Dyax Corporation Q1 2010 Earnings Call Transcript

May. 1.10 | About: Dyax Corp. (DYAX)

Dyax Corporation (NASDAQ:DYAX)

Q1 2010 Earnings Call Transcript

April 28, 2010 10:00 am ET

Executives

Nicole Jones – Director, IR & Corporate Communications

Gustav Christensen – President & CEO

George Migausky – EVP & CFO

Ivana Magovcevic-Liebisch – EVP, Corporate Development and General Counsel

Bill Pullman – EVP & Chief Development Officer

Analysts

Mark Monane – Needham & Co.

Phil Nadeau – Cowen & Co.

Behazar Agazadi [ph] – Sara Capital [ph]

Operator

Good morning and welcome ladies and gentlemen to Dyax Corp’s first quarter 2010 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 call for a brief question and answer period at the end of the presentation.

Before turning the 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 first quarter 2010 financial results. Dyax would like to remind everyone that statements made today reflect its expectations and future programs, collaborations, strategies and financial performance in our forward-looking statements.

These statements including those regarding prospects for the market launch of Dyax’s FDA approved product, KALBITOR 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 is described or referred to in its most recent Form 10K and other periodic reports filed with the SEC and are also available on the company’s Web site at www.dyax.com.

I would now turn the call over to Gustav Christensen, our President and CEO of Dyax. Gustav?

Gustav Christensen

Thank you, Nicole. Good morning and thank you for joining us on the Dyax quarterly conference call. Joining me today are Ivana Magovcevic-Liebisch, EVP, Corporate Development and General Counsel, George Migausky, EVP and Chief Financial Officer and Bill Pullman, EVP and Chief Development Officer.

We are pleased with the progress made in this first few months of our U.S. commercial launch of KALBITOR. However, before reviewing the details of this launch and other business I will pass the call to George to first review the financial highlights of this quarter. George?

George Migausky

Thank you, Gustav, and good morning. Revenue for the first quarter in 2010 increased to $20 million compared to $6 million in the same quarter last year. The higher revenue in this first quarter was primarily due to two factors. First and most important was the $1.2 million of net products sales of KALBITOR, which became commercially available during the first quarter for the treatment of acute attacks of HAE in patients 16 years of age and older. Gustav will speak to the status of the KALBITOR launch in just a moment.

Secondly, there was $13.8 million of revenue recognized in relation to the license agreement with Cubist Pharmaceuticals. This Cubist revenue was previously deferred for financial reporting purposes and is now being recognized due to Cubist’s decision to terminate the development program for their licensed indication. DX-88 is for the reduction of blood loss during surgery.

The termination of the program is disappointing this indication was not part of our strategic core operating plans and also as no effect on KALBITOR for treating HAE. Cubist will complete the data analysis from their clinical studies and this data will be made available to Dyax.

With respect to operating expenses for the quarter, these costs decreased to $16.3 million from $29 million in 2009. As a reminder, included within the 2009 operating expenses are the costs associated with manufacturing DX-88 drug substance prior to FDA approval. This supply of KALBITOR is expected to meet our anticipated commercial needs well into 2011. Accordingly, product costs related to the sales for the quarter were nominal as these costs were previously expensed.

Within the operating costs our research and development expenses decreased by 60% to $7.8 million in 2010. And even excluding the 2009 DX-88 manufacturing costs this decrease was 44%.

Selling, General and administrative costs, which included commercial costs for the launch of KALBITOR increased in the first quarter of 2010 to $8.6 million as compared to $7.8 million for the same period last year. This increase is primarily related to selling and marketing costs associated with the launch of KALBITOR during the quarter.

Now, more relevant for comparative purposes, first quarter SG&A costs of $8.6 million increased over the immediately preceding quarter that is the fourth quarter of 2009, increased by $1.7 million which more accurately represents the added costs associated with KALBITOR’s launch.

For the first quarter of 2010, Dyax reported net income of $1 million or $0.01 per share as compared to a net loss of $24.9 million or $0.39 per share for the same quarter in 2009.

