Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
DYAX > SEC Filings for DYAX > Form 10-K on 3-Mar-2014All Recent SEC Filings

Show all filings for DYAX CORP

Form 10-K for DYAX CORP


3-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

We are a biopharmaceutical company focused on:

? Hereditary Angioedema and Other Plasma-Kallikrein-Mediated Disorders

The principal focus of our efforts is to develop and commercialize treatments for hereditary angioedema and to identify other disorders that are mediated by plasma kallikrein.

We developed KALBITOR on our own, and since 2010, we have been selling it in the United States for the treatment of acute attacks of HAE. We are also developing DX-2930, a fully human monoclonal antibody inhibitor of plasma kallikrein, which we believe is a candidate to treat HAE prophylactically. The safety, tolerability, and kallikrein inhibition results of a Phase 1a clinical study in healthy volunteers support advancing the DX-2930 development program into a Phase 1b study in HAE patients in mid-2014.

We have also completed development of a biomarker assay that should assist us in detecting the activation of plasma kallikrein in patient blood. We intend to use this assay to potentially expedite the development of DX-2930 and to potentially determine if plasma kallikrein activation occurs with other PKM disorders.

? Licensing and Funded Research Portfolio

We have a portfolio of product candidates being developed by licensees using our phage display technology. This portfolio currently includes multiple product candidates in various stages of clinical development, including three in Phase 3 trials, for which we are eligible to receive future royalties and/or milestone payments. We expect our revenues from the LFRP to experience growth beginning in 2014 to the extent that our licensees commercialize product candidates that gain marketing approval.

RESULTS OF OPERATIONS

Revenues. Total revenues for 2013 were $53.9 million, compared with $54.7 million in 2012 and $48.7 million in 2011.

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, and limited return rights, we anticipate that distributors will carry inventory that is in line with their forecasted business needs. Although fluctuations can occur due to the variable nature of acute HAE attacks, generally distributors do not hold inventory of more than 60 days of anticipated demand.

We record product sales net of allowances and accruals related to trade prompt pay discounts, government rebates, a patient financial assistance program, product returns and other applicable allowances. Product sales, net of discounts and allowances, were as follows:


                                                             Years Ended December 31,
                                                     2013              2012              2011
                                                                   (in thousands)

Gross product sales                               $   46,309     $         43,251     $   23,999

Prompt pay and other discounts                        (2,549 )             (1,722 )         (831 )
Government rebates, chargebacks and patient
assistance                                            (3,230 )             (1,243 )         (249 )
Returns                                                   (4 )               (503 )          (35 )
Total Product sales allowances                        (5,783 )             (3,468 )       (1,115 )
Product sales, net                                $   40,526     $         39,783     $   22,884

Product sales allowances, as a percent of gross
product sales                                           12.5 %                8.0 %          4.6 %

The change in net sales between 2013 and 2012 was due to several offsetting factors:

? Sales represented by patient demand units increased in 2013 by approximately $5.8 million, a 16% increase over 2012, ? Distributor channel adjustments reduced comparable 2013 net sales by approximately $7.7 million,
? A KALBITOR price increase, offset by higher gross to net sales adjustments, increased 2013 net sales by approximately $2.6 million.

The change in net sales between 2012 and 2011 was due to several factors:

? Sales represented by patient demand units increased in 2012 by approximately $13.5 million,
? A KALBITOR price increase, offset by higher gross to net sales adjustments, increased 2012 net sales by approximately $2.5 million, ? Distributor channel adjustments increased comparable 2012 net sales by approximately $900,000.

Development and License Fees. We also derive revenues from licensing, funded research and development fees, including milestone payments from our licensees and collaborators, in amounts that fluctuate from year-to-year due to the timing of the licensing and clinical activities of our collaborators and licensees. This revenue was $13.4 million in 2013, $14.9 million in 2012 and $25.9 million in 2011.

Development and license fee revenue recognized under our agreement, as amended, with Sigma-Tau, included contra-revenue of $1.1 million in 2013, and revenue of $204,000 and $10.5 million in 2012 and 2011, respectively, associated with the termination of the Sigma-Tau agreement (see Item 8, Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 3, Significant Transactions - Sigma-Tau).

