Good afternoon, ladies and gentlemen, and thank you for holding. Welcome to Dyadic International's Second Quarter 2019 Financial Results Conference Call. Now, all participants are in a listen-only mode. My name is Kristy, and I will be your conference coordinator today. As a reminder, please note that 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, Kristy. Good evening, everyone. Welcome to our second quarter 2019 earnings call. A press release with Dyadic International's second quarter 2019 financial results was issued earlier today. The press release on Form 8-K and Dyadic's quarterly report on Form 10-Q have been posted to the SEC and Dyadic's Web site. On today's call, our President and Chief Executive Officer, Mark Emalfarb will give a review of the business and the corporate accomplishments for our second quarter of 2019, including a summary of our research and business development efforts. 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 also 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, and our Quarterly Report on Form 10-Q, particularly in the section titled Risk Factors. This information can be found in our other filings with the SEC when available. With that, I'll turn the call over to Mark.

Thank you, Ping. Welcome to Dyadic's second quarter conference call. The second quarter of 2019 was an especially active period for Dyadic on several fronts. As a result, I believe that we are gaining further recognition globally and additional credibility every day as we continue to successfully further develop our C1 gene expression platform. The focus of our C1 technology is to accelerate the development lower production cost and improve the performance of biologic vaccines, drugs, and other biologic products at flexible commercials scales. During this past quarter, we expanded our strategic relationships in the industry. We signed a new partnership deal with the Serum Institute of India, entered into two new sublicensing agreements, Alphazyme and Luina Bio, Novovet, and extended our long-term R&D contract with VTT Technical Research Center of Finland, VTT. In addition, certain data drive from our research programs has exceeded initial expectations with respect to the productivity and versatility of our C1 technology platform. As a result of this data and our continued scientific progress, just this week we signed an, additionally, fully-funded research collaboration with another top tier pharmaceutical company to express three different types and classes of proteins. They are very excited about the potential that C1 may bring throughout their organization. We believe that this collaboration has the potential to expand further as we already are in discussions with one of their affiliates who can up-speed the development and adoption of our C1 technology globally. Year-to-date we have entered into four new research collaboration, expanded one of the earlier reported 2019 research collaborations in addition to the two sublicensing agreements discussed above. These are in addition to the nine proof of concept collaborations signed in 2018. Those agreements include the previously announced Sanofi-Aventis, Mitsubishi Tanabe Pharma deal, four pharmaceutical companies, one top-20 and…

Thank you, Mark. Research and development revenue for the three months ended June 30, 2019 increased to approximately $391,000 comparing to $151,000 for the same period a year ago. Cost of R&D revenue for the three months ended June 30, 2019 increased to approximately $322,000 compared to $129,000 for the same period a year ago. The increase in revenue and the cost of R&D revenue reflect four ongoing research collaborations in 2019 compared to two in 2018. R&D revenue for the six months ended June 30, 2019 increased to approximately $793,000 comparing to $346,000 for the same period a year ago. Cost of R&D revenue for the six months ended June 30, 2019 increased to approximately $650,000 comparing to $276,000 for the same period a year ago. The increase in revenue and the cost of revenue for the six months ended June, 2019 reflect seven ongoing research collaborations compared to three collaborations for the same period a year ago. Research and development expense for the three months June 30, 2019 increased to approximately $818,000 compared to $601,000 for the same period a year ago. R&D expenses for the six months ended June 30, 2019 increased to approximately $1.5 million comparing to $1.2 million for the same period a year ago. The increase primarily reflects the cost of additional internal research projects. R&D expenses related party for the months June 30, 2019 was approximately $336,000 essentially flat compared to $341,000 in last year's second quarter. R&D expenses related party for the six months June 30, 2019 was approximately $726,000 essentially flat compared to $733,000 for the same period a year ago. These expenses reflect R&D costs related to the company's R&D agreement with BDI which started in July 2017, and other internal research activities. General and administrative expenses for the three…

Thank you. The floor is now open for questions. [Operator Instructions] And we will take our first question from Jason Colbert [ph]. Please go ahead.

Hey, congratulations, guys. A lot of exciting things going on, in fact there are so many exciting things going on that I would really appreciate it, Mark, if you could kind of prioritize for me what are the top three catalysts that you'd have me focus on as we start to approach the end of this year and next year? Thanks.

