Dyadic International, Inc. (NASDAQ:DYAI) Q1 2023 Earnings Call Transcript May 10, 2023

Operator: Good evening, and welcome to Dyadic International’s First 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 is being recorded today, May 10, 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 first quarter 2023 conference call. I hope you have had the opportunity to review Dyadic’s press release announcing financial results for the quarter ended March 31, 2023, and the recent Company highlights. You may access our press 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 first quarter business and corporate highlights, including a brief summary of our recent research and business 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.

We will then hold a brief question-and-answer session. At this time, I would like to inform you that certain commentary made in this conference call may be considered forward-looking statements, which involve risks 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 as a result of new information, future events or otherwise. Participants are directed to the risk factors set forth in Dyadic’s reports filed with the SEC. It is now my pleasure to pass the call to our CEO, Mark Emalfarb.

Mark?

Mark: Hello, everyone, and thank you for joining Dyadic’s first quarter 2023 conference call. We are off to a great start in 2023. Our C1 technology continues to garner praise and recognition for its speed and efficiencies in the U.S. and internationally from academia, industry, and government agencies. We are delivering multiple new research collaborations and strong growth revenue of 50.9% year-over-year for Q1. On today’s call, Joe and I will highlight the significant technological advances and recent business development successes we have and continue to achieve across each of our core markets. We are excited about our current and future prospects for growth and our revenues while continuing the ongoing long-term collaborations with Janssen, Phibro/Abic, Rubic and others, while working on bringing in additional collaborations and partnerships like the co-development marketing and commercialization agreement announced earlier this week with Fermbox Bio.

The global demand for enzymes and proteins across our core verticals continues to grow exponentially. Our C1 and Dapibus microbial protein production platforms offer differentiating benefits for each of these markets, such as helping overcome gene expression challenges, speed of development, robustness and versatility, higher productivity, lower cost and flexible commercial scale manufacturing among others. We believe we are at or near the precipice of applying C1 and Dapibus to develop enzymes and proteins across our verticals that would lead to monetization that will significantly increase shareholder value for Dyadic and our collaborators. In our full-year 2022 call, I highlighted what makes the C1 filamentous fungal protein production platform unique versus traditional cell lines that are currently used to manufacture vaccines and biologic drugs.

In addition, C1 is up to 300x more productive than baculovirus-insect cells, which are being used in both human and animal health to produce vaccines and C1 also has a two or more weeks shorter fermentation time and no viruses that need to be removed in downstream processing like baculovirus or Chinese hamster ovary cells. The key aspect of these scientific achievements is that C1 can produce recombinant vaccines more rapidly in greater amounts and at lower cost than cell lines currently being used today. These characteristics coupled with the data from our first-in-human study of a C1 produced antigen, has led to increased awareness and interest in the C1 protein production platform for recombinant protein vaccine development and production.

This message has resonated with the FDA and BARDA and led to Dyadic being one of six companies and the only platform technology company invited to present at the April 27, FDA, BARDA led workshop for next-generation recombinant protein-based COVID-19 vaccines. Our inclusion in this workshop validates the growing pharmaceutical interest and our C1 protein production platform in addition to highlighting the need for rapid, efficient and effective platforms to develop and manufacture recombinant vaccines for pandemic preparedness and response. At the FDA workshop, I presented alongside major pharmaceutical companies such as Sanofi, Novavax and SK Bio and efforts to enhance the role that recombinant protein vaccines can have to combat the current COVID-19 pandemic through next generation COVID vaccines that have the potential for broader protection and more durable coverage against coronavirus variants of concern.

