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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000,
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 000-24537
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DYAX CORP.
(EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3053198
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
Company's telephone number, including area code: (617) 225-2500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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Indicate by checkmark whether the Company (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Company's common stock held by
nonaffiliates of the Company as of March 14, 2001 was $167,219,010. The number
of shares outstanding of the Company's Common Stock, $.01 Par Value, as of
March 14, 2001, was 19,120,386.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Definitive Proxy Statement for its 2001 Annual
Meeting of Shareholders to be held on May 17, 2001, which Definitive Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Company's fiscal year-end of December 31, 2000, are
incorporated by reference into Part III of this Form 10-K.
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ANNUAL REPORT ON FORM 10-K
INDEX
INDEX NO. PAGE
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PART I
1. Business.................................................... 1
1A. Executive Officers of the Company........................... 22
2. Properties.................................................. 23
3. Legal Proceedings........................................... 23
4. Submission of Matters to a Vote of Security Holders......... 23
PART II
5. Market for the Company's Common Stock and Related Security 24
Holder Matters............................................
6. Selected Consolidated Financial Data........................ 24
7. Management's Discussion and Analysis of Financial Condition 26
and Results of Operations.................................
7A. Quantitative and Qualitative Disclosures about Market 30
Risk......................................................
8. Financial Statements and Supplementary Data................. 31
9. Changes in and Disagreements with Accountants on Accounting 56
and Financial Disclosure..................................
PART III
10. Directors and Executive Officers of the Company............. 56
11. Executive Compensation...................................... 56
12. Security Ownership of Certain Beneficial Owners and 56
Management................................................
13. Certain Relationships and Related Transactions.............. 56
PART IV
14. Exhibits, Financial Statement Schedules and Reports on 56
Form 8-K..................................................
PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS,
INCLUDING STATEMENTS REGARDING OUR RESULTS OF OPERATIONS, RESEARCH AND
DEVELOPMENT PROGRAMS, CLINICAL TRIALS AND COLLABORATIONS. 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. THE STATEMENTS CONTAINED IN THIS
REPORT ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE CERTAIN RISKS,
UNCERTAINTIES AND ASSUMPTIONS WHICH ARE DIFFICULT TO PREDICT. THEREFORE, ACTUAL
OUTCOMES AND RESULTS MAY DIFFER MATERIALLY FROM WHAT IS EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS WHICH MAY AFFECT FUTURE OPERATING
RESULTS, RESEARCH AND DEVELOPMENT PROGRAMS, CLINICAL TRIALS AND COLLABORATIONS
INCLUDE, WITHOUT LIMITATION, THOSE SET FORTH IN EXHIBIT 99.1 "FACTORS AFFECTING
FUTURE OPERATIONS AND RESULTS" TO THIS FORM 10-K, WHICH IS INCORPORATED INTO
THIS ITEM BY THIS REFERENCE.
OVERVIEW
We are a biopharmaceutical company that has developed and patented a method,
known as phage display, that we are using to identify a broad range of compounds
with potential for the treatment and diagnosis of diseases. We are also using
this method to identify compounds that can be used in purifying and
manufacturing biopharmaceuticals and chemicals. We believe that we and others
can use our phage display technology to rapidly and cost-effectively determine
the potential medical uses of newly discovered proteins and genes and
subsequently discover biopharmaceutical product candidates. Given the quantity
of genetic information made available by the mapping of the human genome, we
believe that the advantages of our technology over other technologies should
increase in importance. We believe that phage display can have the greatest
potential impact on our business through our discovery of proprietary
biopharmaceuticals.
We also develop, manufacture and sell chromatography separations systems and
products that are used in laboratories and pharmaceutical manufacturing to
separate molecules in liquid mixtures. We are a leading developer, manufacturer
and supplier of chromatography separations systems that use disposable
cartridges to separate and thereby purify pharmaceuticals being produced for
research and clinical development. Using our phage display technology, we are
also developing potential separations products to purify biopharmaceuticals. We
are using phage display technology to build a broad portfolio of product
candidates that we plan to develop and commercialize either ourselves or with
partners. We are further leveraging this technology platform with collaborations
and licenses that are structured to generate revenues through research funding,
license fees, milestone payments and royalties.
We plan to continue to invest substantially in programs using our phage
display technology to develop biopharmaceutical and other products. We have
accumulated losses since inception as we have invested in our businesses. For us
to be profitable, we must continue to develop and begin to commercialize
biopharmaceuticals, establish additional licenses and collaborative arrangements
and achieve greater market penetration for our separations products with new and
existing separations products.
BACKGROUND
Traditional drug discovery has relied on screening thousands of potential
biopharmaceutical candidates one at a time. With the advent of modern biology,
scientists were better able to identify an individual target and the role that
it played in a specific disease. Until recently, however, identifying and
isolating the genetic basis of targets was a laborious and time-consuming
process. Scientists were limited to several hundred identified human genes and
their encoded proteins to use as targets out of the estimated 30,000 total human
genes.
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Recent improvements in life science research tools and significant
investments of financial and scientific resources have greatly accelerated the
identification of human genetic sequence information. Scientists now know the
identity of the genes in the human genome. However, with few exceptions,
scientists do not know the function of newly discovered genes in health and
disease.
Furthermore, traditional approaches to identifying the genes that cause a
disease, producing and purifying the protein products encoded by these genes and
screening drug candidate compounds are inadequate to exploit fully the
information resulting from the greater number of identified genes. The mapping
of the human genome has created a significant potential role for platform
technologies directed toward the following:
- TARGET VALIDATION. The first step in the discovery and development of a
biopharmaceutical is to identify a molecular target that is involved in a
disease. The binding of a molecule to another molecule, or target, is the
mechanism nature uses to modulate biochemical and physiological processes
such as cellular growth, differentiation, metabolism and death. When
scientists demonstrate that the presence or absence of the target is
correlated to the disease state, they conclude that they have validated
the target.
- DISCOVERY OF BIOPHARMACEUTICAL LEADS. Once scientists identify and
validate a disease target, they search for a compound that will bind to
this target to achieve a desired effect. In order for a binding compound
to be considered a promising biopharmaceutical product candidate it must
have a high degree of specificity, which means it can distinguish between
the correct target and other closely related molecules. The compound must
also bind tightly to the target under appropriate physiological
conditions, which is referred to as affinity. To a great extent, the
safety and efficacy of a biopharmaceutical product depends on its affinity
and specificity for the disease target. Scientists use several drug
discovery technologies to identify product candidates, known as leads,
with appropriate affinity and specificity.
- PURIFICATION OF BIOPHARMACEUTICAL PRODUCTS. Once scientists identify a
biopharmaceutical product lead, they use separations processes to purify
the desired product for further development and commercialization.
Traditional separations processes rely on the physical and chemical
characteristics of the product and multiple steps are required to purify
it. Typically, biopharmaceutical companies use these same purification
steps in both the development of a product, as well as in the commercial
manufacture of that product. The purification steps often have the
greatest cost impact on the overall manufacturing process.
To help solve these needs, new platform technologies are required to
validate targets rapidly, discover biopharmaceutical leads with appropriate
specificity and affinity, and improve purification processes. We believe that
phage display offers significant advantages over other technologies for
addressing these challenges.
OTHER DRUG DISCOVERY TECHNOLOGIES
Scientists use several technology platforms to address the need for rapid
drug discovery, including combinatorial chemistry, single target high throughput
screening and monoclonal antibodies. These technology platforms play important,
though specific, roles in accelerating the productivity and effectiveness of
drug discovery and are likely to continue to be used into the foreseeable
future.
COMBINATORIAL CHEMISTRY. Combinatorial chemistry involves the creation of
large collections of chemical compounds for identifying leads. Combinatorial
chemistry has made possible the synthesis of up to millions of molecules in a
shorter period of time than previously possible. Over the last decade, the field
of combinatorial chemistry has been augmented by computational approaches to
facilitate
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molecular design and synthesis. While both combinatorial chemistry and
computational approaches are useful in drug discovery, they are limited by
several significant factors:
- libraries of these compounds are expensive to produce and screen;
- library compounds and costly biological reagents are consumed during the
screening process; and
- initial leads rarely have the requisite affinity and specificity and
therefore require time-consuming and expensive optimization procedures.
SINGLE TARGET HIGH THROUGHPUT SCREENING. High throughput screening is a
highly automated method used to test large populations of potential drug
candidates for activity against a single target. Typically, scientists use
automated equipment to add the target to tens of thousands of miniaturized
testing vessels, each containing a different compound, to identify those
compounds that bind to the target. Scientists then optimize these binding
compounds one step at a time using iterative design, synthesis and testing
regimens to achieve desired binding affinity and specificity for the target.
This process has produced several drug candidates based upon the rapid screening
of well-known genetic targets. While this process was acceptable when targets
were discovered one at a time, its usefulness is limited now that thousands of
potential targets are available.
MONOCLONAL ANTIBODIES. Antibodies are part of the body's principal defense
mechanism against disease-causing organisms. Antibodies recognize and bind to a
specific target referred to as an antigen. When bound to a target the antibody
triggers physiological processes that protect humans against disease. Antibodies
are capable of having high affinity and specificity to their target. A specific
antibody that is capable of binding to a specific antigen and is produced by a
cell or phage clone is called a monoclonal antibody.
Historically, mice have been the source of monoclonal antibodies that have
been developed into biopharmaceutical products. Although a mouse monoclonal
antibody can be produced to bind to a specific antigen, it contains mouse
protein sequences that tend to be recognized as foreign by the human immune
system, which may impair efficacy or cause life threatening allergic responses
in humans. The measure of the immune response that a mouse monoclonal antibody
produces in a human is known as its immunogenicity. Using new technical
approaches, scientists have been able to replace most of the mouse protein
sequences of a mouse antibody with a corresponding human antibody structure to
produce monoclonal antibodies that retain the target affinity and specificity of
the mouse antibody but do not trigger as extensive of an immune response in
humans. Scientists often refer to these antibodies as "humanized" or chimeric
monoclonal antibodies. More recently, scientists have specifically engineered
laboratory mice to replace mouse antibody genes in the genome of a test group of
mice with a portion of the large number of possible human antibody genes. When
immunized with a purified target, these "human mice" produce fully human
antibodies that bind to the target. Scientists often refer to this process as
"human-mouse" technology.
Combined, these three monoclonal antibody approaches have yielded multiple
successes for antibody-based products. There are currently at least eight
monoclonal antibodies approved for human therapy, and we estimate that there are
over 100 other monoclonal antibodies in clinical trials. These approaches,
however, are limited by several significant factors:
- they typically require at least four to six months to produce an antibody;
- they are generally able to produce antibodies against only one target per
test group of mice at a time;
- they are limited by the range of product candidates that the mouse immune
system can generate, including only a limited number of potential
antibodies that bind to a target; and
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- they are not amenable to subsequent specificity and affinity optimization
of the identified antibody.
