Codexis Inc

NASDAQ:CDXS

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Welcome to Codexis Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. And now I'll turn the call over to Carrie McKim, Director of Investor Relations. Please go ahead.

[Carrie McKim, executive]

Thank you, operator. With me today are Dr. Stephen Dilly, Codexis' President and Chief Executive Officer; Kevin Norrett, Chief Operating Officer; and Sri Reale, 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, including our guidance for 2023 revenue, product revenues and gross margin on product revenues as well as our strategies and prospects for revenue growth and successful execution of current and future programs and partnerships, including our ECO Synthesis platform and pharmaceutical manufacturing business. To the extent that statements contained in this call are not descriptions of historical facts regarding Codexis, they are forward-looking statements reflecting the beliefs and expectations of management as of the statement date, November 2, 2023. 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 Codexis' control and that could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexis filings with the Securities and Exchange Commission. Codexis expressly disclaims any intent or obligation to update these forward-looking statements, except as required by law. And now I'll turn the call over to Stephen.

[Stephen Dilly, executive]

Thank you, Carrie, and thanks, everyone, for joining. We approached the end of 2023 in a position of strength. We have a core pharmaceutical manufacturing business that generates cash, a potentially game-changing technology in the ECO Synthesis platform and importantly, the financial resources to execute on our plans. Since announcing our enhanced strategic focus in July, we've worked very hard to put ourselves in a position of financial security so that we now have a path to potential positive cash flow around the end of 2026 with current financial resources. Let me briefly recap how we get there. It starts with a strong balance sheet. As you'll recall, over the last 2 years, we received a windfall of roughly $135 million in product revenue from the sale of CDX-616 to Pfizer for the manufacturer of Paxlovid. This was the result of our quick and meticulous execution to supply metric tons of product in support of the global pandemic. CDX-616 still represents the largest single commercial success for Codexis to date and the extraordinary revenues that generated are central to the strong balance sheet we have today, with approximately $75 million in cash as of September 30. On top of that strong foundation, we've taken steps to dramatically reduce our cash burn by over 50% year-on-year. We did this by focusing our efforts on programs that will generate the greatest value, streamlining our organization to the right size for our go-forward plan and consolidating operations to a single facility. We've also been working hard to return our core pharmaceutical manufacturing business for a growth trajectory, and we're very pleased with the progress and excited for the future growth potential. The cash generated by our pharma manufacturing business, combined with reduced cash burn and our strong balance sheet creates the opportunity to invest in our ECO Synthesis technology to bring it to commercialization within our existing resources. The first element of the ECO Synthesis platform, the double-stranded RNA ligate should start to generate revenue next year, followed by anticipated early commercial licenses in 2025 and the rollout of the complete ECO Synthesis platform in 2026. Putting all these pieces together, cash balance, reduced burn, growth in pharmaceutical manufacturing and the exciting commercial potential of the ECO Synthesis platform gives us a path to potential positive cash flow around the end of 2026, which is within reach of our existing cash runway. We are rapidly advancing the ECO Synthesis technology, and many of our team members just returned from presenting on our technical progress at the TIDES Europe meeting. Our confidence in the revenue potential of this opportunity is increasing as we continue our conversations with potential partners and experts. As an adjunct to those conversations, we're in the process of forming a strategic advisory board to make sure that we have the best possible understanding of the existing and future landscape so that the ECO Synthesis platform is tailored to meet the real needs of the market. We are truly delighted and honored to welcome John Maraganore as our inaugural external SAB member. As Founder and Chief Executive Officer of Alnylam Pharmaceuticals, John pioneered the translation of RNAi from a laboratory tool into an entirely new class of medicines. Alongside his participation in our Strategic Advisory Board, we also look forward to hearing John's perspective on the RNAi therapeutics landscape during our upcoming ECO Synthesis focused virtual KOL event in December. Before I hand it over to Kevin to outline that event, let me briefly recap the reasons for our enthusiasm about the ECO Synthesis platform. Moving to Slide 3. Drug developers are continuing to advance pipeline of innovative RNAi therapeutics for large disease indications like Alzheimer's and hypertension, and there is a projected wave of coming demand. The current manufacturing standard, phosphoramidite chemistry is dependable, well established and will no doubt continue to play an important role in the landscape. However, at commercial scale, it also requires enormous capital investment, extensive lead time and high volumes of toxic solvent lipases nitrile. For reference, a leading contract manufacturing organization recently invested $725 million to build a phosphoramidite chemistry plant for the capacity to manufacture about 1,000 kilos of RNAi annually. Our market research indicates that demand is expected to grow to approximately 30,000 kilos annually by around the end of the decade. It would take billions of dollars and many more of these plants to meet that capacity. Most companies don't have the resources necessary to make that kind of manufacturing investment, particularly given the realities of today's broader capital markets. That's where an elegant enzymatic solution like the ECO Synthesis platform comes in. Today, we are closing in on an aqueous-based working process designed to complement phosphoramidite chemistry and vastly reduce the level of capital investment required for large-scale production. As with any disruptive technology, it will be naive to think that Codexis will command the entire market with our platform. So we're thinking critically about where exactly our technology fits within the existing manufacturing landscape. In many cases, that might look like augmenting the chemical approach with our double-stranded RNA ligase, which can stitch together short strands of RNA that have been chemically synthesized. This enables much more efficient use of existing facilities, and we currently have collaborations with a few key RNAi players in this space. In other cases, the ECO synthesis platform could be used to synthesize the complete sIRNA. And sometimes, the best approach will be a combination of the ECO Synthesis platform, ligation and even chemistry. That strategic optionality and flexibility is one of the beauties of our platform and underscores why ECO Synthesis has such promising potential to play a critical role in meeting future demand for siRNA. Now, while continuing to refine and perfect the technical piece is important, we also need to pay full attention for real-life barriers to adoption of our platform. Put bluntly, why will innovators trust our technology to deliver their valuable siRNA assets when they have a seemingly reliable alternative in phosphoramidite chemistry. For those already developing RNAi therapeutics, it's about demonstrating the level of purity we can produce and the ease of adoption we can facilitate. For those who aren't, we need to emphasize how the ECO Synthesis platform opens the door for smaller companies to develop RNAi therapeutics for large indications they couldn't otherwise pursue. We are well aware that these questions will be top of mind for drug developers and manufacturers as key decision makers weigh their options. So it's incumbent on us to help our customers and the investment community understand the need for an enzymatic solution. We think our December Virtual KOL event will play a critical role in this ongoing market education process. To cover additional detail on that and our recent business development efforts, I'll pass it over to Kevin, who has just returned from the TIDES Europe missing. Kevin?

