Dyadic: Enzymes Made to Order

Mark A. Emalfarb, Chairman and CEO of Dyadic International (NYSE:DIL), has brought the genomics company he founded a long way. He's applying his company's custom enzyme creation technology to serve a diverse array of customers, from ethanol producers to the pulp and paper industry.

Near the end of 2006, Dyadic inked a three-year R&D deal with international ethanol powerhouse Abengoa Bioenergy (OTC BB: ABG.MC). Dyadic hopes to apply its patented C1 platform enzyme technology toward commercial-scale conversion of just about any kind of agricultural biomass -- from corn to cornstalks -- into the fermentable sugars required to create ethanol. "Our goal is to achieve this in a cost-effective manner," Emalfarb said in a recent Fool interview, "and I think we will get there sooner than people believe."

In a demonstration to Emalfarb's commitment to his company's future, the CEO recently shelled out the bulk of a revolving note to Dyadic to help the company to strengthen its operations. "We didn't want to dilute the ownership of our existing shareholders," he said of the unorthodox financing move.

Fools who don't own shares of Dyadic should be aware of the company's risks. It's still incurring losses as it strives to commercialize its enzyme technology. In its most recently filed 10-Q, the company reported a net loss of $0.33 per share for the nine months ended Sept. 30, 2006. Dyadic also predicted substantial future capital requirements in the same report.

Dyadic's diversification helps distinguish the company from ethanol-related rivals like VeraSun Energy (NYSE:VSE) or U.S. BioEnergy (NASDAQ:USBE). "We are not a pure ethanol play," Emalfarb said. The company's Q3 net sales to the pulp and paper industry increased by 72% year over year. They now represent 21% of Dyadic's net sales, versus only 13% in the prior-year quarter. While Dyadic's R&D forges ahead in ethanol, the company's successful diversification should provide an added cushion of cash.

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Fool contributor Billy Fisher does not own shares of the companies mentioned. The Motley Fool has a disclosure policy.