Codexis, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended ~~March 31,~~September 30, 2019

TABLE OF CONTENTS



		PAGE NUMBER

PART I. FINANCIAL INFORMATION

ITEM 1:	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flows	78
	Notes to Condensed Consolidated Financial Statements	910
ITEM 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	3235
ITEM 3:	Quantitative and Qualitative Disclosures about Market Risk	4751
ITEM 4:	Controls and Procedures	4851

PART II. OTHER INFORMATION

ITEM 1:	Legal Proceedings	4952
ITEM 1A:	Risk Factors	4952
ITEM 2:	Unregistered Sales of Equity Securities and Use of Proceeds	4952
ITEM 3:	Default Upon Senior Securities	4952
ITEM 4:	Mine Safety Disclosures	4953
ITEM 5:	Other Information	4953
ITEM 6:	Exhibits	5054
Signatures		5155

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Codexis, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In Thousands, Except Per Share Amounts)


	March 31, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	47,322		$	53,039		$	92,143		$	53,039
Accounts receivable, net of allowances of $34 at March 31, 2019 and December 31, 2018	12,604			11,551
Accounts receivable, net of allowances of $34 at September 30, 2019 and December 31, 2018							12,327			11,551
Unbilled receivables, current	1,923			1,916			2,317			1,916
Inventories	633			589			397			589
Prepaid expenses and other current assets	1,232			1,068			1,553			1,068
Contract assets	—			35			1,193			35
Total current assets	63,714			68,198			109,930			68,198
Restricted cash	1,785			1,446			1,731			1,446
Equity securities	484			588			—			588
Right-of-use assets - Operating leases, net	25,913			—			24,542			—
Right-of-use assets - Finance leases, net	438			—			321			—
Property and equipment, net	4,535			4,759			6,241			4,759
Goodwill	3,241			3,241			3,241			3,241
Other non-current assets	1,013			1,051			190			1,051
Total assets	$	101,123		$	79,283		$	146,196		$	79,283
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2,180		$	3,050		$	1,743		$	3,050
Accrued compensation	6,469			5,272			4,695			5,272
Other accrued liabilities	7,127			4,855			6,182			4,855
Current portion of lease obligations - Operating leases	1,091			—			893			—
Current portion of lease obligations - Finance leases	233			—			122			—
Deferred revenue	1,554			4,936			1,288			4,936
Total current liabilities	18,654			18,113			14,923			18,113
Deferred revenue, net of current portion	3,797			3,352			1,988			3,352
Long-term lease obligations - Operating leases	26,133			—			25,554			—
Long-term lease obligations - Finance leases	9			61			—			61
Lease incentive obligation, net of current portion	—			35			—			35
Other long-term liabilities	1,320			1,416			1,223			1,416
Total liabilities	49,913			22,977			43,688			22,977

Commitments and Contingencies (Note 11)
Stockholders' equity:
Preferred stock, $0.0001 par value per share; 5,000 shares authorized; none issued and outstanding	—			—			—			—
Common stock, $0.0001 par value per share; 100,000 shares authorized; 54,541 shares and 54,065 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	5			5
Common stock, $0.0001 par value per share; 100,000 shares authorized; 58,386 shares and 54,065 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively							6			5
Additional paid-in capital	386,815			386,775			444,276			386,775
Accumulated deficit	(335,610		)	(330,474		)	(341,774		)	(330,474		)
Total stockholders' equity	51,210			56,306			102,508			56,306
Total liabilities and stockholders' equity	$	101,123		$	79,283		$	146,196		$	79,283

See accompanying notes to the unaudited condensed consolidated financial statements

Codexis, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In Thousands, Except Per Share Amounts)


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018
Revenues:
Product revenue	$	7,988		$	6,163		$	10,351		$	8,405		$	24,588		$	18,291
Research and development revenue	7,595			7,879			11,555			8,541			25,220			26,235
Total revenues	15,583			14,042			21,906			16,946			49,808			44,526
Costs and operating expenses:
Cost of product revenue	4,391			3,825			5,067			3,791			12,230			10,228
Research and development	8,016			7,178			8,711			7,917			25,000			22,464
Selling, general and administrative	8,415			7,746			7,869			7,344			24,180			22,485
Total costs and operating expenses	20,822			18,749			21,647			19,052			61,410			55,177
Loss from operations	(5,239		)	(4,707		)
Income (loss) from operations							259			(2,106		)	(11,602		)	(10,651		)
Interest income	231			71			480			199			929			444
Other expenses, net	(125		)	(60		)	(403		)	(80		)	(615		)	(221		)
Loss before income taxes	(5,133		)	(4,696		)
Income (loss) before income taxes							336			(1,987		)	(11,288		)	(10,428		)
Provision for (benefit from) income taxes	3			(2		)	(7		)	1			12			(11		)
Net loss	$	(5,136	)	$	(4,694	)
Net Income (loss)							$	343		$	(1,988	)	$	(11,300	)	$	(10,417	)

Net loss per share, basic and diluted	$	(0.09	)	$	(0.10	)
Weighted average common stock shares used in computing net loss per share, basic and diluted	54,170			48,385
Net income (loss) per share, basic							$	0.01		$	(0.04	)	$	(0.20	)	$	(0.20	)
Net income (loss) per share, diluted							$	0.01		$	(0.04	)	$	(0.20	)	$	(0.20	)

Weighted average common stock shares used in computing net income (loss) per share, basic							58,287			53,597			55,818			51,609
Weighted average common stock shares used in computing net income (loss) per share, diluted							61,412			53,597			55,818			51,609

See accompanying notes to the unaudited condensed consolidated financial statements

Codexis, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

(In Thousands)


																					Common Stock						Additional paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders' Equity
Three months ended September 30, 2019																					Shares			Amount

Balance as of July 1, 2019																					57,940			$	6		$	440,795			$	—			$	(342,117	)		$	98,684
Exercise of stock options																					441			—			1,778				—				—				1,778
Release of stock awards																					8			—			—				—				—				—
Employee stock-based compensation																					—			—			1,732				—				—				1,732
Taxes paid related to net share settlement of equity awards																					(3	)		—			(51		)		—				—				(51		)
Issuance of common stock, issuance costs																					—			—			(55		)		—				—				(55		)
Short swing profit settlement																					—			—			77				—				—				77
Net Income																					—			—			—				—				343				343
Balance as of September 30, 2019																					58,386			$	6		$	444,276			$	—			$	(341,774	)		$	102,508


	For the Three Months Ended March 31, 2018
	Common Stock				Additional paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders' Equity				Common Stock						Additional paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders' Equity
Three months ended September 30, 2018												Shares								Amount
	Shares		Amount					Additional paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders' Equity
Balance at January 1, 2018	48,365		$	5
Balance as of July 1, 2018																								53,508		$	5			$	380,551			$	—			$	(328,026	)		$	52,530
Exercise of stock options	79		—		435				—										—				435			427			—				2,461				—				—			2,461
Release of stock awards	778		—		—				—				—				—
Employee stock-based compensation	—		—		1,958				—				—				1,958				—			—			1,770				—				—				1,770
Non-employee stock-based compensation	—		—		22				—				—				22
Taxes paid related to net share settlement of equity awards	(297	)	—		(3,140		)		—				—				(3,140		)
Cumulative effect of change in accounting principles ⁽¹⁾	—		—		—				472				(4,532		)		(4,060		)
Net loss	—		—		—				—				(4,694		)		(4,694		)		—			—			—				—				(1,988		)		(1,988		)
Balance at March 31, 2018	48,925		$	5	$	339,354			$	—			$	(324,291	)		$	15,068

⁽¹⁾ Cumulative effect of change in accounting principles includes: Accounting Standards Update 2014-9 (Topic 606), of $4.1 million and Accounting Standards Update 2016-01 (Subtopic 825-10), of $0.5 million.
Balance as of September 30, 2018																					53,935			$	5		$	384,782			$	—			$	(330,014	)		$	54,773



	For the Three Months Ended March 31, 2019
	Common Stock				Additional paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders' Equity
	Shares		Amount

Balance at January 1, 2019	54,065		$	5	$	386,775					$	—			$	(330,474			)		$	56,306
Exercise of stock options	219		—		776				—				—				776
Release of stock awards	402		—		—				—				—				—
Employee stock-based compensation	—		—		2,063				—				—				2,063
Taxes paid related to net share settlement of equity awards	(145	)	—		(2,799		)		—				—				(2,799		)
Net loss	—		—		—				—				(5,136		)		(5,136		)
Balance at March 31, 2019	54,541		$	5	$	386,815			$	—			$	(335,610	)		$	51,210

See accompanying notes to the unaudited condensed consolidated financial statements

Codexis, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

(In Thousands)



	Common Stock				Additional paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity
Nine months ended September 30, 2019	Shares		Amount		Additional paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity

Balance as of January 1, 2019	54,065		$	5	$	386,775		$	—		$	(330,474	)	$	56,306
Exercise of stock options	970		—		4,621			—			—			4,621
Release of stock awards	449		—		—			—			—			—
Employee stock-based compensation	—		—		5,783			—			—			5,783
Taxes paid related to net share settlement of equity awards	(147	)	—		(2,850		)	—			—			(2,850		)
Issuance of common stock, net of issuance costs of $129	3,049		1		49,870			—			—			49,871
Short swing profit settlement	—		—		77			—			—			77
Net loss	—		—		—			—			(11,300		)	(11,300		)
Balance as of September 30, 2019	58,386		$	6	$	444,276		$	—		$	(341,774	)	$	102,508




	Common Stock				Additional paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity
Nine months ended September 30, 2018	Shares		Amount		Additional paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity

Balance as of January 1, 2018	48,365		$	5	$	340,079		$	(472	)	$	(315,065	)	$	24,547
Exercise of stock options	730		—		4,319			—			—			4,319
Release of stock awards	824		—		—			—			—			—
Employee stock-based compensation	—		—		6,183			—			—			6,183
Non-employee stock-based compensation	—		—		24			—			—			24
Taxes paid related to net share settlement of equity awards	(297	)	—		(3,140		)	—			—			(3,140		)
Issuance of common stock, net of issuance costs of $179	4,313		—		37,317			—			—			37,317
Cumulative effect of change in accounting principles ⁽¹⁾	—		—		—			472			(4,532		)	(4,060		)
Net loss	—		—		—			—			(10,417		)	(10,417		)
Balance as of September 30, 2018	53,935		$	5	$	384,782		$	—		$	(330,014	)	$	54,773

⁽¹⁾Cumulative effect of change in accounting principles included: Accounting Standards Update 2014-9 (Topic 606), of $4.1 million and Accounting Standards Update 2016-01 (Subtopic 825-10), of $0.5 million.

