DYAI: Headed to the Clinic

By John Vandermosten, CFA

NASDAQ:DYAI

READ THE FULL DYAI RESEARCH REPORT

2020 Operational & Financial Results

Dyadic International Inc. (NASDAQ:DYAI) released 2020 operational and financial results on March 30, 2021 and concurrently filed its Form 10-K with the SEC. A Phase I trial is planned in 2H:21 that will evaluate the safety of a C1-produced vaccine in human subjects. Following the anticipated successfully cleared IND, this will be the first use of a C1 derived proteins in humans. Dyadic’s other newly minted efforts include a co-development effort with the South Korean Medytox and a funded human growth factor arrangement with TurtleTree Scientific, both signed in 1Q:21. This adds to the 15 announced partnerships that we recorded for 2020. Other distinguished partners that have advanced on the back of C1 in 2020 include ZAPI and IIBR. On the financial side of the coin, Dyadic burned ($6.6) million in cash, advancing 14 active research collaborations, most of them fully funded. Operational expenses of $10.0 million were offset by $1.6 million in revenues which, after adding non-operational items, resulted in a net loss of ($9.3) million or ($0.34) per share.

Financial results for the year ending December 31, 2020, compared to the year ending December 31, 2019:

➢ Revenues were $1.6 million compared with $1.7 million representing a -5% change. The number of research collaborations rose year over year to 14 from 10; however, revenue dollars per collaboration were lower.

➢ Research and development expenses (along with cost of R&D, provision for contract losses, and related party R&D) rose slightly to $5.5 million from $5.4 million. The end of the contract with BDI in 2019 was more than offset by recognition of R&D contract loss amounts, increases in R&D for COVID related projects and other internal projects.

➢ General and administrative expenses were $6.1 million, up 10% from $5.5 million due to greater share-based compensation, insurance premiums, legal and SEC expenses, business development and investor relations costs. This was partially offset by lower executive compensation, trade show and travel expenses.

➢ Interest income of $447,000 vs. $985,000 with the difference due to lower cash balances and lower rates paid on cash holdings.

➢ A $285,000 gain was recognized on the investment in Alphazyme compared with no gain recognized.

➢ Loss from operations was ($9.3) million compared to ($8.3) million. On a per average share balance, net loss was ($0.34) and ($0.31) respectively.

Cash and equivalents balance on December 31, 2020 was $29.1 million. Cash burn was ($6.6) million, offset by a small amount of cash from financing representing the exercise of options. Dyadic expects to burn between ($10) to ($12) million in 2021, with the increase attributable to the Phase I safety study for the COVID vaccine.

Phase I Safety Study

On March 18, 2021, Dyadic announced its plans to launch clinical studies for a COVID vaccine. This candidate, designated DYAI-100, will be an antigen that mimics the receptor binding domain of SARS-CoV-2 spike protein. This announcement follows successful animal trials conducted by the Israel Institute for Biological Research (IIBR) and work with the Zoonoses Anticipation and Preparedness Initiative (ZAPI) program. Dyadic entered into a master services agreement with contract research organization CR2O to manage preclinical and clinical development of DYAI-100. At present, Dyadic expects to begin toxicology studies in April 2021, prepare and file an investigational new drug application (IND) over the summer, obtain clearance from the FDA to begin and launch its trial by the end of August 2021. The primary goal of the clinical trial is to validate the safety of C1-produced proteins in humans. If tested as planned, the proteins will be the first expressed via Dyadic’s C1 platform to be tested in humans.

Phase I COVID Recombinant Vaccine Collaborators (1)

C1 expressed receptor binding domain (RBD) is being used in animal trials by 10 different research groups, government agencies and biopharma companies including IIBR, scientists from Oxford U, Utrecht U, Erasmus Medical Center, U of Veterinary Medicine Hannover, DE (TiHo) and others around the globe, testing RBD alone or with nanoparticles and adjuvants.

