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Dyax Corp. (NASDAQ:DYAX)

Deutsche Bank BioFEST Conference Call

December 2, 2013 4:00 PM ET

Executives

Gustav A. Christensen – President and Chief Executive Officer

George Migausky – Executive Vice President and Chief Financial Officer

Burt Adelman – Executive Vice President and Chief Medical Officer

Analysts

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Great, thank you for joining us this afternoon, for staying late. My name is Robyn Karnauskas. For those of you listening to the webcast, I am one of the Biotechnology Analyst at Deutsche Bank. Next we have Dyax Corporation. We have three members from the management team. We have Gustav Christensen the CEO, Dr. Burt Adelman, Chief Medical Officer and George Migausky, the Chief Financial Officer. So thank you all very much for joining us, really appreciate it.

I was debating with where to begin actually, earlier today, but I guess we should start off with the DX-2930. Maybe you can talk a little bit about what are we going to learn from the Phase I clinical trial?

Unidentified Company Representative

So I’ll answer that. So the Phase I clinical trial is a single dose, dose-escalation study in normal individuals. Dosing has been completed, so we will undoubtedly learn the usual stuff you get out of Phase I trial that the drug was probably safe, probably well tolerated, we’ll get the PK profile. We’ll find out if there are any particular dose limiting toxicities. And we do have some biomarker assays that we are going to be using to look at plasma specimens from the individuals that will give us some information about PD activity.

You can take these specimens that are collected before and during the dosing interval and you can activate them to turn on the plasma kallikrein-kinin system. And then we can look to see whether specimens across time and dose range have varying degrees – demonstrate varying degrees of plasma kallikrein inhibition. So it’s sort of an indirect measurement to demonstrate that the injected drug remains biologically active in vivo and that over time behaves in a dose and time dependant fashion. But it won’t tell us whether or not it will treat HAE.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Okay. And I guess I should have preferenced for those of you listening who are newer to the story, Dyax has an acute drug for HAE which is hereditary angioedema called KALBITOR and DX-2930 is a longer-acting injectable that might be able to be used for prophylactic protection of HAE. I guess follow-on to 2930, so remind us again your thoughts on how much inhibition of kallikrein is tolerable over the long-term, so one will be taking this?

Unidentified Company Representative

Right. So what we know is that, first of all, all of us who are relatively normal, we have fairly substantive inhibition of plasma kallikrein activations through having normal levels of C1 inhibitor, which is a protein that is problematic in HAE, because it’s deficient or doesn’t work.

We also know that individuals, not a lot of them have been described, but there is a cohort of individuals who are completely deficient in pre-kallikrein, which is the pre-cursor protein to plasma kallikrein, they have what’s called Fletcher factor deficiency and those individuals appear not to have significant clinical problems with coagulation, vascular tone, blood pressure control or any of the possible pathways that are related to the kinin activation system.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

And ViroPharma would often say that their drug is better, because it also inhibits complements. Can you tell us what your thoughts are on importance of complements?

Unidentified Company Representative

Right, so C1 is a promiscuous serpent and it has multiple targets including complement pathway. I’m not quite sure why they make that assertion. We have certainly asked multiple experts in the field, enzymologist, clinicians whether they believe that there is any component of HAE that is driven by complement cascade activity as opposed to plasma kallikrein, and uniformly people say, no, there is no evidence that there is any overlap.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

What about just having side effect of not having that system intact, over time if you are not adding back something that’s missing in the complement systems?

Unidentified Company Representative

Well, again I think that HAE patients many of whom actually are not treated when they show up in the emergency room or when they are finally diagnosed, we don’t recognize that they have any of the clinical manifestations that we would usually associate with disorders of complement activation, a classic being obviously lupus, where there is a significant amount of complement activation during acute attacks and patients appear to get vasculitis or other end organ damage due to complement activation, or people who have various forms of proliferative glomerulonephritis where there is also probably a complement component.

Again, we don’t see any of those problems in these patients outside of what we would see in other individuals. So I don’t think there is much clinical or scientific basis to assert that a good side effect of intermittent treatment with C1 is normalization of the complement system.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Okay. And how long do you think before you really understand the safety. Like I guess in the next trial is that really enough, when will you feel comfortable?

Unidentified Company Representative

Yes, well, I think we are – the safety database that describes the use of a drug is a continuously evolving compilation of information. How many patients you have to treat for how long until you feel really safe, I don’t think there is a perfect answer, we thought that Tysabri was an absolutely safe drug and we treated thousands of patients for years before PML emerged. So I think, you should never be lulled into believing that you know the whole safety profile of a product.

