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| DYAX > SEC Filings for DYAX > Form 10-Q on 2-May-2012 | All Recent SEC Filings |
2-May-2012
Quarterly Report
Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by our management and may include, but are not limited to, statements about:
? the potential benefits and commercial potential of KALBITOR® (ecallantide) for its approved indication and any additional indications;
? our commercialization of KALBITOR, including revenues and costs, and the potential benefits of new sales initiatives;
? the potential for market approval for KALBITOR in markets outside the United States;
? plans and anticipated timing for pursuing additional indications and uses for ecallantide and other product candidates to address plasma kallikrein (bradykinin) mediated angioedemas;
? plans to enter into additional collaborative and licensing arrangements for ecallantide and for other compounds in development;
? estimates of potential markets for our products and product candidates;
? the sufficiency of our cash, cash equivalents and short-term investments; and
? expected future revenues and operating results, including our financial guidance for 2012 and 2013.
Statements that are not historical facts are based on our current expectations, beliefs, assumptions, estimates, forecasts and projections for our business and the industry and markets in which we compete. We often use the words or phrases of expectation or uncertainty like "guidance," "believe," "anticipate," "plan," "expect," "intend," "project," "future," "may," "will," "could," "would" and similar words to help identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include, but are not limited to, those discussed later in this report under the section entitled "Risk Factors". Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether because of new information, future events or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission.
BUSINESS OVERVIEW
We are a biopharmaceutical company with two business elements:
The principal focus of our efforts is to identify, develop and commercialize treatments for conditions identified as plasma kallikrein (bradykinin) mediated angioedema, including hereditary angioedema (HAE), ACE inhibitor-induced angioedema (ACEI-AE) and angioedema of unknown origin, or idiopathic angioedema.
We developed KALBITOR (ecallantide) on our own, and since February 2010, we have been selling it in the United States for the treatment of acute attacks of HAE. Outside of the United States, we have established partnerships to obtain regulatory approval for and commercialize KALBITOR in certain markets and we are evaluating opportunities in others.
We are expanding our franchise for the treatment of angioedemas in the following ways:
? Advancing the clinical development of ecallantide for use in the treatment of
ACEI-AE.
? Identifying diagnostic strategies to assist in the differentiation between histamine-mediated and plasma kallikrein (bradykinin) mediated angioedema, including development of a laboratory test.
? Continuing our development of DX-2930, a fully human monoclonal antibody inhibitor of plasma kallikrein, which could be a candidate to prophylactically treat plasma kallikrein (bradykinin) mediated angioedemas.
We leverage our proprietary phage display technology through our Licensing and Funded Research Program, referred to as the LFRP. This program has provided us a portfolio of product candidates being developed by our licensees, which currently includes 18 product candidates in various stages of clinical development, including four in Phase 3 trials. The LFRP generated revenue of approximately $15 million in 2011 and to the extent that our licensees commercialize some of the Phase 3 product candidates, revenues under the LFRP are expected to experience significant growth over the next several years.
ANGIOEDEMA FRANCHISE
We are focused on identifying and developing treatments for patients who experience plasma kallikrein (bradykinin) mediated angioedema. Using our phage display technology, we developed ecallantide, a compound shown in vitro to be a high affinity, high specificity inhibitor of human plasma kallikrein. Plasma kallikrein, an enzyme found in blood, produces bradykinin, a protein that causes blood vessels to enlarge or dilate, which can cause swelling known as angioedema. Plasma kallikrein is believed to be a key component in the regulation of inflammation and contact activation pathways. Excess plasma kallikrein activity is thought to play a role in a number of inflammatory diseases, including HAE, ACEI-AE and idiopathic angioedema, all of which are plasma kallikrein (bradykinin) mediated angioedemas.
We have four key areas of activity in our angioedema franchise:
? HAE and KALBITOR. In February 2010, we began selling KALBITOR in the United States for treatment of acute attacks of HAE in patients 16 years of age and older. We are selling KALBITOR on our own in the United States. Working with international partners, we intend to seek approval for and commercialize KALBITOR for HAE and other angioedema indications in markets outside of the United States. We have entered into agreements for others to develop and commercialize subcutaneous ecallantide for the treatment of HAE and other therapeutic indications throughout Europe, Japan, Australia, New Zealand and other countries in North Africa, the Middle East, Latin America (excluding Mexico) and the Caribbean.