The abundance of potential disease targets within the human genome
emphasizes the need and associated opportunity for a more rapid, high
throughput, cost effective process for discovering human antibodies and other
new biopharmaceutical lead compounds.
PHAGE DISPLAY
In the late 1980s, Dyax scientists invented phage display, a novel method to
individually display up to tens of billions of peptides and proteins, including
human antibodies and enzymes, on the surface of a small bacterial virus called a
phage. Using phage display, we are able to produce and search through large
collections, or libraries, of peptides and proteins to rapidly identify those
compounds that bind with high affinity and high specificity to targets of
interest. We describe the technology of phage display in more detail under the
caption "Business--Dyax Technology" later in this report.
Our phage display process generally consists of the following steps:
- generating one or more phage display libraries;
- screening new and existing phage display libraries to select binding
compounds with high affinity and high specificity; and
- producing and evaluating the selected binding compounds.
Scientists can use phage display to improve the speed and cost effectiveness
of drug discovery and optimization. Phage display offers important advantages
over, and can be used synergistically to improve, other drug discovery
technologies such as combinatorial chemistry, single target high throughput
screening and monocolonal antibodies, which are currently employed to identify
binding proteins. Over the past decade, our scientists, collaborators and
licensees have applied this powerful platform technology to a wide range of
biopharmaceutical applications. We and our collaborators and licensees are using
phage display technology at every stage of the drug discovery process to:
- identify and determine the function of novel targets;
- discover biopharmaceutical leads; and
- purify biopharmaceutical leads and targets for research, development and
commercialization.
ADVANTAGES OF OUR PHAGE DISPLAY TECHNOLOGY IN THERAPEUTIC DRUG
DISCOVERY. We believe our phage display technology has the following advantages
over other drug discovery technologies:
DIVERSITY AND ABUNDANCE. Many of our phage display libraries contain
billions of potential binding compounds that are rationally-designed
variations of a particular peptide or protein framework. Furthermore, we can
isolate a diverse family of genes by including, for example, those that
encode human antibodies. The size and diversity of our libraries
significantly improve the likelihood of identifying binding compounds with
high affinity and high specificity for the target. Once we generate
libraries we can reproduce them rapidly and use them for an unlimited number
of screenings.
SPEED AND COST EFFECTIVENESS. We can construct phage display libraries in a
few weeks and screen them in a few days to identify binding compounds.
Conventional or combinatorial chemistry approaches require between several
months and several years to complete this process. Similarly, mouse and
human-mouse technologies generally require four to six months to identify a
compound. As a result, our phage display technology can significantly reduce
the time and expense required to identify a compound with desired binding
characteristics.
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PARALLEL SCREENING. In an automated format, we can apply our phage display
technology to many targets simultaneously to discover specific,
high-affinity compounds, including human monoclonal antibodies, for each
target. In contrast, human-mouse antibody technology identifies antibodies
that bind to a single target per test group of mice and cannot be automated.
Among antibody technologies, phage display is particularly well-suited for
genomic applications, due to the large number of gene targets that need to
be screened for specific antibodies.
RAPID OPTIMIZATION. We screen phage display libraries to identify binding
compounds with high affinity and high specificity for the desired target and
can design and produce successive generations of phage display libraries to
further optimize the leads. We have demonstrated between 10- and 100-fold
improvement in binding affinity with second generation phage display
libraries. This optimization cannot occur with humanized mouse or
human-mouse technology and cannot progress as rapidly or with equivalent
diversity with combinatorial chemistry.
COMPLEMENTS OTHER DRUG DISCOVERY TECHNOLOGIES. Phage display works
synergistically with other drug discovery technologies, including
human-mouse technology and high throughput screening, to improve drug
candidate screening. For example, following immunization of "human mice," we
can collect the antibody genes from the mice and use them to build a phage
display library for rapid screening and optimization of the antibody leads.
This process allows for more rapid selection of a highly diverse population
of therapeutic human antibodies. High throughput parallel screening can be
used to expose multiple targets simultaneously to the diversity of proteins
expressed by our phage libraries. This combination of phage display with
automated, high throughput screening technology allows a multi-target
approach to lead discovery that is more efficient than the traditional
single-target approach. The resulting increase in discovery throughput and
capacity is advantageous considering the large number of new genomic
targets.
NON-THERAPEUTIC APPLICATIONS OF PHAGE DISPLAY. Our phage display technology
has potentially broad applications in a number of other areas:
AFFINITY SEPARATIONS PRODUCTS. Purification of a biopharmaceutical product
is a complex, multi-step process, which can be a time-consuming step in the
discovery process and is often the most expensive step in the manufacturing
process. We believe that our phage display technology is a powerful tool for
developing new separations media that can be designed using small stable
compounds known as ligands that have high affinity for the biopharmaceutical
product. We believe that this "affinity" purification will be more cost
effective and efficient than other purification processes. Affinity
purification should be particularly useful for purifying the large number of
new biopharmaceutical and diagnostic leads and products resulting from
advances in genomics.
ENZYME ENGINEERING. Enzymes are proteins that accelerate the rate of
chemical reactions in a highly specific manner. They are used in a wide
range of pharmaceutical and chemical manufacturing processes. To identify
novel enzymes, we use phage display to create libraries with millions of
variants of an enzyme and screen these libraries to identify novel enzymes
that catalyze a desired commercially relevant chemical reaction.
DIAGNOSTIC AND IMAGING PRODUCTS. Binding compounds are essential to most
diagnostic products. Often the binding compounds that we discover for
biopharmaceutical and separations targets can be used in diagnostic or
imaging to assess therapeutic effectiveness and monitor disease progression.
As biopharmaceuticals are being designed more precisely for specific gene
targets, the availability of diagnostic methods to detect the relevant gene
target will be essential to correctly match patients with appropriate
therapy.
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OUR BUSINESS STRATEGY
Our mission is to use phage display to discover and develop novel products
focused on major unmet medical needs. We plan to maximize the value of our phage
display technology by pursuing both our internal product discovery and
development programs and our collaborative arrangements, and by broadly
licensing our phage display patents. Our combination of business activities is
designed to facilitate the transition of our value creation model from
technology to products.
The following are the principal elements of our business strategy:
- DISCOVER AND DEVELOP PROPRIETARY BIOPHARMACEUTICAL PRODUCTS. We have
developed two proteins, one of which is in Phase II clinical trials in
Europe and a second of which has recently successfully completed Phase I
clinical trials and is about to enter a Phase II trial in Europe. We are
also building an additional pipeline by identifying peptides, proteins and
antibodies that may be developed as candidates for the treatment of some
inflammatory diseases and cancers. We intend to identify new leads for
targets that we discover or license from others. We intend to
commercialize these leads ourselves or through collaborative arrangements.
- LEVERAGE OUR TECHNOLOGY THROUGH BIOPHARMACEUTICAL PRODUCT COLLABORATIONS.
We are leveraging our technology through collaborative arrangements with
several biotechnology and pharmaceutical companies for the discovery
and/or development of biopharmaceuticals, separations and diagnostic
leads. We intend to enter into additional collaborative arrangements for
new lead discovery, and preclinical and clinical evaluation of our current
and future biopharmaceutical leads, while seeking to retain product
commercialization rights by field or geographic area.
- LEVERAGE OUR TECHNOLOGY BY LICENSING OUR PHAGE DISPLAY PATENTS AND
LIBRARIES. We are leveraging our phage display patents by licensing them
to companies and institutions on a non-exclusive basis to encourage the
broad application of our technology. We make some of our phage display
libraries in limited fields available to some of our licensees in exchange
for technology transfer payments, milestone payments and royalties. We
intend to enter into additional license agreements for our phage display
patents and libraries.
- DEVELOP AND MARKET INNOVATIVE SEPARATIONS PRODUCTS. Using phage display,
we are developing and intend to market innovative affinity separations
products designed to meet the challenges of purifying complex
biopharmaceutical products. Through collaborative arrangements with
pharmaceutical and biotechnology companies, we are identifying compounds
that purify the collaborator's specific biopharmaceutical. We are also
developing proprietary affinity separations products for purifying classes
of molecules, for example antibodies, that may be used by multiple
customers.
- DEVELOP NOVEL PRODUCTS IN OTHER AREAS USING PHAGE DISPLAY. We are applying
our phage display technology to develop diagnostic products for IN VIVO
imaging, as well as to engineer novel enzymes with unique chemical
specificity that address important market needs. We have identified two
diagnostic leads for imaging of inflammation and blood clots in humans,
which is known as "IN VIVO" imaging. We have partnered the development of
IN VIVO imaging products and may do the same for any industrial enzymes
that we discover.
- CONTINUE TO EXTEND OUR INTELLECTUAL PROPERTY AND TECHNOLOGY. We plan to
continue to develop internally and to acquire technology that is
complementary to our existing technology. Through our patent licensing
program, we will continue to enhance our phage display technology by
obtaining access to phage display improvements that our licensees develop.
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OUR BIOPHARMACEUTICAL PROGRAMS
We are using phage display technology internally and through collaborative
arrangements to discover and develop biopharmaceutical products. Our product
development programs target a number of therapeutic areas, including some
inflammatory/autoimmune diseases and cancers.
PULMONARY INFLAMMATORY DISEASE
EPI-HNE-4. In a number of inflammatory lung diseases, the body secretes an
excess of the enzyme known as neutrophil elastase, or elastase. Excess elastase
destroys lung tissue. Using phage display, we have discovered a human neutrophil
elastase inhibitor, EPI-HNE4. This inhibitor binds to elastase with high
affinity and high specificity, suggesting that it may be a potent treatment for
lung disease with very few side effects. Our preclinical studies have indicated
that EPI-HNE4 may stop the destruction of lung tissue in the following pulmonary
diseases:
- CYSTIC FIBROSIS. There are approximately 55,000 patients in the United
States and Europe who suffer from cystic fibrosis. The median survival age
of cystic fibrosis patients is approximately 30 years. A genetic mutation
causes progressive lung destruction and frequent infections in these
patients. Large amounts of elastase are secreted into a chronically
infected lung. The elastase directly destroys tissue and initiates a cycle
of inflammation and repeated tissue destruction. Current treatments manage
symptoms poorly. By blocking elastase, EPI-HNE4 may be the first treatment
to retard progressive tissue destruction in cystic fibrosis.
- CHRONIC OBSTRUCTIVE PULMONARY DISEASES. Approximately 16 million Americans
suffer from chronic obstructive pulmonary diseases, which include chronic
bronchitis and emphysema. Genetic mutations or inhaled irritants,
including cigarette smoke, cause these diseases, which are characterized
by a progressive deterioration in lung function. Over $14 billion is spent
annually to treat this group of diseases, which is the fourth leading
cause of death in the United States. Elastase plays a role in the
progressive destruction of lung tissue in these diseases. EPI-HNE4 may
block elastase and retard further damage, improving the quality of life
and life expectancy for these patients.
