Dyadic International Inc (DYAI) 2024 Q2 法說會逐字稿

Good evening and welcome to the Dyadic International's Q2 2024 conference call. (Operator Instructions) As a reminder, this conference is being recorded today, August 13, 2024.

I would like to now turn the conference over to Ms. Ping Rawson, Dyadic's Chief Financial Officer. Please go ahead.

Thank you. Good evening and welcome, everyone, to Dyadic International's Q2 2024 conference call. I hope you have had the opportunity to review Dyadic's press releases announcing financial results for the quarter ended June 30, 2024. 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; and our Chief Operating Officer, Joe Hazelton, will give a review of our second quarter 2024 business and corporate highlights, including a brief summary of our recent research and business development efforts. I will follow with a review of our financial results in more detail. And our Chairman, Patrick Lucy, will provide a commentary on the strategic direction of the business at the end of the call. We'll 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 uncertainty 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 report filed with the SEC. It is now my pleasure to pass the call to our CEO, Mark Emalfarb. Mark?

Thank you, Ping. Welcome, everyone, and thank you for joining Dyadic's Q2 2024 conference call. We are excited to discuss how our business strategy centered on near-term licensing and product candidates is strategically positioned Dyadic to swiftly take advantage of current and upcoming opportunities.

Over the next 24 months, we are focusing on achieving multiple revenue streams and significant milestones through the commercialization of products, technology licensing, fully-funded collaborations, and advancing our pipeline, all aimed at enhancing shareholder value.

Our C1 technology continues to garner widespread recognition of its remarkable speed and productivity, earning accolades not only across the country but around the world. Esteemed voices from academia and industry, such as world-renowned vaccinology pioneer Dr. Rino Rappuol, government agencies like the US, FDA, BARDA, the NIH, and NIMBL, nonprofit organizations, and two top 10 pharmaceutical collaborators are recognizing C1's groundbreaking potential.

Meanwhile, our Dapibus protein expression platform is already gaining significant momentum and, most importantly, generating revenue in the rapid-evolving alternative protein and bioindustrial sectors.

We are committed to leveraging our microbial protein production platforms, C1 and Dapibus, to develop recombinant proteins, enzymes, antigens, and antibodies across our core sectors, alternative proteins, animal and human health.

These efforts are expected to open up new revenue streams, driving substantial value creation for Dyadic and our partners in both the pharmaceutical and non-pharmaceutical markets. I will now turn the call over to our Chief Operating Officer, Joe Hazleton, to provide an update on our business results for the second quarter. Joe?

Thank you, Mark. In the second quarter, our business development efforts in the alternative protein sector are continuing to bear fruit, showcasing the potential of our microbial platforms. As part of our strategy to drive near-term revenue, we have concentrated on identifying and producing high-value, high-volume recombinant protein products that can quickly and efficiently be commercialized.

Our recently announced partnership for recombinant serum albumin is a prime example, unlocking numerous opportunities within the approximately $6 billion serum albumin market. This single product offers diverse commercialization prospects across various segments. For instance, pharmaceutical grade serum albumin has potential as a disease treatment, plays a crucial role in vaccine development, serves as a carrier protein for therapeutics, and is a standard reagent in research and development.

Additionally, recombinant albumin is valuable in diagnostics, cell and gene processing, and cell culture media, particularly for growing animal muscle cells for lab-grown meat. The recent completion of Certificates of Analysis for a recombinant human and bovine albumin confirms the analytical equivalence to currently commercialized research-grade products, making them potentially viable for commercialization in R&D. We have also completed third-party testing of recombinant bovine albumin produced through our microbial platforms as a component of cell culture media.

The results demonstrated its comparable effectiveness to animal-derived bovine albumin in growing muscle cells for the cultured meat industry, further validating its potential in this rapidly expanding market. To unlock the potential of a recombinant albumin products, we have executed a strategic development and commercialization partnership with Proliant Health and Biologicals, a leading supplier of purified protein for the diagnostic, nutrition, and cell culture markets with a global customer base.

This collaboration will initially focus on bringing recombinant human serum albumin to market with the first product launch expected in the first half of 2025.

Under the terms of the agreement, Dyadic will receive a total payment of $1.5 million, and we expect to start receiving recurring revenue in 2025 from our share of the profits generated by Proliant from the sale of animal-free recombinant albumin products made using Dyadic's filamentous fungal microbial platforms.

