Dyax Corp. Q2 2008 Earnings Call Transcript

Jul.23.08 | About: Dyax Corp. (DYAX)

Dyax Corp. (NASDAQ:DYAX)

Q2 2008 Earnings Call Transcript

July 23, 2008 10:00 am ET

Executives

Henry Blair – Chairman, President and CEO

Gustav Christensen – EVP and Chief Business Officer

Bill Pullman – EVP and Chief Development Officer

Analysts

Mark Monane – Needham & Company

Jason Kolbert – SIG

Phil Nadeau – Cowen & Co.

Katherine Xu – Credit Suisse

Boris Buhach [ph] – Kevin Capital [ph]

Operator

Good morning, and welcome ladies and gentlemen to Dyax Corporation's Second Quarter 2008 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 Henry Blair, Chairman, President and Chief Executive Officer of Dyax, the company will read their Safe Harbor Statement.

Unidentified Participant

This morning, Dyax issued a press release concerning its second quarter in 2008 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 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 releases today and described or referred to in its most recent Form 10-Q and other periodic reports filed with the SEC and available on the Company's web site at www.dyax.com. At this time, I will now turn the call over to Henry Blair. Henry?

Henry Blair

Thank you. Good morning and thank you for joining Dyax's second quarter earnings call. Prior to opening up the lines for Q&A, I'll outline some financial highlights from this period and briefly review some of the developments from the first half.

Joining me today from our senior and management team are Gustav Christensen, Executive Vice President and Chief Business Officer; Ivana Magovcevic-Liebisch, EVP and General Counsel; and Bill Pullman, EVP and Chief Development Officer.

Our Executive team will be joined by a new member next month as we have successfully concluded our search for a Chief Financial Officer. As planned, Steve Galliker has stepped down as EVP and CFO. We wish him all the best in his retirement, and thank him for his significant contributions to the building of Dyax.

Now turning to our financial performance for the second quarter and first half, I refer you to the press release of this morning for detailed results. However, financial highlights are as follows. Net loss for the second quarter was $24.9 million or $0.41 per share, compared to a net loss of $17.9 million or $0.37 per share for the same quarter last year. For the first six months of 2008, we reported a net loss of $46.2 million or $0.76 per share versus a net loss of $37.9 million or $0.81 per share for the same six-month period last year.

In the second quarter, Dyax recorded a restructuring charge of $3.8 million in relationship to the closure of the Belgium research facility. Our total revenue for the second quarter increased to $3.8 million versus $2.6 million for the same quarter last year. Revenues for the first six months of 2008 were $6.5 million versus $5.3 million in 2007. The increase is primarily due to revenues associated with the Cubist agreement completed in the second quarter.

Research and Development expenses for the quarter increased to $18 million versus $15.5 million for the second quarter of 2007. For the first six months of 2008, research and development expenses slightly decreased to $31.1 million versus $35.8 million for the same six-month period last year.

As of June 30th, 2008, Dyax had a total of $67.9 million in cash, cash equivalents, long and short-term investments, exclusive of any restricted cash with effective gains for the balance of 2008.

In preparation for the Company's first product candidate to undergo regulatory submission and review, we have made a number of important strategic decisions aimed at reducing costs and preparing for product commercialization. As part of this strategy, a decision was announced in April to close our Belgium research facility and consolidate discovery in pre-clinical programs within our Cambridge headquarters. The closure is now complete, and will yield an average savings of approximately $7 million next year and beyond.

Following the completion of several strategic deals in the first half of 2008, including Sanofi-aventis and Cubist Pharmaceuticals, as well as the exclusive negotiation agreement with Dompe, 2008 cash consumption has already projected to be significantly lower than our 2007 burn of approximately $38 million. Currently, we have sufficient cash reserves to fund operations well under 2009. We anticipate an additional reduction to our cash burn through new partnerships and collaborations, which includes the completion of the European partnership for the angioedema indications.

