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, 20202021
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)

_____________________________________________
Delaware 71-0872999
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

200 Penobscot Drive,Redwood City,California 94063
(Address of principal executive offices) (Zip Code)


Registrant's telephone number, including area code: (650) 421-8100

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

Title of Each ClassTradingName 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 30, 2020,November 1, 2021, there were 59,281,80564,875,278 shares of the registrant’s Common Stock, par value $0.0001 per share, outstanding.

1




Codexis, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 20202021


TABLE OF CONTENTS

 PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1.
3
4
5
7
9
ITEM 2.
3630
ITEM 3.
5646
ITEM 4.
5747
PART II. OTHER INFORMATION
ITEM 1.
5848
ITEM 1A.
5848
ITEM 2.
5948
ITEM 3.
5948
ITEM 4.
5948
ITEM 5.
5948
ITEM 6.
6049
6150


2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Codexis, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In Thousands, Except Per Share Amounts)
September 30, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents$71,516 $90,498 
Restricted cash, current633 661 
Financial assets:
Accounts receivable10,711 9,063 
Contract assets975 1,027 
Unbilled receivables14,985 10,099 
   Total Financial assets26,671 20,189 
        Less: allowances(74)(34)
        Total Financial assets, net26,597 20,155 
Inventories737 371 
Prepaid expenses and other current assets3,450 2,520 
Total current assets102,933 114,205 
Restricted cash1,062 1,062 
Investment in Equity Securities1,000 0 
Right-of-use assets - Operating leases, net21,996 23,837 
Right-of-use assets - Finance leases, net145 268 
Property and equipment, net7,289 6,282 
Goodwill3,241 3,241 
Other non-current assets353 178 
Total assets$138,019 $149,073 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$2,499 $2,621 
Accrued compensation6,277 5,003 
Other accrued liabilities7,570 6,540 
Current portion of lease obligations - Operating leases2,554 1,107 
Current portion of lease obligations - Finance leases0 60 
Deferred revenue1,596 57 
Total current liabilities20,496 15,388 
Deferred revenue, net of current portion2,460 1,987 
Long-term lease obligations - Operating leases23,001 24,951 
Other long-term liabilities1,261 1,230 
Total liabilities47,218 43,556 
Commitments and Contingencies (Note 11)
Stockholders' equity:
Preferred 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
6 6 
Additional paid-in capital453,294 447,920 
Accumulated deficit(362,499)(342,409)
Total stockholders' equity90,801 105,517 
Total liabilities and stockholders' equity$138,019 $149,073 
September 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$119,189 $149,117 
Restricted cash, current581 638 
Investment in non-marketable debt security— 1,000 
Financial assets:
Accounts receivable25,084 13,894 
Contract assets12,701 4,526 
Unbilled receivables10,760 10,942 
   Total financial assets48,545 29,362 
        Less: allowances(74)(74)
        Total financial assets, net48,471 29,288 
Inventories1,084 964 
Prepaid expenses and other current assets4,787 3,416 
Total current assets174,112 184,423 
Restricted cash1,519 1,062 
Investment in non-marketable equity securities12,763 1,450 
Right-of-use assets - Operating leases, net19,478 21,382 
Right-of-use assets - Finance leases, net43 119 
Property and equipment, net16,124 9,675 
Goodwill3,241 3,241 
Other non-current assets271 294 
Total assets$227,551 $221,646 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$3,281 $2,970 
Accrued compensation9,041 7,288 
Other accrued liabilities15,927 10,272 
Current portion of lease obligations - Operating leases2,782 2,627 
Deferred revenue2,449 1,824 
Total current liabilities33,480 24,981 
Deferred revenue, net of current portion3,747 2,967 
Long-term lease obligations - Operating leases20,218 22,324 
Other long-term liabilities1,051 1,271 
Total liabilities58,496 51,543 
Commitments and Contingencies (Note 10)00
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;
64,833 and 64,283 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
6 6 
Additional paid-in capital546,557 536,516 
Accumulated deficit(377,508)(366,419)
Total stockholders' equity169,055 170,103 
Total liabilities and stockholders' equity$227,551 $221,646 
See accompanying notes to the unaudited condensed consolidated financial statementsstatements.
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,
2020201920202019 2021202020212020
Revenues:Revenues:Revenues:
Product revenueProduct revenue$8,401 $10,351 $18,005 $24,588 Product revenue$28,731 $8,401 $53,674 $18,005 
Research and development revenueResearch and development revenue9,984 11,555 30,018 25,220 Research and development revenue8,038 9,984 26,579 30,018 
Total revenuesTotal revenues18,385 21,906 48,023 49,808 Total revenues36,769 18,385 80,253 48,023 
Costs and operating expenses:Costs and operating expenses:Costs and operating expenses:
Cost of product revenueCost of product revenue3,642 5,067 7,882 12,230 Cost of product revenue6,867 3,642 15,403 7,882 
Research and developmentResearch and development12,010 8,711 33,830 25,000 Research and development15,165 12,010 39,562 33,830 
Selling, general and administrativeSelling, general and administrative8,797 7,869 26,307 24,180 Selling, general and administrative13,407 8,797 37,600 26,307 
Total costs and operating expensesTotal costs and operating expenses24,449 21,647 68,019 61,410 Total costs and operating expenses35,439 24,449 92,565 68,019 
Income (loss) from operationsIncome (loss) from operations(6,064)259 (19,996)(11,602)Income (loss) from operations1,330 (6,064)(12,312)(19,996)
Interest incomeInterest income39 480 362 929 Interest income41 39 424 362 
Other expenses, net(50)(403)(125)(615)
Other income (expense), netOther income (expense), net983 (50)920 (125)
Income (loss) before income taxesIncome (loss) before income taxes(6,075)336 (19,759)(11,288)Income (loss) before income taxes2,354 (6,075)(10,968)(19,759)
Provision for (benefit from) income taxes19 (7)331 12 
Provision for income taxesProvision for income taxes110 19 121 331 
Net income (loss)Net income (loss)$(6,094)$343 $(20,090)$(11,300)Net income (loss)$2,244 $(6,094)$(11,089)$(20,090)
Net income (loss) per share, basicNet income (loss) per share, basic$(0.10)$0.01 $(0.34)$(0.20)Net income (loss) per share, basic$0.03 $(0.10)$(0.17)$(0.34)
Net income (loss) per share, dilutedNet income (loss) per share, diluted$(0.10)$0.01 $(0.34)$(0.20)Net income (loss) per share, diluted$0.03 $(0.10)$(0.17)$(0.34)
Weighted average common stock shares used in computing net income (loss) per share, basicWeighted 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, basic64,628 59,061 64,452 58,984 
Weighted average common stock shares used in computing net income (loss) per share, dilutedWeighted average common stock shares used in computing net income (loss) per share, diluted59,061 61,412 58,984 55,818 Weighted average common stock shares used in computing net income (loss) per share, diluted67,741 59,061 64,452 58,984 



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, 2021SharesAmount
Balance as of July 1, 202164,623 $6 $542,519 $(379,752)$162,773 
Exercise of stock options210 — 1,022 — 1,022 
Employee stock-based compensation— — 2,955 — 2,955 
Non-employee stock-based compensation— — 61 — 61 
Net income— — — 2,244 2,244 
Balance as of September 30, 202164,833 $6 $546,557 $(377,508)$169,055 
Common StockAdditional
paid-in
Capital		Accumulated DeficitTotal Stockholders' EquityCommon StockAdditional
paid-in
Capital		Accumulated DeficitTotal Stockholders' Equity
Three months ended September 30, 2020Three months ended September 30, 2020SharesAmountThree months ended September 30, 2020SharesAmount
Balance as of July 1, 2020Balance as of July 1, 202059,125 $6 $451,185 $(356,405)$94,786 Balance as of July 1, 202059,125 $6 $451,185 $(356,405)$94,786 
Exercise of stock optionsExercise of stock options55 — 342 — 342 Exercise of stock options55 — 342 — 342 
Release of stock awardsRelease of stock awards70 — — — — Release of stock awards70 — — — — 
Taxes paid related to net shares settlement of equity awardsTaxes paid related to net shares settlement of equity awards(18)— (217)— (217)
Employee stock-based compensationEmployee stock-based compensation— — 1,941 — 1,941 Employee stock-based compensation— — 1,941 — 1,941 
Non-employee stock-based compensationNon-employee stock-based compensation— — 43 — 43 Non-employee stock-based compensation— — 43 — 43 
Taxes paid related to net share settlement of equity awards(18)— (217)— (217)
Net lossNet loss— — — (6,094)(6,094)Net loss— — — (6,094)(6,094)
Balance as of September 30, 2020Balance as of September 30, 202059,232 $6 $453,294 $(362,499)$90,801 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 StockAdditional paid-in CapitalAccumulated DeficitTotal Stockholders' EquityCommon StockAdditional
paid-in
Capital		Accumulated DeficitTotal Stockholders' Equity
Nine months ended September 30, 2020SharesAmount
Nine months ended September 30, 2021Nine months ended September 30, 2021SharesAmountAdditional
paid-in
Capital		Accumulated DeficitTotal Stockholders' Equity
Balance as of January 1, 202058,877 $6 $447,920 $(342,409)$105,517 
Balance as of January 1, 2021Balance as of January 1, 202164,283 $6 $536,516 $(366,419)$170,103 
Exercise of stock optionsExercise of stock options87 — 539 — 539 Exercise of stock options423 — 2,700 — 2,700 
Release of stock awardsRelease of stock awards370 — — — — Release of stock awards181 — — — — 
Taxes paid related to net shares settlement of equity awardsTaxes paid related to net shares settlement of equity awards(54)— (1,206)— (1,206)
Employee stock-based compensationEmployee stock-based compensation— — 6,045— 6,045 Employee stock-based compensation— — 8,360 — 8,360 
Non-employee stock-based compensationNon-employee stock-based compensation— — 47— 47 Non-employee stock-based compensation— — 187 — 187 
Taxes paid related to net share settlement of equity awards(102)— (1,257)— (1,257)
Net lossNet loss— — — (20,090)(20,090)Net loss— — — (11,089)(11,089)
Balance as of September 30, 202059,232 $6 $453,294 $(362,499)$90,801 
Balance as of September 30, 2021Balance as of September 30, 202164,833 $6 $546,557 $(377,508)$169,055 


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 
Common StockAdditional
paid-in
Capital		Accumulated 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 — — — 
Taxes paid related to net shares settlement of equity awards(102)— (1,257)— (1,257)
Employee stock-based compensation— — 6,045 — 6,045 
Non-employee stock-based compensation— — 47 — 47 
Net loss— — — (20,090)(20,090)
Balance as of September 30, 202059,232 $6 $453,294 $(362,499)$90,801 


See accompanying notes to the unaudited condensed consolidated financial statements
6


Codexis, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in Thousands)
Nine Months Ended September 30,Nine Months Ended September 30,
20202019 20212020
Operating activities:Operating activities:Operating activities:
Net lossNet loss$(20,090)$(11,300)Net loss$(11,089)$(20,090)
Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:
DepreciationDepreciation1,403 1,118 Depreciation2,143 1,403 
Amortization expense - right-of-use assets - operating and finance leasesAmortization expense - right-of-use assets - operating and finance leases1,964 2,231 Amortization expense - right-of-use assets - operating and finance leases1,980 1,964 
Gain on disposal of property and equipment0 (2)
Stock-based compensationStock-based compensation6,092 5,783 Stock-based compensation8,547 6,092 
Allowance for credit lossesAllowance for credit losses40 0 Allowance for credit losses— 40 
Loss on investment in equity securities0 526 
Equity securities earned from research and development activitiesEquity securities earned from research and development activities(675)— 
Unrealized gain on non-marketable securitiesUnrealized gain on non-marketable securities(1,033)— 
Other non-cash itemsOther non-cash items(19)— 
Changes in operating assets and liabilities:Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivable, net(1,648)(776)
Contract assets52 (1,158)
Unbilled receivables(4,886)385 
Financial assets, netFinancial assets, net(19,633)(6,482)
InventoriesInventories(366)192 Inventories(120)(366)
Prepaid expenses and other current assets(930)(485)
Other non-current assets(175)74 
Prepaid expenses and other assetsPrepaid expenses and other assets(1,195)(1,105)
Accounts payableAccounts payable(101)(1,294)Accounts payable575 (101)
Accrued compensation1,274 (577)
Other accrued liabilities2,307 2,687 
Accrued compensation and other accrued liabilitiesAccrued compensation and other accrued liabilities7,036 3,581 
Other long-term liabilitiesOther long-term liabilities(1,920)(1,291)Other long-term liabilities(2,324)(1,920)
Deferred revenueDeferred revenue2,012 (5,012)Deferred revenue880 2,012 
Net cash used in operating activitiesNet cash used in operating activities(14,972)(8,899)Net cash used in operating activities(14,927)(14,972)
Investing activities:Investing activities:Investing activities:
Purchase of property and equipmentPurchase of property and equipment(2,260)(3,315)Purchase of property and equipment(8,348)(2,260)
Proceeds from disposal of property and equipment0 2 
Proceeds from sale of property and equipmentProceeds from sale of property and equipment36 — 
Investment in equity securitiesInvestment in equity securities(1,000)0 Investment in equity securities(7,630)(1,000)
Proceeds from the sale of investment securities0 62 
Net cash used in investing activitiesNet cash used in investing activities(3,260)(3,251)Net cash used in investing activities(15,942)(3,260)
Financing activities:Financing activities:Financing activities:
Proceeds from exercises of stock optionsProceeds from exercises of stock options539 4,621 Proceeds from exercises of stock options2,700 539 
Proceeds from issuance of common stock in connection with private placement0 50,000 
Costs incurred in connection with private placement0 (129)
Costs incurred in connection with equity financingCosts incurred in connection with equity financing(153)— 
Payments of lease obligations - Finance leasesPayments of lease obligations - Finance leases(60)(180)Payments of lease obligations - Finance leases— (60)
Recovery of short swing profit0 77 
Taxes paid related to net share settlement of equity awardsTaxes paid related to net share settlement of equity awards(1,257)(2,850)Taxes paid related to net share settlement of equity awards(1,206)(1,257)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(778)51,539 Net cash provided by (used in) financing activities1,341 (778)
Net increase (decrease) in cash, cash equivalents and restricted cash(19,010)39,389 
Net decrease in cash, cash equivalents and restricted cashNet decrease in cash, cash equivalents and restricted cash(29,528)(19,010)
Cash, cash equivalents and restricted cash at the beginning of the periodCash, cash equivalents and restricted cash at the beginning of the period92,221 54,485 Cash, cash equivalents and restricted cash at the beginning of the period150,817 92,221 
Cash, cash equivalents and restricted cash at the end of the periodCash, cash equivalents and restricted cash at the end of the period$73,211 $93,874 Cash, cash equivalents and restricted cash at the end of the period$121,289 $73,211 
Supplemental disclosure of cash flow information
Supplemental disclosure of cash flow information:Supplemental disclosure of cash flow information:
Interest paidInterest paid$15 $16 Interest paid$6 $15 
Income taxes paidIncome taxes paid$312 $5 Income taxes paid$101 $312 
Purchase of property and equipment recorded in accounts payable and accrued expenses$289 $536 
Supplemental non-cash investing and financing activities:Supplemental non-cash investing and financing activities:
Capital expenditures incurred but not yet paidCapital expenditures incurred but not yet paid$2,012 $289 

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, 20202021 and 20192020 to the total of the same such amounts shown above:above in the unaudited condensed consolidated statements of cash flows:


