dyai20201008

dyai20201008_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____ to ______

Commission file number: 000-55264

DYADIC INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		45-0486747
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

140 Intracoastal Pointe Drive, Suite 404

Jupiter, Florida 33477

(Address of principal executive offices) (Zip Code)

(561) 743-8333

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	DYAI	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and, (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (27,482,157 shares) computed by reference to the closing price of $8.68 as reported on the NASDAQ Stock Markets on June 30, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $238 million. Shares of the registrant’s common stock held by executive officers, directors, and their affiliates have been excluded from this calculation. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 29, 2021, the registrant had 27,554,157 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Report, to the extent not set forth herein, is incorporated in this Report by reference to the Registrant’s definitive proxy statement relating to the 2021 annual meeting of shareholders. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the 2020 fiscal year.

TABLE OF CONTENTS
		Page
PART I		4
Item 1.	Business	4
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	24
Item 2.	Properties	24
Item 3.	Legal Proceedings	25
Item 4.	Mine Safety Disclosures	25

PART II		25
Item 5.	Market for Registrant’s Common Equity, and Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	Selected Financial Data	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 8.	Financial Statements and Supplementary Data	31
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	31
Item 9A.	Controls and Procedures	32
Item 9B.	Other Information	32

PART III		33
Item 10.	Directors, Executive Officers and Corporate Governance	33
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13.	Certain Relationship and Related Transactions, and Director Independence	33
Item 14.	Principal Accountant Fees and Services	33

PART IV		34
Item 15.	Exhibits and Financial Statement Schedules	34
Item 16.	Form 10-K Summary	35

SIGNATURES		36

INDEX TO FINANCIAL STATEMENTS		F-1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Information (other than historical facts) set forth in this Annual Report contains forward-looking statements within the meaning of the Federal securities laws, which involve many risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Forward-looking statements generally can be identified by use of the words “expect,” “should,” “intend,” “anticipate,” “will,” “project,” “may,” “might,” “potential,” or “continue” and other similar terms or variations of them or similar terminology. Such forward-looking statements are included under Item 7 “Management’s Discussion and Analysis”. Dyadic International, Inc., and its subsidiaries cautions readers that any forward-looking information is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking information. Such statements reflect the current views of our management with respect to our operations, results of operations and future financial performance. Forward-looking statements involve many risks, uncertainties or other factors within and/or beyond Dyadic’s control. These factors include, but are not limited to, (1) general economic, political and market conditions; (2) our ability to generate the required productivity, stability, purity, performance, cost, safety and other data necessary to carry out and implement our biopharmaceutical research and business plans and strategic initiatives; (3) our ability to retain and attract employees, consultants, directors and advisors; (4) our ability to implement and successfully carry out Dyadic’s and third parties’ research and development efforts; (5) our ability to obtain new license and research agreements; (6) our ability to maintain our existing access to, and/or expand access to third party contract research organizations in order to carry out our research projects for ourselves and third parties; (7) competitive pressures and reliance on our key customers and collaborators; (8) the pharmaceutical and biotech industry, governmental regulatory and other agencies’ willingness to adopt, utilize and approve the use of the C1 gene expression platform; (9) the risk of theft, misappropriation or expiration of owned or licensed proprietary and intellectual property, genetic and biological materials owned by us and/or Danisco US, Inc. and VTT Technical Research Centre of Finland Ltd; (10) speculative nature and illiquidity of equity securities received as consideration from sub-licenses; (11) our expectations concerning the impact of the novel coronavirus identified as “COVID-19” on our business and operating results; and (12) other factors discussed in Dyadic’s publicly available filings, including information set forth under the caption “Risk Factors” in this Annual Report. We caution you that the foregoing list of important factors is not exclusive. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, considering the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Moreover, we operate in a highly regulated, competitive and rapidly changing environment. Our competitors have far greater resources, infrastructure and market presence than we do which makes it difficult for us to enter certain markets, and/or to gain or maintain customers. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Before investing in our common stock, investors should carefully read the information set forth under the caption “Risk Factors” and elsewhere in this Annual Report which could have a material adverse effect on our business, results of operations and financial condition.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by law, we undertake no obligation to publicly update any forward-looking statements for any reason after the date of this Annual Report to conform these statements to actual results or to changes in our expectations.

We qualify all our forward-looking statements by these cautionary statements. In addition, with respect to all our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

PART I

Item 1.

Business

Overview

Dyadic International, Inc. (“Dyadic”, “we”, “us”, “our”, or the “Company”) is a global biotechnology platform company based in Jupiter, Florida with operations in the United States, a satellite office in the Netherlands, utilizing several global research organizations, consulting firms, academic, government and industry collaborators to perform research and development, pre-clinical and clinical trials, manufacturing, and other services under contract to Dyadic. Over the past two plus decades, the Company has developed a gene expression platform for producing commercial quantities of industrial enzymes and other proteins, and has previously licensed this technology to third parties, such as Abengoa Bioenergy, BASF, Codexis and others, for use in industrial (non-pharmaceutical) applications. This technology is based on the Thermothelomyces heterothallica (formerly known as Myceliophthora thermophila) fungus, which the Company named C1. The C1 technology is a robust and versatile fungal expression system for the development and production of enzymes and other proteins.

