Dyax Q1 2009 Earnings Call Transcript

| About: Dyax Corp. (DYAX)

Dyax Corp. (NASDAQ:DYAX)

Q1 2009 Earnings Call

April 22, 2009 10:00 AM ET

Executives

Nicole Jones - Director, 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

Mark Monane - Needham & Company, LLC

Craig Gordon - Cowen & Company

Operator

Good morning, and welcome ladies and gentlemen to Dyax Corp's First Quarter 2009 Earnings Call. At this time, I would like to inform you that this conference call is being recorded, and that 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 this 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 first quarter 2009 financial results. Dyax would like to remind everyone that statements made today reflect its expectations of future programs, collaborations, strategies, and financial performance and are forward-looking statements.

These statements including those regarding prospects for FDA review and approval of the BLA of DX-88 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 the company's website at www.dyax.com.

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

Gustav A. Christensen

Good morning and thank you for joining Dyax's first quarter earnings call. This quarter was a very busy start of the year for Dyax and was marked by several regulatory accomplishments.

Importantly, we now have a clear pathway for DX-88 approval in hereditary angioedema. Before discussing our achievements in 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 today. 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 detailed results and I will now review certain financial highlights for the first quarter.

Out total revenues for the first quarter increased to $6 million compared to 2.6 million for the same quarter last year. The 2009 increase in revenues was primarily due to additional revenue recognized under the Licensing and Funded Research Program or LFRP as well as $1.1 million of revenue recognized under our collaboration agreement with Cubist.

With respect research and development expenses for the quarter, R&D increased to $19.3 million versus $17.1 million for the first quarter of 2008. It is important to note that the increase in R&D expenses was primarily related to $5.6 million of costs associated with the manufacture of DX-88 drug substance.

Excluding DX-88 manufacturing costs, research and development expenses in this first quarter decreased by $3.4 million. Recently Dyax implemented an expense reduction plan that included a reduction of our workforce and certain external costs in order to focus resources on the commercialization of DX-88 and to support our long term financial success.

These cost reduction efforts are expected to contribute approximately $18 million in annual savings. As a result in the quarter, we recorded one-time restructuring charges related to the workforce reduction of approximately $1.9 million.

For the quarter Dyax reported a net loss of $24.9 million or $0.39 per share as compared to a net loss of $21.3 million or $0.35 per share for the first quarter of 2008. With respect to our cash position, as of March 31, 2009, Dyax had a total of $52.2 million in cash, cash equivalence and short-term investments, exclusive of restricted cash, and this represents a $6.3 million decrease in the balance at December 31, 2008.

So let me now provide some guidance on our financial position. Throughout 2008, as well as in the first quarter of 2009, Dyax made a number of important decisions, designed to advance our business strategy as well as to strengthen our balance sheet and control expenses.

In this quarter, deals contributed approximately $20 million to the company's cash position. These deals included an expanded license... library license and funded research agreement with Biogen Idec that brought in $5 million in upfront payments. And an amended LFRP secured financing with Cowen Healthcare Royalty Partners for an additional $15 million.

During the quarter, we also took significant but necessary actions to reduce expenses including a 36% reduction in our workforce. This workforce reduction together with a realignment of our internal pipeline priorities will provide significant savings and allow us to allocate a higher proportion of our resources toward our commercial objectives.

As previously mentioned, taking together the reduction of internal and external expenses will yield in annual savings of approximately $18 million. In April, we also raised approximately $1.6 million from the sale of our common stock to Azimuth under the committed financing facility that we put in place in October of 2008.

This was the first draw under that arrangement which allows us to make a measured sale of shares without steep discounts or warrants. All of these steps were taken to support the potential launch... market launch of DX-88 and to ensure the long term success of Dyax particularly with the unpredictable and challenging financial markets.

As we did in 2008 and in the first quarter of 2009, we expect to continue this strategy of managing our cash resources by completing additional strategic transactions and maintaining disciplined cost management.

At this time, we believe we have the cash and other resources to fund operations into 2010. As we do not control the timing of certain milestones, at this time we cannot provide more detailed guidance related to our revenues, our expenditures or our cash flows.

Now, I'll turn the call back to Gustav.

Gustav A. Christensen

Thank you George. During the quarter we made progress, topped our goal of securing FDA approval of DX-88 for acute attacks of ACE.

These accomplishments included a vote in favor of DX-88's approval at the Pulmonary Allergy Advisory Committee meeting held earlier this year. The vote was followed by a complete response letter that outlines a clear pathway for DX-88's approval.

As we stated in our press release and webcast on March 26, the FDA requests outlined in the letter are related to two elements. One, the submission of a Risk Evaluation and Mitigation Strategy or REMS. And two, questions relating to the chemistry, manufacturing and controls or CMC section of our BLA. Of great importance, the FDA did not request additional trials for DX-88's approval.

