Dyadic International Inc (DYAI) 2021 Q3 法說會逐字稿

Good evening, and welcome to the Dyadic International's Third Quarter 2021 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded today, November 10, 2021.

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

Thank you. Good evening, and welcome, everyone, to Dyadic International's Third Quarter 2021 Financial Results Conference Call. I hope you've had the opportunity to review Dyadic's press release announcing financial results for the third quarter ended September 30, 2021, 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 third quarter business and corporate highlights, including a brief summary of our research and business development efforts. I will follow with a review of our financial results in more detail. We will then hold a brief Q&A session.

At this time, I'd 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 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?

Thank you, Ping. Good afternoon, and thank you for joining us today. Our mission is to transform biomanufacturing to improve how we feed, fuel, and heal the world by utilizing modern biotechnology to revolutionize science, medicine, agriculture, and engineering. We are addressing the animal and human health markets by working together with the global scientific community in academia, industry, and government to provide a cost-effective solution to increase biomanufacturing outputs and satisfy the growing demand for protein production and unmet needs for affordable biologic drugs, vaccines, and other biologic products and processes that can help address health inequity in middle and lower income countries.

We are continuing to advance our science and business development efforts towards the commercialization of our C1 protein production platform for use in the human and animal pharmaceutical industries. 2020 was a very productive year, which we announced many new developments and commercial partnerships in addition to publishing critical proof of concept, scientific and animal data, further advancing the attributes of our C1 technology.

2021 has been a continuation of those efforts as we continue to advance towards our first-in-human clinical trial of our COVID-19 vaccine candidate, DYAI-100 to validate C1 produced proteins are safe in humans and further accelerate global C1 platform adoption.

The efforts to launch the C1 protein production platform has been a global effort, which includes important collaboration relationships in Africa, Asia, Europe, and the Americas. It is important to understand that while many people believe COVID will soon be in the rearview mirror, it is still a real problem that will likely require annual vaccinations or periodic boosters to maintain antibody effectiveness.

Many underdeveloped countries are still struggling to produce sufficient quantities at affordable prices to protect their citizens. A key takeaway from my comments today is that our Phase I trial is not just about COVID. It's a means to an end. Our main objective is to demonstrate safety and efficacy in humans, so we can pursue all the other indications that our C1 platform can be used for. COVID just happens to be the current focus.

There are many countries interested in the C1 platform for numerous other applications in vaccines and drugs. Demonstrating safety in Phase 1 is an important gating event.

I would like to give you some brief updates on several ongoing collaborations. In Rubic Consortium, our C1 technology transfer has commenced, and the DYAI-100 and other COVID-19 variant RPDs have been delivered. In addition, genetic tools, C1 strains and protocols for engineering C1 cells and producing proteins from sub-cells has also been transferred.

We are in discussion with Rubic regarding where, in addition to COVID-19, they can successfully apply the C1 technology for the development and commercialization of several other vaccine candidates.

Syngene International, accelerated tech transfer of the DYAI-100 cell line has been completed, the manufacturing part of technology training on the C1 production platform has shown initial success, and a number of the SARS-CoV-2-RBD variant concern antigens, including the delta RBD, has been delivered.

Medytox. C1 platform tech transfer has been completed and they are developing nanoparticle vaccine candidates for COVID-19 variants.

Sorrento Therapeutics. We're continuing to negotiate the license Agreement and the terms, which may be materially different than the terms set forth in the binding term sheet announced on August 11, 2021. We can give no guidance if or when the License Agreement will be executed, but in the interim, technology transfer to Sorrento for DYAI-100 and the C1 platform has been initiated.

This week, in Israel, Biotechnology General Israel, a clearing pharmaceutical company, is carrying out what we anticipate will be a successful purification of the DYAI-100 drug substance, which will, after being converted into a drug product and after regulatory acceptance may be used in 1 or more DYAI-100 Phase I clinical trials.

