DYAI - Dyadic

[Guest Schwab711]

I don't take a whole lot of ideas from other folks but I found this one interesting. It's really a simple investment idea. It's trading at negative EV with a free call option on their fungus business being used for pharmaceutical applications. They sold their industrial fungus (same fungus) business for $75m roughly a year ago.

 

At a $1.41 share price:

MC: $43.7m

Cash: $48.94m + $7.45m (restricted cash released in 07/2017)

Less: Cash burn of ~$1m/qtr

Less: 2017 Legal expenses of ~ $1m

Plus: Recent settlement (undisclosed 7-figure amount) I assume ~$2m

 

Implies: EV = -$12.7m

 

P/B = 0.758x

Upside to EV = $0 (at 12/31/2017) is 22.1% ($1.72 price per share)

[TBW]

I thought this was interesting too.  I think the remaining biz does have some value however I thought it would trade at a bigger discount to cash given its burn and I decided to wait to see if it became cheaper.  I may be too conservative though, it is a free option and management have been buying back shares (which I take as a good sign).

 

Really hard to know how to think about fungal business or what it could be worth.

[tgrafos]

What will they do with the cash? Are they good stewards of capital?

[spreecap]

The long pitch has been that they will have a QCOM like business model, and will eventually extract healthy royalties on their IP. The cancellation of the Sanofi contract and sale of the industrial fungus to DD put some of that thesis into question.

 

Management is viewed as B-.

Management certainly thinks there is value there, and with a negative EV and a long runway they may be able to prove it. I have heard one bull put $50-$100 PT on it. If you have a credible back of the envelope valuation, please share. Right now I see it as a lotto ticket.

[Guest Schwab711]

What will they do with the cash? Are they good stewards of capital?

 

If Emalfrarb was a good steward, they'd announce an intention to sell C1 and liquidate the company. Or at least return most of the cash to shareholders now. I'm sure he likes his job and may have difficulty finding another so I doubt he will. Who knows though, he does seem to at least be a bright guy. I'll try to update if I talk to management.

 

The long pitch has been that they will have a QCOM like business model, and will eventually extract healthy royalties on their IP. The cancellation of the Sanofi contract and sale of the industrial fungus to DD put some of that thesis into question.

 

Management is viewed as B-.

Management certainly thinks there is value there, and with a negative EV and a long runway they may be able to prove it. I have heard one bull put $50-$100 PT on it. If you have a credible back of the envelope valuation, please share. Right now I see it as a lotto ticket.

 

I haven't heard the QCOM comparison. An interesting thing about the Sanofi partnership is Sanofi has a close relationship with Greenberg Taurig. Actually, of the top-5 vaccine manufacturers, Merck is the only one that doesn't have an ongoing relationship and/or former execs working at Greenberg Taurig. This may be a case of revenge against Dyadic. If we see a partnership with Merck or one of the niche manufacturers then the technology probably has legs. Hopefully they don't take much longer than a year to determine whether the market is interested in working with them or not. I'd guess the technology is worth something either way.

 

I only see a lotto ticket as well. There are much better speculative pharma plays.

[Guest Schwab711]

https://seekingalpha.com/article/4072509-dyadic-internationals-dyai-ceo-mark-emalfarb-q1-2017-results-earnings-call-transcript?part=single

 

Settlement came in at $4.4m, which was $2.4m (~$0.09/share) higher than I projected. However, it was a little disheartening to hear that the company probably won't buy back stock below net cash per share. I fully exited this position.