Dyadic’s COVID-19 vaccine milestones include:

➢ C1 expression of SARS-CoV-2 mAb achieved – 2H:20

➢ Record expression of SARS-CoV-2 RBD antigen – 2H:20

➢ VTT C1 engineering of full spike protein & RBD antigen of SARS-CoV-2 – 2H:20

➢ Non-exclusive technology usage agreement with Epygen Biotech – 2H:20

➢ 10 ongoing animal trials of SARS-CoV-2-S-RBD – 2020/2021

➢ CR2O master services agreement – March 2021

➢ ZAPI Update – March 2021

➢ DYAI-100 toxicology study – 2Q:21

➢ DYAI-100 Phase I initiation – August 2021

Medytox Collaboration

Dyadic plans to work with Medytox, Inc. to develop vaccines against COVID variants in a research collaboration announced on March 22, 2021. Medytox is a South Korean-based biopharmaceutical company with both commercialized products and a development pipeline in a variety of areas. Dyadic had been informally working with Medytox on animal studies since July 2020 and expanded their relationship with the company to develop C1 enabled COVID vaccines and boosters that will include antigens representing multiple COVID variants. Dyadic has granted its partner an exclusive license for South Korea and other Southeast Asian countries if the development yields an approved product. Medytox’ head of R&D, Dr. Gi-Hyeok Yang, believes that C1 is “the most realistic technology to develop and manufacture multi-valent…vaccines, rapidly and affordably…without the need for a large-scale bioreactor facility.”

Vaccines that are now being used to address COVID are monovalent vaccines that may not address new strains of the coronavirus. To address this shortcoming, Dyadic expects to engineer additional C1 cells to develop variant antigens for use in multivalent vaccine candidates.

Collaboration with TurtleTree Scientific

On February 2, 2021, Dyadic announced it had entered into a collaboration with TurtleTree Scientific to develop recombinant growth factors. The collaboration is fully funded and aims to develop a number of recombinant protein growth factors that can be manufactured in bioreactors, leveraging C1’s high yield and low cost. Growth factors have applications in tissue development and healing, and are critical to regenerative therapies. Leveraging the C1 platform with its productivity and flexibility should help TurtleTree’s commercialization endeavors, enabling them to provide therapeutics at competitive value in an emerging field. Growth factors have applications in cell agriculture, cosmetics and pharmaceuticals among others. TurtleTree Scientific is a subsidiary of TurtleTree Labs, a biotechnology company that was founded to explore the sustainable production of milk using a cell-based platform.

Animal Health

Dyadic has relationships with all of the top four animal health companies. Two additional animal health companies were added to the partner list and were announced on July 8th. While management has not explicitly disclosed the partners’ identities, an industry review identifies the top four animal health companies by size as Zoetis, Merck Animal Health, Boehringer Ingelheim and Elanco. This brings the total number of animal health collaborations to eight, two of which include a partial ownership in successful commercialization of successful products.

Cost pressures are acute in animal health and development and manufacturing of pharmaceutical products requires efficiencies that can economically address large populations of livestock and pets. In a competitive landscape where cost is key, C1 is a leading technology that can provide this necessary feature. We discussed these arrangements in an article found here (2).

ZAPI Scientific Achievements

Dyadic participated in the Zoonotic Anticipation and Preparedness Initiative (ZAPI) Final Stakeholders virtual web meeting in early February 2021 to discuss the participants’ achievements. Dyadic’s C1 was a frequent topic of discussion and praise. Distinguished participants in the effort, such as Dr. Albert Osterhaus of the Erasmus Medical Centre highlighted the relatively large amounts of antigens that C1 can produce. He noted that during a pandemic that requires high volumes of vaccine quickly, C1 would be an ideal expression system to develop further with this end in mind.

Another prominent participant Dr. Alexander Brix of Boehringer Ingelheim identified C1 as the key advantage for yields and purity for ZAPI’s vaccines and antibodies. He noted that C1 can address the periodic need for surge capacity and is particularly suited to smaller fermentation systems, such as single use bioreactors in the 10, 50 and 100 liter range.

The goal of the ZAPI program is to protect human and animal health by creating a platform to rapidly respond to emerging infectious disease threats. The program is now using Dyadic’s C1 platform to express antigens for the Schmallenberg virus (SBV) and Rift Valley Fever virus with yields up to 300 fold greater compared with alternate production hosts such as Baculovirus. The SBV antigen was safe and effective in animals and animal trials continue to generate safety and efficacy data.

Success with the ZAPI program has led to discussions and relationships with scientists and biotechnology and pharmaceutical companies to investigate other uses of C1 in animal health, COVID-19, human biopharmaceutical programs such as nivolumab and to strengthen relationships with stakeholders in the academic, public and private drug development sphere.

