Dyadic International, Inc. (NASDAQ:DYAI) Q4 2022 Earnings Call Transcript

Dyadic International, Inc. (NASDAQ:DYAI) Q4 2022 Earnings Call Transcript March 29, 2023

Operator: Good evening, and welcome to Dyadic International’s Fiscal Year 2022 Financial Results Conference Call. Currently, all participants are in a listen-only mode. Following management’s prepared remarks, there will be a brief question-and-answer session. As a reminder, this conference is being recorded today, November 29, 2023. I would now like to turn the call over to Ms. Ping Rawson, Dyadic’s Chief Financial Officer. Please go ahead.

Ping Rawson: Thank you, operator. Good evening, and welcome, everyone, to Dyadic International’s fiscal year 2022 year-end conference call. I hope you have had the opportunity to review Dyadic’s press release announcing financial results for the year ended December 31, 2022, and the recent company highlights. You may access our release and Form 10-K 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 fiscal year 2022 business and corporate highlights, including a brief summary of our recent research and business development efforts. Our Chief Business Officer, Joe Hazelton, will join Mark for the business updates. I will follow with a review of our financial results in more detail.

We’ll then hold a brief Q&A session. At this time, I would like to inform you that certain commentary made in this conference call may be considered forward-looking statements, which involve risks and uncertainties and other factors that could cause Dyadic’s actual results, performance, scientific or otherwise or achievements to be materially different from those expressed or implied by these forward-looking statements. Dyadic expressly disclaims any duty to provide updates to its forward-looking statements, whether as a result of new information, future events or otherwise. Participants are directed to the risk factors set forth in Dyadic’s reports filed with the SEC. It is now my pleasure to pass the call to our CEO, Mark Emalfarb. Mark?

Mark Emalfarb: Thank you, Ping. Hello, everyone, and thank you for joining Dyadic 2022 year-end conference call. On today’s call, we will highlight several of the significant advances we made in our technology and the meaningful progress we made and continue to make in each of our three core verticals: human health, animal health and alternative proteins. On today’s call, Joe and I will discuss our 2023 strategy for growth and revenue. Throughout 2022, we’ve discussed the Company’s scientific advancements, focus on our core business and achieving commercial agreements in human health, animal health and alternative proteins. Today, I would like to focus our key business drivers that we believe will help accelerate product commercialization and licensing while we continue to drive broader pharmaceutical acceptance of the C1 platform in biopharmaceuticals to maximize the future potential for Dyadic, our shareholders in human health globally.

In our Q3 update, I highlighted that the commitment it takes to build a commercially relevant filamentous fungal protein production platform is to support life sciences manufacturing demands persistence, focus and determination to see the process through. In addition to persistence, when we enter the biotech space companies cannot underestimate the patients needed to undertake the painstaking scientific and clinical development plans for both platform technologies and biological products. On average, a traditional vaccine in the influenza market takes roughly five to seven years to develop, conduct clinical trials, perceived regulatory approval and commercialize. For Dyadic, we had the additional tasks beyond the clinical development of a product as we had to undertake the development, engineering and validation of our C1 protein production platform to transition from industrial to biopharmaceutical applications.

For perspective, Chinese hamster ovary or CHO cell production systems and baculovirus-insect cells took decades and hundreds of millions, if not billions, of dollars invested in the development and engineering of the whole sales they get to the stage we are at today with C1 in less than seven years upon starting our transition from industrial biotech to biopharmaceuticals. What makes Dyadic unique compared to these more standard cell lines in use today is our decades of bio-industrial heritage. We have shown that our C1 platform can be used to develop C1 cell lines to express stable antigens that have been shown to be up to 300x more productive than baculovirus cells, which are being used in both human and animal health. To put that in perspective, C1 has the ability to produce 300 doses of a particular vaccine, the one dose of a baculovirus-produced vaccine, which leads to improved cost and speed efficiencies.

With all these outstanding attributes, our C1 platform offers the most common question we get from shareholders is, what is holding back broader and more rapid adoption of the C1 platform for pharmaceutical applications in human and animal health? And the question we do have asked repeatedly from pharmacies, do you have any human safety data from a regulatory body? A little over a year ago, we brought Joe Hazelton in as our Chief Commercial Business Officer, who spent his 25-year career in pharmaceutical commercialization, business development, market access in pricing to diagnose this very issue and to develop a strategic plan to address gaps in our current business efforts. I will now ask Joe to provide you with his perspective on this issue and to provide a brief update on our Phase 1 trial.

