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Dyax Corp. (NASDAQ:DYAX)

Q2 2009 Earnings Call

July 22, 2009; 10:00 am ET

Executives

Gustav Christensen - President & Chief Executive Officer

George Migausky - Executive Vice President & Chief Financial Officer

Bill Pullman - Executive Vice President & Chief Development Officer

Ivana Magovcevic-Liebisch - Executive Vice President of Administration & General Counsel

Nicole Jones - Director of Investor Relations

Analysts

Mark Monane - Needham

Craig Gordon - Cowen Inc.

Operator

Good morning, and welcome ladies and gentlemen to Dyax Corp’s second quarter 2009 financial 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 Chief Executive Officer of Dyax, the company will read their Safe Harbor statement.

Nicole Jones

This morning Dyax issued a press release concerning its second 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 for 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 Christensen, President and CEO of Dyax. Gustav.

Gustav Christensen

Thank you, Nicole. Good morning everyone. I would like to welcome you to Dyax’s second quarter conference call. We made a lot of progress during the quarter. Perhaps and most notable event was the FDA’s acceptance of our complete response submission, setting the path for DX-88 to be approved for acute attacks of HAE.

Our EVP and Chief Financial Officer, George Migausky will lead off the discussion with a review of the financial highlights. In addition to George, two other members of the senior management team are here with me on the call. Bill Pullman, EVP and Chief Development Officer; and Ivana Magovcevic-Liebisch, EVP of Administration and General Counsel.

So with that, I’d like to turn the call over to George.

George Migausky

Thank you Gustav and good morning everyone. I’d like to refer you to our press release from this morning for a detailed result and I will now review certain financial highlights for the second quarter and half year 2009.

Our revenues for the second quarter increased to $4.2 million from $3.8 million in the same quarter last year and for the six month period, revenue increased to $10.2 million from $6.5 million in 2008. The 2009 increase in revenues was primarily due to additional revenue recognized under the Licensing and Funded Research Program or LFRP, as well as revenue recognized under our collaboration agreement with Cubist, which totaled approximately $1.1 million in both the first and second quarters of 2009.

I’d like to point out, that in addition to the revenues recognized and reported here today, we still have approximately $31 million in revenue deferred from recently completed transactions and this revenue will be recognized over time in future periods.

With respect to research and development expenses for the quarter, R&D decreased to $11.2 million from $18 million in 2008 and for the six month period in 2009, R&D decreased to $30.5 million from $35 million in 2008. The R&D cost decreased in 2009, despite new and additional costs of $8 million associated with the manufacturer of DX-88 drug substance and the decrease in R&D expenses was due to several factors.

The workforce reduction implemented late March of this year, together with other external cost reductions, also reduced clinical trials cost in 2009. Expenses eliminated at Dyax from the out licensing of DX-2240 and DX-88 in on-pump cardiac surgery both in 2008 and the closing of our Liege, Belgium research facility in 2008.

So for the second quarter of 2009, Dyax reported a net loss of $14.8 million or $0.23 per share, as compared to a net loss of $24.9 million or $0.41 per share in the same quarter in 2008. For the six month period Dyax net loss in 2009 was $39.7 million or $0.63 per share, as compared to a net loss of $46.2 million or $0.76 per share for the same period in 2008.

With respect to our cash position, as of June 30, 2009 Dyax had a total of $55.6 million in cash, cash equivalence and investments, exclusive of restricted cash and that represents a $3.4 million increase from the balance at March 31, 2009, and this cash position includes the net cash proceeds of $16.1 million from the public offering of our common stock that was completed in June.

Moving onto guidance, as it was demonstrated in 2008 and through the first half of 2009, we took multiple steps to support our long term financial success and we expect to continue to deliver on our existing strategy for managing cash resources through strategic transactions, partnerships and disciplined cost management.

The steps taken during 2009 reflect this approach. In March, we initiated realignment in expense reduction plan, which is expected to result in approximately $18 million in savings annually. We also added to our available cash, with the $5 million LFRP deal with Biogen Idec and the $15 million of our LFRP secured loan agreement with Cowen Healthcare Royalty Partners. Both of these deals were completed in the first quarter.

The effect of our costs management is reflected in the second quarter results that were announced today, by significantly reduced expenses and a significantly lower net loss. The equity financing in the second quarter was important for the company. Given the current challenging capital markets, the favorable terms under which we completed the underwritten public offering in June are noteworthy. The transaction was priced at market, Dyax’s closing price on June 24, and no warrants were provided in connection with the transaction.