On the other hand, I think the good news is that to-date in the preclinical studies, we have treated non-human primates with multiple doses at very high doses for extended periods of time, and we are now finishing or in the sort of mid of the extended high dose, repeat dose exposures, and we have yet to see any dose related toxicity associated with the drug, we don’t know that there – we don’t know of any evidence for a sort of ceiling dose and to-date in the humans that we’ve treated in Phase I study, we certainly didn’t see any signal.

So I think and in general monoclonal antibodies because they are highly specific for their target and are fairly well accepted by our immune system, they tend not to carry a large burden of un-predicted toxicity, usually the toxicity is related to exaggerated effects against the target, and since we could say the most exaggerated effect against the target is to have Fletcher factor deficiency and that doesn’t appear to have significant clinical manifestations, I would say that we are comfortable with the whole strategy and that the data that we have today continues to support that contention, and we’ll see how it goes over time.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

A question I get a lot though is because of the long half-life, if there is something that pops up, isn’t there a safety concern that it can’t be reversed if you are on the drug.

Unidentified Company Representative

Well, first of all it’s a good concern, but you actually can reverse antibody levels pretty quickly the guys at Biogen when I was still there, we started using plasmapheresis and you can reduce immunoglobulin levels by 50% or 60% probably within three well run treatments. So to the extent that you really have to get rid of the immunoglobulin there are ways to do it. So that would be what would be available.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Okay, BioCryst. They have a pill, yes, it doesn’t have very good of bioavailability, but what is that pill next year were it to show say a 20% reduction in HAE attacks and look clean. Like how do – it’s a pill, that means their second pill might show a 50% reduction and how do you view that as a competitive threat?

Unidentified Company Representative

Well, I think first of all, they should be recognized for having developed an all bioavailable relatively specific serine protease inhibitor, because that’s not the easiest thing in the world to do. I think however, what we have seen what they have said about their product is as you said it’s got less than 5% bioavailability.

In my view, I’m not sure that that is a drug like – that that in itself says this molecule – this pill doesn’t have adequate drug like characteristics, because when you get that much – when you have that little bioavailability, you tend to get a tremendous amount of not only inter-individual variability, but intra-individual.

So you don’t even know in any given individual where their blood level is going to be when they take the next dose. So and you add that to the fact that it’s got a very short half-life makes it probably fairly challenging to maintain patients at an effective dose. So and I would think that your profile of a oral bioavailable drug that has a 20% effect on attacks, I would say maybe some Cinryze patients who have treatment fatigue or maybe some androgen patients who have problems with hypertension might switch, but I mean that's like barely effective…

Robyn Karnauskas – Deutsche Bank Securities, Inc.

But what about the first pill, because that's the first pill, they have another pill. So if that’s 20% you could think that the second pill could be 50% that has – does that change…?

Unidentified Company Representative

Well, 50% is still a problem, because the problem that HAE patients face is that every time they have an attack, it could be a laryngeal-pharyngeal attack with morbidity potential mortality risk. So they don’t want to have attacks. I don’t know that 50% reduction is a whole lot different than essentially treating your acute attacks when you have them.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

That’s what Cinryze showed.

Unidentified Company Representative

That’s right, and that’s why we think – that’s why if Cinryze was reducing attacks by 100%, I think all of us, who are trying to develop better drugs, would say; boy, the mountain is pretty high to climb. I think when we at Dyax look at the profile of Cinryze, drug – purified from human plasma, very expensive product, has to be injected either peripherally or through an indwelling catheter, the package insert says it’s got about a 50% reduction in attacks. I think we say that’s not prophylaxis by my definition. That is a moderately effective agent from an old time strategy for biologics, which is to purify proteins from human plasma and we think it presents a huge upside opportunity for us that we think 2930 was specifically constructed to solve.

Monoclonal antibodies have very predictable PK, they tend to have half life, so two weeks or more and we already know from pre-clinical work that 2930 in non-human primates got a half-life of 12 to 13 days, so and we know that we can formulate it into a highly concentrated solution, so in the Phase I study, we had a 100 milligram per mil concentration and 1 to 1.5 ml subcutaneous injection is very acceptable to patients, easy for them to do. So I think 50%, whether it’s the pill or Cinryze, I think if we can get efficacy levels significantly higher than that with 2930, have a good safety record, have a formulation that enables patients to self-administer a subcutaneous injection a couple of times a month at most I think that’s going to be a very competitive product.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

So why is there – why do you think on prophylaxis that attacks still occur?

Unidentified Company Representative

Yes.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Is it because there is a complete protection or do you think there is another mechanism, like even if you suppress kallikrein completely, do you think –you’re still going to have breakthrough attacks and why?

