Dyax Corp. Q4 2008 Earnings Call Transcript

Feb.25.09 | About: Dyax Corp. (DYAX)

Dyax Corp. (NASDAQ:DYAX)

Q4 2008 Earnings Call

February 25, 2009 10:00 AM ET

Executives

Nicole Jones - Director of Investor Relations

Gustav A. Christensen - President and Chief Executive Officer

George Migausky - Executive Vice President and Chief Financial Officer

William E. Pullman - Executive Vice President and Chief Development Officer

Analysts

Jeffery Elliott - UBS Securities LLC

Mark Monane - Needham & Company

Philip Nadeau - Cowen & Co.

Kimberly Lee - Pacific Growth Equities

Operator

Good morning, and welcome ladies and gentlemen to the Dyax Corp's Fourth Quarter 2008 and Year-End Earnings Call. At this time, I would like to inform you that this conference call is being recorded, and all participants are in a listen-only mode. At the request of the Company, we will open up the conference for a brief question-and-answer period at the end of the presentation. Before turning the call over to Gustav Christensen, President and Executive Officer of Dyax, the Company will read the Safe Harbor Statement.

Nicole Jones

This morning Dyax issued a press release concerning its fourth quarter and year-end 2008 financial results. Dyax would like to remind everyone that statements made today reflect its expectations for future programs, collaborations, strategies, and financial performance and are forward-looking statements. These statements are based on Management's current assumptions and are subject to risks and uncertainties that could cause actual events and results to differ materially. Important information concerning these risks and uncertainties is contained in Dyax's press release today and described or referred to in its most recent Form 10-K and other periodic reports filed with the SEC, and are also available on our company's website at www.dyax.com.

I will now turn the call over to Gustav Christensen. Gustav?

Gustav A. Christensen

Thank you Nicole. Good morning and thank you for joining Dyax's fourth quarter and year-end 2008 earnings call. I'm proud to have the opportunity to speak to you about the many accomplishments of the past several months, in my first call as Dyax's President and CEO.

The most recent accomplishment was the Advisory Committee meeting regarding the DX-88 for the treatment of acute attacks of hereditary angioedema or HAE. The vote in favor of approval of DX-88 marks a significant achievement for Dyax, we're grateful to the committee for their review and recommendations and continue to work diligently with the FDA trying to completion of the regulatory process.

Before discussing our achievements in greater detail, I'll pass the call to George Migausky our EVP and Chief Financial Officer to provide a review of the financial highlights of the quarter. In addition to George, two other members of the senior management team are here with me on this call. They are Bill Pullman, EVP and Chief Development Officer and Ivana Magovcevic-Liebisch, EVP of administration and General Counsel. George?

George Migausky

Thank you Gustav and good morning. I refer you to our press release from this morning for a detailed results and at this time I'll review certain financial highlights for the fourth quarter and year-end.

Our total revenues for the fourth quarter increased to $31.5 million, versus 18.2 million for the same quarter last year. Revenue for the year was 43.4 million versus 26.1 million in 2007. The substantial revenue increases in both the fourth quarter and the year are primarily due to revenue recognized in relation to license and collaborations that were entered into during the year.

Two new license and collaboration agreements provided Dyax with cash payments of $42.6 million excluding amounts under our Licensing and Funded Research Program which we refer to as the LFRP. And these two deals were completed during the first half of 2008 but under the accounting rules, substantial revenue was not recognized until the fourth quarter.

In fact, out of this $42.6 million of payments in 2008, approximately 18 million remains deferred to future periods. We also saw an increasing our LFRP revenue during 2008 of more than 50% to $17 million which is a real indication of the growing value of this one Dyax asset. With respect to research and development expenses for the quarter, R&D increased just 16.4 million versus 15.4 million in 2007 and for the first 12 months of 2008 the year, R&D expenses increased to 68.1 million versus 64 million last year.

And the 2008 increase in R&D expenses are primarily related to costs associated with DX-88 for HAE. Additionally, in the second quarter of 2008 Dyax closed its Belgium research facility and the effect of this closing is reflected in two places. First, 2008 restructuring charges were $4.6 million and second, the R&D cost savings reflected during the second half of 2008 associated with the closure, was approximately $2.9 million.

So, for the year Dyax reported a net loss of $66.5 million or $1.08 per share versus a net loss of 56.3 million or $6 per share in 2007. And for the fourth quarter, Dyax reported net income of $6.4 million or $0.10 per share, as compared to a net loss of 3.1 million or $0.05 per share for the comparable quarter in 2007.

