DYAI: 2021 Results

By John Vandermosten, CFA

NASDAQ:DYAI

READ THE FULL DYAI RESEARCH REPORT

2021 Operational & Financial Results

Dyadic International Inc. DYAI released 2021 operational and financial results in a press release on March 29, 2022, subsequently filing its 10-K with the SEC and hosting a conference call with investors.

Highlights for the fourth quarter ended December 31, 2021 and to-date include:

➢ Joe Hazelton appointed Chief Business Officer - November 2021

➢ Two new fully-funded R&D collaborations announced with academia and industry - November 2021

➢ Research, license, and collaboration agreement executed with Janssen - December 2021

➢ NIIMBL coronavirus grant awarded - December 2021

➢ C1 engineered to demonstrate the potential to produce cannabinoids - January 2022

➢ Exclusive animal health license agreement with Phibro - February 2022

➢ Termination of Luina Bio sublicense agreement - February 2022

Financial results for the year ending December 31, 2021, compared to the year ending December 31, 2020:

➢ Revenues were $2.4 million, up 50% from $1.6 million and cost of revenues were ($1.9) million versus ($1.4) million. The increase in revenue and cost of research and development revenue was due to a number of larger research collaborations conducted during 2021;

➢ Research and development expenses totaled $8.4 million, up 117% from $3.9 million. The increase primarily reflected the engagement of a contract research organization and pharmaceutical quality and regulatory consultants to manage and support pre-clinical and clinical development as well as an increase in cGMP manufacturing costs as Dyadic moves towards its anticipated Phase I clinical trial of DYAI-100 COVID-19 vaccine candidate;

➢ General and administrative expenses were $6.7 million, up 10% from $6.1 million. The increase principally reflected increases in legal expenses of $447,000, insurance premiums and other outside services of $220,000, payroll and share based compensation related costs of $40,000, offset by reductions in business development and investor relations costs of $94,000;

➢ In 2021, Dyadic had a gain from the sale of investments in BDI of $1.6 million absent in the prior-year;

➢ Net loss amounted to ($13.1) million compared to ($9.3) million. On a per average share balance, net loss was ($0.47) and ($0.34), respectively.

As of December 31, 2021, cash, equivalents and short-term securities totaled $20.3 million compared to $29.1 million a year earlier. Cash burn was ($11.3) million, offset by $1.2 million in proceeds from exercise of options. Dyadic holds no debt on its balance sheet.

Phibro Exclusive License Agreement

On February 10, 2022, Dyadic announced an exclusive license agreement with Phibro Animal Health PAHC to develop and commercialize an animal health vaccine for a Phibro targeted disease. Phibro is a leading global animal health and mineral nutrition company. The agreement was realized after previous proof of concept development work between the two companies. Under the terms of the agreement, Dyadic granted Phibro exclusive license to C1 to produce specific targeted antigens for a poultry vaccine in a disease of Phibro's choice. Development work to find and develop additional vaccine candidates using C1 will continue. Phibro offers more than 25 poultry vaccines including Infectious Bursal Disease, Infectious Bronchitis and Newcastle Disease. Poultry vaccines are estimated to be a ~$2 billion market.¹

C1 Successfully Engineered to Produce Cannabinoids

On January 20, 2022, Dyadic revealed that it had successfully engineered C1 to demonstrate the potential to produce cannabis compounds including cannabidiol (CBD). C1 has the potential to synthesize pure cannabinoids for commercial use cheaper and more effectively as compared to sourcing directly from the Cannabis sativa plant. C1 cell factories are expected to require less energy and be more environmentally friendly than commercial grow operations, especially in terms of harvesting and isolation of the desired cannabinoids from plant matter. Chemical synthesis of these compounds can utilize costly and environmentally concerning reactants. C1 could represent a high-quality and low-cost option to consumers with applications in pain, multiple sclerosis, cancer-associated nausea and vomiting, weight loss, appetite loss, spasticity among others. In a recent peer-reviewed publication, it was found that two cannabinoid acids CBGA and CBDA had binding affinity for the coronavirus spike protein, which could have applications in preventing infection. The compounds were also reported to be equally effective against two SARS-CoV-2 variants.

