Good evening, ladies and gentlemen. Thank you for holding. Welcome to Dyadic International's Third Quarter 2019 Financial Results Conference Call. Currently, all participants are in a listen-only mode. My name is Devin, and I will be your conference coordinator for today. As a reminder, please note this call is being recorded.

At this point, I would like to turn the call over to Ping Rawson, Dyadic's Chief Financial Officer. Please go ahead..

Thank you, Devin. Good evening, everyone, and welcome to our third quarter 2019 earnings call. A press release with Dyadic International's third quarter 2019 financial results was issued earlier today. The press release on Form 8-K and the Dyadic's Quarterly Report on Form 10-Q have been posted to the SEC and Dyadic's website.

On today's call, our President and CEO, Mark Emalfarb will give a review of the business and the corporate accomplishments for our third quarter of 2019, including a summary of our research and business development effort. I will follow with a review of our financial results in more detail. We'll then provide you with an opportunity to ask questions.

Matthew Jones, our Chief Commercial Officer, and Dr. Ronen Tchelet, our Chief Scientific Officer will join Mark and I to answer your questions.

At this time, I would like to inform you that, certain commentary made in this conference call may be considered forward-looking statements, which involve risks and uncertainties and other factors that could cause Dyadic's actual results, performance, scientific or otherwise, or achievements to be materially different from those expressed or implied by these forward-looking statements.

Dyadic expressly disclaims any intent or obligation to update any forward-looking statements, except as required by law.

For more information about factors that may cause actual results to be materially different from forward-looking statements, please refer to the press release we issued today, as well as risks described in our Annual Report on Form 10-K for the year ended December 31, 2018, particularly in the section titled Risk Factors.

This information can be found in our other filings with the SEC when available. With that, I'd like to turn the call over to Mark.

Mark?.

Thank you, Ping and welcome to our 2019 third quarter conference call. During the third quarter, we continue to expand and strengthen our collaborations on multiple fronts. Further highlighting the broad based application potential and appeal to our various partners of our proprietary C1 gene expression platform.

We continue to make strong progress in many of our scientific partner-lead collaborations, as well as entering into additional research collaborations with Top Tier companies in their respective sectors.

In addition, we remain active within industry and investment communities, making presentations at several industry and investor conferences, as our visibility and awareness with our peers and investors continue to grow. As we look at the quarter, let me first highlight a few particularly notable achievements on the scientific front.

In the animal health sector, we recently announced our fifth animal health sector collaboration, considering fully funded agreement with one of the largest animal health companies to demonstrate the potential to C1 technology for expression and production of three different types of therapeutic proteins for companion and farm animal, health diseases, potentially use in commercial projects.

This is the second animal health collaboration agreement we signed with a leading animal health company.

And as you may recall earlier this year, Dyadic entered into a research collaboration with another major company in this segment to express one protein, Since the initial successful expression of the first protein, they have expanded and extend this collaboration twice already has we're now working on a third protein for them.

In regards to this ZAPI collaboration, where C1 expressed 17 times more of the Schmallenberg virus than the initial target level, animal studies in cattle and mice were started and the initial data seems promising. However, we expect to receive the final validated data in a couple of months.

We believe that successful results coming from the ZAPI animal studies will have an important impact on our collaborations within parties in ZAPI, as well as other animal health companies.

Each collaboration is also highlight our targeted approach to business development, Tampa Health Sector is a large and growing addressable market, characterized by shorter regulatory pathway, less expensive development costs, and faster time to commercialization.

The cost of manufacturing animal health biologics is a very important consideration as there is a more competitive reimbursement model in the animal health care market. So, it is an out of pocket expense for most owners of companion animals. For farm animals, the demand is strong, which translates into high volumes in margin pressure.

So, again, cost is an issue. We believe that these factors and others are contributing to our initial success in the market where we appear to be gaining traction. In the third quarter, we also continue to make progress in several other fronts.

In August, we signed fully funded research collaboration with another top tier pharmaceutical company to express three different types in classes at proteins for human healthcare. Our collaboration with the Serum Institute of India is progressing very well. More than half of the 12 gene sequences have been transferred to us.

The scientific work has begun in earnest, and the initial results are promising. At VTT, we continue to make progress in our glycol engineering efforts to impark human like glycan structures and the proteins expressed from C1. Additionally, we increase the resources to further support and help our glycoengineering efforts.

We expect to provide additional updates and glycoengineering results in the first half of 2020. In regard to the Alphazyme collaboration, the fermentation technology, signed off on and we're waiting for them to sign off the remaining portion to complete the technology transfer. Let us summarize some key takeaways.

First, our vision of creating more efficient and commercially cost effective healthcare solutions for society globally is clearly resonating with the scientific community. And just over a year and a half, we entered into over 15 proof-of-concept collaborations for both human and animal health, working with seven top pharma companies.

And we initiated two additional internally funded research projects. We're continuing to make progress in both internally funded research projects for this year. Evaluating, A, where C1 can express AAV viral vectors, and B, a secondary metabolite.

We're continuing our work on both of the BioBetters, biosimilar biologic projects, for first the PEGylated antibody fragment Certolizumab pegol, which would be a potential biosimilar, BioBetters to UCB's €1.4 billion drug Cimzia, which is used to treat Crohn's disease, psoriasis, and rheumatoid arthritis.

