<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 2000
REGISTRATION NO. 333-37394
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
DYAX CORP.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 8731 04-3053198
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
ONE KENDALL SQUARE
CAMBRIDGE, MASSACHUSETTS 02139
(617) 225-2500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
HENRY E. BLAIR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DYAX CORP.
ONE KENDALL SQUARE, BUILDING 600
CAMBRIDGE, MASSACHUSETTS 02139
(617) 225-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
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<S> <C>
NATHANIEL S. GARDINER, ESQ. MICHAEL W. BLAIR, ESQ.
PALMER & DODGE LLP DEBEVOISE & PLIMPTON
One Beacon Street 875 Third Avenue
Boston, Massachusetts 02108 New York, New York 10022
(617) 573-0100 (212) 909-6000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION
PROSPECTUS DATED JULY 7, 2000
4,000,000 SHARES
[LOGO]
COMMON STOCK
Dyax Corp. is selling all of the shares of common stock in this offering. This
is our initial public offering. We estimate that the initial offering price will
be between $13.00 and $15.00 per share.
We have applied to have our shares of common stock listed on the Nasdaq National
Market under the symbol "DYAX."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. PLEASE READ "RISK FACTORS"
BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT DYAX
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------
Per Share $ $ $
---------------------------------------------------------------------------------------------------------------
Total $ $ $
---------------------------------------------------------------------------------------------------------------
</TABLE>
We have granted the underwriters rights to purchase up to an additional 600,000
shares of common stock to cover over-allotments.
J.P. MORGAN & CO.
LEHMAN BROTHERS
PACIFIC GROWTH EQUITIES, INC.
, 2000.
<PAGE>
TABLE OF CONTENTS
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PAGE
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Prospectus Summary........................ 1
Risk Factors.............................. 5
Special Note Regarding Forward-Looking
Statements.............................. 14
Use of Proceeds........................... 15
Dividend Policy........................... 15
Capitalization............................ 16
Dilution.................................. 17
Selected Consolidated Financial Data...... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 19
</TABLE>
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Business.................................. 24
Management................................ 47
Certain Relationships and Related
Transactions............................ 54
Principal Stockholders.................... 56
Description of Capital Stock.............. 58
Shares Eligible For Future Sale........... 61
Underwriting.............................. 62
Legal Matters............................. 64
Experts................................... 64
Where You Can Find More Information....... 64
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS"
AND THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN THE PROSPECTUS,
BEFORE MAKING AN INVESTMENT DECISION.
DYAX CORP.
We are a biopharmaceutical company that has developed and patented a method,
known as phage display, that we are using to identify a broad range of compounds
with potential for the treatment and diagnosis of diseases. We are also using
this method to identify compounds that could be used in purifying and
manufacturing biopharmaceuticals and other chemicals. We believe that we and
others can use our phage display technology to rapidly and cost-effectively
determine the potential medical uses of newly discovered proteins and genes and
subsequently discover biopharmaceutical product candidates. Given the quantity
of genetic information made available by the recent mapping of most of the human
genome, we believe that the advantages of our technology over other technologies
should increase in importance. We believe that phage display can have the
greatest potential impact on our business through our discovery of proprietary
biopharmaceuticals.
We also develop, manufacture and sell chromatography separations systems and
products that are used in laboratories and pharmaceutical manufacturing to
separate molecules in liquid mixtures. These systems are used during the
discovery, development and manufacture of biological and pharmaceutical
products. We are a leading developer, manufacturer and supplier of
chromatography separations systems that use disposable cartridges to separate
and thereby purify pharmaceuticals being produced for research and clinical
development. Using our phage display technology, we are also developing novel
separations products to purify biopharmaceuticals.
PHAGE DISPLAY
In the late 1980s, Dyax scientists invented phage display, a novel method to
display individually up to tens of billions of peptides and proteins, including
human antibodies and enzymes, on the surface of a small bacterial virus called a
phage. Using phage display, we can produce and search through large collections,
or libraries, of peptides and proteins to identify rapidly those compounds that
bind tightly to a specific molecular target. Our scientists, collaborators and
licensees use phage display to improve the speed and cost effectiveness of drug
discovery and optimization. Our core patent position in this technology has
enabled us to license our patents to an extensive and increasing number of
companies that use phage display. We believe that with our intellectual property
position, our diverse types of libraries and our substantial experience in
applying phage display technology, we are an attractive partner for companies
seeking collaborative arrangements in the application of this technology.
BUSINESS STRATEGY
We plan to maximize the value of our phage display technology by pursuing our
internal product discovery and development programs and our collaborative
arrangements and by broadly licensing our phage display technology. The
principal elements of our business strategy are to:
- discover and develop proprietary biopharmaceuticals;
- leverage our technology through collaborative arrangements and licensing of
our phage display patents and libraries;
- develop and market innovative separations products, including separations
products developed using phage display;
- develop novel products in other areas using phage display, including molecules
for imaging disease conditions in humans, and industrial enzymes, which are
enzymes used to accelerate chemical reactions in industrial processes; and
- continue to extend our intellectual property and technology through internal
and external initiatives.
We plan to continue to invest substantially in programs using our phage display
technology to develop biopharmaceutical and other products. We have accumulated
losses since inception as we have invested in our businesses. For us to be
profitable, we must fully develop and commercialize biopharmaceuticals,
establish additional collaborative arrangements and achieve greater market
penetration for our separations products with new and existing separations
products.
1
<PAGE>
OUR PRODUCTS, PROGRAMS AND INITIATIVES
BIOPHARMACEUTICAL PRODUCT DEVELOPMENT PROGRAMS
We have used our phage display technology to:
- discover two potential biopharmaceuticals, EPI-HNE4, which we refer to as
Reltran-TM-, and DX-88, that are in Phase I human clinical trials for some
inflammatory diseases; and
- identify two proteins, including one human monoclonal antibody, with potential
applications for treating some cancers.
EPI-HNE4/Reltran-TM- is a potential biopharmaceutical for the treatment of
cystic fibrosis, chronic obstructive pulmonary disease, asthma and acute
respiratory distress syndrome. Our collaborator, Debiopharm S.A., a Swiss
pharmaceutical development company, is currently conducting a Phase I clinical
trial of this compound, which will determine the safety of this compound in
healthy human subjects. We have retained the right to develop the drug ourselves
outside of Europe. DX-88 is a potential therapeutic for the treatment of an
hereditary condition involving abnormal swelling of body tissue, as well as for
complications of cardiopulmonary bypass surgery and rheumatoid arthritis. We
have entered into a collaboration with Genzyme Corporation to develop DX-88,
which is now in a Phase I clinical trial.
COLLABORATION AND LICENSE ARRANGEMENTS
We are currently engaged in collaborative arrangements with biotechnology and
pharmaceutical companies for the discovery and/or development of potential
pharmaceutical, separations and diagnostic products. We currently have 10 of
these arrangements, and have completed work under several others, that generally
provide us with research funding, license fees, milestone payments and
royalties. We have also licensed our phage display patents to enable the broad
application of this technology in the fields of therapeutics and laboratory, or
IN VITRO, diagnostics. We have licensed our phage display patents to over 40
companies and institutions on a non-exclusive basis. Under these licenses, we
generally obtain revenues from license fees, milestone payments and royalties on
sales of products developed using phage display. We recently entered into two
broad license and collaboration agreements with Amgen Inc. and Human Genome
Sciences, Inc.:
- In February 2000, we entered into a license technology transfer and technology
services agreement with Amgen Inc. under which we are developing a new phage
library for Amgen. Amgen has broad rights to develop and commercialize
biopharmaceuticals using our phage display technology.
- In March 2000, we entered into a collaboration and license agreement with
Human Genome Sciences, Inc. Under this agreement, we and HGSI will use our
phage display technology and compound libraries to identify and optimize
product candidates that bind to molecular targets selected by HGSI, and also
to develop new technologies for screening and purifying molecular targets.
SEPARATIONS PRODUCTS AND PRODUCT DEVELOPMENT PROGRAMS
Our customers use our separations systems in processes that range from drug
discovery to full commercial production. We market our separations products
under our Biotage trade name. In 1999, we had over $12 million in Biotage
product revenues. We are also developing potential separations products that
will use unique binding compounds identified through phage display to provide
improved purification for discovery, development and manufacture of
biopharmaceuticals. We refer to these potential products as affinity separations
products because they are based on the tight binding quality, also known as high
affinity, that we can select using phage display technology.
DIAGNOSTIC IMAGING AND INDUSTRIAL ENZYME PRODUCT DEVELOPMENT PROGRAMS
We have discovery and preclinical programs for diagnostic imaging products that
are used in humans, or IN VIVO, and for discovery programs for novel industrial
enzymes. We are using our phage display technology to develop compounds as IN
VIVO imaging agents for diagnosis and monitoring of cardiovascular and
inflammatory diseases and some cancers. We are also using our phage display
technology to develop methods for engineering novel industrial enzymes for use
in the field of pharmaceutical production.
TECHNOLOGY EXPANSION INITIATIVES
We continue to develop technology internally and acquire technology rights that
are complementary to or expand our existing technology. As an example of these
initiatives, in July 1999 we acquired Target Quest B.V., which increased our
ability to discover human antibodies using our phage display technology.
2
<PAGE>
THE OFFERING
The number of shares outstanding after the offering excludes 2,751,415 shares
reserved for issuance under our stock plans, of which options to purchase
2,333,472 shares are outstanding at a weighted average exercise price of $2.05
per share. This number also excludes 27,022 shares issuable upon exercise of
outstanding warrants at an exercise price of $3.97 per share. This number
assumes no exercise of the underwriters' over-allotment option. If the
over-allotment option is exercised in full, we will issue and sell an additional
600,000 shares.
Unless otherwise indicated, all information in this prospectus reflects the
filing of an amended and restated certificate of incorporation with the
Secretary of State of the State of Delaware prior to the closing of this
offering.
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<S> <C>
COMMON STOCK OFFERED BY DYAX.................... 4,000,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER THE 18,091,872 shares
OFFERING......................................
USE OF PROCEEDS................................. We expect to use the net proceeds to fund:
- research and development;
- possible acquisitions of technology and
complementary businesses; and
- working capital, capital expenditures and
other general corporate purposes.
Please read "Use of Proceeds."
PROPOSED NASDAQ NATIONAL MARKET SYMBOL.......... "DYAX"
</TABLE>
All information in this prospectus assumes the issuance and sale of common stock
in the offering at an assumed initial public offering price of $14.00 per share,
the mid-point of the range of the initial public offering prices set forth on
the cover page of this prospectus.
------------------------
We have filed for trademark protection for the Dyax mark and the Dyax logo. We
have a United States registration on the Kiloprep mark. We have also registered
the Kiloprep mark in Japan, Germany and the United Kingdom. In addition, we
consider "Biotage" as a trade name and consider Parallex, ProPrep, BioFLASH and
Reltran to be trademarks. All other trademarks or service marks appearing in
this prospectus are the property of their respective holders.
------------------------
We incorporated in Delaware in 1989 under the name Biotage, Inc. and merged with
Protein Engineering Corporation in August 1995. Our principal executive offices
are located at One Kendall Square, Building 600, Cambridge, Massachusetts 02139,
and our telephone number is (617) 225-2500.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
We have derived the consolidated statement of operations data for the years
ended December 31, 1997, 1998, and 1999 from our audited financial statements
included elsewhere in this prospectus. We have derived the summary consolidated
financial data as of March 31, 2000 and for the three months ended March 31,
1999 and March 31, 2000 from our unaudited financial statements included
elsewhere in this prospectus. The pro forma net loss per share reflects the
number of shares outstanding as of December 31, 1999 and March 31, 2000, after
giving effect to the conversion of all of the outstanding shares of preferred
stock into common stock and the acceleration of vesting with respect to some
shares of restricted common stock. The pro forma as adjusted balance sheet data
reflect that conversion and also reflect the sale of 4,000,000 shares of common
stock in this offering at an assumed initial offering price of $14.00 per share
after deducting underwriting discounts and estimated offering expenses. You
should read the selected financial information below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes related to those financial
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
-------------------------------------- -------------------------
IN THOUSANDS, EXCEPT SHARE DATA 1997 1998 1999 1999 2000
---------- ----------- ----------- ----------- -----------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales............................................. $ 7,138 $ 9,641 $ 12,596 $ 2,840 $ 3,378
Product development and license fee revenues.............. 2,192 4,490 4,237 825 1,429
---------- ----------- ----------- ----------- -----------
Total revenues........................................ 9,330 14,131 16,833 3,665 4,807
---------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of products sold..................................... 2,931 4,164 5,515 1,274 1,493
Research and development.................................. 5,625 6,778 10,618 2,322 3,703
Selling, general and administrative....................... 6,787 10,061 14,069 2,964 3,856
Stock-based compensation.................................. 75 681 939 229 404
---------- ----------- ----------- ----------- -----------
Total operating expenses.............................. 15,418 21,684 31,141 6,789 9,456
---------- ----------- ----------- ----------- -----------
Loss from operations........................................ (6,088) (7,553) (14,308) (3,124) (4,649)
Interest income (expenses), net............................. 265 401 856 261 158
Investment income........................................... -- -- 265 -- --
---------- ----------- ----------- ----------- -----------
Net loss.................................................... $ (5,823) $ (7,152) $ (13,187) $ (2,863) $ (4,491)
---------- ----------- ----------- ----------- -----------
Net loss per common share, basic and diluted................ $ (3.95) $ (4.22) $ (6.81) $ (1.65) $ (1.97)
Shares used in computing basic and diluted net loss
per share--............................................... 1,473,474 1,694,782 1,936,907 1,738,693 2,277,725
Unaudited pro forma basic and diluted net loss per share.... $ (.97) $ (.32)
Shares used in computing unaudited, pro forma basic and
diluted net loss per share................................ 13,604,750 13,956,254
</TABLE>
<TABLE>
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AS OF MARCH 31, 2000
----------------------
PRO FORMA
AS
IN THOUSANDS ACTUAL ADJUSTED
--------- ----------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 18,160 $ 69,160
Working capital............................................. 16,073 67,073
Total assets................................................ 30,845 81,845
Long-term debt and capital lease obligations, less current
portion................................................... 1,383 1,383
Accumulated (deficit)....................................... (56,146) (56,146)
Total stockholders' equity.................................. 15,594 66,594
</TABLE>
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND RELATED NOTES. ADDITIONAL
RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US, OR RISKS THAT WE CURRENTLY
CONSIDER IMMATERIAL, MAY ALSO IMPAIR OUR OPERATIONS. IF ANY OF THE FOLLOWING
RISKS ACTUALLY OCCURS, OUR BUSINESS COULD BE HARMED. THIS COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU COULD LOSE ALL OR PART OF
YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO INCUR SIGNIFICANT ADDITIONAL
OPERATING LOSSES
We have generated operating losses since our inception in 1989. As of March 31,
2000, we had an accumulated deficit of approximately $56.1 million. We expect to
incur substantial additional operating losses over the next several years as our
research, development, preclinical testing and clinical trial activities
increase. We do not have any products developed, or derived, using phage display
that have generated revenues, and we do not expect them to generate significant
product revenues for the next several years. Even if our research and
development efforts in phage display eventually generate revenues from sales of
phage display-derived products, those revenues may not fully offset the expenses
of our efforts.
To date, our chromatography separations products business has not been
profitable. For sales of our separations business to increase, we must expand
the market penetration of our existing products as well as develop new
chromatography-based and new phage display-derived separations products, which
are still in the early stages of development.
To date, we have received revenues principally from:
- sales of chromatography separations systems and products;
- milestone payments and signing and maintenance fees paid by licensees of our
phage display patents and libraries; and
- research and development funding received from our collaborative partners.
To become profitable, we must:
- fully develop and commercialize biopharmaceuticals;
- establish additional collaborative arrangements; and
- achieve greater market penetration for our separations products by producing
new and existing chromatography and phage display-derived separations
products.
WE MAY BE UNABLE TO RAISE THE CAPITAL THAT WE WILL NEED TO SUSTAIN OUR
OPERATIONS
We expect that the proceeds of this offering, together with our existing
resources, will be sufficient to fund our operations through at least 2001. We
may, however, need to raise additional funds before that date. We will need
additional funds if our cash requirements exceed our current expectations, if we
generate less revenue than currently expected, or if we are unable to raise all
the funds contemplated by this offering.
Our future capital requirements will depend on many factors, including:
- the progress of our drug discovery and separations technology development
programs using phage display;
- maintaining our existing collaborative and license arrangements and entering
into additional ones;
- sales of existing and new separations products;
- our decision to manufacture some of our products;
- competing technological and market developments;
5
<PAGE>
- costs of defending our patents and other intellectual property rights;
- the amount and timing of additional capital equipment purchases; and
- the progress of the development and commercialization of milestone and
royalty-bearing compounds by our collaborative partners and licensees.
We may seek additional funding through collaborative arrangements and public or
private financings. We may not be able to obtain financing on acceptable terms
or at all. In addition, the terms of the financing may adversely affect the
holdings or the rights of our stockholders. If we are unable to obtain funding
on a timely basis, we may be required to curtail significantly one or more of
our research or development programs. We also could be required to seek funds
through arrangements with collaborators or others that may require us to
relinquish rights to some of our technologies, product candidates or products
that we would otherwise pursue on our own.
