Dyadic International Inc (DYAI) 2019 Q3 法說會逐字稿

Good evening, ladies and gentlemen. Thank you for holding. Welcome to Dyadic International's Third Quarter 2019 Financial Results Conference Call. (Operator Instructions). My name is Devin, and I will be your conference coordinator for today. As a reminder, please note, this call is being recorded.

At this point, I would like to turn the call over to Ping Rawson, Dyadic's Chief Financial Officer. Please go ahead.

Thank you, Devin. Good evening, everyone, and welcome to our third quarter 2019 earnings call. Our press release with Dyadic International's Third Quarter 2019 financial Results was issued earlier today. The press release on Form 8-K and the Dyadic's quarterly report on Form 10-Q have been posted to the SEC and Dyadic's website. On today's call, our President and CEO, Mark Emalfarb, will give a review of the business and corporate accomplishments for our third quarter of 2019, including a summary of our research and business development efforts. I will follow with a review of our financial results in more detail. We'll then provide you with an opportunity to ask questions. Matthew Jones, our Chief Commercial Officer; and Dr. Ronen Tchelet, our Chief Scientific Officer, will join Mark and I to answer your questions.

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 intent or obligation to update any forward-looking statements, except as required by law. For more information about factors that may cause actual results to be materially different from forward-looking statements, please refer to the press release we issued today as well as risks described in our annual report on Form 10-K for the year ended December 31, 2018, particularly in the section titled Risk Factors. This information can be found in our other filings with the SEC when available.

With that, I'd like to turn the call over to Mark. Mark?

Thank you, Ping, and welcome to our 2019 third quarter conference call. During the third quarter, we continued to expand and strengthen our collaborations on multiple fronts, further highlighting the broad-based application potential and appeal to our various partners of our proprietary C1 gene expression platform. We've continued to make strong progress in many of our scientific partner-led collaborations as well as entering into additional research collaborations with top-tier companies in their respective sectors. In addition, we remain active within industry and investment communities, making presentations at several industry and investor conferences as our visibility and awareness with our peers, and investors continue to grow. As we look at the quarter, let me first highlight a few particularly notable achievements on the scientific front.

In the animal health sector, we recently announced our fifth animal health sector collaboration. This is a fully funded agreement with one of the largest animal health companies to demonstrate the potential of the C1 technology for expression and production of 3 different types of therapeutic proteins, for companion and farm animal health diseases, for potential use in commercial projects. This is the second animal health collaboration agreement we signed with a leading animal health company. And as you may recall earlier this year, Dyadic entered into a research collaboration with another major company in this segment to express one protein. Since the initial successful expression of the first protein, they have expanded and extended its collaboration twice already as we are now working on a third protein for them.

In regard to the ZAPI collaboration, where C1 expressed 17x more of the Schmallenberg virus in the initial target level, animal studies in cattle and mice were started. And the initial data seems promising. However, we expect to receive the final validated data in a couple of months. We believe that successful results coming from the ZAPI animal study will have an important impact on our collaborations within parties in ZAPI as well as other animal health companies. These collaborations also highlight our targeted approach to business development. The ample health sector is a large and growing addressable market characterized by a shorter regulatory pathway, less expensive development costs and faster time to commercialization. The cost of manufacturing animal health biologic is a very important consideration as there is a more competitive reimbursement model in the animal health care market. So it is an out-of-pocket expense for most owners of companion animals.

For farm animals, the demand is strong, which translates into high volumes and margin pressure. So again, cost is an issue. We believe that these factors and others are contributing to our initial success in the market where we repair to be gaining traction. In the third quarter, we also continue to make progress on several other fronts. In August, we signed a fully funded research collaboration with another top-tier pharmaceutical company to express 3 different types in classes of proteins for human health care. Our collaboration with the Serum Institute of India is further progressing very well. More than half of the 12 gene sequences have been transferred to us. The scientific work has begun in earnest, and the initial results are promising. At VTT, we continue to make progress in our glycoengineering efforts to impart human-like glycan structures under proteins expressed from C1. Additionally, we increased the resources to further support and speed up our glycoengineering efforts. We expect to provide additional updates on our glycoengineering results in the first half of 2020. In regard to the Alphazyme collaboration, the fermentation technology has been signed off on, and we're waiting for them to sign off the remaining portion to complete the technology transfer.

Let us summarize some key takeaways. First, our vision of creating more efficient and commercially cost-effective health care solutions for society globally is clearly resonating with the scientific community. In just over 1.5 years, we entered into over 15 proof-of-concept collaborations for both human and animal health, working with top 7 pharma companies, and we initiated 2 additional internally funded research projects. We're continuing to make progress in both internally funded research projects started this year, evaluating a whether C1 can express AAV viral vectors and be a secondary metabolite. We're continuing to work on both of the BioBetter, biosimilar biologic projects; 4, first, the pegylated antibody fragment certolizumab pegol, which would be a potential biosimilar, BioBetter to UCB's EUR 1.4 billion drug Cimzia, which is used to treat prunes disease, psoriasis and rheumatoid arthritis. And the glycosylated monoclonal antibody, nivolumab, which will be a potential biosimilar, BioBetter to Bristol-Myers Quiz cancer drug OPDIVO, which has been reported to currently have over $5 billion in sales and is projected over the next year or 2 to reach $8 billion. Our approach to building value is both targeted and opportunistic. In the case of our animal health collaborators, we have focused on a sector that is large and growing market characterized by a shorter regulatory pathway, less expensive development costs and faster time to commercialization.