In today’s press release, we provided an update of the status of the first-in-human Phase I trial for DYAI-100, a recombinant protein RBD COVID-19 booster vaccine candidate. Joe will provide more on that later. The data from this trial is helping to establish a safety record with regulatory agencies for proteins produced from our C1 protein production platform. We are continuing to expand the traction of the C1 platform in receiving through multiple grant applications submitted in collaboration with U.S. and EU scientists for wide variety of infectious disease candidates such as the Sudan Ebola virus and Marburg virus, the Rift Valley Fever virus, the West Nile virus, Zika as well as second generation COVID-19 vaccine candidates. While we have previously demonstrated that the C1 platform is capable of rapidly producing unparalleled quantities of complex vaccine antigens efficiently, the addition of first-in-human data for C1 produced protein provides data for critical evaluation criterion that potential partners utilize when choosing a cell line for their commercialization targets.

It is imperative the proteins produced by C1 are equal to or superior to those expressed and other cell lines in terms of quality. We have expressed a number of third-party monoclonal antibodies, mAbs, which were assayed by multiple third parties who reported that the neutralizing and binding activity assays demonstrated great similarity between C1 produced mAbs and Chinese hamster ovary produced or CHO mAbs. One of these C1 produced monoclonal antibodies for COVID-19 completed a non-human primate study, showing comparability to the comparator CHO-produced monoclonal antibody with no signs of antibody mediated enhancement. Again, this is critical for our potential partners as they select cell lines to produce their commercial targets to ensure the products have a quality standards and safety profile required for the clinical and regulatory development.

We also have been focusing on designing better biomolecules. We’ve developed C1 cell lines to express complex proteins, such as conjugating antigens and ferritin nanoparticles. Additionally, we developed several antigens with the AMHC2 targeting system for influenza and COVID-19, as well as an antigen that included a trimerization domain to increase vaccine efficacy and durability. In today’s release, you may have not have seen or may have seen, we are also testing these better biomolecules with our partners like Virovax, when new and improved adjuvants are being evaluated with C1-produced antigens in relevant disease areas such as COVID-19 and seasonal and pandemic influenza such as H5N1 or more commonly known as bird flu in animal trials.

These advancements enable Dyadic and its partners the potential to develop more effective and longer-lasting vaccines across a wide range of infectious and other diseases that could be manufactured rapidly in larger quantities more affordably. At the same time, we continue our focus on building and sustaining longer term strategic partnerships with leading pharmaceutical partners like Hengrui, one of the largest Chinese pharmaceutical companies and our collaboration with Janssen Pharmaceuticals as well as advancing commercial products and clinical development of our COVID-19 vaccine candidate, DYAI-100 with Rubic One Health for the African continent and a bivalent COVID-19 vaccine with Epygen in India. Discussions are ongoing with several parties interested in the potential of using and applying C1 for additional developed and developing countries.

We expect to continue using our technology to obtain equity stakes in smaller companies who can’t afford to pay upfront access fees similar to what we have done with BDI and Alphazyme. This provides us with an opportunity to generate cash from the sale of our equity later as was the case with BDI in 2021 and Alphazyme in Q1 2023. The sale of these two equity positions generated a total of US$2.87 million in cash. Additionally, we have the potential to receive milestone and royalty payments based on sales of C1-expressed products by Alphazyme. Also in 2023, we’ve refined our human health objectives, to include a focus on shorter-term product commercialization opportunities that have less time, cost and risk associated with development. We are beginning our shift towards commercializing these opportunities.

An example of this strategy is our recombinant serum albumin projects, which as we shared in the release today, have been expressed at high levels and we’ve begun to sample potential customers. The global serum albumin market is approximately $5.7 billion market, growing at over 6% a year due to the increased use of a multitude of markets in human and animal health. In the Pharmaceutical segment, serum albumin is not only being deployed as potential treatment for disease, but is currently used in product development of vaccines as a diagnostic tool and a common reagent in R&D. There are many different grades of albumin and price points across these markets. Dyadic has the potential to produce animal-free serum albumin at competitive pricing due to our high productivity C1 and Dapibus microbial platforms using low-cost media.

