Codexis Inc

NASDAQ:CDXS

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to the Codexis Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please note that this call 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; Sri Ryali, Chief Financial Officer; and Stefan Lutz, SVP of Research.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 2024 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. 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, February 28, 2024. 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 such 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.Seven months ago, we took decisive action to reduce our cash burn by more than 50% and execute on a clear prioritized strategy. We ended 2023 strongly with clear indications that the strategic decisions we made last year are translating into real momentum. This was illustrated by the series of exciting and validating announcements we made in December, specifically the achievement of gram-scale synthesis with our ECO Synthesis manufacturing platform, the completion of an exclusive licensing agreement with Aldevron for our Codex HiCap RNA polymerase and our purchase agreement with Nestle for CDX-7108.We've continued that upward trajectory with a couple of positive updates already under our belt in 2024. First, driven by the extremely encouraging technical progress we're making with the ECO Synthesis manufacturing platform that Stefan Lutz will describe later in this call, we announced plans to initiate the construction schedule for our ECO Synthesis Innovation Lab. We expect that this facility will be a hugely valuable resource to support the technical and commercial advancement of our ECO Synthesis manufacturing platform.Additionally, the Innovation Lab is intended to enable us to provide sufficient GLP-grade siRNA directly to innovators to support preclinical development of their product candidates. As Kevin will describe, this gives us access to a critical part of the growing SiRNA ecosystem. Furthermore, we anticipate that the learnings from the ECO Synthesis lab will enable us to move to in-house full-scale GMP siRNA production when the time is right.Now while the business case for acceleration of the ECO Synthesis Innovation Lab is compelling, we made sure to secure the financial resources first by executing on a very carefully designed strategic debt financing with Innovatus Capital Partners. Sri will describe the financial details in his comments, but the punch line is that the Innovatus deal fully funds the construction and operation of our ECO Synthesis Innovation Lab several years and strengthens our balance sheet and increases our operational flexibility through our projected runway to cash flow positivity around the end of 2026.On the heels of that announcement, we were also delighted to welcome 2 additional members to our Strategic Advisory Board, further broadening this group's scope of relevant expertise to help guide our strategic direction. Finally, we added more strength to our balance sheet just over the last few days when we announced the completion of an exclusive out license for a noncore asset this time with Roche for our newly engineered double-stranded DNA ligase.As you can see, we've done exactly what we said we're going to do and even more right on the time lines we laid out. As a result, we now have projected runway through positive cash flow expected around the end of 2026, an innovation engine with an anticipated billion-dollar-plus market potential in our ECO Synthesis manufacturing platform and an adjacent growing core pharmaceutical manufacturing business that generates cash and boosts our relevant commercial reach.Before I pass it off to Stefan, and then Kevin to review our recent technical and commercial progress, let me share some thoughts on how we view the road ahead. Moving to Slide 3. Our path to success starts with our long-standing pharmaceutical manufacturing business. We've been working hard to return this core business to an upward trajectory. And today, we're pleased to highlight anticipated 2024 product revenue growth of at least 10% from 2023. Underpinned by our CodeEvolver directed evolution platform, the value of the technical expertise, credibility and commercial relationships we developed through this business is critical.Furthermore, the cash our pharmaceutical manufacturing business generates is an invaluable element of supporting our runway to breakeven and positive cash flow. That said, we believe our ECO Synthesis manufacturing platform to enable the commercial scale manufacturer of RNAi therapeutics has true breakout potential to transform the value trajectory of Codexis. The great thing about Codexis is the synergy of the experience and commercial infrastructure of our pharmaceutical manufacturing business with the emerging opportunity of the ECO Synthesis manufacturing platform.A beautiful example of that synergy is how we're approaching the commercialization of our double-stranded RNA ligase program, which is an important stepping stone on the way to fully enzymatic siRNA synthesis. To recap, the RNA ligase is designed to allow innovators to build full-length siRNA from several shorter fragments. That's important because both the cost and impurity profile of phosphoramidite chemistry-built molecule increases with the length of construct. It's a nice idea, but in order to turn it into a real commercial opportunity, you have to be able to build an enzyme optimized for the specific reaction being driven and rapidly scale the manufacturing and supply to fit in with the requirements and schedule of the customer.We believe Codexis is uniquely equipped to meet that challenge because we've been doing something extremely similar for a decade or more through our pharmaceutical manufacturing business. Look for some exciting news flow on our ecoRNA ligase program in the second quarter.And now I'd like to pass the call over to Stefan Lutz, our Senior Vice President of Research, to describe some of our exciting progress on the ECO Synthesis manufacturing platform. Stefan?