? Clinical trials for ACEI-AE. There are two ongoing clinical studies exploring the use of ecallantide for the treatment of ACEI-AE, a life threatening inflammatory response brought on by adverse reactions to angiotensin-converting enzyme (ACE) inhibitors. In August 2011, we commenced patient treatments in a dose-ranging Phase 2 clinical study. There is also an investigator-sponsored trial being conducted at the University of Cincinnati, College of Medicine.
? Identification of plasma kallikrein (bradykinin) mediated angioedemas. As part of extending the angioedema franchise, we have launched a program to identify one or more diagnostic strategies that will assist in the differentiation of plasma kallikrein (bradykinin) mediated angioedema from histamine-mediated angioedema, in order to direct appropriate treatment. These tools are expected to be relevant to both normal C1-INH and C1-INH deficient patients and will enable the identification of plasma kallikrein (bradykinin) mediated angioedema, including Type III HAE and angioedema of unknown origin, or idiopathic angioedema.
? DX-2930 - Antibody for plasma kallikrein (bradykinin) mediated angioedemas. Leveraging our knowledge of angioedema and the kallikrein-kinin pathway, we are investigating the use of a fully human monoclonal antibody that is an inhibitor of plasma kallikrein and which would be a candidate to prophylactically treat plasma kallikrein (bradykinin) mediated angioedemas. After completing a series of pharmacokinetic, tolerability and preclinical studies, we believe DX-2930 may be effective for prophylactically treating these indications. We expect to file an Investigational New Drug application (IND) for this antibody in mid-2013.
HAE AND KALBITOR
HAE is a rare, genetic disorder characterized by severe, debilitating and often painful swelling, which can occur in the abdomen, face, hands, feet and airway. HAE is caused by a deficiency of C1-INH activity, a naturally occurring molecule that inhibits plasma kallikrein, a key mediator of inflammation, and other serine proteases in the blood. It is estimated that HAE affects between 1 in 10,000 to 1 in 50,000 people around the world. Based upon HAE patient association registries, we estimate there is an immediately addressable target population of approximately 6,500 patients in the United States.
Ecallantide was approved by the FDA under the brand name KALBITOR for treatment of HAE in patients 16 years of age and older regardless of anatomic location. KALBITOR, a potent, selective and reversible plasma kallikrein inhibitor that we discovered and developed, was the first subcutaneous HAE treatment approved in the United States.
As part of the product approval of KALBITOR, we have established a Risk Evaluation and Mitigation Strategy (REMS) program to communicate the risk of anaphylaxis and the importance of distinguishing between hypersensitivity reaction and HAE attack symptoms. To communicate these risks, the REMS required a communication plan through February 2012, which consisted of a "Dear Healthcare Professional" letter that was provided to doctors identified as likely to prescribe KALBITOR and treat HAE patients.
In February 2010, we also initiated a 4-year, Phase 4 observational study which is being conducted with up to 200 HAE patients to evaluate immunogenicity and hypersensitivity with exposure to KALBITOR for treatment of acute attacks of HAE. The study is designed to identify predictive risk factors and develop effective screening tools to mitigate the risk of hypersensitivity and anaphylaxis.
United States Sales and Marketing
We have a commercial organization to support sales of KALBITOR in the United States, including a field-based team of approximately 30 professionals, consisting of sales representatives and corporate account directors. At this time, our commercial organization is sized to effectively market KALBITOR in the United States, where patients are treated primarily by a limited number of specialty physicians, consisting mainly of allergists and immunologists.
KALBITOR Access®
To facilitate access to KALBITOR in the United States, we have established the KALBITOR Access program, designed as a one-stop point of contact for information about KALBITOR. This program offers treatment support services for patients with HAE and their healthcare providers. KALBITOR case managers provide comprehensive product and disease information, treatment site coordination, financial assistance for qualified patients and reimbursement facilitation services.
Distribution
KALBITOR is distributed through exclusive wholesale and co-exclusive specialty pharmacy arrangements.
We have agreements with two wholly owned subsidiaries of AmerisourceBergen Specialty Group, Inc. (ABSG) for the distribution of KALBITOR:
? US Bioservices Corporation (US Bio), serves as a specialty pharmacy for KALBITOR and also administers KALBITOR Access, which provides comprehensive call center services for patients and healthcare providers seeking information and access to KALBITOR; and
? ASD Specialty Healthcare Inc. (ASD), serves as a wholesale distributor for KALBITOR to treating hospitals in the United States.
