DYAX CORP - FORM 10-Q - November 6, 2015

Attached files

file	filename
EX-32 - EXHIBIT 32 - DYAX CORP	a93015exhibit32.htm
EX-10.5 - EXHIBIT 10.5 - DYAX CORP	a93015exhibit105.htm
EX-31.2 - EXHIBIT 31.2 - DYAX CORP	a93015exhibit312.htm
EX-10.2 - EXHIBIT 10.2 - DYAX CORP	a93015exhibit102.htm
EX-31.1 - EXHIBIT 31.1 - DYAX CORP	a93015exhibit311.htm
EX-10.4 - EXHIBIT 10.4 - DYAX CORP	a93015exhibit104.htm
EX-10.3 - EXHIBIT 10.3 - DYAX CORP	a93015exhibit103.htm
EX-10.1 - EXHIBIT 10.1 - DYAX CORP	a93015exhibit101.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2015

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 No. 000-24537

DYAX CORP.

(Exact Name of Registrant as Specified in its Charter)



Delaware		04-3053198
(State of Incorporation)		(I.R.S. Employer Identification Number)

55 Network Drive, Burlington, MA 01803

(Address of Principal Executive Offices)

(617) 225-2500

(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant: (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ý NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

YES ý NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "accelerated filer", "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨ NO ý

Number of shares outstanding of Dyax Corp.’s Common Stock, par value $0.01, as of October 30, 2015: 147,128,033

DYAX CORP.

TABLE OF CONTENTS



			Page
PART I		FINANCIAL INFORMATION	3

Item 1	-	Financial Statements	3

		Condensed Balance Sheets (Unaudited) as of September 30, 2015 and December 31, 2014	3

		Condensed Statements of Operations and Comprehensive Loss (Unaudited) for the three and nine months ended September 30, 2015 and 2014	4

		Condensed Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2015 and 2014	5

		Notes to Condensed Financial Statements (Unaudited)	6

Item 2	-	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4	-	Controls and Procedures	39

PART II		OTHER INFORMATION	40

Item 1A	-	Risk Factors	40

Item 5	-	Other Information	58

Item 6	-	Exhibits	58

Signatures			61

Exhibit Index			62

PART I – FINANCIAL INFORMATION

Item 1 – FINANCIAL STATEMENTS

Dyax Corp.

Condensed Balance Sheets (Unaudited)



	September 30, 2015			December 31, 2014
	(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	116,687		$	19,392
Short-term investments	191,698			165,260
Accounts receivable, net	13,178			12,221
Inventory	4,771			4,504
Other current assets	6,324			7,053
Total current assets	332,658			208,430
Fixed assets, net	5,213			4,631
Restricted cash	1,100			1,100
Other assets	9,948			2,972
Total assets	$	348,919		$	217,133
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	24,799		$	17,373
Current portion of deferred revenue	3,743			3,373
Other current liabilities	—			1,159
Total current liabilities	28,542			21,905
Deferred revenue	3,115			4,201
Notes payable	—			82,165
Deferred rent and other long-term liabilities	2,793			3,059
Total liabilities	34,450			111,330
Commitments and contingencies	—			—
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively	—			—
Common stock, $0.01 par value; 200,000,000 shares authorized; 147,122,377 and 136,662,175 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively	1,471			1,367
Additional paid-in capital	886,140			650,249
Accumulated deficit	(573,224		)	(545,841		)
Accumulated other comprehensive income	82			28
Total stockholders' equity	314,469			105,803
Total liabilities and stockholders' equity	$	348,919		$	217,133

The accompanying notes are an integral part of the unaudited condensed financial statements.

Dyax Corp.

Condensed Statements of Operations and Comprehensive Loss (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(In thousands, except share and per share data)
Revenues:
Product sales, net	$	17,807		$	20,274		$	51,580		$	49,363
Development and license fees	1,362			1,035			6,622			5,648
Royalty revenue	5,560			684			13,318			684
Total revenues, net	24,729			21,993			71,520			55,695

Costs and expenses:
Cost of product sales	784			1,393			4,303			3,153
Cost of royalty revenue	2,780			342			6,659			342
Research and development expenses	15,624			8,268			40,376			23,593
Selling, general and administrative expenses	14,033			10,132			39,227			30,186
Total costs and expenses	33,221			20,135			90,565			57,274
Income (loss) from operations	(8,492		)	1,858			(19,045		)	(1,579		)

Other income (expense):
Interest and other income	217			81			508			192
Interest and other expenses	(3,426		)	(2,755		)	(8,846		)	(8,201		)
Total other expense, net	(3,209		)	(2,674		)	(8,338		)	(8,009		)
Net loss	(11,701		)	(816		)	(27,383		)	(9,588		)

Other comprehensive income:
Unrealized gain on investments	58			33			54			123
Comprehensive loss	$	(11,643	)	$	(783	)	$	(27,329	)	$	(9,465	)

Basic and diluted net loss per share	$	(0.08	)	$	(0.01	)	$	(0.19	)	$	(0.07	)
Shares used in computing basic and diluted net loss per share	146,793,249			136,282,842			142,814,337			132,301,051

The accompanying notes are an integral part of the unaudited condensed financial statements.

Dyax Corp.

Condensed Statements of Cash Flows (Unaudited)



	Nine Months Ended September 30,
	2015			2014
	(In thousands)
Cash flows from operating activities:
Net loss	$	(27,383	)	$	(9,588	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of purchased premium/discount	795			455
Depreciation of fixed assets	745			642
Non-cash interest expense	—			487
Compensation expenses associated with stock-based compensation plans	13,595			5,294
Changes in operating assets and liabilities:
Accounts receivable	(450		)	991
Other current assets	2,956			(2,881		)
Inventory	(7,201		)	1,078
Accounts payable and accrued expenses	4,037			232
Deferred revenue	(1,224		)	(1,492		)
Other	(190		)	35
Payment related to discounts and interest converted to principal	(6,450		)	—
Net cash used in operating activities	(20,770		)	(4,747		)
Cash flows from investing activities:
Purchase of investments	(236,160		)	(114,573		)
Proceeds from sale and maturity of investments	208,982			2,000
Purchase of fixed assets	(1,325		)	(420		)
Net cash used in investing activities	(28,503		)	(112,993		)
Cash flows from financing activities:
Gross proceeds from common stock offering	229,770			85,100
Fees associated with common stock offering	(14,019		)	(5,392		)
Repayment of long-term obligations	(75,715		)	(931		)
Proceeds from the issuance of common stock under employee stock purchase plan and exercise of stock options	6,532			3,218
Net cash provided by financing activities	146,568			81,995
Net increase (decrease) in cash and cash equivalents	97,295			(35,745		)
Cash and cash equivalents at beginning of the period	19,392			68,085
Cash and cash equivalents at end of the period	$	116,687		$	32,340
Supplemental disclosure of cash flow information:
Interest paid	$	7,687		$	7,878

The accompanying notes are an integral part of the unaudited condensed financial statements.

DYAX CORP.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. BUSINESS OVERVIEW

Dyax Corp. (“Dyax” or the “Company”) is a biopharmaceutical company developing and commercializing therapies to address orphan diseases. The Company's current areas of focus include:


•	Hereditary Angioedema

The Company develops and commercializes treatments for hereditary angioedema (HAE). The Company discovered and developed KALBITOR^® (ecallantide), a plasma kallikrein inhibitor, and is selling it in the United States for the treatment of acute attacks of HAE. Additionally, the Company discovered and is developing DX-2930, a fully human monoclonal antibody inhibitor of plasma kallikrein, which is an investigational product candidate to treat HAE prophylactically. The Company has also developed a biomarker assay that detects the activation of plasma kallikrein in patient blood and is using this assay to expedite the development of DX-2930.


•	Pipeline Development Programs

The Company is expanding upon its expertise in the plasma kallikrein pathway and has an evolving pipeline of fully human monoclonal antibody drug candidates that the Company believes have the potential to address various orphan diseases. These drug candidates include:

•DX-2930 for diabetic macular edema (DME)

•DX-2507 for antibody-mediated autoimmune diseases

•DX-4012 for anti-thrombotic therapy


•	Licensing and Funded Research Portfolio (LFRP)

The Company has a portfolio of product candidates being developed by licensees based on its phage display technology. This portfolio currently includes one approved product, CYRAMZA^® (ramucirumab) marketed by Eli Lilly & Company (Lilly), and multiple product candidates in various stages of clinical development for which the Company is eligible to receive future royalties and/or milestone payments.

On November 2, 2015, the Company entered into an Agreement and Plan of Merger pursuant to which Dyax would become a wholly owned subsidiary of Shire plc. See Note 11, Subsequent Event, and the description of the merger agreement included under the heading “Business Overview-Merger Agreement” in Item 2 below.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. It is management’s opinion that the accompanying unaudited interim condensed financial statements reflect all adjustments (which are normal and recurring) necessary for a fair statement of the results for the interim periods. The financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The accompanying December 31, 2014 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the dates of the financial statements and (iii) the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

Basis of Consolidation

The accompanying financial statements for the three and nine months ended September 30, 2014 include the accounts of the Company and the Company's European subsidiaries Dyax S.A., Dyax BV and Dyax Holdings B.V. In 2014, Dyax S.A. and

Dyax BV were dissolved and during the nine months ended September 30, 2015, Dyax Holdings B.V. was dissolved. All inter-company accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the amounts of assets and liabilities reported and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The significant estimates and assumptions in these financial statements include revenue recognition, product sales allowances, effective interest rate calculation, useful lives with respect to long-lived assets, valuation of stock options, accrued expenses and tax valuation reserves. Actual results could differ from those estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and trade accounts receivable. At September 30, 2015 and December 31, 2014, approximately 97% and 98%, respectively, of the Company's cash, cash equivalents and short-term investments were invested in money market funds backed by U.S. Treasury obligations, U.S. Treasury notes and bills, and obligations of United States government agencies held by one financial institution. The Company maintains balances in various operating accounts in excess of federally insured limits.

The Company provides most of its services and licenses its technology to pharmaceutical and biomedical companies worldwide, and makes all product sales to its distributors. Concentrations of credit risk with respect to trade receivable balances associated with the Company’s development and license fee revenue are usually limited, due to the diverse number of licensees and collaborators comprising the Company's customer base. Trade receivable balances associated with the Company’s product sales are comprised of a few customers, due to the Company’s limited distribution network. The Company conducts ongoing credit evaluations of its customers. As of September 30, 2015, three companies accounted for 76% of the receivable balance: 47% (Lilly), 15% (Walgreens) and 14% (Prodigy) of the accounts receivable balance. The balance due from Lilly includes $5.6 million in unbilled accounts receivable related to estimated royalties earned during the quarter ended September 30, 2015. As of December 31, 2014, three companies accounted for 68% of the accounts receivable balance: 27% (Lilly), 21% (US Bioservices) and 20% (Walgreens) of the accounts receivable balance.

Cash and Cash Equivalents

All highly liquid investments purchased with an original maturity of ninety days or less are considered to be cash equivalents. Cash and cash equivalents consist principally of cash, money market and U.S. Treasury funds.

Investments

Short-term investments primarily consist of investments with original maturities greater than ninety days and remaining maturities less than one year at period end. The Company has also classified its investments with maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. The Company considers its portfolio of investments as available-for-sale. Accordingly, these investments are recorded at fair value, which is based on quoted market prices.

Inventories

Inventories are stated at the lower of cost or market with cost determined under the first-in, first-out, or FIFO, basis. The Company evaluates inventory levels and would write-down inventory that is expected to expire prior to being sold, inventory that has a cost basis in excess of its expected net realizable value, inventory in excess of expected sales requirements, or inventory that fails to meet commercial sale specifications, through a charge to cost of product sales. Included in the cost of inventory are capitalized employee stock-based compensation costs for those employees dedicated to manufacturing efforts. Inventory on-hand that will be sold beyond the Company's normal operating cycle is classified as non-current and grouped with other assets on the Company's condensed balance sheet.

Inventories consist principally of raw materials and work-in-process. In certain circumstances, the Company will make advance payments to vendors for future inventory deliveries. These advance payments are recorded as other current assets on the condensed balance sheet.

Fixed Assets

Property and equipment are recorded at cost and depreciated over the estimated useful lives of the related assets using the straight-line method. Laboratory and production equipment, furniture and office equipment are depreciated over a three to seven year period. Leasehold improvements are stated at cost and are amortized over the lesser of the non-cancelable term of the related lease or their estimated useful lives. Leased equipment is amortized over the lesser of the life of the lease or their estimated useful lives. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation and amortization are eliminated from the balance sheet and any resulting gains or losses are included in operations in the period of disposal.

The Company records all proceeds received from the lessor for tenant improvements under the terms of its operating lease as deferred rent. The amounts are amortized on a straight-line basis over the term of the lease as an offset to rent expense.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flow to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value, which is computed based on a discounted cash flow basis.

Revenue Recognition

The Company’s principal sources of revenue are product sales of KALBITOR, royalties, and development and license fees derived from collaboration and license agreements. In all instances, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, collectability of the resulting receivable is reasonably assured and the Company has no further performance obligations.

Product Sales and Allowances

Product Sales. Product sales are generated from the sale of KALBITOR to the Company’s customers, primarily wholesale and specialty distributors, and are recorded upon delivery when title and risk of loss have passed to the customer. Product sales are recorded net of applicable reserves for distributors, prompt pay and other discounts, government rebates, patient financial assistance programs, product returns and other applicable allowances.

Under certain arrangements the Company has provided its distributors with extended payment terms. In these circumstances, revenue is not recognized until collectability is reasonably assured or payment from the distributor has been received.

Product Sales Allowances. The Company establishes reserves for trade distributor, prompt pay and volume discounts, government rebates, patient financial assistance programs, product returns and other applicable allowances. Reserves established for these discounts and allowances are classified as a reduction of accounts receivable (if the amount is payable to the customer) or a liability (if the amount is payable to a party other than the customer).

Allowances against receivable balances primarily relate to prompt payment discounts and are recorded at the time of sale, resulting in a reduction in product sales revenue. Accruals related to government rebates, patient financial assistance programs, product returns and other applicable allowances are recognized at the time of sale, resulting in a reduction in product sales revenue and an increase in accrued expenses.

The Company maintains service contracts with its distributors. These contracts include services such as inventory maintenance and patient support services, which have included call center and on-demand nursing services. Accounting standards related to consideration given by a vendor to a customer, including a reseller of a vendor’s product, specify that each consideration given by a vendor to a customer is presumed to be a reduction of the selling price. Consideration should be characterized as a cost if the company receives, or will receive, an identifiable benefit in exchange for the consideration, and fair value of the benefit can be reasonably estimated. The Company has established that patient support services are at fair value and represent a separate and identifiable benefit because these services could be provided by separate third-party vendors. Accordingly, these costs are classified as selling, general and administrative expense.

Fees paid to distributors for inventory maintenance are calculated as a percentage of the KALBITOR sales price and accordingly, are classified as a reduction in product sales revenue.

Prompt Payment and Other Discounts. The Company offers a prompt payment discount to its United States distributors. Since the Company expects that these distributors will take advantage of this discount, the Company accrues 100% of the prompt payment discount that is based on the gross amount of each invoice, at the time of sale. This accrual is adjusted quarterly to reflect actual earned discounts. The Company has also offered volume discounts to certain distributors which are accrued quarterly based on sales during the period.

Government Rebates and Chargebacks. The Company estimates reductions to product sales for Medicaid and Veterans' Administration (VA) programs and the Medicare Part D Coverage Gap Program, as well as for certain other qualifying federal and state government programs. The Company estimates the amount of these reductions based on available KALBITOR patient data, actual sales data and rebate claims. These allowances are adjusted each period based on actual experience.

Medicaid rebate reserves relate to the Company’s estimated obligations to state jurisdictions under the established reimbursement arrangements of each applicable state. Rebate accruals are recorded during the same period in which the related product sales are recognized. Actual rebate amounts are determined at the time of claim by the state, and the Company will generally make cash payments for such amounts after receiving billings from the state.

VA rebates or chargeback reserves represent the Company’s estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at a price lower than the list price charged to the Company’s distributor. The distributor will charge the Company for the difference between what the distributor pays for the product and the ultimate selling price to the qualified healthcare provider. Rebate accruals are established during the same period in which the related product sales are recognized. Actual chargeback amounts for Public Health Service are determined at the time of resale to the qualified healthcare provider from the distributor, and the Company will generally issue credits for such amounts after receiving notification from the distributor.

Although allowances and accruals are recorded at the time of product sale, certain rebates are typically paid out, on average, up to six months or longer after the sale. Reserve estimates are evaluated quarterly and if necessary, adjusted to reflect actual results. Any such adjustments will be reflected in the Company’s operating results in the period of the adjustment.

Product Returns. Allowances for product returns are recorded during the period in which the related product sales are recognized, resulting in a reduction to product revenue. The Company does not provide its distributors with a general right of product return. The Company permits returns if the product is damaged or defective when received by customers or if the product shelf life has expired. The Company estimates product returns based upon actual returns history and data provided by a distributor.

Patient Financial Assistance. The Company offers a financial assistance program for commercially insured KALBITOR patients in order to defray patients’ out-of-pocket expenses, including co-payments, to aid patients’ access to KALBITOR. The Company estimates its liability for this program based on actual but unpaid reimbursements, as well as, an estimated reserve for product sold to and held by distributors as of period end, based on the Company’s historical redemption rates.

An analysis of the amount of, and change in, reserves related to sales allowances is summarized as follows:



(In thousands)	Prompt pay and other discounts			Patient Financial assistance			Government rebates and chargebacks			Returns			Total
Balance, as of December 31, 2013	$	484		$	90		$	1,634		$	323		$	2,531
Current provisions relating to sales in current year	3,593			443			3,270			267			7,573
Adjustments relating to prior years	6			11			(209		)	44			(148		)
Payments relating to sales in current year	(3,154		)	(385		)	(1,800		)	—			(5,339		)
Payments/returns relating to sales in prior years	(383		)	(16		)	(908		)	(42		)	(1,349		)
Balance, as of December 31, 2014	$	546		$	143		$	1,987		$	592		$	3,268
Current provisions relating to sales in current year	2,741			315			2,760			48			5,864
Adjustments relating to prior years	—			3			(46		)	(137		)	(180		)
Payments relating to sales in current year	(2,357		)	(373		)	(1,228		)	—			(3,958		)
Payments/returns relating to sales in prior years	(440		)	(21		)	(730		)	(117		)	(1,308		)
Balance, as of September 30, 2015	$	490		$	67		$	2,743		$	386		$	3,686

Development and License Fee Revenues

Collaboration Agreements. The Company enters into collaboration agreements with other companies for the research and development of therapeutic and diagnostic products. The terms of the agreements may include non-refundable signing and licensing fees, funding for research and development, payments related to manufacturing services, milestone payments and royalties on any product sales derived from collaborations. These multiple element arrangements are analyzed to determine how the deliverables, which often include license and performance obligations such as research, steering committee and manufacturing services, are separated into units of accounting.

For agreements entered into prior to 2011, the Company evaluated license arrangements with multiple elements in accordance with Accounting Standards Codification (ASC), 605-25 Revenue Recognition – Multiple-Element Arrangements. Since 2011, the Company has applied the guidance of ASU 2009-13to evaluate license arrangements with multiple elements. This guidance amended the accounting standards for certain multiple element arrangements to:


•	Provide updated guidance on whether multiple elements exist, how the elements in an arrangement should be separated and how the arrangement considerations should be allocated to the separate elements;

•

Require an entity to allocate arrangement consideration to each element based on a selling price hierarchy, also called the relative selling price method, where the selling price for an element is based on vendor-specific objective evidence (VSOE), if available; third-party evidence (TPE), if available and VSOE is not available; or the best estimate of selling price (BESP), if neither VSOE or TPE is available; and


•	Eliminate the use of the residual method and require an entity to allocate arrangement consideration using the selling price hierarchy.

The Company evaluates all deliverables within an arrangement to determine whether or not they provide value to the licensee on a stand-alone basis. Based on this evaluation, the deliverables are separated into units of accounting. If VSOE or vendor objective evidence (VOE) is not available to determine the fair value of a deliverable, the Company determines the best estimate of selling price associated with the deliverable. The arrangement consideration, including upfront license fees and funding for research and development, is allocated to the separate units based on relative fair value.

VSOE is based on the price charged when an element is sold separately and represents the actual price charged for that deliverable. When VSOE cannot be established, the Company attempts to establish the selling price of the elements of a license arrangement based on VOE. VOE is determined based on third party evidence for similar deliverables when sold separately. In circumstances when the Company charges a licensee for pass-through costs paid to external vendors for development services, these costs represent VOE.

When the Company is unable to establish the selling price of an element using VSOE or VOE, management determines BESP for that element. The objective of BESP is to determine the price at which the Company would transact a sale if the element within the license agreement was sold on a stand-alone basis. The Company’s process for establishing BESP involves

management’s judgment and considers multiple factors including discounted cash flows, estimated direct expenses and other costs and available data.

Based on the value allocated to each unit of accounting within an arrangement, upfront fees and other guaranteed payments are allocated to each unit based on relative value. The appropriate revenue recognition method is applied to each unit and revenue is accordingly recognized as each unit is delivered.

For agreements entered into prior to 2011, revenue related to upfront license fees was spread over the full period of performance under the agreement, unless the license was determined to provide value to the licensee on a stand-alone basis and the fair value of the undelivered performance obligations, typically including research or steering committee services was determinable.

Steering committee services that were not inconsequential or perfunctory and were determined to be performance obligations were combined with other research services or performance obligations required under an arrangement, if any, to determine the level of effort required in an arrangement and the period over which the Company expected to complete its aggregate performance obligations.

