Dyadic International, Inc.
Q2 2021 Earnings Call Transcript

Published: 12 Aug 2021

[Operator:]

Good evening, and welcome to Dyadic International's Second Quarter 2021 Financial Results Conference Call. . As a reminder, this conference call is being recorded today, August 12, 2021. I'd now like to turn the call over to Ms. Ping Rawson, Dyadic's Chief Financial Officer. Please go ahead.

[Ping Rawson:]

Thank you. Good evening, and welcome, everyone to Dyadic International's Second Quarter 2021 Financial Results Conference Call. I hope you've had the opportunity to review Dyadic's press release announcing financial results for the second quarter ended June 30, 2021, and the recent company highlights. You may access our 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 second 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. At this time, I'd 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. Welcome, everyone, and thank you for joining us as we move into the back half of fiscal 2021. We continue to make significant progress in our science and across our corporate and strategic development goal to help delivering the benefits of Dyadic's C1 protein production platform to life science biologics and vaccine production space. Since the sale of Dyadic's industrial biotech business to Dupont for $75 million in 2015, we have focused our efforts on using synthetic biology to reengineer our versatile, industrially proven C1 protein production platform to address biologic vaccine and drug production for the animal and human health markets. Our research and development continues to advance, including having manufactured a C1-produced protein under cGMP manufacturing conditions, demonstrating that C1 proteins can be manufactured in the cGMP facility, coupled with the successful completion of an interim toxicology study puts us a step closer in advancing our DYAI-100 COVID-19 vaccine candidate towards a Phase 1 human clinical trial. Since March, we entered into foreign collaborations, including the recently announced binding term sheet with Sorrento Therapeutics, a NASDAQ-listed clinical-stage antibody-centric biopharmaceutical company, developing new treatments for COVID-19, cancer, and pain. The Sorrento license agreement when executed will mark a significant milestone in our corporate development efforts, as we will have begun to monetize our COVID-19 development efforts to licensing our C1 technology for the development and commercialization of vaccines, therapeutic antibodies, protein diagnostics solely for coronaviruses, including DYAI-100, Dyadic's lead COVID-19 vaccine candidate to a drug development partner that has the resources and the expertise to advance coronavirus vaccines, therapeutics, and diagnostics, both clinically and commercially. Due to confidentiality agreements, we are often unable to publicly announce certain ongoing collaborations. Over the past 6 months, as noted by Sorrento's Chairman and CEO, Dr. Henry Ji, Sorrento carried out several promising preclinical animal studies using the C1 produced RBD antigen and Dyadic's lead COVID-19 vaccine candidate, DYAI-100. Sorrento extensively studied Dyadic's lead COVID-19 vaccine, which utilizes the SARS-CoV-2 spike protein, receptor binding domain, RBD antigen, in vitro and in in vivo for its induction of high titer neutralization activities in vaccinated animals against the SARS-CoV-2 us and its major variants of concern. The goal - their goal is to manufacture a COVID-19 vaccine that will provide protection across the variants of concern, including Delta, and in addition, apply the C1 protein production platform broadly across their current and future coronavirus programs. Our mutual goal, as highlighted in yesterday's press release, as we continue to work together to develop and commercialize a protein-based COVID-19 vaccine that can be rapidly manufactured in very large quantities in Sorrento's existing cGMP and other cGMP facilities, and stored and transported at either room temperature or 2 to 8 degrees in order to increase the access and affordability to underserved populations globally. Sorrento reported that a multivalent COVID-19 vaccine is under development using the SARS-CoV-2 RBDs for the variants of concern such as delta, alpha, beta, gamma, and Lambda and is being designed to cover all known and emerging variants of concern. This is a significant event for Dyadic, having achieved our goal of creating a pathway that addresses the COVID-19 production, commercialization, and distribution gap for mass-scale immunizations across the globe quickly and efficiently. This Sorrento license fills the gap for the remaining potential COVID-19 immunization, production, and distribution across all other territories, not already covered by Dyadic's existing agreements with Medytox, Syngene, and the Rubic Consortium. The Sorrento license agreement, when executed, will grant Sorrento exclusive rights for human health and nonexclusive for animal health in their territory to utilize Dyadic's C1 technology for the development and commercialization of vaccines, therapeutic antibodies, protein therapeutics, and diagnostics solely for coronaviruses, including DYAI-100, Dyadic's lead COVID-19 vaccine candidate. And we'll include upfront payments of $10 million in cash and stock up to $4 million in reimbursements for DYAI-100's preclinical and clinical development milestones and development costs incurred by Dyadic up to $33 million of potential milestone payments for the successful developments of vaccines, therapeutics in humans and animals as well as additional royalty payments based on net sales. All future development costs related to this license will be incurred by Sorrento. The following is a brief overview of our other strategic C1 COVID-19 collaborations that can potentially reach upwards of an additional 3.7 billion people. The Rubic Consortium