 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 

 September 30,
 20212020
Cash and cash equivalents$119,189 $71,516 
Restricted cash, current and non-current2,100 1,695 
Total cash, cash equivalents and restricted cash$121,289 $73,211 
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,” and “our” refers to Codexis, Inc. and its subsidiaries on a consolidated basis.
We discover, develop and sell enzymes and other proteins that deliver value to our clients in a growing set of industries. We view proteins as a vast untapped source of value-creating materials, and we are using our proven technologies, which we have been continuously improving since our inception in 2002,industries to commercialize an increasing number of novel proteins,enzymes, both as proprietary Codexis products and in partnership with our customers.
We are a pioneer in the harnessing of computational technologies to drive biology advancements. Since 2002, we have made substantial investments in the development of our CodeEvolver® protein engineering technology platform, the primary source of our competitive advantage.platform. Our technology platform is powered by proprietary, artificial intelligence-based, computational algorithms that rapidly mine the structural and performance attributes of our large and continuously growing library of protein variants’ performance attributes.variants. These computational outputs enable increasingly reliable predictions for next generation protein variants to be engineered, enabling time- and cost-efficient delivery of the targeted performance enhancements in a time-efficient manner. In addition to its computational prowess,enhancements. Additionally, our CodeEvolver® protein engineering technology platform integrates additional modular competencies, including robotic high-throughput screening and genomic sequencing, organic chemistry and processbioprocess development which are all coordinated to create ourrapidly innovate novel, protein innovations.fit-for-purpose products.
Our approach toThe core historical application of the technology has been in developing commercially viable biocatalytic manufacturing processes for more sustainable production of complex chemicals. This begins by conceptually designing the most cost-effective and practical process for a targeted product. We then develop optimized protein catalystsbiocatalysts to enable thatthe designed process, design, using our CodeEvolver® protein engineering platform technology.platform. Engineered protein catalystbiocatalyst candidates, -numbering many thousands for each protein engineering project, - are then rapidly screened and validated inusing high throughput screeningmethods under relevant manufacturingprocess-relevant operating conditions. This approach results in an optimized protein catalyst enablingbiocatalyst that enables cost-efficient processes that typically are relatively simple to run in conventional manufacturing equipment. This also allows for the efficient technical transfer of our processprocesses 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 the Company.
We initially commercialized our CodeEvolver® protein engineering technology platform and products in the manufacture of small molecule pharmaceuticals, market, which remains a primary business focus. Our customers, which include many large, global pharmaceutical companies, use our technology, products and services in their manufacturing processesprocess development and process development. Wein manufacturing. Additionally, we have also licensed our proprietary CodeEvolver®protein engineering technology platform to global pharmaceutical companies so that they may in turnenabling them to use this technology, in house, 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”).Novartis. The Novartis CodeEvolver®Agreement (our third such agreement with large pharma companies) allows Novartis to use our proprietary CodeEvolver® protein engineering platform technology in the field of human healthcare.
As evidence of our strategy to extend our technology beyond pharmaceutical manufacturing, we have also used the technology to develop protein catalystsbiocatalysts and industrial enzymesenzyme products for use in a widerbroader set of industrial markets. These target industries consist ofmarkets, including several large market verticals, includingsuch as food, and food ingredients, animal feed, consumer care flavors, fragrances and agriculturalfine chemicals. In addition, we are using our technology to develop enzymes for customers usingvarious life science related applications, such as next generation sequencing ("NGS"(“NGS”) and polymerase chain reaction ("(“PCR/qPCR"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,market: the Company'sCompany’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 begunbeen using the CodeEvolver® protein engineering technology platform to develop early stage, novel biotherapeutic product candidates, both for ourin partnership with customers and for our own business. In October 2017, we entered into the "Nestlé Agreement” with Nestlé Health Science to advance CDX-6114, our enzyme biotherapeutic product candidateproprietary Codexis drug candidates. Our first program was for the potential treatment of phenylketonuria ("PKU"). in humans. PKU is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient. In October 2017, we entered into a Global Development, Option and License Agreement (the “Nestlé License Agreement”) with Société des Produits Nestlé S.A., formerly known as Nestec Ltd. (“Nestlé Health Science”) to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive license to develop and commercialize CDX-6114.
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Also in October 2017, we entered into a strategic collaboration agreement with Nestlé Health Science (“Nestlé SCA”) pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver® platform technology to develop other novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas.
In January 2020, we entered into a development agreement with Nestlé Health Science to advance a new lead candidate discovered under the Nestlé SCA, CDX-7108, into preclinical development and early clinical studies as a potential treatment for a gastrointestinal disorder.
In March 2020, we entered into a Strategic Collaboration and License Agreement (“Takeda Agreement”) with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”), for the research and development of novel gene therapies for certain disease indications, including the treatment of lysosomal storage disorders and a blood factor deficiencies.deficiency.
In June 2020, we entered into a Master Collaboration and Research Agreement (the “MAI Agreement”) with Molecular Assemblies, Inc ("MAI") pursuant to which we are leveraging our CodeEvolver® platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis. Concurrently with the MAI Agreement, we purchased 1,587,050 shares of MAI's Series A preferred stock for $1.0 million and, in connection with the transaction, John Nicols, our President and Chief Executive Officer, joined MAI’s board of directors. In April 2021, we purchased an additional 1,000,000 shares of MAI's Series A preferred stock for $0.6 million. In September 2021, we purchased 9,198,423 shares of MAI's Series B preferred stock for $7.0 million (see Note 11 "Related Party Transactions" for additional information).
See Note 12 "Segment, Geographical and Other Revenue Information" for additional information.
Below are brief descriptions of our business segments:
Performance Enzymes
We initially commercialized our CodeEvolver®protein engineering technology platform and products in the manufacture of small molecule pharmaceuticals market, and, to date, this continues to be our largest market served. Our customers, which include many large global pharmaceutical companies, use our technology, products and services in their manufacturing processes and process development. We have also used the technology to develop customized enzymes for use in other industrial markets. These markets consist of several large industrial verticals, including food, and food ingredients, animal feed, consumer care, flavors, fragrances, and agriculturalfine chemicals. We also use our technology in the life sciences markets to develop enzymes for customers using NGS and PCR/qPCR for in vitro molecular diagnostic and molecular biology research applications, as well DNA/RNA synthesis and health monitoring applications.
Novel Biotherapeutics
We are also targeting new opportunities in the pharmaceutical industry to discover, improve, and/or develop biotherapeutic drug candidates. We believe that our CodeEvolver® protein engineering platform technology can be used to discover novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions. Similarly, we believe that we can deploy our platform technology to improve specific characteristics of a customer’s pre-existing biotherapeutic drug candidate, such as its activity, stability or immunogenicity.
Our first lead program was for the potential treatment of hyperphenylalaninemia (“HPA”) (also referred to as PKU)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 global 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 that it had completed its review of our investigational drug application 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. Upon exercising its option, Nestlé Health Science assumed all responsibilities for future clinical development and commercialization of CDX-6114.
In October 2017, we entered into the Nestlé SCA pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver® platform technology to develop other novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas. The Nestlé SCA was extended through December 2021. 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 into preclinical and early clinical studies a lead candidate targeting a gastro-intestinalgastrointestinal disorder, CDX-7108, discovered through our Strategic Collaboration Agreement into pre-clinical and earlythe Nestlé SCA. During 2021, we, together with Nestlé Health Science, continued to advance CDX-7108 towards initiation of a Phase 1 clinical studies. The Strategic Collaboration Agreement was extended through Decembertrial which commenced in October 2021. Using our CodeEvolver® protein engineering platform technology, we have also developed a pipeline of other biotherapeutic drug candidates, all of whichAdditionally, the parties are in preclinical development.progressing three programs under the Nestlé SCA targeting different gastrointestinal disorders.
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Our most recent achievement in novel biotherapeutics came in
In March 2020, when we announced a strategic collaboration and license agreement withentered into the Takeda inAgreement pursuant to which we will collaborate with Takedaare collaborating to research and develop protein sequences for use in gene therapy products for certain disease indications. Underindications in accordance with 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 candidatesrespective program plans for the treatment of rare genetic disorders. We are currently collaborating on 3 initial programs for the treatment of Fabry disease,Disease, Pompe disease,Disease, and an unnamedundisclosed 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 expectpayment of $8.5 million. Of these programs, the Fabry disease program is the most advanced, with multiple sequences, including CDX-6311, having been provided to continueTakeda. In May 2021, Takeda elected to make additional investments in our pipeline withexercise their option to expand the aim of advancing additional product candidates targeting other therapeutic areas.
For additional discussion of our business segments, see Note 13, "Segment, Geographical and Other Revenue Information."collaboration into a fourth program for an undisclosed rare genetic disorder.
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 negativeminimal impact on revenue for the three and nine months endingended 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. 2021. 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.operations in 2020. R&D operations for several projects were temporarily suspended from mid-March 2020 through the end of April 2020 in accordance with these Orders. In May 2020, we 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.capacity while following county, state and federal COVID-19 guidance for the protection of our employees. 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. AsThe near and long term impact of the date of issuance of the unaudited condensed consolidated financial statements, the extentCOVID-19 to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations in the future isremains uncertain.
Although some of the Orders that were enacted to control the spread of COVID-19 were scaled back and the vaccine rollout has expanded, surges in the spread of COVID-19 due to the emergence of new more contagious variants or the ineffectiveness of the vaccines against such strains, may result in the reimplementation of certain Orders, which could adversely impact our business.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statementsUnaudited 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 doinformation but does not include all the information and notes required by GAAP for complete financial statements. These interim unaudited condensed consolidated financial statementsUnaudited 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, 2019.2020. The condensed consolidated balance sheet at December 31, 20192020, 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 statementsUnaudited Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2021 and 2020, are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 20192020 Annual Report on Form 10-K and are updated below as necessary.
Certain prior year amounts There 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.no significant changes in our significant accounting policies or critical accounting estimates since December 31, 2020.
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Except as noted above,Certain prior year amounts have been reclassified in the unaudited condensed consolidated financial statementsUnaudited Condensed Statements of Cash Flows to conform to the 2021 presentation, however these reclassifications had no effect on the reported results of operations.
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, 2020,2021, results of our operations for the three and nine months ended September 30, 20202021 and 2019,2020, changes in stockholders' equity for the three and nine months ended September 30, 20202021 and 2019,2020, and cash flows for the nine months ended September 30, 20202021 and 2019.2020. 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") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which added a new impairment model applicable to our financial assets measured at amortized cost, and (ii) ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which adjusts testing for goodwill impairment. See "Recently adopted accounting pronouncements" for details regarding the adoption of these standards.
The unaudited interim condensed consolidated financial statementsUnaudited Condensed Consolidated Financial Statements include the accounts of Codexis, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. We regularly assess these estimates which primarily affect revenue recognition, the interest rate used to adjust the promised amountinventories, valuation of consideration for the effects of significant financial assets (comprised of accounts receivable, contract assets, and unbilled receivables), inventories,equity investments, goodwill arising out of business acquisitions, accrued liabilities, stock awards, and the valuation allowances associated with deferred tax assets. Actual results could differ from those estimates and such differences may be material to the 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 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
Changes to Tax Law
On 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 number of 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 (iv) providing a technical correction for depreciation related to qualified improvement property. The CARES Act had no impact on our unaudited condensed consolidated financial statements.
Accounting Pronouncements
Recently adopted accounting pronouncements
In June 2016,December 2019, the FASBFinancial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which amends the FASB's guidance on the impairment 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 comprised of accounts receivable, contract assets, and unbilled receivables.intended to simplify various aspects related to accounting for income taxes. We adopted the new standard in the first quarter of 2020 usingon January 1, 2021, on a modified retrospective approach requiring a cumulative-effect adjustment to the opening accumulated deficit as of the date of adoption. 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 assets in presentation of the net amount expected to be collected.basis. The adoption required certain additional disclosures butof this standard had no other impact on our unaudited condensed consolidated financial statements.Unaudited Condensed Consolidated Financial Statements.
In January 2017,October 2020, the FASB issued ASU No. 2017-04,2020-10, Intangibles - Goodwill and Other (Topic 350): SimplifyingCodification Improvements. ASU 2020-10 provides amendments to a wide variety of topics in the Test for Goodwill Impairment. The amendments eliminate Step 2 fromFASB’s Accounting Standards Codification, which applies to all reporting entities within 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 amountscope 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.affected accounting guidance. We adopted the standard in the first quarter of 2020 usingon January 1, 2021 on a prospective approach.retrospective basis. The adoption required certain additional disclosures butof this standard had no impact on our unaudited condensed consolidated financial statements.Unaudited Condensed Consolidated Financial Statements.
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 the standard 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. 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 amendments in the standard are required to be adopted retrospectively. We adopted the standard in the first quarter of 2020 and the adoption had no impact on our unaudited condensed consolidated financial statements and related disclosures.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606. ASU 2018-18 provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. The 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 606 which also requires recognition of the cumulative effect of applying the amendments as an adjustment to the opening balance of retained earnings
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of the later or the earliest annual period presented and the annual period inclusive of the initial application of Topic 606. We adopted the standard in the first quarter of 2020 and the adoption had no impact on our unaudited condensed consolidated financial statements and 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 statementsUnaudited Condensed Consolidated Financial Statements upon adoption.
In December 2019, theMay 2021, FASB issued ASU 2019-12, Income TaxesNo. 2021-04, Earnings Per Share (Topic 740): Simplifying the260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Income Taxes which is intended to simplify various aspects related toCertain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force. The standard establishes a principles-based framework in accounting for income taxes.modifications of freestanding equity-classified written call options on the basis of the economic substance of the underlying transaction. The standard also requires incremental financial statement disclosures. The standard affects entities that present earnings per share in accordance with the guidance in Topic 260, Earnings Per Share. The standard is effective for fiscal years andbeginning after December 15, 2021, including interim periods within those fiscal years with early adoption is permitted by applying the standard as of the beginning of the fiscal year that includes that interim period. The standard may be adopted prospectively for modifications or exchanges occurring on or after the effective date. We will evaluate modifications of equity-classified written call options to determine applicability of the standard on occurrence; however, we believe that the adoption of ASU 2021-04 will have no significant impact on our Unaudited Condensed Consolidated Financial Statements and related disclosures.
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In August 2020, FASB issued ASU No. 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) No. 2020-06 August 2020 Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to reduce the complexity and to simplify the accounting for convertible debt instruments and convertible preferred stock, and the derivatives scope exception for contracts in an entity's own equity. In addition, the guidance on calculating diluted earnings per share has been simplified and made more internally consistent. The standard is effective for fiscal years beginning after December 15, 2020,2021, including interim periods within those fiscal years with early adoption permitted.permitted for fiscal years beginning December 15, 2020. The standard willmay be adopted uponon a modified retrospective or fully retrospective method of transition and on adoption, entities may irrevocably elect the effective datefair value option in accordance with Subtopic 825-10, Financial Instruments—Overall, for us beginning January 1, 2021.any financial instrument that is a convertible security. We are currently evaluatingbelieve that the effectsadoption of the standardASU 2020-06 will have no significant impact on our consolidated financial statementsUnaudited Condensed Consolidated Financial Statements and related disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions in which the reference LIBOR or another reference rate are expected to be discontinued as a result of the Reference Rate Reform. The standard is effective for all entities.entities and can be adopted no later than December 1, 2022, with early adoption permitted. The standard may be adopted on a prospective basis. We will evaluate transactions or contract modifications occurring as a result of any date fromreference rate reform and determine whether to elect optional expedients for contract modification; however, we believe that the beginningadoption of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2022. We are currently evaluating the effects of the standardASU 2020-04 will have no significant impact on our consolidated financial statementsUnaudited Condensed Consolidated Financial Statements and related disclosures.
There have been no other recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended September 30, 2021, as compared to the recent accounting pronouncements described in herein, that are of significance or potential significance to us.
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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, 2021Three months ended September 30, 2020
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Major products and service:
Product revenue$28,731 $— $28,731 $8,401 $— $8,401 
Research and development revenue3,853 4,185 8,038 4,604 5,380 9,984 
Total revenues$32,584 $4,185 $36,769 $13,005 $5,380 $18,385 
Primary geographical markets:
Americas$5,999 $1,817 $7,816 $3,209 $2,632 $5,841 
EMEA2,317 2,368 4,685 2,141 2,748 4,889 
APAC24,268 — 24,268 7,655 — 7,655 
Total revenues$32,584 $4,185 $36,769 $13,005 $5,380 $18,385 
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 

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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, 2021Nine months ended September 30, 2020
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Major products and service:
Product revenue$53,674 $— $53,674 $18,005 $— $18,005 
Research and development revenue14,723 11,856 26,579 13,380 16,638 30,018 
Total revenues$68,397 $11,856 $80,253 $31,385 $16,638 $48,023 
Primary geographical markets:
Americas$12,573 $6,015 $18,588 $7,381 $10,591 $17,972 
EMEA11,294 5,841 17,135 8,128 6,047 14,175 
APAC44,530 — 44,530 15,876 — 15,876 
Total revenues$68,397 $11,856 $80,253 $31,385 $16,638 $48,023 
Contract Balances
The following table presents balances of contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands):
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 

September 30, 2021December 31, 2020
Contract assets$12,701 $4,526 
Unbilled receivables$10,760 $10,942 
Contract costs$70 $90 
Contract liabilities: deferred revenue$6,196 $4,791 
We had 0no asset impairment charges related to contractfinancial assets in the three and nine months ended September 30, 20202021 and 2019.2020.
During the nine months ended September 30, 2020, decreasesThe increase in contract assets werewas primarily due to contract assets that were subsequently invoiced as our rightincrease in product revenue from contracts subject to consideration for goods and services became unconditional. Increasesover time
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revenue recognition. The nominal decrease in unbilled receivables werewas primarily due to the timing of billings. The increase in deferred revenue werewas primarily due to cash advances received in excess of revenue recognized.
During the three and nine months ended September 30, 2020 and 2019, weWe 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 

Three months ended September 30,Nine months ended September 30,
Revenue recognized in the period for:2021202020212020
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied$658 $708 $1,997 $58 
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods1,521 233 5,848 854 
Performance obligations satisfied from new activities in the period - contract revenue34,590 17,444 72,408 47,111 
Total revenues$36,769 $18,385 $80,253 $48,023 
Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations
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that are unsatisfied or partially unsatisfied at the end of the reporting 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, 2020.2021.
The balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts as of September 30, 2021 (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 