Joe?

Joe Hazelton: Thanks Mark. Before I speak to the adoption of C1, let me first provide a brief update on the Phase 1 trial for DYAI-100, the first human trial for C1-produced protein. In order to establish a track record of safety in humans for antigens produced from our C1 cells, the ongoing Phase 1 trial is a randomized, double-blind, placebo-controlled trial to evaluate the safety and immunogenicity or immune response of the DYAI-100 COVID-19 recombinant protein RBD booster vaccine in 30 healthy adults in South Africa. Regulatory approval was received in late 2022, and the first patients were dosed in January of this year. There are eight scheduled patient visits over a six-month period with safety data being collected throughout the trial, and immunogenicity assessments are scheduled on six of the eight visits.

Recently, we announced the dosing of all patients was completed in late February with no serious adverse events reported to date. Patients should complete the first six visits by the end of March, with the remaining two visits taking place at days 90 and 180 from initial dosing. This timing projects the last patient last visit to take place near the end of August with the clinical study report being available in the late third or early fourth quarter. We’re currently working with Rubic One Health, our South Africa partner for DYAI-100, on the next phase of development pending the results of this study. I wanted to start with a Phase 1 update to highlight the importance of clinical data as pharmaceutical development, whether for a product, a technology or a platform.

The route to adoption and commercialization is full of obstacles from the readily apparent ones like regulatory hurdles to less visible ones, such as market or political forces that shape the landscape she want to enter. In the case of C1, my first assessment was amazement that the platform transitioned from industrial to pharmaceutical in under 10 years. Most platforms take years of genetic engineering, testing and further process refinement that increase costs and the length of time until it can be utilized commercially. Dyadic’s industrial heritage enabled that transition to happen in a shorter time frame with a smaller investment than traditionally would be practical or feasible. Next, when you assess the sheer volume of data demonstrating safety and efficacy of C1-produced vaccines and therapeutic proteins in animal models, it was very apparent to me that C1 has the capability to produce safe and effective vaccines and biologics comparable to cell lines used today.

However, when looking to commercialize a vaccine or biologic drug, pharmaceutical companies must evaluate their potential products’ probability of success across several key criteria, such as safety, efficacy, speed to market and likelihood of approval. A critical part of this evaluation is managing risk across these criteria. The choice of which cell lines to utilize for bioproduction of a particular vaccine or biologic product can potentially impact all of these criteria. The lack of human data and risk mitigation have been key barriers to the broader acceptance of the C1 platform to date. It is important that pharmaceutical companies choose a cell line that minimizes risk in terms of potential for successful production, manageable cost of goods, successful regulatory review and, ultimately, approval.

With the expected full study results later this year of Dyadic’s first-in-human data for a protein produced from the C1 platform, we continue to validate the C1 platform to reduce developmental risk for our partners. Additionally, over the last five years, Dyadic has developed a strong repository of safety, efficacy and productivity data regarding the C1 protein production system across a wide range of vaccines and antibodies. Dyadic has also developed a suite of genetic tools to improve the ability to engineer the C1 cell line to achieve quality that is comparable or better than traditional cell lines while demonstrating speed and yield results that are significantly higher than standard cell lines in use today. The overall result is that for vaccine production for human and animal health markets, the C1 platform is ready for full commercialization.

We continue to make great strides in antibodies, and the platform is ready for human trials for monoclonal antibodies. While this is encouraging news, development and approval of pharmaceutical products takes years to complete, which means that we must also focus our efforts on commercialization targets that drive revenue in the near term as well. I’ll now turn the call back to Mark to take us through important business updates and our strategy to refine our focus on near-term commercialization opportunities on our path to revenue realization. Mark?