On December 31, 2015, the Company sold its industrial technology business to Danisco USA (“Danisco”), the industrial biosciences business of DuPont (NYSE: DD) (the “DuPont Transaction”). As part of the DuPont Transaction, Dyadic retained co-exclusive rights to the C1 technology for use in all human and animal pharmaceutical applications, and currently has the exclusive ability to enter into sub-license agreements (subject to the terms of the license and to certain exceptions). Danisco retained certain rights to utilize the C1 technology in pharmaceutical applications, including the development and production of pharmaceutical products, for which it will be required to make royalty payments to Dyadic upon commercialization. In certain circumstances, Dyadic may owe a royalty to either Danisco or certain licensors of Danisco, depending upon whether Dyadic elects to utilize certain patents either owned by Danisco or licensed in by Danisco.

After the DuPont Transaction, the Company has been focused on the biopharmaceutical industry, specifically in further improving and applying the proprietary C1 technology into a safe and efficient gene expression platform to help speed up the development, lower production costs and improve the performance of biologic vaccines, drugs, and other biological products at flexible commercial scales for use in animal and human health.

The Company and its C1 technology played an important role in the €20 million Zoonosis Anticipation Preparedness Initiative ZAPI) program, which was a five-year research and development program sponsored by the European Union. ZAPI brought together experts in human and animal health to create new platforms and technologies that will facilitate a fast, coordinated, and practical response to new pandemic threats as soon as they emerge. The Company’s C1 gene expression and recombinant protein production platform was selected by ZAPI as a production host of antigens for the Schmallenberg virus (SBV) and Rift Valley Fever virus (RVFV). The C1 expressed SBV antigen was produced at approximately 300 times greater yield than the SBV antigen expressed from insect (baculovirus) cells and was more stable. Additionally, the C1 SBV antigen was shown to be safe and effective to provide full protection to cattle, sheep and mice from the SBV. Based on these results, ZAPI has provided additional funding in 2021 to perform expanded animal trials with C1 expressed antigens for SBV and RVFV and to generate additional safety and efficacy data. Several positive outcomes have already originated from the ZAPI results, including several fully funded animal health projects and several COVID-19 vaccine collaborations, including Dyadic’s proprietary receptor-binding domain (RBD) antigen of the SARS-CoV-2 spike protein, DYAI-100. The C1 expressed SARS-CoV-2 RBD antigen has been developed and tested in various collaborations, including with three of the top infectious disease and coronavirus scientists who worked with Dyadic and C1 in the ZAPI consortium, the Israel Institute for Biological Research (IIBR), Medytox, Inc., and others. These activities have positioned the Company to determine the best path forward for an anticipated first-in-human Phase 1 clinical program of DYAI-100 in the second half of 2021. The goal of the DYAI-100 Phase 1 clinical trial is to validate that proteins produced from the Company’s proprietary and patented C1-cells are safe in humans to accelerate the C1technology platform’s adoption and commercialization and to serve as proof of concept for the development of next generation multivariant COVID-19 vaccine candidates.

Based on a growing amount of safety, efficacy and productivity data from research and development programs within ZAPI, the IIBR and several internal and externally funded programs, we and a growing number of scientists globally believe that the C1 technology can be used to speed the development, lower production costs, and improve the performance of biologic vaccines, drugs and other biological products which can be efficiently manufactured at flexible commercial scales more affordably. Based on these internally and externally funded C1-cell engineering programs, the number and types of potential vaccines, drugs and biologic products which may be developed and commercialized, continues to grow. Some examples of human and animal vaccines and drugs which have the potential to be produced from C1-cells are protein antigens, virus-like particles (VLPs), monoclonal antibodies (mAbs), Bi/Tri-specific antibodies, Fab antibody fragments, Fc-Fusion proteins, as well as other therapeutic enzymes and proteins. The Company is involved in multiple funded research collaborations with animal and human pharmaceutical companies which are designed to leverage its C1 technology to develop innovative vaccines and drugs, biosimilars and/or biobetters.

Effective April 17, 2019, our common stock began trading on the NASDAQ Stock Market LLC’s NASDAQ Capital Market, under the symbol “DYAI”. Prior to the Company’s uplisting to the NASDAQ, the Company’s common stock traded on the OTCQX market.

Impact of COVID-19

The outbreak of COVID-19 has led to adverse impacts on the U.S. and global economies and created uncertainty regarding the potential impact to the Company’s employees, operations, and research projects.

To date, some of our employees are still working remotely. The extent to which the COVID-19 pandemic will directly or indirectly impact our business will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and its variants and the actions taken and the level of success to contain or treat the SARS-CoV-2 virus and its variants, the economic impact on local, regional, national and international business partners and markets, delays or disruptions in our on-going research projects, and unavailability of the employees of the Company or third-party contract research organizations with whom we conduct business, due to illness or quarantines, all of which are highly uncertain and cannot be predicted at this time. Management is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, vendors, industry, and workforce. Even after the COVID-19 pandemic has subsided, the Company may continue to experience adverse impacts to its business because of economic recession or depression that has occurred or may occur in the future. Given the daily evolution of the COVID-19 outbreak and the ongoing response to curb its spread (including government travel and meeting restrictions) currently we are not able to accurately estimate the effects of the COVID-19 outbreak to our results of operations, financial condition, or liquidity

Our Technology

The Company believes that the C1 cell line is unique compared to traditional filamentous fungal cells, and the C1 gene expression platform has the potential to be used in the discovery, development and manufacturing of biologic medicines and vaccines, given its anticipated competitive advantages compared to certain other leading pharmaceutical expression systems, such as CHO (“Chinese Hamster Ovary”) cells. Specifically, the C1 cell line has:

Several significant potential operational advantages among others include:

Purities

High retention of target secreted protein(s) or other C1-cell bioproduct(s) through downstream processing No viral or endotoxins

Productivity

Robust & versatile C1-cell growth conditions.