Remainder of 2021202220232024 and ThereafterTotal
Product revenue$5 $67 $67 $2,700 $2,839 
Research and development revenue1,106 1,705 546 — 3,357 
Total revenues$1,111 $1,772 $613 $2,700 $6,196 
Note 4. Net incomeNet Income (loss) per ShareShare
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding, less restricted stock awards ("RSAs"(“RSAs”) subject to forfeiture. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock shares outstanding, less RSAs subject to forfeiture, plus all additional common stock shares that would have been outstanding, assuming dilutive potential common stock shares had been issued for other dilutive securities. For
Anti-Dilutive Securities
In periods of net loss, the weighted average number of shares outstanding, prior to the application of the treasury stock method, excludes potentially dilutive securities from the computation of diluted and basic net loss per common share are identical since potential common stockbecause including such shares are excluded from the calculation, as their effect was anti-dilutive.would have an anti-dilutive effect.
The following table sets forth the computation of basic and diluted net income (loss) per share during the three and nine months ended September 30, 20202021 and 20192020 (in thousands, except per share amounts):
Three months ended September 30,Nine months ended September 30,
2020201920202019
Numerator:
Net income (loss)(6,094)343 (20,090)(11,300)
Denominator:
Weighted average common stock shares used in computing net income (loss) per share, basic59,061 58,287 58,984 55,818 
Effect of dilutive shares0 3,125 0 0 
Weighted average common stock shares used in computing net income (loss) per share, diluted59,061 61,412 58,984 55,818 
Net income (loss) per share, basic$(0.10)$0.01 $(0.34)$(0.20)
Net income (loss) per share, diluted$(0.10)$0.01 $(0.34)$(0.20)
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Anti-Dilutive Securities
Three months ended September 30,Nine months ended September 30,
2021202020212020
Numerator:
Net income (loss)$2,244 $(6,094)$(11,089)$(20,090)
Denominator:
Weighted average common stock shares used in computing net income (loss) per share, basic64,628 59,061 64,452 58,984 
Effect of dilutive shares3,113 — — — 
Weighted average common stock shares used in computing net income (loss) per share, diluted67,741 59,061 64,452 58,984 
Net income (loss) per share, basic$0.03 $(0.10)$(0.17)$(0.34)
Net income (loss) per share, diluted$0.03 $(0.10)$(0.17)$(0.34)

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,
 2021202020212020
Shares issuable under the Equity Incentive Plan4515,1825,1485,182
 Three months ended September 30,Nine months ended September 30,
 2020201920202019
Shares issuable under the Equity Incentive Plan5,1821,0195,1825,623

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Note 5. Collaborative ArrangementsInvestments in Non-Marketable Securities
GSK Platform Technology Transfer, CollaborationNon-Marketable Debt Securities
We classify non-marketable debt securities, which are accounted for as available-for-sale, within Level 3 in the fair value hierarchy because we estimate the fair value based on a qualitative analysis using the most recent observable transaction price and License Agreementother significant unobservable inputs including volatility, rights, and obligations of the securities we hold.
We determine gains or losses on the sale or extinguishment of non-marketable debt securities using a specific identification method. Unrealized gains and losses from bifurcated embedded derivatives, which represent share-settled redemption features, are recorded as other expense, net, in the unaudited condensed consolidated statements of operations. Unrealized gains and losses on non-marketable debt securities are recorded as a component of other comprehensive loss until realized. Realized gains or losses are recorded as a component of other income (expense), net.
In November 2020, we purchased convertible subordinated notes issued by Arzeda Corp., an early-stage computational protein design company, for $1.0 million. The investment was classified as available-for-sale non-marketable interest-bearing debt securities with a carrying value of $1.0 million as of December 31, 2020. In July 2014,2021, we enteredconverted the non-marketable debt security with a carrying value of $1.3 million into a CodeEvolver207,070 shares of Series B-2 preferred stock of Arzeda Corp. ®In the protein engineering platform technology transfer collaborationthree and license agreement (the "GSK CodeEvolvernine months ended September 30, 2021, w®e recognized nil and $0.3 million, respectively, in interest income from amortization of debt discount and interest earned on our investment in this debt security, and nil and Agreement") with GlaxoSmithKline ("GSK"). Pursuant to$10.5 thousand in other expense, respectively, in other income (expense), net, on 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 usechange in the manufacture of GSK's pharmaceutical and health care products.
We received an upfront fee upon the execution of the agreement in July 2014 and milestone payments in each of the years from 2014 through April 2016. We completed the transfer of the CodeEvolver® protein engineering platform technology to GSK in April 2016 and all revenues relating to the technology transfer have been recognized as of April 2016. We have the potential to receive additional cumulative contingent payments that range from $5.75 million to $38.5 million per project based on GSK’s successful application of the licensed technology. We are also eligible to receive royalties based on net sales of GSK's sales of licensed enzyme products that are currently not being recognized.
In 2019, we received a $2.0 million milestone payment on the advancementfair value of an enzyme developed by GSK using our CodeEvolver® protein engineering platform technology.embedded bifurcated derivative. We recognized 0 research and development revenue forno unrealized or realized gains or losses during the three and nine months ended September 30, 2020 compared to $2.0 million for2021. We recognized no interest income, other expenses, and unrealized or realized gains or losses during the three and nine months ended September 30, 2019.2020.
Merck Platform Technology TransferThere were no investments in non-marketable debt securities at September 30, 2021. As of December 31, 2020, the adjusted cost and License Agreementcarrying value and fair value of the non-marketable debt security is the following (in thousands):
December 31, 2020
Adjusted Cost and Carrying ValueFair Value
Non-marketable debt security due in 1 year or less$1,000 $1,000 
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In August 2015, we entered into
Non-Marketable Equity Securities
Non-marketable equity securities are investments in privately held companies without readily determinable market value. We measure investments in non-marketable equity securities without a CodeEvolver® platform technology transfer collaborationreadily determinable fair value using a measurement alternative that measures these securities at the cost method minus impairment, if any, plus or minus changes resulting from observable price changes on a non-recurring basis. We adjust the carrying value of non-marketable equity securities which have been remeasured during the period 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 fieldrecognize resulting gains or losses as a component of human and animal healthcare.other income (expense), net.
We received an up-front license fee upon execution of the Merck CodeEvolver® Agreement,measured our equity investments in MAI and milestone payments in September 2015 and in September 2016, when we completed the transfer of the engineering platform technology.
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. The API payments, which are currently not recognized in revenue, areArzeda Corp. based on the quantitymeasurement alternative and adjusted the carrying values for observable price changes in orderly transactions for an identical or similar equity securities of API developed and manufactured by Merck and will bethe same issuer. We recognized a $0.7 million gain in other income (expense), net, on the change in the carrying value of our investment in MAI as usage-based royalties.
In January 2019, we entered into an amendment to the Merck CodeEvolvera result of a recent round of financing. We recognized no unrealized or realized gain or losses d® Agreement to install certain CodeEvolver® protein engineering technology upgrades into Merck’s platform license 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 inuring 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 $1.1 million and $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 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 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
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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.
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 in December 2016 which was recorded as deferred 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, 2020 and December 31, 2019, we had deferred revenue balances from the supply agreement of $2.0 million. 
Global Development, Option and License Agreement; Strategic Collaboration Agreement; Development Agreement
In October 2017, we entered into a Global Development, Option and License Agreement (the “Nestlé Agreement”) with Société des Produits Nestlé (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 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 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 were recognized over time as the development work was performed. Revenue was recognized using a single measure of progress that depicted our performance in transferring control of the services, which was 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 revenue 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.
In January 2019, we received notice from 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 and paid us $3.0 million which we recognized as research and development revenue in 2019. 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 October 2017, we also entered into a Strategic Collaboration Agreement (the “Strategic Collaboration Agreement”) with Nestlé Health Science pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver® protein engineering technology platform to develop novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas. Under the Strategic Collaboration Agreement, we received an upfront payment of $1.2 million in 2017 and an incremental payment of $0.6 million in September 2018 for additional services. The 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 $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 in the three and nine months ended September 30, 2019, respectively.
Strategic Collaboration Agreement
In April 2018, we entered into the Porton Agreement with Porton to license key elements of 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 of 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 technical transfer in the fourth quarter of 2018 and recognized $2.8 million in research and development revenue. We recognized revenue related to the functional license provided to Porton 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 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 had deferred revenue balances related to the strategic collaboration agreement of $0.1 million and 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 our proprietary CodeEvolver® protein engineering platform technology in the field of human healthcare. Under the Novartis CodeEvolver® Agreement, we are transferring our proprietary CodeEvolver® protein engineering platform technology to Novartis over approximately 23 months, starting with the date on which we commenced the technology transfer (the “Technology Transfer Period”). As a part of this technology transfer, the Company provided to Novartis our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms. In addition, teams of the Company and Novartis scientists participated in technology training sessions and collaborative research projects at our laboratories in Redwood City, California and at a designated Novartis laboratory in Basel, Switzerland. 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 $5.0 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 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. The Company also has the potential to receive quantity-dependent, usage payments for each API that is manufactured by Novartis using one or more enzymes that have been developed or are in development using the CodeEvolver® protein engineering platform technology during the period that 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 us 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 twenty-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, 2020, we had a deferred revenue balance of $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 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 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 Equity Securities
Cash equivalents at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
 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.

As of September 30, 2020, the total cash and cash equivalents balance of $71.5 million was comprised of money market funds of $51.5 million and cash of $20.0 million held with major financial institutions worldwide. As of December 31, 2019, the total cash and cash equivalents balance of $90.5 million was comprised of money market funds of $71.2 million and cash of $19.3 million held with major financial institutions worldwide.
Investment in Equity Securities
No single investor in MAI holds 20% or more of the voting stock. Our investment represented approximately 4% of MAI'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 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 recorded no impairments or upward adjustments due to observable price changes in the investment in the three and nine months ended
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September 30, 2020. The carrying amountvalue of theour investment in MAI was $1.0$11.5 million and $1.5 million at September 30, 2020. For additional information, see Note 12, "Related Party Transactions."
2021 and
December 31, 2020, respectively. The carrying value of our investment in Arzeda Corp. was $1.3 million at September 30, 2021.
The following table presents balances of the carrying value of non-marketable equity securities (in thousands):
 September 30, 2021December 31, 2020
Non-marketable equity securities$12,763 $1,450 
Note 7.6. Fair Value Measurements
The following tables present the financial instruments that were measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019 by level within the fair value hierarchy (in thousands):
 September 30, 2021
 Level 1Level 2Level 3Total
Money market funds$95,089 $— $— $95,089 

 December 31, 2020
 Level 1Level 2Level 3Total
Money market funds$127,567 $— $— $127,567 
Non-marketable debt security— — 1,000 1,000 
Total$127,567 $— $1,000 $128,567 
 September 30, 2020
 Level 1Level 2Level 3Total
Money market funds$51,488 $— $— $51,488 

 December 31, 2019
 Level 1Level 2Level 3Total
Money market funds$71,248 $— $— $71,248 

During the three and nine months ended September 30, 2021 and 2020, we did not recognize any significant credit losses nor other-than-temporary impairment losses on non-marketable securities.
Note 8.7. Balance Sheets Details
Cash Equivalents
Cash equivalents as of September 30, 2021 and December 31, 2020, consisted of the following (in thousands):
 September 30, 2021December 31, 2020
 Adjusted CostEstimated Fair ValueAdjusted CostEstimated Fair Value
Money market funds (1)
$95,089 $95,089 $127,567 $127,567 
(1) Money market funds are classified in cash and cash equivalents on our consolidated balance sheets. Average Contractual Maturities (in days) is not applicable.
As of September 30, 2021, the total cash and cash equivalents balance of $119.2 million was comprised of money market funds of $95.1 million and cash of $24.1 million held with major financial institutions. As of December 31, 2020, the total cash and cash equivalents balance of $149.1 million was comprised of money market funds of $127.6 million and cash of $21.5 million held with major financial institutions.
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Inventories
Inventories consisted of the following (in thousands):
September 30, 2021December 31, 2020
Raw materials$49 $77 
Work-in-process77 82 
Finished goods958 805 
Inventories$1,084 $964 
September 30, 2020December 31, 2019
Raw materials$77 $7 
Work-in-process28 26 
Finished goods632 338 
    Inventories$737 $371 

Inventories are recorded net of reserves of $1.5 million as of September 30, 2021 and December 31, 2020.
Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
September 30, 2020December 31, 2019September 30, 2021December 31, 2020
Laboratory equipmentLaboratory equipment$24,837 $23,561 Laboratory equipment$29,103 $25,468 
Leasehold improvementsLeasehold improvements10,774 10,804 Leasehold improvements10,785 10,785 
Computer equipment and softwareComputer equipment and software3,134 3,016 Computer equipment and software3,313 3,192 
Office equipment and furnitureOffice equipment and furniture1,175 1,461 Office equipment and furniture1,247 1,246 
Construction in progressConstruction in progress602 691 Construction in progress6,678 2,357 
Property and equipmentProperty and equipment40,522 39,533 Property and equipment51,126 43,048 
Less: accumulated depreciation and amortization Less: accumulated depreciation and amortization(33,233)(33,251)Less: accumulated depreciation and amortization(35,002)(33,373)
Property and equipment, net Property and equipment, net$7,289 $6,282 Property and equipment, net$16,124 $9,675 

Depreciation expense included in the Unaudited Condensed Consolidated Statements of Operations was follows (in thousands):
Three months ended September 30,Nine months ended September 30,
2021202020212020
Depreciation Expense$768 $503 $2,143 $1,403 
Goodwill
Goodwill had a carrying value of approximately $3.2 million as of September 30, 20202021 and December 31, 2019.2020.
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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, 2021December 31, 2020
Accrued purchases$9,050 $7,170 
Accrued professional and outside service fees5,936 2,589 
Other941 513 
Total$15,927 $10,272 
Note 9.8. Stock-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 superseded and replaced in its entirety our 2010 Equity Incentive Plan (the “2010 Plan”) which was effective in March 2010, and no further awards will be granted under the 2010 Plan; however, the terms and conditions of the 2010 Plan will continue to govern any outstanding awards thereunder.
The 20102019 Plan providedprovides for the grant of stock options, including incentive stock options non-statutoryand non-qualified stock options, stock appreciation rights, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), restricted stock awards ("RSAs"), performance-contingent restricted stock units ("PSUs"), performance basedperformance-based options ("PBOs"), other stock appreciation rights,or cash-based awards and stock purchase rightsdividend equivalents to oureligible employees non-employee directors and consultants.consultants of the Company or any parent or subsidiary, as well as members of the Board.
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;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 20192010 Plan providesprovided for the grant of stock options, including incentive stock options, and non-qualifiednon-statutory stock options, RSUs, RSAs, PSUs, PBOs, stock appreciation rights, restrictedand stock restricted stock units, other stock or cash based awardspurchase rights to our employees, non-employee directors and dividend equivalents to eligible employees and consultants of the Company or any parent or subsidiary, as well as members of the Board.consultants.
Stock Options
The option exercise price for incentive stock options must be at least 100% of the fair value of our common stock on the date of grant and the option exercise price for non-statutory stock options is at least 85% of the fair value of our common stock on the date of grant, as determined by the Board. If, at the time of a grant, the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all of our outstanding capital stock, the exercise price for these options must be at least 110% of the fair value of the underlying common stock. Stock options granted to employees generally have a maximum term of 10ten years and vest over four years from the date of grant, of which 25% vest at the end of one year, and 75% vest monthly over the remaining three years. We may grant options with different vesting terms from time to time. Unless an employee's termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier.
Restricted Stock Units (RSUs)("RSUs")
We also grant employees RSUs, which generally vest over either a three year period with one-third33% 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)("PSUs") and Performance Based Options (PBOs)("PBOs")
We also grant our executives and ourThe compensation committee of the Board approved, solely in respect of non-executive employees, delegated to our Chief Executive Officer the authority to approve grants of PSUs. The compensation committee of the Board also approved grants of PBOs and PSUs and we grantto our executives PBOs.executives. The PSUs and PBOs vest based upon both the successful achievement of certain corporate operating milestones in specified timelines and continued employment through the applicable vesting date. When the performance goals are deemed to be probable of achievement for these types of awards, recognition of stock-based
19

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 0no shares being eligible to vest in respect of the PSUs and PBOs.
In the first halfquarter of 2020,2021, we awarded PSUs ("20202021 PSUs") and PBOs ("20202021 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including sustainedcorporate revenue, and performance enzyme growth,segment gross margin, major new biotherapeutics publicity events, strategic advancements ofperformance enzyme and biotherapeutics pipeline,deliverables, safety, and technology and strategic plan development. As of September 30, 2021, we estimated that the 2021 PSUs and 2021 PBOs performance goals would be achieved at 146% and 73% of the target level, respectively, and recognized stock-based compensation expenses accordingly.
In 2020, we estimatedawarded PSUs ("2020 PSUs") and PBOs ("2020 PBOs"), each of which commenced vesting based upon the achievement of various weighted performance goals, including corporate revenue, performance enzyme segment gross margin, major new biotherapeutics publicity events, strategic performance enzyme and biotherapeutics deliverables, and strategic plan development. In the first quarter of 2021, we determined that the 2020 PSUs and 2020 PBOs performance goals would behad been achieved at 100%88% of the target level, and recognized expenses accordingly. Accordingly, 50% of the shares underlying the 2020 PSUs and PBOs vested in the first quarter of 2021 and 50% of the shares underlying the 2020 PSUs and PBOs will vest in the first quarter of 2022, in each case, subject to the recipient’s continued service on each vesting date.
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. In the first quarter of 2020, we determined that the 2019 PSUs and 2019 PBOs performance goals had been achieved at 106%84% 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 vestvested 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, 50% of the shares underlying the 2018 PSUs and PBOs vested in the first quarter of 2019 and 50% of the shares underlying the 2018 PSUs and PBOs vested in the first quarter of 2020, 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,
 2021202020212020
Research and development$652 $385 $1,726 $1,279 
Selling, general and administrative2,364 1,599 6,821 4,813 
Total$3,016 $1,984 $8,547 $6,092 