NIIMBL Coronavirus Grant

On December 22^nd, 2021, Dyadic announced receipt of a NIIMBL² coronavirus grant under the White House's American Rescue Plan (ARP). Dyadic's grant was one of 32 project grants awarded by NIIMBL and through the grant, Dyadic will receive up to $690,000 in funding to support Dyadic's development of C1 production of two different antibodies. The grant is intended to benchmark the rate of the C1 manufacturing platform against current state of the art methods, within the context of producing medical countermeasures and vaccines in response to future pandemics.

Research, License, and Collaboration Agreement with Janssen

On December 17, 2021, Dyadic released news that the company had entered into a research, license, and collaboration agreement with Janssen Biotech, Inc. one of the Janssen Pharmaceutical Companies of Johnson & Johnson JNJ. The agreement was facilitated by Johnson & Johnson Innovation. Details of the structure of the Janssen agreement are provided in filed Form 8-K; however, parameter specifics, including strategic targets and payment amounts, have been redacted. One of the therapeutic proteins that Dyadic is helping Janssen to produce is a monoclonal antibody, which was mentioned in the addendum to the 8-K that Dyadic supplied to the SEC and confirmed in the earnings call. The antibody target(s), however, remain undisclosed, but the partnership is a testament to the abilities for Dyadic's C1, fungal-based technology, to produce complex therapeutic proteins. As of March 2022, the $500,000 upfront payment has been received.

Under the terms of the agreement:

➢ Dyadic will receive $500,000 upfront payment for non-exclusive rights to utilize the C1 platform to develop C1 production cell lines for the manufacturing of Janssen's therapeutic protein candidates against several biologic targets;

➢ Janssen will provide R&D funding of up to $1.8 million³ to develop and assess C1 production cell lines for its candidates;

➢ Janssen has option to pay mid-seven figure payment for exclusive license to use C1 for manufacturing of therapeutic proteins directed to a single, specific target;

➢ Janssen also has the option to obtain the following rights from Dyadic:

◦ In exchange for milestone payment of mid-seven figures, Janssen will have the right to add additional, non-exclusive targets to the collaboration;

◦ In exchange for milestone payment of low-seven figures, Janssen will receive complete C1 platform technology transfer fully enabling internal development of C1 cell lines against licensed targets;

➢ For each product candidate, Dyadic could receive development and regulatory milestones in the mid-seven figures;

➢ Dyadic could receive commercial milestone payments in the low-nine figures per product, subject to limit on number of products, and will depend on cumulative amount of active pharmaceutical ingredient produced by Janssen for each product using the C1 platform.

In this agreement, Janssen will provide the financial support for Dyadic to conduct preliminary feasibility work to produce Janssen's protein of interest using Dyadic's C1 platform. If successful, Janssen has the option to secure exclusive license to use C1 for manufacturing of said proteins for a single, specific target, in exchange for a mid-seven figure payment to Dyadic. Janssen will also have the options to add additional, non-exclusive targets to the collaboration for mid-seven figures, and to receive complete C1 technology transfer to develop C1 cell lines against licensed targets. Each product candidate could yield mid-seven figures to Dyadic, and Dyadic could receive commercial milestone payments in the low-nine figures per product. Naturally, the deal, and resulting cashflows, will progress in stepwise fashion as milestones are met, but the deal could represent as much as several hundred million dollars to Dyadic for each product that is eventually commercialized.

Two New Fully Funded R&D Collaborations

In conjunction with its third quarter financial update on November 10^th, Dyadic announced that it had signed two fully funded research and development collaborations with academia and industry. New details were also provided for DYAI-100 as the GLP animal toxicology study has demonstrated preliminary safety and has generated SARS-CoV-2 virus specific antibodies in animal models in the various studies being conducted. CMC development for DYAI-100 drug substance is near final stages of purification and drug substance manufacturing.

C1 COVID vaccine collaborations are in full swing, with technology transfer taking place between Dyadic and Rubic Consortium, Syngene International, Medytox and Sorrento Therapeutics. Further advancements with these partners have also taken place such as discussions about other vaccine targets, development of nanoparticle vaccine, and delivery of the Delta strain of the receptor binding domain (RBD). Dyadic and Sorrento continue to negotiate the details of the license agreement.

Other collaborations were mentioned as ongoing including non-specific commentary regarding the animal health and human health work. The ZAPI project has published a peer reviewed article entitled "Development of a Modular Vaccine Platform for Multimeric Antigen Display Using an Orthobunyavirus Virus Model" in the journal Vaccines.