A GLP animal toxicology study has demonstrated preliminary safety profile of our C1 produced SARS-CoV-2-RBD vaccine candidate, DYAI-100. SARS-CoV-2 immunoglobulin IgG antibodies have been detected in those animals. We continue to focus on the glycoengineering of C1 cells for the use in producing monoclonal antibodies, which continues to show progress towards both a proof-of-concept biomolecule, nivolumab, to demonstrate that C1 can be used to manufacture monoclonal and other antibodies, multispecifics and other glycosylated proteins faster at high yields and at lower cost.

Now, I'd like to provide a brief update on our ongoing efforts using C1 for manufacturing vaccines and drugs for use in animal health. The Zoonotic Anticipation and Preparedness Initiative, ZAPI, was successfully concluded in July 2021. The ZAPI program validated C1 as the most effective production platform to express SBV and RVFV antigens.

C1 cell expressed antigens were successfully used to develop recombinant particle-display vaccines. The C1 produced SBV antigen showed safety, efficacy, and protection in cow, sheep, and mice. In June, the ZAPI study was published in Vaccines, a leading peer-reviewed scientific journal.

We are continuing to work with a global animal health company that is conducting poultry animal trials using C1 produced antigens. The C1 antigens are demonstrating promising efficacy in those studies. We began a fully funded Phase II portion of this project to work on further increasing productivity of 1 or more of these antigens.

Based on the encouraging results to date, we are in discussions to determine how to expand our collaboration for additional potential commercial antigens for farm animals. We are also working with another global animal health company to develop a companion animal antibody.

The inbound interest that we are experiencing in applying our 2 plus decades of industrial biotech experience and expertise, knowledge, and technology in nonpharmaceutical markets is accelerating. These potential markets, in conjunction with our current focus of appointing C1 in the animal and human health markets underscores the broad potential applications we are exploring in agricultural, cosmetics, food, nutraceuticals as well as other markets.

Our growth has been an iterative process as often is the case. The company has not been able to make an announcement or name a collaborating partner. However, we have made every effort to do so where possible. Based on the collaborations we've announced and the level of new activity we are working on, we are clearly executing on our mission in gaining commercial traction across life science industries, especially in geographical regions, where vaccine and drug distribution and production are lacking, and where flexible, easy to use to set up tooling and manufacturing facilities with smaller physical footprints are necessary.

We are uniquely positioned to deal with these situations. We are at a critical point in the company's corporate and operational development life cycle as our efforts across many initiatives are starting to bear fruit or otherwise nearing to a head regarding outcomes. As much of the attention around Dyadic's operating activity has been COVID-19 related, a result of a clear need for the production capabilities of the C1 platform, our journey to create a better production technology for vaccines, biologics, human and animal health started well before the pandemic.

And our story is not just a play on COVID, but once in a generation technology shift, whose benefits could transform global biomanufacturing for decades to come. We have a clear and strategic operating plan as well as the resources and appropriate capital allocation strategy. Our focus has been and continues to be to expand commercial opportunities of where to apply our C1 technology for human and animal health applications.

Getting the company's proprietary COVID-19 vaccine candidate, DYAI-100, into a first-in-human Phase I clinical trial is a key next step. I'm pleased to welcome Joe Hazelton to our executive leadership team. Joe joined us as a Chief Business Officer. He comes to Dyadic with over 20 years of portfolio management, regulatory oversight, and global commercialization experience, including 15 years with Novartis.

Joe joins at a critical point in a commercial development, supporting the global commercialization of the company's new and existing business initiatives, including closing on opportunities, business development, licensing, and regulatory matters. Joe's experience is critically important as we continue to pursue cutting-edge science in order to further the application of our C1 protein expression and manufacturing platform.

I previously mentioned that our noncompete agreement with DuPont outside of license sciences has expired, allowing Dyadic to explore additional new business development activity going forward. Our C1 production platform is a culmination of more than 20 years of ongoing research, development, evolution, and ultimately cross application of proven industrial scale enzyme and protein production in broad-ranging industries such as biofuels.