		High yields of C1-cell secreted protein and other products
		Low viscosity [unique morphology]

Robustness

Scales ranging from laboratory microtiter plates, shaker flasks, single use and/or stainless-steel bioreactors

Speeds

Develop stable C1-cell lines in ~7 weeks producing recombinant proteins at grams/liter C1-cell production savings of ~30 days over CHO-cell production costs with very expensive media Manufacturing ~ 3-4 batches of mAbs at the same time it takes to make 1 batch using CHO-cells

Costs

High yields and rapid manufacturing cycle times reduce C1 production costs and significantly reduce manufacturing footprint

Competition

We believe our C1 gene expression platform has potential to become a leading alternative to several more expensive and slower expression systems currently used in the biopharmaceutical industry to produce vaccines, monoclonal antibodies, and other therapeutic proteins. C1 has some inherent benefits and potential competitive advantages compared to some of the industry standard expression systems for biologics such as CHO cells, E. coli, Pichia, and Insect Cells (i.e., Baculovirus) as discussed below:

•

Mammalian cells: They are currently the preferred hosts for most complex protein therapeutics due mainly to their ability to produce proteins with human-like glycosylation. This market is dominated by CHO cells. Disadvantages include the relatively longer time required for cell line development, and fermentation, very expensive cell media and comparably low protein yields.

•

Bacterial: Bacteria such as E. coli are currently the easiest, cheapest, and quickest method for recombinant protein expression and are often used in laboratory settings as well as commercial production of certain non-glycosylated proteins. However, they produce toxic and pyrogenic cell wall components that may make them less suitable to produce pharmaceutical or food components.

•

Yeast: In contrast to bacteria, yeast, such as Pichia, do not produce potentially toxic and pyrogenic cell wall components. Further, the genetic tools for yeast development are advanced and enable continued engineering of new strains that may become more suitable than CHO cell lines. Disadvantages include the comparably lower protein yields than C1 and hyper-glycosylation.

•

Insect cells: Insect cells (i.e., Baculovirus) offer protein expression with post translational modifications like mammalian cells, ease of scale-up, and simplified cell growth readily adapted to high-density suspension culture for large-scale expression. Baculovirus expression systems are used for producing recombinant protein, especially for vaccine antigens. Disadvantages include the comparably lower protein yields than C1 and the need for an added inactivation step.

We believe that our C1 technology has the potential to become an alternative gene expression platform to CHO, E.coli, yeast, insect cells, and other organisms currently in use for developing and manufacturing protein-based biologics because of C1’s potential speed of development, higher protein yields, and low production costs, among other potential benefits.

Our Industry and Potential Markets

Based on research results from our collaborations and our ongoing discussions with leading pharmaceutical and biotech companies, contract manufacturing organizations (CMOs), leading academic institutions, as well as U.S. and foreign governmental agencies, we continue to believe that the biopharmaceutical market is an attractive opportunity to apply the C1 technology. The Company continues to evaluate potential opportunities to expand the application of our C1 technology, and is currently focused on penetrating the following markets:

•

Recombinant vaccines and drugs for animal and human health

•

New innovative biotherapeutics

•

Biosimilars / Biobetters non-Glycosylated/Glycosylated protein markets

•

Metabolites

	•	Growth Factors
	•	Diagnostic and reagents

The use of biologic medicines, such as infectious disease vaccines and antibodies are growing significantly. However, biologic medicines are very expensive for both patients and health care systems, and the Company believes that such high cost is in part the result of the following bottlenecks in the development and manufacture of biologic medicines:

	•	Several gene expression challenges
	•	Low yielding and often slower gene expression systems currently used by the biopharmaceutical industry

•

Expensive, often royalty stacked, cell-media in the case of CHO cell lines

•

Long production time in the case of stable CHO cell lines

	•	Low yields in the case of insect (baculovirus) cell lines
	•	Narrow and/or less robust fermentation conditions
	•	Previous underfunded development efforts for a more efficient next-generation gene expression system

•

The biopharmaceutical industry’s reluctance to utilize certain advances to develop next-generation gene expression systems for bio-manufacturing, such as application of cutting-edge synthetic biology, metabolic and glyco-engineering tools to generate more productive microorganisms with differentiating properties

The Company believes that the biopharmaceutical industry may benefit from a next-generation expression platform that is safe, reliable, productive and cost effective as such a platform would facilitate the production of hard to express and more affordable biologic medicines in larger volumes using smaller fermentation vessels. The Company also believes that by further engineering our C1 technology it will have the potential to be an alternative to CHO and other expression systems for certain biologic vaccines, drugs, and other biologic products.

Potential Opportunity to Use C1 in Drug Discovery and Early Development Process

While our focus has been and remains on developing stable C1 cell lines to speed up the development, lower production costs, improve the performance of biologic vaccines and to develop drugs at flexible commercial scales, we have identified biologics drugs discovery and early development process as one area where C1 also may add value based on our discussions with various pharmaceutical and biotech companies. This area includes the biologics drug discovery and early development process requires sufficient levels of proteins to be expressed as quickly as possible to identify new drug candidates within a limited time. Currently, HEK 293 cells (human embryonic kidney cells) are commonly used for this application. Given that C1 cells have demonstrated the capability to express and produce comparable and even larger quantities of protein than HEK 293 cells, we believe that C1 has the potential to help overcome certain protein expression challenges in the biologics drug discovery and development stages. We have had discussions with third parties, including our existing collaborators, to identify additional avenues to potentially adapt our C1 technology for this application.