Another application for serum albumin is in cell culture media, the alternative protein segment providing Dyadic with additional opportunity for near-term product commercialization across our verticals. In a similar vein, in 2022, we issued the publication of a poster that showed C1 potentially being the first filamentous fungal cell line to produce an active CYP450 enzyme. CYP450 enzymes are part of a $17 billion global enzyme market for use as a diagnostic, therapeutic, research and product development enzymes. Achieving high enzymes and other protein yields are a major challenge in the pharmaceutical industry, specifically to enhance the production of vaccines and biologics or for enzymes required for the chiral synthesis of small molecule drug, diagnostics and other uses.

This is another example of a potential near-term opportunity that adheres us to our corporate strategy to identify enzyme and protein targets where our technology can have the greatest impact. We are improving our capability to have an internal pipeline of proteins and enzymes with commercial potential across our core verticals whose utilization is not dependent on lengthy clinical development programs or human trials. This decreases our timeline to revenue potential and commercialization opportunities. In addition to the clinical data being generated, we are protecting our technology with a robust IP estate. I’m pleased to say that last month Dyadic received a notice of allowance from the U.S. Patent and Trademark Office for patent application whose claims cover the development and manufacture of seasonal and pandemic influenza vaccines from the company’s C1 protein production platform.

This timely patent allowance allows and comes as we announced earlier this year that Dyadic is at the forefront of vaccine development with more than a half dozen animal trials being carried out last year, and additional animal trials are ongoing and are scheduled with C1 producing antigens for influenza such as H5N1 or the bird flu and other infectious diseases. There’s a global unmet need for more effective and more available flu vaccines. It’s been reported that the human influenza market is currently valued at approximately US$8 billion and expected to grow to over $12 billion by 2028 with multivalent vaccines leading the market. The recognition data and scientific advancement we are generating have not only accelerated our efforts in human health, but they’re translating into increased interest in other core verticals such as animal health.

There are many similarities in the needs between the human and animal health markets for vaccines and therapeutic proteins, and we are leveraging our science across these core verticals. What makes animal health an attractive segment for Dyadic is the margin sensitivity of this market and the significant impact that an outbreak can have on the global supply chain and potentially human health. The ongoing avian flu outbreak serves as one such example and has an immense impact on the global poultry supply chain and ripple impacts into other markets as well. This is why we believe the C1 production platform can be a global solution to pandemic response and not just human, but also in animal health. Late last year, we announced that we had achieved a record antigen production level of 10 grams per liter of a livestock antigen.

We can produce very large quantities of antigens for infectious disease rapidly and at low cost making C1 a potential pandemic preparedness platform for response or stockpiling. Our third vertical of alternative proteins is an area of great excitement for Dyadic and one which we believe also holds near-term potential promise in terms of opportunity and revenue. Exploiting this segment does not require a significant departure from our human and animal health pursuits in terms of technical capability or resource requirements. The alternative protein verticals anchored by our fully funded joint development agreement with our Global Food Ingredients collaborator. We have received the first milestone payment from our joint development agreement this quarter based on our achievement of the scientific data in this project.

Dyadic is continuing to dedicate resources and support for the existing and future projects within this rapidly growing market. Dyadic has launched its Dapibus platform, a filamentous fungal-based microbial gene expression and protein production platform, which is further designed and customized to enable the rapid development and large-scale manufacture of low-cost enzymes, proteins, metabolites and other biological products for use in non-pharmaceutical applications such as food, nutrition, health and wellness. I’ll now turn the call over to our Chief Business Officer, Joe Hazelton, to provide a more detailed update on our Phase I trial progress and to discuss our business development efforts across core verticals. Joe?

Joseph Hazelton: Thank you, Mark. I’m happy to report that the Phase I trial for DYAI-100 is progressing as planned. For background in order to establish a 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 and immune response of the DYAI-100 COVID-19 recombinant protein or RBD booster vaccine in 30 healthy adults in South Africa. Regulatory approval was received in late 2022, and the first patients were dosed in January of this year. There are eight scheduled patient visits over a six-month period with safety data being collected throughout the trial, and immunogenicity assessments are scheduled on six of the eight visits.