See accompanying notes to the unaudited condensed consolidated financial statements

Codexis, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in Thousands)



	Nine Months Ended September 30,
	2019			2018
Operating activities:
Net loss	$	(11,300	)	$	(10,417	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	1,118			812
Amortization expense - right-of-use assets - operating and finance leases	2,231			—
Gain on disposal of property and equipment	(2		)	—
Stock-based compensation	5,783			6,207
Loss on investment in equity securities	526			20
Changes in operating assets and liabilities:
Accounts receivable, net	(776		)	3,556
Unbilled receivables	385			—
Inventories	192			206
Prepaid expenses and other current assets	(485		)	(1,188		)
Contract assets	(1,158		)	(1,868		)
Other non-current assets	74			188
Accounts payable	(1,294		)	(1,686		)
Accrued compensation	(577		)	409
Other accrued liabilities	2,687			1,332
Other long-term liabilities	(1,291		)	(710		)
Deferred revenue	(5,012		)	(10,235		)
Net cash used in operating activities	(8,899		)	(13,374		)
Investing activities:
Purchase of property and equipment	(3,315		)	(2,074		)
Proceeds from disposal of property and equipment	2			1
Proceeds from the sale of investment securities	62			—
Net cash used in investing activities	(3,251		)	(2,073		)
Financing activities:
Proceeds from exercises of stock options	4,621			4,319
Proceeds from issuance of common stock in connection with public offering, net of underwriting discounts and commission	—			37,497
Costs incurred in connection with public offering	—			(180		)
Proceeds from issuance of common stock in connection with private placement	50,000			—
Costs incurred in connection with private placement	(129		)	—
Payments of lease obligations - Finance leases	(180		)	(178		)
Recovery of short swing profit	77			—
Taxes paid related to net share settlement of equity awards	(2,850		)	(3,140		)
Net cash provided by financing activities	51,539			38,318
Net increase in cash, cash equivalents and restricted cash	39,389			22,871
Cash, cash equivalents and restricted cash at the beginning of the period	54,485			32,776
Cash, cash equivalents and restricted cash at the end of the period	$	93,874		$	55,647

Supplemental disclosure of cash flow information
Interest paid	$	16		$	61
Income taxes paid	$	5		$	5
Purchase of property and equipment recorded in accounts payable and accrued expenses	$	536		$	420

Three Months Ended March 31,
2019 2018
Operating activities:
Net loss $ (5,136 ) $ (4,694 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 319
238
Amortization expense - right-of-use assets - operating and finance leases 759
—
Loss on disposal of property and equipment —
1
Stock-based compensation 2,063
1,980
Unrealized loss (gain) on investment in equity securities 103
(26 )
Changes in operating assets and liabilities:
Accounts receivable, net (1,053 ) 3,603
Inventories (44 ) (177 )
Prepaid expenses and other current assets (163 ) (427 )
Contract assets 35
—
Unbilled receivables (7 ) 287
Other non-current assets 38
—
Accounts payable (999 ) (975 )
Accrued compensation 1,196
1,381
Other accrued liabilities 3,591
705
Other long term liabilities (616 ) (210 )
Deferred revenue (2,937 ) (5,871 )
Net cash used in operating activities (2,851 ) (4,185 )
Investing activities:

Purchase of property and equipment (445 ) (16 )
Net cash used in investing activities (445 ) (16 )
Financing activities:
Proceeds from exercises of stock options 776
434
Payments of lease obligations - Finance leases (59 ) (58 )
Taxes paid related to net share settlement of equity awards (2,799 ) (3,140 )
Net cash used in financing activities (2,082 ) (2,764 )
Net decrease in cash, cash equivalents and restricted cash (5,378 ) (6,965 )
Cash, cash equivalents and restricted cash at the beginning of the period 54,485
32,776
Cash, cash equivalents and restricted cash at the end of the period $ 49,107
$ 25,811

Supplemental disclosure of cash flow information
Interest paid $ 22
$ 22
Income taxes paid $ —
$ 5
Purchase of property and equipment recorded in accounts payable and accrued expenses $ 142
$ 15

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, 2019 and September 30, 2018 to the total of the same such amounts shown above:



	Nine Months Ended September 30,
	2019		2018
Cash and cash equivalents	$	92,143	$	54,225
Restricted cash included in non-current assets	1,731		1,422
Total cash, cash equivalents and restricted cash at the end of the period	$	93,874	$	55,647

Three Months Ended March 31,
2019 2018
Cash and cash equivalents $ 47,322
$ 24,300
Restricted cash included in non-current assets 1,785
1,511
Total cash, cash equivalents and restricted cash at the end of the period $ 49,107
$ 25,811

See accompanying notes to the unaudited condensed consolidated financial statements

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

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

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

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

We initially commercialized our CodeEvolver^® protein engineering technology platform and products in the pharmaceuticals market, which remains our primary business focus. Our customers, which include several large global pharmaceutical companies, use our technology, products and services in their manufacturing processes and process development.

We have also used the technology to develop protein catalysts for use in the fine chemicals market. The fine chemicals market consists of several large market verticals, including food and food ingredients, animal feed, flavors, fragrances and agricultural chemicals.

We have also begun using the CodeEvolver^® protein engineering technology platform to develop early stage, novel biotherapeutic product candidates, both for our customers and for our own business, most notably our lead program for the potential treatment of phenylketonuria ("PKU") in humans. PKU is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient. In October 2017, we entered into a Global Development, Option and License Agreement (the "Nestlé Agreement") with Nestec Ltd. ("Nestlé Health Science") to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive license to develop and commercialize CDX-6114.

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

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

In May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver^®Agreement”) with Novartis Pharma AG (“Novartis”). The Novartis CodeEvolver^®Agreement allows Novartis to use Codexis’ proprietary CodeEvolver^® protein engineering platform technology in the field of human healthcare.

Below are brief descriptions of our business segments (See Note 13, "Segment, Geographical and Other Revenue Information"):

Performance Enzymes

We initially commercialized our CodeEvolver^® protein engineering technology platform and products in the pharmaceuticals market, and to date this continues to be our largest market served. Our customers, which include many large global pharmaceutical companies, use our technology, products and services in their manufacturing processes and process development. We have also used the technology to develop customized enzymes for use in other industrial markets. These markets consist of several large industrial verticals, including food and food ingredients, animal feed, flavors, fragrances, and agricultural chemicals. We also use our technology to develop enzymes for customers using NGS and PCR/qPCR for in vitro molecular diagnostic and molecular biology research applications.

Novel Biotherapeutics

We are also targeting new opportunities in the pharmaceutical industry to discover, improve, and/or develop biotherapeutic drug candidates. We believe that our CodeEvolver^® protein engineering platform technology can be used to discover novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions. Similarly, we believe that we can deploy our platform technology to improve specific characteristics of a customer’s pre-existing biotherapeutic drug candidate, such as its activity, stability or immunogenicity. Most notable is our lead program for the potential treatment of PKU in humans. PKU is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient. In October 2017, we announced a strategic collaboration with Nestlé Health Science to advance CDX-6114, our own novel orally administrable enzyme therapeutic candidate for the potential treatment of PKU. In July 2018, we announced that we had dosed the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114, which was conducted in Australia. In November 2018, we announced top-line results from the Phase 1a study in healthy volunteers with CDX-6114. In December 2018, Nestlé Health Science became obligated to pay us an additional $1.0 million within 60 days after the achievement of a milestone relating to formulation of CDX-6114. In January 2019, we received notice from the U.S. Food and Drug Administration (the “FDA”) that it had completed its review of our investigational new drug application (“IND”) for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive, worldwide, royalty-bearing, sub-licensable license for the global development and commercialization of CDX-6114 for the management of ~~PKU which triggered~~PKU. As a ~~payment~~result of the option exercise, we earned a milestone and recognized $3.0 million ~~to us.~~in revenues in the first quarter of 2019. Upon exercising its option, Nestlé Health Science has assumed all responsibilities for future clinical development and commercialization of CDX-6114, with the exception of the completion of an extension study, ~~CDX - 6114-004,~~CDX-6114-004, which ~~is expected to be~~was substantially completed in the ~~second~~third quarter of 2019.

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.

Recent Financing Activities

In June 2019, we entered into a Securities Purchase Agreement with an affiliate of Casdin Capital, LLC (“Casdin”) pursuant to which we issued and sold to Casdin 3,048,780 shares of our common stock at a purchase price of $16.40 per share (the “Private Offering”). After deducting issuance costs of $0.1 million from the Private Offering, our net proceeds were $49.9 million. See Note 10, "Capital Stock" to our unaudited condensed consolidated financial statements for further details.

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

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2018. The condensed consolidated balance sheet at December 31, 2018 has been derived from the audited consolidated financial statements at that date, but does not

include all disclosures, including notes, required by GAAP for complete financial statements. The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements for the three and nine months ended ~~March 31,~~September 30, 2019 are consistent with those discussed in Note 2 to the audited consolidated financial statements in the Company’s 2018 Annual Report on Form 10-K and are updated below as necessary.

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 ~~March 31,~~September 30, 2019, results of our operations for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018, changes in stockholders' equity for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018, and cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018. The interim results are not necessarily indicative of the results for any future interim period or for the entire year. Accounting Standard Update ("ASU") 2016-02, "Leases (Topic 842)" ("ASC 842) establishes a right-of-use ("ROU") model that requires a lessee to record a right-of-use asset and a lease obligation on the balance sheet for all leases with terms longer than 12 months. See "Recently Adopted Accounting Pronouncements" for details regarding the adoption of ASU ~~2016-02.~~2016-02 effective January 1, 2019.

The unaudited interim condensed consolidated financial statements include the accounts of Codexis, Inc. and its wholly owned subsidiaries in the United States, India and the Netherlands. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. We regularly assess these estimates which primarily affect revenue recognition, accounts receivable, inventories, the valuation of marketable securities, goodwill arising out of business acquisitions, accrued liabilities, stock awards, and the valuation allowances associated with deferred tax assets. Actual results could differ from those estimates and such differences may be material to the unaudited condensed consolidated financial statements.

Segment Reporting

We report ~~two~~2 business segments, Performance Enzymes and Novel Biotherapeutics, which are based on our operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker ("CODM"), or decision making group, in deciding how to allocate resources, and in assessing performance. Our CODM is our Chief Executive Officer. Our business segments are primarily based on our organizational structure and our operating results as used by our CODM in assessing performance and allocating resources for our company. 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 Performance Enzymes segment consists of ~~the existing~~ protein catalyst products and services with focus on pharmaceutical, food, molecular diagnostics, and other industrial markets.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in right-of-use ("ROU") lease assets, current portion of lease obligations, and long-term lease obligations on our balance sheets.

ROU lease assets represent our right to use an underlying asset for the lease term and lease obligations represent our obligation to make lease payments arising from the lease. Operating ROU lease assets and obligations are recognized at the commencement date based on the present value of the future minimum lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. We elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease obligations are not recognized for short-term leases.

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" (“ASC 842”), which is intended to improve financial reporting of leasing transactions by requiring lessees to recognize leases on balance sheets and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, "Land Easement Practical Expedient for Transition to Topic 842"; ASU 2018-10, "Codification Improvements to ASC 842, Leases"; and ASU 2018-11, "Leases (Topic 842): Targeted Improvements." The new standard establishes a right-of-use ("ROU") model that requires lessees to record a ROU asset and lease obligations on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern and classification of expense recognition in the condensed consolidated statement of operations. We adopted the new standard on January 1, 2019 using a modified retrospective approach and effective date method. We also elected the "package of practical expedients," which permit us not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to us. Upon adoption, for operating leases, we recognized $26.6 million of ROU assets and $27.6 million of lease obligations, which represents the present value of the lease payments discounted using our incremental borrowing rate ("IBR") of 6.6%. For finance leases, we recognized $0.5 million of ROU assets and $0.3 million of lease obligations which represents the present value of the lease payments discounted using weighted-average implicit rate of 5.0%. These amounts ~~included the eighth amendment to the lease agreement disclosed in Note 11, "Commitments and Contingencies,"~~ were recorded in our unaudited condensed consolidated balance ~~sheets on January 1,~~sheet in the first quarter of 2019.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and requires certain disclosures about stranded tax effects and will be effective for us beginning January 1, 2019 and should be applied either in the period of adoption or retrospectively. We adopted ASU 2018-02 in the first quarter of 2019, and the adoption had no impact on our unaudited condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting," which expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to ~~nonemployees~~non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. The new standard is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted ASU 2018-07 in the first quarter of 2019, and the adoption had no impact on our unaudited condensed consolidated financial statements.