Sub-licensing Agreements and Investments in Privately Held Companies and Projects

Alphazyme Sub-License

On May 5, 2019, the Company entered into a sub-license agreement (the “Alphazyme Sub-License Agreement”) with Alphazyme, LLC (“Alphazyme”). Under the terms of the Alphazyme Sub-License Agreement, the Company granted to Alphazyme, subject to the terms of the license agreement entered into between the Company and Danisco US, Inc. on December 31, 2015, a sub-license to certain patent rights and know-how related to Dyadic’s proprietary C1 gene expression platform for the purpose of commercializing certain pharmaceutical products that are used as reagents to catalyze a chemical reaction to detect, measure, or be used as a process intermediate to produce a nucleic acid as a therapeutic or diagnostic agent.

On June 24, 2020, the Company entered into an Amended and Restated Non-Exclusive Sub-License Agreement (the “Amended Sub-License Agreement”) with Alphazyme to amend and restate the Alphazyme Sub-License Agreement. Pursuant to the Amended Sub-License Agreement and in consideration of Dyadic’s transfer of its C1 technology, Alphazyme issued to the Company 2.50% of the Class A shares of Alphazyme, and Dyadic became a party to the Alphazyme Limited Liability Company Agreement pursuant to which the Company will agree to certain customary rights, covenants, and obligations. In addition, and subject to achieving certain milestones, Alphazyme is obligated to pay a potential milestone payment and royalties on net sales, if any, which incorporate Dyadic’s proprietary C1 gene expression platform.

On December 1, 2020, an Amended and Restated Limited Liability Company Agreement with Alphazyme (the “Amended Alphazyme LLC Agreement”) was entered into. Under the Amended Alphazyme LLC Agreement, Alphazyme obtained additional capital contribution and Dyadic’s ownership was diluted to 1.99%.

Biotechnology Developments for Industry, S.L

See below “Collaboration Agreement with BDI” under the subsection titled “Our Research Partners and Contract Research Organizations” for details.

IDBiologics, Inc.

On July 8, 2020, the Company entered into a Common Stock Purchase Agreement (the “IDBiologics Agreement”) with IDBiologics, Inc (“IDBiologics”). IDBiologics is a private biotechnology company focused on the development of human monoclonal antibodies for the treatment and prevention of serious infectious diseases. The Company was founded in 2017 and seeded by Vanderbilt University Medical Center in response to the repeated threats of epidemics around the world including Ebola in West Africa and Zika in the Americas. IDBiologics is developing a portfolio of monoclonal antibodies against SARS-CoV-2, influenza and Zika viruses.

Under the term of the IDBiologics Agreement, Dyadic agreed to receive 129,611 shares of IDBiologics’ common stock, which represent 0.37% of IDBiologics’ outstanding equity, in exchange for the services to be provided by Dyadic. Such services include the use of Dyadic’s C1 technology to express a SARS-CoV-2 monoclonal antibody which IDBiologics licensed from the Vanderbilt Vaccine Center (“VVC”). The shares of common stock of IDBiologics vested 50% upon the signing of the IDBiologics Agreement, 25% upon the completion of Step 3 of the feasibility study, and 25% at the end of the project.

Novovet and Luina Bio Sub-License

On April 26, 2019, the Company entered into a sub-license agreement (the “Luina Bio Sub-License Agreement”) with Luina Bio Pty Ltd. (“Lunia Bio”) and Novovet Pty Ltd (“Novovet”). Under the terms of the Luina Bio Sub-License Agreement, the Company granted to Novovet, subject to the terms of the license agreement entered into between the Company and Danisco US, Inc. on December 31, 2015, a worldwide sub-license to certain patent rights and know-how related to Dyadic’s proprietary C1 gene expression platform for the exclusive and sole purpose of commercializing certain targeted antigen and biological products for the prevention and treatment of various ailments for companion animals.

In consideration of the license granted pursuant to the Luina Bio Sub-License Agreement, Dyadic received a 20% equity interest in Novovet (“Novovet Up-Front Consideration”) in accordance with the terms of Novovet’s Shareholder Agreement and will receive a percentage of royalties on future net sales and non-sales revenue, if any, which incorporates Dyadic’s proprietary C1 gene expression platform.

To date, Novovet has not raised the capital required to move this opportunity forward, and therefore, the Company has not transferred its C1 technology to Novovet.

The Company intends to terminate the Luina Bio Sub-License Agreement in 2021 should Novovet be unable to raise the required funding.

Our Research Partners and Contract Research Organizations (CROs)

Currently, the Company is conducting its C1 platform research and other internal and external third-party programs with several contract organizations as follows:

(1) Research and Development Agreement with VTT Technical Research Centre of Finland, Ltd (“VTT”)

Since September 2016, the Company has been working with VTT Technical Research Centre of Finland, Ltd, a third-party contract research organization, to further modify and improve the Company’s C1 technology to ensure a safe and efficient expression system for use in speeding up the development and lowering the cost of manufacturing pharmaceutical products and processes. VTT is one of the leading research and technology organizations in Europe, and it has conducted research and development on fungi and other microorganisms for more than three decades. We believe that VTT has the required skills and experience in fungal strain development to help us further develop our C1 technology and achieve our goal and objectives.