Dyadic's development advances have transformed the scalability, production, efficiency, as well as the manufacturing footprint needed for those industries to reliably produce enzymes and proteins at industrial scale. We have an enormous number of opportunities to monetize our C1 platform technology for the benefits of shareholders. Management is committed to focusing on those that present the best opportunity to maximize our limited resources. We have done it before, and we are working toward doing it again. I will now turn the call over to Ping for a financial update.

Thank you, Mark. In addition to the financial results I will be discussing now, you can also find additional information in our Form 10-Q, which we filed earlier today. Our cash, cash equivalents and the carrying value of investment-grade securities, including interest, were $22.8 million as of September 30, 2021, compared to $29.2 million as of December 31, 2020.

Research and development revenue for the 3 months ended September 30, 2021, increased to approximately $693,000 compared to $416,000 for the same period a year ago. Cost of the research and the development revenue for the 3 months ended September 30, 2021, increased to approximately $393,000 compared to $267,000 for the same period a year ago.

The increase in revenue and cost of research and development revenue was due to higher revenue and cost amounts for individual projects, including ZAPI, compared to the same period a year ago. R&D expenses for the 3 months ended September 30, 2021, increased to approximately $1.92 million comparing to $986,000 for the same period a year ago. The increase primarily reflected the Phase I clinical trial cost of DYAI-100, our COVID-19 vaccine candidate in the amount of $1,208,000, offset by a decrease of $292,000 related to our other internal research projects.

G&A expenses for the 3 months ended September 30, 2021, increased by 3% to approximately $1.693 million compared to $1.643 million for the same period than a year ago. The increase principally reflected increases in payroll and share-based compensation-related costs of $86,000 and insurance expenses of $65,000, offset by reductions in business development and Investor Relations costs of $79,000 and other decreases of $22,000.

Interest income for the 3 months ended September 30, 2021, was approximately $3,000 compared to $77,000 for the same period a year ago. The decrease was primarily due to the lower balance of held-to-maturity securities and less reinvestment due to the decrease in interest rates.

Other income for the 3 months ended September 30, 2021, was approximately $1,606,000 compared to 0 in the same period a year ago. The increase was due to the sale of our BDI equity interest in July 2021. The net loss for the 3 months ended September 30, 2021, was approximately $1,715,000 or $0.06 per share compared to $2,499,000 or $0.09 per share for the same period a year ago.

With that, I will now ask the operator to begin our Q&A session.

(Operator Instructions) Our first question today is coming from John Vandermosten from Zacks.

Let me just start out with a question. And also, Mark, thanks for the update on all the active programs. Good to hear how they're coming along. Do you have a process in place to keep up and meet with all the partner collaborators on a regular basis?

Yes, we do. We actually -- in R&D, virtually every month or every 45 days, depending on the progress of projects, we have -- now it's a Zoom meeting, but actually, Ronan, for the first time since COVID was actually in Finland at VTT this week with one of our collaborators.

Great. And I guess, how many active collaborators do you estimate we have right now? I think I have a list of about 40 different entities that you work with. How many of those could we consider to be active?

Well, John, I think that -- like Mark mentioned earlier, a lot of them, we can't really publicly talk about that. And there are a lot of ones that -- the one that you have on the list are very accurate in terms of the ones that we have already announced.

Like this quarter, we actually signed additional 2 new collaborations, which we can only give you the general description of the organization. We can't really name them, but one of them is academia like an institution, which we have been in touch with them for a long time. And the other one is an industry partner that we are exploring potential opportunities to, for a different industry.

And to kind of reinforce the statement that we made in prior calls, we do expect still to announce a human pharmaceutical collaboration between now and the end of the year with a big pharma company.

Good deal. And the follow-up question, just on cash burn. I think the latest update I had on your guidance there was $10 million to $12 million this year. Does that still sound like it's in the right range?

