Aug 8, 2018
Executives
Bruce Voss - LHA John Nicols - President and Chief Executive Officer Gordon Sangster - Chief Financial Officer
Analysts
Brandon Couillard - Jefferies Drew Jones - Stephens Swayampakula Ramakanth - H.C. Wainwright Steve Schwartz - First Analysis
Operator
Good day, ladies and gentlemen, and welcome to the Codexis Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded.
I would now like to introduce your host for today’s conference, Mr. Bruce Voss.
Sir, you may begin.
Bruce Voss
Thank you. This is Bruce Voss with LHA.
Thank you all for participating in today’s Codexis’ call to discuss second quarter financial results and the company’s business progress. Please note that Codexis has posted updated pipeline snapshot slides on the investors section of its website to accompany today’s call.
Joining me from Codexis are John Nicols, President and Chief Executive Officer; and Gordon Sangster, the company’s Chief Financial Officer. During this call, management will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 to the extent that statements made by management are not descriptions of historical facts regarding Codexis.
They are forward-looking statements reflecting the current beliefs and expectations of management as of August 8, 2018. You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the company’s control and could materially affect actual results.
For details about these risks, please see the earnings news release that accompanies this call and the company’s SEC filings. Codexis expressly disclaims any intent or obligation to update forward-looking statements, except as required by law.
Now I’d like to turn the call over to John Nicols. John?
John Nicols
Thanks Bruce. Good afternoon everyone, and thank you for joining us.
I’m proud of our outstanding financial and operating performance with year-over-year revenue growth of 31% for the second quarter, and 51% for the first half of 2018. Our growth has been driven by sharply higher R&D revenues, with significant contributions from collaborators, Nestlé Health Science and Tate & Lyle.
Our R&D revenue streams are becoming an increasingly sustainable part of our business, as our customers recognize the value of the CodeEvolver protein engineering platform and they establish dedicated project teams at our Redwood City facility to more rapidly advance their programs. For example, I'm pleased to report that we recently added a second dedicated project team for Nestlé Health Science to accelerate the development of the novel bio therapeutic program, we initiated when we struck our platform partnering deal with them in the fourth quarter of last year.
Combined with teams for Merck, Tate & Lyle and another major Pharma company we had -- we had 10 funded dedicated project teams working here at Codexis at various times during the second quarter. Sales to the pharmaceutical industry continued to provide the majority of our 11 plus million dollars of performance enzymes segment sales for the quarter.
We get significant business with two new customers during the quarter one, a major U.S. pharmaceutical company, and the other a leading Japanese Pharma company, reinforcing success against our goal of lightning our adoption across a larger set of customers and Pharma manufacturing processes.
Our new -- partnership with Porton designed to extend our pharma reach even further, was announced in the quarter and the joint teams have gotten off to a solid start in establishing new workflows and customer engagements in our first few months. Other efforts to drive growth in Performance Enzymes continued to advance nicely as well.
For the molecular diagnostics industry, we have staffed up our internal team to three industry veterans now and we are lining up for the promotion of our DNA ligase and one other new high-Performing Enzyme at the advanced molecular pathology or AMP Conference in early November. We remain very confident in the development of this business as we finished 2018 and move into 2019.
Excellent progress in those industries, but the major highlights for our Performance Enzymes segment comes from the food industry, where we are proud to announce the commercialization of new Performance Enzymes from our second partnership with Tate & Lyle. Here the Codexis team engineered a suite of enzymes that enables Tate & Lyle's novel bio conversion route for manufacture of their new zero-calorie, TASTEVA M, Stevia Sweetener.
Tate & Lyle describes its newest food ingredient as a Reb M Stevia Sweetener that starts from the Stevia leaf offering a clean sugar like paste and consumer friendly labeling. TASTEVA M is expected to eliminate the bitter taste that is held back the widespread adoption of historical Stevia sweeteners into food and beverage applications.
Reb M has been known in the industry as a better tasting type of Stevia for some time, but it's limited availability in the Stevia leaf and its high cost to manufacture have been major challenges. Here’s where Codexis came in.
Codexis conceived a new process to make Reb M back in late 2016, one that could potentially break through cost barriers, and one that could enable a clean pathway to patentability in a crowded, intellectual property landscape. The problem back then was no enzyme could be found anywhere in nature, in our libraries or from competition that could make even a minuscule yield of the contemplated process for Reb M from Stevia leaf extract.
Less than two years later, Codexis teams created, patented and commercialized the needed suite of enzymes, several of which required over 100 amino acid sequence modifications, that now enabled the low cost route for industry leading partner Tate & Lyle's TASTEVA M commercial launch. Others have been working on alternative routes to Reb M for nearly a decade, and most have yet to commercialize.