Dosing of all patients was completed in late February and to date no serious adverse events and local or systemic events have been reported. Patients completed their first six visits with the remaining two visits taking place at days 90 and 180 from initial dosing. This timing projects the last patient last visit to take place near the end of August with the clinical study report being available in the late third or early fourth quarter. We are currently working with Rubic One Health, our South Africa partner to evaluate the next development phase of the DYAI-100 COVID-19 booster vaccine candidate pending the results of the study as well as the regulatory and market outlook. With the expected full study results later this year, we continue to validate the C1 platform to reduce development risk for our partners.

Over the last five years, Dyadic has developed a strong repository of safety, efficacy, and productivity data regarding the C1 protein production system across a wide range of vaccines and antibodies. Dyadic has also developed a suite of genetic tools to improve the ability to rapidly and accurately engineer the C1 cell line to achieve quality that is comparable or better than traditional cell lines, while demonstrating speed and yield results that are significantly higher than typical cell lines in use today. For the human and animal health markets, the overall result is that for recombinant vaccine development and production, the C1 platform is ready for full commercialization. To this point, Mark mentioned earlier multiple grant applications have already been submitted in collaboration with U.S. and EU scientists for a wide variety of infectious disease candidates such as Sudan and Ebola and Marburg Virus, Rift Valley Fever, West Nile Virus, and Zika and second generation COVID-19 vaccine candidates.

We anticipate additional grant applications will continue to be submitted and we expect to further expand our research development and commercial collaborations globally. We continue to make great strides in antibodies and we believe that the C1 platform is ready for use in human trials for monoclonal antibodies, buy and try specific antibodies, Fc-fusion and other types of therapeutic proteins. While this is encouraging news, development approval of pharmaceutical products takes years to complete, which also means that we must continue to focus our efforts on commercialization targets that drive revenue in the near-term as well. The increased recognition that the C1 platform is generating coupled with the continued advancements of our scientific data is leading to business opportunities across our core verticals.

The expanded licensing agreement with Rubic One Health announced in April as one such example. The agreement goes beyond COVID vaccines and encompasses not just human health vaccines and therapeutic proteins, but also animal health pharmaceutical products as well. This provides Rubic the potential for a broader number of commercializable opportunities in multiple product segments. We’ve also reevaluated our research and development approach, focusing mainly on those projects that have potential commercial outcomes. One such example is a recently announced new collaboration with a top five pharmaceutical company to express and produce a vaccine antigen from C1 for human health. This agreement is different from our traditional research projects and that it also grants an option for a future commercialization license for use in a multi-billion dollar market.

This does not mean we will not pursue opportunities that offer other potential value as evidenced by the research collaboration we recently signed to express an enzyme involved in biosimilar development for human health. However, we will continue to prioritize projects with near-term commercial potential. We are leveraging our science across our core verticals as the need for a cost-effective way to produce large quantities of recombinant proteins and enzymes exist in human and animal health, as well as alternative proteins. Within the animal health vertical, we’ve continued to advance our business development objectives in the first quarter. As previously mentioned, we’ve expanded our licensing agreement with Rubic to include animal vaccines and therapeutics.

They’ll help accelerate potential commercial opportunities. We’ve also expanded our research program with Abic Biological Laboratories an affiliate of Phibro Animal Health Corporation based on the successful expression of recombinant livestock antigen using C1. This is in addition to the research project we started in 2022 to develop another animal vaccine for a different disease target. We also have a fully funded research and development collaboration that is currently underway with a top five animal health company to produce therapeutic monoclonal antibodies for treating diseases and companion animals that is on target to meet development milestones per the research agreement. We are also in discussion with several other interested parties in animal health.