[Kevin Norrett, executive]

Thanks, Stephen. As mentioned, I was just in Amsterdam at the TIDES Europe meeting, where I was energized by the high levels of interest we are seeing from potential customers and collaborators. Continued engagement with key players and decision-makers has only reinforced my conviction that there is a very real need for our enzymatic solution and with that, a significant revenue opportunity for Codexis Shifting to Slide 4. We look forward to sharing more detail on our recent technical progress in the coming months and the December virtual KOL event Stephen mentioned will be a terrific opportunity to hear directly from those in the RNAi space who would benefit from this technology. In addition to welcoming John Maraganore to our SAB, we look forward to his participation in this event where he will share his perspective on the growing importance of RNAi therapeutics as a class, today's manufacturing landscape and the need for innovation is RNAi demand growth. The agenda will also feature discussions around the ECO Synthesis commercial opportunity and a status update on our anticipated milestones as well as a technical overview of the platform from Stefan Lutz, our Senior Vice President of Research. We believe this event will be a highly valuable resource for education around what we see as the major growth driver for Codexis, and we hope you'll plan to join us virtually in December. On Slide 5, I'd like to quickly recap our anticipated key milestones. As we approach the end of 2023, we are nearing the demonstration of grand scale synthesis with our ECO Synthesis technology. We will take a deeper dive into the significance of this key technological milestone during our December event. But at a high level, it means we plan to demonstrate the prepared to scale manufacture of an oligonucleotide composed of the modified nucleotide building blocks typically used in RNAi therapeutics. And we plan to do this all under process light conditions. This proof point represents the first step from an R&D project to something with potential commercial applications, and it will enable us to enter precommercial testing with select customers next year, followed by early commercial licenses of the technology anticipated in 2025. During those phases, we will collect valuable feedback to inform any necessary tweaks or modifications before the planned full commercial launch in 2026. In parallel to that progress, we also plan to make our engineered double-stranded RNA ligase widely available for customers in the second half of 2024. In addition to providing a near-term RNA synthesis market entry point for us, this product gets our foot in the door with many of the customers currently using phosphoramidite chemistry but requiring ligation based approaches for longer sequences. This is a meaningful first step in educating customers on the benefits of incorporating enzymatic solutions as a complement to their existing manufacturing processes. Before I turn the call over to Sri to discuss our financial results for the quarter, let me provide an update on our business development activities following our strategic pivot in July. We are in active discussions with Nestle to restructure our collaboration, whereby they continue to develop CDX-7108 and Codexis retains an economic interest in this program but is no longer sharing in the clinical development and commercialization costs. We expect the potential deal would follow a traditional path for a Phase I molecule with an upfront payment, clinical milestones and sales-based growth. We are also in active negotiations with other potential partners to monetize assets within the segments of our life sciences portfolio, where we will no longer be focused such as genomics and PCR-based diagnostics. This is consistent with our previously announced strategy to leverage partners with broader channel reach and accelerate value to Codexis. We anticipate that we will be able to execute one or more of these deals by the end of this year or early next year, and we look forward to keeping you updated on that progress. With that, I'll turn the call over to Sri.