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, 2020 and 2019 (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Stock options$693 $619 $2,040 $1,735 
RSUs and RSAs742 603 1,974 1,812 
PSUs640 295 1,683 922 
PBOs941 467 2,850 1,623 
Total$3,016 $1,984 $8,547 $6,092 
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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, 2020,2021, unrecognized stock-based compensation expense, net of expected forfeitures, was $4.2$4.4 million related to unvested employee stock options, $0.3 million related to unvested non-employee stock options, $2.3$4.0 million related to unvested RSUs and RSAs, $0.8$1.5 million relatedrelated to unvested PSUs, and $1.3$2.6 million related to unvested PBOs based on current estimates of the level of achievement. Stock-based compensation expenseexpense for these awards will be recognized through the year of 2024.
of 2025.
Note 10.9. Capital Stock
Exercise of Options
For the nine months ended September 30, 20202021 and September 30, 2019,2020, we issued 87,240422,964 and 970,25687,240 shares, respectively, upon option exercises at a weighted-average exercise price of $6.17$6.45 and $4.76$6.17 per share, respectively, with net cash proceeds of $0.5$2.7 million and $4.6$0.5 million, respectively.
Private OfferingEquity Distribution Agreement
We filed a Registration Statement on Form S-3 with the SEC, under which we may sell common stock, preferred stock, debt securities, warrants, purchase contracts, and units from time to time in one or more offerings. The registration statement became effective on May 7, 2021. In June 2019,May 2021, we entered into an Equity Distribution Agreement ("EDA") with Piper Sandler & Co ("PSC"), under which PSC, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the execution of the EDA up to a maximum of $50.0 million of shares of our common stock. Under the terms of the EDA, PSC may sell the shares at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Purchase AgreementAct of 1933, as amended.
We are not required to sell any shares at any time during the term of the EDA. The EDA will terminate upon the earlier of: (i) the issuance and sale of all shares through PSC on the terms and conditions of the EDA, or (ii) the termination of the EDA in accordance with an affiliate of Casdinits terms. Either party may terminate the EDA at any time upon written notification to the other party in accordance with the EDA, and upon such notification, the offering will terminate. Under no circumstances shall any shares be sold pursuant to the EDA after the date which is three years after the registration statement is first declared effective by the SEC. We agreed to pay PSC a commission of 3% of the gross sales price of any shares sold pursuant to the EDA. With the exception of certain expenses, we issuedwill pay PSC up to 8% of the gross sales price of the shares sold pursuant to the EDA for a combined amount of commission and sold to Casdin 3,048,780reimbursement of PSC's expenses and fees.
During the three and nine months ended September 30, 2021, no shares of our common stock at a purchase price of $16.40 per share. After deducting legal fees of $74 thousand from the Private Offering, our net proceeds were $49.9 million.
The Private Offering was exempt from registrationissued pursuant to the exemptionEDA. As of September 30, 2021, $50.0 million of shares remained available for transactions by an issuer not involving any public offering under Section 4(a)(2) the Securities Act, and Regulation Dsale under the Securities Act.
EDA.
Note 11.10. Commitments and Contingencies
Operating Leases
Our headquarters are located in Redwood City, California, where we occupy approximately 77,300 square feet of office and laboratory space in 4multiple buildings within the same business park of Metropolitan Life Insurance Company ("MetLife"). Our lease (“Lease”)agreement with MetLife ("RWC Lease") includes approximately 28,200 square feet of space located at 200 and 220 Penobscot Drive, Redwood City, California (the “Penobscot“200/220 Penobscot Space”), and approximately 37,900 square feet of space located at 400 Penobscot Drive, Redwood City, California (the “Building 2“400 Penobscot Space”) (the 200/220 Penobscot Space and the 400 Penobscot Space are collectively referred to as the “Penobscot Space”), and approximately 11,200 square feet of space located at 501 Chesapeake Drive, Redwood City, California (the “501 Chesapeake Space”).
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Until the end of 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 theat 101 Saginaw SpaceDrive 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 spaceour facilities in Redwood City in 2004 and the leaseRWC Lease has been amended multiple times since then to adjust the leased space and terms of the lease ("Lease").Lease. In February 2019, we entered into an Eighth Amendment to the Lease ( the(the “Eighth Amendment”) with MetLife with respect to the Penobscot Space, the Building 2 Space and the 501 Chesapeake Space to extend the term of the Lease for additional periods. Pursuant to the Eighth Amendment, the term of the lease of the Penobscot Space and the Building 2 Space has been extended through May 2027. The lease term for the 501 Chesapeake Space has been
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extended to May 2029. We have 2 consecutive options1 (1) option to extend the term of the lease for the Penobscot Space for five (5) years, and 1 (1) separate option to extend the Building 2 Space andterm of the lease for the 501 Chesapeake Space for an additional period of five years per option.(5) years.
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$0.3 million as of September 30, 20202021 and December 31, 2019,2020, which are included in other long-term liabilities onin the unaudited condensed consolidated balance sheets. Accretion expense related to our asset retirement obligations was 0minal.nominal in the three and nine months ended September 30, 2021 and 2020.
Pursuant to the terms of the RWC Lease, we exercised our right to deliver a letter of credit in lieu of a security deposit. The letter of credit is collateralized by deposit balances held by the bank in the amount of $1.1$1.0 million as of September 30, 20202021 and December 31, 2019,2020 and are recorded as non-current restricted cash on the unaudited condensed consolidated balance sheets.
We entered into a short-term office lease in San Carlos, California during the second quarter of 2021 and this lease will expire in April 2022. Our remaining future commitment pursuant to this lease is $0.1 million as of September 30, 2021.
Finance Leases
In December 2016, we entered into a three-year financing lease agreement with a third party supplier for the purchase of laboratory equipment that was partially financed through a finance lease of approximately $0.4 million. The lease became effective upon delivery of the equipment in February 2017, and the term of the three-year lease was from February 2017 and expired in February 2020. This financing agreement was accounted for as a finance lease due to bargain purchase options 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 term of the three-year lease was from May 2017 and expired in April 2020.
Lease Costs and other information
Lease costs, amounts included in measurement of lease obligations and other information related coststo non-cancellable operating leases and finance leases 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 
Three months ended September 30,Nine months ended September 30,
 2021202020212020
Finance lease costs:
Amortization of right-of-use assets$26 $27$79 $126 
Interest on lease obligations———1 
Finance lease costs26 27 79 127 
Operating lease cost1,032 1,033 3,097 3,133 
Short-term lease costs (1)
30 — 40 47 
Sublease income— — — (55)
Total lease cost (2)
$1,088 $1,060 $3,216 $3,252 
(1)(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:(2) The Company had no variable lease costs.

Other information:Operating Leases
Weighted-average remaining lease term (in years)6.95.9 years
Weighted-average discount rate6.6 %

Nine months ended September 30,
Cash paid:20212020
Operating cash flows from operating leases$3,145 $1,795 
Financing cash flows from finance leases$— $60 
2822

Cash paid for amounts included in the measurement of lease obligations was as follows (in thousands):
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, 2020,2021, 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,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 

Years ending December 31,Operating Leases
2021 (remaining 3 months)$1,052 
20224,285 
20234,589 
20244,726 
20254,868 
2026 and thereafter8,626 
Total minimum lease payments28,146 
Less: imputed interest5,146 
Lease obligations$23,000 
Future Lease Commitment
In the first quarter of 2021, we entered into a lease agreement with ARE-San Francisco No. 63, LLC (“ARE”) to lease a portion of a facility comprising approximately 36,593 rentable square feet in San Carlos, California to serve as additional office and research and development laboratory space (the “San Carlos Space”). We expect to commence occupancy of the San Carlos Space in December 2021, once tenant improvements are substantially completed by ARE in accordance with the construction plan. The budget provides a net tenant improvement allowance of $6.3 million and an additional allowance of up to $2.7 million, which we expect to use. ARE will have an enforceable right to payment by us in the form of equal monthly additional rent payments at a certain interest rate through the lease term for the additional allowance. The terms include an initial annualized base rent of $2.5 million, subject to scheduled 3% annual rent increases, an annualized additional allowance payment of $0.4 million, plus certain operating expenses. The lease has a 10-year term from the lease commencement date with 1 option to extend the term for an additional period of 5 years. We have provided ARE with a $0.5 million security deposit in the form of a letter of credit. We have the right to sublease the facility, subject to landlord consent. We determined that the lease commencement date is in December 2021, at which point we will record a right of use asset and a corresponding operating lease liability.
An estimated maturity analysis of the annual undiscounted cash flows of the lease is as follows (in thousands):
Years ending December 31,Operating Leases
2021 (remaining 3 months)$— 
20222,463 
20232,988 
20243,066 
20253,145 
2026 and thereafter20,061 
Total minimum lease payments$31,723 
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
23

thousands):
Other Commitment Agreement TypeAgreement DateFuture Minimum Payment
Manufacture and supply agreement with expected future payment date of December 2022April 2016$532147 
Development and manufacturing services agreementsSeptember 20193,806 
Strategic Collaboration and License AgreementMarch 2020520686 
Total other commitments$4,858833 
Credit Facility
In June 30, 2017, we entered into a credit facility (the “Credit Facility”) with Western Alliance Bank consisting of term loans (“Term Debt”) up to $10.0 million, and advances (“Advances”) under a revolving line of credit ("Revolving Line of Credit") up to $5.0 million with an accounts receivable borrowing base of 80% of eligible accounts receivable. AtAs of September 30, 20202021 and December 31, 2019,2020, we have not drawn from the Credit Facility. We may draw on the Term Debt and the Revolving Line of Credit at any time prior to October 1,December 31, 2021 and October 1, 2024, respectively. On October 1, 2024 loans drawn under the Term Debt mature and the Revolving Line of Credit terminate. Loans made under the Term Debt bear interest through maturity equal to the greater of (i) 3.75% andor (ii) the sum of (A) Index Rate (prime rate published in the Money Rates section of the Western Edition of The Wall Street Journal plus (B) 0.50%. Advances made under the Revolving Line of Credit bear interest at a variable annual rate equal to the equal to the greater of (i) 4.25% andor (ii) the sum of (A) the prime rate plus (B) 1.00%.
29

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. AtAs of September 30, 2020,2021, 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, 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.
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 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 0no 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.

30

Note 12.11. Related Party Transactions
Molecular Assemblies, Inc.
In June 2020, we entered into a Stock Purchase Agreement with Molecular Assemblies, Inc (“MAI”)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, our President and Chief Executive Officer, also joined MAI’s board of directors.

At the same time, Concurrently with our initial equity investment, 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”),with MAI, pursuant to which we will applyare performing services utilizing our CodeEvolver® protein engineering platform technology to improve the DNA polymerase enzymes that are criticalin exchange 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 feescompensation in the form of additional shares of MAI's 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 anystock. In April 2021, we purchased an additional 1,000,000 shares of MAI's Series A preferred stock based on services provided in the nine months endedfor $0.6 million. In September 30, 2020. Under the MAI Agreement,2021, we will have the right to use and sell the engineered enzymes to third partiespurchased 9,198,423 shares of MAI's Series B preferred stock 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.$7.0 million.
24

We recognized $0.5$0.2 million and $0.7 million in research and development revenue from transactions with MAI in the three and nine months ended September 30, 20202021, respectively, and we recognized $0.5 million of revenue from research and development service transactions with MAI. AtMAI in the three and nine months ended September 30, 2020. We received 476,114 and 1,904,456 shares of MAI's Series A and B preferred stock from research and development services we provided to MAI in the three and nine months ended September 30, 2021, respectively, and 714,171 shares of MAI's Series A preferred stock from research and development services in the three and nine months ended September 30, 2020. As of September 30, 2021, we have 15,118,271 shares of MAI's Series A and B preferred stock that we have earned or purchased since executing the Stock Purchase Agreement with MAI. The carrying value of our investment in MAI Series A and B preferred stock was $11.5 million and $1.5 million at September 30, 2021 and December 31, 2020, werespectively. We had $0.5 million and nil in deferred revenue as of financialSeptember 30, 2021 and December 31, 2020, respectively, and nil and $0.5 million in contract assets due from MAI. MAI for services rendered as of September 30, 2021 and December 31, 2020, respectively. Payment for the services rendered was subsequently received in the form of additional MAI Series A and Series B preferred stock of MAI in October.stock.
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 sold biocatalyst products to AstraZeneca PLC and its controlled purchasing agents and contract manufacturers. We recognizedrecognized $0.1 million of revenue in 2020 through the date of Ms. Cheng’sCheng's departure from our board of directors. We recognized $0.2 million and $0.6 milliondirectors. As of revenue from transactions with AstraZeneca in the three and nine months ended September 30, 2019, respectively. At September 30, 2020 and December 31, 2019,2020, we had 0no receivables from AstraZeneca.

AstraZeneca PLC and its controlled purchasing agents and contract manufacturers.
Note 13.12. Segment, Geographical and Other Revenue Information
Segment Information
We manage our business as 2 business segments: Performance Enzymes and Novel Biotherapeutics, which are based on ourBiotherapeutics. Our chief 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 CODMmaker ("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.
31

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.
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.
25

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 tables providetable provides financial information by our reportable business segments along with a reconciliation to consolidated income (loss) before income taxes (in thousands):

Three months ended September 30, 2021Three months ended September 30, 2020
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Revenues:
Product revenue$28,731 $— $28,731 $8,401 $— $8,401 
Research and development revenue3,853 4,185 8,038 4,604 5,380 9,984 
Total revenues32,584 4,185 36,769 13,005 5,380 18,385 
Costs and operating expenses:
Cost of product revenue6,867 — 6,867 3,642 — 3,642 
Research and development(1)
5,670 8,850 14,520 5,184 6,433 11,617 
Selling, general and administrative(1)
3,306 831 4,137 2,675 515 3,190 
Total segment costs and operating expenses15,843 9,681 25,524 11,501 6,948 18,449 
Income (loss) from operations$16,741 $(5,496)11,245 $1,504 $(1,568)(64)
Corporate costs (2)
(8,097)(5,483)
Unallocated depreciation and amortization(794)(528)
Income (loss) before income taxes$2,354 $(6,075)
 
Three months ended September 30, 2020Three months ended September 30, 2019
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Revenues:
Product revenue$8,401 $— $8,401 $10,351 $— $10,351 
Research and development revenue4,604 5,380 9,984 10,073 1,482 11,555 
Total revenues13,005 5,380 18,385 20,424 1,482 21,906 
Costs and operating expenses:
Cost of product revenue3,642 0 3,642 5,067 0 5,067 
Research and development(1)
5,184 6,433 11,617 5,313 3,080 8,393 
Selling, general and administrative(1)
2,675 515 3,190 2,037 690 2,727 
Total segment costs and operating expenses11,501 6,948 18,449 12,417 3,770 16,187 
Income (loss) from operations$1,504 $(1,568)(64)$8,007 $(2,288)5,719 
Corporate costs (2)
(5,483)(4,912)
Depreciation and amortization(528)(471)
Income (loss) before income taxes$(6,075)$336 
26


Nine months ended September 30, 2021Nine months ended September 30, 2020
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Revenues:
Product revenue$53,674 $— $53,674 $18,005 $— $18,005 
Research and development revenue14,723 11,856 26,579 13,380 16,638 30,018 
Total revenues68,397 11,856 80,253 31,385 16,638 48,023 
Costs and operating expenses:
Cost of product revenue15,403 — 15,403 7,882 — 7,882 
Research and development(1)
17,172 20,649 37,821 15,877 16,848 32,725 
Selling, general and administrative(1)
9,294 2,052 11,346 7,395 1,728 9,123 
Total segment costs and operating expenses41,869 22,701 64,570 31,154 18,576 49,730 
Income (loss) from operations$26,528 $(10,845)15,683 $231 $(1,938)(1,707)
Corporate costs (2)
(24,431)(16,526)
Unallocated depreciation and amortization(2,220)(1,526)
Loss before income taxes$(10,968)$(19,759)
(1) Research and development expenses and Selling,selling, general and administrative expenses exclude depreciation and amortization of finance leases.
(2) Corporate costs include unallocated selling, general and administrative expense,expenses, interest income, and other income and expenses.(expense), net.
Nine months ended September 30, 2020Nine months ended September 30, 2019
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal
Revenues:
Product revenue$18,005 $— $18,005 $24,588 $— $24,588 
Research and development revenue13,380 16,638 30,018 16,512 8,708 25,220 
Total revenues31,385 16,638 48,023 41,100 8,708 49,808 
Costs and operating expenses:
Cost of product revenue7,882 0 7,882 12,230 0 12,230 
Research and development(1)
15,877 16,848 32,725 14,889 9,252 24,141 
Selling, general and administrative(1)
7,395 1,728 9,123 6,499 1,768 8,267 
Total segment costs and operating expenses31,154 18,576 49,730 33,618 11,020 44,638 
Income (loss) from operations$231 $(1,938)(1,707)$7,482 $(2,312)5,170 
Corporate costs (2)
(16,526)(15,185)
Depreciation and amortization(1,526)(1,273)
Loss before income taxes$(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.
33