Whenever the Company determined that an arrangement should be accounted for as a single unit of accounting, it determined the period over which the performance obligations would be completed. Revenue is recognized using either an efforts-based or time-based proportional performance (i.e. straight-line) method. The Company recognizes revenue using an efforts-based proportional performance method when the level of effort required to complete its performance obligations under an arrangement can be reasonably estimated and such performance obligations are provided on a best-efforts basis. Direct labor hours or full-time equivalents are typically used as the measurement of performance.

If the Company cannot reasonably estimate the level of effort to complete its performance obligations under an arrangement, then revenue under the arrangement is recognized on a straight-line basis over the period the Company is expected to complete its performance obligations.

Many of the Company's collaboration agreements entitle it to additional payments upon the achievement of performance-based milestones. Milestones that are tied to development or regulatory approval are not considered probable of being achieved until such approval is received. All milestones which are determined to be substantive milestones are recognized as revenue in the period in which they are met in accordance with Accounting Standards Update (ASU) No. 2010-17, Revenue Recognition – Milestone Method. Milestones tied to counter-party performance are not included in the Company’s revenue model until performance conditions are met. Milestones determined to be non-substantive are allocated to each unit of accounting within an arrangement when met. The allocation of the milestone to each unit is based on relative value and revenue related to each unit is recognized accordingly.

Costs of revenues related to licensees’ product development, including license fees and development and regulatory milestones are classified as research and development in the statements of operations and comprehensive loss.

Phage Display Library Licenses. Standard terms of the proprietary phage display library agreements generally include non-refundable signing fees, license maintenance fees, development milestone payments, product license payments and royalties on product sales. Signing fees and maintenance fees are generally recognized on a straight line basis over the term of the agreement as deliverables within these arrangements are determined to not provide the licensee with value on a stand-alone basis and therefore are accounted for as a single unit of accounting. As milestones are achieved under a phage display library license, a portion of the milestone payment, equal to the percentage of the performance period completed when the milestone is achieved, multiplied by the amount of the milestone payment, will be recognized. The remaining portion of the milestone will be recognized over the remaining performance period on a straight-line basis. If the Company has no future obligations under the license, milestone payments under these license arrangements are recognized as revenue when the milestone is achieved. Product license payments, which are optional to the licensee, are substantive and therefore are excluded from the initial allocation of the arrangement consideration. These payments are recognized as revenue when the license is issued upon exercise of the licensee’s option, if the Company has no future obligations under the agreement. If there are future obligations under the agreement, product license payments are recognized as revenue only to the extent of the fair value of the license. Amounts paid in excess of fair value are recognized in a manner similar to milestone payments. Payments received that have not met the appropriate criteria for revenue recognition are recorded as deferred revenue.

LFRP Milestones

Non-substantive Milestones. Under the LFRP licenses, the Company is eligible to receive clinical development, regulatory filing and marketing approval milestones, which vary from licensee to licensee. Achievement of these milestones is contingent upon each licensee’s efforts and involves risks and uncertainty related to drug development, regulatory approval and intellectual property that could lead to milestones never being met.

Based on information available to the Company regarding pre-clinical and clinical candidates in the LFRP developed using its technology and through intellectual property rights granted, it is estimated that the Company could receive up to $58 million in development milestones, $53 million in regulatory filing milestones and $79 million in marketing approval milestones. As achievement of these milestones is outside the control of the Company and is contingent upon the licensees’ efforts, they have been determined to be non-substantive milestones.

The Company recognized revenue of approximately $691,000 and $4.2 million for the three and nine months ended September 30, 2015 associated with non-substantive milestones, respectively, and approximately $152,000 and $2.3 million related to non-substantive milestones under the LFRP for each of the three and nine months ended September 30, 2014.

Substantive Milestones. There are no substantive milestones under the LFRP for the three and nine months ended September 30, 2015 and 2014.

Non-LFRP Milestones

In certain countries outside of the U.S., the Company has entered into licensing agreements for the development and commercialization of KALBITOR for the treatment of HAE and other angioedema indications. Under these agreements, the Company is eligible to receive certain development and sales milestones. Achievement of these milestones is contingent upon each licensee’s efforts and involves risks and uncertainty related to regulatory approval and commercialization process that could lead to milestones never being met. There was no amount recognized for these milestones during the three and nine months ended September 30, 2015 and 2014.

Royalty Revenue

Royalty revenue is recognized when it becomes determinable and collectability is reasonably assured. For royalties recognized related to CYRAMZA, the first therapeutic product in the LFRP, which is commercialized by Lilly, the Company recognizes royalty revenue using an estimate of the royalties earned for the quarter based on Lilly’s reported sales of CYRAMZA.

Cost of Product Sales and Royalties

Cost of product sales includes costs to procure, manufacture and distribute KALBITOR and manufacturing royalties.

Cost of royalties is derived from pass-through fees under a cross license agreement related to royalties from product sales by its LFRP licensees.

Research and Development

Research and development costs include all direct costs, including salaries and benefits for research and development personnel, outside consultants, costs of clinical trials, sponsored research, clinical trials insurance, other outside costs, depreciation and facility costs related to the development of drug candidates, as well as certain pass-through costs under the Company’s cross license agreements related to product development by its LFRP licensees, including license fees and development and regulatory milestones.

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes in accordance with ASC 740 Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities using the enacted statutory tax rates. At September 30, 2015 and December 31, 2014, there were no unrecognized tax benefits.

The Company accounts for uncertain tax positions using a "more-likely-than-not" threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The provision for income

taxes includes the effects of any resulting tax reserves or unrecognized tax benefits that are considered appropriate as well as the related net interest and penalties, if any. The Company evaluates uncertain tax positions on a quarterly basis and adjusts the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions.

Translation of Foreign Currencies

Assets and liabilities of the Company's foreign subsidiaries are translated at period-end exchange rates. Amounts included in the statements of operations are translated at the average exchange rate for the period. Historically, the Company’s foreign subsidiaries are U.S. dollar functional currency denominated and local currency is re-measured in U.S. dollars and recorded to other income (expense) in the statement of operations and comprehensive loss. The Company recorded other expense of $10,000 for the nine months ended September 30, 2015 for the translation of foreign currency. No other expense or income was recorded for the three months ended September 30, 2015 as the company has liquidated all foreign subsidiaries. The Company recorded other expense of $20,000 and $23,000 for the three and nine months ended September 30, 2014, respectively.

Share-Based Compensation

The Company’s share-based compensation program consists of share-based awards granted to employees in the form of stock options and restricted stock units (RSUs), as well as its 1998 Employee Stock Purchase Plan, as amended (the Purchase Plan). The Company’s share-based compensation expense is recorded in accordance with ASC 718 Compensation - Stock Compensation.

Income or Loss Per Share

The Company follows the two-class method when computing net loss per share, as it had issued shares that met the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends, as if all income for the period had been distributed. For the three and nine months ended September 30, 2015 and 2014, there were no outstanding securities that would be considered participating securities.

The Company presents two earnings or loss per share (EPS) amounts, basic and diluted in accordance with ASC 260 Earnings per Share. Basic earnings or loss per share is computed using the weighted average number of shares of common stock outstanding. The Company excluded the following common stock equivalents, outstanding as of September 30, 2015 and 2014 (prior to consideration of the treasury stock method), from the computation of diluted net loss per share attributable to common stockholders because they had an anti-dilutive impact due to the net loss attributable to common stockholders incurred for the periods:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
Options to purchase common stock	13,974,241	11,850,440	13,854,056	11,721,260
Unvested restricted stock units	560,115	480,161	549,349	437,164
Total	14,534,356	12,330,601	14,403,405	12,158,424

Comprehensive Income (Loss)

The Company accounts for comprehensive income (loss) under ASC 220, Comprehensive Income, which established standards for reporting and displaying comprehensive income (loss) and its components in a full set of general purpose financial statements. The statement required that all components of comprehensive income (loss) be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company is presenting comprehensive income (loss) as part of the statements of operations and comprehensive loss.

Business Segments

The Company discloses business segments under ASC 280, Segment Reporting. The statement established standards for reporting information about operating segments and disclosures about products and services, geographic areas and major

customers. The Company operates in one business segment as a biopharmaceutical company within predominantly one geographic area. Long-lived assets consist entirely of property and equipment and are located in the United States for all periods presented.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies, which are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In July 2015, the FASB issued amendments which simplify the existing guidance which requires entities to subsequently measure inventory at the lower of cost or market value. Under the amendments, an entity should measure inventory valued using a first-in, first-out or average cost method at the lower of cost and net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This update is effective for public business entities during fiscal years beginning after December 15, 2016. Early adoption is permitted. This amendment is not expected to have a material impact on the Company's financial statements.

In May 2015, the FASB issued amendments which remove the requirement to categorize within the fair value hierarchy all investments for which fair value measured using the net asset value (NAV) as a practical expedient for fair value. Removing investments measured using the practical expedient from the fair value hierarchy is intended to eliminate the diversity in practice that currently exists with respect to the categorization of these investments. The new guidance requires reporting entities to continue to disclose information on investments for which fair value is measured at net asset value (or its equivalent) as a practical expedient to help users understand the nature and risks of the investments and whether the investments, if sold, are probable of being sold at amounts different from net asset value. A reporting entity should apply the amendments retrospectively to all periods presented. This update is effective for public business entities during fiscal years beginning after December 15, 2015. Early adoption is permitted. This amendment is not expected to have a material impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-3, “Interest - Imputation of Interest” (ASU 2015-3) that requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This update is effective for annual reporting periods beginning on or after December 15, 2015 and interim periods within fiscal years beginning after December 15, 2016. The Company has assessed and determined that adoption of ASU 2015-03 will have no material impact on its financial statements.

In May 2014, the FASB issued an amendment which will replace most of the existing revenue recognition guidance within U.S. GAAP. The core principle of this guidance is that an entity should recognize revenue for the transfer of goods or services to customers in an amount that it expects to be entitled to receive for those goods or services. In doing so, companies will be required to make certain judgments and estimates, including identifying contract performance obligations, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price among separate performance obligations. Additionally, the amendment requires disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, significant judgments reached in the application of the guidance and assets recognized from the costs to obtain or fulfill a contract. In July 2015, the FASB voted to defer the effective date of the amendment to apply to public business entities for annual and interim periods ending after December 15, 2017. The amendment allows for two methods of adoption: a full retrospective method or a modified retrospective approach with the cumulative effect recognized at the date of initial application. The Company is in the process of determining the method of adoption and the impact of this amendment on its financial statements.

3. SIGNIFICANT TRANSACTIONS

CVie Therapeutics

In 2013, the Company entered into an agreement with CVie Therapeutics (CVie), a subsidiary of Lee’s Pharmaceutical Holdings Ltd., to develop and commercialize KALBITOR for the treatment of HAE and other angioedema indications in China, Hong Kong and Macau. Under the terms of this exclusive license agreement, Dyax received a $1.0 million upfront payment and is eligible to receive up to $11 million in future regulatory and sales milestones. In September 2014, the contract was amended to expand CVIE’s territories to include the Republic of Korea, Taiwan and Singapore. The Company is eligible to receive royalties on net product sales in all licensed territories. CVie is solely responsible for all costs associated with development, regulatory activities and the commercialization of KALBITOR in its licensed territories. CVie will purchase drug

product from the Company on a cost-plus basis for its commercial supply when and if KALBITOR is approved for commercial sale in the CVie territories.

The Company analyzed this multiple element arrangement in accordance with ASC 605-25 and evaluated whether the performance obligations under this agreement, including the product license, steering committee, and manufacturing services should be accounted for as a single unit or multiple units of accounting. Because of the risk associated with obtaining approval for commercial sale in the CVie territories, manufacturing services associated with commercial supply are considered a contingent deliverable and will be accounted for if and when performed. As CVie is required to obtain all drug product for both clinical development and commercial demand from the Company, all other deliverables under this arrangement were determined to provide no stand-alone value to the licensee. Accordingly, it was determined that the license, manufacturing services associated with clinical supply, and steering committee performance obligations under this agreement represent a single unit of accounting.

At this time, the Company cannot reasonably estimate the level of effort required to fulfill its obligations and, therefore, is recognizing revenue associated with the upfront payment on a straight-line basis through mid-2020, the estimated development period in the CVie territories.

The Company recognized revenue of $34,000 and $82,000 for the three and nine months ended September 30, 2015, respectively, and $36,000 and $69,000 revenue was recorded for the three and nine months ended September 30, 2014, respectively. As of September 30, 2015 and December 31, 2014, the Company has deferred $640,000 and $723,000, respectively of revenue related to this arrangement, which is recorded in deferred revenue on the accompanying condensed balance sheets.

Pint Pharma

In 2013, the Company entered into an exclusive agreement with Novellus Biopharma AG (Novellus) to develop and commercialize KALBITOR for the treatment of HAE and other angioedema indications in select countries in Latin America, including Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. In 2014, this agreement was assigned to Pint Pharma (Pint) and amended to include the territories of Algeria, Tunisia, Morocco, and South Africa. Under the terms of the exclusive license agreement, the Company received upfront payments totaling $500,000 and is eligible to receive up to $5.2 million in future regulatory and sales milestones and royalties on net product sales. Pint is solely responsible for all costs associated with development, regulatory activities, and the commercialization of KALBITOR in their licensed territories. Pint will purchase drug product from the Company on a cost-plus basis for its commercial supply.

The Company will recognize revenue related to this arrangement, including the upfront payments, on a unit output basis, as products under clinical and commercial supply are provided to Pint. As no supply has been provided to Pint to date, no revenue has been recognized under this agreement. The Company has deferred recognition of the upfront payments of $500,000, which is recorded in deferred revenue on the accompanying balance sheets.

4. FAIR VALUE MEASUREMENTS

The following tables present information about the Company's financial assets that have been measured at fair value as of September 30, 2015, and December 31, 2014, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices, for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.



Description (in thousands)	September 30, 2015		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money Market Funds	$	108,904	$	108,904	$	—	$	—
US Treasury Bills and Notes	191,698		—		191,698		—
Total	$	300,602	$	108,904	$	191,698	$	—



Description (in thousands)	December 31, 2014		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money Market Funds	$	15,610	$	15,610	$	—	$	—
US Treasury Bills and Notes	165,260		—		165,260		—
Total	$	180,870	$	15,610	$	165,260	$	—

The following tables summarize the Company’s marketable securities at September 30, 2015, and December 31, 2014:



	September 30, 2015
Description (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
US Treasury Bills and Notes (due within 1 year)	$	93,548	$	26	$	—	$	93,574
US Treasury Bills and Notes (due after 1 year through 2 years)	98,068		56		—		98,124
Total	$	191,616	$	82	$	—	$	191,698



	December 31, 2014
Description (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
US Treasury Bills and Notes (due within 1 year)	$	165,232	$	28	$	—	$	165,260
Total	$	165,232	$	28	$	—	$	165,260

As of September 30, 2015 and December 31, 2014, the Company's cash equivalents and short-term investments have been initially valued at the transaction price and subsequently valued utilizing a third party pricing service. The Company validates the prices provided by its third-party pricing service by understanding the models used and obtaining market values from other pricing sources.

The Company classifies its investments with maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.

The carrying amounts reflected in the balance sheets for cash, cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses and other current liabilities approximate fair value due to their short-term maturities.

5. INVENTORY

Costs associated with the manufacture of KALBITOR are recorded as inventory.

Inventory that will be sold beyond the Company's normal operating cycle is classified as non-current and grouped with Other Assets on the Company's balance sheet. As of September 30, 2015 and December 31, 2014, approximately $9.8 million and $2.7 million of inventory, respectively, are classified as non-current.

Inventory consists of the following:



	September 30, 2015		December 31, 2014
	(in thousands)
Raw Materials	$	1,035	$	1,074
Work in Progress	9,023		3,872
Finished Goods	4,488		2,282
Total	$	14,546	$	7,228

6. FIXED ASSETS

Fixed assets consist of the following:



	September 30, 2015			December 31, 2014
	(in thousands)
Laboratory equipment	$	4,504		$	4,134
Furniture and office equipment	1,075			944
Software and computers	3,897			3,071
Leasehold improvements	4,554			4,554
Total	14,030			12,703
Less: accumulated depreciation	(8,817		)	(8,072		)
	$	5,213		$	4,631

Depreciation expense for the three and nine months ended September 30, 2015 was approximately $266,000 and $745,000, respectively and $219,000 and $642,000 for the three and nine months ended September 30, 2014, respectively.

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:



	September 30, 2015		December 31, 2014
	(in thousands)
Accounts payable	$	1,409	$	999
Accrued employee compensation and related taxes	6,485		5,759
Accrued external research and development and sales expenses	7,919		3,020
Accrued license fees	3,317		3,165
Accrued sales allowances	2,869		2,368
Other accrued liabilities	2,800		2,062
Total	$	24,799	$	17,373

8. LONG-TERM OBLIGATIONS

Notes Payable - HealthCare Royalty Partners

In August 2015, the Company repaid in full all indebtedness outstanding under a loan agreement with an affiliate of HC Royalty (the Loan) which included $84.1 million in principal. In connection with the Loan, which bore interest at a rate of 12% per annum, the Company had entered into a security agreement granting HC Royalty a security interest in the intellectual property related to the LFRP, and the revenues generated by the Company through the licenses of the intellectual property related to the LFRP. This security agreement terminated at the time of the Loan repayment.

For financial reporting purposes, the Company’s $84.1 million principal repayment was recorded as an $82.2 million debt extinguishment and a $1.9 million extinguishment loss associated with discounts from the debt issuance that had not been accreted to principal prior to repayment. Previously, these charges were accreted to the principal balance over the expected term of the Loan, which was scheduled to mature in August 2018.

Activity under the Loan, adjusted for discounts associated with the debt issuance, including warrants and fees, is presented for financial reporting purposes, as follows:



	September 30, 2015			December 31, 2014
	(in thousands)
Beginning balance	$	82,165		$	81,516
Accretion of discount	727			198
Loan activity:
Interest expense	8,078			10,588
Payments applied to principal	(84,472		)	—
Payments applied to interest	(6,498		)	(8,978		)
Accrued interest payable	—			(1,159		)
Ending balance	$	—		$	82,165

Facility Lease

The Company’s principal offices and corporate headquarters are located in Burlington, Massachusetts. As of September 30, 2015, the leased premises consist of approximately 45,000 rentable square feet of office and laboratory facilities. The ten year term of the lease extends to 2022 and the Company has rights to extend the term for an additional five years at fair market value, subject to specified terms and conditions. The aggregate minimum lease commitment over the term of the lease is approximately $15.0 million. The Company has provided the landlord a Letter of Credit of $1.1 million to secure its obligations under the lease for which the Company has restricted cash recorded in the accompanying condensed balance sheet. Under the terms of the lease agreement, the landlord has provided the Company with a tenant improvement allowance of $2.6 million, including a loan totaling $671,000, which was used towards the cost of leasehold improvements. As of September 30, 2015 and December 31, 2014, the outstanding balance of the loan was $484,000 and $527,000. The Company has capitalized approximately $4.6 million in leasehold improvements associated with the Burlington facility. Costs reimbursed under the tenant improvement allowance have been recorded as deferred rent and are being amortized as a reduction to rent expense over the lease term.

Subsequent to September 30, 2015, the Company amended its lease to add approximately 20,000 rentable square feet of office space on terms that are equivalent to the original lease.

9. STOCKHOLDER’S EQUITY AND STOCK-BASED COMPENSATION

Issuance of Common Stock

In April 2015, the Company issued 8,510,000 shares of common stock at $27.00 per share in an underwritten public offering. Net proceeds from the offering were approximately $215.8 million, after deducting offering expenses.

Equity Incentive Plan

The Company's 1995 Equity Incentive Plan (the Equity Plan), as amended, is an equity plan under which equity awards, including awards of restricted stock, RSUs and incentive and nonqualified stock options to purchase shares of common stock

may be granted to employees, consultants and directors of the Company by action of the Compensation Committee of the Board of Directors. Options are granted at the current fair market value on the date of grant, generally vest ratably over a 48-month period, and expire within ten years from date of grant. RSUs are valued at the current fair market value on the date of grant, and generally vest annually in equal installments over a four-year period. The Equity Plan is intended to attract and retain employees and to provide an incentive for employees, consultants and directors to assist the Company to achieve long-range performance goals and to enable them to participate in the long-term growth of the Company.

At September 30, 2015, a total of 6,188,704 shares were available for future grants under the Equity Plan.

The following table summarizes stock option and RSU activity for the period ended September 30, 2015:



	Number of Options		Number of RSUs
Outstanding as of December 31, 2014	11,587,079		486,174
Granted/Awarded	4,090,351		241,250
Options Exercised/Shares Issued	(1,767,097	)	(153,177	)
Cancelled	(133,648	)	(13,708	)
Outstanding as of September 30, 2015	13,776,685		560,539

Exercisable as of September 30, 2015	7,461,978		—

Employee Stock Purchase Plan

The Company's 1998 Employee Stock Purchase Plan (the Purchase Plan) allows employees to purchase shares of the Company's common stock at a discount from fair market value. Under the Purchase Plan, eligible employees may purchase shares during six-month offering periods commencing on June 1 and December 1 of each year at a price per share of 85% of the lower of the fair market value price per share on the first or last day of each six-month offering period. Participating employees may elect to have up to 10% of their base pay withheld and applied toward the purchase of such shares, subject to the limitation of 875 shares per participant per quarter. The rights of participating employees under the Purchase Plan terminate upon voluntary withdrawal from the Purchase Plan at any time or upon termination of employment. The compensation expense recognized in connection with the Plan was approximately $87,000 and $221,000 for the three and nine months ended September 30, 2015, respectively, and approximately $90,000 and $177,000 for the three and nine months ended September 30, 2014, respectively. There were 30,584 and 29,051 shares purchased under the Plan during the nine months ended September 30, 2015 and 2014.