Development and license fee revenue recognized under our agreement with CMIC, included $2.6 million in 2013, $755,000 in 2012 and $595,000 in 2011. The amount in 2013 was primarily associated with the termination of the CMIC agreement (see Item 8, Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 3, Significant Transactions - CMIC).

Cost of Product Sales. We incurred $2.7 million of costs associated with product sales during 2013, $2.2 million during 2012 and $1.2 million during 2011. Cost of product sales primarily includes the cost of testing, filling, packaging and distributing the KALBITOR 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 2012 and 2011. In 2013, KALBITOR sales were comprised of a combination of product manufactured both prior to and following FDA approval. Therefore, the cost of product sales reflects a portion but not all of the KALBITOR manufacturing cost. Utilizing the average cost per unit of KALBITOR manufactured after regulatory approval, cost of product sales with these manufacturing costs included for the 2013, 2012 and 2011 would have approximated $2.9 million, $3.1 million, and $2.1 million, respectively.

Research and Development. Our research and development expenses are summarized as follows:

                                                     Years Ended December 31,
                                               2013            2012             2011
                                                          (In thousands)
DX-2930 and other research and development   $ 14,039     $        12,070     $ 10,753
KALBITOR development                           10,985              16,371       21,474
LFRP pass-through fees                          4,671               1,587        2,449
Total                                        $ 29,695     $        30,028     $ 34,676

Our research and development expenses arise primarily from compensation and other related costs for our personnel dedicated to research, development, medical and pharmacovigilence activities, costs of post-approval studies and commitments and KALBITOR life cycle management, as well as fees paid and costs reimbursed to outside parties to conduct research and clinical trials.

The 2013 increase in DX-2930 and other research and development costs compared to 2012 and 2011 was due primarily to the pre-clinical and clinical activities for DX-2930, a fully human monoclonal antibody inhibitor of plasma kallikrein, which is an investigational candidate to prophylactically treat HAE.

KALBITOR development costs decreased in 2013 compared to both 2012 and 2011 primarily due to the discontinuation during 2012 of the clinical study of the use of ecallantide for the treatment of ACE-inhibitor-induced angioedema. This Phase 2 clinical study was initiated during 2011. In addition, there were $2.0 million of costs in 2011 associated with obtaining regulatory approval for the treatment of HAE in territories outside the United States. These amounts were reimbursed by Sigma Tau and such payments were included as development and license fee revenue in our results of operations.

Research and development expenses may increase in future years due to costs associated with our clinical study developing DX-2930 as a therapeutic candidate, and costs associated with other early stage product candidates. Until the clinical studies are further advanced, we are not able to predict the future costs that may be incurred for the development candidates.

Selling, General and Administrative. Our selling, general and administrative expenses consist primarily of the sales and marketing costs of commercializing KALBITOR and costs of our management and administrative staff, as well as expenses related to business development, protecting our intellectual property, administrative occupancy, professional fees and the reporting requirements of a public company. Selling, general and administrative expenses were $38.7 million in 2013 compared to $39.9 million in 2012 and $37.7 million in 2011, including costs for KALBITOR patient services of $2.1 million, $1.9 million and $1.2 million for each respective year.

The 2013 decrease in selling, general and administrative expenses from 2012 was due to reduced infrastructure supporting KALBITOR commercial efforts, primarily sales and marketing programs, as well as lower legal expenses to protect our intellectual property.


The 2012 increases in costs over 2011 are primarily due to the expansion of infrastructure to support KALBITOR commercial efforts, primarily sales and marketing programs, and additional legal expenses.

We do not anticipate a significant change in the trend for selling, general and administrative expenses in 2014.

Restructuring. In 2012, we implemented a realignment of our business which included a workforce reduction. As a result, we recorded restructuring charges of approximately $1.4 million.

Interest Expense. Interest expense, which primarily arises from our loan arrangement with HC Royalty, was $10.8 million, $10.5 million and $10.3 million in 2013, 2012 and 2011, respectively. Based on the modification of the HC Royalty loan in December 2011, under which we received additional proceeds of $20 million, we recorded interest expense in 2012 using the effective interest rate method for the different tranches of the loans. The effective interest rate in 2013 is approximately 12.6% compared to 13.0% in 2012. In 2011, we recorded interest expense at the stated interest rate for each tranche, which in total was approximately 17.4%.

