Good evening and welcome to the Dyadic International's Q2 2024 Conference Call. Currently, all participants are in a listen-only mode. Following the management's prepared remarks, there will be a brief question-and-answer session. As a reminder, this conference call is being recorded today, August 13th, 2024. I would now like to turn the call over to Ms. Ping Rawson, Dyadic's Chief Financial Officer. Please go ahead.

Thank you. Good evening and welcome everyone to Dyadic International's Q2 2024 conference call. I hope you have had the opportunity to review Dyadic's press releases announcing financial results for the quarter ended June 30, 2024. You may access our release and Form 10-Q under the Investors' section of the company's website at dyadic.com. On today's call, our President and CEO, Mark Emalfarb and our Chief Operating Officer, Joe Hazelton will give a review of our second quarter 2024 business and corporate highlights, including a brief summary of our recent research and business development efforts. I will follow with a review of our financial results in more detail. And our Chairman, Patrick Lucy will provide a commentary on the strategic direction of the business at the end of the call. We will then hold a brief question-and-answer session. At this time, I would like to inform you that certain commentary made in this conference call maybe consider 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 duty to provide updates to its forward-looking statements, whether because of new information, future events or otherwise. Participants are directed to the risk factors set forth in Dyadic's report filed with the SEC. It is now my pleasure to pass the call to our CEO, Mark Emalfarb. Mark?

Thank you, Ping. Welcome everyone and thank you for joining Dyadic's Q2 2024 conference call. We are excited to discuss our business strategy centered on near-term licensing and product candidates has strategically positioned Dyadic to swiftly take advantage of current and upcoming opportunities. Over the next 24 months, we're focusing on achieving multiple revenue streams and significant milestones through the commercialization of products, technology licensing, fully funded collaborations and advancing our pipeline, all aimed at enhancing shareholder value. Our C1 technology continues to garner widespread recognition of its remarkable speed and productivity, earning accolades not only across the country, but around the world. Esteem voices from academia and industry, such as world-renowned vaccinology pioneer, Dr. Rino Rappuoli, government agencies like the U.S. FDA, BARDA, the NAH and Nimble, non-profit organizations and two top 10 pharmaceutical collaborators are recognizing C1's groundbreaking potential. Meanwhile, our Dapibus protein expression platform is already gaining significant momentum and most importantly, generating revenue and the rapid evolving alternative protein and bio-industrial sectors. We are committed to leveraging our microbial protein production platforms C1 and Dapibus to develop recombinant proteins, enzymes, antigens, and antibodies across our core sectors; alternative proteins and on human health. These efforts are expected to open up new revenue streams, driving substantial value creation for Dyadic and our partners in both the pharmaceutical and non-pharmaceutical markets. I will now turn the call over to our Chief Operating Officer, Joe Hazelton, to provide an update on our business results for the second quarter. Joe?

Thank you, Mark. In the second quarter, our business development efforts in the alternative protein sector are continuing to bear fruit, showcasing the potential of our microbial platforms. As part of our strategy to drive near-term revenue we have concentrated on identifying and producing high-value, high-volume recombinant protein products that can quickly and efficiently be commercialized. Our recently announced partnership for common serum albumin is a prime example unlocking numerous opportunities within the approximately $6 billion serum albumin market. This single product offers diverse commercialization prospects across various segments. For instance, pharmaceutical grade serum albumin has potential as a disease treatment, plays a crucial role in vaccine development, serves as a carrier protein for therapeutics, and is a standard reagent in research and development. Additionally, recombinant albumin is valuable in diagnostics, cell and gene processing, and cell culture media, particularly for growing animal muscle cells for lab grown meat. The recent completion of Certificates of Analysis for a recombinant human and bovine albumin confirms the analytical equivalents to currently commercialize research-grade products, making them potentially viable for commercialization in R&D. We have also completed third-party of recombinant bovine albumin produced through our microbial platforms as a component of cell culture media. The results demonstrated its comparable effectiveness to animal-derived rovobinalbumin [ph] in growing muscle cells for the cultured meat industry, further validating its potential in this rapidly expanding market. To unlock the potential of our recombinant albumin products, we have executed a strategic development and commercialization partnership with Proliant Health & Biologics, a leading supplier of purified proteins of the diagnostic, nutrition, and cell culture markets with a global customer base. This collaboration will initially focus on bringing recombinant human serum albumin to market with the first product launch expected in the first half of 2025. Under the terms of…