Presentation at ZAPI Stakeholders Virtual Meeting

On February 4, 2021, Dyadic presented at the ZAPI Stakeholder Virtual Meeting. Dyadic’s Chief Scientific Officer Ronen Tchelet, presented Dyadic’s experience as a participant in the ZAPI project, including a demonstration of Dyadic’s fungal expression platform’s performance in producing high yield at scale. Dyadic had already demonstrated C1’s abilities in Schmallenberg virus (SBV) and Rift Valley Fever (RVFV), comparing favorably to baculovirus cell expression for the two antigens. Participation in the ZAPI project demonstrated C1’s impressive ability to produce high yield requiring minimal fermenter volume, the success of which has led to several fully funded animal health collaborations outside of the project.

ZAPI

ZAPI, the Zoonotic Anticipation Preparedness Initiative, was launched in January 2015 by the Innovative Medicine Initiative (IMI), a €19 million program to test cutting edge technologies and their ability to swiftly address the emergence or reemergence of zoonotic viruses. The technologies considered include vaccines and monoclonal antibodies. While there are many zoonotic viruses, the most recently emerged include MERS-CoV, Schmallenberg virus and RVFV. These viruses have functioned as models in the ZAPI project to develop and test preparedness.

Zoonotic viruses originate from animals. There have been 25 documented zoonotic diseases that have emerged over the past 20 years and the frequency is expected to increase with changes in the environment and demographics. The SARS-CoV-2 pandemic has been a recent reminder of how vaccine response is difficult, especially due to the unpredictability of zoonotic outbreaks. ZAPI has brought together leading experts from organizations, agencies, academic groups and industry to develop more rapid response to these infectious diseases. Milestones for the ZAPI project include confirming the generation of viral vaccines based on small subunits expressed via non-mammalian or avian cell lines.

New Board Member

Dyadic appointed Patrick Lucy as the seventh member of the Board of Directors, announced January 11, 2021. The appointment was effective January 8. In addition to his role as an independent director, Mr. Lucy will also serve on the Board’s Science and Technology Committee. As a member of the Board, Mr. Lucy will leverage his near 30 years’ experience in the biotechnology industry and invest in Dyadic’s relationship with collaborators to facilitate the adoption and commercialization of Dyadic’s C1 platform. Mr. Lucy’s career features extensive experience in development, adoption and commercialization of cell lines in biopharma applications. Mr. Lucy currently serves as the President and Chief Operating Officer of Lykan Bioscience, a private contract manufacturing company. Prior to his role at Lykan, Mr. Lucy co-founded Pfenex, which went public in 2014, after being launched in 2005 and subsequently spun out from Dow in 2009. Mr. Lucy joined Dow when Dow acquired Collaborative BioAlliance.

Summary

Dyadic has steadily added new collaborations during 2020 and into 2021 signing several agreements and expansions with both large and small partners in animal and human health. Since the end of 2020, two new fully funded collaborations have been announced that further expand Dyadic’s geographic and product exposure. We are optimistic on the company entering into an agreement that provides upfronts, milestones and royalties based on a successful candidate in animal health, human health or as a vaccine for SARS-CoV-2. The most important recent announcement is the move into Phase I studies to test the safety of a COVID vaccine. The company has guided towards a late August start for the in-human safety study which is primarily intended to validate that C1-produced proteins are safe in humans.

The pandemic may catalyze the pathway forward for C1 to be used as an expression system for producing vaccines and other therapeutic proteins. Using a C1-expressed protein in human trials would be a tremendous achievement and one is now planned with contract research organization CR2O. C1 may be able to provide much higher output with improved characteristics compared to current approaches which addresses one of the primary bottlenecks when manufacturing sufficient quantities of vaccine for global populations.

Dyadic’s balance sheet is strong with numerous fully funded collaborations and multiple years’ worth of cash and 2021 anticipated burn rates. Cash burn guidance of ($10) to ($12) million for 2021 includes amounts necessary to fund the clinical trial and advance the programs already underway.

There is substantial value in Dyadic’s broad portfolio of options and in their exciting technology that can revolutionize the protein expression industry. Future favorable catalysts include the addition of more collaborators, achieving output milestones and launching the planned clinical trial.

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1. Source: Dyadic March 2021 Corporate Presentation

2. https://scr.zacks.com/News/Press-Releases/Press-Release-Details/2020/DYAI-Dyadic-Animal-Health-Partners-Summary/default.aspx

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