Related to our REMS, we are converting our composed safe use program previously submitted to the FDA into a REMS format. And this process I'll say is well underway.

Related to the questions regarding the CMC section, these questions do not focus on the drug substance manufacturing process for DX-88. Rather the questions can split in two categories. First, clarifications around analytical methodologies and specifications. And second, additional information in support of validation activities associated with drug product filling and packaging.

Importantly, in the quarter we successfully completed a series of regulatory inspections, affirming that we have the necessary GMP and GCP systems in place to support development and launch DX-88.

Dyax's clinical, regulatory and manufacturing groups are working diligently to provide all necessary information to address the FDA requests in a timely manner and complete the BLA approval process.

While workings with the regulatory process, we continue to provide HAE patients access to DX-88 through our ongoing continuation trial. In this trial, we have treated more than 100 patients to-date and have administered more than 400 doses of DX-88.

We maintain our strong commitment to this patient population and are grateful to the patients who have participated and continue to participate in our HAE clinical program.

In preparation for DX-88's potential market launch, we have put place key appointments necessary for establishing a successful commercial infrastructure. These appointments represent the areas of reimbursement, precision (ph) and patient marketing, analytics as well as lead medical science VSR (ph) and sales director.

While this team prepares for commercial launch, they have been busy building valuable relationships with key opinion leaders, all HAE physicians and the hereditary angioedema association.

These relationships are critical elements for a successful product launch. Now, that DX-88 has moved to this current stage, we are also seeing partnership interest to all territories outside North America. While, these discussions are ongoing, Dyax is moving forward with their required elements leading to the submission of an AMA in Europe.

At this time, we are focusing on realizing or finalizing the pediatric plan which represents our first step for the submission in Europe. We are also continuing to advance preparation for DX-88's evaluation in two additional angioedemas acquired and drug induced angioedema.

We are working closely with the doctors of these sponsored programs and expect they will be initiated in 2009. First, compassionate use in acquired angioedema, followed by the investigator sponsored study a drug induced angioedema

We look forward to providing more details as these programs advance. As they are highly specific inhibitor of plasmid Kallikrein, a key enzyme in the inflammatory cascade, DX-88 has potential to extend beyond angioedemas to other therapeutic areas where inflammatory plays a role. These include high blood loss surgeries and retinal diseases.

But now development in these areas is ongoing through two partnerships. Our partner Cubist Pharmaceuticals is evaluating DX-88 for the reduction of blood loss in on-pump cardiothoracic surgery.

Since assuming responsibility for the program, Cubist has been moving aggressively ahead with its clinical development. During the quarter, Cubist announced the first patient treated in the first of two Phase II trials. This trail known as CONSERV-1, will be assessing the safety and efficacy of three doses of DX-88 compared to placebo in patients undergoing primary cardiac surgery who are at a low risk of bleeding complications.

The second Phase II trail, known as CONSERV-2, will compare a single dose of DX-88 to tranexamic acid in patients at a higher risk of bleeding

Combined, these trials are accepted to enroll approximately 650 patients. Cubist reported that they remain on track on end of Phase II meeting with the FDA in mid 2010. DX-88's potential to treat retinal disease is being evaluated by our partner Fovea Pharmaceuticals.

The strategic partnership announced early in the quarter, grants Fovea license to ocular formulation of DX-88 in ophthalmic indications in the EU. Fovea will fully fund the development of the first indication to support approval in worldwide markets.

The first indication is for Retinal Vein Occlusion or RVO induced macular edema and is expected to enter into clinical development in 2009. These partnerships further highlight the significant value potential of DX-88 and our commitment to maximize the value of this asset. We will continue to deliver on this strategy through ongoing expiration of DX-88's therapeutic potential.

And to grow our business model is our proprietary phage display. Dyax benefits in this powerful technology in two ways. First, phage display fuels our internal pipeline of innovative product candidates, such as DX-2240 and 2400. You might remember we licensed 2240 to 70 in 2008.

And second, we leveraged it through the Licensing and Funded Research program which currently has more 70 licenses and collaborations. As we mentioned earlier, we realigned the priorities of our internal pipeline.

This effort will translate into greatest selectivity of those research programs that we believe will make the greatest contribution to our long-term growth objectives. As we have done in the past, we will continue to work towards capitalizing on the potential of our discovery programs.

This will be achieved by bringing select preclinical candidates to certain value inflection points to either develop them on our own or to monetize them through strategic partnerships.

The realignment does not impact LFRP. We continue to leverage our technology into higher values strategic deals and the LFRP portfolio of partners and collaborators continues to expand.

Some early financial returns of these efforts are clear from the growing LFRP revenues and from our ability to use the program for strategic financial transactions.

During the quarter, we expanded a funded research and library license agreement with Biogen Idec that brought in $5 million upfront payments as well as potential for significant milestones and royalties.