- ASTHMA. Each year, 500,000 of the approximately 15 million asthmatics in
the United States are hospitalized for a potentially life-threatening
asthma attack. These severe attacks are caused by excessive airway
inflammation in response to an allergen. The inflammation leads to
elastase release, which directly activates mucous secretion. Mucous
secretion results in airway obstruction and potentially death. No current
treatment inhibits mucous production. We believe that EPI-HNE4, by
inhibiting elastase, may block mucous secretion and reduce the number of
life-threatening asthma attacks.
- ACUTE RESPIRATORY DISTRESS SYNDROME. There are at least 15,000 patients in
the United States who suffer from acute respiratory distress syndrome
annually, and mortality rates are approximately 40%. Acute respiratory
distress syndrome is a severe disease resulting from the introduction of
toxins to the lung. Patients rapidly develop a severe inflammatory
response to a lung injury. Elastase has been implicated in the rapid
pulmonary deterioration of acute respiratory distress syndrome. EPI-HNE4
may block this tissue destruction and may therefore offer a treatment for
this disease.
Our collaborator, Debiopharm S.A., a Swiss pharmaceutical development
company, has successfully completed Phase I clinical trials in Europe with
EPI-HNE-4 to examine the safety of administering it by aerosol to healthy
humans. Debiopharm has recently licensed the compound from Dyax to commercialize
the product in Europe for cystic fibrosis and has initiated a Phase II clinical
trial in Europe to examine the efficacy and safety of EPI-HNE4 in adult cystic
fibrosis patients. We and
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Debiopharm then plan to expand into clinical trials for additional indications,
which may include chronic obstructive pulmonary disease and acute respiratory
distress syndrome.
INFLAMMATORY/AUTOIMMUNE DISEASE
DX-88. Kallikrein is an enzyme, which is a key component responsible for
the regulation of inflammatory and blood clotting responses. Excess kallikrein
activity is thought to play a role in a number of inflammatory and autoimmune
diseases. Using phage display, we have discovered DX-88, a high affinity, high
specificity inhibitor of human kallikrein. DX-88 being a potent inhibitor may
have fewer side effects that could be used to treat:
- HEREDITARY ANGIOEDEMA. Between 5,000 and 27,000 patients in the United
States suffer from hereditary angioedema, which is a genetic disease that
causes painful swelling of the larynx, gastrointestinal tract and
extremities. Severe swelling of the larynx may require insertion of an air
tube into the airway to prevent asphyxiation. In the United States, the
only currently available treatment during severe attacks involves pain
control or rehydration. Patients are also given synthetic anabolic
steroids but these are generally not well tolerated. Researchers believe
kallikrein is a primary cause of both the pain and swelling in hereditary
angioedema. DX-88, a potent kallikrein inhibitor, may decrease the pain
and swelling of acute attacks of hereditary angioedema and therefore
provide an effective treatment for this disease.
- COMPLICATIONS OF CARDIOPULMONARY BYPASS. In the United States there are
500,000 cardiac surgeries which use cardiopulmonary bypass annually.
Cardiopulmonary bypass surgery elicits a whole body inflammatory response,
which adversely affects the outcome of surgery. Approximately 25% of
cardiopulmonary bypass patients have significant post-operative cardiac,
pulmonary, coagulative or kidney dysfunction. Kallikrein has been
implicated in cardiopulmonary bypass and is thought to cause pathologic
inflammation. Aprotinin, a kallikrein inhibitor derived from cattle, is
currently approved for use in cardiopulmonary bypass. DX-88 may have
benefits over existing therapies, since the compound is derived from a
human protein 1,000 times more potent than aprotinin and is more specific
for kallikrein. We believe that DX-88 may offer improved outcomes, require
lower doses and result in fewer side effects than current treatments.
- RHEUMATOID ARTHRITIS. Rheumatoid arthritis affects approximately three
million patients in the United States. Rheumatoid arthritis is
characterized by pain, swelling and stiffness of joints. In most patients,
rheumatoid arthritis causes disability due to eventual joint
abnormalities. Research has implicated kallikrein in the inflammatory
response of rheumatoid arthritis and it is thought to contribute to joint
damage. DX-88 may inhibit the inflammatory response in rheumatoid
arthritis and inhibit progression of the disease.
We have successfully completed a Phase I clinical trial to evaluate the
safety of intravenous administration of DX-88 in healthy subjects. We have begun
enrollment of patients in a Phase II clinical trial in Europe in our lead
indication, hereditary angioedema. We plan to expand into additional indications
which may include cardiopulmonary bypass surgery and rheumatoid arthritis.
OTHER BIOPHARMACEUTICAL DISCOVERY AND DEVELOPMENT PROGRAMS
We have discovered HmAb16, a human monoclonal antibody, that targets a
unique antigen expressed only on some breast and ovarian cancer cells. We
believe that this antibody will bind specifically to tumor cells and can be
linked to a toxin or radioisotope to cause tumor cell death. Approximately
170,000 patients are diagnosed annually with breast or ovarian cancer in the
United States. We have demonstrated that HmAb16 recognizes breast and ovarian
cancer cells IN VITRO. We are currently producing adequate amounts of this
antibody for additional testing in animal models of breast and ovarian cancer.
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We have also pursued several additional cancer discovery program leads that
we have found using our phage display technology. We discovered EPI PLA2, an
inhibitor of plasmin, which we have begun to evaluate in a mouse model of
metastatic disease.
We also plan to pursue other biopharmaceutical discovery programs in the
fields of immunology and tumor vasculature biology, among others. These include:
1) tumor specific membrane antigens; 2) membrane targets on immune cells; and
3) enzymes involved in certain diseases.
COLLABORATIONS AND LICENSES
We are leveraging our phage display technology in biopharmaceuticals,
separations and diagnostics through collaborative discovery and development
arrangements with biotechnology and pharmaceutical companies and research
institutions. These arrangements generally are corporate collaborative
partnerships, research technology collaborations or funded discovery projects.
We share ongoing development rights and/or obligations with our partners in
corporate collaborative partnerships. In our research technology collaborations
we combine our phage display technology with the collaborator's discovery
technology to enhance the discovery of therapeutic leads. In funded discovery
projects, our obligation is usually limited to conducting a discovery project,
and we are entitled to milestone and royalty payments if the other party
proceeds with development. We expect that we will continue to rely on
collaborative partners to fund different product development efforts and new
research and development efforts for the foreseeable future. We also generate
revenues through licensing our phage display patents and libraries.
THERAPEUTIC COLLABORATIONS
DEBIOPHARM. On January 24, 2001 we entered into a collaboration and license
agreement with Debiopharm S.A. for the commercialization of our neutrophil
elastase inhibitor, EPI-HNE-4, for the treatment of cystic fibrosis. This
agreement arose out of a prior research and development program that we
commenced with Debiopharm in March 1997 for the clinical development of
EPI-HNE-4. Debiopharm has successfully completed Phase I clinical trials in
Europe and has initiated a Phase II clinical trial in Europe in adult cystic
fibrosis patients. Debiopharm will be responsible for funding the clinical
development program for Europe and North America. Under our collaboration and
license agreement, Debiopharm has exclusive rights to commercialize EPI-HNE-4 in
Europe and we have retained the rights to North America and the rest of the
world. Should Dyax wish to outlicense the commercialization to a third party
outside of Europe, Debiopharm has a first right of refusal to obtain the
outlicensing rights. Under this collaboration, we are entitled to receive a
percentage of revenues generated by Debiopharm from the commercialization of the
cystic fibrosis product in Europe and we will pay Debiopharm a percentage of
royalties we receive on product sales outside of Europe. Our collaboration also
contemplates developing EPI-HNE4 for use in the treatment of other respiratory
diseases. None of the product candidates developed under this collaboration have
been approved for sale. Thus, we have neither paid nor received any royalties to
date and our future receipts of royalties will depend on future sales of any
products that may be developed and approved for sale. The parties' financial
obligations to each other on product sales will expire on the later of ten years
from the first commercial sale of a product or the life of the patents rights
covering the product.
GENZYME. In October 1998, we entered into a collaboration agreement with
Genzyme Corporation for the development of DX-88 as a treatment for hereditary
angioedema and other inflammatory diseases. Genzyme will oversee development
jointly with us and provide a commercialization plan and exclusive marketing and
distribution services for all developed products. We have recently completed a
Phase I human clinical trial of DX-88 and have begun enrolling hereditary
angioedema patients for a Phase II study in Europe. When we entered into the
collaboration, Genzyme provided us with a $3.0 million loan facility and
purchased preferred stock for a total purchase price of $3.0 million. After we
have funded the first $6.0 million of development and commercialization costs,
which we expect to
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have done by the end of 2001, we will share equally with Genzyme all subsequent
development and commercialization costs under this collaboration. We will be
entitled to receive potential milestone payments of $10.0 million for the first
FDA approved product derived from DX-88, and up to $15.0 million for additional
disease indications, as well as 50% of the profits from sales of products
developed under this collaboration. The term of this collaboration is perpetual
unless terminated by either party with prior written notice or upon a material
breach by the other party or immediately upon a change of control or bankruptcy
of the other party. We currently anticipate that this collaboration will not
terminate until the parties determine that no commercial products will result
from the collaboration or, if commercial products are eventually sold, until the
sale of those products is no longer profitable. Because the drug discovery and
approval process is lengthy and uncertain, we do not expect to be able to
determine whether any commercial products will result under this collaboration
until the completion of clinical trials.
HUMAN GENOME SCIENCES, INC. In March 2000, we entered into a collaboration
and license agreement with Human Genome Sciences, Inc. Under this agreement HGSI
and we are using our phage display technology to identify and optimize product
leads that bind to therapeutic targets selected by HGSI. We granted HGSI a
non-exclusive license to our phage display technology and compound libraries to
create leads that may be used as peptide drugs, human monoclonal antibody drugs
and IN VITRO diagnostic products. With the exception of selected IN VIVO imaging
rights that will be granted to us, HGSI will retain the rights to all products
that result from this collaboration for therapeutic, IN VITRO diagnostic, and
research reagents for research use. In exchange, HGSI is required to pay us a
minimum of $16.0 million in committed license fees and research funding during
the first three years of the five year research term, $6.0 million of which was
paid in March 2000. We will also be entitled to receive potential milestone
payments of up to $8.0 million per therapeutic product developed by HGSI under
this collaboration. We will receive royalties on all products developed by HGSI
under the collaboration and will share HGSI's revenues on any of those products
that it outlicenses. This agreement will terminate upon the expiration of the
last to expire of the parties' royalty obligations under the agreement. The
parties' royalty obligations will expire on a country by country and product by
product basis on the later of ten years after the first country wide launch of a
product or the expiration of the last to expire of the applicable product
patents. If, for example, a U.S. patent is issued covering products developed
under this agreement, then the royalty obligations will terminate on the earlier
of ten years from the date of first commercial sale of a product or twenty years
after the patent application filing date. Currently, no products have been
developed under this collaboration and no product patent applications have been
filed. Either party may terminate this agreement upon failure to pay amounts due
for thirty days or upon any material breach if not cured within sixty days.