[Sriram Ryali, executive]

Thanks, Kevin. Good afternoon, everyone. Moving to Slide 6. We released our full third quarter financial results in a press release earlier this afternoon, which is available on our Investor Relations website. Before I call out a few highlights on the quarter, let me first share some thoughts on our financial position. As Stephen noted, our strong balance sheet today reflects the benefit of a roughly $135 million windfall related to our CDX-616 sales to Pfizer for Paxlovid between 2021 and 2022. This injection of cash significantly bolstered our financial position and is reflected in our current cash balance of $74.6 million as of September 30. As part of the restructuring announced in July, we focused our money and our people on the priority programs with the highest potential to create value, and we took decisive action to reduce headcount and consolidated facilities. These decisions lowered our projected cash burn by more than half. We now expect annual burn of roughly $20 million to $30 million over the next 2 years. This, along with the anticipated return to growth of our pharmaceutical manufacturing business in 2024 and expected commercial launch of the ECO Synthesis platform is projected to fund our planned operations to positive cash flow, which we expect around the end of 2026. This is a good position to be in. Now let me provide some brief comments on our Q3 results. During our July 20 call, we guided that Q3 product revenue would be our lowest quarter given the inherent lumpiness of the pharmaceutical manufacturing business, which is driven by timing of customer orders. That is exactly in line with what we saw this quarter. Total revenues, excluding enzyme sales related to Paxlovid were $9.3 million for the third quarter of 2023 compared to $21.5 million from the prior year. Product revenues, excluding sales related to Paxlovid were $5.4 million for the third quarter compared to $15.1 million for the prior year. The decline is largely due to timing of customer orders, including specific customer building prelaunch inventory in the third quarter of 2022, ahead of the anticipated approval of a pharmaceutical product.However, we expect Q4 product revenues to be more in line with Q1 and Q2 of this year, and we are confident in reiterating our full year 2023 product revenue guidance of $30 million to $35 million. With the Paxlovid windfall now behind us, 2023 has been a reset year for the pharmaceutical manufacturing business. As we approach the end of this year, we are increasingly confident that this business is on a path to return to sustained growth beginning in 2024, and we plan to provide additional detail during our full year 2023 financial results call. Now turning to R&D revenues. We reported $3.9 million in Q3 compared to $6.4 million last year. This decrease was driven by the completion of work on the Takeda partner programs and the winding down of our biotherapeutics programs following our decision to exit the space. As a reminder, our biotherapeutics R&D revenues reflect the reimbursement of approximately 50% of our costs. So while the decision to exit biotherapeutics will result in lower R&D revenues, removing these costs actually improves their bottom line by reducing overall cash burn. We continue to expect 2023 R&D revenues to be in the range of $21 million to $24 million. Product gross margin, excluding enzyme sales related to Paxlovid is 58% this quarter compared to 55% in the third quarter of 2022. We continue to expect 2023 projects product gross margin to be in the range of 55% to 65%. Briefly turning to expenses. R&D expenses for the third quarter of 2023 were $13.7 million compared to $21.8 million last year. SG&A expenses were $12.3 million compared to $13.5 million in the third quarter of 2022. Compared to both the prior year and last quarter, you can see reductions across R&D and SG&A expenditures resulting from our financial discipline. You can expect to see the continued benefit of the decisive actions we've taken in the fourth quarter with continued lower expenses. You'll notice this quarter that our Q3 GAAP expenses included large onetime charges. These primarily relate to the restructuring we announced in July. We booked a $3.1 million charge related to the reduction in force and a $10 million noncash impairment charge, reflecting our decision to exit biotherapeutics and consolidate our facilities. Finally, as you can see in the other income and expense line in the table on this slide, we recorded onetime noncash impairments related to certain investments we previously made in private life science companies. Shifting to Slide 7. To recap, we are in a strong financial position. We are confident in reiterating our 2023 guidance, and we have laid out the foundation for our pharmaceutical manufacturing business to return to sustained growth in 2024. Looking ahead, we have positioned ourselves well with the path to potential positive cash flow expected around the end of 2026. And we look forward to providing further guidance during our full year 2023 financial results call. I'll now turn the call back to Stephen.

