenue, and strategic advancement of biotherapeutics pipeline. In the first quarter of 2018, we determined that the 2017 PSU and PBO performance goals had been achieved at 134.2% of the target level, and recognized expenses accordingly. Accordingly, one-half of the shares underlying the 2017 PSUs and PBOs vested in the first quarter of 2018 and one-half of the shares underlying the 2017 PSUs and PBOs vested in the first quarter of 2019, in each case subject to the recipient’s continued service on each vesting date.
Stock-Based Compensation Expense
Stock-based compensation expense is included in the unaudited condensed consolidated statements of operations as follows (in thousands):
 Three Months Ended September 30,Nine months ended September 30,
 2020201920202019
Research and development$385 $458 $1,279 $1,249 
Selling, general and administrative1,599 1,274 4,813 4,534 
   Total$1,984 $1,732 $6,092 $5,783 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Research and development$458
 $552
 $1,249
 $1,555
Selling, general and administrative1,274
 1,218
 4,534
 4,652
   Total$1,732
 $1,770
 $5,783
 $6,207


The following table presents total stock-based compensation expense by security type included in the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 20192020 and 20182019 (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Stock options$545
 $472
 $1,680
 $1,482
RSUs and RSAs461
 416
 1,308
 1,293
PSUs368
 407
 1,075
 1,251
PBOs358
 475
 1,720
 2,181
   Total$1,732
 $1,770
 $5,783
 $6,207
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 Three Months Ended September 30,Nine months ended September 30,
 2020201920202019
Stock options$619 $545 $1,735 $1,680 
RSUs and RSAs603 461 1,812 1,308 
PSUs295 368 922 1,075 
PBOs467 358 1,623 1,720 
   Total$1,984 $1,732 $6,092 $5,783 

In June 2020, we granted an option to purchase 60,000 shares of common stock to a non-employee as compensation for services. The estimated fair value of the grant was valued at $0.3 million using the Black-Scholes-Merton option pricing model with the following assumptions used to estimate the fair value of non-employee stock options: (i) volatility rate at 51.9%, (ii) risk-free interest rate of 0.4% and (iii) 0 expected dividend yield. The option vests over 2 years from the date of grant with 50% vesting after one year and the remaining 50% vesting monthly in the second year. In August 2020, we granted an option to purchase 16,000 shares of common stock to a non-employee as compensation for services. The estimated fair value of the grant was valued at $0.1 million using the Black-Scholes-Merton option pricing model with the following assumptions used to estimate the fair value of non-employee stock options: (i) volatility rate at 50.5%, (ii) risk-free interest rate of 0.3% and (iii) 0 expected dividend yield. The option vests over 1 year with 100% on the first anniversary of the grant date. We recognized stock-based compensation expense related to the non-employees of $43 thousand and $47 thousand for the three and nine months ended September 30, 2020, respectively.
As of September 30, 2019,2020, unrecognized stock-based compensation expense, net of expected forfeitures, was $4.4$4.2 million related to unvested employee stock options, $1.8$0.3 million related to unvested non-employee stock options, $2.3 million related to unvested RSUs and RSAs, $0.8 million related to unvested PSUs, and $1.8$1.3 million related to unvested PBOs based on current estimates of the level of achievement. Stock-based compensation expense for these awards will be recognized through the year of 2023.2024.

Note 10. Capital Stock
Exercise of Options
For the nine months ended September 30, 20192020 and September 30, 2018,2019, we issued 87,240 and 970,256 and 729,596 shares, respectively, were issued upon option exercises at a weighted-average exercise price of $4.76$6.17 and $5.92$4.76 per share, respectively, with net cash proceeds of $0.5 million and $4.6 million, and $4.3 million, respectively.

Private Offering
In June 2019, we entered into a Securities Purchase Agreement with an affiliate of Casdin pursuant to which we issued and sold to Casdin 3,048,780 shares of our common stock ("Shares") at a purchase price of $16.40 per share. After deducting issuance costslegal fees of $0.1 million$74 thousand from the Private Offering, our net proceeds were $49.9 million.
In June 2019, we also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Casdin. Pursuant to the Registration Rights Agreement, we agreed, subject to certain conditions, to prepare and file a registration statement with the Securities and Exchange Commission (the “SEC”) within 180 days after the closing of the Private Offering, if we are a “well known seasoned issuer” at such time (210 days if we are not then a “well known seasoned issuer”) for purposes of registering the resale of the Shares and any shares of common stock issued as a dividend or other distribution with respect to the Shares. We further agreed, among other things, to indemnify the selling holders under the registration statement from certain losses, claims, damages and liabilities and to pay all fees and expenses (excluding underwriting discounts and selling commissions) incident to the performance of, or compliance with, our obligations under the Registration Rights Agreement.
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. Commitments and Contingencies
Operating Leases
Our headquarters are located in Redwood City, California, where we occupy approximately 107,20077,300 square feet of office and laboratory space in 4 buildings within the same business park of Metropolitan Life Insurance Company ("MetLife"). Our lease (“Lease”) with MetLife includes approximately 28,200 square feet of space located at 200 and 220 Penobscot Drive, Redwood City, California (the “Penobscot Space”), approximately 37,900 square feet of space located at 400 Penobscot Drive, Redwood City, California (the “Building 2 Space”), and approximately 11,200 square feet of space located at 501 Chesapeake Drive, Redwood City, California (the “501 Chesapeake Space”), and.
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Until January 31, 2020, we also leased approximately 29,900 square feet of space located at 101 Saginaw Drive, Redwood City, California (the “Saginaw Space”).

 During the period January 1, 2020 through January 31, 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 of the Saginaw Space 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 in 2004 and the lease has been amended multiple times since then to adjust space and amend the terms of the Lease. The lease amendment ("Seventh Amendment"Lease") in October 2016 waived our existing asset retirement obligation for one of our buildings 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 on November 30, 2019 and January 31, 2020.
. In February 2019, we entered into the eighth amendmentan 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 501 Chesapeake Space to extend the term of the Lease for another 88 months. Theadditional periods. Pursuant to the Eighth Amendment, the term of the lease on the Saginaw Space will expire in January 2020. The lease terms forof the Penobscot Space and the Building 2 Space have an expiration date ofhas been extended through May 2027. The lease term for the 501 Chesapeake Space has an expiration date ofbeen extended to May 2029.
We incurred $3.6 million of capital improvement costs relatedhave 2 consecutive options 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 as a reduction in rent expense. The remaining lease incentive obligations were 0 and $0.5 million at September 30, 2019 and December 31, 2018, respectively. Prior to adoption of ASC 842, lease incentive obligation were reflected as liabilities on the unaudited condensed consolidated balance sheets. Upon adoption of ASC 842, lease incentive obligations were cleared to zero to create our right-of-use assets related to operating lease, reflected on the unaudited condensed consolidated balance sheets. Rent expense for the Redwood City properties is recognized on a straight-line basis overPenobscot Space, the termBuilding 2 Space and the 501 Chesapeake Space for an additional period of the lease.five years per option.
We are required to restore certain areas of the Redwood City 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 $0.2 million as of September 30, 20192020 and December 31, 2018, respectively,2019, which are included in other liabilities on the unaudited condensed consolidated balance sheets. Accretion expense related to our asset retirement obligations was 0minal in the three and nine months ended September 30, 2019 and 2018.0minal.
Pursuant to the terms of the amended lease agreement,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 at aby the bank in the amount of $1.1 million and $0.7 million as of September 30, 20192020 and December 31, 2018, respectively. These deposits2019, and are recorded as non-current restricted cash on the unaudited condensed consolidated balance sheets.
Rent expense was $1.1 million and $3.4 million during the three and nine months ended September 30, 2019, respectively, partially offset by sublease income of $0.2 million and $0.7 million, respectively. Rent expense was $0.8 million and $2.4 million during the three and nine months ended September 30, 2018, respectively, partially offset by sublease income of $0.3 million and $0.9 million, respectively.
Finance Leases
In December 2016, we entered into a three-year financing lease agreement with a third-partythird party supplier for the purchase of laboratory equipment that was partially financed through a finance 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 three-year lease is three yearswas from the effective date.February 2017 and expired in February 2020. This financing agreement was accounted for as a finance lease due to the bargain purchase optionoptions 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 three-year lease is three years. This financing agreement was accountedfrom May 2017 and expired in April 2020.
Lease Costs and other information
Lease related costs were as follows (in thousands):
Three months ended September 30,Nine months ended September 30,
 2020201920202019
Finance lease costs:
Amortization of right-of-use assets$27 $54 $126 $163 
Interest on lease obligations0 2 1 8 
Finance lease costs27 56 127 171 
Operating lease cost1,033 1,139 3,133 3,417 
Short-term lease cost (1)
0 0 47 0 
Sublease income0 (262)(55)(727)
Total lease cost$1,060 $933 $3,252 $2,861 
(1) Short-term lease costs on leases with terms of over one month and less than one year.
Other information related to non-cancellable finance leases and operating leases as of September 30, 2020 was as follows:
Operating Leases
Weighted-average remaining lease term (in years)6.9 years
Weighted-average discount rate6.6 %

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Cash paid for as a finance lease due to the bargain purchase option at the end of the lease.
Adoption of ASC 842
On January 1, 2019, we adopted ASC 842, using a modified retrospective approach and effective date method per adoption of ASU 2018-11. We completed the full analysis by January 2019 and we evaluated the right-of-use (ROU) assets and lease obligations using the incremental borrowing rate (IBR) at December 31, 2018 because the implicit rate is not readily determinableamounts included in the lease agreement. Upon adoption of ASC 842, all existing leases were classified as either operating leases or finance leases. All existing leases that were classified as capital leases in accordance with Topic 840 were classified as finance leases. We recorded $26.6 million of ROU assets and $27.6 millionmeasurement of lease obligations for operating leases, and $0.5 million of ROU assets and $0.3 million of lease obligations for finance leases in the balance sheet in the first quarter of 2019.

Practical Expedients, Elections, and Exemptions
We used a practical expedient available under ASC 842-10-65-1(f) that permits us not to reassess whether any expired or existing contracts are or contain leases; not to 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); and not to reassess initial direct costs for any existing leases.
On January 1, 2019, we also made an accounting policy election (by class of underlying asset to which the right of use relates) to apply accounting principles to leases that meet ASC 842’s definition of a short-term lease (i.e., the short-term lease exemption). We elected not to apply the recognition requirements of Topic 842 and instead we recognize the lease payments as lease cost on a straight-line basis over the lease term. A short-term lease is defined as a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
The following table shows the reconciliation of right-of-use assets and lease obligations, with balances reflecting the adoption of ASC 842, related to both operating leases and finance leases and gives effect to the modified retrospective adoption and effective date method under the lease guidance on January 1, 2019 (in thousands):
 Operating leases Finance Leases
Right-of-use assets, balance at December 31, 2018$—
 $—
Changes in the period:   
Right-of-use assets created upon adoption of ASC 84226,617
 493
Right-of-use assets, balance at January 1, 2019$26,617
 $493
    
Lease obligations, balance at December 31, 2018$—
 $—
Changes in the period:   
Lease obligations created upon adoption of ASC 84227,562
 302
Lease obligations, balance at January 1, 2019$27,562
 $302



Lease related expenses under non-cancellable finance and operating leases and under non-cancellable subleaseswas as follows (in thousands except discount rate and lease term)thousands):
 Three months ended September 30, 2019 Nine months ended September 30, 2019
Lease costs   
Finance lease cost:

  
Amortization of right-of-use assets$54
 $163
Interest on lease obligations2
 8
Operating lease cost1,139
 3,417
Sublease income(262) (727)
   Total lease cost$933
 $2,861
    
Other information   
Weighted-average remaining lease term (in years):   
Finance leases  0.5
Operating leases  7.9
    
Weighted-average discount rate:   
Finance leases

 5.0%
Operating leases

 6.6%
    
Cash paid for amounts included in the measurement of lease obligations

  
Operating cash flows from operating leases

 $(2,456)
Operating cash flows from finance leases

 $(9)
Financing cash flows from finance leases

 $(180)
Nine months ended September 30,
20202019
Operating cash flows from operating leases$1,795 $2,456 
Operating cash flows from finance leases$0 $9 
Financing cash flows from finance leases$60 $180 


As of September 30, 2019, under ASC 842,2020, our maturity analysis of annual undiscounted cash flows of the non-cancellable finance and operating leases are as follows (in thousands):
Years ending December 31,Finance Leases Operating Leases
2019 (remaining 3 months)$63
 $824
202061
 2,816
2021—
 4,197
2022—
 4,285
2023—
 4,589
2024 and thereafter—
 18,220
Total minimum lease payments (1)
$124
 $34,931
Less: imputed interest(2) (8,484)
Lease Obligations$122
 $26,447
(1) Minimum payments have not been reduced by future minimum sublease rentals of $0.3 million to be received under non-cancellable subleases at September 30, 2019.


As of December 31, 2018, under ASC 840, maturity analysis of annual undiscounted cash flows of the non-cancellable capital and operating leases as follows (in thousands): 
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.