And like costly related monoclonal antibody Nivolumab, which be a potential biosimilar, BioBetters to Bristol-Myers Squibb cancer drug Opdivo, which has been reported to currently have over $5 billion in sales, and is projected over the next year or two, to reach a $8 billion. Our approach to building value is both targeted and opportunistic.

In the case of our animal health collaborators, we are focused on a sector that is large and growing market characterized by a shorter regulatory pathway, less expensive development cost and faster time to commercialization.

In addition, we have started creating attractive portfolio of equity stakes in smaller biotech companies using our human technology as currency. These currently include Novovet, BDI, VLPbio and Alphazyme, which will be received after they sign-off on the C1 tech transfer.

In October, Bayer Animal Health and VLP signed a global collaboration agreement to jointly discover and develop immunotherapeutics for animals based on VLPs technology. We see this as an additional endorsement of VLPs activities. We continue to manage our cash and investment grade securities carefully.

Our financial position as of September 30th remains solid, with approximately $37.2 million in cash, investment grade securities, including accrued interest. Currently, we anticipate that we'll end 2019 with more cash than we previously projected.

You may remember that we previously gave guidance that we expect at the end of the year with the cash burn from operations between $8 million and $10 million for 2019. Currently, assuming no extraordinary events between now and the end of the year, we anticipated that the number will be less than $8 million.

After considering other cash inflows, such as our AMT tax refund, interest income and the exercise of options, we expect to end the year with approximately $35 million to $36 million in cash and investment grade securities, which means our net cash burn for the year is expected to be approximately $5.5 million to $6.5 million. We are also debt free.

With that, I will turn the call to Ping for her financial review..

Thank you, Mark. Research and development revenue for the three months ended September 30, 2019 increased to approximately $455,000 compared to $263,000 for the same period a year ago.

Cost of research and development revenue for the three months ended September 30, 2019 increased to approximately $385,000 compared to $243,000 for the same period a year ago.

The increase in revenue and the cost of research and development revenue reflects five ongoing research collaborations for the three months ended September 30, 2018, compared to four collaborations in 2018 for the same period.

Research and development expenses for the three months ended September 30, 2019 increased to approximately $841,000 compared to $477,000 for the same period a year ago. This increase reflects the cost of additional internal research activities.

Research and development expenses related party for the three months ended September 30, 2019 was approximately $102,000 compared to $288,000 for the same period a year ago. The decrease primarily reflects the cost of resource service agreements with VDI, which concluded in June of 2019.

G&A expenses for the three months ended September 30, 2019 increased about 3.1% to approximately $1,056,000 compared to $1,024,000 for the same period a year ago.

The increase principally includes increases in non-cash share-based compensation expenses of $67,000, accrued annual bonuses and incentives for employees of $86,000, insurance and other costs of $86,000, and business development and investor relations costs of $28,000, offset by reductions in executive compensation costs of $171,000 and SEC registration and NASDAQ uplisting costs of $63,000.

Interest income for the three months ended September 30, 2019 increased about 1.2% to approximately $245,000 compared to $242,000 for the same period a year ago. The increase in interest income reflects higher yield on investment grade securities, which are classified as held-to-maturity.

Net loss for the three months ended September 30, 2019 was approximately $1.7 million, or $0.06 per share, compared to a net loss of $1.5 million, or $0.06 per share, for the same period a year ago. I would now discuss our financial results for the nine months ended September 30.

Research and development revenue for the nine months ended September 30, 2019 increased to approximately $1,248,000 compared to $609,000 for the same period a year ago.

Cost of revenue -- and research and development revenue for the nine months ended September 30, 2019 increased to approximately $1,035,000 compared to $519,000 for the same period a year ago.

The increase in revenue and cost of research and development revenue for the nine months ended September 30, 2019 reflect eight on-going research collaborations compared to five collaborations for the same period a year ago.

R&D expenses for the nine months ended September 30, 2019 increased to approximately $2,352,000 compared to $1,655,000 for the same period a year ago. The increase primarily reflects the costs of additional internal research activities.

R&D expenses related party for the nine months ended September 30, 2019 was approximately $828,000 compared to $1,022,000 for the same period a year ago. The decrease is primarily related to the Research Service Agreement with BDI, which concluded in June of 2019.

G&A expenses for the nine months ended September 30, 2019 increased about 34.5% to approximately $4,355,000 compared to $3,238,000 for the same period a year ago.

The increase includes increases in non-cash share-based compensation expenses of $640,000 related to stock options granted in 2019 and options which invested related to the April 2019 uplifting to NASDAQ.

Increase also includes accrued annual bonuses and incentives for employees of $257,000, SEC registration and uplifting expenses of $244,000 business development and Investor Relations cost of $159,000, insurance costs and other costs of $89,000, offset by reductions in executive compensation costs of $273,000.

Interest income for the nine months ended, September 30, 2019, increased about 20.1%, to approximately $778,000, compared to $648,000 for the same period a year ago. The increase reflects higher yield on investment grade securities, which are classified as held-to-maturity.

