DYAI: Steady as She Goes

By John Vandermosten, CFA

NASDAQ:DYAI

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First Quarter Financial & Operational Results

Dyadic International Inc. (NASDAQ: DYAI) released first quarter financial and operational results on May 14, 2020. Revenues were $0.3 million and represented research and development proceeds from partners working to develop C1. Total expenses were $2.7 million and net loss was ($2.2) million after adding interest income. On a per-share basis, net loss was ($0.08). Total cash and investments were $31.3 million as of March 31, 2020, equivalent to ~$1.14 per share.

2020 has begun with a steady stream of additional relationships and expansions of existing relationships. Since our brief update at the beginning of the year, Dyadic has entered into six additional affiliations. Opportunities for product development in infectious disease have emerged and the relationships have expanded with the Israeli Institute of Biological Research (IIBR) and Zoonoses Anticipation and Preparedness Initiative (ZAPI). Other work by partners to develop a treatment or vaccine against the coronavirus using C1 has also emerged. This includes efforts by a consortium of academics from Erasmus Medical Center, Utrecht University, University of Veterinary Medicine Hannover and Ufovax, a spin-off company from Scripps Research.

First quarter 2020 revenues fell 22% to $0.3 million reflecting a contraction from six revenue generating customers to five in 1Q:19 vs. 1Q:20. Total expenses in the three month period declined 5% to $2.7 million. Research and development (1) was down 27% to $1.0 million due to contract completion of the research service agreement with BDI and one fewer research collaboration, partially offset by additional spend for the glyco-engineering project. General and administrative expenses rose 16% to $1.7 million on account of higher insurance and service cost, noncash compensation, business development and investor relations costs partially offset by lower executive compensation and decreased legal expenses. Net loss was ($2.2) million for the period, essentially flat with the comparable quarter in 2019. On a per share basis, net loss was ($0.08) also matching the per share loss in the same period last year.

Cash burn expanded to ($2.0) million in the first quarter on an increase in accounts payable and a decrease in accrued expenses compared to trends in 1Q:19. Cash and equivalents were $31.3 million on March 31, 2020 down from $34.2 million at the end of 2019.

Animal Health

Dyadic has relationships with three of the four leading animal health companies. The latest addition is a fully-funded feasibility study to develop two proteins that was completed in March. One of the other relationships (designated “Leading Animal Health Co. in our summary below) is advancing to the second part of the project. The first part analyzed the productivity and quality of the protein, and the second will evaluate its feasibility to advance to animal trials. Animal health is particularly attractive to Dyadic as it could provide a faster route to commercialization and ultimate royalty and licensing revenues for the company. There are now a total of six collaborations in this space. Cost pressures are acute in animal health and require efficiencies that can effectively address large populations of livestock and pets. In a competitive landscape where cost is key, C1 is a leading technology that can provide needed efficiency.

The work with ZAPI is providing exposure of C1’s capabilities not only to the European public-private partnership that serves to respond to new infectious disease threats, but also to the other partners involved in the effort. Other partners include large pharmaceutical firms such as AstraZeneca, Boehringer Ingelheim and the academic community in the veterinary and infectious disease spaces.

Research Collaborations

Since the beginning of 2020, Dyadic has entered into six new agreements to explore the use and potential of C1 to express proteins and other biological materials. There have also been two expansions of existing agreements with IIBR to create both a vaccine and antibody and ZAPI where two additional targets were added.

One of the new agreements pairs Dyadic with WuXi Biologics. WuXi is a global contract development and manufacturing organization (CDMO) with a broad portfolio of services to the biologics industry including drug discovery, microbial expression and fermentation, cell culture derived products and other platforms to help sponsors and developers advance candidates through the research and development and commercialization process. The deal that Dyadic entered into with WuXi is a non-exclusive research license. We see this as an important collaboration as it provides C1 services broadly for mass production. Many of the interested parties that have signed agreements with Dyadic do not have the facilities to produce commercial volumes of product and the availability of a CDMO with C1 as one of its offerings provides a clear pathway to commercialization for these sponsors.

Another new feasibility study announced is in partnership with Ufovax (2), a spin off from Scripps Research in La Jolla, California. Ufovax will employ C1 to produce a single-component self-assembling protein nanoparticle (1c-SApNP) for HIV and coronavirus. Another relationship recently made public is an arrangement with the University of Oslo to conduct a feasibility study to develop an influenza vaccine. The results of the work may lead to further collaborations and expansion of the vaccines produced with C1. Also of interest is the consortium of academics that are working on a coronavirus vaccine. This collaboration was a product of relationships forged at ZAPI and has led to Dyadic partnering with three of the top 20 experts in the field to produce larger quantities of more potent vaccines and drugs at lower cost using C1.

Exhibit I – Summary of Dyadic Collaborations (3)

Dyadic continues to engage additional prospects and to sign non-disclosure agreements with them. One of the most important collaborations is with Sanofi where Dyadic was able to express all seven of the therapeutic and vaccine proteins that were identified in the project. More than 50% of the proteins were expressed above target levels and now Dyadic is preparing the final presentation to Sanofi to determine next steps. A decision is expected on whether or not to move forward is expected to occur mid-year 2020. We are optimistic on the other research collaborations with large pharmaceutical companies as they allow potential acquirers of this technology to evaluate C1’s potential and have a stake in its success. With numerous interested parties invested in developing the technology we anticipate that if a bidding war begins, substantial value will accrue to Dyadic shareholders.

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1. Total R&D includes Cost of R&D Revenue, R&D and R&D Related Party amounts.

2. UFO is short for “uncleaved prefusion-optimized” rather than what we initially hoped was a focus on the study of alien DNA. It refers to a process for efficiently producing envelope proteins.

3. Source: Zacks Research and Dyadic corporate filings. Green highlight indicates animal health collaboration. Blue highlight indicates academic collaborator.

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