Years ending December 31,Operating Leases
2020 (remaining 3 months)$1,022 
20214,197 
20224,285 
20234,589 
20244,726 
2025 and thereafter13,494 
Total minimum lease payments32,313 
Less: imputed interest(6,758)
Lease Obligations$25,555 
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 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 TypeAgreement Date Future Minimum Payment
Development and manufacturing services agreementsSeptember 2019 $1,645
Manufacture and supply agreement with expected future payment date of December 2022April 2016 1,242
Service agreement for clinical trialDecember 2017 80
Total other commitments  $2,967

Other Commitment Agreement TypeAgreement DateFuture Minimum Payment
Manufacture and supply agreement with expected future payment date of December 2022April 2016$532 
Development and manufacturing services agreementsSeptember 20193,806 
Strategic Collaboration and License AgreementMarch 2020520 
Total other commitments$4,858 
Credit Facility
EffectiveIn June 30, 2017, we entered into a credit facility (the "Credit Facility"“Credit Facility”) consisting of term loans ("(“Term Debt"Debt”) totaling up to $10.0 million, and advances ("Advances"(“Advances”) under a revolving line of credit ("Revolving Line of Credit") totaling up to $5.0 million with an accounts receivable borrowing base of 80% of eligible accounts receivable. At September 30, 2020 and December 31, 2019, we have not drawn from the Credit Facility. In January 2019, we entered into a Fifth Amendment to the Credit Facility to allow for Codexis to obtain a letter of credit of up to $1.1 million to secure its obligations under the Lease with MetLife. In July 2019, we entered into a Sixth Amendment to the Credit Facility to increase permitted indebtedness to $0.7 million for financing insurance premiums in the ordinary course of business. In September 2019, we entered into a Seventh Amendment to the Credit Facility whereby the draw period on the term debt was extended to September 30, 2020. We may draw on the Term Debt at any time prior to September 30, 2020, subject to customary conditions for funding including, among others, that no event of default exists. We may draw onand the Revolving Line of Credit at any time prior to the maturity date.October 1, 2021 and October 1, 2024, respectively. On October 1, 2023, any2024 loans fordrawn under the Term Debt mature and the Revolving Line of Credit terminates.terminate. Loans made under the Term Debt bearsbear interest through maturity at a variableequal to the greater of (i) 3.75% and (ii) the sum of (A) Index Rate (prime rate based onpublished in the London Interbank Offered RateMoney Rates section of the Western Edition of The Wall Street Journal plus 3.60%(B) 0.50%. 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% above4.25% and (ii) the sum of (A) the prime rate and (ii) 5.00%plus (B) 1.00%.
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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 revenue 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 September 30, 2020, we were in compliance with the covenants for the Credit Facility.
The Credit Facility allows for interest-only payments on the Term Debt through November 1, 2020.2022. 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.
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 financial covenants including achieving consolidated product revenues levels at minimum levels as set forth in the Credit Facility unless we maintain certain minimum cash levels with the lender in an amount equal to or greater than 6 times the sum 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 transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, and selling assets and permitted assets to be held at foreign subsidiaries above specified caps, in each case subject to certain exceptions. 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 Facility and our cash. At September 30, 2019, we were in compliance with the covenants for the Credit Facility.
Legal Proceedings
We are not currently a party to any material pending litigation or other material legal proceedings.
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-partythird 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 0 accruals for expenses related to indemnification issues for any periods presented.
Impact of COVID-19
We are subject to risks and uncertainties as a result of the current COVID-19 pandemic. The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the U.S. economy and other economies worldwide. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and may not be accurately predicted, including the duration and severity of the pandemic and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
To date, we and our collaboration partners have been able to continue to supply our enzymes to our customers worldwide. However, we are dependent on our manufacturing and logistics partners and consequently, disruptions in operations of our partners and customers may affect our ability to supply enzymes to our customers. Furthermore, our ability to provide future research and development ("R&D") services will continue to be impacted as a result of governmental orders and any disruptions in operations of our customers with whom we collaborate. We believe that these disruptions have had a negative impact on revenue for the nine months ending September 30, 2020, although we are unable to fully determine and quantify the extent to which this pandemic has affected the amount and timing of our total revenues. The extent to which the pandemic may impact our business operations and operating results will continue to remain highly dependent on future developments, which are uncertain and cannot be predicted with confidence.
In the U.S., 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 in accordance with these Orders. In May 2020, we initiated limited R&D operations and have gradually ramped up operations such that we are currently utilizing the majority of our normal R&D capacity. Additionally, we have resumed small scale manufacturing at our Redwood City pilot plant in May 2020.
Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges faced by our customers. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations in the future is uncertain.

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Note 12. Related Party Transactions
Molecular Assemblies, Inc.
In June 2020, we entered into a Stock Purchase Agreement with Molecular Assemblies, Inc (“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 transaction, our chief executive officer, John Nicols, also joined MAI’s board of directors.

At the same time, we entered into a Master Collaboration and Research Agreement (the “MAI Agreement”) with MAI to engineer DNA polymerase enzymes to deliver differentiated and cost-effective solutions for the enzymatic synthesis of DNA. Under the MAI Agreement and its related statement of work (“SOW”), we will apply our CodeEvolver® protein engineering platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis.
Based on these services, we are eligible to earn additional Series A preferred stock of MAI contingent on the achievement of certain results and milestones. MAI will combine its advanced chemistries with our enzymes to drive the process to commercialization. Under the MAI Agreement and its associated SOW, we will engage in research and development activities to engineer DNA polymerase enzymes for the enzymatic synthesis of DNA and will receive monthly fees in the form of shares of Series A preferred stock in MAI. Such non-monetary payments will be earned over ten to thirteen months and 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 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. We did not receive any shares of MAI's Series A preferred stock based on services provided in the nine months ended September 30, 2020. 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 on meeting a milestone of $5.0 million in aggregate commercial sales by the Company 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 pursuant to the MAI Agreement 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) that we would become the exclusive manufacturer of these enzymes for MAI, its affiliates and licensees.
We recognized $0.5 million in research and development revenue in the three and nine months ended September 30, 2020 from transactions with MAI. At September 30, 2020, we had $0.5 million of financial assets due from MAI. Payment for the services was subsequently received in the form of additional Series A preferred stock of MAI in October.
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 sellsold biocatalyst products to AstraZeneca PLC and its controlled purchasing agents and contract manufacturers.
We recognized $0.1 million of revenue in 2020 through the date of Ms. Cheng’s departure from our board of directors. We recognized $0.2 million and $0.6$0.6 million in of revenue from transactions with AstraZeneca in the three and nine months ended September 30, 2019, respectively, compared to de minimis and $0.4 million in the three and nine months ended September 30, 2018, respectively, from transactions with AstraZeneca PLC and its controlled purchasing agents and contract manufacturers.respectively. At September 30, 20192020 and December 31, 2018,2019, we had 0 and $0.2 million of accounts receivablereceivables from AstraZeneca, PLC, and its controlled purchasing agents and contract manufacturers, respectively.AstraZeneca.

Settlement of Short Swing Profit Claim
In August 2019, we recorded approximately $77 thousand related to the short swing profit settlement remitted by a shareholder of our company under Section 16(b) of the Securities Exchange Act of 1934, as amended. We recognized the proceeds as an increase to additional paid-in capital in the accompanying unaudited condensed consolidated balance sheet as of September 30, 2019 and unaudited condensed consolidated statements of stockholders’ equity as well as in cash provided by financing activities in the unaudited condensed consolidated statements of cash flows for the quarter ended September 30, 2019.


Note 13. 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 identifiedWe manage our biotherapeutics business as a standalone2 business segment. Our 2 reportable business segments as of January 1, 2018, consisted ofsegments: Performance Enzymes and Novel Biotherapeutics.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 CODM, or decision making group, 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 the Company.
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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 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.

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 for the management of PKU. The option payment of $3 million was recognized as revenue in the first quarter of 2019 as research and development fees. 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 was substantially completed in the second quarter of 2019. For the three and nine months ended September 30, 2019 and 2018, all revenues related to the Novel Biotherapeutics segment were generated from our collaborations with Nestlé Health Science.
We have also developed a pipeline of other biotherapeutic drug candidates, which are in preclinical development, and in which we expect to continue to make additional investments with the aim of advancing additional product candidates targeting other therapeutic areas. In March 2020 we entered into the Takeda Agreement with Takeda under which we will research and develop protein sequences for use in gene therapy products for certain diseases.
Factors considered in determining the 2 reportable segments of the Company include the nature of business activities, the management structure directly accountable to our CODM for operating and administrative activities, availability of discrete financial information and information presented to the Board of 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.
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The following table providestables provide financial information by our reportable business segments along with a reconciliation to consolidated lossincome (loss) before income taxes (in thousands):
 Three months ended September 30, 2019 Three months ended September 30, 2018Three months ended September 30, 2020Three months ended September 30, 2019
 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics TotalPerformance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Revenues:            Revenues:
Product revenue $10,351
 $—
 $10,351
 $8,405
 $—
 $8,405
Product revenue$8,401 $— $8,401 $10,351 $— $10,351 
Research and development revenue 10,073
 1,482
 11,555
 3,720
 4,821
 8,541
Research and development revenue4,604 5,380 9,984 10,073 1,482 11,555 
Total revenues 20,424
 1,482
 21,906
 12,125
 4,821
 16,946
Total revenues13,005 5,380 18,385 20,424 1,482 21,906 
Costs and operating expenses:            Costs and operating expenses:
Cost of product revenue 5,067

—
 5,067
 3,791
 —
 3,791
Cost of product revenue3,642 0 3,642 5,067 0 5,067 
Research and development(1)
 5,313

3,080
 8,393
 4,758
 2,920
 7,678
Research and development(1)
5,184 6,433 11,617 5,313 3,080 8,393 
Selling, general and administrative(1)
 2,037

690
 2,727
 1,870
 165
 2,035
Selling, general and administrative(1)
2,675 515 3,190 2,037 690 2,727 
Total segment costs and operating expenses 12,417
 3,770
 16,187
 10,419
 3,085
 13,504
Total segment costs and operating expenses11,501 6,948 18,449 12,417 3,770 16,187 
Income (loss) from operations $8,007
 $(2,288) $5,719
 $1,706
 $1,736
 $3,442
Income (loss) from operations$1,504 $(1,568)(64)$8,007 $(2,288)5,719 
Corporate costs (2)
     (4,912)     (5,120)
Corporate costs (2)
(5,483)(4,912)
Depreciation and amortization     (471)     (309)Depreciation and amortization(528)(471)
Income (loss) before income taxes     $336
     $(1,987)Income (loss) before income taxes$(6,075)$336 
(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 expense, interest income, and other income and expenses.

 Nine months ended September 30, 2019 Nine months ended September 30, 2018Nine months ended September 30, 2020Nine months ended September 30, 2019
 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics TotalPerformance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Revenues:            Revenues:
Product revenue $24,588
 $—
 $24,588
 $18,291
 $—
 $18,291
Product revenue$18,005 $— $18,005 $24,588 $— $24,588 
Research and development revenue 16,512
 8,708
 25,220
 15,728
 10,507
 26,235
Research and development revenue13,380 16,638 30,018 16,512 8,708 25,220 
Total revenues 41,100
 8,708
 49,808
 34,019
 10,507
 44,526
Total revenues31,385 16,638 48,023 41,100 8,708 49,808 
Costs and operating expenses:            Costs and operating expenses:
Cost of product revenue 12,230
 —
 12,230
 10,228
 —
 10,228
Cost of product revenue7,882 0 7,882 12,230 0 12,230 
Research and development(1)
 14,889
 9,252
 24,141
 14,548
 7,294
 21,842
Research and development(1)
15,877 16,848 32,725 14,889 9,252 24,141 
Selling, general and administrative(1)
 6,499
 1,768
 8,267
 5,695
 615
 6,310
Selling, general and administrative(1)
7,395 1,728 9,123 6,499 1,768 8,267 
Total segment costs and operating expenses 33,618
 11,020
 44,638
 30,471
 7,909
 38,380
Total segment costs and operating expenses31,154 18,576 49,730 33,618 11,020 44,638 
Income (loss) from operations $7,482
 $(2,312) $5,170
 $3,548
 $2,598
 $6,146
Income (loss) from operations$231 $(1,938)(1,707)$7,482 $(2,312)5,170 
Corporate costs (2)
     (15,185)     (15,762)
Corporate costs (2)
(16,526)(15,185)
Depreciation and amortization     (1,273)     (812)Depreciation and amortization(1,526)(1,273)
Loss before income taxes     $(11,288)     $(10,428)Loss before income taxes$(19,759)$(11,288)
(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 expense, interest income, and other income and expenses.
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The following tabletables provides stock-based compensation expense included in income (loss) from operations by segment (in thousands):
  Three months ended September 30, 2019 Three months ended September 30, 2018
  Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total
Stock-based compensation $736
 $225
 $961
 $354
 $97
 $451

  Nine months ended September 30, 2019 Nine months ended September 30, 2018
  Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total
Stock-based compensation $1,973
 $563
 $2,536
 $2,005
 $243
 $2,248