A portion of the upfront payment will support the technology transfer and commercialization efforts following successful scale-up validation. We've already received a $500,000 payment, and we anticipate a second $500,000 milestone payment in the late third or early fourth quarter following product testing and expect the final milestone payment upon scale-up validation projected for the fourth quarter of this year.

We're actively working to accelerate and broaden the scope of commercialization opportunities within the alternative protein sector, particularly for non-food applications. Recently, we completed the development of DNASE-1, and the issuance of its Certificate of Analysis confirms its analytical comparability to existing commercial products. We've begun sampling this product and are aggressively seeking partners and customers in the global market for DNases, ligases, and RNA polymerases, a market that's valued at over $809 million in 2023, projected to grow at a CAGR of 10.63% from 2024 to 2030.

In addition, we've developed a recombinant transfer and strain at significantly high productivity, sparking interest from global cell culture media -- the global cell culture media market, which was valued at $4.73 billion in 2023 and is expected to grow at a compound annual growth rate of 12.54% from 2024 to 2030.

Transferrin is a key component of serum-free cell culture media with recombinant proteins and growth factors comprising the majority of the costs, over 95% of which are driven by albumin and transferrin. Notably, more than 70% of the transferrin used in cell culture media today is produced recombinantly, making it a particularly attractive product for Dyadic. Our goal is to expedite the analytical and application testing in the third quarter and to begin sampling as soon as possible.

In other efforts to expand our presence in cell culture media, we've also begun sampling our partner Biftek’s patent-pending cost- reducing animal-free growth medium for which we'll earn a share of their net sales. Outside recombinant cell culture products, we believe recombinant non-animal dairy products offer Dyadic the potential for rapid commercialization opportunities. The global animal-free dairy products market was valued at over $26 billion in 2022 and is projected to reach more than $75 billion by 2032.

Today's animal-free dairy products are produced via precision microbial fermentation technology, a market driven by evolving consumer preferences and concerns over health issues associated with traditional cow milk, such as lactose intolerance and allergies. Despite the current high cost of animal-free dairy, this obstacle aligns with our expertise in producing large quantities of cost-effective recombinant proteins using our microbial expression platforms.

We're making steady progress with our partnership to develop non-animal dairy enzymes, which was established less than a year ago. While we encountered a delay in earning this success due to a longer than expected validation, we believe we have now met our targets for this project and expect to receive a success fee of $500,000 in the fourth quarter of this year.

In the second quarter, interest in our non-animal alpha-lactalbumin product has resulted in a non-exclusive joint development agreement with a top 10 global dairy company to create a food grade alpha-lactalbumin product. We're also in active discussions with three other alternative dairy protein companies interested in commercializing this product.

To further expand our non-animal dairy pipeline -- we plan to begin sampling in the competitive beta-lactoglobulin and lactoferrin markets. We are in ongoing discussions to develop a recombinant lactoferrin food grade product with a goal of finalizing a development and commercialization agreement in the third quarter. Over the last year, we have been actively developing several bio-industrial grade enzymes with applications across multiple industries, including nutrition, biofuels, and biorefining.

In a partnership with Fermbox, we have successfully developed a cellulosic enzyme for the biofuel industry, which is now undergoing testing by potential customers. Additionally, Dyadic has created enzymes initially targeted at the pulp and paper industry with promising potential for use in the biogas and biofuel sectors as well. Our goal is to begin commercializing these products within the next 12 months, which we believe will drive revenue growth in the future.

While the alternative protein segment is our primary focus for near-term growth and revenue, we remain deeply committed to the long-term potential of animal and human health pharmaceutical segments. The successful completion of our first in-human Phase 1 study for a C1-produced protein has generated significant interest from academia, government, industry, and non-profit organizations.

Since the beginning of the year, we have initiated over 14 fully funded human health vaccine and antibody projects, including two with top 10 pharmaceutical companies. These third-party funded programs cover a wide range of disease areas and further showcase Dyadic's ability to produce both standard and complex molecules. Our C1 platform has successfully expressed multiple potential infectious disease vaccine antigens, including those for HPV, HIV, several RSV antigens, and plasmodium parasitic diseases.

Additionally, in the second quarter, Dyadic delivered three successfully expressed monoclonal antibodies, or mAbs, for evaluation as neutralizing agents for infectious disease, with two more mAbsin development, one of which is for a top 10 pharmaceutical company.