Well, thanks, Jason. Well, first and foremost, to tell you about the science, so the glycoengineering work, the protein expression levels, majority at record levels, we expect to get even higher on certain products. And of course, Sanofi, Serum, the new deal that we just signed with another top tier pharmaceutical company. As those things progress we hope those turn into, in some cases, like Sanofi and the new deal that we just announced that we just signed this week, upfront cash, milestones and royalty, that could be quite significant. So those would be the things, the science and business development, more and more people coming in testing the system out on the products they want to make. On the specific products that we're working on our own, Certolizumab, the advancement of that, how that goes, the AAV viral vectors for gene therapy. And of course, we're working on a secondary metabolite, which we will get more involved in more discussion in future calls. So, just between those things alone we have many shots on goals, and we're focused on all of them. And we're paying attention not only from the business development side, but from the science, and that's why the partnership with the people at VTT and BDI are so critical and important because they provide the resources and the oversight with people that have decades worth of experience working with filamentous fungi and engineering it and scaling it for commercial production.

Thank you. That's pretty comprehensive. And Ping, I wanted to give you a question too. I understand $4.8 million in cash, $34 million in securities. Help me understand, what's that $34 million in securities? And also, it strikes me as this is the strongest financial position that Dyadic has been in a long time. How do you anticipate the cash burn developing over the year ahead versus kind of the cash on hand? And I know that it's almost impossible to answer given the fact that these BD deals are apparently bringing in upfront cash too. But I'd love to hear you kind of opine about it. Thanks.

Thank you. Thank you for the question. Yes, as we have already -- as part of the DuPont sale, that's were we get the cash, as you know. And we are very due diligence in terms of the investments. And most of our cash we invest in investment grade securities and mainly corporate bonds, most of them are with reputable institutions. So with the interest rates are improving actually from last year to this year, we are getting pretty decent interest income. I think that's definitely offset a lot of our R&D expenses for the year. In terms of the outlook of cash position for the rest of the year, as you may know, we don't usually give a lot of financial guidance, but in the year end call we do give guidance in terms of cash burn between $8 million and $10 million, and I think we are still on track with that. And also with more collaborations that we are signing this year and potentially toward the year up either more collaboration or up licensing agreements in the future, I definitely think our cash position will improve. And also, as you see from the financials, we actually this quarter, Q2, where we see the half-million tax refunds as a result of the AMT tax credits elimination, so that helped with our cash position as well.

So, what I understand you saying is that the cash position could actually continue to develop and become stronger as license agreements and collaborations come versus controlled spending, at $8 million to $10 million?

Yes, definitely.

Okay.

And I think if you look at our history in the industrial business, Jason, we had these license agreements that brought in $10 million from, for example Shell, with good access, we had $15 million coming from Abengoa, we had $6 million come in. So, some years could be actually profitable rather than burning cash…

And by the way, congratulations on the NASDAQ listing, and I know you've worked so hard to make this happen. It's really a pleasure to see you kind of realizing it as the company starts to really build. Thank you so much.

Thank you.

And our next question comes from John Vandermosten with Zacks Small Capital Research.

Good afternoon, everyone.

Hi, John.

How are you?

Hi, John.

How are you?

Good. How are you?

Question number one is on just the budget for the research collaboration that the new one that you just announced. How will that increase? And that kind of dovetails into the previous question, how will that increase the top line over the next couple of quarters or over the duration of the collaboration?

It's hard to tell. But I mean the initial project is basically fully funded, so it's not going to be negative. But what we expect from that project, as I mentioned in the earlier part of the conference call, is not only to expand that collaboration and further research, this big pharma company, the group we're working with, is actually, their microbial fermentation guide that are trying to internally convince their parent to get off of CHO. So they actually have the same goals and objectives as we do, so they're very excited about this and really committed to really push this forward. We actually started our initial call today with them, and was really exciting to hear that from them, that they're fully committed to making this work. But in addition to that, we're working with one of their affiliates, and that could become a major sort of relationship which speeds the adoption, provides more resources, speeds up the technology development, and broadens the adoption and use globally because that affiliate has a global outreach all over the globe. It's one of the largest providers of technology in the biotech industry. So we're affiliated with this pharma company as one of their company's affiliates. So it could be very exciting.