In addition, we have started current an attractive portfolio of equity stakes in smaller biotech companies using our C1 technology as currency. These currently include Novavax, BDI, VLP Bio and Elbaz, which will be received after they sign off on the C1 tech transfer. In October, Fire Animal Health and VLP signed a global collaboration agreement to jointly discover and develop immunotherapeutics for animals based on VLP's technology. We see this as an additional endorsement of VLP's activities. We continue to manage our cash and investment-grade securities carefully. Our financial position as of September 30 remained solid with approximately $37.2 million in cash investment-grade securities, including accrued interest. Currently, we anticipate that we're in 2019 with more cash than we previously projected. You may remember that we previously gave guidance that we expected at the end of the year with a cash burn from operations between $8 million and $10 million for 2019. Currently, assuming no extraordinary events between now and the end of the year, we anticipate that the number will be less than $8 million. After considering other cash inflows, such as our AMT tax refund, interest income and the exercise of options, we expect to end the year with approximately $35 million to $36 million in cash and investment-grade securities, which means our net cash burn for the year is expected to be approximately $5.5 million to $6.5 million. We are also debt-free.

With that, I will turn the call to Ping for her financial review.

Thank you, Mark. Research and development revenue for the 3 months, ended September 30, 2019, increased to approximately $455,000 compared to $263,000 for the same period a year ago. Cost of research and development revenue for the 3 months ended September 30, 2019, increased to approximately $385,000 compared to $243,000 for the same period a year ago. The increase in revenue and cost of research and development revenue reflect 5 ongoing research collaborations for the 3 months ended September 30, 2019, comparing to 4 collaborations in 2018 for the same period. Research and development expenses for the 3 months, ended September 30, 2019, increased to approximately $841,000 compared to $477,000 for the same period a year ago. This increase reflects the cost of additional internal research activities. Research and development expenses related party for the 3 months ended September 30, 2019, was approximately $102,000 compared to $288,000 for the same period a year ago. The decrease primarily reflects the cost of research service agreement with BDI, which concluded in June of 2019.

The G&A expenses for the 3 months ended September 30, 2019, increased about 3.1% to approximately $1,056,000 compared to $1,024,000 for the same period a year ago. The increase principally includes increases in noncash share-based compensation expenses of $67,000 accrued annual bonuses and incentives for employees of $86,000, insurance and other costs of $86,000 and the business development and Investor Relations cost of $28,000, offset by reductions in executive compensation costs of $171,000 and ICC registration and NASDAQ uplisting cost of $63,000. Interest income for the 3 months ended September 30, 2019, increased about 1.2% to approximately $245,000 compared to $242,000 for the same period a year ago. The increase in interest income reflects higher yield on investment-grade securities, which are classified as held to maturity. Net loss for the 3 months ended September 30, 2019, was approximately $1.7 million or $0.06 per share compared to a net loss of $1.5 million or $0.06 per share for the same period a year ago.

I will now discuss our financial results for the 9 months ended September 30. Research and development revenue for the 9 months ended September 30, 2019, increased to approximately $1,248,000 comparing to $609,000 for the same period a year ago. Cost of revenue and research and development revenue for the 9 months, ended September 30, 2019, increased to approximately $1,035,000 compared to $519,000 for the same period a year ago. The increase in revenue and cost of research and development revenue for the 9 months ended September 30, 2019, reflects 8 ongoing research collaborations compared to 5 collaborations for the same period a year ago. R&D expenses for the 9 months, ended September 30, 2019, increased to approximately $2,352,000 compared to $1,655,000 for the same period a year ago. The increase primarily reflects the cost of additional internal research activities.

R&D expenses related party for the 9 months ended September 30, 2019, was approximately $828,000 compared to $1,022,000 for the same period a year ago. The decrease is primarily related to the research service agreement with BDI, which concluded in June of 2019. The G&A expenses for the 9 months, ended September 30, 2019, increased about 34.5% to approximately $4,355,000 compared to $3,238,000 for the same period a year ago. The increase includes increases in noncash share-based compensation expenses of $6,040,000 related to stock options granted in 2019 and options which invested related to the April 2019 uplisting to NASDAQ. Increase also includes accrued annual bonuses and incentives for employees of $257,000, SEC registration and uplisting expenses of $244,000, business development and Investor Relations cost of $159,000, insurance costs and other costs of $89,000, offsets by reductions in executive compensation costs of $273,000.