It's important to note that the fourth quarter net income is the result of $23 million of revenue recognized from our partnership with Sanofi-Aventis, a deal that was completed earlier in 2008. This type of revenue can and does vary substantially from quarter-to-quarter and we do not expect to have net income in the future 2009 quarters.

With respect to our cash position, as of December 31, 2008 Dyax had a total of $58.5 million in cash, cash equivalents and short term investments, exclusive of restricted cash, and this represents only a $4.9 million decrease from the balance of 63.4 million last year December 31, 2007.

So, let me now provide some guidance on our financial position. Throughout 2008, Dyax made a number of important strategic decisions designed to advance our business strategy as well as to strengthen our balance sheet and give us the flexibility to pursue our research development and commercialization goals. These deals contributed more than $85 million to the Company's cash position and reduced certain expenses. So, these included licensing agreements with Sanofi-Aventis, the DX-2240 and phage display technology, a DX-88 partnership and surgical indications with Cubist, the closure of our Belgium research facility and the restructuring of our LFRP secured financing with Cowen Healthcare. We also secured a $50 million, no obligation flexible financing facility with Azimuth Opportunity fund, and this facility offers Dyax an additional option for financial security which is important in these tough financial markets. And continuing into 2009, we recently expanded a library license in funded agreement with Biogen Idec which included a $5 million upfront payment and guaranteed research funding for three years.

As I mentioned earlier, with these 2008 deals and transactions, our net cash consumption for the year 2008, was approximately $5 million. So, just as we showed in 2008 that we can complete important transactions and manage our cash brand, we expect to continue this strategy through 2009 to manage our overall cash burn through additional partnerships, collaborations and strategic transactions. And at this time, we believe we have the resources to fund operations through 2009.

So now I will turn the call back to Gustav.

Gustav A. Christensen

Thank you George. As many of you know, during 2000 or during the fourth quarter and the early part of this year, we have focused on the BLA submission for DX-88. We have worked diligently during the review period, which allowed us to accomplish several key goals. First the receipt of priority review status from the FDA, and a successful pre-approval manufacturing inspection, and lastly a vote in favor of approval of DX-88 at the February 4's Pulmonary-Allergy Advisory Committee meeting. This last point represented the combination of many years of work at Dyax. I'd like to pass the call to Bill, to speak in more detail about this important milestone for the Company.

William E. Pullman

Thank you Gustav. Dyax prepared a strong case for the committee that weighed the clinical benefit against any potential risk, given the enormous social economic and individual burden of this disease. While this panel of experts noted that sample sizes were limited, as is the case with all orphan diseases, they recognized that DX-88 represented a much needed therapy for patients suffering from acute attacks of HAE.

In addition to the overall vote of approval, the committee provided recommendations aimed at better understanding DX-88's safety characteristics in the subset of patients that experienced hypersensitivity reactions. We're currently in the process of discussing these elements, the elements of safe use program with the FDA.

These elements are anticipated to include administration of DX-88 by a healthcare professional in a medically supported environment, manage product distribution of DX88 through an exclusive specialty pharmacy, creation of a safety surveillance registry to gather further data and to ensure appropriate follow-up in the case of hypersensitivity and education of healthcare providers and patients about the signs and symptoms of hypersensitivity reactions. And, we believe that this program which is the focus of our discussions with FDA will provide a beneficial solution by giving patients access to a much needed therapy while ensuring its safe use.

While HAE is the first indication for which DX-88 is being evaluated by the Company, Dyax remains committed to its development in other angioedema indications. During the fourth quarter, preparations were made for studying DX-88 in two additional areas of unmet need. The first is in acquired angioedema. This condition is most frequently associated with B-cell lymphoma and autoimmune disorders.

In this compassionate use program by Dr. Marco Cicardi at the University of Milan, an expert in the angioedema field will be treating patients with a prior diagnosis of acquired angioedema. At the same time, an investigator sponsor study is being initiated in ACE inhibitor induced angioedema. And this study will evaluate the safety and efficacy of DX-88 in treating ACE inhibitor induced angioedema. ACE inhibitors are one of the most widely prescribed antihypertensive therapies with an estimated 30 to 40 million prescriptions written annually worldwide. And approximately 17% of patients admitted to medical centers requiring treatment for angioedemas are identified as ACE inhibitor induced, and these are potentially life threatening events.

While the precise mechanism action is not fully elucidated, research suggests the use of ACE inhibitors increases levels of bradykinin by inhibiting bradykinin breakdown. Bradykinin causes blood vessels to dilate and become leaky which causes the swelling known as angioedema. DX-88 is a specific inhibitor of plasma kallikrein, an enzyme that regulates bradykinin production and therefore has the potential to be effective for treating this condition by reducing excess bradykinin. This study will be led by doctors Melman (ph) and Bernstein from the University of Cincinnati Medical Center.