During the second quarter, we completed all pilot scale registration batches for the TASTEVA M enzymes, earning us significant R&D milestones. In July, we received verbal commitment from the Generally Recognized as Safe, or GRAS, expert panel that our enzymes can be self-affirmed as GRAS.
Great accomplishment by the teams at Codexis and Tate & Lyle and a model for both of us on how to best forge an industrial technology partnership. We look forward to sharing updates on our enzymes sales to TASTEVA M going forward, encourage that it will develop into one of the largest products in our Performance Enzyme portfolio in the future.
Shifting gears to provide key update in our novel biotherapeutic segment we are similarly pleased to share positive progress for our recently initiated Phase 1a trial with the oral enzyme therapeutic candidate CDX-6114, for patients with phenylketonuria, or PKU disease. This first in-human trial with CDX-6114 is evaluating the product safety in four cohorts of healthy volunteers receiving increasing dose levels of CDX-6114.
Initiation of this phase 1a trial has triggered a $4 million milestone from Nestlé for Codexis that we expect to receive in the third quarter. In a few weeks since beginning this trial, dosing of the first three cohorts has already been completed successfully and we are now moving onto the fourth and final dosing level.
We are on track to report topline results from this Phase 1a trial in the fourth quarter of this year. Recall that the topline results can provide efficacy indications by biomarker measurements in healthy volunteers as well as a safety evaluation.
Following the topline report we expect that Nestlé Health Sciences’ decision whether to exercise their option to take over the forward development of CDX 6114 will be known by early 2019. Our efforts to advance other novel biotherapeutics and our pipeline are also encouraging.
To that end, I’m delighted to welcome Dr. Hicham Alaoui, in the newly created position of Vice President, Biotherapeutics Research & Development.
Dr. Alaoui brings valuable drug discovery skills and expertise in house into Codexis.
The creation of this new position demonstrates the company’s continued conviction to rapidly build out our biotherapeutics discovery and development capabilities and to follow our success in bringing CDX 6114 into early clinical trials. Hicham is directly responsible for advancing our biotherapeutics discovery pipeline and accelerating drug candidates towards the initiation of clinical trials.
Before turning over the call to Gordon, I’d like to review our updated Codexis 2018 pipeline snapshot posted today to our website, which provides a favorable report card on our substantial progress over the past year ending June 30, 2018. As you can see on slide two, we’ve added 10 projects to the pipeline during the past year and on slide four you can see that we have added 17 over the past two years, that’s a 65% increase in two years time.
Our strategy is to expand our pipeline across multiple industries and applications in parallel, and at this more detailed level, we are showing excellent pipeline momentum as well. For example, we have doubled the number of late clinical phase 2 or three projects over the last two years to now stand at 14 Codexis Performance Enzyme installations.
Similarly, the number of Performance Enzyme projects in other industries has increased to eight and equally important now covers three different industrial verticals. The total number of Performance Enzymes that have commercialized increase from 8 to 9 in the past year and noting that TASTEVA M discussion increased by another one in July.
Finally, the number of projects that could access the self funding has grown from four two years ago to 11 currently. Led by the growth in our novel biotherapeutics pipeline investments, these programs have the prospect for generally larger economic rewards to Codexis than funded projects.
Increasing pipeline numbers, with increasing diversity, advancing to commercialized sustained revenues, that summarizes our 2018 pipeline snapshot. I'm proud to unveil all of this impressive growth and progress in our pipeline, which I attribute entirely to the dedication and talents of the Codexis team.
Let me turn the call over to Gordon to discuss the financial results now. Gordon?
Gordon Sangster
Thanks, John. Total revenues for the second quarter of 2018 were $13.5 million up 31% versus Q2 of 2017 and it consisted of $11.2 million from the performance enzyme segments and $2.4 million from the novel biotherapeutics segment.
R&D revenues for Q2 were up 162% to $9.8 million and included significant contributions from Nestlé Health Science related to the development of CDX 6114 and from Tate & Lyle related to the development of enzymes for their TASTEVA M Stevia sweetener. Product revenues for the second quarter of 2018 were $3.7 million versus $6.6 million in the prior year with increase primarily due to the timing of customer demand for enzymes.
Gross margin on product revenues for the second quarter of 2018 was 30% compared with 43% a year ago with the decrease due to product mix. We expect gross margin on product revenue to increase in the coming quarters.