Three months ended September 30,
20202019
Performance EnzymesNovel BiotherapeuticsCorporate costTotalPerformance EnzymesNovel BiotherapeuticsCorporate costTotal
Stock-based compensation$839 $132 $1,013 $1,984 $736 $225 $771 $1,732 
Nine months ended September 30,
20202019
Performance EnzymesNovel BiotherapeuticsCorporate costTotalPerformance EnzymesNovel BiotherapeuticsCorporate costTotal
Stock-based compensation$2,335 $625 $3,132 $6,092 $1,973 $563 $3,247 $5,783 
Significant Customers
Customers that each contributedaccounted for 10% or more of our total revenues were as follows:
 Percentage of Total Revenues for the
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Customer A21% 27% 31% 33%
Customer B* 28% 17% 24%
Customer C* 10% * 17%
Customer D29% 15% 15% 11%

Percentage of Total Revenues for the
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Customer A23%21%21%31%
Customer B15%*13%17%
Customer C*29%11%15%
Customer D14%*22%*
Customer E13%***
Customers that each contributedaccounted for 10% or more of our total accounts receivable had the following balances as of the periods presented:presented as follows:
Percentage of Accounts Receivables as of
September 30, 2020December 31, 2019
Customer A36%38%
Customer B28%10%
Customer D14%*
* Percentage was less than 10%
34
 Percentage of Accounts Receivables as of
 September 30, 2019 December 31, 2018
Customer A20% 37%
Customer B* 17%
Customer D* 11%
Customer E14% *
Customer F15% *
Customer G* 16%
Customer H16% *
*
Less than 10% of the period presented
Geographical Information
Geographic revenues are identified by the location of the customer and consist of the following (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Revenues       
Americas$2,706
 $4,315
 $9,620
 $13,968
EMEA12,205
 6,274
 24,672
 15,075
APAC6,995
 6,357
 15,516
 15,483
Total revenues$21,906
 $16,946
 $49,808
 $44,526

 Three Months Ended September 30,Nine months ended September 30,
2020201920202019
Revenues
Americas$5,841 $2,706 $17,972 $9,620 
EMEA4,889 12,205 14,175 24,672 
APAC7,655 6,995 15,876 15,516 
Total revenues$18,385 $21,906 $48,023 $49,808 
Identifiable long-lived assets by location andwas as follows (in thousands):
Long-lived assetsSeptember 30, 2020December 31, 2019
United States$7,289 $6,282 
Identifiable goodwill was as follows (in thousands):
As of September 30, 2020 and December 31, 2019
Performance EnzymesNovel BiotherapeuticsTotal
Goodwill$2,463 $778 $3,241 
Note 14. Allowance for Credit Losses
An analysis of the allowance for credit losses is as follows (in thousands):
Three and nine
months ended
September 30, 2020
Beginning Balance January 1, 2020$34 
Current period provision40 
Write-offs charged against the allowance0 
Recoveries of amounts previously written off0 
Ending Balance September 30, 2020$74 
The following tables below summarizes accounts receivable by reporting unit were as follows:aging category (in thousands):
Long-lived assets:September 30, 2019 December 31, 2018
United States$31,104
 $4,759
September 30, 2020
31-60 Days61-90 Days91 days and overTotal over 31 daysCurrentTotal balance
Accounts receivable$160 $0 $0 $160 $10,551 $10,711 
  As of September 30, 2019 and December 31, 2018
  Performance Enzymes Novel Biotherapeutics Total
Goodwill $2,463
 $778
 $3,241



December 31, 2019
31-60 Days61-90 Days91 days and overTotal over 31 daysCurrentTotal balance
Accounts receivable$185 $7 $65 $257 $8,806 $9,063 

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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 20182019 included in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, as filed with the SEC on March 1, 2019February 28, 2020 (the "Annual Report"“Annual Report”). This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include, but are not limited to, expectations regarding our strategy, business plans, financial performance and developments relating to our industry. These statements are often identified by the use of words such as may, will, expect, believe, anticipate, intend, could, should, estimate“may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or continue,“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 set forthdiscussed in Part II, Item 1A1A: “Risk Factors” of this Quarterly Report on Form 10-Q and Part I, Item 1A1A: “Risk Factors” of our Annual Report, as incorporated herein and referenced in Part II, Item 1A1A: “Risk Factors" of this Quarterly Report on Form 10-Q and elsewhere in this report. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q.


Business Overview
We discover, develop and sell 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 we have been continuously improving since our inception in 2002, to commercialize an increasing number of novel proteins, 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 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 our large 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 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.the Company.
36

We initially commercialized our CodeEvolver® protein engineering technology platform and products in the pharmaceuticals market, which remains oura primary business focus. Our customers, which include severalmany large global

pharmaceutical companies, use our technology, products and services in their manufacturing processes and process development. We have also licensed our proprietary CodeEvolver® protein engineering technology platform to global pharmaceutical companies so that they may in turn use this technology to engineer enzymes for their own businesses. Most recently, in May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver® Agreement”) with Novartis Pharma AG (“Novartis”). The Novartis CodeEvolver® Agreement allows Novartis to use our proprietary CodeEvolver® protein engineering platform technology in the field of human healthcare.
WeAs evidence of our strategy to extend our technology beyond pharmaceutical manufacturing, we have also used the technology to develop protein catalysts and industrial enzymes for use in the fine chemicals market. The fine chemicals market consistsa wider set of industrial markets. These target industries consist of several large market verticals, including food and food ingredients, animal feed, consumer care, flavors, fragrances and agricultural chemicals. In addition, we are 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. In December 2019, we entered into a license agreement to provide Roche Sequencing Solutions, Inc. ("Roche") with our first enzyme for this target market, the Company's EvoT4™ DNA ligase. In June 2020, we entered into a co-marketing and enzyme supply collaboration agreement with Alphazyme LLC for the production and co-marketing of enzymes for life science applications including, initially, high-fidelity DNA polymerase, T7 RNA polymerase and reverse transcriptase enzymes.
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 ourbusiness. Our first lead 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 (thethe "Nestlé Agreement")Agreement” with Nestec Ltd. ("Nestlé Health Science"),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,January 2020, we entered a development agreement with Nestlé Health Science to advance a lead candidate, CDX-7108, into preclinical development and early clinical studies. CDX-7108 is the lead candidate for a potential treatment for a gastro-intestinal disorder. In parallel, the original Strategic Collaboration Agreement was extended through December 2021 to support the discovery of therapeutic candidates for additional disorders. In March 2020, we entered into a strategic agreement (the "Porton Agreement") with Porton Pharma Solutions, Ltd. ("Porton") to license key elements of our CodeEvolver® protein engineering technology platform 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 for this application is a DNA ligase which we began marketing to customers in 2018.
In May 2019, we entered into a Platform Technology TransferStrategic Collaboration and License Agreement (the “Novartis CodeEvolver® (“Takeda Agreement”) with Novartis Pharma AGShire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited (“Novartis”Takeda”). The Novartis CodeEvolver® Agreement allows Novartis to use Codexis’ proprietary CodeEvolver® protein engineering platform technology in, for the fieldresearch and development of human healthcare.novel gene therapies for certain disease indications, including the treatment of lysosomal storage disorders and blood factor deficiencies.
Business Segments
We manage our business as two business segments: Performance Enzymes and Novel Biotherapeutics.

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, consumer care, 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 ourOur first lead program was for the potential treatment of PKUhyperphenylalaninemia (“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 collaborationglobal development, option and license agreement 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 resultsfor the potential treatment of
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PKU. The initiation of the trial triggered a $4.0 million milestone payment from the Phase 1a study in healthy volunteers with CDX-6114. In December 2018, Nestlé Health Science became obligated to pay us an additionalScience. The $1.0 million within 60 days aftermilestone payment that was triggered by the achievement of a milestoneformulation relating to formulation of CDX-6114.CDX-6114 was received in February 2019. 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, we earned a milestone and recognized $3.0 million in revenues in the first quarter of 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 was substantially completed in the thirdfourth quarter of 2019.
WeIn October 2017, we separately entered into a Strategic Collaboration Agreement with Nestlé Health Science 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 January 2020, we and Nestlé Health Science entered into a development agreement pursuant to which we and Nestlé Health Science are collaborating to advance a lead candidate targeting a gastro-intestinal disorder discovered through our Strategic Collaboration Agreement into pre-clinical and early clinical studies. The Strategic Collaboration Agreement was extended through December 2021.
In March 2020, we entered into the Takeda Agreement with Takeda pursuant to which we are collaborating to research and develop protein sequences for use in gene therapy products for certain disease indications in accordance with each applicable program plans for Fabry Disease, Pompe Disease, and an unnamed blood factor deficiency. In March 2020, we received a one-time, non-refundable cash payment of $8.5 million.
Using our CodeEvolver® protein engineering platform technology, we have also developed a pipeline of other biotherapeutic drug candidates, which are in preclinical development, and in which wedevelopment. We expect to continue to make additional investments in our pipeline with the aim of advancing additional product candidates targeting other therapeutic areas.
For further description of our business segments, see Note 13, "Segment, Geographical and Other Revenue Information,"Information" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Recent Financing ActivitiesBusiness Update Regarding COVID-19
We are subject to risks and uncertainties as a result of the current COVID-19 pandemic. The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the U.S. economy and other economies worldwide. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and may not be accurately predicted, including the duration and severity of the pandemic and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
To date, we and our collaboration partners have been able to continue to supply our enzymes to our customers worldwide. However, we are dependent on our manufacturing and logistics partners and consequently, disruptions in operations of our partners and customers may affect our ability to supply enzymes to our customers. Furthermore, our ability to provide future research and development ("R&D") services will continue to be impacted as a result of governmental orders and any disruptions in operations of our customers with whom we collaborate. We believe that these disruptions have had a negative impact on revenue for the nine months ending September 30, 2020, although we are unable to fully determine and quantify the extent to which this pandemic has affected the amount and timing of our total revenues. The extent to which the pandemic may impact our business operations and operating results will continue to remain highly dependent on future developments, which are uncertain and cannot be predicted with confidence.
In June 2019,the U.S., 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 in accordance with these Orders. In May 2020, we entered into a Securities Purchase Agreement with an affiliateinitiated limited R&D operations and have gradually ramped up operations such that we are currently utilizing the majority of Casdin Capital, LLC (“Casdin”) pursuantour normal R&D capacity. Additionally, we have resumed small scale manufacturing at our Redwood City pilot plant in May 2020.
Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or
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programs that we may undertake to address financial and operations challenges faced by our customers. The extent to which we issued and sold to Casdin 3,048,780 sharesthe COVID-19 pandemic may materially impact our financial condition, liquidity, or results of our common stock at a purchase price of $16.40 per share (the “Private Offering”). After deducting issuance costs of $0.1 million fromoperations in the Private Offering, our net proceeds were $49.9 million. See Note 10, "Capital Stock" to our unaudited condensed consolidated financial statements for further details.future is uncertain.

For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included in this Quarterly Report on Form 10-Q.

Results of Operations Overview
Revenues increasedTotal revenues decreased to $18.4 million for the third quarter of 2020 from $21.9 million for the third quarter of 2019, from $16.9 million in the third quarter of 2018, due to increasesdecreases in both research and development revenue and product revenue. revenues.
Product revenue for the third quarter of 2019 increased2020 decreased by $1.9$2.0 million to $10.4$8.4 million from $8.4 million in the third quarter of 2018 primarily due to higher customer demand for enzymes for both branded and generic products.
Research and development revenue increased by $3.0$10.4 million for the third quarter of 2019 due to $11.6variability of customer demand for both generic and branded products.
Research and development revenue decreased by $1.6 million for the third quarter of 2020 to $10.0 million from $8.5$11.6 million in the third quarter of 2018,2019, primarily due to lower revenues from Novartis Pharma AG under the Novartis CodeEvolver® Agreement and a prior year milestone payment from GSK under the GSK CodeEvolver® Agreement, partially offset by less revenue due to the prior year completionrecognition of services to Tate & Lyle and lower developmentlicense fees from Nestlé Health Science.Takeda under the Takeda Strategic Collaboration and License Agreement.
Product gross margins were 51%57% for the third quarter of 2019,2020, compared to 55%51% in the same period in 2018,third quarter of 2019, due to less favorableimproved product mix. Our profit margins are affected by many factors including theproduct pricing and costs of internal and third-party fixed and variable costs, including materials and supplies, labor, facilities and other overhead costs. Profit margin data are used as a management performance measure to provide additional information regarding our results of operations on a consolidated basis.
Research and development expense increased by $0.8$3.3 million, or 10%38%, to $8.7$12.0 million for the third quarter of 2019,2020, compared to the third quarter of 2018,2019, primarily due to an increase in costs associated with outside services relating to Chemistry, Manufacturing and Controls ("CMC") and regulatory expenses, higher headcount, and higher allocable expenses and increases in lab supplies, which were partially offset by lower outside services.expenses.
Selling, general and administrative expense increased by $0.5$0.9 million, or 7%12%, to $7.9$8.8 million for the third quarter of 2019,2020 compared to the third quarter of 2018,2019, primarily due to an increase in costs associated with headcount, consultants, facilities, outside services and headcount, which wereinsurance, partially offset by lower outside servicesrecruiting costs and lower allocable expenses.
Net incomeloss for the third quarter of 20192020 was $0.3$6.1 million, representing a net incomeloss of $0.01$0.10 per basic and diluted share. This compares to a net lossincome of $2.0$0.3 million, representing a net lossincome of $0.04$0.01 per basic and diluted share for the third quarter of 2018.2019. The increase in net incomeloss for the third quarter of 2019 over the same period of the prior year is primarily related to decreases in research and development and product revenues and higher research and development services and product revenue partially offset by higher operating expenses.
Cash and cash equivalents increaseddecreased by $39.1$19.0 million to $92.1$71.5 million as of September 30, 20192020 compared to $53.0$90.5 million as of December 31, 2018.2019. Net cash used in operating activities decreasedincreased to $15.0 million in the nine months ended September 30, 2020 compared to $8.9 million in the nine months ended September 30, 2019 compared to $13.4 million in the nine months ended September 30, 2018.2019. We believe that based on our current level of operations, our existing cash and cash equivalents, along with available borrowings under the Credit Facility, 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 that allows us to borrow up to $10.0 million under a term loan, and up to $5.0 million under a revolving credit facility with 80% of certain eligible accounts receivable as a borrowing base (the "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 January 2019,September 2020, we entered into a Fifth Amendment to the Credit Facility to allow for Codexis to obtain a letter of credit of up to $1.1 million to secure its obligations under the Lease with MetLife. In July 2019, we entered into a Sixth Amendment to the Credit Facility to increase permitted indebtedness to $0.7 million for financing insurance premiums in the ordinary course of business. In September 2019, we entered into a Seventhan Eighth Amendment to the Credit Facility whereby thewe may draw period on the term debt was extended to September 30, 2020. We may draw onand the Term DebtRevolving Line of Credit at any time prior to September 30, 2020,October 1, 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. As of September 30, 2019,2020, no amounts were borrowed under the Credit Facility and we were in compliance with the covenants for the Credit Facility. See Note 11, "Commitments and Contingencies,"Contingencies" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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Below is an overview of our results of operations by business segments:
Performance Enzymes
Revenues increaseddecreased by $8.3$7.4 million, or 68%36%, to $20.4$13.0 million for the three months ended September 30, 2019,third quarter of 2020, compared to the third quarter of 2018, primarily due to revenues fees from Novartis Pharma AG under the Novartis CodeEvolver® Agreement and a milestone payment from GSK under the GSK CodeEvolver® Agreement and an increase in product revenue with higher customer demand for enzymes for both generic and branded products.2019.
Product gross margins were 51%57% in the three months ended September 30, 2019,third quarter of 2020, compared to 55%51% in the corresponding period in 2018 due to less favorable product mix.

