Dyadic International Inc (DYAI) 2021 Q1 法說會逐字稿

Good evening, and thank you for holding. Welcome to Dyadic International's First Quarter 2021 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded today, May 13, 2021.

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

Thank you, operator. Good evening, and welcome, everyone, to Dyadic International's First Quarter 2021 Financial Results Conference Call. Earlier today, Dyadic issued a press release announcing financial results for the first quarter ended March 31, 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 business and corporate accomplishments for the first quarter of 2021, 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. Our senior management team, Matthew Jones and Ronen Tchelet, will join Mark and I for the Q&A session.

At this time, I'd like to inform you that certain commentary made on this conference call may be considered forward-looking statements, which involve risks and uncertainties that -- 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 these 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. Welcome, everyone, and thank you for joining us. We have ushered in the new year with substantial progress on our R&D initiatives. I would like to highlight first some of the exciting progress we've made on developing new COVID-19 vaccine candidates.

We enter into nearly 1.5 years since the start of the COVID-19 pandemic. Yet, the coronavirus continues to cause worldwide disruptions and suffering. Although many countries, including the U.S., have been able to ramp up its vaccination efforts, it is clear that there's still significant global vaccine inequality. It's becoming increasingly apparent that there are critical bottlenecks in the manufacturing and supply chains of these vaccine products that are hindering the efforts to keep the population vaccinated and save lives.

If global efforts to stop the spread of COVID-19 are to be successful, it is clear that there needs to be more efficient, affordable and flexible ways to develop and manufacture vaccines and drugs globally.

We believe, as do a growing number of scientists, our hyperproductive C1 protein production platform technology is ideally suited to help meet this global demand for health equity. As such, we've been working tirelessly on applying our C1 technology to speed up the development of new COVID-19 vaccines that has the potential to be more affordable and accessible.

We are pleased to partner with leading scientists, government agencies and pharma companies worldwide to expedite the application of our C1 technology in multiple COVID-19 programs. We believe our COVID-19 partnerships stem from our success in several animal studies that demonstrated C1 cells to be engineered to efficiently and rapidly produce large quantities of safe and effective protein-based products.

Our SARS-CoV-2-S-RBD vaccine candidate, DYAI-100, has been evaluated in 10 animal studies by academic, industrial and governmental R&D groups globally, including the Israel Institute for Biological Research and scientists from ZAPI.

Based on compelling preclinical data, we are now moving towards an anticipated first-in-human Phase I clinical trial to evaluate its safety and preliminary efficacy. We've engaged the contract research organization, CR2O to manage and support its preclinical and clinical development.

Moving DYAI-100 into the clinical stage marks a major milestone for the program. First, it's critical to emphasize that the fight against COVID-19 is not over, but the risk that COVID-19 may become an endemic disease and issues with vaccine distribution and potency, there's still significant need for next-generation vaccines that can bridge this gap for protecting the global population.

Our clinical trial with DYAI-100 may serve as an important proof-of-concept for the next-generation of COVID-19 vaccine candidates for emerging variants. And furthermore, we believe DYAI-100 has the potential to be a more affordable and highly potent solution to serve this global need.

Second, although this will be a clinical trial for our COVID-19 vaccine candidate, its value goes well beyond that. Demonstrating that DYAI-100 can be produced under cGMP conditions, safe and well tolerated in humans serves as a proof of principle for the C1 platform itself.

We anticipate that by de-risking our C1 technology and demonstrating that the C1 platform has strong potential to safely produce protein for use in humans that we can accelerate its adoption, use and commercialization by the biotech and pharmaceutical industry globally for a number of biologic drug and vaccine opportunities. As such, we look forward to bringing DYAI-100 into Phase I by the end of the year, following the completion of our ongoing animal GLP toxicology study.

As SARS-CoV-2 continues to mutate into different variants, we are engineering additional C1 cell lines to produce SARS-CoV-2 variant antigens for monovalent and multivalent vaccine candidates. We have already successfully expressed the South African, Brazilian and U.K. variant antigens at highly productivity levels and stability. And we will continue to work towards developing both RBD antigen and potentially full spike protein for additional variants.

Importantly, it is becoming increasingly clear that emerging variants are here to stay. And it is expected that new variants may appear annually, similar to a seasonal flu and consequentially, potentially require annual or even semiannual booster shots. Multivalent vaccines, with their potential to confer broader efficacy against SARS-CoV-2 variants, may be an important approach for future efforts in managing COVID-19 and future pandemics.

Towards this end, we have expanded our fully funded vaccine development partnership with Medytox to accelerate the development of multivalent COVID-19 vaccine candidates and/or boosters to immunize people against multiple existing or future SARS-CoV-2 variants.