Yes. I think so. I think it's still in the bulk range. Obviously, we still have several months depending on how things are going with the Phase I clinical trial. We are constantly assessing the different locations in terms of the Phase I clinical trial, given a lot of countries, they don't really have any COVID cases any longer, for example, in the U.S. So we definitely have to look at possibilities to reduce the cost, but that's still in the ballpark.

Our next question today is coming from [Lewis Titterton], private investor.

I have one question, and I know you can't talk about Sorrento very much. But you have about 2 years' worth of cash, and I think people were excited about Sorrento because they were going to come in with something like $14 million of cash and stock. And then you had another $33 million over time, and now that seems to be in jeopardy. I don't know where it's going to turn out. But let's say it doesn't work out, and you can't come to closure with them. What do you do to replace that money?

Well, first of all, obviously, we're, first and foremost, trying to do collaborations with big pharma and other companies, which we did in the industrial biotech space before. If you remember with Shell and BASF, Abengoa Bioenergy, where we did nonexclusive license deals, and we got upfront cash and then milestones of (inaudible) were to come in.

So we've always been, prior to Sorrento and during the same time frame now and going forward, pursuing those same types of opportunities to bring in non-dilutive cash with upfront access fees, milestones, and royalties. So that's the primary reason in goals and objectives.

And then, of course, if need be, we could go back to the market. So we have plenty of cash to operate the business. We have more than enough cash to be comfortably finished the Phase I clinical trial on our own without any health in Sorrento, and we're pursuing that. And as we said earlier, the main goal here is to get preliminary safety and efficacy data to open the doors up to get some of that cash and accelerate the excess fees from big pharma and biotech companies that we expect.

If I could do a follow-up and it's sort of the same kind of idea. But you talk about matters that you're talking about with Sorrento, not one single matter, but you have plural matters. And I guess the issue is, it sounds like you have met all the requirements of the term sheet. So it means that they have not met the requirement to the term sheet. Is that an accurate statement?

I really can't comment about that because we're in discussions and negotiations. And you can speculate, but we believe that we have actually met potentially all the things that we're supposed to have done. But let's see where it all goes. And hopefully, we can come together and do what we've intended to do in the first place, is to launch products, not one product, but a use of the platform for coronaviruses, not just SARS-CoV-2, but coronaviruses today and in the future potentially, both in therapeutics as well as in vaccines to bring affordable health care to a global population. So that's our goal. That's our objective and I hope that's still their goal and objective as well.

Our next question today is coming from [Robert Smith] from Center for Performance Investing.

Mark, could you give me an idea of what Joe's first -- what is he going to be doing first, so to speak?

It's a very complex question. But first and foremost, he's going to be getting his arms around what we do here at Dyadic in terms of the technology, the business development, the different market opportunities that are expanding. As we mentioned, we're being approached by multiple other industries to apply our technologies and our expertise and our knowledge, including in industrial biotech.

So we're going to be evaluating in addition to animal and human health of, if and where to apply our energy and our technologies to expand the market opportunities. Especially in particular, some of those are more near-term cash-generating opportunities. So that's really what he's been doing. And as well, working with myself, and Matt, and others on the business development efforts.

Yes, Robert, this is Matthew. I can add to Mark's comments that one of the other things, of course, that's core at Sorrento, as mentioned by Lewis earlier. But one of the things that's core to us is that we are taking our own proprietary product into man, in a Phase I study soon.

We plan that not only to open up doors to a range of other human and animal health conversations, particularly thinking about how sensitive big pharma are to safety data. So bringing that to them. And to Mark's point, there are a great many other opportunities that we are, as a small company, in discussions around.

And while Sorrento and other things, of course, are hitters and headlines, that's not distracting us from the job at hand, which is to make sure that we are able to commercialize C1 in a range of different verticals, and Joe's going to help us do that.

And then my follow-up is about this big pharma company that you mentioned. So could you give us any additional color at all? In other words, what is the areas? Is it antibody?