At September 30, 2015, a total of 672,168 shares were reserved and available for issuance under this Plan.

Stock-Based Compensation Expense

The Company measures compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options was determined using the Black-Scholes valuation model. Such value is recognized as expense over the service period, net of estimated forfeitures and adjusted for actual forfeitures. The estimation of stock awards that will ultimately vest requires significant judgment. The Company considers many factors when estimating expected forfeitures, including historical experience. Actual results and future changes in estimates may differ substantially from the Company's current estimates.

The following table reflects stock compensation expense recorded, net of amounts capitalized into inventory:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(in thousands)
Compensation expense related to:
Equity Incentive Plan	$	5,782	$	1,952	$	13,374	$	5,117
Employee Stock Purchase Plan	87		90		221		177
	$	5,869	$	2,042	$	13,595	$	5,294

Stock-based compensation expense charged to:
Research and development	$	1,662	$	794	$	4,381	$	2,021

Selling, general and administrative	$	4,207	$	1,248	$	9,214	$	3,273

Stock-based compensation expense of $36,000 and $117,000 for the three and nine months ended September 30, 2015, respectively, and $22,000 and $45,000 for the three and nine months ended September 30, 2014, respectively, has been excluded from the chart above and was capitalized into inventory. Capitalized stock-based compensation is recognized into cost of product sales when the related product is sold.

10. INCOME TAXES

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using future enacted rates. A valuation allowance is recorded against deferred tax assets for which the Company determines that it does not meet the criteria under ASC 740.

As of December 31, 2014, the Company had federal tax net operating loss carryforwards (NOLs) of $347.4 million, available to reduce future taxable income, which expire at various times beginning in 2018 through 2034. The Company also had federal research and experimentation and orphan drug credit carryforwards of approximately $68.1 million as of December 31, 2014, available to reduce future tax liabilities which will expire at various dates beginning in 2018 through 2034. The Company had state tax net operating loss carryforwards of approximately $54.0 million as of December 31, 2014, available to reduce future state taxable income, which will expire at various dates beginning in 2029 through 2034. The Company also had state research and development and investment tax credit carryforwards of approximately $8.8 million as of December 31, 2014, available to reduce future tax liabilities which expire at various dates beginning in 2015 through 2029.

Included in the Company’s NOL carryforward of $347.4 million are approximately $16.7 million of tax deductions from the exercise of stock options at December 31, 2014. The Company has recorded a deferred tax asset of approximately $1.8 million at December 31, 2014 reflecting the benefit of the deduction from the exercise of stock options which has been fully reserved until it is more likely than not that the benefit will be realized. The benefit from these deductions will be recorded as a credit to additional paid-in capital if and when realized through a reduction of taxes paid in cash.

As required by ASC 740, management of the Company has evaluated the positive and negative evidence bearing upon the reliability of its deferred tax assets, which are comprised principally of NOL carry forwards, research and experimentation credit carryforwards, and capitalized start up expenditures and research and development expenditures amortizable over ten years straight-line. Management has determined at this time that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets and, as a result, a valuation allowance of approximately $219.8 million has been established at December 31, 2014.

Utilization of the NOLs and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986 (Section 382), as well as similar state and foreign provisions. Ownership changes may limit the amount of NOLs and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of 5% shareholders or public groups in the stock of a corporation by more than 50 percent in the aggregate over a three-year period. The Company has completed studies through December 31, 2014, to determine whether any ownership change has occurred since the Company's formation and has determined that transactions have resulted in two ownership changes, as defined by Section 382. There could

be additional ownership changes in the future that could further limit the amount of NOLs and tax credit carryforwards that the Company can utilize.

As of December 31, 2014, the Company’s federal tax NOLs available to reduce future taxable income without limitation are $280.9 million, which expire at various times beginning in 2024 through 2034. The Company’s federal research and experimentation and orphan drug credit carryforward as of December 31, 2014 available to reduce future tax liabilities without limitation are $63.3 million, which will expire at various dates beginning in 2024 through 2034. In addition, the Company has NOL and federal tax credits that are subject to limitation and expire at various times beginning in 2018 through 2024. These NOLs and federal tax credits of $67.2 and $4.8 million, respectively, may be utilized in part, subject to an annual limitation. The cumulative annual limitation as of December 31, 2014 was large enough to allow the Company to utilize the $67.2 and $4.8 million of NOL and federal tax credits to currently offset income until expiration. However, additional ownership changes after December 31, 2014 could restrict the use of the Company’s NOLs and federal tax credits.

11. SUBSEQUENT EVENT

On November 2, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Shire Pharmaceuticals International, a company incorporated in Ireland (“Parent”), Parquet Courts, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”) and Shire plc, a company incorporated in Jersey (“Parent Holdco”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into Dyax and the separate corporate existence of Merger Sub will thereupon cease, pursuant to the provisions of the General Corporation Law of the State of Delaware (DGCL), as provided in the Merger Agreement, with Dyax being the surviving corporation (the “Merger”). Parent Holdco has guaranteed the performance by Parent and Merger Sub of their obligations under the Merger Agreement.

At the effective time of the Merger (the “Effective Time”), each issued and outstanding share of the common stock of Dyax will be cancelled and converted into the right to receive (a) $37.30 per share in cash, subject to any applicable withholding of taxes, without interest and (b) one (1) contractual contingent value right per share (each, a “CVR”), which represents the right to receive a contingent payment of $4.00 in cash, without interest, if the specified milestone is achieved, pursuant to a Contingent Value Rights Agreement (the “CVR Agreement”) to be entered into between Parent Holdco and a rights agent.

The completion of the Merger is subject to adoption of the Merger Agreement by holders of a majority of the outstanding shares of Dyax entitled to vote on the matter, the expiration of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) and other customary closing conditions. Parent Holdco has agreed to use reasonable best efforts to obtain antitrust approval of the transaction, but is not obligated to divest any assets other than assets of Dyax aggregating no greater than $77.0 million in revenue for 2014. Consummation of the Merger is not subject to a financing condition. The Company and Parent may terminate the Merger Agreement if the Merger is not consummated by August 2, 2016, which date may be extended to November 2, 2016 under certain circumstances described in the Merger Agreement.

The Merger Agreement includes customary representations, warranties and covenants by the Company, Parent, Merger Sub and Parent Holdco. The Company has agreed to operate its business in the ordinary course until the Effective Time. The Company has also agreed not to solicit or initiate discussions with third parties regarding other proposals to acquire it and to certain restrictions on its ability to respond to any such proposals. The Merger Agreement also includes customary termination provisions for both the Company and Parent, subject, in certain circumstances, to (a) the payment by the Company of a termination fee of $180 million (the “Company Termination Fee”) or (b) the payment by Parent of a termination fee of $280 million (the “Parent Termination Fee”). The Company must pay Parent the Company Termination Fee in the event that the Merger Agreement is terminated by Parent following a change of recommendation by the Company’s board of directors or if the Company enters into an agreement with respect to a proposal from a third party that is superior to Parent’s, in each case, as is more particularly described in the Merger Agreement. Under certain additional circumstances described in the Merger Agreement, the Company must also pay Parent the Company Termination Fee if the Merger Agreement is terminated and, within 12 months following such termination, the Company enters into an agreement for a business combination transaction of the type described in the relevant provisions of the Merger Agreement and such transaction is subsequently consummated. The Company is also required to reimburse Parent for documented out-of-pocket expenses of up to a maximum of $15 million under circumstances specified in the Merger Agreement. Any payment of such expenses to Parent will be credited against any Company Termination Fee paid to Parent by the Company. Parent must pay the Company the Parent Termination Fee in certain circumstances specified in the Merger Agreement where the required antitrust approval is not obtained. The parties to the Merger Agreement are also entitled to an injunction or injunctions to prevent breaches of the Merger Agreement, and to specifically enforce the terms and provisions of the Merger Agreement.

The Company’s board of directors unanimously (i) approved and declared advisable the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) determined that the Merger Agreement and such transactions are fair to, and in the best interests of, Dyax and its stockholders (other than Parent Holdco, Parent and its subsidiaries) and (iii) resolved to recommend that Dyax’s stockholders approve the adoption of the Merger Agreement.

Prior to consummation of the Merger, Parent Holdco will enter into the CVR Agreement with a rights agent mutually agreeable to Parent Holdco and Dyax governing the terms of the CVR portion of the merger consideration. Each CVR represents the right to receive a contingent payment of $4.00 in cash, without interest, upon receipt, prior to December 31, 2019, of approval from the U.S. Food and Drug Administration (“FDA”) of a biologic license application for DX-2930 that does not require, among other things, the inclusion of a “boxed warning” (as defined in 21 CFR §201.57(c)(1)) in the product labeling and the implementation of a risk evaluation and mitigation strategy with elements to assure safe use required by the FDA (other than elements limited to the distribution of educational materials). This approval would grant the right to market and sell DX-2930 in the United States in accordance with applicable law for the prevention of attacks of Type 1 and Type 2 hereditary angioedema in patients with Type 1 or Type 2 hereditary angioedema. The right to the CVR portion of the merger consideration as evidenced by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement.

Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 and certain plans and objectives of our board of directors. Such forward-looking statements are based on current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by our management and may include, but are not limited to, statements regarding:


•	risks and uncertainties related to the proposed transaction with Shire Pharmaceuticals International, Parquet

Courts, Inc. and Shire plc including, but not limited to:


◦	the expected timing and likelihood of completion of the pending merger, including the timing, receipt and terms and conditions of any required governmental approvals of the pending merger that could cause the parties to abandon the transaction;


◦	the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, including a termination of the merger agreement under circumstances that could require us to pay a termination fee;


◦	the possibility that our stockholders may not approve the merger;


◦	the risk that the parties may not be able to satisfy the conditions to the proposed merger in a timely manner or at all;


◦	the failure of the merger to close for any other reason;


◦	the non-occurrence of the milestone event specified in the contingent value rights agreement;


◦	risks related to disruption of management time from ongoing business operations due to the proposed merger;


◦	limitations placed on our ability to operate the business by the merger agreement;


◦	the outcome of any legal proceedings instituted against us and/or others relating to the merger agreement, and the transactions contemplated thereby, including the merger;


◦	the risk that any announcements relating to the proposed merger could have adverse effects on the market price of our common stock;


◦	the risk that the proposed transaction and its announcement could have an adverse effect on our ability to retain and hire key personnel and maintain relationships with suppliers and customers, and on our operating results and business generally; and certain presently unknown or unforeseen factors, including, but not limited to, acts of terrorism and natural disasters.


•	the potential benefits and usage of KALBITOR for treating HAE;


•	the commercial potential of KALBITOR, including revenues and costs;


•	the prospects for therapeutic benefits and clinical development of DX-2930, DX-2507 and DX-4012;


•	estimates of potential markets for our products and product candidates;


•	prospects for future milestone payments and/or royalties with respect to licensee product candidates in our LFRP;


•	the potential for market approval for KALBITOR in markets outside the United States;


•	plans to enter into additional collaborative and licensing arrangements for ecallantide and for other compounds in development;


•	the sufficiency of our cash, cash equivalents and short-term investments; and


•	expected future revenues and operating results and cash flows.

We caution that the foregoing list of important factors that may affect future results is not exhaustive. Statements that are not historical facts are based on our current expectations, beliefs, assumptions, estimates, forecasts and projections for our business and the industry and markets in which we compete. We often use words or phrases of expectation or uncertainty like "guidance," "believe," "anticipate," "plan," "expect," "intend," "project," "future," "may," "will," "could," "would" and similar words to help identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include, but are not limited to, those discussed later in this report under the section entitled "Risk Factors". Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether because of new information, future events or otherwise. Readers should carefully review the risk factors set forth in this report and other reports or documents we file from time to time with the U.S. Securities and Exchange Commission (SEC).

BUSINESS OVERVIEW

Entry into a Definitive Merger Agreement

On November 2, 2015, we entered into a Merger Agreement, with Shire Pharmaceuticals International, a company incorporated in Ireland (“Parent”), Parquet Courts, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”) and Shire plc, a company incorporated in Jersey (“Parent Holdco”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into Dyax and the separate corporate existence of Merger Sub will thereupon cease, pursuant to the provisions of the DGCL, as provided in the Merger Agreement, with Dyax being the surviving corporation. Parent Holdco has guaranteed the performance by Parent and Merger Sub of their obligations under the Merger Agreement.

At the Effective Time of the Merger, each issued and outstanding share of our common stock (other than (i) shares owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent and shares owned by Dyax, and in each case, not held on behalf of third parties and (ii) shares that are owned by stockholders who have perfected and not withdrawn a demand for (or lost their right to) appraisal rights pursuant to Section 262 of the DGCL) will be cancelled and converted into the right to receive (a) $37.30 per share in cash, subject to any applicable withholding of taxes, without interest and (b) one (1) CVR per share, which represents the right to receive a contingent payment of $4.00 in cash, without interest, if the specified milestone is achieved, pursuant to a CVR Agreement to be entered into between Parent Holdco and a rights agent.

The completion of the Merger is subject to adoption of the Merger Agreement by holders of a majority of the outstanding shares of Dyax entitled to vote on the matter, the expiration of the waiting period (and any extension thereof) under the HSR Act and other customary closing conditions. Parent Holdco has agreed to use reasonable best efforts to obtain antitrust approval of the transaction, but is not obligated to divest any assets other than assets of Dyax aggregating no greater than $77.0 million in revenue for 2014. Consummation of the Merger is not subject to a financing condition. We and Parent may terminate the Merger Agreement if the Merger is not consummated by August 2, 2016, which date may be extended to November 2, 2016 under certain circumstances described in the Merger Agreement.

The Merger Agreement includes customary representations, warranties and covenants by us, Parent, Merger Sub and Parent Holdco. We have agreed to operate our business in the ordinary course until the Effective Time. We have also agreed not to solicit or initiate discussions with third parties regarding other proposals to acquire us and to certain restrictions on our ability to respond to any such proposals. The Merger Agreement also includes customary termination provisions for both us and Parent, subject, in certain circumstances, to (a) the payment by us of a Company Termination Fee of $180 million or (b) the payment by Parent of a Parent Termination Fee of $280 million. We must pay Parent the Company Termination Fee in the

event that the Merger Agreement is terminated by Parent following a change of recommendation by our board of directors or if we enter into an agreement with respect to a proposal from a third party that is superior to Parent’s, in each case, as is more particularly described in the Merger Agreement. Under certain additional circumstances described in the Merger Agreement, we must also pay Parent the Company Termination Fee if the Merger Agreement is terminated and, within 12 months following such termination, we enter into an agreement for a business combination transaction of the type described in the relevant provisions of the Merger Agreement and such transaction is subsequently consummated. We are also required to reimburse Parent for documented out-of-pocket expenses of up to a maximum of $15 million under circumstances specified in the Merger Agreement. Any payment of such expenses to Parent will be credited against any Company Termination Fee paid to Parent by us. Parent must pay us the Parent Termination Fee in certain circumstances specified in the Merger Agreement where the required antitrust approval is not obtained. The parties to the Merger Agreement are also entitled to an injunction or injunctions to prevent breaches of the Merger Agreement, and to specifically enforce the terms and provisions of the Merger Agreement.

Our board of directors unanimously (i) approved and declared advisable the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) determined that the Merger Agreement and such transactions are fair to, and in the best interests of, Dyax and its stockholders (other than Parent Holdco, Parent and its subsidiaries) and (iii) resolved to recommend that Dyax’s stockholders approve the adoption of the Merger Agreement.

Prior to consummation of the Merger, Parent Holdco will enter into the CVR Agreement with a rights agent mutually agreeable to Parent Holdco and Dyax governing the terms of the CVR portion of the merger consideration. Each CVR represents the right to receive a contingent payment of $4.00 in cash, without interest, upon receipt, prior to December 31, 2019, of approval from the FDA of a biologic license application for DX-2930 that does not require, among other things, the inclusion of a “boxed warning” (as defined in 21 CFR §201.57(c)(1)) in the product labeling and the implementation of a risk evaluation and mitigation strategy with elements to assure safe use required by the FDA (other than elements limited to the distribution of educational materials). This approval would grant the right to market and sell DX-2930 in the United States in accordance with applicable law for the prevention of attacks of Type 1 and Type 2 hereditary angioedema in patients with Type 1 or Type 2 hereditary angioedema. The right to the CVR portion of the merger consideration as evidenced by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement.

The foregoing description of the (i) Merger Agreement and the transactions contemplated thereby and (ii) the CVR Agreement and the transactions contemplated thereby, in each case, do not purport to be complete and are qualified in their entirety by reference to the Merger Agreement and by the CVR Agreement both which of are incorporated herein by reference. The Merger Agreement and the CVR Agreement have been filed to provide information to investors regarding its terms. They are not intended to provide any other factual information about Dyax, Parent, Merger Sub or Parent Holdco, their respective businesses, or the actual conduct of their respective businesses during the period prior to the consummation of the Merger or the other transactions contemplated by the Merger Agreement. The Merger Agreement, the CVR Agreement and this summary should not be relied upon as disclosure about Dyax or Parent. None of our stockholders or any other third parties should rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions of Company, Merger Sub, Parent, Parent Holdco or any of their respective subsidiaries or affiliates. The Merger Agreement contains representations and warranties that are the product of negotiations among the parties thereto and that the parties made to, and solely for the benefit of, each other as of specified dates. The assertions embodied in those representations and warranties are subject to qualifications and limitations agreed to by the respective parties and are also qualified in important part by confidential disclosure schedules delivered in connection with the Merger Agreement. The representations and warranties may have been made for the purpose of allocating contractual risk between the parties to the agreements instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors.

Overview

We are a biopharmaceutical company focused on:


•	Hereditary Angioedema and Other Plasma-Kallikrein-Mediated Disorders

We develop and commercialize treatments for HAE. We discovered and developed KALBITOR, a plasma kallikrein inhibitor, and are selling it in the United States for the treatment of acute attacks of HAE. Additionally, we discovered and are developing DX-2930, a fully human monoclonal antibody inhibitor of plasma kallikrein, which is an investigational product candidate to treat HAE prophylactically. We have also developed a biomarker assay that

detects the activation of plasma kallikrein in patient blood and are using this assay to expedite the development of DX-2930.


•	Pipeline Development Programs

•DX-2930 for diabetic macular edema (DME)

•DX-2507 for antibody-mediated autoimmune diseases

•DX-4012 for anti-thrombotic therapy


•	Licensing and Funded Research Portfolio

We have a portfolio of product candidates being developed by licensees based on our phage display technology. This portfolio currently includes one approved product, CYRAMZA^® (ramucirumab) which is marketed by Lilly, and multiple product candidates in various stages of clinical development for which we are eligible to receive future royalties and/or milestone payments.

HEREDITARY ANGIOEDEMA

HAE is a rare, genetic disorder characterized by severe, debilitating and often painful swelling, which can occur in the abdomen, face, hands, feet and airway. HAE is caused by a deficiency of C1-Inhibitor (C1-INH) activity, a naturally occurring molecule that inhibits plasma kallikrein, a key mediator of inflammation, and other serine proteases in the blood. It is estimated that HAE affects approximately 1 in 50,000 people around the world. The U.S. Hereditary Angioedema Association estimates that there are approximately 6,500 HAE patients in the United States.

KALBITOR

KALBITOR (ecallantide) is approved by the FDA for treatment of HAE in patients 12 years of age and older regardless of anatomic location. KALBITOR, a potent, selective and reversible plasma kallikrein inhibitor, was the first subcutaneous HAE treatment approved in the United States and the only subcutaneous therapy available to treat attacks in patients 12 years of age and older. KALBITOR has orphan drug designation in the United States.

United States Sales and Marketing

We have a commercial organization to support sales of KALBITOR in the United States, including a field-based team of approximately 30 professionals, consisting of sales representatives, market access and field advocates, clinical nurse educators and corporate account directors. At this time, our commercial organization is sized to market KALBITOR in the United States, where patients are treated primarily by a limited number of specialty physicians consisting mainly of allergists and immunologists.

Distribution

KALBITOR is currently distributed through a limited network of wholesale, hospital and specialty pharmacy arrangements. This network includes Walgreens Infusion Services, our largest provider of on-demand nursing services, which provides home administration of KALBITOR by healthcare professionals to eligible HAE patients. Our Walgreens agreement has a term through December 2015 and will renew annually unless amended or terminated by the parties.

Manufacturing

We have established a commercial supply chain that consists of third party vendors to manufacture, test and transport KALBITOR. All third party manufacturers involved in the KALBITOR manufacturing process are required to comply with current Good Manufacturing Practices, or cGMPs.

Ecallantide drug substance used in the production of KALBITOR is manufactured in the United Kingdom by Fujifilm Diosynth Biotechnologies (UK) Ltd. (Fujifilm). Under our agreement with Fujifilm, they have committed to be available to manufacture bulk drug substance for us through 2020. The shelf-life of our frozen ecallantide drug substance is four years.

Ecallantide drug substance is filled, labeled and packaged into the final form of KALBITOR drug product by Jubilant Hollister-Stier (JHS) Contract Manufacturing Services at its facilities in Spokane, Washington under a commercial supply agreement. This process is known in the industry as "fill and finish". KALBITOR in its "filled and finished" form has additional refrigerated shelf-life of four years over its drug substance form. Our commercial supply agreement with JHS runs through 2018 and may be terminated with two years prior notice by either party.

