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Dyax Corp. (NASDAQ:DYAX)

Company Conference Presentation

September 11, 2013, 10:00 AM ET

Executives

Gustav A. Christiansen - President and CEO

George Migausky - EVP and CFO

Analysts

David Friedman - Morgan Stanley & Co.

David Friedman - Morgan Stanley & Co.

All right. Thanks, everyone, for joining us here. Dave Friedman, biotech analyst. And I have with me the team from Dyax up here. On the far side is George Migausky, CFO; and on the near side here Gustav Christensen, President and CEO. And we'd love for this to be interactive, so please feel free at any point to raise your hand. We'll make sure you get a microphone and you can ask any questions that you have.

So thank you both for joining us today. And maybe we can just start out, if you can give for people who are not familiar with the company, just a couple minutes overview of the company and what you guys have going on.

Gustav A. Christiansen

Sure. Thank you, Dave, and thank you for inviting us to the Morgan Stanley Conference. Dyax is a biotechnology company that like many was built on a core technology called phase display. Phase display has allowed us to build two major value driving parts of Dyax. One is a very successful licensing business; we call it the Licensing and Funded Research Program. We'll talk more about that today. The other side is a product business where we ourselves have developed products.

We have an approved product KALBITOR which treats acute hereditary angioedema attack, which is a major swelling disease. We can talk a little bit more about that later. And we also now have put in the clinic a potentially game changing second generation product that does not treat acute hereditary angioedema attacks but is aimed for a prophylactic market that is a preventive product, and we can talk more about that product as well.

So you have the value drivers that Dyax really comes down to an existing product that's profitable and help pays the bills, a second generation product coming that's very promising and could be much larger than the first product. And then the licensed program where Eli Lilly, Amgen, Biogen and other companies are driving their products through the clinic and we stand to receive 2.5% to 3% royalty on those products if they become real. We're all addressing major markets, so 2.5% to 3% of major products adds out to a nice cash flow, but we have no cost associated with receiving the money.

Question-and-Answer Session

David Friedman - Morgan Stanley & Co.

That's great. So maybe we can start with your marketed product KALBITOR and if you can just discuss the indication, the mechanism of action and then where you are in terms of your revenue ramp?

Gustav A. Christiansen

Sure. Hereditary angioedema is an orphan disease. It's a hereditary disease that afflicts probably 6,500 identified patients in the U.S. per the Hereditary Angioedema Association. Less than half or slightly less than half of those patients are currently on one of the modern treatments. This is a competitive market. You can treat it acutely, meaning when the attack occurs and that's how they treat it in Europe with a plasma fraction [ph] called C1 esterase inhibitor for 25 years.

In the U.S. biopharma showed that using that same product on a prophylactic basis giving it twice per week, IV push, people were willing to pay a significant amount of money, close to $0.5 million per year to try to prevent attacks from coming. So the evolution in the U.S. has been different than it is on the European side.

KALBITOR was approved as the first SubQ product in the U.S. and it's worked effectively. You saw significant improvement after four hours which was sustained through 24 hour, so it reverses the attack. And an attack last normally three to five days, so a patient who have an attack really is disabled for multiple days because your face can swell-up to double the size, it can move into the larynx which can shut off the airways and half a dozen people die every year from this disease because they don't get treatment.

The other places it can hit in the stomach, the internal organs swell up and it's excruciatingly painful. And in an emergency room it gets mistaken for allergy attacks. So you must have eaten something you shouldn't do and they gave them EpiPen. EpiPen has got no influence whatsoever. So this is mediated by another pathway. So plasma kallikrein ending up bradykinin that releases these – that causes the vascular to open up and fluids goes into the tissues and that's where the swelling comes from.

So the early you treat the better and therefore we have set up services. We can talk more about that that allows us to get the patient's treatment quickly. So KALBITOR blocks this key mediator plasma kallikrein that prevents bradykinin from being activated, and it works well and there was a basis for our second generation product which we can also talk about.

David Friedman - Morgan Stanley & Co.

So maybe let's dig in a little bit to some of the dynamics that you mentioned in the HAE market. So maybe if we just start with the U.S., you have as you mentioned biopharma with Cinryze, so maybe in the U.S. market if you can describe what proportion of patients right now are getting prophylactic therapy with their drug versus what percent are getting on-demand symptom-based therapy with yours or other drugs?