We're excited about DX-88's potentials in these other angioedemas and look forward to providing more details as these programs progress.

Now I'd like to turn the call back to Gustav to provide details about some of the other company achievements of the past several months.

Gustav A. Christensen

Thank you Bill. While we are excited about the DX-88 advancements in HAE and other angioedemas, is potential expanse into other surgical indications. These include on-pump cardiothoracic surgery and retinal disease, a new therapeutic area recently highlighted in our agreement with Fovea Pharmaceuticals.

The first indication is being evaluated through our partner Cubist. Since, licensing the IV formulation from Dyax in early 2008, Cubist has worked diligently to get two Phase 2 trials ready for initiation. As they recently announced, the first study known as conserved one, is a dose ranging study that is currently undergoing IRB approval. This study will evaluate 5, 25 and 75 milligram doses of DX-88 versus placebo in patients at low risk of bleeding complications while undergoing primary cardiac surgery. On serve two, the second Phase 2 study, will compare a 75 milligram dose of DX-88 to tranexamic acid in patients at a higher risk of bleeding. These two trials will include approximately 650 patients. Cubist reported that they remain on track on end of Phase 2 meeting with the FDA in mid 2010.

We also recently announced a new strategic partnership with Fovea Pharmaceuticals that extends DX-88's therapeutic potential into ophthalmic indications. This includes license... this exclusive license covers the development and commercialization of an ocular formulation of DX-88 for the treatment of retinal diseases in Europe.

Under the terms of the agreement, Fovea will fully fund the development of DX-88 for their first indication aimed at approval in worldwide markets.

This first indication is for the treatment of RVO or retinal vein occlusion induced macular edema. Macular edema occurs when fluid and protein deposits collect on or under the macular of the eye resulting in swelling, causing blurry vision and if prolonged, may cause loss of vision. With current insufficient treatment options, RVO is a frequent cause of loss of vision. Research suggests that this condition affects 1.6% of all adults 49 years of age and older per year, that translates into approximately a 175,000 annually in the U.S. Fovea expects to file an IND in this indication in 2009.

For other ophthalmic uses, Fovea will be responsible for developing DX-88 to meet EU regulatory requirements and Dyax will be responsible for any subsequent clinical development, should it be needed for obtaining approval in territories outside the EU.

These partnerships and collaborations further highlight the potential, significant value of DX-88. Furthermore, with DX-88 having moved in to this pivotal stage in HAE, we are seeing partnership interest for angioedema indications for all regions outside North America. We look forward to the continued development of these clinical programs and of course not the least to DX-88 potential commercialization beginning with HAE.

While we continue to unlock the potential of DX-88's, our core technology phage display remains an important asset for both our pipeline and the Licensing and Funded Research Program. This was recently highlighted in the expansion of our funded research and library license agreement with Biogen Idec. This agreement includes a 5 million upfront payment as well as three years of guaranteed research funding for the discovery of at least ten additional product candidates using phage display.

Dyax stands to receive $85 million in milestones as well as future royalties for each of these antibody products, commercialized by Biogen Idec. In total, the LFRP has over 70 licensees and collaborators and a valuable maturing pipeline of 13 clinical states and one approved product. The transactions for the Licensing and Funded Research Program in 2008 delivered over $17 million which is an increase of more than 50% from the prior year. This increase reflects a growing role that our phage display has in generating future therapeutic products.

This is a very exciting period for Dyax as we approach what represents a landmark achievement for every biotechnology company, namely the possibility of commercializing our first product. We are working with great determination to accomplish this goal, so that we may begin providing relief to HAE patients living with a very devastating disease.

To-date we have built on many accomplishments to secure the three legs (ph) under the firm. And going forward, we will keep investing in those three core business areas that define our strategic direction. It is our DX-88 franchise, our pipeline of innovative product candidates and our extensive and increasing valuable Licensing and Funded Research Program.

I'll now turn the line back over to the operator to begin the question-and-answer portion of the call. Thank you.

Question-and-Answer Session

Operator

[Operators Instructions]. And our first question will come from the line of Jeff Elliott with UBS Securities. Please proceed.

Jeffery Elliott - UBS Securities LLC

Thanks. Just a couple of questions. Can you give us any update on the ex-U.S. partnership for HAE, is it safe to assume that that is sort of on-hold until you get some FDA resolution?

