Dyadic International Inc. (OTC Pink: DYAI) may not be the most well known stock in the biotechnology space, but investors would be wise to take note of its potential to turn genes (DNA) into proteins and enzymes at large industrial scale. Growing revenues, improving profitability, and its license deals with multinational companies including, among others, BASF SE (OTC Markets: BASFY), Abengoa SA (OTC Markets: AGOAF) and Sanofi SA (NYSE: SNY). In this article, we’ll take a look at the company’s unique C1 gene expression platform technology and its potential to revolutionize several multi-billion dollar industries by developing and manufacturing enzymes and other proteins to help feed, fuel and heal humankind. The current and potential Markets Dyadic is addressing include industrial enzymes, biofuels and bio-based chemicals, pharmaceuticals and a variety other biotechnology solutions.
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Targeting Multiple End Markets
The market for monoclonal antibodies and therapeutic proteins is projected to grow at a 6.2% compound annual growth rate to over $140 billion by 2017, according to GBI Research, but unfortunately, it’s difficult for many pharmaceutical and biotech companies to effectively manufacture therapeutic proteins at low cost. Dyadic’s innovative C1 platform technology is being further developed and leveraged to try and help solve this problem by enabling these companies to rapidly develop and produce new low cost and more effective biopharmaceuticals such as vaccines, antibodies and other therapeutic proteins.
Aside from this play in the biotechnology industry, a growing number of people recognize the role of enzymes in industrial markets. For example, textile companies like The Gap Inc. (NYSE: GPS) use cellulase enzymes to soften and fade denim to create their stonewashed jeans. The market for industrial, chemical and agricultural biological products exceeds $100 billion per year, with the industrial enzyme market in particular valued at approximately $7 billion per year, according to Fredonia.
Perhaps the most interesting application for enzymes is in the area of biofuels. Enzymes are used to convert plant-based pretreated feedstock into cheap sugars, and C1-based enzymes are some of the best in the business. Abengoa, one of the largest ethanol producers in the world, is set to open a commercial scale, second generation biofuel facility, a first of its kind, in Hugaton, Kansas in early 2014. The enzymes used in that facility will be based on C1 technology, and Dyadic expects royalty payments to begin in Q1 2014.
Combined, these industrial, biofuel, bio-based chemical and biopharmaceutical end markets represent billion dollar opportunities. With more than 100 existing industrial customers across 35 countries, the company’s liquid and dry enzyme products have already made a dent in these end markets. Meanwhile, the recent agreement with BASF represented a strong vote of confidence in the C1 platform technology and sets the stage for significant market penetration over the coming quarters as this chemical behemoth (110,000 employees, and 90 Billion in annual venues) starts to develop and manufacture a myriad of products and catalysts through its license to Dyadic’s C1 platform technology.
C1 Fungus among us’ Numerous Advantages
Dyadic’s proprietary C1 is a soil-derived filamentous fungal microorganism that has a variety of unique research and commercial capabilities, including its ability to grow in microtitler dishes as well as in large industrial fermenters under very low viscosity due to its novel morphology. These traits have made it ideal for turning genes into enzymes and other proteins at commercial scale.
While other companies like Crucell NV (OTC Markets: CRXLY) have developed proprietary protein production systems, Dyadic’s C1 technology overcomes many of the limitations faced by these competitors and potentially provides a superior, low-cost production alternative for human therapeutics and other proteins. Dyadic aims to effectively become a “one-stop-shop” for gene discovery and production in the same recombinant host.
In industrial applications, C1’s lower viscosity leads to low cost production and reduced energy consumption, among other benefits, when compared to other industrial fungi which are scarcely available to third parties. These attributes make it ideal to develop lower cost enzymes and other proteins for existing industrial enzyme markets, while also targeting new markets like bioenergy and bio-based chemicals.
Potential Investment Opportunity
Dyadic represents an attractive investment opportunity for a variety of reasons. With a market capitalization of just [$57 million – UPDATE FOR PRINT DATE], the stock trades at just a fraction of its potential valuation, despite posting favorable top-and bottom-line growth rates. In fact, management projected that the company would report profitability and increased revenues in FY2013, due to the BASF licensing fee, and BASF research funding, and expected growth in its own enzyme product sales.
In the year before, the company reported revenues that increased 52.2% to $15.6 million, gross profit that jumped 121.3% to nearly $8 million and net income that swung from a loss of $4.7 million to a profit of about $1.3 million, or $0.04 per share. Meanwhile, the firm’s balance sheet remained robust with $4.1 million in cash, with about $8.2 million in total debt that was covered by $11.4 million in total assets at the March 31, 2013. Additionally there is more non dilutive cash expected in the 2nd and 3rd quarters, $6Million from BASF, and $2.5 Million from Abengoa.
Given Dyadic’s strong fundamentals, unique opportunities, various license agreements, as well as the recent BASF agreement, micro-cap investors may want to take a closer look at the stock. There appears to be the potential for significant room for growth in the years ahead, while the market assigns limited value to these prospects, creating an opportunity to acquire the stock at favorable levels. Downside risks are also limited by a strong balance sheet and profitable operations demonstrated in 2012, and projected for 2013.
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