As the H5 bird flu continues to spread globally, affecting wild birds, poultry, and even US dairy cows, there's been a growing interest from human and animal pharmaceutical companies, especially with the recent human cases reported among US dairy and poultry workers.

In response, Dyadic commissioned an independent vaccine expert to assess its adjuvanted H5 Clade2.3.3.4.b A/ Astrakhan avian influenza, or bird flu, ferritin nanoparticle human vaccine candidate, developed in collaboration with ViroVax's LLC.

The expert assessment provided a positive outlook on the initial animal studies, highlighting both the strength of the C1 vaccine manufacturing platform and the H5 avian influenza, or bird flu, ferritin nanoparticle vaccine candidate's potential to generate strong neutralizing antibodies for use in humans, as well as possibly in poultry, cattle, and other animals.

Earlier in the second quarter, Dyadic and ViroVax announced preclinical animal testing for H5 avian influenza, or bird flu, ferritin nanoparticle vaccine candidate, which demonstrated a robust immune response in rabbits. The potential H5 bird flu recombinant protein human vaccine candidate combines Dyadic's C1 single-step ferritin nanoparticle antigen production with ViroVaxs novel antigen and adjuvant.

This promising candidate has been presented to several government agencies, including BARDA TechWatch, NIH, and the White House Office of Pandemic Preparedness and Response Policy. Two additional US government presentations are currently scheduled for next week.

Furthermore, the initial preclinical animal studies indicate the C1-produced H5 avian influenza, or bird flu, ferritin nanoparticle vaccine candidate generates high levels of neutralizing antibodies against the three primary circulating bird flu viruses. This has increased the potential interest in the animal health sector, particularly for use as a vaccine in poultry and cattle to combat the ongoing avian influenza outbreak. We're actively providing samples of the C1- produced bird flu recombinant ferritin nanoparticle vaccine antigen to various human and animal pharmaceutical companies for further evaluation.

Alongside the continued progress and expansion of our partnership with Phibro Animal Health, we're capitalizing on the heightened awareness brought by the bird flu outbreak in the animal health segment by intensifying our business development efforts in animal health, initially focusing on recombinant protein vaccines for pandemic response and preparedness.

We remain laser-focused on evaluating product opportunities with financial rigor, ensuring we fully capture the value of Dyadic's technology and expertise. We're committed to driving near-term revenue growth in the alternative protein segment, while simultaneously building mid- to long-term value in the animal and human health markets.

With that, I'll turn the call over to our CFO, Ping Rosson, to cover our financials.

Thank you, Joe. Thank you, everyone, for joining our call today. I will now go over our key financial results for the quarter ended June 30, 2024, in more detail.

You can find additional information in our earnings press release and Form 10-Q, which we filed earlier today. Revenue for the quarter ended June 30, 2024, decreased to approximately $386,000 compared to $837,000 for the same period a year ago. The decrease in revenue was due to the winding down of several large research collaborations conducted in 2023.

Cost of research and development revenue for the quarter ended June 30, 2024, decreased to approximately $302,000 compared to $793,000 for the same period a year ago. The decrease followed the winding down of several large research collaborations. Research and development expenses for the quarter ended June 30, 2024, decreased to approximately $516,000 compared to $918,000 for the same period a year ago.

The decrease primarily reflected the winding down of activities related to the company's Phase 1 clinical trial of DYAI-100 and several internal research projects. G&A expenses for the second quarter of 2024 increased to approximately $1,608,000 compared to $1,403,000 for the same period a year ago. The increase was due to increases in share-based compensation expenses of $84,000, legal expenses of $81,000, business development and investor relations expenses of $60,000, and other increases. Partially offset by decreases in management incentives of $36,000 and insurance expenses.

Loss from operations for the quarter ended June 30, 2024, decreased to $2,043,000 compared to $2,290,000 for the same period a year ago. Net loss for the quarter ended June 30, 2024, was approximately $2,045,000 or $0.07 per share compared to a net loss of $2,153,000 or $0.07 per share for the same period a year ago.

On March 8, 2024, the company issues and aggregates principal amounts of $6 million of 8% senior secured convertible promissory notes due March 8, 2027, in the private placement. The convertible notes have a conversion price of $1.79 with no warrant. During the second quarter, $400,000 of the notes were converted into the company's common shares.