In July 2018, the FASB issued ASU 2018-09, "Codification Improvements”, which represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. The amendments in this ASU include those made to: Subtopic 220-10, Income Statement-Reporting Comprehensive Income-Overall; Subtopic 470-50, Debt-Modifications and Extinguishments; Subtopic 480-10, Distinguishing Liabilities from Equity-Overall; Subtopic 718-740, Compensation-Stock Compensation-Income Taxes; Subtopic 805-740, Business Combinations-Income Taxes; Subtopic 815-10, Derivatives and Hedging-Overall; Subtopic 820-10, Fair Value Measurement-Overall; Subtopic 940-405, Financial Services-Brokers and Dealers-Liabilities; and Subtopic 962-325, Plan Accounting-Defined Contribution Pension Plans-Investments-Other. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon

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

Recently issued accounting pronouncements not yet adopted

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

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which amends the FASB's guidance on the impairment of financial instruments. The standard adds a new impairment model (known as the "current expected credit loss model") that is based on expected losses

rather than incurred losses. ASU 2016-13 is effective for annual reporting periods ending after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of adopting ASU 2016-13 on our ~~unaudited condensed consolidated~~ financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We ~~do not expect~~are currently evaluating the impact of adoption of ASU 2017-04 ~~to have a material impact~~ on our ~~unaudited condensed consolidated~~ financial statements and related disclosures.

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

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

In January 2019, the FASB issued ASU 2019-01, "Leases (Topic 842): Codification Improvements". These amendments align the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance (Issue #1). The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities (Issue #2). The ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard (Issue #3). In general, the amendments in ASU 2019-01 are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The transition and effective date provisions apply to Issue 1 and Issue 2. They do not apply to Issue 3 because the amendments for that Issue are to the original transition requirements in Topic 842. We are currently evaluating the impact of ~~adopting~~adoption of ASU ~~2019-01~~2018-18 on our ~~unauditedcondensed consolidated~~ financial ~~statements and related disclosures.~~statements.

Note 3. Revenue Recognition

Disaggregation of Revenue

The following table provides information about disaggregated revenue from contracts with customers, 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, Latin America), EMEA (Europe,

Middle East, Africa), and APAC (Australia, New Zealand, Southeast Asia, China).

Three months ended March 31, 2019 Three months ended March 31, 2018
(in thousands) Performance Enzymes Novel Biotherapeutics Total Performance Enzymes Novel Biotherapeutics Total
Major products and service:
Product Revenue $ 7,988
$ —
$ 7,988
$ 6,163
$ —
$ 6,163
Research and development revenue 2,099
5,496
7,595
4,566
3,313
7,879
Total revenues $ 10,087
$ 5,496
$ 15,583
$ 10,729
$ 3,313
$ 14,042

Primary geographical markets:
Americas $ 2,838
$ —
$ 2,838
$ 3,597
$ —
$ 3,597
EMEA 2,230
5,496
7,726
1,679
3,313
4,992
APAC 5,019
—
5,019
5,453
—
5,453
Total revenues $ 10,087
$ 5,496
$ 15,583
$ 10,729
$ 3,313
$ 14,042



	Three months ended September 30, 2019						Three months ended September 30, 2018
(in thousands)	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product Revenue	$	10,351	$	—	$	10,351	$	8,405	$	—	$	8,405
Research and development revenue	10,073		1,482		11,555		3,720		4,821		8,541
Total revenues	$	20,424	$	1,482	$	21,906	$	12,125	$	4,821	$	16,946

Primary geographical markets:
Americas	$	2,706	$	—	$	2,706	$	4,315	$	—	$	4,315
EMEA	10,723		1,482		12,205		1,453		4,821		6,274
APAC	6,995		—		6,995		6,357		—		6,357
Total revenues	$	20,424	$	1,482	$	21,906	$	12,125	$	4,821	$	16,946



	Nine months ended September 30, 2019						Nine months ended September 30, 2018
(in thousands)	Performance Enzymes		Novel Biotherapeutics		Total		Performance Enzymes		Novel Biotherapeutics		Total
Major products and service:
Product Revenue	$	24,588	$	—	$	24,588	$	18,291	$	—	$	18,291
Research and development revenue	16,512		8,708		25,220		15,728		10,507		26,235
Total revenues	$	41,100	$	8,708	$	49,808	$	34,019	$	10,507	$	44,526

Primary geographical markets:
Americas	$	9,620	$	—	$	9,620	$	13,968	$	—	$	13,968
EMEA	15,964		8,708		24,672		4,568		10,507		15,075
APAC	15,516		—		15,516		15,483		—		15,483
Total revenues	$	41,100	$	8,708	$	49,808	$	34,019	$	10,507	$	44,526

Contract Balances

The following table presents changes in the contract assets, unbilled receivables, contract costs, and contract liabilities (in thousands):


	January 1, 2019 balance		Additions	Deductions ⁽¹⁾		March 31, 2019 balance		January 1, 2019 balance		Additions	Deductions ⁽¹⁾		September 30, 2019 balance
Contract Assets	$	35	1,813	(1,848	)	$	—	$	35	7,142	(5,984	)	$	1,193
Unbilled receivables, current	$	1,916	423	(416	)	$	1,923	$	1,916	4,189	(3,788	)	$	2,317
Unbilled receivables, non-current(2)	$	786	—	—		$	786	$	786	—	(786	)	$	—
Contract Costs(2)	$	42	—	(28	)	$	14	$	42	—	(41	)	$	1
Contract Liabilities: Deferred Revenue	$	8,288	1,386	(4,323	)	$	5,351	$	8,288	6,486	(11,498	)	$	3,276

⁽¹⁾The asset or liability balances are presented as a net position per contract and accordingly the deductions column includes the netting effect of presenting each contract on a net position basis as either a net liability or asset.

⁽²⁾Included in non-current assets in our unaudited condensed consolidated balance sheets.

We had no0 asset impairment charges related to contract assets in the ~~period.~~three and nine months ended September 30, 2019.

During the three and nine months ended ~~March 31,~~September 30, 2019, we recognized the following revenues (in thousands):



Revenue recognized in the period from:	Three months ended September 30, 2019		Nine months ended September 30, 2019
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied	$	5,092	$	4,948
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods	2,641		2,460
Performance obligations satisfied from new activities in the period - contract revenue	14,173		42,400
Total revenue	$	21,906	$	49,808

Revenue recognized in the period from: Three months ended March 31, 2019
Amounts included in contract liabilities at the beginning of the period:
Performance obligations satisfied $ 2,385
Changes in the period:
Changes in the estimated transaction price allocated to performance obligations satisfied in prior periods 136
Performance obligations satisfied from new activities in the period - contract revenue 13,062
Total revenue $ 15,583

Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. 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 ~~March 31,~~September 30, 2019. ~~We did not recognize any revenue from performance obligations satisfied in previous periods.~~

The balances in the table below are partially based on judgments involved in estimating future orders from customers subject to the exercise of material rights pursuant to respective contracts.



(in thousands)	Remainder of 2019		2020		2021 and Thereafter		Total
Product Revenue	$	—	$	365	$	1,623	$	1,988
Research and development revenue	1,288		—		—		1,288
Total	$	1,288	$	365	$	1,623	$	3,276

(in thousands) 2019 2020 2021 and Thereafter Total
Product Revenue $ —
$ 2,409
$ 1,623
$ 4,032
Research and development revenue 1,319
—
—
1,319
Total $ 1,319
$ 2,409
$ 1,623
$ 5,351

Note 4. Net ~~Loss~~Income (loss) per Share

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

~~Anti-Dilutive Securities~~

~~In periods of net loss, the weighted average number of shares outstanding related to potentially dilutive securities, prior to the application of the treasury stock method, are excluded from~~The following table sets forth the computation of basic and diluted net ~~loss~~income (loss) per ~~common~~ share ~~because including such shares would have an anti-dilutive effect.~~during the three and nine months ended September 30, 2019 and 2018 (in thousands, except per share amounts):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019			2018
Numerator:
Net income (loss)	$	343	$	(1,988	)	$	(11,300	)	$	(10,417	)
Denominator:
Weighted average common stock shares used in computing net income (loss) per share, basic	58,287		53,597			55,818			51,609
Effect of dilutive shares	3,125		—			—			—
Weighted average common stock shares used in computing net income (loss) per share, diluted	61,412		53,597			55,818			51,609
Net income (loss) per share, basic	$	0.01	$	(0.04	)	$	(0.20	)	$	(0.20	)
Net income (loss) per share, diluted	$	0.01	$	(0.04	)	$	(0.20	)	$	(0.20	)

Anti-Dilutive Securities

The following shares were not ~~included~~considered in the computation of diluted net ~~loss~~income (loss) per share because their effect was anti-dilutive (in thousands):



	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Shares of common stock issuable pursuant to equity awards outstanding under the Equity Incentive Plan	1,019	7,607	5,623	7,607

Three months ended March 31,
2019 2018
Shares of common stock issuable pursuant to equity awards outstanding under the Equity Incentive Plan 6,750
7,530

Note 5. Collaborative Arrangements

GSK Platform Technology Transfer, Collaboration and License Agreement

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

We received an upfront fee upon the execution of the agreement in July 2014 and milestone payments in each of the years from 2014 through April 2016. We completed the transfer of the CodeEvolver^®protein engineering platform technology to GSK in April 2016 and all revenues relating to the technology transfer have been recognized as of April 2016. We have the potential to receive additional cumulative contingent payments that range from $5.75 million to $38.5 million per project based on

GSK’s successful application of the licensed technology. We are also eligible to receive royalties based on net sales, if any, of ~~GSK’s sales~~a limited set of ~~licensed~~products developed by GSK using our CodeEvolver^®protein engineering platform technology.

In September 2019, we received notification from GSK that a milestone relating to the advancement of an enzyme ~~products that are currently constrained.~~developed by GSK using our CodeEvolver^® protein engineering platform technology has been achieved, triggering a $2.0 million milestone payment to Codexis from GSK. We recognized revenue of $2.0 million for the milestone payment for the three and nine months ended September 30, 2019, respectively, compared to 0 for the three and nine months ended September 30, 2018, respectively, as research and development revenue.

Merck Platform Technology Transfer and License Agreement

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

We received ~~a $5.0 million up-front~~an upfront license fee upon execution of the Merck CodeEvolver^® Agreement, and milestone payments in September 2015 and in September 2016, when we completed the transfer of the engineering platform technology. Additionally, we recognized research and development revenues of $1.0 million and ~~$0.9~~$3.0 million for the three and nine months ended ~~March 31,~~September 30, 2019, respectively, compared to $1.1 million and $3.0 million for the three and nine months ended September 30, 2018, respectively, for various research projects under our collaborative arrangement.

We have the potential to receive payments of up to a maximum of $15.0 million for each commercial active pharmaceutical ingredient ("API") that is manufactured by Merck using one or more novel enzymes developed by Merck using the CodeEvolver^® protein engineering technology platform. ~~The~~These potential API payments ~~which are currently not recognized in revenue,~~ are based on the quantity of API developed and manufactured by Merck and will be recognized as usage-based royalties. We recognized 0 usage-based royalties in both the three and nine months ended September 30, 2019.