These agreements have a term through November 2012, which will renew for an additional two years unless amended or terminated by the parties. Each agreement contains customary termination provisions and may be terminated by us for any reason upon six months prior written notice.
In August 2011, we expanded our distribution network to provide home infusion of KALBITOR through a specialty pharmacy arrangement with Walgreens Infusion Services, Inc. (Walgreens). Under this renewable one-year agreement, Walgreens provides eligible HAE patients with on-demand nursing services for the home administration of KALBITOR by a healthcare professional, as well as treatment at Walgreens' infusion centers.
Single-Injection Ecallantide Formulation
We are currently in the process of developing a more convenient formulation of ecallantide, which is intended to allow for a single-injection of KALBITOR, instead of the current three-injection formulation. During the fourth quarter of 2011, we completed a bioequivalence clinical study which successfully demonstrated bioequivalence between the current formulation and the new single-injection formulation. Upon demonstration of appropriate stability of the new formulation, we expect to file a supplemental Biologics License Application (BLA) with the FDA in 2012.
Manufacturing
We have established a commercial supply chain, consisting of third parties to manufacture, test and transport KALBITOR. All third party manufacturers involved in the KALBITOR manufacturing process are required to comply with current good manufacturing practices, or cGMPs.
To date, ecallantide drug substance used in the production of KALBITOR has been manufactured in the United Kingdom by Fujifilm Diosynth Biotechnologies (UK) Ltd. (Fujifilm). Our current inventories are sufficient to supply all ongoing studies relating to ecallantide and to meet anticipated KALBITOR market demand into 2014. We are also in the process of having Fujifilm manufacture additional ecallantide drug substance, which is expected to be released during 2012. Under existing arrangements with Fujifilm, they have agreed to conduct additional manufacturing campaigns, as necessary, to supplement existing inventory.
The shelf-life of our frozen ecallantide drug substance is four years. Ecallantide drug substance is filled, labeled and packaged into the final form of KALBITOR drug product by Hollister-Steir at its facilities in Spokane, Washington under a commercial supply agreement. This process, known in the industry as the "fill and finish" process, is not unique to KALBITOR and alternative manufacturers are available in the event that we elect, or are required, to relocate the "fill and finish" process. KALBITOR in its "filled and finished" form has additional refrigerated shelf-life of three years.
Ecallantide outside of the United States
In markets outside of the United States, we intend to work with international partners to seek approval and commercialize ecallantide for HAE and other angioedema indications. We have entered into license or collaboration agreements with several such companies, which have regulatory capabilities, distribution systems and sales capabilities in their designated territories.
Sigma-Tau - We have a collaboration agreement with Sigma-Tau Rare Diseases S.A. (as successor-in-interest to Defiante Farmaceutica S.A.), a subsidiary of Sigma-Tau SpA (Sigma-Tau) to develop and commercialize subcutaneous ecallantide for the treatment of HAE and other therapeutic indications throughout Europe, North Africa, the Middle East, Russia, Australia, New Zealand, Latin America (excluding Mexico) and the Caribbean . Under the terms of the agreement, as amended, Sigma-Tau made an aggregate of $7.0 million in upfront payments to us and also purchased 787,647 shares of our common stock for an aggregate purchase price of $3.0 million. We are also eligible to receive over $100 million in development and sales milestones related to ecallantide and royalties equal to 41% of net sales of product, as adjusted for product costs.
Sigma-Tau will pay the costs associated with regulatory approval and commercialization in the licensed territories. In addition, we and Sigma-Tau will share equally the costs for all development activities for future indications developed in partnership with Sigma-Tau.
CMIC - In Japan, we have an agreement with CMIC Co., Ltd (CMIC) to develop and commercialize subcutaneous ecallantide for the treatment of HAE and other angioedema indications. Under the terms of the agreement, we received a $4.0 million upfront payment. We will also be eligible to receive up to $102 million in development and sales milestones for ecallantide in HAE and other angioedema indications and royalties of 20%-24% of net product sales. CMIC is solely responsible for all costs associated with development, regulatory activities, and commercialization of ecallantide for all angioedema indications in Japan. CMIC will purchase drug product from us on a cost-plus basis for clinical and commercial supply.