On June 28, 2019, the Company extended its research and development agreement with VTT through June 2022. Under the terms of the extended agreement, the Company will pay VTT a total of EUR €2.52 million over three years to continue developing Dyadic’s C1 fungal expression system for therapeutic protein production, including C1 host system improvement, glycoengineering, and management of third-party target protein expression projects. VTT is entitled to an additional success bonus up to EUR €450,000 based on the technical targets stipulated in the extended agreement. Meanwhile, Dyadic entered into a license agreement with VTT which granted Dyadic and its sublicensees the right to use synthetic C1 promoters developed by VTT, for an access fee. On October 25, 2019, the Company expanded the agreement with VTT to pay an additional EUR €690,000 over 1.5 years to reinforce its glycoengineering work. Dyadic retains the right to terminate the agreement with 90 days’ notice.

(2) Collaboration Agreement with BDI

On June 30, 2017 the Company entered into a strategic Research Services Agreement (the “RSA”) with Biotechnology Developments for Industry in Pharmaceuticals, S.L.U. (“BDI Pharma”), and a Service Framework Agreement (the “SFA”, and together with the RSA, the “R&D Agreements”), with VLP The Vaccines Company, S.L.U. (“VLPbio”), both of which companies are subsidiaries of Biotechnology Developments for Industry, S.L., a Spanish biotechnology company (“BDI Holdings” and together with BDI Pharma and VLPbio, “BDI”).

BDI is a third-party contract research organization. From time to time we engage BDI to further modify and improve the Company’s C1 technology to ensure a safe and efficient expression system for use in speeding up the development and lowering the cost of manufacturing pharmaceutical products and processes. BDI was founded by former Abengoa Bioenergy scientists who conducted research and development on fungi and other microorganisms, including carrying out research and development and industrial scale up with the Company’s C1 microorganism for more than a decade. We believe that BDI has the required skills and experience in fungal strain development and industrial scale up of manufacturing processes to help us further develop our C1 technology and achieve our research and commercial goals and objectives.

Upon closing of the BDI transaction, the Company paid EUR €1 million in cash to engage BDI to develop designated C1 based product candidates and further improve the C1 manufacturing process, in consideration of which Dyadic also received a 16.1% equity interest in BDI Holdings and a 3.3% equity interest in VLPbio. BDI was obligated and did spend a minimum amount of EUR €936,000 over two years in the conduct of the research and development project under the RSA. If the research and development activities produce a product that is selected by Dyadic for additional development and commercialization and BDI agrees to enter into an agreement with Dyadic for such additional development and commercialization, Dyadic expects to share with BDI a range of between 50% and 75% of the net income from such selected product, depending upon the amount of BDI’s aggregate spend in the development of the selected product, with a minimum aggregate spend by BDI of EUR €1 million for a 50% share and EUR €8 million for a 75% share. If BDI does not enter into an agreement with Dyadic for such additional development and commercialization of the selected product, then Dyadic will pay to BDI the first EUR €1.5 million of the net income from Dyadic’s commercialization, if any, of the selected product. In addition, under the SFA, Dyadic was obligated to purchase from BDI at least USD $1 million (the “SFA Commitment”) in contract research services specified by Dyadic over two years following the closing of the BDI transaction.

BDI has completed its services and the Company has fulfilled its funding obligation under the SFA Commitment. All research projects under the R&D Agreements were completed. The Company continues to engage BDI to conduct certain other research activities on its behalf from time to time as well as to introduce new parties and opportunities to BDI where a scientific opportunity benefits all parties.

Under our collaboration program with BDI, BDI was able to express a Virus Like Particle (VLP) at 2.27g/l and a basket of therapeutic proteins that are commonly used as animal and human vaccines and drugs, either glycosylated or non-glycosylated proteins (including among others, mAbs, Fabs, and bi-specific mAbs.) to determine which, if any, of these proteins might be potential candidates for future commercialization.

We also used C1 to express antibody fragment Certolizumab and reached a high level of 12.0 g/l in 112 hours (2.6 g/l/d). Certolizumab is a constituting part of Cimzia Pegol, which is a recombinant, humanized and pegylated Fab antibody fragment. We are evaluating what further development work is required for optimizing the upstream and the downstream processes to establish a well-defined production process that may be ready for non-clinical and clinical registration studies. In addition, based on certain further modifications to the C1 cell line, such as the reduction or elimination of O Glycans, we may choose to conduct a variety of comparability and quality analytics with the C1 expressed Certolizumab together with our partner BDI and potentially other third parties. To date, BDI has not raised the capital required to move this project forward. The Company is evaluating the opportunity and may continue funding research in the future and/or identify a potential collaborator who would fund this project for further development.

Our Research and Development (“R&D”) Programs

The Company’s current research and development activities are focused on the following biopharmaceutical programs:

(1) Internal Research Programs

C1 Production Host Improvement Programs

The Company has research and development agreements with VTT and others to further improve its C1 technology to become an even more robust, versatile, and efficient therapeutic protein production platform which may be used to help bring biologic vaccines and drugs to market at lower cost with potentially improved performance. Ongoing projects include, among other things: (i) improving the C1 genetic tools, (ii) further reducing the background protease(s) levels by identifying and deleting certain protease genes and/or modifying C1 fermentation processes, (iii) developing high expression C1 cell lines by genetic modifications where one or more specific integration sites are being used to increase productivity and to what we expect will help with future regulatory approvals, and (iv) modifying the glycosylation pathway of C1 cells in order for C1 to express certain mAbs and other proteins with mammalian like glycosylation structures and to eliminate or modify certain unwanted glycan structures such as O-glycosylation.

We have made certain improvements to our C1 technology platform through our collaborations with VTT, BDI and through our other research projects.