In January 2019, we entered into an amendment to the Merck CodeEvolver^® Agreement whereby we ~~will install~~installed certain CodeEvolver^®protein engineering technology upgrades into Merck’s platform ~~license installation and~~license. Pursuant to the agreement, we will maintain those upgrades for a multi-year term. AsWe recognized research and development revenues of ~~March 31,~~$0.1 million and $1.0 million for the three and nine months ended September 30, 2019, ~~none of the technology upgrades have been installed and no revenue has been recognized~~respectively, under the amendment.

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 substance 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. WeUnder this agreement, we recognized 0 research and development revenue ~~of zero~~for the three and nine months ended September 30, 2019, compared to 0 and $1.3 million for the three and nine months ended ~~March 31, 2019 and~~September 30, 2018, respectively.

We have determined that the variable pricing, which provides a discount based on the cumulative volume of sitagliptin catalyst purchased by Merck, provides Merck material rights and we are recognizing product revenues using the alternative method. Under the alternative approach, we estimate the total expected consideration and allocate it proportionately with the expected sales.

The Sitagliptin Catalyst Supply Agreement requires Merck to pay an annual fee for the rights to the sitagliptin technology each year for the term of the Sitagliptin Catalyst Supply Agreement. Amounts of annual license fees are based on contractually agreed prices and are on a declining scale over the term of the contract.

We had a deferred revenue balance from Merck of ~~$2.0 million~~0 at ~~March 31,~~September 30, 2019 and $3.6 million at December 31, 2018. In addition, pursuant to the terms of the Sitagliptin Catalyst Supply Agreement, ~~Merck may purchase supply from us for a fee based on contractually stated prices and~~ we recognized ~~$5.3~~$3.6 million and ~~$4.6~~$11.4 million for the three and nine months ended ~~March 31,~~September 30, 2019, respectively, compared to $3.4 million and $10.7 million for the three and nine months ended September 30, 2018, respectively, in product revenue under this agreement.

Enzyme Supply Agreement

In November 2016, we entered into a supply agreement whereby our customer may purchase quantities of one of our proprietary enzymes for use in its commercial manufacture of a product. Pursuant to the supply agreement, we received an upfront payment of $0.8 million in December 2016, which we accordingly recorded as deferred revenue. Such upfront payment will be recognized over the period of the supply agreement as the customer purchases our proprietary enzyme. We additionally have determined that the volume discounts under the supply agreement provides the customer material rights and we are recognizing revenues using the alternative method. As of ~~March 31,~~September 30, 2019 and December 31, 2018, we had deferred revenue from the supply agreement of $2.0 million.

Research and Development Agreement

In March 2017, we entered into a multi-year research and development services agreement with Tate & Lyle Ingredients Americas LLC ("Tate & Lyle") to develop enzymes for use in the manufacture of Tate & Lyle’s zero-calorie TASTEVA^® M Stevia sweetener. Under the agreement, we received an upfront payment of $3.0 million, which was recognized ratably over the maximum term of the services period of 21 months. Beginning January 1, 2018, we ~~are recognizing~~recognized revenue using a single measure of progress that ~~depicts~~depicted our performance in transferring the services. During the second quarter of 2018, Tate & Lyle opted to obtain additional development services that we completed by June 30, 2018 and we earned milestone payments upon completion of the services. We recognized ~~zero~~revenue of 0 and ~~$1.4 million of revenue~~$50 thousand for the three and nine months ended ~~March 31,~~September 30, 2019, respectively, compared to $1.3 million and $7.1 million for the three and nine months ended September 30, 2018, respectively, for research and development services under the research and development agreement. ~~As of March 31, 2019 and December 31, 2018, we had no deferred revenue from the development services agreement.~~

~~In April 2019, we entered into a multi-year commercial agreement with Tate & Lyle. (See Note 14, "Subsequent Events," for more details.)~~

Global Development, Option and License Agreement and Strategic Collaboration Agreement

In October 2017, we entered into a Global Development, Option and License Agreement (the "Nestlé Agreement") with Nestec Ltd. ("Nestlé Health Science") and, solely for the purpose of the integration and the dispute resolution clauses of the Nestlé Agreement, Nestlé Health Science S.A., to advance CDX-6114, our enzyme biotherapeutic product candidate for the potential treatment of PKU.

We received an upfront cash payment of $14.0 million upon the execution of the Nestlé Agreement, a $4.0 million milestone payment after dosing the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114, and a $1.0 million milestone payment upon achievement of a milestone relating to formulation of CDX-6114. The $4.0 million milestone payment that was triggered by the initiation of the trial was received in September 2018 and the $1.0 million milestone payment that was triggered by the achievement of a formulation relating to CDX-6114 was received in February 2019. The upfront payment and the variable consideration relating to the progress payment of $4.0 million and milestone payment of $1.0 million are being recognized over time as the development work is being performed. Revenue is being recognized using a single measure of progress that depicts our performance in transferring control of the services, which is based on the ratio of level of effort incurred to date compared to the total estimated level of effort required to complete all performance obligations under the agreement. We recognized development fees of ~~$1.3~~$0.1 million and ~~$2.7~~$1.8 million for the three and nine months ended ~~March 31,~~September 30, 2019, respectively, compared to $3.7 million and $8.1 million for the three and nine months ended September 30, 2018, respectively, as research and development revenue. We had deferred revenue related to the development fees attributed to the milestone payment and ~~up-front~~upfront fees of ~~$0.7 million~~$50 thousand at ~~March 31,~~September 30, 2019 and $1.9 million at December 31, 2018.

In January 2019, we received notice from the FDA that it had completed its review of our 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~~The option payment of ~~the option exercise, Nestlé Health Science is obligated to pay us~~ $3.0 million ~~which we~~was recognized ~~revenue for three months ended March 31,~~in the first quarter of 2019 as research and development fees. Upon exercising its option, Nestlé Health Science has assumed all responsibilities for future clinical development and commercialization of CDX-6114, with the exception of the completion of an extension study, CDX-6114-004, which ~~is expected to be~~was substantially completed in the second quarter of 2019. Other potential payments from Nestlé Health Science to us under the Nestlé Agreement include (i) development and approval milestones of up to $85.0 million, (ii) sales-based milestones of up to $250.0 million in the aggregate, which aggregate amount is achievable if net sales exceed $1.0 billion in a single year, and (iii) tiered royalties, at percentages ranging from the middle single digits to low double-digits, of net sales of product.

In addition to the Nestlé Agreement, we and Nestlé Health Science concurrently entered into a Strategic Collaboration Agreement (the "Strategic Collaboration Agreement") pursuant to which we and Nestlé Health Science will collaborate to leverage the CodeEvolver^® protein engineering technology platform to develop novel enzymes for Nestlé Health Science’s established Consumer Care and Medical Nutrition business areas. Under the Strategic Collaboration Agreement, we received an upfront payment of $1.2 million in 2017 and an incremental $0.6 million payment in September 2018 for additional services. We recognized research and development fees of ~~$1.2~~$1.4 million and ~~$0.6~~$3.9 million for the three and nine months ended ~~March 31,~~September 30, 2019, respectively, compared to $1.2 million and $2.4 million for the three and nine months ended September 30, 2018, respectively. We had deferred revenue of ~~$0.6 million~~$25 thousand and $0.8 million at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively.

Strategic Collaboration Agreement

In April 2018, we entered into the Porton Agreement with Porton to license key elements of Codexis’ 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 and $1.5 million upon the first anniversary of the ~~agreement and as~~effective date of ~~December 31, 2018, we~~the agreement. We completed the technical ~~transfer. We recognized no revenue for~~transfer in the ~~three months ended March 31, 2019 and 2018, as research and development revenue.~~fourth quarter of 2018. Revenue relating to the functional license provided to Porton was recognized at a point in time when control of the license transferred to the customer.

Commercial Agreement

In April 2019, we entered into a multi-year commercial agreement with Tate & Lyle under which Tate & Lyle has received an exclusive license to use a suite of Codexis novel performance enzymes in the manufacture of Tate & Lyle’s zero-calorie stevia sweetener, TASTEVA^® M, and other stevia products. Under the agreement, we will supply Tate & Lyle with its requirements for these enzymes over a multiple year period and receive royalties on stevia products.

Platform Technology Transfer and License Agreement

In May 2019, we entered into a Platform Technology Transfer and License Agreement (the “Novartis CodeEvolver^®Agreement”) with Novartis Pharma AG (“Novartis”). The Agreement allows Novartis to use Codexis’ proprietary CodeEvolver^®protein engineering platform technology in the field of human healthcare. Under the Novartis CodeEvolver^®Agreement, we will transfer Codexis' proprietary CodeEvolver^®protein engineering platform technology to Novartis over approximately 20 months starting with the date on which we commence the technology transfer (the “Technology Transfer Period”). As a part of this technology transfer, our company will provide to Novartis Codexis’ proprietary enzymes, proprietary protein engineering protocols and methods, and proprietary software algorithms. In addition, teams of Codexis and Novartis scientists will participate in technology training sessions and collaborative research projects at Codexis’ 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 million shortly after the effective date of the Novartis CodeEvolver^®Agreement. We are entitled to receive an additional $4 million subject to satisfactory completion of the second technology transfer milestone and an additional $5 million upon satisfactory completion of the third technology transfer milestone. In consideration for the continued disclosure and license of improvements to the Codexis technology and materials during a multi-year period that begins on the conclusion of the Technology Transfer Period (“Improvements Term”), Novartis will pay Codexis annual payments which amount to an additional $8 million. Codexis 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 Codexis 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, which is expected to occur over twenty 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 $3.8 million in revenue for the three and nine months ended September 30, 2019 from the Novartis CodeEvolver^®Agreement. As of September 30, 2019, we had deferred revenue of $1.2 million from the Novartis CodeEvolver^®Agreement.

Note 6. Cash Equivalents and Marketable Securities

Cash equivalents and marketable securities at ~~March 31,~~September 30, 2019 and at December 31, 2018 consisted of the following (in thousands):



	September 30, 2019
	Adjusted Cost		Gross Unrealized Gains ⁽³⁾		Gross Unrealized Losses⁽³⁾		Estimated Fair Value
Money market funds⁽¹⁾	$	73,450	$	—	$	—	$	73,450

March 31, 2019
Adjusted Cost
Gross Unrealized
Gains ⁽³⁾

Gross Unrealized
Losses⁽³⁾
Estimated
Fair Value
Money market funds⁽¹⁾
$ 28,001
$ —
$ —
$ 28,001
Common shares of CO₂Solutions ⁽²⁾
563
—
(79 ) 484
Total $ 28,564
$ —
$ (79 ) $ 28,485



	December 31, 2018
	Adjusted Cost		Gross Unrealized Gains⁽³⁾		Gross Unrealized Losses⁽³⁾		Estimated Fair Value
Money market funds ⁽¹⁾	$	31,225	$	—	$	—	$	31,225
Common shares of CO₂Solutions⁽²⁾	563		25		—		588
Total	$	31,788	$	25	$	—	$	31,813

December 31, 2018
Adjusted Cost
Gross Unrealized
Gains⁽³⁾

Gross Unrealized
Losses⁽³⁾
Estimated
Fair Value
Money market funds ⁽¹⁾
$ 31,225
$ —
$ —
$ 31,225
Common shares of CO₂Solutions⁽²⁾
563
25
—
588
Total $ 31,788
$ 25
$ —
$ 31,813

⁽¹⁾Money market funds are classified in cash and cash equivalents on our unaudited condensed consolidated balance sheets.