AMGEN INC. In February 2000, Amgen entered into a license, technology
transfer and technology services agreement with us. Under this agreement, we
developed a new phage display library for Amgen. Amgen has a non-exclusive
license for some of our other phage display libraries and our phage display
patents in the therapeutic field. We have received $1.4 million in license and
research fees through December 31, 2000. We will be entitled to receive
potential milestone payments of up to $7.0 million depending upon the number of
products that are successfully developed. The term of this agreement is the life
of the licensed patents unless terminated by Amgen upon 180 days written notice
or by either party with thirty days written notice upon a material breach or
bankruptcy of the other party. The last to expire of the licensed patents,
assuming that all pending patent applications are issued, will expire in 2019.
DIAGNOSTICS IMAGING COLLABORATIONS
BRACCO GROUP. In November 2000, we entered into a collaboration with Bracco
Group to exploit diagnostic imaging and related therapeutic applications of our
phage display technology. We granted
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Bracco exclusive worldwide rights to our phage display technology for the
development of diagnostic imaging products, including the right to develop and
commercialize our existing inflammation, cardiovascular and oncology imaging
product leads, which Bracco is evaluating. Bracco also has the right to develop
diagnostic imaging products using leads that we may subsequently develop that
have potential imaging application. Bracco is in the process of completing its
evaluation of possible imaging applications for the peptide leads that we have
access to through our alliance with The Burnham Institute. We received a
$3.0 million up-front licensing fee, and we will receive an additional
$3.0 million per year in research funding over the next three to six years in
connection with the performance of research projects aimed at the discovery of
product leads for Bracco for which Bracco will have an exclusive license in the
imaging field. Subject to Bracco's exclusive rights in the imaging field and a
limited option in therapeutics, in favor of Bracco, we have retained ownership
rights to the leads we generate during the collaboration and have retained
rights for ourselves in therapeutics and other fields. We will also receive
development milestones and royalties on Bracco's product sales. Bracco's royalty
obligation to us for each product arising out of the collaboration is ten years
from the date the product is first launched for sale in each country. Bracco has
a right to terminate our collaboration on six months prior notice, which may
only be given after the funded research term expires. Either party may terminate
the agreement for material breach by the other party if the breach is not cured
within sixty days notice.
EPIX MEDICAL, INC. Prior to forming our relationship with Bracco for
imaging, we used our phage display technology to identify peptides for use in
blood clot imaging applications under a collaborative agreement with EPIX
Medical, Inc. EPIX has the right to develop imaging agents that we discovered
under that agreement for the magnetic resonance imaging field and has exclusive
commercial rights for that field. We are entitled to receive royalties from
sales of any magnetic resonance imaging products. To our knowledge EPIX has not
developed any imaging agents in its field.
RESEARCH TECHNOLOGY COLLABORATIONS
Recently we have begun to leverage our phage display technology through
research technology collaborations with biopharmaceutical companies with the
goal of building our pipeline of therapeutic leads through the combination of
core drug discovery technologies.
ABGENIX. In January 2001, we entered into a collaboration and license
agreement with Abgenix, Inc. to develop new technology for discovering and
developing human antibody therapeutics. Under this agreement, we will combine
our phage display technology with Abgenix's XenoMouse-TM- to create libraries of
human antibody sequences for each party's drug discovery programs. We will share
equally with Abgenix the costs of creating the new libraries. Each party will
have the right to use for internal research use any antibodies its discovers and
each party is entitled to select a number of therapeutic product candidates for
product development. If either party develops any antibody product from leads
discovered from the libraries, commercialization fees will be paid to the other
party.
XTL BIOPHARMACEUTICALS. In December 2000, we entered into a collaboration
agreement with XTL Biopharmaceuticals pursuant to which we will combine our
phage display technology with XTL's Trimera technology with the goal of
discovering fully human monoclonal antibodies for the treatment of and/or
prevention of a selected fungal infection and the treatment of a selected
cancer. The parties will share equally the cost of the research projects. The
parties may develop and/or commercialize any of the product candidates
discovered during the research projects.
PATENT AND LIBRARY LICENSING PROGRAMS
We have established a broad licensing program of our phage display patents
for use in the fields of therapeutics, antibody-based IN VITRO diagnostics and
phage display research kits. Through this program, we grant companies and
research institutes non-exclusive licenses to practice our phage display patents
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in their discovery and development efforts in the licensed fields. We also grant
licenses to use our phage display libraries in selected fields. Over 50
companies and institutions are now our licensees as a result of these efforts.
We believe that the success of our patent licensing program provides support for
our patent position in phage display and enhances the usefulness of phage
display as an enabling discovery technology. Under these non-exclusive licenses,
we have retained rights to practice our phage display technology in all fields.
Our license agreements generally provide for signing or technology transfer
fees, annual maintenance fees, milestone payments based on successful product
development and royalties based on any future product sales. In addition, under
the terms of our standard license agreement, most licensees have agreed not to
sue us for using phage display improvement patents developed by the licensee
that are dominated by our phage display patents. We believe that these covenants
allow us to practice enhancements to phage display developed by our licensees.
AFFINITY SEPARATIONS PROJECTS AND COLLABORATIONS
Purification of biopharmaceutical products is a complex, multi-step process,
which can often be rate-limiting in the discovery and development of new
biopharmaceuticals and can be the most expensive step in product manufacturing.
In conventional chromatography, separations are based on broad physical
properties such as size, charge or solubility in water. The types of available,
standard chromatography media have changed little in recent years.
Chromatographic separations are achieved by selection of the surface chemistry
of the media and the solvent composition, so that different molecules exit the
column at different times and therefore can be collected in purified form. For a
given separation, the available media generally have unpredictable specificity,
and researchers have discovered no practical way to modify the existing media to
create specific binding to a particular target. Thus, the development of useful
separation processes relies on trial and error that is time consuming and labor
intensive.
We believe that our phage display technology is a powerful tool for
developing new affinity separations media that can cost-effectively and
efficiently purify complex biological therapeutic products. Our phage display
technology can be used to generate small, stable binding compounds, known as
ligands, that have high affinity and high specificity for the desired biological
compound. Since affinity chromatography can typically purify the desired
biopharmaceutical in one column, one affinity chromatography column can replace
multiple conventional chromatography columns that otherwise would be required.
We have developed ligands that bind and release in predetermined conditions that
can be used for the purification of biopharmaceuticals. We believe that these
new affinity separations products can reduce the time, cost and risk associated
with purification at the discovery, development and production scale.
We have successfully completed funded affinity separations discovery
projects for Genetics Institute and HGSI. In these types of discovery projects
we seek to identify one or more potential binding compounds that can be attached
to separations media for development into affinity separations products for
purification of designated therapeutic products. To date, we have discovered
affinity ligands for such products as a viral vaccine, tissue plasminogen
activator also known as tPA, a recombinant blood product, blood cells and
transgenic animal and plant products. We have delivered affinity separations
products containing phage display derived affinity ligands for testing and
evaluation by the project sponsor. Genetics Institute and HGSI have each entered
into a license with us to use the ligand that we developed in their discovery
project for purification of a recombinant blood factor product for treating
hemophilia, in Genetics Institute's case, and BlyS, in HGSI's case. Under both
of these license agreements, we will be entitled to commercial milestones and
product royalties for product purified using our ligand. We are continuing to
seek collaborative partners in the discovery and development of affinity
separations products. We also have a funded affinity separations collaboration
with Amersham Pharmacia Biotech. To date, we have received $1.5 million in
prepaid royalties under this agreement.
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In addition to our custom-designed affinity separations products program, we
are developing proprietary affinity separations products. We believe that these
products will have applications in research as well as in the process and
manufacturing markets. We are developing products in a four-year collaborative
arrangement that we entered into with CropTech in October 1997. The agreement
was entered into in connection with a $4.3 million Advanced Technology Program
grant from the National Institute of Standards and Technology. Under the
agreement, CropTech agreed to use its transgenic plant technology to develop
novel expression systems for these therapeutic products, and we agreed to use
phage display technology to develop affinity separations systems for use in
purifying the protein and peptide products. Either party may terminate this
agreement upon three months written notice or upon a material breach if not
cured within sixty days.
INDUSTRIAL ENZYME COLLABORATION
Enzymes are naturally occurring proteins that catalyze or accelerate the
rate of chemical reactions in a highly specific manner. Because of their
catalytic efficiency, enzymes are used in many commercially important
pharmaceutical and chemical processes. Enzymatic processes are often less
expensive and involve fewer potential environmental contaminants than chemical
processes. Naturally occurring enzymes with the required chemical specificity
have not been identified for many potential applications. In addition, current
techniques for altering the chemical specificity of an enzyme are costly and
inefficient.
Phage display can be used to engineer novel enzymes with new chemical
specificity. We believe that these novel enzymes can be used in a wide range of
commercial opportunities. Our current enzyme engineering program is being
conducted pursuant to an agreement with the National Institute of Standards and
Technology. That program is focused on developing enzymes which can be used in
the process for making intermediate chemical compounds, or building blocks, that
are required in the manufacture of drugs. Under our agreement, we have retained
rights to all products and technology developed. The National Institute of
Standards and Technology has agreed to reimburse all of the direct expenses
incurred under the program. We have received $1.1 million in research funding
under this agreement through December 31, 2000. This three year agreement may be
terminated by the mutual consent of the parties or by the National Institute of
Standards and Technology if it determines that the purpose of the grant can no
longer be served or if it determines that we have not complied with material
terms of the grant.
BIOTAGE SEPARATIONS PRODUCTS
Purification of a pharmaceutical product is a complex, multi-step process,
which can often be the most expensive and time-consuming step in product
manufacturing. A widely used separations technology, chromatography is used for
purification during the discovery, development and manufacture of a
pharmaceutical product. Chromatography separates molecules in a liquid mixture
by making use of the different rates at which the molecules in the solution
accumulate on the surface of another material known as separations media. In
this technology, the molecules in solution pass through a chamber, or column,
packed with separations media. The migration rates of different molecules
through the column vary due to differences in the strength of binding
interactions with the media in the column. This differential separation of
molecules can be used to purify a desired product.