As of June 30, 2024, we have cash and investment-grade securities, including accrued interest of $10.1 million compared to $7.3 million as of December 31, 2023. In July, the company received an initial payment of $500,000 pursuant to our license and development agreement with Proliant. We expect our cash burn for the second half of 2024 will be approximately $3 million.

I will now turn the call over to Dyadic 's chairman, Patrick Lucy, for closing remarks. Patrick?

Thank you, Ping. First, I would like to thank you all for joining the call today and your continued support of Dyadic. Several months ago, we redefined the Dyadic corporate strategy to focus on opportunities to deploy the Dyadic C1 and Dapibus platform protein production technologies to generate significant near-term revenue and near-term recurring revenue while also advancing our efforts in mid- to long-term value creation. This strategy is focused on three distinct market sectors, including alternative proteins, animal health, and human health.

In today's call, you've heard that strategy playing out with executed agreements and significant activity in each of the sectors with a particular emphasis on the alternative protein sector. The transaction with Proliant is a great example of that focus. We believe the avian influenza vaccine candidate presents Dyadicwith a significant opportunity, and we are currently seeking pathways to advance the candidate through non-dilutive approaches.

We will continue to update investors on progress in the coming months. I'm extremely pleased with our management team and our board for their focus and commitment to our company strategy and look forward to announcing additional transactions in the future.

With that, I will ask the operator to begin our Q&A session. Our CEO, Mark Emalfarb, and our management team will respond to 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?

(Operator Instructions) John Vandermosten, Zacks.

Thank you. Congratulations on the new alpha-lactalbumin deal. I had a couple questions on that. First of all, what is the size of that market and who are the customers for the product?

Joe, do you want to answer that?

Sure. John, thanks for the question. The alpha-lactalbumin market is approximately a $700 million market. That includes milk-derived products. The recombinant segment is smaller -- I do not have a great number for that for you, but I would say is probably in that $30 million to $40 million range currently. It is obviously expanding as people are looking into producing this recombinantly, similar to what they have done for HMOs and other products in this space.

With that being said, that is the essential market potential. The customers are everything from the large dairy companies like Danone, Nestle, and also a lot of the newer companies in precision fermentation. We have obviously multiple opportunities, but it is essentially the food-grade dairy companies that we are looking at.

Okay. That would be Dapibus. This is the Dapibus expression system.

Yes, you are correct.

Just another question on that same theme. Is there a clear pathway here to revenues outlined in the JDA with the dairy company as you have with the other albumin deal with Proliant?

Yes. Based obviously on the performance of the strain and hitting certain commercial targets, there are milestones and royalty payments associated with the development.

Okay, great. Thanks, Joe.

Joe, I think maybe you can expand on the transferrin opportunity as well because I think that is a huge opportunity for us. I think explaining that a little bit would be helpful.

Sure, Mark. The transferrin opportunity is similar to that of alpha-lactalbumin in that it is a very high growth market for recombinant products given that it is a very high price point. The average cost of a kilogram of transferrin is roughly $400,000 to $500,000. That is obviously animal derived. Recombinant production is increasing, but it is a tricky component to produce. Being able to produce it at the titers that we are today, we believe that we significantly reduce that cost.

As I mentioned in the portion of the call, the majority of cell culture media costs, and that is the media that you grow, not just animal muscle cells, but it is also used to grow CHO cells for production of other monoclonal antibodies and other pharmaceutical agents. Any cell culture media component can grow basically mammalian cells. It has multiple uses, multiple offtakes across the segments.

The difference is that albumin and transferrin make up 95% of the cost of cell culture media. If you look at, let’s just say, a liter of media that you use to grow either animal muscle cells for lab-grown meat or you use it to grow CHO cells for making a monoclonal, 95% of those costs are from albumin and transferrin, and the remainder is from growth factors and some other high-value targets in there as well, which we are looking at.

That is the particular opportunity with transferrin, and given in that space, 70% of the utilization today is already recombinant, and it is looking to increase because, again, it is one of those markets where it is an extremely expensive product to derive naturally because there is not a lot of it in basically mammalian blood. It is much easier to produce recombinantly and potentially more regulatory acceptable as well.

I do believe that is a significant opportunity that is already generating interest, and obviously we have continued development we need to do.

Great. Thanks for the extra color.

(Operator Instructions) Pat, is there anything you want to add or are we waiting to see if anyone else is coming in?

No, I think I’ve covered it in the remarks.

John Vandermosten, Zacks.