To further support our business development efforts across the animal, human and alternative protein verticals, Dyadic is building a portfolio of proteins and enzymes with commercial potential applicable across those verticals whose utilization are not solely dependent on lengthy clinical development programs or human trials. We’ve expressed human serum albumin and bovine serum albumin stably and at high levels. It is important to note that the process to commercialize a non-therapeutic version of either albumin product for pharmaceutical use does not necessarily require human clinical trials depending on the end use of the albumin. These types of products are analytically tested against reference samples to ensure that they meet quality control requirements for potential purchasers.

This is a much shorter and less costly development process than a human vaccine or therapeutic protein. We are currently beginning to sample our serum albumin products and are in discussions with several interested companies. This is also where our strategy of pursuing opportunities for products that transect our core verticals becomes clearer as bovine serum albumin is currently being used in cell culture media within the cultured or lab-grown meat industry. This and other high value and high cost targets for non-pharmaceutical applications will require further development to reduce manufacturing costs to satisfy the margin requirements for the food industry, which is where our Dapibus platform is rapidly generating increasing market attention.

Dapibus, which literally means protein in Latin, is designed and customized to enable and the rapid development and large scale manufacturer of low-cost enzymes, proteins, metabolites and other biologic products for use in non-pharmaceutical applications such as food, nutrition and wellness. To help Dyadic accelerate our commercialization efforts and increase the potential for Dapibus in the alternative protein segment, we announced a fully funded co-development marketing and commercialization agreement with Fermbox Bio to help accelerate our ability to exploit the Dapibus platform and expand Dyadic’s non-pharmaceutical product offerings for animal free recombinant protein products and food, nutrition, wellness, and other applications. Under the agreement, Fermbox will utilize Dyadic’s Dapibus platform to develop animal free recombinant protein targets for non-pharmaceutical applications, which can then be co-marketed enhancing the breadth and scope of each company’s product portfolio.

This partnership will further improve the Dapibus platform and will also provide Dyadic with an experienced biomanufacturing partner, which can be leveraged for future projects. The Fermbox Bio partnership is an example of how we are actively pursuing opportunities with a target list of proteins and enzymes we’ve identified that have applicability across our core verticals that currently need an alternative lower cost recombinant protein production system with shorter development and commercialization timelines and a higher probability of success. We believe this can be an accelerator for Dyadic as both our C1 and Dapibus microbial cell lines have the potential to provide our partners the ability to meet timelines, scale and cost demands for recombinant proteins and enzymes within their respective pharmaceutical or non-pharmaceutical market applications.

Hopefully, what I shared today is demonstrating that Dyadic is executing and delivering on a business strategy to build revenue while being mindful with shareholder dilution. We’ve identified target products with high unmet needs such as price or productivity that transect our core business verticals, and we are actively engaging with partners who have broader capability to commercialize quickly and effectively within key markets and we are exploring agreements for market segments that benefit both companies. I’ll now turn the call back to Mark for some final comments on the first quarter. Mark?

Mark Emalfarb: Thank you, Joe. We will continue to leverage our decades of commercial scale industrial manufacturing knowledge and experience to accelerate the development process across our core verticals. In parallel, we remain fiscally responsible with our research and development spending and being strategically focused with our partnerships in collaborations to help fund advancements of our science in critical areas. We believe that our C1 platform is well positioned to be an alternative platform in developing next generation vaccines for public health and future pandemics, and we are happy to see C1 is gaining more recognition globally within academia, government and industry. We have refined our business development objectives to focus on core areas where our technologies can have the greatest impact in the shortest amount of time.

And we are evaluating new opportunities aligned with our verticals and targeted markets of high potential return such as alternative proteins. With that, I turn the call over to our CFO, Ping Rawson to run through our financials.