[Stefan Lutz, executive]

Thank you, Stephen. I'd like to use my time today to briefly recap our recent progress on the ECO Synthesis manufacturing platform and outline what you should expect on the technical front in the coming months.Shifting to Slide 4. As we announced in December, we achieved gram-scale synthesis with our ECO Synthesis manufacturing platform. This was a critical technical milestone, providing proof of concept for the platform's capability of manufacturing and preparative scale, oligonucleotides composed of modified nucleotide building blocks typically used in RNAi therapeutics under process-like conditions. Our enzyme engineering teams have made tremendous progress in transforming native enzymes into high-performance biocatalysts that together offer a scalable process solution for siRNA manufacturing.In addition, there are 2 more reasons why hitting this gram-scale benchmark is important. Firstly, it has enabled our scientists to initiate an in-depth assessment of the impurity profile for oligonucleotides produced with the ECO Synthesis platform. Secondly, it has provided a first data set on process-related parameters, informing early models of the manufacturing process and laying the foundation for broader platform development and process optimization efforts. The last 2 decades of experience have taught us that the solution to a difficult challenge sometimes lies in evolving the enzyme and sometimes in tweaking the reaction conditions.Experimental testing and validation of the ECO Synthesis platform allows us to refine our models and also enables us to leverage complementary and sometimes synergistic effects of enzyme engineering and process engineering. It also sets the stage for the ECO Synthesis Innovation Lab, which takes these efforts to the next level by giving us a venue to further push scale and process development capabilities. Kevin will speak more to the value of this facility on the commercial side, but we expect that the data-driven insights we gain will give us critical information to drive robust conversations with potential early access customers.Since achieving gram-scale synthesis, we've continued to push the ECO Synthesis manufacturing platform with a particular focus on synthesizing longer strands of siRNA sequences. While we plan to share further technical updates at the TIDES U.S. meeting in May, we've been very pleased with the performance of the ECO Synthesis manufacturing platform, which has been easily exceeding the sequence length previously achieved by completing enzymatic RNA synthesis technologies. Based on this progress, the May TIDES conference will offer an opportunity to talk about the linear synthesis of full-length, clinically relevant siRNA that incorporates the different nucleotide modifications, most frequently found in approved therapeutic assets today. We plan to do this having used our ECO Synthesis manufacturing platform from the start of oligo all the way to the full-length product.When you take a step back, the progress we've made with the ECO Synthesis platform over the past year seems quite remarkable. Yet this overnight success might actually be 20 years in the making. Such rapid technical advancement could not have been possible without our extensive history of engineering technically complex enzymes for a variety of pharma and life sciences applications. Today, we're writing the book of enzymatic RNA manufacturing as we go. And within less than a year since unveiling our technology in last year's TIDES U.S. meeting, we are on the cusp of presenting an enzymatic synthesis of real siRNA therapeutic assets.Beyond the ability to manufacture RNA oligonucleotides, our ECO Synthesis product road map includes the introduction of innovative new approaches and solutions for biocatalytic production of key reagents such as NQPs and starter oligos as well as their underlying processes. As you can see on Slide 5, to help Codexis' strategy in developing the ECO Synthesis technology, we were pleased to recently announce the appointment of Professor Masad Damha and Dr. Jim Lalonde to the company's Strategic Advisory Board. Joining John Maraganore, the Founder and former CEO of Alnylam Pharmaceuticals. The Board's expertise across oligonucleotide synthesis and manufacturing provides critical insights to inform the continued development of our RNA manufacturing platform.While further process optimization and refinement of our ECO Synthesis manufacturing platform lies ahead, we are highly encouraged by our progress to date and look forward to sharing further updates throughout the year.Kevin, over to you.

[Kevin Norrett, executive]