Our current inventory of “filled and finished” drug product is sufficient to meet anticipated KALBITOR market demand through 2017. In addition, our current inventory of unfilled drug substance is sufficient to meet anticipated KALBITOR market demand through 2021.

In 2013, JHS received a Warning Letter from the FDA with respect to matters not specifically associated with KALBITOR. JHS has worked to resolve the issues raised by the FDA. If JHS fails to operate according to FDA regulations, the FDA could impose restrictions on JHS’s manufacturing capabilities, which could adversely affect future “fill and finish” activities with respect to KALBITOR.

KALBITOR Outside of the United States

In certain markets outside of the United States, we work with international partners to seek approval and commercialize ecallantide for HAE.

CVie – In 2013, we entered into an exclusive license agreement with CVie, a subsidiary of Lee’s Pharmaceutical Holdings Ltd., to develop and commercialize KALBITOR for the treatment of HAE and other angioedema indications in China. This agreement was amended in 2014 to include the territories of Korea, Taiwan and Japan.

Under the terms of the agreement, we received a $1.0 million upfront payment and are eligible to receive future development, regulatory and sales milestones. We are also eligible to receive royalties on net product sales. CVie is solely responsible for all costs associated with development, regulatory activities, and the commercialization of KALBITOR in its licensed territories. In addition, CVie will purchase drug product from us on a cost-plus basis for commercial supply. CVie is presently evaluating regulatory and commercial options for its territories.

Pint – In 2013, we entered into an exclusive license agreement with Novellus to develop and commercialize KALBITOR for the treatment of HAE and other angioedema indications in select countries in Latin America, including Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. In 2014, this agreement was assigned to Pint and amended to include the territories of Algeria, Tunisia, Morocco and South Africa.

Under the terms of the agreement, we have received certain upfront payments and are eligible to receive future regulatory and sales milestones. We are also eligible to receive royalties on net product sales. Pint is solely responsible for all costs associated with development, regulatory activities, and the commercialization of KALBITOR in its licensed territories. In addition, Pint will purchase drug product from us on a cost-plus basis for commercial supply. Pint is presently evaluating regulatory and commercial options for its territories.

DX-2930 for Prophylactic Treatment of HAE

Based on our knowledge of HAE and the kallikrein-kinin biological pathway, we are developing DX-2930, a fully human monoclonal antibody, that is a potent and specific inhibitor of plasma kallikrein for the prophylactic treatment of HAE and potentially other PKM disorders. DX-2930 is administered subcutaneously, has a half-life that could enable less frequent dosing than currently available prophylactic HAE therapies.

Preclinical pharmacokinetic, pharmacodynamic and tolerability studies have demonstrated that DX-2930 has relevant activity in animal models. We completed a Phase 1a clinical study evaluating the safety and tolerability of a single subcutaneous administration of DX-2930. The safety, tolerability, and kallikrein inhibition results of this Phase 1a study supported the advancement of DX-2930 into a Phase 1b study.

The Phase 1b study was a multi-center, randomized, double-blind, placebo-controlled, multiple ascending dose study designed to assess the safety, tolerability and pharmacokinetics of DX-2930 in HAE patients. An analysis of HAE attack rate was also conducted following a pre-specified statistical analysis plan. A total of 37 subjects were randomized to active drug or placebo in a 2:1 ratio across 4 dosing groups of 30, 100, 300, or 400 mg. Each subject received two doses of DX-2930 or placebo, separated by 14 days, and was followed for 15 weeks after the second dose.

In the Phase 1b study, DX-2930 was well tolerated at all dose levels. There were no deaths or subject discontinuations due to an adverse event. There were no serious adverse events in subjects treated with DX-2930 and no evidence of dose-limiting toxicity. There was no safety signal in treatment-emergent adverse events, clinical laboratory results, vital signs, or electrocardiograms. Subcutaneous injection was well tolerated.

Pharmacokinetic results demonstrated that DX-2930 has linear, dose-dependent exposure and a mean elimination half-life of approximately 14 days across all dose groups studied. Pharmacodynamic results from two different exploratory biomarker assays confirmed ex vivo plasma kallikrein inhibition in a dose- and time-dependent manner.

Primary proof-of-concept efficacy analyses were based on subjects in the 300 mg, 400 mg, and placebo dose groups who reported having at least 2 attacks in the 3 months prior to study entry. During the pre-specified, primary efficacy interval of 6 weeks (from days 8 to 50; corresponding to peak drug level), the HAE attack rate (adjusted for baseline attacks) was 0 in the 300 mg group and 0.045 attacks per week in the 400 mg group, compared to 0.37 attacks per week in the placebo group. This resulted in a 100% attack reduction for the 300 mg dose group as compared to placebo (P<0.0001), and an 88% attack reduction for the 400 mg dose group as compared to placebo (P=0.005). During this primary efficacy interval, 100% of subjects in the 300 mg group (P=0.026) and 82% of subjects in the 400 mg group (P=0.030) were attack-free compared with 27% of subjects in the placebo group.

We have received both Breakthrough Therapy and Fast Track designations from the U.S. Food and Drug Administration (FDA) for further investigation of DX-2930 for HAE. DX-2930 has also received Orphan Drug status in the U.S. and European Union (EU).

Based on recent discussions with the FDA, we have been informed that one additional clinical study with supportive results will be required to support our BLA filing. We plan to initiate this Phase 3 trial during the fourth quarter of 2015.

We have established a supply chain that consists of third party vendors to manufacture, test and transport DX-2930. All third party manufacturers involved in the DX-2930 manufacturing process are required to comply with cGMPs. DX-2930 drug substance is manufactured in Germany by Rentschler Biotechnologie GmbH (Rentschler). Our supply agreement with Rentschler to manufacture drug substance runs through 2017, with future orders extending through 2018.

DX-2930 drug substance is filled into the final form of drug product at a commercial "fill and finish" contract development and manufacturing organization, under a commercial supply agreement. Our commercial supply agreement runs through 2020.

PIPELINE DEVELOPMENT PROGRAMS

We are expanding upon our expertise in the plasma kallikrein pathway and have an evolving pipeline of fully human monoclonal antibody drug candidates that we believe have the potential to address various orphan diseases. Antibodies are well suited for treating serious chronic diseases as they typically require less frequent administration and have high-target specificity. As a class, therapeutic antibodies are generally well-tolerated and carry a low risk of toxicity.

DX-2930 for Diabetic Macular Edema (DME)

DME and diabetic retinopathy complex are the most common eye diseases in diabetics and are the leading causes of blindness in Americans. Diabetic retinopathy may result in swollen and leaky retinal blood vessels. In DME fluid accumulates in the center of the macula, the part of the eye with greatest visual acuity, resulting in loss of central vision.

A number of treatment options are available to patients with DME and many of these inhibit the activity of vascular endothelial growth factor (VEGF). However, a significant number of patients do not respond to anti-VEGF treatment which means there remains a need for non-VEGF pathway treatment options.

There is a growing body of evidence to suggest that plasma kallikrein plays a role in the development of the vascular leak associated with DME. Importantly, plasma kallikrein exerts its effect independently of the VEGF mediated pathology. As such, plasma kallikrein represents an attractive therapeutic target for those patients that are refractory to current VEGF therapies. Based on this research, we are evaluating DX-2930 for the treatment of DME. We expect to file an IND for this indication in 2016.

DX-2507 for Antibody-Mediated Autoimmune Diseases

In many autoimmune disorders, immunoglobulin (IgG) autoantibodies are the causal agent of disease. Current treatment strategies for these disorders include immune suppression, infusion of high concentration intravenous immunoglobulin (IVIG) and plasmapheresis - all intended to reduce the level of pathologic antibodies. The FcRn receptor recycles IgG and therefore plays a critical role in maintaining IgG levels. We believe that antagonism of FcRn may represent an alternative approach to treatment of diseases caused by pathologic IgG.

We are developing DX-2507, a fully human monoclonal antibody to human-FcRn, as a potential alternative treatment for autoimmune diseases caused by a pathologic IgG. Examples include myasthenia gravis, immune thrombocytopenia, autoimmune hemolytic anemia, Guillain-Barre syndrome, Factor VIII inhibitor syndrome and pemphigus vulgaris. We plan to file an IND for DX-2507 in 2016.

DX-4012 as an Anti-Thrombotic Therapy

Thrombosis, the abnormal clotting of blood within the circulatory system, is a major cause of death, disability, and hospitalization. Currently approved antithrombotic therapies, while effective, are known to come with the risk of bleeding because of their anticoagulant properties. In recent years, it has been demonstrated that Factor XII and Factor XI, which initiate the intrinsic pathway of coagulation, contribute to thrombus formation but are of little importance to maintaining hemostasis. Patients who are deficient in Factor XII do not exhibit an abnormal bleeding phenotype, leading to the conclusion that targeting Factor XII may be an effective antithrombotic therapy that would not carry the risk of bleeding.

DX-4012 is a fully human monoclonal antibody to activated Factor XII (Factor XIIa) which has demonstrated anti-thrombotic activity in various animal models, without evidence of increased bleeding risk. Current areas of interest are extracorporeal membrane oxygenation (ECMO), lupus anticoagulant syndrome, and as a potential alternative treatment for patients who require prolonged antithrombotic therapy but cannot tolerate conventional anticoagulation.

LICENSING AND FUNDED RESEARCH PORTFOLIO

We have leveraged our proprietary phage display technology and libraries through our LFRP licenses and collaborations. Since inception, we have recognized approximately $230 million of revenue through these LFRP licenses, primarily related to license fees, milestones and royalties.

LFRP Product Development

Our LFRP consists of multiple revenue-generating product candidates in clinical development and one approved product, all of which were identified using our phage display technology. Our licensees and collaborators also have additional product candidates in various stages of preclinical development and are responsible for all costs associated with development and commercialization of these product candidates.

The chart and program information below, which is based on information publicly disclosed by our licensees, provide a summary of the status of clinical stage product candidates in our LFRP for which we are eligible to receive future milestones and/or royalties, if these candidates are developed and commercialized. Certain product candidates are in multiple clinical trials for various indications.



Licensee	Compound	Target	Indication	Status
Lilly	CYRAMZA® (ramucirumab) (IMC-1121B)	VEGFR-2/KDR	Gastric cancer (REGARD)	Commercialized
			Gastric cancer (RAINBOW)	Commercialized
			Non-small cell lung cancer (NSCLC) (REVEL)	Commercialized
			Colorectal cancer (RAISE)	Commercialized
			Hepatocellular carcinoma (REACH-2)	Phase 3
			Gastric cancer (RAINFALL)	Phase 3
			Urothelial cancer (RANGE)	Phase 3
			NSCLC (RELAY)	Phase 3
			Various indications	Phase 2
			Solid tumors	Phase 1
Lilly	Necitumumab (IMC-11F8)	EGFR	Squamous NSCLC	Completed Filing
Lilly	Necitumumab (IMC-11F8)	EGFR	Various indications	Phase 2
Amgen	Trebananib (AMG 386)*	Ang-1/Ang-2	Ovarian cancer	Phase 3
			Various indications	Phase 2
			Various indications	Phase 1
Merck-Serono	Avelumab	PD-L1	NSCLC	Phase 3
			Metastatic merkel cell carcinoma	Phase 2
			Solid tumors	Phase 1
Biogen Idec	ANTI-LINGO-1 (BIIB 033)	LINGO-1	Acute optic neuritis (RENEW)	Phase 2
Biogen Idec	ANTI-LINGO-1 (BIIB 033)	LINGO-1	Multiple sclerosis (SYNERGY)	Phase 2
Merrimack	MM-121	ErbB3	Breast cancer	Phase 2
			Ovarian cancer	Phase 2
			Metastatic NSCLC	Phase 2
			Various indications	Phase 1
Merrimack	MM-141	IGF-1R & ErbB3	Pancreatic cancer	Phase 2
Merrimack	MM-141	IGF-1R & ErbB3	Hepatocellular carcinoma	Phase 1
Baxter	Anti-MIF	MIF	Colorectal cancer	Phase 2
Baxter	Anti-MIF	MIF	Solid tumors	Phase 1
Athera	PC-mAb	Phosphorylcholine	Cardiovascular Disease	Phase 1
Lilly	LY3076226	FGFR3	Metastatic cancers	Phase 1
Bayer	Undisclosed	Undisclosed	Undisclosed	Phase 1

*indicates future milestones only

LFRP Phase 3 Product Candidates

CYRAMZA (ramucirumab) (IMC-1121B)

CYRAMZA is a human monoclonal antibody being developed by Lilly. CYRAMZA is a VEGF Receptor 2 antagonist that specifically binds VEGF Receptor 2 and blocks binding of VEGF receptor ligands VEGF-A, VEGF-C, and VEGF-D. VEGF Receptor 2 is an important mediator in the VEGF pathway. In an in vivo animal model, ramucirumab inhibited angiogenesis. Angiogenesis is a process by which new blood vessels form to supply blood to normal healthy tissues as well as tumors, enabling a cancer to grow. CYRAMZA is being studied for use as a treatment in several oncology indications. The following are the Lilly CYRAMZA development programs that are the basis for an approved indication, a regulatory submission or recently completed or ongoing Phase 3 clinical trial:

Gastric (stomach) cancer

In 2014, Lilly received FDA approval of and launched CYRAMZA to treat advanced gastric cancer after prior chemotherapy, both as a single-agent treatment and as a combination therapy with paclitaxel. These specific FDA-approved indications, based

on Lilly’s Phase 3 REGARD and RAINBOW studies, respectively, are for patients with advanced or metastatic gastric or gastroesophageal junction (GEJ) adenocarcinoma with disease progression on or after prior fluoropyrimidine- or platinum-containing chemotherapy. CYRAMZA is the first FDA-approved product for advanced gastric cancer after prior chemotherapy. The REGARD and RAINBOW trials each demonstrated statistically significant improvements in the primary endpoint of overall survival (OS) and secondary endpoint of progression-free survival (PFS) in the CYRAMZA-containing arm compared to the control arm

In 2014, Lilly also received marketing authorization from the European Commission for CYRAMZA, in adults, in combination with paclitaxel, for the treatment of advanced gastric or GEJ adenocarcinoma following prior chemotherapy and as a monotherapy in this setting for patients for whom treatment in combination with paclitaxel is not appropriate.

In March 2015, Lilly received marketing authorization from the Japanese Ministry of Health, Labour and Welfare for CYRAMZA to treat unresectable, advanced or recurrent gastric cancer.

In 2015, Lilly initiated a first-line Phase 3 study of CYRAMZA in combination with capecitabine and cisplatin in subjects with metastatic gastric or GEJ adenocarcinoma. This trial is called RAINFALL. According to ClinicalTrials.gov, the estimated primary completion date for this study is March 2017.

Non-small cell lung cancer

In 2014, Lilly received FDA approval of CYRAMZA plus docetaxel for patients with second-line non-small cell lung cancer (NSCLC). This approval is for CYRAMZA in combination with docetaxel for the treatment of patients with metastatic NSCLC with disease progression on or after platinum-based chemotherapy.

With this approval, CYRAMZA became the first treatment approved in the U.S. for use in combination with docetaxel in the second-line treatment of metastatic NSCLC, including nonsquamous and squamous histologies.

This approval was based on Lilly’s Phase 3 REVEL study, which showed a statistically significant improvement in the primary endpoint of OS in the CYRAMZA-plus-docetaxel arm compared to the control arm of placebo plus docetaxel. It also showed a statistically significant improvement in PFS in the CYRAMZA-plus-docetaxel arm versus the control arm. The REVEL trial included patients with nonsquamous and squamous forms of NSCLC.

Lilly has submitted regulatory filings for CYRAMZA in NSCLC in the EU and Japan.

Additionally, Lilly has initiated a first-line Phase 3 study of CYRAMZA in combination with erlotinib in patients with epidermal growth factor receptor (EGFR) mutation-positive metastatic NSCLC. This trial is called RELAY. According to ClinicalTrials.gov, the start date for this trial was May 2015, and the estimated primary completion date is August 2018.

Colorectal cancer

In April 2015, Lilly received FDA approval for CYRAMZA in combination with folinic acid, 5-flurouracil and irinotecan (FOLFIRI) for the treatment of patients with second-line metastatic colorectal cancer (mCRC) whose disease has progressed on a first-line bevacizumab-, oxaliplatin- and fluoropyrimidine-containing regimen. Additionally, Lilly has submitted regulatory filings for CYRAMZA in mCRC in the EU and Japan.

This approval is based on Lilly’s Phase 3 RAISE study which showed a statistically significant improvement in the primary endpoint of OS in the CYRAMZA-plus-FOLFIRI arm compared to the control arm. It also showed a statistically significant improvement in PFS in the CYRAMZA-plus-FOLFIRI arm versus the control arm.

Hepatocellular carcinoma

Lilly has completed a randomized, double-blind Phase 3 clinical trial of CYRAMZA plus best supportive care (BSC) versus placebo plus BSC as second-line treatment in patients with hepatocellular carcinoma (HCC), also known as liver cancer, after first-line therapy with sorafenib. The REACH trial did not meet its primary endpoint; overall survival favored the CYRAMZA arm but was not statistically significant. Encouraging single-agent CYRAMZA activity was observed, with meaningful improvements in key secondary endpoints of progression-free survival, overall response rate and time to progression. Although the REACH study did not achieve statistical significance for survival, Lilly is encouraged by the efficacy seen overall, especially in specific subpopulations. In a pre-specified analysis, patients with an elevated baseline of alpha-fetoprotein (AFP) ≥400 ng/mL achieved a survival improvement greater than three months.

Based on these results, Lilly has initiated a second-line Phase 3 study of CYRAMZA in HCC in patients with elevated baseline AFP. According to ClinicalTrials.gov, the start date of this trial was July 2015, and the estimated primary completion date is October 2017.

Urothelial Cancer

Lilly has initiated a Phase 3 clinical trial of CYRAMZA plus docetaxel in patients with urothelial cancer. This trial is called RANGE. In urothelial cancer, malignant cells form in the urothelium, a layer of tissue that lines the bladder, urethra, ureters, and renal pelvis. It is much more common for cancer to begin in the urothelial of the bladder than at any of the other sites, and bladder cancer accounts for the vast majority of all urothelial carcinoma. According to ClinicalTrials.gov, the start date of this trial was July 2015, and the estimated primary completion date is January 2017.

In addition, CYRAMZA is in multiple earlier-stage clinical trials in various tumor types.

Necitumumab (IMC-11F8)

Necitumumab is a human monoclonal antibody being developed by Lilly that is designed to block the ligand binding site of the human epidermal growth factor receptor (EGFR). Activation of EGFR has been correlated with malignant progression, induction of angiogenesis and inhibition of apoptosis or cell death.

Necitumumab is being studied for use as a treatment in squamous non-small cell lung cancer, or NSCLC. Lilly has completed a randomized, open-label Phase 3 clinical trial, referred to as SQUIRE, for necitumumab in combination with gemcitabine-cisplatin chemotherapy versus gemcitabine-cisplatin chemotherapy alone, for first-line squamous NSCLC. In 2013, Lilly announced that SQUIRE met its primary endpoint of increased overall survival. Lilly presented detailed data from the SQUIRE study at the ASCO annual meeting in 2014 and has completed regulatory submissions for necitumumab in first line squamous NSCLC in the U.S. and EU. In the U.S., Lilly anticipates FDA action on necitumumab in late 2015.

Necitumumab is also in earlier-stage clinical trials for other indications.

Trebananib (AMG 386)

Amgen Inc. (Amgen) is developing trebananib, a peptibody that inhibits the interaction between the endothelial cell-selective Tie2 receptor and its ligands angiopoietin-1 and -2 (Ang1 and Ang2). By inhibiting this interaction, Amgen believes trebananib could interrupt angiogenesis, which is important to tumor cell growth.

Trebananib is being studied in one Phase 3 trial referred to as TRINOVA-2. TRINOVA-2 is a randomized, double-blind study evaluating whether trebananib plus pegylated liposomal doxorubicin (PLD) is superior to placebo plus PLD in women with recurrent partially platinum sensitive or resistant epithelial ovarian, primary peritoneal or fallopian tube cancer.

Trebananib is also in multiple Phase 2 clinical trials in various tumor types.

Avelumab (MSB0010718C)

Avelumab is a human monoclonal antibody being co-developed and co-commercialized by Merck-Serono in partnership with Pfizer, that is designed to block the interaction of programmed death ligand 1 (PD-L1) with its receptor PD-1, potentially restoring effective anti-tumor T-cell responses and thereby inhibiting cancer growth.

In April 2015, Merck-Serono and Pfizer reported treatment of the first patient for its Phase 3 clinical trial in non-small cell lung cancer for avelumab. This Phase 3 study, which is part of the Javelin clinical trial program, will enroll approximately 650 patients with stage IIIb/IV non-small cell lung cancer. The Phase 3 trial is an open-label, multi-center, randomized trial with avelumab designed to demonstrate superiority with regard to overall survival of avelumab versus docetaxel in subjects with PD-L1 positive, NSCLC after failure of a platinum-based doublet. The primary endpoint is overall survival in those testing positive for PD-L1, while secondary endpoints will be assessed across the entire study population, regardless of PD-L1 status, and include overall survival; overall response rate, progression-free survival; and patient-reported outcomes.

Avelumab is also in earlier-stage clinical trials for other indications.

LFRP Phase 2 Product Candidates

Anti-LINGO-1 (BIIB 033)

Biogen Idec is developing Anti-LINGO-1 a fully human monoclonal antibody that targets LINGO-1, a protein expressed selectively in the central nervous system that is known to negatively regulate axonal myelination and axonal regeneration. Currently, there is one ongoing and one completed Phase 2 clinical trial.

