Business context and reporting period
Dyadic International, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The company is developing its C1 gene-expression platform for biopharmaceutical applications; it has no pharmaceutical products approved for sale. Revenue to date has come from research collaborations and government grants. Shares began trading on Nasdaq under DYAI on April 17, 2019.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $390,874 | $161,286 | $793,401 | $345,616 |
| Gross profit (revenue less cost of revenue) | $68,646 | $32,170 | $143,270 | $69,691 |
| Gross margin | 17.6% | 20.0% | 18.1% | 20.2% |
| Operating loss | $(2.962) million | $(1.816) million | $(5.403) million | $(4.046) million |
| Net loss | $(2.696) million | $(1.597) million | $(4.871) million | $(3.640) million |
| Basic and diluted loss per share | $(0.10) | $(0.06) | $(0.18) | $(0.13) |
At June 30, cash and cash equivalents were $4.78 million; short- and long-term investment securities totaled $33.62 million. Including $0.40 million of interest receivable, these balances represent approximately $38.8 million of cash, investments and interest receivable. Total assets were $40.07 million, current liabilities $1.45 million, and stockholders’ equity $38.62 million. The balance sheet reports no debt.
Operating cash outflow was $2.84 million for the first half, versus $2.38 million in the prior-year period. Cash increased by $2.40 million, primarily reflecting net proceeds from investment maturities and option exercises. Interest income was $0.53 million for the first half, up from $0.41 million.
Material changes versus prior comparable periods
- Revenue more than doubled in both the quarter and first half, reflecting more ongoing research collaborations: four versus two for Q2 and seven versus three for the first half.
- Net losses increased, despite higher revenue. First-half research and development expense rose to $1.51 million from $1.18 million, principally due to additional internal projects.
- First-half general and administrative expense rose to $3.30 million from $2.21 million. Management attributed the increase primarily to higher stock-based compensation, Nasdaq/SEC registration and listing costs, employee bonuses and business development and investor-relations costs.
- Cash and cash equivalents rose from $2.39 million at year-end 2018 to $4.78 million, while investment securities declined from $38.82 million to $33.62 million as the portfolio matured and was reinvested.
Outlook, management commentary, risks and unusual items
- Management said available cash and investment-grade securities should meet operating and liquidity needs for the next 12 months, while noting that substantial operating losses may continue. Profitability depends on scientific progress and obtaining funded collaborations and sublicense agreements.
- Dyadic extended its VTT research contract through June 2022, committing EUR 2.52 million over three years, with a potential success bonus of up to EUR 450,000. The company may terminate on 90 days’ notice.
- New arrangements included a collaboration with Serum Institute of India covering potential work on up to 12 antibodies and vaccines; future funding, milestones, and royalties depend on development and commercialization. Sublicenses with Novovet and Alphazyme provide potential equity, milestones and royalties, but technology transfers were incomplete at June 30 and related consideration had not met revenue-recognition criteria.
- Management reported promising C1 research results, including a 22 g/L full-length monoclonal antibody expression result in seven days and a ZAPI antigen yield of 1,780 mg/L. Animal trials were expected to begin in 2019. On August 12, after quarter-end, Dyadic signed a fully funded research collaboration with a pharmaceutical company.
- Risks include continuing losses, the need to validate C1’s performance and commercial utility, dependence on collaborators and a concentrated customer base. Two European customers generated 73.3% of Q2 revenue; one non-U.S. customer represented 80% of accounts receivable at quarter-end. The IRS selected the 2016 federal tax return for examination; the filing reports no issues or assessment to date.
- The company received approximately $0.5 million of an AMT refund in June and expects a further approximately $0.5 million over 2019–2021. No material legal proceedings or material subsequent events were reported. Management stated disclosure controls were effective and identified no material quarterly change in internal controls.
Important facts for investors to verify
- Whether collaboration and sublicense activity converts into recognized revenue, cash receipts, milestones or royalties, particularly after the outstanding technology transfers and partner financing requirements are met.
- Whether the reported C1 productivity and stability results are reproducible and translate into development progress, regulatory acceptance and commercial-scale economics.
- The pace of operating cash use and the sustainability of management’s stated 12-month liquidity outlook as research commitments and operating costs continue.
- The impact of customer concentration, the IRS examination, and the VTT contract’s remaining payments and potential bonus.
- The potential dilution from 4.11 million options outstanding and the accounting and valuation of equity interests received under sublicense agreements.