A – Mark Emalfarb: Thank you, Joe. In 2022, we reorganized our business into three core verticals. We also have listened to our shareholders and have structured today’s call to be focused on results and our approach to each vertical. With that, I would like to begin with human health, where we have made significant progress, both scientifically and in business development. Our primary scientific objective for fiscal year 2022 were to initiate our first in-human Phase 1 trial of a C1-produced protein to further demonstrate comparable safety and efficacy of C1-produced proteins to those produced by traditional cell lines and to design better biomolecules for enhanced vaccine efficacy and durability. We met those objectives as we recently announced the dosing has been completed for a Phase 1 clinical trial for DYAI-100, a COVID-19 booster vaccine candidate.

As Joe mentioned, our C1 protein production platform is fully ready for commercialization of recombinant protein vaccines. We have previously demonstrated that C1 platform is capable of rapidly producing unparalleled quantities of complex vaccine antigens efficiently. The addition of first-in-human data for C1-produced protein provides data for a critical evaluation criterion that potential partners utilize when choosing a cell line for their commercialization targets. Similarly, it is imperative that the proteins produced by C1 are equal to or superior to those expressed in other cell lines in terms of quality. In today’s press release, we shared how many — how we have expressed a number of third-party monoclonal antibodies, which we assayed by multiple third parties, who reported that the neutralizing and mining activity assays demonstrated great similarity between C1-produced mAbs and CHO-produced mAbs.

As we reported in the third quarter, one of the C1-produced monoclonal antibodies for COVID-19 completed a non-human primate study, showing comparability to the comparator co-produced monoclonal antibody. Again, this is critical for our potential partners as they select cell lines to produce their commercial targets to ensure their products have equality standards and safety profile required to a clinical and regulatory development. This year, we are also focused on designing better mAb biomolecules. We have developed C1 cells to express complex proteins, such as conjugating antigens and ferritin nanoparticles. Additionally, we developed several AMHC2 targeting influenza and COVID-19 antigens and an antigen that included a trimerization domain to increase vaccine efficacy and durability.

In today’s release, you may have seen that we are also testing these better biomolecules with our partners like the University of Oslo and Virovax, where we have new targeting systems and adjuvants that are being used with C1-produced antigens in relevant diseases such as H1N1 and H5N1 or commonly known as the bird flu in animal trials. These advancements enable Dyadic and its partners to potentially develop more effective and longer-lasting vaccines across a wide range of infectious and other diseases. We continue to focus on longer-term strategic partnerships with leading pharmaceutical partners like Hengrui, one of the largest pharmaceutical companies in China; and our collaboration with Janssen Pharmaceuticals; as well as advancing commercial products and clinical development of our COVID-19 vaccine candidate, DYAI-100 with Rubic One Health and Epogen in the developing countries of Africa and India.

In certain cases, like we have successfully done with BDI and Alphazyme, we expect to use our technology to obtain equity stakes in smaller companies who can’t afford to pay an upfront access fee. This provides us with an opportunity to generate cash from the sale of our equity leader, such as was the case with BDI in 2021 and Alphazyme in Q1 2023. Note, the sale of these two equity positions generated a total of $2.87 million cash. Additionally, we have the potential to receive milestone and royalty payments based on sales of C1-expressed products by Alphazyme. We anticipate that we will continue expanding and entering into new pharmaceutical license agreements in 2023. However, in order to accelerate our payout to revenue, we’re adjusting the focus among human health and other core verticals to products and partnerships with shorter commercialization time lines, high unmet market need and smaller development costs with less obstacles to market approval and acceptance.

An example of this focus is our recombinant serum albumin projects. The global serum albumin market is an approximately $5.7 billion market, growing at over 6% a year due to the increased use across a multiple of markets in human and animal health. In the Pharmaceutical segment, serum albumin is not only being developed as a potential treatment for disease, but is currently used in product development of vaccines as a diagnostic tool and a common reagent in R&D. There are many different grades of argument and price points across these markets. And Dyadic has the potential to produce animal-free serum albumin at a significantly competitive price due to our highly productive microbial platforms and low-cost media and production systems. Later, Joe will be back to share how serum albumin is being used in alternative proteins as well, providing Dyadic with an opportunity for product commercialization in shorter term.