Well, I would say just stay tuned because we're still in discussions, and hopefully, we're nearing the term to put that ink to the paper and get that done. But I think most importantly is it's not only about the R&D, but it's the support, and the size, and the potential breadth and scope of where they can turn out to be. So I'd just say let's stay tuned.

Okay. In the next month and a half, that's the hopeful target, so to speak.

Between now and the end of the year, we expect to bring it across the goal line, but you never know. But we feel pretty good about it. And they're a great partner, and I think that everybody will recognize that it's a name brand company that can really make a difference.

Our next question is coming from [Stephen Raphael], a private investor.

Somebody already asked the question I was going to ask, which is about the Sorrento deal. But tangential to that, you say you're comfortable with your cash position, I'm not. You say that you can always go to the market to raise money. The stock has no bid. I doubt very much you could sell 5 million to 10 million shares, even at this level, which has a 3 handle. So make me more comfortable, please.

We've had multiple institutional investors offering to come in and buy stock in big chunks in the past. And I think that actually, the opportunity is even greater today. So I'm not really worried about raising the cash. Obviously, you know that we don't want to raise the cash and take dilution if we don't have to.

And so I'm not really worried about getting our hands on cash. I'm worrying about running a business, advancing the technology, expanding the opportunities, getting into human being, showing preliminary safety and efficacy, which will lead to more opportunities to increase shareholder value and hopefully if we need the cash, to do it at a higher level than we are today.

Well, my view is if the opportunities that you're explaining are so great, it doesn't make a difference whether you sell stock at $3 a share, or $5, or $8 a share. But again, my concern is you're bleeding $10 million a year, $10 million, $12 million a year. You got $21 million, so that's 2 years. That's a pretty short fuse. So I'm just giving my opinion.

If I may, Mark, just add a small comment to that, if I may. Just to -- Steven, this is Matt here. I think I would say 2 things. One is that if you look at any biotech, and we are a platform opportunity, we're not just contingent on one deal or with one company or in one therapeutic area. But we're fairly agnostic actually to where we can apply our technology to. So there is a wider net that we're casting. That's sort of one comment.

Most biotechs, as you know, Steve, burn cash much more steeply than we ever described here. And we're quite careful. We're very careful about the partners we work with. Now, with our COVID opportunity, it's an inflection point, right, where we will be able to have in-man, first in-man, proof of concept, safety data under a GLP study.

What we're saying is that we believe that's a very important step for Dyadic because we will then have overcome what we believe and what we have been told by a lot of industrial leaders from pharma, particularly from pharma, as that being a very important thing to go and show and do.

And so we're very, very thoughtfully, very carefully work with partners to get to that point, which will -- which we're heading towards very soon. So that's one of the number of different tasks that we believe is very important. Now, obviously, it's hard on this call to promise you what number that accretes to. But that clearly is going to be a very important step for us.

We're also in conjunction to that, still looking to sign other kinds of deals. Mark's referred to one this side of Christmas we believe very confidently in, but there are others too that we are pursuing very aggressively. So I think your point on cash is not -- is understood by us. We've recognized that. But there are many things in the pipeline that give us confidence in saying that this is a great platform that we're taking to great partners.

Next question today is coming from [Dick Williams] from Williams Research Group.

Mark, most of the questions that I had and thoughts I had have already been taken care by the other gentlemen who were on. But there's just one area. It's really a color question. In terms of Pfizer coming out, of course, that's what hit a lot of the smaller biotechs who are working on COVID, including us. I think we got caught up in that as well.

One thing is kind of a little ridiculous in relation to Pfizer is that their pill has to be accompanied by another HIV pill, which I haven't seen in any of the media, and I'm not sure that the markets are totally aware of that. But in any event, notwithstanding the Sorrento situation, and how that evolves, and when you close it and where we go after, how do you view the market opportunity now with Pfizer?

Let's assume they're going to be the kingpin for a while. And I don't know, they're talking 4 billion copies next year of the vaccine. So how do we fit in with the market opportunity for us, assuming that that continues to be successful?