Yes, thank you for the additional color on that. The follow-up I wanted to just get an update on the glycoengineering and the protease deletions, kind of where you are relative to the internal targets there?

Yes, I think we are on track with both of those. We continue to knock out proteases and the strain as we identify problems that exist with certain molecules with new customers as they come in, we find that some are completely stable, some we have to do more protein engineering work and then when we identify a protease it's still in there we then go knock it out in our universal host. So I would say we are on target to continue improving it making it better, broader and more applicable every quarter, it's just get better and better and the glycoengineering aspect we continue to make great progress towards getting the G0, and we hope by the end of this year or Q1 to be able to announce that we have reached that human life G0 human life glycosylation pattern that would be a major milestone for not only us, but the industry and ultimately patients across the globe.

Okay, thank you. And just for that protease deletion milestone, can you just tell us what that is right now for I guess the next one that you are working on right now?

Well, I think our Number 11 or number 12, but maybe Ronen you want to chime in there.

Now, we are working on [indiscernible] protease to be the target of the 11 deletion and 12 deletions.

Okay, thank you.

We are around 11 and 12.

Got it, got it. All right, thank you guys, appreciate the answers.

Our next question comes from Ahu Demir with Noble Capital.

Hello team, thank you very much for taking the call, great first half of the year. So my first question will on the licensing and collaboration partnership front, the Alphazyme, Luina Bio, and serum, when do you -- like I know you don't give guidance, but when do you expect to get milestone royalty payments do we expect to that to happen in 2020 or is it going to be further along in the year?

Well, we hope to get at least one if not more research license and potential commercial license or a research license with an option for commercial license from one or more of these agreements either with Sanofi or one of the ones we just signed. The one we signed this week, for example, so we have our fingers crossed it will be in 2020, it's possible it could be this year. We could be surprised but we will see.

Okay, thank you, Mark. My other next question is again on the partnership with pharma with Sanofi and Mitsubishi what is the project timeline are they supposed to end in 2020 as well or is it longer-term agreement?

Well, Mitsubishi, they researched and we provided them with the product that they are evaluating and trying to decide whether they're going to move forward with that particular drug or not. So that's out of our hand at the moment. Sanofi is ongoing, and it's going to last to the end of the year or towards the end of the year November-December. We hope to have discussions with them very shortly about where that's going to go in terms of expanding it, continuing it or potentially even getting a license agreement from them. And then of course a new agreement, maybe Matt, you want to add a little color to the agreement we just signed on Monday.

Yes, sure. That agreement is different again, and I think we are very fond of the diversity of the platform in the agreements we announced and signed. This company, again significant size company that has many things going on, as Mark said, we are collaborative with the team championing the microbiology side of the expression systems and you know clearly there is a very strong magnet here, they are looking for a strong expression system and [indiscernible] and the data we are providing to them -- we will be providing to them on this collaboration you know, we are keen to get going that started today actually that's the first major conversation post signing. So I think we know that the kind of the sales cycle, we're going to call it that is one with the big pharma takes a while but once you gone past the initial I guess paper work side, it's all about the science and so we are laser-focused now on delivering against the project scope that we are agreeing upon right now. That's a long lasting far reaching opportunity for us and inside their company. There are many places that C1 can play. So it's for us now to support those conversations and to drive that forward.

Thank you.

And I indicated earlier in the conference call when we sign one of these top 25 pharma company deals earlier this year, they've already now provided us with a second protein. So they're expanding seeing the results and they're expanding what they're doing with this and potentially that is going to go even further and faster. And as those results come in that potentially could turn into a license agreement as well. So there's a lot going on, a lot of different places. And of course Serum has already started and that could be just earth shattering in terms of the ability to really drive that cost down and do speedy adoption and use and force the industry to a new technology platform that can just change the game.

