Dyadic International, Inc. (NASDAQ:DYAI) Q3 2023 Earnings Call Transcript

Dyadic International, Inc. (NASDAQ:DYAI) Q3 2023 Earnings Call Transcript November 8, 2023

Dyadic International, Inc. reports earnings inline with expectations. Reported EPS is $-0.06 EPS, expectations were $-0.06.

Operator: Good evening, and welcome to the Dyadic International's Third Quarter 2023 Financial Results Conference Call. Currently all participants are in a listen-only mode. Following management's prepared remarks, there will be a brief question-and-answer session. As a reminder, this conference call is being recorded today, November 8, 2023. I would now like to turn the call over to Ms. Ping Rawson, Dyadic's Chief Financial Officer. Please go ahead.

Ping Rawson : Thank you. Good evening, and welcome everyone to Dyadic International's third quarter 2023 conference call. I hope you have had the opportunity to review Dyadic's press release announcing financial results for the quarter ended September 30, 2023, and the recent company highlights. You may access our release and Form 10-Q under the investors section of the company's website at dyadic.com. On today's call, our President and CEO, Mark Emalfarb, will give a review of our third quarter business and corporate highlights, including a summary of our recent research and development efforts. Our Chief Business Officer, Joe Hazelton, will join Mark for the business updates. I will follow with a review of our financial results in more detail.

A biochemist observing cell cultures under a microscope, representing the groundbreaking research of the biotechnology company.

We will then hold a brief question-and-answer session. At this time, I would like to inform you that certain commentary made on this conference call may be considered a forward-looking statement, which involves risk and uncertainties and other factors that could cause Dyadic's actual results, performance, scientific or otherwise or achievements to be materially different from those expressed or implied by these forward-looking statements. Dyadic expressly disclaims any duty to provide updates to its forward-looking statements, whether because of new information, future events or otherwise. Participants are directed to the risk factors set forth in Dyadic's risk report filed with the SEC. It is now my pleasure to pass the call to our CEO, Mark Emalfarb.

Mark?

Mark Emalfarb: Thank you, Ping. Hello, everyone, and thank you for joining Dyadic's third quarter 2023 conference call. We've accelerated the momentum seen in the first half of 2023 as our C1 technology continues to garner praise and recognition for its speed and efficiency in the U.S. and internationally from academia, industry and government agencies. We've also gained significant traction with our Dapibus platform, which was launched less than 12 months ago in both the alternative protein and bio-industrial markets. On today's call, Joe and I will discuss our strategic plan for revenue growth, notable technological advances, and recent business development successes we continue to achieve across each of our core markets. We will focus the discussion on not just providing an update on our third quarter scientific and business results, but also expand on our strategy to improve our revenue outlook in the short term and beyond.

We are not just excited about our current and future prospects. We believe the success of our corporate strategy is beginning to be realized as evidenced by our September announcement of an agreement inclusive of upfront fees, and positive data from our first in human Phase 1 study, and our recently announced advancements in our own internal recombinant serum albumin projects, which have accelerated opportunities to enter into additional collaborations and partnerships, such as the memorandum of understanding with the Italian government's foundation, Biotecnopolo di Siena, which performs the functions of an anti-pandemic hub with a particular focus on the development and production of vaccines and monoclonal antibodies for the treatment of emerging epidemic and pandemic pathologies, and the recently announced research collaboration with vaccine and immunotherapy center in Massachusetts General Hospital.

We believe that we are at or near the precipice of applying our microbial protein production platforms, C1 and Dapibus, to develop antigens, antibodies, enzymes and other proteins across each of our core verticals that we believe will lead to monetization that can significantly increase shareholder value for Dyadic and our collaborators. What makes Dyadic unique from other providers of expression platforms is our industrial heritage. The majority of cell lines used for manufacture of biologic vaccines and therapeutics have started at research scales and tried to improve scale and yield at pharmaceutical price points. Dyadic’s microbial platforms have a long history of economically producing large-scale bioindustrial proteins and enzymes, which we are leveraging to manufacture biopharmaceutical proteins with upstream costs and quantities that are closer to industrial margins, providing our collaborators improved pricing flexibility.