Turning to operating expenses, R&D expenses were $7.4 million for the second quarter, including $4.7 million for the Performance Enzyme segment, and $2.4 million for the novel biotherapeutics segment. The increase from $6.3 million a year ago was primarily due to costs associated with higher headcount and lab supplies.
Lab supplies expense rose as a result of the increasing number of projects flowing through our R&D facility due to increased efficiencies. SG&A expenses for the second quarter of 2018 were $7.4 million, which includes $1.7 million from the Performance Enzymes segment, $0.3 million for the Novel Biotherapeutics segment and $5.4 million in corporate costs.
The increase from $6.5 million last year was due primarily to higher recruiting costs and stock based comp expense. The net loss for the second quarter of 2018 was $3.7 million or $0.07 per shared which compares with a net loss for the second quarter of 2017 of $6.3 million or $0.13 per share.
On a non-GAAP basis, the net loss for the second quarter of 2018 was $1 million or $0.02 per share versus a non-GAAP net loss a year ago of $4.3 million or $0.09 per share. Turning to the year-to-date financial results, total revenues for the first half of 2018 were $27.6 million up 51% from the first half of 2017.
R&D revenues rose 189% to $17.7 million, and consisted of $12 million from the Performance Enzyme segment and $5.7 million from the novel biotherapeutics segment. Gross margin on product revenues for the first six months of 2010 was 35% versus 44% for the prior year period.
R&D expenses for the first half of 2018 were $14.5 million and SG&A expenses were $15.1 million. Total operating expenses for the year-to-date period were up 17% over the prior year while our revenues increased 51%.
We reported net loss for the first half of 2018 of $8.4 million or $0.17 per share, which compares with the net loss for the first half of 2017, of $13.7 million or $0.31 per share. On a non-GAAP basis, the national net loss for the first six months of 2018 was $3.5 million or $0.07 per share versus a non-GAAP net loss a year ago of $9.8 million or $0.23 per share.
Cash and cash equivalents as of June 30, 2018 were $53.6 million, up from $31.2 million as of December 31, 2017. You may recall that in April of this year we completed the public offering for net proceeds of $37.3 million.
Today, we are reaffirming our 2818 financial guidance, which we introduced on conference call in March. We expect total revenues for 2018 to be between $60 million and $63 million and this represents a 20% to 26% increase over 2017.
We expect total revenue for 2018 to be between $25 million and $28 million. We expect gross margin on product revenues to be between 45% and 48% and we expect operating expenses in 2018 to be relatively unchanged from 2017 at around $60 million wit h expenses spread evenly relatively throughout the year.
With that, I’d like to turn the call back to John.
John Nicols
Thanks, Gordon. We performed exceptionally well in fact first half of 2018 and are tracking against our financial and strategic performance objectives for the year.
Our substantially bolstered pipeline and our successful expansion into new verticals add to our confidence in our long-term growth prospects and success. Our strategy begins with our relentless focus on our CodeEvolver protein engineering platform technology.
Proprietary, artificial intelligence, competencies are at the center of our ability to discover proteins that meet our customer’s needs at an ever accelerating pace. Merged with other cutting edge synthetic biology practiced by the dynamic scientific teams that Codexis CodeEvolver is a unique platform that creates products and generates revenue.
CodeEvolver is at the core of all of our recent successes and will continue to be the competitively advantaged scientific heart of the company going forward In our Performance Enzyme segment, we will continue to accelerate penetration of pharmaceutical manufacturing with our growing portfolio of protein catalyst products. We are broadening our reach across more customers and processes, and deepening relationships with more of the world's leading pharmaceutical companies.
Industry recognition of the power of our CodeEvolver technology is evidenced by our growing pipeline. We are broadening our reach to a universe of smaller pharma and biotech companies through innovative partnerships, such as the one with Porton Pharma Solutions.
We will amplify our success in the Performance Enzyme segment by extending CodeEvolver to serve a growing list of industrial verticals beyond pharmaceuticals. Our successful expansion into new verticals is evidenced by two rapid and impactful commercialization for the food industry in collaboration with Tate & Lyle.
In addition, we are just now starting to penetrate the growing $6 billion industrial enzyme marketplace, first with a series of high-Performing Enzymes for molecular diagnostics and molecular biology applications; as well multiple discussions are underway to develop enzymes for several other industrial markets. And lastly, we are further establishing the significance of our novel biotherapeutics discovery and development segment.
Our success in bringing CDX 6114 into clinical development and our expanded expertise in this area bode well for more biotherapeutics discovery and development programs to advance from this team over the medium and long-term, increasingly validating CodeEvolver as a drug discovery engine. Importantly, we have sufficient cash on our balance sheet to smartly advance our internal biotherapeutics programs, as well as to capitalize on a wealth of additional opportunities for our proprietary CodeEvolver technology to further penetrate current markets and enable expansion into additional industrial verticals.
