Ping Rawson - Chief Accounting Officer Mark Emalfarb - Chief Executive Officer

Richard Deutsch - National Securities

Good afternoon, ladies and gentlemen, and thank you for holding. Welcome to Dyadic International's First Quarter 2018 Financial Results Conference Call. Now, all participants are in a listen-only mode. My name is Dana and I'll be your conference coordinator today. As a reminder, please note that this call is being recorded. At this time, I would like to introduce your host for today's call, Ping Rawson, Dyadic's Chief Accounting Officer. Please go ahead.

Thank you, Lynette. Good evening everyone and welcome to our first quarter earnings call. A press release with Dyadic's first quarter of 2018 financial results was issued earlier today. The press release to gather with Dyadic's quarterly report has been posted to Dyadic's website as well as the OTC Markets website. I am joined today by the Dyadic's President and CEO Mark Emalfarb. On today's call, Mark will cover operating highlights and our summary of our research and the business development efforts. I will follow with a review of our financial results in more details. We'll then provide you with an opportunity to ask questions. At this point, 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 that could cause Dyadic's actual results, performance, scientific or otherwise or achievements to be materially different from any future results, performance or achievements expressed or implied by those forward-looking statements. Dyadic expressly disclaims any intent or obligation to update any forward-looking statements except as required by law. With that, I would turn the call over to Mark. Mark, please go ahead.