Thank you, Joe. Thank you, everyone, for joining our call today. I will now go over our key financial results for the quarter ended June 30, 2024 in more detail. You can find additional information in our earnings press release and Form 10-Q, which we filed earlier today. Revenue for the quarter ended June 30, 2024, decreased to approximately $386,000 compared to $837,000 for the same period a year ago. The decrease in revenue was due to the winding down of several large research collaborations conducted in 2023. Cost of research and development revenue for the quarter ended June 30, 2024 decreased to approximately $302,000 compared to $793,000 for the same period a year ago. The decrease followed the winding down of several large research collaborations. Research and development expenses for the quarter ended June 30, 2024 decreased to approximately $516,000 on compared to $918,000 for the same period a year ago. The decrease primarily reflected the winding down of activities related to the company's Phase 1 clinical trial of DYAI-100 and several internal research projects. G&A expenses for the second quarter of 2024 increased to approximately $1.608 million compared to $1.403 million for the same period a year ago. The increase was due to increases in share-based compensation expenses of $84,000, legal expenses of $81,000, business development and Investor Relations expenses of $60,000, and other increases, partially offset by decreases in management incentives of $36,000 and insurance expenses. Loss from operations for the quarter ended June 30, 2024 decreased to $2.043 million compared to $2.290 million for the same period a year ago. Net loss for the quarter ended June 30, 2024, was approximately $2.045 million or $0.07 per share compared to a net loss of $2.153 million or $0.07 per share for the same period a year ago. On March 8, 2024, the company issued an aggregate principal amount of 6 million of 8% senior tier convertible promissory notes due March 8, 2027 in a private placement. The convertible notes have a conversion price of $1.79 with no warrants. During the second quarter, $200,000 of the notes were converted into the company's common shares. As of June 30, 2024, we have cash and investment-grade securities, including accrued interest of $10.1 million compared to $7.3 million as of December 31st, 2023. In July, the company received an initial payment of $500,000 pursuant to our license and development agreement with Proliant. We expect our cash burn for the second half of 2024 will be approximately $3 million. I will now turn the call over to Dyadic's Chairman, Patrick Lucy, for closing remarks. Patrick?

Thank you, Ping. First, I would like to thank you all for joining the call today and your continued support of Dyadic. Several months ago, we redefined the Dyadic corporate strategy to focus on opportunities to deploy the Dyadic C1 and Dapibus platform protein production technologies to generate significant near-term revenue and near-term recurring revenue, while also advancing our efforts in mid to long-term value creation. This strategy is focused on three distinct market sectors, including alternative proteins, animal health, and human health. In today's call, you've heard that strategy playing out with executed agreements and significant activity in each of the sectors, with a particular emphasis on the alternative protein sector. The transaction with Proliant is a great example of that focus. We believe the avian influenza vaccine candidate presents Dyadic with a significant opportunity and we are currently seeking pathways to advance the candidate through non-dilutive approaches. We will continue to update investors on progress in the coming months. I'm extremely pleased with our management team and our Board for their focus and commitment to our company's strategy and look forward to announcing additional transactions in the future. With that, I will ask the operator to begin our Q&A session. Our CEO, Mark Emalfarb, and our management team will respond to your 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 of you -- from those who have already spoken. Operator?

Thank you. We will now conduct a question-and-answer session. [Operator Instructions] The first question comes from John Vandermosten with Zacks. Please proceed.

Thank you. Congratulations on the new alpha-lactalbumin deal. I had a couple of questions on that. I guess, first of all, what's the size of that market? And who are the customers for the product?

Joe, do you want to answer that?

Sure. And John, thanks for the question. The market -- the alpha-lactalbumin market is approximately a $700 million market. Now, that includes milk-derived products. The recombinant segment is smaller. I don't have a great number for that for you, but I would say it's probably in that $30 million to $40 million range currently. It's obviously expanding as people are looking into producing this recombinantly, similar to what they've done for HMOs and other products in this space. So, with that being said, that's the essential market potential. The customers are everything from the large dairy companies like the Danones, Nestlé to just about -- well, and also a lot of the newer companies in precision fermentation. So, we have, obviously, multiple opportunities, but it's essentially the food-grade dairy companies that we're looking at.

Okay. And I guess that would be Dapibus, right? This is the Dapibus--?

Yes. You're correct.

Okay. And then just another question on that theme. Is there a clear pathway here to revenues outlined in the JDA with the dairy company kind of as you have with the albumin deal with Proliant?

Yes. Based, obviously, on the performance of the strain and hitting certain commercial targets, there are milestones and royalty payments associated with the development.

Okay. Thanks Joe.

Joe, I think maybe you can expand on the transferrin opportunity as well because I think that's a huge opportunity for us and I think explaining that a little bit would be helpful.

Sure Mark. The transferrin opportunity is similar to that of alpha-lactalbumin in that it's a very high-growth market for recombinant products, given that it's a very high price point. So, the average cost of a kilogram of transferrin is roughly $400,000 to $500,000 and that’s obviously, animal-derived. Recombinant production is increasing, but it's a tricky component to produce. So, being able to produce it at the titers that we are today, we believe that we can significantly reduce that cost. And as I mentioned in the portion of the call, the majority of cell culture media costs, and that's the media that you grow not just animal muscle cells, but it's also used to grow CHO cells for production of other monoclonal antibodies and other pharmaceutical agents, with any cell culture media component can grow basically a mammalian cells. So, it has multiple uses, multiple offtakes across the segments. The differences is that albumin and transferrin make up 95% of the cost of cell culture media. So, if you look at, let's just say, a liter of media that you'd use to grow either animal muscle cells for lab-grown meats or you'd use it to grow CHO cells for making a monoclonal, 95% of those costs are from albumin and transferrin and the remainder is from growth factors and some other high-value targets in there as well, which were we're looking at, but that's the particular opportunity with transferrin. And given in that space, 70% of the utilization today is already recombinant and it's looking to increase because, again, it's one of those markets where it's an extremely expensive product to derive naturally because there's not a lot of it in basically mammalian blood. So, it's much easier to produce recombinantly and potentially more regulatorily acceptable as well. So, I do believe that's a significant opportunity that's already generating interest. And obviously, we have continued development we need to do.