Acute optic neuritis (AON)

Biogen Idec has completed a Phase 2 clinical trial of Anti-LINGO-1 in AON. This trial is a randomized, double-blind, parallel-group, placebo controlled Phase 2 study in subjects with their first episode of AON. In January 2015, Biogen announced that data from this trial showed that treatment with anti-LINGO-1 showed evidence of biological repair of the visual system and in April 2015, data was presented at the America Academy of Neurology annual meeting. Biogen will provide additional data from this study at European Committee for Treatment and Research in Multiple Sclerosis in October 2015.

Multiple sclerosis (MS)

In 2013, Biogen Idec initiated a randomized, double-blind, parallel-group, dose-ranging Phase 2 clinical trial investigating Anti-LINGO-1 used concurrently with Avonex in subjects with relapsing forms of multiple sclerosis. Data from this study, which is referred to as SYNERGY, are expected in mid-2016.

MM-121 (SAR256212)

Merrimack Pharmaceuticals is developing MM-121, a fully human monoclonal antibody that targets ErbB3, a cell surface receptor implicated in tumor growth and survival. By inhibiting ErbB3 signaling, MM-121 is designed to restore sensitivity, delay resistance and enhance the anti-tumor effect of other drugs when used in combination therapy. Sanofi and Merrimack had entered into an exclusive, global license and collaboration agreement for MM-121 in 2009. In 2014, Merrimack regained worldwide rights to develop and commercialize MM-121. Merrimack is exploring MM-121 in a number of oncology indications. Currently, the most advanced programs are in Phase 2 clinical trials.

Breast cancer

Merrimack has an ongoing randomized, open-label Phase 2 trial of preoperative use of MM-121 with paclitaxel in HER2-negative breast cancer. This study was intended to demonstrate whether the addition of MM-121 with paclitaxel is more effective than treatment of paclitaxel alone when administered as part of the neoadjuvant treatment in HER2-negative locally advanced operable breast cancer patients. In September 2014, Merrimack announced that clinical and biomarker data from their Phase 2 study in ER/PR-positive, HER2-negative metastatic breast cancer showed that patients with high heregulin mRNA levels achieved a statistically significant benefit from combining the novel agent MM-121 with exemestane. Updated data from this biomarker subgroup, representing 45% of patients with metastatic breast cancer, showed a hazard ratio of 0.26 with a p-value of 0.003. Data from this study showed that the addition of MM-121 did not significantly enhance exemestane activity in an unselected metastatic breast cancer population. There was a consistent but modest and tolerable increase in adverse events when MM-121 was combined with exemestane. Further confirmatory studies of MM-121 in breast cancer are being considered.

Ovarian cancer

Merrimack has an ongoing randomized, open-label Phase 2 trial of MM-121 with paclitaxel in platinum resistant or refractory recurrent/advanced ovarian cancers. The estimated primary completion date for this this trial was the fourth quarter of 2014. This study was intended to demonstrate whether the addition of MM-121 with paclitaxel is more effective than treatment of paclitaxel alone in platinum resistant or refractory recurrent/advanced ovarian cancers. Data from this study showed that the addition of MM-121 did not significantly enhance paclitaxel activity in an unselected platinum-resistant ovarian cancer population. A subset of heregulin positive patients (38%) who also had low ErbB2 (HER2) levels, however, responded poorly to paclitaxel alone and had improved progression-free survival with the addition of MM-121. There was a consistent but modest and tolerable increase in adverse events when MM-121 was combined with paclitaxel. Further confirmatory studies of MM-121 in ovarian cancer are being considered.

Non-small cell lung cancer

In February 2015, Merrimack initiated a global, open-label, biomarker-selected, randomized Phase 2 clinical trial of MM-121, in combination with docetaxel or pemetrexed versus docetaxel or pemetrexed alone in patients with heregulin positive, locally advanced or metastatic NSCLC. The primary endpoint of the trial is progression-free survival. Secondary endpoints include overall survival, objective response rate, safety and tolerability.

MM-141

Merrimack is developing MM-141, a fully human monoclonal antibody that acts as a tetravalent inhibitor of PI3K/AKT/mTOR, which is a major pro-survival pathway tumor cells use as a resistance mechanism to anti-cancer therapies.

Pancreatic cancer

In April 2015, Merrimack initiated a Phase 2 clinical trial of MM-141 in combination with nab-paclitaxel and gemcitabine in front-line pancreatic cancer. Additionally, in 2014, Merrimack obtained orphan drug designation in the United States for MM-141 for the treatment of pancreatic cancer.

BAX69 (anti-MIF)

Baxalta, a wholly owned subsidiary of Baxter International Inc., is developing BAX69, a fully human, recombinant anti-MIF (anti-macrophage migration inhibitory factor) monoclonal antibody. The anti-MIF antibody targets the MIF protein, a protein that induces inflammatory responses in the body and that has also been shown to influence the growth and spread of tumors. By inhibiting the cancer-promoting effects of MIF, the anti-MIF antibody may be capable of restricting the growth of tumors.

Metastatic colorectal cancer

In May 2015, Baxter initiated a Phase 2a clinical trial of BAX69 in combination with 5-FU/leucovorin or panitumumab versus standard of care in subjects with metastatic colorectal cancer. According to ClinicalTrials.gov, the estimated primary completion date for this trial is May 2017.

Cross-Licensed Technology

The use of our antibody library that is part of the LFRP involves technology that we have cross-licensed with other biotechnology companies, including Affimed Therapeutics AG, Affitech A/S, Biosite, Inc. (now owned by Alere Inc.), Cambridge Antibody Technology Limited or CAT (now known as MedImmune Limited and owned by AstraZeneca), Domantis Limited (a wholly owned subsidiary of GlaxoSmithKline), Genentech, Inc. and XOMA Ltd. Under the terms of our cross-license agreement with CAT, we are required to make milestone and low single-digit royalty payments to CAT in connection with antibody products developed and commercialized by our licensees. These payments are passed through to CAT from our licensees. None of our other cross-license agreements contain financial obligations applicable to our LFRP licensees or collaborators.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2015 and 2014

Revenues. Total net revenues for the three months ended September 30, 2015 (the 2015 Quarter) were $24.7 million, compared with $22.0 million for the three months ended September 30, 2014 (the 2014 Quarter).

Product Sales. We are commercializing KALBITOR in the United States for treatment of acute attacks of HAE. We sell KALBITOR to our distributors, and we recognize revenue when title and risk of loss have passed to the distributor, typically upon delivery. Under certain arrangements we have provided our distributors with extended payment terms. In these circumstances, revenue is not recognized until collectability is reasonably assured. Due to the specialty nature of KALBITOR, the limited number of patients and limited return rights of our distributors, we anticipate that distributors will carry inventory that is in line with their forecasted business needs. Although fluctuations can occur due to the nature of acute HAE attacks, the aggregate amount of inventory held by our distributors generally does not exceed 60 days of anticipated demand. Utilization rates for all patients continue to vary significantly over time based on fluctuations in the number of HAE attacks and the consistency with which these patients treat those attacks with KALBITOR.

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



	Three Months Ended September 30,
	2015			2014
	(in thousands)
Gross product sales	$	19,750		$	22,561

Prompt pay and other discounts	$	(920	)	$	(1,050	)
Government rebates and chargebacks	(966		)	(1,072		)
Returns	(57		)	(165		)
Product sales allowances	$	(1,943	)	$	(2,287	)
Product sales, net	$	17,807		$	20,274

Product sales allowances, as a percent of gross product sales	9.8		%	10.1		%

The decrease in net sales between the 2015 Quarter and the 2014 Quarter was due to several factors:


•	Sales represented by patient demand units decreased during the 2015 Quarter by approximately $3.6 million, an 18% decrease from the 2014 Quarter. This change reflects variable KALBITOR utilization rates for certain individual patients who experience and treat frequent HAE attacks.


•	There were no substantial distributor channel adjustments during the 2015 and 2014 Quarters.


•	A KALBITOR price increase and lower gross to net sales adjustments increased the 2015 Quarter’s net sales by approximately $1.2 million.

Development and License Fees. We derive revenues from licensing, development and milestone fees from our licensees and collaborators, including our LFRP, in amounts that fluctuate from period to period due to the timing of the clinical activities of our collaborators and licensees. This revenue was $1.4 million in the 2015 Quarter compared to $1.0 million in the 2014 Quarter.

Royalty Revenue. Royalty revenue for the 2015 Quarter totaled $5.6 million based on Lilly’s sales of CYRAMZA compared to $684,000 in the 2014 Quarter . The 2014 Quarter was the first period in which we recorded royalty revenue. For royalties recognized related to CYRAMZA, we are contractually entitled to receive a royalty report from Lilly subsequent to each quarter end. We have recognized royalty revenue using an estimate of the royalties earned for the quarter based on Lilly’s reported sales of CYRAMZA.

Cost of Product Sales and Royalties. Cost of product sales includes the cost of the manufactured product and the cost of testing, filling, packaging and distributing KALBITOR, as well as a royalty due on net sales of KALBITOR. We incurred $784,000 and $1.4 million of costs associated with product sales during the 2015 Quarter and the 2014 Quarter, respectively. Costs in the 2015 Quarter are net of a $363,000 reversal of charges accrued in the first quarter of 2015 related to discontinued technology transfer for an alternative drug product manufacturer.

Cost of royalties consists of pass-through fees under our cross license agreement related to royalties that are payable based on product sales by our LFRP licensees. We recorded $2.8 million and $342,000 for cost of royalties in the 2015 Quarter and the 2014 Quarter, respectively.

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



	Three Months Ended September 30,
	2015		2014
	(in thousands)
DX-2930 and other research and development	$	14,126	$	6,261
KALBITOR medical support and development	927		1,943
LFRP license fees and development and regulatory milestone pass-throughs	571		64
Total	$	15,624	$	8,268

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

The change in research and development expenses during the 2015 Quarter compared to the 2014 Quarter was primarily due to increased costs associated with the development of DX-2930 and expenses for other pipeline development programs.

Selling, General and Administrative. Our selling, general and administrative expenses consist primarily of the sales and marketing costs of commercializing KALBITOR, costs of our management and administrative staff, as well as expenses related to business development, protecting our intellectual property, administrative occupancy, professional fees and the reporting requirements of a public company. Selling, general and administrative expenses for the 2015 Quarter and the 2014 Quarter were $14.0 million and $10.1 million, respectively, including stock based compensation expense of $4.2 million and $1.2 million, respectively.

Included in selling, general and administrative expenses were costs for KALBITOR patient support services performed by our distributors of $174,000 and $185,000 for the 2015 Quarter and the 2014 Quarter, respectively.

Interest and Other Expense. Interest expense for the 2015 Quarter was $3.4 million, primarily from our Loan with HC Royalty. The Loan, which had a principal balance of $84.1 million, was repaid in full during August 2015. For financial reporting purposes, our $84.1 million principal repayment was recorded as an $82.2 million debt extinguishment and a $1.9 million extinguishment loss associated with discounts from the debt issuance that had not been accreted to principal prior to repayment. Previously, these charges were accreted to the principal balance over the expected term of the Loan, which was scheduled to mature in August 2018.

For the 2014 Quarter, interest expense of $2.7 million was calculated using the effective interest rate method which was approximately 12.5% per annum.

Nine Months Ended September 30, 2015 and 2014

Revenues. Total net revenues for the nine months ended September 30, 2015 (the 2015 Period) were $71.5 million, compared with $55.7 million for the nine months ended September 30, 2014 (the 2014 Period).



	Nine Months Ended September 30,
	2015			2014
	(in thousands)
Gross product sales	$	57,262		$	54,878

Prompt pay and other discounts	$	(2,739	)	$	(2,608	)
Government rebates and chargebacks	(3,023		)	(2,672		)
Returns	80			(235		)
Product sales allowances	$	(5,682	)	$	(5,515	)
Product sales, net	$	51,580		$	49,363

Product sales allowances, as a percent of gross product sales	9.9		%	10.0		%

The increase in net sales between the 2015 Period and the 2014 Period was due to several factors:


•	Sales represented by patient demand units decreased during the 2015 Period by approximately $1.2 million, a 2% decrease from the 2014 Period. This change reflects variable KALBITOR utilization rates for certain individual patients who experience and treat frequent HAE attacks.


•	While there were no substantial distributor channel adjustments during the 2015 Period, adjustments that occurred during the 2014 Period reduced the comparable 2014 Period net sales by approximately $1.0 million.


•	A KALBITOR price increase and lower gross to net sales adjustments increased the 2015 Period's net sales by approximately $2.4 million.

Development and License Fees. We derive revenues from licensing, development and milestone fees from our licensees and collaborators, including our LFRP, in amounts that fluctuate from period to period due to the timing of the clinical activities of our collaborators and licensees. This revenue was $6.6 million in the 2015 Period compared to $5.6 million in the 2014 Period.

Royalty Revenue. Royalty revenue for the 2015 Period totaled $13.3 million based on Lilly’s sales of CYRAMZA compared to $684,000 in the 2014 Period. The 2014 Period was the first period in which we recorded royalty revenue. For royalties recognized related to CYRAMZA, we are contractually entitled to receive a royalty report from Lilly subsequent to each quarter end. We have recognized royalty revenue using an estimate of the royalties earned for the quarter based on Lilly’s reported sales of CYRAMZA.

Cost of Product Sales and Royalties. Cost of product sales includes the cost of the manufactured product and the cost of testing, filling, packaging and distributing KALBITOR, as well as a royalty due on net sales of KALBITOR. We incurred $4.3 million costs associated with product sales during the 2015 Period, including $686,000 associated with the discontinuation of technology transfer for an alternative drug product manufacturer of which $400,000 had previously been capitalized as inventory. Costs associated with product sales during the 2014 Period were $3.2 million.

Cost of royalties consists of pass-through fees under our cross license agreement related to royalties that are payable based on product sales by our LFRP licensees. We recorded $6.7 million for cost of royalties in the 2015 Period compared to $342,000 in the 2014 Period.

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



	Nine Months Ended September 30,
	2015		2014
	(in thousands)
DX-2930 and other research and development	$	34,480	$	15,729
KALBITOR medical support and development	3,765		5,334
LFRP license fees and development and regulatory milestone pass-throughs	2,131		2,530
Total	$	40,376	$	23,593

The change in research and development expenses during the 2015 Period compared to the 2014 Period was primarily due to increased costs associated with the development of DX-2930 and expenses for other pipeline development programs.

Selling, General and Administrative. Our selling, general and administrative expenses consist primarily of the sales and marketing costs of commercializing KALBITOR, costs of our management and administrative staff, as well as expenses related to business development, protecting our intellectual property, administrative occupancy, professional fees and the reporting requirements of a public company. Selling, general and administrative expenses for the 2015 Period and the 2014 Period were $39.2 million and $30.2 million, respectively, including stock based compensation expense of $9.2 million and $3.3 million, respectively.

Included in selling, general and administrative expenses were costs for KALBITOR patient support services performed by our distributors of $475,000 and $548,000 for the 2015 Period and the 2014 Period, respectively.

Interest and Other Expense. Interest expense for the 2015 Period totaled $8.8 million, primarily from our Loan with HC Royalty. The Loan, which had a principal balance of $84.1 million, was repaid in full in August 2015. For financial reporting purposes, our $84.1 million principal repayment was recorded as an $82.2 million debt extinguishment and a $1.9 million extinguishment loss associated with discounts from the debt issuance that had not been accreted to principal prior to repayment. Previously, these charges were accreted to the principal balance over the expected term of the Loan, which was scheduled to mature in August 2018.

For the 2014 Period, interest expense of $8.2 million was calculated using the effective interest rate method which was approximately 12.5% per annum.

Liquidity and Capital Resources



	September 30, 2015		December 31, 2014
	(in thousands)
Cash and cash equivalents	$	116,687	$	19,392
Short-term investments	191,698		165,260
Total cash, cash equivalents and investments	$	308,385	$	184,652

The following table summarizes our cash flow activity for the nine months ended September 30, 2015 and 2014:



	2015			2014
	(in thousands)
Net cash used in operating activities	$	(20,770	)	$	(5,163	)
Net cash used in investing activities	(28,503		)	(114,718		)
Net cash provided by financing activities	146,568			81,807
Net increase (decrease) in cash and cash equivalents	$	97,295		$	(38,074	)

We require cash to fund our operating activities, make capital expenditures, acquisitions and investments. Through September 30, 2015, we have funded our operations through the sale of equity securities, the incurrence of debt, and from product sales revenues, royalties and development and license fees. Our excess funds are currently invested in short-term investments primarily consisting of United States Treasury notes and bills and money market funds backed by the United States Treasury.

Operating Activities

During the 2015 Period, the principal use of cash in our operations was to fund our net loss of $26.7 million. Of this net loss, certain costs were non-cash charges, such as stock-based compensation of $13.6 million and depreciation and amortization costs of $1.5 million. In addition to non-cash charges, we also had net cash out flows due to changes in working capital, including an increase in inventory of $7.2 million, payments related to discounts and interest converted to principal on the Loan with HC Royalty of $6.5 million and a decrease in deferred revenue of $1.2 million, partially offset by an increase in accounts payable and accrued expenses of $3.8 million and a decrease in other current assets of $3.0 million.

During the 2014 Period, the principal use of cash in our operations was to fund our net loss of $9.6 million. Of this net loss, certain costs were non-cash charges, such as stock-based compensation of $5.3 million, depreciation and amortization costs of $1.1 million, and non-cash interest expense of $487,000. In addition to non-cash charges, we also had net cash out flows due to changes in other operating assets and liabilities, including an increase in other current assets of $2.9 million, which was partially offset by a decrease in inventory of $1.1 million.

Investing Activities

Our investing activities for the 2015 Period primarily consisted of the purchase of investments totaling $236.2 million offset by the sale and maturity of investments totaling $209.0 million, as well as the purchase of fixed assets totaling $1.3 million.

Our investing activities for the 2014 Period primarily consisted of the purchase of investments totaling $114.6 million, offset by $2.0 million in investment maturity, as well as the purchase of fixed assets totaling $420,000.

Financing Activities

Our financing activities for the 2015 Period consisted of gross proceeds of $229.8 million ($215.8 million net of offering costs) from the sale of 8,510,000 shares of common stock in April 2015 in an underwritten public offering. We repaid in full the $84.5 million principal balance of the Loan with HC Royalty ($75.7 net of in-kind interest added to principal and other financing costs). Additionally, proceeds from the exercise of stock options totaled $6.5 million.

Our financing activities for the 2014 Period primarily consisted of gross proceeds of $85.1 million ($79.7 million net of offering costs) from the sale of common stock in March 2014, as well as proceeds from the exercise of stock options totaling $3.2 million. Repayment of long-term debt for the 2014 Period totaled $931,000.

We expect that existing cash, cash equivalents, and investments, together with anticipated cash flow from product sales, royalties and existing development and license agreements will be sufficient to support our current operations for at least the next twelve months.

We may seek additional funding through our collaborative arrangements and public or private financings. We may not be able to obtain financing on acceptable terms or at all, and we may not be able to enter into additional collaborative arrangements. Arrangements with collaborators or others may require us to relinquish rights to certain of our technologies, product candidates or products. The terms of any financing may adversely affect the holdings or the rights of our stockholders. If we need additional funds and are unable to obtain funding on a timely basis, we would curtail significantly our research, development or

commercialization programs in an effort to provide sufficient funds to continue our operations, which could adversely affect our business prospects.

OFF BALANCE SHEET ARRANGEMENTS

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

Commitments and contingencies

In our Annual Report on Form 10-K for the year ended December 31, 2014, Part II, Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations, under the heading "Contractual Obligations," we described our commitments and contingencies. There were no material changes in our commitments and contingencies during the three and nine months ended September 30, 2015 other than repayment of the Loan with HC Royalty.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

In our Annual Report on Form 10-K for the year ended December 31, 2014, our critical accounting policies and estimates were identified as those relating to revenue recognition, allowance for doubtful accounts, share-based compensation and valuation of long-lived and intangible assets. There have been no material changes to our critical accounting policies from the information provided in our 2014 Annual Report on Form 10-K.

Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk consists primarily of our cash and cash equivalents and short-term investments. We place our investments in high-quality financial instruments, primarily U.S. Treasury notes and bills, which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. As of September 30, 2015, we had cash, cash equivalents and investments of approximately $308.4 million. Our investments will decline by an immaterial amount if market interest rates increase, and therefore, our exposure to interest rate changes is immaterial. Declines of interest rates over time will, however, reduce our interest income from our investments.

Most of our transactions are conducted in U.S. dollars. We have collaboration and technology license agreements with parties located outside of the United States. Transactions under certain of the agreements between us and parties located outside of the United States are conducted in local foreign currencies. If exchange rates undergo a change of up to 10%, we do not believe that it would have a material impact on our results of operations or cash flows.

Item 4 - CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15(d)-15(e) promulgated under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during our fiscal quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A. – RISK FACTORS

You should carefully consider the following risk factors before you decide to invest in our Company and our business because these risk factors may have a significant impact on our business, operating results, financial condition, and cash flows. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.

Risks Related to the Proposed Merger

The proposed Merger is subject to a number of conditions precedent, including stockholder approval, the termination or expiration of the applicable waiting period under the HSR Act and the execution of the CVR Agreement, that, if not satisfied or not satisfied in a timely manner, could delay or prevent the consummation of the proposed Merger.

