West Coast Editor

Codexis Inc. nailed down a research and development deal with Pfizer Inc. that could be worth up to $40 million, plus a $10 million equity investment that the pharmaceutical giant is making right away - but that's hardly all.

"If Pfizer goes to market with a product that uses our technology, we'd be talking hundreds of millions of dollars," said Alan Shaw, president and CEO of Redwood City, Calif.-based Codexis.

Pfizer also gets an option to license MolecularBreeding for in-house use. Described as "directed molecular evolution technology," MolecularBreeding deploys biocatalysis and fermentation to come up with new or improved ways to synthesize chemical compounds and has already yielded 10 alliances, including an earlier one with New York-based Pfizer.

"We take what nature has developed and supercharge it, in a matter of weeks and months," Shaw said, noting that Codexis' approach benefits from years of high-throughput screening development and gene-evolution research. "What's come out of it is a technology that works in spectacular fashion," he said. Codexis creates "super enzymes that you can craft to suit the plant and the process, not the other way around. Historically, you have to change the process to match the catalyst."

The initial Pfizer deal, entered two years ago, was focused on doramectin (sold as Dectomax to treat internal parasites in cattle).

"Pfizer had a big problem with their manufacturing process," Shaw said. "They came to us and said, OK, you've got this fancy technology. You think you're clever. Prove it to us.' In two years, we completely eliminated the impurity" - doing away with the need for expensive downstream processes that Pfizer had put in place.

"We've also worked with them on another very large product," Shaw said.

The expanded agreement includes "less than $10 million" in up-front money, he said, plus technology access fees and milestone payments to Codexis, which could total up to $40 million over the term of the research agreement. Multiple projects will be involved each year, with each generating more milestone payments upon U.S. regulatory clearance, plus ongoing commercial payments on sales.

Although Pfizer would not allow Codexis to be specific, "a lot of that [money] is secured," Shaw said. "It's not a flaky deal by any stretch." The arrangement provides sufficient time to work on at least nine Pfizer projects.

"This deal allows us to work on Phase I, Phase II and Phase III products, but the candidates on the table are in the middle of the clinical development process," Shaw said, adding that approval of the first product "could be at least four or five years off."

The license to use MolecularBreeding across Pfizer's portfolio, if the option is exercised, would be nonexclusive, and with the Pfizer stamp of approval on Codexis' technology, "we're able to work with the likes of Roche, Merck and Novartis," Shaw said.

Refining and upgrading the process by which compounds are made could block generic-drug firms from competing, since they must match the specifications of the originator. Other pharmaceutical firms, like Pfizer, are likely to see the value of using MolecularBreeding technology on a given compound before filing the new drug application, Shaw said.

"That's the heart of this story," he said. "This deal opens the floodgates for us."