Thanks, Stefan. Before we provide an overview of our Pharmaceutical Manufacturing business and our commercial progress with the ECO Synthesis manufacturing platform, let me recap some of the recent business development announcements Stephen mentioned.Starting on Slide 6. During our restructuring last year, we told you that our plan was to focus on our foundational revenue-generating biocatalysis business for pharmaceutical manufacturing and to develop the potentially game-changing ECO Synthesis manufacturing platform. We also committed to monetizing products in our portfolio by leveraging partners with broader commercial reach. Since then, as Stephen noted, we have completed an exciting series of deals and announcements, and I view our consistent execution as confirmation that we are focusing our efforts on the right assets. Our Codex HiCap RNA polymerase is a great example. Offering improved capping efficiency and reduced double-stranded RNA contamination, this enzyme represents a meaningful step up from the wild-type variant available on the market today.For Aldevron, this product is compelling from both a scientific and commercial perspective and they can maximize its value given their existing footprint in the mRNA manufacturing arena. From our standpoint, Aldevron offered strong terms and a rapid path to manufacturing a GMP version of this enzyme. Given Aldevron's leadership in mRNA manufacturing and the evolving RNA manufacturing landscape, this is a valuable relationship to cultivate. We look forward to building a long-term partnership with Aldevron in the broader Danaher family of companies.As seen on Slide 7, we also announced the Nestle Health Science's purchase of CDX-7108, which followed our discontinuation of investment in biotherapeutics last July. Putting CDX-7108 in the hands of Nestle allowed us to significantly reduce our cash burn going forward, while providing an upfront payment of $5 million and the potential for additional payments upon reaching development milestones and eventual commercial royalties.Finally, we announced an exclusive global out-license agreement with Roche for our newly engineered double-stranded DNA ligase, where we'll receive mid-single-digit million combined upfront and technical milestone payments. Importantly, returns on this deal are a healthy multiple over what it costs to develop this enzyme. These examples demonstrate our ability to find partners who can extend our commercial reach and to monetize high-value assets that are noncore to our business.Before I shift to covering our ECO Synthesis manufacturing platform and upcoming milestones, I'd like to take a moment to share more about our foundational pharmaceutical manufacturing business. Shifting to Slide 8. When a customer approaches us about a potential enzyme project, the first step is to determine whether we have an off-the-shelf engineered enzyme that will fit their needs or whether a particular enzyme requires evolution to optimize it for the customer's API manufacturing process. Over the last 10 years, we have generated thousands of enzyme variants across commonly used enzyme classes, which gives us the ability to identify existing variants that can be quickly manufactured in kilogram quantities to support full clinical development plans.When a customer requires some evolution of the selected enzyme, this fee-for-service business can usually be completed in less than 6 months and sometimes even in a few weeks. Once the enzyme meets the customer requirements, we generate gram-level quantities to support the customers' process and formulation work for use in clinical trials. As the product enters the clinic, we can quickly scale the enzyme to kilogram quantities. While enzyme evolution fee-for-service is recognized as R&D revenue, our ultimate goal is to provide a customized enzyme product to support their future clinical trials and eventual commercial launch. These are our product revenues.The process from enzyme variant selection to potential evolution and finally, the kilogram quantity production can take several years as the customer's product moves through clinical trial basis. Therefore, to continue driving long-term product revenue growth, we must fill the funnel with new enzyme variant screening programs and clinical stage products where one of our enzymes for enzyme classes can be used to replace chemical steps and reduce overall costs. Over the years, we have also had experiences where an existing customer comes to us to develop an enzymatic route for a drug that is already commercially approved. In order to drive growth in all these areas, we have dedicated business development and key account management personnel. As a result, we've already seen an increase in new screening programs with new customers in the mid-sized pharma segment.On Slide 9, as I just mentioned, we remain focused on building the pipeline to sustain annual product revenue growth throughout the decade. That said, much of our expected product revenue growth for the next 3 years is based upon enzymes that have already transitioned out of R&D and are moving to kilogram scale to support further clinical trials. Typically, we refer to these as named programs, meaning the customer has disclosed the drug candidate's name and target indication to Codexis. This usually occurs when the drug candidate reaches Phase II or early Phase III clinical trials. Once we understand the drug candidate indication, we can better forecast the future enzyme production needs for late-stage clinical development and a potential commercial launch.As you can see on this slide, we are currently selling custom engineered enzymes to pharmaceutical manufacturers for 12 of these new products. While these -- while this number of named programs fluctuates from year-to-year as not all clinical programs are successful, our goal is to maintain a consistent number of pipeline programs to sustain future product revenue growth. While we expect annual product revenue growth to be sustainable, all of these factors contribute to why quarter-over-quarter product revenue tends to be unpredictable. When we provide guidance at the start of each year, we typically have visibility into somewhere between 60% to 70% of our product revenues through a combination of binding and nonbinding customer forecast as well as our understanding of named programs.Maintaining this visibility is why we need to continue our efforts across business development and key account management. Keep in mind that customers, which are primarily procurement and manufacturing leaders, will make changes to their forecast of enzyme needs when they see changes in product demand or when they stockpile to avoid drug shortages. When you look at historical quarterly product revenues, there is no consistent trend or clear seasonality to the ebbs and flows of this business. As a result, our sense of future demand comes down to active customer communication and overall market model.As a reminder, we currently sell custom engineered enzymes for 16 commercial drugs across large indications, including cancer, diabetes and neurological disorders. More than 50% of our product revenues come from 3 enzymes, which we are selling to 4 large pharma customers, i.e., the Big 3. If our pipeline of named programs continues to be successful in clinical development, we expect the Big 3 to become the Big 6 or 7 driving the majority of the product revenues in the future.Turning to our ECO Synthesis manufacturing platform on Slide 10. As Stefan mentioned, we are looking forward to an important presentation at the TIDES U.S. meeting in May. Between the expected demonstration of a full-length enzymatically synthesized siRNA and the build-out of the ECO Synthesis Innovation Lab, we anticipate that our interactions with potential customers will rapidly shift from theoretical conversations to concrete demonstrations of our capabilities, and we remain on track for our first early access customers in the second half of this year. Ideally, one of these customers will translate into an early commercial license in 2025.Technical progress that Stefan and his team presented at TIDES EU in November has already allowed us to begin conversations about access to the platform with several large pharma and large CDMO customers. In addition, we anticipate the Innovation Lab will enable us to provide sufficient GLP-grade siRNA directly to innovators, which supports preclinical development of their product candidates. Having the ability to license the ECO Synthesis manufacturing platform to large pharma and large CDMO customers, along with the ability to provide a complete solution for smaller pharma customers enhances our ability to win market share from different segments. And I'm really excited because the ECO Synthesis Innovation Lab provides us the blueprint for the potential future production of GMP-grade siRNA.Finally, I'm thrilled that we anticipate offering a near-term solution to our future potential ECO Synthesis manufacturing platform customers with our double-stranded ecoRNA ligase, which we plan to make available for customers in the second half of this year. The ability to provide customers with a double-stranded RNA ligase solution allows them to build full-length siRNA from several shorter fragments that can be joined together. This directly reduces the costs and impurities from the phosphoramidite chemistry-built molecules of increasing lengths. Recall that we already have multiple customized double-stranded RNA ligase programs ongoing with major players in this space. The important takeaway from today is that we have many ways to engage customers and win with the progress we have made with our enzymatic approaches to RNAi manufacturing.With that, I'll turn the call over to Sri to discuss our financial results and 2021 guidance.