In a similar vein, in 2022, we issued the publication of a poster that showed the potentially being the first non-yeast cell to produce an active CYP450 enzyme. CYP450 enzymes are part of a $17 billion global enzyme market for uses diagnostic, therapeutic research and product development enzymes. As we discussed for several years, high protein yield is a major challenge in the pharmaceutical industry, specifically to enhance the production of vaccines and biologics or for enzymes required for the chiral synthesis of small drug molecules, diagnostics and other uses. This is another near-term example of a near-term opportunity that adheres to our corporate strategy that has risen from our collaboration with an academic institution. As we announced today, Dyadic is at the forefront of vaccine development, and more than half a dozen animal trials that have been carried out late last year alone.

In additional, animal trials are ongoing and are scheduled with C1-produced antigens; bird’s influenza, for example, H5N1, the bird flu; and other infectious diseases. Our C1 recombinant protein vaccine platform is fully ready for commercialization opportunities. And we and/or our collaborators are working and developing better biomolecules to produce more effective and durable vaccines. In 2023, we’ve refined our human health objectives, include a focus on shorter-term product commercialization opportunities that have less time, cost and risk associated with development. We are currently engaged in discussions and negotiations to license the C1 platform and our products that can meet these objectives by also pursuing larger scope licensing agreements with pharmaceutical partners that will help drive greater long-term value.

In animal health, I would like to turn our attention as there are many similarities in the needs between human and animal health markets for vaccines and therapeutic proteins, and we are leveraging our science across these core verticals. What makes animal health an attractive segment for Dyadic is the margin sensitivity of this market and the significant impact that operate can have on the global supply chain and potentially human health. The ongoing avian flu outbreak has an immense impact on global poultry supply chain and ripple impact in other markets as well. And egg production decreased or as egg production decreased, it not only drove prices up with the store, but reduces the availability of eggs for vaccine production. This is why we and others such as the FDA believe that the C1 production platform can be a global solution to pandemic response in not just humans but also animal health.

Late last year, we announced that we had achieved a record antigen production level of 10 grams per liter of a livestock antigen. We can produce very large quantities of antigens for infectious disease rapidly and at low cost, making C1 a potential pandemic preparedness platform for response or stockpiling. Our third vertical of alternative proteins is an area of great excitement for Dyadic and one which we believe holds near-term potential promise in terms of opportunity and revenue. What makes this particularly interesting is that exploiting this segment does not require a significant departure for our human and animal health pursuits. This vertical is anchored by our fully-funded joint development agreement with our Global Food Ingredients collaborator, and Dyadic is dedicating resources and support for existing and future products within this rapidly growing market.

Dyadic has launched its Dapibus platform, a fulfillment is fungal-based microbial gene expression and protein production platform, which is further designed and customized to enable the rapid development and large-scale manufacture of low-cost enzymes, proteins, metabolites and other biological products for use in non-pharmaceutical applications such as food, nutrition, health and wellness. Joe has been building out the strategy and value proposition for this segment, and he will describe our opportunity and efforts to maximize the potential in alternative proteins. Joe?

Joe Hazelton: Thanks Mark. What makes alternative proteins advantageous to Dyadic is that we are able to leverage the advancement, innovation and benefits of the Dyadic technologies across broad and growing market opportunities. The excitement in this segment is well founded and can be attributed to three key factors: first, due to shorter developmental timelines and approval processes products and opportunities within alternative proteins can be commercialized in less time; second, by focusing on products that have applicability across our core verticals such as recombinant serum albumin, we can reduce developmental costs, yet increase overall revenue potential for Dyadic; third, as there is overlap between the Company’s operating and alternative proteins across our business verticals, penetrating this market does not require significant additional resources from Dyadic.

The human and animal alternative protein market is an approximately $16 billion market and growing. The market is currently driven by plant-based proteins, and it’s being accelerated by cultured or lab-grown meat and seafood products, non-animal dairy products and a host of other nutrition and wellness segments that, while smaller in scale, saw over several billion dollars of venture and other capital invested since 2021. The key unmet need across the diverse alternative protein segment is for the rapid production of large quantities of high-quality yet affordable recombinant proteins and enzymes to enable scale-up and commercialization, which fits our strategy of focusing on markets where our technologies can have the greatest impact. Our recently-developed Dapibus microbial cell line is gaining interest across multiple applications and industries for the development and manufacture of alternative proteins and enzymes.