The additional funds have strengthened our cash position, providing us further runway as we move forward with our pre-launch commercial activities for DX-88. In the proceeds from the equity financing loss overused to fund are ongoing research and preclinical programs and for other corporate purposes. So, at this time we believe that we have the cash and other resources to fund operations well into 2010.

With that, I’ll now turn the call back to Gustav.

Gustav Christensen

Thank you, George. During the quarter our energies were focused on responding to the FDA complete response letter at DX-88 for the treatment of acute attacks of hereditary angioedema.

We submitted our response on June 1, which was accepted by the FDA for review. The FDA designated a new PDUFA date of December 1, 2009. We are confident that the issues raised in the FDA letter were adequately addressed in the resubmission. Building upon our previous discussions, we expect to maintain an open and constructed dialogue with the FDA during its review of our resubmission.

In addition to this regulatory milestone, Dyax and our clinical investigators presented new data related to the HAE program at two recent international conferences. We were excited to present for the first time, the integrated analysis of data from the two DX-88 Phase 3 studies, EDEMA3 and EDEMA4.

This analysis which included 143 unique patients, reinforce the robust efficacy findings previously reported in the Phase 3 studies. These findings demonstrated that DX-88 treatment provide clinically meaningful rapid and sustained relief of symptoms, compared to placebo.

Also important to presented data for the second Phase 3 trial EDEMA4 which suggested that DX-88 is able to stop progression of acute attacks of HAE. The findings showed that fewer patients experienced emerging HAE symptoms, after DX-88 treatment than did placebo treated patients. While the placebo treated patients with emerging symptoms, three patients experienced emerging laryngeal symptoms, which as you know can be fatal if untreated, versus none in the DX-88 treated group.

We hope to gain great understanding about DX-88 in the treatment of acute attacks of HAE, as we generate additional data from the ongoing open-label continuation study. To-date we have treated more than 120 patients and administered over 520 doses in this study and I should mention that one patient has been treated with DX-88 at least 35 times, with no apparent reduction in efficacy or safety signal.

As we work through the regulatory process, we have also begun to lay the groundwork for building medical affairs and commercial teams. While we will not hire a sales force until approval, we are building the infrastructure needed for a successful launch. These include the hiring of a select number of personnel in marketing, reimbursement, analytics and sales. We also recently appointed a Corporate Compliance Officer, Head of Medical Science Liaisons and National Sales Directors for the East and the West; all crucial positions for comparing and implementing the commercial effort needed post approval.

We envision the overall U.S. sales and medical science support structure to be a small focused field based team. We anticipate the team to be comprised of 22 and include a mix of Medical Science Liaisons and commercial sales representatives. At the same time, the marketing team has been concentrating on two critical aspects of a successful launch. Generating greater awareness of HAE and taking steps to ensure patient access to DX-88 once it is approved.

We’ve been working closely with the HAE community, including the U.S. HAE Association. On creating resources to better equip the patient and caregivers to manage their disease. In addition, plans are well underway for establishing a comprehensive patient support program to ensure patients will have access to DX-88, 24/7. The program will be managed by Dyax and also elected specialty pharmacy distributor.

As we await the regulatory decision, on its approval we’re confident that our planning and preparations will lead to a successful launch of DX-88. The HAE patient population is thus put for therapeutic options for managing their disease. We hope that you share in our enthusiasm for providing this novel therapy to the HAE community, who is truly in need of an acute treatment.

Now turning to our HAE partnership discussions; we’re in ongoing discussions for partnership in territories outside of North America. There has been an addition of several new parties into these discussions; however, our object is certain.

We plan to sign with our partner that’ll generate the best commercial outcome for DX-88 in hereditary angioedema. What this means is that the partner has experience in specialty drugs and the capabilities in place for immediately taking advantage of a commercial opportunity on their horizon. This includes of course familiarity with the European regulatory environment. Last but not least, we are looking for a partner for whom DX-88 would be an important product, which fits well into their overall strategy.

Now a partner in angioedemas as you know, there is only one component of our overall commercial plan for DX-88. Our plan extends DX-88 potential beyond HAE to other therapeutic areas. Their ongoing programs being advanced through our partners for reducing blood loss in surgery and treating retinal disease and we are also currently exploring DX-88 potential in angioedemas on our own.