We are pleased to partner with Medytox who understands firsthand that C1 may be the most realistic technology to develop and manufacture affordable multivalent vaccines rapidly and at lower cost and larger volumes.

The transformative potential of C1 to solve key challenges related to manufacturing productivity, speed and cost, was highlighted in our recent KOL fireside chat. We are grateful to have the support of such esteemed thought leaders who can attest the remarkable potential of C1 to provide a game-changing advance in global access to vaccine and drugs for major health challenges such as COVID-19 and beyond. I strongly encourage you all to listen in on this panel discussion by watching the replay webinar, which is available on our website.

In parallel to our COVID-19 initiatives, we remain focused on advancing C1 for a number of other human and animal health applications. During the first quarter, we were pleased to enter into a fully funded collaboration with TurtleTree Scientific to develop a number of recombinant protein growth factors, which may play a critical role in tissue development and healing, including regenerative therapies.

Manufacturing human growth factors at large-scale and an affordable cost has been an industry challenge. As such, we are excited to apply our C1 technology to help overcome this hurdle in a significant new commercial opportunity.

Our C1 technology continues to be sought out by many other pharma and biotech companies looking for a better manufacturing solution. These ongoing collaborations such as with Jiangsu Hengrui Medicine, the largest pharmaceutical company in China by market cap, continue to report promising results for biologic drugs of commercial interest.

We are particularly excited about the promising potential of several candidates for bispecific antibodies that offer significant benefits of a conventional monoclonal antibody therapeutics. For these bispecific antibodies and other biologic drugs, C1 has consistently achieved high productivity levels that support advancing several of these programs towards clinical development.

As for our efforts in animal health, we are pleased that the positive results from animal studies evaluating the safety, efficacy and protection of C1 produced antigens were highlighted in ZAPI's final stakeholders meeting in February. The C1 platform was selected by ZAPI to produce recombinant antigens after demonstrating far greater antigen productivity from C1 cells than insect cells and other cell lines, the next leading expression platform for both Schmallenberg virus, SBV, and Rift Valley fever virus, RVFV.

Notably, C1-produced SBV antigen has demonstrated not only hyper productivity but strong protection of cattle, sheep and mice from the SBV virus. During the first quarter, ZAPI expanded its program with Dyadic by providing additional funding to C1 research and development efforts, as well as to conduct potential additional animal studies using SBV and RVFV antigens produced from C1. These ongoing animal studies are intended to demonstrate further commercial scale viability of C1-produced SBV and RVFV antigens.

As part of the expanded program, ZAPI is conducting additional studies to further optimize the use of C1 to produce recombinant protein subunit nanoparticle vaccines by producing larger quantities at lower costs.

Preliminary results have been very encouraging and supports C1 potential to improve productivity of nanoparticle vaccines.

In addition, the collaboration with a top animal health company has demonstrated a successful production of 2 different antigens produced from C1, for a potential vaccine for an acute respiratory disease in birds. We expect that an animal challenge study to evaluate protection provided by these vaccine candidates will initiate in June of 2021.

Our global co-development partnerships, such as with ZAPI, TurtleTree, Medytox and others highlighted today, drive access to broad commercial opportunities in large and growing human and animal health markets. Further, these partnerships provide robust scientific data that complements our internal development efforts.

As our current R&D efforts continue to demonstrate that C1 has the versatility to efficiently and rapidly produce large quantities of more affordable protein-based products, we expect a growing number of companies will seek our C1 platform to address manufacturing challenges with cost-effective and flexible scale commercial production.

We believe these clear advantages coupled with the support of a growing number of partners, key opinion leaders and subject matter experts will position our C1 protein production platform as the leading solution for more affordable and accessible therapeutics and vaccines worldwide.

Lastly, during the first quarter, we added Patrick Lucy to our Board of Directors. We look forward to benefiting from his wealth of experience in development, adoption and commercialization of cell lines in the biopharmaceutical industry as we work towards commercializing our C1 technology.

Looking ahead to the remainder of 2021, we expect to achieve a number of milestones, notably our first vaccine candidate, DYAI-100. We have initiated our animal GLP toxicology study already last month, and we look forward to progressing to our first-in-human Phase I trial by the end of this year. After generating the Phase I data, we expect to submit an IND. We also expect that our extensive number of collaborations will continue to generate robust scientific data that highlights the broad potential impact of our C1 platform in diverse animal and human health applications. We look forward to updating you on these accomplishments as we continue to work tirelessly to advance our C1 platform to meet the global need for rapid, safe, effective and scalable therapeutics and vaccines.