Unidentified Company Representative

Right, so that’s a good question and I don’t think we have an absolute answer, except that we do know that – I assume no one in the room has got HAE and that we have – we don’t get HAE attacks and it’s presumably because we make enough C1. The problem with C1 is, it’s got a relatively short half-life about 50 hours and it has – it doesn’t have the fastest on rate for pKal.

So you really need to have a lot of it around all the time if you absolutely want to prevent all attacks. And I think the challenge with Cinryze or [indiscernible] is how often can a patient tolerate getting infusion? And on an individual patient basis, what is the necessary lower, what’s the absolute lower limit below which they can let the drug level fall?

The literature is full of sort of anecdotal reports that a patient was on Cinryze say, twice or three times a week and they move them up to four or five times a week and they don’t have any more attacks. The problem is, do you want to get an intravenous infusion five times a week of a very expensive product.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Okay. Well, how you think the acquisition of ViroPharma by Shire will influence your key market? Would you think they will be able to sort of bundle or do something creative marketing wise? And why weren’t they afraid of, I mean, they bought ViroPharma in the face of competition, and so why do you think they weren’t as afraid of us?

Unidentified Company Representative

Well, people in Lexington never tend to look over to a Burlington. They only look into Cambridge. I’ll let Gustav or George answer some of those questions.

Unidentified Company Representative

So first answering for the acute market, KALBITOR has its position in the market. It has a boxed warning which means, it has to be given by a healthcare professional. We have created a set of services around that, so a patient can choose to be – go to a doctor’s office, ER, or be treated at home by a nurse that arrives within one to two hours.

So that has created for us a niche that really we’re the only one sort of in the acute market. We’re the only one that provides a patient the comfort of knowing in a time of anxiety and fear and stress. They have a trained professional next to them making decisions with them and for them. And the doctor knows he will receive an electronic report for the attack within 48 hours. So the doctor can follow the patient, which is actually good, which for self-administered products they really cannot, they don’t know how many attacks are there.

And growingly, they are payers who worry about a lot of use of a self-administered product in a disease that’s a familiar disease, meaning if they treat suddenly six times a month or 10 times a month or whatever the number is, they start worrying about, is this really the patient alone or is there – do they treat too much, are they ceiling [ph] products and so on.

So we have a niche that we think we’ve carved out, that’s pretty safe for our product, because it’s different than what if you put a self-administered product service. So we are pretty confident and that doesn’t get impacted by the merger. I think the merger validates that preventive treatments for the HAE market is a significant business and a profitable one or they wouldn’t have paid $4.2 billion for a $400 million product.

If I was the CEO of Shire, and have taken over the job looking to be expected to impact the business within a three-year plan, I wouldn’t buy a product that’s in Phase 1 and 2, because that would hit my – at the end of my five-year plan. So I would have to look for something that’s in the market, something that I can finance and manage immediately accretive and where I believe maybe outside the U.S. my business organization can do more than what ViroPharma is currently doing and I have some possibilities to maybe improve the U.S. market so on and a lot of shared costs, meaning they look to cut on $150 million out of the expense side. So I think from a newly hired CEO looking to have an impact the first few years in that sense it makes sense and he will worry about year five and beyond.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

From the valuation, it does appear that there are not really probability adjusting long-term Cinryze, you could argue…

Unidentified Company Representative

It depends on how much you value a Phase 1. If you ask the bankers who got a fee probably, it has a certain value and for other investors it’s different, I mean I don’t know what the calculation was, but I think if I was the CEO of Shire today, newly hired, I will worry about three-year plan more than my five to 10-year plan.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Did you have conversations with Shire? Is Shire aware your product?

Unidentified Company Representative

No. We try not to talk to competitors.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Okay. So your point is to retain DX-2930 rates. Is there any instance that would change your view on this? Throw in a…

Unidentified Company Representative

Absolutely not. I think if you have a significant focused market and concentrated market like this is that your ability to actually take it worldwide is significant. We’ve seen it in many of the orphan diseases. So it’s important for us to sit with the pivotal data that we have that option if it’s a right option. So we did the financing this fall to be in a position where we had a comfortable amount of cash.

We ended the year by over $100 million in cash. So we can get to the pivotal study, sit with that data. With that time we can also refinance if we choose to our loan against the LFRP, which will have royalties at the time. We can do that at the end of the 2015. So we have all the strategic elements in our hands and we can make the right decision for shareholders there in the first part of 2016.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Burt, I want to talk about how the FDA views HAE no longer as an unmet medical need in prophylactic and of course they started their trial and you can sort of see the design, the Berinert trial. Have you had discussions with the FDA yet and how much data safety wise do you need and what are the timelines for your Phase 3?