2019.
Research and development expense increaseddecreased by $0.6$0.1 million, or 12%2%, to $5.3$5.2 million for the third quarter of 2019,2020, compared to the third quarter of 2018,2019, primarily due to an increase in costs associated with higher headcount, higher allocableoutside services relating to Chemistry, Manufacturing and Controls ("CMC") and regulatory expenses and increases in lab supplies.higher headcount.
Selling, general and administrative expense increased by $0.2$0.6 million, or 9%31%, to $2.0$2.7 million for the third quarter of 2019,2020, compared to the third quarter of 2018, primarily due to an increase in costs associated with facilities and headcount, which were partially offset by lower outside services and allocable expenses.
Novel Biotherapeutics
Revenues decreased by $3.3 million, or 69%, to $1.5 million for the three months ended September 30, 2019, compared to the third quarter of 2018 primarily due to a decrease in CDX-6114 development service revenues.
Research and development expense increased by $0.2 million, or 5%, to $3.1 million for the third quarter of 2019, compared to the third quarter of 2018, primarily due to an increase in costs associated with higher headcount and lab supplies.
Selling, general and administrative expense increased by $0.5 million, or 318%, to $0.7 million for the third quarter of 2019, compared to the third quarter of 2018, primarily due to an increase in costs associated with headcount, facilitiespartially offset by lower allocable expenses.
Novel Biotherapeutics
Revenues increased by $3.9 million, or 263%, to $5.4 million for the third quarter of 2020, compared to the third quarter of 2019, primarily due to recognition of license and stock-based compensation.research and development fees from Takeda under the Takeda Strategic Collaboration and License Agreement and research and development revenue from Nestlé Health Science.
Research and development expense increased by $3.4 million, or 109%, to $6.4 million for the third quarter of 2020, compared to the third quarter of 2019, primarily due to an increase in costs associated with outside services relating to CMC regulatory expenses, higher outside services and higher headcount.
Selling, general and administrative expense decreased by $0.2 million, or 25%, to $0.5 million for the third quarter of 2020 compared to the third quarter of 2019, primarily due to lower allocable expense and outside services.
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 upfrontup-front 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, if any, of a limited set of products developed by GSK using our CodeEvolver® protein engineering platform technology.
We recognized no research and development revenue for the three and nine months ended September 30, 2020. In three and nine months ended September 30, 2019, we received notificationrecognized revenue of $2.0 million for the milestone payment from GSK that a milestone relating to the advancement of an enzyme developed by GSK using our CodeEvolver®protein engineering platform technology has been achieved, triggering a $2.0 million milestone payment to Codexis from GSK. We recognized revenue of $2.0 million for the milestone payment for the three and nine months ended September 30, 2019, respectively, compared to zero for the three and nine months ended September 30, 2018, respectively, as research and development revenue.technology.
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 an upfrontup-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 $1.0 million and $3.0 million for the three and nine months ended September 30, 2019, respectively, compared to $1.1 million and $3.0 million for the three and nine months ended September 30, 2018, 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") that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver® protein engineering technology platform. These potentialThe API payments are based on the quantity of API developed and manufactured by Merck and will be recognized as usage-based royalties. We recognized zero usage-based royalties in both the three and nine months ended September 30, 2019.
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In January 2019, we entered into an amendment to the Merck CodeEvolver® Agreement whereby we installedto install certain CodeEvolver®protein engineering technology upgrades into Merck’s platform license. Pursuant to the agreement, we will

license installation and maintain those upgrades for a multi-year term. The license installation was completed in 2019 and we recognized $0.9 million as license fee revenue accordingly in the three and nine months ended September 30, 2019, respectively, under the amendment. Pursuant to the agreement, Merck has options to future technology enhancements for a specified fee. As of September 30, 2020, Merck has not exercised its option for technology enhancements.
We recognized research and development revenues of $0.1$1.1 million and $1.0$2.1 million for the three and nine months ended September 30, 2020, respectively, compared to $1.1 million and $4.0 million for the three and nine months ended September 30, 2019, respectively, under Merck CodeEvolver® Agreement.
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 amendment.manufacture of Januvia®, its product based on the active ingredient sitagliptin. In December 2015, Merck exercised its option under the terms of the sitagliptin Catalyst Supply Agreement to extend the agreement for an additional five years through February 2022.
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 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 have determined that the variable pricing, which provides a discount based on the cumulative volume of sitagliptin catalyst purchased by Merck, provides Merck material rights and we are recognizing product revenues 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.
Pursuant to the terms of the Sitagliptin Catalyst Supply Agreement, Merck may purchase supply from us for a fee based on contractually stated prices. We recognized revenue of $3.2 million and $7.0 million for the three and nine months ended September 30, 2020, respectively, compared to $3.6 million and $11.4 million in the three and nine months ended September 30, 2019, respectively, in product revenue under this agreement. Revenues from Merck under the Sitagliptin Catalyst Supply Agreement were 17% and 15% of our total revenues for the three and nine months ended September 30, 2020, respectively, compared to 16% and 23% in the three and nine months ended September 30, 2019, respectively. As the active pharmaceutical ingredient sitagliptin approaches its generic phase, there is no guarantee that the revenues under this agreement will continue at these levels in future years.
As of September 30, 2020, we recorded revenue of $3.2 million from sitagliptin products that were recognized over time based on the progress of the manufacturing process. These products will be shipped within the six month period following the end of the quarter. The contract asset balances were partially offset by contract liabilities as they are under the same contract.
Global Development, Option and License Agreement, and Strategic Collaboration Agreement, and Development Agreement
In October 2017, we entered into a Global Development, Option and Licensethe Nestlé Agreement (the "Nestlé Agreement") with Societé des Produits Néstle S.A., formerly known as Nestec Ltd. ("Nestlé Health Science") and, solely for the purpose of the integration and the dispute resolution clauses of the Nestlé 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, a $4.0 million milestone payment after dosing the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114, and a $1.0 million milestone payment upon achievement of a milestone relating to formulation of CDX-6114. The $4.0 million milestone payment that was triggered by the initiation of the trial was received in September 2018 and the $1.0 million milestone payment that was triggered by the achievement of a formulation relating to CDX-6114 was received in February 2019. The upfront payment and the variable consideration relating to the progress payment of $4.0 million and milestone payment of $1.0 million are beingwere recognized over time as the development work is beingwas performed. Revenue is beingwas recognized using a single measure of progress that depictsdepicted our performance in transferring control of the services, which iswas based on the ratio of
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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 nominal research and development fees ofrevenue for the three months ended September 30, 2020 and nominal revenue for the nine months ended September 30, 2020 compared to $0.1 million and $1.8 million for the three and nine months ended September 30, 2019, respectively, compared to $3.7 million and $8.1 million for the three and nine months ended September 30, 2018, respectively, as research and development revenue. We had deferred revenue related to the development fees attributed to the milestone payment and upfront fees of $50 thousand at September 30, 2019 and $1.9 million at December 31, 2018.respectively.
In January 2019, we received notice from the FDAU.S. Food and Drug Administration (the "FDA") that it had completed its review of our INDinvestigational 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. The option payment of $3.0 million was recognized in the first quarter of 2019 as research and development fees.revenue. 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 was substantially completed in the secondfourth quarter of 2019. Other potentialWe are eligible to receive payments from Nestlé Health Science to us under the Nestlé 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 middle single digits to low double-digits, of net sales of product.
In addition to the Nestlé Agreement,October 2017, we and Nestlé Health Science concurrentlyalso entered into a Strategic Collaboration Agreement (the "Strategic“Strategic Collaboration Agreement"Agreement”) with Nestlé Health Science pursuant to which we and Nestlé Health Science will collaborateare 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. 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
In January 2020, we and Nestlé Health Science entered into a development agreement pursuant to which we and Nestlé Health Science are collaborating to advance a lead candidate, CDX-7108, targeting a gastro-intestinal disorder discovered through our Strategic Collaboration Agreement into pre-clinical and early clinical studies. The Strategic Collaboration Agreement was extended through December 2021.
Under the Strategic Collaboration Agreement and development agreement, we recognized research and development fees of $2.8 million and $6.1 million for the three and nine months ended September 30, 2020, respectively, compared to $1.4 million and $3.9 million for the three and nine months ended September 30, 2019, respectively, compared to $1.2 million and $2.4 million for the three and nine months ended September 30, 2018, respectively. We had deferred revenue of $25 thousand and $0.8 million at September 30, 2019 and December 31, 2018, 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. 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 andof the Porton Agreement, $1.5 million upon the first anniversary of the effective date of the agreement, and $1.0 million upon the second anniversary of the effective date of the agreement and we are eligible to receive $1.0 million on the third anniversary of the effective date of the agreement. We completed the technicaltechnical transfer in the fourth quarter of 2018. Revenue relating2018 and recognized $2.8 million in research and development revenue. We recognized revenue 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 nil and $1.1 million in the three and nine months ended September 30, 2020, respectively, and no revenue in the three and nine months ended September 30, 2019.
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 Pharma AG (“Novartis”). The Agreement allows Novartis to use Codexis’our proprietary

