Dyadic International, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Dyadic is a biotechnology platform company focused on developing its C1 gene-expression technology for pharmaceutical applications. It has no pharmaceutical products approved for sale; reported revenue was from research collaborations and grants.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Research and development revenue | $402,527 | $184,330 |
| Cost of research and development revenue | $327,903 | $146,809 |
| Gross profit on research revenue | $74,624 | $37,521 |
| Research and development expense | $692,370 | $576,884 |
| Related-party R&D expense | $389,473 | $392,549 |
| General and administrative expense | $1,428,067 | $1,292,997 |
| Operating loss | $(2,441,320) | $(2,229,749) |
| Interest income | $266,962 | $186,457 |
| Net loss | $(2,175,258) | $(2,043,292) |
| Basic and diluted loss per share | $(0.08) | $(0.07) |
| Net cash used in operating activities | $(1,409,521) | $(660,764) |
Research-revenue gross margin was approximately 18.5%, compared with 20.4% a year earlier. Revenue rose about 118%, reflecting six ongoing research collaborations versus two in Q1 2018. Net loss increased about 6%; operating cash use more than doubled. Higher R&D activity and G&A costs contributed to the loss; higher investment yields lifted interest income.
Financial position and liquidity
- At March 31, 2019, cash and cash equivalents were $4.0 million and short-term investment securities were $35.8 million; combined, approximately $39.8 million. Total assets were $41.9 million.
- Current liabilities were $1.27 million, with no debt reported. Working capital was approximately $40.0 million.
- Stockholders’ equity was $40.6 million. Accounts payable rose to $948,058 from $309,060 at year-end, while accrued expenses declined to $302,970 from $399,576.
- Operating cash use was partly offset by $3.0 million of net proceeds from investment-security maturities and purchases; cash increased to $4.0 million from $2.4 million at year-end. No shares were repurchased during the quarter.
Management said existing cash and investment-grade securities should meet operating and other liquidity needs for the next 12 months. The company expects to continue spending on R&D, operations, business development, and public-company costs. Deferred tax assets had a 100% valuation allowance; the company expects roughly $1 million in AMT-credit refunds through 2021.
Business developments, outlook, and risks
- In Q1, Dyadic entered proof-of-concept research collaborations with two large biopharmaceutical companies and began two internal research projects, including work to assess C1 expression of AAV vectors. The filing gives no quantified revenue or profitability guidance.
- After quarter-end, Dyadic granted Novovet a worldwide C1 sublicense for certain companion-animal products in exchange for 20% equity and royalties. It also signed an Alphazyme sublicense providing for a 7.5% equity interest after technology transfer, potential milestones and royalties, and an option for Alphazyme to obtain an additional 2.5% interest for extending exclusivity.
- A May 2019 collaboration with Serum Institute of India covers research on up to 12 antibodies and vaccines, with potential research funding, milestones, and royalties if products are commercialized.
- These sublicense arrangements depend on development, technology transfer, and commercialization; equity consideration may be speculative and illiquid. Dyadic identifies customer and collaborator dependence, competition, regulatory acceptance of C1, and the ability to generate necessary research data and secure agreements as risks. One European customer accounted for approximately 69.7% of Q1 revenue.
- Dyadic’s stock began trading on Nasdaq Capital Market on April 17, 2019, under ticker DYAI. Management reported effective disclosure controls and no material change in internal control over financial reporting. The company reported no litigation it believed would materially affect its financial condition or results.
Key facts for investors to verify
- Whether research collaborations and post-quarter sublicenses produce sustained funding, milestones, royalties, or commercial products.
- Cash burn and investment balances relative to the company’s stated 12-month liquidity assessment.
- Revenue concentration and continuation of key customer and collaborator relationships.
- Execution and economics of the Novovet, Alphazyme, and Serum arrangements, including the value and liquidity of equity consideration.
- The cover page reports 26,763,486 shares outstanding as of May 8, 2019, while the March 31 balance sheet reports 26,713,486 outstanding shares; verify the share count and timing of the difference.