WE DEPEND ON THE EXPERTISE, EFFORT, PRIORITIES AND CONTRACTUAL OBLIGATIONS OF
OUR COLLABORATORS; ANY CHANGES IN OUR COLLABORATORS' BUSINESS DIRECTION OR
PRIORITIES OR DEFAULTS IN THEIR OBLIGATIONS MAY HAVE AN ADVERSE IMPACT ON OUR
RESEARCH REVENUES AND ULTIMATELY OUR LICENSE REVENUES AND EXPENSES
We depend on the expertise, effort, priorities and contractual obligations of
our collaborators to realize revenues from our phage display technology.
However, our collaborators:
- are not obligated under our collaborative arrangements to develop or market
product candidates we discover;
- 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;
- may terminate their collaborative arrangements with us under specified
circumstances with short notice; and
- may disagree with us as to whether a milestone or royalty payment is due under
the terms of our collaborative arrangements.
The termination of a significant number of our existing or prospective
collaborative arrangements would reduce our research revenues and our potential
for royalties and milestone payments if we could not enter into other
collaborations.
OUR BIOPHARMACEUTICAL OR DIAGNOSTIC PRODUCT CANDIDATES MUST UNDERGO RIGOROUS
CLINICAL TRIALS AND REGULATORY APPROVALS, WHICH COULD SUBSTANTIALLY DELAY OR
PREVENT THEIR DEVELOPMENT OR MARKETING
Any biopharmaceutical or diagnostic product we develop will be subject to
rigorous clinical trials and an extensive regulatory approval process
implemented by the Food and Drug Administration. This approval process is
typically lengthy and expensive, and approval is never certain. Positive results
from preclinical studies and early clinical trials do not ensure positive
results in late stage clinical trials designed to permit application for
regulatory approval. Prior to marketing products in the United States, any
biopharmaceutical or diagnostic product that we develop must undergo rigorous
preclinical testing and clinical trials. We may not be able to conduct clinical
trials at preferred sites, enroll sufficient patients or begin or successfully
complete clinical trials in a timely fashion, if at all.
We expect to enter into contractual arrangements with collaborators and third
parties to conduct clinical trials on our behalf. Any failure of these
collaborators or third parties to perform may delay or terminate the trials. At
the present time, Debiopharm S.A. is conducting a Phase I human clinical trial
in Europe to determine the safety of EPI-HNE4. We have also engaged a contract
resource organization, Ilex Services, to conduct a Phase I human clinical trial
to determine the safety of DX-88. Both Debiopharm and Ilex have fulfilled all of
their responsibilities to date with respect to these clinical trials.
Because of the risks and uncertainties in biopharmaceutical development,
products that we or our collaborators develop through phage display 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 and our collaborators may encounter
significant delays or
6
<PAGE>
excessive costs in our efforts to secure regulatory approvals. Factors that
raise uncertainty in obtaining these regulatory approvals include:
- we must demonstrate through clinical trials that the proposed product is safe
and effective for its intended use;
- preclinical and clinical data on safety and efficacy of biopharmaceutical
compounds developed through phage display is limited, and we are not aware of
any that have obtained marketing approval from a regulatory agency;
- data obtained from preclinical and clinical activities are susceptible to
varying interpretations, which could delay, limit or prevent regulatory
approvals; and
- we have limited experience in conducting the clinical trials necessary to
obtain regulatory approval.
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. In addition, the 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.
BECAUSE WE CURRENTLY LACK THE RESOURCES, CAPABILITY AND EXPERIENCE NECESSARY TO
MANUFACTURE, MARKET AND SELL BIOPHARMACEUTICALS, WE WILL DEPEND ON THIRD PARTIES
TO PERFORM THESE FUNCTIONS, WHICH MAY AFFECT OUR ABILITY TO COMMERCIALIZE ANY
BIOPHARMACEUTICALS WE MAY DEVELOP
We do not currently operate manufacturing facilities for the clinical or
commercial production of biopharmaceuticals. We also lack the resources,
capability and experience necessary to manufacture, market and sell
biopharmaceuticals. As a result, we will depend on collaborators, partners,
licensees and other third parties to manufacture clinical and commercial scale
quantities of our biopharmaceuticals and to market, sell and distribute them to
our target customers. If we enter into these types of third party arrangements,
then we will be dependent on the efforts of others, which if not successful
could result in decreased revenue.
Because our existing contract manufacturer is not able to produce
biopharmaceuticals on a clinical or commercial scale, we may incur substantial
expenses to contract with others to manufacture any biopharmaceuticals that we
may develop. Similarly, if we are not able to enter into third party
arrangements for the marketing and sale of biopharmaceuticals on acceptable
terms, then we may incur substantial expenses to develop our own marketing and
sales force in order to commercialize our biopharmaceuticals and our efforts may
not be successful. As a result we may experience delays in the manufacture and
commercialization of our biopharmaceuticals and we may be unable to price our
products competitively.
BECAUSE OUR PHAGE DISPLAY TECHNOLOGY IS RELATIVELY NEW, WE AND OUR COLLABORATORS
MAY NOT BE ABLE TO GAIN MARKET ACCEPTANCE OF OUR PHAGE DISPLAY-DERIVED
BIOPHARMACEUTICALS, WHICH COULD ADVERSELY AFFECT OUR REVENUES
Our phage display technology is a relatively new drug discovery technology.
Although there are several biopharmaceutical candidates in preclinical or
clinical trials, we are not aware of any commercialized biopharmaceuticals that
have been developed using phage display technologies, nor have we commercialized
any ourselves. As a result, we cannot be certain that any of our
biopharmaceutical candidates, even if successfully approved, will gain market
acceptance among physicians, patients, healthcare payors, pharmaceutical
manufacturers or others. We may not achieve market acceptance even if clinical
trials demonstrate safety and efficacy of our biopharmaceutical and diagnostic
products and the necessary regulatory and reimbursement approvals are obtained.
The degree of market acceptance of our biopharmaceutical candidates will depend
on a number of factors, including:
- their clinical efficacy and safety;
- their cost-effectiveness;
- their potential advantage over alternative treatment methods;
- their marketing and distribution support;
- reimbursement policies of government and third-party payors; and
7
<PAGE>
- market penetration and pricing strategies of competing and future products.
If our products do not achieve significant market acceptance, our revenues could
be adversely affected.
COMPETITION AND TECHNOLOGICAL CHANGE MAY MAKE OUR POTENTIAL PRODUCTS AND
TECHNOLOGIES LESS ATTRACTIVE OR OBSOLETE
We compete with major pharmaceutical and biotechnology companies that are
pursuing forms of treatment or prevention for the diseases that we target and
technology platforms that compete with phage display. Our business depends
significantly on the competitive position of phage display technology. If
competing technology platforms obtain broader market acceptance or technologies
superior to phage display are developed, our business would be adversely
affected.
In addition, we may experience competition from companies that have acquired or
may acquire technology from universities and other research institutions. As
these companies develop their technologies, they may develop proprietary
positions which may prevent us from successfully commercializing our products.
We also face competition from pharmaceutical and biotechnology companies that
have licensed our phage display technology.
Our chromatography separations business competes in mature markets with several
companies that manufacture, market and sell chromatography separations and
purification systems. Some of these competitors, including Amersham Pharmacia
Biotech AB, Millipore Corporation, Bio-Rad Laboratories Inc., Isco, Inc. and
Waters Corporation, also have long-term relationships with our existing
customers. Our major competitor in the chromatography separations system and
cartridge market is Isco, Inc. In addition, many therapeutic and diagnostic
product manufacturers have traditionally assembled their own chromatography
systems. As a result, any future affinity separations products that we develop
using phage display may not become accepted in the marketplace as effective
technology for use in purification processes for the manufacture of
pharmaceuticals and other products.
Many of these competitors have substantially greater financial and other
resources than we do and are conducting extensive research and development
activities. Other companies may succeed in developing products earlier than we
do, obtaining regulatory approval for products more rapidly than we do, or
developing products that are more effective or less costly than those we
develop.
OUR SUCCESS DEPENDS SIGNIFICANTLY UPON OUR ABILITY TO OBTAIN AND MAINTAIN
INTELLECTUAL PROPERTY PROTECTION FOR OUR PRODUCTS AND TECHNOLOGIES
We face risks and uncertainties related to 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;
- third parties may obtain patents covering the manufacture, use or sale of
these products, 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.
Our phage display patent rights are central to our non-exclusive patent
licensing program. As part of that licensing program, we generally seek to
negotiate a phage display license agreement with parties practicing technology
covered by our patents. 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 addition, in jurisdictions outside the United
States where we have phage display patent rights, we may not be able to prevent
others from selling or importing products or technologies derived elsewhere
using phage display. Any inability to protect and enforce our phage display
patent rights, whether by licensing or otherwise, could negatively affect our
research and revenues.
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
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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. Also, our trade secrets or similar technology may otherwise
become known to, or be independently developed or duplicated by, our
competitors.
Other parties have patents and pending applications to various products and
methods related to phage display and may obtain additional patents in the
future. From time to time we learn of issued patents which may cover our product
development activities as well as commercialization of potential future
products. To date, we have filed oppositions against two European patents in the
general field of phage display. We do not believe these European patents cover
any of our present activities, but we cannot predict whether the claims in these
patents may, in their current or future form, cover our future activities or the
activities of our collaborators and licensees. We may file other oppositions in
the future.
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. If a third party does not offer us
a needed license or offers a license only on terms that are unacceptable, we
might 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 the agreement, we might lose future milestone
payments and royalties.
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, however, 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
a negative effect 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 U.S. 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 to
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.
In patent offices outside the United States, we may be forced to respond to
third party challenges to our patents. For example, two companies filed
oppositions in late 1997 against the only phage display patent that the European
Patent Office issued to us to date. A hearing on these oppositions was held
April 6, 2000 and our patent was revoked. We plan to appeal this decision to the
European Patent Office's Technical Board of Appeals. This appeal will suspend
the Opposition Division's decision and reinstate our patent pending the decision
of the Technical Board. Although we will be able to enforce this patent during
the appeal, any infringement action we file will likely be stayed pending the
results of the appeal. We also expect the European Patent Office in 2000 to
issue us a second patent related to our phage display technology, which may
become subject to opposition on grounds similar to the oppositions to our first
European patent. We will not be able to prevent other parties from using our
phage display technology in Europe if we are not successful in the reinstatement
of our first European patent and if the European Patent Office does not grant us
another patent that we can maintain after any opposition.
We may need to resort to litigation to enforce any patent issued to us. Third
parties may assert that we are employing their proprietary technology without
authorization. In addition, third parties may have or obtain patents in the
future and claim that the use of our technology infringes these patents. For
example, we are engaged in a United States court proceeding relating to three
patents owned by a third party who alleges that our licensing of our phage
display patents and our use of phage display technology infringes the third
party patents. We could incur substantial costs in connection with any
litigation or
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patent proceeding and our management's efforts would be diverted, regardless of
the results of the litigation. 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.
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 quarter to
quarter basis. We expect these fluctuations to continue in the future.
Fluctuations in revenues and operating results in the future will depend on:
- the timing of our increased research and development expenses;
- the establishment of new collaborative and licensing arrangements;
- the timing and results of clinical trials;
- the development and marketing programs of current and prospective
collaborators;
- the completion of certain milestones; and
- the timing of customer purchases of larger separations equipment systems.
If the revenues we actually receive 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. Our revenues in any period are not a reliable
indicator of our future performance. In addition, our fluctuating revenues and
operating results may fail to meet the expectations of securities analysts or
investors. Our failure to meet these expectations may cause the price of our
common stock to decline.
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 effectively acquired technologies 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.
In July 1999, we acquired Target Quest B.V. We may be unable to make any
additional acquisitions in an effective manner. In addition, the ownership
represented by the shares of our common stock held by you will be diluted if we
issue equity securities in connection with any acquisition. If we make any
significant acquisitions using cash consideration, we may be required to use a
substantial portion of our available cash, including the proceeds of this
offering. If we issue debt securities to finance acquisitions, then the
debtholders would have rights senior to the holders of shares of our common
stock to make claims on our assets and 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. In addition, we may be required to amortize significant amounts of goodwill
and other intangible assets in connection with future acquisitions, which could
harm our operating results.
IF WE LOSE OR ARE UNABLE TO HIRE AND RETAIN QUALIFIED PERSONNEL, THEN 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 a senior employee 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
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products and processes may be delayed or prevented. We do not maintain key-man
life insurance with respect to any employees, and we do not currently intend to
obtain such insurance.
WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH
We may not be able to manage our growth and expansion, and the failure to do so
may slow our growth rate or give rise to inefficiencies that would increase our
losses. Our ability to manage our operations and growth effectively depends upon
the continual improvement of our operational, financial and management controls,
reporting systems and procedures.
WE CURRENTLY DEPEND ON ONE SUPPLIER FOR A KEY COMPONENT IN OUR SEPARATIONS
PRODUCTS, AND IF WE LOSE THAT SUPPLIER WE COULD EXPERIENCE DELAYS IN THE
PRODUCTION AND SHIPMENT OF OUR SEPARATIONS PRODUCTS, WHICH WOULD ADVERSELY
IMPACT OUR SEPARATIONS PRODUCT SALES REVENUES
We manufacture our chromatography separations products using compounds and
separations media manufactured by third parties. We currently purchase all of
the silica that we use as separations media in our prepacked disposable
separations cartridges and other separations products from Chemie Uetikon, a
major bulk producer of silica located in Zurich, Switzerland. We generally do
not carry significant inventories of this media. Our sole supplier may not
devote the resources necessary to support the continued availability of this
media. While we believe that we could obtain separations media from alternative
sources of supply at prices and on terms and conditions substantially similar to
those in the agreement with our current supplier, any interruption in our source
of supply could slow production and delay shipments to our customers, which
would adversely impact our separations product sales revenues. To date, we have
not experienced any major difficulties in obtaining commercial or clinical
quantities of separations media from our current supplier.
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 research and development programs, preclinical testing and clinical trial
activities involve the controlled storage, use and disposal of hazardous
materials, chemicals, biological materials and radioactive compounds. 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. In the event of an accident, 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.
WE MAY HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE
We face exposure to product liability and other claims if products or processes
are alleged to have caused harm. These risks are inherent in the testing,
manufacturing and marketing of human therapeutic products. 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. We also have liability for products manufactured by us on a contract
basis for third parties. If we are sued for any injury caused by our products or
processes, then our liability could exceed our product liability insurance
coverage and our total assets.
OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL SALES AND
OPERATIONS AND COLLABORATIONS
Since we sell our products worldwide, our business is subject to risks
associated with doing business internationally. Revenues originating outside the
United States represented 25% of our total revenues in 1999. We anticipate that
revenues from international operations will continue to represent a portion of
our total revenues. Accordingly, our future results could be harmed by a variety
of factors.
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The laws of foreign countries do not protect our intellectual property rights to
the same extent as do the laws of the United States. In countries where we do
not have and/or have not applied for patents on our products, we will be unable
to prevent others from developing or selling similar products. In addition, in
jurisdictions outside the United States where we have phage display patent
rights, we may not be able to prevent unlicensed parties from selling or
importing products or technologies derived elsewhere using phage display.
Until we or our licensees obtain the required regulatory approvals for
biopharmaceuticals developed using phage display in any specific foreign
country, we or our licensees will be unable to sell these products in that
country. International regulatory authorities have imposed numerous and varying
regulatory requirements and the approval procedures can involve additional
testing. Approval by one regulatory authority does not ensure approval by any
other regulatory authority.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK MAY HAVE A VOLATILE PUBLIC TRADING PRICE AND LOW TRADING VOLUME
Prior to this offering, our equity did not trade in a public market. An active
public market for our common stock may not develop or be sustained after this
offering. We and the underwriters, through negotiations, will determine the
initial public offering price. This price may not be indicative of the market
price at which the common stock will trade after this offering.
The market prices for securities of companies comparable to us have been highly
volatile. Often, the market in these stocks has experienced significant price
and volume fluctuations for reasons unrelated to the operating performance of
the individual companies.
Many factors may have a negative 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 results with respect to products or
compounds we or our collaborators are developing;
- regulatory developments in both the United States and abroad;
- public concern about the safety or efficacy of new technologies;
- general market conditions and comments by securities analysts; and
- quarterly fluctuations in our revenues and financial results.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES AFTER THIS OFFERING COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE
If we or our stockholders sell shares of our common stock after this offering
the market price of the common stock could decline. We intend to file
registration statements ninety days following the offering to permit the sale of
2,751,415 shares of our common stock. The additional registration statements
will cover shares issuable under our equity incentive and employee stock
purchase plans.
Future sales of common stock in the public market following this offering could
also adversely affect the market price of our common stock. After this offering,
we will have 18,091,872 shares of common stock outstanding. Of these shares, the
4,000,000 shares sold in this offering will be freely transferable without
restriction.
All of our stockholders will sign lock-up agreements before the commencement of
this offering. Under these lock-up agreements, our stockholders will agree,
subject to certain limited exceptions, not to sell any shares owned by them as
of the effective date of this prospectus for a period of 180 days thereafter,
unless they first obtain the written consent of J.P. Morgan & Co. At the end of
180 days, approximately 14,089,494 shares of common stock, plus up to an
additional approximately 599,237 shares issuable upon the exercise of vested
options, will be eligible for immediate resale subject to the applicable
provisions under Rule 144.