⁽²⁾ Common shares of CO₂Solutions are classified in equity securities on our unaudited condensed consolidated balance sheets.

⁽³⁾As a result of adopting ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities", in 2018 and thereafter gross unrealized gains and gross unrealized losses related to our investment in CO₂ Solutions were recognized in other expense, in our unaudited condensed consolidated statements of operations.

As of ~~March 31,~~September 30, 2019, the total cash and cash equivalents balance of ~~$47.3~~$92.1 million was comprised of money market funds of ~~$28.0~~$73.5 million and cash of ~~$19.3~~$18.6 million held with major financial institutions worldwide. As of December 31, 2018, the total cash and cash equivalents balance of $53.0 million was comprised of money market funds of $31.2 million and cash of $21.8 million held with major financial institutions worldwide.

In December 2009, we purchased 10,000,000 common shares of CO₂Solutions, a company based in Quebec, Canada, whose shares ~~are~~were publicly traded in Canada on the TSX Venture Exchange until September 17, 2019 and are currently listed on NEX board, which is a separate board of TSX Venture Exchange. Our purchase represented approximately 16.6% of CO₂ Solutions’ total common shares outstanding at the time of investment and was made in a private placement subject to a four-month statutory resale restriction. This restriction expired on April 15, 2010. Our investment in CO₂ Solutions is recorded at its fair value. See Note 7, “Fair Value Measurements.” Through ~~March 31,~~September 30, 2019, we concluded that we did not have the ability to exercise significant influence over CO₂ Solutions’ operating and financial policies.

In the quarter ended September 30, 2019, we sold 1.3 million common shares of our investment in CO₂Solutions and received proceeds of $0.1 million. At September 30, 2019, we reviewed our investment in the common shares of CO₂ Solutions. Concurrent with CO₂Solutions' announcement to file under the Bankruptcy and Insolvency Act (Canada) and a suspension in trading of its equity securities, there was no observable market pricing available at September 30, 2019. We assessed that the fair value of the investment and concluded to write down the investment to 0. Previously, we had assessed the fair value of the investment using readily quantifiable market data. We recognized a $0.4 million and a $0.5 million loss, respectively in the three and nine months ended September 30, 2019. The loss was included in other expenses, net in the unaudited condensed consolidated statement of operations.

We recognized a loss of $25 thousand and $20 thousand, respectively, in the three and nine months ended September 30, 2018.The loss was included in other expenses, net in the unaudited condensed consolidated statement of operations. On January 1, 2018, we adopted ASU 2016-01. Upon adoption, we reclassified the $0.5 million net unrealized loss on our investment from accumulated other comprehensive loss to our opening accumulated deficit. ~~As of March 31, 2019, we recognized an unrealized loss of $0.1 million related to our investment in CO~~₂ ~~Solutions in other expense, in the unaudited condensed consolidated statements of operations.~~

Note 7. Fair Value Measurements

The following tables present the financial instruments that were measured at fair value on a recurring basis at ~~March 31,~~September 30, 2019 and December 31, 2018 by level within the fair value hierarchy (in thousands):

March 31, 2019
Level 1 Level 2 Level 3 Total
Money market funds $ 28,001
$ —
$ —
$ 28,001
Common shares of CO₂ Solutions
484
—
—
484
Total $ 28,485
$ —
$ —
$ 28,485



	September 30, 2019
	Level 1		Level 2		Level 3		Total
Money market funds	$	73,450	$	—	$	—	$	73,450



	December 31, 2018
	Level 1		Level 2		Level 3		Total
Money market funds	$	31,225	$	—	$	—	$	31,225
Common shares of CO₂Solutions	588		—		—		588
Total	$	31,856	$	—	$	—	$	31,813

December 31, 2018
Level 1 Level 2 Level 3 Total
Money market funds $ 31,225
$ —
$ —
$ 31,225
Common shares of CO₂Solutions
588
—
—
588
Total $ 31,813
$ —
$ —
$ 31,813

We determine the fair value of Level 1 assets using quoted prices in active markets for identical assets. WeAt December 31, 2018, we estimated the fair value of our investment in 10,000,000 common shares of CO₂ Solutions using the market value of common shares as determined by trading on the TSX Venture Exchange, and we classified our investment in CO₂ Solutions within the fair value hierarchy as Level 1 at ~~March 31, 2019 and~~ December 31, 2018 ~~respectively,~~ using the quoted prices in an active market to determine their fair value.

In the quarter ended September 30, 2019, we reviewed our investment in the common shares of CO₂Solutions. Concurrent with CO₂ Solutions' announcement to file under the Bankruptcy and Insolvency Act (Canada) and a suspension in trading of its equity securities, there was no observable market pricing available at September 30, 2019. We assessed the fair value of the investment and concluded to write down the investment to 0. We recognized a $0.4 million and a $0.5 million loss, respectively in the three and nine months ended September 30, 2019 in other expenses, net in the unaudited condensed consolidated statement of operations. For information see Note 6. "Cash Equivalents and Marketable Securities".

Note 8. Balance Sheets Details

Inventories

Inventories consisted of the following (in thousands):



	September 30, 2019		December 31, 2018
Raw materials	$	7	$	165
Work-in-process	52		47
Finished goods	338		377
Inventories	$	397	$	589

March 31, 2019 December 31, 2018
Raw materials $ 58
$ 165
Work-in-process 158
47
Finished goods 417
377
Inventories $ 633
$ 589

Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):



	September 30, 2019			December 31, 2018
Laboratory equipment	$	23,266		$	21,328
Leasehold improvements	10,899			10,359
Computer equipment and software	3,806			3,954
Office equipment and furniture	1,461			1,272
Construction in progress	488			939
Property and equipment	39,920			37,852
Less: accumulated depreciation and amortization	(33,679		)	(33,093		)
Property and equipment, net	$	6,241		$	4,759

March 31, 2019 December 31, 2018
Laboratory equipment ⁽¹⁾
$ 21,464
$ 21,328
Leasehold improvements 10,730
10,359
Computer equipment and software 3,663
3,954
Office equipment and furniture 1,442
1,272
Construction in progress ⁽²⁾
175
939
Property and equipment 37,474
37,852
Less: accumulated depreciation and amortization (32,939 ) (33,093 )
Property and equipment, net $ 4,535
$ 4,759

⁽¹⁾ ~~Fully depreciated laboratory equipment with a cost of $0.1 million and $0.3 million was retired during three months ended March 31, 2019 and the fiscal year ended December 31, 2018, respectively.~~

⁽²⁾ ~~Construction in progress includes equipment received but not yet placed into service pending installation.~~

Goodwill

Goodwill had a carrying value of approximately $3.2 million ~~at March 31,~~as of September 30, 2019 and December 31, 2018.

Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):



	September 30, 2019		December 31, 2018
Accrued purchases	$	3,894	$	1,492
Accrued professional and outside service fees	1,833		2,020
Deferred rent	—		343
Lease incentive obligation	—		425
Other	455		575
Total	$	6,182	$	4,855

March 31, 2019 December 31, 2018
Accrued purchases $ 3,556
$ 1,492
Accrued professional and outside service fees 3,318
2,020
Deferred rent —
343
Lease incentive obligation —
425
Other 253
575
Total $ 7,127
$ 4,855

Note 9. Stock-Based Compensation

Equity Incentive Plans

In ~~March 2010,~~June 2019, our board of directors (the "Board") and stockholders approved the ~~2010 Equity~~2019 Incentive Award Plan (the ~~"2010~~"2019 Plan"),. The 2019 Plan supersedes and replaces in its entirety our 2010 Equity Incentive Plan (the “2010 Plan”) which ~~became~~was effective ~~upon~~in March 2010, and no further awards will be granted under the ~~completion~~2010 Plan; however, the terms and conditions of ~~our initial public offering in April 2010.~~ the 2010 Plan will continue to govern any outstanding awards thereunder.

The number of shares of our common stock available for issuance under the ~~2010~~2019 Plan is equal to ~~1,100,000~~the sum of (i) 7,897,144 shares, ~~plus~~and (ii) any shares ~~of common stock reserved for future grant or issuance~~subject to awards granted under our 2002 Stock Plan (the "2002 Plan") that remained unissued at the time of completion of the initial public offering. The 2010 Plan also provides for automatic annual increases in the number of shares reserved for future issuance. All grants will reduce the 2010 Plan ~~reserve by one share~~that were outstanding as of April 22, 2019 and thereafter terminate, expire, lapse or are forfeited; provided that no more than 14,000,000 shares may be issued upon the exercise of incentive stock options (“ISOs”). In June 2019, 8.1 million shares authorized for ~~every share granted.~~issuance under the 2019 Plan were registered under the Securities Act of 1933, as amended (the “Securities Act”).

The 2019 Plan provides for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock or cash based awards and dividend equivalents to eligible employees and consultants of the Company or any parent or subsidiary, as well as members of the Board.

The 2010 Plan ~~provides~~provided for the grant of incentive stock options, non-statutory stock options, ~~RSUs, RSAs, PSUs, PBOs,~~restricted stock units ("RSUs"), restricted stock awards ("RSAs"), performance-contingent restricted stock units ("PSUs"), performance based options ("PBOs"), stock appreciation rights, and stock purchase rights to our employees, non-employee directors and consultants.

Stock Options

The option exercise price for incentive stock options is at least 100% of the fair value of our common stock on the date of grant and the option exercise price for non-statutory stock options is at least 85% of the fair value of our common stock on the date of grant, as determined by the Board. If, at the time of a grant, the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all of our outstanding capital stock, the exercise price for these options must be at least 110% of the fair value of the underlying common stock. Stock options granted to employees generally have a maximum term of 10 years and vest over a four year period from the date of grant, of which 25% vest at the end of one year, and 75% vest monthly over the remaining three years. We may grant options with different vesting terms from time to time. Unless an employee's termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier.

Restricted Stock Units (RSUs)

We also grant employees RSUs, which generally vest over either a three year period with one-third of the shares subject to the RSUs vesting on each yearly anniversary of the vesting commencement date or over a four year period with 25% of the shares subject to the RSU vesting on each yearly anniversary of the vesting commencement date, in each case contingent upon such employee’s continued service on such vesting date. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. We may grant RSUs with different vesting terms from time to time.

Performance-contingent Restricted Stock Units (PSUs) and Performance Based Options (PBOs)

The compensation committee of the Board approved, solely in respect of non-executive employees, and delegated to our Chief Executive Officer the authority to approve grants of PSUs. The compensation committee of the Board also approved grants of PBOs and PSUs to our executives. The PSUs and PBOs vest based upon both the successful achievement of certain corporate operating milestones in specified timelines and continued employment through the applicable vesting date. When the performance goals are deemed to be probable of achievement for these types of awards, recognition of stock-based compensation expense commences. Once the number of shares eligible to vest is determined, those shares vest in ~~two~~2 equal installments with 50% vesting upon achievement and the remaining 50% vesting on the first anniversary of achievement, in each case, subject to the recipient’s continued service through the applicable vesting date. If the performance goals are achieved at the threshold level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to half the number of PSUs granted and one-quarter the number of shares underlying the PBOs granted. If the performance goals are achieved at the target level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to the number of PSUs granted and half of the shares underlying the PBOs granted. If the performance goals are achieved at the superior level, the number of shares eligible to vest in respect of the PSUs would be equal to two times the number of PSUs granted and equal to the number of PBOs granted. The number of shares issuable upon achievement of the performance goals at the levels between the threshold and target levels for the PSUs and PBOs or between the target level and superior levels for the PSUs would be determined using linear interpolation. Achievement below the threshold level would result in no0 shares being eligible to vest in respect of the PSUs and PBOs.

