CDXS: Big Gain Hunting.

CDXS is a stock I've been tracking since its announcement that it had signed a significant deal with GSK in which in anticipates receiving 11 million this year.

This news caused the highest trading volume in this stock ever.   I had previously traded this move. Buying the gap high but fortunately selling even higher.  In fact, I sold the high point on the gap $2.65, clap, clap yeah.  

Anyway,  I  kept it on my watch list and have continued to watched the action.  The gap has held and It appears to be basing for the next move:

 I've begun accumulating. I have taken my initial position @ $2.13 with hopes of picking up more.  My pull back orders have not yet been hit... again a good sign.

So why do I like CDXS for a big move?

• Neglected stock with a major move.
• Insider Buying
• Game changing new product
• Huge potential market.

But first some context. In Q3, 2013 CDXS was in a tail spin.   Quarterly sales dropped 95% as it exited the biofuels market.  The company then engaged in a turn-around plan beginning to focus their efforts on pharmaceutical sales and it began cost cutting  the unnecessary divisions. CDXS summed up 2013 in SEC filings (DEF14A): "Our company and executives faced significant challges in 2013 as the company repositioned itself strategically." 

In Q4, 2014 the Company refocuses its attention and sales efforts to pharmaceutical companies.  During their CC, they noted that the potential market is huge :

"We estimate that over 30% of all the world’s small molecule drugs would be produced at lower cost were they to be built deploying biocatalysts that we can engineer for them." 

But after Q3 CDXS had been a forgotten company. Indeed no analysts were even present at the CC.
The  Q1 Conference Call was focused on turn around  "After a dynamic transformative year now behind us, we are driving the company full speed ahead and fully focused on the exceptional opportunities that lay ahead for us in biocatalysis."  In other words,  after a shitty year things are going to get better. 

• "2014 is shaping up to be a breakout year for Codexis." [note plug's ceo used similar langaguebefore its stock shot up 100%]
• We are going to accomplish that through driving topline growth at continued healthy gross margin mix, effecting responsible cost reductions, and preserving our balance sheet. Revenues and gross profits for the first quarter of 2014 were in line with our expectations.
•  current quarter, a top-10 pharmaceutical company has committed to purchase a drug intermediate from Codexis manufactured by AMRI, using Codexis' biocatalyst technology. This order is scheduled to be delivered in 2015, with a small portion of the order to be completed and recognized later this year.
• Regarding our business with the top 20 global pharmaceutical companies, we now have master service agreements singed with seven of the top 10, and 10 of the top 20 pharma companies.
  
  While I appreciate the optimism, it will not make you money.  At this point, there is still not much in the way of revenues and the anaylysts that showed up did not seem too interested.  Only a few questions.

 Then,  last month, CDXS announced a new multi-year with GSK.  They even felt it was a big enough deal to call a conference call just to answer questions regarding the deal.  Last week, they announced Q2 earnings, which were not great.  Of course, the GSK deal would not be reflected in those numbers.  The tone at the recent conference call, however was much different:

• It is a very exciting time here at Codexis and, as promised, you are seeing the key deliverables for the breakout year of 2014 fall in place.
• The combination of these positive developments, along with our proven cost-controlled discipline and prudence, is enabling us to today substantially improve our financial guidance for fiscal year 2014.Specifically, we now expect to generate a positive cash flow in 2014, a major financial milestone for the company and one to be delivered well ahead of any prior expectations. We’re very pleased to review each of these positive developments in today’s call with you.
• But really, what gets us excited every day is doing things that were previously not possible working with our customers like Merck and GSK to create new enzymes that can solve important problems like the clean manufacture of a new drug or a protein therapeutic that can, itself, treat a disease

CDES also discussed that The CodeEvolver license, like we just executed with GSK, is a natural alternative for us to present to customers equally convinced as we are on the wider prospects for applying biocatalyst or protein engineering more generally. 

In addition to GSK, they mentioned that they  executed an MSA with a second major customer in the wider fine chemicals arena outside of pharmaceuticals. Apparently there is a Non-disclosure Agreement so the customer identity cannot yet be identified.

Negatives? 

CDXS technology had been licensed for a Hepatitis C Drug which is decreasing in use

• The decrease in product revenue was primarily due to the expected loss of our biocatalyst and intermediate sales to customers in the hepatitis C drug marketplace as a result of both unfavorable market pricing and newer products entering the market along with a one-time enzyme inventory sale of $2.1 million to Arch Pharmalabs Limited recorded in the first quarter of 2013.
• Product revenues were relatively modest in the quarter and the products that we made sales on this quarter were generally slightly lower margin mix, not much but slightly lower margin mix than they have been in recent prior quarters.

CodeEvolver Game Changer?

In my opinion, CDXS contract with GSK for codeEvolver merits a position in this company at these levels as it supports the turn around theory. 

• We are eligible to receive up to $25.0 million over approximately the next two years, $6.0 million of which was paid upfront in July 2014 after executing the License Agreement and an additional $19 million subject to satisfactory completion of technology transfer milestones. We also have the potential to receive numerous additional milestone payments that range from $5.75 million to $38.5 million per project based on GSK's successful application of the licensed technology.
  
  The have already received the first payment and will get the second shortly.  This is will be recorded as cash on the Financial reports rather than revenues. 
  
  Another deal along the lines of GSK could do wonders for this stock.  However, CDXS mention at the CC that these deals are very complicated and take a long time to negotioated.  They thought only 1 or 2 a year were feasable. 
  
  CDXS appears to have made some inroads on its other product lines as well.  
  
  They have master service agreements "MS"A with 8 of the top 10 pharmaceutical and 11 out of the top 20 pharmaceutical companies 
  
  The analysts were impressed:

Well's Fargo Analyst: "It really sounds like a wonderful program that you’re entering into and I’m very excited by what looks like a golden age for you guys. Congratulations."

I would like to see more to see more revenue on the balance sheet and trading trading volume.  I do not yet feel that this stock is  a candidate to go parabolic. That being said the turn around is in effect, it looks like its working and I see this moving to the $3 - $4.50 range since it was coming from a level where it had been completley written off. 

Potential Triggers:  New Licensing agreement, Analysts upgrade, or improved earnings

STOP: 1.80.   .375 R.