The two investigators sponsored angioedemas studies on track to begin by year end. First, a sponsor study in Cincinnati, an ACE inhibitor-induced angioedema, followed by a compassionate use program in acquired angioedema.

DX-88’s development in surgical and ophthalmic indications is ongoing to our partners. Cubist Pharmaceutical is initially evaluating DX-88 for the reduction of blood loss in on-pump cardiothoracic surgery. Cubist recognizes a potential of DX-88 to represent a new standard of care for blood loss reduction in on-pump surgery and has demonstrated their commitment by aggressively moving forward the CTS program.

Recently they announced a first patient treated in the second of their two Phase 2 trials. The European trial known as CONSERVTM 2 is investigating DX-88’s effect in cardiac surgery patients, who are at high risk of bleeding. This trial follows the initiation of the first Phase 2 trial, CONSERVTM 1 commenced in the first quarter. That trial is evaluating the safety and efficacy of three different doses on DX-88 versus placebo, in patients who are at a low risk of bleeding complications.

Cubist recently reported that CONSERVTM 1 enrollment is going very well and that they have a high degree of confidence that the trial will be fully enrolled by the end of the year. Combined the two trials, I expect it to enroll approximately 650 patients. Cubist intends to use the Phase 2 trials results to gain insight into the optimal design of subsequent Phase 3 trials. They’re expecting to conduct an end of Phase 2 meeting with the FDA in mid 2010.

To another DX-88 strategic partnership, Fovea Pharmaceuticals is evaluating DX-88 to treat retinal disease. Its first indication will be for the treatment of retinal vein occlusion, for RVO-induced macular edema. Clinical development in this indication is also expected to begin this year. We are pleased with the DX-88’s progress and will continue to explore other therapeutic areas, where plasma kallikrein maybe a relevant target.

DX-88 and our preclinical pipeline and the Licensing and Funded Research Program are the three key value drivers of our business strategy. The strategy is routed as you know in our powerful and proprietary phage display technology.

We unlock the value of our technology in two ways. First, to fuel our own pipeline of product candidate in house and second by leveraging phase display to other companies in revenue generating LFRP deals. So beyond DX-88, we are capitalizing on the potential of both the internal pipeline and our LFRP.

So starting with our internal pipeline, we will continue to advance DX-2400 and identify and develop additional drug candidates, as well as monetize selected drug candidates through strategic partnerships as we did with 2240 last year with sanofi-aventis.

Now to the LFRP; the LFRP value potential was particularly highlighted by two transactions, the Cowen Healthcare Royalty Partners that totaled $65 million. The substantial upside of the LFRP recognized by Cowen is routed in the advancements of the clinical stage LFRP pipeline. This pipeline continues to expand and mature, reflected by two events in this quarter.

First, we saw one more LFRP drug candidate advanced into Phase II trials; and second, LFRP licensee recently initiated its Phase I trials for another LFRP discovered oncology candidate. So the LFRP clinical pipeline now totals one approved product and 14 clinical stage drug candidates. Broken down, this pipeline includes one drug candidate in Phase III trials, six candidates in Phase II trials and seven in Phase I.

We also added to the LFRP portfolio this quarter, with signing three new deals; an antibody research license with Novo Nordisk, a therapeutic antibody funded research agreement with Kolltan Pharmaceuticals and a patent license with Sangamo BioSciences in Japan. We’re excited about the data emerging from our discovery program and the progress of the LFRP and we will continue to leverage our technology to generate greater value for Dyax.

So in summary, our business strategy is unfolding well, with two significant catalysts expected to take place towards the second half of this year. A DX-88 partnership with angioedemas outside of North America, and U.S. approval of DX-88 for acute HAE attacks.

The achievement of this last milestone, approval of our first product, will open up a new and exciting chapter for Dyax, allowing us to provide a new treatment option for patients who really need it. So we look forward to reporting on our progress, and talk of encompassing of these goals over the coming months.

I will now turn the line back over to the operator to begin the Q-and-A portion of the call.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from the line of Mark Monane from Needham; please proceed.

Mark Monane - Needham

Good morning and greeting from New York City. Thanks for the nice review of the programs. A question for you first on the commercial nature; could you go over a little more detail of the commercial plan in thinking about acute attacks for HAE.

How big a sales force does one need in order to address this market? Who is the target audience and maybe you could tie that into some of the questions raised at the FDA panel regarding ensuring them that the drug is used safely and monitored?