[Stephen Dilly, executive]

A: Thank you, Sri. In closing, I'm incredibly optimistic that the difficult decisions we made a few months ago have positioned Codexis for long-term success. We've streamlined the company and zeroed in on the killer app of our CodeEvolver platform, and we have the resources we need to realize the potentially massive value of our ECO Synthesis technology. Now we're in execution mode. And with a cascade of upcoming milestones, we look forward to keeping you up-to-date on our progress. With that, we'd be happy to take your questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Brandon Couillard with Jefferies.

[S. Brandon Couillard, analyst]

Kevin or Stephen, could you elaborate a little bit more on the TIDES EU conference and some of the engagement you saw there? How did it go relative to expectations? And what were some of the reactions from some potential customers that you engage through there?

[Stephen Dilly, executive]

Yes. Thanks, Brendan. I'm going to get Kevin to answer that because he's literally just back off the airplane looking soon to be jet lagged.

[Kevin Norrett, executive]

Thanks, Stephen. Brandon, yes, actually, it was quite exciting for multiple reasons. One, if you remember in the May TIDES meeting, really it was the first time we had come above the radar in terms of rolling out what we were working on behind the scenes for the last year or so with the ECO Synthesis platform.What we demonstrated at TIDES and really generated a lot of excitement was that we've made significant progress since then in terms of showing increased coupling efficiency, longer strands of siRNA fragments as well as improvements in some of the other pieces that are important across an enzymatic platform, which is also an important piece of having a fully enzymatic solution. So I think customers and potential collaborators that were not as interested in talking to us in May, are now really excited about talking to us, and we were quite popular at the conference. Anything you want to add anything?

[Stephen Dilly, executive]

Well, I think it's the nature of the customers.

[Kevin Norrett, executive]

Yes. I think the nature of the customers really -- I mean TIDES is a manufacturing focused conference. So CDMOs and whatnot are really kind of the bulk of the clients there and their focus in terms of looking at a new alternative versus simply trying to improve phosphoramidite chemistry was completely shifted for me. I think that really summarizes why I came back super energized from this conference and look forward to sharing more information in May of next year.

[S. Brandon Couillard, analyst]

Steve, some of the experts we talked to about enzymatic approaches question a few things like flexibility, volumetric productivity. How do you address those concerns? What are some -- I guess, the time line to be able to do that? And how do you think, I guess, how do you respond to, I guess, some of those concerns about the approaches interval?

[Stephen Dilly, executive]

Well, the first one would be the volumetric productivity, which is actually the central premise of the enzymatic approach is that should have vastly improved, and that comes from the tethering of the enzyme and the -- having the oligo in solution. And so we actually expect our volumetric productivity to be significantly superior to the traditional chemical approach, but we need to show you guys that.We start to do that at the December event, but some of the TIDES slides started to hint at that. Also we will continually show more, starting with TIDES Asia in March next year and then May back to TIDES U.S. again. So it's just going to be -- we want to show you what we've actually done rather than what we're hoping to do. But progress is good and the volumetric part of it is really nailed down. The other thing that we think is super important, and actually, we have heard from even your calls, Brandon, was the need to address the building blocks as well. And so one of the things, I think, that really surprised people at TIDES is how far we've got on the enzymatic synthesis of the NQPs as well as just putting them together into the oligo. And finally, when we announced our Gram-scale milestone towards the end of this year, what we're going to be showing in that is flexibility and the inclusion of modified blocks in there. So this is why I keep saying we're listening to what the state of the art is, what we need to do, how we need to be competitive. And also, the other thing that we have heard is the intrinsic ability of the enzymatic route to go along is a competitive advantage that the phosphoramidite chemistry approach will find very hard to compete with. And again, that's one of the intrinsic advantages of our approach. But yes, they've been doing this for 40 years. We've been doing this 1.5 years, but we're very much on the same playing field now. You can tell from our general body language, we're super excited here. Yes.