Thank you, Ping. Good evening, everyone. 2018 is after a strong start for Dyadic has we continue to successfully execute against our business plan which we've previously used close in selling our industrial enzyme business to DuPont two years ago. We continue to gain momentum and awareness within the pharma and biotech space regarding the potential for our C1 gene expression platform to be with the speed up the development and lower the cost of biologics. Based on our R&D results to date, we are very confident that our technology has ability to disrupt the status quo in bio-manufacturing, biologic vaccine and drugs. In the first quarter of 2018, our business development efforts have resulted in closing three new research collaborations, including Mitsubishi Tanabe Pharma and the Israel Institute for Biological Research. Our relentless focus on business development and scientific research with our collaboration partners is continuing to drive our performance. In our initial research collaborations, we set out to demonstrate their C1 gene expression platform has the potential to help speed up the development process and can be do certain monoclonal antibodies demand and commercially important levels. We believe that the data generated to date clearly shows that C1 can express monoclonal antibodies demand and FC-Fusion proteins have remarkably higher levels in grams per liter per day converted to industry standard CHO cells. In the next phase of our research which is already begun, we're continuing to use synthetic biology and genome engineering techniques to further modify our C1 host production organism to produce additional classes of biologics to demonstrate the diversity of molecules to can be successfully expressed commercially relevant levels using C1. Additionally, the initial glycoengineering of C1 has begun and initial steps were done successfully. Further media and fermentation process development continuing and we expect to be able to demonstrate even higher monoclonal antibody productive levels showing even greater potential for C1 to lower the cost demands and other therapeutic proteins even further. We continue to bring to gain greater visibility an interest in the potential of C1 platform, see active participation and numerous industry forms. For example, I'll be in DC in next week making an introductory presentation on C1 during the Annual National Institute for innovation and manufacturing of biopharmaceuticals member meeting. And just last week, midnight Matt and I attended PEGS, essentially protein engineering summit was held in Boston where I gave a presentation on C1. This presentation to be found on our website under media center link, at the end of this month, Ronen Tchelet, our VP of Research and Business Development will be presenting scientific updates with the Global BIO Processing and BIO Analytics Congress in Prague. And Matt Jones, our manager Director of Business Development Licensing will be speaking at the BIO Activity year meeting. Both Matt and I will be in Boston next month and the annual BIO Industry Conference. These activities represent a small fraction of our regular business development efforts. We anticipate that the positive data we've been able to generate from our internally funded and third party collaboration's will enable us to advance our negotiations with several leading pharmaceutical and biotech companies, which we expect will lead to additional funded research collaboration during the rest of 2018. On the R&D front, for the balance of the year, we will continue our focus on three fundamental areas, improving the C1 gene expression platform's performance to become an alternative high yield and low cost production platform for a variety of therapeutic proteins. Developing specific C1 production strains for the expression of a variety of therapeutic proteins such as MAB, FC-Fusions, Fabs and bio specifics, for pharmaceutical and biotech companies and developing a pipeline of potential biologics, biosimilar's, bio bettors and vaccine products. Our R&D work is being shared among our prime CRO and then BDI. The following are just a few examples of what we've been have accomplished to date. Our level of C1 MAB expression appears to already far exceed that of CHO cell and grams per liter per day and is catching the attention of pharmaceutical and biotech companies. We continue to express more stable proteins such as MABs using these improved C1 strains and would several protease genes have been deleted. Currently, we have managed to construct a C1 strain which each protease is deleted and we believe that the C1 strain will generate even greater stability, cause a larger spectrum of therapeutic proteins produced by C1. To-date, we have not seen any negative effect on the health and our growth of the C1 cells. In fact, by deleting protease gene the C1 cells grow faster now than they did previously. We were successful in our first glycol-engineering steps, that appears to demonstrate that C1 glycol-engineering work can be done faster and more efficiently then [indiscernible]. So far, we've not seen any negative effect for the health and our growth of the glycol-engineering C1 cells. In addition to our previously announced ability to address the MAB and FC-fusion protein in C1, we recently expressed a FAB subunit of certolizumab pegol, a 30 liter scale already reaching a grand per liter in 112 hour or 1.7 grams per liter per day. This is a further example of a growing diversity of molecule that can be successfully expressed commercially relevant level using C1. Certolizumab pegol is a TNF alpha blocker common in humanized antibody FAB fragment conjugated to polyethylene glycol PEG used to treat autoimmune disorders for example including rheumatoid arthritis. The recent expression of the FAB unit per FAB unit of certolizumab pegol along with the earlier disclosed lower the MAB and a firstly FC-Fusion proteins demonstrated C1 products maybe put it in very low cost but have potential to dramatically lower the upstream manufacturing cost of biologics. It is fair to say that the pharmaceutical biological technology industry appear to be recognizing the significant productive advantages of C1 versus CHO from the FAB monoclonal antibodies and FC-Fusion data we've generated to-date and from our previous commercial success using C1 and industrial biogas to its large volumes of low cost enzyme at very large scale. They're also encouraged for a continued progress of both of proteins stability and glycol-engineering research that is ongoing. In January, we announced that Dr. Barry Buckland joined our Board of Directors, we believe his extensive background and experience in biological process development and commercialization, especially for vaccines will be a powerful addition to our team. In March, we've appointed Ping Rawson, our Chief Accounting Officer to serve as the Company's Principal Financial Officer and assume responsibility for finance, tax and Treasury. Ping is been with us since 2016, previously serving as a Director of Financial reporting. Ping is more than demonstrating the capability to assume the increased responsibilities. Additionally, we recently formed a Science and Technology Committee which we chaired by Dr. Bose and included Dr. Buckland, Dr. Herbst and myself. The committee will periodically examine management's strategic direction and the Company's investment in biopharmaceutical research and development and technology initiatives. Although few in number, I believe we have a well-balanced board and management team. With the appropriate expertise will enable us to achieve our strategic business objectives. On March 18, 2018, our board voted to take steps necessary to become an SEC registered reporting Company, which we expect to accomplish by the end of this year. We believe this action will enable the Company to gain more visibility in the market. Also, our borders also approved proposal to submit the Dyadic's shareholders to authorize a reverse stock split in exchange rate of up to 1 to 4 shares. Our shareholders will be voting on this proposal along with renewal of class two board members Chuck Kling and Barry Buckland and our present Mayer Hoffman McCann at our annual shareholders meeting on June 6, 2018. A link to our 2018 proxy statement can be found under the investor section under our website at www.dyadic.com. We hope to see each of your annual shareholders meeting. I'll now turn the call back to Ping Rawson, Chief Accounting Officer to discuss our financial results.