Interest income for the 9 months, ended September 30, 2019, increased about 20.1% to approximately $778,000 compared to $648,000 for the same period a year ago. The increase reflects higher yield on investment-grade securities, which are classified as held to maturity. Net loss for the 9 months ended September 30, 2019, was approximately $6.6 million or $0.24 per share compared to $5.2 million for the same period a year ago or $0.19 per share. Our balance sheet at September 30, 2019, remains strong, with cash and cash equivalents were approximately $4.7 million compared to $2.4 million at December 31, 2018. The carrying value of investment-grade securities, including accrued interest at September 30, 2019, was $32.5 million compared to $39.1 million at December 31, 2018.

With that, I will turn the call over to the operator for Q&A. Devin?

(Operator Instructions) Our first question comes from the line of Jason Kolbert with Dawson James.

Mark and Ping, great job. It's great to hear your voices. Thanks for presenting at our conference. And one of the accomplishments in the quarter is new coverage. I am thrilled to be covering the company. As you know, I've been covering it tangentially for like a decade, so to be really covering it as interesting. Ping, a couple of financial questions. Mark had mentioned that the total cash burn in 2019 would be between $5.5 million and $6.5 million. I have the cash burn at first quarter of around $2.1 million and second quarter, $2.6 million, and today, around $1.6 million. So if I add up those numbers, I get to around $6.5 million. How do you get to $5.5 million to $6.5 million by year-end? Am I misreading those numbers? Or am I counting some noncash charges maybe as cash.

Thank you, Jason. That's a great question. And as we are excited about having you covering us as well. I think definitely that demonstrates that start to get more exposure to the Street, and we really appreciate and also your questions. I think the cash definitely is the only guidance we gave to the investors early this year, maybe it wasn't really very clear in terms of our cash burn. What I want to point out is when we look at the cash burn, we also have to consider other cash inflows as what Mark mentioned in his script earlier, including some of the tax refunds from the AMT tax credits and also interest income and the exercise of the option obviously, a lot of those cash inflows are out of the control of the company. We cannot forecast it accurately how many people will exercise options, et cetera. So with that, I think when we look at the cash burn, $8 million to $10 million is really focusing on the G&A and R&D expenses. So like Mark mentioned, we expect that to be less than $8 million by the end of the year. And then if you layer the cash inflow, I just mentioned, that's where we come up about $5.5 million to $6.5 million at the end of the year.

Got it. It makes perfect sense. And Mark, Ping is one of the best things that's ever happened to Dyadic. Can you talk a little bit now about 2 things? One, you announced a collaboration in animal health, and I'm looking for a little bit more granularity. There are only a couple of major animal health companies. And I'm trying to understand when do you think you'll be in a position to announce more details around that? And also, when we talk a little bit about the ZAPI collaboration, I'm not as familiar with the Schmallenberg virus. So can you talk a little bit to me about what is that virus? And what are you working on? And what's the potential of that market opportunity?

Well, first of all, Jason, thanks again for the coverage and the support and the confidence in Dyadic. And as just mentioned, you and I, we've known each other for more than a decade. It's good to see you growing and tangentially following us actually coming out with a report, and we appreciate that. So in the animal health sector, the deal we just signed, as you point out, there are a few behemoths, the big boys. And this is one of those. As is the other one we signed earlier in the year, it's now on the third protein. So they start out with one, they went to a second one, now they're on third. So that company has been obviously seeing things for a long time and seeing good results, and that's why they're adding more and more proteins to the programs.

So we're excited about that. On the ZAPI program, the exciting thing there really is, we were really the dark horse because they were so used to using baculovirus in that program and with their commercial partners to produce their animal health vaccine as there's a lot of companies out there, and we just blew it away in terms of yield. And the thing now is, as I think Ronen will talk about, and I'll let him chime in here a little bit to get into the Schmallenberg virus and et cetera, what it is and what it does. But basically, it's used in thousand other animals to treat them. And so the good thing here is they've already done the immunogenicity test and they came out positive, and now they're working on further test, challenge test, which I think they now would go to mice, the immunogenicity were in cows. And Ronen, maybe you can chip in and give a little more color on what that is in terms of the product opportunity? And what it…

And also, we want to understand how important is the cost when you're dealing with these types of markets?

Well, I think before you even get into the cost, they had a target of 100 milligrams, and we had 1,730. And in fact, baculovirus was around 50 or less and E. coli was like 5 or 10. So they weren't going anywhere. This product was not going to be commercialized unless we came and provided a new platform that could actually take it much further than they needed to go, but certainly where they want it to go. So I think that's another example of taking something that's stuck in research, not going anywhere enablement rather than cost of goods. This case is both, it's an enablement an extremely low-cost of goods, which means their fermenter size goes down dramatically, and the cost goes down to both CapEx and OpEx. This is a great success. And if the animal studies come in, we expect to be able to leverage those results because it's in a public EUR 22 million funded program to be able to demonstrate those results to the animal health industry. On top of the other 2 people we already have going, we're working with others in the industry as well. So Ronen, can you give a little more depth to ZAPI and what's going on there a little bit, without getting too detailed?