CMIC has a clinical development plan that was established in consultation with the Japanese regulatory authorities. CMIC has completed a twelve patient pharmacokinetic study and, to fulfill submission requirements, the company is required to complete an open-label study of ten patients which is scheduled to begin in the second half of 2012. Assuming successful completion of the open-label study, CMIC plans to commercialize subcutaneous ecallantide for the treatment of HAE in Japan as early as 2014.
Neopharm - In Israel, we have an agreement with Neopharm Scientific Ltd., (Neopharm) to obtain regulatory approval and commercialize ecallantide for HAE and other angioedema indications. Under the terms of the agreement, we will provide Neopharm drug supply at a price equal to 50% of net sales. In June 2011, Neopharm received a commercial registration license from the Israeli Ministry of Health. Consideration for reimbursement approval is expected in late 2012.
Other than the specific licenses granted to Sigma-Tau, CMIC and Neopharm, as described above, we retain the rights to ecallantide for HAE and other angioedemas in all other territories.
ACEI-AE AND ECALLANTIDE
ACEI-AE is another form of angioedema. It is induced by the use of medications that are inhibitors of angiotensin-converting enzyme (ACE), which medications are referred to as ACE inhibitors. With an estimated 51 million prescriptions written annually worldwide, ACE inhibitors are widely prescribed to reduce hypertension and generally to reduce high blood pressure and vascular constriction. It is estimated that up to 2% of patients treated with ACE inhibitors suffer from angioedema attacks, or ACEI-AE, which represent approximately 30% of all angioedema attacks treated in emergency rooms. Research suggests that the use of ACE inhibitors increases levels of bradykinin, which in turn causes blood vessels to enlarge and can cause angioedema. Ecallantide, a specific inhibitor of plasma kallikrein, an enzyme needed to produce bradykinin, has the potential to be effective for treating this condition.
We are conducting a Phase 2 double-blind, placebo-controlled, dose-ranging clinical study of ecallantide in 176 patients with this ACEI-AE indication. We commenced patient treatments in this study in August 2011. An additional double-blind, placebo-controlled, randomized clinical study using ecallantide in 50 patients for this indication is being conducted by Drs. Jonathan Bernstein and Joseph Moellman, at the University of Cincinnati, College of Medicine. Data from both clinical studies is expected in 2012.
IDENTIFICATION OF PLASMA KALLIKREIN (BRADYKININ) MEDIATED ANGIOEDEMAS
We have launched a program to identify one or more diagnostic strategies that will assist in the differentiation of plasma kallikrein (bradykinin) mediated angioedema from histamine-mediated angioedema, in order to direct appropriate treatment. These tools are expected to be relevant to both normal C1-INH and C1-INH deficient patients and will enable the identification of plasma kallikrein (bradykinin) mediated angioedema, including Type III HAE and angioedema of unknown origin, or idiopathic angioedema. A laboratory based test is expected to be available for clinical validation in 2013.
PLASMA KALLIKREIN ANTIBODY - DX-2930
We are currently in preclinical development of DX-2930, a potent and specific fully human monoclonal antibody that is an inhibitor of plasma kallikrein and which would be a candidate to prophylactically treat plasma kallikrein (bradykinin) mediated angioedema. DX-2930 provides the potential for a subcutaneous formulation, with a half-life which could enable less frequent dosing than currently available therapies and an advantageous immunogenicity profile. We have completed a series of preliminary preclinical pharmacokinetic and tolerability studies and found DX-2930 to have relevant activity in animal models. We expect to file an IND for this antibody in mid-2013.
LICENSING AND FUNDED RESEARCH PROGRAM
LFRP Product Development
We believe that our phage display libraries, which we have developed using our core technology and know-how, represent a leading technology in antibody discovery. We leverage our proprietary phage display technology and libraries through our LFRP licenses and collaborations. To date, we have received more than $165 million under the LFRP, primarily related to license fees and milestones, including approximately $15 million of revenue in 2011. The LFRP has the potential for substantially greater revenues, if and when product candidates that are discovered by our licensees receive marketing approval and are commercialized.
To date, we have entered into over 100 LFRP license agreements. Currently, 18 product candidates generated by our licensees or collaborators under the LFRP portfolio are in clinical development, four of which are in Phase 3 trials, four are in Phase 2 and ten are in Phase 1. In addition, one product has received market approval from the FDA. Furthermore, we estimate that our licensees and collaborators have over 70 additional product candidates in various stages of research and preclinical development. Our licensees and collaborators are responsible for all costs associated with development of these product candidates. Generally, we receive milestones and/or royalties from our licensees and collaborators to the extent these product candidates advance in development and are ultimately commercialized. We expect to receive royalties from commercial sales beginning in 2014.