Unidentified Company Representative

So we’ve, of course, had pre-IND and IND related meetings with the FDA and we haven’t – they certainly haven’t spontaneously said to us while working in this space the problem is solved. So we haven’t had any detailed conversations with them about what a approval package would look like. I think we were, as I said, we’ve done this Phase 1 study, we’re planning on doing a Phase 1b study this year in HAE patients.

So it’d be a simple dose escalation study, sequential dose escalation study in probably maybe three doses of 2930 and placebo. We will give patients probably two doses of 2930 separated by may be a week or two weeks and we would use it as one more safety pharmacology study.

Again, we might use our biomarker system in that setting and learn a little more. But we would also use it as our sort of way to get start into the HAE community. And I think when we’re done with that, we’d be able to go back to the FDA and say, okay, what are the sort of operative norms for you in terms of numbers of patients, because paradoxically the better the drug works the fewer patients you need to prove the efficacy point. And I suspect that that would be below their expectation of overall exposure. So we just don’t know. I think we’ll have to sit with them and work our way through that.

I would say that in Europe. So we view this as a worldwide opportunity and Dyax is prepared to take on development activities in the U.S. and Europe, and has sort of advanced the use of Cinryze here for prophylaxis. You really don’t see them in Europe. I think if you talk about prophylaxis to investigators in Europe, they think you’re talking about androgens.

Obviously, some patients there get put on repeat stable Cinryze dosing, but in general not. We’ve got – we’ve had a number of advisory committee meetings with European investigators and uniformly are told by them that the profile that we would hope this drug would perform to would be the first agent that they would consider chronic users of prophylactics in their patient population.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Okay, that’s helpful. I want to touch briefly on the LFRP program, I think its underappreciated by the streets [ph] so to remind you, within your LFRP if I’m right you have 13 clinical stage assets, I cant remember how many are in Phase III or Phase II, but I remember you get a – most of them get a royalty 2% to 3% and some you get milestone and I think a [indiscernible] going to be know anti-Lingo is one of them, is I think is in a milestone.

Unidentified Company Representative

No that’s royalties.

Unidentified Company Representative

That’s royalty.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Royalty stream which is coming up next year for Biogen as well as Amgen, Amgen also has a product with you as well. I was just wondering, how do we think about modeling the LFRP business?

Unidentified Company Representative

So that was a pretty good summary actually.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Okay.

Unidentified Company Representative

That’s a starting point, so we do – you hit it exactly right, we have 13 or our licensees have 13 products in the clinic, there are also a number of pre-clinical candidates, so we look to maybe see that portfolio mature over the coming months and years as well with new candidates. But for the 13 in the clinic and everybody focuses typically on the later stage candidates of which there is three in Phase III and that includes ramucirumab a Lilly candidate, necitumumab also from Lilly and then trebananib which is Amgen’s compound.

And so for the first two, we in fact – our economics are 2% to 3% royalties, in the case of trebananib its milestones, and throughout the portfolio it’s a 2% to 3% royalty with two exceptions for peptides that are in that mix. And so for the analyst, it’s not an easy job, there you have individual compounds, they are in multiple different clinical trials for very different indications, ramucirumab is a clear example that five different indications that had range from breast and gastric and colorectal and hepatocellular.

So with that each one as an individual short on goal, each one has the typical high risk of drug development that we all know is a risky business, but its mitigated by the fact that there are so many, so many different trials, so many different compounds covering a lot of different space. So yes its tricky to model, but we still we come back to and the way we think about it, is looking at each one risk adjusting and – but looking at it as a portfolio. We know half of them probably aren’t going to make it, but it’s a portfolio, and a few that do, could produce a significant amount of economics back for us…

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Is there a way to over simply it though, I look at the biosimilar pages, there is $40 billion of sales, if they capture 5% of the market, like is there is a way that you could picture it that way and the three products in development are going after X indications, just I’m sure you have the model?

Unidentified Company Representative

That would be – I would be careful about over simplifying it that way.

Unidentified Company Representative

But maybe there is actually from Tufts University, there is an annual publication that calculates the probabilities of a Phase I compound, biomedical compound moving from Phase I to Phase II to Phase III, it’s a positive data and positive data to approval. Then you have two handicap sizes of markets assume some average penetration, but if you apply that probability with whatever discount track or cost of cash you want to put on it and then average markets, it’s pretty straightforward, any young MBA, you don’t even have to be an MBA, a college grad can do a spreadsheet that does that.

Robyn Karnauskas – Deutsche Bank Securities, Inc.

Well, thank you very much.

Unidentified Company Representative

Thank you.

Question-and-Answer Session

[No Q&A session for this event]

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