CodeEvolver® protein engineering platform technology in the field of human healthcare. Under the Novartis CodeEvolver® Agreement, we will transfer Codexis'are transferring our proprietary CodeEvolver® protein engineering platform technology to Novartis over approximately 2023 months starting with the date on which we commencecommenced the technology transfer (the “Technology Transfer Period”). As a part of this technology transfer, our company will providethe Company provided to Novartis Codexis’our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms. In addition, teams of Codexisthe Company and Novartis scientists will participateparticipated in technology training sessions and collaborative research projects at Codexis’our laboratories in Redwood City, California and at a designated Novartis laboratory in Basel, Switzerland. Upon completion of technology transfer, Novartis will have the CodeEvolver® protein engineering platform technology installed at its designated laboratory.
Pursuant to the agreement, we received an upfront paymentpayment of $5$5.0 million shortly after the effective date of the Novartis CodeEvolver®Agreement. In the second quarter of 2020, we completed the second technology milestone transfer under the agreement and
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became eligible to receive a milestone payment of $4.0 million, which we subsequently received in July 2020. We are entitledeligible to receive an additional $4$5.0 million subject to satisfactory completion of the second technology transfer milestone and an additional $5 million uponupon satisfactory completion of the third technology transfer milestone. In consideration for the continued disclosure and license of improvements to the Codexisour technology and materials during a multi-year period that begins on the conclusion of the Technology Transfer Period (“Improvements Term”), Novartis will pay Codexisus annual payments which amount to an additional $8$8.0 million. CodexisThe 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 begins on the conclusion of the Technology Transfer Period and ends on the expiration date of the last to expire licensed patent. These product-related usage payments, if any, will be paid by Novartis to Codexisthe Company for each quarter that Novartis manufactures API using a CodeEvolver®-developed enzyme. The usage payments will be based on the total volume of API produced using the CodeEvolver®-developed enzyme. These usage payments can begin in the clinical stage and will extend throughout the commercial life of each API. Revenue for the combined initial license and technology transfer performance obligation, which is expected to occur over twentytwenty-three months, 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 the performance obligation relating to the combined initial license and technology transfer. Revenue allocated to future improvements will be recognized during the Improvement Term. We recognized $0.9 million and $4.1 million in research and development revenue for the three and nine months ended September 30, 2020, respectively, and $3.8 million in revenue for the three and nine months ended September 30, 2019, respectively, from the Novartis CodeEvolver®Agreement. As
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 will collaborate to research and develop protein sequences for use in gene therapy products for certain diseases. On execution of the Takeda Agreement, we received an up-front non-refundable cash payment of $8.5 million. Revenue 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 $2.6 million and $10.6 million in the three and nine months ended September 30, 2019,2020, respectively.
Other potential payments from Takeda include (i) reimbursement of research and development fees and pre-clinical approval milestones for initial programs to earn $18.3 million, (ii) development and commercialization-based milestones, per target gene, of up to $100.0 million, the modulation of which leads to treatment of certain diseases by the applicable product, and (iii) tiered royalties, at percentages ranging from the middle-single digit to low single-digit of sales of the applicable product.
Master Collaboration and Research Agreement and Stock Purchase Agreement
In June 2020, we entered into a Stock Purchase Agreement with Molecular Assemblies, Inc. (“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 transaction, our chief executive officer, John Nicols, also joined MAI’s board of directors. At the same time, we entered into a Master Collaboration and Research Agreement (the “MAI Agreement”) with MAI to engineer DNA polymerase enzymes to deliver differentiated and cost-effective solutions for the enzymatic synthesis of DNA. Under the MAI Agreement and its related statement of work (“SOW”), we will apply our CodeEvolver® protein engineering platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis. Based on these services, the Company is eligible to earn additional shares of MAI's Series A preferred stock. MAI will combine its advanced chemistries with our enzymes to drive the process to commercialization. Under the MAI Agreement and its associated SOW, we will engage in research and development activities to engineer DNA polymerase enzymes for the enzymatic synthesis of DNA in exchange for monthly fees in the form of shares of Series A preferred stock in MAI. We are eligible to earn such non-monetary payments over ten to thirteen 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 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. We did not receive any shares of MAI's Series A preferred stock based on services provided in the nine months ended September 30, 2020. 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 on meeting a milestone of $5.0 million in aggregate commercial sales by the Company 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
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timelines specified in the SOW. In addition, we and MAI have agreed pursuant to the MAI Agreement 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) that we would become the exclusive manufacturer of these enzymes for MAI, its affiliates and licensees.
We recognized $0.5 million in research and development revenue in the three and nine months ended September 30, 2020 from transactions with MAI. At September 30, 2020, we had deferred revenue$0.5 million of $1.2 millionfinancial assets due from MAI. Payment for the Novartis CodeEvolverservices was subsequently received in the form of additional Series A preferred stock of MAI in October.
® Agreement.

Results of Operations
The following table shows the amounts from our unaudited condensed consolidated statements of operations for the periods presented (in thousands):
 Three months ended September 30,ChangeNine months ended September 30,Change
 20202019$%20202019$%
Revenues:
Product revenue$8,401 $10,351 $(1,950)(19)%$18,005 $24,588 $(6,583)(27)%
Research and development revenue9,984 11,555 (1,571)(14)%30,018 25,220 4,798 19%
Total revenues18,385 21,906 (3,521)(16)%48,023 49,808 (1,785)(4)%
Costs and operating expenses:
Cost of product revenue3,642 5,067 (1,425)(28)%7,882 12,230 (4,348)(36)%
Research and development12,010 8,711 3,299 38%33,830 25,000 8,830 35%
Selling, general and administrative8,797 7,869 928 12%26,307 24,180 2,127 9%
Total costs and operating expenses24,449 21,647 2,802 13%68,019 61,410 6,609 11%
Income (loss) from operations(6,064)259 (6,323)(2,441)%(19,996)(11,602)(8,394)(72)%
Interest income39 480 (441)(92)%362 929 (567)(61)%
Other expenses, net(50)(403)353 88%(125)(615)490 80%
Income (loss) before income taxes(6,075)336 (6,411)(1,908)%(19,759)(11,288)(8,471)(75)%
Provision for (benefit from) income taxes19 (7)26 371%331 12 319 2,658%
Net income (loss)$(6,094)$343 $(6,437)(1,877)%$(20,090)$(11,300)$(8,790)(78)%
 Three months ended September 30, Change Nine months ended September 30, Change
 2019 2018 $ % 2019 2018 $ %
Revenues:               
Product revenue$10,351
 $8,405
 $1,946
 23% $24,588
 $18,291
 $6,297
 34 %
Research and development revenue11,555
 8,541
 3,014
 35% 25,220
 26,235
 (1,015) (4)%
Total revenues21,906
 16,946
 4,960
 29% 49,808
 44,526
 5,282
 12 %
Costs and operating expenses:               
Cost of product revenue5,067
 3,791
 1,276
 34% 12,230
 10,228
 2,002
 20 %
Research and development8,711
 7,917
 794
 10% 25,000
 22,464
 2,536
 11 %
Selling, general and administrative7,869
 7,344
 525
 7% 24,180
 22,485
 1,695
 8 %
Total costs and operating expenses21,647
 19,052
 2,595
 14% 61,410
 55,177
 6,233
 11 %
Income (loss) from operations259
 (2,106) 2,365
 112% (11,602) (10,651) (951) (9)%
Interest income480
 199
 281
 141% 929
 444
 485
 109 %
Other expenses, net(403) (80) 323
 404% (615) (221) 394
 178 %
Income (loss) before income taxes336
 (1,987) 2,323
 117% (11,288) (10,428) (860) (8)%
Provision for (benefit from) income taxes(7) 1
 (8) (800)% 12
 (11) 23
 209 %
Net Income (loss)$343
 $(1,988) $2,331
 117% $(11,300) $(10,417) $(883) (8)%

Revenues
Our revenues are comprised ofcomprise product revenue and research and development revenue as follows:
•
•Product revenue consists of sales of protein catalysts, pharmaceutical intermediates, and Codex® biocatalyst panels and kits.
•® Biocatalyst Panels and Kits.
Research and development revenue includesinclude license, technology access and exclusivity fees, research services fees, milestone payments, royalties, optimization and screening fees.
The following table shows the amounts of our product revenue and research and development revenue from our unaudited condensed consolidated statements of operations for the periods presented (in thousands):
Three months ended September 30,ChangeNine months ended September 30,Change
(In Thousands)20202019$%20202019$%
Product revenue$8,401 $10,351 $(1,950)(19)%$18,005 $24,588 $(6,583)(27)%
Research and development revenue9,984 11,555 (1,571)(14)%30,018 25,220 4,798 19%
Total revenues$18,385 $21,906 $(3,521)(16)%$48,023 $49,808 $(1,785)(4)%

44
 Three months ended September 30, Change Nine months ended September 30, Change
(In Thousands)2019 2018 $ % 2019 2018 $ %
Product revenue$10,351
 $8,405
 $1,946
 23% $24,588
 $18,291
 $6,297
 34 %
Research and development revenue11,555
 8,541
 3,014
 35% 25,220
 26,235
 (1,015) (4)%
Total revenues$21,906
 $16,946
 $4,960
 29% $49,808
 $44,526
 $5,282
 12%

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 14 months from the date on which the order is placed. However, a majority of the 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.

Total revenues increaseddecreased by $5.0$3.5 million in the three months ended September 30, 20192020 compared to the same period in 2018, primarily2019 due to increases in bothlower research and development revenue and lower product revenue. Total revenues increaseddecreased by $5.3$1.8 million in the nine months ended September 30, 20192020 compared to the same period in 2018, primarily2019 due to an increase inlower product revenue offset by a decrease inhigher research and development revenue.
Product revenue increaseddecreased by $1.9$2.0 million and $6.3$6.6 million in the three and nine months ended September 30, 2019,2020, respectively, compared to the same periods in 2018,2019, primarily due to highervariability of customer demand for enzymes for bothgeneric and branded and generic products.
Research and development revenue increaseddecreased by $3.0$1.6 million in the three months ended September 30, 2019,2020 compared to the same period in 2018,2019, primarily due to recognition of revenuelower revenues from Novartis Pharma AG under the Novartis CodeEvolver® Agreement and a prior year milestone payment from GSK under the GSK CodeEvolver® Agreement, partially offset by lesslicense fees and research and development revenue due tofrom Takeda under the prior year completion of services to Tate & Lyle and lower development fees from Nestlé Health Science.
Takeda Agreement. Research and development revenue decreasedincreased by $1.0$4.8 million in the nine months ended September 30, 20192020 compared to the same period in 20182019, primarily due to lowerthe recognition of license fees and research and development revenue from Tate & Lyle resultingTakeda under the Takeda Strategic Collaboration and License Agreement, and recognition of license fees from thePorton, partially offset by lower revenue and prior year completion of the development work for their sweetener product and lower development feesfunctional license fee revenue from Nestlé Health Science, due to the completion of development services for CDX-6114 in the current year. The recognition oflower revenue from a prior year milestone payment from GSK under the GSK milestone payment and development fees from Novartis Pharma AG partially offset the decrease in research and development revenue.

CodeEvolver® Agreement.
Cost and Operating Expenses
Our cost and operating expenses are comprised ofcomprise cost of product revenue, research and development expense, and selling, general and administrative expense. The following table shows the amounts of our cost of product revenue, research and development expense, and selling, general and administrative expense from our unaudited condensed consolidated statements of operations for the periods presented (in thousands):

Three months ended September 30,ChangeNine months ended September 30,Change
(In Thousands)20202019$%20202019$%
Cost of product revenue$3,642 $5,067 $(1,425)(28)%7,882 12,230 $(4,348)(36)%
Research and development12,010 8,711 3,299 38%33,830 25,000 8,830 35%
Selling, general and administrative8,797 7,869 928 12%26,307 24,180 2,127 9%
Total costs and operating expenses$24,449 $21,647 $2,802 13%$68,019 $61,410 $6,609 11%
45

 Three months ended September 30, Change Nine months ended September 30, Change
(In Thousands)2019 2018 $ % 2019 2018 $ %
Cost of product revenue$5,067
 $3,791
 $1,276
 34% $12,230
 $10,228
 $2,002
 20%
Research and development8,711
 7,917
 794
 10% 25,000
 22,464
 2,536
 11%
Selling, general and administrative7,869
 7,344
 525
 7% 24,180
 22,485
 1,695
 8%
Total costs and operating expenses$21,647
 $19,052
 $2,595
 14% $61,410
 $55,177
 $6,233
 11%

Cost of Product Revenue and Product Gross Margin
Our revenues from product revenuerevenues are derived entirely from our Performance Enzymes segment. Revenues from the Novel Biotherapeutics segment are from collaborative research and development activities and not from product revenue.
The following table shows the amounts of our product revenue, cost of product revenue, product gross profit and product gross margin from our unaudited condensed consolidated statements of operations for the periods presented (in thousands):
Three months ended September 30,ChangeNine months ended September 30,Change
(In Thousands)20202019$%20202019$%
Product revenue$8,401$10,351$(1,950)(19)%$18,005$24,588$(6,583)(27)%
Cost of product revenue3,6425,067(1,425)(28)%7,88212,230(4,348)(36)%
Product gross profit$4,759$5,284$(525)(10)%$10,123$12,358$(2,235)(18)%
Product gross margin (%)57 %51 %56 %50 %
 Three months ended September 30, Change Nine months ended September 30, Change
(In Thousands)2019 2018 $ % 2019 2018 $ %
Product revenue$10,351
 $8,405
 $1,946
 23% $24,588
 $18,291
 $6,297
 34%
Cost of product revenue5,067
 3,791
 1,276
 34% 12,230
 10,228
 2,002
 20%
Product gross profit$5,284

$4,614

$670

15%
$12,358
 $8,063
 $4,295
 53%
Product gross margin (%)51%
55%




50%
44%






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.
Product gross margins were 51%57% and 50%56% in the three and nine months ended September 30, 2019,2020, respectively, compared to 55%51% and 44%50% and in the corresponding periods in 20182019 due to variations in 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, and depreciation of facilities and laboratory equipment, and (iii) external costs. Research and development expenses are expensed when incurred.
Research and development expenses increased by $0.8$3.3 million, or 10%38%, during the three months ended September 30, 20192020 and increased by $2.5$8.8 million, or 11%35%, duringin the nine months ended September 30, 2019,2020, compared to the same periodperiods in 2018,2019. The increase in research and development expenses was primarily due to an increase in costs associated with outside services relating to CMC and regulatory expenses, higher headcount and higher allocable expenses, and increases in lab supplies, which were partially offset by lower lab supplies and outside services and stock compensation expense.consultants.

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 costs), marketing costs, building lease costs, and depreciation and amortization expense.
Selling, general and administrative expenses increased by $0.5$0.9 million, or 7%12%, duringin the three months ended September 30, 20192020 and $1.7by $2.1 million, or 8%9%, duringin the nine months ended September 30, 2019,2020 compared to the same periodperiods in 2018,2019. The increase in selling, general and administrative expense was primarily due to an increase in costs associated with higher facilities and headcount, legal and higher facility expense, which wereaccounting fees, outside services, and licensed technology partially offset by lower outside services, allocable expenses, lower travel expenses and stock compensation expense.lower recruiting costs.