Interest and Other Income. Interest income was $14,000, $28,000 and $184,000 in 2013, 2012 and 2011, respectively. The lower amounts of interest income in 2013 and 2012 were primarily due to lower cash and investment balances during those years.

Net Loss Attributable to Common Stockholders. For the year ended December 31, 2013, the net loss was $27.8 million, or $0.26 per share, as compared to $29.3 million, or $0.30 per share, in 2012, and $34.6 million, or $0.35 per share, in 2011.

LIQUIDITY AND CAPITAL RESOURCES

                                                    December 31,
                                                 2013          2012
                                                   (In thousands)
Cash and cash equivalents                      $  68,085     $ 20,018
Short-term investments                            43,296        9,028
Total cash, cash equivalents and investments   $ 111,381     $ 29,046

The following table summarizes our cash flow activity:

                                                             Years Ended December 31,
                                                         2013          2012          2011
                                                                  (In thousands)
Net cash used in operating activities                  $ (15,816 )   $ (28,482 )   $ (36,452 )
Net cash provided by (used in) investing activities      (34,808 )      14,343        30,609
Net cash provided by financing activities                 98,691         2,689        18,710
Net increase (decrease) in cash and cash equivalents   $  48,067     $ (11,450 )   $  12,867

We require cash to fund our operating activities, make capital expenditures, acquisitions and investments, and service debt. Through December 31, 2013, we have funded our operations through the sale of equity securities and from borrowed funds under our loan agreement with HC Royalty, which is secured by certain assets associated with our LFRP. In addition, we generate funds from product sales and development and license fees. Our excess cash is currently invested in short-term investments primarily consisting of United States Treasury notes and bills and money market funds backed by the United States Treasury.


Operating Activities.

In 2013 the principal use of cash in our operations was to fund our $27.8 million net loss. Of this net loss, certain costs were non-cash charges, such as stock-based compensation expense of $5.4 million and depreciation and amortization costs of $891,000. In addition to non-cash charges, we also had cash inflows due to changes in other operating assets and liabilities totaling $1.1 million that included a decrease in accounts receivable of $1.0 million, an increase in accounts payable and other accrued expenses of $1.9 million, a decrease in inventory of $1.6 million and a decrease in deferred revenue of $3.8 million, primarily due to revenue recognized from the termination of the CMIC agreement that was previously deferred.

In 2012, the principal use of cash in our operations was to fund our $29.3 million net loss. Of this net loss, certain costs were non-cash charges, such as stock-based compensation expense of $3.6 million and depreciation and amortization costs of $1.1 million. In addition to non-cash charges, we also had cash outflows due to changes in other operating assets and liabilities totaling $6.5 million, which included an increase in inventory of $2.9 million, an increase in prepaid and other assets of $2.8 million and a decrease in deferred revenue of $4.1 million, primarily associated with revenue recognized for LFRP licenses that was previously deferred.

In 2011, the principal use of cash in our operations was to fund our $34.6 million net loss. Of this net loss, certain costs were non-cash charges, such as stock-based compensation expense of $4.0 million and depreciation and amortization costs of $1.6 million. In addition to non-cash charges, we also had cash outflows due to changes in other operating assets and liabilities totaling $9.5 million, which included an increase in inventory of $5.2 million, an increase in accounts payable and accrued expenses of $1.6 million and a decrease in deferred revenue of $5.4 million, due primarily to the recognition of previously deferred revenue related to our collaborations to commercialize ecallantide outside of the United States.

Investing Activities.

Our investing activities for 2013 primarily consisted of the purchase of investments totaling $43.3 million, partially offset by the maturity of $9.0 million of investments. We purchased fixed assets in 2013 totaling $507,000.

Our investing activities for 2012 primarily consisted of $23.0 million of investments which matured, partially offset by the purchase of $6.1 million of investments, and a decrease of $1.3 million in restricted cash due to the release of the letter of credit that had been issued as a security deposit under the lease of our previous facility in Cambridge, Massachusetts. These are offset by the purchase of $4.1 million of fixed assets primarily made up of leasehold improvements for the new Burlington facility, of which $2.6 million was covered by a tenant improvement allowance and $1.4 million was financed through an equipment loan arrangement.