As always, I want to extend my thanks to our employees, our partners for their commitment and dedication during these challenging times. I would also like to thank our shareholders and our Board members for their continued confidence and support as we work towards bringing more affordable health care solutions to the global population.

With that, I will turn the call over to Ping for a financial update.

Thank you, Mark. In addition to the financial results I will discuss now, you can find additional information in our Form 10-Q, which we filed earlier today.

Our cash, cash equivalents and the carrying value of investment-grade security, including accrued interest, were approximately $27.4 million at March 31, 2021, and compared to $29.2 million at December 31, 2020.

Research and development revenue for the quarter ended March 31, 2021, increased to approximately $461,000 compared to $315,000 for the same period a year ago. Cost of research and development revenue for the quarter ended March 31, 2021, increased to approximately $391,000 compared to $278,000 for the same period a year ago. The increase in revenue and cost of research and development revenue for the 3 months ended March 31, 2021, reflected the increase in the number of ongoing research collaborations to 8 compared to 5 collaborations for the same period a year ago.

R&D expenses for the 3 months ended March 31, 2021, increased to approximately $1,808,000 compared to $755,000 for the same period a year ago. The increase primarily reflected Phase I clinical trial cost of DYAI-100, our COVID-19 vaccine, in the amount of $882,000, and an additional cost of $159,000 related to our other internal research projects.

G&A expenses for the 3 months ended March 31, 2021, decreased 6% to approximately $1,554,000 an compared to point $1,653,000 for the same period a year ago. The decrease principally reflected reductions in travel and rent expenses of $65,000, insurance and other outside services of $47,000, other decrease of $30,000, offset by increase in legal expenses of $43,000.

Interest income for the 3 months ended March 31, 2021, was approximately $26,000 compared to $168,000 for the same period a year ago. The decrease was primarily due to the lower balance of held-to-maturity investment securities and less reinvestment as a result of the decrease of -- in interest rates.

Net loss for the 3 months ended March 31, 2021, was approximately $3.3 million or $0.12 per share compared to $2.2 million or $0.08 per share for the same period a year ago.

Looking forward, we maintain our guidance for our total cash burn for 2021, which we expected to be in the range of $10 million to $12 million. Inclusive of the Phase I clinical trial and our other ongoing internal research projects, we believe we have sufficient funds to provide working capital needed for our research and operations for the next couple of years.

With that, I will now ask the operator to begin our Q&A session. Dr. Ronen Tchelet and Matthew Jones will be joining Mark and I to answer your questions. (Operator Instructions)

Operator, back to you.

(Operator Instructions) Your first question comes from John Vandermosten with Zacks Investment Research.

I'll just start off with a question about vaccines. Serum Institute is one of the organizations you're working with. And I'm wondering with the crisis in India, has there been any further discussions with them to perhaps work on something to help out with that? I mean, I know that there's a very long time line, but given the severity of the crisis and the need for a lot of vaccines, perhaps that's a way to advance the conversation.

Yes. Thanks, John. Serum, I think, has their hands full on just trying to make the AstraZeneca vaccine. But we are in discussions with other parties in India and other parts of the world to help out. And we're having those discussions, and we hope one or more of those will turn into something, will turn into fruition of moving the C1 vaccine into humans to help this horrific situation that we're all facing in a global basis.

Okay. And I noticed that you guys had expanded the agreement with IDBiologics. Will that include more equity as part of that? And maybe you can provide a little more detail on how that will expand as well from what was...

Yeah, no. That's a great idea and a great example of how we take initial proof-of-concept collaborations and turn them into money and into opportunity because no, that's not a fee for stock. That's a fully funded program. It is an antibody. It has a potential for infectious disease in different diseases in COVID-19. I think people are starting to recognize that this C1 technology platform, in addition to obviously, potentially helping on COVID, can help prepare for a variety of -- of unlimited number of infectious disease and treatment. So hopefully, that answers your question. It's a fully funded project and one that we're excited to expand the breadth and scope of applying C1 for these infectious disease treatments that are going to be needed.

Your next question comes from David Schneider, a private investor.

I have two. The vaccine for birds, is this for some disease that affects some pet that people have like parrots, or is it for some bird in the wild?

David, no, it's for animal health. It's for a huge unmet need, and it's a vaccine that people have tried to make in the past, couldn't make it at an affordable price for chickens. And we think that there's -- a lot of these things will turn in the woods.

Yes. I think there's more chickens around than pet parrots. So that's very encouraging.

Yes, I think there's a lot more chickens, a lot more cows and a lot more other animals than there are people.