Financing our needs are evaluated on an ongoing basis. We will continue with these efforts to improve the balance sheet by reducing expense and accessing external sources of cash. Our US commercialization of DX-88 for HAE remain our top priority. We continue to move forward with a multi-indication global strategy for the DX-88 franchise. Since the beginning of the year, we have made significant progress. Early in the second quarter, we announced a partnership with Cubist Pharmaceuticals to develop and commercialize DX-88 in surgical indications. I'll speak to the status of this agreement in a moment.

More recently, we announced an exclusive negotiation agreement with Dompe for a European license to DX-88 for all angioedema indications. To gain exclusive negotiation rights until September 30th, Dompe has invested $10 million in Dyax through a private placement of approximately 2 million shares, purchased at 57% premium to the July 10th closing price. This premium investment in Dyax highlights the value potential of the DX-88 franchise as well as the other significant assets of the Company.

Dompe's regulatory and commercial capabilities should add significantly to the DX-88 franchise in Europe. We look forward to finalizing the negotiations and entering into a definitive partnership with Dompe. The DX-88 clinical progress in hereditary angioedema is highlighted by the recent completion of the EDEMA4 study, a second Phase 3 trial. In the announcement of the trial completion, we gave notification of the requirement of transfer of clinical data base to a new CRO provider. This was a consequence of the June 30th closure of our former CRO, Battelle. Every step has been taken to ensure that the integrity of data and rapid transfer occurs. The transformation has been completed. Now data is now being managed by a major global CRO provider.

I would like to thank our in-house clinical operations team, specifically our clinical research associates, who carefully managed the entire EDEMA4 program. Top line results from the study will be announced once the data set has been locked and analyzed. These results will then be incorporated into the final sequence of our rolling BLA submission, which is expected to be filed early in the fourth quarter. We are taking great care to build a clinical package of the highest regulatory standards to support the BLA review of DX-88 for HAE. In the current regulatory environment, we believe this is of critical importance.

In addition, we being the largest placebo-controlled evaluation of any therapy used in the treatment of HAE, a clinical data set will consist of comprehensive and validated end points. All types of presenting and emerging attacks were evaluated in our Phase 3 studies. This included life-threatening laryngeal attacks. We believe our data accurately effects the progression of the multi-symptom attack profile often experienced by HAE patients.

We've also taken steps to ensure long-term value of DX-88 through a composition of (inaudible) patent which extends our protection until 2023. Before moving forward, I'd like to take a moment to acknowledge the patients, physicians and HAE association for their support.

Evident from the incredible response we received from patients and physicians, there's a clear desire for a treatment like DX-88, a fast acting, convenient product with no risk to viral contamination. We are excited about advancing to the next pivotal steps of the HAE program, and feel that improvable in HAE will lead to future therapeutic indications for DX-88. As I mentioned a moment ago, our partnership with Cubist was another key development in the overall DX-88 franchise. Cubist has a prudent record of success and developing a marketing a hospital-based therapeutic. DX-88's potential in stemming blood loss during surgery is an excellent fit with their sales force.

DX-88 is also a top priority to Cubist. It's the most advanced clinical program in Cubist pipeline. DX-88 leverages their strong acute care development capabilities. Cubist and Dyax goal is to move DX-88 into controlled, randomized Phase 3 trial in on-pump cardiothoracic surgery just as soon as possible. Having determined that the existing experience from the Phase 2 Kalahari trial sufficient to help with the design of a subsequent dose ranging trial, Cubist closed the study at the end of June. They are now focused on initiating a dose ranging Phase 2 trial by year end. Using the clinical experience from both Phase 2 trials, Cubist anticipates an early 2010 meeting with the FDA regarding the Phase 3 trial design.

We also made progress during the quarter in our licensing and funded research program or LFRP. It's one of the last remaining independent licensers of antibody discovery technology. We are in a unique position to leverage phage display of the higher value deals. This is reflected by yesterday's announced partnership with AVEO Pharmaceuticals, which included a unique structure not present and past transactions. In addition to our customary fees and milestone payments, Dyax has also entitled to other consideration should AVEO sub-license compounds discovered using Dyax's phage display libraries. This is in addition to royalties on net sales from products developed and commercialized by AVEO or its sub-licensees.

