image: Codexis company website.
At Taylor Frigon Capital, we practice what we describe as a "narrative-based investment philosophy," in which we identify specific macro-trends shaping the direction in which certain businesses or industries or even society in general are moving, and the "narratives" or story-lines which describe what we believe will take place over the next several years in specific industries based on those driving forces.
One of our important investment narratives involves the application of the incredible advances in technology in novel ways to industries outside of what we traditionally think of as "tech" -- and an important aspect of that narrative specifically includes the application of massive computational advances to drive advancements in biology and chemistry.
California-based Codexis, Inc. (ticker CDXS)* is a company we identified as fitting this narrative, and which we own for our investors. Codexis is using advances in computational power, machine-learning algorithms, and lab equipment to analyze proteins and to discover and synthesize new biological enzymes (the proteins which act as catalysts in the body or in biological reactions) for applications in a variety of industries, including the manufacture of pharmaceuticals, the flavoring of food, and the treatment of disease.
Proteins are chains composed of between 200 blocks of amino acids (at the low end) to over a thousand blocks of amino acids (at the higher end). Each block in these enormous chains can use one of twenty different amino acids in living organisms, creating an almost infinite number of possible combinations. A protein chain of 500 amino acids, with twenty to choose from at each block, could conceivably have permutations which would number -- not 20 times 500 -- but rather 20 raised to the power of 500!
There are thus nearly infinite numbers of alterations that can be conceived for every known protein -- and while the majority of these alterations are not helpful in achieving a function that may be desired for creating some type of reaction, some of these permutations will enable the engineering of enzymes that can do things which are extremely beneficial, and even life-saving.
Since 2002, Codexis has been perfecting their proprietary CodeEvolver protein engineering technology platform which allows increasingly accurate predictions for the properties of different possible protein permutations, while also building an ever-growing library of protein variants and their various properties and capabilities. They license this technology to industry partners, as well as using it to develop their own novel enzymes for various applications, including for therapies to treat inherited disorders in which certain enzymes are deficient.
A large percentage of Codexis revenues comes from customers in the pharmaceutical industry, which uses various enzymes in the bio-reactors in which biopharmaceutical therapies are manufactured. Several bio-pharma companies of various sizes also license Codexis' CodeEvolver technology platform to search for enzymes themselves.
Very recently, some observers have seen evidence which leads them to conclude that pharmaceutical giant Merck may be using enzymes supplied by Codexis in the manufacture of molnupiravir, which is still in trials but which Merck is hoping will become the first pill-form oral anti-viral for treating Covid-19, described by the Wall Street Journal as potentially acting as "a kind of Tamiflu for Covid-19, dispensed to patients when they first develop symptoms, slowing the spread of the virus in the body and potentially preventing people from becoming seriously ill" (story dated 01 October 2021).
While such a development could cause significant revenues for Codexis if it is indeed true that their enzymes are used in the production of molnupiravir (and if molnupiravir is eventually approved for treatment of patients), to say nothing of the possible lives it could save and the suffering it could relieve, we do not pursue an investment process that is based on predicting such individual therapeutic successes.
Instead, as explained at the beginning of this post and as we have written about in this blog for many years (going back indeed to 2007), we emphasize owning well-run businesses aligned with important narratives, and we believe that Codexis is an innovative company whose business lines up with an investment narrative that will play out over the the course of a decade or more and across more than one industry.
We certainly hope that molnupiravir can have a positive impact and save lives -- and we would be thrilled to learn that enzymes from Codexis are an important part of its manufacture. But we believe that investors are best served by looking to bigger trends and developments -- which we call narratives -- and these individual successes along the way can serve as confirmation that a narrative is correct and that it will help people in many additional ways over the years ahead.
* At the time of publication, the principals of Taylor Frigon Capital Management owned securities issued by Codexis (CDXS).
Previous companies featured in our long-running "Have you heard of this company?" series include:
- Tractor Supply Company (TSCO)
- Vapotherm (VAPO)
- Vuzix (VUZI)
- Kornit (KRNT)
- Boot Barn (BOOT)
- Carvana (CVNA)
- ClearPoint Neuro (CLPT)
