Dyadic International - Q1 2024
May 14, 2024
Transcript
Operator (participant)
Ladies and gentlemen, good evening, and welcome to Dyadic International's Q1 2024 conference call. Currently, all participants are in a listen-only mode. Following the management's prepared remarks, there will be a brief question and answer session. As a reminder, this conference call is being recorded today, May 14, 2024. I would now like to turn the call over to Miss Ping Rawson, Dyadic's Chief Financial Officer. Please go ahead.
Ping Rawson (CFO)
Thank you. Good evening, and welcome everyone to Dyadic International's Q1 2024 conference call. I have had the opportunity to review Dyadic's press release on our financial results for the quarter ended March 31, 2024. You may access our release and Form 10-Q in the investors section of the company's website at dyadic.com. On today's call, our President and CEO, Mark Emalfarb, and our Chief Operating Officer, Joe Hazelton, will give a review of our 2024 business and corporate highlights, including a brief summary of our recent research and the 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.
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 because 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 (CEO)
Thank you, Ping. Hello, everyone, and thank you for joining Dyadic's Q1 2024 conference call. A little over 5 weeks ago, on our 2023 year-end conference call, I highlighted how Dyadic is uniquely positioned to rapidly capitalize on the present opportunities and those on the horizon. Over the next 2 years, we anticipate reaching multiple revenue streams and other inflection points through fully funded collaborations and the company's pipeline products to enhance shareholder value. We continue building upon the momentum witnessed in 2023, and we have further accelerated our progress. The acclaim and acknowledgement of our C1 technology for its speed, productivity, and low cost persists both domestically and globally, receiving commendations from academia, industry, government bodies, and nonprofit organizations. Additionally, our Dapibus expression platform has exceeded our initial expectations.
Despite launching a little over a year ago, we are beginning to gain substantial traction in generating revenue in both the alternative protein and bioindustrial sectors. In the first quarter, we successfully closed a $6 million convertible note financing without issuing any warrants, and I would again like to extend our gratitude to long-term shareholders for their steadfast support, as these funds will fuel the acceleration of our goal to introduce revenue-generating products through targeting both pharmaceutical and non-pharmaceutical sectors. To further support our growth imperatives, in March, we announced changes in leadership roles, both at the board level and management team. Patrick Lucy has assumed the role of Chairman of Dyadic's Board of Directors, and Joe Hazelton has expanded his responsibilities as our Chief Operating Officer. With strengthened financial resources, scientific prowess, and bolstered leadership, we are well positioned to execute our strategic business objectives.
We will continue to leverage our microbial protein production platforms, C1 and Dapibus, to craft antigens, antibodies, enzymes, and other recombinant proteins pivotal to each of the sectors we are focused on: human health, animal health, and alternative proteins. These efforts are anticipated to unlock the monetization avenues, significantly enhancing shareholder value for Dyadic and our partners, spanning both pharmaceutical and non-pharmaceutical domains. With regard to the human health sector, I cannot overstate the significance of the positive outcomes from our phase 1 human study, which has had in bolstering academia, industry, and government attention towards Dyadic and our C1 expression platform. Today, we announced that the final clinical study report, CSR, has been issued for our phase 1 clinical trial, demonstrating safety and antibody response for DYAI-100, a recombinant protein receptor binding domain, RBD, booster vaccine candidate for protection against COVID-19 infection.
This was the final step in the journey to the first in human study for a C1-produced protein. It not only achieved its primary endpoint of safety and reactogenicity, but also produced a strong immune response. Since the announcement of these results, heightened interest from industry partners, including two top ten pharmaceutical firms, has spurred the start of over 12 fully funded vaccine and antibody projects, five of which are fully funded by two of the ten pharmaceutical companies. These projects span various disease areas, exemplified by our strategic partnership with Rubian BV, a Dutch innovative SME founded by seasoned entrepreneurs and vaccine scientists. Rabian secured EUR 1.7 million in funding from Eurostars for the AVATAR project, aiming to leverage its virology expertise to develop a rabies vaccine utilizing Dyadic's C1 protein production platform.