Net loss for the nine months ended, September 30, 2019, was approximately $6.6 million or $0.24 per share comparing to $5.2 million for the same period a year ago or $0.19 per share. Our balance sheet as September, 30, 2019, remains strong with cash and cash equivalents were approximately $4.7 million, compared to $2.4 million at December 31, 2018.

The carrying value of investment grade securities, including accrued interest, at September 30, 2019, was $32.5 million, compared to $39.1 million at December 31, 2018. With that, I will turn the call over to the operator for Q&A.

Devin?.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes online of Jason Kolbert with Dawson James. Please proceed with your question..

Mark and Ping great job. It’s great to hear your voices. Thanks for presenting at our conference and one of the accomplishments in the quarter is new coverage; I am thrilled to be covering the company. As you know, I've been covering it tangentially for like a decade, so to be really covering, it is interesting.

Ping, a couple of financial questions, Mark had mentioned that the total cash burn in 2019 would be between $5.5 million and $6.5 million. I have the cash burn at first quarter of around $2.1 million, and second quarter $2.6 million, and today around $1.6 million.

So if I add up those numbers, I get to around $6.5 million, how do you get to $5.5 million to $6.5 million by year end, am I misreading those numbers, or am I counting some non-cash charges may be as cash?.

Thank you, Jason. That's a great question. And as we are excited about having you covering us as well, I think definitely that demonstrates that it starts to get more exposure to the street and we really appreciate and also your questions. I think the cash definitely is the only guidance we gave to the investors early this year.

Maybe it wasn't really very clear in terms of our cash burn.

What I want to point out is, when we look at the cash burn, We also have to consider other cash inflows, as what Mark mentioned in his script earlier, including some of the tax refunds from the AMT tax credits, and also interest income and the exercise of the option, obviously, a lot of those cash inflows are out of the control of the company, we cannot forecast it accurately, how many people will exercise options if it's actual.

So with that, I think when we look at the cash burn $8 million to $10 million is really focusing on the G&A and the R&D expenses. So, like Mark mentioned, we expect that to be less than $8 million by the end of the year. And then if you layer, the cash inflow I just mentioned, that's where we come up about $5.5 to $6.5 million at the end of the year..

Got it. It makes perfect sense. And Mark, Ping is one of the best things that's ever happened to Dyadic.

Can you talk a little bit now about two things? One you announced a collaboration in animal health and I'm looking for a little bit more granularity, they're only a couple of major animal health companies and I'm trying to understand, when you do you think you'll be in a position to announce more details around that.

And also, when we talk a little bit about the ZAPI collaboration, I'm not as familiar with Schmallenberg virus.

So can you talk a little bit to me about what is that virus and what are you working on? And what's the potential of that market opportunity?.

Yes. Well, first of all, Jason, thanks again for the coverage and the support and the confidence in the Dyadic. As you just mentioned, you and I've known each other for more than a decade. It's good to see you growing it so tangentially, calling us actually coming out with a report and we appreciate that.

So in the animal health sector, the deal we designed, as you point out, that there are a few behemoths, the big boys, and this is one of those. As is the other one we signed earlier in the year, it's now on the third protein. So they started out with one, they move to a second one, and now they're on the third.

So that company has been obviously seeing things for a long time and seeing good results and that's why they're adding more and more proteins to the program, so we're excited about that.

Under ZAPI program, the exciting thing there really is, we were really the dark horse, because they were so used to using baculovirus in that program and with their commercial partners to produce their animal health vaccine as there's a lot of companies out there. And we just blew it away in terms of yield.

And they're saying now is, as I think Ronen will talk about, I'll let him chime here a little bit, to get into the Schmallenberg virus and et cetera, what it is and what it does. But basically, it's used in cows and other animals to treat them and so, the good thing here is, they've already done the immunogenicity test and it came up positive.

And now they're working on further test, challenge test, which I think they now will go to model the immunogenicity in cows. And Ronen maybe you can chip in and give a little more color on what that is, in terms of the product opportunity and what is the --.

Thank you. And also we want to understand how important is the cost when you are dealing with these types of markets..

Well, I think, before even getting into the cost, they had a target of market of 100 milligram and we hit 1,730 and in fact baculovirus was around 50, or less, and E.coli was like 5 or 10. So they weren't going anyway.

This product was not going to be commercialized, unless we came in and provided the new platform they could actually take it much further then they needed to go, but certainly where they wanted to go. So I think that is another example of taking something that's stuck in research not going anywhere enablement rather than cost of goods.

This case is both. It's an enablement and extremely low cost of goods, which means there are mentor side goes down dramatically and the cost goes down to both CapEx and OpEx..

Got it..

This is a great success. And if the animal studies come in, we expect to be able to leverage those results, because it's in a public €22 million funded program to be able to demonstrate those results to the animal health industry. On top of the other two people already have going. We're working with others in the industry as well.

So Ronen, can you give us a little more depth to ZAPI, what's going on there a little bit without getting too detail?.

Yeah. First of all, I'd like to talk you about the Schmallenberg virus, but this is virus use at cattle, sheep, goats and it's quite risky for the farmer. In terms of ZAPI, the entire goal of ZAPI is to really be able to respond very quickly to any endemic pandemic. On one hand the dosage to reduce the cost, as Mark said about the topic.