Thanks. I have a bigger picture question for you on C1. As we look at how the expression system has evolved over time, how has it changed over the last five years?

That is a good question. It has changed from darkness to light or night to day. What I mean by that is when we transitioned the C1 cell line from the industrial sector into biopharmaceuticals, there was a lot of work we had to do to make it so that it not only produced a lot of something, but it produced it in a stable form.

As you know, we have knocked out a total now of 14 or 15 different genes with proteases in addition to other background proteins so that we can produce high levels of low-cost proteins that are stable. Then, most importantly, although we had certain animal data prior to doing all of that, we have expanded the animal data from rats to lambs to chickens to all kinds of other things, hamsters. Most importantly, with

the DYAI-100, SARS-CoV-2 RBD booster Phase 1 trial, we have now demonstrated for the first time ever a protein produced from our C1 cell line. For that matter, filamentous fungal cells can be used safely and induce an immune response. We did that both at the high and low dose. We got good neutralizing antibodies and cellular immunity. That has opened up the doors very wide. It seems to be growing even wider as we develop more and more antigens for the vaccine.

The recombinant protein vaccine platform, we believe that we have the most efficient, fastest way to make the largest quantity of lowest-cost antigens for vaccines that can be released sooner. Because in the end, we don’t have viruses to remove like CHO cells, antiviral clearance, or the baculovirus cells. It’s not only faster, quicker, and cheaper, but you can release it sooner. We believe we’re going to transform recombinant protein production of antigens for human and animal health.

Hopefully, that gives you an idea of the tremendous progress we have made. Now, the validation, as we’ve talked about, from academia, industry, government, non-profits, you name it. Virtually on every continent on this planet, we’re starting to get recognition. We’re getting more and more credibility. The technology is getting more broadly applicable.

As Joe pointed out, we’ve produced things like HPV, which, as you know, is a massive market opportunity and sales today in the billions and billions of dollars. We’ve also produced multiple versions of an RSV antigen and a variety of others as well.

Great. Thanks for the summary. Do you have time for one more from me? I don’t want to use up all my questions.

Yes, no. We’re happy to answer your questions and provide information that’s helpful.

Yes. Just one other thing on Proliant. Joe and I had a chance to talk about this before, but I don’t know if I asked this question about just the relative margin on the C1-produced product versus what Proliant’s already doing right now with the animal-based albumin. Do you get a sense of what the relative attractiveness is of the recombinant C1 versus their product right now in terms of margins?

Unfortunately, the answer is that, just to clarify, they’re making bovine albumin, not human albumin right now.

Right.

This is a whole new market opportunity for them on the human side. But Joe, you can go forward.

No. Actually, that’s exactly what I was going to say. It’s an expanding customer market for them because they don’t have a recombinant product today and they don’t have human serum albumin. They only work in the bovine protein space at the current time. This is a nice expansion. The use case, though, for human serum albumin and bovine albumin in certain instances is the same for things like cell culture or medical device coding.

Those are things that you could potentially use on the product depending on what the need of the application is. There’d be certain reasons why you’d want to use human versus bovine and vice versa. A lot of it is driven by cost. But as far as the margin attainment, I really don’t want to speak for them. But obviously, we want to look to be able to provide a cost-effective product to the market in terms of a recombinant human serum albumin for any application.

Obviously, there’s room for improvement in the price points in that space. But I don’t want to predict, obviously, what the potential margins for them could potentially be or what they’re shooting at the current time.

And just to add, John, to that, keep in mind with the strength of our upstream processing, Proliant also brings in the strength of downstream processing in terms of scale and cost. And of course, they have access to the market because they've been selling in this market for years, so we have immediate market access through them.

Great. Thank you.

(Operator Instructions) There are no further questions in queue at this time. I would like to turn the call back over to Dyadic CEO, Mr. Mark Emalfarb. Please proceed.

Thank you. As Pat and Joe have indicated, Dyadic is fully committed to driving near-term revenue and growth by pushing the boundaries of innovation and accelerating commercialization. We are expanding the use of our C1 and Dapibus microbial protein production platforms across our three core sectors, alternative proteins and animal and human health.

This is an incredibly exciting time in Dyadic’s history, and I believe we’re uniquely positioned to swiftly capitalize on both current and emerging opportunities.

I want to thank you for joining us on today’s second quarter 2024 conference call. We look forward to updating you on our continued commercial and scientific progress during our next call. Stay tuned for more exciting developments from Dyadic.

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