Additionally, the Israel Institute for Biological Research, IIBR, is harnessing Dyadic's microbial platform expertise in conjunction with their own capabilities in antibodies and antigen discovery, to develop and manufacture treatments and vaccines for emerging diseases and potential biothreats for out-licensing opportunities. In the realm of infectious diseases, our recombinant vaccine capability continues to attract growing interest. We are engaged in expanded research collaborations with a top five pharmaceutical company to develop a number of additional antigens, preventing and treating various infectious diseases. Furthermore, our research collaboration to develop and test vaccine antigens for influenza A and other infectious diseases using the C1 and other platforms with the Vaccine and Immunotherapy Center, VIC, at Massachusetts General Hospital, which received over $5 million in funding from the DoD or the Department of Defense, is ongoing, showing strong initial yield results with the C1 platform.
Turning our focus to therapeutic proteins, particularly monoclonal antibodies or mAbs, we see significant potential in utilizing the C1 production system for the production of antibodies, targeting infectious and other diseases. In the first quarter, we announced the publication of a manuscript in the esteemed peer-reviewed journal, Nature Communications, detailing preclinical studies conducted on a monoclonal antibody produced using the C1 system, utilizing non-human primates and hamsters as models. In the non-human primate challenge study, a C1-produced COVID-19 monoclonal antibody, previously shown to possess broad neutralization and protection against various variants, including Omicron, BA.1 and BA.2, as well as the earlier variants of concern in hamsters, underwent dosing. Findings from the challenge study involving the SARS-CoV-2 Delta variant in non-human primates indicated promisingly high levels of protection.
This marks the first instance of a C1-produced monoclonal antibody being employed in a non-human primate study, affirming both the safety and efficacy of C1-produced antibodies for addressing infectious diseases. These recent findings regarding the safety and efficacy of monoclonal antibodies produced using C1 technology are significant in accelerating research and development efforts in the field of infectious disease. This is particularly noteworthy, taking we previously reported data that C1-produced mAbs are comparable in efficacy and safety to those produced using traditional CHO cells or Chinese hamster ovary cells. In the first quarter, Dyadic entered into a collaboration with another top ten pharmaceutical company to develop an infectious disease, monoclonal antibody, and vaccine antigen using our C1 technology. This marks a significant step forward in this area.
The fact that this collaboration is fully funded underscores the confidence in the potential of the C1 technology in producing effective treatments and vaccines against infectious and other diseases. Overall, these developments suggest a promising future for the C1 technology in the field of infectious disease research and development, potentially leading to more effective treatments and vaccines and antibodies against a variety of pathogens. In the animal health sector, we continue to extend and expand our presence in vaccines and therapeutic proteins with a focus on zoonotic infectious diseases, with the potential for spillover, which refers to the transmission of a pathogen that typically infects one species and is transferred to another, to other animals and humans. One example is the H5N1 pathogen or bird flu spillover threat, which continues to escalate.
H5N1 is now being found in multiple animal species, including dairy cows, companion animals, and has surfaced in a few occasions in humans. We are experiencing the worst outbreak of H5N1 since 2015, where over 50 million chickens died, and in 2022, over 90 million chickens have died in 48 states, with over an estimated 50 million dead this year, mostly from being slaughtered to control the spread, but some from the deadly virus itself. This kind of transmission can pose significant health risk, especially if the new host species has little to no immunity against the pathogen. Dyadic reports that ViroVax has completed initial preclinical testing of the potential H5N1 bird flu ferritin nanoparticle vaccine candidate, showing promising results in producing a strong immune response in animal models....