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Data demonstrating C1’s capability to express a variety of vaccines and therapeutic proteins including protein antigens, monoclonal antibodies (mAbs), Fab antibody fragments, Fc-Fusion proteins, and difficult-to-express genes such as virus-like particles (VLPs), and Bi/tri pandemic threats-Specific antibodies, and antigens, at a higher productivity level than other gene expression platforms.

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Generated C1 strains that have significantly lower background protease activity, while remaining healthy and viable.

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Created a C1 protease expression library to quickly identify and eliminate protease genes to improve protein stability and productivity.

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Developed a variety of novel genetic elements as well as molecular and metabolic engineering tools that can be used in biologic vaccine and drug development and manufacturing.

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Demonstrated that C1 can be grown not only in stainless steel fermenters, but also in single use bioreactors (SUBs). The Company conducted multiple bioreactor experiments using a 50L XDR-50MO Single Use GE bioreactor which demonstrated that the expression level was virtually identical to the productivity achieved in the Stainless-Steel Bioreactor.

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Improved C1 fed batch fermentation process with low cost defined media, as compared to the expensive, complex growth media being used with CHO cells.

	•	Developed several stable C1-cells for potential use to produce SARS-CoV-2 vaccines and antibodies for infectious diseases such as SARS-CoV-2, SBV and RVFV protein antigens.
	•	Developed several stable C1-cells expressing an increasing number and variety of third party vaccines and drug targets.

We continue to generate a growing amount of data that demonstratesdifferent C1-produced proteins are properly folded and are biologically active:

	•	Data from a large pharma collaborator demonstrating that the binding kinetics of mAbs produced from C1 are virtually indistinguishable from the binding kinetics of reference mAbs which were produced in CHO cells.
	•	Demonstrated that C1 expressed mAbs have the similar human like glycan structures when compared to the same molecules that were produced from CHO cells.
	•	Expressed a third party bi-specific antibody which was assayed by the third party in an in vitro cellular activity assay which indicated that dose response curves for the C1 expressed bi-specific antibody were very similar to the CHO expressed bi-specific antibody.
	•	Expressed a number of third-party monoclonal antibodies which were assayed by multiple third parties who reported that the neutralizing activity assay demonstrated great similarity between C1-produced mAb and CHO-produced mAbs.
	•	Antigens that were produced by C1 were not only produced at high levels, they were also importantly safe, effective and protected the animals in several animal challenge tests.

Glycosylated Therapeutic Programs and Potential Nivolumab Commercialization Program

The Company’s longer-term objective requires substantially more time and capital is to apply the C1 technology for the large therapeutic glycoprotein market. We believe that the rapid advances being made in genomics and synthetic biology, make the C1 fungal cell line a promising candidate to further engineer glycosylation pathways: (i) to produce therapeutic proteins having human like glycoforms structures such as G0, G2, G0F, and G2F; (ii) to reduce or eliminate O-glycosylation; and (iii) to create potentially improved immunogenicity in the case of vaccines.

The initial steps to develop C1 strains that produce mAbs with mammalian-like glycosylation are progressing at VTT. So far, we have achieved human-like glycan structure site occupancy level of approximately 95% for G0 and approximately 76% for G2. In addition to G0, only Man3 and GlcNAcMan3 remain in the glycan pattern. The next step is to reach C1 cell lines that produce proteins with G0F and G2F glycan structures. Based on research results we have to date; the Company believes that our C1 technology has the potential to become a useful platform for the development and production of therapeutic glycoproteins with human-like or potentially even superior glycan structures. We believe that, if successful, the glycoengineering of C1 cells may help to position the C1 technology to be an important production platform for developing and manufacturing glycosylated antibodies and other glycoproteins. These initial glycoengineered C1 cells have to date shown reduced gene expression levels when compared to the non-glycoengineered C1 cells. Several approaches are now being applied to reach our main goal – to develop cell line(s) that resemble the 3 main goals: (i) to produce therapeutic proteins having human-like glycoforms structure at high levels, (ii) to produce therapeutic proteins at high level and (iii) to produce stable therapeutic proteins.

We continue the development of Nivolumab (Opdivo®) as a biosimilar/biobetter immunotherapeutic biologic drug for human metastatic cancers, including melanoma, lung and other cancers. The aim of program is to express Nivolumab (mAb) with a glycoprotein structure like Nivolumab produced in CHO cells. So far, C1 produced Nivolumab has achieved G0 of about 95% and G2 of about 76% and the development of high Nivolumab producer cell line as part of its glycoengineering program for glycoprotein Immunoglobulin G (IgG) monoclonal antibodies is ongoing. This project has proved the concept that C1-cell manufacturing technology can be applied to several very high value therapeutic or preventative monoclonal antibodies.

Although we have made substantial progress working with VTT since September 2016, there remains additional work are needed to develop our C1 technology into a potentially safe and efficient expression system for use in speeding up the development and lowering the cost of animal and human biologic vaccines and drugs.