Gustav Christensen

Sure, Jeff. Thank you very much. Yeah, we are in discussion with a number of companies in parallel actually and I just want to restate that since we have moved this far into the development of DX-88, in the FDA process, we are seeing partnership interest for all territories outside the U.S including all of ex-North American rights.

Jeffery Elliott - UBS Securities LLC

Okay. And can we get anymore color on sort of where the spend will be in 2009, I mean obviously HAE trials are done. It doesn't sound like you're doing particularly expansive trials in drug induced and acquired angioedemas right now. So can we expect a step down in that in the IND line, at least, George?

George Migausky

Well with all of the moving pieces for Dyax in 2009, it's not really prudent to give guidance on either the spend top-line or the spend line at this point. But as we move through the year and are able to define this better then we'd certainly return to that.

Jeffery Elliott - UBS Securities LLC

Okay. So it's safe to assume that as things progress, you'll update us on that.

George Migausky

Exactly.

Jeffery Elliott - UBS Securities LLC

And then in terms of resources through 2009 and funding for that, have you assumed that you will draw on the Azimuth equity financing facility or not?

George Migausky

Well, keep in mind during '08, we completed a number of partnership transactions and all of those deals covered really all of our core business areas, the DX-88 area, our internal pipeline, the LFRP area and so we demonstrated over 2008 that we can complete these transactions and manage our cash burn. So, in 2009 we really expect to continue this strategy from managing the overall cash burn through additional partnerships or collaborations or strategic transactions, I think the recent deal with Biogen Idec is a reflection of continuing this through 2009. And so, it's really based on that that we'll continue to evaluate our financing needs on an ongoing basis with or without Azimuth.

Jeffery Elliott - UBS Securities LLC

Okay, perfect. Thanks.

Operator

And our next question will come from the line of Mark Monane with

Needham. Please proceed.

Mark Monane - Needham & Company

Good morning. Thank you. Greetings from New York City. I expect that you continue to have discussions with the FDA over after the panel session, is there any update on the timeline concerning their producer date or can you provide us with any kind of I guess flavor that you have about the FDA's reaction to and/or request for new materials?

Gustav Christensen

Sure, Bill, maybe you will address that?

William Pullman

So, let me take your question, perhaps in reverse order. And the focus of discussions is very much related to elements of the safe use program, but since those discussions are ongoing, I can't comment on the specific details. Likewise, we are working diligently with FDA to accommodate questions and have rapid response mechanisms to get back on their questions that occur in the process of a general review. But I can't comment on the overall timeline of action because we don't have control over their evaluation of the timing of the FDA's final decision.

Mark Monane - Needham & Company

Yeah. That -- that's fair. In terms of the ocular effects of the drug, have you seen in any testing so far, I mean the drug has given systemic faction, and it must travel to the eye as part of the systemic circulation. Do u we have any evidence of any ocular effects already from using DX-88 in HAE or other condition?

William Pullman

For the ocular indication, we're talking about this intravitreal injection to deliver the drug to the target.

Mark Monane - Needham & Company

Okay. So, it's in, the systemic route might be insufficient to get target levels at your wish, is that right?

Gustav Christensen

They do not have any rights to the systemic use of the product.

Mark Monane - Needham & Company

All right. I'll interpret you (ph). Okay, that's fair. And then I didn't, maybe I missed it but could you spend some more time on the third leg which I guess is the internal pipeline of Dyax, talking about the drugs that you're developing and any the amounts (ph) we can expect at least for 2009?

Gustav Christensen

Yes, we have stated... that we at all times have about ten programs active in the company and what we have talked about was 2240 and 2400, and 2240 as you know we did a partnership with Sanofi last year, 2400 is moving through the preclinical program and activities at the moment and I think its fair to say there is a very strong interest in that product outside of Dyax in the pharma industry. So, we do have discussions around various products in the pipeline including 2400 as part of how do we build the maximum value for Dyax's shareholders by utilizing as we said all three areas, LFRP, the internal pipeline and DX-88 for partnerships for what Dyax can retain a value in those partnerships, and how do we secure the best development of the product and the best commercialization of the product, so we stand to maximize profit wise.

Mark Monane - Needham & Company

And did you... do you have specific milestones for this year for those two programs?

Gustav Christensen

For the 2400, I don't think we have yet given guidance on the timing for the IND that may also come through the year as we get a clear picture on it, on exactly how many resources we will commit and how fast it's going to be done. But at the moment we have not given an IND date.

Mark Monane - Needham & Company

And 2240 is Sanofi running that program now at this point?