That's true. And regarding the COVID vaccine, the U.S. taxpayer has paid for, how I view it, most of the fixed costs of Moderna's COVID vaccine. We should have all been given shares of Moderna stock because we basically -- it came out of our checking accounts. But because there -- this is a little bit sarcastic as you can tell, but because their fixed costs have already been paid by the U.S. taxpayer, the economic argument for using C1 as the platform for COVID vaccines is a little bit hurt by that because we already paid for the fixed cost so they can crank out billions of doses as well as the other players that are already out there. So can you just maybe talk about that?

Yes. First of all, the pandemic, hopefully, will be the last one we ever see, but it's not likely. And some experts think that the next are going to be even, let's say, even worse shape. I think there was an article out or a comment made by Scott Gottlieb that mRNA vaccines work this time around, but they're not going to work for all these different types of infectious disease.

So second of all, as a booster shot, one of the theories that people are working on now, if you've been watching the news and the research, is what's called a heterologous boost, a DNA prime and a protein boost, where you take somebody's initial vaccine and boost it with a different vaccine. I think that plays into our hands because we have a recombinant protein vaccine that can be either a subunit vaccine or a nanoparticle potential vaccine. It's more, I would say, concentrated for the receptor binding the main or neutralizing antibodies.

So yes, of course, we're doing the subsidy, they got a lot of money in the bank. In the end, I believe we can produce far more for a much lower cost. But we're really not aiming at the moment for the U.S. as the potential boosters on an annual basis, but also the rest of the world has a crying need for not paying $20 to $30 a dose. They can't afford it, not sustainable in America, let alone in Africa or Bangladesh or India or in a variety of other countries in South America.

Your next question comes from John Vandermosten with Zacks Investment Research.

So in the press release, you mentioned the University of Oslo influenza study, and I was looking at that comparison that was in a slide deck. And what's behind, I guess, the better performance of C1 versus baculovirus? I mean, is it better purity? Is it more consistent out? Is it maybe glycosylation or some other characteristic? What's the driver there for the better efficacy?

Well, we don't know exactly what the driver is. We think it might be the glycosylation, the unique advantage is a more human like structure of the glycan produced from C1. However, it's not exactly human, but close enough that's giving it the immunonicity benefit. But we don't know that. We just know this is the second time around.

As you know, we already proved once we can make hemagglutinin at a very, very low cost that was even more effective. And actually in that case, with Sanofi, we used 1/3 of the amount and had a better result in their mice trials. So it looks like it's a potential producer of a flu vaccine. Again, like all other vaccines that we've seen so far, safe, protective, effective, low cost. So again, you can maybe even combine the COVID-19 vaccines with the flu vaccine is one of the approaches people are discussing doing. The good news is it works, and we can make a lot of it.

Yes. I mean, it's -- in that test, it did better, obviously. Another question on kind of a bigger picture question on vaccine production. I mean, I think I've heard anecdotally, I can't cite any sources, but that it's kind of squeezed out other production of other things, although we have enough vaccine here in the U.S. Any evidence of that, that you've seen where production of COVID vaccine has taken up so much resources that we're not getting other things that we need?

Yes. I think during the KOL, one of the scientists had mentioned that's one of the problems, people are focusing on producing COVID-19 vaccines in lieu of potentially other vaccines that could actually impact human health for decades to come. So again, in the end, what we really need is a more efficient way to produce proteins, whether that's a recombinant vaccine for infectious disease or other treatments. And we believe that C1 has more horsepower. It's more productive. It grows fast. It can be scaled quickly. It could be grown using single-use or stainless steel bioreactors, the raw materials to use this are not bottlenecked because they're available locally. They're cheap, they're abundant.

And the one thing that you've got to remember, when we designed the DYAI-100 vaccine, we had a goal in mind. The goal in mind there was to have safety, efficacy and protection, but also to be able to produce billions of doses of vaccines. So we chose the raw materials very carefully. We could have chose other adjuvants, but we chose [elm] because it's been around for decades, it's proven, it's safe. The first time we go into human beings, we wanted to make sure that we got safety and preliminary efficacy because that's the goal of that Phase I trial. It was always the goal. It was the first thing we wanted. And obviously, we can launch and help, and we should be able to, and we hope to be able to if there's an opportunity, is COVID vaccines for -- that are in larger volumes, more affordably for other populations that have that critical need, and of course, for the booster shots But the primary goal here is to prove safety and efficacy of this platform, which we believe is going to open up the doors even wider.

And we're currently inundated with opportunity, and it's going to open the floodgates even further and wider and deeper once we show safety and efficacy in this first Phase I clinical trial or even potentially in the middle of it when we start getting the preliminary data.

Your next question comes from Lee Alper with Hammock Investors.