With these comments, I would like to open up the call for questions. Operator?
Operator
[Operator Instructions]
John Nicols
While we’re waiting for our first question, I’d like to mention that we’ll be presenting at three upcoming investor conferences held in New York City in September. These include the H.C.
Wainwright Global Investors Conference being held September 4 to 7; the CL King 16th Annual Best Ideas Conference on September 13 and the Janney Montgomery Scott Health Care Conference on September 18. Webcast of our conference presentations will be posted to the investor section of codexis.com.
Okay, operator, we’re ready for the first question.
Operator
Our first question comes from Brandon Couillard with Jefferies. Your line is now open.
Brandon Couillard
Thanks, good afternoon.
John Nicols
Hey Brandon.
Brandon Couillard
John just first on the product revenues in the second quarter, would you just sort of elaborate on the timing comment, was that related to more than one customer? And then can you share with us how many total customers you served in the second quarter there?
John Nicols
So, it's more than one customer, but it's not anything that we didn't predict and project. And you have to be careful about how many customers because we do a lot of small value orders for products out of our library, but they are pretty small.
The number of customers who exceed hundred or couple hundred thousand dollars and Gordan's taking taken a look at it and it is in five to eight range.
Brandon Couillard
Got you. And then as far as the pipeline goes, clearly nice growth in terms of absolute numbers.
If you could sort of help us forced rank the different buckets in terms of their relative sizes of the revenue opportunities?
John Nicols
Yes. I think -- I wouldn't characterize any one category within pharma manufacturing as being potentially larger than any other.
So there you've got developmental clinical projects were patented on the market, projects are generic. Probably the differentiation between those three is how quickly we could ultimately commercialize the product.
Obviously, if we're working to create a protein catalyst for a customers, project that is in the clinic, we have all the clinic time, development time that we have to wait in order for our project to ultimately be commercialized where if we're creating a protein catalyst for a drug that's already on the market or a drug that generic, our ability to engineer the protein and then commercialize, it can be quicker. That's – so there's only minor differentiation I'd say within the Performance Enzymes for pharma manufacturing.
The other categories for Performance Enzymes for food, for molecular diagnostics for other industrial sectors, these I believe will all have the prospect of being larger peak revenue opportunities on average than any protein catalyst project for the pharmaceutical arena. There we're targeting generally larger volume customer projects or we're addressing existing industrial enzyme markets where we can establish a market share against incumbent suppliers and incumbent competitors, these are generally larger targets for us and that's already become evident in the projects that we've successfully commercialized now for Tate & Lyle and the food industry, both of those projects are larger on average than amongst the largest of our pharmaceutical projects.
And then of course novel biotherapeutics programs is a whole different dimension. So I think that's probably primarily addressing your question.
Did that do the job or did you had some follow-up with that?
Brandon Couillard
Yes. No, that's just helpful and in terms of framing things.
I guess lastly with respect to page number two, product, it's commercializing, is it safe to say that the product revenues from that project in 2019 will be equal to or greater than the R&D revenues from that this year? Is there some mismatch that we sort of aware of this as we think about that big revenue opportunity moving to commercial scale on next year?
Gordon Sangster
I think that's hard to project. It may or may not be equal to the R&D revenues that we've generated this year, because the R&D revenues have been significant for the company.
So it will be very much of function of how well TASTEVA M. does and Tate & Lyle markets.
And if it does well in its early adoption we could see product revenues approach kind of revenues that we've generated this years. But there's only a prospect that they will not penetrate their market that quickly.
Brandon Couillard
Very good. Thank you.
Gordon Sangster
Okay. Thanks, Brandon.
Operator
Our next question comes from Matt Hewitt with Craig-Hallum Capital. Your line is now open.
Unidentified Analyst
Hi. This is Charlie on for Matt Hewitt.
Thanks for taking my questions. First, with the success that Tate & Lyle has been utilizing the Codexis's Performance Enzymes.
Have you had any other discussions with other food players in this space?
John Nicols
Yes, sure. We're having discussions with other food companies in the space.
For sure there's interest in that market amongst other players.
Unidentified Analyst
Okay. I mean, are they looking at your success with commercializing TASTEVA M.
and since you've able to have that, I mean, I guess this is the announcement here, but never mind on that question. One more, pipeline, looks like you had 50% growth from 2016 to 2017, 13% growth from 2017 to 2018.
As we look towards 2018 and 2019 it would obviously [Indiscernible] small numbers, would 25% be a reasonable target?