The company has also estimated the potential production of up to 300 million doses that can be manufactured and purified in as little as two weeks, using one 15,000-liter microbial bioreactor, using dose levels based on the preclinical dosing of 25-50 micrograms. Dyadic has taken a proactive approach to tackle the threat of a bird flu outbreak in collaboration with ViroVax. We are combining the strengths of our C1 platform to rapidly produce large amounts of low-cost H5N1 vaccine antigens, with ViroVax's highly efficient and effective adjuvant to develop an efficacious bird flu vaccine candidate that may offer significant advantages in terms of scalability, speed, and efficacy. The C1-produced adjuvanted recombinant ferritin nanoparticle H5N1 bird flu human vaccine candidate demonstrated a strong immune response in animal studies.
Recently, ViroVax generated additional data that indicates that the C1-produced adjuvanted recombinant ferritin nanoparticle H5N1 bird flu human vaccine candidate also has the potential to induce a strong immune response against all three of the circulating H5N1 viruses, including Texas, to provide protection for humans and cattle. We are pleased with the progress of the C1 platform in both the human and animal health sectors. As part of that effort, it's important to continue for us to invest in our platforms to meet regulatory expectations. As part of those efforts, we previously engaged Cygnus Technologies to co-develop a C1 host cell protein HCP ELISA kit. These kits are essential for detecting and quantifying contaminating proteins derived from the host strain during manufacturing to ensure product purity and quality is achieved. This is a standard test required for all protein production platforms.
We are pleased that the C1 HCP ELISA kits are now available to Dyadic and Cygnus customers through Cygnus's online ordering system. I will now turn the call over to our Chief Operating Officer, Joe Hazelton, to provide an update on the alternative protein sector. Joe?
Joe Hazelton (CBO)
Thank you, Mark. Dyadic remains truly excited about the uses of its microbial platforms in the alternative protein sector. We believe this sector offers significant promise in terms of high-value markets and nearer-term revenue. Our gene expression and protein production platforms, including the recently launched Dapibus, are tailored to facilitate rapid protein production, proof of concept, and large-scale manufacturing of enzymes, proteins, metabolites, and other biological products. These products span the full spectrum of production grades, from research to food grade and ultimately pharmaceutical grade materials. Their applications are diverse and encompass diagnostics, research, nutrition, health, and wellness, reflecting the increasing demand in these areas. Diving deeper into our strategic plans to boost near-term revenue, we remain focused and confident that identifying and producing high-value, high-volume recombinant targets that can be rapidly and efficiently commercialized provides the best near-term revenue potential.
Recombinant serum albumin serves as the prime illustration of our focus on valuable recombinant products, offering diverse commercialization prospects across various market segments in the approximately $6 billion serum albumin market. Pharmaceutical-grade serum albumin holds potential as a disease treatment and is integral to vaccine development. Also, it can serve as a carrier protein for therapeutics and a standard reagent for research and development. Recent completion of certificates of analysis for our recombinant human and bovine albumin affirms their analytical equivalence to currently commercialized research-grade products. Moreover, we are exploring recombinant bovine albumin's application in cell culture media for cultured meat production. We are now seeing this strategy creating value, as evidenced by the recent term sheet we've executed with a global albumin manufacturer and distributor to license, develop, and commercialize Dyadic's recombinant serum albumin products.
This strategic partnership will potentially enable our recombinant albumin products to enter the market within approximately 12 months. We hope to be able to share more information in the very near future on this important collaboration. Expanding our presence in cell culture media, we've also partnered with Turkish firm Biftek Incorporated, leveraging their patent-pending, cost-reducing, animal-free growth medium to expand into the cell culture media sector and earn a share of net sales from Biftek Supplement. Additionally, Dyadic's initial production of recombinant transferrin using its microbial platform presents a new opportunity in the alternative protein sector. Outside of recombinant cell culture products, we believe recombinant non-animal dairy products offer Dyadic the potential for more rapid commercialization opportunities. The global animal-free dairy products market was valued at over $26 billion in 2022, and is projected to reach more than $75 billion by 2032.