All platforms used in biomanufacturing must meet certain requirements in order to be commercialized. All platforms must be able to be properly cloned and expressed, correctly modified and folded functional proteins. What makes a particular platform an ideal choice for commercialization is one that is also rapid, highly productive and cost-effective. This is why the C1 protein production platform is uniquely suited to meet the rising demand for vaccines, monoclonal antibodies, therapeutics and other proteins. C1 can produce standard or complex proteins that have been demonstrated to be comparable in function and quality to those produced in other cell lines like Chinese hamster ovary or CHO-cells and baculovirus, which are insect cells. C1 is now completed a Phase 1 human trial with favorable preliminary safety data and has the capability to produce larger quantities of proteins at lower cost and in less time than the traditional eukaryotic gene expression platform used today.

We have shown that the C1 platform is up to 300x more productive than baculovirus insect cells, which are being used in both human and animal health to produce certain vaccines. And C1 also is significantly shorter fermentation time and no viruses that need to be removed in downstream processing, which is either baculovirus or Chinese hamster ovary CHO-cells, enabling the production and release of recombinant vaccines more rapidly in greater quantities at lower cost than traditional cell lines currently being used today. This is why we believe our C1 filamentous fungal protein production platform has distinct advantages versus traditional eukaryotic cell lines currently used to manufacture vaccines and biologic drugs. In our human and animal core verticals, we are excited to have entered into a research and development project with another top-five pharmaceutical company, a new vaccine project, and a large infectious disease market worth over $4 billion.

As previously mentioned, we have signed a memorandum of understanding with the Foundation, Biotecnopolo di Siena or FBS, which functions perform as an anti-pandemic hub with a particular focus on the development and production of vaccines and monoclonal antibodies for the treatment of emerging epidemic pathologies. Scientific development at FBS is led by one of the world's foremost leading experts in vaccine development, Dr. Rino Rappuoli. Prior to his role at FBS, Dr. Rappuoli was the Global Head of Vaccines Research for Novartis Vaccines and Diagnostics, and most recently served as the Chief Scientific and Head of External R&D at the vaccine division of GlaxoSmithKline. FBS is prepared and equipped to conduct research, clinical study, regulatory approval, development, manufacture and commercialization of vaccines and therapeutic proteins using the company's C1 protein production platform.

We’ve also continue to expand the adoption of our C1 protein production platform, such as the recently announced research collaboration with the Vaccine Immunotherapy Center at Massachusetts General Hospital to express vaccines for influenza A and other infectious diseases as part of a U.S. $5.8 million award from the Department of Defense. Dyadic continues to strive to stay at the forefront of scientific advancement, and we've been focusing on designing better performing biomolecules. In addition to the advancing C1 technology, we produced new commercial products. We've now developed C1 cell lines to express complex proteins such as conjugating antigens and ferritin nanoparticles. The interest in ferritin-based nanoparticle vaccines has been increasing due to their ability to enhance immunogenicity, and C1 can produce these ferritin nanoparticles in a one-step manufacturing process, as opposed to the current two-step method used by other technologies, potentially improving the speed and cost effectiveness of the production process.

We currently have ongoing animal studies with C1 expressed adjuvanted ferritin nanoparticle H5N1 antigen targeting endemic influenza H5N1 bird flu that has demonstrated high neutralizing antibody and hemagglutinin inhibition HI levels.

AMHG2: In the area of therapeutic proteins, we've signed additional fully funded research projects for the development and commercialization of therapeutic antibodies in the third quarter. One such agreement is with a multinational pharmaceutical company to develop multiple C1 cell lines and produce monoclonal antibodies targeting infectious diseases, as well as another fully funded project to develop a C1 cell line for monoclonal antibodies against Filoviruses such as Ebola and Marburg. We have also endeavored to expand our portfolio with potential new commercial products. This quarter, Dyadic entered into a development commercialization agreement with European company, bYoRNA to develop messenger RNAs using our C1 technology.

Messenger RNAs help to quickly develop effective COVID-19 vaccine critical for pandemic response. But the therapeutic applications extend beyond infectious disease in areas such as cancer, where mRNAs and coding cancer antigens may help immune cells to strike tumors and substantially extend survival in rare diseases, where RNA-based gene therapy is potentially capable of delivering a healthy copy of the faulty gene to the cell. In this project, we are combining bYoRNA’s novel bioRNA platform with Dyadic's industrially proven C1 protein production platform to provide the pharmaceutical industry with a potentially more cost-efficient platform for manufacturing large quantities of lower-cost messenger RNAs, enabling access to mRNA vaccines and drugs for a broader global population.