Gordon Sangster
It's a reasonable target, so we have – we generated seven [ph] growth. We grew the pipeline by seven in 2017 versus 2016.
We grew the pipeline by 10. I would hope and aspire that we continue to grow the pipeline by double-digit going forward like we did this year.
Unidentified Analyst
Okay. And then has there been any progress towards the potential CodeEvolver deal with that the third Top 10 Pharma customer that you mentioned has secured a primary dedicated team?
John Nicols
Yes. We are certainly continuing to discuss the option of CodeEvolver platform licensing with multiple large pharmaceutical companies and we continue to be optimistic in other major pharmaceutical companies endorsing a CodeEvolver license like we’ve already put in place for Merck and GSK.
Unidentified Analyst
Okay. Thanks.
I'll jump back in the queue.
John Nicols
Thanks.
Operator
Our next question comes from Doug Schenkel with Cowen. Your line is now open.
Unidentified Analyst
Hi. This is Ryan on for Doug.
Thanks for taking my question. You talked about the entry into a third industrial vertical within your pipeline with a product now in your pipeline snapshot and partnering with the customers.
Are there any more details you can provide on who the partner is or what the industry vertical is?
John Nicols
No, not at this point. It did register on our pipeline.
We're very rigorous about filling out our pipeline snapshot and you'll notice in slide three what it takes to register and it's at least a $100,000 of revenue generated and/or $100,000 of internal cost. Its not huge bar, but we have progressed project work in the space as it evidence by the pipeline.
It is early days, we're encouraged not only by the program that's indicated on this pipeline snapshot but other conversations with other players and other industrial verticals. So we just continue to be optimistic about how widely applicable CodeEvolver and protein engineering can be in various industrial sectors.
Unidentified Analyst
Got it. And maybe one important, you talked about the early progress, do you still expect to have some installations with Porton by year end or early 2019 and then can you say anything else about how that partner is progressing so far?
John Nicols
The partnership is progressing well. We're doing some technology transfer with them.
We're co-promoting the partnership both the combined capabilities of Porton Pharma Solutions is a leading CDMO and Codexis is a leading protein engineering catalysis company. We been co-promoting to customers together.
So it's really kind of formative work that we've done in the first couple of months. So the prospect of having material installation this year is real.
It's maybe a little optimistic at this early stage, but it's real, it's possible, it will be great news for us and as we move in to 2019, I'm very confident we will be sharing some detailed results of real material impact for the company from the partnership.
Unidentified Analyst
Very helpful. And then, maybe just one last, quick on gross margin, can you give provide little bit more detail on product gross margin in the quarter and what make you comfortable that you'll achieve the significant step up in providing guidance for the second half?
Thank you.
Gordon Sangster
Yes. I think the product revenues were weighted toward the Merck for Januvia, Sitagliptin product line.
So that tends to be a lower margin than our newer products and we're seeing a significant ramp up especially in Q4 of margins based on different variety of customers that we got and the higher margin components for those product lines.
John Nicols
Yes. I would add that we have a good better visibility of course in to the remainder of year's product sales to bolster our confidence and being inside the guidance range that we provided for both sales and margins.
Unidentified Analyst
Thank you.
Operator
Our next question comes from Drew Jones of Stephens. Your line is now open.
Drew Jones
Thanks. Hi, guys.
How are you all?
John Nicols
Good. How are you're doing?
Drew Jones
Good. Just one from me, just in trying to understand the opportunity on the food side of the world, the GRAS certification you guys received is that specific to the enzymes used in TASTEVA or is that a blessing broadly speaking of Codexis enzymes?
John Nicols
No. It's not broadly.
We have to get GRAS affirmations for each individual enzyme. So in my prepared remarks today and I think even in the press release we spoke about GRAS self-affirmation and those were specifically for the enzymes for TASTEVA M.
Drew Jones
So going forward is there anything you can glean from this initial run through GRAS that can be use going forward, maybe if you condense that timeline at all or is it going to be pretty standard what we're seeing today [ph]?
John Nicols
Yes. I mean it was actually drove this second time that Codexis has received GRAS affirmations for its enzymes, the first commercial success we had with Tate & Lyle that led to the execution of the supply agreement that's in place today for them for another sweetener, we received GRAS affirmation for that back in 2016 that was the first time we had ever gotten GRAS self-affirmation of any of our enzyme.
So we applied a lot of learnings from that. Two, the self-affirmation of these enzymes for TASTEVA M and actually part of the reason we were able to accelerate commercialization alongside Tate & Lyle, just how quickly we were able to get those GRAS self-affirmation this time.