Keep in mind as revenue recognized under collaborations vary substantially from quarter to quarter such as in the first quarter with the recognition of Cubist revenue, Dyax does not expect to report net income in subsequent quarters in 2010.

As of March 31, 2010, Dyax had cash, cash equivalents and short-term investments totaling $88.7 million exclusive of restricted cash. This amount does not include $7.8 million of net proceeds we received in April from the underwriters overallotment associated with the March equity offering.

As you know in March, we successfully completed a common stock equity offering which including the underwriters overallotment provided net proceeds to Dyax of $59.6 million.

That cash balance at March 31, also does not include the $10 million received from the transaction with all capital for the sale of the royalty stream to one of our key assets, Xyntha. Portion of these proceeds were used to pay down our debt obligation to Cowen Healthcare Royalty Partners. And after these payments and other transaction costs Dyax received $6.8 million in net cash proceeds.

As a reminder, royalty stream is related to the Dyax phage display discovered peptide ligand that’s used in the purification process to make Wyeth's Factor A product Xyntha.

So including these two amounts Dyax would have had on a pro forma basis cash, cash equivalents and short-term investments totaling approximately $103 million as of March 31, 2010.

The March equity transaction provided us with a necessary capital to support the KALBITOR launch and to address strategic projects to carry out our business plan. In addition, it ensures that we will not be required to access the capital markets in the foreseeable future. At the same time the operating costs in 2009 and the first quarter 2010 demonstrate that we continue to be dedicated to prudent cash management.

During what is often considered at the most expensive stage for our company commercial launch we have effectively managed in fact lowered our operating costs. Our operating cash burn for this first quarter of 2010 approximately $13 million was in line with the most recent sequential quarters during the second half of 2009.

With respect to progress around the KALBITOR launch as I said Gustav will address that in just a moment. Keep in mind in the very early stages of the launch there is still a number of unknown variables including the payor mix, patient financial assistance and the time it takes for patient reimbursement and treatment side coordination. Also it’s too early to see trends with respect to the launch. So accordingly, we are not in a position to provide KALBITOR’s sales guidance over the initial phase of the launch which would encompass the next several quarters.

With that I’ll turn the call back to Gustav to review the KALBITOR launch and other corporate activities.

Gustav Christensen

Thank you, George. And now to the launch. Our goal is to make KALBITOR the treatment of choice for acute HAE attacks. To that end we are currently focusing our commercial team under following activities. Identifying and calling on physicians with HAE patients; educating them about KALBITOR and thirdly, facilitating meetings and discussions between these physicians and their patients. Once a patient makes a decision for KALBITOR they are then entered into our KALBITOR access systems.

This system provides a broad suite of services to assist patients and physicians to gain access to KALBITOR. The first ever the process is insurance verification. Other steps include reimbursement support services, treatment site coordination and financial assistance. So we have now put in place a comprehensive financial assistance program which offers several option for patients such as co-pay reduction, supports through a charitable foundation, and free drug for patients without insurance.

Now, having covered the KALBITOR access system I will move on to the progress made in these first couple of months of the launch. And the way we would report to you on the launch is through the total number of patients in the KALBITOR access system. And what we mean by in the system, we mean those patients who are actively seeking treatment. This includes patients that have been processed and now have KALBITOR placed at the chosen treatment site.

So to-date, we have 140 patients in the KALBITOR access system. And I am pleased to report that are those patients in the system, 32 have already made through the process and have drug placed, ready to treat the oncoming acute attacks.

So where did the 140 patients come from? About the half of these patients in the system are in fact new to KALBITOR. The other half of on the open label continuation study which was recently closed on March 31st and as you know treated nearly 150 patients. And while it’s still too early to tell how the payor mix will evolve over time. So far the last majority of patients in the system have commercial insurance. This is in line with our expectations.

Also, consistent with our expectations is a payor communities' receptiveness to KALBITOR. In fact, today, no patient has been denied coverage. So overall, our launch is on track and we are excited about the early progress.

As we have stated in the past our aim is to also make KALBITOR accessible in key markets outside the U.S. through regional partner sales. We are in advance discussions with multiple companies including in Europe and in Japan.