Among other things, the Merger Agreement must be duly adopted by the affirmative vote by the holders of a majority of the outstanding shares entitled to vote on such matters at a stockholders’ meeting duly called and held for such purpose. While we intend to call a special meeting of stockholders to consider and vote on the merger, stockholders could seek to enjoin the meeting. Even if such stockholder meeting is ultimately held, there is no guarantee that our stockholders will approve the proposed Merger by the requisite vote at such meeting, or at all.

In addition, before the proposed Merger may be consummated, any waiting period (or extension thereof) under the HSR Act must have been expired or terminated. There can be no assurance that the regulatory approval described above, or any other regulatory approvals that might be required to consummate the Merger will be obtained and, if obtained, there can be no assurance as to the timing of any approvals, ability to obtain the approvals on satisfactory terms or in the absence of any litigation challenging such approvals. At any time before or after the consummation of the proposed Merger (and notwithstanding the termination of the waiting period under the HSR Act), the U.S. Department of Justice, Federal Trade Commission or any state or non-U.S. governmental entity could take such action, under antitrust laws or otherwise, as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the Merger and seeking the divestiture of substantial assets. Private parties may also seek to take legal action under antitrust laws under certain circumstances. If the proposed Merger does not receive, or timely receive, the required regulatory approvals and clearances, or if another event occurs delaying or preventing the proposed Merger, such delay or failure to complete the proposed Merger may create uncertainty or otherwise have negative consequences that may materially and adversely affect our financial condition and results of operations, as well as the price per share for our common stock.

Under the terms of the Merger Agreement, the consummation of the Merger is subject to customary conditions. Satisfaction of certain of the conditions is not within our control, and difficulties in otherwise satisfying the conditions may prevent, delay or otherwise materially adversely affect the consummation of the merger. It is also possible that an event, occurrence, revelation or development of a state of circumstances or facts since the date of the Merger Agreement may have or reasonably be expected to have a material adverse effect (as defined in the Merger Agreement) on Dyax, the non-occurrence of which is a condition to the consummation of the merger. We cannot predict with certainty whether and when any of the required conditions will be satisfied.

The Per Share Merger Consideration will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations, or changes in the market price of, analyst estimates of, or projections relating to, our common stock. For example, if we experienced an improvement in our business, assets, liabilities, prospects, outlook, financial condition or results of operations prior to the consummation of the proposed Merger, there would be no adjustment to the amount of the Per Share Merger Consideration.

Additionally, although the holders of our common stock are entitled to receive $4.00 in cash per CVR, without interest, upon receipt, prior to December 31, 2019, of approval from the FDA of a biologic license application for DX-2930 (subject to certain conditions as set forth in the CVR Agreement), there is no guarantee that such approval from the FDA will occur prior to December 31, 2019, or at all.

Stockholder litigation could prevent or delay the closing of the proposed Merger or otherwise negatively impact our business and operations.

We may incur additional costs in connection with the defense or settlement of the currently pending and any future stockholder litigation in connection with the proposed Merger. Such litigation may adversely affect our ability to complete the proposed Merger. Such litigation could also have an adverse effect on our financial condition and results of operations.

Termination of the Merger Agreement could negatively impact us

If the Merger is not consummated for any reason, we may be adversely affected and would be subject to a number of risks, including the following:


•	We may experience negative reactions from the financial markets, including negative impacts on our stock price;


•	We may experience negative reactions from our stockholders, partners, clinical investigator and study personnel, customers, licensees, suppliers and employees; and


•	We may be required to pay certain fees and/or costs relating to the proposed Merger, whether or not the proposed Merger is consummated, including, in some cases, a termination fee.

While the proposed Merger is pending, we are subject to business uncertainties and contractual restrictions that could disrupt our business.

Whether or not the proposed Merger is consummated, the proposed Merger may disrupt our current plans and operations, which could have an adverse effect on our business and financial results. The pendency of the Merger may also divert management's attention and our resources from ongoing business and operations and our employees and other key personnel may have uncertainties about the effect of the pending Merger, and the uncertainties may impact our ability to retain, recruit and hire key personnel while the Merger is pending or if it fails to close. We may incur unexpected costs, charges or expenses resulting from the proposed Merger. Furthermore, we cannot predict how our suppliers, customers and other business partners will view or react to the proposed Merger upon consummation. If we are unable to reassure our customers, suppliers and other business partners to continue transacting business with us, our sales, financial condition and results of operations may be adversely affected.

The preparations for integration between Parent Holdco and Dyax have placed and we expect will continue to place a significant burden on many of our employees and on our internal resources. If, despite our efforts, key personnel depart because of these uncertainties and burdens, or because they do not wish to remain with the combined company, our business and results of operations may be adversely affected. In addition, whether or not the proposed Merger is consummated, while it is pending we will continue to incur costs, fees, expenses and charges related to the proposed Merger, which may materially and adversely affect our financial condition and results of operations.

In addition, the Merger Agreement generally requires us to operate in the ordinary course of business consistent with past practice, pending consummation of the merger and also restricts us from taking certain actions with respect to our business and financial affairs without Parent’s consent. Such restrictions will be in place until either the merger is consummated or the Merger Agreement is terminated. These restrictions could restrict our ability to, or prevent us from, pursuing attractive business opportunities (if any) that arise prior to the consummation of the proposed Merger. For these and other reasons, the pendency of the Merger could adversely affect our business and results of operations.

The proposed Merger may impair our ability to attract and retain qualified employees

Uncertainty over the effects of the proposed Merger may make it more difficult to attract and retain qualified employees.

The Merger may interfere with our relationships with clinical investigator and study personnel, customers, suppliers, licensees and other business partners

Uncertainty over the effects of the proposed Merger may make it more difficult to maintain relationships with existing, and enter into relationships with new, clinical investigator and study personnel, customers, suppliers, licensees and other business partners.

In the event that the proposed Merger is not consummated, the trading price of our common stock and our future business and results of operations may be negatively affected.

The conditions to the consummation of the proposed Merger may not be satisfied, as noted above. If the proposed Merger is not consummated, we would remain liable for significant transaction costs, and the focus of our management would have been diverted from seeking other potential strategic opportunities, in each case without realizing any benefits of the proposed Merger. For these and other reasons, not consummating the proposed Merger could adversely affect our business and results of operations. Furthermore, if we do not consummate the proposed Merger, the price of our common stock may decline significantly from the current market price, which we believe reflects a market assumption that the merger will be consummated. Certain costs associated with the proposed Merger have already been incurred or may be payable even if the proposed Merger is not consummated. Further, a failed transaction may result in negative publicity and a negative impression of us in the investment community. Finally, any disruptions to our business resulting from the announcement and pendency of the Merger, including any adverse changes in our relationships with our customers, vendors and employees or recruiting and retention efforts, could continue or accelerate in the event of a failed Merger.

Risks Related To Our Business

We have a history of net losses, expect to incur additional net losses and may never achieve or sustain profitability.

We have incurred net losses on an annual basis since our inception. As of September 30, 2015 we had an accumulated deficit of approximately $573.2 million. We expect to incur additional net losses in 2015 and beyond, as our research, development, preclinical testing, clinical trial, manufacturing and commercial activities continue.

Currently, we generate a significant amount of our revenue from product sales and it is possible that we will never have substantially more product sales revenue. We also generate revenue from royalties, and development and license fees, that we receive under the LFRP. To become profitable, we must either generate higher product sales from the commercialization of KALBITOR and other product candidates, such as DX-2930, increase receipts from our licensees’ product candidates in our LFRP, or reduce costs. It is possible that we will never have sufficient revenues to achieve or sustain future profitability.

Our revenues and operating results have fluctuated significantly in the past, and we expect this to continue in the future.

Our revenues and operating results have fluctuated significantly on a quarterly and year to year basis. We expect these fluctuations to continue in the future. Fluctuations in revenues and operating results will depend on many factors including:


•	the amount of future sales of KALBITOR, gross to net sales adjustments and costs to manufacture and commercialize the product;


•	the rate and consistency of KALBITOR treatments by certain individual patients that experience and treat frequent HAE attacks during a given period and over time;


•	the amount of future sales of KALBITOR ordered by the distribution channel in a given period;


•	the cost and timing of our research and development, manufacturing and commercialization activities;


•	the timing and results of the clinical trials for DX-2930;


•	the establishment of new collaboration and licensing arrangements;


•	the timing, receipt and amount of payments, if any, from current and prospective collaborators and licensees, including royalties and the completion of certain milestones by licensees with product candidates in the LFRP; and


•	the effect of revenue recognition and other generally accepted accounting principles.

Our revenues and costs in any period are not reliable indicators of our future operating results. If the revenues we recognize are less than the revenues we expect for a given fiscal period, then we may be unable to reduce our expenses quickly enough to compensate for the shortfall. In addition, our fluctuating operating results may fail to meet the expectations of securities analysts or investors which may cause the price of our common stock to decline.

Any new biopharmaceutical product candidates we develop, including DX-2930, must undergo rigorous clinical trials which could substantially delay or prevent their development or marketing.

We are developing DX-2930, a fully human monoclonal antibody inhibitor of plasma kallikrein, which is a product candidate to treat HAE prophylactically. Before we can commercialize DX-2930, or any biopharmaceutical product candidate, we must engage in a rigorous clinical trial and regulatory approval process mandated by the FDA and analogous foreign regulatory agencies. This process is lengthy and expensive, and approval is never certain. Positive results from preclinical studies and early clinical trials, such as our recent positive results from our Phase 1b clinical study of DX-2930, do not ensure positive results in late stage clinical trials designed to permit application for regulatory approval. We cannot accurately predict when planned clinical trials will begin or be completed. Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, alternative therapies, competing clinical trials and new drugs approved for the conditions that we are investigating. Therefore, our future trials may take longer to enroll patients than we anticipate. Such delays may increase our costs and slow down our product development and the regulatory approval process. Our product development costs will also increase if we need to perform more or larger clinical trials than planned. The occurrence of any of these events will delay our ability to commercialize products, generate revenue from product sales and impair our ability to become profitable, which may cause us to have insufficient capital resources to support our operations.

Products that we, or our collaborators, develop could take a significantly longer time to gain regulatory approval than we expect or may never gain approval. If we, or our collaborators, do not receive these necessary approvals we will not be able to generate substantial product or royalty revenues and may not become profitable. We, or our collaborators, may encounter significant delays or excessive costs in our efforts to secure regulatory approvals. Factors that raise uncertainty in obtaining these regulatory approvals include the following:


•	we, or our collaborators, must demonstrate through clinical trials that a product candidate is safe and effective for its intended use;


•	we have limited experience in conducting the clinical trials necessary to obtain regulatory approval; and


•	data obtained from preclinical and clinical activities are subject to varying interpretations, which could delay, limit or prevent regulatory approvals.

Regulatory authorities may delay, suspend or terminate clinical trials at any time if they believe that the patients participating in trials are being exposed to unacceptable health risks or if they find deficiencies in the clinical trial procedures. There is no guarantee that we will be able to resolve such issues, either quickly, or at all. In addition, our, or our collaborators', failure to comply with applicable regulatory requirements may result in criminal prosecution, civil penalties and other actions that could impair our ability to conduct our business.

Breakthrough Therapy Designation and Fast Track Designation by FDA for DX-2930 may not lead to a faster development or regulatory review or approval process and such designations do not increase the likelihood that DX-2930 will receive marketing approval.

We have received Breakthrough Therapy Designation and Fast Track Designation for DX-2930. Fast Track Designation is for a drug intended for the treatment of a serious or life-threatening condition where the drug candidate demonstrates the potential to address unmet medical needs for this condition. A Breakthrough Therapy is defined as a therapy comprised of a drug candidate that is intended, alone or in combination with one or more other drugs or drug candidates, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drug candidates that have been designated as Breakthrough Therapies, interaction and communication between FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drug candidates designated as Breakthrough Therapies by FDA may also be eligible for accelerated approval.

The receipt of Fast Track Designation and Breakthrough Therapy Designation for DX-2930 may not result in a faster development process, review or approval compared to drug candidates considered for approval under non-expedited FDA review procedures and does not assure ultimate approval by FDA. FDA may withdraw any Fast Track Designation that is granted if it believes that the designation is no longer supported by data from our clinical development program and FDA may later decide that DX-2930 no longer meets the conditions for qualification as a breakthrough therapy.

We depend on third-party manufacturers, including sole source suppliers, to manufacture clinical trial material for DX-2930 and expect to continue to rely on them to meet our commercial supply needs in the event that DX-2930 is approved for sale. We may not be able to maintain these relationships and could experience supply disruptions outside of our control.

The supply chain for sourcing raw materials and manufacturing DX-2930 for clinical trials and for potential future commercial use is a multi-step, international endeavor in which we rely on a third-party contract manufacturer for the supply of bulk drug substance, and on another for the conversion of drug substance into final dosage form. Maintaining and managing this supply chain requires significant financial commitments, experienced personnel and the creation or expansion of numerous third-party contractual relationships. There can be no assurance that we will be able to maintain these relationships on commercially reasonable terms, or at all, in order to support the clinical development and potential approval and commercialization of DX-2930. Furthermore, even if we are able to maintain relationships with our third-party manufacturers, supply disruptions may result from a number of factors including shortages in product raw materials, labor or technical difficulties, regulatory inspections or restrictions, shipping or customs delays or any other performance failure by any third-party manufacturer or supplier on which we rely. Any such supply disruptions could adversely impact the timing of future clinical development and regulatory approvals for DX-2930, may increase our costs and negatively affect our operating results and business prospects.

We may need additional capital in the future and may be unable to generate the funding that we will need to sustain our operations.

We require significant capital for our operations and to develop and commercialize our product candidates. Our future funding requirements will depend on many factors, including:


•	future sales levels of KALBITOR and any other commercial products that we may develop and the profitability of such sales, if any;


•	the timing, progress and cost to develop, obtain regulatory approvals for and commercialize our product candidates;


•	the amount and timing of milestone and royalty payments from our collaborators and licensees related to their progress in developing and commercializing their products;


•	the costs to manufacture, or have third parties manufacture, the materials used in KALBITOR, DX-2930 and any of our other product candidates;


•	competing technological and market developments;


•	maintaining or expanding our existing collaborative and license arrangements and entering into additional arrangements on terms that are favorable to us;


•	the costs of prosecuting, maintaining, defending and enforcing our patents and other intellectual property rights;


•	the amount and timing of additional capital equipment purchases; and


•	the overall condition of the financial markets.

We expect that our existing cash, cash equivalents and short-term investments of approximately $308.4 million as of September 30, 2015, together with anticipated cash flow from product sales, royalties and existing development and license fees will be sufficient to support our current operations for at least the next twelve months. We may, however, need additional funds if our cash requirements exceed our current expectations, if we generate less revenue than we expect or, if we pursue additional product development. We may seek additional funding through collaborative arrangements, public or private financings, or other means. We may not be able to obtain financing on acceptable terms or at all, and we may not be able to enter into additional collaborative arrangements. Arrangements with collaborators or others may require us to relinquish rights to certain of our technologies, product candidates or products. The terms of any financing may adversely affect the holdings or the rights of our stockholders. If we need additional funds and are unable to obtain funding on a timely basis, we would curtail significantly our research, development or commercialization programs in an effort to provide sufficient funds to continue our operations, which could adversely affect our business prospects.

We depend on sales of our lead product, KALBITOR, which is approved in the United States for treatment of acute attacks of HAE in patients 12 years and older.

Our product sales depend on KALBITOR in the United States and whether physicians, patients and healthcare payers choose KALBITOR over alternative treatments. The continuing product sales of KALBITOR and our prospects for continuing or increasing product sales and cash flow will depend on multiple factors, including the following:


•	the number of patients with HAE who are diagnosed with the disease and identified to us;


•	the number of patients with HAE who may be treated with KALBITOR;


•	continued acceptance of KALBITOR in the medical community;


•	the frequency of HAE patients' use of KALBITOR to treat their acute attacks of HAE, in particular patients who experience and treat frequent HAE attacks, and the consistency with which these patients treat with KALBITOR over time;


•	HAE patients' ability to obtain and maintain sufficient coverage or reimbursement by third-party payers for the use of KALBITOR;


•	our ability to effectively market and distribute KALBITOR in the United States;


•	competition from other products approved for the treatment of HAE;


•	the maintenance of marketing approval of KALBITOR in the United States and the receipt and maintenance of marketing approval from foreign regulatory authorities;


•	our maintenance of commercial manufacturing and distribution capabilities for KALBITOR through third-parties; and


•	our ability to maintain sufficient inventories to supply KALBITOR for patient use.

If we are unable to continue sales of KALBITOR in the United States and commercialize ecallantide in additional countries or if we are significantly delayed or limited in doing so, our results of operations and business prospects would be adversely affected.

KALBITOR sales are dependent, in part, on the usage by a small number of patients who treat frequent HAE attacks.

Among the spectrum of patients for whom KALBITOR is prescribed, there is a small patient population who experience and treat frequent attacks. Usage by these patients contributes significantly to the revenues generated by KALBITOR. Consequently, a reduction in the number of these patients or the frequency with which they treat attacks may have a material adverse effect on KALBITOR sales and may also result in volatility in our quarterly revenues.

If HAE patients are unable to obtain and maintain reimbursement for KALBITOR from government health administration authorities, private health insurers and other organizations, KALBITOR may be too costly for regular use and our ability to generate product sales would be harmed.

We may not be able to sell KALBITOR on a profitable basis or our profitability may be reduced if we are required to sell our product at lower than anticipated prices or if reimbursement is unavailable or limited in scope or amount. KALBITOR is more expensive than many drug treatments and most patients require some form of third party insurance coverage, patient financial assistance provided by us or by charitable foundations in order to afford its cost. Our future revenues, cash flow and profitability will be adversely affected if HAE patients cannot depend on governmental, private and other third-party payers, such as Medicare and Medicaid in the United States or any other country specific governmental organizations, to defray the cost of KALBITOR. If these entities refuse to provide coverage and reimbursement with respect to KALBITOR or impose restrictions on the level of coverage and reimbursement greater than anticipated, KALBITOR may be too costly for general use, and physicians may not prescribe it.

In addition to potential restrictions on insurance coverage, the amount of reimbursement for KALBITOR may also reduce our ability to profitably commercialize KALBITOR. In the United States and elsewhere, there have been, and we expect there will continue to be, actions and proposals by third party payers, including state and local government payers to control and reduce healthcare costs. In recent years, some states have considered legislation that would control the prices of drugs. State Medicaid programs are increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization by the state program for use of any drug for which supplemental rebates are not being paid. Managed care organizations continue to seek price discounts and, in some cases, to impose restrictions on the coverage of particular drugs. Government efforts to reduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs.

It is possible that we will never have sufficient KALBITOR sales revenue in order to achieve or sustain future profitability.

Because the target patient population of KALBITOR for treatment of HAE is small and has not been definitively determined, we must be able to successfully identify HAE patients and achieve a significant market share in order to achieve or maintain profitability.

The prevalence of HAE patients, which has been estimated at approximately 1 in 50,000 people around the world, has not been definitively determined. There can be no guarantee that any of our programs will be effective at identifying HAE patients. The number of HAE patients in the United States may turn out to be lower than estimated or patients may not utilize treatment with KALBITOR for all or any of their acute HAE attacks. All or any of these factors would adversely affect our results of operations and business prospects.

Competition and technological change may make our potential products and technologies less attractive or obsolete.

We compete in the biopharmaceutical industry, which is characterized by continuous intense competition and rapid technological change. New developments occur and are expected to continue to occur constantly at a rapid pace. Discoveries or commercial developments by our competitors or others may render some or all of our technologies, products or potential products obsolete or non-competitive. In addition, many of our competitors have greater financial resources and experience than we do.

Our business is focused on HAE and other PKM disorders. Therefore, our principal competitors are companies that either are already marketing products in those indications or are developing new products for those indications, as described below.

For the treatment of HAE, our principal competitors include:


•	Manufacturers of anabolic androgenic steroids, including danazol, which have been used historically and are still used to treat a significant number of identified HAE patients prophylactically.

•

Shire plc— Shire markets its bradykinin receptor antagonist, known as FIRAZYR® (icatibant), which is administered subcutaneously. FIRAZYR is approved in the United States, Europe, and certain other countries for the treatment of acute HAE attacks in adult patients. The U.S. and EU labels allow for patients to self-administer FIRAZYR following training by their healthcare provider. FIRAZYR has orphan drug designations in the U.S. and EU.

Shire also markets CINRYZE®, an intravenously-administered, plasma-derived C1-esterase inhibitor. CINRYZE is approved in the US for routine prophylaxis against angioedema attacks in adolescent and adult patients with HAE, and has orphan drug designation from the FDA. The FDA has also approved product labeling for CINRYZE to include self-administration for routine prophylaxis once a patient is properly trained by his or her healthcare provider. CINRYZE has also received approval in the EU for the treatment and pre-procedure prevention of angioedema attacks in adults and adolescents with HAE, and routine prevention of angioedema attacks in adults and adolescents with severe and recurrent attacks of HAE, who are intolerant to or insufficiently protected by oral prevention treatments or patients who are inadequately managed with repeated acute treatment. The EU approval includes a self-administration option for appropriately trained patients. Shire is conducting a Phase 1 trial evaluating subcutaneous administration of CINRYZE.

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CSL Behring— CSL Behring markets a plasma-derived C1-esterase inhibitor, known as Berinert®, which is administered intravenously. Berinert is approved in the U.S. for the treatment of acute abdominal, facial or laryngeal attacks of HAE in adults and adolescents, and has orphan drug designation from the FDA. The FDA has also approved labeling for Berinert to include self-administration after proper training by a healthcare professional. Berinert is also approved in the EU, Japan and several rest-of-world markets for the treatment of acute attacks of HAE. CSL Behring announced in 2013 that they had commenced an international Phase 3 study of a volume-reduced subcutaneous formulation of C1-INH.