In the first quarter of 2019, we awarded PSUs ("2019 PSUs") and PBOs ("2019 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including revenue growth, strategic advancement of biotherapeutics, cash balance and strategic plan development. As of ~~March 31,~~September 30, 2019, we estimated that the 2019 PSUs and 2019 PBOs performance goals would be achieved at ~~100%~~113% of the target level, and recognized expenses accordingly.

In 2018, we awarded PSUs ("2018 PSUs") and PBOs ("2018 PBOs"), each of which ~~commence~~commenced vesting based upon the achievement of various weighted performance goals, including core business revenue growth, cash balance, new licensing collaborations, new research and development service revenue arrangements, technology advancement and novel therapeutic enzymes advancement. In the first quarter of 2019, we determined that the 2018 PSUs and 2018 PBOs performance goals had been achieved at 118% of the target level, and recognized expenses accordingly. Accordingly, one-half of the shares underlying the 2018 PSUs and PBOs vested in the first quarter of 2019 and one-half of the shares underlying the 2018 PSUs and PBOs will vest in the first quarter of 2020, in each case subject to the recipient’s continued service on each vesting date.

In 2017, we awarded PSUs ("2017 PSUs") and PBOs ("2017 PBOs"), each of which ~~commence~~commenced vesting based upon the achievement of various weighted performance goals, including revenue growth, fundraising, service revenue, new platform license revenue, and strategic advancement of biotherapeutics pipeline. In the first quarter of 2018, we determined that the 2017 PSU and PBO performance goals had been achieved at 134.2% of the target level, and recognized expenses accordingly. Accordingly, one-half of the shares underlying the 2017 PSUs and PBOs vested in the first quarter of 2018 and one-half of the shares underlying the 2017 PSUs and PBOs vested in the first quarter of 2019, in each case subject to the recipient’s continued service on each vesting date.

In 2016, we awarded PSUs ("2016 PSUs") based upon the achievement of various weighted performance goals, including revenue growth, non-GAAP net income growth, new licensing collaborations, new research and development service revenue arrangements and novel therapeutic enzymes advancement. In the first quarter of 2017, we determined that the 2016 PSU performance goals had been achieved at 142.3% of the target level, and recognized expenses accordingly. Accordingly, one-half of the shares underlying the 2016 PSUs vested in the first quarter of each of 2017 and 2018, in each case subject to the recipient’s continued service on each vesting date. No PBOs were awarded in 2016.

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,
	2019		2018		2019		2018
Research and development	$	458	$	552	$	1,249	$	1,555
Selling, general and administrative	1,274		1,218		4,534		4,652
Total	$	1,732	$	1,770	$	5,783	$	6,207

Three Months Ended March 31,
2019 2018
Research and development $ 388
$ 435
Selling, general and administrative 1,675
1,545
Total $ 2,063
$ 1,980

The following table presents total stock-based compensation expense by security ~~types~~type included in the unaudited condensed consolidated statements of operations for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018 (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Stock options	$	545	$	472	$	1,680	$	1,482
RSUs and RSAs	461		416		1,308		1,293
PSUs	368		407		1,075		1,251
PBOs	358		475		1,720		2,181
Total	$	1,732	$	1,770	$	5,783	$	6,207

Three Months Ended March 31,
2019 2018
Stock options $ 554
$ 472
RSUs and RSAs 461
452
PSUs 391
409
PBOs 657
647
Total $ 2,063
$ 1,980

As of ~~March 31,~~September 30, 2019, unrecognized stock-based compensation expense, net of expected forfeitures, was ~~$6.1~~$4.4 million related to unvested employee stock options, ~~$1.2~~$1.8 million related to unvested RSUs and RSAs, ~~$1.3~~$0.8 million related to unvested PSUs, and ~~$4.0~~$1.8 million related to unvested PBOs based on current estimates of the level of achievement. Stock-based compensation expense for these awards will be recognized through the year of ~~2022.~~2023.

~~Valuation Assumptions~~

~~The weighted-average assumptions used to estimate the fair value of employee stock options and PBOs granted were as follows:~~

Three Months Ended March 31,
2019 2018

Expected term (in years) 5.6
5.6
Volatility 56 % 60 %
Risk-free interest rate 2.49 % 2.70 %
Dividend yield — % — %
Weighted-average estimated fair value of stock options granted $ 11.44
$ 5.02

Note 10. Capital Stock

Exercise of Options

For the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and September 30, 2018, ~~218,572~~970,256 and ~~78,859~~729,596 shares, respectively, were ~~exercised~~issued upon option exercises at a weighted-average exercise price of ~~$3.55~~$4.76 and ~~$6.49~~$5.92 per share, respectively, with net cash proceeds of ~~$0.8~~$4.6 million and ~~$0.4~~$4.3 million, respectively.

Private Offering

In June 2019, we entered into a Securities Purchase Agreement with an affiliate of Casdin pursuant to which we issued and sold to Casdin 3,048,780 shares of our common stock ("Shares") at a purchase price of $16.40 per share. After deducting issuance costs of $0.1 million from the Private Offering, our net proceeds were $49.9 million.

In June 2019, we also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Casdin. Pursuant to the Registration Rights Agreement, we agreed, subject to certain conditions, to prepare and file a registration statement with the Securities and Exchange Commission (the “SEC”) within 180 days after the closing of the Private Offering, if we are a “well known seasoned issuer” at such time (210 days if we are not then a “well known seasoned issuer”) for purposes of registering the resale of the Shares and any shares of common stock issued as a dividend or other distribution with respect to the Shares. We further agreed, among other things, to indemnify the selling holders under the registration statement from certain losses, claims, damages and liabilities and to pay all fees and expenses (excluding underwriting discounts and selling commissions) incident to the performance of, or compliance with, our obligations under the Registration Rights Agreement.

The Private Offering was exempt from registration pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) the Securities Act, and Regulation D under the Securities Act.

Note 11. Commitments and Contingencies

Operating Leases

Our headquarters are located in Redwood City, California, where we occupy approximately 107,200 square feet of office and laboratory space in ~~four~~4 buildings within the same business park of Metropolitan Life Insurance Company ("MetLife"). Our lease (“Lease”) with MetLife includes approximately 28,200 square feet of space located at 200 and 220 Penobscot Drive, Redwood City, California (the “Penobscot Space”), approximately 37,900 square feet of space located at 400 Penobscot Drive, Redwood City, California (the “Building 2 Space”), approximately 11,200 square feet of space located at 501 Chesapeake Drive, Redwood City, California (the “501 Chesapeake Space”), and approximately 29,900 square feet of space located at 101 Saginaw Drive, Redwood City, California (the “Saginaw Space”).

We entered into the initial lease with MetLife for a portion of this space in 2004 and the lease has been amended multiple times since then to adjust space and amend the terms of the Lease. The lease amendment ("Seventh Amendment") in October 2016 waived our existing asset retirement obligation for one of our buildings and extended the lease term to January 2022. The various terms for the spaces under the lease have expiration dates that range from January 2020 through January 2022.

Beginning in February 2014, we have subleased certain office and laboratory space to different subtenants with separate options to extend the subleases. These subleases will expire inon November ~~2019.~~30, 2019 and January 31, 2020.

In February 2019, we entered into the eighth amendment to the Lease ("Eighth Amendment") with MetLife to extend the lease terms for the Penobscot Space, the Building 2 Space and the Chesapeake Space for another 88 months. The lease on the Saginaw Space will expire in January 2020. The lease terms for the Penobscot Space and Building 2 Space have an expiration date of May 2027. The lease term for the 501 Chesapeake Space has an expiration date of May 2029.

We incurred $3.6 million of capital improvement costs related to the facilities leased from MetLife through December 31, 2012. During 2011 and 2012, we requested and received $3.1 million of reimbursements from the landlord for the tenant improvement and HVAC allowances for the completed construction. The reimbursements were recorded once cash was received and are amortized on a straight line basis over the term of the lease as a reduction in rent expense. The remaining lease incentive obligations were ~~zero~~0 and $0.5 million at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively. Prior to adoption of ASC 842, lease incentive obligation were reflected as liabilities on the unaudited condensed consolidated balance sheets. Upon adoption of ASC 842, lease incentive obligations were cleared to zero to create our right-of-use assets related to operating lease, reflected on the unaudited condensed consolidated balance sheets. Rent expense for the Redwood City properties is recognized on a straight-line basis over the term of the lease.

We are required to restore certain areas of the Redwood City facilities that we are renting to their original form. We are expensing the asset retirement obligation over the terms of the respective leases. We review the estimated obligation each reporting period and make adjustments if our estimates change. We recorded asset retirement obligations of $0.2 million as of ~~March 31,~~September 30, 2019 and December 31, 2018, respectively, which are included in other liabilities on the unaudited condensed consolidated balance sheets. Accretion expense related to our asset retirement obligations was ~~nominal~~0minal in the three and nine months ended ~~March 31,~~September 30, 2019 and ~~March 31,~~ 2018.

Pursuant to the terms of the amended lease agreement, we exercised our right to deliver a letter of credit in lieu of a security deposit. The letter of credit is collateralized by deposit balances held ~~by the~~at a bank in the amount of $1.1 million and $0.7 million as of ~~March 31,~~September 30, 2019 and December 31, 2018, respectively. These deposits are recorded as restricted cash on the unaudited condensed consolidated balance sheets.

Rent expense was ~~$1.2~~$1.1 million and ~~$0.8~~$3.4 million during the three and nine months ended ~~March 31,~~September 30, 2019, ~~and 2018,~~ respectively, partially offset by sublease income of $0.2 million and $0.7 million, respectively. Rent expense was $0.8 million and $2.4 million during the three and nine months ended September 30, 2018, respectively, partially offset by sublease income of $0.3 million and $0.9 million, respectively.

Finance Leases

In December 2016, we entered into a three-year financing lease agreement with a ~~third party~~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, which occurred in February 2017, and the term of the lease is three years from the effective date. This financing agreement was accounted for as a ~~capital~~finance lease due to the bargain purchase option at the end of the lease.

In April 2017, we entered into a three-year financing lease agreement with a ~~third party~~third-party supplier for the purchase of information technology equipment for approximately $0.3 million. The effective date of the lease was May 19, 2017 and the term of the lease is three years. This financing agreement was accounted for as a finance lease due to the bargain purchase option at the end of the lease.

Adoption of ASC 842

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

Practical Expedients, Elections, and Exemptions

We used a practical expedient available under ASC 842-10-65-1(f) that permits us not to reassess whether any expired or existing contracts are or contain leases; not to reassess the lease classification for any expired or existing leases (for example, all existing leases that were classified as operating leases in accordance with ASC 840 will be classified as operating leases, and

all existing leases that were classified as capital leases in accordance with ASC 840 will be classified as finance leases); and not to reassess initial direct costs for any existing leases.