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We develop, manufacture and sell chromatography separations systems and
consumables through our Biotage subsidiary under the Biotage trade name. Our
customers use our systems and consumables in separations processes from the
discovery scale, where small amounts of a compound are purified for research
work, through the preparative and production scales, where a product is
manufactured for commercialization. We have designed our FLASH and BioFLASH
systems to use prepacked cartridges at all of these scales for a wide range of
chemical and biological materials. Our customers in the pharmaceutical industry
use our Parallex, Flex and Quad systems for parallel high throughput
purification of synthetic organic molecules, synthetic peptides, DNA diagnostics
and natural products. We customize our Proprep systems to meet the requirements
of development and manufacturing scale chromatography applications for the
production of biologics. We are a leading developer and manufacturer of
chromatography systems that use disposable cartridges to purify pharmaceuticals
being produced for research and clinical development. Our prepacked, disposable
cartridges can be packed with a wide range of separations, or chromatography,
media from a variety of sources. We believe that cartridge-based chromatography
systems provide competitive advantages to our customers compared to manually
packed systems, including:
- greater speed and convenience;
- lower cost due to less labor and reduced solvent use;
- improved safety by minimizing exposure of production personnel to media
and hazardous solvents; and
- reproducible performance.
The following table summarizes our principal chromatography products:
PRODUCTS MARKET SEGMENT PRICE RANGE APPLICATIONS REPRESENTATIVE CUSTOMERS
- -------- ----------------- ------------------ --------------------- ------------------------
BioFLASH and Proprep Biopharmaceutical $30,000 - $500,000 Protein and peptide Applied BioSystems
systems discovery and purification Genetech
production Antibody purification Merck
Genzyme
FLASH systems Pharmaceutical $2,000 - $250,000 Novel compound Pfizer
Parallax, Flex and discovery purification Glazo SmithKline
Quad systems High throughput Eli Lily
compound purification Astra-Zeneca
Natural products Merck
Bristol Meyers Squibb
Production FLASH Pharmaceutical $60,000 - $975,000 Production scale Merck
systems production purification Schering Plough
Kiloprep systems Antibodies and DNA Genprobe
diagnostics Bachem
FLASH, BioFLASH and Pre-packed $6 - $15,000 Disposable cartridges Most Biotage system
Kiloprep cartridges disposable for use on all customers
cartridges for Biotage systems
all Biotage
systems
DYAX TECHNOLOGY
Molecular binding is the key to the function of most biopharmaceutical,
diagnostic, industrial enzyme and separations products. The binding of a
molecule to a target is the mechanism nature uses to modulate biochemical and
physiological processes such as cellular growth, differentiation, metabolism and
death. To effect these processes, naturally occurring binding molecules
typically distinguish between the correct target and other closely related
molecules, called specificity, and bind
14
tightly to the target, called affinity, under appropriate physiological
conditions. Biopharmaceutical and diagnostic products bind to targets, including
cellular receptors and enzymes, to achieve a desired effect, and are generally
selected for their binding affinity and specificity for the target. Binding also
plays a significant role in the separations products used to purify material for
the development and manufacture of a therapeutic product.
PHAGE DISPLAY
Living organisms, such as viruses, have the ability to display a foreign
gene product, or protein, on their surfaces. Based on this ability of organisms
to display proteins, our scientists developed our patented phage display
technology for displaying large collections of proteins on filamentous "phage,"
a virus that infects laboratory bacteria. Our phage display technology is a
broadly adopted method to display and select proteins with desired binding
properties. Phage display is used to select peptides or proteins that bind to
one or more targets of interest. The selection is made from a diverse set of up
to tens of billions of peptides or proteins displayed on the surface of
bacterial viruses, bacteriophage, known commonly as "phage." Our phage display
process generally consists of the following steps:
GENERATING A PHAGE DISPLAY LIBRARY. The generation of a phage display
library is based upon a single protein framework and contains tens of billions
of variations of this protein. The first step in generating a library is the
selection of the protein framework upon which the library will be created. This
selection is based on desired product properties, such as structure, size,
stability, or lack of immunogenicity. Scientists then determine which amino
acids in the framework will be varied, but they do not vary amino acids that
contribute to the chosen protein framework. The scientists also control the
exact numbers and types of different amino acids that are varied, so that the
resulting phage display library consists of a diverse set of chemical entities,
each of which retains the desired physical and chemical properties of the
original framework.
The next step is to create a collection of genes that encode the designed
variations of the framework protein. Scientists can easily generate diverse
collections of up to hundreds of millions of different synthetic DNA sequences.
Each new DNA sequence, or gene, encodes a single protein sequence that will be
displayed on the surface of the individual phage that contain this gene. The
scientists combine the new DNA sequences with phage genome DNA and certain
enzymes so that the new DNA is inserted into a specific location of the phage
genome. The result is that the encoded protein is displayed on the phage surface
as a fusion to one of the existing naturally occurring phage proteins. The phage
is a physical link between the displayed protein and its gene.
In addition to the creation of synthetic DNA sequences for a phage display
library, scientists can also use naturally occurring genes, such as cDNA, which
are sequences that represent all of the expressed genes in a cell or organism,
as sources of the genes for a library. Our scientists have also inserted genes
from antibody expressing human cells into the phage genome. Using these genes,
we have constructed phage display libraries that express millions of different
human antibodies on the phage surface. From one of these libraries, we can
select individual antibody fragments and use them to build highly specific human
monoclonal antibodies. Using this process, monoclonal antibodies can be
identified in a few weeks.
The scientist then transfers the new phage genome into laboratory bacteria,
where the phage genome directs the bacterial cells to produce thousands of
copies of each new phage. The resulting collection of phage is the phage display
library. Because scientists can reproduce the phage display library by infecting
a new culture of laboratory bacteria to produce millions of additional copies of
each phage, they can use libraries for a potentially unlimited number of
screenings.
SCREENING PHAGE DISPLAY LIBRARIES. Once scientists have generated a phage
display library they can select binding compounds with high affinity and high
specificity by exposing the library to specified targets of interest and
isolating the phage that display compounds that bind to the target. For certain
15
applications of phage display, such as separations, scientists can design the
binding and release conditions into the selection. Each individual phage
contains the gene encoding one potential binding compound, and when its
displayed protein is selected in the screening procedure, it can be retrieved
and amplified by growth in laboratory bacteria.
To screen a phage display library, the scientist exposes the library to the
target under desired binding conditions. The target is normally attached to a
fixed surface, such as the bottom of a tube, or a bead, allowing recovery of
phage that do not express binding compounds that recognize the target. Once
these unbound phage are washed away, the phage containing the selected binding
compounds can be released from the target. Since the phage are still viable,
they can be amplified rapidly by again infecting bacteria with them. The phage's
capacity to replicate itself is an important feature that makes it particularly
well-suited for rapid discovery of specific binding compounds. Scientists can
amplify a single phage by injecting it into standard laboratory bacteria to
produce millions of identical copies in one day.
If the affinity of the compounds identified in an initial screening is not
sufficiently high, information derived from the binding compounds identified in
the initial screening can be used to design a new focused library. The binding
and screening of a second generation library, known as affinity maturation, can
lead to increases of 10- to 100-fold in the affinity of the binding compounds
for the target.
EVALUATION OF SELECTED BINDING COMPOUNDS. Screening phage display libraries
generally results in the identification of one or more groups of related binding
compounds such as peptides, antibodies or enzymes. These groups of compounds are
valuable in providing information about which chemical features are necessary
for binding to the target with affinity and specificity, as well as which
features can be altered without affecting binding. Using DNA sequencing,
scientists can determine the amino acid sequences of the binding compounds and
identify the essential components of desired binding properties by comparing
similarities and differences in such sequences. If desired, scientists can
further optimize the binding compounds by building additional phage display
libraries based on these key components and repeating this process. We can
complete the entire selection process in several weeks. Scientists can produce
small amounts of the binding compound by growing and purifying the phage. For
production of larger amounts, scientists can remove the gene from the phage DNA
and place it into a standard recombinant protein expression system.
Alternatively, if the identified binding compound is sufficiently small,
scientists can chemically synthesize it. These binding compounds can be
evaluated for desired properties including affinity, specificity and stability
under conditions that will be encountered during its intended use. From each
group of compounds, scientists can identify, develop and test a lead with
desired properties as a biopharmaceutical, diagnostic or affinity separations
product.
The entire phage display process is nearly identical whether scientists are
searching for a product to be used for biopharmaceuticals, diagnostics and/or
separations, which allows for an efficient use of scientific resources across a
broad array of phage display applications. In addition, in some instances a
single binding compound may be used as a biopharmaceutical, diagnostic and/or
separations product.
OTHER TECHNOLOGIES
ENZYME TECHNOLOGY. The catalytic properties of enzymes are controlled by
the binding interactions of these proteins with the molecules on which they act,
called substrates. Our phage display technology is a powerful tool to engineer
proteins with desired binding properties. In order to apply phage display to the
engineering of enzymes, we have produced phage libraries displaying enzymes in
which the substrate binding sites have been varied. We can rapidly screen these
libraries to find novel enzymes that bind to and convert the desired substrate.
We have developed several libraries and additional
16
libraries are planned. We believe that enzymes produced through our phage
display technology will enable the production of new molecules for the
pharmaceutical industry.
COMPETITION
We compete in industries characterized by intense competition and rapid
technological change. New developments occur and are expected to continue to
occur at a rapid pace. Discoveries or commercial developments by our competitors
may render some or all of our technologies or potential products obsolete or
non-competitive.
Our phage display technology is one of several technologies available to
generate libraries of compounds that can be used to discover and develop new
products. The primary competing technology platforms that pharmaceutical,
diagnostics and biotechnology companies use to identify molecules that bind to a
desired target are combinatorial chemistry, single target high throughput
screening and antibody technologies. Further, we license our phage display
patents and libraries to other parties in the fields of therapeutic and
antibody-based IN VITRO diagnostic products on a non-exclusive basis, and,
therefore, our licensees may compete with us in the development of specific
therapeutic and diagnostic products.
We are aware of several pharmaceutical and biotechnology companies that use
in their own operations combinatorial chemistry, single target high throughput
screening or peptide or antibody technologies to identify molecules that bind to
a desired target. In addition, a number of companies are in the business of
providing access to these technology platforms and performing research for other
companies. For example, our patent licensees, Cambridge Antibody Technology
Group plc, Morphosys AG and Biosite Diagnostics Inc., provide research services
in the field of phage display. These three companies, as well as Abgenix, Inc.,
Medarex, Inc. and Protein Design Labs, Inc., provide antibody services.
Our biopharmaceutical leads under development are expected to address one or
more indications in the biopharmaceutical market. We will face significant
competition in this market. Also, several companies are using conventional
antibody technology and other means to identify products for use as imaging
agents, which may compete with any future imaging products that Bracco may
develop using our leads. Our goal is to focus our development efforts on
selected disease markets in which we believe there is an unmet need.