Today's animal-free dairy products are crafted through precision microbial fermentation technology, a market driven by evolving consumer preferences and concerns over health issues associated with traditional cow's milk, such as lactose intolerance and allergies. Despite the current higher cost of animal-free dairy, this obstacle aligns with our expertise in producing large quantities of cost-effective recombinant proteins using our microbial expression platforms. Our focus on this sector has been validated by our 2023 commercial agreement to utilize our Dapibus platform for developing and commercializing non-animal dairy enzymes for food production that included upfront payments, milestones, and royalties. We're also anticipating success fees from this collaboration in the first half of 2024. In efforts to expand our animal-free dairy portfolio, we have developed and initiated sampling of a recombinant non-animal alpha-lactalbumin protein, while also starting development of food-grade beta-lactoglobulin and lactoferrin, with expected sampling later this year.
We're engaged in several discussions with potential partners, boosting our confidence in the non-animal dairy segment's revenue potential in 2024 and beyond. We're further expanding our potential pipeline through the development of several bioindustrial-grade enzymes that have the potential for use in multiple industries such as nutrition, biogas, biofuels, and biorefining. In particular, our development and commercialization partner, Fermbox Bio, we have developed a cellulosic enzyme for the biofuel industry that is currently being tested by potential customers. In addition, Dyadic has developed three additional enzymes to target the pulp and paper industry. However, these enzymes may have applications in the biogas and biofuels industries as well. By increasing the volume of internal pipeline products and external partnerships with non-pharmaceutical and pharmaceutical applications, we believe we can accelerate more consistent revenue generation in the coming year that is not strictly reliant on platform licensing.
With the funding secured in the first quarter and the recent organizational adjustments, Dyadic is poised for a new phase of growth. While the future looks promising, we must remain disciplined in how we assess product opportunities from a financial perspective and command full value for the contribution of the Dyadic technology and expertise. There's still work ahead to capitalize on the opportunities before us and drive near-term revenue growth across our three core sectors. With that, I'd like to turn the call over to our CFO, Ping Rawson, to discuss our financials. Ping?
Ping Rawson (CFO)
Thank you, Joe. I will now go over our key financial results for the quarter ended March 31, 2024 in more detail. You can find additional information in our earnings press release and Form 10-Q, which we filed earlier today. Research and development revenue and the license revenue for the quarter ended March 31, 2024, decreased to approximately $335,000 compared to $934,000 for the same period a year ago. The decrease in research and development revenue was due to the winding down of several large research collaborations conducted in 2023. For the first quarter of 2024, the company's revenue was generated from 10 collaborations, comparing to 7 collaborations in the same period a year ago. We are experiencing an increasing number of collaborations with smaller dollar amounts for individual contracts.
Cost of research and development revenue for the quarter ended March 31, 2024, decreased to approximately $144,000 compared to $727,000 for the same period a year ago. The decrease was due to the same reason for the revenue mentioned earlier. R&D expenses for the quarter of 2024 decreased by 35.5% to approximately $523,000, comparing to $811,000 for the same period a year ago. The decrease reflected the winding down of activities related to the company's phase I clinical trial of DYAI-100 COVID-19 vaccine candidate, and a decrease in the amount of ongoing internal research projects.
G&A expenses for the first quarter of 2024 increased to approximately $1,789,000, compared to $1,480,000 for the same period a year ago. The increase was due to increases in business development and investor relations expenses of $138,000, audit fees of $99,000, management incentives of $59,000, and other increases, offset by decreases in insurance expenses and the legal expenses. Loss from operations for the quarter of 2024 slightly increased to $2,126,000, comparing to $2,050,000 for the same period a year ago.
