Dyadic International, Inc. — FY 2018 Form 10-K
Reporting period: Year ended December 31, 2018; comparisons are with FY 2017. This is an annual report, not a standalone Q4 report. The financial statements received an unqualified audit opinion.
Business context
Dyadic is an early-stage biotechnology platform company developing its C1 fungal gene-expression technology for biopharmaceutical applications. It sold its industrial technology business to DuPont in 2015 for $75 million and retained co-exclusive C1 rights for human and animal pharmaceutical uses. It had no pharmaceutical products approved for sale; reported revenue came from research collaborations and grants.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Research and development revenue | $1.30 million | $0.76 million |
| Cost of research revenue | $1.03 million | $0.68 million |
| Operating loss | $7.59 million | $7.13 million |
| Net loss | $5.69 million | $2.14 million |
| Net loss per share, basic and diluted | $0.21 | $0.07 |
| Cash used in operating activities | $4.41 million | $1.69 million |
- Revenue less direct research revenue costs was approximately $268,000, a contribution margin of about 20.7%. In 2017, the comparable amount was about $78,000 before a $221,000 provision for contract losses.
- FY 2018 R&D expense was $3.32 million, including $1.22 million of related-party R&D expense associated with BDI, versus $2.20 million total R&D expense in 2017. General and administrative expense declined 10.1% to $4.52 million.
- FY 2017 included a $4.36 million net litigation settlement gain; there was no comparable settlement in 2018. A $1.01 million income tax benefit in 2018 primarily reflected refundable alternative minimum tax credits.
- At year-end, cash and cash equivalents were $2.39 million and short-term investment securities were $38.82 million; total cash and investment securities were about $41.20 million, down from $48.61 million in 2017. Management said existing cash and investments should cover operational, business and liquidity needs for the next 12 months.
- Current assets were $42.75 million and current liabilities $0.85 million. The filing reports no debt. Total assets were $43.30 million and stockholders’ equity was $42.45 million.
- Cash used in financing was $2.30 million, primarily for share repurchases; the company repurchased 1.64 million shares during 2018. Cash provided by investing activities was $3.33 million, primarily from investment-security maturities net of purchases.
Material changes, outlook and risks
- Revenue increased as five new research collaborations began in 2018, following completion of two collaborations in 2017. Higher internal and BDI research spending contributed to the larger net loss; the absence of the prior-year settlement gain also affected the comparison.
- Management reported encouraging research results, including C1 expression of several protein types and a Schmallenberg-virus antigen at approximately 1,780 mg/L. These are research results, not evidence of regulatory approval, validated performance in target species, or commercial sales.
- The filing gives no quantitative revenue or earnings guidance. Management expects continued R&D and operating losses and says profitability depends on research funding, grants, licensing, collaborations and eventual commercialization.
- Key risks include the early-stage nature of the platform, uncertain regulatory acceptance and commercialization, competition from established expression systems, reliance on a small number of collaborators and third-party CROs, and the need for additional funding over time. The VTT research agreement was extended to June 15, 2019 while new terms were being negotiated.
- Dyadic had approximately $2.08 million in purchase obligations, primarily CRO research services, scheduled for 2019. Under its BDI arrangements, it had paid for research services and could share 50%–75% of net income from selected products under specified conditions.
- The company filed a NASDAQ listing application in January 2019; approval was not assured and remained subject to listing requirements and outstanding comments. Shareholders had approved authority for a reverse split of up to 1-for-4, but the board had not effected it.
- Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the independent auditor did not attest to internal-control effectiveness because Dyadic was a smaller reporting company.
Most important facts for investors to verify
- Whether collaborations generate recurring funding, licensing revenue or milestones sufficient to offset the rising research and operating cash burn.
- Whether C1 research claims are independently confirmed and progress into safety, comparability, regulatory and commercial milestones.
- Current cash and investment balances, investment maturities, and the company’s actual cash runway versus management’s 12-month assessment.
- Status and terms of the VTT agreement, 2019 CRO commitments and BDI collaboration obligations, including potential product-income sharing.
- NASDAQ application status, any reverse-split decision, and the impact of further share repurchases or equity issuance on liquidity and shareholders.