If you look at the amount, the antigen that you have to produce, the amount of doses that you have to produce. So when you go to -- if you really look at the productivity that can be reached by C1 virtually has already reached. It didn’t mean that instead of producing it the very certain patient with a high vessel volume like 10,000 to 20,000 liter.

We are now going – can go down to 20 liter or 200 liter. And this is really show [indiscernible] cost and also inter-complexity and the fact that it can be very -- it can be done in a very flexible way to produce it and it could be done in different site and different plant.

So this is really, I mean, the ZAPI, if you really come to a product that being produced by C1, it’s really show that C1 is really steep, which own the ZAPI goal. And I think that would be a very strong message and obviously also will be hopefully one of the first product that was being produced by C1 that will be in the market..

So what I hear you guys saying is that four-key parameters, the ability to scale, the ability to do it quickly, the ability to do it cheaply have powerful impact when you're dealing with these markets. And I guess that's what explains the statement 15 proof-of-concept collaboration for human and animal health in the press release.

And Mark, as you know one of the biggest challenges I had as an analyst was trying to predict catalysts, right, because we as investors are looking for the next catalyst to take the stock up. And I highlighted the fact that if I flip a coin four times, I actually have no idea how many times it will be heads and tails in four flip.

But in a thousand flips, it's going to be 50-50. Now when I look at the number of things going on and again you highlight these 15 proof-of-concept studies, I can't predict which ones, but I can say, you're on the verge of proof-of-concept across multiple different dimensions. And I find that really, really interesting and I just want to highlight.

That's why I'm covering the company. There is a Chinese wall that separates research and banking.

You know This for me is about technology and about the paradigm shift and I see Dyadic as one of these companies that people aren't paying attention to, but that's actually enabling a paradigm shift, a lot the way early Regeneron looked when they were doing some of their research collaborations with Sanofi and I know we talked about that too.

So thank you very much. I look forward to covering it. And I really appreciate the in depth review on this call. Thanks..

Thank you, Jason..

Yes. And Jason, I wonder I think you said four things, but you only mentioned three. You didn't mention emerging or enablement where in fact, this product wasn't going to be commercialized without being one..

Well, I knew, I had to really something for you Mark, right..

There we go. But we agree with you, it's a platform technology in addition to which we haven't mentioned. But we're being approached by a variety of other companies that are looking to producing that aren't even in the vaccine space, the viral vector space, the metabolites based, the therapeutic protein space..

Yeah. And I know we didn't really talk about biosimilars at all today. But again, by the way anybody who's interested in seeing our research report, don't hesitate to go to the Dawson James website and you can pull it down, it's wide open, open architecture, don't hesitate to take a look at it. It's my best estimate on how to model this.

Very simple, but yet very complex company. Thanks, Mark. Thanks, Ping..

Thank you, Jason..

Thank you. Thanks, Jason..

Our next question comes from the line of John Vandermosten with Zacks SCR. Please proceed with your question..

Good evening, everyone, and congratulations on the new partnership and collaboration..

Hi, John..

When do you think some of the partners are going to get more serious and kind of carve out an area for themselves and try to I guess, block others from getting in on the C1. So it seems like on the animal health side that they're starting to pile on faster and faster.

Do you get a sense a sense that there's urgency in some of the collaborators out there trying to stake out C1 for themselves?.

Well let me let Matt start answering and then I can chime in. Go ahead, Matt..

Yeah, sure. Thanks, Mark. And I think one of the easiest ways to answer that question is that we're encouraging a wide range of conversations we're not prohibited as you know, we've not exclusive find anything it's all not exclusive announcement. I think the important thing is that it's science first here.

So you can presume that the companies that we can't name due to confidentiality had their own particular project needs to start with we kick to tie it together and they get really excited and use the other announcements and other projects coming on from those. That is a small community in the end.

And I think that obviously, alternative expression host ways of making vaccines, ways of making labs to other sorts of proteins more effectively, more cheaply and quicker is clearly attractive to that segment. And the comments earlier that Mark made around the regulatory hurdles being that's also more attractive.

Inevitably, I think will has created this excitement. We're very present. We have a lot of other conferences. We have a lot of meetings. We hold lots of one-to-one face-to-face meetings with companies in this space to encourage and share.

As Ronen mentioned, we have had great success with ZAPI and other animal health led projects, which have created a really positive momentum. In human healthcare, big pharma, particularly go quite steady with regards to alternative expression hosts.

And so we are very proud to announce those announcements through this year, which we believe more to come. But I think that really the excitement is encouraged by the conversations we're having with a wide range of companies Mark. .

And I think John, let me add a little color and a more detail. So, we're going to attend more animal health conferences and put more attention on it, because we're gaining traction there at a much faster rate. So I think that’s an area that I think we can just dramatically change the game in a shorter timeframe and with more impact.

And I think in this particular case, we keep seeing it time and time again, people are coming to us with these challenging proteins that they're failing to do in other systems and see what’s delivering on the promise. We're seeing that with virus light particles, we're seeing that with antigen. We're excited about the data.

And what we're seeing in some of our partners that already been funding the research and development for quite some time. So, ZAPI is the first one and we put a lot of time and effort into that as members of ZAPI and the results are basically showing.