[Sriram Ryali, executive]

Thank you, Kevin. Good afternoon, everyone. Before we dive into the fourth quarter and full year 2023 financials, I'd like to reiterate Stephen's commentary on the recent loan agreement with Innovatus on Slide 11, between the rapid technical progress we've made with the ECO Synthesis manufacturing platform and the increased commercial engagement we've seen, this is the right time to accelerate our technology's value creation.Importantly, the agreement with Innovatus achieves each of the key financing goals we highlighted during our conference call a few weeks ago. We estimate that the cost to build out and operate the ECO Synthesis Innovation Lab for the next few years will be approximately $10 million. This means that most of the proceeds from this financing will remain on our balance sheet. This facility will put us in the best position possible to drive rapid uptake of our ECO Synthesis manufacturing platform, and we're pleased to have secured the capital to get it up and running for the next few years.Moving to Slide 12. We released our fourth quarter and full year 2023 financial results press release earlier this afternoon, which is available on our Investor Relations website. Our results are in line with the 8-K pre-announcement we issued in January, and I'd like to call out a few highlights, starting with the fourth quarter. Total revenues, excluding enzyme sales related to PAXLOVID were $18.4 million for the fourth quarter of 2023 compared to $13 million from the prior year. Product revenues, excluding enzyme sales related to PAXLOVID, were $9.9 million for the fourth quarter compared to $5.9 million in the prior year. Turning to R&D revenues. We reported $8.5 million in Q4 compared to $7.1 million last year. Product gross margin, excluding enzyme sales related to PAXLOVID, was 71% this quarter compared to 44% in the fourth quarter of 2022.Briefly turning to expenses. R&D expenses for the fourth quarter of 2023 were $11.2 million compared to $19.7 million last year. SG&A expenses were $12.2 million compared to $12.3 million in the fourth quarter of 2022. This was our first quarter post reduction in force and excluding impairment and restructuring charges, you can see that expenses are down year-over-year and operating losses improved significantly. This was also our lowest quarter of cash burn, consistent with our expectations following the decision to streamline our portfolio and consolidate facilities last year.Now let me review the key elements of our full year 2023 financial results. Total revenues for fiscal year 2023, excluding enzyme sales related to PAXLOVID, were $62 million compared to $63.2 million in 2022. Full year 2023 product revenues, excluding enzyme sales related PAXLOVID, were $34.8 million compared to $41.3 million from the prior year.Before shifting to 2024 guidance, I want to share a closer look at our 2023 revenues. On Slide 13, this graph shows the distribution of our 2023 product revenue by major categories. In 2023, of the $34.8 million in product revenue, excluding PAXLOVID, roughly 50% came from the Big 3 commercial pharma manufacturing products that Kevin referenced. Outside of that, approximately 3% came from sales of enzyme we supply for other commercially approved products, 25% was for programs that we currently supply in clinical trials, 5% was for generics, 11% came from food and feed and 6% was from life sciences and other programs. We built a nice pharmaceutical manufacturing pipeline with our enzymes currently supplying the 12 named programs that Kevin referenced. As a result, looking ahead, we expect a reduced concentration in our 2024 product revenue base.Now turning to guidance on Slide 14. Excluding revenue related to PAXLOVID, we expect product revenues to be in the range of $38 million to $42 million, indicating our expectation of at least approximately 10% year-over-year growth at the low end of this range. Excluding the benefit in 2023 from accelerating deferred revenue and milestones due to exiting the food and feed business, which was approximately $3.9 million, our model would actually indicate 2024 product sales growth of more than 20% versus 2023 at the low end of our guidance range.To help with modeling, based on our current visibility to the timing of customer orders, we expect our revenues will be weighted towards the second half of the year, with Q2 anticipated to be our lowest quarter of the year. This is the opposite of what we saw in 2023, where our revenues were weighted towards the first half of the year. We'll provide additional detail on anticipated quarterly revenue distribution as we advance throughout the year.Moving to Slide 15. We expect R&D revenues to be in the range of $18 million to $22 million, which includes roughly $7 million from recent business development deals with Roche and Aldevron. While R&D revenues are down year-over-year, it's important to note that 2023 R&D revenues included $6.1 million for biotherapeutics business and $7 million in noncash revenue related to Pfizer applying a portion of their retainer fee credit to a new program. Excluding these items, we are actually projecting an increase in R&D revenues of approximately 28% year-over-year at the low end for our core business. We are projecting roughly an equivalent amount for business development transactions and R&D revenues for 2023 and 2024.Shifting to Slide 16. When you take our product and R&D revenue guidance together, our 2024 total revenue guidance equates to a range of $56 million to $64 million. This range excludes revenue from converged sales related to PAXLOVID. Gross margin on product revenue is expected to be in the range of 58% to 63%. Including our anticipated build-out of the ECO Synthesis Innovation Lab, we continue to expect that our existing cash and cash equivalents, combined with our future expectations for product revenues, R&D revenues and expense management will be sufficient to fund our planned operations and cash flow break even around the end of 2026.And now I'll turn the call back to Stephen.