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The remainder of the approximately 847,033 shares of common stock outstanding or
issuable upon exercise of options or warrants held by existing stockholders or
option holders will become eligible for sale at various times over a period of
approximately two years. These shares could be sold earlier if the holders
exercise registration rights that may be available to them.
The holders of 11,584,459 shares of common stock issuable upon conversion of
convertible preferred stock will have the right in some circumstances to require
us to register their shares for resale to the public.
WE MAY ALLOCATE THE NET PROCEEDS FROM THIS OFFERING IN WAYS THAT STOCKHOLDERS
MAY NOT APPROVE
Our management will have considerable discretion in the application of the net
proceeds of this offering, and you will not have the opportunity, as part of
your investment decision, to assess whether we are using the proceeds
appropriately. We may use the net proceeds for corporate purposes that do not
increase our profitability or our stock price. Pending use of the net proceeds
of this offering, we intend to invest the net proceeds in short-term, interest
bearing, investment grade securities or guaranteed obligations of the United
States or other governments or their agencies.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND PROVISIONS OF DELAWARE LAW
MAY MAKE AN ACQUISITION MORE DIFFICULT
We are incorporated in Delaware. Anti-takeover provisions of Delaware law and
our charter documents may make a change in control more difficult. Also, under
Delaware law, our board of directors may adopt additional anti-takeover
measures. Our charter will authorize our board of directors to issue up to
1,000,000 shares of preferred stock 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, then this action
could make an acquisition more costly, and it could prevent an acquisition from
going forward. Under Delaware law, a corporation may not engage 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. Our board of directors could use this
provision to prevent changes in management.
OUR OFFICERS AND DIRECTORS MAY BE ABLE TO BLOCK PROPOSALS FOR A CHANGE IN
CONTROL
After this offering, our executive officers, directors and affiliates will
control approximately 35.3% of our outstanding common stock. Therefore, our
directors and officers will have the ability to influence Dyax.
These stockholders may be able to determine all matters requiring stockholder
approval. For example, these stockholders may be able to control elections of
directors, amendments of our organizational documents, or approval of any
merger, sale of assets or other major corporate transaction. This may prevent or
discourage unsolicited acquisition proposals or offers for our common stock that
you may feel are in your best interest as one of our stockholders.
YOU WILL EXPERIENCE SUBSTANTIAL DILUTION IN THE VALUE OF SHARES OF COMMON STOCK
IMMEDIATELY AFTER THE OFFERING
We expect that the initial public offering price of our common stock will be
substantially higher than the book value per share of the outstanding common
stock. Purchasers of the shares of common stock will experience immediate
dilution of their investment from the initial offering price. This dilution is
estimated to be $10.41 per share, using the book value of our company at
March 31, 2000 and at an assumed initial offering price of $14.00 per share. In
addition, purchasers of common stock in this offering will contribute 44% of the
total consideration paid for Dyax stock, but will only own 22% of the common
stock outstanding immediately after this offering. When holders of options
exercise their rights to purchase shares of common stock, the interests of
purchasers in this offering will be further diluted.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements appear principally in the sections entitled "Management's Discussion
and Analysis of Financial Conditions and Results of Operations" and "Business."
Forward-looking statements may appear in other sections of this prospectus as
well. Generally, the forward-looking statements in this prospectus use words
like "anticipate," "believe," "could," "estimate," "expect," "future," "intend,"
"may," "opportunity," "plan," "potential," "project," "will," and similar terms.
These forward-looking statements include statements about:
- our strategic plans;
- the future of our industry;
- the scope of our patent coverage;
- the commencement and completion of research and preclinical studies and
clinical trials;
- the timing of planned regulatory filings;
- the establishment of corporate collaborations;
- competitive technologies and activities of competitive companies;
- anticipated expenses;
- anticipated sources of future revenues;
- our need for additional funds; and
- other circumstances described in terms of our expectations or intentions.
Forward-looking statements involve risks and uncertainties. Our actual results
could differ significantly from the results discussed in the forward-looking
statements in this prospectus. Many factors could cause or contribute to these
differences, including the factors discussed in the section of this prospectus
entitled "Risk Factors." You should carefully read this entire prospectus,
particularly the section entitled "Risk Factors," before you make an investment
decision.
The forward-looking events discussed in this prospectus might not occur.
Therefore, you should not place undue reliance on our forward-looking
statements.
------------------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
------------------------
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USE OF PROCEEDS
If we sell 4,000,000 shares of common stock in this offering at an assumed price
of $14.00 per share, we estimate that our net proceeds will be $51,000,000. This
estimate takes into account the underwriting discount and all estimated offering
expenses that are payable by us. If the underwriters exercise their
over-allotment option in full, we estimate that our net proceeds will be
$58,812,000.
We plan to use the net proceeds from this offering to fund research and
development, possible acquisitions of technology and complementary businesses,
to meet our working capital needs, capital expenditures and for other general
corporate purposes. At this time, we cannot estimate precisely the allocation of
the proceeds among these uses, and we may use some of the proceeds from this
offering for other purposes. From time to time we may in-license technology or
complete immaterial transactions to acquire complementary businesses. Although
we may use a portion of the net proceeds for possible transactions of this sort,
we have no specific understandings, commitments, or agreements with respect to
any. We plan to invest the net proceeds in short-term, interest bearing,
investment grade securities or guaranteed obligations of the United States or
other governments or their agencies.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We do not anticipate
paying cash dividends on our common stock in the foreseeable future. We
currently intend to retain any future earnings to finance the growth and
development of our business.
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CAPITALIZATION
The following table shows, as of March 31, 2000, our actual, pro forma, and pro
forma as adjusted capitalization and cash and cash equivalents.
The pro forma capitalization reflects the conversion of our preferred stock into
common stock upon the closing of this offering. The pro forma as adjusted
capitalization reflects the sale in this offering of 4,000,000 shares of common
stock at an assumed initial offering price of $14.00 per share and the
application of the estimated net proceeds from this offering, after deducting
the underwriting discount and estimated offering expenses payable by us. This
table does not include 2,210,787 shares of common stock that are issuable upon
exercise of stock options that were outstanding as of March 31, 2000. The
weighted average exercise price of these outstanding options is $1.76. This
table also does not include 27,022 shares of common stock that are issuable upon
the exercise of outstanding warrants at an exercise price of $3.97 per share.
This table should be read in conjunction with our consolidated financial
statements and the other financial information included in this prospectus.
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C> <C>
MARCH 31, 2000
-------------------------------
PRO FORMA
PRO AS
IN THOUSANDS, EXCEPT SHARE DATA ACTUAL FORMA ADJUSTED
-------- -------- ---------
Cash and cash equivalents................................... $18,160 $18,160 $69,160
======= ======= =======
Current portion of long-term debt and capital lease
obligation................................................ $ 409 $ 409 $ 409
Long-term debt and capital lease obligations, less current
portion................................................... $ 1,383 $ 1,383 $ 1,383
Stockholders' equity:
Class A convertible preferred stock, $.01 par value;
15,312,391 shares authorized; 14,696,987 shares issued
and outstanding; no shares issued and outstanding on a
pro forma and pro forma as adjusted basis............... 57,426 -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 2,491,777 shares issued and outstanding,
14,076,236 shares issued on a pro forma basis and
18,076,236 shares issued on a pro forma adjusted basis
(unaudited)............................................. 25 141 181
Additional paid-in capital................................ 19,345 76,655 127,615
Receivable from officer for common stock purchase......... (418) (418) (418)
Accumulated (deficit)..................................... (56,146) (56,146) (56,146)
Treasury stock (1,378 common shares at cost).............. -- -- --
Deferred compensation..................................... (4,683) (4,683) (4,683)
Accumulated other comprehensive loss...................... 45 45 45
------- ------- -------
Total stockholders' equity.............................. 15,594 15,594 66,594
------- ------- -------
Total capitalization.................................... $17,386 $17,386 $68,386
======= ======= =======
</TABLE>
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DILUTION
Our pro forma net tangible book value as of March 31, 2000 was $13,827,000, or
$0.98 per share of common stock. The pro forma net tangible book value per share
before this offering represents the amount of our pro forma stockholders'
equity, less intangible assets, divided by the pro forma number of shares of
common stock outstanding as of March 31, 2000. Pro forma net tangible book value
per share after this offering gives effect to the application of net proceeds
from the sale of 4,000,000 shares of our common stock in this offering, at an
assumed initial public offering price of $14.00 per share. As of March 31, 2000,
our pro forma net tangible book value after this offering would have been
$64,827,000, or $3.59 per share.
This represents an immediate increase in net tangible book value to existing
stockholders of $2.61 per share and an immediate dilution to new investors of
$10.41 per share. The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
-------------------
<S> <C> <C>
Assumed initial public offering price....................... $14.00
Pro forma net tangible book value per share at March 31,
2000.................................................... $0.98
Increase per share attributable to new investors.......... 2.61
Pro forma net tangible book value per share after
offering.................................................. 3.59
------
Dilution per share to new investors......................... $10.41
======
</TABLE>
Assuming the exercise in full of the underwriters' over-allotment option, our
adjusted pro forma net tangible book value after this offering at March 31, 2000
would have been approximately $3.89 per share, representing an immediate
increase in pro forma tangible book value of $2.91 per share to our existing
stockholders and an immediate dilution in pro forma net tangible book value of
$10.11 per share to purchasers in this offering.
The following table, as of March 31, 2000, lists the number of shares of common
stock purchased, the total amount paid, and the average price per share paid by
our existing stockholders. The following table also lists the number of shares
of common stock purchased and the total amount paid, calculated before deduction
of the underwriting discount and estimated offering expenses, and the average
price per share paid by the new investors in this offering assuming the sale of
4,000,000 shares of our common stock at an assumed initial public offering price
of $14.00 per share.
<TABLE>
<CAPTION>
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ------------ -------- -----------
Existing stockholders.......................... 14,076,236 77.9% $ 71,374,000 56.0% $ 5.07
New investors.................................. 4,000,000 22.1 56,000,000 44.0 $14.00
---------- ----- ------------ -----
Total.......................................... 18,076,236 100.0% $127,374,000 100.0%
========== ===== =====
</TABLE>
Both of the above tables assume no exercise of the underwriters' over-allotment
option and no exercise of stock options or warrants that were outstanding as of
March 31, 2000. As of March 31, 2000, there were options outstanding to purchase
2,210,787 shares of our common stock, at a weighted average exercise price of
$1.76 per share. As of March 31, 2000, there were warrants outstanding to
purchase 27,022 shares of our common stock at an exercise price of $3.97 per
share. If any or all of these options are exercised, then there will be further
dilution to our investors, including the purchasers in this offering.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
We have derived the consolidated statement of operations data for the years
ended December 31, 1997, 1998, and 1999 and the consolidated balance sheet data
as of December 31, 1998 and 1999 from our audited financial statements included
elsewhere in this prospectus. We have derived the consolidated statement of
operations data for the years ended December 31, 1995 and 1996 and the
consolidated balance sheet data as of December 31, 1995, 1996 and 1997 from our
audited financial statements that are not included in this prospectus. These
financial statements were audited by PricewaterhouseCoopers LLP. The selected
consolidated financial data as set forth below as of March 31, 2000 and for the
three months ended March 31, 1999 and March 31, 2000 have been derived from our
unaudited financial statements which are included elsewhere in this prospectus.
We have prepared the unaudited financial statements on a basis consistent with
our audited annual financial statements. In our opinion, the unaudited financial
statements include all normal recurring adjustments necessary for a fair
presentation of our results of operations and financial condition for such
periods. Our operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2000. You should read the selected financial information
below in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and notes
related to those financial statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------ -------------------------------
IN THOUSANDS, EXCEPT SHARE DATA 1995 1996 1997 1998 1999 1999 2000
-------- ---------- ---------- ---------- ---------- -------------- --------------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Product sales.................. $ 3,592 $ 4,478 $ 7,138 $ 9,641 $ 12,596 $ 2,840 $ 3,378
Product development and license
fee revenues................. 428 2,235 2,192 4,490 4,237 825 1,429
-------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues............. 4,020 6,713 9,330 14,131 16,833 3,665 4,807
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Cost of products sold.......... 1,952 2,046 2,931 4,164 5,515 1,274 1,493
Research and development
(excluding stock-based
compensation of $0, $306 and
$423 for the years ended
December 31, 1997, 1998 and
1999, respectively; $103 and
$182 for the three months
ended March 31, 1999 and
2000, respectively).......... 1,343 3,140 5,625 6,778 10,618 2,322 3,703
Selling, general and
administrative (excluding
stock-based compensation of
$75, $375 and $516 for the
years ended December 31,
1997, 1998 and 1999,
respectively; $126 and $222
for the three months ended
March 31, 1999 and 2000,
respectively)................ 2,710 4,170 6,787 10,061 14,069 2,964 3,856
Stock-based compensation....... 0 0 75 681 939 229 404
Other expenses(1).............. 4,554 -- -- -- -- -- --
-------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses... 10,559 9,356 15,418 21,684 31,141 6,789 9,456
-------- ---------- ---------- ---------- ---------- ---------- ----------
Loss from operations............. (6,539) (2,643) (6,088) (7,553) (14,308) (3,124) (4,649)
Interest income (expenses),
net............................ (46) (78) 265 401 856 261 158
Investment income................ -- -- -- -- 265 -- --
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss......................... $ (6,585) $ (2,721) $ (5,823) $ (7,152) $ (13,187) $ (2,863) $ (4,491)
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss per common share, basic
and diluted(2)................. $ (27.53) $ (2.70) $ (3.95) $ (4.22) $ (6.81) $ (1.65) $ (1.97)
Shares used in computing basic
and diluted net loss
per share...................... 239,212 1,006,730 1,473,474 1,694,782 1,936,907 1,738,693 2,277,725
Unaudited pro forma basic and
diluted net loss per
share(3)....................... $ (.97) $ (.32)
Shares used in computing
unaudited, pro forma basic and
diluted net loss per share..... 13,604,750 13,956,254
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31,
---------------------------------------------------- MARCH 31,
IN THOUSANDS 1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,959 $ 8,591 $ 4,762 $ 25,491 $ 16,726 $ 18,160
Working capital............................................. 1,870 9,241 5,314 26,515 15,279 16,073
Total assets................................................ 4,692 12,236 10,636 34,416 29,608 30,845
Long-term debt and capital lease obligations, less current
portion................................................... 2,097 770 1,078 586 1,249 1,383
Accumulated (deficit)....................................... (22,772) (25,493) (31,316) (38,468) (51,655) (56,146)
Total stockholders' equity.................................. 705 8,997 5,671 29,410 19,300 15,594
</TABLE>
------------------------------
(1) Includes write-offs of an intangible asset in the amount of $456,000 and
incomplete technology in the amount of $4.1 million in the year ended
December 31, 1995. Excludes the results of operations of Protein Engineering
Corporation for periods before its acquisition by the company on August 11,
1995.
(2) Weighted average number of shares for the year ended December 31, 1995
reflects shares of Biotage, Inc. prior to the acquisition of Protein
Engineering Corporation.
(3) See Note 4 of Notes to Consolidated Financial Statements for a description
of the computation of pro forma net income (loss) per share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND
THEIR NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN
USED IN THIS PROSPECTUS, THE WORDS "INTEND," "BELIEVE," "ESTIMATE," "PLAN" AND
"EXPECT" AND SIMILAR EXPRESSIONS AS THEY RELATE TO US ARE INCLUDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE DISCUSSED BELOW AND
ELSEWHERE IN THIS PROSPECTUS, PARTICULARLY UNDER THE HEADING "RISK FACTORS."
BACKGROUND
We are a biopharmaceutical company that has developed and patented a method,
known as phage display, that we are using to identify a broad range of compounds
with potential for the treatment and diagnosis of diseases. We are using phage
display to build a broad portfolio of product candidates that we plan to develop
and commercialize either ourselves or through collaborations. We are further
leveraging this technology platform with collaborative arrangements and licenses
that can produce revenues through research funding, patent and/or library
license fees, milestone payments and royalties. We are currently engaged in 10
collaborative arrangements with biotechnology and pharmaceutical companies for
the discovery and/or development of biopharmaceutical, separations and
diagnostic lead compounds, and we have licensed our phage display patents to
over 40 companies and institutions on a non-exclusive basis.
We also develop, manufacture and sell chromatography separations systems and
products under the Biotage name. We are a leading developer, manufacturer and
supplier of chromatography separations systems that use disposable cartridges to
separate and purify pharmaceuticals being produced for research and clinical
development. Using our phage display technology, we are also developing
potential separations products to purify biopharmaceuticals.
We had net losses of approximately $2.7 million in 1996, $5.8 million in 1997,
$7.2 million in 1998 and $13.2 million in 1999 and $4.5 million for the three
months ended March 31, 2000. As of March 31, 2000, we had an accumulated deficit
of approximately $56.1 million. These losses resulted primarily from research
and development efforts on phage display-derived products and the development,
sales and marketing efforts for our Biotage separations business. For us to be
profitable, we must fully develop and commercialize biopharmaceuticals,
establish additional collaborative arrangements and achieve greater market
penetration for our Biotage products with new and existing separations products.