Additionally, we amended our LFRP secured financing deal with Cowen Healthcare Royalty Partners adding approximately $15 million to our available cash.

To-date, the LFRP has 13 clinical stage products and one approved product. The improved product is Wyeth's (ph) treatment for hemophilia A, known in Europe as ReFacto AF. The product was recently approved and is expected to be launched in EU in June 2009.

It was launched in the U.S. late last year. This is indeed an exciting and transformational period for Dyax. We have taken great care to prepare for the next stage by addressing our development and commercial objectives to ensure Dyax's long-term success.

The foundation of this success is routed in our three core business areas; DX-88, our internal pipeline and the LFRP. We will continue to invest in these three areas to build the long term value of Dyax.

With a clear pathway now outlined for approval of DX-88, you are closer to commercializing our first product and to bring in DX-88 to the HAE community.

And the result would be the transformation of Dyax into a fully integrated biopharmaceutical company.

I'll now turn the line back over to the operator to begin the Q&A portion of the call.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And your first question comes from the line of Mark Monane from Needham & Company. Please proceed.

Unidentified Analyst

Hi, this Gwen Getuchca (ph) for Mark on the Marco (ph) Asset Clinical Quest. My first question is simple financing question on the deals for the first quarter of 2009 including a loan and other cash deals. Was all the cash received from those deals or there are other expectations of cash in the second quarter '09 amortization.

George Migausky

All the cash from those deals whether it's the Biogen Idec deal or the Cowen Healthcare Partners deal, all of that cash was received during the first quarter

Unidentified Analyst

And the cash transaction that first thing that was to close yesterday or in last few days did that close and the cash was received?

George Migausky

Yes, the ACO (ph) transaction (inaudible) is closed and the cash is received.

Unidentified Analyst

Thank you very much and I think Mark Monane is on the line. He has a question as well.

Mark Monane - Needham & Company, LLC

Thank you. Thank you Getuchca (ph) for reviewing current events. I'm impressed with your efforts to build the commercialization team. Can you give us a little bit more information what you think the possible timeline might be for DX-88 launch and HAE going forward.

Gustav Christensen

We have not projected the time for DX-88 approval. As you know we have said and Bill you maybe want to comment on it.

William Pullman

Yes. Next step we have is to respond to the complete response later and we are very much on track and we'll respond in a timely fashion. Beyond that we can't predict because if then its back into FDA's determination of their secular review. But beyond that the potential approval we have plans in place to launch as expeditiously as we can.

Mark Monane - Needham & Company, LLC

And has the market uncovered or do you have any point of view on the role of total access in acute. They already have the appropriate (ph) access drug on the market. Can you talk about the need for an acute therapy? Has that changed from either a clinical or a regulatory point of view?

Gustav Christensen

No, I do not think so. If you look at for the active treatments it demand, two transfusions per week. It is a very expensive treatment. If you multiply the price by about 100 treatments per year, so this would be a treatment that really is only suitable for the small number of patients with a very large numbers of annual attacks.

So most doctors and patients and reimbursement payers clearly need an acute treatment. You can look through the European side where treatment have been available from many years and the percentage of patients using probolatic (ph) is quite small.

Mark Monane - Needham & Company, LLC

Thanks for the added information and we'll be following on Bill's conference (ph).

Gustav Christensen

Thank you, Mark

Operator

And your next question comes from the line of Craig Gordon from Cowen & Company. Please proceed

Craig Gordon - Cowen & Company

Hi, good Morning. Just a few questions. First, in terms of the complete response you mentioned that you are going to be able to respond in a timely manner. Are you able to give us some guidance since Dyax's likely a Q2 event or Q3 event?

Gustav Christensen

No, we can't comment on that precise timing.

Craig Gordon - Cowen & Company

And you had mentioned that in terms of the EU filing that you are working on the pediatric pre-requisite. Do you envision an EU filing a H2 '09 event then?

Gustav Christensen

We are planning for a filing towards the end of the year, yes.

Craig Gordon - Cowen & Company

Okay. And one last one question. On the R&D there was 5.6 million associated with the manufacturing of DX-88. Can you just talk a little bit more about that in diet related to the continuation trial and a diet more of a onetime issue or should we think going forward to continue to have R&D and costs associated manufacturing of the drug.

Gustav Christensen

So those costs are not really related to the continuation trial. The manufacture of drug substance partially would be used in... or whatever the needs maybe including continuation trial, but really for commercial use as well. And it is not an ongoing event because of the manufacturing process is done in batches and so there would be nominal amounts in the next quarter and beyond.

Craig Gordon - Cowen & Company

Great. Thank you very much.

Operator

(Operator Instructions). At this time, there are no additional questions in queue.

Gustav Christensen

Well, thank you very much and we will keep you informed about our progress as we move forward. Thank you, gentlemen.

Operator

Thank you for your participation in today's conference and this concludes your presentation. This concludes your presentation. You may now disconnect.

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