It's Matthew. Just to add also I think to the question earlier, I think we also of course is in terms of looking after our cash as well, we are mindful of entering to fully funded commercialization opportunities including preclinical and clinical trial opportunities in the future. I think we do manage that cash, our cash position very responsibly but we're also very keen to collaborate and partner with clearly these very large companies to have many ways that can negotiate and play with C1 as we go forward. So these are not binary deals per se and many others that we haven't announced of course we can't announce discuss publicly but of course in the future where licenses are made public, we'll do so. But I think to Mark's point here while we engage with a particular team at these biopharma companies to get the ball rolling, there are many other departments, other groups that we would hesitate to draw attention to the work we're doing.

Thank you.

And I think just to highlight a little more detail which I think is important is not all about cost of goods. In fact some of these projects we're working on with Sanofi and this new deal that we announced this week are things they can't make enjoy at all for an another system, so they're running into bottlenecks of potential cure to disease, they are not going to be commercially feasible to bring forth. And so, if we can open up some of those doors, just one or two of those, that that would be just revolutionary for everybody and create a lot of value for Dyadic and bring medicine to global population that otherwise won't get there, let alone cost advantages.

My next question as -- we all are aware of pricing fundamental, the data being fundamental following all these partnerships. So just clarifying glycoengineering will be is expected in the fourth quarter, AAV expressions as Certolizumab bio equivalent that are expected in the first half of 2020 if I didn't misunderstand?

Yes, so the glycoengineering G0 we expect by the end of the year or Q1. The Certolizumab downstream processing, we should have the products in a ready form that we can get it moving forward to get tested from an analytical standpoint by sometime in the first half of 2020. AAV, we just started that project, it's going as planned and we don't have a timeline on when and if that project will continue and we'll update you as it progresses as we learn, but that's only a few months into it already. So it's too early to tell, but things are actually going as planned.

Sounds great. Congrats again, thank you very much.

Great, thank you.

[Operator Instructions] And our next question comes from Dick Williams with Williams Research Group.

Hi Mark.

Hi Dick.

I have a fairly simple question for you. You've covered everything in great depth as usual and you've had a couple of really good questions here. But as it relates to the Serum Institute, you're in development with them or they are doing 12 proteins, am I to assume that each of those proteins would be in conjunction with a vaccine?

They're not all vaccines but overall treatments.

Okay. Can you give some color on that in terms of what that could evolve into with the 12 proteins on the assumption that all of them come through or half or whatever, what that, what it morphs into in terms of marketability and potential in the marketplace. Can you give any color on any of that?

Yes, so I mean first and foremost if you think about it, the ZAPI program is not going to animal studies, the IIBR is not going to animal studies. So, some of those works is moving towards in some cases for animal trials for animal trials, for animal health and other cases for human health and other products, so we're working with other pharmaceutical and biotech companies in these programs. So one of the goals we have is to get C1 as a pharmaceutical product in animals and human to prove the safety and effectiveness of those and Serum is just another example that if just one of those goes forward and they have to approve the safety and effectiveness of it, it opens up the wide world of opportunities and just removes barriers that are really in our opinion aren't real barriers. But they are barriers to people wanting to see it and it kind of like promissory show. So we've got a variety of opportunities to show people and a bunch of those programs and Serum is one of those. The good thing with Serum is in addition to working with Serum, I can't get into it with you but it's not just Serum that's involved in these programs which probably can somebody that you can look online and there's certain people like the AIDS Foundation, funds research to Serum, WHL, the Gates Foundation, so as Serum succeeds and if we're successful in moving these products forward with them where we're getting more and more eyeballs with some of the big funding opportunities to provide us even more and more opportunities and just up to 12 proteins which are eight antibodies and four vaccines which are what we've talked about in the past. So it's much broader, much deeper there's a lot more eyeballs from the NIH from these big institutes and big funding organizations that are getting a peek. And we might have actually met with some of them in conjunction with that Serum deal and otherwise.

Okay. I just have one other question. In terms of the NDAs that we've signed obviously companies do not take lightly signing an NDA especially if it would be your NDA. So they have to be serious at the point of signing an NDA. And of course you've done a fantastic job with the collaborations you've done over these past several years and especially this year, what you're doing. But if I were to kind of eyeball on the back of an envelope, how many deals you've got going you're somewhere under 20. So if that number had been 100 NDAs back about a year ago or so, what's the status of the additional ones, have they gone by the wayside or are they still in a queue or is a timeline further into the future. Can you give us some color on that?