In total, the LFRP has over 70 licensees and collaborators in a valuable, maturing clinical stage pipeline. As product candidates from the LFRP move into commercialization, Dyax has the potential to earn significant milestones and royalties. LFRP licensees have advanced 13 product candidates in the clinical development and one product in commercialization. In summary, our accomplishments since the start of the year reflect the commitment to growth and transformation. The value of our DX-88 franchise is being realized through multiple partnerships and clinical progress. The value of potential oral phage to slide [ph] technology is being realized in three ways. First, through higher value of licensing agreement for our libraries, second through the growing portfolio of clinical and commercial stage LFRP compounds, and through and third through the success of our internally developed pipeline.

This diversified business strategy has allowed us to improve our balance sheet, while moving toward the ultimate goal of commercializing our first therapeutic product. Overall, we are pleased with the progress made during the quarter and half year, and look forward to building on this momentum. Within the DX-88 franchise, we have a number of milestones to look forward to in the coming months. These include announcement of top line results for EDEMA4, the following of our first ever BLA and the establishment of a European partnership with Dompe. We look forward to achieving these goals over the balance of the year and sharing our further successes with you.

Now, I would like to turn the line back to the operator and begin the Q&A portion of the call.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Your first question comes from the line of Mark Monane with Needham. Please proceed.

Mark Monane – Needham & Company

Good morning, and thanks for taking our question.

Henry Blair

Good morning, Mark.

Mark Monane – Needham & Company

We look forward to the EDEMA4 results. Couple of questions, starting off with more concretely, the Belgian facility, how many people where there and what responsibilities will be transferred over?

Henry Blair

There were 24 to 25 people there. Their responsibilities will be transferred over – their discovery responsibilities which can be integrated into our research – our discovery development program. So, there is no – there will be no gap whatsoever.

Mark Monane – Needham & Company

That is great. In terms of potential marketing and commercialization strategies for DX-88 in HAE in the US, what does your market research tell you about the users or prescribers of the medicine and of the potential drug? And what kind of sales force in your estimation would be sufficient to cover these prescribers?

Henry Blair

That's a complex question with the number. Different answers, I'm going to turn that over to Gustav Christensen to answer.

Gustav Christensen

Yes. First I should say that based on our market research, we believe there's a significant need for HAE product with the attributes of DX-88. It's a subcu administered protein plasma kallikrein inhibitor with no potential for viral contamination. You've also, as you know, have been diligent in our efforts to build a strong HAE clinical package, which includes validation of our comprehensive end points, we are the only one to have on all forms of HAE attacks, and a collection of a very expensive clinical data package. So, this expensive data package really includes the largest ever placebo-controlled evaluation of the treatment for HAE. So, overall I think between the regulatory pass way and the fact-based marketing that we have to do, we think we have a very, very strong product that is very attractive to patients and to doctors.

Mark Monane – Needham & Company

And in terms of, is it the immunologist that will be treating the patients or the emergency room physicians? What's your rheumatologist – what does the market research show?

Gustav Christensen

I think today it is the immunologists who are diagnosing the patients. Today the druggists know good treatment other than steroids, so today there is a limited number of allergists, immunologist who are the key opinion leaders who do the diagnosis. So, today you really do not need a very large sales force to reach those doctors.

Mark Monane – Needham & Company

Very helpful. And last question is, it's been very hot weather in New York City and a lot of – and speaking of hot, there's been a lot of attention to this hot area of HAE in recent weeks with some consolidation and partnership. Could you spend some time Henry and Gustav talking about what you see is the current state of the union out for HAE involving potential marketplace?

Henry Blair

I think the major thing is that the two deals that have just occurred validate the market for an HAE product both in the United States and Europe, which is extremely positive for us. We feel that we have by far the best product for a number of reasons that Gustav just went into, so I won't repeat them. So, I think it's a very positive move for us, and we are excited about getting our product out there and approve it, and feel that we can compete very effectively against anything else that might be approved.