On January 1, 2019, we also made an accounting policy election (by class of underlying asset to which the right of use relates) to apply accounting principles to leases that meet ASC 842’s definition of a short-term lease (i.e., the short-term lease exemption). We elected not to apply the recognition requirements of Topic 842 and instead we recognize the lease payments as lease cost on a straight-line basis over the lease term. A short-term lease is defined as a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

The following table shows the reconciliation of right-of-use assets and lease obligations, with balances reflecting the adoption of ASC 842, related to both operating leases and finance leases and gives effect to the modified retrospective adoption and effective date method ofunder the lease guidance on January 1, 2019 (in thousands):



	Operating leases		Finance Leases
Right-of-use assets, balance at December 31, 2018	$	—	$	—
Changes in the period:
Right-of-use assets created upon adoption of ASC 842	26,617		493
Right-of-use assets, balance at January 1, 2019	$	26,617	$	493

Lease obligations, balance at December 31, 2018	$	—	$	—
Changes in the period:
Lease obligations created upon adoption of ASC 842	27,562		302
Lease obligations, balance at January 1, 2019	$	27,562	$	302

Lease related expenses under non-cancellable finance and operating leases and under non-cancellable subleases as follows (in thousands except discount rate and lease term):



	Three months ended September 30, 2019			Nine months ended September 30, 2019
Lease costs
Finance lease cost:
Amortization of right-of-use assets	$	54		$	163
Interest on lease obligations	2			8
Operating lease cost	1,139			3,417
Sublease income	(262		)	(727		)
Total lease cost	$	933		$	2,861

Other information
Weighted-average remaining lease term (in years):
Finance leases				0.5
Operating leases				7.9

Weighted-average discount rate:
Finance leases				5.0		%
Operating leases				6.6		%

Cash paid for amounts included in the measurement of lease obligations
Operating cash flows from operating leases				$	(2,456	)
Operating cash flows from finance leases				$	(9	)
Financing cash flows from finance leases				$	(180	)

Three months ended March 31, 2019
Lease costs
Finance lease cost:

Amortization of right-of-use assets $ 54
Interest on lease obligations 4
Operating lease cost 1,178
Sublease income (211 )
Total lease cost $ 1,025

Other information
Weighted-average remaining lease term (in years):
Finance leases 1.0
Operating leases 8.3

Weighted-average discount rate:
Finance leases 5.0 %
Operating leases 6.6 %

Cash paid for amounts included in the measurement of lease obligations

Operating cash flows from operating leases $ 812
Operating cash flows from finance leases $ 4
Financing cash flows from finance leases $ 59

As of ~~March 31,~~September 30, 2019, under ASC 842, maturity analysis of annual undiscounted cash flows of the non-cancellable finance and operating leases are as follows (in thousands):


Years ending December 31,	Finance Leases			Operating Leases			Finance Leases			Operating Leases
2019 (remaining 9 months)	$	189		$	2,469
2019 (remaining 3 months)							$	63		$	824
2020	61			2,816			61			2,816
2021	—			4,197			—			4,197
2022	—			4,285			—			4,285
2023	—			4,589			—			4,589
2024 and thereafter	—			18,220			—			18,220
Total minimum lease payments ⁽¹⁾	$	250		$	36,576		$	124		$	34,931
Less: imputed interest	(8		)	(9,352		)	(2		)	(8,484		)
Lease Obligations	$	242		$	27,224		$	122		$	26,447

⁽¹⁾ Minimum payments have not been reduced by future minimum sublease rentals of ~~$0.7~~$0.3 million to be received under non-cancellable subleases at ~~March 31,~~September 30, 2019.

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



Years ending December 31,	Capital Leases			Operating Leases
2019	$	252		$	3,280
2020	61			712
2021	—			490
2022	—			41
2023	—			—
Total minimum lease payments ⁽¹⁾	313			$	4,523
Less: amount representing interest	(10		)
Present value of capital lease obligations	303
Less: current portion	(242		)
Long-term portion of capital leases	$	61

⁽¹⁾ Minimum payments have not been reduced by future minimum sublease rentals of $0.9 million to be received under non-cancellable subleases.

Other Commitments

We enter into supply and service arrangements in the normal course of business. Supply arrangements are primarily for fixed-price manufacture and supply. Service agreements are primarily for the development of manufacturing processes and certain studies. Commitments under service agreements are subject to cancellation at our discretion which may require payment of certain cancellation fees. The timing of completion of service arrangements is subject to variability in estimates of the time required to complete the work.

The following table provides quantitative data regarding our other commitments. Future minimum payments reflect amounts that we expect to pay including potential obligations under services agreements subject to risk of cancellation by us (in thousands):



Other Commitment Agreement Type	Agreement Date	Future Minimum Payment
Development and manufacturing services agreements	September 2019	$	1,645
Manufacture and supply agreement with expected future payment date of December 2022	April 2016	1,242
Service agreement for clinical trial	December 2017	80
Total other commitments		$	2,967

Other Commitment Agreement Type Agreement Date Future Minimum Payment
Manufacture and supply agreement with expected future payment date of December 2022 April 2016 $ 1,310
Service agreement for clinical trial December 2017 455
Total other commitments $ 1,765

Credit Facility

Effective June 30, 2017, we entered into a credit facility (the "Credit Facility") consisting of term loans ("Term Debt") totaling up to $10.0 million, and advances ("Advances") under a revolving line of credit ("Revolving Line of Credit") totaling up to $5.0 million with an accounts receivable borrowing base of 80% of eligible accounts receivable. At ~~March 31,~~September 30, 2019, we have not drawn from the Credit Facility. ~~In September 2018, we entered into a Fourth Amendment to the Credit Facility whereby the draw period on the term debt was extended to September 30, 2019.~~ In January 2019, we entered into a Fifth Amendment to the Credit Facility to allow for Codexis to obtain a letter of credit of up to $1.1 million to secure its obligations under the Lease with MetLife. In July 2019, we entered into a Sixth Amendment to the Credit Facility to increase permitted indebtedness to $0.7 million for financing insurance premiums in the ordinary course of business. In September 2019, we entered into a Seventh Amendment to the Credit Facility whereby the draw period on the term debt was extended to September 30, 2020. We may draw on the Term Debt at any time prior to September 30, ~~2019,~~2020, subject to customary conditions for funding including, among others, that no event of default exists. We may draw on the Revolving Line of Credit at any time prior to the maturity date. On October 1, ~~2022,~~2023, any loans for Term Debt mature and the Revolving Line of Credit terminates. Term Debt bears interest through maturity at a variable rate based on the London Interbank Offered Rate plus 3.60%. Advances under the Revolving Line of Credit bear interest at a variable annual rate equal to the greater of (i) 1.00% above the prime rate and (ii) 5.00%.

The Credit Facility allows for interest-only payments on Term Debt through November 1, 2020. Monthly payments of principal and interest on the Term Debt are required following the applicable amortization date. We may elect to prepay in full the Term Debt and Advances under the Revolving Line of Credit at any time.

Our obligations under the Credit Facility are secured by a lien on substantially all of our personal property other than our intellectual property. The Credit Facility includes a number of customary covenants and restrictions which require us to comply with certain financial covenants including achieving consolidated product revenues levels at minimum levels as set forth in the Credit Facility unless we maintain certain minimum cash levels with the lender in an amount equal to or greater than ~~six~~6 times the sum of the average six-month trailing operating cash flow net outlay plus the average monthly principal due and payable in the immediately succeeding three-month period. The Credit Facility places various restrictions on our transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, and selling assets and permitted assets to be held at foreign subsidiaries above specified caps, in each case subject to certain exceptions. A failure to comply with these covenants could permit the lender to exercise remedies against us and the collateral securing the Credit Facility, including foreclosure of our properties securing the Credit Facility and our cash. At ~~March 31,~~September 30, 2019, we were in compliance with the covenants for the Credit Facility.

Legal Proceedings

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

In February 2018, we and EnzymeWorks, Inc. (U.S.), Suzhou Hanmei Biotechnology Co. Ltd, d/b/a EnzymeWorks, Inc. (China) (collectively, "EnzymeWorks"), Junhua Tao, and Andrew Tao reached a settlement concerning the lawsuit filed by us in February 2016 against EnzymeWorks, Junhua Tao, and Andrew Tao in the United States District Court for the Northern District of California. The parties have entered into a settlement agreement, the terms of which are confidential. The parties have also stipulated to a judgment of patent infringement of all asserted patents against EnzymeWorks, and a permanent injunction barring any future infringement. The remaining claims against EnzymeWorks, and all claims against Junhua Tao, and Andrew Tao including trade secret misappropriation, breach of contract and voidable transfer have been dismissed with prejudice. EnzymeWorks appealed the sanctions levied against them by Judge Orrick to the Federal Circuit and filed its opening brief on May 30, 2018. On July 9, 2018, Codexis filed its response brief, and EnzymeWorks filed its reply on July 30, 2018. On February 8, 2019, the Federal Circuit panel of judges assigned to the case issued an opinion affirming the lower court’s ruling and remanding the case to the lower court on jurisdictional grounds to vacate the order to which the parties had earlier stipulated. EnzymeWorks has 90 days from the decision in which to appeal.

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~~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 no0 accruals for expenses related to indemnification issues for any periods presented.

Note 12. Related Party Transactions

AstraZeneca PLC

Pam P. Cheng, a member of our board of directors, joined AstraZeneca PLC as Executive Vice President, Operations and Information Technology in June 2015. We sell biocatalyst products to AstraZeneca PLC and its controlled purchasing agents and contract manufacturers.

We recognized ~~de minimis revenue~~$0.2 million and ~~$0.3~~$0.6 million ~~of product~~ in revenue in the three and nine months ended ~~March 31,~~September 30, 2019, respectively, compared to de minimis and $0.4 million in the three and nine months ended September 30, 2018, respectively, from transactions with AstraZeneca PLC and its controlled purchasing agents and contract manufacturers. At ~~March 31,~~September 30, 2019 and December 31, 2018, we had ~~zero~~0 and $0.2 million of accounts ~~receivables~~receivable from AstraZeneca, PLC, and its controlled purchasing agents and contract manufacturers, respectively.

Settlement of Short Swing Profit Claim

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

Note 13. Segment, Geographical and Other Revenue Information

Segment Information

As discussed in Note 2, "Basis of Presentation and Summary of Significant Accounting Policies," beginning in 2018, we identified our biotherapeutics business as a standalone business segment. Our ~~two~~2 reportable business segments as of January 1, 2018, consisted of Performance Enzymes and Novel Biotherapeutics.

