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| DYAX > SEC Filings for DYAX > Form 10-Q on 2-Aug-2012 | All Recent SEC Filings |
2-Aug-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;
? the impact of the expiration of certain of our phage display patents under the LFRP; 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 angioedemas that are identified as plasma kallikrein (bradykinin) mediated, including hereditary angioedema (HAE) and 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:
? 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 and idiopathic angioedema, all of which are plasma kallikrein (bradykinin) mediated angioedemas.
We have three 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 the Middle East.
? 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 C1esterase inhibitor (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 begin clinical validation in 2013.
? 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.
In addition, through June 2012, we were conducting a Phase 2 clinical study exploring the use of ecallantide for the treatment of ACE inhibitor-induced angioedema (ACEI-AE), a life threatening inflammatory response brought on by adverse reactions to angiotensin-converting enzyme (ACE) inhibitors. Based on the results of an interim analysis of data from the study, we decided to discontinue this trial. An independent investigator-sponsored trial exploring the use of ecallantide for the treatment of ACEI-AE is being conducted at the University of Cincinnati, College of Medicine.
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 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. This agreement has a term through August 2012, which will renew for an additional year unless amended or terminated by the parties.
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 the first half of 2013.
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). Effective as of June 29, 2012, we entered into an agreement with Fujifilm for the manufacture and supply of KALBITOR, under which Fujifilm has committed to be available to manufacture bulk drug substance through 2020. Our current inventories are sufficient to supply all ongoing studies relating to ecallantide and to meet anticipated KALBITOR market demand into 2016.
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, Russia, Australia and New Zealand. 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 up to $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. Under the terms of the amendments to our agreement with Sigma-Tau that eliminated its rights to the Middle East, Latin America and the Caribbean, we agreed to make contribution payments to Sigma-Tau ranging from 5%-12.5% of the amounts received by us as a result of any product sales in certain countries in these territories.
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 that 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.
Taiba - In May 2012, we granted exclusive distribution rights to taiba ME (Taiba) under which they will obtain registration and reimbursement approval and commercialize ecallantide for HAE in certain countries in the Middle East. Under the terms of the agreement, we will provide Taiba with drug supply at a price equal to 60% of net sales within the licensed territory.
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, Neopharm and Taiba, as described above, we retain the rights to ecallantide for HAE and other angioedemas in all other territories.
ACEI-AE AND ECALLANTIDE
Through June 2012, we were conducting a Phase 2 clinical study 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. This double-blind, placebo-controlled, randomized, dose-ranging study was designed to evaluate the efficacy and safety of ecallantide (10, 30, or 60 mg subcutaneous doses) compared to placebo, with a goal of enrolling 176 patients. The primary endpoint was the proportion of patients meeting a set of criteria indicating eligibility for discharge from the emergency department within 6 hours following study drug administration. Based on the results of an interim analysis of data from the study, we decided to discontinue this study.
Safety was not a factor in our decision to stop the clinical study. Separately from this interim analysis of the efficacy data, an independent Data Safety Monitoring Board (DSMB) met on May 15, 2012, and reviewed blinded safety data for the first 25% of patients enrolled in the trial. The DSMB did not identify any safety concerns and did not recommend any changes to the conduct of the study.
Data from the first 72 patients treated in the trial suggests a trend favoring a treatment with ecallantide over placebo; however, this trend is not statistically significant. Because the observed response rate to placebo was substantially higher than originally anticipated, we determined that the study was inadequately powered to detect a statistically significant difference between ecallantide and placebo. In addition, based upon the primary endpoint data, the enrolled population did not appear to reproduce the high morbidity described in previous medical literature.
We are currently assessing options regarding future investigational efforts in the acute treatment of ACE inhibitor-induced angioedema.
An additional double-blind, placebo-controlled, randomized clinical study using ecallantide in 50 patients for the treatment of ACEI-AE is being conducted by Drs. Jonathan Bernstein and Joseph Moellman, at the University of Cincinnati, College of Medicine. Data from this investigator sponsored study 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 begin 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, five are in Phase 2 and nine 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. If commercialized, we expect to receive royalties from commercial sales beginning in 2014.
Under loan arrangements with affiliates of HealthCare Royalty Partners, formerly Cowen Healthcare Partners (HC Royalty), we have obtained debt funding which has a principal balance of $77.9M as of June 30, 2012, secured exclusively by the LFRP.
The chart below provides a summary of the clinical stage product candidates under the LFRP and is based on information publicly disclosed by licensees. Certain of these product candidates are in multiple clinical trials for various indications.
[[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 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 do not expect the expiration of these patents to have a material impact on our LFRP business.
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 June 30, 2012 and 2011
Revenues. Total revenues for the three months ended June 30, 2012 (the 2012 Quarter) were $14.0 million, compared with $21.9 million for the three months ended June 30, 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.
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