Mark Monane – Needham & Company

Thanks for the additional information. We look forward to two future events.

Henry Blair

Thank you, Mark.

Operator

Your next question comes through the line of Jason Kolbert with SIG. Please proceed.

Jason Kolbert – SIG

Good morning, Henry. Thank you for the call, appreciate it, a couple of questions. Can you just remind us what involved in the rolling BLA process, and what section does the BLA have already been filed?

Henry Blair

Sure. What I think I'm going to do, I think I'm going to turn it over to Bill Pullman to actually answer that.

Bill Pullman

Yes. Thanks Henry. There are major sections to the rolling BLA, and I think as we've previously described, the two that have been submitted. Firstly, the chemistry manufacturing controlled dose [ph], and secondly the pre-clinical dose. So, the third and that was critical piece is the clinical information and all of the summary documents, the integrated summaries of safety and efficacy together with draft label and other supporting evidence.

Jason Kolbert – SIG

And Bill, when you submit sections, does that imply that the FDA is reviewing those sections on a rolling basis, and so therefore they've already looked at ZMC, they've already looked at Praxis, when would they be doing site inspections for example?

Bill Pullman

Yes. Rolling submissions do not imply rolling review. And I think that's all I can say on that topic.

Jason Kolbert – SIG

Okay. Can we switch gears for a little bit and just talk about the dose ranging study and the follow-up study to Kalahari 1. When could we expect whatever data we are going to see from Kalahari 1, and based on that data from Kalahari 1, is there any insight yet into what the next study might look like in terms of the power, the design, the end points which I would gather are likely to be different from Kalahari 1?

Henry Blair

It's Cubist's responsibility to announce the results. But Bill would you care to tell him a bit on what we've learned from Kalahari 1 during the second trial?

Bill Pullman

Yes. Certainly to the extent that it's reasonable to do so at the present time and so the Cubist integers to get the product for CTS to the market as soon as possible, and that means developing a robust development plan for – safety and efficacy and to do that getting into Phase 3 as soon as possible, while Phase 2 does respond study. And the experience from Kalahari 1 has certainly been very helpful, and will sufficiently inform the design of that Phase 2 dose response study. And Cubist is aggressively moving forward with preparations for that dose ranging trial, and subsequent information and design characteristics I'm sure will be shared by them.

Jason Kolbert – SIG

Okay. I won't pursue this more although I would love to understand the fact that they are pursuing dose response study almost implies little bit that they are satisfied with the activity of the drug, but may be it's early to draw that kind of conclusion?

Bill Pullman

Hard to say. This is Cubist's call, at this point.

Jason Kolbert – SIG

Okay. Fair enough.

Bill Pullman

Additional development program.

Jason Kolbert – SIG

Right. One last question, can you talk a little bit about, in your discussions with Dompe, was the steps towards Europe will be – how much of the US data will you be able to use, is there a presumption than your (inaudible) have to be running trials on the grounds in Europe or is there a perception that you may be able to use US data?

Henry Blair

Sure, and I'll offer to Bill.

Bill Pullman

I think in Europe, ICH harmonization, as well as the co-technical document. The experience acclaimed both in the US and other parts of world we conducted studies will be very essential and pivotal to market application in Europe.

Jason Kolbert – SIG

Thank you, guys. Appreciate the time.

Henry Blair

Thank you, Jason.

Operator

And your next question comes through the line of Phil Nadeau with Cowen, please proceed.

Phil Nadeau – Cowen & Co.

Good morning and thanks for taking my questions. My first is on the CRO closure. Could you talk about whether that could pose any problems to you in the FDA review process? Is it at all customary for you to have to go back to your row to get additional information at the FDA's request?

Henry Blair

The answer is no, but I'll Bill clarify that.

Bill Pullman

I'll just reiterate that that's purely an operational consideration. We are very comfortable and confident in the data, that's been collected and in fact we had our in-house (inaudible) service responsible for the conduct of the trial, the former CRO was secured for data management purposes and that has been a very facilitated transfer to a major CRO player. So, we anticipate no problems whatsoever.