So I also want to report to you that we recently signed a commercial partnership with the Neopharm Group in Israel. Neopharm has deep experience in marketing often and niche products in Israel. And we are pleased to partner them in this 50-50 profit sharing arrangement. They have already filed for KALBITOR reimbursement with the Israeli authorities and will file the registration dossier mid-year.

Important to note is that in the meantime Neopharm will be able to treat patients on a name patient basis by reaching out to Israel’s HAE patient organization which is well-organized. We look forward to working with our new partner and plan to sign additional partnerships in the EU and elsewhere to bring KALBITOR to HAE patients around the world.

Our KALBITOR (inaudible) important near and long-term value for Dyax. However, we have other value building elements in our business model. The other near-term elements include the therapeutic expansion of DX-88 beyond its FDA approved use in HAE and other phage display licensing and fund the research program.

Now, starting with DX-88, a new indication, the physicians sponsored trial in n ACE inhibitor induced angioedema is now enrolling patients. In the Phase I trial in RVO induced macular edema, which is being pursued by our partner Fovea Pharmaceuticals, a business unit of Sanofi-Aventis is actively treating patients as well. We are looking forward to reporting to you on progress in this space.

Because of its unique mechanism of action, as the selective plasma kallikrein inhibitor, DX-88 has the potential to be useful in other indications and therefore we continue to explore opportunities in other unmet medical needs.

(inaudible) drives and has driven our business model is our proprietary drug discovery technology phage display. In addition to generating our internal pipeline we also leverage our phage display technology in license arrangements with other companies under the LFRP. This program has created value for Dyax in three ways.

First, by providing a steady stream of current cash flow, second, to be used as security by accessing cash and third, by offering us potential for significant future cash flow and its clinical products progress and enter the marketplace. The ever increasing value of the LFRP was again highlighted in the recent transaction with Paul Capital as George described earlier.

But I also want to remind you that behind Xyntha there is an extensive licensee pipeline of LFRP clinical stage compounds. This pipeline currently includes 17 drug candidates in clinical development, including two in Phase III. As these programs mature and become commercialized they have the potential to generate substantial revenue for Dyax.

So the start of 2010 has indeed been very productive. The KALBITOR commercial launch is off to a promising start. 32 patients already have KALBITOR available to them for treatment and over 100 more patients are working through the process.

We also make steps to advance our worldwide commercial strategy for KALBITOR including moving forward discussions for additional regional partnerships. And importantly, we substantially strengthened our balance sheet. So we are well capitalized for this stage of growth.

And while KALBITOR and HAE is our near-term value driver, other value drivers include evaluations in other indications outside of HAE. A dynamic phage [ph] display licensing program and a robust pipeline of preclinical candidates.

So I look forward to updating you soon on further developments. And I will now turn the line back over to the operator to being the Q&A portion of the call. Thank you.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Mark Monane with Needham & Co. Please go ahead.

Mark Monane – Needham & Co.

Good morning and thank you. Greetings from New York City, where it's a little cloudy but the sun is breaking through.

Gustav Christensen

Thank you, Mark.

Mark Monane – Needham & Co.

So speaking of the sun and the cloud and the mixture, maybe you could tell us a little bit about what your market research your early education has shown regarding the potential or the potential treatments in HAE. You said rather clearly that you were educating doctors on KALBITOR and identifying doctors who have patients with HAE. Some of them may be on prophylaxis therapy. Is there a central messaging that you’re using regarding the use of prophylaxis in acute therapy? And/or have you derived any feedback from physicians yet on how they intend to use both because now both are available for patients in the real world?

Gustav Christensen

No, I think we are not really competing with prophylactic. They are focused on a different patient group than we are. There is over 6,000 patients available for acute treatments. So we are pursuing, identifying these patients. The process as we talked about and even before the launch still is that you need to present KALBITOR to the doctor so he can discuss it with the patient. And the processing goes on and the patient chooses KALBITOR, we have put in place the system that supports the doctor and patient getting access to KALBITOR including setting up the treatment sites. So to me I think what we are seeing is what we expect and what we plan for. That the launch is on track, we are pleased with the progress, we have to do all the things we talked about and we are getting good at it.