Gustav A. Christiansen

Sure. So according to the public information available, biopharma has about 800 patients out of their 3,000 patients on modern treatment, so that gives you about 20-some-percent of whatever it is, slightly more than that actually, about 25%, 28%. And that generates close to $400 million of revenue. If you look at the acute treatments; FIRAZYR from Shire, BERINERT from CSL Behring and KALBITOR from us. That serves then the rest of these, about 3,000 patients.

There is stacking going on because patients have decided that not – products are not the ideal product. It doesn't serve all their needs, so patients on Cinryze that have episodic [ph] attacks, many of them uses KALBITOR or FIRAZYR to treat the episodic attack which worked well for us. Patients who are treating acute attacks may feel that they like the service we provide with home nurse and going to see the doctor because they have the comfort of an expert sitting next to making medical decisions, because they treat something that's in progress.

And they may feel that for some of the attacks, they rather have the comfort of the nurse and for others they treat independently with FIRAZYR. They can treat them when they're driving in the car, whatever when it actually happens. So we have seen an emerging trend of stacking in the market as well. So it's a dynamic market where none of the products really ideally suit what the patient needs.

So that's why we sat down and looked at the needs of these patients and came up with the program that we would develop a long acting, a long half life, fully human monoclonal antibody that could keep the plasma kallikrein levels under control on the long-term basis by a SubQ every two weeks and that could be more efficacious than the current plasma protein. The plasma protein Cinryze has a half life of only 24, 25 hours. So they give it twice a week. That's really three, four times half life which is really beyond what real efficacious treatment should be.

So it's just some market with further opportunity in terms of growth and the dynamics, the new [indiscernible] are showing that a quarter of the market is willing to pay $0.5 million to get treated on KALBITOR currently and this is a big opportunity for us.

David Friedman - Morgan Stanley & Co.

So for the people who are not getting prophylactic therapy what is your understanding of the main reasons? Is it disease severity? Is it costs or convenience of not wanting to have weekly infusions? What are the main drivers? And then what do those people do? Do they just do nothing and wait and hope or what alternatives are there?

Gustav A. Christiansen

So we believe that a more convenient product that works better would get a higher percentage of patients on, because ideally clearly if you don't have the attack it impacts your life less than if you have to wait for the attack to occur then treat it and it takes half a day or whatever, several hours before you're back to normal. So the question is benefit and cost tradeoffs in that case. And Cinryze's Phase 3 data had 43% episodic [ph] attacks still happening. So the inconvenience of IV push twice per week and still a number of episodic [ph] attacks for some patients, for many patients on the average. But for some it works really effectively and they're very happy with it.

For doctors, they do look at the state of the patient. Do they have many, many attacks a year or do they have few? If they have very few, then 0.5 million a year is not dependable. But many doctors also look at the state of mind of the patient. If the patient live – have maybe once a month, but live in a constant fear, is constantly depressed and anxious and can't pull their life together. So while it doesn't matter they only have 12, they should be on something that controls the disease and allows them to grab a hold of their life. So there is a range of these. Now if you look at it that way then you probably have a significant higher proportion of patients that would benefit from prophylactic than who is currently on.

David Friedman - Morgan Stanley & Co.

So I guess then just to sort of clarify that aspect, it's your guys belief that if you look at both the severe segment as well as the people who just are having a severe impact, do you think that ends up being potentially the majority of the patients?

Gustav A. Christiansen

I don't think we know that, honestly. We do know that the key opinion leaders in Europe and in the U.S. are keenly involved in and are interested in our 2930 program. They're all looking for more efficacious prophylactic that's more convenient. And pricing will have something to do with penetration. I mean you can price it so everyone uses it.

David Friedman - Morgan Stanley & Co.

Right.

Gustav A. Christiansen

So that will be an interesting problem to have.

David Friedman - Morgan Stanley & Co.

And so in Europe what do the patients do and maybe just in general, what are – before these drugs existed, what did people do for this disease? Are there behavioral modifications that are the first step? Are there steroids or other things that people can take on a chronic basis that otherwise work, and is that what's happening in Europe on a sort of day-to-day basis for patients?

Gustav A. Christiansen

So really the only alternative they have had since the '60s were anabolic steroids and you have to increase the dose for most patients to a significant level where it's above a recommended daily dose and let alone being recommended against women. I mean you giving it – there are more women who suffer from this disease than there are men. So anabolic steroids has a dramatic impact on their life. But anabolic steroids does not treat an attack. It basically lowers the number of attacks a patient have. And it's dose dependent. For some patient who responds well to steroids, that is the cheapest treatment and some do but it's not a large percentage.