Chromatography is only one of several types of separations processes,
including centrifugation and filtration, used in the manufacture of
biopharmaceutical products. Biotage will continue to face intense competition
from other suppliers of separations products. The principal competitors in
Biotage's existing product markets include Millipore Corporation, Isco, Inc. and
Gilson, Inc. In addition, many pharmaceutical companies have historically
assembled their own chromatography systems and hand-packed their own cartridges.
Biotage's principal competitor in the prepacked disposable cartridge market
where it markets its FLASH and BioFLASH cartridges is Isco, which has started
selling non-interchangeable cartridges. Others may be able to use conventional
or combinatorial chemistry approaches, or develop new technology, to identify
binding molecules for use in separating and purifying products.
PATENTS AND PROPRIETARY RIGHTS
Our success is significantly dependent upon our ability to obtain patent
protection for our products and technologies, to defend and enforce our issued
patents, including patents related to phage display, and to avoid the
infringement of patents issued to others. Our policy generally is to file for
patent protection on methods and technology useful for the display of binding
molecules, on biopharmaceutical, diagnostic and separation product candidates,
and on chromatography product improvements and applications.
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Our proprietary position in the field of phage display is based upon patent
rights, technology, proprietary information, trade secrets and know-how. Our
patents and patent applications for phage display include U.S. Patent Nos.
5,837,500, which expires June 29, 2010, 5,571,698, which expires June 29, 2010,
5,403,484, which expires April 4, 2012 and 5,223,409, which expires June 29,
2010, European Patent No. 436,597, which expires September 1, 2009, issued
patents in Canada and Israel, and pending patent applications in the United
States and other countries. These phage display patent rights contain claims
covering inventions in the field of the surface display of proteins and certain
other peptides, including surface display on bacteriophage.
For our therapeutic and affinity products, we file for patent protection on
groups of peptides, proteins and antibody compounds we identify using phage
display. These patent rights now include U.S. Patent No. 5,666,143, which
expires September 2, 2014, claiming sequences of peptides that have neutrophil
elastase inhibitory activity, including the sequence for EPI-HNE4; and U.S.
Patent Nos. 5,994,125, which expires January 11, 2014, 5,795,865, which expires
August 18, 2015, and 6,057,287, which expires August 18, 2015, claiming
sequences of peptides that have human kallikrein inhibitory activity, including
the sequence for DX-88, and polynucleotide sequences encoding these peptides.
To protect our chromatography separations products, we rely primarily upon
trade secrets and know-how, as well as the experience and skill of our technical
personnel. We also have several patents and patent applications claiming
specific inventions relating to our proprietary chromatography systems and
cartridges.
There are no legal challenges to our phage display patent rights or our
other patent rights now pending in the United States, but we cannot assure you
that a challenge will not be brought in the future. We plan to protect our
patent rights in a manner consistent with our product development and business
strategies. If we bring legal action against an alleged infringer of any of our
patents, we expect the alleged infringer to claim that our patent is invalid,
not infringed, or not enforceable for one or more reasons, thus subjecting that
patent to a judicial determination of infringement, validity and enforceability.
In addition, in certain situations, an alleged infringer could seek a
declaratory judgment of non-infringement, invalidity or unenforceability of one
or more of our patents. We cannot assure you that we will have sufficient
resources to enforce or defend our patents against any such challenges or that a
challenge will not result in an adverse judgment against us or the loss of one
or more of our patents. Uncertainties resulting from the initiation and
continuation of any patent or related litigation, including those involving our
patent rights, could have a material adverse effect on our ability to maintain
and expand our licensing program and collaborations, and to compete in the
marketplace.
Our first phage display patent in Europe, European Patent No. 436,597, was
opposed by two parties in late 1997. The oppositions primarily relate to whether
the written description of the inventions in our European patent is sufficient
under European patent law. A hearing on these oppositions was held on April 6,
2000 and our patent was revoked. We have appealed this decision to the Technical
Board of Appeals. This appeal suspends the Opposition Division's decision and
reinstates our patent pending the decision of the Technical Board of Appeals.
Although we will be able to enforce this patent during the appeal, any
infringement action we file will likely be stayed pending the results of the
appeal. The appeal could take several years to resolve. We also have a second
patent application related to our phage display technology pending in the
European Patent Office. During the continued prosecution of this application,
the Examining Division will consider the grounds on which the Opposition
Division revoked our first patent. We cannot assure you that we will prevail in
the appeal proceedings or during prosecution of our second European patent
application or in any other opposition or litigation contesting the validity or
scope of our European patents. We will not be able to prevent other parties from
using our phage display technology in Europe if we are not successful in the
reinstatement of our first European patent or if the European Patent Office does
not grant us another patent that we can maintain after any opposition.
18
Our phage display patent rights are central to our non-exclusive patent
licensing program. We offer non-exclusive licenses under our phage display
patent rights to companies and non-profit institutes in the fields of
therapeutics and IN VITRO diagnostics. In jurisdictions where we have not
applied for, obtained or maintained patent rights, we will be unable to prevent
others from developing or selling products or technologies derived using phage
display. In addition, in jurisdictions where we have phage display patent
rights, we cannot assure you that we will be able to prevent others from selling
or importing products or technologies derived using phage display.
Presently, we are engaged in a United States court proceeding relating to
patents owned by a third party. George Pieczenik and I.C. Technologies
America, Inc. sued us in New York for patent infringement of United States
patents 5,866,363, 4,528,266 and 4,359,535. The complaint was dismissed for lack
of jurisdiction and the plaintiffs have filed an appeal, which is pending. On
July 12, 2000, the plaintiffs filed the complaint against us in the United
States District Court in Massachusetts alleging infringement of the same three
patents that were at issue in the New York case. Discovery is currently underway
in the Massachusetts case concerning issues of claim construction. Although we
cannot predict the outcome of this litigation, we believe that the lawsuit is
unlikely to have a material adverse effect on our business.
We are aware that other parties have patents and pending applications to
various products and processes relating to phage display technology. Through
licensing our phage display patent rights, we have secured a limited ability to
practice under some of the third party patent rights relating to phage display
technology. These rights are a result of our standard license agreement, which
contains a covenant by the licensee that it will not sue us under the licensee's
phage display improvement patents. In addition, we may seek affirmative rights
of license or ownership under patent rights relating to phage display technology
owned by other parties. If we are unable to obtain and maintain such covenants
and licenses on reasonable terms it could have a material adverse effect on our
business.
We have filed, and in the future we may file more, oppositions or other
challenges to patents issued to others. To date, we have filed oppositions
against two European patents relating to the phage display field. In the first
of these oppositions, the Opposition Division maintained the opposed patent in
amended form. In the second opposition, the Opposition Division revoked the
patent and the patentee has appealed this decision. We do not believe these
European patents cover any of our present activities, but we cannot predict
whether the claims in these patents may, in their current or future form, cover
our future activities. If any of these patents do cover any of our activities,
then our activities in Europe may be affected unless licenses are available to
them on reasonable terms.
Patent positions are complex in the fields of biotechnology,
biopharmaceutical and diagnostic products and separation processes and products.
In order for us to commercialize a process or product, we may need to license
the patent rights of other parties. We are aware of certain patents for which we
may need to obtain licenses to commercialize some of our products and
technologies. While we believe that we will be able to obtain such licenses, we
cannot assure you that these licenses, or licenses to other patent rights that
we identify as necessary in the future, will be available on reasonable terms,
if at all. If we decide not to seek a license, or if licenses are not available
on reasonable terms, we may become subject to infringement claims or other legal
proceedings, which could result in substantial legal expenses. If we are
unsuccessful in these actions, adverse decisions may prevent us from
commercializing the affected process or products.
In all of our activities, we substantially rely on proprietary materials and
information, trade secrets and know-how to conduct research and development
activities and to attract and retain collaborative partners, licensees and
customers. Although we take steps to protect these materials and information,
including through the use of confidentiality and other agreements with our
employees, consultants and in academic and commercial relationships, we cannot
assure you that these steps will be adequate, that
19
these agreements will not be violated, that there will be an available or
sufficient remedy for any such violation or that others will not also develop
similar proprietary information.
GOVERNMENT REGULATION
The production and marketing of any of our future biopharmaceutical or
diagnostic products will be subject to numerous governmental laws and
regulations on safety, effectiveness and quality, both in the United States and
in other countries where we intend to sell the products. In addition, our
research and development activities in the United States are subject to various
health and safety, employment and other laws and regulations.
UNITED STATES FDA APPROVAL
In the United States, the U.S. Food & Drug Administration subjects products
intended for IN VITRO diagnostic use and IN VIVO diagnostic and therapeutic use
in humans to rigorous regulation. In addition, products intended for use in the
manufacture of these products, such as separations equipment, are subject to
certain FDA manufacture and quality standards.
The steps required before a new pharmaceutical or IN VIVO diagnostic product
can be sold in the United States include:
- preclinical tests;
- submission of an Investigative New Drug Application to the FDA which must
become effective before initial human clinical testing can begin;
- human clinical trials to establish safety and effectiveness of the
product, which normally occurs in three phases monitored by the FDA;
- submission and approval by the FDA of a New Drug or Biologics License
Application; and
- compliance with the FDA's Good Manufacturing Practices regulations and
facility and equipment validation and inspection.
The requirements for testing and approval for IN VITRO diagnostic products
may be somewhat less onerous than for pharmaceutical products, but similar steps
are required. All our biopharmaceutical or diagnostic product leads, including
our neutrophil elastase inhibitor, EPI-HNE-4, our plasma kallikrein inhibitor
DX-88, or the pharmaceutical and diagnostic products of our collaborators and
licensees, will need to complete successfully the FDA-required testing and
approvals.
Some of our separations products are intended for use in the manufacturing
processes of clinical grade and commercial grade therapeutic and diagnostic
products. These separations products, therefore, must be manufactured and
delivered in accordance with Good Manufacturing Practices requirements, and
other applicable rules and regulations. The customer may also be required to
comply with other quality and inspection regulations prior to use. We have not
yet produced any separations products under Good Manufacturing Practices
conditions. There can be no assurance that we or our customers will be
successful in complying with FDA and other regulations to permit the full
clinical and commercial use of our separations products.
FOREIGN REGULATORY APPROVAL
In many countries outside the United States governmental authorities similar
to the FDA must approve the testing and marketing of pharmaceutical and
diagnostic products. These approval procedures vary from country to country and
can involve additional testing. The time required may differ from that required
for FDA approval. Although there are some procedures for unified filings for
some European countries with the sponsorship of the country which first granted
marketing approval,
20
in general each country has its own procedures and requirements, many of which
are time consuming and expensive. Thus, there can be substantial delays in
obtaining required approvals from foreign regulatory authorities after the
relevant applications are filed. In Europe, for example, marketing
authorizations, which may apply to our products and our collaborators and
licensees, may be submitted at a centralized, a decentralized or a national
level. The centralized procedure is mandatory for the approval of biotechnology
products and provides for the grant of a single marketing authorization, which
is valid in all European Union member states. As of January 1995, a mutual
recognition procedure is available at the request of the applicant for all
medicinal products that are not subject to the centralized procedure.