Well, I can't really comment about Pfizer's pill. That's an after treatment. I mean, we actually had a phone call today with a major pharmaceutical company, Matt and I, where the gentleman said, really, the problem here is to get the entire global population vaccinated so that, in fact, you're not spreading the disease. Because even the vaccinated are spreading the disease today.

So it's nice that Pfizer has a pill that can potentially help save lives, and that's great. In the human being, we are happy about that. But the goal here is to stop it from happening in the first place. And again, in our case, it's not about COVID-19. It's about getting into human beings, showing safety and efficacy, and launching a platform that's going to transform and revolutionize biomanufacturing.

So we believe that in the long run, we will have one, if not the most efficient way to make recombinant protein vaccines, antibodies, and other therapeutic drugs. And if we just make one of those in conjunction with a partner, let alone on our own, or if our COVID-19 vaccine gets launched in India, or in Africa, or in Southeast Asia that it is a remarkable achievement. But more importantly, will bring in more than enough cash to solve Steve's question for all of our shareholders, but most importantly, bring accessible, affordable health care to the world. So it's a win-win-win situation.

And just to add on Mark's comments, we are a platform company. C1 itself is expression platform. It has multiple views, as you know. So we are not the lack of market. The issue for us is too big of a market for us to attack. I think COVID and DYAI-100 happened just to be the first product that we are having, which we all know, the first job is the hardest, right? Once we get the first one, we open the door, I think the market is going to be widely open for us.

So back to the strategy we have, getting DYAI-100 into human is the key for us, and that's the core and the objective for the business for this year and next year. And from there, other markets, as we are going through the different strategies and finding the right partners, I think we'll add more assets into our portfolio.

And Dick, as we mentioned earlier in the call, we're working on 5 different infectious disease targets in addition to COVID-19 between antibodies and vaccines. And there's more coming. We're being approached by worldwide players, big and small, that are evaluating now more seriously to C1 platform for recombinant antigens because of the proof-of-concept in ZAPI, and in all the other animal studies we've carried on over the last year on 4 different continents.

So we have not only have the advancement of C1 as a platform. We've also picked up the knowledge and the experience that we didn't have about taking an antigen forward into a Phase I clinical trial. So to be honest with you, we've learned a lot. We've got more experience. We've got the infrastructure. So if you come to us as a small biotech, we can actually take your team, put it into our C1 cell, create a stable cell line in a very rapid time frame that can produce large quantities of our antigen to protect against certain diseases.

We can then have the relationships that have been developed through zapping otherwise conduct animal studies on behalf of those clients. And then we can launch it into a -- starting to do CMC or cGMP manufacturing with the partners we've developed. So we've built an infrastructure and some of the money going towards getting the proof of safety and efficacy of C1 as a platform.

We now also have a platform that's far beyond just becoming a cell line provider. We can do it on our own for different antigens or different antibodies or therapeutics, or do it on behalf of companies. And we think we can do it more rapidly and more affordably. So let's just get into humans, prove safety and efficacy, and we'll let the chips fall where they may.

We've reached the end of our question-and-answer session. I would like to turn the floor back over to Dyadic's CEO, Mr. Emalfarb. Please go ahead.

I want to thank you for joining tonight's call. As we close out fiscal 2021, we have put in motion many of the critical components needed to enable an application and the initiation of first-in-human trials in 2022 for DYAI-100 and potentially other products. Strategic planning for 2022 has begun, and we look forward to delivering on our objectives.

The multiple shots on goal that we have created enhances the likelihood that our commercial reality will be realized sooner than later. Our C1 production platform has a potential to liberate all segments of the global population at risk or who have been disenfranchised in the vaccine and drug production and distribution cycle. With GLP toxicology data soon to be published in the upcoming anticipated DYAI-100 Phase I clinical trial, we are even more optimistic for what we can accomplish in 2022 and beyond.

Thank you again, and we look forward to keeping you updated on our progress along the way, and we'll see you on the next call.

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