Addition to Executive Leadership Team

Dyadic added Joe Hazelton to the executive leadership team as Chief Business Officer in November 2021. We had a chance to meet Joe recently who shared some of the details of his background at Novartis and his other responsibilities. The CBO role will support the global commercialization of the company's business initiatives in corporate strategy, business development and licensing. Mr. Hazelton offers 20 years of pharmaceutical industry experience in product and business development, licensing, and commercialization. He joins Dyadic from Charleston Laboratories where he served as Chief Operating Officer and Chief Commercial Officer, responsible for the strategic management of Charleston's product and portfolio management, alliance management, regulatory oversight, and global commercialization activities. Mr. Hazelton began his career at Novartis Pharmaceuticals Corporation, where over a 15 year period he ascended to roles of increasing responsibility. While at Novartis, he held leadership positions within the core functions of sales, marketing, market access, pricing, contracting, and strategic alliances for various retail and specialty pharmaceuticals across a broad spectrum of therapeutic areas and several blockbuster products. Mr. Hazelton earned his Bachelor of Arts from the College of the Holy Cross in Worcester, MA.

Sorrento Collaboration Terminated

In August, Dyadic energized investors with the announcement of a deal with Sorrento Therapeutics SRNE that included upfront cash and a host of other financial benefits. However, the initial terms of the deal became less certain as management updated details regarding the ongoing negotiations, noting that the ultimate terms of the license agreement may be materially different than the ones outlined in the binding term sheet.

On March 17^th Dyadic and Sorrento terminated the agreement. The decision was due to disagreements concerning the timing, terms and conditions for the entry into a definitive license agreement. Both parties mutually agreed not to proceed.

Luina Bio/Novovet Sublicense Agreement Terminated

On April 26, 2019, Dyadic entered into a sublicense agreement with Luina Bio and Novovet. Under the terms of the Luina Bio Sublicense Agreement, Dyadic granted Novovet a worldwide sublicense to certain patent rights and know-how related to the C1 platform for the exclusive and sole purpose of commercializing certain targeted antigen and biological products for the prevention and treatment of various ailments for companion animals. To date, Novovet has not raised the capital required to move this opportunity forward, and the C1 platform has not been transferred. On February 15, 2022, the company sent a letter to Luina Bio indicating its intention to terminate the Luina Bio Sub-License Agreement.

DYAI-100 Progress

In coordination with CR2O and Rubic Consortium, Dyadic is preparing to compile a clinical trial application (CTA) to submit to the South African Health Products Regulatory Authority (SAPHRA). A site for carrying out the Phase I trial has been identified. If successful, the trial will serve as a proof of concept for other C-1 based vaccine candidates and also spur the development of an Investigational New Drug (IND) application submission in the United States. Partners in other countries such as Epygen in India may also advance DYAI-100 into clinical trials.

Preparation work for regulatory consideration is also advancing and Dyadic reported that it successfully completed its toxicology study of DYAI-100. Results from the related manuscript detailing the analysis were peer reviewed and are awaiting publication in the journal Toxicologic Pathology.

Summary

Dyadic released 2021 operational and financial results on March 29, 2022. Highlights for the fourth quarter and to date include appointment of Joe Hazelton as Chief Business Officer, addition of two new fully-funded R&D collaborations, an agreement with Janssen, a NIIMBL coronavirus grant, and an exclusive license agreement with Phibro.

Dyadic generated $2.4 million in R&D revenues and expended ($17.1) million in operational costs. Net loss amounted to ($13.1) million, or ($0.47) per share. Cash, equivalents and short-term securities totaled $20.2 million at the end of the period and 2021 cash burn was ($11.3) million.

2021 represented a successful year for Dyadic, minting partnerships with a number of firms, most noteworthy of which are Janssen and Phibro in human and animal health, respectively. Attention from these established partners is a testament to the efficacy and potential of C1. Partners in India and Africa for DYAI-100 represent access to a third of the world's population. To further advance success of collaborations, in early November, Dyadic appointed Joe Hazelton as its Chief Business Officer to support the global commercialization of the company's business initiatives in corporate strategy, business development and licensing.

There is substantial value in Dyadic's broad portfolio of options and in its 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. Poultry Vaccine Market Size, Share | Global Industry Report, 2019-2026 (grandviewresearch.com)

2. National Institute for Innovation in Manufacturing Biopharmaceuticals

3. Dyadic stated that it would receive 1.6 million EUR, which we have approximated as of 12/18/21 to be 1.8 million USD