46

Interest Income and Other Expense

Three months ended September 30, Change Nine months ended September 30, ChangeThree months ended September 30,ChangeNine months ended September 30,Change
(In Thousands)2019 2018 $ % 2019 2018 $ %(In Thousands)20202019$%20202019$%
Interest income$480
 $199
 $281
 141% $929
 $444
 $485
 109%Interest income$39 $480 $(441)(92)%$362 $929 $(567)(61)%
Other expense, net(403) (80) 323
 404% (615) (221) 394
 178%
Total other income$77
 $119
 $(42) (35)% $314
 $223
 $91
 41%
Other expenses, netOther expenses, net(50)(403)353 88%(125)(615)490 80%
Total other income, netTotal other income, net$(11)$77 $(88)(114)%$237 $314 $(77)(25)%

Interest Income
Interest income increaseddecreased by $0.3$0.4 million and $0.5$0.6 million forin the three and nine months ended September 30, 2019,2020, respectively, compared to the same periods in 2018 primarily2019 due to higherlower average interest rates on higher levels ofdeclining average cash and cash equivalents.balances.

Other ExpenseExpenses, net
Other expense increasedexpenses decreased by $0.3$0.4 million and $0.4$0.5 million for thein three and nine months ended September 30, 2019,2020, respectively, compared to the same periodsperiod in 2018, primarily2019 due to prior year write-down of $0.4 million write-down of our investment in CO2 Solutions partially offset by gains fromand fluctuations in foreign currency.

Provision for and Benefit from Income Taxes
We recognized an income tax provision of $19 thousand and $0.3 million in the three and nine months ended September 30, 2020, respectively. We recognized an income tax benefit of $7 thousand and an income tax provision of $12 thousand forin the three and nine months ended September 30, 2019, respectively. We recognized anThe increase in income tax provision of $1 thousand andwas primarily due to mandatory income tax benefit of $11 thousand for the threewithheld by a foreign taxing authority and nine months ended September 30, 2018, respectively. The decrease in incomeadditional interest recorded on uncertain tax expense was due to a decrease in incomepositions from our foreign operations. 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.previous years.

Net Income (loss)(Loss)
Net incomeThe net loss for the third quarter of 20192020 was $6.1 million, representing a net loss of $0.10 per basic and diluted share. This compares to a net income of $0.3 million, representing a net income of $0.01 per basic and diluted share. This compares to a net loss of $2.0 million, representing a net loss of $0.04 per basic and diluted share for the third quarter of 2018. The increase in net income for the three months ended September 30, 2019 compared to the same period of the prior year is primarily related to higher research and development services and product revenue, which were partially offset by higher operating expenses.
2019. For the nine months ended September 30, 2019,2020, the net loss was $11.3$20.1 million, representing a net loss of $0.20$0.34 per basic and diluted share. This compares to a net loss of $10.4$11.3 million, representing a net loss of $0.20 per basic and diluted share for the nine months ended September 30, 2018.2019. The increase in net loss for the three and nine months ended September 30, 20192020 compared to the same period of the prior year iswas primarily related to higher operating expenses and the absence of research and development services for the project for Tate & Lyle which was completedlower in the prior year.revenues.

47

Results of Operations by Segment (in thousands, except percentages)
Revenue by segment
Three months ended September 30,Change
20202019Performance EnzymesNovel Biotherapeutics
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal$%$%
Revenues:
Product revenue$8,401 $— $8,401 $10,351 $— $10,351 $(1,950)(19)%$— — %
Research and development revenue4,604 5,380 9,984 10,073 1,482 11,555 (5,469)(54)%3,898 263 %
Total revenues$13,005 $5,380 $18,385 $20,424 $1,482 $21,906 $(7,419)(36)%$3,898 263 %
 Three months ended September 30, Change
 2019 2018 Performance Enzymes Novel Biotherapeutics
 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total $ % $ %
Revenues:                   
Product revenue$10,351
 $—
 $10,351
 $8,405
 $—
 $8,405
 $1,946
 23% $—
 — %
Research and development revenue10,073
 1,482
 11,555
 3,720
 4,821
 8,541
 6,353
 171% (3,339) (69)%
Total revenues$20,424

$1,482
 $21,906
 $12,125
 $4,821
 $16,946
 $8,299
 68% $(3,339) (69)%


Nine months ended September 30,Change
20202019Performance EnzymesNovel Biotherapeutics
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal$%$%
Revenues:
Product revenue$18,005 $— $18,005 $24,588 $— $24,588 $(6,583)(27)%$— — %
Research and development revenue13,380 16,638 30,018 16,512 8,708 25,220 (3,132)(19)%7,930 91 %
Total revenues$31,385 $16,638 $48,023 $41,100 $8,708 $49,808 $(9,715)(24)%$7,930 91 %
 Nine Months Ended September 30, Change
 2019 2018 Performance Enzymes Novel Biotherapeutics
 Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total $ % $ %
Revenues:                   
Product revenue$24,588
 $—
 $24,588
 $18,291
 $—
 $18,291
 $6,297
 34% $—
 — %
Research and development revenue16,512
 8,708
 25,220
 15,728
 10,507
 26,235
 784
 5% (1,799) (17)%
Total revenues$41,100
 $8,708
 $49,808
 $34,019
 $10,507
 $44,526
 $7,081
 21% $(1,799) (17)%

Revenues from the Performance Enzymes segment increaseddecreased by $8.3$7.4 million, or 68%36%, to $20.4$13.0 million for the three months ended September 30, 2019,2020, compared to $12.1the three months ended September 30, 2019. Revenues decreased by $9.7 million, or 24%, to $31.4 million for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to lower revenues from Novartis under the Novartis CodeEvolver® Agreement and a prior year milestone payment from GSK under the GSK CodeEvolver® Agreement, partially offset by research and development revenue from Takeda under the Takeda Agreement.
Revenues from the Novel Biotherapeutics segment increased by $3.9 million, or 263%, to $5.4 million for the three months ended September 30, 2018.2020, compared to the three months ended September 30, 2019. Revenues from the Performance Enzymes segment increased by $7.1$7.9 million, or 21%91%, to $41.1$16.6 million for the nine months ended September 30, 2019,2020, compared to $34.0 million for the nine months ended September 30, 2018. The increase in revenue is primarily due to $3.8 million of revenues from Novartis Pharma AG under the Novartis CodeEvolver® Agreement, $2.0 million of milestone payment from GSK under the GSK CodeEvolver® Agreement and an increase in product revenue with higher customer demand

for enzymes for both generic and branded products partially offset by the absence of revenue from Tate & Lyle from the prior year period.
Revenues from the Novel Biotherapeutics segment decreased by $3.3 million, or 69%, to $1.5 million for the three months ended September 30, 2019, compared to $4.8 million for the three months ended September 30, 2018. Revenues from the Novel Biotherapeutics segment of $8.7 million decreased by $1.8 million, or 17% for the nine months ended September 30, 2019, compared to $10.5 million for the nine months ended September 30, 2018. The decrease in revenue is primarily due to recognition of license and research and development fees from Takeda under the Takeda Strategic Collaboration and License Agreement, partially offset by a decrease in revenue recognition of aprior year functional license granted tofee revenue from Nestlé
48

Health Science for CDX-6114 for the treatment of PKU. Revenues from the Novel Biotherapeutics segment are derived from research and development revenue relating to the development of our CDX-6114 product candidate in collaboration with Nestlé Health Science, as set forth in the Nestlé Agreement.Science.

Cost and Operating Expenses by Segment
Three months ended September 30, ChangeThree months ended September 30,Change
2019 2018 Performance Enzymes Novel Biotherapeutics20202019Performance EnzymesNovel Biotherapeutics
Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total $ % $ %Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal$%$%
Cost of product revenue$5,067
 $—
 $5,067
 $3,791
 $—
 $3,791
 $1,276
 34% $—
 —%Cost of product revenue$3,642 $— $3,642 $5,067 $— $5,067 $(1,425)(28)%$— — %
Research and development(1)
5,313
 3,080
 8,393
 4,758
 2,920
 7,678
 555
 12% 160
 5%
Research and development (1)
5,184 6,433 11,617 5,313 3,080 8,393 (129)(2)%3,353 109 %
Selling, general and administrative(1)
2,037
 690
 2,727
 1,870
 165
 2,035
 167
 9% 525
 318%
Selling, general and administrative (1)
2,675 515 3,190 2,037 690 2,727 638 31 %(175)(25)%
Total segment costs and operating expenses$12,417
 $3,770
 16,187
 $10,419
 $3,085
 13,504
 $1,998
 19% $685
 22%Total segment costs and operating expenses$11,501 $6,948 18,449 $12,417 $3,770 16,187 $(916)(7)%$3,178 84 %
Corporate costs    4,989
     5,239
        Corporate costs5,472 4,989 
Depreciation and amortization    471
     309
        Depreciation and amortization528 471 
Total costs and operating expenses    $21,647
     $19,052
        Total costs and operating expenses$24,449 $21,647 

(1)Research and development expenses and Selling, general and administrative expenses exclude depreciation and amortization of finance leases.

Nine months ended September 30, ChangeNine months ended September 30,Change
2019 2018 Performance Enzymes Novel Biotherapeutics20202019Performance EnzymesNovel Biotherapeutics
Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total $ % $ %Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal$%$%
Cost of product revenue$12,230
 $—
 $12,230
 $10,228
 $—
 $10,228
 $2,002
 20% $—
 —%Cost of product revenue$7,882 $— $7,882 $12,230 $— $12,230 $(4,348)(36)%$— 0 %
Research and development(1)
14,889
 9,252
 24,141
 14,548
 7,294
 21,842
 341
 2% 1,958
 27%
Research and development (1)
15,877 16,848 32,725 14,889 9,252 24,141 988 7 %7,596 82 %
Selling, general and administrative(1)
6,499
 1,768
 8,267
 5,695
 615
 6,310
 804
 14% 1,153
 187%
Selling, general and administrative (1)
7,395 1,728 9,123 6,499 1,768 8,267 896 14 %(40)(2)%
Total segment costs and operating expenses$33,618
 $11,020
 44,638
 $30,471
 $7,909
 38,380
 $3,147
 10% $3,111
 39%Total segment costs and operating expenses$31,154 $18,576 49,730 $33,618 $11,020 44,638 $(2,464)(7)%$7,556 69 %
Corporate costs    15,499
     15,985
        Corporate costs16,763 15,499 
Depreciation and amortization    1,273
     812
        Depreciation and amortization1,526 1,273 
Total costs and operating expenses    $61,410
     $55,177
        Total costs and operating expenses$68,019 $61,410 

(1)Research and development expenses and Selling, general and administrative expenses exclude depreciation and amortization of finance leases.

For a discussion of product cost of revenue, see "Results of Operations".
Research and development expense in the Performance Enzymes segment increaseddecreased by $0.6$0.1 million, or 12%2%, to $5.3$5.2 million in the third quarter of 2019,2020, compared to the third quarter of 2018.2019. Research and development expense in the Performance Enzymes segment increased by $0.3$1.0 million, or 2%7%, to $14.9$15.9 million in the nine months ended September 30, 2019,2020 compared to the corresponding period in 2018.2019. The increase was primarily due to an increase in costs associated with higher headcount, higher allocableoutside services relating to Chemistry, Manufacturing and Controls ("CMC") and regulatory expenses and increases in lab supplies.higher headcount.
49

Selling, general and administrative expense in the Performance Enzymes segment increased by $0.2$0.6 million, or 9%31%, to $2.0$2.7 million in the third quarter of 2019,2020, compared to the third quarter of 2018.2019. Selling, general and administrative expense in the Performance Enzymes segment increased by $0.8$0.9 million, or 14%, to $6.5$7.4 million in the nine months ended September 30, 2019,2020, compared to the corresponding period in 2018.2019. The increase was primarily due to an increase in costs associated with facilities and headcount, which were partially offset by lower outside services and allocable expenses.
Research and development expense in the Novel Biotherapeutics segment increased by $0.2$3.4 million, or 5%109%, to $3.1$6.4 million in the third quarter of 2019,2020, compared to the third quarter of 2018.2019. Research and development expense in the Novel Biotherapeutics segment increased by $2.0$7.6 million, or 27%82%, to $9.3$16.8 million in the nine months ended September 30, 2019,2020, compared to the same corresponding period in 2018.2019. The increase was primarily due to an increase in costs associated with outside services relating to CMC regulatory expenses, higher outside services and higher headcount.
Selling, general and administrative expense in the Novel Biotherapeutics segment increaseddecreased by $0.5$0.2 million, or 318%25%, to $0.7$0.5 million in the third quarter of 2019,2020, compared to the third quarter of 2018.2019. Selling, general and administrative expense in the Novel Biotherapeutics segment increaseddecreased by $1.2 million,$40 thousand, or 187%2%, to $1.8$1.7 million in the nine months ended September 30, 2019,2020, compared to the corresponding period in 2018.2019. The increasedecrease was primarily due to an increase in costs associated with headcount, facilitieslower allocable expense and stock-based compensation.outside services.