Additionally, national laws of European Community member states govern clinical
trials, manufacturing procedures, advertising and promotion and pricing and
reimbursement. The export of unapproved products to foreign countries for
testing, approval, or marketing is subject to United States law and that of the
importing country, and may require FDA approval.
ENVIRONMENTAL, HEALTH, SAFETY AND OTHER REGULATIONS
In addition to the laws and regulations that apply to the development,
manufacture and sale of our products, our operations are subject to numerous
foreign, federal, state and local laws and regulations. Our research and
development activities involve the controlled use, storage, handling and
disposal of hazardous materials, chemicals and radioactive compounds and, as a
result, we are required to comply with regulations and standards of the
Occupational Safety and Health Act, Nuclear Regulatory Commission and other
safety and environmental laws. Although we believe that our activities currently
comply with all applicable laws and regulations, the risk of accidental
contamination or injury cannot be completely eliminated. In the event of such an
accident, we could be held liable for any damages that result, which could have
a material adverse affect on our business, financial condition and results of
operations.
MANUFACTURING
We manufacture and sell chromatography systems and cartridges through our
Biotage subsidiary. Subcontractors manufacture components for chromatography
systems to our specifications. We purchase commercial media for certain
prepacked cartridges, which we repack and sell in disposable cartridges. A small
number of components of our chromatography systems are currently purchased from
single sources. However, we believe that alternative sources for these
components are readily available, if necessary, and that we will be able to
enter into acceptable agreements to obtain these components from such alternate
sources at similar costs with only a temporary disruption or delay in
production.
For our new affinity separations products, we may supply separations media
containing phage display-derived affinity ligands directly to customers and
collaborative partners, and may from time to time license a third party to
supply its own requirements. For those affinity separations products which we
are developing for use in a customer's or collaborative partner's clinical or
commercial manufacturing processes, we will need to manufacture the products
under highly controlled conditions. We have not yet established a facility to
manufacture affinity separations products under these conditions, and we may not
be able to do so by the time such facility is needed. We are currently
contracting the production of affinity ligands from manufacturers who have
appropriate facilities; however, should this situation change, our inability to
obtain these components could have a material adverse effect on our business,
financial condition or results of operations.
In addition, we currently plan to rely on third party manufacturers for
production of our biopharmaceutical leads for both development and commercial
quantities. We are currently contracting the production of DX-88 from
manufacturers who have facilities that comply with Good Manufacturing Practices.
We cannot assure you that these third parties will be able to complete
successfully on our
21
behalf the required preclinical studies, clinical development, regulatory
approval, manufacturing and marketing of any such biopharmaceutical products.
SALES AND MARKETING
For the biopharmaceutical and diagnostic products that result from our
research and development efforts, we primarily plan to commercialize these
products through licensing, marketing, offering and other arrangements with
pharmaceutical and diagnostic companies. For any product that we intend to
market and sell ourselves, we do not expect to establish direct sales capability
until shortly before the products are approved for commercial sale. Our Biotage
separations business has a sales and marketing group of 27 people in the United
States, Europe and Japan. We also sell these products via distributors. In
selected countries we sell Biotage products via independent distributors. As new
products are introduced and the market for our Biotage products grows, we
anticipate increasing our direct marketing and sales capacity.
For the custom affinity separations products business, we have ongoing
marketing efforts to develop new collaborative arrangements. For other affinity
ligand products that we may develop outside of a collaborative arrangement, we
plan to market and sell the ligands or rights to the ligands, either as
stand-alone products or integrated with separations media and equipment, through
a combination of direct sales, distributors and other marketing arrangements.
EMPLOYEES
As of December 31, 2000, we had 186 employees, including 39 with Ph.Ds.
Approximately 80 of our employees are in research and development, 31 in
manufacturing, 42 in sales and marketing and 33 in administration. Our workforce
is predominantly non-unionized, and we believe that our relations with employees
are good.
ITEM 1A. EXECUTIVE OFFICERS OF THE COMPANY
The current executive officers of the Company are as follows:
NAME AGE POSITION
- ---- -------- ------------------------------------------
Henry E. Blair............................ 57 Chairman of the Board, President and Chief
Executive Officer
Gregory D. Phelps......................... 52 Vice Chairman of the Board
Stephen S. Galliker....................... 54 Executive Vice President, Finance and
Administration, and Chief Financial
Officer
Scott C. Chappel, Ph.D.................... 50 Executive Vice President of Research and
Technology
David B. Patteson......................... 45 Executive Vice President, Separations
Division, President of Biotage, Inc.
Robert Charles Ladner, Ph.D............... 56 Senior Vice President and Chief Science
Officer
HENRY E. BLAIR has served as the Chairman of the Board and President of Dyax
since the merger of Protein Engineering Corporation with Dyax in August 1995 and
as acting Chief Executive Officer from August 1995 until his appointment as
Chief Executive Officer in April 1997. He also served as a director and officer
of Dyax since its formation in 1989. Mr. Blair is also a director of and
consultant to Genzyme Corporation, a biotechnology company, which he co-founded
in 1981. Mr. Blair also co-founded Biocode, Inc. and GelTex
Pharmaceuticals, Inc. In addition, he is a director of Genzyme Transgenics
Corporation and a member of the Board of Overseers at both Tufts University
School of Medicine and the Lahey Hitchcock Clinic.
22
GREGORY D. PHELPS has been Vice Chairman and a director of Dyax since
August 1998. Mr. Phelps was an executive officer of Genzyme from 1991 to 1997,
most recently as Executive Vice President. At Genzyme, he supervised the
company's therapeutics business, research and development and corporate
development activities. Mr. Phelps served as Chief Executive Officer of
Viagene, Inc., a biotechnology company, from 1988 to 1990. Mr. Phelps presently
serves as a director of Ostex International, Inc.
STEPHEN S. GALLIKER has served Dyax as Executive Vice President, Finance and
Administration, and Chief Financial Officer since September 1999. He was Chief
Financial Officer of Excel Switching Corporation, a developer and manufacturer
of open switching platforms for telecommunications networks, from July 1996 to
September 1999 and was Excel's Vice President, Finance and Administration from
September 1997. Mr. Galliker was employed by Ultracision, Inc., a developer and
manufacturer of ultrasonically powered surgical instruments from September 1992
to June 1996. At Ultracision, Inc., Mr. Galliker was Chief Financial Officer and
Vice President of Finance until November 1995 and Chief Operating Officer from
December 1995 to June 1996.
SCOTT C. CHAPPEL, PH.D. has served as Executive Vice President of Research
and Technology since March 2001, prior to which he was Senior Vice President,
Research since he joined Dyax in June, 1999. Prior to Dyax, Dr. Chappel was
Chief Scientist at Serono Inc., a biotechnology company, from 1995-1999. From
1991-1994, he served as Chief Scientific Officer at Diacrin, Inc., a
biotechnology company. Dr. Chappel was Vice President of Research for Serono
from 1989-1991.
DAVID B. PATTESON has been Executive Vice President of the Separations
Division since March 2001 and President of Biotage, Inc. since its formation in
October 2000. He joined Dyax in November 1998 as Senior Vice President and
President of Biotage Products, Separations Division. From 1994 until he joined
Dyax, Mr. Patteson was an executive at Siebe plc, a diversified engineering and
electronics company, most recently as Vice President and General Manager, Siebe
Measurement and Controls Division. Prior to joining Siebe, Mr. Patteson was
President of Perstorp Analytical, Inc., a laboratory and process analytical
instruments company.
ROBERT CHARLES LADNER, PH.D. joined Dyax as Senior Vice President and Chief
Science Officer in August 1995. He was a co-founder of Protein Engineering
Corporation where he served as Senior Vice President and Scientific Director
from 1987 until its merger with Dyax. Previously, Dr. Ladner served as Senior
Scientist of Genex Corp., where he was an inventor of single chain antibodies.
ITEM 2. PROPERTIES
We currently lease and occupy 25,326 square feet of laboratory and office
space in Cambridge, Massachusetts under two leases, as well as 28,200 square
feet of manufacturing, office and storage space in Charlottesville, Virginia.
The leases for the Cambridge facilities expire in December 2001 and June 2001
with monthly options to extend the latter through June 2002. The lease for the
Charlottesville facility expires in April 2002. Biotage, Inc. is under contract
to purchase approximately 6 acres of land in Charlottesville, VA on which it
will build a 50,000 square foot facility to support all of Biotage's activities
in Charlottesville. We plan to occupy the facility by mid-2002. Biotage also
leases approximately 4,000 square feet of office space in the United Kingdom and
a small facility in Japan to support marketing efforts for the Biotage products.
Dyax maintains 3,100 square feet of laboratory and office space in the
Netherlands to support its research efforts. We believe that our current space
plans are adequate for our needs through 2001 and that we will be able to obtain
additional space, as needed, on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
Except for the proceedings described in Item 1, "Business--Patents and
Proprietary Rights", which is incorporated into this item by this reference, we
are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 31, 2000, no matters were submitted to a
vote of security holders through the solicitation of proxies or otherwise.
23
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Our common stock is traded on The Nasdaq National Market under the symbol
DYAX. At March 26, 2001, there were 19,124,250 shares of our common stock
outstanding, which were held by approximately 370 common stockholders of record,
and consist of approximately 1,300 beneficial owners.
The following table sets forth, for the periods indicated, the high and low
bid prices for our common stock as reported on the Nasdaq National Market:
HIGH LOW
-------- --------
Fiscal year ended December 31, 2000:
Third Quarter (beginning August 15, 2000)................. $45.31 $18.50
Fourth Quarter............................................ $54.12 $16.50
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain our future earnings, if any, for use in our business
and therefore do not anticipate paying cash dividends in the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our Board of
Directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs and plans for
expansion.
On August 14, 2000 the Securities and Exchange Commission declared effective
our Registration Statement on Form S-1 (File No. 333-37394) in connection with
the initial public offering of our common stock. J.P. Morgan & Co., Lehman
Brothers and Pacific Growth Equities, Inc. served as managing underwriters of
the offering.
On August 18, 2000, we sold 4,600,000 shares of our common stock (including
600,000 shares pursuant to the exercise by the underwriters of their
over-allotment option) at a price of $15.00 per share to the underwriters. The
offering terminated with the sale of all of the securities that were registered.