Gustav Christensen

Sanofi is completely running that program and I don't think there's public information but we know where they are and they are moving towards an IND filing and I don't think, it's probably say to what the date is.

Mark Monane - Needham & Company

Well, thank you for the added information.

Gustav Christensen

Bye Mark.

Operator

And our next question will come from the line of Phil Nadeau with Cowen Company. Please proceed.

Philip Nadeau - Cowen & Co.

Good morning. Thanks for taking my questions. The first is on FDA approval, based on your prepared remarks, it sounds like as long as you come up with a rims that's acceptable to the FDA, DX-88 should be approved, is that a fair statement or are there other outstanding issues that could yet trip up the approval?

William Pullman

Thanks Phil. Let me just reiterate, what we are doing is discussing elements of the safe use program with the FDA, that's very much the focus of the conversations and this time I simply can't comment whether that will be a rims or not. I think that is yet to be determined.

Philip Nadeau - Cowen & Co.

Okay, but I guess what I'm wondering is, are there other issues out side of safe use program that still are open with the FDA filing, and the FDA panel?

William Pullman

No the focus of the discussion is on safe use.

Philip Nadeau - Cowen & Co.

Okay, great, thanks. My next question is on the ex-U.S partnership, down (ph) paid a pretty hefty upfront fee to have a sole seed at the table and now it sounds like they are not the only people left negotiating. What happened with the down payment negotiations why did those take so long or why did they actually fall apart?

Gustav Christensen

Well I think the challenge was to translate a small letter of intent into a complete 130 page licensing agreement. And as you do that you run into principle questions that have fair enough two sides to it, and we do a couple of times align in the sand and as times went by, obviously, other discussions start taking place. So, where we are today really is that (inaudible) is one of a number of companies interested in DX 88. And again our responsibility now is to maximize the benefit to Dyax's shareholders and to ourselves. So we have ongoing conversations and it now involves all territories outside North America.

Philip Nadeau - Cowen & Co.

Great. One last question, and that's on potential for partnerships in 2009. Obviously, partnerships from payments played a big part in your very small cash burn in 2008, what programs are left unpartnered outside of the ex-U.S. versus DX-88, what other programs that are out there that you could monetize in 2009?

Gustav Christensen

Well, as we said in all three areas of the company that we focused on in 2008, we can make deals as we did in 2008. The Licensing Funded Research Program, we started the year with buying the (ph) extension with 5 million upfront plus funded research and there is ongoing conversation with a number of firms in that for that, our phage display technology is probably viewed as the most attractive in the space. The internal pipeline has a lot of interest for the products that we have in it and so we have opportunities to discuss and we are discussing various types of collaborations in that space for one or more products that's ongoing. And DX-88 as we just talked about, we still have deal possibilities including the angioedema space which is obviously the most advanced and the most valuable part. So, I think that's why we're saying we are comfortable that we can continue to do the type of deal making in 2009, we did in 2008 to manage our burn rate.

Philip Nadeau - Cowen & Co.

Okay. One last question if I may, many other HAE players have been acquired, what's your opinion on staying a standalone company as you launch DX-88?

Gustav Christensen

Well we as management team are committed building a fully integrated biopharmaceutical company. If we receive an offer to be acquired, the Board will review it and obviously have obligations to communicate to the shareholders about it.

Philip Nadeau - Cowen & Co.

Yeah, thanks.

Operator: (Operator Instructions). And our next question will come from the line of Kim Lee with Pacific Growth Equities. Please proceed.

Kimberly Lee - Pacific Growth Equities

Good morning. Thanks for taking my questions. My first question is with regards to the panel meeting, were there any indications from the FDA that any additional safety trials will need to be run to examine safety or do you think that this could be, the safety can be medicated by the over runs (ph)?

Gustav Christensen

Thank you, Kim, maybe Bill you will answer that?

William Pullman

Certainly. No, again just to reiterate the focus of the discussions is on safe use program.

Kimberly Lee - Pacific Growth Equities

Okay, great. And any discussions on exactly how this will be used outside of... is this solely going be used in the hospitals or/and physician's offices and not by use... by the patients alone?

William Pullman

As I indicated the, one of the key elements of the safe use program is for administration by self... by a healthcare professional in a medically supported environment. So, we're not talking about self administration in an unsupporting environment.

Kimberly Lee - Pacific Growth Equities

Okay, great. Thanks

Operator

Okay. And this time I see no more further questions in the queue. I'd like to turn the call back over to management.

Gustav Christensen

Well, thank you and thank you for tuning in and we'll keep you informed on the progress of Dyax's moving forward. Thank you for attending the call.

Operator

And thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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