[Ping Rawson:]

Thank you, Mark. In addition to the financial results I will be discussing 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 our investment-grade securities, including interest, were $25.8 million as of June 30, 2021, compared to $27.4 million as of March 31, 2021. Research and development revenue for the quarter ended at June 30, 2021, increased to approximately $937,000 compared to $524,000 for the same period a year ago. Cost of research and development revenue for the quarter ended June 30, 2021, increased to approximately $830,000 compared to $624,000 for the same period a year ago. The increase in revenue and cost of revenue for the quarter reflected an increase the number of ongoing research collaborations to 11 compared to 9 collaborations for the same period a year ago. There was no provision for contract losses in 2021. R&D expenses for the quarter increased to approximately $2.2 million compared to $1.1 million for the same period a year ago. The increase primarily reflected Phase 1 clinical trial cost of DYAI-100, our lead COVID-19 vaccine candidate, in the amount of $1.5 million, offset by a decrease of $415,000 related to our other internal research projects. G&A expenses for the quarter increased 18.5% to approximately $1.7 million compared to $1.5 million for the same period a year ago. The increase principally reflected increases in legal expenses of $117,000; business development and investor relations cost of $65,000; executive and the Board of Director compensation costs of $41,000; insurance expenses of $24,000; and other increases of $26,000. Interest income for the quarter was approximately $21,000 compared to $147,000 for the same period a year ago. The decrease was primarily due to the lower balance of whole to - maturity securities and less reinvestment because of the decrease in interest rate. Net loss for the quarter was approximately $3.8 million or $0.14 per share compared to $2.7 million or $0.10 per share for the same period a year ago. As Mark mentioned earlier, on July 26, we sold our equity interest in BDI Holdings and the VLP Bio, resulting approximately a 30% return on investments and a cash of approximately €1.3 million. The related gain will be subsequently recorded in the third quarter of 2021. Based on amended service framework agreements with BDI farmer, we will remain the right to engage BDI to provide R&D services until June 30, 2025. Looking forward, our previously provided cash burn guidance for 2021, which was in the range of USD10 million to USD12 million will be significantly changed once the Sorrento license agreement is executed. We expected to receive the $10 million upfront cash and stock from Sorrento in the fourth quarter of 2021. 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. 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?

[Operator:]

. And the first question is coming from John Vandermosten from Zacks SCR.

[John Vandermosten:]

Congratulations on the Sorrento agreement, that's nice to see upfront. So we've been looking for that, and it's finally here. That $4 million that was cited, is that for past expenditures or is that for future expenditures?

[Mark Emalfarb:]

That's for past and current expenditures that are ongoing as we continue to move the DYAI-100 vaccine candidate towards the first Phase 1 clinical trial. We nearly spent up to $4 million.

[John Vandermosten:]

Okay. Great. And do you think you'll get that whole $4 million or will it just be a portion of that?

[Mark Emalfarb:]

We'll see, I'd rather not say. But obviously, it will be exactly what it is in the bills that we have to submit for all the different things, but it'll probably be close to that number.

[John Vandermosten:]

Okay. Great. Yes. I mean, I guess you break that out internally on all the COVID-specific R&D expenditures then.

[Mark Emalfarb:]

Yes, there's different vendors specifically for DYAI-100.

[John Vandermosten:]

Got it. Got it. And then on Rubic in South Africa, I mean, that's a great deal that you have with them as well. I guess is that more for a long-term objective to build up, I guess, the opportunity for biosimilars to be developed in the country? I guess I'm trying to think of that longer-term, how that - how the work now could be set up for something bigger in the future?

[Mark Emalfarb:]

Yes. No, I think it's a good point. I think there's today, there's tomorrow, and there's the future. And I think they can address all those things because, number one, the consortium consists of research, immunologists, virologists, people that are going to develop, not just COVID-19 vaccine for potential therapeutics, but also it could be malaria, it could be HIV, it could be a variety of different diseases. And so they're carrying on research and development. And so the problem there, as I mentioned, what I said, less than 0.001% of the vaccines in the whole world are actually for Africa, it's what, 14% of the world population. It's not sustainable. It hasn't been sustainable, and they view that the technology fits like a glove. High quantities, low cost, rapid production, ease of use, all the things that you would think you would need in an environment like the African continent as well as other continents all over the globe that have underserved needs. So what we're doing here is we're together, putting the infrastructure in place today for the research and development. They have very good clinical trial experience. In fact, the researcher that's involved, Shabir Mahdi is running some of the J&J and Novavax clinical trials. So South Africa is well-known for their Phase 1, Phase 2, Phase 3 clinical trial capabilities. So for the COVID-19, DYAI-100, either that product and/or a variant thereof, they're well skilled in taking that through rapidly and quickly, and they're motivated to get that out as fast as possible. So that's today, tomorrow is new developments, and the future is, of course, a biomanufacturing facility that can satisfy a nice portion of the African continent. And all of that brings low-cost healthcare, revenues, profits for Dyadic and for Rubic.