(2) Animal Health Programs

Biologic Vaccines Programs - ZAPI

We continued our participation in the ZAPI vaccination program. ZAPI (www.zapi-imi.eu) is a research and development project funded as part of IMI EU program (Zoonoses Anticipation and Preparedness Initiative (ZAPI project; IMI Grant Agreement n°115760)), with the assistance and partial financial support of IMI and the European Commission, and in-kind contributions from EFPIA partners. This project aims to develop a suitable platform for the rapid development and production of vaccines and protocols to fast-track registration of product developed to combat pandemic Zoonotic diseases that have the potential to affect human and animal populations. The Company’s C1 gene expression and recombinant protein production platform has been selected by ZAPI as a production host of antigens for the SBV and RVFV, and ZAPI has expanded its program with the Company and provided additional funding in 2019 and 2021, respectively. The SBV antigen from C1 was produced at approximately 300 times greater yields than the SBV antigen from baculovirus and was more stable. Additionally, the C1 SBV antigen was shown to be safe and very effective (full protection) in protecting cattle, sheep and mice from the SBV. Based on these results, additional fully funded animal trials are continuing in 2021 with C1 expressed antigens for SBV and RVFV and to generate additional safety and efficacy data.

Other Animal Health Projects and Collaborations

We have received funding from all top four leading animal health companies and another global animal health company to evaluate the use of the C1 technology for expression and production of vaccines and therapeutic proteins for companion and farm animal diseases. Some of the programs have been expanded to express additional proteins and have progressed to the next phase.

(3) COVID-19 Initiatives

The Company is currently working on several COVID-19 related vaccine and antibody opportunities.

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Advancing C1 produced SARS-CoV-2-S-RBD antigen, DYAI-100 vaccine candidate towards a first-in-human Phase 1 clinical trial:

	○	The Company formed a strategic collaboration with leading infectious disease scientists from Erasmus Medical Centre, University Utrecht, TiHo Hannover (ZAPI scientists) to develop a COVID-19 vaccine that can be rapidly manufactured, in large quantities, at low cost, using standard microbial fermenters that are readily available
	○	The Company expanded its collaboration with the IIBR, which supported the development of the DYAI-100 COVID-19 vaccine candidate and carried out preclinical and challenge studies in mice.

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C1 produced SARS-CoV-2-S-RBD antigen has been evaluated in ten animal trials by academic, industrial, and governmental R&D groups globally.

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The Company engaged CR2O, a contract research organization, to manage and support further preclinical and clinical development of DYAI-100 with a toxicology study expected to begin in the second quarter of 2021, and a first-in-human Phase 1 clinical trial expected to begin in the second half of 2021.

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In parallel with DYAI-100, the Company is developing additional proprietary and third-party monovalent and multivalent COVID-19 variant vaccine candidates by engineering a portfolio of C1 cell lines to produce several SARS-CoV-2 variant antigens, including the UK variant.

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In March 2021, the Company expanded a vaccine development partnership with South Korea’s Medytox Inc. to co-develop C1 enabled COVID-19 variant vaccines and/or boosters (e.g., tetravalent or quadrivalent COVID-19 vaccine candidates) to immunize people against two or more of the current and future COVID-19 variants.

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Frederick National Laboratory, ZAPI, and other third-party collaborators, are working on C1 produced SARS-CoV-2 and other antigens, to evaluate their properties and performance for possible use in the treatment of infectious diseases.

	•	On October 12, 2020, the Company announced it entered into a non-exclusive technology usage agreement with Epygen Biotech of India, who plans to conduct clinical trials in India using DYAI-100, or one or more of the COVID-19 variant vaccines once funding becomes available.
	•	The Company engineered C1-cells to produce a COVID-19 monoclonal antibody in collaboration with IDBiologics a biotechnology company that is co-developing antibodies with the Vanderbilt University Medical Center.

(4) Human Health (Non-COVID) Programs

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The Company is developing a number of other non-COVID infectious disease vaccine and antibody candidates internally and in conjunction with others.

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In February 2021, the Company entered into a potential new market with a fully funded collaboration with TurtleTree Scientific to develop a number of recombinant protein growth factors, which play a critical role in tissue development and healing, including regenerative therapies.

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In August 2020, the Company established a collaboration with Jiangsu Hengrui Medicine (“ Hengrui”), the largest pharmaceutical company in China (by market capitalization) for the development of selected Hengrui biologic drug(s) using C1 technology.

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During 2020, the Company entered into a feasibility study with the University of Oslo for a potential influenza vaccine.

	•	During 2020, the Company established five new fully funded collaborations with top-tier global pharmaceutical and small biotech companies to express therapeutics of commercial interest using C1 technology.
	•	During 2020, the Company extended three existing collaborations to continue to investigate possible applications for its C1 technology.
	•	In March 2020, Dyadic entered into a nonexclusive research license with WuXi Biologics, one of the leading global contract development and manufacturing organizations.

Antigens, VLPs, Monoclonal antibodies (mAbs), Fc-Fusion, and Fab

In addition to named projects mentioned above, the Company entered several other funded feasibility and expression research projects with top-tier human pharmaceutical companies and small biotech companies to validate the C1 technology to produce high levels of mAbs and other therapeutic proteins. Together with other internally funded research programs, we were able to use non glycoengineered C1-cells to express a variety of types of therapeutic proteins, including monoclonal antibodies (mAbs), Bi-Specific and Tri-Specific antibodies, Fab antibody fragments, and Fc-Fusion proteins using our C1 technology. So far, we were able to demonstrate C1’s ability to express various proteins at the following levels:

	•	An Fc-Fusion protein at 15.3 grams per liter (g/l) in 168 hours, or 2.58 grams per liter per day (g/l/d)
	•	A mAb protein at 24.5 g/l in 168 hours, or 3.5 g/l/day
	•	A Fab antibody fragment at 14.5 g/l/d in 164 hours, or 2.1 g/l/day
	•	A Tri-specific protein at 6.12 g/l in 144 hours, or 1.02 g/l/day
	•	An Influenza HemAgglutinin (HA) antigen at a level of 413 mg/l in 137 hours, or 72 mg/l/day
	•	A Coronavirus Antigen (S-RBD) a level of 3,500 mg/l in 96 hours, or 875 mg/l/day
	•	A Virus-like Particle (VLP) a level of 2,200 mg/l in 110 hours, or 500 mg/l/day