[Stephen Dilly, executive]

Thank you, Sri, and thank you to Stefan and Kevin, for those exciting updates. There are lots of companies out there are either all innovation or all execution. We've built a well-oiled organization as well. With a greatly reduced burn rate, a growing base business grounded in solid customers and a disruptive platform with enormous potential upside, Codexis has all the components in place to become a breakout story, and I encourage you to stay tuned for an exciting year ahead.Now I'll be happy to take your questions. Operator?

[Operator]

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

[Kayla Hostetler, analyst]

This is Kayla on for Brandon. I guess just starting off with the Roche partnership for the new double-stranded DNA ligase. Any more color you can share on the economics or deal structure? And then how big could this be over time for Codexis and how similar or different to the Evo T4 DNA ligase prior deal as well?

[Kevin Norrett, executive]

Sure. This is Kevin. So to give you a little more color on this deal. This is -- this was a really exciting deal for us. We love this deal because it really was about monetizing this noncore asset in terms of getting cash upfront. So there is no back-ended royalty associated with this product. We were focused on that aspect because we're exiting the genomics business, and we really have a lack of control in terms of their product cycle, and we learned that from the Evo T4 experience. We love the fact that Roche came back to us again. They're a blue-chip partner. If they asked us to come back and do it again, the economics here were really favorable in terms of a total return on investment with a couple of years of evolution to move on to a mid-single-digit million product for a deal. So we love it.

[Kayla Hostetler, analyst]

Great. And then just switching over to the HiCap RNA polymerase agreement with Aldevron. It's pretty recent, but any update or feedback you can provide that you've heard since the deal was announced? And then you can quantify at all the contribution expected in '24.

[Kevin Norrett, executive]

So I'll let Sri comment on some of the contribution in '24, but the feedback we've received from external parties and from the investment community is very positive in terms of the partnering aspect with Aldevron, they're a leader in the mRNA space and certainly can extend our commercial reach in this space that is growing with the HiCap RNA polymerase. But do you want to speak to the...

[Sriram Ryali, executive]

Yes. In terms of 2024, the R&D revenue, our guidance includes a total of $7 million across business development deals, and that's inclusive of Roche. And Aldevron, as Kevin said, Roche is mid-single-digit millions in terms of milestone payments and technical payments -- technical milestone payments and upfront. And the remainder is Aldevron, which we previously said was low single-digit billion upfront.