Yes. First of all, just to take you -- about the Schmallenberg virus, but this is why, in fact, cattle, sheeps, goats, and it's quite risky for the farmer. In terms of ZAPI, the entire goal of ZAPI is to really be able to respond very quickly to any endemic pandemic, on one hand, and also to reduce the cost. As Mark said about the CapEx, if you look into amount of antigen that you have to produce the amount of doses that you have to produce. So when you go to -- if you really look at the productivity that can be reached by C1 virtually was already reached, it means that instead of producing at a very (inaudible) patient with high vessel volume, like 10,000 liters or 20,000 liters, we are now going to go down to 20 liter or 200 liter. And this is really show the changing in cost and also the complexity and the fact that it can be very -- it can be done. It's a very flexible way to produce it and could be done in different sites and different plant. So this is really, I mean, the ZAPI is really come to a code that the team produced by C1, which will really show that C1 is really steep, which oils up the goals. And I think that will be a very strong message. And obviously, also we'll be, hopefully, one of the first product that was being produced by C1 that will be in the market.

So what I hear you guys saying is that 4 key parameters, the ability to scale, the ability to do it quickly, the ability to do it cheaply, have powerful impact when you're dealing with these markets. And I guess that's what explains the statement, 15 proof-of-concept collaborations for human and animal health in the press release. And Mark, as you know, one of the biggest challenges I had as an analyst was trying to predict catalysts, right? Because we, as investors, are looking for the next catalyst to take the stock up. And I highlighted the fact that if I flip a coin 4 time, I actually have no idea how many times it will be heads and tails in 4 flips. But in 1,000 flips, it's going to be 50-50.

And when I look at the number of things going on, and again, you highlight these 15 proof-of-concept studies, I can't predict which ones, but I can say you're on the verge of proof-of-concept across multiple different dimensions. And I find that really, really interesting. And I just want to highlight, that's why I'm covering the company. There's a Chinese wall that separates research and banking. This, for me, is about technology and about the paradigm shift. And I see Dyadic as one of these companies that people aren't paying attention to, but that's actually enabling a paradigm shift, a lot the way early Regeneron looked when they were doing some of their research collaborations with Sanofi. And I know we talked about that, too. So thank you very much. I look forward to covering it. And I really appreciate the in-depth review on this call.

Yes. And Jason, one of the things you said, 4 things, that you only mentioned 3. You didn't mention emerging or enablement where, in fact, this product wasn't going to be commercialized without C1.

Well, I knew I had to leave something for you, Mark. Right?

There you go. But we agree with you, it's a platform technology in addition to which we haven't mentioned, but we're being approached by a variety of other companies that are looking to produce things that aren't even in the vaccine space, the viral vector space, the metabolite space the protein space.

And I know we didn't really talk about biosimilars at all today. But again, by the way, anybody who's interested in seeing our research report, don't hesitate to go to the Dawson James website. And you can pull it down. It's wide open, open architecture, don't hesitate to take a look at it. It's my best estimate on how to model this. Very simple, but yet very complex company.

Our next question comes from the line of John Vandermosten with Zacks SCR.

And congratulations on the new partnership and collaboration. When do you think some of the partners are going to get more serious and kind of carve out an area for themselves and try to, I guess, block others from getting in on the C1 because it seems like on the animal health side, that they're starting to pile on faster and faster. Do you get a sense that there's urgency and some of the collaborators out there trying to stake out C1 for themselves?

Let me let Matt start answering that and then I can chime in. Go ahead, Matt.

Yes, sure. Thanks, Mark. And I think one of the easy ways to answer that question is that we're encouraging a wide range of conversations. We're not as you know, we've not exclusively signed anything. It's all my exclusive announcement. I think the important thing is that it's science first here. So you can presume that the companies that we cut name due to confidentiality had their own particular project needs to start with. We kicked the tires together, and they get really excited, and you see other announcements and other projects coming on from those. That is a small community in the end. And I think that, obviously, alternative expression hosts, ways of making vaccines, ways of making mAbs or other sorts of proteins being more effectively, more cheaply and quicker is clearly attractive to that segment.

And the comments earlier that Mark made around the regulatory hurdles being perhaps also more attractive, inevitably, I think, will -- has created this excitement. That we are very present. We're at a lot of conferences. We have a lot of meetings. We hold lots of one-to-one face-to-face meetings with companies in this space to encourage and share. As Ronen mentioned, we have had great success with ZAPI and other annual health led projects, which have created a really positive momentum. In human health care, big pharma, particularly go quite steady with regards to alternative expression hosts. And so we are very proud to have announced those announcements through this year with, we believe, more to come. But I think that really, the excitement is sort of encouraged by the conversations we're having with a wide range of companies, Mark.