Our strategy to capitalize on this market is twofold. First, we are identifying target products with high unmet need, such as price or productivity that transact our core business verticals. Second, we’re engaging partners who have broader capability to commercialize quickly and effectively within key markets where our platforms would have the largest impact, and we are exploring expansive agreements for market segments that benefit both companies. An example of this strategy is our development of an animal-free recombinant serum albumin. The cultured meat industry can use serum albumin as a major part of cell culture media used to grow the animal cells for cultured meat products. They need vast amounts of serum albumin to commercialize at a global scale that cannot be supported by current production methods from a price or a resource standpoint.

The Dyadic-developed recombinant serum albumin produced at food grade may have potential use as a component of cell culture media. When produced at reagent or CGMP grade, this product has potential commercial viability in the pharmaceutical segment as a product development or research material in our human and animal health verticals, as Mark described earlier. We have identified a target list of protein and enzymes that have applicability across our core verticals that are currently in need of an alternative lower-cost recombinant production system, which Dyadic has either made previously or has related experience to improve our probability of success. We believe this can be an accelerator for Dyadic as our Dapibus microbial cell line has the potential to provide our partners the ability to meet scale and cost demands for recombinant proteins and enzymes within their respective alternative protein markets.

In addition, we are in active discussions on currently seeking partnerships and collaborations for non-animal food proteins, nutraceuticals and metabolites. Mark, back to you.

Mark Emalfarb: Thank you, Joe. We will continue to leverage the learnings of C1 from our commercial scale industrial manufacturing to accelerate that development process across our core verticals. In parallel, we remain fiscally responsible with our research and development while being strategically focused with our partnerships and collaborations to fund advancements of our science in critical areas. While we’re happy with the progress we made in ’22, we are not satisfied. And in 2023, our focus is on short-term commercial opportunities that can improve our revenue outlook in the near term while we continue to drive broader pharmaceutical acceptance of the C1 platform and development of commercialized products. We refined our business development objectives to focus on our core areas where our technologies can have the greatest impact.

The result of this focus is being realized as Dyadic is gaining industry recognition to further develop our microbial platforms to human and animal health organizations worldwide. At the same time, we are evaluating new opportunities aligned with our verticals in targeted markets of high potential return, such as alternative proteins. With that, I would like to turn the call over to our CFO, Ping Rawson, to run through our financials.

Ping Rawson: Thank you, Mark. Thank you, everyone, for joining our call today. Before I get into details of our financial results, let me first provide you an update on our change of external auditor situation. On February 16, 2023, we were informed that by Mayer Hoffman McCann P.C. MHM, our independent auditor of its decision, to resign due to their own resource constraints. There was no disagreement with MHM on any matter of accounting principles or practices, financial statement disclosures or audit scope or procedures. MHM’s reports on our financial statements for fiscal year 2022 and the previous years were clean and did not contain any adverse opinion or disclaimer, as you can see from the report issued today. We fully anticipate that MHM will help with a smooth transition to our new auditor and provide Dyadic with any required consent going forward.

We have already identified a potential new auditor who is currently in the process of completing their internal client acceptance. Once that process successfully completed, we will issue an 8-K announcing the name of the new firm. Now I will go over our key financial results for the year ended December 31, 2022. In addition to what I will be discussing now, you can find additional information in our earnings press release and Form 10-K, which we filed earlier today. Our research and development revenue and the license revenue for the year ended December 31, 2022, increased to approximately $2.930 million compared to $2.404 million for 2021, which represents an increase of 21.9% year-over-year. Cost of research and development revenue for the year ended December 31, 2022, increased to approximately $2.123 million compared to $1.944 million for the year ended December 31, 2021.

The increase in revenue and cost of revenue year-over-year represents the increase in licensing revenues and the various larger research collaborations conducted in 2022. Research and development expenses for the year ended December 31, 2022, decreased significantly to approximately $4.501 million compared to $8.392 million for the year ended December 31, 2021. The decrease primarily reflects the winding down of activities for contract research organizations and regulatory consultants to support the Phase 1 clinical trial of DYAI-100 COVID-19 vaccine candidates. G&A expenses for the year ended December 31, 2022, decreased to approximately $6.422 million compared to $6.698 million for the year ended December 31, 2021. The decrease primarily reflects a decrease in legal expenses of $500,000, offset by increases in incentives of $133,000, insurance premiums of $56,000 and other increases.