We also see of course that having that there has been activity in this marketplace for the last year is helpful in terms of the knowledge of HAE and treatments. In terms of the payors we have met very informed payors. They have been positive to KALBITOR so in many ways that is maybe helpful but again it’s early days, it’s hardly maybe two months into the launch and most of our assumptions really are proving true and what the real positive our take home method is that there is interest from doctors and the support from payors. And there is interest from patients who want treatment.

Mark Monane – Needham & Co.

That was helpful. And then following up on that what benchmarks is the team using in terms of a measurement of success in the launch? I mean George presented some information on sales numbers; you presented information on patients in the system. How you think about measures of success so far early in the process?

Gustav Christensen

So the way I think (inaudible) we are building a patient base that have KALBITOR place for the acute attacks as they have them as they decide to treat them. So for us to build a long-term sustainable business including patients on KALBITOR. So we feel very good about driving as to if you look at the number sales people the time it takes it to set up calls and meetings to have after couple of months, 140 patients in the KALBITOR access system. And in this period of time have 32 patients through with drug placed even the placement saying take some time. We think this is a very positive reflection of the need and the interest.

Mark Monane – Needham & Co.

And then one last question for George. Thank you, Gustav. And for the team is how many people now at the Dyax and what's the appropriate number of going forward for 2010?

George Migausky

So how many employees –?

Mark Monane – Needham & Co.

Yes.

George Migausky

Dyax currently is about 130 employees of the company.

Mark Monane – Needham & Co.

And what's the optimal number for 2010?

George Migausky

The number we have now is a reasonable optimal number for this year.

Mark Monane – Needham & Co.

Very good. Thanks for the added information and we look forward to further information on the launch as it progresses. Congratulations.

George Migausky

Thank you, Mark.

Operator

(Operator instructions) And your next question comes from the line of Phil Nadeau with Cowen & Company. Please go ahead.

Phil Nadeau – Cowen & Co.

Good morning. Thanks for taking my questions. A few questions on the launch. Gustav, on the 110 patients who seem to be working their way through the system but have yet to actually receive drug, can you give us some idea of what the rate-limiting step is for them? Is it insurance coverage or is there something else that takes some time?

Gustav Christensen

No, we haven’t really seen a rate-limiting steps. Some payors move patients through faster than others if you look at other biological drugs they tend to talk about 90 or even 90 to 120 days. So that we after less than three months have 32 patients already not only through reimbursement also with product place, we see as a very positive sign. But I just want to state again it’s based upon small numbers so far after a couple of months, so we see it as supporting again the need for the treatment and the support for the treatment also from the payors.

Phil Nadeau – Cowen & Co.

So could you give us some idea of when those 110 patients could receive their doses of drug?

Gustav Christensen

So there is two steps. So we talk about we are putting in place a patient base that have KALBITOR set for them to go to get treatment when they have acute attacks. The treatment will take place when they decide to go treat an acute attack. So again, the way we think about building a sustainable business is to have this patient base in place the product. So we have as we said nobody has been turned down for reimbursement we have not met blockings that would indicate dosing. And it’s still early. So it really is a matter of getting the letters done, the papers done and the decision made in whatever committee of group that particular payor has. So I guess so far again, verifying there is interest from the doctors, clearly from the patients, the payor seems to be very supportive, it’s just you got to build your patient base and that’s we’re doing.

Phil Nadeau – Cowen & Co.

And then on the people who are on open label extension study I believe you had 140 patients on that study and you say that 70 are now somewhere in the process of getting commercial drug. What happened to the other 70? Would you expect them to enter the process sometime soon or some of those been lost?

Gustav Christensen

Sure, we expect that, but like all other patients there need to be meetings between doctor-patients to make decisions, get the papers to allow and get into the system. And so that’s really, they are like other patients except they are predisposed to KALBITOR. So and again, just to and they are access to free product up through the end of March. So there hasn’t been pressure on them really till this month.