So we're very proud of the team's ability to have affected a very quick regulatory self-affirmation in this project for TASTEVA M. Thanks for the question.
Drew Jones
Okay, great. Thanks guys.
John Nicols
Thank you.
Operator
[Operator Instructions] Our next question comes from Swayampakula Ramakanth with H.C. Wainwright.
Your line is now open.
Swayampakula Ramakanth
Thank you. Good afternoon John and Gordon, couple of quick questions.
I would like to hear some additional commentary on your commercialization efforts on the DNA Ligase and other enzymes in that arena. And also I believe last quarter there were some commentary on some folks doing evaluations on your enzymes.
So where is that process at this point?
John Nicols
Thanks. Okay.
I didn't spend a lot of time in prepared remarks. This time spend more time last quarter.
But we're on excellent. I think we've highlighted in the beginning of the year hiring an industry veteran from QIAGEN.
She has brought in two field hands who have been working in the molecular diagnostics molecular bio -- industry for the long time as well. They are remotely working directly with customers on those commercialization trials with a growing number of customers.
So just kind of reiterating what we said last quarter, we developed DNA Ligase with what we see in our assessments in our shop with remarkable improvement in conversion and migration/conversion efficiency, we have gotten validation from customers indeed of our performance enhancements from our tests and we're working with the growing number of clients with a stronger and bolster team to drive those customers through their qualification processes is an ultimately to commercial arrangement. So we continue to be very encouraged on the DNA Ligase.
The second enzyme for molecular diagnostics, we haven't disclosed what that is yet. We're working on the patenting side and I'll working on affirming he validation of its performance, enhancement and we're seeing encouraging results in our internal shop and that encouraged us to put the package forward in a very formal way at a very core conference, the AMP conference in early November.
So our all measures, the market penetration plan is very much on track for penetration into that quite large market for us. So, hopefully that helps you to get a little update on the color there.
Swayampakula Ramakanth
Yes. No.
That's very helpful actually. Then moving on the PKU enzyme, the CDX-6114, its great to see that the trial is underway and potentially you're going to get some data by the end of this year.
Is there a milestone payment associated with release of the data for the Phase 1a and also when Nestle decides to continue to with the development of this product? Would you get another milestone when they start their Phase 2 study in that product?
John Nicols
Sure. So I can answer the first question very explicitly.
So with the – as we provide the topline report to Nestle in the fourth quarter and a few other deliverables, we with that we will call the option exercise on Nestle Health Science that will initiate a window of decision-making for Nestle Health Sciences and upon the closing of that window they will have had to have made the decision whether they are going to take over the further development or not? If they decide to take over the continuing development of CDX-6114 then we would be eligible for a $3 million option exercise payment and so that would be the next cash opportunity for Codexis from the Nestle arrangement regards CDX-6114.
After us assume that they exercise their option and take over the continued development for CDX-6114 from that point forward we will be set out for a stream of additional pre-commercial milestone opportunities, we have provided the amount of those milestone opportunities in aggregate. Publicly we've not disclosed publicly what triggers the various milestones through the approvals of those -- of CDX-6114, but yes we will earn additional assuming the drug does well, assuming Nestle exercises the option we are set up to earn additional milestone payments through clinical development.
Swayampakula Ramakanth
Okay. And then in that same business segment last time you are talking about additional pipeline products behind CDX-6114, any color or any commentary there?
John Nicols
So, I highlighted a very important hiring success for the company bringing in a multi-decade discovery veteran and Dr. Hicham Alaoui.
We didn't share any color on the other projects just to refresh, several of those programs are similar in nature to the PKU program. They are also addressing rare inborn errors of amino acid metabolism diseases where we think we can provide an oral solution to those diseases as well several of our pipeline projects are targeting that kind of disease, issue and several others are addressing Lysosomal Storage Diseases.
Those programs in aggregate are doing well. They are advancing.
We're encouraged, that's we're hiring, that's why we're stepping up our investments in these areas. But the final comment earlier in my prepared remarks was partnering success with Nestle outside of CDX-6114 is doing quite well and so you might recall that when we struck the deal Nestle in October of last year not only did we set up the option arrangement on CDX-6114, we also entered into a strategic collaboration where we started to work, put CodeEvolver to work and Codexis teams to work to create a new protein therapeutic that neither Codexis nor Nestle Health Science had ever worked on before.
We started that work in October. We’ve been working on it ever since with one dedicated project team and the prospect and the progress of that program has warranted an amped up investment and we're now we've established the second parallel team for that program given how well the projects working.
So we're increasingly encouraged by that partnering project that we're working with Nestle Health Science accordingly.