We received net proceeds in the initial public offering of approximately
$62,350,000, net of underwriter commissions of approximately $4,830,000 and
other offering costs of approximately $1,820,000. No expenses were paid or
payments made to our directors, officers or affiliates or 10% owners of any
class of our equity securities. From August 18, 2000 through December 31, 2000,
we used approximately $2.4 million to fund operating activities, $933,000 for
the purchase of equipment and we hold the remaining proceeds in cash and cash
equivalents.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data,
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of
24
Operations" and the Company's consolidated financial statements and related
notes included elsewhere in this Form 10-K.
DECEMBER 31,
---------------------------------------------------------
2000 1999 1998 1997 1996
IN THOUSANDS, EXCEPT PER SHARE DATA --------- --------- --------- --------- ---------
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Product sales......................... $ 15,782 $ 12,596 $ 9,641 $ 7,138 $ 4,478
Product development and license fee
revenues............................ 9,434 4,237 4,490 2,192 2,235
Total revenues...................... 25,216 16,833 14,131 9,330 6,713
Operating expenses:
Cost of products sold................. 7,495 5,515 4,164 2,931 2,046
Research and development
Other research and development
costs............................. 14,391 10,618 6,778 5,625 3,140
Noncash compensation expense........ 1,089 423 306 -- --
Selling, general and administrative
Other selling, general and
administrative.................... 18,089 14,069 10,061 6,787 4,170
Noncash compensation expense........ 1,332 516 375 75 --
Total operating expenses............ 42,396 31,141 21,684 15,418 9,356
Loss from operations.................... (17,180) (14,308) (7,553) (6,088) (2,643)
Interest income (expenses), net......... 1,991 856 401 265 (78)
Investment income....................... -- 265 -- -- --
Net loss................................ $ (15,189) $ (13,187) $ (7,152) $ (5,823) $ (2,721)
Basic and diluted net loss per share.... $ (1.77) $ (6.81) $ (4.22) $ (3.95) $ (2.70)
Shares used in computing basic and
diluted net loss per share............ 8,577,912 1,936,907 1,694,782 1,473,474 1,006,730
DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
IN THOUSANDS -------- -------- -------- -------- --------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................... $74,205 $16,726 $25,491 $ 4,762 $ 8,591
Working capital............................... 71,798 15,279 26,515 5,314 9,241
Total assets.................................. 91,405 29,608 34,416 10,636 12,236
Long-term debt and capital lease obligations,
less current portion........................ 1,580 1,249 586 1,078 770
Accumulated (deficit)......................... (66,844) (51,655) (38,468) (31,316) (25,493)
Total stockholders' equity.................... 69,857 19,300 29,410 5,671 8,997
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE DISCUSSION IN THIS ITEM AND ELSEWHERE IN THIS REPORT CONTAINS
FORWARD-LOOKING STATEMENTS INVOLVING RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE THOSE DESCRIBED UNDER "FACTORS
AFFECTING FUTURE OPERATIONS AND RESULTS" BELOW.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
We are a biopharmaceutical company that has developed and patented a method,
known as phage display, that we are using to identify a broad range of compounds
with potential for the treatment and diagnosis of diseases. We are using phage
display to build a broad portfolio of product candidates that we plan to develop
and commercialize either ourselves or through collaborations. We are further
leveraging this technology platform with collaborative arrangements and licenses
that can produce revenues through research funding, patent and library license
fees, milestone payments and royalties. We are currently engaged in funded
collaborative arrangements with biotechnology and pharmaceutical companies for
the discovery and/or development of biopharmaceutical, separations and
diagnostic lead compounds, and we have over 50 licensees.
We also develop, manufacture and sell chromatography separations systems and
products through our Biotage subsidiary. We are a leading developer,
manufacturer and supplier of chromatography separations systems that use
disposable cartridges to separate and purify pharmaceuticals being produced for
research and clinical development. Using our phage display technology, we are
also developing potential separations products to purify biopharmaceuticals.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 AND 1999
Total revenues for 2000 were $25.2 million, compared with $16.8 million in
1999, an increase of $8.4 million or 50%. Product sales and product development
and license revenues accounted for 63% and 37% respectively, of total revenues
in 2000, as compared with 75% and 25% in 1999. Product sales increased to
$15.8 million in 2000 from $12.6 million in 1999, an increase of $3.2 million or
25%. The increase in product sales is primarily due to increased unit sales in
Biotage's drug discovery purification consumable business. Product development
and license fee revenues increased to $9.4 million in 2000 from $4.2 million in
1999, an increase of $5.2 million or 123%. The increase in product development
and license fee revenues is due to several large funded collaborative
arrangements which were entered into during 2000, as well as the continued
expansion of our phage display licensing program. As a result of new
collaborations in 2000, our deferred revenues increased to $11.3 million from
$2.9 million as of December 31, 2000 and 1999, respectively. These product
development and license fees are amortized over the expected term of each
agreement, ranging from one to six years.
Cost of products sold in 2000 was $7.5 million compared to $5.5 million in
1999, an increase of $2.0 million or 36%. The cost of products sold as a
percentage of products sales increased to 47% in 2000 from 44% in 1999. The
increase is primarily due to inventory obsolescence, related to bulk media and
component piece parts for older systems, and foreign exchange rate fluctuations,
resulting from pounds sterling denominated product sales.
Research and development expenses for 2000 were $14.4 million, compared with
$10.6 million in 1999, an increase of $3.8 million or 36%. The increase resulted
primarily from expenditures on new collaborative arrangements, compound
manufacturing expenditures for Phase I clinical trials of DX-88,
26
which began in April 2000 and increased internal efforts to develop
biopharmaceutical, separations and diagnostic products and industrial enzymes.
Selling, general and administrative expenses increased to $18.1 million in
2000 from $14.1 million in 1999, an increase of $4.0 million or 29%. The
increase is primarily due to increased personnel in sales and marketing
functions at Biotage in connection with the growth in product sales and in
legal, finance and human resources to support corporate administrative functions
for our increased research efforts. There were also increases of approximately
$375,000 of costs for discontinued merger and acquisition activities and
$691,000 of additional patent and related legal expenses.
Non-cash compensation for selling, general and administrative and research
and development increased $1.5 million or 158%, to $2.4 million in 2000 from
$939,000 in 1999. Non-cash compensation expense represents the difference
between the fair market value of the common stock on the option grant date and
the option exercise price. The increase is primarily due to acceleration of
vesting of certain restricted stock due to completion of the initial public
offering and a larger spread between the fair market value of the common stock
and option exercise prices.
Net interest income increased to $2.0 million in 2000, from $856,000 in
1999, due to a higher average balance available for investment as a result of
the proceeds from the initial public offering in August 2000. The Company
recognized $265,000 of investment income in 1999 in connection with the sale of
an equity interest received as consideration under one of our non-exclusive
license agreements.
Our net loss in 2000 was $15.2 million compared to $13.2 million in 1999.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Total revenues increased 19% to $16.8 million in 1999 from $14.1 million in
1998. Product sales and product development and license revenues accounted for
75% and 25% respectively, of total revenues in 1999, as compared with 68% and
32% in 1998. For 1999, product sales increased 31% to $12.6 million in 1999 from
$9.6 million in 1998 as we introduced new separations products and increased the
market share of our existing product line. As a result of new collaborations in
1999, our deferred revenues increased to $2.9 million at December 31, 1999 from
$859,000 at December 31, 1998. These product development and license fee
revenues are amortized over the expected term of each agreement, ranging from
one to six years. Product development and license fee revenues decreased 6% to
$4.2 million in 1999 from $4.5 million in 1998. This decrease in revenue in 1999
is primarily due to replacing 1998 shorter term funded research programs with a
longer term collaboration and a longer term license arrangement, each of which
had significant signing fees. Revenues from these signing fees are deferred and
amortized over the terms of the agreements.
The cost of products sold increased 32% to $5.5 million in 1999 from
$4.2 million in 1998 as a result of an increase in product sales over 1998. The
cost of products sold as a percentage of product sales remained relatively
constant at 44% in 1999 and 43% in 1998.
Research and development expenses increased 57% to $10.6 million for the
year ended December 31, 1999 as compared with $6.8 million for the year ended
December 31, 1998. The increase was the result of funded research for new
research discovery collaborative arrangements, primarily our DX-88 project with
Genzyme, together with increases in our ongoing internal efforts to develop
products in therapeutics, separations, diagnostics and industrial enzymes.
Selling, general and administrative expenses increased 40% to $14.1 million
in 1999 from $10.1 million in 1998. These expenses increased due to the addition
of several executives to the management team and increased selling expenses
incurred in connection with the growth in product sales and business development
expenses to support the general expansion of our production and research
operations.
27
Non-cash compensation expense increased 38% to $939,000 in 1999 as compared
with $681,000 in 1998, due to a greater number of options granted under our
equity incentive plan in 1999. Non-cash compensation expense represents the
difference between the fair market value of the common stock on the option grant
date and the option exercise price.
Interest and investment income increased 180% to $1.1 million in 1999 from
$401,000 in 1998, due to a higher average cash balance in 1999 than in 1998,
which resulted from the private placement of preferred stock in 1998. Investment
income in 1999 represents the net proceeds after exercising stock warrants and
selling the underlying stock. The warrants were granted to the Company as
consideration for a non-exclusive license.
Our net loss in 1999 was $13.2 million compared to $7.2 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
On August 18, 2000, the Company completed its initial public offering of
4,600,000 shares of common stock at a price of $15.00 per share resulting in net
proceeds to the Company, after commissions and expenses, of $62.4 million.
Through December 31, 2000, we have funded our operations principally through the
sale of equity securities, which have provided aggregate net cash proceeds since
inception of approximately $131.0 million. We have also generated funds from
product sales, product development and license fee revenues, interest income and
other sources. As of December 31, 2000, we had cash and cash equivalents of
approximately $74.2 million, an increase of $57.5 million from December 31,
1999. Our funds are currently invested in U.S. Treasury obligations.
Our operating activities used cash of $4.1 million and $7.9 million for the
years ended December 31, 2000 and 1999, respectively. The use of cash in both
years resulted primarily from our losses from operations and changes in our
working capital accounts, net of depreciation, amortization and non-cash
compensation expense. Cash used for operating activities decreased for the year
ended December 31, 2000 primarily due to cash received from large funded
collaboration arrangements included in deferred revenue which was partially
offset by an increase in accounts receivable.
Our investing activities used cash of $2.4 million and $1.8 million for the
years ended December 31, 2000 and 1999, respectively. Our investing activities
consisted of purchases of equipment. We anticipate that we will invest
$6.0 million to $8.0 million in 2001 for leasehold improvements to satisfy our
facilities requirements for our research activities. Additionally, our Biotage
subsidiary will begin construction on a 50,000 square foot facility in
Charlottesville, VA at a cost of $4.0 million to $6.0 million.
Our financing activities provided $64.0 million and $942,