The following tablestable provides stock-based compensation expense included in income (loss) from operations (in thousands):
Three months ended September 30,
20212020
Performance EnzymesNovel BiotherapeuticsCorporate costTotalPerformance EnzymesNovel BiotherapeuticsCorporate costTotal
Stock-based compensation$1,228 $272 $1,516 $3,016 $839 $132 $1,013 $1,984 
Nine months ended September 30,
20212020
Performance EnzymesNovel BiotherapeuticsCorporate costTotalPerformance EnzymesNovel BiotherapeuticsCorporate costTotal
Stock-based compensation$3,337 $767 $4,443 $8,547 $2,335 $625 $3,132 $6,092 
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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 accounted 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,
2021202020212020
Customer A51%*29%*
Customer B*13%10%*
Customer C*23%12%21%
Customer D*14%*22%
Customer E*15%*13%
Customer F***11%
* Percentage was less than 10%
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 accounted for 10% or more of accounts receivable had balances as of the periods 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, 2021December 31, 2020
Customer A34%*
Customer C11%32%
Customer E14%13%
Customer F*25%
* Percentage was less than 10%
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,
2021202020212020
Revenues
Americas$7,816 $5,841 $18,588 $17,972 
EMEA4,685 4,889 17,135 14,175 
APAC24,268 7,655 44,530 15,876 
Total revenues$36,769 $18,385 $80,253 $48,023 
 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 was as follows (in thousands):
September 30, 2021December 31, 2020
United States$35,645 $31,176 
Long-lived assetsSeptember 30, 2020December 31, 2019
United States$7,289 $6,282 
Identifiable goodwill by reporting unit was as follows (in thousands):
As of September 30, 2021 and December 31, 2020
Performance EnzymesNovel BiotherapeuticsTotal
Goodwill$2,463 $778 $3,241 
As of September 30, 2020 and December 31, 2019
Performance EnzymesNovel BiotherapeuticsTotal
Goodwill$2,463 $778 $3,241 
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Note 14.13. Allowance for Credit Losses
An analysis ofThe following table summarizes the financial assets 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 
September 30, 2021December 31, 2020
Allowance for credit losses$74 $74 
The following tables below summarizessummarize accounts receivable by aging category (in thousands):
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 
September 30, 2021
Current31-60 Days61-90 Days91 Days and overTotal balance
Accounts receivable$22,328 $1,869 $847 $40 $25,084 

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 
December 31, 2020
Current31-60 Days61-90 Days91 Days and overTotal balance
Accounts receivable$13,398 $489 $7 $— $13,894 

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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, 20192020 included in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, as filed with the SEC on February 28, 2020March 1, 2021 (the “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,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part II, Item 1A: “Risk Factors” of this Quarterly Report on Form 10-Q and Part I, Item 1A: “Risk Factors” of our Annual Report, as incorporated herein and referenced in Part II, Item 1A: “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 enzymes and other proteins that deliver value to our clients in a growing set of industries. We view proteins as a vast, largely untapped source of value-creating materials,products, and we are using our proven technologies, which we have been continuously improving since our inception in 2002, to commercialize an increasing number of novel proteins,enzymes, both as proprietary Codexis products and in partnership with our customers.
We are a pioneer in the harnessing of computational technologies to drive biology advancements. Since 2002, we have made substantial investments in the development of our CodeEvolver® protein engineering technology platform, the primary source of our competitive advantage. Our technology platform is powered by proprietary, artificial intelligence-based, computational algorithms that rapidly mine the structural and performance attributes of our large and continuously growing library of protein variants’ performance attributes.variants. These computational outputs enable increasingly reliable predictions for next generation protein variants to be engineered, enabling time- and cost-efficient delivery of the targeted performance enhancements in a time-efficient manner.enhancements. In addition to its computational prowess, our CodeEvolver® protein engineering technology platform integrates additional modular competencies, including robotic high-throughput screening and genomic sequencing, organic chemistry and processbioprocess development which are all coordinated to create ourrapidly innovate novel, protein innovations.fit-for-purpose products.
Our approach toThe core historical application of the technology has been in developing commercially viable biocatalytic manufacturing processes for more sustainable production of complex chemicals. This begins by conceptually designing the most cost-effective and practical process for a targeted product. We then develop optimized protein catalystsbiocatalysts to enable thatthe designed process, design using our CodeEvolver® protein engineering platform technology.platform. Engineered protein catalystbiocatalyst candidates, numbering many thousands for each protein engineering project, are then rapidly screened and validated inusing high throughput screeningmethods under relevant manufacturingprocess-relevant operating conditions. This approach results in an optimized protein catalyst enablingbiocatalyst that enables cost-efficient processes that typically are relatively simple to run in conventional manufacturing equipment. This also allows for the efficient technical transfer of our processprocesses 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 competencies directly involvedintegrated 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 processbioprocess development and fermentation engineering. Our integrated, multi-disciplinary approach to biocatalystproduct and process development is a critical success factor for the Company.
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We initially commercialized our CodeEvolver® protein engineering technology platform and products in the manufacture of small molecule pharmaceuticals, market, which remains a primary business focus. Our customers, which include many large, global
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pharmaceutical companies, use our technology, products and services in their manufacturing processesprocess development and process development. Wein manufacturing. Additionally, we have also licensed our proprietary CodeEvolver® protein engineering technology platform to global pharmaceutical companies so that they may in turnenabling them to use this technology, in house, to engineer enzymes for their own businesses. Most recently, in May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartisthe Novartis CodeEvolver® Agreement”)Agreement with Novartis Pharma AG (“Novartis”).Novartis. The Novartis CodeEvolver® Agreement (our third such agreement with large pharma companies) allows Novartis to use our proprietary CodeEvolver® protein engineering platform technology in the field of human healthcare.
As evidence of our strategy to extend our technology beyond pharmaceutical manufacturing, we have also used the technology to develop protein catalystsbiocatalysts and industrial enzymesenzyme products for use in a widerbroader set of industrial markets. These target industries consist ofmarkets, including several large market verticals, includingsuch as food, and food ingredients, animal feed, consumer care flavors, fragrances and agriculturalfine chemicals. In addition, we are using our technology to develop enzymes for customers usingvarious life science related applications, such as next generation sequencing ("NGS"(“NGS”) and polymerase chain reaction ("(“PCR/qPCR"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,market: the Company'sCompany’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 begunbeen using the CodeEvolver® protein engineering technology platform to develop early stage, novel biotherapeutic product candidates, both for ourin partnership with customers and for our own business.proprietary Codexis drug candidates. 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 the "Nestlé Agreement”Nestlé License Agreement with Nestlé Health Science to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive license to develop and commercialize CDX-6114. Also in October 2017, we entered into the Nestlé SCA pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver® platform technology to develop other novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas. In January 2020, we entered into a development agreement with Nestlé Health Science to advance a new lead candidate discovered under the Nestlé SCA, CDX-7108, into preclinical development and early clinical studies. CDX-7108 is the lead candidate forstudies as a potential treatment for a gastro-intestinalgastrointestinal disorder. In parallel, the original Strategic Collaboration AgreementNestlé SCA was extended through December 2021 to support the discovery of therapeutic candidates for additional disorders.
In March 2020, we entered into a Strategic Collaboration and Licensethe Takeda Agreement (“Takeda Agreement”) with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda, Pharmaceutical Company Limited (“Takeda”), for the research and development of novel gene therapies for certain disease indications, including the treatment of lysosomal storage disorders and a blood factor deficiencies.deficiency.
In June 2020, we entered into the MAI Agreement with Molecular Assemblies, Inc. ("MAI") pursuant to which we are leveraging our CodeEvolver® platform technology to improve the DNA polymerase enzymes that are critical for enzymatic DNA synthesis. Concurrently with the MAI Agreement, we purchased 1,587,050 shares of MAI's Series A preferred stock for $1.0 million and, in connection with the transaction, John Nicols, our President and Chief Executive Officer, joined MAI’s board of directors. In April 2021, we purchased an additional 1,000,000 shares of MAI's Series A preferred stock for $0.6 million. In September 2021, we purchased 9,198,423 shares of MAI's Series B preferred stock for $7.0 million. We anticipate completing an enzyme engineering project with MAI in the first quarter of 2022.
Business Segments
We manage our business as two business segments: Performance Enzymes and Novel Biotherapeutics. See Note 12, “Segment, Geographical and Other Revenue Information” in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Performance Enzymes
We initially commercialized our CodeEvolver® protein engineering technology platform and products in the manufacture of small molecule pharmaceuticals market, and, to date, this continues to be our largest market served. Our customers, which include many large global pharmaceutical companies, use our technology, products and services in their manufacturing processes and process development. We have also used the technology to develop customized enzymes for use in other industrial markets. These markets consist of several large industrial verticals, including food, and food ingredients, animal feed, consumer care, flavors, fragrances, and agriculturalfine chemicals. We also use our technology in the life sciences markets to develop enzymes for customers using NGS and PCR/qPCR for in vitro molecular diagnostic and molecular biology research applications, as well DNA/RNA synthesis and health monitoring applications.
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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. Our first lead program was for the potential treatment of hyperphenylalaninemia (“HPA”) (also referred to as PKU)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 global 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 for the potential treatment of
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PKU. The initiation of the trial triggered a $4.0 million milestone payment from Nestlé Health Science. 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 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 assumed all responsibilities for future clinical development and commercialization of CDX-6114. During 2020, Nestlé Health Science completed a safety, tolerability and PK/PD study of CDX-6114 in PKU patients that demonstrated CDX-6114 was substantially completedwell tolerated at all doses tested. In addition, an increase in blood levels of cinnamic acid, a biomarker of enzyme activity, was observed which is consistent with the fourth quarterintended mode of 2019.action for CDX-6114.
In October 2017, we separately entered into a Strategic Collaboration Agreementthe Nestlé SCA 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. The Nestlé SCA was extended through December 2021. 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 into preclinical and early clinical studies a lead candidate targeting a gastro-intestinalgastrointestinal disorder, CDX-7108, discovered through our Strategic Collaboration Agreement into pre-clinical and earlythe Nestlé SCA. During 2021, we, together with Nestlé Health Science, continued to advance CDX-7108 towards initiation of a Phase 1 clinical studies. The Strategic Collaboration Agreement was extended through Decembertrial which commenced in October 2021. Additionally, the parties are progressing three programs under the Nestlé SCA targeting different gastrointestinal disorders.
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 applicablethe respective program plans for Fabry Disease, Pompe Disease, and an unnamedundisclosed 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, Of these programs, the Fabry disease program is the most advanced, with multiple sequences, including CDX-6311, having been provided to Takeda. In May 2021, Takeda elected to exercise their option to initiate an additional program for a certain undisclosed rare genetic disorder, as a result we have also developed a pipelinereceived the option exercise fee during the third quarter of other biotherapeutic drug candidates, which are in preclinical development. We expect to continue to make additional investments in our pipeline with the aim of advancing additional product candidates targeting other therapeutic areas.2021.
For further description of our business segments, see Note 13,12, "Segment, Geographical and Other Revenue Information" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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, the prevalence of more contagious and or virulent variants, and the extent and severity of the impact on our customers, new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
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"&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 negativeminimal impact on revenue for the three and nine months endingended 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.2021. 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.,United States, the impact of COVID-19, including governmental orders ("Orders"(“Orders”) governing the operation of businesses during the pandemic, caused the temporary closure of our Redwood City, California facilities and has disrupted our
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R&D operations.operations. R&D operations for several projects were temporarily suspended from mid-March 2020 through the end of April 2020 in accordance with these Orders. In May 2020, we initiatedre-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.capacity while following county, state and federal COVID-19 guidance for the protection of our employees. 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 extentnear-and-long term impact of COVID-19 to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations in the future isremains uncertain.
Although some of the Orders that were enacted to control the spread of COVID-19 have begun to be scaled back and the vaccine rollout has expanded, surges in the spread of COVID-19 due to the emergence of new more contagious or virulent variants or the ineffectiveness of the vaccines against such strains, may result in the reimplementation of certain Orders, which could adversely impact our business. For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included in this Quarterlyour Annual Report on Form 10-Q.