•	Valeant Pharmaceuticals International (formerly Salix Pharmaceuticals, Ltd.)— RUCONEST® is a recombinant C1-esterase inhibitor, which is administered intravenously. RUCONEST is commercialized in the U.S. for the treatment of acute angioedema attacks in adult and adolescent patients with HAE.

Other competitors for the treatment of HAE are companies that are developing small molecule plasma kallikrein inhibitors, including BioCryst Pharmaceuticals, Inc., which completed a Phase 2 clinical trial evaluating its investigational product for prophylaxis against HAE attacks.

Furthermore, we may also be subject to competition from companies that have acquired or may acquire other technologies from universities and other research institutions and this may affect our competitive position.

We are dependent on a single contract manufacturer to produce ecallantide drug substance and another single contract manufacturer to fill, label and package ecallantide drug product into the final form, which may adversely affect our ability to commercialize KALBITOR.

We currently rely on Fujifilm to produce the bulk drug substance used in the manufacture of KALBITOR. Ecallantide drug substance is filled, labeled and packaged into the final form of KALBITOR drug product by JHS under a commercial supply agreement. Our business faces risks of difficulties with, and interruptions in, performance by Fujifilm or JHS, the occurrence of which could adversely impact the availability and/or sales of KALBITOR in the future. The failure of Fujifilm or JHS to supply manufactured product on a timely basis or at all, or to manufacture our drug substance in compliance with our specifications or applicable quality requirements or in volumes sufficient to meet demand could adversely affect our ability to sell KALBITOR, could harm our relationships with collaborators or customers and could negatively affect our revenues and operating results. If the operations of Fujifilm or JHS are disrupted, we may be forced to identify, secure and validate alternative sources of supply, which may be unavailable on commercially acceptable terms, may cause delays in our ability to deliver products to customers, may increase our costs and negatively affect our operating results.

In addition, failure to comply with applicable current good manufacturing practices and other governmental regulations and standards could be the basis for action by the FDA or corresponding foreign agency to withdraw approval for KALBITOR and for other regulatory action, including recall or seizure of product, fines, imposition of operating restrictions, total or partial suspension of production or injunctions. For example, in 2013, JHS received a Warning Letter from the FDA with respect to matters not specifically associated with KALBITOR. JHS has worked to resolve the issues raised by the FDA. If JHS fails to operate according to FDA regulations, the FDA could impose restrictions on JHS’s manufacturing capabilities, which could adversely affect future “fill and finish” activities with respect to KALBITOR.

We have a long-term commercial supply agreement with Fujifilm, under which they have committed to be available to manufacture ecallantide drug substance through 2020, and our commercial supply agreement with JHS runs through 2018. In addition, our current inventory of “filled and finished” drug product is sufficient to meet anticipated KALBITOR market demand through 2017 and our current inventory of unfilled drug substance is sufficient to meet anticipated KALBITOR market demand through 2021. These estimates are subject to changes in market conditions and other factors beyond our control. If Fujifilm or JHS is unable to dependably meet our demands for ecallantide drug substance or product, it could adversely affect our ability to further develop and commercialize KALBITOR, generate revenue from product sales, increase our costs and negatively affect our results of operations and business prospects.

We may not be able to maintain or expand market acceptance among the medical community or patients for KALBITOR, which would prevent us from achieving or maintaining profitability in the future.

We cannot be certain that KALBITOR will continue to maintain or gain additional market acceptance among physicians, patients, healthcare payers, and others. We cannot predict whether physicians, other healthcare providers, government agencies or private insurers will prefer other therapies for HAE. Medical doctors' willingness to prescribe, and patients' willingness to accept and use KALBITOR depends on many factors, including prevalence and severity of adverse side effects, effectiveness of our marketing strategies and the pricing of KALBITOR, publicity concerning KALBITOR or competing products, HAE patients’ ability to obtain and maintain third-party coverage or reimbursement, and competition from alternative treatments. In addition, the number of acute attacks that are treated with KALBITOR will vary from patient to patient depending upon a variety of factors.

If KALBITOR fails to maintain or increase market acceptance it would adversely affect our results of operations and business prospects.

If we fail to comply with continuing regulations, we could lose our approvals to market KALBITOR, and our business would be adversely affected.

We cannot guarantee that we will be able to maintain our regulatory approval for KALBITOR in the United States. We and our current and future partners, contract manufacturers and suppliers are subject to rigorous and extensive regulation by the FDA, other federal and state agencies, and governmental authorities in other countries. These regulations continue to apply after product approval, and cover, among other things, testing, manufacturing, quality control, labeling, advertising, promotion, adverse event reporting requirements, and export of biologics.

We are required to report any serious and unexpected adverse experiences and certain quality problems with KALBITOR to the FDA and other health agencies. We, the FDA or another health agency may have to notify healthcare providers of any such developments. The discovery of any previously unknown problems, including previously unreported toxicities, with KALBITOR or its manufacturer may result in updates to the product label, restrictions on KALBITOR commercialization and the manufacturer or manufacturing facility, including withdrawal of KALBITOR from the market. Certain changes to an approved product, including the way it is manufactured or promoted, often require prior regulatory approval before the product as modified may be marketed.

Our third-party manufacturing facilities were subjected to inspection prior to the grant of marketing approval and are subject to continued review and periodic inspections by the regulatory authorities. Any third party vendor that we would use to manufacture KALBITOR for sale must also be licensed by applicable regulatory authorities. Although we have established a corporate compliance program, we cannot guarantee that we, or our third party vendors, are and will continue to be in compliance with all applicable laws and regulations. Failure to comply with the laws, including statutes and regulations, administered by the FDA or other agencies could result in:


•	administrative and judicial sanctions, including warning letters;


•	fines and other civil penalties;


•	withdrawal of a previously granted approval to sell;


•	interruption of production;


•	operating restrictions;


•	product recall or seizure; injunctions; and


•	criminal prosecution.

The discovery of previously unknown problems with KALBITOR, or with the facility used to produce the product, could result in a regulatory authority imposing restrictions on us, or could cause us to voluntarily adopt such restrictions, including withdrawal of KALBITOR from the market.

If we do not maintain our regulatory approval to sell KALBITOR in the United States, our results of operations and business prospects will be materially harmed.

If the use of KALBITOR is found to harm people, or is perceived to harm patients even when such harm is unrelated to KALBITOR, our regulatory approvals could be revoked or otherwise negatively affected and we could be subject to costly and damaging product liability claims.

The testing, manufacturing, marketing and sale of drugs for use in humans exposes us to product liability risks. Side effects and other problems from using KALBITOR could:


•	lessen the frequency with which physicians decide to prescribe KALBITOR;


•	encourage physicians to stop prescribing KALBITOR to their patients who previously had been prescribed KALBITOR;


•	cause serious adverse events and give rise to product liability claims against us; and


•	require us to withdraw or recall KALBITOR from the marketplace.

The likelihood of occurrence of these risks is unknown at this time.

KALBITOR is used by only a limited number of patients. As new and existing patients use KALBITOR, new risks and side effects may be discovered. Risks previously viewed as inconsequential could be determined to be significant. Previously unknown risks and adverse effects of KALBITOR may be discovered in connection with unapproved, or off-label, uses of KALBITOR. We do not promote, or in any way support or encourage the promotion of KALBITOR for off-label uses in violation of relevant law, but current regulations allow physicians to use products for off-label uses. In the event of any new risks or adverse effects discovered as new patients are treated for HAE, regulatory authorities may modify or revoke their

approvals and we may be required to conduct additional clinical trials, make changes in labeling of KALBITOR, reformulate KALBITOR or make changes and obtain new approvals for our and our suppliers' manufacturing facilities. We may experience a significant drop in the potential sales of KALBITOR, an increase in costs, experience harm to our reputation and the reputation of KALBITOR in the marketplace or become subject to government investigations or lawsuits, including class actions. Any of these results could decrease or prevent any sales of KALBITOR or substantially increase the costs and expenses of commercializing and marketing KALBITOR.

We may be sued by people who use KALBITOR, whether as a prescribed therapy, during a clinical trial, during an investigator initiated study, or otherwise. Any informed consents or waivers obtained from people who enroll in our trials or use KALBITOR may not protect us from liability or litigation. Our product liability insurance may not cover all potential types of liabilities or may not cover certain liabilities completely. Moreover, we may not be able to maintain our insurance on acceptable terms. Negative publicity relating to the use of KALBITOR or a product candidate, or to a product liability claim, may make it more difficult, or impossible, for us to market and sell KALBITOR. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations.

During the course of treatment, patients may suffer adverse events, including death, for reasons that may or may not be related to KALBITOR. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market KALBITOR, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to KALBITOR, the investigation into the circumstance may be time-consuming, costly or inconclusive. These investigations may interrupt our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals KALBITOR receives or maintains.

If we are unable to maintain effective sales, marketing and distribution capabilities, or enter into agreements with third parties to do so, we will be unable to successfully commercialize KALBITOR.

We are marketing and selling KALBITOR ourselves in the United States and have only limited experience with marketing, sales or distribution of drug products. If we are unable to adequately sell, market and distribute KALBITOR, either ourselves or by entering into agreements with others, or to maintain such capabilities, we will not be able to successfully sell KALBITOR. In that event, we will not be able to generate significant product sales. We cannot guarantee that we will be able to maintain our own capabilities or enter into and maintain any purchase and distribution agreements with third-parties on acceptable terms, if at all.

In the United States, we sell KALBITOR to customers including wholesalers, specialty pharmacies and a limited number of hospitals. Our distributors do not set or determine demand for KALBITOR. We expect our distribution arrangements to continue for the foreseeable future through an extension or replacement of our current agreements. Our ability to successfully commercialize KALBITOR will depend, in part, on the extent to which there is adequate distribution of KALBITOR to patients through our distributors. It is possible that our distributors could change their policies or fees, or both, sometime in the future. This could result in their refusal to distribute smaller volume products such as KALBITOR, or cause higher product distribution costs, lower margins or the need to find alternative methods of distributing KALBITOR. Although we have contractual remedies to mitigate these risks and we also believe we could find alternative distributors on relatively short notice, our product sales during that period of time may suffer and we may incur additional costs to replace a distributor. A significant reduction in product sales to our distributors, any cancellation of orders they have made with us or any failure to pay for the products we have shipped to them could materially and adversely affect our results of operations and financial condition.

We have hired sales and marketing professionals for the commercialization of KALBITOR throughout the United States. Even with these sales and marketing personnel, we may not have the necessary size and experience of the sales and marketing force and the appropriate distribution capabilities necessary to successfully market and sell KALBITOR. Establishing and maintaining sales, marketing and distribution capabilities are expensive and time-consuming. Our expenses associated with maintaining the sales force and distribution capabilities may be disproportional compared to the revenues we may be able to generate on sales of KALBITOR. We cannot guarantee that we will be successful in commercializing KALBITOR and a failure to do so would adversely affect our results of operations and business prospects.

The timing of sales to our distributors and the amount of KALBITOR they keep as inventory have a significant impact on the amount of our product sales in a particular reporting period and we may not be able to accurately predict future purchases by our distributors.

Our sales of KALBITOR are made primarily to a limited network of distributors, which, in turn, resell KALBITOR to end user customers. Product in the distribution channel consists of supply held by these distributors. Our product sales in a particular

period may be affected by increases or decreases in the distribution channel inventory levels. While we attempt to assist our distributors in maintaining targeted inventory levels of KALBITOR, we may not be successful in achieving those targeted levels. Attempting to assist our distributors in maintaining targeted inventory levels of KALBITOR involves the exercise of judgment and use of assumptions about future uncertainties including end user customer demand and, as a result, actual demand may differ from our estimates.

Although our distributors typically buy KALBITOR from us in quantities they consider necessary to satisfy projected end user demand, we may not be able to accurately predict their future buying practices. For example, distributors may engage in speculative purchases of KALBITOR in excess of the current market demand in anticipation of future price increases. Therefore, during any given period, sales to a distributor may be above or below actual patient demand for KALBITOR during the same period, resulting in fluctuations in the amount of product in the distribution channel. If distribution channel inventory levels are substantially different from end user demand, we could experience variability in product sales from period to period.

If we market KALBITOR in a manner that violates healthcare fraud and abuse laws, we may be subject to civil or criminal penalties.

In addition to FDA and related regulatory requirements, we are subject to health care "fraud and abuse" laws, such as the federal False Claims Act, the anti-kickback provisions of the federal Social Security Act, and other state and federal laws and regulations. Federal and state anti-kickback laws prohibit, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid, or other federally or state financed health care programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers and prescribers, patients, purchasers and formulary managers. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly. Practices that involve remuneration intended to induce prescribing, purchasing, or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in promotion for uses that the FDA has not approved, or "off-label" uses, that caused claims to be submitted to Medicaid for non-covered off-label uses; and submitting inflated best price information to the Medicaid Rebate Program.

Although based on their medical judgment, physicians are permitted to prescribe products for indications other than those cleared or approved by the FDA, manufacturers are prohibited from promoting their products for such off-label uses. We market KALBITOR in the U.S. according to its FDA approved label for acute attacks of HAE in patients 12 years and older and provide promotional materials to physicians regarding the use of KALBITOR for this indication. Although we believe our marketing, promotional materials do not constitute off-label promotion of KALBITOR, the FDA may disagree. If the FDA determines that our promotional materials, training or other activities constitute off-label or misleading promotion of KALBITOR, it could request that we modify our training or promotional materials or other activities or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they believe that the alleged improper promotion led to the submission and payment of claims for an unapproved use. This could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. Even if it is later determined we are not in violation of these laws, we may be faced with negative publicity, incur significant expenses defending our position and have to divert significant management resources from other matters.

The majority of states have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer's products from reimbursement under government programs, criminal fines, and imprisonment. Even if we ultimately are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which would also harm our financial condition. Because of the breadth of these laws and the narrowness of the safe harbors and because government scrutiny in this area is high, it is possible that some of our business activities could come under scrutiny.

In recent years several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state or make periodic public disclosures on sales, marketing, pricing, clinical trials, and other activities. In addition, as part of health care reform, the federal government has enacted the Physician Payment Sunshine Act (the Act) and related regulations. Manufacturers of drugs are required to publicly report gifts, payments or other transfers of value made to physicians and teaching hospitals. Although we believe submission of reports comply with the Act, many of these requirements are new and uncertain, and the penalties for failure to comply with these requirements are unclear. We have established compliance policies that comport with the Code of Interactions with Healthcare Providers adopted by Pharmaceutical Research Manufacturers of America (PhRMA Code), the Office of Inspector General's (OIG) Compliance Program Guidance for Pharmaceutical Manufacturers and best practices in the pharmaceutical industry. If we are found not to be in full compliance with these laws, we could face enforcement action and fines and other penalties, and could receive negative publicity which could adversely affect our business.

If we fail to comply with our reporting and payment obligations under U.S. governmental price reporting laws, we could be required to reimburse government programs for underpayments and could pay penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition and results of operations.

We are required to calculate and report certain pricing data to the U.S. federal government in connection with federal drug pricing programs. Compliance with these federal drug pricing programs is a pre-condition to (i) the availability of federal funds to pay for our products under Medicaid and Medicare Part B; and (ii) the procurement of our products by the Department of Veterans Affairs, and by covered entities under the federal government’s drug pricing program administered under Section 340B of the Public Health Services Act, referred to as the 340B program. The pricing data reported are used as the basis for establishing contracts for sales to the Department of Veterans Affairs, the Section 340B program contract pricing and payment and rebate rates under the Medicare Part B and Medicaid programs, respectively. Pharmaceutical manufacturers have been prosecuted under federal and state false claims laws for submitting inaccurate and/or incomplete pricing information to the government that resulted in overcharges under these programs. The rules governing the calculation of certain reported prices are highly complex. Although we maintain and follow strict procedures to ensure the maximum possible integrity for our federal price calculations, the process for making the required calculations involves some subjective judgments and the risk of errors always exists, and this creates the potential for exposure under the false claims laws. If we become subject to investigations or other inquiries concerning our compliance with price reporting laws and regulations, and our methodologies for calculating federal prices are found to include flaws or to have been incorrectly applied, we could be required to pay or be subject to additional reimbursements, penalties, sanctions or fines, which could have a material adverse effect on our business, results of operations and business prospects.

We rely on third-party manufacturers to produce our preclinical and clinical drug supplies and commercial supplies of KALBITOR and we intend to rely on third parties to produce any future approved product candidates. Any failure by a third-party manufacturer to produce supplies for us may delay or impair our ability to develop, obtain regulatory approval for or commercialize our product candidates.

We have relied upon a small number of third-party manufacturers for the manufacture of our product candidates for preclinical, clinical testing and commercial purposes and intend to continue to do so in the future. As a result, we depend on collaborators, partners, licensees and other third parties to manufacture clinical and commercial scale quantities of our biopharmaceutical candidates in a timely and effective manner and in accordance with government regulations. If these third party arrangements are not successful, it will adversely affect our ability to develop, obtain regulatory approval for or commercialize our product candidates.

We have identified only a few vendors with facilities that would be capable of producing material for preclinical, clinical studies and for commercial purposes. We cannot be assured that they will be able to supply sufficient clinical materials on a timely basis during the clinical development or commercialization of our biopharmaceutical candidates, including DX-2930. Reliance on third-party manufacturers entails risks which we would not be subject to if we manufactured product candidates ourselves. These risks include reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control (including a failure to synthesize and manufacture our product candidates in accordance with our product specifications) and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities require that our product candidates be manufactured according to cGMP and similar foreign standards. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of DX-2930 or any of our product candidates.

In addition, as our drug development pipeline increases and matures, we will have a greater need for clinical trial and commercial manufacturing capacity. We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates and we currently have no plans to build our own clinical or commercial scale manufacturing capabilities. To meet our projected needs for commercial manufacturing, third parties with whom we currently work may need to increase their scale of production or we will need to secure alternate suppliers.

Although we obtained regulatory approval of KALBITOR for the treatment of acute attacks of HAE in patients 12 years and older in the United States, we may be unable to obtain regulatory approval for ecallantide in any other territory.

Governments in countries outside the United States also regulate drugs distributed in such countries and facilities in such countries where such drugs are manufactured, and obtaining their approvals can also be lengthy, expensive and highly uncertain. The approval process varies from country to country and the requirements governing the conduct of clinical trials, product manufacturing, product licensing, pricing and reimbursement vary greatly from country to country. In certain jurisdictions, we are required to finalize operational, reimbursement, price approval and funding processes prior to marketing our products. We may not receive regulatory approval for ecallantide in countries other than the United States on a timely basis, if ever. Even if approval is granted in any such country, the approval may require limitations on the indicated uses for which the drug may be marketed. Failure to obtain regulatory approval for ecallantide in territories outside the United States could have an adverse effect on our business prospects.

We rely on third parties to conduct clinical trials and to perform certain regulatory processes, which may adversely affect our ability to commercialize any biopharmaceuticals that we may develop.

We have hired experienced clinical development and regulatory staff to develop and supervise our clinical trials and regulatory processes. However, we will remain dependent upon third party contract research organizations to carry out some of our clinical and preclinical research studies for the foreseeable future. As a result, we will continue to have less control over the conduct of the clinical trials, the timing and completion of the trials, the required reporting of adverse events and the management of data developed through the trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting their willingness or ability to conduct our trials and regulatory processes. We may also experience unexpected cost increases that are beyond our control.

Problems with the timeliness or quality of the work of third parties may lead us to seek to terminate the relationship and use an alternative service provider. However, changing our service provider may be costly and may delay our trials or regulatory processes. Contractual restrictions may make such a change difficult or impossible. Additionally, it may be impossible to timely find a replacement organization that can conduct our trials in an acceptable manner and at an acceptable cost.

Government regulation of drug development is costly, time consuming and fraught with uncertainty, and our products in development cannot be sold if we do not gain regulatory approval.

We and our licensees and partners conduct research, preclinical testing and clinical trials for our product candidates. These activities are subject to extensive regulation by numerous state and federal governmental authorities in the United States, such as the FDA, as well as foreign countries, such as the EMA in European countries, Canada and Australia. We are required in the United States and in foreign countries to obtain approval from those countries' regulatory authorities before we can manufacture (or have our third-party manufacturers produce), market and sell our products in those countries. The FDA and other United States and foreign regulatory agencies have substantial authority to fail to approve commencement of, suspend or terminate clinical trials, require additional testing and delay or withhold registration and marketing approval of our product candidates.

Obtaining regulatory approval has been and continues to be increasingly difficult and costly and takes many years. If obtained, approval is costly to maintain. With the occurrence of a number of high profile safety events with certain pharmaceutical products, regulatory authorities, and in particular the FDA, members of Congress, the United States Government Accountability Office (GAO), Congressional committees, private health/science foundations and organizations, medical professionals, including physicians and investigators, and the general public are increasingly concerned about potential or perceived safety issues associated with pharmaceutical and biological products, whether under study for initial approval or already marketed.

This increasing concern has engendered greater scrutiny, which may lead to longer time to approval, fewer treatments being approved by the FDA or other regulatory bodies, as well as restrictive labeling of a product or a class of products for safety

reasons, potentially including “boxed” warnings or additional limitations on the use of products, post-approval pharmacovigilance programs for approved products or requirement of risk management activities related to the promotion and sale of a product.