Yes, Mark. You want me to handle that?

Yes sure, go ahead.

Matthew here, I think just from my perspective because I think that it's important to state couple of things for NDA. First of all, our preference of course is to always use our templates, as you will appreciate bigger companies don't work that way. And so we're very proud to have achieved through quite some involved negotiation sometimes agreeable terms on both sides and there's work involved there. So when we say we've signed this month alone a dozen let's say, NDAs there is a significant amount of work that goes into both parties on some of the bigger company approaches. Some of the work of our NDA they could be as Mark has mentioned with key academic institutions, universities, they could also be with IP owners of particularly new molecular targets and or protein targets et cetera and they just want to have a conversation with us about enabling them to get past a major challenge that say where they can't express enough product from chode. And so, we can enter into an NDA quite quickly because both teams quickly need to have a conversation around a high level. So there is a variance here around what the NDAs that we enter into we'll cover. Now obviously we've mentioned today, we signed a significant big pharma announcement coming. I think that you can get that. That takes a while to get these things in place and say we don't really, I don't think so. We don't really worry too much. Have we signed another 100 NDAs this quarter or is it 50. We target companies, we believe we can partner with meaningfully can enter into a collaboration together where we can achieve great science and obviously selfishly, we target companies that we won't see want to be a big future with them because of our pipeline potential and other sorts of collaborations and to your first question, I think the reason that Serum as well is interesting to us is it's not because it's 12 years time that of course is fantastic and we look forward to being able to announce more publicly updates but we also understand that Serum are experts at moving drugs forward both into animal tox and into the clinic rapidly and effectively and that's important for us. That's important to target those sorts of companies for C1 future. So we push our NDA kind of commentary carefully and that a number is a number. What we're trying to do is make sure that the conversations we're having with companies is in the best interest of our stakeholders.

And Dick, we've actually turned down after signing NDA certain projects even when they don't have it with some smaller companies that don't have the funding for example or they want us to fund part of it and we have so much going on and so many different directions and we have cash. So we're not any desperate position to do bad deals, to Matt's point we're doing deals that we think create significant value for the long-term but we're going to create significant value for the long-term not quarter-to-quarter. We want to change the game in the way drugs are developed and produced and bring affordable healthcare to people and bring value to our shareholders and to humankind and that's what we're doing and some of these deals have the potential to do that and we don't need five, 10 more deals. We just need to deliver on the people, we're working with today let alone the people we have in the pipeline. I think it took us, I think a year to get this deal signed that we signed this week with this company. We've been talking over a very, very, very long time. It takes a long time to get these guys in the boat but once they're in the same boat in this case not only in the boat they're rolling in the same direction with us because these people want to use microorganisms instead of Cho, that's what this group and pharmaceutical companies charter is to find an alternative to show quicker faster cheaper and then they believe C1 can help them meet those goals. So we have complete alignment. That's why we're so excited about this particular because it's a large company, they have the resources, the funding and their affiliate had a global outreach to speed the adoption and use and apply more technology, more dollars, faster quicker and get this in the hands of more people than Matt and I are running around the globe.

Okay, well, thanks a lot for the perspective, and certainly I can understand the situation with the larger and major pharmas, they have one speed, it's called Glacial. So you've proven it with your one here in the pot with them and also thanks a lot for delivering this success you are to all the shareholders, keep it up.

Great, thank you.

And I'm showing no further questions at this time. I will now turn the call back to Mr. Emalfarb for closing comments.

Thank you. I'm very pleased with our progress to date. We continue to believe that our C1 technology can play a leading role in next generation vaccine drug and other biologic product development and manufacturing bringing medicines to market more rapidly at lower cost with potentially better performance with the goal of making them more affordable and available to patients globally. I want to thank everyone for your interest in Dyadic, our C1 technology platform, and for letting us share our highlights and our vision with you. We have a small but extremely talented management team who along with our research collaborators, BTT and BDI are working tirelessly toward achieving our strategic goals and business objectives. I want to thank my fellow management team members, our hard hardworking employees, our dedicated board of directors, research partners, and shareholders for their support. We look forward to speaking with you on our third quarter call in November.

This concludes our program for today. You may all disconnect at this time.