10-K, for the fiscal year ended December 31, 2020, filed on March 1, 2021.
Results of Operations Overview
Total revenues decreased to $18.4 million for the third quarter of 2020 from $21.9 million for the third quarter of 2019, due to decreases in both research and development and product revenues.
Product revenue for the third quarter of 2020 decreased by $2.0 million to $8.4 million from $10.4 million for the third quarter of 2019 due to variability 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 $11.6Revenues were $36.8 million in the third quarter of 2019,2021, a 100% increase from $18.4 million in the third quarter of 2020.
Product revenue, which consists primarily of sales of biocatalysts, pharmaceutical intermediates, and Codex® biocatalyst panels and kits, was $28.7 million in the third quarter of 2021, an increase of 242% from $8.4 million in the third quarter of 2020. The increase in product revenue was primarily due to an increase in customer demand for branded pharmaceutical products. We expect the demand for our products for the rest of the year to be higher than the comparative periods in the prior year mainly due to overall higher demand for enzymes used in the manufacture of branded pharmaceutical products and a total of three large purchase orders from Pfizer, Inc. for an aggregate amount of $29.0 million of a proprietary high enzyme product that we received in June and August 2021, and that will continue to be recognized as revenue in subsequent periods.
Research and development revenues, which include license, technology access and exclusivity fees, research service fees, milestone payments, royalties, and optimization and screening fees, totaled $8.0 million in the third quarter of 2021, a 19% decrease compared with $10.0 million in the third quarter of 2020. The decrease in research and development revenue was primarily due to lower revenueslicense fees from Takeda under the Takeda Agreement and lower revenue from Novartis under the Novartis CodeEvolver®Agreement and a priorbeing recognized this year milestone payment from GSK under the GSK CodeEvolver® Agreement, partially offset by the recognition of license fees from Takeda under the Takeda Strategic Collaboration and License Agreement.
Product gross margins were 57% for the third quarter of 2020, compared to 51%the same period in the third quarterprior year.
Our products’ profitability is affected by many factors including the margin of 2019, due to improved product mix.profit on the products we sell. Our profit margins are affected by many factors including product pricing andthe costs of internal and third-party fixed and variable costs, including materials and supplies, labor, facilities and other overhead costs. Profit margin data areis used as a management performance measure to provide additional information regarding our results of operations on a consolidated basis.
Research and development expense Product gross margins increased by $3.3 million, or 38%, to $12.0 million for76% in the third quarter of 2021, compared to 57% in the third quarter of 2020, compareddue to improved product mix resulting from an increase in customer demand for branded products.
Research and development expenses were $15.2 million in the third quarter of 2019,2021, an increase of 26% from $12.0 million in the third quarter of 2020. The increase was primarily due to an increaseincreases in costs associated with higher headcount, higher depreciation expense and higher lab supplies costs, partially offset by a reduction in costs associated with outside services relatingrelated to Chemistry, Manufacturing and Controls ("CMC") and regulatory expenses higher headcount, and highera decrease in allocable expenses. We expect research and development expenses for the rest of the year to be higher than the comparative periods in the prior year mainly due to increase in headcount as we continue our efforts on advancing our internal and collaborative programs.
Selling, general and administrative expense increased by $0.9expenses were $13.4 million or 12%in the third quarter of 2021, an increase of 52%, compared to $8.8 million forin the third quarter of 2020 compared2020. The increase was primarily due to increases in expenses associated with a higher headcount, increase in legal expenses, and higher stock-based compensation expense, partially offset by lower travel and allocable expenses. We expect selling, general and administrative expenses for the rest of the year to be higher than the comparative periods in prior year mainly due to increase in headcount and higher operating costs as we invest more in our business.
We recognized $0.1 million in income tax expense in the third quarter of 2019, primarily 2021 due to an increaseincome tax withholding imposed by foreign taxing authorities on income earned in costs associated with headcount, consultants, facilities,certain countries outside servicesof the United States and insurance, partially offset by lower recruiting costsremitted to the United States. We recognized $19.0 thousand provision for income taxes for the third quarter2020 due to the accrual of interest and lower allocable expenses.penalties on historical uncertain tax positions
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Net loss forincome was $2.2 million, or $0.03 per basic and diluted share in the third quarter of 2020 was $6.1 million, representing2021 compared to a net loss of $0.10 per basic and diluted share. This compares to net income of $0.3$6.1 million, representing net income of $0.01or $0.10 per basic and diluted share for the third quarter of 2019.2020. The increase in net loss for the third quarter over the same period of the prior yearincome is primarily related to decreasesincrease in research and development and product revenues and higher research and developmentmargins, which were partially offset by increases in operating expenses.
Cash and cash equivalents decreased by $19.0 million to $71.5$119.2 million as of September 30, 20202021 compared to $90.5$149.1 million as of December 31, 2019. Net2020. In addition, net cash used in operating activities increasedwas $14.9 million in the nine months ended September 30, 2021 as compared 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. 2020. 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 with Western Alliance Bank 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.property. In September 2020,2021, we entered into an Eighththe Ninth Amendment to the Credit Facility whereby we may draw on the term debt and the Revolving Line of Credit at any time prior to October 1,December 31, 2021 and October 1, 2024, respectively. Draws on the term debt are subject to customary conditions for funding including, among others, that no event of default exists. As of September 30, 2020,2021, no amounts were borrowed under the Credit Facility and we were in compliance with the covenants for the Credit Facility. See Note 11,10, "Commitments and 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 decreasedincreased by $7.4$19.6 million, or 36%151%, to $32.6 million in the third quarter of 2021, compared to $13.0 million in the third quarter of 2020 primarily due to higher product revenue. The increase in product revenue of $20.3 million, or 242%, to $28.7 million in the third quarter of 2021, compared to $8.4 million in the third quarter of 2020 was primarily due to higher customer demand for enzymes for the manufacture of branded pharmaceuticals products. We expect the demand for our products for the rest of the year to be higher than the comparative periods in the prior year mainly due to overall higher demand for enzymes used in the manufacture of branded pharmaceutical products and a total of three large purchase orders from Pfizer, Inc. for an aggregate amount of $29.0 million of a proprietary high enzyme product that we received in June and August 2021 and that will continue to be recognized as revenue in subsequent periods.
The decrease in research and development revenue of $0.8 million, or 16%, to $3.9 million in the third quarter of 2021, compared to $4.6 million in third quarter of 2020 was primarily due to lower revenues from the Novartis CodeEvolver® Agreement as we completed the technology transfer to Novartis during the third quarter of 2021, but were partially offset by higher license fees from existing collaboration agreements.
Product gross margins were 76% in the third quarter of 2021, compared to 57% in the third quarter of 2020. The increase in product gross margins was primarily due to improved product mix due to higher demand for enzymes for the manufacture of branded pharmaceutical products.
Research and development expense increased by $0.5 million, or 9%, to $5.7 million for the third quarter of 2020,2021, compared to the third quarter of 2019.
Product gross margins were 57%$5.2 million in the third quarter of 2020, compared to 51% in the corresponding period in 2019.
Research and development expense decreased by $0.1 million, or 2%, to $5.2 million for the third quarter of 2020, compared to the third quarter of 2019,2020. The increase was primarily due to an increase in costs associated with higher headcount, higher outside services relating to Chemistry, Manufacturing and Controls ("CMC") and regulatory expenses, and higher headcount.lab supplies, partially offset by lower allocable expenses.
Selling, general and administrative expense increased by $0.6 million, or 31%24%, to $2.7$3.3 million for the third quarter of 2020,2021, compared to $2.7 million in the third quarter of 2019,2020. The increase was primarily due to an increase in costs associated with higher headcount and allocable expenses, partially offset by lower allocableoutside services expenses.
We expect both research and development expenses and selling, general and administrative expenses for the rest of the year to be higher than the comparative periods in the prior year mainly due to increase in headcount as we invest more in our business.
Novel Biotherapeutics
Revenues increasedResearch and development revenues decreased by $3.9$1.2 million, or 263%, to $5.4$4.2 million forin the third quarter of 2020,2021, compared to $5.4 million in the third quarter of 2019,2020. The decrease in research and development revenue was primarily due to recognition oflower license and research and development fees from Takeda under the Takeda Strategic Collaboration and License Agreement and research and development revenue from Nestlé Health Science.recognized this year compared to the prior year.
Research and development expense increased by $3.4$2.4 million, or 109%38%, to $6.4$8.9 million for the third quarter of 2020,2021, compared to $6.4 million in the third quarter of 2019,2020. The increase was primarily due to an increase inhigher costs associated with higher
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headcount and allocable expenses, but offset by reduction in outside services relatingrelated to CMC and regulatory expenses. We expect research and development expenses for the rest of the year to be higher outside servicesthan the comparative periods in prior year mainly due to increase in headcount as we continue our efforts on advancing our internal and higher headcount.collaborative programs.
Selling, general and administrative expense decreasedincreased by $0.2$0.3 million, or 25%61%, to $0.5$0.8 million forin the third quarter of 20202021, compared to $0.5 million in the third quarter of 2019,2020. The increase was primarily due to increase in costs associated with higher headcount and higher allocable expenses, partially offset by 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 up-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 recognized revenue of $2.0 million for the milestone payment from GSK relating to the advancement of an enzyme developed by GSK using our CodeEvolver® protein engineering platform 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 up-front license fee upon execution of the Merck CodeEvolver® Agreement, and milestone payments in September 2015 and in September 2016, when we completed the transfer of the engineering platform technology.
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. The API payments are based on the quantity of API developed and manufactured by Merck and will be recognized as usage-based royalties.
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In January 2019, we entered into an amendment to the Merck CodeEvolver® Agreement to install certain CodeEvolver® protein engineering technology upgrades into Merck’s platform 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 $1.1 million and $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.services expenses.
Merck Sitagliptin Catalyst Supply Agreement
In February 2012, we entered into a five-year Sitagliptin Catalyst Supply Agreement (“Sitagliptin Catalyst Supply Agreement”) with Merck whereby Merck may obtain commercial scale enzyme for use in the manufacture of Januvia®, its product based on the active ingredient sitagliptin. In December 2015, Merck exercised its option under the terms of the sitagliptinSitagliptin Catalyst Supply Agreement to extend the agreement for an additional five years through February 2022. In September 2021, the Sitagliptin Catalyst Supply Agreement was amended to extend the agreement through December 2026.
Effective as of January 2016, we and Merck amended the Sitagliptin Catalyst Supply Agreement to prospectively provide for variable pricing based on the cumulative volume of sitagliptin catalystenzyme 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.Merck.
We have determined that the variable pricing, which provides a discount based on the cumulative volume of sitagliptin catalystenzyme purchased by Merck, provides Merck material rights and we are recognizing product revenues using the alternative method. Under the alternative approach,method, 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 of sitagliptin enzyme from us for a fee based on contractually stated prices. We recognized revenue of $1.9 million and $7.3 million for the three and nine months ended September 30, 2021, respectively, compared to $3.2 million and $7.0 million for the three and nine months ended September 30, 2020, respectively, compared to $3.6 millionin product revenue under this contract. Revenues recognized by us under the Sitagliptin Supply Agreement comprised 5% and $11.4 million in9% for the three and nine months ended September 30, 2019,2021, respectively, in product revenue under this agreement. Revenues from Merck under the Sitagliptin Catalyst Supply Agreement werecompared to 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.of our total revenues.
As of September 30, 2020,2021, we recorded revenue of $3.2$2.5 million from sitagliptin productsenzyme 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 the Nestlé License Agreement with Societé des Produits Néstle S.A., 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 License Agreement, Nestlé Health Science S.A., to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU.
We received an upfront cash payment of $14.0 million 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 were recognized over time as the development work was performed. Revenue was recognized using a single measure of progress that depicted our performance in transferring control of the services, which was 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 revenue 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.
In January 2019, we received notice from the U.S. Food and Drug Administration (the "FDA")FDA that it had completed its review of our investigational new drug application (" IND")IND for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sub-licensablesub-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 made an option payment and assumed all responsibilities for future clinical development and commercialization of CDX-6114 was substantially completed in the fourth quarter of 2019.CDX-6114. We are also eligible to receive payments from Nestlé Health Science under the Nestlé License Agreement that include (i) development and approval milestones of up to $85.0 million, (ii) sales-based milestones of up to $250.0 million in the aggregate, which aggregate amount is achievable if net sales exceed $1.0 billion in a single year, and (iii) tiered royalties, at percentages ranging from the middle singlemid-single digits to low double-digits, of net sales of product.
In October 2017, we also entered into a Strategic Collaboration Agreement (the “Strategic Collaboration Agreement”) withthe Nestlé Health ScienceSCA pursuant to which we and Nestlé Health Science are collaborating to leverage the CodeEvolver® protein engineering technology platform to develop novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas. 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.
In January 2020, we and Nestlé Health Science entered into a development agreement with Nestlé Health Science pursuant to which we and Nestlé Health Science are collaborating to advance a lead candidate, CDX-7108, targeting a gastro-intestinalgastrointestinal disorder discovered through our Strategic Collaboration AgreementNestlé SCA into pre-clinicalpreclinical and early clinical studies. The Strategic Collaboration Agreement was extended through DecemberDuring 2021, we, together with Nestlé Health Science, continued to advance CDX-7108 towards initiation of a Phase 1 clinical trial which commenced in October 2021. Additionally, the parties are progressing three programs under the Nestlé SCA targeting different gastrointestinal disorders
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Under the Strategic Collaboration AgreementNestlé SCA and the development agreement, we recognized research and development fees of $2.4 million and $5.8 million for the three and nine months ended September 30, 2021, respectively, compared to $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.
Strategic Collaboration Agreement
In April 2018, we entered into the Porton Agreement with Porton to license key elements of 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 of 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 technical transfer in the fourth quarter of 2018 and recognized $2.8 million in research and development revenue. We recognized revenue related to the functional license provided to Porton 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 “Novartisthe Novartis CodeEvolver® Agreement”)Agreement with Novartis Pharma AG (“Novartis”).Novartis. The Agreement allows Novartis to use our proprietary CodeEvolver®protein engineering platform technology in the field of human healthcare. UnderIn July 2021, we announced the Novartis CodeEvolver® Agreement,completion of the technology transfer period during which we are transferringtransferred our proprietary CodeEvolver®protein engineering platform technology to Novartis over approximately 23 months starting with the date on which we commenced the technology transfer (the “Technology Transfer Period”). As a part of this technology transfer, the Company provided to Novartis our proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms. In addition, teams of the Company and Novartis scientists participated in technology training sessions and collaborative research projects at our laboratories in Redwood City, California and at a designated Novartis laboratory in Basel, Switzerland. Upon completion of technology transfer, Novartis will havehas now installed the CodeEvolver®protein engineering platform technology installed at its designated laboratory.
Pursuant to the agreement, we received an upfront paymentpayment 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 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 eligible tohave also received $3.4 million in March 2021, for partial completion of the third technology milestone. Additionally, we will receive an additional $5.0payment of $1.6 million upon satisfactoryfor completion of the third technology transfer milestone.milestone in July 2021, which brings the total cash payment for the third technology transfer milestone to $5.0 million as specified in the Novartis CodeEvolver® Agreement. In consideration for the continued disclosure and license of improvements to ourthe technology and materials during a multi-year period that beginsbegan on the conclusion of the Technology Transfer Period (“Improvements Term”), Novartis will pay usCodexis annual payments which amount to an additional $8.0 million.million in aggregate. The Company also has the potential to receive quantity-dependent, usage payments for each API that is manufactured by Novartis using one or more enzymes that have been developed or are in development using the CodeEvolver®protein engineering platform technology during the period that beginsbegan 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 the 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 twenty-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. In July 2021, we completed the technology transfer to Novartis. Revenue allocated to future improvements made during the Improvements Term will be recognized during the Improvement Term. We recognized $0.9$0.2 millionand $4.1$1.4 million in research and development revenue for the three and nine months ended September 30, 2020,2021, respectively, compared to $0.9 million and $3.8$4.1 million in revenue for the three and nine months ended September 30, 2019, respectively, from the Novartis CodeEvolver® Agreement.2020, respectively.
Strategic Collaboration and License Agreement
In March 2020, we entered into a Strategic Collaboration and Licensethe Takeda Agreement (the “Takeda Agreement”) with Shire Human Genetic Therapies, Inc., a wholly-owned subsidiary of Takeda, Pharmaceutical Co. Ltd. (“Takeda”), under which we will collaborateare collaborating 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-frontupfront 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 relatedIn May 2021, Takeda elected to exercise its option to initiate an additional program for a certain undisclosed rare genetic disorder; as a result we received the Takeda Agreementoption exercise fee during the third quarter of $2.6 million and $10.6 million in the three and nine months ended September 30, 2020, respectively.2021.
Other potential payments from Takeda include (i) reimbursement of research and development fees and pre-clinical approvalpreclinical development milestones for the three initial programs to earn $18.3of $15.4 million, in aggregate (ii) clinical 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 based on net sales of applicable products at percentages ranging from the middle-single digitdigits 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 insingle-digits. We recognized research and development activitiesrevenue related to engineer DNA polymerase enzymes for the enzymatic synthesisTakeda Agreement of DNA in exchange for monthly fees in$1.8 million and $6.0 million for 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,three 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 right2021, respectively, compared to use$2.6 million and sell the engineered enzymes to third parties$10.6 million 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, respectively.


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Pfizer, Inc. purchase orders
In June 2021, we received a binding purchase order from transactions with MAI. AtPfizer, Inc. for the sale and purchase of a quantity of proprietary enzyme product for $13.9 million. In August 2021, we had received two additional binding purchase orders from Pfizer for the sale and purchase of a quantity of the same enzyme product for an aggregate amount of approximately $15.0 million. The enzyme product is intended for use in the manufacture of Pfizer's clinical-stage COVID antiviral therapeutic candidate.
We recognized product revenue related to the three purchase orders from Pfizer of $18.9 million for the three and nine months ended September 30, 2020,2021. As of September 30, 2021, we recorded revenue of $10.6 million from the sale of this enzyme product that were recognized over time based on the progress of the manufacturing process. These products will be shipped within the three month period following the end of the quarter. As of September 30, 2021, we had $0.5$10.6 million of financialin contract assets due from MAI. Payment for the services was subsequently received in the form of additional Series A preferred stock of MAI in October.

related to these purchase orders.
Results of Operations
The following table shows the amounts from our unaudited condensed consolidated statements of operations for the periods presented (in thousands)thousands, except percentages):
 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,ChangeNine months ended September 30,Change
 20212020$%20212020$%
Revenues:
Product revenue$28,731 $8,401 $20,330 242 %$53,674 $18,005 $35,669 198 %
Research and development revenue8,038 9,984 (1,946)(19)%26,579 30,018 (3,439)(11)%
Total revenues36,769 18,385 18,384 100 %80,253 48,023 32,230 67 %
Costs and operating expenses:
Cost of product revenue6,867 3,642 3,225 89 %15,403 7,882 7,521 95 %
Research and development15,165 12,010 3,155 26 %39,562 33,830 5,732 17 %
Selling, general and administrative13,407 8,797 4,610 52 %37,600 26,307 11,293 43 %
Total costs and operating expenses35,439 24,449 10,990 45 %92,565 68,019 24,546 36 %
Income (loss) from operations1,330 (6,064)7,394 122 %(12,312)(19,996)7,684 (38)%
Interest income41 39 2 5 %424 362 62 17 %
Other income (expense), net983 (50)1,033 2,066 %920 (125)1,045 836 %
Income (loss) before income taxes2,354 (6,075)8,429 139 %(10,968)(19,759)8,791 (44)%
Provision for income taxes110 19 91 479 %121 331 (210)(63)%
Net income (loss)$2,244 $(6,094)$8,338 137 %$(11,089)$(20,090)$9,001 (45)%
Revenues
Our revenues comprise of product revenue and research and development revenue as follows:
•Product revenue consistsconsist of sales of protein catalysts,biocatalysts, pharmaceutical intermediates, and Codex® biocatalyst panels and kits.
•Research and development revenue includeincludes license, technology access and exclusivity fees, research services fees, milestone payments, royalties, optimization and screening fees.
The following table shows the amounts of our product revenue and research and development revenue from our unaudited condensed consolidated statements of operations for the periods presentedRevenues are as follows (in thousands)thousands, except percentages):
Three months ended September 30,ChangeNine months ended September 30,Change
(In Thousands)20202019$%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)%

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Three months ended September 30,ChangeNine months ended September 30,Change
20212020$%20212020$%
Product revenue$28,731 $8,401 $20,330 242 %$53,674 $18,005 $35,669 198 %
Research and development revenue8,038 9,984 (1,946)(19)%26,579 30,018 (3,439)(11)%
Total revenues$36,769 $18,385 $18,384 100 %$80,253 $48,023 $32,230 67 %
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.
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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 decreasedincreased by $3.5 million in the three months ended September 30, 2020 compared to the same period in 2019 due to lower research and development revenue and lower product revenue. Total revenues decreased by $1.8 million in the nine months ended September 30, 2020 compared to the same period in 2019 due to lower product revenue offset by higher research and development revenue.
Product revenue decreased by $2.0$18.4 million and $6.6$32.2 million in the three and nine months ended September 30, 2020,2021, respectively, compared to the same periods in 2019,2020, primarily due to variability ofhigher product revenue but partially offset by lower research and development revenue for the three and nine month period.
Product revenue, increased by $20.3 million and $35.7 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, primarily due to an increase in customer demand for genericbranded pharmaceutical products. We expect the demand for our products for the rest of the year to be higher than the comparative periods in the prior year mainly due to overall higher demand for enzymes used in the manufacture of branded pharmaceutical products and branded products.a total of three large purchase orders from Pfizer, Inc. for an aggregate amount of $29.0 million of a proprietary high enzyme product that we received in June and August 2021 and that will continue to be recognized as revenue in subsequent periods.
Research and development revenue decreased by $1.6$1.9 million and $3.4 million in the three and nine months ended September 30, 20202021, respectively, compared to the same periodperiods in 2019,2020, 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 license fees and research and development revenuefees from Takeda under the Takeda Agreement. ResearchAgreement and development revenue increased by $4.8 million inlower revenues from the nine months ended September 30, 2020Novartis CodeEvolver® Agreement recognized this year compared to the sameprior year period, in 2019, primarily due to the recognition of license fees and research and development revenue from Takeda under the Takeda Strategic Collaboration and License Agreement, and recognition ofpartially offset by higher license fees from Porton, partially offset by lower revenue and prior year functional license fee revenue from Nestlé Health Science, lower revenue from a prior year milestone payment from GSK under the GSK CodeEvolver® Agreement.other existing collaboration agreements.
Cost and Operating Expenses
Our cost and operating expenses comprise 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)thousands, except percentages):

