Dyadic International, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Dyadic is a biotechnology platform company developing its C1 gene-expression technology for biopharmaceutical applications. It had no pharmaceutical products approved for sale; reported revenue was from research collaborations and government grants.
Financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $454,507 | $262,960 | $1,247,908 | $608,576 |
| Gross profit on research revenue | $69,704 | $19,554 | $212,974 | $89,245 |
| Gross margin | 15.3% | 7.4% | 17.1% | 14.7% |
| Operating loss | $(1,943,411) | $(1,781,139) | $(7,346,245) | $(5,827,110) |
| Net loss | $(1,698,384) | $(1,539,495) | $(6,569,434) | $(5,179,424) |
| Basic and diluted loss per share | $(0.06) | $(0.06) | $(0.24) | $(0.19) |
Cash flow and liquidity: Cash and equivalents were $4.66 million at September 30, 2019, versus $2.39 million at year-end 2018. Short- and long-term investment securities totaled $32.31 million at period-end; cash plus securities were approximately $36.97 million. Operating cash use was $4.38 million for the nine months, compared with $3.18 million in 2018. Investing activities provided $6.37 million, mainly from net maturities of securities; financing activities provided $0.33 million, mainly from stock-option exercises.
Debt and liabilities: The balance sheet reports no debt. Current liabilities were $1.28 million and total stockholders’ equity was $37.24 million at September 30, 2019. Management said available cash and investment-grade securities should fund operating, business and liquidity needs for the next 12 months.
Material changes and business developments
- Nine-month revenue more than doubled year over year, reflecting eight ongoing research collaborations versus five in 2018. Q3 revenue reflected five collaborations versus four. Research revenue costs also rose, but gross margin improved.
- Internally funded R&D expense increased to $2.35 million for the nine months from $1.65 million, primarily due to additional internal projects. General and administrative expense increased 34.5% to $4.35 million, including higher stock compensation, incentives, listing and business-development costs. Related-party R&D expense declined as the BDI research services agreement concluded in June.
- Dyadic reported proof-of-concept collaborations with four top-25 biopharmaceutical companies during the first nine months and initiated four internal research projects, including work on AAV vectors and secondary metabolites. Management reported C1 expression results including a full-length monoclonal antibody at 22 grams per liter in seven days and a ZAPI antigen yield of 1,780 mg/l.
- The company uplisted to Nasdaq in April 2019. Option exercises issued shares; outstanding common shares were 27,213,157 as of November 12, 2019.
Outlook, commitments, risks and unusual items
- Management expects continued losses may occur even if research and licensing revenue grows. Profitability depends on scientific results and securing funded collaborations and sublicenses; the filing gives no revenue or earnings guidance.
- Dyadic extended its VTT research contract through June 2022 for EUR 2.52 million over three years, with a possible success bonus of up to EUR 450,000. On October 25, 2019, it added EUR 690,000 over 1.5 years for glycoengineering. The company may terminate on 90 days’ notice.
- Serum collaboration: Dyadic recognized approximately $13,000 of research revenue and reported approximately $70,000 of deferred revenue at September 30. Serum may pursue options for exclusive sublicenses covering up to 12 proteins, with potential funding, milestones and royalties.
- Novovet and Alphazyme sublicense consideration depends on completing C1 technology transfers; neither had produced recognized sublicense revenue by September 30. Novovet also lacked sufficient capital for planned R&D. Dyadic has not recognized sublicense milestone or royalty revenue to date.
- Revenue and customer concentration are notable: three non-U.S. customers generated 73.6% of nine-month revenue; one non-U.S. customer represented 79.3% of period-end receivables. The filing warns that losing customers or collaborators could adversely affect operations.
- The IRS selected the company’s 2016 federal tax return for examination. No assessment had been communicated; the outcome and timing were uncertain. Dyadic had received about $0.5 million of AMT refunds and expected another approximately $0.5 million over 2019–2021. Deferred tax assets were fully offset by a valuation allowance.
- The company reported no legal matters it believed likely to have a material adverse effect, no off-balance-sheet arrangements, and no changes to previously disclosed risk factors. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether C1 research results translate into reproducible, scalable production and successful customer development or commercialization.
- Progress and financing for sublicense partners, technology transfers, and any resulting equity, milestone, royalty or licensing revenue.
- Cash burn, investment maturities and liquidity relative to the VTT commitment and ongoing research spending.
- Customer and receivable concentration, especially the exposure to the customer accounting for 79.3% of receivables.
- Outcome of the IRS examination and timing of remaining AMT refunds.