Under loan arrangements with affiliates of Cowen Healthcare Royalty Partners (Cowen Healthcare), we have obtained debt funding of up to $80 million, secured exclusively by the LFRP, which is described further below under "Cowen Healthcare Financing".
The chart below provides a summary of the clinical stage product candidates under the LFRP and is based on information publicly disclosed by licensees.
[[Image Removed: GRAPHIC]]
Currently, the types of licenses and collaborations that we enter into under the LFRP have one of three distinct structures:
? Library Licenses. Under our library license program, we grant our licensees rights to use our phage display libraries in connection with their internal therapeutic development programs. These libraries are protected by a patent portfolio in which the last patent is scheduled to expire in 2024. We also provide these licensees with related materials and training so that they may rapidly identify compounds that bind with high affinity to therapeutic targets. The period during which our licensees may use our libraries is typically limited to a 4 to 5 year term. Library license agreements contain up-front license fees, annual maintenance fees, milestone payments based on successful product development, and royalties based on any future product sales. We have approximately 20 library licensees, including Amgen, Aveo, Bayer Schering, Biogen Idec, Boehringer Ingelheim, CSL Behring, ImClone Systems (a wholly-owned subsidiary of Eli Lilly), Kadmon, Merck Serono, Novo Nordisk, sanofi-aventis and Emergent BioSolutions (formerly known as Emergent Trubion).
? Funded Research.?Under our funded research program, we have performed funded research for various collaborators using our phage display libraries to identify, characterize and optimize antibodies that bind to disease targets provided by the collaborators. Funded research agreements provide for fees, technical and development milestones, and royalties based on any future product sales. Our funded research collaborators with products currently in development include Baxter Healthcare, Biogen Idec, Merck Serono, Merrimack, and Emergent BioSolutions (formerly known as Emergent Trubion).
? Patent Licenses.?Under our patent license program, we previously granted other biopharmaceutical and pharmaceutical companies non-exclusive licenses to use certain of our phage display patents to discover and develop biologic compounds for use in specified fields. The last of these patents will expire in November 2012. We do not anticipate entering into future agreements for this patent portfolio after expiry.
We expect to continue to enter into library licenses and collaborations to maximize the strategic value of our LFRP.
Results of Operations
Three Months Ended March 31, 2012 and 2011
Revenues. Total revenues for the three months ended March 31, 2012 (the 2012 Quarter) were $11.5 million, compared with $8.2 million for the three months ended March 31, 2011 (the 2011 Quarter).
Our financial guidance for total revenue in 2012 is $50 to $54 million, including KALBITOR sales of $36 to $40 million.
Product Sales. We began commercializing KALBITOR in the United States in 2010 for treatment of acute attacks of HAE in patients 16 years of age and older. We sell KALBITOR to our distributors, and we recognize revenue when title and risk of loss have passed to the distributor, typically upon delivery. Due to the specialty nature of KALBITOR, the limited number of patients, limited return rights and contractual limits on inventory levels, we anticipate that distributors will carry limited inventory.
We record product sales allowances and accruals related to trade prompt pay discounts, government rebates, a patient financial assistance program, product returns and other applicable allowances. For the 2012 Quarter, product sales of KALBITOR increased to $8.0 million, net of product discounts and allowances of $599,000 compared with product sales of $4.1 million, net of product discounts and allowances of $186,000 during the 2011 Quarter. The 2012 increase in net sales was primarily due to additional KALBITOR units sold in the 2012 Quarter.
Development and License Fees. We derive revenues from licensing, funded research and development fees, including milestone payments from our licensees and collaborators, in amounts that fluctuate from period to period due to the timing of the clinical activities of our collaborators and licensees. This revenue was $3.5 million in the 2012 Quarter and $4.1 million in the 2011 Quarter.
Cost of Product Sales. We incurred $538,000 of costs associated with product sales during the 2012 Quarter and $239,000 of costs associated with product sales during the 2011 Quarter. These costs primarily include the cost of testing, filling, packaging and distributing the product, as well as a royalty due on net sales of KALBITOR. Costs associated with the manufacture of KALBITOR prior to FDA approval were previously expensed when incurred, and accordingly are not included in the cost of product sales during these periods. The supply of KALBITOR produced prior to FDA approval is expected to meet anticipated . . .
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