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 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 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.
The following tables summarize ouris a summary of cash and cash equivalents balances and working capital as of September 30, 20192020 and December 31, 2018, as well as our statements of cash flows for the nine months ended September 30, 2019 and 2018:(in thousands):
(In Thousands) September 30, 2019 December 31, 2018
Cash and cash equivalents $92,143
 $53,039
Working capital $95,007
 $50,085
  Nine months ended September 30,
(In Thousands) 2019 2018
Net cash used in operating activities $(8,899) $(13,374)
Net cash used in investing activities (3,251) (2,073)
Net cash provided by financing activities 51,539
 38,318
Net increase in cash, cash equivalents and restricted cash $39,389
 $22,871
September 30, 2020December 31, 2019
Cash and cash equivalents$71,516 $90,498 
Working capital$82,437 $98,817 
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 collaborationscollaboration with new customers. Our cash flows from operations will continue to be affected principally by sales and gross margins from licensing our technology to major pharmaceutical companies, product revenue 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 licensing our technology to major pharmaceutical companies, and our customers for purchases of products and/or collaborative research and development services. Our largest uses of cash from operating activities are for employee-related expenditures, rent payments, inventory purchases to support our product revenue and non-payroll research and development costs.
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.
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 and commercial activities and is uncertain at this time. In 2016, we completed the final phase in the transfer of CodeEvolver® technology to Merck under the Merck CodeEvolver® Agreement. Following the completion of the technology transfer to Merck, 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, 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 Pharma AG. The Novartis CodeEvolver® Agreement allows Novartis to use the Company's proprietary CodeEvolver® protein engineering platform technology in the field of human
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healthcare. Pursuant to the agreement, we received an upfront payment of $5.0 million shortly after the effective date of the Novartis CodeEvolver® Agreement. In the second quarter of 2020, we completed the second technology transfer milestone under the agreement and became eligible to receive a milestone payment of $4.0 million, which we subsequently received in July 2020. We are eligible to receive an additional $5.0 million upon satisfactory completion of the third technology transfer milestone. In consideration for the continued disclosure and license of improvements to our technology and materials during a multi-year period that begins on the conclusion of the Technology Transfer Period, Novartis will pay us annual payments which amount to an additional $8.0 million.
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 and the $1.0 million milestone payment that was triggered by the achievement of a formulation relating to CDX-6114 was received in February 2019. 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. The option payment of $3.0 million was recognized in the first quarter of 2019 as research and development revenue. Upon exercising its option, Nestlé Health Science assumed all responsibilities for future clinical development and commercialization of CDX-6114 was substantially completed in the fourth quarter of 2019. Other potential payments from Nestlé Health Science to us under the Nestlé Agreement 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 middle single digits to low double-digits, of net sales of Product.
In March 2020, we entered into a Strategic Collaboration and License Agreement with Takeda under which we received an up-front non-refundable cash payment of $8.5 million in March 2020. Other potential payments from Takeda include (i) of research and development fees and pre-clinical approval milestones for initial programs of up to $18.3 million, (ii) development and commercialization-based milestones, per target gene, of up to $100.0 million, the modulation of which leads to treatment of certain diseases by the applicable product, and (iii) tiered royalties, at percentages ranging from the middle-single digit to low single-digit of sales of the applicable product.
In December 2018, we filed an automatic shelf registration statement on Form S-3 (the “2018 Registration Statement”) with the SEC, under which we may sell common stock, preferred stock, debt securities, warrants, purchase contract and/or units, which immediately became effective upon filing. Subsequently in 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 (the “Private Offering”). After deducting issuance costs of $0.1 million from the Private Offering, our net proceeds were $49.9 million.
In June 2017, we entered into the Credit Facility, which consists of term debt for loans that allow 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 2020, we entered into an Eighth Amendment to the Credit Facility whereby we may draw on the Term Debt and the Revolving Line of Credit at any time prior to the October 1, 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. Draws on the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property. On October 1, 2024, any loans for Term Debt mature and the Revolving Line of Credit terminates. No amounts were drawn down under the credit facility as of September 30, 2020. At September 30, 2020, we believe we were in compliance with the covenants for the Credit Facility. 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. For additional information about our contractual obligations, see Note 11, "Commitments and Contingencies" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
We are actively collaboratingsubject to risks and uncertainties as a result of the current COVID-19 pandemic. The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the U.S. economy and other economies worldwide. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and may not be accurately predicted, including the duration and severity of the pandemic and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. To date, we and our collaboration partners have been able to continue to supply our enzymes to our customers worldwide. However, we are dependent on our manufacturing and logistics partners and consequently, disruptions in operations of our partners and customers may affect our ability to supply enzymes to our customers. Furthermore, our ability to provide future
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research and development ("R&D") services will continue to be impacted as a result of governmental orders and any disruptions in operations of our customers with new and existing customers in the pharmaceutical and food industries.whom we collaborate. We believe that these disruptions have had a negative impact on revenue for the nine months ending September 30, 2020, although we can utilizeare unable to fully determine and quantify the extent to which this pandemic has affected the amount and timing of our current productstotal revenues. The extent to which the pandemic may impact our business operations and services,operating results will continue to remain highly dependent on future developments, which are uncertain and develop new productscannot be predicted with confidence. In the U.S., the impact of COVID-19, including governmental orders ("Orders") governing the operation of businesses during the pandemic, had caused the temporary closure of our Redwood City, California facilities from mid-March 2020 through the end of April and services,has disrupted our R&D operations. In May 2020, we initiated limited R&D operations and have gradually ramped up operations such that we are currently operating utilizing the majority of our normal R&D capacity. Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that we may undertake to increaseaddress financial and operations challenges faced by our revenues and gross marginscustomers. While we believe we have adequate cash on hand to manage through the disruptions being caused by the COVID-19 pandemic, the extent to which the pandemic may materially impact our financial condition, liquidity, or results of operations in the future periods.is uncertain. For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included in this Quarterly Report on Form 10-Q.
As of September 30, 2019,2020, we had cash and cash equivalents of $92.1$71.5 million and $15.0 million available to borrow under the 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 theour Credit Facility. In addition, in June 2019,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 sold 3,048,780 shares of common stock at a price per share of $16.40may make or develop in the private placement resulting in net proceedsfuture, our spending on new market opportunities, and the potential costs for the filing, prosecution, enforcement and defense of approximately $49.9 million after deducting related issuance costs. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for additional information.patent claims, if necessary.
We believe that based on our current level of operations, our existing cash and cash equivalents, along with available borrowings under the Credit Facility, 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.change, or if we are unable to execute on our current operating plan. 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. 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. If future financings involve the issuance of equity securities, our

existing stockholders would suffer dilution. If we raise debt financing or enter into additional 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 table is our statements of cash flows for nine months ended September 30, 2020 and 2019 (in thousands):
 Nine months ended September 30,
20202019
Net cash used in operating activities$(14,972)$(8,899)
Net cash used in investing activities(3,260)(3,251)
Net cash provided by (used in) financing activities(778)51,539 
Net increase (decrease) in cash, cash equivalents and restricted cash$(19,010)$39,389 
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Cash Flows from Operating Activities
Cash used in operating activities was $15.0 million net for the nine months ended September 30, 2020, which resulted from a net loss of $20.1 million for the nine months ended September 30, 2020 adjusted for non-cash charges for depreciation of $1.4 million, ROU lease asset amortization expense of $2.0 million, stock-based compensation of $6.1 million and allowance of credit loss of $40 thousand. Additional cash used by changes in operating assets and liabilities was $4.3 million. Changes in operating assets and liabilities included an increase of $4.9 million in unbilled receivables, an increase of $1.6 million in accounts receivables, and a decrease of $1.9 million in other long-term liabilities partially offset by an increase of $2.3 million in other accrued liabilities and an increase of $2.0 million in deferred revenue.
Cash used in operating activities was $8.9 million net for the nine months ended September 30, 2019, which resulted from a net loss of $11.3 million for the nine months ended September 30, 2019 adjusted for non-cash charges for depreciation of $1.1 million, ROU lease asset amortization expense of $2.2 million and stock-based compensation of $5.8 million. Additional cash used by changes in operating assets and liabilities was $6.7 million. Changes in operating assets and liabilities included a decrease of $5.0$5.0 million in deferred revenue, a decrease of $1.3 million of accounts payable, and an increase of $1.2 million of contract assets.
Cash Flows from Investing Activities
Cash used in operatinginvesting activities was $13.4 million net for the nine months ended September 30, 2018, which resulted from a net loss of $10.4$3.3 million for the nine months ended September 30, 2018 adjusted for non-cash charges for depreciation of $0.8 million2020 and stock-based compensation of $6.2 million. Additional cash used by changes in operating assets and liabilities was $10.0 million. Changes in operating assets and liabilities included a decrease of $3.6 million in accounts receivable due mainly to collections from customers, a decrease of $1.7 million of accounts payable, a decrease of $10.2 million in deferred revenue and an increase of $1.9 million of contract assets.
Cash Flows from Investing Activities
2019. Cash used in investing activities for the nine months ended September 30, 2020 was $3.3primarily attributable to $2.3 million for purchases of property and $2.1equipment and the purchase of 1,587,050 shares of MAI's Series A preferred stock for $1.0 million. Cash used in investing activities for the nine months ended September 30, 2019 was primarily attributable to the purchase of property and equipment.
Cash Flows from Financing Activities
Cash used in financing activities was $0.8 million for the nine months ended September 30, 2019 and 2018, respectively,2020 which was primarily attributableincluded $1.3 million for taxes paid related to purchasenet share settlement of property and equipment.
Cash Flowsequity awards offset by $0.5 million of proceeds from Financing Activitiesexercises of stock options.
Cash provided by financing activities was $51.5 million for the nine months ended September 30, 2019 which representsincluded $49.9 million of net proceeds from a private placement in June 2019 and $4.6 million of proceeds from exercises of stock options offset by $2.9 million for taxes paid related to net share settlement of equity awards.
Cash provided by financing activities was $38.3 million for the nine months ended September 30, 2018 which represents $37.3 million of net proceeds from the public offering in April 2018 and $4.3 million from exercises of stock options, partially offset by other items, primarily $3.1 million for taxes paid related to net share settlement of equity awards. 

Contractual Obligations
The following table summarizes our significant contractual obligations at September 30, 20192020 (in thousands): 

   Payments due by period
(In Thousands) Total Less than 1 year 1-3 years  >4 years
Finance lease obligations $124
 $124
 $—
 $—
Operating leases obligations (1)
 34,931
 2,618
 8,387
 23,926
 Total $35,055
 $2,742
 $8,387
 $23,926

Payments due by period
TotalLess than 1 year1-3 years4-5 years>5 years
Operating leases obligations (1)
32,313 4,167 8,776 9,525 9,845 

(1) Represents future minimum lease payments under non-cancellable operating leases in effect as of September 30, 20192020 for our facilities in Redwood City, California. The minimum lease payments above do not include common area maintenance charges or real estate taxes. In addition, amountsFebruary 2019, we have not been reduced by future minimum sublease rentals of $0.3 millionentered into an Eighth Amendment to be received under non-cancellable subleases.the Lease (the “Eighth Amendment”) with MetLife for our facilities, extending the lease terms from May 2027 to May 2029. For additional information see Note 11, “Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements.

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Other Commitments
We have other commitments related to supply and service arrangements entered into the normal course of business. For additional information about other commitments, see Note 11, "Commitments and Contingencies" in the accompanying notes to the unaudited condensed consolidated financial statements. Future minimum payments reflect amounts those obligations are expected to have on our liquidity and cash flows in future periodperiods and include obligations subject to risk of cancellation by us (in thousands):

Other Commitment Agreement Type Agreement Date Future Minimum Payment
Development and manufacturing services agreements September 2019 $1,645
Manufacture and supply agreement with expected future payment date of December 2022 April 2016 1,242
Service agreement for clinical trial December 2017 80
Total other commitments   $2,967
Other Commitment Agreement TypeAgreement DateFuture Minimum Payment
Manufacture and supply agreement with expected future payment date of December 2022April 2016$532 
Development and manufacturing services agreementsSeptember 20193,806 
Strategic collaboration and license agreementMarch 2020520 
Total other commitments$4,858 
On
Credit Facility
In June 30, 2017, we entered into a credit facility (“Credit Facility”) consisting of term loans totaling(“Term Debt”) up to $10.0 million, and advances (“Advances”) under a revolving line of credit totaling(“Revolving Line of Credit”) up to $5.0 million with an accounts receivable borrowing base of 80% of certain eligible accounts receivable. In January 2019,At September 30, 2020, we entered into a Fifth Amendment tohave not drawn from the Credit Facility to allow for Codexis to obtain a letter of credit of up to $1.1 million to secure its obligations under the Lease with MetLife. In July 2019, we entered into a Sixth Amendment to the Credit Facility to increase permitted indebtedness to $0.7 million for financing insurance premiums in the ordinary course of business. In September 2019, we entered into a Seventh Amendment to the Credit Facility whereby the draw period on the term debt was extended to September 30, 2020.Facility. We may draw on the Term Debt at any time prior to September 30, 2020, subject to customary conditions for funding including, among others, that no event of default exists. We may draw onand the Revolving Line of Credit at any time prior to the maturity date. On October 1, 2023, any2021 and October 1, 2024, respectively. Term loans fordrawn under the Term Debt mature and the Revolving Line of Credit terminates.terminates on October 1, 2024. Term loans made under the Term Debt bearsbear interest at variable rate through maturity at a variablegreater of (i) 3.75% and (ii) the sum of (A) Index Rate (prime rate based onpublished in the London Interbank Offered RateMoney Rates section of the Western Edition of The Wall Street Journal plus 3.60%(B) 0.50%. Advances made under the Revolving Line of Credit bear interest at a variable annual rate equal to the greater of (i) 1.00% above4.25% and (ii) the sum of (A) the prime rate and (ii) 5.00%plus (B) 1.00%. No amounts were drawn down
Our obligations under the credit facility asCredit 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 September 30, 2019.2020, we were in compliance with the covenants for the Credit Facility. For additional information about our credit facility, see Note 11 "Commitments and Contingencies" in the accompanying notes to the unaudited condensed consolidated financial statements.