RECENT DEVELOPMENTS
In February 2000, we entered into a license technology transfer and technology
services agreement with Amgen Inc. under which we are developing a new phage
library for Amgen. Amgen has broad rights to develop and commercialize
therapeutic products using phage display.
In March 2000, we entered into a collaboration and license agreement with Human
Genome Sciences, Inc. Under this agreement we and HGSI will use our phage
display technology to identify and optimize product leads that bind to
therapeutic targets selected by HGSI, as well as to develop new technologies for
screening and purifying targets. We granted HGSI a non-exclusive license to our
phage display technology and compound libraries to create leads that may be used
as peptide drugs, human monoclonal antibody drugs and IN VITRO diagnostic
products.
ACQUISITIONS
On July 14, 1999, we acquired all of the capital stock of Target Quest B.V., a
Netherlands corporation, in exchange for 412,500 shares of our common stock. We
acquired Target Quest B.V. to advance our antibody program with human antibody
libraries, product leads and scientific expertise. We accounted for this
acquisition as a pooling of interests. Our historical consolidated financial
statements have been restated to reflect the combined financial position and the
results of operations and cash flows of Dyax and Target Quest B.V. for all
periods prior to this acquisition.
Also on July 14, 1999, we acquired the remaining 33% interest in Target Quest,
LLC not owned by Target Quest B.V. in exchange for 379,152 shares of our common
stock. We accounted for this acquisition as a purchase. Accordingly, we have
included the results of operations of Target Quest, LLC in our consolidated
financial statements since July 1, 1999. We allocated approximately
$2.1 million of the purchase price to goodwill and are amortizing it over
2.5 years on a straight-line basis.
19
<PAGE>
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements", which provides
guidance related to revenue recognition based on interpretations and practices
promulgated by the SEC. We have retroactively adopted the guidance of Staff
Accounting Bulletin 101 for all periods presented in these financial statememts.
In connection with this adoption, the Company has adopted a policy of
recognizing revenue related to milestone payments on a retrospective basis over
the term of related research contracts. This policy is described in further
detail in Note 2 of the Notes to Consolidated Financial Statements. As a result,
certain revenues related to milestones achieved will be recognized in periods
subsequent to the achievement of such milestones. At March 31, 2000, there were
no amounts of deferred milestone revenue to be recognized over future periods.
The financial terms of our collaboration agreements often include signing fees,
funding for research and development, milestone payments and royalties on any
product sales derived from the collaboration. The standard terms of our license
agreements generally include signing fees, annual maintenance fees, milestone
payments and royalties on sales of products derived using phage display. Signing
fees and annual maintenance fees are generally recognized as revenue ratably
over the period of the collaborative arrangement or the license. Funding for
research and development is recorded as revenue as the related expenses are
incurred. Milestone payments are recognized as revenue on a retrospective basis.
Accordingly, upon achievement of the milestone, a portion of the milestone
payment equal to the percentage of the collaboration completed through that date
will be recognized. The remainder will be recognized ratably over the remaining
term of the collaboration. Royalties on product sales paid by our collaborators
and licensees are recorded as revenue when they are earned.
We derive product sales from our Biotage chromatography separations systems and
products. We generally recognize product revenues upon product shipment to our
customers and satisfaction of all our obligations. For products that require
significant installation services, we recognize revenues upon product
installation.
Historically, product revenues are highest in the fourth quarter of a year as
our customers complete their annual capital expenditure cycles. Non-product
revenues have historically fluctuated significantly from quarter to quarter due
to variations in the nature and timing of our collaborators and licensees.
Prior to 1999, our collaboration arrangements were primarily funded research
programs with smaller upfront signing fees. These arrangements and license
agreements typically had 12 to 24 month terms. Beginning in 1999, and continuing
through the first three months of March 2000, we began to enter into
collaboration and license arrangements with longer terms. Several of these
arrangements have significantly larger signing fees resulting in an increase in
deferred revenue. These deferred revenues will be amortized over the terms of
the related agreements.
STOCK-BASED COMPENSATION EXPENSES
As of March 31, 2000, we have recorded a deferred compensation expense of
approximately $6.8 million, representing the difference between the fair market
value of the common stock on the option grant date and the exercise price. These
amounts are presented as a reduction of stockholders' equity and are amortized
ratably over the vesting period of the options, which is generally four years.
These valuations resulted in charges to operations of $75,000, $681,000,
$939,000 in 1997, 1998 and 1999 and $404,000 in the three months ended
March 31, 2000. We expect to recognize stock-based compensation expense of up to
$1.6 million, $1.5 million, $1.1 million and $770,000 in 2000, 2001, 2002 and
2003.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES. Total revenues increased 31% to $4.8 million for the three months
ended March 31, 2000 from $3.7 million in the comparable period in 1999. Product
sales and product development and license revenues accounted for 70% and 30%,
respectively, of total revenues in the 2000 period, as compared to 77% and 23%
in the 1999 period. For the three months ended March 31, 2000, product sales
increased 19% to $3.4 million from $2.8 million in 1999 primarily due to
increased market share of our existing product lines particularly in the Flash
chromatography product line. In the three months ended March 31, 2000, we
entered into two significant product development collaborations and technology
licenses arrangements and an additional license agreement. The effect of these
new agreements is as follows:
- our deferred revenue increased to $9.9 million at March 31, 2000 from
$2.9 million at December 31, 1999
- our product development and license fee revenue in the three months ended
March 31, 2000 increased 73% to $1.4 million from $825,000 in the comparable
period in 1999.
20
<PAGE>
The deferred revenue of $9.9 million will be recognized on a straight-line basis
over the life of the related agreements as follows: $2.6 million for the nine
months ending December 31, 2000; and $2.5 million, $2.1 million, $1.4 million,
$1.2 million and $133,000 for the years ending 2001, 2002, 2003, 2004 and 2005.
COST OF PRODUCTS SOLD. The cost of products sold increased 17% to $1.5 million
in the three months ended March 31, 2000 from $1.3 million in the 1999 period as
a result of increased product sales. The cost of products sold as a percentage
of product sales remained relatively constant at 44% in 2000 and 45% in 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 59% to
$3.7 million in the three months ended March 31, 2000 from $2.3 million in the
comparable period in 1999. The increase resulted primarily from expenditures on
new collaboration arrangements and compound manufacturing expenditures on the
DX-88 project with Genzyme as Phase I clinical trials began in April 2000. We
expect that manufacturing expenditures will continue to increase as products
progress through clinical trials. Additionally, we increased our development
activities on internal efforts to develop products in therapeutics, separations,
diagnostics and industrial enzymes.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 30% to $3.9 million in the three months ended March 31, 2000
from $3.0 million in the 1999 period. These expenses increased due to increased
selling and marketing expenses in connection with the growth in product sales
and business development expenses to support increased collaboration and
licensing activity.
STOCK-BASED COMPENSATION EXPENSES. Stock-based compensation expense increased
76% to $404,000 in the three months ended March 31, 2000 as compared to $229,000
in the comparable period in 1999, due to higher amortization arising from the
greater number of options granted under our equity incentive plan in 1999.
Stock-based compensation represents the difference between the fair market value
of the common stock on the option grant date and the option exercise price.
INTEREST AND INVESTMENT INCOME. Interest and investment income decreased 39% to
$158,000 in the three months ended March 31, 2000 from $261,000 in 1999 due to
lower average cash balance in the 2000 period than in the 1999 period. This
reduction was due to the funding of our net losses from our available cash
balances.
NET LOSS. Our net loss for the three months ended March 31, 2000 was
$4.5 million as compared to our net loss for the three months ended March 31,
1999 of $2.9 million.
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Total revenues increased 19% to $16.8 million in 1999 from
$14.1 million in 1998. Product sales and product development and license
revenues accounted for 75% and 25% respectively, of total revenues in 1999, as
compared with 68% and 32% in 1998. For 1999, product sales increased 31% to
$12.6 million in 1999 from $9.6 million in 1998 as we introduced new separations
products and increased the market share of our existing product line. As a
result of new collaborations in 1999, our deferred revenues increased to
$2.9 million at December 31, 1999 from $859,000 at December 31, 1998. These
product development and license fee revenues are amortized over the expected
term of each agreement. Product development and license fee revenues decreased
6% to $4.2 million in 1999 from $4.5 million in 1998. This decrease in revenue
in 1999 is primarily due to replacing 1998 shorter term funded research programs
with a longer term collaboration and a longer term license arrangement, each of
which had significant signing fees. Revenues from these signing fees are
deferred and amortized over the terms of the agreements.
COST OF PRODUCTS SOLD. The cost of products sold increased 32% to $5.5 million
in 1999 from $4.2 million in 1998 as a result of an increase in product sales
over 1998. The cost of products sold as a percentage of product sales remained
relatively constant at 44% in 1999 and 43% in 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 57% to
$10.6 million for the year ended December 31, 1999 as compared with
$6.8 million for the year ended December 31, 1998. The increase was the result
of funded research for new research discovery collaborative arrangements,
primarily our DX-88 project with Genzyme, together with increases in our ongoing
internal efforts to develop products in therapeutics, separations, diagnostics
and industrial enzymes.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 40% to $14.1 million in 1999 from $10.1 million in 1998.
These expenses increased due to the addition of several executives to the
management team and increased selling expenses incurred in connection with the
growth in product sales and business development expenses to support the general
expansion of our production and research operations.
21
<PAGE>
STOCK-BASED COMPENSATION EXPENSES. Stock-based compensation expense increased
38% to $939,000 in 1999 as compared with $681,000 in 1998, due to a greater
number of options granted under our equity incentive plan in 1999. Stock-based
compensation expense represents the difference between the fair market value of
the common stock on the option grant date and the option exercise price.
INTEREST AND INVESTMENT INCOME. Interest and investment income increased 180%
to $1.1 million in 1999 from $401,000 in 1998, due to a higher average cash
balance in 1999 than in 1998, which resulted from the private placement of
preferred stock in 1998. Investment income in 1999 represents the net proceeds
after exercising stock warrants and selling the underlying stock. The warrants
were granted to the Company as consideration for a non-exclusive license.
NET LOSS. Our net loss in 1999 was $13.2 million compared to $7.2 million in
1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Total revenues increased 51% to $14.1 million in 1998 from
$9.3 million in 1997. Product sales and research and license revenues accounted
for 68% and 32%, respectively, of total revenues in 1998 as compared with 77%
and 23% in 1997. Product sales increased 35% to $9.6 million in 1998 from
$7.1 million in 1997. In 1998, we introduced new separations products and
increased market share of our existing product line. The 105% increase in
research and license revenues to $4.5 million in 1998 from $2.2 million in 1997
resulted primarily from seven additional licenses for phage display granted in
1998 as compared with 1997.
COST OF PRODUCTS SOLD. The cost of products sold increased 42% to $4.2 million
in 1998 from $2.9 million in 1997 following increases in product sales from year
to year. The cost of goods sold as a percentage of product sales increased to
43% in 1998 from 41% in 1997, principally due to changes in product mix.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 20% to
$6.8 million in 1998 from $5.6 million in 1997. The increase was the result of
funded research for new research discovery collaborative arrangements
established during 1998 and 1997, together with increases in our ongoing
internal efforts to develop products in therapeutics, separations, diagnostics
and industrial enzymes.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 48% to $10.1 million in 1998 from $6.8 million in 1997 due to
the addition of several executives to the management team, write-offs of
expenses incurred in connection with our withdrawn public offering, market
research expenses invested in the identification of new therapeutic
opportunities, increased selling expenses incurred in connection with our growth
in product sales, and expenses necessary to support the general expansion of the
our production and research operations.
STOCK-BASED COMPENSATION EXPENSES. Stock-based compensation expenses increased
808% to $681,000 in 1998 as compared with $75,000 in 1997, due to the greater
number of options granted under our equity incentive plan in 1998 as compared
with 1997. Stock-based compensation expense represents the difference between
the fair market value of the common stock on the option grant date and the
option exercise price.
INTEREST AND INVESTMENT INCOME. Interest income increased 51% to $401,000 in
1998 from $265,000 in 1997 due to a higher average cash balance in 1998 than in
1997, which resulted from the private placement of preferred stock in 1998.
NET LOSS. Our net loss in 1998 was $7.2 million compared to $5.8 million in
1997.
LIQUIDITY AND CAPITAL RESOURCES
Through March 31, 2000, we funded our operations principally through the sale of
equity securities, which provided aggregate net cash proceeds since inception of
approximately $68.0 million. We have also generated funds from product sales,
product development and license fee revenues, interest income and other sources.
As of March 31, 2000, we had cash and cash equivalents of approximately
$18.2 million. Our funds are currently invested in U.S. Treasury obligations.
Our operating activities used cash of $7.9 million in 1999, $8.1 million in
1998, and $5.6 million in 1997. The use of cash in all years primarily resulted
from our losses from operations and change in our working capital accounts. In
the three months ended March 31, 2000, operations generated cash of
$1.3 million due to fees received from development collaborations.
Our investing activities used cash of $1.8 million in 1999, $893,000 in 1998,
and $961,000 in 1997. Our investment activities consisted of purchases of
property and equipment.
22
<PAGE>
Our financing activity provided $942,000 in 1999, provided $29.8 million in
1998, and provided $2.9 million in 1997. Our financing activities consisted
primarily of the sale of preferred stock to both private investors and strategic
partners, which were offset by the net repayment of our capital lease lines and
notes payable.
We currently have a $3.0 million loan facility available from Genzyme
Corporation that was established as part of the collaboration to bring DX-88 to
market. Interest on any outstanding balance accrues at a rate equal to one
percent over the prime rate of interest. Additionally, after we have funded the
first $6.0 million of development costs, we will share equally all subsequent
development costs under the Genzyme collaboration.
We expect the proceeds of this offering, together with our existing resources,
to be sufficient to fund our operations for at least eighteen months. We plan to
use the net proceeds from this offering to fund research and development,
possible acquisitions of technology and complementary businesses, working
capital needs, and other general corporate purposes. At this time, we cannot
estimate precisely the allocation of the proceeds among these uses, and we may
use some of the proceeds from this offering for other purposes.
TAX LOSS CARRYFORWARDS
We have net operating loss carryforwards available to offset future federal
taxable income of $49.7 million as of December 31, 1999, and research credits of
$1.2 million available to offset future federal tax. The net operating loss and
credit carryforwards expire at various dates through 2019. As a result of
certain acquisitions and stock issued over the past five years, the availability
of the net operating loss carryforwards may be subject to annual limitation
under section 382 of the Internal Revenue Code. We also have United Kingdom
operating loss carryforwards for income tax purposes of approximately
$1.4 million as of December 31, 1999, which are indefinitely available to offset
future taxable income in the United Kingdom.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2000, we had cash and cash equivalents of $18.2 million
consisting of cash and highly liquid, short-term investments. Our short-term
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 short-term investments. Our outstanding capital lease obligations are
all at fixed interest rates and therefore have minimal exposure to changes in
interest rates.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The standard established accounting and reporting
standards requiring the recognition of all derivative instruments as either
assets or liabilities in the statement of financial position and the measure of
those instruments at fair value. In June 1999, the FASB issued SFAS No. 137,
which defers the effective date of SFAS No. 133 to fiscal years beginning after
June 15, 2000. Because we do not currently hold any derivative instruments and
do not currently engage in hedging activities, we expect the adoption of SFAS
No. 133 will not have a material impact on our financial position or operating
results.
In March 2000, the FASB issued FASB Interpretation 44, "Accounting for Certain
Transactions Involving Stock Compensation--an interpretation of Accounting
Principles Board Opinion 25". FASB Interpretation 44 clarifies the application
of Accounting Principles Board Opinion 25 and among other issues clarifies the
following: the definition of an employee for purposes of applying Accounting
Principles Board Opinion 25; the criteria for determining whether a plan
qualifies as a non-compensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and the
accounting for an exchange of stock compensation awards in a business
combination. FASB Interpretation 44 is effective July 1, 2000, but certain
conclusions in FASB Interpretation 44 cover specific events that occurred after
either December 15, 1998 or January 12, 2000. We do not expect the application
of FASB Interpretation 44 to have a material impact on our financial position or
results of operations.
23
<PAGE>
BUSINESS
OVERVIEW
We are a biopharmaceutical company that has developed and patented a method,
known as phage display, that we are using to identify a broad range of compounds
with potential for the treatment and diagnosis of diseases. We are also using
this method to identify compounds that could be used in purifying and
manufacturing biopharmaceuticals and other chemicals. We believe that we and
others can use our phage display technology to rapidly and cost-effectively
determine the potential medical uses of newly discovered proteins and genes and
subsequently discover biopharmaceutical product candidates. Given the quantity
of genetic information made available by the recent mapping of most of the human
genome, we believe that the advantages of our technology over other technologies
should increase in importance. We believe that phage display can have the
greatest potential impact on our business through our discovery of proprietary
biopharmaceuticals.
We also develop, manufacture and sell chromatography separations systems and
products that are used in laboratories and pharmaceutical manufacturing to
separate molecules in liquid mixtures. We are a leading developer, manufacturer
and supplier of chromatography separations systems that use disposable
cartridges to separate and thereby purify pharmaceuticals being produced for
research and clinical development. Using our phage display technology, we are
also developing potential separations products to purify biopharmaceuticals.