Swayampakula Ramakanth
Great. That's very helpful.
So the last question from me is on Porton relationship. I know you gave some color there and you're stating that you're encouraged by the progress and potentially you could be announcing something – some kind of project by the end of the year.
How is the economics of that relationship going to be looking like in the sense if you sign up an initiated project is there any color that you can provide as to since it's a combined effort who gets what and what kind of economics would Codexis recognize from that?
John Nicols
Yes. Sure.
There's two potential economics from a successful project working with Porton and a pharmaceutical customer. First is if there's an enzyme available and we don't have to do protein engineering, it could lead to product sales through Porton from Codexis to that client and that would be a great development if they find the new installation that we hadn't found prior which of course is the primary benefit for Codexis to the partnership is to use Porton's larger access of the world, the Pharma manufacturing to go find other places where protein catalysis can fit.
But often times products off of the shelf, aren't ready to hit economic targets for client so that leads to the second economic opportunity is where the customer who Porton working with sees the benefit of improving a protein creating a new engineered protein catalysts which would require some R&D time and service. And so we could generate R&D revenues from the Porton arrangement by securing new engineered proteins services opportunities that will ultimately of course turn it to product sales.
So either or both of those and I'll just refresh based on the deal with Porton, Porton is kind of the hook to use those protein engineering services or pass a minimum modest fee on an annual basis. So we're setup to generate that economic regardless of whether engineering services are procured by the Porton partnership or not, so I think we're well setup to penetrate and really the hope for success from that deal is this new installations and acceleration of our pipeline, the growth of products and R&D services that's we're open for and driving for.
Swayampakula Ramakanth
Great. That's fantastic.
Thank you very much. Appreciate answering all the questions.
Thank you.
Operator
Our next question comes from Steve Schwartz with First Analysis. Your line is now open.
Steve Schwartz
Good afternoon gentlemen. Sorry about that, I was on mute.
John Nicols
Hey, Steve.
Steve Schwartz
Yes. It's a nice quarter.
One question possibly in five or six different parts, but John I think on your prepared remarks, I think you referred to the company self-funded therapeutics pipeline increasing from four projects to 11 projects, did I hear that correctly?
John Nicols
Somewhat, you heard that we went from four self-funded projects two years in the pipeline to 11 self-funded projects currently, but not all of them are therapeutic projects. If you look at the details of the pipeline chart, roughly seven of the 11 are novel biotherapeutic discovery programs and three are in the molecular diagnostic and molecular biology arena and one is targeting in generic drug application.
Steve Schwartz
Okay. And when you had four two years ago, I mean that was CDX-6114 and three others, right?
How far backward you have to go that you had those four, I mean, this go – the four goes back before Tate & Lyle back when you guys were still writing about shell [ph] in your filings, right? I mean it goes way back?
John Nicols
Not really, actually so the four actually I have in front of me. Two of them were novel biotherapeutics and one of them – one of those two was indeed CDX-6114, one was another therapeutics target.
One was the food ingredient project and if you go back to the early start of the enzyme for TESTEVA M we started that project on our own account. It was so risky frankly because like I said in the prepared remarks there was no enzyme that could do any of the conversion that we envisioned, none 0.0000 [ph] yield.
So we couldn't pitch that or if we could people would -- we would lose a lot of backend benefit if we try to get people to help us. So we did it on our own.
And so that was project number three. And fourth project was the early days of the DNA Ligase.
So honestly those four projects are all quite new. When I joined the company 2012 we weren't doing any of those.
In 2013 we weren't doing any of those. In 2014 we had just started the PKU projects.
On 2014, I mean this is all unaudited, but we had one self-funded project and that was CDX-6114. We hadn't envisioned this Stevia project that point time and we certainly hadn't started the molecular diagnostics.
So that kind of takes you back a little further and that's pretty accurate, good memories of all the history Steve.
Steve Schwartz
Yes, yes. Okay.
And with that answer, so then the nature of my questioning here is changing a little bit because I remember in the nearly days you basically worked on like the PKU project with spare time from your researchers, right? And certainly with these other three projects that made up the four, in those cases you were being paid outright I think to work on those.
So this takes me to ultimately why am bringing this up. You've got the 11, you've hired some people, the good doctors come in to lead the program.
How much are you committing in capital to this you estimate at this point, number one? And then number two, how did you develop the additional seven, I mean, I think it may be the answer to that is obvious at this point but just so I'm clear on where the new projects are coming from especially where they fall into the therapeutics arena?
John Nicols
Yes. Now I think is a really good essence questions of the growth of Codexis over the last three or four years, right, because four or five years ago we couldn't afford to do self-funded work.