David Friedman - Morgan Stanley & Co.

Okay. And so in Europe has it in your understanding been primary a cost issue that has kept people from adopting prophylaxis? Is it an efficacy issue, meaning if you had the same cost for a much more efficacious drug with less breakthrough, would that be attractive to them? Or is it in the end cost first and then everything else second?

Gustav A. Christiansen

No, they have tended because of the cost and efficacy because they also have 25 years experience with the C1 esterase inhibitors. So they have tended to use prophylactic for periods of time and then moves the patients off it into an acute treatment cycle again as they got control of their life and try to move back and forth. And it is really a combination of giving an IV push twice per week, pushes you into having a port [ph] at some point in time. And a long-term port [ph] is not an easy thing to maintain in the U.S. Oncologists have a lot of experience with short-term ports [ph], but long-term care of it is a difficult thing. You have clotting issues and so on which is in the label. So it is really an efficacy benefit and cost issue, but we have – we will do more than half of our trial in Europe because the doctors are extremely interested in managing these patients better and they tend to manage larger numbers of patients in Europe as an expert.

David Friedman - Morgan Stanley & Co.

So in terms of your current product KALBITOR, what is the competitive dynamic with the other sort of on-demand treatment options? What differentiates yours either positively or negatively and maybe we'll talk about the drug first and then the infrastructure and service as you've got set up which are clearly attractive?

Gustav A. Christiansen

So we are the only one who inhibits plasma kallikrein which is a little upstream [ph] from bradykinin. FIRAZYR tries to mob [ph] up bradykinin after it's released which is a challenge. Their half life is shorter than ours, so they had a higher number of needs for second treatments to effectively stop the attack, but the FDA have approved all the products because they worked. C1 has the drawback of being IV for most people. People can learn to do an IV themselves but it's not – it's less than half who actually does that.

The key difference really in the products to us is that these patients live with a very high level of fear and anxiety. They don't know these attacks. They don't come every Thursday [ph] like a migraine can do. They come when they come. They can be related to stress, they can be related to physical impact, many things. They cannot – they try like crazy to predict them but they can't. So we have a patient advocate who is a policeman who says the only state – the only case where he has a similar level of anxiety is when he has his gun drawn. There's a guy on the other side with a weapon. He said that if you want to understand the anxiety I feel when my attack has starting, that is where it is.

So we provide – actually we shouldn't go to service but an acute service, so there is a health care professional with the patient and that is probably the key differentiating factor for us.

David Friedman - Morgan Stanley & Co.

And so maybe we can just go into a little bit more detail about that, and is this something that really only applies to the acute setting or is there a way to differentiate yourself in the prophylactic setting with service and interaction as well?

Gustav A. Christiansen

So let's do the prophylactic first and then do the acute later. Clearly if your product works and blocks all the attacks, there's no need for the impact if you simply prevent them from occurring. To the degree they do not, then many patients will describe their attacks as if I have a hand, feet swelling it may impact my life for two to three days. I mean you go to work, you can't type, you can't use the phone. You depend on others to back you up. You don't go to meetings because you look weird [indiscernible] is their way of beating the disease. After a year or two of treatment, they decide why I'm doing this. I keep owing favors to my coworkers. So they tend to start treating more.

For the acute setting patients who have adnominal attacks, anything facial have high anxiety levels and we believe that most of them in that case really benefit from having a healthcare professional with them compared to being alone because the anxiety of the fear doesn't go away if you are by yourself and you have to lean on your spouse which often if you talk to people with chronic diseases they don't really like their spouse to have the same level of worry they have. So we feel that fits well and the dynamics in the market has probably been that as the self administration product came in, they took markets there or they got into stacking quicker.

The rebalancing and the growing of the market is patient by patient and it will settle in as to what fits the patient best. There's a new recommendation draft that's coming out from the HAE Association that talk about how critical it is for doctors to have a treatment plan for the HAE patients. It's a little interesting for me that you have to write that. Can you imagine you write to an oncologist and you'd have a treatment plan for breast cancer, so it just shows a little bit about the distance that have been historically between doctors and patients that they haven't sought in terms of treatment plans.

But as they do that and think about what the patient's profile is and what the needs are, then clearly looking at what the different products provide, it will allow us all to fit the space where we really bring to the patient what they need for those attacks.

David Friedman - Morgan Stanley & Co.