We are using phage display technology to build a broad portfolio of product
candidates that we plan to develop and commercialize either ourselves or with
partners. We are further leveraging this technology platform with collaborations
and licenses that can produce revenues through research funding, license fees,
milestone payments and royalties.
- We have used our phage display technology to discover two potential
biopharmaceuticals, DX-88 and EPI-HNE4, which we refer to as Reltran-TM-, that
are in Phase I clinical trials for some inflammatory diseases, and to identify
two proteins, including one human monoclonal antibody, with potential for
treating some cancers.
- We are currently engaged in 10 collaborative arrangements with biotechnology
and pharmaceutical companies for the discovery and/or development of
pharmaceuticals, separations and diagnostic products.
- We have licensed our phage display patents to over 40 companies and
institutions on a non-exclusive basis to enable the broad application of our
technology in the discovery and development of biopharmaceutical and
diagnostic products.
- We are developing phage display-derived separations products, to be combined
with our existing Biotage chromatography separations systems, that can purify
the increasing number of biopharmaceuticals being developed.
- We have discovery and preclinical programs for IN VIVO imaging products and
discovery programs for novel industrial enzymes.
- We continue to develop technology internally and acquire technology rights
that are complementary to or expand our existing technology.
We plan to continue to invest substantially in programs using our phage display
technology to develop biopharmaceutical and other products. We have accumulated
losses since inception as we have invested in our businesses. For us to be
profitable, we must fully develop and commercialize biopharmaceuticals,
establish additional licenses and collaborative arrangements and achieve greater
market penetration for our separations products with new and existing
separations products.
BACKGROUND
Traditional drug discovery relied on screening thousands of potential
biopharmaceutical candidates one at a time. With the advent of modern biology,
scientists were better able to identify an individual target and the role that
it played in a specific disease. Until recently, however, identifying and
isolating the genetic basis of targets was a laborious and time-consuming
process. Scientists were limited to several hundred identified human genes and
their encoded proteins to use as targets out of between 50,000 and 100,000 total
human genes.
Recent improvements in life science research tools and significant investments
of financial and scientific resources have greatly accelerated the
identification of human genetic sequence information. Scientists now know the
identity of most of the genes in the human genome and estimate that the
remainder will be known within one year. However, with few exceptions,
scientists
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do not know the function of newly discovered genes in health and disease.
Furthermore, traditional approaches to identifying the genes that cause a
disease, producing and purifying the protein products encoded by these genes and
screening drug candidate compounds are inadequate to exploit fully the
information resulting from the greater number of identified genes.
The mapping of most of the human genome has created a significant potential role
for technologies that allow for:
TARGET VALIDATION. The first step in the discovery and development of a
biopharmaceutical is to identify a molecular target that is involved in a
disease. The binding of a molecule to another molecule, or target, is the
mechanism nature uses to modulate biochemical and physiological processes such
as cellular growth, differentiation, metabolism and death. When scientists
demonstrate that the presence or absence of the target is correlated to the
disease state, they conclude that they have validated the target.
DISCOVERY OF BIOPHARMACEUTICAL LEADS. Once scientists identify and validate a
disease target, they search for a compound that will bind to this target to
achieve a desired effect. In order for a binding compound to be considered a
promising biopharmaceutical product candidate it must have a high degree of
specificity, which means it can distinguish between the correct target and other
closely related molecules. The compound must also bind tightly to the target
under appropriate physiological conditions, which is referred to as affinity. To
a great extent, the safety and efficacy of a biopharmaceutical product depends
on its affinity and specificity for the disease target. Scientists use several
drug discovery technologies to identify biopharmaceutical product candidates,
known as leads, with appropriate affinity and specificity.
PURIFICATION OF BIOPHARMACEUTICAL PRODUCTS. Once scientists identify a
biopharmaceutical product lead, they use separations processes to purify the
desired product for further development and commercialization. Traditional
separations processes rely on the physical and chemical characteristics of the
product and multiple steps are required to purify it. Typically,
biopharmaceutical companies use these same purification steps in both the
development of a product, as well as in the commercial manufacture of that
product. The purification steps often have the greatest cost impact on the
overall manufacturing process.
To help solve these needs, new platform technologies are required to validate
targets rapidly and improve drug discovery and purification processes. We
believe that phage display offers significant advantages over other technologies
for addressing these challenges.
OTHER DRUG DISCOVERY TECHNOLOGIES
Scientists use several technology platforms to address the need for rapid drug
discovery, including combinatorial chemistry, single target high throughput
screening and monoclonal antibodies. These technology platforms play important,
though specific, roles in accelerating the productivity and effectiveness of
drug discovery and are likely to continue to be used into the foreseeable
future.
COMBINATORIAL CHEMISTRY. Combinatorial chemistry involves the creation of large
collections of chemical compounds for identifying leads. Combinatorial chemistry
has made possible the synthesis of up to millions of molecules in a shorter
period of time than previously possible. Over the last decade, the field of
combinatorial chemistry has been augmented by computational approaches to
facilitate molecular design and synthesis. While both combinatorial chemistry
and computational approaches are useful in drug discovery, they are limited by
several significant factors:
- libraries of these compounds are expensive to produce and screen;
- library compounds and costly biological reagents are consumed during the
screening process; and
- initial leads rarely have the requisite affinity and specificity and therefore
require time-consuming and expensive optimization procedures.
SINGLE TARGET HIGH THROUGHPUT SCREENING. High throughput screening is a highly
automated method used to test large populations of potential drug candidates for
activity to a single target. Typically, scientists use automated equipment to
add the target to tens of thousands of miniaturized testing vessels, each
containing a different compound, to identify those compounds that bind to the
target. Scientists then optimize these binding compounds one step at a time
using iterative design, synthesis and testing to achieve desired binding
affinity and specificity for the target. This process has produced several drug
candidates based on the rapid screening of well-known genetic targets. While
this process was acceptable when targets were discovered one at a time, its
usefulness is limited now that thousands of potential targets are available.
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MONOCLONAL ANTIBODIES. Antibodies are part of the body's principal defense
mechanism against disease-causing organisms. Antibodies recognize and bind to a
specific target referred to as an antigen. When bound to a target the antibody
triggers physiological processes that protect humans against disease. Antibodies
are capable of having high affinity and specificity to their target. Monoclonal
antibodies are antibodies that are produced from cell or phage clones that
produce a single antibody capable of binding to a specific antigen.
Historically, mice have been the source of monoclonal antibodies that have been
developed into biopharmaceutical products. Although a mouse monoclonal antibody
can be produced to bind to one of a number of antigens, it contains mouse
protein sequences that tend to be recognized as foreign by the human immune
system, which may impair efficacy or cause life threatening allergic responses
in humans. The measure of the immune response that a mouse monoclonal antibody
produces in a human is known as its immunogenicity. Using new technical
approaches, scientists have been able to replace most of the mouse structure of
a mouse antibody with a corresponding human antibody structure to produce
monoclonal antibodies that retain the target affinity and specificity of the
mouse antibody but do not trigger an immune response in humans. Scientists often
refer to these antibodies as "humanized" or chimeric monoclonal antibodies. More
recently, scientists have specially engineered laboratory mice to replace mouse
antibody genes in the genome of a test group of mice with a portion of the large
number of human antibody genes. When immunized with a purified target, these
"human-mice" produce fully human antibodies that bind to the target. Scientists
often refer to this process as human-mouse technology.
These approaches have yielded multiple successes for antibody-based products.
There are currently eight monoclonal antibodies approved for human therapy, and
we estimate that there are over 100 other monoclonal antibodies in clinical
trials. These approaches, however, are limited by several significant factors:
- they typically require at least four to six months to produce an antibody;
- they are generally able to generate antibodies that bind to only one target
per test group of mice;
- they are limited by the range of product candidates that the mouse immune
system can generate, including identifying only a limited number of potential
antibodies that bind to a target; and
- they are not amenable to subsequent optimization of the identified antibody.
The abundance of potential disease targets within the human genome emphasizes
the need and associated opportunity for a more rapid, high throughput, cost
effective process for discovering human antibodies and other new
biopharmaceutical lead compounds.
PHAGE DISPLAY
In the late 1980s, Dyax scientists invented phage display, a novel method to
individually display up to tens of billions of peptides and proteins, including
human antibodies and enzymes, on the surface of a small bacterial virus called a
phage. Using phage display, we are able to produce and search through large
collections, or libraries, of peptides and proteins to rapidly identify those
compounds that bind with high affinity and high specificity to targets of
interest. We describe the technology of phage display in more detail under the
caption "Business--Dyax Technology" later in this prospectus.
Our phage display process generally consists of the following steps:
- generating one or more phage display libraries;
- screening new and existing phage display libraries to select binding compounds
with high affinity and high specificity; and
- producing and evaluating the selected binding compounds.
Scientists can use phage display to improve the speed and cost effectiveness of
drug discovery and optimization. Phage display offers important advantages over,
and can be used synergistically to improve, other drug discovery technologies
currently employed to identify binding proteins. Over the past ten years, our
scientists, collaborators and licensees have applied this powerful platform
technology to a wide range of biopharmaceutical applications. We and our
collaborators and licensees are using phage display technology at every stage of
the drug discovery process to:
- identify and determine the function of novel targets;
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- discover biopharmaceutical leads; and
- purify biopharmaceutical leads and targets for research, development and
commercialization.
ADVANTAGES OF OUR PHAGE DISPLAY TECHNOLOGY IN THERAPEUTIC DRUG DISCOVERY
We believe our phage display technology has several advantages over other drug
discovery technologies:
DIVERSITY AND ABUNDANCE. Many of our phage display libraries contain billions
of potential binding compounds that are rationally-designed variations of a
particular peptide or protein framework. Furthermore, we can isolate a diverse
family of genes by including, for example, those that encode all human
antibodies. The size and diversity of our libraries significantly improve the
likelihood of identifying binding compounds with high affinity and high
specificity for the target. Once we generate libraries we can reproduce them
rapidly and use them for an unlimited number of screenings without depleting
them.
SPEED AND COST EFFECTIVENESS. We can construct phage display libraries in a few
weeks and screen them in a few days to identify binding compounds. Conventional
or combinatorial chemistry approaches require between several months and several
years to complete this process. Similarly, mouse and human-mouse technologies
generally require four to six months to identify a compound. As a result, our
phage display technology can significantly reduce the time and expense required
to identify a compound with desired binding characteristics.
PARALLEL SCREENING. In automated format, we can apply our phage display
technology to many targets simultaneously to discover specific, high-affinity
compounds, including human monoclonal antibodies, for each target. In contrast,
human mouse antibody technology identifies antibodies that bind to a single
target per test group of mice and cannot be automated. Among antibody
technologies, phage display is particularly well-suited for genomic
applications, due to the large number of gene targets that need to be screened
for specific antibodies.
RAPID OPTIMIZATION. We screen phage display libraries to identify binding
compounds with high affinity and high specificity for the desired target and can
produce successive generations of phage display libraries to further optimize
the leads. We have demonstrated between 10- and 100-fold improvement in binding
affinity with second generation phage display libraries. This optimization
cannot occur with humanized mouse or human-mouse technology and cannot progress
as rapidly or with equivalent diversity with combinatorial chemistry.
COMPLEMENTS OTHER DRUG DISCOVERY TECHNOLOGIES. Phage display works
synergistically with other drug discovery technologies, including human mouse
technology and high throughput screening, to improve product screening. For
example, following immunization of the human mice, we can collect the antibody
genes from the mice and use them to build a phage display library for further
optimization of the antibody leads. This process allows for more rapid selection
of a highly diverse population of therapeutic human antibodies. High throughput
parallel screening can be used to expose multiple targets simultaneously to the
diversity of proteins expressed by our phage libraries. This combination of
phage display with automated, high throughput screening technology allows a
multi-target approach to lead discovery that is more efficient than the
traditional single-target approach. The resulting increase in discovery
throughput and capacity are required for the large number of new genomic
targets.
NON-THERAPEUTIC APPLICATIONS OF PHAGE DISPLAY
Our phage display technology has potentially broad applications in a number of
other areas:
AFFINITY SEPARATIONS PRODUCTS. Purification of a biopharmaceutical product is a
complex, multi-step process, which can be a time-consuming step in the discovery
process and is often the most expensive step in the manufacturing process. We
believe that our phage display technology is a powerful tool for developing new
separations media that can be designed using small stable compounds known as
ligands that have high affinity for the biopharmaceutical product. We believe
that this "affinity" purification will be more cost effective and efficient than
other purification processes. Affinity purification should be particularly
useful for purifying the large number of new biopharmaceutical and diagnostic
leads and products resulting from advances in genomics.
ENZYME ENGINEERING. Enzymes are proteins that accelerate the rate of chemical
reactions in a highly specific manner. They are used in a wide range of
pharmaceutical and chemical manufacturing processes. To identify novel enzymes,
we use phage display to create libraries with millions of variants of an enzyme
and screen these libraries to identify novel enzymes that catalyze a desired
reaction.
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DIAGNOSTIC AND IMAGING PRODUCTS. Binding compounds are essential to most
diagnostic products. Often the binding compounds that we discover for
biopharmaceutical and separations targets can be used in diagnostic or imaging
products to assess therapeutic effectiveness and monitor disease progression. As
biopharmaceuticals are being designed more precisely for specific gene targets,
the availability of diagnostic methods to detect the relevant gene target will
be essential to correctly matching patients with appropriate therapy.
OUR BUSINESS STRATEGY
Our mission is to use phage display to discover and develop novel products
focused on major unmet medical needs. We plan to maximize the value of our phage
display technology by pursuing both our internal product discovery and
development programs and our collaborative arrangements, and by broadly
licensing our phage display patents and libraries. Our combination of business
activities is designed to facilitate the transition of our value creation model
from technology to products.
The following are the principal elements of our business strategy:
DISCOVER AND DEVELOP PROPRIETARY BIOPHARMACEUTICAL PRODUCTS. We have identified
three peptides and one human monoclonal antibody lead that we intend to develop
with potential for treating some inflammatory diseases and some cancers. We
intend to identify new leads for targets that we discover or license from
others. We intend to commercialize these leads ourselves or through
collaborative arrangements.
LEVERAGE OUR TECHNOLOGY THROUGH BIOPHARMACEUTICAL PRODUCT COLLABORATIONS. We
are leveraging our technology through our 10 current collaborative arrangements
with biotechnology and pharmaceutical companies for the discovery and/or
development of biopharmaceuticals, separations and diagnostic leads. We intend
to enter into additional collaborative arrangements for new lead discovery, and
preclinical and clinical evaluation of our current and future biopharmaceutical
leads, while seeking to retain product commercialization rights by field or
geographic area.
LEVERAGE OUR TECHNOLOGY BY LICENSING OUR PHAGE DISPLAY PATENTS AND
LIBRARIES. We are leveraging our phage display patents by licensing them to
over 40 companies and institutions on a non-exclusive basis to encourage the
broad application of our technology. We make some of our phage display libraries
in limited fields available to some of our licensees in exchange for technology
transfer payments, milestone payments and royalties. We intend to enter into
additional license agreements for our phage display patents and libraries.
DEVELOP AND MARKET INNOVATIVE SEPARATIONS PRODUCTS. Using phage display, we are
developing and intend to market innovative affinity separations products
designed to meet the challenges of purifying complex biopharmaceutical products.
Through collaborative arrangements with pharmaceutical and biotechnology
companies, we are identifying compounds that purify the collaborator's specific
biopharmaceutical. We are also developing proprietary affinity separations
products for purifying classes of molecules, for example antibodies, that may be
used by multiple customers.
DEVELOP NOVEL PRODUCTS IN OTHER AREAS USING PHAGE DISPLAY. We are applying our
phage display technology to develop diagnostic products for IN VIVO imaging, as
well as to engineer novel enzymes with unique chemical specificity that address
important market needs. We have identified two diagnostic leads for imaging of
inflammation and blood clots in humans, which is known as "IN VIVO" imaging. We
plan to partner the development of any IN VIVO imaging products and may do the
same for any industrial enzymes that we discover.
CONTINUE TO EXTEND OUR INTELLECTUAL PROPERTY AND TECHNOLOGY. We plan to
continue to develop internally and acquire technology that is complementary to
our existing technology. Through our patent licensing program, we will continue
to enhance our phage display technology by obtaining access to phage display
improvements that our licensees develop.
OUR BIOPHARMACEUTICAL PROGRAMS
We are using phage display technology internally and through collaborative
arrangements to discover and develop biopharmaceutical products. Our product
development programs target a number of therapeutic areas, including some
inflammatory/autoimmune diseases and some cancers.