Thank you. Mark. On March 31, 2018, cash and cash equivalents were approximately $4.6 million compared to $5.8 million at December 31, 2017. The carrying value of investment-grade securities, including accrued interest as of March 31, 2018, was approximately $43.1 million compared to $43.3 million at December 31, 2017. Research and development revenue for the three months ended March 31, 2018, increased to $184,000 compared to $122,000 for the same period a year ago. Cost of research of development revenue for the three months ended March 31, 2018, increased to approximately $147,000 compared to $122,000 for the same period a year ago. The increases in revenue and cost of research and development revenue related to our research collaborations in 2018. Provision for contract losses for the three months ended March 31, 2018, was $0 compared to $211,000 for the same period a year ago. The provision for contract losses recorded in 2017 was associated with the Company's extended involvement in the ZAPI program, another research collaboration completed in 2017. Research and development expenses for the three months ended March 31, 2018, increased to $577,000 compared to $320,000 for the same period a year ago. The increase principally reflects the costs of additional internal research activities with third-party contract research organizations and personnel related costs. Research and development expenses related party, for the three months ended March 31, 2018, increased to $393,000 compared to $0 for the same period a year ago. The increase reflects the research and development costs associated with the Company's R&D Agreements with BDI, which started in July 2017. G&A expenses for the three months ended March 31, 2018, decreased to $1.3 million compared to $1.8 million for the same period a year ago. The decrease principally reflects reductions in legal and litigation costs of $561,000 and share-based compensation expenses related to stock options granted in 2018 of $92,000, offset by separation costs associated with our former CFO of $97,000, and increase in business development costs of $55,000, and other increases of $4,000. Foreign currency exchange loss for the three months ended March 31, 2018, was $5,000 compared to a gain of $28,000 for the same period a year ago. The change represents the currency fluctuation of the Euro in comparison to U.S. dollar. Interest income for the three months ended March 31, 2018, increased to $186,000 compared to $116,000 for the same period a year ago. The increase in interest income reflects the higher yield on the Company's investment grade securities, which are classified as held-to-maturity. Net loss for the quarter ended March 31, 2018, was $2.0 million, or $0.07 per basic and diluted share, compared to net income of $2.1 million, or $0.07 per basic and diluted share, for the same period a year ago. Net income in the first quarter of 2017 was primarily due to a litigation settlement of approximately $4.4 million. As of March 31, 2018, the Company had 28.1 million shares of common stock outstanding and 0.9 million shares held in treasury, this is also we purchased 267,000 shares at a weighted average price of $1.40 per share in open market transactions in the first quarter of 2018. The company had a $47.7 million in cash and investment grade securities as of March 31, 2018, which equated to approximately $1.70 per share. Next, we will provide you with an opportunity to ask questions. Each caller will be allowed one question and one follow-up question to provide all callers an opportunity to participate. If time permits, the operator will allow additional questions from those who have already spoken. Now, I like to turn the call back to our operators to take your questions. Denise?

Thank you. [Operator Instructions] Your first question will come from Stephen [indiscernible] a Private Investor. Please go ahead.

Hi, guys. I like to Mark, can you tell me why you not coming out with any results of the studies that you're doing with the three joint venture partners, this is really a Japanese partners and one unknown partner as to specifically what results of any strategies are, is it possible to come out with any in facts that would be very helpful?

Yeah for first of all just to be clearly of confidentiality agreements, confidentiality agreements with all those parties and we can't share their results but we have come out with, I think I said today and I think it's in the press release that we reached 1.71 grams per liter of expression per day of a MAB and we think the industry average is somewhere in the neighbor of 0.3 grams per liter per day. So that's a remarkable result in a short period of time and we expect that the other they're going to be my higher. As I mentioned today also and in the script here in the conference call is we're gaining the attention of Big Pharma and biotech and others. As it is extremely high yield there were reaching a point in some cases where you are no longer question when we first started this journey, we estimated we could have a high yield because it power of C1 in industry biotech space. Now, within those programs and otherwise, we demonstrated it. So it's there , it's just - you've got to be sort of an industry maybe more to recognize incredible results we've got so far.

I hear you Mark and I can appreciate the confidentiality agreements. But I have been biotech investor for a long time and every biotech stock in this is not really a classic biotech stock and I understand the constraints that you're under with the confidentiality agreements. But I think it's like I'm in a ship without a rider, I don't really get the facts, I don't really know how these studies are going whereas every other biotech investment that I have, I get periodic reports as to Phase 1, Phase 2, Phase 3 what this specific drug is doing. And I don't get that here and I think that's a turnoff for a lot of investors and that's a problem?

Hi, well. We can only give you what we are able to give you comfortably and within the round of the agreements we have.

Right.

If you look at the press release we issued today, to fair business on both points give you specific grams per liter per day of monoclonal antibodies and FC-Fusions, but I also mentioned in today's conference call which is fairly new result of a FAB subunit of certolizumab pegol at equivalent per liter or 1.7 grams per liter per day is an additional number. So three specific numbers they were giving you. We also mentioned I think it's in the queue that the differences from an industry average of 0.3 grams per liter per day from MAB for this is a 1.7 grams per liter and we expect it to go even higher. So those are phenomenal numbers if you look at them, when have Phase 1, Phase 2, Phase 3 drug company, I want to mention but I did mention again in today's call as we set out to demonstrate that our C1 gene expression platform had a potential out speed up the development process and can produce certain monoclonal antibodies commercially important levels. So that's what we've set out to do and that I believe we've actually exceeded our expectations in the short amount of time at the level of the differences between the yields we're getting and what the industries on average are getting. So I think it's all there I thought we'd try to highlight it in today's call in the queue, in the press release. But we don't have a typical Phase 1, Phase 2, but I did say there was Phase 1 we were trying to show the high levels and we've demonstrated that now for FABS for FC-Fusions and for monoclonal antibodies. And what I said is the next phase of our research which is already begun, we're continuing to use synthetic biology and genome engineering techniques to further modify our C1 health production organism to reduce additional classes of biologic to demonstrate the diversity that can be of the molecules, they can be successively expressed a commercially relevant levels using C1.