Ping Rawson: Thank you, Mark. Thank you, everyone again for joining our call today. Before I discuss our financial results, I want to comment on our recent change in auditors. On April 10, 2023, we issued an 8-K and announced a change in auditors from Mayer Hoffman McCann P.C. to Crowe LLP. Mayer Hoffman McCann, MHM resigned due to their internal staff resource constraints and their inability to continue to serve their public clients. As I mentioned on the year-end call, there was no disagreement with MHM on any accounting or audit matters. MHM’s reports on our financial statements for fiscal year 2022, and the previous years contained clear opinions without any significant deficiencies or material weaknesses on internal controls.

As we announced our first quarter financial results today, I am pleased to let you know that we had a smooth transition to our new auditor Crowe, which has an excellent reputation and extensive experience in the biotech industry. I will now comment on our financial results for the quarter ended March 31, 2023. You can find additional information in our earnings press release and Form 10-Q, which we filed earlier today. Our research and development revenue and the license revenue for the quarter ended March 31, 2023 increased to approximately $978,000 compared to $648,000 for the same period a year-ago, which represents an increase of 50.9% year-over-year. Cost of research and development revenue for the quarter increased to approximately $727,000 compared to $405,000 for the same period a year-ago.

The increase in revenue and cost of revenue year-over-year represents the increase in licensing revenues and the several larger ongoing research collaborations conducted in 2023. Research and development expenses for the quarter ended March 31, 2023, decreased by 39.6% to approximately $811,000 compared to $1,343,000 for the same period a year- ago. The decrease in research and development expenses was due to the winding down of activities of CRO and consultants to manage and support the pre-clinical and clinical development as well as a decrease in cGMP manufacturing costs as the company completed the dosing of Phase I clinical trial of its DYAI-100 RBD COVID-19 booster vaccine candidate in February 2023. G&A expenses for the quarter ended March 31, 2023, decreased by 10.6% to approximately $1,480,000 compared to $1,656,000 for the same period a year-ago.

The decrease principally reflected the decreases in management incentives of $86,000, insurance expenses of $36,000, business development and investor relations expenses of $61,000 and other decreases of $48,000 offset by an increase in legal expenses of $55,000. Other income for the quarter ended March 31, 2023 was from the sale of the minority interest in Alphazyme, LLC. Net loss for the quarter ended March 31, 2023, was approximately $956,000 or $0.03 per share compared to $2,492,000 or $0.09 per share for the quarter ended March 31, 2022. Our cash, cash equivalents, and the carrying value of investment grade securities as of March 31, 2023 including accrued interest were approximately $11.8 million compared to $12.7 million on December 31, 2022.

We expect our cash burn for 2023 will be approximately $6 million to $7 million, and we expect that our existing cash position will be sufficient to fund our operations into mid to late 2024. With that, I will now ask the operator to begin our Q&A session. Joe Hazelton will be joining, Mark and I to answer your questions. Each caller will be allowed one question and one follow-up question to provide all callers an opportunity to participate. If time permits, the operator will allow additional questions from those who have already spoken. Operator?

Q&A Session

Operator: Thank you. We will now conduct a question-and-answer session. [Operator Instructions] Our first question comes from John Vandermosten with Zacks. Please proceed.

Operator: [Operator Instructions] Our next question comes from [Dick Williams with Williams Resource]. Please proceed.

Operator: Our next question comes again from John Vandermosten with Zacks. Please proceed.

Operator: There are no further questions. I will now turn the call over to Dyadic CEO, Mr. Emalfarb for closing comments.

Mark Emalfarb: Thank you. 2023 is off to a great start for Dyadic. We are focused on improving the value of Dyadic for the life science industry, which will in turn improve value for our shareholders. And we are improving access to affordable vaccines and therapeutics globally. And we’ve refined our focus and revised our business strategies to exploit existing and new commercialization opportunities in the near-term, while enabling us to fulfill our mission as a global biotechnology company to improve the way we feed, fuel, and heal the world. Thank you for joining us in today’s Q1 2023 conference call, and we look forward to keeping you updated as we advance our commercial and scientific initiatives on the next call. Please keep an eye out for our other periodic updates.

Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time.