And I think, John, let me add a little color and a little more detail. So we're going to attend more animal health conferences and put more attention on that space because we're gaining traction there at a much faster rate. So I think that is an area that I think we can just dramatically change the game in a shorter time frame and with more impact. And I think in this particular case, we keep seeing it time and time again, people are coming to us with these challenging proteins that they're failing to do and other systems and C1 is delivering on the promise. We've seen there with virus like particles, antigens. So we're excited about the data and what we're seeing and so are some of our partners that have already been funding the research and development for quite some time. So ZAPI is the first one, and we put a lot of time and effort into that as it members is happy and the results are basically showing. And I think when the cattle studies are done, and the mice trials are done for the challenge studies, if the things go in the way we think that it just be more convincing data that people need to jump on sooner and later, which I think is your point. And when sooner than later is, I guess, we're going to all find out.

All right. And can you compare the time line and complexity of animal health and human health for advancing a product to commercial state? I mean, obviously, animal health is easier, but maybe you could highlight just some of the differences.

Yes. Maybe, Matt, do you want to pick that up?

I think the main difference is from a regulatory pathway are around safety and toxicity and man, obviously. So the clinical trial process is well capped as well understood by the companies in that space. There's a very traditional pathway through from discovery through to an MA. And then, of course, the approval process being granted. So whether we're talking about clinical trials or even GLP talks preclinical trials, there's a certain time line there. I think in animal health studies, slightly dependent upon the nature of the target disease whether it's preventing a disease or treating a disease. Again, there's a very tactical regulatory pathway. Now it's not that one is necessarily quicker, one just requires less testing in different species. Particularly, of course, for human health care, one has to do clinical trials. So I think that by sheer nature, there's an efficiency, a perceived efficiency.

From our perspective, that's great, right, because C1 will have proteins going through those thoughts opportunities on both sources of companies, if you compare them head-to-head, it looks like animal health goes a lot quicker, which it does. But we're not distracted by that. I think one of the things that we're trying to do is work with these big companies, understand how they work, make sure they have access from a research perspective to our great people and to the knowledge we built up with our (inaudible) toolboxes and other sorts of attributes along this long journey you've had. And I think the good news with that is that we can get these guys running very quickly. So I think, yes, it's quicker from start to finish. You're going to compare them side by side. But obviously, it's a rate whichever company you are. So if you're one of the big 5 in either of the verticals, you've got natural competitors also held on getting their drugs to market. So C1 enables companies that are prohibited due to a cost issue. Perhaps they were no tighter, low productivity, perhaps have another challenge from a research perspective that we can help get them past. Either way, as the ZAPI project is shown publicly now, productivity, of course, is a big tick for us. We're now working with these big companies to make sure we go further and into trial.

And any thoughts on the pace of new biosimilars entering the market and how C1 might influence that?

Matt, you want to go there or no?

Yes. I think biosimilars for us are a massive opportunity. And clearly, whether it's human Anwar health. Again, C1 for us at Dyadic care, we're very agnostic therapeutically. We want to talk to you whoever you are. And I think to Jason's point earlier, one of the reasons that we hope to be of great value of great interest to a much wider community is because we can enable companies forward. Now obviously, biosimilars or BioBetters as well, which is an area which right now we're interested in. It's dependent upon our glycosylation. And of course, our glycoengineering program has just advanced forward tremendously successfully.

Ronen will have more detail as you need, but we are very proud of where we've got in the last couple of years. And I think we are on that journey now to having a humanized strain, which will allow us to have conversations with companies right through the biosimilar program. But again, the world is a big place. Lots of molecules for us are non-globe cost related, lots of conversations we're having with companies don't need us to go perhaps all the way through an engineering program for different reasons. So there's lots to do, lots of companies we can talk and engage with. We're really not prohibited by that. But we're certainly interested by the biosimilar space. I think that's a very natural fit to C1. And I think when we get there, we'll be really well placed given that we will have arrived at that point with a very deep range of knowledge from the vernacular perspective, which will set us apart.

And, John, one thing that I want to clarify is we might not be talking about specific details for glycosylation and/or other things and the reasons for that are because we're filing patent applications or have filed a provisional patent applications. And until those things become public, it's a commercial advantage for us to keep that play as much as possible from a business standpoint. So we have to weigh the difference between running a business and building technology in value long term and sharing with Wall Street information you guys want to know, it really is not in your best interest for us to tell you.

So if we have good results, we're filing patent applications, and we have a year to beef those up, we really want to keep those things quiet so that we don't actually tip off our competitors out there or people that may think about a this is something that like to evaluate so we can strengthen our patent portfolio. So there may be really good things going on, and they'll come out when those patents become published. Just as you remember, the Sanofi data on the influenza, which was significantly positive in the mice trials, but until the patent came out, we weren't telling anybody about the results. So you got to keep that in mind. Just because we're not talking about specific data points, there's a reason for it. It might not be that it's not going well. It might be going well, but there's no reason really to get into it from a Wall Street perspective because it is not the best interest of the company commercially.

Sounds good. And again, congratulations on the new partnerships.

All right. Thanks, or partnerships. Don't forget about the human health one we just signed too, okay. Because that's with a major company, as we mentioned in the past, it's another top 25 company. And in fact, that company, as we've talked about in the previous call is a microbial fermentation group. So they're actually aligned with our interest in helping us push that forward. In addition, as we talked about in the last call, they have an affiliated company, and that company is digging in and thinking about actually bringing C1 in and testing it and evaluating. So again, there may be things going on behind the walls, that you guys are aware of.