If regulatory authorities determine that we or our licensees or partners or vendors conducting research and development activities on our behalf have not complied with regulations in the research and development of a product candidate, a new indication for an existing product or information to support a current indication, then they may not approve the product candidate or new indication or maintain approval of the current indication in its current form or at all, and we will not be able to market and sell it. If we were unable to market and sell our product candidates, our results of operations and business prospects would be adversely affected.

Product liability and other claims arising in connection with the testing of our product candidates in human clinical trials may reduce demand for our products or result in substantial damages.

We face an inherent risk of product liability exposure related to KALBITOR and the testing of DX-2930 in human clinical trials.

An individual may bring a product liability claim against us if KALBITOR, DX-2930, or one of our other product candidates causes, or merely appears to have caused, an injury. Moreover, in some clinical trials, we test our product candidates in indications where the onset of certain symptoms or "attacks" could be fatal. Although the protocols for these trials include emergency treatments in the event a patient appears to be suffering a potentially fatal incident, patient deaths may nonetheless occur. As a result, we may face additional liability if we are found or alleged to be responsible for any such deaths.

These types of product liability claims may result in, but are not limited to, the following:


•	decreased demand for KALBITOR or any other product candidates;


•	injury to our reputation;


•	withdrawal of clinical trial volunteers;


•	related litigation costs; and


•	substantial monetary awards to plaintiffs.

Although we currently maintain product liability insurance, we may not have sufficient insurance coverage, and we may not be able to obtain sufficient coverage at a reasonable cost. Our inability to obtain product liability insurance at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of any products that we or our collaborators develop, including KALBITOR. If we are successfully sued for any injury caused by our products or processes, then our liability could exceed our product liability insurance coverage and our total assets.

If we fail to establish and maintain strategic license, research and collaborative relationships, or if our collaborators are not able to successfully develop and commercialize product candidates, our ability to generate revenues could be adversely affected.

Our business strategy includes leveraging certain product candidates and our proprietary phage display technology through collaborations and licenses that are structured to generate revenues through license fees, technical and clinical milestone payments, and royalties. We have entered into, and anticipate continuing to enter into, collaborative and other similar types of arrangements with third parties to develop, manufacture and market drug candidates and drug products.

In addition, for us to continue to receive any significant payments from our LFRP related licenses and collaborations, the relevant product candidates must advance through clinical trials, establish safety and efficacy, and achieve regulatory approvals, obtain market acceptance and generate revenues.

Reliance on license and collaboration agreements involves a number of risks as our licensees and collaborators:


•	are not obligated to develop or market product candidates discovered using our phage display technology;


•	may not perform their obligations as expected, or may pursue alternative technologies or develop competing products;


•	control many of the decisions with respect to research, clinical trials and commercialization of product candidates we

discover or develop with them or have licensed to them;


•	may terminate their collaborative arrangements with us under specified circumstances, including, for example, a change of control, with short notice; and


•	may disagree with us as to whether a milestone or royalty payment is due or as to the amount that is due under the terms of our collaborative arrangements.

We cannot be assured we will be able to maintain our current licensing and collaborative efforts, nor can we assure the success of any current or future licensing and collaborative relationships. An inability to work successfully with current licensees and collaborators, or failure of any significant portion of our LFRP related licensing and collaborative efforts would result in an adverse impact on our business, operating results and financial condition.

Our success depends significantly upon our ability to obtain and maintain intellectual property protection for our products and technologies and upon third parties not having or obtaining patents that would limit or prevent us from commercializing any of our products.

We face risks and uncertainties related to our intellectual property rights. For example:


•	we may be unable to obtain or maintain patent or other intellectual property protection for any products or processes that we may develop or have developed;


•	third parties may obtain patents covering the manufacture, use or sale of these products or processes, which may prevent us from commercializing any of our products under development globally or in certain regions; or


•	our patents or any future patents that we may obtain may not prevent other companies from competing with us by designing their products or conducting their activities so as to avoid the coverage of our patents.

Patent rights relating to our phage display technology are central to our LFRP. In countries where we do not have and/or have not applied for phage display patent rights, we will be unable to prevent others from using phage display or developing or selling products or technologies derived using phage display. In jurisdictions where we have phage display patent rights, we may be unable to prevent others from selling or importing products or technologies derived elsewhere using phage display. Any inability to protect and enforce such phage display patent rights, whether by any invalidity of our patents or otherwise, could negatively affect future licensing opportunities and revenues from existing agreements under the LFRP. In all of our activities, we also rely substantially upon proprietary materials, information, trade secrets and know-how to conduct our research and development activities and to attract and retain collaborators, licensees and customers. Although we take steps to protect our proprietary rights and information, including the use of confidentiality and other agreements with our employees and consultants and in our academic and commercial relationships, these steps may be inadequate, these agreements may be violated, or there may be no adequate remedy available for a violation. Our trade secrets or similar technology may otherwise become known to, or be independently developed or duplicated by, our competitors.

Before we and our collaborators can market some of our processes or products, we and our collaborators may need to obtain licenses from other parties who have patent or other intellectual property rights covering those processes or products. Third parties have patent rights related to phage display, particularly in the area of antibodies. While we have gained access to key patents in the antibody area through the cross licenses with Affimed Therapeutics AG, Affitech AS, Biosite Incorporated (now owned by Alere Inc.), Cambridge Antibody Technology Limited or CAT (now known as MedImmune Limited and owned by AstraZeneca), Domantis Limited (a wholly owned subsidiary of GlaxoSmithKline), Genentech, Inc. and XOMA Ireland Limited, other third party patent owners may contend that we need a license or other rights under their patents in order for us to commercialize a process or product. In addition, we may choose to license patent rights from other third parties. In order for us to commercialize a process or product, we may need to license the patent or other rights of other parties. If a third party does not offer us a needed license or offers us a license only on terms that are unacceptable, we may be unable to commercialize one or more of our products. If a third party does not offer a needed license to our collaborators and as a result our collaborators stop work under their agreement with us, we might lose future milestone payments and royalties, which would adversely affect us. 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 and could require us to pay substantial monetary damages.

We seek affirmative rights of license or ownership under existing patent rights relating to phage display technology of others. For example, through our patent licensing program, we have secured a limited freedom to practice some of these patent rights pursuant to our standard license agreement, which contains a covenant by the licensee that it will not sue us under certain of the licensee's phage display improvement patents. We cannot guarantee that we will be successful in enforcing any agreements from our licensees, including agreements not to sue under their phage display improvement patents, or in acquiring similar agreements in the future, or that we will be able to obtain commercially satisfactory licenses to the technology and patents of others. If we cannot obtain and maintain these licenses and enforce these agreements, this could have an adverse impact on our business.

Proceedings to obtain, enforce or defend patents and to defend against charges of infringement are time consuming and expensive activities. Unfavorable outcomes in these proceedings could limit our patent rights and our activities, which could materially affect our business.

Obtaining, protecting and defending against patent and proprietary rights can be expensive. For example, if a competitor files a patent application claiming technology also invented by us, we may have to participate in an expensive and time-consuming interference proceeding before the United States Patent and Trademark Office to address who was first to invent the subject matter of the claim and whether that subject matter was patentable. Moreover, an unfavorable outcome in an interference proceeding could require us to cease using the technology or attempt to license rights to it from the prevailing party. Our business would be harmed if a prevailing third party does not offer us a license on terms that are acceptable to us. We may also be forced to respond to third party challenges to our patents in patent offices around the world.

The issues relating to the validity, enforceability and possible infringement of our patents present complex factual and legal issues that we periodically reevaluate. Third parties have patent rights related to phage display, particularly in the area of antibodies. While we have gained access to key patents in the antibody area through our cross-licensing agreements with Affimed, Affitech, Biosite, Domantis, Genentech, XOMA and CAT, other third party patent owners may contend that we need a license or other rights under their patents in order for us to commercialize a process or product. In addition, we may choose to license patent rights from third parties. While we believe that we will be able to obtain any needed 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. Moreover, if we are unable to maintain the covenants with regard to phage display improvements that we obtain from our licensees through our patent licensing program and the licenses that we have obtained to third party phage display patent rights, it could have a material adverse effect on our business.

We would expect to incur substantial costs in connection with any litigation or patent proceeding. In addition, our management's efforts would be diverted, regardless of the results of the litigation or proceeding. An unfavorable result could subject us to significant liabilities to third parties, require us to cease manufacturing or selling the affected products or using the affected processes, require us to license the disputed rights from third parties or result in awards of substantial damages against us. Our business will be harmed if we cannot obtain a license, can obtain a license only on terms we consider to be unacceptable or if we are unable to redesign our products or processes to avoid infringement.

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 the use of confidentiality and other agreements with our employees and consultants in both academic commercial relationships, we cannot assure you that these steps will be adequate, that these agreements will not be violated, or that there will be an available or sufficient remedy for any such violation, or that others will not also develop the same or similar proprietary information.

Our internal computer systems, or those of our third-party CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our business including our development programs.

Despite the implementation of security measures, our internal computer systems and those of our third-party CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our business. For example, the loss of clinical trial data for DX-2930 could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or

security breach results in a loss of or damage to our data or applications or other data or applications relating to KALBITOR or product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities which could have a material adverse effect on our business.

If we lose or are unable to hire and retain qualified personnel, we may not be able to develop our products or processes.

We are highly dependent on qualified scientific and management personnel, and we face intense competition from other companies and research and academic institutions for qualified personnel. If we lose an executive officer, a manager of one of our principal business units or research programs, or a significant number of any of our staff or are unable to hire and retain qualified personnel, then our ability to develop and commercialize our products and processes may be delayed which would have an adverse effect on our business, results of operations and financial condition.

We use and generate hazardous materials in our business, and any claims relating to the improper handling, storage, release or disposal of these materials could be time-consuming and expensive.

Our phage display research and development involves the controlled storage, use and disposal of chemicals and solvents, as well as biological and radioactive materials. We are subject to foreign, federal, state and local laws and regulations governing the use, manufacture and storage and the handling and disposal of materials and waste products. Although we believe that our safety procedures for handling and disposing of these hazardous materials comply with the standards prescribed by laws and regulations, we cannot completely eliminate the risk of contamination or injury from hazardous materials. If an accident occurs, an injured party could seek to hold us liable for any damages that result and any liability could exceed the limits or fall outside the coverage of our insurance. We may not be able to maintain insurance on acceptable terms, or at all. We may incur significant costs to comply with current or future environmental laws and regulations.

The FDA or similar agencies in other jurisdictions may require us to restrict the distribution or use of KALBITOR or other future products or take other potentially limiting or costly actions if we or others identify side effects after the product is on the market.

The FDA had required that we implement a Risk Evaluation and Mitigation Strategy (REMS) for KALBITOR and conduct post-marketing studies to assess a risk of hypersensitivity reactions, including anaphylaxis. The REMS consisted of a plan to communicate the safety risks of the product to healthcare providers. While the FDA approved the removal of the REMS requirement for KALBITOR during 2013 because the FDA agreed that we met our obligations under the communication plan, it or other regulatory agencies could impose new requirements or change existing regulations or promulgate new ones at any time that may affect our ability to obtain or maintain approval of KALBITOR or future products or require significant additional costs to obtain or maintain such approvals. For example, the FDA or similar agencies in other jurisdictions may require us to restrict the distribution or use of KALBITOR if we or others identify side effects after KALBITOR and/or future products are on the market. Changes in KALBITOR's approval or restrictions on its use could make it difficult to achieve market acceptance, and we may not be able to market and sell KALBITOR, or continue to sell it successfully, or at all. This would limit our ability to generate product sales and adversely affect our results of operations and business prospects.

We may not succeed in acquiring technology and integrating complementary businesses.

We may acquire additional technology and complementary businesses in the future. Acquisitions involve many risks, any one of which could materially harm our business, including:


•	the diversion of management's attention from core business concerns;


•	the failure to exploit acquired technologies effectively or integrate successfully the acquired businesses;


•	the loss of key employees from either our current business or any acquired businesses; and


•	the assumption of significant liabilities of acquired businesses.

We may be unable to make any future acquisitions in an effective manner. In addition, the ownership represented by the shares of our common stock held by our existing stockholders will be diluted if we issue equity securities in connection with any acquisition. If we make any significant acquisitions using cash we may be required to use a substantial portion of our available cash. If we issue debt securities to finance acquisitions, then the debt holders could have rights senior to the holders of shares of our common stock to make claims on our assets. The terms of any debt could restrict our operations, including our ability to pay dividends on our shares of common stock. Acquisition financing may not be available on acceptable terms, or at all. We

may be required to amortize significant amounts of intangible assets in connection with future acquisitions. We might also have to recognize significant amounts of goodwill that will have to be tested periodically for impairment. These amounts could be significant, which could adversely affect our operating results.

Risks Related To Our Common Stock

Our common stock may continue to have a volatile public trading price and fluctuating volume.

The market price of our common stock has been highly volatile. The market has experienced significant price and volume fluctuations for many reasons, some of which may be unrelated to our operating performance.

Many factors may have an effect on the market price of our common stock, including:


•	public announcements by us, our competitors or others;


•	developments concerning proprietary rights, including patents and litigation matters;


•	publicity regarding actual or potential clinical results or developments with respect to products or compounds we or our collaborators are developing;


•	regulatory decisions in both the United States and abroad;


•	public concern about the safety or efficacy of new technologies;


•	issuance of new debt or equity securities;


•	general market conditions and comments by securities analysts; and


•	quarterly fluctuations in our revenues and financial results.

While we cannot predict the effect that these or other factors may have on the price of our common stock, these factors, either individually or in the aggregate, could result in significant variations in price during any given period of time.

Anti-takeover provisions in our governing documents and under Delaware law may make an acquisition of us more difficult.

We are incorporated in Delaware. We are subject to various legal and contractual provisions that may make a change in control of us more difficult. Our board of directors has the flexibility to adopt additional anti-takeover measures.

Our charter authorizes our board of directors to issue up to 1,000,000 shares of preferred stock, all of which remains available for issuance and to determine the terms of those shares of stock without any further action by our stockholders. If the board of directors exercises this power to issue preferred stock, it could be more difficult for a third party to acquire a majority of our outstanding voting stock. Our charter also provides staggered terms for the members of our board of directors. This may prevent stockholders from replacing the entire board in a single proxy contest, making it more difficult for a third party to acquire control of us without the consent of our board of directors. Our equity incentive plans generally permit our board of directors to provide for acceleration of vesting of options granted under these plans in the event of certain transactions that result in a change of control. If our board of directors used its authority to accelerate vesting of options this action could make an acquisition more costly, and it could prevent an acquisition from going forward.

Section 203 of the Delaware General Corporation Law prohibits a person from engaging in a business combination with any holder of 15% or more of its capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction. This provision could have the effect of delaying or preventing a change of control of Dyax, whether or not it is desired by or beneficial to our stockholders.

The provisions described above, as well as other provisions in our charter and bylaws and under the Delaware General Corporation Law, may make it more difficult for a third party to acquire our company, even if the acquisition attempt was at a premium over the market value of our common stock at that time.

Item 5. - Other Information.

On August 21, 2015, we prepaid in full all indebtedness outstanding under the Loan Agreement dated as of December 29, 2011 between Dyax and LFRP Investors, L.P. (Lender), which consisted of approximately $84.1 million in principal. We were not required to pay any prepayment penalty in connection with this repayment. Pursuant to the terms of the Loan Agreement, we entered into a security agreement on August 22, 2012 granting Lender a security interest in substantially all of the assets related to the LFRP and the revenues generated by us through the licenses of the intellectual property related to the LFRP, which terminated in accordance with its terms at the time of the repayment.

Item 6 – EXHIBITS



EXHIBIT NO.		DESCRIPTION

2.1		Agreement and Plan of Merger, dated as of November 2, 2015, by and among the Company, Shire Pharmaceuticals International, Parquet Courts, Inc. and Shire plc.* Filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 000-24537) filed on November 2, 2015 and incorporated herein by reference.

3.1		Amended and Restated Certificate of Incorporation of the Company. Filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (File No. 000-24537) for the quarter ended September 30, 2008 and incorporated herein by reference.

3.2		Certificate of Amendment of the Company’s Amended and Restated Certificate of Incorporation. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-24537) filed on May 13, 2011 and incorporated herein by reference.

3.3		Amended and Restated Bylaws of the Company, effective as of November 2, 2015. Filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 000-24537) filed on November 2, 2015 and incorporated herein by reference.

10.1		Form of the Company’s Incentive Stock Option Certificate under the Company’s Amended and Restated 1995 Equity Incentive Plan. Filed herewith.

10.2		Form of the Company’s Non-Qualified Stock Option Certificate under the Company’s Amended and Restated 1995 Equity Incentive Plan. Filed herewith.

10.3		Form of the Company’s Restricted Stock Unit Certificate under the Company’s Amended and Restated 1995 Equity Incentive Plan. Filed herewith.

10.4†		Master Development & Manufacturing Services Agreement, by and between Dyax Corp. and Rentschler Biotechnologie GmbH dated June 11, 2014, and as amended by the First Amendment entered into July 29, 2014, the Second Amendment entered into February 3, 2015, the Third Amendment entered into May 11, 2015, the Fourth Amendment entered into on or around May 22, 2015, and the Fifth Amendment entered into September 3, 2015. Filed herewith.

10.5†		Manufacturing Services Agreement between Dyax Corp. and Cook Pharmica LLC dated February 20, 2015, as amended by the First Amendment to the Manufacturing Services Agreement entered into July 22, 2015. Filed herewith.

10.6		Form of Contingent Value Rights Agreement to be entered into between Shire plc and American Stock Transfer & Trust Company, LLC. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-24537) filed on November 2, 2015 and incorporated herein by reference.

31.1		Certification of Chief Executive Officer Pursuant to §240.13a-14 or §240.15d-14 of the Securities Exchange Act of 1934, as amended. Filed herewith.

31.2		Certification of Chief Financial Officer Pursuant to §240.13a-14 or §240.15d-14 of the Securities Exchange Act of 1934, as amended. Filed herewith.

32		Certification pursuant to 18 U.S.C. Section 1350. Filed herewith.

101		The following materials from Dyax Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Balance Sheets as of September 30, 2015 and December 31, 2014, (ii) Condensed Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014, (iii) Condensed Statements of Cash Flows for the nine months ended September 30, 2015 and 2014, and (iv) Notes to Condensed Financial Statements.


†	This Exhibit has been filed separately with the Commission pursuant to an application for confidential treatment. The confidential portions of this Exhibit have been omitted and are marked by an asterisk.


*	The schedules to the Merger Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of such schedules to the SEC upon its request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any schedule so furnished.

DYAX CORP.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	DYAX CORP.

Date: November 6, 2015
	/s/George Migausky
	George Migausky
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

DYAX CORP.

EXHIBIT INDEX



EXHIBIT NO.		DESCRIPTION

2.1		Agreement and Plan of Merger, dated as of November 2, 2015, by and among the Company, Shire Pharmaceuticals International, Parquet Courts, Inc. and Shire plc.* Filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 000-24537) filed on November 2, 2015 and incorporated herein by reference.

3.1		Amended and Restated Certificate of Incorporation of the Company. Filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (File No. 000-24537) for the quarter ended September 30, 2008 and incorporated herein by reference.

3.2		Certificate of Amendment of the Company’s Amended and Restated Certificate of Incorporation. Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-24537) filed on May 13, 2011 and incorporated herein by reference.

3.3		Amended and Restated Bylaws of the Company, effective as of November 2, 2015. Filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 000-24537) filed on November 2, 2015 and incorporated herein by reference.

10.1		Form of the Company’s Incentive Stock Option Certificate under the Company’s Amended and Restated 1995 Equity Incentive Plan. Filed herewith.

10.2		Form of the Company’s Non-Qualified Stock Option Certificate under the Company’s Amended and Restated 1995 Equity Incentive Plan. Filed herewith.

10.3		Form of the Company’s Restricted Stock Unit Certificate under the Company’s Amended and Restated 1995 Equity Incentive Plan. Filed herewith.

10.4†		Master Development & Manufacturing Services Agreement, by and between Dyax Corp. and Rentschler Biotechnologie GmbH dated June 11, 2014, and as amended by the First Amendment entered into July 29, 2014, the Second Amendment entered into February 3, 2015, the Third Amendment entered into May 11, 2015, the Fourth Amendment entered into on or around May 22, 2015, and the Fifth Amendment entered into September 3, 2015. Filed herewith.

10.5†		Manufacturing Services Agreement between Dyax Corp. and Cook Pharmica LLC dated February 20, 2015, as amended by the First Amendment to the Manufacturing Services Agreement entered into July 22, 2015. Filed herewith.

10.6		Form of Contingent Value Rights Agreement to be entered into between Shire plc and American Stock Transfer & Trust Company, LLC. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-24537) filed on November 2, 2015 and incorporated herein by reference.

31.1		Certification of Chief Executive Officer Pursuant to §240.13a-14 or §240.15d-14 of the Securities Exchange Act of 1934, as amended. Filed herewith.

31.2		Certification of Chief Financial Officer Pursuant to §240.13a-14 or §240.15d-14 of the Securities Exchange Act of 1934, as amended. Filed herewith.

32		Certification pursuant to 18 U.S.C. Section 1350. Filed herewith.

101		The following materials from Dyax Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Balance Sheets as of September 30, 2015 and December 31, 2014, (ii) Condensed Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014, (iii) Condensed Statements of Cash Flows for the nine months ended September 30, 2015 and 2014, and (iv) Notes to Condensed Financial Statements.


†	This Exhibit has been filed separately with the Commission pursuant to an application for confidential treatment. The confidential portions of this Exhibit have been omitted and are marked by an asterisk.


*	The schedules to the Merger Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of such schedules to the SEC upon its request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any schedule so furnished.

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