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

Novel Biotherapeutics

We are also targeting new opportunities in the pharmaceutical industry to discover, improve, and/or develop biotherapeutic drug candidates. We believe that our CodeEvolver^® protein engineering platform technology can be used to discover novel biotherapeutic drug candidates that will target human diseases that are in need of improved therapeutic interventions. Similarly, we believe that we can deploy our platform technology to improve specific characteristics of a customer’s pre-existing biotherapeutic drug candidate, such as its activity, stability or immunogenicity. Most notable is our lead program for the potential treatment of PKU in humans. PKU is an inherited metabolic disorder in which the enzyme that converts the essential amino acid phenylalanine into tyrosine is deficient. In October 2017, we announced a strategic collaboration with Nestlé Health Science to advance CDX-6114, our own novel orally administrable enzyme therapeutic candidate for the potential treatment of PKU. In July 2018, we announced that we had dosed the first subjects in a first-in-human Phase 1a dose-escalation trial with CDX-6114, which was conducted in Australia. In November 2018, we announced top-line results from the Phase 1a study in healthy volunteers with CDX-6114. In December 2018, Nestlé Health Science became obligated to pay us an additional $1.0 million within 60 days after the achievement of a milestone relating to formulation of CDX-6114. In January 2019, we received notice from the U.S. Food and Drug Administration (the “FDA”) that it had completed its review of our investigational new drug application (“IND”) for CDX-6114 and concluded that we may proceed with the proposed Phase 1b multiple ascending dose study in healthy volunteers in the United States. In February 2019, Nestlé Health Science exercised its option to obtain an exclusive license for the global development and commercialization of CDX-6114 for the management of PKU. The ~~exercise~~option payment of ~~the option triggered a~~ $3 million ~~milestone payment which we~~was recognized as revenue in the first quarter of ~~2019.~~2019 as research and development fees. Upon exercising its option, Nestlé Health Science has assumed all responsibilities for future clinical development and commercialization of CDX-6114, with the exception of the completion of an extension study, ~~CDX - 6114-004,~~CDX-6114-004, which ~~is expected to be~~was substantially completed in the second quarter of 2019. For the three and nine months ended ~~March 31,~~September 30, 2019 and 2018, all revenues related to the Novel Biotherapeutics segment were generated from our collaborations with Nestlé Health Science.

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.

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


	Three months ended March 31, 2019								Three months ended March 31, 2018								Three months ended September 30, 2019								Three months ended September 30, 2018
	Performance Enzymes			Novel Biotherapeutics		Total			Performance Enzymes			Novel Biotherapeutics		Total			Performance Enzymes		Novel Biotherapeutics			Total			Performance Enzymes		Novel Biotherapeutics		Total
Revenues:
Product revenue	$	7,988		$	—	$	7,988		$	6,163		$	—	$	6,163		$	10,351	$	—		$	10,351		$	8,405	$	—	$	8,405
Research and development revenue	2,099			5,496		7,595			4,566			3,313		7,879			10,073		1,482			11,555			3,720		4,821		8,541
Total revenues	10,087			5,496		15,583			10,729			3,313		14,042			20,424		1,482			21,906			12,125		4,821		16,946
Costs and operating expenses:
Cost of product revenue	4,391			—		4,391			3,825			—		3,825			5,067		—			5,067			3,791		—		3,791
Research and development⁽¹⁾	4,442			3,317		7,759			5,066			1,932		6,998			5,313		3,080			8,393			4,758		2,920		7,678
Selling, general and administrative(1)	2,101			517		2,618			2,096			146		2,242			2,037		690			2,727			1,870		165		2,035
Total segment costs and operating expenses	10,934			3,834		14,768			10,987			2,078		13,065			12,417		3,770			16,187			10,419		3,085		13,504
Income (loss) from operations	$	(847	)	$	1,662	$	815		$	(258	)	$	1,235	$	977		$	8,007	$	(2,288	)	$	5,719		$	1,706	$	1,736	$	3,442
Corporate costs⁽²⁾						(5,575		)						(5,435		)						(4,912		)					(5,120		)
Depreciation and amortization						(373		)						(238		)						(471		)					(309		)
Loss before income taxes						$	(5,133	)						$	(4,696	)
Income (loss) before income taxes																						$	336						$	(1,987	)



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)



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share	CDXS	The Nasdaq Global Select Market



Large accelerated filer	x☒	Accelerated filer	¨ ☐
Non-accelerated filer	¨☐	Smaller reporting company	¨ ☐
		Emerging growth company	¨ ☐



~~Title of Each Class~~	~~Trading Symbol(s)~~	~~Name of Each Exchange on Which Registered~~
~~Common Stock, par value $0.0001 per share~~	~~CDXS~~	~~The Nasdaq Global Select Market~~



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	March 31, 2019
	Adjusted Cost		Gross Unrealized Gains ⁽³⁾		Gross Unrealized Losses⁽³⁾			Estimated Fair Value
Money market funds⁽¹⁾	$	28,001	$	—	$	—		$	28,001
Common shares of CO₂Solutions ⁽²⁾	563		—		(79		)	484
Total	$	28,564	$	—	$	(79	)	$	28,485



	March 31, 2019			December 31, 2018
Laboratory equipment ⁽¹⁾	$	21,464		$	21,328
Leasehold improvements	10,730			10,359
Computer equipment and software	3,663			3,954
Office equipment and furniture	1,442			1,272
Construction in progress ⁽²⁾	175			939
Property and equipment	37,474			37,852
Less: accumulated depreciation and amortization	(32,939		)	(33,093		)
Property and equipment, net	$	4,535		$	4,759


	Percentage of Total Revenues		Percentage of Total Revenues for the
	For the three months ended March 31,		Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018	2019	2018
Customer A	41%	48%	21%	27%	31%	33%
Customer B	35%	24%	*	28%	17%	24%
Customer C	*	10%	*	10%	*	17%
Customer D			29%	15%	15%	11%


	Percentage of Accounts Receivables as of		Percentage of Accounts Receivables as of
	March 31, 2019	December 31, 2018	September 30, 2019	December 31, 2018
Customer A	33%	37%	20%	37%
Customer B	30%	17%	*	17%
Customer D	17%	*	*	11%
Customer E	*	11%	14%	*
Customer F	*	16%	15%	*
Customer G			*	16%
Customer H			16%	*



Long-lived assets:	September 30, 2019		December 31, 2018
United States	$	31,104	$	4,759



	As of September 30, 2019 and December 31, 2018
	Performance Enzymes		Novel Biotherapeutics		Total
Goodwill	$	2,463	$	778	$	3,241



	As of March 31, 2019 and December 31, 2018
	Performance Enzymes		Novel Biotherapeutics		Total
Goodwill	$	2,463	$	778	$	3,241



ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


	Three months ended March 31,						Change				Three months ended September 30,						Change				Nine months ended September 30,						Change
	2019			2018			$			%	2019			2018			$			%	2019			2018			$			%
Revenues:
Product revenue	$	7,988		$	6,163		$	1,825		30%	$	10,351		$	8,405		$	1,946		23%	$	24,588		$	18,291		$	6,297		34	%
Research and development revenue	7,595			7,879			(284		)	(4)%	11,555			8,541			3,014			35%	25,220			26,235			(1,015		)	(4	)%
Total revenues	15,583			14,042			1,541			11%	21,906			16,946			4,960			29%	49,808			44,526			5,282			12	%
Costs and operating expenses:
Cost of product revenue	4,391			3,825			566			15%	5,067			3,791			1,276			34%	12,230			10,228			2,002			20	%
Research and development	8,016			7,178			838			12%	8,711			7,917			794			10%	25,000			22,464			2,536			11	%
Selling, general and administrative	8,415			7,746			669			9%	7,869			7,344			525			7%	24,180			22,485			1,695			8	%
Total costs and operating expenses	20,822			18,749			2,073			11%	21,647			19,052			2,595			14%	61,410			55,177			6,233			11	%
Loss from operations	(5,239		)	(4,707		)	(532		)	(11)%
Income (loss) from operations											259			(2,106		)	2,365			112%	(11,602		)	(10,651		)	(951		)	(9	)%
Interest income	231			71			160			225%	480			199			281			141%	929			444			485			109	%
Other expenses, net	(125		)	(60		)	(65		)	(108)%	(403		)	(80		)	323			404%	(615		)	(221		)	394			178	%
Loss before income taxes	(5,133		)	(4,696		)	(437		)	(9)%
Income (loss) before income taxes											336			(1,987		)	2,323			117%	(11,288		)	(10,428		)	(860		)	(8	)%
Provision for (benefit from) income taxes	3			(2		)	5			250%	(7		)	1			(8		)	(800)%	12			(11		)	23			209	%
Net loss	$	(5,136	)	$	(4,694	)	$	(442	)	(9)%
Net Income (loss)											$	343		$	(1,988	)	$	2,331		117%	$	(11,300	)	$	(10,417	)	$	(883	)	(8	)%


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


		Payments due by period									Payments due by period
(In Thousands)	(In Thousands)	Total		Less than 1 year		1-3 years		>4 years		(In Thousands)	Total		Less than 1 year		1-3 years		>4 years
Finance lease obligations	Finance lease obligations	$	250	$	240	$	10	$	—	Finance lease obligations	$	124	$	124	$	—	$	—
Operating leases obligations ⁽¹⁾	Operating leases obligations ⁽¹⁾	36,576		2,823		7,648		26,105		Operating leases obligations ⁽¹⁾	34,931		2,618		8,387		23,926
	Total	$	36,826	$	3,063	$	7,658	$	26,105	Total	$	35,055	$	2,742	$	8,387	$	23,926



ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





3.1		Amended and Restated Certificate of Incorporation of Codexis, Inc. filed with the Secretary of the State of the State of Delaware on April 27, 2010 and effective as of April 27, 2010 (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed on May 28, 2010).

3.2		Certificate of Designations of Series A Junior Participating Preferred Stock of Codexis, Inc., filed with the Secretary of State of the State of Delaware on September 4, 2012 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on September 4, 2012).

3.3		Amended and Restated Bylaws of Codexis, Inc. effective as of April 27, 2010 (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed on May 28, 2010).

4.1		Reference is made to Exhibits 3.1 through 3.3.

~~10.1~~10.1A	†	Sixth Amendment ~~No. 2~~ to ~~Platform Technology Transfer~~Loan and ~~License~~Security Agreement by and between ~~Merck~~the Company and ~~the Company~~Western Alliance Bank dated as of ~~January 1, 2019.~~July 11, 2019

10.1B		Seventh Amendment to Loan and Security Agreement by and between the Company and Western Alliance Bank dated as of September 30, 2019

10.2	+	~~Fifth Amendment to Loan~~Form of Amended and ~~Security~~Restated Change in Control Severance Agreement ~~effective as of January 23, 2019 by and~~ between the Company and ~~Western Alliance Bank.~~certain of its officers

10.3	†+	~~Eighth Amendment to Lease, effective as of February 8, 2019,~~Employment Agreement by and between the Company and ~~Metropolitan Life Insurance Company.~~Ross Taylor effective as of August 4, 2019

10.4	+	Amendment to Employment Agreement between the Company and John Nicols, effective as of June 28, 2019

23.1		Consent of BDO USA, LLP, independent registered public accounting firm.

31.1		Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1		Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.

101		The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~September 30, 2019, formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL) includes: (i) Unaudited Condensed Consolidated Balance Sheets at ~~March 31,~~September 30, 2019 and December 31, 2018, (ii) Unaudited Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended ~~March 31,~~September 30, 2019 and 2018, (iii) Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three Months and Nine Months Ended ~~March 31,~~September 30, 2019 and 2018, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2019 and 2018, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

†101.SCH		~~Portions of~~XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

104		The cover page from the ~~exhibit, marked by brackets, have been omitted because~~Company’s Quarterly Report on Form 10-Q for the ~~omitted information is (i) not material~~quarter ended September 30, 2019, formatted in Inline XBRL and ~~(ii) would be competitively harmful if publicly disclosed.~~ contained in Exhibit 101.

+		Indicates a management contract or compensatory plan or arrangement.




		Codexis, Inc.

Date:	~~May 8,~~November 6, 2019	By:	/s/ John J. Nicols
			John J. Nicols President and Chief Executive Officer (principal executive officer)

Date:	~~May 8,~~November 6, 2019	By:	/s/ ~~Gordon Sangster~~Ross Taylor
			~~Gordon Sangster~~Ross Taylor Senior Vice President and Chief Financial Officer (principal financial and accounting officer)