Gustav Christensen

Mark, that was a couple of questions, maybe multiple, but let me try to do a couple of them. We believe that a very focused sales force as ViroPharma has done, of about 16 people plus a Medical Science Liaisons group to support them, is the right size to address the market in the U.S. The patient population in the U.S., the prevalence is about 130,000, so around 10,000 patients.

We know from Europe that the average patient under treatment with C1 treats about 18 attacks per year. So the market size is quite significant for acute attacks and it’s a market size significant enough to, as we’ve always said to be quite rewarding from more than one product.

In terms of safe use of the program, as we have said before, it’s going to be allowing the patient access 24/7 to a doctor’s office or a selected emergency room. So I think all of those things are pretty straight forward. Was there any other aspects to your…

Mark Monane - Needham

No, that was helpful in for the first question. Then in terms of the recent presentation, one of the results that we noticed was the rapid onset of action in two hours. I think the primary outcome was four hours. Maybe just help us around the standard deviation around the two hours and if the potential label might include two hours rather than four hours in terms of aspiring results?

Bill Pullman

Mark, its Bill Pullman. Now I can’t comment on what the label may or may not say, obviously that’s down to negotiation with the FDA. Clearly, we are very encouraged by some of the data we’ve achieved in our Phase III trials. You’ll be seeing more of that in scientific publications, focused on I think clinically relevant end points, like how quickly does it work and I think you highlight one of the things that we’ve noticed that. There is a rapid onset of action, a sustained duration of action and repeatability of action over time.

Mark Monane - Needham

Then lastly, could you review with us the patent strategies in the U.S. for DX-88 and then also in Europe the plans for regulatory approval? I’m sorry I don’t have the information on Europe right now. Is that something you’re waiting for a partner to help you in?

Gustav Christensen

Yes, in terms of the regulatory process in Europe, we are engaged in discussions in finalizing the pediatric implementation plan, which in fact is just the critical first step to allowing us to file a market application in Europe and we are on track for a nearly 2010 filing.

Mark Monane – Needham

Okay and then and again could you review with us the patent life for DX-88 in the U.S.?

Ivana Magovcevic-Liebisch

Sure Mark. This is Ivana. We have an issued competition of matter patent on the DX-88 is that going till 2023, and then obviously we have a number of other patents that cover different users of the product.

Mark Monane – Needham

Is there a DX-89 in preparation right now, a follow on compound?

Gustav Christensen

I think all we say about this is we’re obviously thinking about the product life cycle and how we could improve products. So gaining initial experience and knowing what the competition profiles are will be guiding us in finalizing those decisions, but we do programs in-house.

Mark Monane – Needham

Thanks for the added information and congratulations on the progress.

Operator

(Operator Instructions) Our next question will come from the line of Craig Gordon from Cowen Inc. Please proceed.

Craig Gordon - Cowen Inc.

Hi, good morning. Just a couple of questions; first, assuming approval on or around the PDUFA date, what do you expect the timeframe to be, to actually launch the drug?

Bill Pullman

Well the time line is going to be pretty typical with other filed products. It’s about a 60 day timeframe from finalizing the legal, having it printed, packaged, shopped, getting your support systems up and running, working 1800 number etc, etc. So usually it expects a lot around the 60 day time line.

Craig Gordon - Cowen Inc.

I guess I just want to confirm this, that you thought that you could wrap up the partnership talks during the second half of 2009, is that kind of your timeline?

Gustav Christensen

That is still our timeline. I think for both sides, the partner side and from our side, the other thing we like for them to be a company that files a final application and we are on track to file it. So, its not that we stopped the filing, but I think if it is a licensing agreement, then that is the preferred way to and not doing it and that’s what we are gearing up for.

Craig Gordon - Cowen Inc.

Great and one last question here. We’ve been hearing that CSL of C1 inhibitor for the treatment of acute HAE has the PDUFA date somewhere in October. Can you shed anymore light on that?

Gustav Christensen

No, we just hear the same rumors you do. We have not heard anything official.

Craig Gordon - Cowen Inc.

Okay, great. Thank you very much and congratulations on your progress.

Operator

And there are no further questions in the queue at this time. I would now like to turn the call back over to Mr. Gustav Christensen for closing comment.

Gustav Christensen

Well, I want to thank you very much for dialing in today and look forward to report back to you on the progress in the next quarter. Thank you very much.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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