Phil Nadeau – Cowen & Co.

Okay, great. Those were my questions. Thanks for taking.

Operator

Your next question comes from the line of Behazar Agazadi [ph]. Please go ahead.

Behazar Agazadi – Sara Capital

Yes, hi, thank you. It’s Behazar Agazadi [ph] from Sara Capital [ph]. Just trying to understand the Israeli opportunity, if you will. Did I understand it right that they are filing for regulatory some time? I think perhaps later this year in the summer. But that they can already start treating patients on a name basis. What's the pricing going to be during the period? And is this a model that could be rolled out in other countries ahead of formal approval? Thank you.

Gustav Christensen

Sure. Maybe Ivana should answer this.

Ivana Magovcevic-Liebisch

Sure. So absolutely, absolutely, right. This is a model that we work in other countries where there is an opportunity to treat patients in the name patient basis. Prior to approval and the reason we signed the transactions with Israel is precisely for that reason. There are a number of the patients. They have already been identified in Israel. There is a strong HAE organization present in Israel. And the fact that while we are going through the approval process which is based on the FDA approval can treat these patients on the name patient basis and can basically use the US price while we’re doing that. So it’s a very attractive opportunity for us and as Gustav mentioned it is 50-50 split. So yes, it is something that we rolled out in Israel and we will be rolling out in other regions of the world where you can treat on a name patient basis.

Behazar Agazadi – Sara Capital

Perhaps if I just may follow up are there any large countries that you could tell us at this point that would theoretically fall into this umbrella?

Ivana Magovcevic-Liebisch

Well, there are a number of regions in the world where you can use the FDA approval to gain approval in that country, so you can use your PLA [ph] package, countries in South America, for example, Australia are examples, South Africa is another example. And in all those regions you can also have name patient base [ph] sales prior to approval. There’s several regions in the world where that is applicable.

Behazar Agazadi – Sara Capital

That’s all I have. Thank you very much.

Ivana Magovcevic-Liebisch

Thank you.

Operator

(Operator instructions) We have a follow up question from the line of Mark Monane of Needham & Co. Please go ahead.

Mark Monane – Needham & Co.

I'm looking at my notes here and I think I heard that 32 HAE patients are in the system and ready to be treated. Did I get that number right? And did you mentioned how many have been treated to-date?

Gustav Christensen

So, yes, there is 140 patients in the access system. Of those 32 have gone all the way through including having product placed either at doctors' office and ER off at some places only in the ER depending on how they choose their treatment sites. So they are set up and ready to be treated for their next attack.

Mark Monane – Needham & Co.

All right. And I know that you had an ambitious program about targeting the high use or the allergist immunologist that might be the most likely to get in contact with these HAE patients. Have you been able to have visits with those? Has the training been completed? And have you been able to touch all those physicians yet?

Gustav Christensen

Sure, we have Wave 1 and Wave II lists of doctors, 300 or 1,000 so on. All based upon information as to how many patients that they treat. And as you know from other disease areas that may not always be exactly the correct number, but currently, we certainly are focusing on doctors that we know to have HAE patients. Then the next step, of course, is for these doctors to schedule meetings with their patients to talk about this. This is a basic group and doesn’t necessarily see the doctor all the time because treatment has not been available to them. So then you have to work the process, educate them, and so far, it has gone very well.

Mark Monane – Needham & Co.

Very well, good. And then I heard an update on the physician sponsor trial in ACE induced angioedema. I believe there was another trial looking at acquired angioedema or idiopathic angioedema. Do you have a status update on that trial, please?

Gustav Christensen

Maybe Bill?

Bill Pullman

Yes, sure. In terms of the patient use acquired we’re putting the last steps in place to allow the best treatment in the Italian sites.

Mark Monane – Needham & Co.

Oh, great. Terrific, thanks for the added information.

Operator

There are no other questions in queue. I would like to turn the call back over to Gustav Christensen for any closing remarks.

Gustav Christensen

Well, thank you very much and we look forward to keep you informed about our progress. Have a good day. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.

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