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DYAX BIOPHARMACEUTICAL PROGRAMS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEADS DISEASE AREA/INDICATION STATUS COLLABORATOR DYAX RETAINED RIGHTS
------------------------------------------------------------------------------------------------------------------
EPI-HNE4 Pulmonary Phase I clinical trial Debiopharm Outside of Europe
(RELTRAN-TM-) Inflammation/Cystic
Fibrosis
DX-88 Acute and Chronic Phase I clinical trial Genzyme 50% Worldwide
Inflammation/Hereditary
Angioedema
EPI-PLA2 Cancer/Prostate Cancer Lead Identified -- Worldwide
HmAb16 Cancer Lead Identified -- Worldwide
</TABLE>
PULMONARY INFLAMMATORY DISEASE
EPI-HNE4/RELTRAN-TM-. In a number of lung diseases, the body secretes an excess
of the enzyme known as neutrophil elastase, or elastase. Excess elastase
destroys lung tissue. Using phage display, we have discovered a human neutrophil
elastase inhibitor, EPI-HNE4. This inhibitor binds to elastase with high
affinity and high specificity, suggesting that it may be a potent treatment for
lung disease with very few side effects. Our preclinical studies have indicated
that EPI-HNE4 may stop the destruction of lung tissue in the following pulmonary
diseases:
- CYSTIC FIBROSIS. There are approximately 40,000 patients in the United States
and Europe who suffer from cystic fibrosis. Their average life expectancy is
30 years of age. A genetic mutation causes progressive lung destruction and
frequent infections in these patients. Large amounts of elastase are secreted
into a chronically infected lung. The elastase directly destroys tissue and
initiates a cycle of inflammation and repeated tissue destruction. Current
treatments manage symptoms poorly. By blocking elastase, EPI-HNE4 may be the
first treatment to stop progressive tissue destruction in cystic fibrosis.
- CHRONIC OBSTRUCTIVE PULMONARY DISEASES. Approximately 16 million Americans
suffer from chronic obstructive pulmonary diseases, which include chronic
bronchitis and emphysema. Genetic mutations or inhaled irritants, including
cigarette smoke, cause these diseases, which are characterized by a
progressive deterioration in lung function. Over $14 billion is spent annually
to treat this group of diseases, which is the fourth leading cause of death in
the United States. Elastase plays a role in the progressive destruction of
lung tissue in these diseases. EPI-HNE4 may block elastase and stop further
damage, improving the quality of life and life expectancy for these patients.
- ASTHMA. Each year, 500,000 of the approximately 15 million asthmatics in the
United States are hospitalized for a potentially life-threatening asthma
attack. These severe attacks are caused by excessive airway inflammation in
response to an allergen. The inflammation leads to elastase release, which
directly activates mucous secretion. Mucous secretion results in airway
obstruction and potentially death. No current treatment inhibits mucous
production. We believe that EPI-HNE4, by inhibiting elastase, may block mucous
secretion and reduce the number of life-threatening asthma attacks.
- ACUTE RESPIRATORY DISTRESS SYNDROME. There are approximately 15,000 patients
in the United States who suffer from acute respiratory distress syndrome
annually, and mortality rates are approximately 40%. Acute respiratory
distress syndrome is a severe disease resulting from the introduction of
toxins to the lung. Patients rapidly develop a severe inflammatory response to
a lung injury. Elastase has been implicated in the rapid pulmonary
deterioration of acute respiratory distress syndrome. EPI-HNE4 may block this
tissue destruction and may therefore offer a treatment for this disease.
Our collaborator, Debiopharm S.A., a Swiss pharmaceutical development company,
is currently conducting a Phase I clinical trial in Europe with EPI-HNE4. The
purpose of this dose-escalating trial is to examine the safety of administering
EPI-HNE4 by aerosol to healthy humans. If this trial is successful, Debiopharm
plans to initiate further tolerance trials followed by a Phase II clinical trial
to examine the efficacy and safety of EPI-HNE4 for cystic fibrosis patients. We
and Debiopharm then plan to expand into clinical trials for additional
indications, including chronic obstructive pulmonary disease, asthma and acute
respiratory distress syndrome.
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INFLAMMATORY/AUTOIMMUNE DISEASE
DX-88. Kallikrein is an enzyme, which is a key component responsible for the
regulation of inflammatory and blood clotting responses. Excess kallikrein
activity is thought to play a role in a number of inflammatory and autoimmune
diseases. Using phage display, we have discovered DX-88, a high affinity, high
specificity inhibitor of human kallikrein. DX-88 may be a potent inhibitor with
few side effects that can be used to treat:
- HEREDITARY ANGIOEDEMA. Between 5,000 and 27,000 patients in the United States
suffer from hereditary angioedema, which is a genetic disease that causes
painful swelling of the larynx, gastrointestinal tract and extremities. Severe
swelling of the larynx may require insertion of an air tube into the airway to
prevent asphyxiation. In the United States, the only currently available
treatment involves pain control and rehydration. Researchers believe
kallikrein is a primary cause of both the pain and swelling in hereditary
angioedema. DX-88, a potent kallikrein inhibitor, may decrease the pain and
swelling of acute attacks of hereditary angiodema and therefore provide an
effective treatment for this disease.
- COMPLICATIONS OF CARDIOPULMONARY BYPASS. In the United States there are
500,000 cardiac surgeries which use cardiopulmonary bypass annually.
Cardiopulmonary bypass surgery elicits a whole body inflammatory response,
which adversely affects the outcome of surgery. Approximately 25% of
cardiopulmonary bypass patients have significant post-operative cardiac,
pulmonary, coagulative or kidney dysfunction. Kallikrein has been implicated
in cardiopulmonary bypass and is thought to cause pathologic inflammation.
Aprotinin, a kallikrein inhibitor derived from cattle, is currently approved
for use in cardiopulmonary bypass. DX-88 may have benefits over existing
therapies, since the compound is a human protein 1,000 times more potent than
aprotinin and is more specific for kallikrein. We believe that DX-88 may offer
improved outcomes, require lower doses and result in fewer side effects than
current treatments.
- RHEUMATOID ARTHRITIS. Rheumatoid arthritis affects approximately three million
patients in the United States. Rheumatoid arthritis is characterized by pain,
swelling and stiffness of joints. In most patients, rheumatoid arthritis
causes disability due to eventual joint abnormalities. Research has implicated
kallikrein in the inflammatory response of rheumatoid arthritis and it is
thought to contribute to joint damage. DX-88 may inhibit the inflammatory
response in rheumatoid arthritis and inhibit progression of the disease.
We have completed preclinical toxicology studies of DX-88 and have commenced
Phase I clinical trials of intravenous administration in healthy subjects in the
second quarter of 2000. If the Phase I clinical trials are successful, we will
begin Phase II clinical trials in our lead indication, hereditary angiodema. We
will then expand into additional indications, including cardiopulmonary bypass
and rheumatoid arthritis.
CANCER
EPI-PLA2. Metastatic cancer is cancer that has spread from its solid tumor site
of origin. Metastatic cancer kills 550,000 patients a year in the United States
and has no effective treatment. The enzyme plasmin plays a key role in the
ability of cancer cells to invade other tissues. Using phage display, we have
discovered EPI-PLA2, a potent and specific inhibitor of plasmin, which we
believe may inhibit this invasion and therefore prevent metastatic spread of
cancer.
PROSTATE CANCER. Prostate cancer is the most common cancer in the United
States. Approximately 66% of all patients who develop metastatic prostate cancer
will die within five years. EPI-PLA2 may decrease metastatic spread and increase
survival in patients diagnosed with localized prostate cancer.
We evaluated EPI-PLA2 in cell-based models of prostate cancer metastases in
collaboration with an academic research group. Currently, we are preparing
sufficient quantities of EPI-PLA2 to determine its IN VIVO efficacy in a mouse
model. If the preclinical studies are successful, we may begin clinical trials
in prostate cancer. We will then expand into clinical trials in other solid
tumors, including lung, breast, ovarian, colorectal and pancreatic cancers.
HMAB16. Cancer cells express unique antigens. We have discovered a
biopharmaceutical product candidate that targets a unique antigen expressed only
on some breast and ovarian cancer cells. We believe that this antibody will bind
specifically to tumor cells and initiate cell death. The antibody can also be
linked to a toxin to increase the rate of tumor cell death. Approximately
170,000 patients are diagnosed with breast or ovarian cancer annually in the
United States. We expect hmAb16 to selectively kill cancerous cells in these
patients, providing an effective alternative to chemotherapy, which is toxic to
healthy cells as well as cancer cells.
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We have demonstrated that hmAb16 recognizes breast and ovarian cancer cells IN
VITRO. We are currently producing adequate amounts of this antibody for
preclinical testing in preclinical models of breast and ovarian cancer.
OTHER BIOPHARMACEUTICAL DISCOVERY PROGRAMS
We also plan to pursue other biopharmaceutical discovery programs in the fields
of immunology and tumor vasculature biology, among others.
COLLABORATIONS AND LICENSES
We are leveraging our phage display technology in biopharmaceuticals,
separations and diagnostics through collaborative discovery and development
arrangements with biotechnology and pharmaceutical companies and research
institutions. These arrangements are generally corporate collaborative
partnerships or funded discovery projects. We share ongoing development rights
and/or obligations with our partners in corporate collaborative partnerships. In
funded discovery projects, our obligation is usually limited to conducting a
discovery project, and we are entitled to milestone and royalty payments if the
other party proceeds with development. We expect that we will continue to rely
on collaborative partners to fund different product development efforts and new
research and development efforts for the foreseeable future. We also generate
revenues through licensing our phage display patents and libraries. The
following table sets forth selected parties to our collaborations and licensees.
SELECTED COLLABORATIONS AND LICENSES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LICENSES COLLABORATIONS
------------------- --------------------------------
COLLABORATOR/LICENSEE PATENTS LIBRARIES THERAPEUTICS SEPARATIONS DIAGNOSTICS
----------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY COMPANIES:
Amersham Pharmacia Biotech........................ -
Amgen............................................. - - -
Cambridge Antibody Technology..................... -
Chiron............................................ -
Chugai............................................ -
Coulter Pharmaceutical............................ -
CropTech.......................................... -
Debiopharm........................................ -
EPIX Medical...................................... -
Genetics Institute................................ -
Genzyme........................................... - -
Human Genome Sciences............................. - - - - -
Imclone Systems................................... - -
MorphoSys......................................... -
PHARMACEUTICAL COMPANIES:
Bristol-Myers Squibb.............................. -
DuPont Pharmaceutical............................. -
Merck............................................. -
Aventis Pasteur (formerly Pasteur Merieux
Connaught)...................................... -
Pharmacia & Upjohn................................ -
RESEARCH INSTITUTIONS:
The Burnham Institute............................. -
National Institute of Standards and Technology.... -
</TABLE>
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THERAPEUTICS
DEBIOPHARM. In March 1997, we entered into a research and development agreement
with Debiopharm for the clinical development of our neutrophil elastase
inhibitors, including EPI-HNE4. Under this agreement, Debiopharm began
developing and producing EPI-HNE4 for the treatment of inflammation resulting
from cystic fibrosis and other chronic pulmonary inflammatory disorders.
Recently Debiopharm has exercised its right to obtain an exclusive commercial
license for some therapeutic uses of EPI-HNE4 in the European market, which we
are currently finalizing and which will include a right of first refusal for
Debiopharm with respect to any license that we may propose for other
territories. We have the right to use the regulatory information, including
preclinical, clinical and manufacturing data, generated by Debiopharm. We have
retained the right to develop the inhibitor ourselves outside of Europe. We also
retain all rights to develop and produce EPI-HNE4 in all other fields and
territories outside of Europe. We are entitled to receive royalties on revenues
received by Debiopharm from the use or sale in the European market of
therapeutic products developed using information Debiopharm obtained under this
agreement. If we choose to use information owned solely by Debiopharm for
therapeutic uses of EPI-HNE4, we will pay to Debiopharm a royalty on revenues
that we receive from the use or sale of products outside Europe. We have neither
paid nor received any royalties under this agreement to date. Debiopharm has the
right to terminate this agreement upon three months prior written notice to us.
GENZYME. In October 1998, we entered into a collaboration agreement with
Genzyme Corporation for the development of DX-88 as a treatment for hereditary
angioedema and other inflammatory diseases. We will be entitled to receive
significant milestone payments and up to 50% of the profits from sales of
products developed under this collaboration. Genzyme will oversee development
jointly with us and provide a commercialization plan and exclusive marketing and
distribution services for all developed products. We are currently undertaking
the preclinical testing and manufacturing necessary to initiate a Phase I human
clinical trial of DX-88. Genzyme has also provided us with a $3.0 million loan
facility and purchased preferred stock for a total purchase price of
$3.0 million. After we have funded the first $6.0 million of development costs,
we will share equally with Genzyme all subsequent development costs under this
collaboration.
HUMAN GENOME SCIENCES, INC. In March 2000, we entered into a collaboration and
license agreement with Human Genome Sciences, Inc. Under this agreement we and
HGSI will use our phage display technology to identify and optimize product
leads that bind to therapeutic targets selected by HGSI. We intend to
collaborate with HGSI to use our phage display technology to develop a new high
throughput screening technology for HGSI and to develop affinity ligands to
purify its development candidates and drug products. We granted HGSI a
non-exclusive license to our phage display technology and compound libraries to
create leads that may be used as peptide drugs, human monoclonal antibody drugs
and IN VITRO diagnostic products. With the exception of selected IN VIVO imaging
rights, HGSI will retain the rights to all products that result from this
collaboration. In exchange, HGSI is required to pay us a minimum of
$16.0 million in committed license fees and research funding during the first
three years of the five year agreement, $6.0 million of which was paid in March
2000. We will also be entitled to receive milestone payments on therapeutic
products and royalties on all products developed by HGSI under the agreement and
will share HGSI's revenues on any of those products that it outlicenses.
AMGEN INC. In February 2000, Amgen entered into a license, technology transfer
and technology services agreement with us. Under this agreement, we are
developing a new phage display library for Amgen. Amgen has a non-exclusive
license for some of our other phage display libraries and our phage display
patents in the therapeutic field. We will be entitled to receive milestone
payments in connection with any product that is developed, in addition to the
license and library fees paid up front by Amgen.
DISCOVERY PROJECTS. In addition to the four corporate collaborative
partnerships described above, we have also entered into funded discovery
projects with several biotechnology companies. Generally in our funded discovery
projects, we screen our phage display libraries to identify compounds that bind
to a collaborative partner's therapeutic or diagnostic targets of interest. In
addition, if the collaborative partner chooses to continue to develop the
binding compound into therapeutic leads, then we will be entitled to receive
milestone payments and/or royalties on product sales based on the collaborative
partner's successful development and marketing of leads as products.
SEPARATIONS
AMERSHAM PHARMACIA BIOTECH. In June 1999, we entered into a four-year research,
development and marketing collaboration agreement with Amersham Pharmacia
Biotech AB to develop affinity chromatography media for use in purification of
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biopharmaceuticals on a project-by-project basis. Under this agreement, we will
use our phage display technology to discover and develop ligands that bind to
specific separations targets that Amersham Pharmacia can then commercialize as
products.
GENETICS INSTITUTE. In September 1997, we entered into an agreement with
Genetics Institute, Inc. to discover a novel affinity ligand for purification of
a recombinant blood factor for treating hemophilia. Genetics Institute has
provided us with research and development funding to support the ligand
discovery and development work. This collaboration was extended in 1998 and 1999
to develop and optimize affinity media based on our ligands, and during this
period, we received several milestone payments on technical achievements. In
March 1999, Genetics Institute exercised its option to acquire an exclusive
license to use the ligand to manufacture the recombinant product. Under the
terms of the proposed license, we will be entitled to license fees, milestone
payments and royalties on sales of Genetics Institute's recombinant blood
factor.
CROPTECH. In October 1997, we entered into a four-year joint collaboration
agreement with CropTech Corporation to develop novel technologies for the
production and separation of large volume protein products, therapeutic
glycoproteins and bioactive peptides. The agreement was in connection with a
$4.3 million Advanced Technology Program grant from the National Institute of
Standards and Technology. Under the agreement, CropTech agreed to use its
transgenic plant technology to develop novel expression systems for these
therapeutic products, and we agreed to use phage display technology to develop
affinity separations systems for use in purifying the protein and peptide
products.
DISCOVERY PROJECTS. We have ongoing discovery projects with five sponsors,
including Aventis Pasteur, which was formerly named Pasteur Merieux Connaught,
and Human Genome Sciences, Inc. Typically in funded discovery projects, the
corporate sponsors have agreed to fund our use of phage display technology to
discover affinity ligands for evaluation in the purification and separations
processes of the sponsor's pharmaceutical product candidates. These sponsors are
generally obligated to make a milestone payment upon the successful evaluation
of the ligand. Upon completion of the discovery phase, the sponsor generally has
the option to expand the project to a development phase and/or to negotiate a
license agreement for the commercial use of the affinity ligand in conjunction
with a media to purify the sponsor's product. Except for Genetics Institute,
described above, none of our sponsors' products has yet reached this stage.
INDUSTRIAL ENZYMES
NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY ENZYME ENGINEERING
PROGRAM. Under a research and development grant from the National Institute of
Standards, we are using our phage display technology to engineer novel enzymes.
We retain rights to all products and technology developed under this agreement.
Under this agreement, the National Institute of Standards and Technology agreed
to reimburse all of the direct expenses incurred under the program.
