Enzyme maker's outlook altered by Big Oil's exit

By Luke Geiver | August 16, 2012

The near-term financial outlook of enzyme maker Codexis Inc., has been significantly altered by Royal Dutch Shell and the big oil company’s announcement that it will reduce and end funding to the California-based company by October. Total 2012 adjusted EBITDA revenues will reach roughly $50 million, down from $124 million in 2011. But, during a conference call, Jon Nicols, president and CEO of Codexis, talked about the impact it might have and why the absence of Shell may not hinder the growth of the fuel and chemical initiatives at Codexis.

The ability of the company to sell and further develop the enzyme production process is limited by the exclusive rights of Shell. But, Nicols said the company has entered into good faith negotiations with Shell allowing them to market their enzymes to third parties. Nicols estimates that by the end of August, the company could be able to market their enzymes if the negotiations are completed.

Earlier this year, Shell also announced it was ceasing its partnership and funding role with cellulosic ethanol producer Iogen Inc. Although Nicols said the company would be potentially interested in working with Shell again in a more loose collaboration that does not provide Shell with exclusive use rights, he did add that the company will focus on  a codevelopment of the Codexis enzyme package used in hydrolysis of cellulosic sugars in Brazil.

The future of the company however, does not hinge on its attempts to market and further develop advanced biofuels enzymes. Currently, the company is heavily focused on its enzymes used in pharmaceuticals production, including drugs for hepatitis and lowering cholesterol. The company is also in the construction phase of a detergent alcohol facility in Italy.

The absence of all full-time employee equivalent funding will not only affect Codexis’ ability to pay for research and development, Nicols said the company did make a slight profit margin on that funding which will need to be recouped by cutting costs. “Despite these near-term challenges, Codexis remains encouraged and enthusiastic about monetizing its technology,” he said. As for displacing current enzyme providers in the advanced biofuels industry, he also said the company doesn’t expect to generate significant revenue until 2015.