And so what specifically do you guys provide in terms of medical assistance to these patients currently? Are you sending a nurse to their house? Is that where they're getting the drug or they're getting the drug in the hospital? And then you have someone come and visit them at home. How exactly is it working?

Gustav A. Christiansen

So our service really starts from their doctor writes [indiscernible]. We have KALBITOR access where there is three full time nurses that are in constant telephonic contact with patients. Constant just means whatever the patient likes, every two weeks, every four weeks. So they have a friend at the other end of the phone who knows them and who knows HAE. So they can talk about – sometimes they get into a [indiscernible] they didn't treat the last attack, they couldn't sort of organize themselves. So having a friend on the other end of the phone is important.

We also have the most comprehensive financial support system around. 95% of our assignment of benefit patients have no co-pays, zero co-pays. So it is more comprehensive than anybody else. And then lastly we set out that the patient could have the product in their homes so they know they have it. They feel in control. They can choose to take it through the emergency room locally that we have trained, to the doctor's office if that's open or we establish at Walgreens Home infusion services an acute nursing service where 95% of the nurses comes before two hours. The average time response is 54 minutes when called.

Now is that fast enough is a fair question. In our Phase 3 trials we accepted patients eight hours into their attacks, so our result was all the way down to eight hours. So clearly one hour if it's a slowly emerging attack is early enough a response. We have patients who use it when they travel. One of our advocates is from Boston who was in L.A., called and had a nurse. He said I can be in the hotel in an hour, so was the nurse.

David Friedman - Morgan Stanley & Co.

And how much of that is because of the [indiscernible] you have on the label versus this is a better service?

Gustav A. Christiansen

No. I mean clearly we have – on the label it says it has to be given by a house care professional. So we have to break down barriers to treatment. So we gave the patient the product themselves first because they can get to the ER faster. They don't have to battle as much when they get there. And then secondly we said most of them really preferred to be treated in their own home. If your face is blowing up you really don't like to leave, honestly, right?

So being able to create this acute nursing service was a very important part of us. And for the people who provide it, it's a very profitable business. They make money on the product. They get reimbursement for the call by the nurse and we have an incentive plan with them where they're in [ph] one hour within two hours, they get extra money. So for them it's an attractive business on the nursing side.

David Friedman - Morgan Stanley & Co.

Got it. Any questions from anyone around some of the nuts and bolts with these programs? Okay. So maybe if we can just move into the development path for 2930. You guys are heading into Phase 1 or are in Phase 1. What are the steps and when is a realistic timeframe if the steps go right for this drug to potentially be on the market?

Gustav A. Christiansen

I'll just step back and since all of you may not know 2930, I'd say that 2930 is a fully human monoclonal antibody. The half life in primates was 12.5 days. We'll expect it to be longer in humans because it's a bigger species. So we expect to have a product that's given SubQ 1 ml once or maximum twice per month. So convenience wise and then product wise, I mean if it has somewhere between 14 and 28 days of half life, you dose within the double half life of the product then the efficacy should be quite high. So we designed this and selected this product to be hopefully the ideal prophylactic product.

We started Phase 1 in the middle of August. It's a dose escalation, single dose study in healthy volunteers. We have for cohorts should be 32 patients, so we are three quarters through. And then after that you have to do testing of the blood samples, so the longest would really be the half life because you have to go four times half life to have the right number. And four times half life is 28 days. It could be four months. So that would take into mid January and then we will present all of the data. But we will probably let people know when we have accrued all the patients and treated them, because it does tell you if there is any unexpected events that took place which is an important part of the Phase 1a.

David Friedman - Morgan Stanley & Co.

Got it.

Gustav A. Christiansen

The 1b will be in patients who will follow right after. It will be not an efficacy study but a multiple dose study, escalating dose allowing us to pick the dose. And when I say allowing us to pick the dose, I should say we have in parallel developed an activated assay that allows us to measure activated plasma kallikrein in plasma. It's the first time that has been done. It was not easy. So that allows us to look at the plasma samples from these patients in much more detail and get relevant information to the product works the right way versus the activated plasma kallikrein levels so we can see how the different doses work in the patients. And then we will proceed right into hopefully a pivotal study after that.

David Friedman - Morgan Stanley & Co.

Is there any sort of negative implications or I guess unexpected positive implications outside of HAE prevention of attacks of having sort of chronic kallikrein blockage?