Our next question comes from the line of Ahu Demir with NOBLE Capital Markets.

Congrats on the recent developments. So I have 6 questions on the research collaboration. For this year a new research collaboration ended flu vaccine one that you signed end of last year, what advances have you made? What are the current situation for those projects? Could you give some color on those projects?

Which projects, specifically? Because I couldn't hear you.

Yes. So the first one is the flu vaccine one that you signed end of last year, I believe. And the second one is the India research -- Serum India Research collaboration.

Yes. So I think as I mentioned, the Serum collaboration was signed, I think, in May. We didn't start the program till probably June or July, and we're already seeing preliminary results, and they're pushing us. So they're happy with what they've seen so far. I think we mentioned in the call earlier that more than half of the 12 genes have already been turned over to us. And in fact, in addition to the 10 or 12 or 8 antibodies into 4 vaccines, they're even evaluating throwing more things at us because they're seeing great results. They're seeing data, preliminary data of high yields, and they're introducing us to a variety of different partners that they're working with out in the world, whether it be in India or in the United States or Europe. So I don't know, Ronen, you want to chime in and add a little more color to that. But that seems to be going very well. And in fact, in some ways, they're pushing us harder.

Yes. I think that --

Yes, sorry, Ronen, go ahead.

Okay. Thank you. Yes, I think the most important thing about Serum because we have kind of a variety of opportunities still. We started with several proteins. And the one that we already have production, as Mark clearly said, we are very happy with the results that we get. And we are working together to get even a better result with this product and we gather. So I think it's a very good because we are very true. Yes, it's a very good collaboration with them.

Yes. I think it's a good partnership and collaboration. I think that we knew from the start that they were committed to try to drive the cost of goods down to spread low-cost health care globally. And I think they see C1 combined with their strengths, and believe me, they have plenty of them from regulatory strengths, development strengths. They have partnerships with some of the major institutes in sponsorships like WHO, AbbVie, Gate Foundation, et cetera. So there's a lot of eyeballs on the serum project, not just theirs, not just Dyadic's, but a lot of outside third parties that are watching what's going on there, which we hope will lead to more business opportunities, and more importantly, gaining low-cost health care to patients globally.

And on the flu vaccine program, there wasn't a program that just started. It was a program that we had resulted on, that we've been thinking about and trying to figure out how to move forward. It was one that we had and decided not to spend our own money on the advance it, not because the data wasn't good, but it's a tightly controlled marketplace at the moment. But if you remember, about a month ago or less, President Trump gave an executive order to BARDA and HHS to go out and find a new way to make seasonal flu vaccines and other vaccines, quicker, faster and cheaper. And that's an opportunity that we want to pursue. And I think that we fit perfectly in as an expression platform to solve the problems that they're facing for pandemics and epidemics and the flu. And so that's something that we're trying to get more attention on, and we've been in visited with BARDA and other people. And we have to get to a level 6, which is through a tox study. And we haven't funded that on our own because we're watching to cash and choosing carefully which projects to pursue, or we're looking for a partner and/or funding for the government to advance that program.

So that's great as well. My next question will be on the point out to that partnership with by animal has as well, not only your partnerships, but your subsidiaries. If I'm not mistaken, you do have 16% stake in VLP? Is that correct? I just wanted to confirm.

Yes, combined -- with the equity stake we have in BDI and the stake in VLP combined at 16.1% or 16.3% of VLP Bio.

But we do not know if they are using C1 technologies, but correct, it's not disclosed information.

Yes, it's not disclosed. This is more of discovery and development, and the next stage would be compression. And I think that, obviously, I think VLP Bio would prefer to use one. Question is, are buyer going to jump in and get involved in that program with C1 and that's yet to be seen. But until they figure out which molecule they want to make, they're not going to choose that. But I think the data is over warmly compelling to the to be C1. But we don't make those decisions. But we're on top of it, as are they, and we're both pushing it.

Okay. Understood. That's great. So my next question will be -- and the last one, by a compare stability data for Cimzia as well as (inaudible), I understand the patent filings. So should we not point out to Q1? Data disclosure, it might be even later in 2020 time line? Is that where we are getting at is because of the patent applications for possibly?

Well, I think VTT is going to make a presentation coming up here next week or the week after in PEGS, which is a major industry conference. They're going to talk about certain things there that we'll put up on the media center presentations. We're not going to come out with an announcement on it. But I think there's some positive results that will be shown there. We're not showing all the things we have because, again, we're keeping a very tight control over what we release. Obviously, commercial opportunity and to broaden our IP position. So once these things come out and they become published, you'll see more detail, but we're going to show some promising data in that presentation coming up. I think it's like the 20th of November in Lisbon, is it PEGS conference, one of the major conferences in the year.

Our next question comes from the line of Barry Kitt with Pinnacle Fund.

Mark and Matt and Roland. You've done a super job with that. In addition to the 15 partnerships you've announced in the last 18 months or so, roughly how many more NDAs have you signed so what kind of interest you're getting broadly?

