Codexis IPO is Long on Promise – and Risk


Sometimes it takes an IPO to draw the spotlight to a promising idea. That may be the case with Codexis, a chemical company located in the heart of Silicon Valley with an interesting approach to synthetic biology.

Codexis, which filed on Monday a prospectus with the SEC, is in the business of evolved biocatalysts. That is, it takes a microbe or enzyme in nature and shuffles DNA sequences to create new variants, then screens for the variants most capable of developing new, potentially cheaper drugs and non-ethanol biofuels.

The company is hitting the markets with a long track record of losses, but in its favor it has lined up some well-known customers and partners. Codexis is supplying enzymes to Pfizer to help improve its Lipitor drug. It also sold a 13 percent stake Shell, cementing a deal to develop enzymes that can turn biomass into fuel.

You can’t help but wonder why Codexis is going public now, bracing one of the least friendly public markets in years with accumulated losses of $94 million. It could be that investors want help funding a high burn rate. Codexis’ cash flow over the past three years is negative $23.4 million and its prospectus notes:

We expect to incur losses and negative cash flow from operating activities for the next several years.

So will a stingy Wall Street want to help finance Codexis even as profits remain years off? The answer could just be yes, given that this is one of the first chances to invest early in a promising synthetic biology startup. But this is a lot of risk for a market that has seen too much of it of late.

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