[Operator]

Our next question comes from the line of Dan Arias with Stifel.

[Evan Stampler, analyst]

This is Evan on for Dan. My biggest question, I mean, it's kind of along the same line. So like I'm trying to think about this business kind of over '24 and '25 because you're not -- probably not going to generate much revenue, if at all, from ECO Synthesis in '25. So if I kind of just look at '24, I have in my model, and I think this is what you guys have talked about, is $9 million from Pfizer and that goes into your product revenues. Now you're talking about $7 million this year from Roche and Aldevron. Are there any revenues this year -- I guess one question is, are there any revenues this year from Nestle Health Science? And then as I think about kind of moving on to just '25, I know you don't have visibility on everything. But like do these -- are these numbers -- is this $7 million from Roche and Aldevron? And yes, Pfizer is going to go away. As you kind of just think about like going on to '25, like what's kind of like the baseline -- like how should we look at this from like '24? Are revenues just going to -- are going to go down again in '25? Just trying to get a baseline of how we should be thinking about the progression here.

[Sriram Ryali, executive]

So I think we need to think about revenues in terms of the components. So if you think about product sales, and I take Pfizer out of the equation for that, the $9 million that you mentioned, that's correct. We do expect to book a $9 million accounting for revenue in Q4 of 2024 as an artifact of a retainer fee and that should be the last of the accounting for that. And it's noncash. So the guidance we've given excludes that. But we're expecting product sales to grow low double-digit CAGR through the end of the decade. It goes to the comments Kevin made earlier about the progression of the pharma manufacturing pipeline and expecting less concentration in our revenue from the Big 3 pharma manufacturing customers to more of the pipeline programs that could take us to the Big 6 or Big 7. So we do see product growth moving along year-over-year until the end of the decade and then growing even more once we launch the ECO Synthesis platform.Another key contributor to product growth is the double-stranded RNA ligase or the ecoRNA ligase, which we expect to be commercially available in the second half of this year. That will also be a key contributor of product revenue over time. On R&D revenue, if you looked at the entry that we had up, you can see that year-over-year in terms of the core business when you back out the deals, we actually are projecting close to 30% growth, and that comes from finding new customers for new services and new programs that over time will translate into future product sales growth. Can you add to that?

[Stephen Dilly, executive]

That was a great summary, Sri.

[Evan Stampler, analyst]

Yes. I guess so. That makes a lot of sense, particularly on the product revenue side. On the R&D revenue side, so last year -- or this year, you had $5.6 million [ investing in ] Aldevron. And this year, you're forecasting $7 million. I guess one question I asked earlier. So is there anything from Nestle in there? And then also the $7 million that you're going to get this year, do you have any visibility to what that looks like in 2025? Because like -- I guess it's kind of -- is that just going to go away? That's the core of my question.

[Sriram Ryali, executive]

So the current guidance does not contemplate additional milestones from Nestle, although that could be potentially in play. In terms of your question on the $7 million, both of those were upfront payments related to deals. So those are onetime payments that we don't expect to continue because those deals don't have additional milestones beyond those. Now with Aldevron, there are royalties that are tied to sales of HiCap and those should show up in our revenues over time as well as Aldevron launches that product.

[Evan Stampler, analyst]

Okay. All right. That makes a lot of sense. So the right way to think about it is that your guide for this year is at the midpoint, $20 million. I want to take the $7 million out from the upfront payments to kind of get my baseline. And then I can embed some sort of just growth plus potential for Aldevron royalties. Is that kind of the right way to think about it?

[Sriram Ryali, executive]

I think that's fair.

[Operator]

Our next question comes from the line of Steven Mah with TD Cowen.

[Poon Mah, analyst]

Great. Just a few follow-ups here. On the T4 ligase deal with Roche, how much of the product guide is Roche product sales from their NGS kits? Or is just going to be all upfront?

[Kevin Norrett, executive]

The deal is strictly upfront and structured in terms of an out license, it's really much more of an asset purchase. So the deal was more upfront and technical -- our tech transfer milestones associated, all recognized in 2024.

[Poon Mah, analyst]

Yes, sorry, I might have missed it. I would have some connection difficulties. But -- so there's no royalty rate with the Roche ligase deal? It's just a basically out-licensing it?

[Kevin Norrett, executive]

It's just straight upfront, Steve. Yes. Yes.

[Poon Mah, analyst]

Okay. No, understood. I appreciate the color. And then last one. On the product revenue guide, can you remind us if there's going to be a contribution from Aldevron in terms of royalties? I know there's kind of an upfront component. And also, on the double-strand RNA ligase, if there's going to be any product revenue contribution in 2024? And then also, can you remind us what the expected TAMs of each of these new opportunities are?

