DYAI: Dyadic Supplementary Information

By John Vandermosten, CFA



We recently initiated on Dyadic International, Inc. (OTCQX:DYAI) with a $4.50 price target and a thesis that recognizes the high costs of biologics production and the opportunity for cost savings from the company’s C1 expression system. The C1 fungus is able to express recombinant proteins at a faster rate than competing systems such as CHO and E. coli while also producing output of higher purity, which can reduce downstream processing time and costs. Two areas where Dyadic is targeting their research and development efforts are on glycosylation of proteins and the elimination of proteases that are co-produced with the desired output. Glycosylation is important for the proper function of the protein in the human body and complex glycostructures are required for safety and efficacy of many of the biologics produced. Proteases can degrade protein output and also absorb energy in the cell that could be directed toward producing the desired protein. Dyadic’s work along these two axes is expected to produce a refined product suitable for specific human use with improved productivity compared to prior strains of the fungus.

Another part of our investment thesis centers on the attractive niche in biobetters and biosimilars that are particularly well-suited to C1 given the cost focus for follow-on biologics. The high price of novel biologics has made the focus on production costs less important; however, they are also unaffordable to the majority of the population without access to a generous health insurance subsidy. With competing biosimilars and biobetters, production cost becomes more of an issue, forcing biologics manufacturers commercializing this class of drug to seek more efficient production systems such as C1. In this addendum we discuss some of the dynamics relevant to this effort.

In the following sections we provide background information in support of our initiation with respect to glycosylation, protease deletion and biosimilars/biobetters.


Glycosylation is an enzymatic process where a carbohydrate attaches to proteins or another organic molecule. It is a form of post-translational modification that contributes to several functions including protein folding, protein stability, moderation of half-life of proteins and optimization of biologics, such as mAbs. Glycosylation is essential for cell viability and represents the attachment of glycans or carbohydrates to proteins. This process takes place in the endoplasmic reticulum and the Golgi apparatus of a producing cell and is applied to most soluble and membrane-bound proteins. The function of glycans is determined by their structure and the immune system largely functions through glycan protein interactions.

Glycosylated proteins are present in nearly all living organisms. Eukaryotes have the greatest diversity of glycosylated proteins including N-, O- and C-linked glycosylation, glypiation and phosphoglycosylation. If the proper glycans have been added then it will prevent the protein from being cleared too quickly and allow the structure to assume its biological function. For certain mAbs, the glycans, or sugars have a function that modulate the effector function of the proteins. Glycosylation also has a direct impact on immunogenicity. If a protein lacks a mammalian glycosylation structure, the immune system may recognize it as an invader and destroy it. The importance of glycans in the immune system is present in physiology, pathogen recognition, cancer & autoimmune diseases making glycans and glycosylation important for therapeutics, vaccines & diagnostics.

Glycosylation plays a critical role in mAb, Fc-fusion and other protein function and can determine therapeutic efficacy and pharmacokinetics. The attachment of certain glycan conformations enhances antibody-dependent cell-mediated cytotoxicity (ADCC). Without the proper glycosylation, proteins cannot achieve their function. Several classes of glycans exist including N-linked and O-linked groups. N-linked glycans are predominantly required for biologics in human use and can be engineered when they are not produced by an expression host. One approach modifies temperature, pH and media to affect the glycan species. Another approach employs specific inhibitors of glycosyltransferases which can generate the desired glycoform. There are also approaches which genetically modify the expression host to humanize the N-glycans and express the desired structure within the cell.

CHO cells are most often used as production hosts when glycosylation is needed. Competing viral, yeast and bacterial systems that are evolutionarily distant from humans have glycosylation patterns that are largely incompatible with human use.

Dyadic is now performing glycoengineering work with C1 to knock in and knock out specific genes in the glycosylation pathways that are expected to produce human-like glycostructures. The glycoengineering work benefits from the fact that the glycoform structure of C1 more closely resembles the human glycan structure than that of other fungi and yeasts. Unlike most fungi and yeasts, C1 does not appear to have ‘high’ mannose (branched 30-50 mannose species), but rather has ‘oligo’ mannose and hybrid-type structure. None of the proteins analyzed to date contain the O-glycosylation structure commonly found in yeast and other fungi that is difficult to eliminate through glycoengineering steps.

View Exhibit I – Glycosylation Pathway in the Endoplasmic Reticulum1

Dyadic is focused on expressing proteins with specific glycoforms including G0, G1, G2, G0F, G1F and G2F which will improve the immunogenicity of vaccines via its glycoform structure. The company’s timeline anticipates achieving G1F and G2F structures by 2020, which will provide the necessary technology to manufacture glycosylated antibodies and other glycoproteins.