[Operator]

Our next question comes from Dan Arias with Stifel.

[Evan Stampler, analyst]

This is actually Evan on for Dan. The first one is actually just a simple modeling question. I mean, given your guidance in terms of ex product revenues, ex-Paxlovid, can you just remind me what your Paxlovid enzyme or product revenue is for this year? And kind of which quarters have are going to fall into?

[Sriram Ryali, executive]

I can answer that. We haven't booked any revenue related to the sales of CDX-616 or Paxlovid this year. We are expecting to book $8 million in the fourth quarter, and that is part of the accounting for the retainer fee that's already been collected. So it's noncash revenue. You'll see $8 million in Q4. There's another $9 million that will book in Q4 of 2024, and then we'll be done accounting for all of the Paxlovid retainer fees.

[Evan Stampler, analyst]

And that's R&D or that's enzyme sales?

[Sriram Ryali, executive]

That will show up in product revenue.

[Evan Stampler, analyst]

Product revenue. Okay. And then is there an R&D piece there as well that that's, I guess, kind of a little bit Pfizer related?

[Sriram Ryali, executive]

Yes. So in the second quarter, we booked $5 million. This is where Pfizer applied a portion of their credit to a new enzyme not related to Paxlovid. It's already been booked as R&D revenue, and that was incurred last quarter.

[Evan Stampler, analyst]

So $8 million in 4Q and then another $9 million next year in fourth year, and those are product revenues. Okay. Super helpful. Got that out of the way. I guess the next question is -- what do I want to ask. I wanted to ask about right. So your write-down of – it's really just kind of a double question or related. You took a write-down of some of your investments in the quarter. I think there was a 3-point-some-million charge.So I guess which specific investments were those? And then just kind of related, I know you guys have relationships with Alphazyme and Molecular Assemblies. I know Molecular Assemblies you have an investment and that's why it's related. What's kind of the status of those relationships?

[Sriram Ryali, executive]

I can start with the write-down question first. We did book roughly $4 million in impairments on investments in private life science companies that we hold. We have investments disclosed in our Q in MAI, SQL and Arzeda. The write-downs are related to SQL and Arzeda. And really, it's just a function of the fact that these are companies that have been active on the financing front. And any time they do that, we have to reassess the value that they raise money at and appropriately reflect that on our financials.

[Stephen Dilly, executive]

And I'll cover the MAI and Alphazyme. 2 very different situations, but strange enough, we've talked to both of them within the last couple of days. MAI, we have a fairly significant equity stake in. And you'll remember, they're using our TdT enzyme version that does DNA, not RNA, to do DNA auto-synthesis. They're making super good progress technically in terms of coming up with some very long, very pure DNA strands. We're super happy with that and that relationship. And really, we're looking how we collaborate going forward. So that's very positive.Also with Alphazyme, they've now become part of the broader Maravai umbrella. We're talking to them. They have existing contracts in place with us, and we're also talking about going forward, how we can leverage that relationship. So obviously, being a small company trying to cover a broad landscape, there's a lot of collaborations in our future.

[Operator]

Our next question comes from the line of Matt Hewitt with Craig-Hallum.

[Matthew Hewitt, analyst]

Maybe 2 for me. The first one, what is the -- as you look at it, what is the biggest challenge to achieving gram scale synthesis for ECO. And then separately, you're talking about getting maybe some of your first orders later in the second half of next year. How should we be thinking about the size of those orders? Are these 6 figures? Are they 7 figures? Just help us calibrate how big those initial orders could be? Obviously, we would expect those to scale and ramp higher over time. But where do we start at?