And I think when the catalyst studies are done and the mice trials are done for the challenge studies, if the things are good and the way we think then it be more convincing data that people need to jump on sooner than later, which I think is your point. And when sooner or later is, I guess we’re going to all find out..

All right.

And can you compare the time line and complexity of animal health and human health for advancing in product to commercial state? I mean, obviously, animal health is easier, but maybe you can highlight just some of the differences there?.

Maybe Matt, do you want to pick that up?.

I think, the main difference is in a regulatory pathway, all around faith in focus, obviously, so the clinical trial process as well as path is well understood by companies in that space is a very traditional pathway through from discovery through to MA and then of course, the approval process being granted.

So whether we're talking about clinical trials or even GLP pre-clinical trials, there's a certain timeline there. I think in animal health studies, slightly dependent upon the nature of the target disease, but whether it's preventing a disease or treating a disease. Again, there's a very tactical regulatory pathway.

No, it's not that one is necessarily quicker. One just requires less testing in different species, particularly of course for human health care; one has to do clinical trials.

So I think that by sheer nature there's a deficiency of the seeds deficiency, from our perspective that’s great, right because C1 will have proteins going through those sorts of opportunities on both sorts of companies. If you compare them head to head, it looks like animal health goes a lot quicker, which it does, but we're not distracted by that.

I think one of the things that we're trying to do is work with these big companies, understand how they work. Make sure they have access and the research perspective to our great people and to the knowledge we've built off with our molecular biology toolboxes and other attributes along this long journey we’ve had.

And I think the good news with that is that we can get these running very quickly. So I think yes, it's quicker from start to finish. If you're going to compare them side by side, but obviously it's a race, whichever company you are, so if you're one of the big five in either of the goals.

You've got natural competitors also held down on getting that drug to market. So C1 enabled companies are prohibited due to a cost issue that they have a low tighter, low productivity, plus have another challenge from a research perspective that we can help get them past.

Either way, the ZAPI project is shown publicly now, productivity of course is a big tick for us; we're now working with these big companies to make sure we go further and into trial..

All right. Thank you Matt -- Matthew.

And any thoughts on the pace of new biosimilars entering the market and how C1 might influence that?.

Matt, do you want to go there or no?.

Yeah I think the biosimilars for us are a massive opportunity. And clearly, whether it's human or animal health. Again C1 in prosthodontic care, we're very agnostic therapeutically. We want to talk to you whoever you are.

And I think to Jason's point earlier, one of the reasons that we hope to be of great value of great interest to a much wider community is because we can enable companies forward. Now, obviously, biosimilars or biobetters as well which is an area which right now we're interested in, it depends upon our glycosylation.

And of course, our glycoengineering program has just advanced so tremendously successfully. Ronan will have more details as you need.

But we are very proud of where we've got in the last couple of years and I think we are on that journey now to having a humanized strain, which will allow us to have conversations with companies right through the biosimilar program. But again, the world's a big place. Lots of molecules for us are non-glycosylated.

Lot’s of conversations we've had with companies don't need us to go perhaps all the way through an engineering program for different reasons. So, there's lots to do, lots of companies we can talk and engage with. So, we're really not prohibited by that, but we're certainly interested by the biosimilars space.

I think that's a very natural fit to C1 and I think when we get there, we'll be really well placed given that we will have arrived at that point with a very deep range of knowledge in the molecular perspective which will set us apart..

And once again, I want to clarify is that we might not be talking about specific details of glycosylation and/or other things. And the reason for that are because we're filing patent applications or have filed provisional patent applications.

And until those things become public, it's a commercial advantage for us to keep that quiet as much as possible from a business standpoint. So, we have to weigh the difference between running a business and building technology and value long term and sharing with Wall Street information you guys want to know.

It really is not in your best interests for us to tell you.

So, if we have good results for filing patent applications and we have a year to beat those up, we really want to keep those things quiet, so that we don't actually tip off our competitors out there or people that may think about, hey this is something to evaluate that we can strengthen our patent portfolio.

So, there may be really good things going on and they'll come out when those patents become published. Just as you remember the Sanofi data named for the one, which was significantly positive in the mice trials. But until the patent came out, we weren't telling anybody what the result.

So you got to keep in mind just because we're not talking about specific data points there's a reason for it might not be that it's not going well you might be going well, but there's no reason really to get into it from a Wall Street perspective. It is not in the best interests of the company commercially..

Sounds good. And again, congratulations on the new partnerships..

Right. Thanks. For partnerships, don't forget about the human health one which we just signed too, okay.

And that’s what the major company as we mentioned the past, it's another top 25 company and in fact that company as we talked about in the previous call, there's a microbial fermentation group, so they're actually aligned with our interests in helping us push that forward.

In addition, as we talked about in the last call, they have an affiliated company and that company is digging in, and thinking about actually bringing C1 in, and testing and evaluating.

So, again, there maybe things going on behind the walls that you guys aren't aware off?.

Our next question comes from the line of Ahu Demir with Noble Capital Markets. Please proceed with your question..

