Codexis Morphs From Big Science Project Into $100M Business

10/27/10Follow @xconomy

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drug, atorvastatin (Lipitor), for lowering cholesterol. It’s a conventional small-molecule compound that chemists can synthesize in the lab, and Pfizer did some of this work itself, and relied on contract manufacturers in some cases to provide other components, Shaw says.Codexis argued that it had an enzyme catalyst that could produce an essential chemical intermediate for the cholesterol drug, at a lower price. It worked, and cut the cost of key raw materials for Lipitor by almost half, Shaw says.

Word has gotten around the pharmaceutical business about this profit margin-enhancing feat—which is no small thing as pharma companies struggle to develop innovative new medicines. Codexis has now persuaded nine of the world’s top 10 pharma companies to use its enzyme catalysts, and expects revenue to grow 40 to 60 percent this year. That’s still from a small original base, and it’s nowhere near supplanting traditional chemical synthesis methods. Plus, some of its big hits will soon face competition from cheaper generics, which would undermine the cost advantage Codexis delivered in the first place. But there are a lot of drugs out there for a lot of diseases, and few of them rely on biological catalysts. So Codexis plans to keep pushing ahead in this market.

“It’s still embryonic,” Shaw says. “This business has a lot more life.”

The bigger upside, however, is with the biofuel business. Codexis, like many other biofuel contenders, sees big opportunity in the federal mandate for the U.S. to produce 36 billion gallons of renewable fuel by 2022. Codexis still hasn’t generated a nickel of royalties from commercial-grade biofuel derived from one of its catalysts. But since 2006, it has had an important partnership with Shell Oil to see if it can develop enzyme catalysts that can convert cheap and abundant cellulosic biomass into renewable ethanol, diesel, and other fuels. There are a lot of technical milestones that Codexis needs to reach as part of this deal, and while they are confidential, Shaw says, the company has achieved all but one of them.

The future potential of Codexis will depend on how well this partnership goes. The plan is to be a technology provider to Shell, which has all the established expertise in drilling, refining, distributing, and marketing that are basically impossible for a startup to build itself. Shell was the best partner for this program, Shaw says, because it has a ton of experience in biofuels, and noted that it recently signed an agreement to join a $12 billion joint venture in Brazil to make ethanol and biodiesel from sugarcane.

Codexis, with a team of about 300 employees, aspires to be … Next Page »

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