Our investing activities for 2011 consisted of approximately $35.5 million of investment maturities partially offset by the purchase of $3.0 million of investments. We expended approximately $1.7 million on leasehold improvements related to the build-out of the new Burlington facility, of which $925,000 was reimbursed by the landlord in 2011. The residual balance was reimbursed by the landlord during 2012, as referenced above. In conjunction with the Burlington lease agreement, we have provided the landlord a letter of credit of $1.1 million to secure our obligations under the lease.


Financing Activities.

Our financing activities for 2013 primarily consisted of net proceeds of $93.8 million from the sale of common and preferred stock in May 2013 and the sale of common stock in October 2013, proceeds from the exercise of stock options totaling $5.1 million, and proceeds of $249,000 from the issuance of common stock under the Employee Stock Purchase Plan. Repayment of long-term debt in 2013 totaled $445,000.

Our financing activities for 2012 consisted of proceeds from the exercise of stock options totaling $1.3 million, proceeds of $123,000 from the issuance of common stock under the Employee Stock Purchase Plan, and a drawdown of $1.4 million under an equipment loan arrangement. We repaid long-term debt totaling $135,000, primarily to HC Royalty.

Our financing activities for 2011 consisted of net proceeds of $19.9 million of new debt from an affiliate of HC Royalty. We repaid long-term debt totaling $1.7 million, consisting of capital lease payments and $1.1 million paid to HC Royalty.

We expect to continue to manage our cash requirements by completing additional partnerships, collaborations, and financial and strategic transactions. We expect that existing cash, cash equivalents, and short-term investments together with anticipated cash flow from existing development, collaborations and license agreements and product sales of KALBITOR will be sufficient to support our current operations for at least the next twelve months. We will need additional funds if our cash requirements exceed our current expectations or if we generate less revenue than we expect during this period. We may seek additional funding through collaborative arrangements and public or private financings. We may not be able to obtain financing on acceptable terms or at all, and we may not be able to enter into additional collaborative arrangements. Arrangements with collaborators or others may require us to relinquish rights to certain of our technologies, product candidates or products. The terms of any financing may adversely affect the holdings or the rights of our stockholders. If we need additional funds and are unable to obtain funding on a timely basis, we would curtail significantly our research, development or commercialization programs in an effort to provide sufficient funds to continue our operations, which could adversely affect our business prospects.

HealthCare Royalty Partners

In August 2012, we completed an agreement that we entered into with an affiliate of HC Royalty in December 2011 to refinance our existing loans with HC Royalty. At December 31, 2013, the aggregate principal amount of our current loans was $84.5 million, consisting of a $22.8 million Tranche A Loan and a $61.7 million Tranche B Loan. The loans bear interest at a rate of 12% per annum, payable quarterly. The loans will mature in August 2018, and can be repaid without penalty beginning in August 2015.

In connection with the loans, we entered into a security agreement granting HC Royalty a security interest in the intellectual property related to the LFRP, and the revenues generated through our licenses of the intellectual property related to the LFRP. The security agreement does not apply to our internal drug development or to any of our co-development programs for HAE.

Under the terms of the loan agreement, we are required to repay the loans based on the annual net LFRP receipts. Until September 30, 2016, required payments are equal to the sum of 75% of the first $15.0 million in specified annual LFRP receipts and 25% of specified annual LFRP receipts over $15.0 million. After September 30, 2016, and until the maturity date or the complete repayment of the loans, HC Royalty will receive 90% of all specified LFRP receipts. If the HC Royalty portion of LFRP receipts for any quarter exceeds the interest for that quarter, then the principal balance will be reduced. Any unpaid principal will be due upon the maturity of the loans. If the HC Royalty portion of LFRP revenues for any quarterly period is insufficient to cover the cash interest due for that period, the deficiency may be added to the outstanding principal or paid in cash, at our election. In December 2016 and August 2017, which are five years from the issuance dates of the Tranche A and Tranche B Loans, we must repay $1.1 million and $2.9 million, respectively, representing additional accumulated principal above the original loan amounts.


Tranche A Loan

Under the terms of the loan agreement, we received a loan of $20 million (Tranche A Loan) in December 2011 and a commitment to refinance the amounts outstanding under our March 2009 amended and restated loan agreement (the March 2009 loan agreement) at a reduced interest rate of 12% in August 2012. The Tranche A Loan was unsecured and accrued interest at an annual rate of 13% through August 2012, at which time the Tranche A Loan and its accrued interest was combined with 102% of the unpaid principal and accrued interest outstanding under the March 2009 loan agreement upon the closing of the Tranche B Loan.