We've continued our focus on building and sustaining longer-term strategic partnerships with our pharmaceutical partners, such as advancing commercial products and clinical development of human and animal health vaccines with Rubic One Health for the African continent. In the recent production of C1expressed human infectious disease vaccine antigens under CGMP guidelines, as well as other non-GMP products with Epygen in India. We believe the C1 production platform can be a global solution to emerging infectious disease threats and pandemic response, and not just humans, but also in animal health. In addition to the production of large quantities of antigens, antibodies and complex biomolecules, these products can also be made rapidly and cost-effectively for developed and emerging countries, making C1 a potential pandemic preparedness platform for response or stockpiling.

In addition to what we shared today, discussions are ongoing with several parties interested in the potential adoption of the C1 platform across countries over all income levels. In addition to Rubic, we are increasing our penetration of the animal health markets for vaccines and therapeutic proteins. Animal health continues to be an attractive segment for Dyadic due to the higher margin sensitivity of pharmaceutical biologics and the significant impact and an outbreak can have on the global supply chain and potentially human health. The recognition, data and scientific advancements we are generating have accelerated our efforts in animal health, as well as we have expanded our collaboration with Fibro [ph] and have initiated the fully funded research and development project with a new animal health company for development of a C1 expressed livestock vaccine antigen.

Our third vertical of alternative proteins continues to be an area of great excitement for Dyadic and one which we believe also holds their term potential promise in terms of opportunity and revenue. Dyadic is continuing to dedicate resources and support for the existing and future projects within this rapidly growing segment. Roughly one year ago, Dyadic launched the Dapibus platform, a filamentous, fumble-based, microbial gene expression and protein production platform, which is further designed and customized to enable the rapid development and large-scale manufacturing of low-cost enzymes, proteins, metabolites and other biologic products for use in non-pharmaceutical applications such as food, nutrition, health, and wellness. The agreement we signed in September to utilize our Dapibus platform to develop and commercialize certain non-animal dairy enzymes used in production of food products demonstrates the potential for our Dapibus platform to deliver results as well as the increased interest in this segment.

In this agreement, we received an upfront payment of $600,000 in October for product development and are eligible to receive certain potential success fees as early as the first half of 2024, in addition to future milestones and royalties. Also in the third quarter, Dyadic signed a fully funded research collaboration for the development of an enzyme for dispersion and absorption of injected drugs to reduce tissue damage. This enzyme alone accounts for a $900 million market across multiple applications. These are just a few examples of how our focus on shorter-term product commercialization opportunities that have less time, cost and risk associated with development is beginning to show results. This focus has accelerated our capability to develop an internal pipeline of proteins and enzymes with commercial potential across our core verticals, whose utilization is not dependent on lengthy and expensive clinical development programs.

We have made further progress in developing animal-free recombinant serum albumin products that have demonstrated analytical comparability to commercially available reference samples, bringing us another step closer to commercialization and monetization. We are currently providing samples of recombinant serum albumin and enzyme catalysts in order to accelerate commercialization with potential collaborators while we complete additional functional testing for different grades of products that can be offered. To further support revenue growth, we have initiated development of additional pipeline projects, which is cell culture media and other proteins and enzymes across our core verticals at different grades and price points for multiple applications in pharmaceutical and non-pharmaceutical markets, which we believe will improve our capability to drive near-term revenues.

I will now turn the call over to our Chief Business Officer, Joe Hazelton, to provide an update on our Phase I trial progress and discuss Dyadic’s strategy plan for revenue and growth and potential. Joe?

Joseph Hazelton : Thank you, Mark. I'm happy to report that the Phase I trial for DYAI-100 has completed and the process for building the final study report has begun. For background, to establish the track record of safety in humans for antigens produced from our C1 protein production platform, the ongoing Phase I trial is a randomized double-blind placebo-controlled trial to evaluate the safety of the DYAI-100 COVID-19 recombinant protein, or RBD booster vaccine in 30 healthy adults in South Africa at two different dose levels. Dosing of all patients was completed in late February and the last patient last visit took place in September. The database lock occurred last week and we anticipate providing top-line results in the coming weeks with the final full clinical study report to follow.

Day 90 safety data for all patients was presented at the Data Safety Monitoring Board meeting in the second quarter, which found no major vaccine-related safety events at either dose level, and to date there have been no serious adverse events reported. Giving the evolving regulatory and market outlook for COVID, we're in discussions with Rubic One Health, our South African partner, to evaluate the next development phase of a COVID-19 booster vaccine candidate, pending the market conditions. We're continuing to validate the C1 platform to reduce clinical development risk for our partners and adding to our strong repository of safety, efficacy and productivity data regarding the C1 platform across a wide range of vaccines and antibodies. As we enter the fourth quarter, we also wanted to provide greater insight into our strategic planning and execution to improve near-term revenue potential.