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Most of the diverse proteins expressed by C1 as required by third parties that reached higher productivity levels than their target goals, including certain “difficult to express proteins”

The Company believes that such results are promising and show greater productivity potential of C1 compared to the average expression yields of CHO cells, which is the predominant production system currently used to manufacture glycosylated biopharmaceutical drugs. However, to potentially commercialize or capitalize on C1’s potential in producing glycoproteins, we will need to complete the glycoengineering of C1, maintain the productivity advantages shown in the non-glycoengineered C1 strains and be able to demonstrate a variety of biological and analytical data related to quality, performance, stability and safety.

(5) Metabolites, Growth Factors and Other Market Opportunities

The Company also successfully applied metabolic modeling, synthetic biology, and genome engineering techniques to demonstrate the potential benefits of using C1 as a primary and secondary metabolite-producing host organism. We believe that the knowledge and data generated in this program is expected to enhance our understanding of C1’s metabolic characteristics and help us in advancing our ongoing programs, as we continue to explore the development and commercialization of one or more primary and/or secondary metabolites.

The Company is evaluating the potential go-to-market strategies for both primary and secondary metabolites and may decide to continue internally funding such project to product commercialization or may in the future seek third-party funding in one or more collaborations, licensing or form other types of alternative structure(s), to further develop and monetize this potential opportunity.

In February 2021, the Company entered a fully funded collaboration with Turtle Tree Scientific to develop several recombinant protein growth factors with the goal of using C1-cells to manufacture these, and potentially other growth factors, at high yields and at low cost in bioreactors. Growth factors can play a critical role in tissue development and healing, including regenerative therapies, among other emerging biological processes and products.

The Company believes that certain attributes of C1, together with our continuing platform research and development programs, provides us with the potential to create attractive research, licensing, partnering/collaboration and other revenue and funding opportunities in the animal and human biopharmaceutical industries. The third-party funded research projects mentioned above, and others that we are seeking, will defray some of our research expenses as we continue to develop the potential of our C1 technology. We will continue to pursue research collaboration opportunities to potentially commercialize C1-based products.

Employees and Human Capital

As of December 31, 2020, we had 6 employees located in the United States, and 3 key consultants located in Europe. None of our employees are represented by a labor union, and we consider our employee relations to be good.

The Company believes that its success depends on the ability to attract, develop, retain and incentivize our existing and new employees, consultants, and key personnel. It also believes that the skills, experience and industry knowledge of its key personnel significantly benefits its operations and performance. The principal purposes of equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase shareholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

Employee health and safety in the workplace is one of the Company’s core values. The COVID-19 pandemic has underscored the importance of keeping employees safe and healthy. In response to the COVID-19 pandemic, the Company has taken actions aligned with the World Health Organization and the Centers for Disease Control and Prevention in an effort to protect the Company’s workforce so they can more safely and effectively perform their work. These actions include shutting down its headquarters for some months during 2020, wearing facemasks in common areas in the office, and allowing employees to work from home.

Employee levels are managed to align with the pace of business and management believes it has sufficient human capital, along with the third-party research organizations with who we have collaboration agreements, to operate its business successfully.

Corporate information

Founded in 1979 by Mark A. Emalfarb, our Chief Executive Officer, Dyadic has focused on the development of C1 expression platform since 1992, refining and optimizing the C1 technology to become a successful gene expression and protein production system.

Currently, Dyadic is a global biotechnology company with operations in the United States and a satellite office in the Netherlands and currently two research organizations performing services under contract to Dyadic in Finland and Spain. Dyadic was incorporated in Delaware in September 2002. Our principal corporate offices are located at 140 Intracoastal Pointe Drive, Suite 404, Jupiter, FL 33477; telephone number (561) 743-8333; website www.dyadic.com.

Dyadic is required to file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”). Investors may read and copy any document that Dyadic files, including this Annual Report on Form 10-K, at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, DC 20549. Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, from which investors can electronically access Dyadic’s SEC filings.

We maintain a website at www.dyadic.com. From time to time, the Company may use its website as a channel of distribution of material Company information, and financial and other material information regarding the Company is routinely posted on and accessible at http://dyadic.com/investors. We make available free of charge on or through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. In addition, we have posted the charters for our Audit Committee, Compensation Committee, and Nominating and Governance Committee, as well as our Board Governance Principles and Code of Conduct, on our website under the heading “Investors”, and sub-heading “Corporate Governance.”

Item 1A.

Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following material risks, together with the other matters described in this Annual Report and in our financial statements and the related notes thereto in evaluating our current business and future performance. We cannot assure you that any of the events discussed in the risk factors below will not occur. If we are not able to successfully address any of the following risks or difficulties, we could experience significant changes in our business, operations and financial performance. In such circumstances, the trading price of our common stock could decline, and in some cases, such declines could be significant, and you could lose part or all of your investment. In addition to the risks described below, other unforeseeable risks and uncertainties or factors that we currently believe are immaterial may also adversely affect our operating results, and there may be other risks that may arise in the future. Certain statements contained in this Annual Report (including certain statements used in the discussion of our risk factors) constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” appearing on page 4 of this Annual Report important limitations and guidelines regarding reliance on forward-looking statements.

SEC Form 10-K filed by Dyadic International, Inc.