Off-Balance Sheet Arrangements
As of September 30, 2019,2020, we did not have any 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
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make judgments, estimates and assumptions in the preparation of our consolidated financial statements and accompanying notes. Actual results could differ from those estimates. There have been no material changes to our critical accounting policies or estimates during the three and nine months ended September 30, 20192020 from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on March 1, 2019,February 28, 2020, except for our critical accounting policies and estimates on leases as a result of ourchanges due to adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and ASU 2016-02, "LeasesNo. 2017-04, Intangibles - Goodwill and Other (Topic 842)" ("ASC 842"),350): Simplifying the Test for Goodwill Impairment, which is detailed below.are described below:
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LeasesFinancial Instruments - Credit Losses (Topic 326)
On January 1, 2019,2020, we adopted the provisions of ASU 2016-02, "Leases2016-13, Financial Instruments - Credit Losses (Topic 842) ("ASC 842"), which replaces prior lease guidance ("ASC 840"). This guidance establishes326): Measurement of Credit Losses on Financial Instruments, using a right-of-use ("ROU")modified retrospective approach. The standard changes the impairment model that requiresfor most financial assets measured at amortized cost, requiring the use of a lessee"current expected credit loss" model. Under this model, we are required to estimate the lifetime expected credit loss on financial assets, and to record the estimate to an allowance for credit loss. The allowance offsets the amortized cost basis of the financial asset, resulting in a ROUnet presentation of the amount expected to be collected on the financial asset or liability.
Financial assets measured at amortized cost
Financial assets measured at amortized cost include loans receivable, debt security assets, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, contract assets and lease obligationsany other financial assets not excluded from the scope that have the contractual right to receive cash. These assets are not accounted for at fair value through net income.
Current expected credit model
The model requires that credit loss estimates include forecasted information in its formulation. In addition, the model requires recognition of credit loss estimates to be reflected in the financial statements before actual losses are incurred.
Allowance for credit losses
The allowance for credit losses is a valuation account that reflects recognition of losses under the current expected credit loss model. The allowance for credit losses is deducted from the amortized cost basis of financial assets and is presented net on the balance sheetsheet. The net represents the expected to be collected on the financial asset.
Intangibles - Goodwill and Other (Topic 350)
On January 1, 2020, we adopted the provisions of ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affectingGoodwill Impairment," using a prospective approach. The standard simplifies the pattern and classificationaccounting for goodwill impairments by eliminating step two from the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value. The adoption of expense recognition inASU 2017-04 had no impact on our unaudited condensed consolidated statement of operations. We adopted the new standard on January 1, 2019 using a modified retrospective approach and effective date method.

financial statements.
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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Management
Our cash flows and earnings are subject to fluctuations due to changes in foreign currency exchange rates, interest rates and other factors. These market risk exposures are disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on March 1, 2019.

February 28, 2020.
Interest Rate Sensitivity
As of September 30, 2019, we had unrestricted cash and cash equivalents of $92.1 million. As of September 30, 2019, the effect of a hypothetical 10% decrease in market interest rates would decrease the fair value of our interest income by approximately $0.1 million on an annualized basis.
OnIn June 30, 2017, we entered into a credit facility agreement consisting of term loans totaling up to $10.0 million, and advances under a revolving line of credit totaling up to $5.0 million. Draws onLoans made under the term debtTerm Debt bear interest at a variablethrough maturity equal to the greater of (i) 3.75% and (ii) the sum of (A) Index Rate (prime rate based onpublished in the London Interbank Offered RateMoney Rates section of the Western Edition of The Wall Street Journal plus 3.60%(B) 0.50%. Advances made under the revolving lineRevolving Line of creditCredit bear interest at a variable annual rate equal to the equal to the greater of (i) 1.00% above4.25% and (ii) the sum of (A) the prime rate and (ii) 5.00%(B) 1.00%. Increases in these variable interest rates will increase our future interest expense and decrease our results of operations and cash flows. No amounts were drawn down under the credit facility as of September 30, 2019.2020. 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 September 30, 2019,2020, the effect of a hypothetical 10% change in interest rates would not 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 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 may affect the price competitiveness of our products outside the United States. 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 sheet. As of September 30, 2020, the effect of a hypothetical 10% unfavorable change in exchange rates on currencies denominated in other than their functional currency would result in a potential loss in future earnings in our consolidated statement of operations and a reduction in the fair value of the assets of approximately $0.1 million. We did not engage in hedging transactions in 2020 or 2019.
Investment in Equity Securities
We own an equity investment in Molecular Assemblies, Inc. (“MAI”) which is a privately held company. Concurrently with our initial equity investment, John Nicols, our chief executive officer, joined MAI’s board of directors, and we entered into the MAI Agreement pursuant to which we will provide technical services and expertise in exchange for compensation in the form of additional shares of voting preferred stock. We and MAI envision entering into an arrangement to commercialize products developed under the MAI Agreement.
To analyze the fair value measurement of our equity investment in MAI, we perform a qualitative analysis using significant unobservable inputs. Significant changes to the unobservable inputs may result in a significantly higher or lower fair value estimate. We may value our equity investment based on significant recent arms-length equity transactions with sophisticated non-strategic unrelated new investors, providing the terms of these equity transactions are substantially similar to the equity transactions terms between the company and us. The impact of any differences in equity transaction terms may be difficult or impossible to quantify on the market value of investment.
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ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures and internal controls that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and our principal financial and accounting officer, evaluated the effectiveness of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on this review, our principal executive officer and our principal financial and accounting officer concluded that these disclosure controls and procedures were effective as of September 30, 20192020 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. WeBecause of the impact of COVID-19 shelter-in-place orders, we have made minor modifications to existing controls involving evidence of review-type controls. Further, we implemented internal controls to ensure we adequately evaluated our lease contractsimpairment of financial instruments and goodwill, respectively, in properly assessedassessing and facilitating the impact of ASU 2016-02, "Leases (Topic 842)", to facilitate itsand adoption on January 1, 2019.2020 of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) and ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. There were no significant changes to our internal control over financial reporting due to the adoption of this new standard.standards.
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.

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PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

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


ITEM 1A.RISK FACTORS

We have included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018,2019, a description of certain risks and uncertainties that could affect our business, future performance or financial condition (the “Risk Factors"). During the three months ended September 30, 2019,2020, there were no material changes from the disclosure provided in the Form 10-K for the year ended December 31, 20182019 with respect to the Risk Factors, except as set forth below. Investors should consider the Risk Factors prior to making an investment decision with respect to our stock.
Sales of a substantial number of shares of our common stockThe ongoing COVID-19 pandemic has and may continue in the public market could causefuture to, directly or indirectly, adversely affect our stock pricebusiness, results of operations and financial condition.
In the United States, the COVID-19 pandemic, has had, and may continue to fall.
If our existing stockholders sell, or indicatehave, an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of September 30, 2019, we had approximately 58.4 million shares of common stock outstanding. Of those shares, approximately 1.9 million were held by current directors, executive officers and other affiliates, or may otherwise be subject to Rule 144 under the Securities Act of 1933, or the Securities Act.
As of September 30, 2019, up to approximately 0.4 million shares of common stock issuable upon vesting of outstanding restricted stock units and performance stock units and up to approximately 5.2 million shares of common stock issuable upon exercise of outstanding options were eligible for sale in the public market to the extent permitted by the provisions of the applicable vesting schedules, and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are issued and sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
As of September 30, 2019, the holder of approximately 3.0 million shares of our outstanding common stock is entitled to rights with respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on our business, results of operations and financial condition, including as a result of compliance with governmental orders governing the trading priceoperation of businesses during the pandemic, the temporary closure of our common stock.Redwood City, California facilities and disruption of our research and development operations. We believe that these disruptions have had a negative impact on revenue for the nine months ended September 30, 2020 although we are unable to fully determine and quantify the extent to which this pandemic has affected the amount and timing of our total revenues. In the future, our business could be materially adversely affected, directly or indirectly, by the widespread outbreak of contagious disease, including the ongoing COVID-19 pandemic. National, state and local governments in affected regions have implemented and may continue to implement safety precautions, including quarantines, border closures, increased border controls, travel restrictions, governmental orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and individuals are taking additional steps to avoid or reduce infection, including limiting travel and staying home from work. These measures are disrupting normal business operations both in and outside of affected areas and have had significant negative impacts on businesses and financial markets worldwide.

The potential impact and duration of COVID-19 or another pandemic or public health crisis has, had and could continue to have, significant repercussions across regional, national and global economies and financial markets, and could trigger a period of regional, national and global economic slowdown or regional, national or global recessions. The outbreak of COVID-19 in many countries continues to adversely impact regional, national and global economic activity and has contributed to significant volatility and negative pressure in financial markets. As a result, we may experience difficulty accessing debt and equity capital on attractive terms, or at all, due to the severe disruption and instability in the global financial markets. In addition, our customers may terminate or amend their agreements for the purchase of our products or services due to bankruptcy, lack of liquidity, lack of funding, operational failures, or other reasons.
We continue to monitor our operations and applicable government recommendations, and we have made modifications to our normal operations because of the COVID-19 pandemic, including requiring most office-based employees to work remotely. Notwithstanding these measures, the COVID-19 pandemic could affect the health and availability of our workforce as well as those of the third parties we rely on taking similar measures. If members of our management and other key personnel in critical functions across our organization are unable to perform their duties or have limited availability due to COVID-19, we may not be able to execute on our business strategy and/or our operations may be negatively impacted. We may also experience limitations in employee resources, including because of sickness of employees or their families or the desire of employees to avoid contact with individuals or large groups of people. In addition, we have experienced and will continue to experience disruptions to our business operations resulting from quarantines, self-isolations and other restrictions on the ability of our employees to perform their jobs.
The COVID-19 pandemic has disrupted, and may continue to disrupt, our business operations. The extent and severity of the impact on our business and clinical trials will be determined largely by the extent of disruptions in the supply chains for our products and product candidates; disruptions in access by patients to therapies for which our products are components of the
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supply chain; delays in the performance of R&D service work, and delays in current and future clinical trials that we or our collaboration partners conduct. In addition, the impact of the COVID-19 pandemic on the operations of the FDA and other health authorities may delay potential approvals of product candidates for which our products are components of the supply chain.
While it is not possible at this time to estimate the entirety of the impact that the COVID-19 pandemic will have on our business, operations, employees, customers, suppliers or our collaboration partners, continued spread of COVID-19, measures taken by governments, actions taken to protect employees and the broad impact of the pandemic on all business activities may materially and adversely affect our business, results of operations and financial condition. As a result, in May 2020 we withdrew our full year 2020 financial guidance.


ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Limitations on Dividends and Other Distributions
Effective June 30, 2017, we entered into a credit facility consisting of a term debt note for loans totaling up to $10.0 million, and advances under a revolving line of credit totaling up to $5.0 million. Covenants in the credit facility limit our ability to pay dividends or make other distributions. For additional information see Note 11, "Commitments and Contingencies" in the accompanying notes to the unaudited condensed consolidated financial statements.None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.



ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.OTHER INFORMATION

Not applicable.


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ITEM 6.EXHIBITS
ITEM 6.EXHIBITS

3.1
3.1
3.2
3.3
4.1
Reference is made to Exhibits 3.1 through 3.3.
10.1A10.1
10.1B
SeventhEighth Amendment to Loan and Security Agreement by and between the Company and Western Alliance Bank dated as of September 30, 2019
10.2
+
Form of Amended2020 to Loan and Restated Change in Control Severance Security Agreement between the Company and certain of its officers
10.3
+
Employment Agreement by and between the Company and Ross Taylor effectiveWestern Alliance Bank dated as of August 4, 2019September 30, 2020.
10.431.1
+
23.1
Consent of BDO USA, LLP, independent registered public accounting firm.
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
32.1
101
The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019,2020, formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) Unaudited Condensed Consolidated Balance Sheets at September 30, 20192020 and December 31, 2018,2019 (ii) Unaudited Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 20192020 and 2018,2019, (iii) Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three Months and Nine Months Ended September 30, 20192020 and 2018,2019, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 20192020 and 2018,2019 and (v) Notes to Unaudited Condensed 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
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019,2020, formatted in Inline XBRL and contained in Exhibit 101.
+
Indicates a management contract or compensatory plan or arrangement.

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SIGNATURES
Pursuant to the requirements 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.
Codexis, Inc.
Date:
Date:November 6, 20192020By:/s/ John J. Nicols
John J. Nicols

President and Chief Executive Officer

(principal executive officer)
Date:November 6, 20192020By:/s/ Ross Taylor
Ross Taylor

Senior Vice President and Chief Financial Officer

(principal financial and accounting officer)

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