Codexis cuts jobs as Shell ends biofuels deal
Pharma business should be spared
Biocatalysts specialist Codexis is to cut 133 of its 340-strong workforce by 30 October, as part of its effort to control expenses and conserve cash after Shell terminated a research agreement related to biofuels. The pharmaceuticals business should not be affected. The company will incur about $700,000 in one-off costs, plus $2.9 million in continuing salary costs until the changes are made.
Under a new deal, which came into place on 31 August, Shell relinquished all rights, other than in Brazil, for the use of its CodeXyme range of cellulase enzymes enzymes in biofuels, in return for a “low single-digit percentage royalty” on net sales to customers other than Shell and its affiliates. It will pay about $7.5 million to cover FTE agreements and milestone payments for the early termination of the research agreement, which was due to expire on 1 November.
The research agreement with Shell dated back to 2006 and had been Codexis’s main revenue stream ever since. Codexis remains active in Brazil, where it is in discussions with Raízen on the commercialisation of its enzymes for second generation ethanol production. Shell is also entitled to preferential pricing on purchases of cellulase enzymes if a future supply arrangement is agreed.
Despite a recent fall in sales in this area, the company is more optimistic about its pharmaceuticals business, because it recently signed an expanded agreement that will see it work on production enzymes for Merck & Co. until 2015. This is seen as a major growth driver. The company has also received a US patent for a production methods for intermediates used in an hepatitis C treatment and regulatory support for its novel enzymatic process for simvastatin.
At the same board meeting, Codexis adopted a short-term shareholder rights plan that was designed to ensure that it has “sufficient time to consider any proposal and make sure that all stockholders receive fair and equal treatment in the event of any proposed takeover”. The board said that it wanted to “guard against partial tender offers, open market accumulations and other coercive tactics aimed at gaining control of Codexis without paying all stockholders a full control premium for their shares”.
In Q2, Codexis revealed in July, revenues fell by 12% from Q2 2011 to $22.9 million. This was mainly due to a 19.1% fall in product revenue, which was blamed on the timing of pharmaceutical product orders. This was also the main reason for a fall in product gross profit to $1 million. The company suffered a net loss of $5.5 million, much the same as in Q2 2011. It adjusted its revenue forecast for the full year to $124 million, with negative adjusted EBITDA.
At the time this statement was made, Codexis was still negotiating with Shell. Whilst it had no expectation of a continued agreement, it anticipated a funding in reduction of only 48 FTEs from September. The early termination made the number of job cuts considerably higher. However, in pharmaceutical products, it still forecast revenues of $49 million, in line with 2011.
Separately, in the latest of a series of recent changes at the top, the company has named David O’Toole as Senior Vice President and CFO. O’Toole had previously served the same role at Response Genetics, which develops molecular diagnostic tests for cancer and analytical testing services of clinical trial specimens for the pharmaceuticals industry and previously at biotech firm Abraxis Bioscience.