Net loss for the quarter of 2024 was approximately $2 million, or 7 cents per share, comparing to a net loss of $956,000, or 3 cents per share, for the same period a year ago. The increase in net loss was due to the sale of the company's equity interest in Alphazyme LLC for $989,000 in 2023. As we announced previously, on March 8, 2024, the company issued an aggregate principal amount of $6 million of 8% senior secured convertible promissory notes due March 8, 2027, in the private placement. The convertible notes have a conversion price of $1.79 with no warrants.
The purchasers of the convertible notes include immediate family members and family trusts related to Mark Emalfarb, our President and CEO, the Francisco Trust, an existing holder of more than 5% of the company's outstanding common stock. As of March 31st, 2024, we have cash and investment-grade securities of $12.1 million compared to $7.3 million as of December 31st, 2023. We believe we are well-positioned financially to support our near-term revenue growth and accelerate our strategic objectives of commercialization opportunities for pharmaceutical and non-pharmaceutical applications. 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?
Operator (participant)
Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press Star and One on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star and Two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of John Vandermosten with Zacks. Please go ahead.
John D. Vandermosten (Analyst)
Great. Thank you, and good afternoon, Mark, Joe, and Ping. I thought I'd start out with a question on the serum human bovine albumin projects, and try to find out what some of the, I guess, the milestones you have to achieve before you can get to sales there. I think, Mark, you mentioned that that's something that you see or Joe, you mentioned that that's something that's about 12 months out. What do you need to get done, especially on the regulatory side, if anything, to have those first sales?
Mark Emalfarb (CEO)
Yeah, Joe, you can go ahead and answer that.
Joe Hazelton (CBO)
Yep, no, no problem. John, thanks for the question. And really, the main obstacle right now is scale up. We need -- we've done the first analytical testing that has shown, and we have the certificate of analysis that show we are equivalent to the reference compound and at least the research and diagnostic segment. So obviously, for pharmaceutical grade segments, yes, that's a longer time horizon. But in order for us to meet the initial first 12 months for research and diagnostic grade material, it's really about scale up and then obviously fill finish and getting it onto the market. And that's where our collaboration partner, I believe, will significantly increase our ability to accelerate that opportunity.
John D. Vandermosten (Analyst)
Okay. And also want to understand the financial structure of that. I guess, will there be any kind of upfront or milestone amount that is paid upon first sale? And then after that, is there a royalty, or how is that structured, when that starts generating revenue for you?
Joe Hazelton (CBO)
Mark, you want to handle that one?
Mark Emalfarb (CEO)
Well, I think you've been dealing with that intimately, so why don't you add what you have, and then I can add some color to it if I need to.
Joe Hazelton (CBO)
Sure. And so obviously, we will work towards initial milestone payments for obviously the access to the technology and the production strain. But then obviously we're going to look towards more of a potential revenue share on the back end as well, so we can, you know, increase our opportunity to grow as we're able to enter different market segments, whether it be excipient grade, whether it be cell culture media. So we're looking at different financial models and optics, but yes, milestones and royalties and things of that nature are also obviously part of the discussion.
Mark Emalfarb (CEO)
Okay, and just to add a little color, John, to that, you know, we do expect in the term sheet, we have executed an upfront payment along with, you know, potential milestones and royalties. And I think the important thing here is we've developed a very productive upstream production over the albumin, both bovine and human serum albumin. And the term sheet partner that we're working with, that we hope to finalize an agreement with in the not too distant future, has a very, very low-cost downstream processing capability. So when you marry high volume, low-cost upstream with high volume, low-cost downstream, and the fact that they have access to the marketplace, it's a great marriage and a great opportunity for both companies to exploit each other's strengths.
I think you need to keep in mind that when we're targeting these new product opportunities, we're targeting partners that can distribute, commercialize, and market these products through existing channels.
John D. Vandermosten (Analyst)
Got it. All right, I'll get back in line for, for some questions after some other people ask.
Operator (participant)
Thank you. Ladies and gentlemen, a reminder, if you wish to ask a question, please press Star and One. We have a follow-up question from John Vandermosten with Zacks. Please go ahead.