Gustav A. Christiansen

So I'll first answer and then add to that maybe. There is actually families living with no plasma kallikrein at all. You as a normal person have a very low level of activated plasma kallikrein. An HAE patient has a slightly higher in the base state, so they have a little bit of climbing [ph] that have taken place and then during an attack it's much higher. That we have seen through the validation work we've done with the assay. So we don't expect we have to suppress it to zero because you don't zero. So we have no reason to suppress it lower than what a normal person has. So we don't see that as – I mean we could talk a little – it's all based upon what have been published and other things, but you got to see it in real clinical trials.

The other aspect of this obviously is that by being able to measure these things, our ability to pick the right dose and get data to show us and show the FDA what is going in, in these patients we believe really makes this a risk deduced program. It blocks the same mediator as KALBITOR does, it works the same way except it works for a long period of time. So we know the pass way, we know the target. We know the target works. We can stop a train that's running. We can probably prevent the train from getting started.

David Friedman - Morgan Stanley & Co.

In terms of the diagnostic, is this something that you would expect to be something you could commercialize? Is it something that you would provide for people and help enhance HAE diagnoses or what's the – outside of the clinical trial program, what's the ultimate goal with this diagnostic?

Gustav A. Christiansen

So this is really an in-house tool because to diagnose HAE patients you look at C1, C4 levels and so on. You don't need these tests for that. It is for us as an opportunity to also look at other indications. There's some pseudo orphan [ph] angioedemas called acquired that have autoantibodies to C1. We haven't started doing it. You could verify it is plasma kallikrein activated, well then that's a pseudo orphan [ph] group that doesn't have a treatment. So the test to market will be much faster.

There are other autoimmune diseases where swelling, retina pain is involved. So we brought Burt Adelman in to be head of R&D. Burt ran the R&D at Biogen for about 14 years and has his name on most of the products there. So he's very excited about using this assay to understand the involvement of plasma kallikrein and other autoimmune diseases. We can do that through patient blood sample programs, we don't have to go in patients to start knowing this. So it's also an inexpensive way for us to start validating other opportunities outside of HAE with 2930.

David Friedman - Morgan Stanley & Co.

Any questions from anyone on this product at all? So maybe in just the last couple minutes we can just touch on the phase display technology and your licensing programs, if you can just describe how many molecules, are these all early or are there late-stage programs and what would be the timeframe that you would potentially start getting royalties from these programs?

Gustav A. Christiansen

Yes, so we have a – for a number of years been licensing the technology, the phase display technology. And so fast forwarding to the present there's 13 different compounds in the clinic including three in Phase 3 trials. And of those compounds they're in multiple trials as well. So an example of that being Lilly's Ramucirumab that's in six different trials for five different oncology indications. So there are a lot of [indiscernible] on goal around all the different compounds. And now with a more recent past and as we look forward too, there's a fair amount of news flow beginning because of these advanced stage trials. Ramucirumab's already announced their gastric data. They have a second gastric trial. It should be reading out soon. Everybody's waiting the trials complete, everybody's waiting for the breast data.

So there's a fair amount of news flow and just associated with that one compound alone and there's a number of other compounds behind that. Not to mention as they move through the clinic just into Phase 2 or into Phase 3. So a fair amount of news flow. Ultimately we'd expect just based on Ramucirumab indicating that it will – they have a rolling BLA underway. That rolling BLA will be completed this year. And based on that timeline by the latter part of next year 2014 that product could be on the market and that's when our royalties would kick in, and that's a 2% to 3% royalty that's net to Dyax.

David Friedman - Morgan Stanley & Co.

And then is this aspect of the business that you are sort of continuing to stay active with, is this an attractive part of the business for you in terms of providing some of these early technological steps and then hopefully downstream getting royalties?

Gustav A. Christiansen

So we're active in the business but clearly the big value build and focus for everybody is around the products that are in the clinic. There's a number of candidates that have sort of worked with the phase library and have preclinical compounds as well, but the real attention is on the clinical stage candidates. That's where the real economics begin to kick in.

George Migausky

Maybe just add that we've got 10-year royalty from first commercialization. So if you look at time wise on Phase 3, Phase 2, Phase 1 preclinical that's where all the value sits. So we're not going to spend a ton of money on the technology side to be a technology company, we are not. We are a product company.

David Friedman - Morgan Stanley & Co.

Right.

George Migausky

Because the value for the next 25 years are already lining in the pipeline.

David Friedman - Morgan Stanley & Co.

Got it. I think we're out of time. So thanks very much everyone for joining us and thank you, Gustav.

Gustav A. Christiansen

Thanks for the opportunity.

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