[John Vandermosten:]

And just a clarification on my question. This - will this be for off-patent products in the future or new developed products? I get the sense that the target will be off-patent products, vaccines that have already been proven. It's just going to be done using C1 in Africa.

[Mark Emalfarb:]

I think it will be for both.

[Operator:]

. The next question is coming from Dick Williams from Williams Resource Group.

[Dick Williams:]

Mark?

[Mark Emalfarb:]

Yes, Dick.

[Dick Williams:]

I missed you for a second. Sorry. Congratulations on a tremendous deal that you've made. I don't think the breadth and size of that deal is understood totally yet by our stockholders and the Street. But I have a clarification question in essence. In terms of the deal with these guys at this company, they were working initially on mRNA vaccine. They had made several announcements in the past months on it. And it seems as though they also were working during that same period on animal studies with the DYAI-100, with your product. And it seems obvious to me that somewhere along the line, they determined that the way to go and the home run for them was with the DYAI-100 product. And obviously, that's why they've signed this deal with you, which is a much larger deal and something that's developed sooner rather than later because they've been working on this. Then the other part of that same question essentially is that the remuneration of the funds and everything to you, one additional factor there is that this only pertains in terms of the royalty, et cetera, and so forth, to everything connected to coronaviruses. So whatever is developed beyond the coronaviruses in the future, obviously. You would then renegotiate a compensation deal, including a royalty for that. Is that not correct?

[Mark Emalfarb:]

Yes. So this particular license agreement is solely for coronaviruses. I can't speak as to their other development efforts, but it's obvious that based on their press release yesterday, and I would suggest everyone not just reading ours, but reading Sorrento's press release, as I mentioned in today's call, they got very high neutralizing antibody titer. They're very excited about it. I think they have very similar goals and objectives, which we are virtually able to fulfill together in a much more efficient way; large volume, low cost, safe, effective protective vaccines for prime and boost as well as potentially boosters. And so the answer is, they're excited about what they're doing. Obviously, they are going to write a check there. But more importantly, these people are teed up with the right regulatory expertise, the infrastructure, I believe there's about 800 people that work in that company, and they have a variety of products already in the clinic, in COVID and otherwise. And we expect them to bring this to market in a more efficient way with a higher probability than we can do it on our own, with obviously a much lower cost to us, with a high upside potential for both companies.

[Dick Williams:]

Okay. One thing in terms of the potential for both companies. It was mentioned in the release and the way I interpreted everything. And I just want - I did some back-of-the-envelope numbers here. And I just want to make sure I'm in the right ballpark. So I'll mention them here to you. That the royalties, typically a royalty for situations like this in my experience has been about a 5% number. It goes up to 10% and 12% but I think I'm using a lower would probably be a lower number of a 5% royalty. And according to the numbers of how many vaccines would be made, Pfizer was charging $0.30 a vaccine for their products.

[Mark Emalfarb:]

No. $33 not $0.30.

[Dick Williams:]

I mean $30. I used $15 to be conservative. And that translated to a revenue stream on that royalty basis of $75 million. And of course, 100 million of these to equate to that would be a small number when everybody is talking of billions required throughout the world and especially the market that these guys have as an exclusive. Assuming they meet the criteria you've set, we would be far north of that. But is that reasonable in terms of the numbers that I've come up with from the back of the envelope?

[Mark Emalfarb:]

Well, I can't share with you what Sorrento's terms and conditions are but obviously, based on your math, if you had 100 million doses at $15, which is approximately half the price per dose, and you had, I think you said 5%, that I believe, equals $75 million. And if we have an epidemic, not just a pandemic, which some people think this is going to be a sustainable market for years to come. Just at 100 million doses, no matter what the number is, there's a lot of potential for Sorrento and a great potential for Dyadic. It's a win-win situation, actually, win-win-win. Patients, first, low-cost access to a vaccine that can save lives and reduce pain and suffering, and we can make profits both at Sorrento and Dyadic and everybody wins.

[Dick Williams:]

Okay. To your presentation today, it was very, very comprehensive and answered some of the questions that I had. Thanks a lot.

[Mark Emalfarb:]

Thank you.