DIAGNOSTICS
EPIX MEDICAL, INC. In June 1997, we entered into a collaboration agreement with
EPIX Medical, Inc. Under this agreement, we used our phage display technology to
identify peptides for use in blood clot imaging applications and EPIX has funded
this research. EPIX has the right to develop imaging agents for the magnetic
resonance imaging field and has exclusive commercial rights for that field. We
have the right to develop imaging agents for the nuclear medicine field and have
exclusive commercial rights for that field. We are entitled to receive royalties
from sales of any magnetic resonance imaging products, and EPIX is entitled to
receive a percentage of revenues from sales of any nuclear medicine products. We
are not currently developing imaging agents in our field and to our knowledge
EPIX has not developed any imaging agents in its field.
PATENT AND LIBRARY LICENSING PROGRAMS
We have established a broad licensing program of our phage display patents for
use in the fields of therapeutics, antibody-based IN VITRO diagnostics and phage
display research kits. Through this program, we grant companies and research
institutes non-exclusive licenses to practice our phage display patents in their
discovery and development efforts in the licensed fields. Since the inception of
this licensing program in 1996, we have granted licenses to more than 40
companies and institutions. We believe that the success of our patent licensing
program provides support for our patent position in phage display and enhances
the usefulness of phage display as an enabling discovery technology. Under these
licenses, we have retained rights to practice our phage display technology in
all fields. We also make available some of our phage display libraries in
limited fields to some of our licensees in exchange for technology transfer
payments, milestone payments and royalties.
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Our license agreements generally provide for a signing fee, annual maintenance
fees, milestone payments based on successful product development and royalties
based on any future product sales. In addition, under the terms of our standard
license agreement, most licensees have agreed not to sue us for using phage
display improvement patents developed by the licensee that are dominated by our
phage display patents. We believe that these covenants allow us to practice
enhancements to phage display developed by our licensees.
BIOTAGE SEPARATIONS PRODUCTS AND PROGRAMS
Purification of a biopharmaceutical product is a complex, multi-step process,
which can often be the most expensive step in product manufacturing. A widely
used separations technology, chromatography is used for purification during the
discovery, development and manufacture of a biopharmaceutical product.
Chromatography separates molecules in a liquid mixture by making use of the
different rates at which the molecules in the solution accumulate on the surface
of another material known as separations media. In this technology, the
molecules in solution pass through a chamber, or column, packed with separations
media. The migration rates of different molecules through the column vary due to
differences in the strength of binding interactions with the media in the
column. This differential separation of molecules can be used to purify a
desired product.
BIOTAGE SEPARATIONS PRODUCTS
We develop, manufacture and sell chromatography separations systems under the
Biotage trade name. Our customers use our systems in separations processes from
the discovery scale, where small amounts of a compound are purified for research
work, through the preparative and production scales, where a product is
manufactured for commercialization. We have designed our FLASH and BioFLASH
systems to use prepacked cartridges at all of these scales for a wide range of
chemical and biological materials. Our customers in the pharmaceutical industry
use our Parallex and Flex systems for purification of synthetic organic
molecules, synthetic peptides, DNA diagnostics and natural products. We
customize our Proprep systems to meet the requirements of development and
manufacturing scale chromatography applications for the production of biologics.
We are a leading developer and manufacturer of chromatography systems that use
disposable cartridges to purify pharmaceuticals being produced for research and
clinical development. Our prepacked, disposable cartridges can be packed with a
wide range of separations, or chromatography, media from a variety of sources.
We believe that cartridge-based chromatography systems provide competitive
advantages to our customers compared to manually packed systems, including:
- greater speed and convenience;
- lower cost due to less labor and reduced solvent use;
- improved safety by minimizing exposure of production personnel to media and
hazardous solvents; and
- reproducible performance.
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The following table summarizes our principal chromatography products:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPRESENTATIVE
PRODUCTS MARKET SEGMENT PRICE RANGE APPLICATIONS CUSTOMERS
---------------------------------------------------------------------------------------------------------------------------------
BioFLASH and Proprep systems Biopharmaceutical $30,000- Protein and peptide Applied BioSystems
discovery and $500,000 purification Genentech
production Merck
Antibody purification Genzyme
FLASH systems Pharmaceutical $2,000-$250,000 Novel compound Pfizer
Parallex and Flex discovery purification SmithKline Beecham
systems Eli Lilly
High throughput Astra-Zeneca
compound purification
Natural products
Production FLASH Pharmaceutical $60,000- Production scale Merck
systems production $975,000 purification Schering Plough
Kiloprep systems Genprobe
Antibodies and DNA Bachem
diagnostics
FLASH, BioFLASH and Pre-packed $6-$15,000 Disposable cartridges for Most Biotage system
Kiloprep cartridges disposable cartridges use on all Biotage customers
for all Biotage systems
systems
</TABLE>
AFFINITY SEPARATIONS DEVELOPMENT PROGRAMS
Purification of biopharmaceutical products is a complex, multi-step process,
which can often be rate-limiting in the discovery and development of new
biopharmaceuticals and can be the most expensive step in product manufacturing.
In conventional chromatography, separations are based on broad physical
properties such as size, charge or solubility in water. The types of available,
standard chromatography media have changed little in recent years.
Chromatographic separations are achieved by selection of the surface chemistry
of the media and the solvent composition, so that different molecules exit the
column at different times and therefore can be collected in purified form. For a
given separation, the available media generally have unpredictable specificity,
and researchers have discovered no practical way to modify the existing media to
create specific binding to a particular target. Thus, the development of useful
separation processes relies on trial and error that is time consuming and labor
intensive.
We believe that our phage display technology is a powerful tool for developing
new affinity separations media that can cost-effectively and efficiently purify
complex therapeutic products. We plan to combine our Biotage separations systems
with affinity chromatography media derived using our phage display technology to
provide solutions for the purification of natural products, peptides, proteins,
organic compounds and other molecules.
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Our phage display technology can be used to generate small, stable binding
compounds, known as ligands, that have high affinity and high specificity for
the desired compound. Since affinity chromatography can purify the desired
biopharmaceutical in one column, one affinity chromatography column can replace
multiple conventional chromatography columns that otherwise would be required.
We have developed ligands that bind and release in predetermined conditions that
can be used for the purification of biopharmaceuticals. We believe that these
new affinity separations products can reduce the time, cost and risk associated
with purification at the discovery, development and production scale.
We have several ongoing funded affinity separations discovery projects with
leading biopharmaceutical companies, including Genetics Institute, Amersham
Pharmacia, Human Genome Sciences, and Aventis Pasteur, which was formerly named
Pasteur Merieux Connaught. In these projects we are seeking to identify one or
more potential binding compounds that can be attached to separations media for
development into affinity separations products for purification of the
collaborative partner's designated therapeutic product. To date, we have
discovered affinity ligands for such products as a viral vaccine, tissue
plasminogen activator also known as tPA, a recombinant blood product, blood
cells and transgenic animal and plant products. We have delivered affinity
separations products containing phage display-derived affinity ligands for
testing and evaluation by our partners. In one of these programs, the partner
has agreed to proceed with the development of the affinity ligand for use in
purification of a biopharmaceutical product. We are continuing to seek
collaborative partners in the discovery and development of affinity separations
products.
In addition to our custom-designed affinity separations products program, we are
developing proprietary affinity separations products, including products under
development in a collaborative arrangement with CropTech for broad commercial
applications. We believe that these products will have applications in research
as well as in the process and manufacturing markets.
INDUSTRIAL ENZYMES. Enzymes are naturally occurring proteins that catalyze or
accelerate the rate of chemical reactions in a highly specific manner. Because
of their catalytic efficiency, enzymes are used in many commercially important
pharmaceutical and chemical processes. Enzymatic processes are often less
expensive and involve fewer potential environmental contaminants than chemical
processes. Naturally occurring enzymes with the required chemical specificity
have not been identified for many potential applications. In addition, current
techniques for altering the chemical specificity of an enzyme are costly and
inefficient.
Phage display can be used to engineer novel enzymes with new chemical
specificity. We believe that these novel enzymes can be used in a wide range of
commercial opportunities. Our current enzyme engineering program is focused on
developing enzymes which can be used in the process for making intermediate
chemical compounds, or building blocks, that are required in the manufacture of
drugs.
DIAGNOSTIC IMAGING PRODUCTS AND PROGRAMS
We are using phage display technology internally and through collaborative
arrangements to discover and develop products to diagnose cardiovascular and
inflammatory diseases and cancer. The following table summarizes our diagnostic
discovery and development programs:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DISEASE
LEAD COMPOUND AREA/INDICATION STATUS COLLABORATOR DYAX RETAINED RIGHTS
--------------------------------------------------------------------------------------------------------
DX-182............... Cardiovascular Preclinical EPIX Medical Worldwide in nuclear
Disease medicine
EPI-HNE2............. Inflammation/Infection Preclinical -- Worldwide
EPI-PLA2............. Tumor Metastasis Preclinical -- Worldwide
CEA Peptides......... Multiple Cancers Discovery City of Hope Worldwide
Multiple Peptides.... Solid Tumor Cancers Research Burnham Cancer Worldwide
and other Indications Research Institute
</TABLE>
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DIAGNOSTIC IMAGING
Our diagnostic imaging agents consist of detectable markers linked to binding
compounds. The binding compound binds to the target of interest, while the
marker indicates where the compound has bound. Our diagnostic imaging product
candidates have the following characteristics:
- High affinity: bind target and localize to site quickly;
- High specificity: bind only to target; provide clear imaging without
background interference; and
- Increased safety: rapidly cleared from the body decreasing patient exposure.
CARDIOVASCULAR IMAGING
DX-182. Imaging of clots in the blood vessels is important for accurate
diagnosis and treatment of cardiovascular disease. We collaborated with EPIX
Medical, Inc. to use our phage display technology to identify peptides that bind
to a component unique to blood clots. When linked to a radioactive isotope, the
peptides are intended to travel to and illuminate clots.
PULMONARY EMBOLUS/DEEP VEIN THROMBOSIS. Deep vein thromboses are blood clots in
the legs that may break apart and travel to the lungs, creating pulmonary
embolism. In the United States, 600,000 patients annually are diagnosed with
pulmonary embolism. Up to 100,000 patients die annually due to pulmonary
embolism. The high mortality associated with pulmonary embolism is due to the
lack of accurate tests to diagnose pulmonary embolism. We expect our peptides to
provide rapid imaging of pulmonary embolism and deep vein thromboses. Rapid
diagnosis and prompt treatment should dramatically decrease the mortality
associated with pulmonary emboli.
We are evaluating a number of peptides in a preclinical model of pulmonary
embolism with our collaborators at University of Massachusetts Medical Center.
We will choose the peptide with optimal characteristics to advance into clinical
trials.
IMAGING INFECTION AND INFLAMMATION
EPI-HNE2. EPI-HNE2 is a binding compound with high affinity and high
specificity to the enzyme known as neutrophil elastase. Inflammatory cells
secrete neutrophil elastase in response to infection and inflammation. We have
linked EPI-HNE2 to technetium-99, a radioactive isotope, and expect the peptide
to bind to and image inflammatory and infectious foci. Current agents used to
diagnose inflammation and infection lack specificity, which leads to poor
imaging due to background interference. We believe that EPI-HNE2 will provide a
clear image of inflammatory and infectious disease sites, allowing rapid and
accurate diagnosis of multiple diseases.
Diagnostic indications include: inflammatory bowel disease, rheumatoid
arthritis, non-localized fever, musculoskeletal infection, chronic endocarditis,
aortic graft infections, and catheter infections. We estimate that 300,000
patients annually might be eligible to benefit from such an agent.
We are conducting preclinical studies of EPI-HNE2 with scientists at the
University of Massachusetts Medical Center. We have demonstrated detection of
inflammatory disease sites in preclinical models of infection in under 30
minutes.
CANCER IMAGING PROGRAMS
TUMOR CELL SURFACE ANTIGENS FOR ONCOLOGY IMAGING. In collaboration with
scientists at the City of Hope National Medical Center in Los Angeles,
California, we have discovered human monoclonal antibodies and small peptides
that specifically bind to a cell surface antigen expressed on over 95% of
colorectal carcinomas and on over 50% of both breast and lung cancer tumors. We
retain rights to develop products in this area. Our scientists are engaged in
improving the binding affinity of the anti-cell surface antigen cyclic peptides
prior to evaluation in preclinical models. We believe our cell surface antigen
imaging agent may be used in a variety of clinical settings to improve
management of colorectal, lung and breast cancer. It may accurately stage
patients with primary and recurrent disease. It may also guide surgical removal
of small tumors. In addition, it may allow doctors to monitor patient response
to therapy.
NEOVASCULAR MARKERS FOR IMAGING METASTATIC CANCERS. We are evaluating EPI-PLA2,
our high-affinity inhibitor of the enzyme plasmin, for use as an imaging agent
in detecting and localizing sites of new blood vessel formation. A single
metastatic
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imaging agent would eliminate the need to use multiple methods of scanning for
cancer in patients with suspected metastases. Such an agent would also guide
treatment for 550,000 patients diagnosed with metastatic cancer in the United
States each year. We believe that our metastatic imaging agents may improve the
diagnosis and management of metastatic cancer.
PEPTIDE-BASED RESEARCH PROGRAM. Through an alliance with The Burnham Institute,
a nonprofit research institute, we are evaluating peptides obtained by The
Burnham Institute's practice of phage display for possible imaging applications.
Several of The Burnham Institute's peptides bind to molecular targets that have
been shown to be over-expressed at sites where tumors are inducing the growth of
blood vessels. Scientists at The Burnham Institute have discovered a larger
number of peptides that bind to molecular targets uniquely expressed by the
blood vessels of specific organs, including the lung, ovary, prostate and
pancreas.
DYAX TECHNOLOGY
Molecular binding is the key to the function of most biopharmaceutical,
diagnostic, industrial enzyme and separations products. The binding of a
molecule to a target is the mechanism nature uses to modulate biochemical and
physiological processes such as cellular growth, differentiation, metabolism and
death. To effect these processes, naturally occurring binding molecules
typically distinguish between the correct target and other closely related
molecules, called specificity, and bind tightly to the target, called affinity,
under appropriate physiological conditions. Biopharmaceutical and diagnostic
products bind to targets, including cellular receptors and enzymes, to achieve a
desired effect, and are generally selected for their binding affinity and
specificity for the target. Binding also plays a significant role in the
separations products used to purify material for the development and manufacture
of a therapeutic product.
PHAGE DISPLAY
Living organisms, such as viruses, have the ability to display a foreign gene
product, or protein, on their surfaces. Based on this ability of organisms to
display proteins, our scientists developed our patented phage display technology
for displaying large collections of proteins on filamentous "phage," a virus
that infects laboratory bacteria. Our phage display technology is a broadly
adopted method to display and select proteins with desired binding properties.
Phage display is used to select proteins that bind to one or more targets of
interest. The selection is made from a diverse set of up to tens of billions of
proteins displayed on the surface of a bacterial virus, bacteriophage, known
commonly as "phage." Our phage display process generally consists of the
following steps:
GENERATING A PHAGE DISPLAY LIBRARY. The generation of a phage display library
is based upon a single protein framework and contains tens of billions of
variations of this protein. The first step in generating a library is the
selection of the protein framework upon which the library will be created. This
selection is based on desired product properties, such as structure, size,
stability, or lack of immunogenicity. Scientists then determine which amino
acids in the framework will be varied, but they do not vary amino acids that
contribute to the chosen protein framework. The scientists also control the
exact numbers and types of different amino acids that are varied, so that the
resulting phage display library consists of a diverse set of chemical entities,
each of which retains the desired physical and chemical properties of the
original framework.
[Image: Generation of a phage display library]
The next step is the creation of a collection of genes encoding the designed
variations of the framework protein. Scientists can easily generate diverse
collections of up to hundreds of millions of different synthetic DNA sequences.
Each new DNA sequence, or gene, encodes a single protein sequence that will be
displayed on the surface of the individual phage that contain this gene. The
scientists combine the new DNA sequences with phage genome DNA and certain
enzymes so that the new DNA is inserted into a specific location of the phage
genome. The result is that the encoded protein is displayed on the phage surface
as a fusion to one of the existing naturally occurring phage proteins. The phage
is a physical link between the displayed protein and its gene.
In addition to the creation of synthetic DNA sequences for a phage display
library, scientists can also use naturally occurring genes, such as DNA, which
are sequences that represent all of the expressed genes in a cell or organism,
as sources of the genes for a library. Our scientists have also inserted genes
from antibody expressing human cells into the phage genome. Using these genes,
we have constructed phage display libraries that express millions of different
human antibodies on the phage
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surface. From one of these libraries, we can select individual antibody
fragments and use them to build highly specific human monoclonal antibodies.
Using this process, monoclonal antibodies can be identified in a few weeks.
The scientist then transfers the new phage genome into laboratory bacteria,
where the phage genome directs the bacterial cells to produce thousands of
copies of each new phage. The resulting collection of phage is the phage display
library. Because scientists can reproduce the phage display library by infecting
a new culture of laboratory bacteria to produce thousands more copies of each
phage, they can use libraries for a potentially unlimited number of screenings.
SCREENING PHAGE DISPLAY LIBRARIES. Once scientists have generated a phage
display library they can select binding compounds with high affinity and high
specificity by exposing the library to specified targets of interest and
isolating the phage that display compounds that bind to the target. For certain
applications of phage display, such as separations, scientists can design the
binding and release conditions into the selection. Each individual phage
contains the gene encoding one potential binding compound, and when its
displayed protein is selected in the screening procedure, it can be retrieved
and amplified by growth in laboratory bacteria.