Okay.

When on further to say that the glycol-engineering work to-date has been successful, that we expect even higher yields to come from our ongoing median fermentation process development, in the slide presentations and including the one that's on the media center that I referred to that I just made last week, the PEGS which we had a nice tendency there and with lots of people, lot of people came up to us afterwards, wanting to lead a lot of people that were in discussions with but there. if you go online and listen to their presentation and watch so there's data and numbers that are presented in their there are things we can report. So more there, we put it out there but we can't tell you specifically but proteins we're working on for home and what they're looking to do with those because that's confidential. But we're making great progress, we're getting great traction, we're growing greater attention things are accelerating and we expect to have that this year some more deals and hopefully some of the forthcoming very shortly.

Can you envision any of the companies that you have these joint ventures with making enough to buy the company?

See I can't predict the future. I can go I can envision certainly the possibility of that when and after how much more data is the whole opening, I can't answer any question. But I can envision not only don't like innovate a lot of other people as well.

Okay. I don't want to put you on the spot but I do want to put on the spot. Thanks Mark.

Okay.

[Operator Instructions] We'll move next to Mike [indiscernible] from Janney Montgomery Scott.

Hi, guys. Thanks for taking my question. In regards to the two confidential biopharmaceuticals research you mention in Q4. Can you provide a little color on what the status of those are and did one of them and in Q4 and did one of them start and 2016?

Yeah, 100 in Q4 and one is just about to hand and our expectation is that will continue and it will be announcing that hopefully in the near future and potentially even the name of that top ten Pharma company will go along with that. But the project went very well and it looks very positive and I think they're very excited when they see, they're actively involved in discussions on an ongoing basis and we have a review with them at least once a month if not more.

Okay. Thank you very much so as that.

And we'll move to our next question Richard Deutsch from National Securities. Please go ahead.

Yes. Thank you for taking my call. Mark, you've had a long term relationship in the past with ZAPI organization in Europe. Can you tell us, if that's ended and what the status of that is?

Yeah ZAPI is still ongoing consortium is expected to go on going for a few more years. The status of that is working out expressing I think you said that in our Q2 as if it is some information there I don't recall the exact texted but they were working on a specific antigen producing it had higher and higher levels, trying to reach a level that will turn their heads demonstrate to them, but I think we already have the power of the potential C1 that we hope will be included in future animal trials and also we go through clinical trials but the project is continuing it is not going.

Oh, that's a good to hear. So and what are the financial parameters of that project?

I think the whole project is EUR20 million and we're just a small portion are just the expression portion. So currently, the financial we maintain I don't know how much money but we're continuing that effort right now and we're not there's no more funding coming in to us because we virtually project in our part is almost done.

All right. So they're still moving forward with the work that you've already established with them, is that result right?

Yeah we intend or we expect from what we've heard turn to be running some animal trials with the antigen we given them and I think recently we've gave them even more of it and while they're going on, we're continuing to show higher and higher yields and better stability so that we can become awfully, the predominant system of choice not only for the program there but some of the participants in that program are reaching out to us because the results are saying there and signing confidentiality agreements with us to talk about industrial partnerships that may happen.

Okay. Well that's great. And then just a final question, how is Tom Dubinski doing, is he recovered, is he - how's he getting along?

I can't discuss to health of people for reasons that have nothing to do with Dyadic, but we wish him well. I think is getting along better, but I really can't discuss Tom's health.

Okay.

We wish in the best of course.

Okay. All right. Thanks.

[Operator Instructions] At this time I'm showing no further questions in the queue, I would like to turn the conference back over to Mr. Emalfarb for any additional or closing comments.

2018 is off to an outstanding start and we look forward to building on this momentum. We believe our ability to generate meaningful, scientific results, coupled with increasing interest in our C1 technology in various areas of the Biopharma and biotech industries position of for continued growth in 2018 and beyond. I'd like to thank and take this opportunity to thank everybody for their hard work employees, consultants, dedicated board of directors, research partners and shareholders for their support. I thank all of you have taken a time to participate on today's conference call.

This does conclude our program for to me. Today, you all may disconnect.