Henry Blair

It cost us time, but other than that the share had no affect.

Phil Nadeau – Cowen & Co.

Great. My second question is on the room temperature formulation of DX-88 for HAE. Could you give us an update on its development?

Henry Blair

I think it's a bit early to do that, Phil. There are certainly things under consideration and as they become more formalized we would be happy to actually give out more information.

Phil Nadeau – Cowen & Co.

Okay. Thank you.

Henry Blair

Thank you, Phil.

Operator

(Operator instructions) And your next question is from the line of Katherine Xu with Credit Suisse. Please proceed.

Katherine Xu – Credit Suisse

Hi, good morning. Just wondering why in the second quarter result same as the first quarter given that you signed the Cubist agreement early in April, and then supposedly the expense in the CTS program has transferred to Cubist?

Henry Blair

Why are the R&D expenses about the same, is that what you are saying?

Katherine Xu – Credit Suisse

Yes.

Henry Blair

First and second quarter. We are still running in the Phase 2 trial during the second quarter.

Katherine Xu – Credit Suisse

Okay. So, is it going to be reimbursed (inaudible) later or –?

Henry Blair

Yes, it's being reimbursed by Cubist but the actual accounting for it may not be directly offsetting the cost. We are not – but there's a big discrepancy today in cash and actual P&L as I think you probably know if you had a chance to look at our statements that we just released.

Katherine Xu – Credit Suisse

Okay. With regards to the EDEMA4, what is exactly the requirement on the open label portion of the trial from this study design in the FDA perspective?

Henry Blair

(inaudible)

Gustav Christensen

Are you asking about inclusion, exclusion criteria in a way of what entry into the trial is about – I'm trying to understand the question.

Katherine Xu – Credit Suisse

But you have the placebo-controlled portion, and they have a open label portion.

Gustav Christensen

Great.

Katherine Xu – Credit Suisse

If you could remind us the requirement on the open label portion?

Gustav Christensen

Okay. So, the requirement of the open label portion is that the patients will have been screened and eligible for participation in the double-blind portion, and then therefore eligible because they have had experienced moderate and severe attacks, and therefore eligible for treatment in the open label continuation trial.

Katherine Xu – Credit Suisse

There's no minimum number of treatment in the open label portion required?

Gustav Christensen

No, there are not.

Katherine Xu – Credit Suisse

Are there any specific re-treatments requirements from the FDA?

Gustav Christensen

No, there are not.

Katherine Xu – Credit Suisse

Okay. Great. Thank you.

Henry Blair

Thanks a lot, Katherine.

Operator

(Operator instructions) And your next question is from the line of Boris Buhach [ph] with Kevin Capital [ph]. Please proceed.

Boris Buhach – Kevin Capital

Good morning.

Henry Blair

Good morning, Buhach.

Boris Buhach – Kevin Capital

I just wanted a little bit of clarity and follow-up on a question that was asked before. Obviously, there's some consolidation in the HAE market. Companies were taken out from multiples of your enterprise value despite having one asset essentially and very limited cash resources. So, they didn't have bargaining positions. Can you explain to me how you think about M&A and if you've been approached and how you dealt with situations if you were approached?

Henry Blair

The answer to the last question is we have not been approached. Should we receive an offer, it would be evaluated by the Board. However, we as an executive team and the Board are focused on building a fully integrated Company at this point in time.

Boris Buhach – Kevin Capital

Can you even just speculate on why you think you won't approach even though people are clearly looking at space?

Henry Blair

That's hard to answer. We are not just an HAE company.

Boris Buhach – Kevin Capital

Okay. Thank you.

Henry Blair

Thank you.

Operator

As there are no further questions in the queue at this time, I would like to turn the call back over to Dr. Henry Blair for closing remarks.

Henry Blair

I would like to thank you all for joining us today and we very much look forward to informing on our progress. 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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