As Mark discussed earlier, we've made progress advancing our pharmaceutical and non-pharmaceutical microbial platforms across our core verticals in 2023, but like our partners, we are not immune to the current economic climate. In pharmaceutical development, whether human or animal, in tough economic markets, funding for research and development is scaled back to focus on shorter-term revenue generating potentials. The same holds true for other markets such as bio-industrial and alternative proteins, where tighter margins mean more difficult choices of where to allocate limited resources. Despite the current economic situation, we've been able to sign agreements with equity, commercialization options, or upfront frees across our core verticals in 2023, in addition to adding fully funded research and development projects with key human and animal health pharmaceutical companies and non-pharmaceutical partners.

While this is encouraging, it is also why we have our foundation of microbial platforms is not just important, but also valuable. Through our protein expression systems, we not only enable our partners to develop targets, but we also have the capability to develop product opportunities of our own, such as the recombinant human albumin and recombinant bovine albumin, as Mark had mentioned earlier. In challenging economic times, our strategy and that of our partners aligns on these types of product opportunities that do not require lengthy clinical trials, significant development costs, or additional regulatory reviews. By focusing on high-value product opportunities, we are still advancing our microbial protein production platforms by demonstrating that our pipeline products, such as enzyme catalysts or animal-free proteins that have analytical and functional properties equal to or better than currently commercialized products.

At the same time, we're expanding the adoption of our technology with existing and new partners to increase the number of potential targets expressed in our microbial platforms for pharmaceutical and non-pharmaceutical applications, as evidenced by our agreement with Fermbox earlier this year for the development of animal-free proteins and our recently announced collaboration with the Vaccine and Immunotherapy Center at Massachusetts General Hospital to express influenza vaccine antigens. By increasing the volume of internal pipeline products and external partnerships across our verticals, we believe we can accelerate more consistent revenue generation in the coming year that is not strictly reliant on platform licensing and inclusive of potential product licensing for targets such as recombinant albumin, enzyme catalysts or cell culture media components.

As we are commercializing our current product opportunities and broadening our internal pipeline, we also must continue to invest in our infrastructure and capability to efficiently exploit the increase in potential opportunities and broaden our targeted outreach across our core verticals. To accelerate our capability, we've expanded our leadership team with the addition of a seasoned pharmaceutical business development and marketing executive, Doug Pace. Mr. Pace started his career with large pharmaceutical companies such as Novartis and Pfizer, working on both small and large molecule products in the oncology and biosimilar markets. He was most recently engaged in licensing of health tech platform technologies to large pharmaceutical companies that improved patient engagement.

He's had an immediate impact illustrated by a significant increase in unique client engagements and a 300% increase in new followers in the last 45 days versus the 45 days preceding his hire on a leading social networking app. While I can't predict the future or provide a definitive timeline for increased revenues, what I can say is that we are wholly focused on executing our strategic plan of driving internal product opportunities and capitalizing on our external collaborations and partnerships to increase revenue in the coming year. The most salient example continues to be our recombinant serum albumin products. As the global serum albumin market is an approximately $5.7 billion market, growing at over 6% a year due to the increased use across a multitude of markets in human and animal health.

In the pharmaceutical segment, serum albumin is not only being developed as a potential treatment for disease, but it is currently being used in the product development of vaccines, as a carrier protein for therapeutics, and as a common reagent in R&D. There are many different grades and price points for serum albumin across these and other markets, and Dyadic has the potential to produce animal-free recombinant serum albumin at competitive pricing due to our highly productive C1 and Dapibus microbial platforms using low-cost media. We now have the initial analytics demonstrating how recombinant albumin is comparable to commercialized reference samples on the market today, which improves our ability to commercialize a research-grade product in the coming year.

It also provides potential opportunities for larger sub-exit options, such as joint ventures or spin-offs, as products like recombinant albumin have been the foundation for companies such as Albumedix, which was purchased in 2022 for over GBP400 million. Another example of a near-term opportunity has been born out of our fully funded co-development and co-marketing agreement signed earlier this year with Fermbox. This has utilized our Dapibus platform for the development of a cellulosic enzyme for use in biofuels and other segments. Dyadic will have the potential to license this enzyme as part of our portfolio of offerings to potential clients in the bio-industrial market in the coming year. Hopefully what we share today instills the same enthusiasm and confidence that the Dyadic leadership team has in the company's future growth potential.