Hello, good evening team. Nice to hear everyone’s voice, and congrats on the recent development. So, I have questions on the research collaborations. For this year and the new research collaboration ended new vaccine bond that you signed end of last year, what advantage have you made, what are the current situation for those projects.

Could you give some color on those projects?.

Which project specifically because I couldn't hear you?.

Yes.

So the first one is the flu vaccine one what you signed end of last year, I believe, and the second one is the India Research -- Serum India Research collaborations?.

So I think as I mentioned the Serum collaboration was signed, I think in May. We didn't start the program to probably June or July, and we're already seeing preliminary results and they're pushing us. So, they're happy with what they've seen so far.

I think we mentioned in the call earlier than, more than half of the 12 genes have already been turned over to us.

And in fact, in addition to the 10 or 12 or the eight antibodies in the four vaccines, they're even evaluating throwing more things, because there has great results They're seeing data -- preliminary data, high-yield, and they're introducing us to a variety of different partners that they're working with out in the world whether it be in India or in the United States or Europe.

So, I don’t know Ronen, do you want to chime in and add a little more color to that, but that seems to be going very well in fact, in some ways, they're pushing us harder. .

Yeah I think that--.

Yeah. Sorry, Ronen. Go ahead..

Okay. Thank you. Yeah, the most important thing about Serum, because we have kind of a variety of opportunities here., we started with several proteins, and the one that we already have production as Mark clearly said, they're very happy with the result that we get.

And we are working together to get even better results with this product and with the others. So, I think it's very good, because -- very true -- yeah, it’s a very good collaboration we have..

Yeah. I think its partnership and collaboration I think that we knew from the start that they were committed to try to drive the cost of goods down to spread, low cost healthcare globally. And I think the C1 combined with their strengths and believe me they have plenty of them from regulatory strength, development tracks.

They have partnerships with some of the major institutes and sponsorship, like WHO, IFV [ph], The Gates Foundation, et cetera.

So, there's a lot of eyeballs on the Serum project, not just theirs -- not just Dyadic, but a lot of outside third-parties that are watching what's going on there which we hope will lead to more business opportunities, and more importantly, getting the low cost healthcare to patients globally. .

That sounds great. Thanks Mark for the….

And on the flu vaccine program, that wasn't a program that just started, it was a program that we had results on, that we've been thinking about and trying to figure out how to move forward. It was one that we had decided not to spend our own money and advance it. Not because the data wasn't good.

But that's -- it's a tightly controlled marketplace at the moment, but if you remember about a month ago or less, President Trump gave an executive order to BARDA and HHS to go out and find a new way to make seasonal flu vaccines and other vaccines quicker, faster and cheaper. And that's an opportunity that we want to pursue.

And I think that we fit perfectly in as a expression platform to solve the problems that they're facing for pandemics and epidemics, and the flu.

And so, that's something that we're trying to get more attention on and we've been visited with BARDA and other people and we have to get to a level six, which is to a product study, and we haven't funded that on our own, because we're watching the cash and choosing carefully which projects to pursue.

But we're looking for a partner and or funding from the government to advance that program..

So, thanks. That's great to know, as well. Thanks Mark. My next question will be on the points out the VLP partnership with Bayer Animal Health as well and that’s only your partnership with your subsidiaries. If I'm not mistaken, you do have 15% stake in VLP is that correct or --.

Yes. Combined with -- yes, with the equity stake we have in BDI. And the stake in VLP, combined is 16.1% or 16.3% of the VLPbio..

But we do not know if they are using C1 technologies, is that correct? If not, disclose information. .

Yes. About disclosing, this is more of discovery and development. And the next stage would be expression. And I think that, obviously, I think VLPbio would prefer using C1. The question is, Bayer going to jump in and get involved in that program with C1 and that yet to be seen.

But until they figure out which molecule they want to make, they're not going to choose that. But I think the data is overwhelmingly compelling that it should be C1. But we don't make those decisions, but we're on top of it, as are they and currently we're both pushing it..

Okay, understood. That’s the way I see it. So my next question will be and the last one, bio-comparability data for Cimzia and as well as glycosylation. I understand the patent filing.

So should we not point out to Q1 data disclosure? It might be even later in 2020 timeline, is that where we are getting it, because of the patent applications possibly?.

Well, I think we expect it is going to make a presentation coming up here next week or the week after in PEGS, which is a major industry conference. They're going to talk about certain things there. And they will put up on the media center presentations.

We're not going to come out with announcement on it, but I think there's some positive results that will be shown there. But we're not showing all the things we have, because, again, we're keeping a very tight control over what we release, obviously, commercial opportunities and to broaden our IP position.

So once these things come out and they become published, you'll see more detail. We're going to show some promising data in a presentation coming up. I think it's like the 20 of November in Lisbon, as PEGS conference is one of the major conferences of the year..

Okay. Thank you very much. That's all my questions. Thanks for taking them..

Thanks..

Our next question comes from the line of Barry Kitt with Pinnacle Fund. Please proceed with your question. .

Hello, Mark and Matt and Ronen and thank you very much for the detailed information you've given us today, and thank you so much for being such great stewards of our cash. You've done a super job with that.

In addition, to the 15 partnerships you've announced in the last 18 months or so, roughly how many more NDAs have you signed that show -- what kind of interests you’re getting broadly?.