And you're right in the beginning of PKU we had some idle R&D capacity and so we put them to work on our own target idea right, very early days. And look at where its come, so really just following that track, I mean look at how well CDX-6114 has done over those three or four years.
We're now in the clinic. We've successfully dose three of the four cohorts in the Phase 1a trial, so all of that is emboldened us and then we struck a deal arguably one of the best if not the best deal that company struck in my chapter in this company with Nestle Health Science division.
So it's all that emboldened us. This is a great pathway to create shareholder value, so we will continued to look into the world of therapeutic opportunities for applying CodeEvolver and that's lead to six of their programs for Codexis.
Then really same thing, when we first started with the molecular diagnostic opportunity, it was one idea, it was early, we didn't know the market that well, and we put a team to work and its worked, right. DNA Ligase looks like a great product and we're looking forward to showing real revenue and financial results from that investment and as we talk to customers they tell us they need some other types of enzymes to be improved just like we're doing with DNA Ligase.
And so we now we have a couple of other products that are going into that general sectors. So there is three.
So I think that just gives you a feel. And as a company has grown its pipeline, it's generating more revenue, Sitagliptin Lipton with Merck is growing.
We're cutting deals with Tate & Lyle and with Nestle that they are bringing in revenue and cash. We've built the financial capacity to do more investment.
So that was your first question. So if you look at the pipeline, 11 out of 43 programs are self-funded.
So it's in terms of capital the primary capital input, the primary resource input is R&D capacity. So you could see – okay, if you take away the self sustaining revenue products which are nine now 11 out of 23, so a roughly a third of the development projects are being self-funded and two-thirds are being funded by partners.
So of our R&D expense line which of course is significant, roughly a third of that is self-funded to create products that we have more ownership and control over. And we think that's a very healthy mix.
And that mix is actually stayed roughly stable over the last couple years.
Steve Schwartz
Okay. And so as you sit down and this will be my last question in this dialogue here.
When you sit down at this point with Dr. Alaoui and you kind of set some goals, I mean where do you see that 11 going.
I mean, I don’t want to put it in the terms of traditional, specialty chemical company in terms of you know what your capacity utilization and how much more can you do, but that's kind of along the lines I’m thinking. Do you get the 20 self funded projects?
Can you do 25? It is -- that's I would imagine maybe is highly variable depending on the types of projects.
What you think?
John Nicols
Yes, I mean, it’s going to be good [Indiscernible] before we ever get to numbers like that. And of course it will all presume success; continued financial capacity for the corporation to change [technical difficulty] pipeline and so there is an ebb and flow in and out as well given success.
So I think what this really, I mean this is a very target rich company. We have a lot of proteins that the corporation can imagine creating and the more companies we talk to about kind of protein, what those customers are doing and trying to do, the more we see fit for new proteins that people just haven’t ever imagine could be created.
And that’s what CodeEvolver comes in. You just go bragging again about the success with TASTEVA M.
I mean just reflect on what was in the prepared remarks. When we started that, when we started thinking about this in 2016, we had an idea there was no enzyme that did anything, right.
And then we needed to put our teams to work and we had to make a 100 amino acid modifications to make the enzyme work so that it would be low enough cost process for Tate & Lyle to say yeah, we can launch and potentially make money, right. So it took that much R&D manipulation only CodeEvolver can do that.
And so that's how it works around here, and we've got a lot of really exciting dialogues with companies very similar to that, of course many of them much earlier than what I just described with Tate & Lyle. And when we see enough prospect and we do some business case analysis, we’ll put a team to work on it, because the cost of putting a team to work is not a big expense.
We don't have to build factories; we’re not adding a lot of CapEx to address these opportunities. We’re deploying scientists and R&D laboratory to go after them.
And that's the beauty of Codexis and what can come out in two years.
Steve Schwartz
Yes, no it is remarkable. Well thank you for the color on that John, appreciate it.
John Nicols
Yes, pleasure thanks.
Operator
At this time, I’m showing no further questions. I’d like to turn the call back over to management for closing remarks.
John Nicols
Hey thanks everybody for all your good questions. I and the team are very proud of our strong performance for the first half 2018 and we’re excited about our outlook for a highly productive second half of the year with growth in our core business and entering into additional high-value industries.
We look forward to providing ongoing progress, updates to you and speaking with you again when we report our third quarter results in November. In the meantime, everyone please have a great day.
Thanks.
Operator
Ladies and gentlemen thank you for your participation in today’s conference. This does conclude the program.
You may now disconnect. Everyone have a great day.