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DYAI: Dyadic Animal Health Partners Summary

07/10/2020

By John Vandermosten, CFA

NASDAQ:DYAI

On July 8, 2020, Dyadic (NASDAQ:DYAI) announced the successful addition of two, fully funded collaborations with global animal health companies to study whether it is feasible for Dyadic’s fungal protein expression platform, C1, to produce desired therapeutic proteins. While management has not explicitly disclosed the partners, they have announced that four of the top four animal health companies are partners. This brings the total number of animal health collaborations to eight, two of which include a partial ownership in successful commercialization of successful products.

Exhibit I – Dyadic Partnerships1

Dyadic’s C1 platform is not only able to produce vaccines and therapeutic proteins for humans, but also for animals. Animal husbandry has been a part of human existence for millennia, and the global livestock is valued at $1.4 trillion2. Animal health is important for livestock producers and pet owners alike, with over two-thirds of Americans owning a pet3. All of these animals are vulnerable to disease and leveraging Dyadic’s efficient production host is a logical step in an industry where cost pressures are intense. The C1 fungal platform is more productive than its mammalian counterparts and is able to introduce functionally-necessary post-translational modifications that are not possible in E. coli, Baculovirus or even Chinese hamster ovary (CHO) cells. Dyadic has not explicitly disclosed its largest animal health partners; however, it has communicated that it is working with four of the top four global animal health companies, which we list below in order. We estimate the potential value that could be supported by C1 from these partnerships by exploring the top four animal health companies and their therapeutic offerings.

Exhibit II – Top Ten Global Animal Health Companies (Revenues) 4, 5

Zoetis

Zoetis was founded in 1952 and focuses solely on animal health, both livestock and companion animals. In 2019, Zoetis had industry leading revenue of $6.3 billion, sourced from companion and farm animal sales almost equally. Zoetis products are sold in over 100 countries in seven product categories: vaccines, anti-infectives, parasiticides, dermatology products, medicated feed additives, animal health diagnostics and other pharmaceuticals. Zoetis also features genetic products that assist livestock producers to select breeding results, augmenting their yield.

Exhibit III – Zoetis Vaccines6

Merck Animal Health

Merck’s animal health division began in the 1940s. In 2019, Merck’s global sales were $11.9 billion, with $4.4 billion coming from animal health sales. The animal health division supports products for cats and dogs, horses, ruminants, poultry, swine, and aquatic farm animals.

Exhibit IV – Merck Vaccines7

Boehringer Ingelheim

Boehringer Ingelheim (BI) was founded when, in 1885, Albert Boehringer purchased a small tartar factory in Nieder- Ingelheim8. Since then, BI has grown into a multinational corporation with net sales of 19 billion euros in 2019, 21% of which were derived from animal health, about 4 million euros. BI’s products primarily consist of parasiticides, vaccines, and pharmaceuticals for companion animals and livestock. BI’s products treat cats, dogs, and horses and cattle, swine, and poultry.

Exhibit V – Boehringer Ingelheim Vaccines9

Elanco

Founded in 1954, Elanco generated $3.1 billion in annual revenue for 2019. The company is present in over 90 countries, and derives approximately 38% of its revenues from companion animal products, and the remaining from farm animals. Elanco products treat farmed fish, cattle, dairy cows, poultry and pigs. Elanco also features parasiticides, vaccines and therapeutics for cats and dogs. Recently, Elanco received approval for an acquisition of Bayer’s animal health unit for $7.6 billion, expected to close mid-2020, which should catapult Elanco to the number two position10.

Exhibit VI – Elanco Vaccines11

Most of the vaccines offered by these companies are attenuated or inactivated live viruses, not purified recombinantly expressed proteins (subunit vaccines). Attenuated viruses have been engineered to present the host with a virus that looks and behaves like the original virus, including infection and replication, but are harmless, presenting the host with an accurate immune-triggering event. In contrast, inactivated viruses and antigen-specific proteins do not mimic the behavior of the original virus in the host, but can train host immunity to an extent, and do so without the risks of the live virus.

The production of viruses is ­­nontrivial and there are multiple methods depending on which virus produced. The more complex the production, the more expensive12. The costs to produce a viral vaccine are in product development, facilities and equipment, direct labor, overhead, licensing/regulatory and commercialization. Facilities can cost anywhere from $50 to $500 million dollars, depending on the complexity of production13. Some examples of vaccines currently being produced recombinantly are BI’s Ingelvac CircoFLEX and Elanco’s Nuplura PH. These would be natural candidates to begin exploring C1’s abilities in animal health. Success in the partnered feasibility studies would open the C1 platform to an immense industry which may be able to produce antigens more efficiently, at less cost and with higher purity and safety. Animal health also provides a faster path to market as the regulatory requirements for animal medicines are less stringent than they are for human health.

In the May 15, 2020 presentation, Dyadic disclosed improvements to its C1 platform, using a synthetic enhanced promoter, the 9xΔ protease deletion strain and modified fermentation process conditions. Together, the improvements increased production to 1.75g/L within five days of fermentation. The company has also achieved the 14xΔ protease deletion strain designated DNL155 which may provide even greater productivity. In this update on the C1 production platform for human and animal vaccines, Dyadic reported successful results from their cattle vaccine trial, where the Schmallenberg virus (SBV) GcHS, expressed using the C1 platform, conferred sterile immunity.

In conclusion, with Dyadic’s recently added partners, Dyadic expands is animal health relationships to eight which includes four of the top ten companies in the space. The animal health market is large and the collaborations will provide Dyadic access to this near $30 billion global industry14. With Dyadic’s fungal expression platform, animal vaccine producers can take advantage of C1’s impressive and increasing output capabilities. Animal health is relatively attractive due to its faster pathway to market and now that there are numerous companies working to advance the capabilities of C1, we see the latest two additions only accelerating the time to commercialization.

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