Yeah, I don't have a specific number. I can tell you that every quarter, there are probably dozens. So they’re continuing to come in and in some ways they're accelerating depending on what and where. It's not slowing down..

Go ahead..

It’s helpful Barry, but I can add to that is, is that the interesting between the last two quarters has been if anything is picking up with NDAs, the diversity now. So we -- for a year ago saw specifically, myself, Ping, Ronen, Mark targeting conversations with human health company. We still do that obviously.

We're now entering into NDAs with animal health companies. And also in terms of academia, there's a different flavor now. So it's not just your classical university. There are spinout. There are bio hubs. There are innovation centers.

There are catapult centers that we've got to know, and of course in those conversations inevitably, we want to have a two-way conversation.

So I would say that the diversity of NDA is also encouraging for exceeding that pipeline conversation, right?.

Okay. Thank you..

And I want to remind you that, as Matt pointed out, I mean the University of Iowa, Oxford, Fraunhofer, I mean, we’re enabling other institutes that are running into problem expressing proteins that are looking at finding a right solution and C1 is hopefully in some cases we're seeing good results.

Those are just not publications that are out yet, that people are working on. So I think that process is putting in some of the data is coming in and it is very positive on a variety of different front. So we're going to continue to work with academics, if and where we feel we can help, and where they have a need.

And obviously, animal and human health and as I mentioned earlier, it's not just about the four avenues we're going down today. The vaccine space for animal and human health, therapeutic space for animal and human health, the companion animal to metabolites, the viral vectors, but there is new opportunities that people are coming to us.

And they're saying, hey, can you do this for us in C1. So the words are getting out. And it's spreading and we’ve talked about the script. And we're picking up interest not only from investors, but more importantly from the industry, from the scientific community and the business development community.

People are recognizing that there's a gaping hole in getting health care to people, and in the case of animals as well at an affordable price. And I think, C1 can satisfy that in a lot of ways and I think it's not just about cost of goods, but it's again trusting it's about enablement because those are the first things people are going to do.

If they can't do it cost effectively, it impacts their research and development timeline or kills the program. They’re never going to commercialize cures for cancer or diseases that aren't going to be treated. So the goal here is really to help human health broadly and diversely and C1 already starting to have that impact..

So Mark, how many of the partnerships you've been out so far, far from entities that are trying to figure out how to make a drug that they heretofore haven't been able to make because it wouldn't be made cost effectively..

I don't know, it's about 20% is my guess, but at the broadcast just off the top of my head, I've never sat down and put the number together. But I've seen a variety of the projects, there's certain things that they're looking at yield, enablement, quality so different factors.

So like in the case of Sanofi for bringing up other things that they couldn't make that we’re now making. And I can't get into details of that. And there’re other things we're making it record levels that they've never seen before. They're going to be doing their own analytics on these proteins. They've already started in some ways.

And when that program finishes the first and second phases with this expressing them, improving the yield, then they start doing the analytics and they just start doing the compatibility studies and they look at how and where.

And if they want to C1 to solve some of the problems or to potentially bring it in and use it within their own organization and put into the hands of hundreds if not thousands of scientists to deliver on multiple drugs and vaccines over the next five to 10 years..

Okay. And we talked about animal health, human health, and what are some of the catalysts that are coming up. And certainly, this isn't a catalyst but I've been wanting to ask you this for a long time so I will ask it now. So, Merck bought GlycoFi and there are others -- other platform technologies that have been bought by big pharma over the years.

And of course you have a platform technology which is gaining a lot of traction and a lot of interest by a lot of parties.

Where do you think your platform technology is relative to where some of those other platforms that were purchased? Where do you think -- where you think you sit right now relative to where those other platforms were when they were purchased?.

Well, I think we'll take two. We'll take GlycoFi which was a yeast expression systems, the one paid $420 million for. Our yields are far greater, far higher. So, our cost is much lower. They had completed the glycol engineering step when they bought, but they didn't have any drugs as far as I know, into the clinic.

So, it doesn't mean that the drugs have to get into clinics, before pharma wakes up and recognizes someone else may take it out. That's one.

The other one is protein scientist, Sanofi worked with BARDA and developed -- work protein sciences with BARDA and brought the baculovirus expression hose and saw in in the VIP program we produce 35 times more of an antigen, indicators of C1. We had use less protein, got better results and protecting the mice in that trial -- in the Sanofi trail.

So, it looks like, in some cases, we don't have a fully baked cake. But in some ways, the cakes higher yield and equality being -- has to be demonstrated improved to some kind of an animal and human study. And those are the things that are going to be the next step.

In the case of animal studies, some of them are going on right now and then hopefully the more to come. .

Okay. Thank you very much for the answers guys you've done a great job. Thanks. Appreciate it..

All right..

Thank you, Barry..

Our final question comes from the line of Dick Williams with Williams Research Group. Please proceed with your question..

Hello, Mark. Hello, Ping..

Hi, Dick.

How are you?.

Hey, Dick..

I'm fine. Thanks. I hope you guys are. I'll parrot what Barry already said in terms of doing a great job and much in the money, especially at this juncture when you still have a pretty respectable amount left in the till.