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 $6,609 11%
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Three months ended September 30,ChangeNine months ended September 30,Change
20212020$%20212020$%
Cost of product revenue$6,867 $3,642 $3,225 89 %$15,403 $7,882 $7,521 95 %
Research and development15,165 12,010 3,155 26 %39,562 33,830 5,732 17 %
Selling, general and administrative13,407 8,797 4,610 52 %37,600 26,307 11,293 43 %
Total costs and operating expenses$35,439 $24,449$10,990 45 %$92,565 $68,019$24,546 36 %
Cost of Product Revenue and Product Gross Margin
Our product revenues are derived entirely from our Performance Enzymes segment. Revenues from the Novel Biotherapeutics segment are from collaborative research and development activities and not from product revenue.
The following table shows the amounts of our product revenue, cost of product revenue, product gross profit and product gross margin from our unaudited condensed consolidated statements of operations for the periods presented (in thousands)thousands, except percentages):
Three months ended September 30,ChangeNine months ended September 30,Change
(In Thousands)20202019$%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,ChangeNine months ended September 30,Change
20212020$%20212020$%
Product revenue$28,731$8,401$20,330 242 %$53,674$18,005$35,669 198 %
Cost of product revenue (1)
6,8673,6423,225 89 %15,4037,8827,521 95 %
Product gross profit$21,864$4,759$17,105 359 %$38,271$10,123$28,148 278 %
Product gross margin (%) (2)
76 %57 %71 %56 %

(1)
Cost of product revenue comprises both internal and third-party fixed and variable costs, including materials and supplies, labor, facilities and other overhead costs associated with our product revenue.
(2) Product gross margins weremargin is used as a performance measure to provide additional information regarding our results of operations on a consolidated basis.
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Cost of product revenue increased by $3.2 million in the three months ended September 30, 2021, compared to the three months ended September 30, 2020, and increased by $7.5 million in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The increase was primarily due to a higher volume of product sales and variations in product mix. The product gross margin increased to 76% and 71% in the three and nine months ended September 30, 2021, respectively, compared to 57% and 56% in the three and nine months ended September 30, 2020, respectively, compared to 51% and 50% and in the corresponding periods in 2019primarily due to variations in product mix.

the sale of higher margin branded products.
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 $3.3$3.2 million, or 38%26%, during the three months ended September 30, 20202021, and by $8.8$5.7 million, or 35%17%, in the nine months ended September 30, 2020,2021, compared to the same periods in 2019.2020. The increase in research and development expenses waswas primarily due to an increase in costs associated with higher headcount, higher lab supplies, depreciation and other outside services, partially offset by a decrease in costs associated with outside services relating to CMC and regulatory expenses. We expect research and development expenses for the rest of the year to be higher than the comparative periods in the prior year mainly due to increase in headcount as we continue our efforts on advancing our internal and higher allocable expenses, partially offset by lower lab supplies and outside consultants.

collaborative programs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of employee-related costs, which include salaries and other personnel-related expenses (including stock-based compensation), hiring and training costs, consulting and outside services expenses (including audit and legal counsel related costs), marketing costs, building lease costs, and depreciation expenses and amortization expense.
Selling, general and administrative expenses increased by $0.9$4.6 million, or 12%52%, in the three months ended September 30, 20202021, and by $2.1$11.3 million, or 9%43%, in the nine months ended September 30, 20202021 compared to the same periods in 2019.2020. The increase in selling, general and administrative expense waswas primarily due to an increase in costs associated with a higher facilitiesheadcount, increase in legal fees, and headcount, legal and accounting fees, outside services, and licensed technologyhigher share-based compensation costs, partially offset by lower travel and allocable expenses. We expect selling, general and administrative expenses lower travel expensesfor the rest of the year to be higher than the comparative periods in the prior year mainly due to increase in headcount and lower recruiting costs.higher operating costs as we invest more in our business.

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Interest Income and Other Expense
Income (Expense), net
(in thousands, except percentages):
Three months ended September 30,ChangeNine months ended September 30,Change
(In Thousands)20202019$%20202019$%
Interest income$39 $480 $(441)(92)%$362 $929 $(567)(61)%
Other expenses, net(50)(403)353 88%(125)(615)490 80%
Total other income, net$(11)$77 $(88)(114)%$237 $314 $(77)(25)%

Three months ended September 30,ChangeNine months ended September 30,Change
20212020$%20212020$%
Interest income$41 $39 2 5 %$424 $362 62 17 %
Other income (expense), net983 (50)1,033 2,066 %920 (125)1,045 836 %
Total other income (expense), net$1,024 $(11)$1,035 9,409%$1,344 $237 $1,107 467 %
 
Interest Income
Interest income decreasedincreased by $0.4 million$2 thousand and $0.6 million$62 thousand in the three and nine months ended September 30, 2020,2021, respectively, compared to the same periods in 20192020, primarily due to earned interest income and amortization of debt discount on a non-marketable debt security, partially offset by a reduction in interest income from lower average interest rates on declininglower average cash balances.

Other Expenses,Income (Expense), net
Other expenses decreasedincome (expense), net, increased by $0.4 $1.0 million and $0.5 million in the three and nine months ended September 30, 2020, respectively,2021 compared to the same periodperiods in 20192020, primarily due to gain from remeasurement on the carrying value of our investment in MAI, but partially offset by a prior year write-down of $0.4 million of our investment in CO2 Solutions and fluctuations in foreign currency.
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Provision for and Benefit from Income Taxes(in thousands, except percentages):
Three months ended September 30,ChangeNine months ended September 30,Change
20212020$%20212020$%
Provision for income taxes$110 $19 $91 479 %$121 $331 $(210)(63)%
We recognized anThe provision for income tax provision of $19 thousand and $0.3 million intaxes for the three and nine months ended September 30, 2021 and 2020 respectively. We recognized anwere primarily due to the income tax benefitwithholding imposed by foreign taxing authorities on income earned in certain countries outside of $7 thousandthe United States and anremitted to the United States and the accrual of interest and penalties on historic uncertain tax positions.
Net Income (Loss)
Net income tax provision of $12 thousand infor the three and nine months ended September 30, 2019, respectively. The increase in income tax provision2021 was primarily due to mandatory income tax withheld by a foreign taxing authority and additional interest recorded on uncertain tax positions from previous years.

Net Income (Loss)
The net loss for the third quarter of 2020 was $6.1$2.2 million, representing a net loss of $0.10or $0.03 per basic and diluted share. This comparescompared to a net incomeloss of $0.3$6.1 million, representing a net income of $0.01or $0.10 per basic and diluted share for the third quarter of 2019. Forthree months ended September 30, 2020. Net loss for the nine months ended September 30, 2020, the net loss2021 was $20.1$11.1 million, representing a net loss of $0.34or $0.17 per basic and diluted share. This comparescompared to a net loss of $11.3$20.1 million, representing a net loss of $0.20or $0.34 per basic and diluted share for the nine months ended September 30, 2019.2020. The increaseachievement of net income in the three months ended September 30, 2021, and the decrease in net loss for the three and nine months ended September 30, 2020 compared to the same period of the prior year 2021, was primarily related to an increase in product revenue with higher margins, partially offset by higher operating expenses and lower inresearch and development revenues.

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

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 %

Three months ended September 30,Change
20212020Performance EnzymesNovel Biotherapeutics
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal$%$%
Revenues:
Product revenue$28,731 $— $28,731 $8,401 $— $8,401 $20,330 242 %$— — %
Research and development revenue3,853 4,185 8,038 4,604 5,380 9,984 (751)(16)%(1,195)(22)%
Total revenues$32,584 $4,185 $36,769 $13,005 $5,380 $18,385 $19,579 151 %$(1,195)(22)%
 
Nine months ended September 30,Change
20212020Performance EnzymesNovel Biotherapeutics
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal$%$%
Revenues:
Product revenue$53,674 $— $53,674 $18,005 $— $18,005 $35,669 198 %$— — %
Research and development revenue14,723 11,856 26,579 13,380 16,638 30,018 1,343 10 %(4,782)(29)%
Total revenues$68,397 $11,856 $80,253 $31,385 $16,638 $48,023 $37,012 118 %$(4,782)(29)%
Revenues from the Performance Enzymes segment decreasedincreased by $7.4$19.6 million, or 36%151%, to $13.0 million for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. Revenues decreased2021, and by $9.7$37.0 million, or 24%118%, to $31.4 million for the nine months ended September 30, 2020,2021, compared to the same periods in 2020, primarily due to higher product revenue. The increase in product revenue of $20.3 million, or 242%, in the three months ended September 30, 2021, and of $35.7 million, or 198%, in the nine months ended September 30, 2019, 2021, compared to the same periods in 2020, was primarily due to higher customer demand for enzymes for the manufacture of branded pharmaceuticals products. The decrease in research and development revenue of $0.8 million, or 16%, to $3.9 million in three months ended September 30, 2021, compared to $4.6 million in the three months ended September 30, 2020 was primarily due to lower revenue from the Novartis CodeEvolver® Agreement as we completed the technology transfer to Novartis during the third quarter of 2021. The increase in research and development revenue of $1.3 million, or 10%, to $14.7 million in the nine months ended September 30, 2021, compared to $13.4 million in the nine months ended September 30, 2020, was primarily due to higher license fees from existing collaboration agreements but partially offset by 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 increaseddecreased by $3.9$1.2 million, or 263%22%, to $5.4 million for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. Revenues increased2021, and by $7.9$4.8 million, or 91%29%, to $16.6 million for the nine months ended September 30, 2020,2021, compared to the nine months ended September 30, 2019,same
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periods in 2020, primarily due to recognition oflower license and research and development fees from Takeda under the Takeda Strategic CollaborationAgreement recognized this year compared to the prior year and License Agreement, partially offset by a decrease in prior year functional license feeresearch and development revenue from Nestlé
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Health Science.Science compared to last year.

CostCosts and Operating Expensesoperating expenses by Segmentsegment
Three months ended September 30,ChangeThree months ended September 30,Change
20202019Performance EnzymesNovel Biotherapeutics20212020Performance EnzymesNovel Biotherapeutics
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal$%$%Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal$%$%
Cost of product revenueCost of product revenue$3,642 $— $3,642 $5,067 $— $5,067 $(1,425)(28)%$— — %Cost of product revenue$6,867 $— $6,867 $3,642 $— $3,642 $3,225 89 %$— — %
Research and development (1)
Research and development (1)
5,184 6,433 11,617 5,313 3,080 8,393 (129)(2)%3,353 109 %
Research and development (1)
5,670 8,850 14,520 5,184 6,433 11,617 486 9 %2,417 38 %
Selling, general and administrative (1)
Selling, general and administrative (1)
2,675 515 3,190 2,037 690 2,727 638 31 %(175)(25)%
Selling, general and administrative (1)
3,306 831 4,137 2,675 515 3,190 631 24 %316 61 %
Total segment costs and operating expensesTotal segment costs and operating expenses$11,501 $6,948 18,449 $12,417 $3,770 16,187 $(916)(7)%$3,178 84 %Total segment costs and operating expenses$15,843 $9,681 25,524 $11,501 $6,948 18,449 $4,342 38 %$2,733 39 %
Corporate costs(2)Corporate costs(2)5,472 4,989 Corporate costs(2)9,121 5,472 
Depreciation and amortization528 471 
Unallocated depreciation and amortizationUnallocated depreciation and amortization794 528 
Total costs and operating expensesTotal costs and operating expenses$24,449 $21,647 Total costs and operating expenses$35,439 $24,449 

Nine months ended September 30,Change
20212020Performance EnzymesNovel Biotherapeutics
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal$%$%
Cost of product revenue$15,403 $— $15,403 $7,882 $— $7,882 $7,521 95 %$— — %
Research and development (1)
17,172 20,649 37,821 15,877 16,848 32,725 1,295 8 %3,801 23 %
Selling, general and administrative (1)
9,294 2,052 11,346 7,395 1,728 9,123 1,899 26 %324 19 %
Total segment costs and operating expenses$41,869 $22,701 64,570 $31,154 $18,576 49,730 $10,715 34 %$4,125 22 %
Corporate costs (2)
25,775 16,763 
Unallocated depreciation and amortization2,220 1,526 
Total costs and operating expenses$92,565 $68,019 
 
(1) Research and development expenses and Selling,selling, general and administrative expenses exclude depreciation and amortization of finance leases.

Nine months ended September 30,Change
20202019Performance EnzymesNovel Biotherapeutics
Performance EnzymesNovel BiotherapeuticsTotalPerformance EnzymesNovel BiotherapeuticsTotal$%$%
Cost of product revenue$7,882 $— $7,882 $12,230 $— $12,230 $(4,348)(36)%$— 0 %
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)
7,395 1,728 9,123 6,499 1,768 8,267 896 14 %(40)(2)%
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 costs16,763 15,499 
Depreciation and amortization1,526 1,273 
Total costs and operating expenses$68,019 $61,410 

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

expenses.
For a discussion of product cost of revenue, see "Results of Operations".
Research and development expense in the Performance Enzymes segment decreased by $0.1 million, or 2%, to $5.2 million in the third quarter of 2020, compared to the third quarter of 2019. Research and development expense in the Performance Enzymes segment increased by $1.0$0.5 million, or 7%9%, to $15.9in the three months ended September 30, 2021, and by $1.3 million, or 8% in the nine months ended September 30, 20202021, as compared to the corresponding periodsame periods in 2019.2020. The increase was primarily due to an increase in costs associated with outside services, relating to Chemistry, Manufacturing and Controls ("CMC") and regulatory expenseslab supplies and higher headcount.headcount, partially offset by lower allocable expenses.
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Selling, general and administrative expense in the Performance Enzymes segment increased by $0.6 million, or 31%24%, to $2.7 million in the third quarter of 2020, compared to the third quarter of 2019. Selling, generalthree months ended September 30, 2021, and administrative expense in the Performance Enzymes segment increased by $0.9$1.9 million, or 14%26%, to $7.4 million in the nine months ended September 30, 2020,2021, as compared to the corresponding periodsame periods in 2019.2020. The increase waswas primarily due to an increase in costs associated with higher headcount and higher allocable expenses, partially offset by lower allocableoutside services expenses.
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Research and development expense in the Novel Biotherapeutics segment increased by $3.4$2.4 million, or 109%38%, to $6.4 million in the third quarter of 2020, compared to the third quarter of 2019. Researchthree months ended September 30, 2021, and development expense in the Novel Biotherapeutics segment increased by $7.6$3.8 million, or 82%23%, to $16.8 million in the nine months ended September 30, 2020,2021, as compared to the same corresponding periodperiods in 2019.2020. The increase was primarily due to an increasehigher costs associated with higher headcount and allocable expenses but partially offset by reduction in costs associated with outside services relating to CMC and regulatory expenses, higher outside services and higher headcount.expenses.
Selling, general and administrative expense in the Novel Biotherapeutics segment decreasedincreased by $0.2$0.3 million, or 25%61%, to $0.5 million in the third quarter of 2020, compared to the third quarter of 2019. Selling, generalthree months ended September 30, 2021, and administrative expense in the Novel Biotherapeutics segment decreased by $40 thousand,$0.3 million, or 2%19%, to $1.7 million in the nine months ended September 30, 2020,2021, as compared to the corresponding periodsame periods in 2019. 2020. The decreaseincrease was primarily due to increase in costs associated with higher headcount and higher allocable expenses, partially offset by lower allocable expense and outside services.