[Operator:]

Okay. The next question is coming from Luis Garcia, a Private Investor.

[Unidentified Analyst:]

A question about - I missed a little earlier on the - it's a question about the patent life on this product. When we come out with a new one, say someone uses a C1 for the vaccine. Is that the new date for the pack for that product, are we issued different patents for different variances and things like that?

[Mark Emalfarb:]

Yes. I mean, obviously, patent lives vary depending on when it starts and what you do to change and modify something, what improvements you make, what it answers, what's innovative. But we believe we have patent applications that I would say are provisional, so they're very new in some cases. And we believe that the cell line that's being used in this case is just at the beginning of its life, not its end. So it's got many years to run.

[Unidentified Analyst:]

So I was just going to say, we expect the long run with many, many, many, hopefully, different opportunities. Another question. I believe you said or it's been said that we can use this for insulin. Is that correct?

[Mark Emalfarb:]

Well, we can produce virtually any protein from any gene, but not every system will make every protein, okay? So and some are very easy to make, some are more difficult to make, some are mediocre in terms of how much time and effort. But there's a good possibility that we could express insulin antibody. We've already expressed antibodies with bispecifics, trispecifics, Fabs, virus-like particles, I'm just going by memory, dozen different classes and types of proteins with different uses, whether it be oncology or potential rheumatoid arthritis, for Alzheimer's. Potentially, we worked on insulin, so we haven't reported specific projects, but we've worked on a number of different types and classes of proteins of multibillion-dollar targets.

[Unidentified Analyst:]

Okay. Very good. Do you think that many of these big pharmaceutical companies don't really want to do business with us right out of the gate because it's less money for them and they don't care, they're just getting the top dollar for product?

[Mark Emalfarb:]

I can't predict or think about what the big pharma companies will or won't do. But if you remember, we went through this experience in the industrial biotech business, but we did a nonexclusive license with Abengoa Bioenergy, and then we did a nonexclusive license with BASF, and then we did a nonexclusive license with Shell Oil and Codexis, and then Dupont came and purchased the industrial biotech business. And so that was $110 million combined. And this is a far greater, larger market that's much more valuable. So we've already done this once, and we expect to do it again. We developed our own products in addition to that and sold them in 30 countries around the world. So I think the opportunity for us here is just to continue making this technology more robust, more versatile in the applications, proving it out in human beings, safe, effective, protective, first in the vaccine space, which is what we're doing now, ultimately then moving into therapeutics and antibodies. And then, of course, you have the whole animal health side where you have companion animals and farm animals. And then you have a whole bunch of other biologic projects and products and opportunities that were being sort of, I don't know, inbounded with opportunities that are broad and diverse. So we're not a loss of opportunity. We want to focus right now on making sure that we succeed in producing large volumes of low-cost, safe, effective vaccines, for COVID-19 and other vaccines because that platform is up and running and looks to be, we believe, the most productive, simplest, easiest way to make a vaccine or more combinant protein production.

[Unidentified Analyst:]

All right. One more. Speaking of the biofuel, anything from stopping you to getting involved with that again, since it's already a proven market?

[Mark Emalfarb:]

Well, there obviously are certain patents out there, but we think that there's a possibility for a variety of different products and opportunities to get back into that space. Our non-compete ended on December 31 last year. And so we are evaluating that, and we're being approached by a variety of different people, and we're sorting through that. But to be honest with you, that's moving at a slower pace because we're focused on making sure we don't drop the ball.

[Operator:]

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

[Mark Emalfarb:]

So one of the things I just wanted to clarify is that these opportunities that we have today, are proof of concept, not only for COVID-19 but potentially for new novel proteins, biosimilars, biobetters. So the people that we're involved with, for example, Syngene who's owned 70% by Biocon in India are quite large. Medytox is the fourth-largest producer of BOTOX. Rubic is smaller, but nimble and have wide connections in the African continent. And of course, Sorrento is a proven biotech, very aggressive company. So we believe that we have the opportunities to expand those license agreements to even broader, deeper, and wider areas, whether it be rheumatoid arthritis, oncology or insulin or diabetes or who knows what? So it's - once they get used to using the technology, see the power of it, the speed at which it can be programmed, the protein yield that can be produced, to simple ease, to low-cost media, safety in humans, I think the sky is the limit. So I want to thank, again, everybody here as we go forward as a small biotech company, growing, expanding, ultimately benefiting populations that are disenfranchised or otherwise lack access to immunization and vaccine programs and treatments for infectious and other diseases to an inaccessibility in our prohibitive costs. We look forward to keeping you updated on our progress along the well - no, along the way, and we'll see you on our next call. Thank you, and good night.

[Operator:]

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