Shares of engineered enzyme leader Codexis (NASDAQ: CDXS) dropped over 14% today after the company reported full-year 2017 earnings and provided guidance for the year ahead. The business performed well last year as the company's novel enzyme engineering platform gained traction with new customers. That wasn't exactly a surprise, however, for investors who followed the results from the first nine months of 2017.
The disappointment came from full-year 2018 guidance. While total revenue is expected to rise 20% to 26% compared to 2017, the increase will be driven by collaboration revenue. Product revenue growth is expected to be relatively flat, which is a bit surprising considering product revenue soared 74% last year compared to 2016.
Despite the disappointment on guidance and significant drop in share prices in early trading, as of 2:23 p.m. EST Codexis stock had clawed its way back to a gain of 1.9%.
Codexis turned in its best year of operations ever in 2017.
That said, not all of the progress shows up in the company's financial results. For instance, Codexis had to replace $22 million in non-recurring revenue from 2016 in 2017. Product sales -- the least volatile source of revenue -- picked up the slack last year. In 2018, new collaboration revenue will take its turn to carry the business.
Therein lies the surprise. Codexis issued full-year 2018 guidance that calls for total revenue of $60 million to $63 million, which would represent growth of 20% to 26% from 2017. However, product revenue will fall in the range of $25 million to $28 million. Considering that the company was expected to increase sales to food ingredient manufacturing applications and is launching a new line of enzymes for next-generation sequencing (NGS) applications, it's easy to see why Mr. Market is disappointed.
The sudden flattening in product revenue growth should be a speed bump rather than a brick wall for the business over the long term. The food ingredients partner is ramping up a new production process, which should enable the highest volume opportunity for product sales in the near future. Throw in an exciting opportunity in the NGS market and plans to begin clinical trials for Codexis' first biotherapeutic enzyme, and 2018 may not be as boring as the company's guidance seemed to indicate.
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