services expenses.
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 ourOur 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.banks.
The following is a summary ofsummarizes our cash and cash equivalents balancesbalance and working capital as of September 30, 20202021 and December 31, 20192020 (in thousands):
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 collaboration 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.
September 30, 2021December 31, 2020
Cash and cash equivalents$119,189 $149,117 
Working capital$140,632 $159,442 
In addition to our existing cash and cash equivalents, we are eligible to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain royalty payments under our collaboration agreements. Our ability to earn these milestone and contingent payments and the timing of achieving these milestones is primarily dependent upon the outcome of our collaborators’ research and development activities and is uncertain at this time. In 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, weWe 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 the Novartis CodeEvolver® Agreement with Novartis Pharma AG.Novartis. The Novartis CodeEvolver® Agreement allows Novartis to use the Company'sCodexis’ 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 milestone transfer milestone under the agreement and became eligible to receive a milestone payment of $4.0$4.0 million, which we subsequently received in July 2020. We are eligible toIn the first quarter of 2021, we also received $3.4 million for partial completion of the third technology milestone. Additionally, we will receive an additional $5.0$1.6 million upon satisfactory for the completion of the third technology transfer milestone.milestone in July 2021. 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 (“Improvements Term”), Novartis will pay usCodexis annual payments which amount to an additional $8.0 million.$8 million in aggregate.
In October 2017, we entered into the Nestlé License Agreement with Nestlé Health Science. Pursuant to the Nestlé License Agreement, Nestlé Health Science paid us an upfront cash payment of $14.0 million. In July 2018, we announced that we had dosedand milestone payments after dosing the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114 for the potential treatment of PKU. The 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. In January 2019, we received notice from the FDA that it had completed its review of our IND for CDX-6114 was receivedand concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in February 2019.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 revenue. Upon exercising its option, Nestlé Health Science made an option payment and assumed all responsibilities for future clinical development and commercialization of CDX-6114, with the exception of the completion of an extension study which was substantially completed in the fourth quarter of 2019. Other potential payments from Nestlé Health Science to us under the Nestlé License 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 singlemid-single digits to low double-digits, of net sales of Product.products containing CDX-6114.
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We are actively collaborating with new and existing customers in the pharmaceutical and food industries. We believe that we can utilize our current products and services, and develop new products and services, to increase our revenues and gross margins in future periods.
We have historically experienced negative cash flows from operations as we continue to invest in key technology development projects and improvements to our CodeEvolver® protein engineering technology platform and expand our business development and collaboration with new customers. Our cash flows from operations will continue to be affected principally by product sales and product gross margins, sales from licensing our technology to major pharmaceutical companies, and collaborative research and development services provided to customers, as well as our headcount costs, primarily in research and development. Our primary source of cash flows from operating activities is cash receipts from our customers for purchases of products, collaborative research and development services, and licensing our technology to major pharmaceutical companies. Our largest uses of cash from operating activities are for employee-related expenditures, rent payments, inventory purchases to support our product sales and non-payroll research and development costs.
Equity Distribution Agreement
In March 2020,May 2021, we entered into a Strategic Collaboration and Licensean Equity Distribution Agreement ("EDA") with TakedaPiper Sandler & Co ("PSC"), under which PSC, as our exclusive agent, at our discretion and at such times that we received an up-front non-refundable cash paymentmay determine from time to time, may sell over a three-year period from the execution 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 ofthe agreement up to $18.3a maximum of $50 million (ii) developmentof shares of our common stock. During the nine months ended September 30, 2021, no shares were issued of our common stock pursuant to the EDA. As of September 30, 2021, $50.0 million of shares remained available for sale under the EDA. Sales of our common stock under this arrangement could be subject to business, economic or competitive uncertainties and commercialization-based milestones, per target gene, of up to $100.0 million, the modulationcontingencies, many of which leads to treatment of certain diseases by the applicable product,may be beyond our control, and (iii) tiered royalties, at percentages rangingwhich could cause actual results from the middle-single digitsale of our common stock to low single-digit of sales ofdiffer materially from expectations. For information, see Note 9, "Capital Stock" in the applicable product.Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Stock Offering
In December 2018,2020, we filedcompleted 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 affiliateunderwritten public offering of Casdin Capital, LLC (“Casdin”) pursuant to which we issued and sold to Casdin 3,048,7804,928,572 shares of our common stock, par value $0.0001 per share, at a purchasepublic offering price of $16.40$17.50 per share (the “Private Offering”). After deducting issuance costs of $0.1 million from the Private Offering, ourshare. The net proceeds to us were $49.9approximately $80.8 million after deducting offering costs and the underwriting discounts and commissions and other offering expenses of $5.5 million.
Credit Facility
In June 30, 2017, we entered into the Credit Facility with Western Alliance Bank which consists of term debt for loans that allow us to borrow up to $10.0 million, and under 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 2020,2021, we entered into an Eighththe Ninth 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,December 31, 2021 and October 1, 2024, respectively. Draws on the term debt arerespectively, 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 fordrawn under the Term Debt mature and the Revolving Line of Credit terminates. NoThere were no amounts were drawn down under the credit facility as of September 30, 2021 and December 31, 2020. At September 30, 2020, we believe2021, 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 11,10, "Commitments and Contingencies" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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
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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 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, had caused the temporary closure of our Redwood City, California facilities from mid-March 2020 through the end of April and 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 address financial and operations challenges faced by our customers. 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 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, 2020,2021, we had cash and cash equivalents of $71.5$119.2 million and $15.0 million available to borrow under theour Credit Facility. Our liquidity is dependent upon our cash and cash equivalents, cash flows provided by operating activities and the continued availability of borrowings under our Credit Facility. We may need additional capital if our current plans and assumptions change. Our need for additional capital will depend on many factors, including the financial success of our business, the spending required to develop and commercialize new and existing products, the effect of any acquisitions of other businesses, technologies or facilities that we may make or develop in the future, our spending on new market opportunities, and the potential costs for the filing, prosecution, enforcement and defense of patent claims, if necessary.
We believe that, based on our current level of operations, our existing cash and cash equivalents 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, or if we are unable to execute on our current operating plan.change. In addition, we may choose to seek other sources of capital even if we believe we have generated sufficient cash flows to support our operating needs. Our need for additional capital will depend on many factors, including the financial success of our business, the spending required to develop and commercialize new and existing products, the effect of any acquisitions of other businesses, technologies or facilities that
43

we may make or develop in the future, our spending on new market opportunities, and the potential costs for the filing, prosecution, enforcement and defense of patent claims, if necessary. If our capital resources are insufficient to meet our capital requirements, and we are unable to enter into or maintain collaborations with partners that are able or willing to fund our development efforts or commercialize any products that we develop or enable, we will have to raise additional funds to continue the development of our technology and products and complete the commercialization of products, if any, resulting from our technologies. If future financings involve the issuance of equity securities, our existing stockholders would suffer dilution. If we raise debt financing or enter into credit facilities, we may be subject to restrictive covenants that limit our ability to conduct our business. We may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. If we fail to raise sufficient funds and fail to generate sufficient revenues to achieve planned gross margins and to control operating costs, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly limited. If this happens, we may be forced to delay or terminate research or development programs or the commercialization of products resulting from our technologies, curtail or cease operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.
Cash Flows
The following table is our statementsa summary of cash flows for nine months ended September 30, 20202021 and 20192020 (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)$39,389 
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 Nine months ended September 30,
20212020
Net cash used in operating activities$(14,927)$(14,972)
Net cash used in investing activities(15,942)(3,260)
Net cash provided by (used in) financing activities1,341 (778)
Net decrease in cash, cash equivalents and restricted cash$(29,528)$(19,010)
Cash Flows from Operating Activities
Cash used in operating activities was $14.9 million for the nine months ended September 30, 2021, which resulted from a net loss of $11.1 million adjusted for non-cash charges for depreciation of $2.1 million, ROU lease asset amortization expense of $2.0 million, stock-based compensation of $8.5 million, partially offset by equity securities earned from research and development activities of $0.7 million and unrealized gain on non-marketable securities of $1.0 million. Additional cash used by changes in operating assets and liabilities was $14.8 million. Changes in operating assets and liabilities included a decrease of $2.3 million in other long-term liabilities, increase of $19.6 million in financial assets and increase of $1.2 million in prepaid expenses and other assets, partially offset by increase of $7.0 million in accrued compensation and other accrued liabilities, increase of $0.9 million in deferred revenue and increase of $0.6 million in accounts payable.
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$3.6 million in accrued compensation and 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 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 investing activities was $15.9 million and $3.3 million for the nine months ended September 30, 2021 and 2020, and 2019.respectively. Cash used in investing activities for the nine months ended September 30, 2021 was primarily attributable to $8.3 million for purchases of property and equipment and $7.6 million for the purchase of 1,000,000 shares of MAI's Series A preferred stock in April 2021 and 9,198,423 shares of MAI's Series B preferred stock in September 2021.
Cash used in investing activities of $3.3 million for the nine months ended September 30, 2020, was primarily attributable to $2.3 million for purchases of property and equipment and $1.0 million for the purchase of 1,587,050 shares of MAI's Series A preferred stock for $1.0 million. stock.
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Cash used in investingFlows from Financing Activities
Cash provided by financing activities was $1.3 million for the nine months ended September 30, 2019 was 2021 primarily attributable to the purchase$2.7 million of property and equipment.
Cash Flowsproceeds from Financing Activitiesexercises of stock options, partially offset by $1.2 million for taxes paid related to net share settlement of equity awards.
Cash used in financing activities was $0.8 million for the nine months ended September 30, 2020, which included $1.3 million for taxes paid related to net share settlement of equity awards offset by $0.5 million of proceeds from exercises of stock options.
Material Cash provided by financing activities was $51.5 million for the nine months ended September 30, 2019 which included $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.


Contractual ObligationsRequirements
The following table summarizes our significant contractual obligations at September 30, 2020 (in thousands): 

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) Representsmaterial cash requirements related to minimum future minimum lease payments under non-cancellable operating leases, in effectexclusive of common area maintenance charges and real estate taxes, as of September 30, 2020 for our facilities in Redwood City, California. The minimum lease payments above do not include common area maintenance charges or real estate taxes.2021 (in thousands):
Payments due by period
TotalLess than 1 year1 to 3 years4 to 5 yearsMore than 5 years
Operating lease (1)
$28,146 $4,220 $9,247 $9,810 $4,869 
Operating lease (2)
31,723 1,726 6,015 7,974 16,008 
Total$59,869 $5,946 $15,262 $17,784 $20,877 
 
(1) In Februarythe first quarter of 2019, we have entered into an Eighth Amendment to the Lease (the “Eighth Amendment”) with MetLife, for our facilities, extending the lease terms from May 2027 to May 2029. 2029 of our Redwood City, California facilities.
(2) In the first quarter of 2021, we entered into a ten-year lease with ARE-San Francisco No. 63, LLC, for our San Carlos facilities.
For additional information see Note 11,10, “Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements.

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Statements included in this Quarterly Report on Form 10-Q.
Other CommitmentsMaterial Cash Requirements
We have other commitmentsmaterial cash requirements related to supply and service arrangements entered intoin the normal course of business. For additional information about other commitments,material cash requirements, see Note 11,10, "Commitments and Contingencies" in the notesNotes to the unaudited condensed consolidated financial statements.Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Future minimum payments reflect amounts those obligations are expected to have on our liquidity and cash flows in future periodsperiod and include obligations subject to risk of cancellation by us (in thousands):

Other CommitmentMaterial Cash Requirements by Agreement TypeAgreement DateFuture Minimum Payment
Manufacture and supply agreement with expected future payment date of December 2022April 2016$532147 
Development and manufacturing services agreementsSeptember 20193,806 
Strategic collaboration and license agreementMarch 2020520686 
Total other commitments$4,858833 

Credit Facility
In June 2017, we entered into a credit facility (“Credit Facility”) consistingWe are contingently committed to an aggregate $2.7 million of term loans (“Term Debt”) uppotential future research and development milestone payments to $10.0 million,third parties for patents, licensing and advances (“Advances”) under a revolving line of credit (“Revolving Line of Credit”) up to $5.0 million with an accounts receivable borrowing base of 80% of eligible accounts receivable. At September 30, 2020, we have not drawn from the Credit Facility. We may draw on the Term Debtdevelopment programs achieved in clinical application and the Revolving Lineregulatory approval process. Payments generally are due and payable only upon achievement of Credit at any time priorcertain developmental and regulatory milestones for which the specific timing cannot be predicted. Certain agreements also provide for sales-based milestones aggregating to the October 1, 2021 and October 1, 2024, respectively. Term loans drawn under the Term Debt mature and the Revolving Line$0.6 million that we are contingently obligated to pay to upon achievement of Credit terminates on October 1, 2024. Term loans made under the Term Debt bear interest at variable rate through maturity at greater of (i) 3.75% and (ii) the sum of (A) Index Rate (prime rate publishedcertain sales levels in the Money Rates section of the Western Edition of The Wall Street Journal plus (B) 0.50%. Advances made under the Revolving Line of Credit bear interest at a variable annual rate equaladdition to the greater of (i) 4.25% and (ii) the sum of (A) the prime rate plus (B) 1.00%.royalties.
Our obligations under the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property. The Credit Facility includes a number of customary covenants and restrictive financial covenants including meeting minimum product revenues levels and maintaining certain minimum cash levels with the lender. The Credit Facility’s financial covenants restrict the ability of the Company to transfer collateral, incur additional indebtedness, engage in mergersWe do not utilize special-purpose financing vehicles 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. 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, 2020, we did not have anyundisclosed off-balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K as promulgated by the SEC.

arrangements.
Critical Accounting Policies and Estimates
The preparation 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, 20202021, from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the SEC on February 28, 2020, except for changes 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 No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which are described below:March 1, 2021.
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Financial Instruments - Credit Losses (Topic 326)
On January 1, 2020, we adopted the provisions of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using a modified retrospective approach. The standard changes the impairment model for most financial assets measured at amortized cost, requiring the use of a "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 net 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 any 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 sheet. 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 Goodwill Impairment," using a prospective approach. The standard simplifies the accounting 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 ASU 2017-04 had no impact on our unaudited condensed consolidated 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, 2019,2020, filed with the SEC on February 28, 2020.March 1, 2021.
Interest Rate Sensitivity
Our unrestricted cash and cash equivalents total $119.2 million at September 30, 2021. We primarily invest these amounts in money market funds which are held for working capital purposes. We do not enter into investments for trading or speculative purposes. As of September 30, 2021, the effect of a hypothetical 10% decrease in market interest rates would have an immaterial impact on a potential loss in future interest income and cash flows.
In June 2017, we entered into a credit facilityCredit Facility with Western Alliance Bank consisting of term loans up to $10.0 million, and advances under a revolving line of credit up to $5.0 million. LoansTerm loans made under the Term Debt bear interest at variable rate through maturity equal toat the greater of (i) 3.75% andor (ii) the sum of (A) Index Rate (prime rate published in the Money Rates section of the Western Edition of The Wall Street Journal plus (B) 0.50%. Advances made under the Revolving Line of Credit bear interest at a variable annual rate equal to the equal to the greater of (i) 4.25% andor (ii) the sum of (A) the prime rate plus (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 facilityCredit Facility as of September 30, 2020.2021. Our exposure to interest rates risk relates to our 2017 Credit Facility with variable interest rates, where an increase in interest rates may result in higher borrowing costs. Since we have no outstanding borrowings under our 2017 Credit Facility as of September 30, 2020,2021, 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 dollarUSD may affect the price competitiveness of our products outside the United States. Our most significantThe impact of changes in 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 2020cash flows may be difficult or 2019.impossible to quantify.
Investment in Non-Marketable Equity Securities
We own aninvestments in non-marketable 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 thesecurities without readily determinable 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.values. We may value ourthese equity investmentsecurities based on significant recent arms-length equity transactions with sophisticated non-strategic unrelated new investors, providing the terms of these equitysecurity transactions are substantially similar to the equitysecurity transactions terms between the companyinvestors and us. The impact of any differencesthe difference in equity transaction terms on the market value of the portfolio company may be difficult or impossible to quantify on the market value of investment.quantify.
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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, 20202021, 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. Because 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 impairment of financial instruments and goodwill, respectively, in properly assessing and facilitating the impact and adoption on January 1, 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 new 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, 2019,2020, a description of certain risks and uncertainties that could affect our business, future performance or financial condition (the “Risk Factors"). DuringOther than in respect of the additional risk factor included below, during the three months ended September 30, 2020,2021, there were no material changes from the disclosure provided in the Form 10-K for the year ended December 31, 20192020 with respect to the Risk Factors, except as set forth below.Factors. Investors should consider the Risk Factors, as well as the risk factor included below, prior to making an investment decision with respect to our stock.
The ongoing COVID-19 pandemic has and may continueA significant portion of our revenue growth in the future to, directly or indirectly, adversely affect our business, results of operations and financial condition.
In the United States, the COVID-19 pandemic, has had, and may continue to have, an adverse effect on our business, results of operations and financial condition, including2021 is as a result of compliance with governmentalpurchase orders governing the operation of businesses during the pandemic, the temporary closure of our Redwood City, California facilities and disruption of our research and development operations. We believe that these disruptions have had a negative impact on revenuefrom Pfizer 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 instabilityuse in the global financial markets. In addition,manufacture of its clinical-stage COVID antiviral therapeutic candidate, PF-07321332. If Pfizer discontinues the development of PF-07321332, 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 trialsrevenue 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 affectaffected.
In June and August 2021, we announced that we had received purchase orders of $13.9 million and approximately $15.0 million, respectively, from an undisclosed global pharmaceutical company for the sale and purchase of a proprietary Codexis enzyme product that is intended for use in the manufacture of a critical intermediate for its undisclosed active pharmaceutical ingredient in a therapeutic drug. In October 2021, we announced that these purchase orders, which aggregate to approximately $29 million, were received by us from Pfizer, Inc. and that the proprietary Codexis enzyme product is intended for use in the manufacture of PF-07321332, Pfizer’s clinical-stage COVID antiviral therapeutic candidate.

In the event that Pfizer discontinues the development of PF-07321332 and, as a result, no longer requires the use of our business,enzyme to manufacture PF-07321332, our revenue will be materially and adversely affected. We have no control over the development of PF-07321332 and no additional insight into the development of PF-07321332 other than that publicly reported by Pfizer, including the results of operationsany preclinical studies or clinical trials or the timing of announcements related to such studies or trials. If Pfizer decides to discontinue the development ofPF-07321332 for the prevention of COVID-19 infection or if Pfizer otherwise determines that the clinical or commercial profile of PF-07321332 doesn’t sufficiently warrant continued development, our future revenues may be materially and financial condition. As a result, in May 2020 we withdrew our full year 2020 financial guidance.adversely impacted.


ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

3.1
3.2
3.3
4.1Reference is made to Exhibits 3.1 through 3.3.
10.1*
10.2
31.1
31.2
32.1
101 The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020,2021, formatted in Inline Extensible Business Reporting Language (iXBRL)("iXBRL") includes: (i) Unaudited Condensed Consolidated Balance Sheets at September 30, 20202021 and December 31, 20192020 (ii) Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 20202021 and 2019,2020, (iii) Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 20202021 and 2019,2020, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 20202021 and 20192020 and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020,2021, formatted in Inline XBRL and contained in Exhibit 101.
*Portions of the exhibit, marked by brackets, have been omitted because the omitted information is (i) not material and (ii) would be competitively harmful if publicly disclosed.

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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.
Date:November 6, 20205, 2021By:/s/ John J. Nicols
John J. Nicols
President and Chief Executive Officer
(principal executive officer)
Date:November 6, 20205, 2021By:/s/ Ross Taylor
Ross Taylor
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)

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