[Kevin Norrett, executive]

Sure. So from a revenue standpoint from Aldevron in 2024, they are already selling in the marketplace in terms of an RUO version of the enzymes which we have today. So we're expecting a -- I think what we said before is the high double-digit royalty associated with that. And we're just starting to see that come through in 2024. With regards to 2025 and beyond, we're expecting them to move into a GMP version, where it's also a very healthy royalty associated with that from a product revenue standpoint.And then the second part [indiscernible]. Double-stranded RNA ligase, we actually are getting very close to having some early customer orders associated with that ligase. We've been out there testing in the marketplace. If you recall, we were talking about first half of this year with early access customer testing. Some of that has gone well. And we are looking to make that more widely available in the second half of this year. So we expect some contribution this year in terms of the double-stranded RNA ligase sticking on point with the second half of this year. And then in '25 and '26, certainly growth beyond that.

[Poon Mah, analyst]

Okay. Great. And can you remind us what the expected TAMs of HiCap and double-stranded RNA ligase are?

[Kevin Norrett, executive]

The TAM for the HiCap RNA polymerases in terms of -- it's probably somewhere in the $200 million to $300 million range in our conversations with folks, the large players there have a good handle on that, and that's sort of how we model the deal specifics. As regards to the TAM around the RNA ligase, it's tied to where we are from a phosphoramidite chemistry standpoint and siRNA build-out. Remember, this has a significant impact in terms of cost reduction. You got phosphoramidite chemistry gets very inefficient in the longer strands of siRNA over time. So being able to stitch these together when you're talking about 5, 6, 7 mers to be able to get to a 21 mer is very effective. So I don't have a number to provide you around the total addressable market there yet other than to say it's growing with the siRNA market and expanding precipitously.

[Poon Mah, analyst]

Okay. Got it. Do you have any sense right now for the phosphoramidite chemistry market right now for RNA?

[Kevin Norrett, executive]

Well, we're projecting that there's -- back to our projections, 400 products in clinical development, growing from somewhere around 1,000 kilograms today to 30,000 kilograms by the end of the decade. So that's what we use in terms of our thinking around the RNA ligase fitting into that potential total addressable market, assuming all those move through clinical trials and will continue to come into the pipeline.

[Operator]

Our next question comes from the line of Jacob Johnson with Stephens.

[Jacob Johnson, analyst]

Congrats on the quarter and the outlook. Maybe just sticking with the modeling question, Sri, just if we kind of use 4Q expense trends as a jumping off point, anything to call out as we think about OpEx trends in 2024, I guess, specifically, maybe around the ECO Synthesis investments you're making?

[Sriram Ryali, executive]

Yes. Jacob, I do think that the Q4 OpEx is a good barometer for how the run rate will look like in 2024. We expect that base to actually come down a bit, but then be offset by some incremental investments in ECO, including in the ECO lab later this year. So I think that's a fair barometer.

[Jacob Johnson, analyst]

Got it. And then maybe for Kevin, you've partnered off the DNA ligase, the Nestle stuff, the RNA polymerase. Anything else kind of major on the partnering front? Or was that the kind of heavy lift? And maybe just along the same lines, is there anything else contemplated in guidance this year from any additional partnering activities?

[Kevin Norrett, executive]

I'll let Sri speak to the guidance aspect, but the things that we've been talking about are the remainders of the genomics portfolio, which really encompasses our 3 other launched enzymes as well as a host that we had in development, and we're in various conversations with multiple folks around those. Again, blue chip players have come to the table as they've been looking for engineered variants of this and sort of highlights the value that we're able to create out of this remainder of the portfolio that could help extend our cash runway. But you want to speak to the guidance?

[Sriram Ryali, executive]

Yes, the guidance really reflects the deals that we've already announced and the additional programs that Kevin mentioned would likely be smaller in terms of our front payments from the ones we've already completed.

[Kevin Norrett, executive]

Yes.

[Operator]

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

[Matthew Hewitt, analyst]

Maybe the first one, following your success with the gram-scale and you obviously got the presentation at TIDES. But as we look to the back half of the year and after you started to get this into the hands of some potential customers, what are your thoughts as far as the model? Will you kind of stick with a standard upfront milestone sales-based model? Will it depend upon the potential customers? Are you hoping to standardize those contracts across the number of customers that you ultimately sign up? Just how should we be thinking about the ECO Synthesis sales model?