[Stephen Dilly, executive]

So I'll cover the gram scale synthesis question. And Kevin, you can talk about double-stranded ligase next year. So with the gram scale synthesis, it sounds like a very simple statement until you pull it apart and say, what does it actually mean? And what we're talking about here is making an appropriate quantity of a suitable length oligo that has the appropriate modifications in under processed conditions with a reasonable purity and so on.And we've been making very strong progress on that. We've reiterated our confidence in hitting that. I think the most interesting question will be how long we actually go with the oligo by the end of this year. Because we're already up -- what we showed at TIDES was a very nice [ sixmer ] that we made, which is sort of comparable to what some other companies were showing with phosphoramidite chemistry in terms of its purity and specifications or the rest of it. But no one's ever run a TdT RNA oligo out to 15, 16, 17 yet. And we're hoping to do that relatively soon, so we can really understand the physical chemistry better. So that's the thing that I'm most excited about. But I've been super happy with things like the conversion efficiency of the enzyme in its tethered state, the productivity, the reliability, the ability to include the modifications. So we're feeling like we're very much on track and intrigued by how it performs. Kevin?

[Kevin Norrett, executive]

Yes. And then you layer on top of that, it's important to note that Steven mentioned the double-stranded RNA ligase. Already ligation approaches are becoming more and more common within the phosphoramidite chemistry world because phosphoramidite chemistry tends to fall down in the longer oligo range in terms of requirement of more input materials. It becomes a little less efficient. You get a higher impurity profile, the longer the strand. So a lot of companies have approached us around testing our RNA ligase in the first half of next year so that they can look at making shorter oligos strands and phosphoramidite chemistry works really well. And stitching together 10 mRs or 5 mRs and be able to get to sRNA strands in the 20 to 30 mR range and maybe even a little bit longer with the ligation.So when it comes to orders itself, we're talking about testing with customers in the first half of '24 and looking at actual customer orders in the second half of '24 based upon that experience. And then we -- the other thing I should mention, we also have 2 other customized double-stranded RNA ligase programs that are wrapping up from an evolution standpoint, where we could see some additional orders for those customized programs, but we haven't put those supply agreements in place.

[Matthew Hewitt, analyst]

And order of magnitude in terms of the size of those orders that you'd be happy with?

[Kevin Norrett, executive]

Well, I mean, I think from an individual enzyme standpoint, double-stranded RNA ligase is one piece. It's still in the range of a total peak opportunity, at least today without huge growth towards the end of the decade if we're successful with ECO Synthesis, somewhere in the range of $15 million to $25 million enzyme opportunity.So by the end of this year, with early launch, maybe you can see some single-digit millions in terms of ordering. But we'll put out more information around that as we get to our financial guidance for 2024. I think the other very important thing here really is – I was just going to say one more thing, Matt. Sorry, just to highlight, like this highlights how important it is that we have the cash runway we have now to be able to set the market correctly, with not only the double-stranded RNA ligase, but also the ECO Synthesis platform and getting that in the hands of customers for testing this coming year.

[Operator]

Our next question comes from the line of Chad Wiatrowski with TD Cowen.

[Chad Wiatrowski, analyst]

This is Chad on for Stephen Ma. Just a follow-up on Brandon's question on the ECO Synthesis flexibility. Did you guys present any data that the enzyme-based approach allows the utilization of all the various modified nucleosides and analogs, which can be used by chemical synthesis methods? And what about future modified basis? How easy would they be to be integrated using the existing enzyme or would new enzymes have to be engineered?

[Stephen Dilly, executive]

Thanks for the question, Chad. Yes, I mean, this is part of the sort of central driver of how we're evolving the TdT. And what we showed at TIDES was some very sort of relevant examples of current modifications. We're furthering that in terms of our gram scale synthesis. And the aim is that Version 1.0 of ECO Synthesis covers the modifications currently in use.Now, we've always said that this is going to be choose your analogy like the iPhone or whatever else, as newer, more sort of strange, unnatural modifications come through, we may well have additional enzymes that we need to evolve to include that or further evolve the current TdT to add that to its armamentarium. There's probably a law of diminishing returns with any single enzyme such that we will effect around what currently exists with TdT 1.0 and then move on to some of the more innovative ones. And this is where Kevin and his team are really doing a lot of hard work to link up with innovator companies. They're often small companies that are looking at very new constructs and you're learning about those and trying to stay current. And one of the big concepts about the alpha testing we've been talking about early next year is to put our enzyme kit in their hands to see how it works under their conditions with their modification and getting the feedback, right? And you can imagine one of the flexibilities of this system, because the enzyme is tethered and the oligo moves, is that you can pass it through more than one column for want of a better word. So you could have several TdT enzymes specified for the specific oligo that you're trying to make. And so we're very aware that one of the performance characteristics that we need to deliver beyond volumetric efficiency is flexibility and speed.