Advancements to both our C1 and Dapibus platforms further enhance the speed, quality and productivity of these cell lines for targeted product opportunities, such as increasing our infectious disease antigen library to include seasonal and pandemic influenza, new COVID variants, rabies, as well as other antigens and antibodies as potential product opportunities for the C1 platform. For the Dapibus platform, we will continue to evaluate new technologies to increase stability and productivity to further reduce the cost of manufacturing common enzymes and proteins for margin-sensitive markets. While the future is bright, we still have work ahead to maximize and monetize the various opportunities that lay before us. And Mark and I have revised and begun execution of our strategic plan to ensure we have the right infrastructure and resources to adequately address key business opportunities and accelerate near-term revenue across our core verticals.

I'll now turn the call back to Mark for some final comments on the third quarter. Mark?

Mark Emalfarb : Thank you, Joe. We will continue to leverage our decades of commercial scale industrial manufacturing knowledge and experience to accelerate near-term product development opportunities across our core verticals. In parallel, we remain fiscally responsible with our research and development spending, in being strategically focused with our partnerships and collaborations to help fund advancements of our science in critical areas. We continue to believe that our C1 platform is well positioned to be an alternative platform in developing and manufacturing next generation vaccines, antibodies and other therapeutic proteins for public health and future pandemics. We're happy to see C1 is gaining more recognition globally within academia, government and industry.

We've refined our strategic plan and begun execution in core areas where our technologies, such as our Dapibus platform, can have the greatest impact, and we're evaluating new opportunities aligned with our verticals and targeted markets of high potential return that are in need of cost-effective solutions, such as alternative proteins. With that, I'd like to turn the call over to our CFO, Ping Rawson, to run through our financials.

Ping Rawson : Thank you, Mark. Thank you everyone for joining our call today. I will now go over our key financial results for the quarter ended September 30, 2023. You can find additional information in our earnings press release and Form 10-Q, which we filed earlier today. Research and development revenue and the license revenue for the third quarter of 2023 decreased to approximately $397,000 compared to $880,000 for the same period a year ago. Cost of research and development revenue for the quarter decreased to approximately $106,000 compared to $603,000 for the same period a year ago. The decrease in revenue and cost of revenue for the quarter was due to several research projects winding down or on hold as a result of our lab relocation at one of our major contract research organizations.

Research and development revenue and the license revenue for the nine months ended September 30, 2023 slightly increased to approximately $2,212,000 compared to $2,187,000 for the same period a year ago. Cost of research and development revenue for the nine months ended September 30, 2023 increased to approximately $1,626,000 compared to $1,419,000 for the same period a year ago. In the third quarter of 2023, we have signed several new research collaborations as we announced. We expect our research revenue will pick up in the fourth quarter and our total revenue for 2023 will be in line with 2022. Research and development expenses for the quarter decreased to approximately $716,000 compared to $744,000 for the same period a year ago. Research and development expenses for the nine months year-to-date decreased to approximately $2,444,000 compared to $3,917,000 for the same period a year ago.

The decrease primarily reflected the winding down activity related to the company's phase one clinical trial of DYAI-100's COVID-19 vaccine candidate as patient dosing was completed in February 2023. G&A expenses for the quarter decreased by 7.3% to approximately $1,282,000 compared to $1,383,000 for the same period a year ago. G&A expenses for the nine months decreased by 12.4% to approximately $4,165,000 compared to $4,753,000 for the same period a year ago. The decrease principally reflected decreases in business development and investor relations expenses, accrued expenses related to management incentives and insurance expenses, as well as legal expenses. Net loss for the quarter was approximately $1,614,000 or $0.06 per share compared to $1,809,000 or $0.06 per share for the same period a year ago.

Net loss for the nine months was approximately $4,724,000 or $0.16 per share compared to $7,589,000 or $0.27 per share for the same period a year ago. As of September 30, 2023, cash equivalents and the carrying value of investment-grade securities, including accrued interest, were approximately $8.2 million compared to $12.7 million as of December 31, 2022. In October, we received an upfront payment of $0.6 million for product development and licensing of our Dapibus platform for animal-free diary enzyme products. Our projection for our annual cash burn of 2023 will be less than $6 million. We expect that our existing cash balance will be sufficient to fund our operations into late 2024. With that, I will now ask the operator to begin our Q&A session.

Joe, Mark and I will answer your questions. Each caller will be allowed one question and one follow-up question to allow all callers an opportunity to participate. If time permits, the operator will allow additional questions from those who have already spoken. Operator?

See also 12 Most Advanced Countries in Latin America and 15 Most Powerful Militaries in Asia.

To continue reading the Q&A session, please click here.