Great. Thanks for the extra color.

Thank you. [Operator Instructions]

Pat, is there anything you want to add while we're waiting to see if anyone else is calling in?

No, I think I've covered it in the remarks.

We do have a follow-up from John Vandermosten with Zacks. Please proceed.

Thanks. Kind of a bigger picture question for you on C1. As we look at kind of how the expression system has evolved over time, how has it changed over the last five years?

That's a good question. It's changed from I guess, from darkness to light or night to day. And what I mean by that is, when we transitioned the C1 cell line from the industrial sector into biopharmaceuticals, there was a lot of work we had to do to make it so that it not only produced a lot of something, but producing it in a stable form. And as you know, we've knocked out a total now of 14 or 15 different genes with proteases in addition to other background proteins so that we can produce high levels of low-cost proteins that are stable. And then most importantly, although we had certain animal data prior to doing all of that, we've expanded the animal data from rats to lambs to chickens to all kinds of other things, hamsters. But most importantly, with the DYAI-100 SARS-CoV-2 RBD Booster, Phase 1 trial, we've now demonstrated for the first time ever a protein produced from our C1 cell line and for that matter, filamentous fungal cells can be used safely and induce an immune response. And we did that both at the high and low dose, and we got good neutralizing antibodies and cellular immunity. So, that has opened up the doors very wide and it seems to be growing even wider as we develop more and more antigens for the vaccine. So, from a recombinant protein vaccine platform, we believe that we have the most efficient, fastest way to make the largest quantity of lowest cost antigens for vaccines that can be released sooner. Because in the end, we don't have viruses to remove like T cells, antiviral clearance or the bocavirus cells. So, it's not only faster, quicker, and cheaper, but you can release it sooner. We believe we're going to transform our recombinant protein production of antigens for human and animal health. So, hopefully, that gives you an idea of the tremendous progress we have made. And now the validation, as we've talked about, from academia, industry, government, nonprofits, you name it and virtually on every continent on this planet. We're starting to get recognition. We're getting more and more credibility. The technology is getting more broadly applicable. And as Joe pointed out, we've produced things like HPV, which as you know, is a massive market opportunity and sales today in the billions and billions of dollars. We've also produced multiple versions of an RSV antigen and a variety of others as well.

Great. Thanks for that. Do you have time for one more from me? I don't want to use up all my questions.

Yes. No, we're happy to answer the questions and provide information that's helpful.

Yes. So, just one other thing on Proliant, and Joe and I had a chance to talk about this before, but I don't know if I asked this question about just the relative margin on the C1 produced product versus what the -- what Proliant is already doing right now with the animal-based albumin. Do you get a sense of what the relative attractiveness is of the recombinant C1 versus their product right now in terms of margins?

Well, before Joe answers that, just to clarify, they're making bovine albumin, not human albumin right now. So, this is a whole new market opportunity -- on the human side. But Joe, you can go forward.

No, actually, that's exactly what I was going to say. It's an expanding customer market for them because they don't have a -- well, they don't have a recombinant product today. and they don't have human serum albumin, they only work in the bovine protein space at the current time. So, this is a nice expansion. The use case, though, for human serum albumin and bovine albumin in certain instances, is the same for things like cell culture or medical device coding. Those are things that you could potentially use other product depending on what the need of the application is. There would be certain reasons why you'd want to use human versus bovine and vice versa, a lot of it is driven by cost. But as far as the margin attainment, I really don't want to speak for them, but obviously, we want to look to be able to provide a cost-effective product to the market in terms of a recombinant human serum albumin for any application. And obviously, there's room for improvement in the price points in that space. But I don't want to predict obviously what the potential margins for them could potentially be or what they're shooting at, at the current time.

And just to add, John, to that, keep in mind, with the strength of our upstream processing, Proliant also brings in the strength of downstream processing in terms of scale in and cost. And of course, they have access to the market because they've been selling in this market for years. So, we have immediate market access through them.

Great. Thank you.

[Operator Instructions] There are no further questions in queue at this time. I would like to turn the call back over to Dyadic's CEO, Mr. Mark Emalfarb. Please proceed.

Thank you. As Pat and Joe have indicated, Dyadic is fully committed to driving near-term revenue and growth by pushing the boundaries of innovation and accelerating commercialization. We are expanding the use of our C1 and Dapibus microbial protein production platforms across our three core sectors; alternative proteins and animal, and human health. This is an incredibly exciting time in Dyadic's history, and I believe we are uniquely positioned to swiftly capitalize on both current and emerging opportunities. I want to thank you for joining us today's second quarter 2024 conference call. We look forward to updating you on our continued commercial and scientific progress during our next call. Stay tuned for more exciting developments from Dyadic.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.