Yes. I don't have a specific number, I can tell you that every quarter, there are probably dozens so they're continuing to come in. And in some ways, they're accelerating depending on what and where. So it's not slowing down.

It's helpful, Barry, what I can add to that is that the interest, I think in the last 2 quarters has been, if anything, are picking up of NDAs, but the diversity now. So we -- for a year ago saw specifically self Ping, Ronen and Mark targeting conversations with human health companies. We still do that, obviously. We're now entering into NDAs with annual health companies. And also in terms of academia, there's a different flavor now. So it's not just your clinical University there are spin outs, there are biohubs. There are innovating centers. There are capital centers that we've got to know. And of course, in those conversations, inevitably we want to have a 2-way conversation. So I would say that the diversity of NDA is also encouraging sort of seeding that pipeline conversation, right.

I want to remind you that as Matt points out, I mean, the University of Iowa, Oxford, full offer. I mean, we're enabling other institutes that are running into problems pressing proteins that are looking at finding out a solution. And C1 is hopefully, in some cases, we're seeing good results. Those are just not publications that are out yet that people are working on. So I think the proof is putting in some of the data that's coming in is very positive on a variety of different front. So we're going to continue to work with academics, if and where we feel we can help and where they have a need. And then obviously, animal and human health. And as I mentioned earlier, it's not just about the 4 avenues we're going down today for vaccine space for animal and human health, the therapeutic space animal and human health, like companion animals to metabolize the viral vectors, but there's new opportunities that people are coming to us and they're saying, "Hey, can you do this for us in C1?" So the word is getting out, and it's spreading.

And we -- as I talked about in the script, we're picking up interest, not only from investors, but more importantly, from the industry, from the scientific community and the business development community. People are recognizing that there's a gaping hole in getting health care to people and in the case of animals as well, at an affordable price. And I think C1 can satisfy that in a lot of ways. And I think it's not just about cost of goods, but it's again, dressing, it's about enablement because those are the first things people are going to do. They can't do it cost effectively, and it impacts the research and development time line or kills the program, they're never going to commercialize cures for cancer or diseases that aren't going to be treated. So the goal here is really to help human health broadly and diversely and team 1 is already starting to have that impact.

So Mark, how many of the partnerships you've announced so far from entities that are trying to figure out how to make a drug that they heretofore haven't been able to make because it wouldn't be made cost effectively?

I don't know it's about 20% is my guess, but at the broadcast, just off the top of my head. I've never sat down and put the number together. But I'd say in a variety of the projects, there are certain things that they're looking at yield, enablement, quality. So different factors. So like in the case of Sanofi, for example, there are things that they couldn't make that we're now making. And I can't get into details of that. And there's other things we're making at record levels that they've never seen before. They're going to be doing their own analytics on these proteins. They've already started in some ways. And when that program finishes the first and second phases, which is expressing them, improving the yield, then they start doing the analytics and they just stood in the comparability studies and they look at how and where and if they want to use heat to sell some of those problems. Or to potentially bring it in and use it within their own organization and put it in the hands of hundreds, if not thousands of scientists to deliver on multiple drugs and vaccines over the next 5 to 10 years.

Okay. And we talked about animal health, human health and what are some of the catalysts that are coming up. And certainly, this isn't a catalyst, but I've been wanting to ask you this for a long time, so I'll ask it now. So Merck Block GlycoFi and there are others -- other platform technologies that have been bought by big pharma over the years, and of course, you have a platform technology, which is gaining a lot of traction and a lot of interest by a lot of parties, where do you think your platform technology is relative to where some of those other platforms that were purchased, where do you think -- where you think you sit right now relative to where those other platforms were when they were purchased?

Well, I think it's a deal. Well, I think we'll take 2. We'll take GlycoFi, which was the a yeast compression systems and when they paid $420 million for. Our yields are far greater far higher. So our cost is much lower. They had completed the glycoengineering step when they had bought, but they didn't have any drugs as far as I know into the clinic. So it doesn't mean that the drugs have to get in the clinic before farmer wakes up and recognizes someone else may take it out. That's one. The other one is protein sciences. Sanofi worked with BARDA and developed or protein sciences or BARDA and divide the baculovirus expression host. And as you saw in the ZAPI program, we produced 35x more of an antigen in the case of C1. We had used less protein, got better results. In protecting the mice in that trial -- in the Sanofi trial. So it looks like in some cases, we don't have a fully big gate, but in some ways, it takes higher yield and the quality of being -- has to be demonstrated and proved to some kind of an animal and human study. And those are the things that are going to be the next step in the case of animal studies, some of them are going on right now, and hopefully, is more to come.

Our final question comes from the line of [Dick Williams] with [Williams Resource Group].