Upon execution of the Tranche A Loan, the terms of the Original Loans (defined below) were determined to be modified under ASC 470. Accordingly, during the years ended December 31, 2013 and 2012, interest expense on the Loan is being recorded in our financial statements at an effective interest rate of 12.6% and 13.0%, respectively.

Upon modification of the debt arrangement, the note payable balance related to the Tranche A Loan was reduced by $193,000 to reflect payment of legal fees in conjunction with the loan; these fees are being accreted over the life of the Loan, through August 2018.

Tranche B Loan

When we completed the loan agreement in August 2012, we borrowed approximately $57.6 million (Tranche B Loan) to refinance our loan under the March 2009 loan agreement on the same terms as the Tranche A Loan.

Original Loans

In 2008 and 2009, we entered into loan agreements with an affiliate of HC Royalty that provided aggregate loan proceeds of $65.0 million (the Original Loans). These loans had an outstanding principal and accrued interest balance of $57.6 million at the time of their refinancing in August 2012. The Original Loans bore interest at an annual rate of 17.4%, payable quarterly, and were secured by the LFRP.

In connection with the Original Loans, the Company issued affiliates of HC Royalty warrants to purchase shares of our common stock. In August 2008, the Company issued warrants to purchase 250,000 shares of our common stock at an exercise price of $5.50 per share. This warrant became exercisable in August 2009 and could be exercised through August 2016. We estimated the relative fair value of the warrant to be $853,000 on the date of issuance, using the Black-Scholes valuation model, assuming a volatility factor of 83.64%, risk-free interest rate of 4.07%, an eight-year expected term and an expected dividend yield of zero. In March 2009, we issued HC Royalty a second warrant to purchase 250,000 shares of the Company's common stock at an exercise price of $2.87 per share. This warrant became exercisable in March 2010 and could be exercised through August 2016. We estimated the relative fair value of the warrant to be $477,000 on the date of issuance, using the Black-Scholes valuation model, assuming a volatility factor of 85.98%, risk-free interest rate of 2.77%, a seven-year, four-month expected term and an expected dividend yield of zero. The relative fair values of the warrants as of the date of issuance are recorded in additional paid-in capital on our consolidated balance sheets. In November 2013, HC Royalty executed their right to complete a cashless exercise of their warrants to purchase shares of the Company's common stock issued in conjunction with the loan. As a result, 233,438 shares were issued to HC Royalty and no further warrants remain outstanding under this agreement.

The cash proceeds from the Original Loans were recorded as a note payable on our consolidated balance sheet. The note payable balance was reduced by $1.3 million for the fair value of the warrants issued, and by $580,000 for payment of HC Royalty's legal fees in conjunction with the Tranche B Loan. Prior to the December 2011 issuance of the Tranche A Loan, each of these amounts was being accreted over the life of the note through August 2016. Subsequent to the modification of the debt arrangement in December 2011, the unamortized portion of these amounts is being accreted over the life of the Loan through August 2018.


Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements with the exception of operating leases.

Contractual Obligations

Contractual obligations represent future cash commitments and liabilities under
agreements with third parties, and exclude contingent liabilities for which we
cannot reasonably predict future payment. The following chart represents our
total contractual obligations, including principal and interest, at December 31,
2013, aggregated by type:

                                                                           Payments due by period
                                                  Less than 1                                                                  More than
Contractual obligations                Total         year           1-2 years       2-3 years       3-4 years     4-5 years     5 years
                                                                               (In thousands)
Note Payable (1)                     $ 130,357   $      10,137     $    11,165     $    10,435     $    27,192   $    71,428   $       -
Leasehold improvement arrangements         790              98              98              98              98            98         300
Equipment lease line                       988             515             473               -               -             -           -
Operating lease obligations             13,411           1,605           1,614           1,581           1,588         1,670       5,353
Total contractual obligations        $ 145,546   $      12,355     $    13,350     $    12,114     $    28,878   $    73,196   $   5,653

. . .

  Add DYAX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for DYAX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.