[Kevin Norrett, executive]

I might add just one thing there is that our assessment of the current products in development for siRNA, certainly -- I mean there's 400 products in development. So bear in mind, there may be some variations, but we see greater than 80% of them, including the 2 or 3 most common modifications, which are the 2 primo medical and the 2 prime fluoros, as well as the phosphorothioate map on.So at the end of the day, that's why we wanted to demonstrate our abilities to do that at TIDES and that was the first step, and we'll continue to build upon that as new modifications come out.

[Stephen Dilly, executive]

Yes. And we put the slide deck from TIDES up on our website. I think the presentation is going to be up within the next day or so, which is worth a look, if you've got time.

[Chad Wiatrowski, analyst]

Awesome. Looking forward to that and to the KOL event in December. Ahead of that event. Are there any details you can share on John Maraganore's opinion on the need for the ECO Synthesis? Was he involved in that strategy update? Or was he just added to the Strategic Advisory Board recently?

[Stephen Dilly, executive]

We've been talking to him for a little while. I mean he's always told me that he was saying we need an enzymatic solution even before he left being CEO of Alnylam a couple of years ago, and he's very much on board with what we're trying to do. But what we also need is rather than sort of just cheerleaders, we need people to keep us honest in terms of what it would really take for someone to adopt this methodology.Because I was super serious about what I said in my comments -- prepared comments that there are going to be people sitting there weighing the decision about do I go the old safe tried route, the phosphoramidite chemistry and eat up the cost? Or do I try this new thing? And we've got to show, I mean, reliability and dependability. And we've got a couple of hooks. Purity is going to be one of them. And the reduced capital investment is going to be another one, but it all has to be based on rigor and meeting the specification and doing it dependably and doing it repetitively. So all of that is front of mind and having people that are really sat in that seat advising us is super useful.

[Operator]

Our next question comes from the line of Brandon Couillard with Jefferies.

[S. Brandon Couillard, analyst]

I just wanted to ask about your source of confidence in the pharma manufacturing business returning to growth in '24 and whether that will be a function of business with existing customers or new customers?

[Sriram Ryali, executive]

Brandon, as we look at the forecast that we've been developing internally, specifically on 2024, we see growth coming from the pipeline, which we think is an important driver. We also see a normalization of ordering patterns from some of our big customers as well. So they both are contributing.As we progress throughout this decade, you'll see a bigger contribution of growth coming in from the pipeline. I think we said this year has been sort of a reset year with Paxlovid going away, with one of our big products went through a recent product launch, which caused them to order prebuild inventory and then not order this year. Those patterns start to normalize. So we're confident of growth both for marketed products as well as on the pipeline.

[Kevin Norrett, executive]

Maybe one other thing to add there, Brendan, that Sri and I have been working a lot on is getting better at predicting that element as well. We've added a couple of resources in the past 6 months here to be able to do better account management, follow-up, et cetera. So that we can have a better perspective on the going-forward forecast. And anything you want to add there, Sri?

[Sriram Ryali, executive]

Just to add, I think you saw that with our expectations on Q3 that we said in July that this would be the low quarter and that's exactly what it turned out to be. And we're expecting Q4 to come in, in line to meet our full year guidance. So I think as Kevin said, we feel much better about understanding the dynamics of this business than we did say a year ago.

[Operator]

There are no further questions at this time. I would like to turn the call back over to Stephen Dilly for closing remarks.

[Stephen Dilly, executive]

Well, thanks again for joining us today. And as you can tell, Sri and Kevin and I are looking forward to a very busy fall. We'll be meeting many of you in person during our slate of -- I think it's 5 upcoming investor conferences over the next month or so. And of course, we also hope you'll be able to join us for the ECO Synthesis-focused virtual KOL event on December 8. And thinking it's going to be a fantastic conversation. So that's all from us, and thank you very much for joining today.

[Operator]

This concludes today's call. You may now disconnect.