Yes. Mark, what happened to the program with Frederick lab? And then I have a follow-up.

Yes. Again, which we've mentioned in the past, we made a product. We were successful in expressing the C1. We sampled them and they put them in freezer and are concentrating in other things. And what happened to it? We don't know. It's like a black box. So unfortunately, we have no idea what they've done with it, and we're actually trying to find out what they've done with it. But I think they're more focused on getting out more vaccines of the ones that exist today than tomorrow. But I think the good news is they've seen the power of C1 firsthand.

Okay. And also, have you applied to BARDA or Warp Speed for any money?

Well, we have obviously spoken to BARDA and Warp Speed. And I can't really get into the intimate discussions, but of course, they're fully aware. In fact, we've actually been told by them in the past. They understand the power, the speed and the cost advantages, but we're a small biotech company versus politically big boys. And I think they chose to give the money to the big boys and think about what we're going to do in the future.

But one of those programs that we talked about, the one with IDBiologics is actually being sponsored by the U.S. government. So we're seeing more and more interest from the U.S. government, whether it be the NIH or DoD or DARPA or HHS and potentially even BARDA. Hopefully, there'll be more funding coming, but we don't know.

Your next question comes from [Dick Williams] with [Williams Resource Group].

Obviously, looking at the landscape of all the things that you're doing and everything connected to C1 and then there's a myriad of opportunities, obviously, significant opportunities. Assuming efficacy and safety, and again, you have a pretty good inkling of that at some point through maybe to the middle of the Phase I trial or even sooner, can we be unrealistic in thinking that we could have a license agreement with a big pharma or a biotech by the end of this year.

The answer to that is yes. And the answer is whether it be COVID-19 related, animal health related, pharmaceutical related, growth factor related, or all of the above, any of those needs could happen by the end of the year. Whether they will, we'll find out and see. But they're all possibilities, of course.

And the one thing you got to realize is if this disease sticks around and people need boost, we're there. So once we prove safety and efficacy -- and you got to realize, we ran over a dozen animal studies, cattle, sheep, mice. And then, of course, all the animal studies last year in the -- with the COVID RBD C1 produced vaccine candidate.

So we're in the middle of our toxicology study. Today, it was reported that 3 of the 3 shots for the male have already been given, 2 shots for the female. So in the next 2 to 3 weeks, we should have a good indication. But so far, it looks as expected, safe. So we don't expect any issue with safety.

And in all the animal studies we did, majority of them, we elicited significant neutralizing antibody. So we expect to see high levels of neutralizing antibodies, and we expect to see safety. But fingers crossed that what we saw in the animals will be that way in the humans.

(Operator Instructions) Your next question comes from [Skip Gasso] with [Clooney Road LP].

Mark, this question is for you. So the stock is down 60% in the last year. You haven't really made any significant money since 2016 on your sale. The Street is betting that you're going to run out of money, you have roughly 2.5 years at the rate -- at your burn rate. So tell me, if I said to you, "Okay, you got 2.5 years. Where is your money coming from? When are you going to start making some money?" We talk about all these collaborations, and nobody's paying for anything. They're paying for the collaboration, but they're not giving you up-front fees. Or obviously, you haven't gotten any royalties because you haven't created anything. So how are you going to make money?

Yes. Thanks, Skip. So first of all, we've given guidance of between $10 million to $12 million burn for 2021. So we still have at least 2 years cash runway as of today. A significant portion of our R&D is covered by third-party collaborations, and we're very prudent with the amount of internal R&D programs we approve. Based on the scientific progress, the demonstrated results, increasing acceptability of our C1 program and platforms and a large number of ongoing collaborations we currently have in progress, let alone the ones that were on the drawing board, we expect to begin successfully licensing C1 during this 2-year timeframe for potentially up-front cash, milestones and royalties.

And if you remember from our industrial biotech business, DuPont -- or not DuPont, Shell, Abengoa, BASF and others, we received over $30 million or $32 million or $33 million in up-front cash for nonexclusive license agreements. And then we, of course, milestone funding, for example, in the case of BASF, $2 million. And then of course, when the products finally come to realization, then we would get royalties. So we expect something similar here with higher magnitudes. So we expect to get upfront cash payments milestones and royalties. And that's how we expect to generate cash flow and income during this 2-year time frame and obviously, hopefully, sometime before the end of this year.

There are no further questions. I will now turn the call over to Dyadic's CEO, Mr. Emalfarb.

Let's see. There are no further questions. So I want to thank everybody again for joining us on the call. We are pleased you could join us to hear our progress over the first quarter. We're excited about where we are. We're excited even more where we're going, and we look forward to keeping you updated on our progress along the way.

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