John D. Vandermosten (Analyst)
All right, thanks. I also wanted to ask about the CSR for DYAI-100 and kind of what the regulatory steps you might be doing next with that. I mean, I don't know... I mean, I think, Mark, you had indicated that you're not going to pursue that exact vaccine anymore because it doesn't make sense. But there may be other things that you can do with that, maybe on the regulatory side, in terms of interacting with the FDA and planning something else. Just wanted to hear what your plans are there, especially with regulatory focus in mind.
Mark Emalfarb (CEO)
... Yeah, so we, we've been in contact with certain members of the FDA, including, Peter Marks, the head of the FDA, on several occasions. So we do not plan on moving, DYAI-100 forward to COVID-19 booster vaccine. The market acceptance of booster vaccines seems to be short, and we have even better vaccines that we've developed since then for COVID. So if we move forward with anything, it'll be with a better performing, more higher efficacy, potentially longer lasting and maybe a universal potential vaccine. But that won't be funded by us to move that forward. So from a regulatory perspective, you know, the, the finish of the phase 1 now, has shown top-line results and, and final results of safety, tolerability, and immune response, both in the high and low dose.
It's driven excitement, and it's driven up markets, and it's driven up access to these 1, if not 2, big pharma companies. We're working with 2 of the top 10, one we'd already started working with, and I think both of them have come in based on the results that they've seen and they've heard about from that. So from a regulatory perspective, we hope to potentially move our bird flu vaccine that we've developed with ViroVax, that not only works in humans, as we mentioned, but recently ViroVax has showed it works on the 3 different variants of viruses that are floating around, including the one in the cattle.
So we think that that potential vaccine, not only can we mass produce it at low cost rapidly, and we've already developed the strain in the cell line, so we're 4-6 months ahead, we can address that challenge, and I think the opportunity, both from an animal health and a human health perspective. So there you'd have the USDA with the animal health side and the FDA and EMA and other regulatory agencies around the world, if we can get the funding and partnership where we can move that forward in an expedient manner. So that would bring another product forward. And then again, we're working with 12 different projects, some of them being antigen vaccines with the two top ten pharmaceutical companies.
I think there's 5 projects or 6 projects, I think 5 new ones, one, one from the past, and one or more of those may move into the regulatory EMA or FDA, because they would hopefully potentially take one or more of those into the clinic. And then in the monoclonal antibody space, we have 3 antibodies that we produced already, and we're working on another one that we believe have the potential also to go into regulatory and potentially eyeballs, I believe, BARDA will have on that, and the HHS and the U.S. government. So I think they're aware of what these people are doing with our technology to drive the cost down.
I can tell you from conversations that we've had with BARDA and with these companies and others, that the BARDA and the U.S. government is looking to reduce the cost and increase the yield of antibodies. They see that as a major problem, and I think we have the most advanced solution for C1 to produce antibodies faster and large amounts at lower cost to satisfy gaping holes in infectious and other diseases that the U.S. government and others are looking for.
John D. Vandermosten (Analyst)
Great. Thanks, Mark.
Operator (participant)
Thank you. As there are no further questions, I will now turn the call over to Dyadic's CEO, Mr. Mark Emalfarb, for closing comments.
Mark Emalfarb (CEO)
Thank you. The company remains dedicated to driving near-term revenue and growth through innovation and commercialization efforts, expanding the use of the C1 and Dapibus platforms for the production of proteins in our three core sectors: human health, animal health, and alternative proteins. Once again, I cannot overstate how exciting this time is in Dyadic's history. We are uniquely positioned to rapidly capitalize on the present opportunities and those on the horizon. Thank you for joining us on today's first quarter 2004, or 2024 conference call. We look forward to keeping you informed about our progress in commercial and scientific endeavors during our next call. Please stay tuned for additional updates from us.
Operator (participant)
Thank you. The conference of Dyadic International has now concluded. Thank you for your participation. You may now disconnect your line.