Mark, Ping. I'll parrot what Barry already said in terms of doing a great job and watching the money, especially at this juncture when you still have a pretty respectable amount left in the till. I just wanted to take a different perspective with a question mark. Revenue. And looking at a road map of what we're doing today. We're developing proteins. You have 3 proteins with the new animal health company. You had several proteins with another. You have the Serum people. And back in the industrial days, the basic formula was to get some money upfront, time line payments and then a royalty down the road on whatever they developed out of the technology. Of course, we talked about today in this space that we're in that you're doing collaborations that are fully paid now, which is terrific.

We're not really in a position getting anything upfront, and that's negotiable, obviously, because you may be better off not taking something upfront. But I'm a little confused on when we get revenue and time lines going forward with the protein. So we get anything out of the development and conclusion of each protein. And if they go on, even though they initially expected to do 2 proteins, let's say, and now they've had great results, they're going to do 3 or 4, or do we have to wait until the outgrowth of those proteins into the actual establishment of a product they're going to go forward with? And is that a time line, when we get a pay day, and then, of course, later, we will get royalties on the business that they do? So can you run through that and give some color with a little bit of a road map of how revenue can flow to the company?

Yes. So first and forth, let me start with the simplest and easiest is big pharma. So the traditional role of big pharma is upfront cash milestones and royalties. And so that's more cash upfront and less milestones and less royalties. So we expect, in the case of big pharma, something to get access as one. But ultimately, like say, CPSF paid us $6 million in cash to in research funding, $1 million in milestone payments on one particular protein than there would have been royalties. In case of Abengoa Bioenergy, combined with $15.5 million between the first investment the expanded license and that would had milestones and royalties, the same thing with a $10 million from Michelle and Codexis that would add, in some cases, royalties as well. And then we had another licensing for animal health as well there in the enzyme space that would have led to milestones and royalties. So in big pharma, it would be a similar model we would expect. We're going to get a cash upfront payment, milestones and royalties. With the course of certain milestones from scientific to commercialization milestones and royalties on the product sales.

The next one would be a company like Serum, which is sort of a cross breed, where they didn't put upfront cash for the opportunity. But they're committed to taking one or more of the 12 proteins depending on the results forward through clinical trials and there will be milestones along the way and then royalties on the commercial products. And I think that's been probably said, that would be 15 years of royalties after commercialization. So one of those would be a very nice royalty stream. Two of those would be better. Five of those would be even better. But once one or more of those go in and the model is there that it accelerates that somebody needs to pay upfront cash to get access because they're going to need access to the platform that someone else may take out before they get their hands on it. And then you have these small little biotechs that can't afford to pay upfront cash, like the Alphazyme, the BDIs, the VLPs and Novavax because these are guys are trying to build their businesses and they don't want to give us cash upfront, so they're giving us equity, but we're getting milestones in royalties. Because I think I've mentioned before, companies like OrbiMed, which is like a venture capital firm our public equity house, whether you put cash in to get an equity piece. But we're not putting cash in, we're putting technology in and the technology potentially can speed the development and lower the cost products to increase our equity.

And in addition, we're getting milestones in royalties. So we actually are in a better shape and a venture capital fund would be in these companies because we're not only getting equity, we're helping them speed of development and lower the cost. And obviously getting milestone royalties in additional payments. So we expect a mix of these things to continue, and we're looking for, sooner than later, and hopefully, in 2020, we'll see first or more than one upfront cash payment, one of the big pharma in either animal health or human health. And the data keeps coming in, one or more of those companies could come in and have more significant positions. So it's not about the R&D revenues. Those are nice, and they're advancing science and helping people get a peak car and driving it in test drive. And seeing how deep, how wide, how diverse of protein C1 can produce at what levels, with what qualities and what if anything needs to be done to advance those molecules forward. And then ultimately, a platform technology that can be brought in-house for them to put in the hands of their scientists have to train them how to can express and grow C1 because the more hands that are on deck, going to give more output. And that's the ultimate goal is to get these license deals with upfront cash milestones and royalties and have more and more people working with C1. So it becomes embedded in as many laboratories as possible. To bring drugs people more affordably globally.

Okay. You did it in the industrial side. And obviously, you know how to do it. So let's just hope that the revenue will start here equally as well as it did there. And of course, it looks like it's going to be a hell of a lot bigger based on everything that you've got in the hopper. So good luck with everything.

I'm showing no further questions at this time. And I would like to turn the call back over to Mr. Emalfarb for any closing remarks.

Thank you. In closing, I want to emphasize what I believe is an important point that differentiate Dyadic and demonstrate our competitive advantage. First, I hope that from our call today, we're able to appreciate the progress we are making with our proprietary C1 gene expression platform both with our ongoing collaborations as well as for ourselves with our internally funded research program. Next, we're building value through a targeted and opportunistic approach. A good example of this is the opportunity we recognize in the animal health sector. We understand the characteristics of the market and believe that our C1 technology offers a perfect solution, demonstrated by our 5 ongoing collaborations. Finally, we carefully continue to manage our cash and address investment-grade securities. We have a solid balance sheet that provides us with the financial flexibility to pursue growth opportunities and advance our science. Additionally, we have equity stakes in 4 small biotechs that can provide upside to our investors. Thank you, everyone, for dialing in today, and we appreciate your ongoing report.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.