Net loss for the year ended December 31, 2022, was approximately $9.7 million or $0.34 per share compared to a net loss of $13.1 million or $0.47 per share for the year ended December 31, 2021. Our cash, cash equivalents and the carrying value of investment-grade securities as of December 31, 2022, including accrued interest, were approximately $12.7 million compared to $20.4 million on December 31, 2021. In January 2023, the Company received an additional cash payment of $1.27 million associated with the sale of Alphazyme LLC. Given the fact that the majority of our DYAI-100 Phase 1 clinical trial expenses have been incurred in 2022 and 2021, we expect our cash burn for 2023 will be approximately $6 million, significantly less than 2022. We started the year with $12.7 million in cash and investment-grade securities with additional $1.27 million received from the sale of our equity interest in Alphazyme.

We reiterate our expectation that our existing cash position will be sufficient to fund our operations into 2024. With that, I will now ask the operator to begin our Q&A session. Joe Hazelton will join Mark and I to answer your questions. Each caller will be allowed one question and one follow-up question to provide all callers an opportunity to participate. If time permits, the operator will allow additional questions from those who have already spoken. Operator?

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Q&A Session

Operator: Thank you. Our first question comes from the line of John Vandermosten with Zacks. Please proceed with your question.

John Vandermosten: I thought I’d start out with just congratulations on the complete — or the completion of dosing of the trial, and wanted to find out what’s next. I think we had the clinical study report coming up in a few months. Following that, is there — are there plans for Phase 2? And also have good results here, fund any interest from perhaps the vaccine trial that was in — that was being planned in India.

Joe Hazelton: John, it’s Joe Hazelton. First of all, thanks for the question. And for the first part, yes, obviously, it spans a lot of interest. What we’re hoping for is that we do have the clinical study report sometime in the third quarter of this year. I think that we’re hoping that we get our last patient last visit in August, and that ultimately will then lead to potentially looking at the next phase of development will be in like early 2024. We’re now talking with Rubic One Health, which is our South African partner on next steps. And obviously, would need regulatory guidance from SAHPRA to make that happen. So we’re cautiously optimistic that we’re going to continue that development as rapidly as possible.

Mark Emalfarb: And I think the Indian trial, John, it’s Mark, that trial is on — plans to continue going on at the moment. They actually pivoted from a monovalent vaccine, which initially they were going to do like we have going on in South Africa, to a bivalence. So that delayed them somewhat. But the beautiful thing there is because they were running behind us, provided they get into the Phase 1 and hopefully even in Phase 2, which is what they’re talking about, that they will actually get better results and more meaningful results. Because, as you know, the bivalence from Pfizer and Moderna are basically Omicron 5 and Wuhan, and that’s exactly what we’re planning on doing in India. So, they’re working on the CGMP and the preclinical studies to get the support to move forward with that in India.

So, the delay there actually is going to work out better than it would otherwise have done. So together, we talked about pivoting from the monovalent to the bivalent because that seems to be with the FDA, for example, here in the U.S. and the world is looking for.

Joe Hazelton: Well, the completion of dosing, I think, indicates that this platform is ready for full commercialization. And that’s what’s generating the broader interest in the platform on the vaccine front, and that’s what we’re looking to capitalize on here in the near term.

John Vandermosten: Great. And for a follow-up, what kind of long-term follow-up is required for the patients that were enrolled in the South Africa trial?

Joe Hazelton: In Phase 1, it is a six-month study. There is no long-term follow-up plan at this point. Phase 1 will end at six months, and that will be the end of the study. So there’s 30 patients. So usually Phase 1 doesn’t require follow-on in one-dose study.

Operator: Our next question comes from the line of Vernon Bernardino with H.C. Wainwright. Please proceed with your question.

Vernon Bernardino: Congrats on the progress. Lots of things moving across the board. Regarding DYAI-100, you mentioned completing dosing of all patients in both the low- and high-dose testing groups and then expect a full report in second half ’23, can we expect an interim readout or, let’s say, antibody levels or other biomarkers, et cetera? Or we’re just going to wait for a full report?