View Exhibit II – Representative Glycoform Samples2


As with other expression systems, C1 naturally produces proteases, which are a class of enzyme that breaks down proteins and can potentially degrade the desired output. To address this difficulty, Dyadic has employed gene editing techniques to eliminate the expression of proteases and develop protease deletion strains of C1. There are precedents showing that deletion of proteases has led to increases in secretory production of recombinant proteins3. The modifications of C1 have shown a similar benefit where protease deletion strains exhibited higher output than previous strains. Research and development work has so far eliminated nine different proteases and is refining the tenth. Management is targeting 12 protease deletions for its final product, which it anticipates will be sufficient to materially improve the stability of the proteins produced. In addition, Dyadic has developed a proprietary protease expression library that facilitates rapid identification and elimination of proteases that can degrade a new protein of interest.

If the proteases are not eliminated, their presence can impact protein stability by breaking down output through natural enzyme activity. Deletion of proteases and modifications to the fermentation process conditions can increase the stability and yield of recombinant proteins and improve output. Protease inhibitors, pH and temperature adjustments or nitrogen content of the media are normally adjusted to compensate when proteases are present. If the majority of proteases are eliminated, then the operating conditions can be optimized for production rather than protease minimization. In the following exhibit we highlight the multifaceted improvements on productivity, proteolytic activity and purity as a result of protease deletion for C1.

View Exhibit III – Productivity vs. Proteolytic Activity of C1 Following Protease Deletion4

Biobetters and Biosimilars

Biosimilars are approximations of approved biologic agents. They are roughly equivalent to generics in the small molecule universe; however, they are not molecularly identical as they are manufactured using a different process and cell line. Compared to the procedure for approving generics, biosimilars must conduct an abbreviated pre-clinical program and perform phased trials before receiving approval.

Protein-based biologics are substantially larger and more complex than small-molecule drugs. They cannot be manufactured using a chemical process, but rather rely on living cells or organisms for production. This complexity means that there can also be variability in their formation. Variability exists from batch to batch from the same manufacturer and also in products from follow on competitors.

View Exhibit IV – Comparison of Various Drug Compounds5

Follow-on biologics are similar to an innovator drug (reference product) rather than an exact replica, and are called biosimilars. Biosimilars do not have any clinically meaningful differences from the originator medicine related to safety, quality or efficacy. The FDA requires the same manufacturing process in the production of the biosimilar as was used for the reference product. This reduces the possibility of using an improved expression system, such as C1, to construct a biosimilar.

Biobetters are recombinant protein drugs that are in the same class as an existing biopharmaceutical and bind to the same target, but they are not identical. The differences in biobetters arise from the improvements offered compared to the innovator drug such as longer half-life, lower likelihood of aggregation, greater efficacy or purity and fewer adverse side effects. Pharmaceutical technology moves at a rapid clip and what is learned over the development period for the original biologic can be applied to design a superior biobetter. While the full clinical development process must take place for the biobetter, the sponsor does not have to challenge the patent or perform comparative testing. The sponsor may also market the biologic prior to patent expiration on the innovator drug. Furthermore, the pathway to approval has been validated and the target is well-understood allowing for smaller trials, familiar interactions with regulatory authorities and a higher probability of success. The biobetters may also use an alternative expression system with superior economics.

One of the key drivers for a new expression system to gain acceptance in the biologics space may be biobetters. While some biosimilars have been approved such as the copies of Neupogen, Remicade, Enbrel and Humira, competition from this class has not been as robust as hoped. There are a few reasons for this including the time consuming approval process (relative to generics) to gain approval for a biosimilar, intellectual property protection hurdles and most importantly, higher costs to produce the biosimilar compared to the reference product given the tremendous economies of scale that a mature biologic can achieve.

There is no precedent for a follow-on biosimilar to use a different process or expression system in manufacturing; however, regulatory authorities could change this requirement if cost pressures and evidence of success with alternate systems are supportive.

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1 Industrial Biotechnology Protein Production Technologies. VTT Technical Research Center of Finland, Ltd. Slide Presentation. 27AUG18.
2 Schneider, Sonja; Nagele, Edgar. N-Glycan Analysis of Monoclonal Antibodies. Innovations in Pharmaceutical Technology.
3 Tomimoto K Fujita Y Iwaki T Chiba Y Jigami Y Nakayama K Nakajima Y Abe H Protease-deficient Saccharomyces cerevisiae strains for the synthesis of human-compatible glycoproteins Biosci Biotechnol Biochem.
4 Dyadic Investor Presentation, August 2018.
5 Mellstedt, H. Clinical considerations for biosimilar antibodies. 12 December 2013. European Journal of Cancer Supplements. Volume 11, Issue 3, December 2013, Pages 1-11