I wanted to take a different perspective with a question Mark, revenue, and looking at a roadmap of what we're doing today, we're developing proteins, you have three proteins with the new animal health company, you had a several proteins with another, you have the serum people.

And back in the industrial days, the basic formula was to get some money up front, timeline payments, and then a royalty down the road on whatever they developed out of the technology. Of course, we talked about today in this space that we're in, that you're doing collaborations that are fully paid now, which is terrific.

We're not really in a position, getting anything upfront and that's negotiable, obviously, because you may be better of not taking something up front. But I'm a little confused on when we get revenue and timelines going forward with the protein, so we get anything out of the development and conclusion of each protein.

And if they go on even though they initially expected to do two proteins, let's say, now they've had great results, they're going to do three or four, or do we have to wait until the outgrowth of those proteins into the actual establishment of a product they're going to go forward with.

And then is that a timeline, when we get a payday and then of course, later we will get royalties on the business that they do.

So can you run through that and give some color with a little bit of a roadmap of how revenue can flow to the company?.

Yeah. So first and foremost that would be simplest and easiest is big pharma. So the traditional role of big pharma is offering cash, milestones and royalties. And so that's more cash upfront and less milestones and less royalties.

So, we expect in the case of big pharma, they can get access to C1 that ultimately like say BASF paid $6 million in cash, $2 million in research funding, $1 million in milestone payments and one particular protein, and there would have been royalties.

Case if they’ve been going with bioenergy combined with $15.5 million between the first investment expanded license and they would add milestones and royalties. The same thing with a $10 million from Shell and Codexis that would add in some cases royalties as well.

And then we had another licensing for animal health as well there on the enzyme phase that would lead to milestones and royalty. So big pharma would be a similar model we would expect.

We're going to get a cash upfront payment, milestones and royalties over the course of certain milestones from scientific to commercialization milestones, then royalties on the product sales. The next one would be company like Serum, which is sort of a crossbreed where they didn't put upfront cash for the opportunity.

But they’re committed to taking one or more of a 12 proteins depending on the results flowed to clinical trials, and it will be milestones along the way, and then royalties on the commercial products. And I think that's been publicly said, that would be 15 years of royalties path to commercialization.

So, one of those would be very nice royalty stream. Two of those would be better, five of those would be even better.

But one or more of those go in then the models there, it accelerates if somebody needs to pay upfront cash to get access, because they're going to need access to a platform that someone else may take out before they get their hands on it.

And then you have these small little biotech that can't afford to pay upfront cash, like the Alphazyme, the VDI, the VLPs and Novovet because these are guys they are trying to build their businesses and they don't want to give us cash upfront, so they're giving us equity. But we're getting milestones and royalties.

Because I think I've mentioned before companies like OrbiMed, which is like a venture capital firm or public equity house where they put cash in to get an equity piece, but we're not putting cash in, we're putting technology in and that technology potentially can speed the development over the cost of the products to increase our equity.

And in addition, we're getting milestones and royalties. So we actually are in a better shape, and a Venture Capital One would be in these companies because we're not only getting equity, we're helping them to speed the development lower the cost and obviously getting miles and royalties and additional payments.

So, we expect a mix of these things to continue. And we're looking for sooner than later, hopefully in 2020. We'll see our first or more than one our funded cash payment, one of the big pharma in either animal health or human health. If the data keeps coming in, more and more of those companies could come in and they have more significant position.

So it's not about the R&D revenue. Those are nice, and they're advancing science and helping people get up, pick their best car and driving it and test drive, contain a deep, how wide, how diverse of proteins C1 can produce at what level, with what qualities and what if anything needs to be done to advance those molecules forward.

And then ultimately, a platform technology that can be brought in house for them to put in the hands of their scientists, how to train them, how to form and express and grow C1, because the more hands that are on deck going to give more output.

And that’s the ultimate goal is to get these license deals, put upfront cash, milestones and royalties and have more and more people working with C1 to become embedded in as many laboratories, as possible to bring drugs to people more affordably globally..

Okay. Thank you. You did it in the industrial side and obviously, you know how to do it, so let's just hope that the revenue will spot here equally as well as it did there and of course it looks like, it's going to be a hell of a lot bigger based on everything that you've got in the hopper, so good luck with everything..

Thank you very much..

I'm showing no further questions at this time. And I would like to turn the call back over to Mr. Emalfarb for any closing remarks..

Thank you. In closing, I want to emphasize what I believe is important point that differentiates Dyadic and demonstrate our competitive advantage.

First, I hope that from our call today, we're able to appreciate the progress we're making with our proprietary, C1 gene expression platform, both with our ongoing collaborations, as well as for ourselves with our internally funded research program. Next, we're building value to a targeted and opportunistic approach.

A good example of this is the opportunity we recognize in the animal health sector. We understand the characteristics of the market and believe that our C1 technology offers a perfect solution, demonstrated by our five on-going collaboration. Finally, we carefully continue to manage our cash and aggressive investment grade securities.

We have a solid balance sheet to provide us with financial flexibility, to pursue growth opportunities in advance our science. Additionally, we have equity stakes and four small biotechs that can provide upside to our investors. Thank you, everyone for dialing in today and we appreciate your ongoing support..

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..