[Stephen Dilly, executive]

So great question, Matt. And it actually does segment with the category of customer. One of them is, the one we've been talking about for a while, which is the CDMO, where we're enabling them to supply multiple customers. Kevin can talk about that. The other one is looking at the innovative pharma where they're looking at a single product that they're trying to scale. The other one that's become apparent recently is enabled by the new ECO Synthesis lab, which is our ability to directly supply siRNA, GLP-grade at sort of multiple gram-scale. And that enables them to go through their early development steps, and then we talk about how we scale. And so what we need is a template that fits each of those and some of it is going to be upfront, some it's going to be about licensing for the technology, but some is also going to be sharing the assets. Kevin, [indiscernible].

[Kevin Norrett, executive]

The only thing I would add is, then, of course, there -- as part of that, there'll be the sales of the reagent and materials to support those licensees on an ongoing basis. So I think Stephen hit the nail on the head. One of the things that the ECO Innovation Lab really offers now is the ability to hit this small and medium-sized pharma segment that was going to be difficult because they wanted a path from preclinical all the way through to GMP. So I think the ability to do that now and to be able to sell actually full-fledged product out of that, not just reagents and materials to be able to support that really opens up this whole other customer segment.

[Matthew Hewitt, analyst]

Got it. Got it. That's helpful. And then maybe just a balance sheet item. Cash balance today, if I'm running the math right, so you exited the year with $65 million, $29 million from Innovatus, $5 million from Nestle, I don't know, $1 million, $2 million from Roche. So you basically have a $100 million minus whatever you've burned so far this quarter. Do I have the math right there?

[Sriram Ryali, executive]

Yes, that's pretty good. One thing on Roche, I would just clarify that, we're expecting a mid single-digit millions in terms of combined upfront from the technical, but your math still checks.

[Operator]

Our next question comes from the line of Dan Arias with Stifel.

[Evan Stampler, analyst]

I just wanted to make sure I had a couple of things right. And this is particularly related to the Aldevron and the Roche deals. So for Aldevron, I just wanted to make sure I understand. So you had roughly $5 million of the upfront payment. I think you said mid-single digits. And did you say that there is a high double-digit royalty on sales? And whatever the number is, are those royalty payments? Are those -- or sales-based payments? Are those -- is there any of that baked into the guidance? And then on the double-stranded ligase, just to make sure I understand exactly how this deal works, you -- it does sound like you're monetizing the assets, but you are -- will also be generating product-based revenues on it going forward? Can you just explain how that's going to work? Just so I have it straight in my head.

[Sriram Ryali, executive]

So remember, there's a double-stranded DNA ligase and there's double-stranded RNA ligase. The DNA ligase is exactly what you said, it's an asset sale. So it's cash used an out licensing deal, but Roche has bought it from us, right? So it's simply money on the barrelhead, and then we have no further sort of interest in it. With Aldevron, it was a low single-digit upfront, but then a healthy double-digit royalty. And what we're saying when we mean high double digit is not $10 million, right? We don't mean $99 million, but we don't mean $10 million, right? So we've got to be in there somewhere. Then with a double standard RNA ligase, that is a really exciting product because that's the same product we can -- the program, we can sell to multiple customers where we were getting upfront enzyme payments and potentially royalties and significant supply agreements down there. So we see -- back to the question earlier around the TAM, we see that in the real high double-digit potential for that enzyme class over the next coming years. That's big for us.

[Kevin Norrett, executive]

Yes. I would say just to add to that, one of the things as we've gone through our customer conversations is, this really has become much more of a meaningful business segment for us in terms of potential opportunity because this is their first step into phosphoramidite chemistry. So it's an immediate cost reducer and an immediate impact, whereas ECO Synthesis, as we know, we're going to be talking about that launching in '26, and we need to bring people into the fold of a full enzymatic way of synthesizing siRNA. So it's a much easier lift in terms of getting customers over the hump in terms of buying into the proposition. Yes.

[Sriram Ryali, executive]

One thing to add is that any royalties from the Aldevron deal would likely show up in our R&D revenue line and not product revenue.

[Evan Stampler, analyst]

Okay. Super. And did you say how much is embedded in the guide for each of those things or not yet or you haven't?

[Sriram Ryali, executive]

On the upfront, we said that the low single-digit million is embedded in the R&D revenue. We haven't broken out the royalties.

[Operator]

Thank you. There are no further questions at this time. I'll turn the call back over to Stephen Dilly for closing remarks.

[Stephen Dilly, executive]

Great. Well, thank you again for joining us today. Sri, Kevin, Carrie and I are looking forward to meeting many of you in person at the upcoming Cowen Conference in Boston next week. But thanks for participation today.

[Operator]

Thank you. This concludes today's call. You may now disconnect. Goodbye.