To screen a phage display library, the scientist exposes the library to the
target under desired binding conditions. The target is normally attached to a
fixed surface, such as the bottom of a tube, or a bead, allowing removal of
phage whose potential binding compounds do not bind to the target. Once these
unbound phage are washed away, the phage containing the selected binding
compounds can be released from the target. Since the phage are still viable,
they can be amplified rapidly by again infecting bacteria with them. The phage's
capacity to replicate itself is an important feature that makes it particularly
well-suited for rapid discovery of specific binding compounds. Scientists can
amplify a single phage by injecting it into standard laboratory bacteria to
produce millions of identical copies in one day.
If the affinity of the compounds identified in an initial screening is not
sufficiently high, information derived from the binding compounds identified in
the initial screening can be used to design a new focused library. The binding
and screening of a second generation library, known as affinity maturation, can
lead to increases of 10- to 100-fold in the affinity of the binding compounds
for the target.
[Image: Screening of a phage display library]
EVALUATION OF SELECTED BINDING COMPOUNDS. Screening phage display libraries
generally results in the identification of one or more groups of related binding
compounds such as peptides, antibodies or enzymes. These groups of compounds are
valuable in providing information about which chemical features are necessary
for binding to the target with affinity and specificity, as well as which
features can be altered without affecting binding. Using DNA sequencing,
scientists can determine the amino acid sequences of the binding compounds and
identify the essential components of desired binding properties by comparing
similarities and differences in such sequences. If desired, scientists can
further optimize the binding compounds by building additional phage display
libraries based on these key components and repeating this process. We can
complete the entire selection process in one week. Scientists can produce small
amounts of the binding compound by growing and purifying the phage. For
production of larger amounts, scientists can remove the gene from the phage DNA
and place it into a standard recombinant protein expression system.
Alternatively, if the identified binding compound is sufficiently small,
scientists can chemically synthesize it. These binding compounds can be
evaluated for desired properties including affinity, specificity and stability
under conditions that will be encountered in its intended use. From each group
of compounds, scientists can identify, develop and test a lead with desired
properties as a biopharmaceutical, diagnostic or affinity separations product.
The entire phage display process is nearly identical whether scientists are
searching for a product to be used for biopharmaceuticals, diagnostics and/or
separations, which allows for an efficient use of scientific resources across a
broad array of phage display applications. In addition, in some instances a
single binding compound may be used as a biopharmaceutical, diagnostic and/or
separations product.
OTHER TECHNOLOGIES
ENZYME TECHNOLOGY. The catalytic properties of enzymes are controlled by the
binding interactions of these proteins with the molecules on which they act,
called substrates. Our phage display technology is a powerful tool to engineer
proteins with desired binding properties. In order to apply phage display to the
engineering of enzymes, we have produced phage libraries displaying enzymes in
which the substrate binding sites have been varied. We can rapidly screen these
libraries to find novel
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enzymes that bind to and convert the desired substrate. We have developed
several libraries and additional libraries are planned.
We believe that enzymes produced through our phage display technology will
enable the production of new molecules for the pharmaceutical industry.
COMPETITION
We compete in industries characterized by intense competition and rapid
technological change. New developments occur and are expected to continue to
occur at a rapid pace. Discoveries or commercial developments by our competitors
may render some or all of our technologies or potential products obsolete or
non-competitive.
Our phage display technology is one of several technologies available to
generate libraries of compounds that can be used to discover and develop new
products. Pharmaceutical, diagnostics and biotechnology industries use other
technologies to identify molecules that bind to a desired target, including
combinatorial chemistry, single target high throughput screening and monoclonal
antibodies. Further, we license our phage display patents and libraries to other
parties in the fields of therapeutic and antibody-based IN VITRO diagnostic
products on a non-exclusive basis, and, therefore, our licensees may compete
with us in the development of specific therapeutic and diagnostic products.
We are aware of several pharmaceutical and biotechnology companies that are
actively engaged in research and development in areas related to antibody
therapy. Also, we compete with companies that offer antibody discovery services.
These companies include: Abgenix, Medarex, Kirin Brewing Co., Ltd., Cambridge
Antibody Technology Group plc, Protein Design Labs, Inc. and Morphosys AG.
Our biopharmaceutical and IN VIVO diagnostic imaging agents under development
are expected to address one or more indications in the biopharmaceutical or
diagnostic markets. We will face significant competition in these markets. Also,
several companies are using conventional antibody technology and other means to
identify products for use as imaging agents, which may compete with any future
imaging products that we develop. Our goal is to focus our development efforts
on selected disease markets in which we believe there is an unmet need.
Chromatography is only one of several types of separations processes, including
centrifugation and filtration, used in the manufacture of biopharmaceutical
products. We will continue to face intense competition from other suppliers of
separations products. The principal competitors in our target markets include
Amersham Pharmacia, Millipore Corporation, Bio-Rad Laboratories Inc.,
Isco, Inc., Gilson, Inc., Prometrics Life Sciences, Inc. and Waters Corporation.
In addition, many pharmaceutical companies have historically assembled their own
chromatography systems. Our only competitor in the prepacked disposable
cartridge market where we market our FLASH and BioFLASH cartridges is Isco,
which has started selling non-interchangeable cartridges. Others may be able to
use conventional or combinatorial chemistry approaches, or develop new
technology, to identify binding molecules for use in separating and purifying
products, including molecules which may compete with our affinity ligands.
PATENTS AND PROPRIETARY RIGHTS
Our success is significantly dependent upon our ability to obtain patent
protection for our products and technologies, to defend and enforce our issued
patents, including patents related to phage display, and to avoid the
infringement of patents issued to others. Our policy generally is to file for
patent protection on methods and technology useful for the display of binding
molecules, on biopharmaceutical, diagnostic and separation product candidates,
and on chromatography product improvements and applications.
Our proprietary position in the field of phage display is based upon patent
rights, technology, proprietary information, trade secrets and know-how. Our
patents and patent applications for phage display include U.S. Patent Nos.
5,837,500, which expires June 29, 2010, 5,571,698, which expires June 29, 2010,
5,403,484, which expires April 4, 2012 and 5,223,409, which expires June 29,
2010, European Patent No. 436,597, which expires September 1, 2009 and an
allowed European patent application, issued patents in Canada and Israel, and
pending patent applications in the United States and other countries. These
phage display patent rights contain claims covering inventions in the field of
the surface display of proteins and certain other peptides, including surface
display on bacteriophage.
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For our therapeutic, imaging and affinity products, we file for patent
protection on groups of peptides, proteins and antibody compounds we identify
using phage display. These patent rights now include U.S. Patent No. 5,666,143,
which expires September 2, 2014, claiming sequences of peptides that have
neutrophil elastase inhibitory activity, including the sequence for EPI-HNE4;
and U.S. Patent Nos. 5,994,125, which expires January 11, 2014, 5,795,865, which
expires August 18, 2015, and 6,057,287, which expires August 18, 2015, claiming
sequences of peptides that have human kallikrein inhibitory activity, including
the sequence for DX-88, and polynucleotide sequences encoding these peptides.
To protect our chromatography separations products, we rely primarily upon trade
secrets and know-how, as well as the experience and skill of our technical
personnel. We also have several patents and patent applications claiming
specific inventions relating to our proprietary chromatography systems and
cartridges.
There are no legal challenges to our phage display patent rights or our other
patent rights now pending in the United States, but we cannot assure you that a
challenge will not be brought in the future. We plan to protect our patent
rights in a manner consistent with our product development and business
strategies. If we bring legal action against an alleged infringer of any of our
patents, we expect the alleged infringer to claim that our patent is invalid,
not infringed, or not enforceable for one or more reasons, thus subjecting that
patent to a judicial determination of infringement, validity and enforceability.
In addition, in certain situations, an alleged infringer could seek a
declaratory judgment of non-infringement, invalidity or unenforceability of one
or more of our patents. We cannot assure you that we will have sufficient
resources to enforce or defend our patents against any such challenges or that a
challenge will not result in an adverse judgment against us or the loss one or
more of our patents. Uncertainties resulting from the initiation and
continuation of any patent or related litigation, including those involving our
patent rights, could have a material adverse effect on our ability to maintain
and expand our licensing program and collaborations, and to compete in the
marketplace.
Our first phage display patent in Europe, European Patent No. 436,597, was
opposed by two parties in late 1997. The oppositions primarily relate to whether
the written description of the inventions in our European patent is sufficient
under European patent law. A hearing on these oppositions was held on April 6,
2000 and our patent was revoked. We plan to appeal this decision to the
Technical Board of Appeals. This appeal will suspend the Opposition Division's
decision and reinstate our patent pending the decision of the Technical Board of
Appeals. Although we will be able to enforce this patent during the appeal, any
infringement action we file will likely be stayed pending the results of the
appeal. The appeal could take several years to resolve. We also expect the
European Patent Office to issue us another phage display patent in 2000, which
may become subject to opposition on grounds similar to the opposition to our
first European patent. We cannot assure you that we will prevail in the appeal
proceedings or in any other opposition or litigation contesting the validity or
scope of our European patents. We will not be able to prevent other parties from
using our phage display technology in Europe if we are not successful in the
reinstatement of our first European patent and if the European Patent Office
does not grant us another patent that we can maintain after any opposition.
Our phage display patent rights are central to our non-exclusive patent
licensing program. We offer non-exclusive licenses under our phage display
patent rights to companies and non-profit institutes in the fields of
therapeutics and IN VITRO diagnostics. In jurisdictions where we have not
applied for, obtained or maintained patent rights, we will be unable to prevent
others from developing or selling products or technologies derived using phage
display. In addition, in jurisdictions where we have phage display patent
rights, we cannot assure you that we will be able to prevent others from selling
or importing products or technologies derived using phage display.
Presently, we are engaged in a United States court proceeding relating to
patents owned by a third party. George Pieczenik and I.C. Technologies
America, Inc. have sued us for patent infringement of United States patents Nos.
5,866,363, 4,528,266 and 4,359,535. The amended complaint filed March 13, 2000
alleges that our licensing of our phage display patents rights infringes these
patents. In addition, plaintiffs have contended that we make, use, sell or offer
to sell methods and products that infringe the patents. We have moved to dismiss
the action on several grounds. Although we cannot predict the outcome of this
litigation, we believe that the lawsuit is unlikely to have a material adverse
effect on our business.
We are aware that other parties have patents and pending applications to various
products and processes relating to phage display technology. Through licensing
our phage display patent rights, we have secured a limited ability to practice
under some of the third party patent rights relating to phage display
technology. These rights are a result of our standard license agreement, which
contains a covenant by the licensee that it will not sue us under the licensee's
phage display improvement
41
<PAGE>
patents. In addition, we may seek affirmative rights of license or ownership
under patent rights relating to phage display technology owned by other parties.
If we are unable to obtain and maintain such covenants and licenses on
reasonable terms it could have a material adverse effect on our business.
We have filed, and in the future we may file more, oppositions or other
challenges to patents issued to others. To date, we have filed oppositions
against two European patents relating to the phage display field. We do not
believe these European patents cover any of our present activities, but we
cannot predict whether the claims in these patents may, in their current or
future form, cover our future activities. If any of these patents do cover any
of our activities, then our activities in Europe may be affected unless licenses
are available to them on reasonable terms.
Patent positions are complex in the fields of biotechnology, biopharmaceutical
and diagnostic products and separation processes and products. In order for us
to commercialize a process or product, we may need to license the patent rights
of other parties. We are aware of certain patents for which we may need to
obtain licenses to commercialize some of our products and technologies. While we
believe that we will be able to obtain such licenses, we cannot assure you that
these licenses, or licenses to other patent rights that we identify as necessary
in the future, will be available on reasonable terms, if at all. If we decide
not to seek a license, or if licenses are not available on reasonable terms, we
may become subject to infringement claims or other legal proceedings, which
could result in substantial legal expenses. If we are unsuccessful in these
actions, adverse decisions may prevent us from commercializing the affected
process or products.
In all of our activities, we substantially rely on proprietary materials and
information, trade secrets and know-how to conduct research and development
activities and to attract and retain collaborative partners, licensees and
customers. Although we take steps to protect these materials and information,
including through the use of confidentiality and other agreements with our
employees, consultants and in academic and commercial relationships, we cannot
assure you that these steps will be adequate, that these agreements will not be
violated, that there will be an available or sufficient remedy for any such
violation or that others will not also develop similar proprietary information.
GOVERNMENT REGULATION
The production and marketing of any of our future biopharmaceutical or
diagnostic products will be subject to numerous governmental laws and
regulations on safety, effectiveness and quality, both in the United States and
in other countries where we intend to sell the products. In addition, our
research and development activities in the United States are subject to various
health and safety, employment and other laws and regulations.
UNITED STATES FDA APPROVAL
In the United States, the U.S. Food & Drug Administration subjects products
intended for IN VITRO diagnostic use and IN VIVO diagnostic and therapeutic use
in humans to rigorous regulation. In addition, products intended for use in the
manufacture of these products, such as separations equipment, are subject to
certain FDA manufacture and quality standards.
The steps required before a new pharmaceutical or IN VIVO diagnostic product can
be sold in the United States include:
- preclinical tests;
- submission of an Investigative New Drug Application to the FDA which must
become effective before initial human clinical testing can begin;
- human clinical trials to establish safety and effectiveness of the product,
which normally occurs in three phases monitored by the FDA;
- submission and approval by the FDA of a New Drug or Biologics License
Application; and
- compliance with the FDA's Good Manufacturing Practices regulations and
facility and equipment validation and inspection.
The requirements for testing and approval for IN VITRO diagnostic products may
be somewhat less onerous than for pharmaceutical products, but similar steps are
required. All our biopharmaceutical or diagnostic product leads, including our
neutrophil elastase inhibitor Reltran-TM-, our plasma kallikrein inhibitor
DX-88, or the products of our collaborators and licensees, will need to complete
successfully the FDA-required testing and approvals.
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Some of our separations products are intended for use in the manufacturing
processes of clinical grade and commercial grade therapeutic and diagnostic
products. These separations products, therefore, must be manufactured and
delivered in accordance with Good Manufacturing Practices requirements, and
other applicable rules and regulations. The customer may also be required to
comply with other quality and inspection regulations prior to use. We have not
yet produced any separations products under Good Manufacturing Practices
conditions. There can be no assurance that we or our customers will be
successful in complying with FDA and other regulations to permit the full
clinical and commercial use of our separations products.
FOREIGN REGULATORY APPROVAL
In many countries outside the United States governmental authorities similar to
the FDA must approve the testing and marketing of pharmaceutical and diagnostic
products. These approval procedures vary from country to country and can involve
additional testing. The time required may differ from that required for FDA
approval. Although there are some procedures for unified filings for some
European countries with the sponsorship of the country which first granted
marketing approval, in general each country has its own procedures and
requirements, many of which are time consuming and expensive. Thus, there can be
substantial delays in obtaining required approvals from foreign regulatory
authorities after the relevant applications are filed.
In Europe, for example, marketing authorizations, which may apply to our
products and our collaborators and licensees, may be submitted at a centralized,
a decentralized or a national level. The centralized procedure is mandatory for
the approval of biotechnology products and provides for the grant of a single
marketing authorization, which is valid in all European Union member states. As
of January 1995, a mutual recognition procedure is available at the request of
the applicant for all medicinal products that are not subject to the centralized
procedure. Additionally, national laws of European Community member states
govern clinical trials, manufacturing procedures, advertising and promotion and
pricing and reimbursement. The export of unapproved products to foreign
countries for testing, approval, or marketing is subject to United States law
and that of the importing country, and may require FDA approval.
ENVIRONMENTAL, HEALTH, SAFETY AND OTHER REGULATIONS
In addition to the laws and regulations that apply to the development,
manufacture and sale of our products, our operations are subject to numerous
foreign, federal, state and local laws and regulations. Our research and
development activities involve the controlled use, storage, handling and
disposal of hazardous materials, chemicals and radioactive compounds and, as a
result, we are required to comply with regulations and standards of the
Occupational Safety and Health Act, Nuclear Regulatory Commission and other
safety and environmental laws. Although we believe that our activities currently
comply with all applicable laws and regulations, the risk of accidental
contamination or injury cannot be completely eliminated. In the event of such an
accident, we could be held liable for any damages that result, which could have
a material adverse affect on our business, financial condition and results of
operations.
MANUFACTURING
We manufacture and sell chromatography systems and cartridges. Subcontractors
manufacture components for chromatography systems to our specifications. We
purchase commercial media for certain prepacked cartridges, which we repack and
sell in disposable cartridges. A small number of components of our
chromatography systems are currently purchased from single sources. However, we
believe that alternative sources for these components are readily available, if
necessary, and that we will be able to enter into acceptable agreements to
obtain these components from such alternate sources at similar costs with only a
temporary disruption or delay in production.
For our new affinity separations products, we plan to supply separations media
containing phage display-derived affinity ligands directly to customers and
collaborative partners, and may from time to time license a third party to
supply its own requirements. For those affinity separations products which we
are developing for use in a customer's or collaborative partner's clinical or
commercial manufacturing processes, we will need to manufacture the products
under highly controlled conditions. We have not yet established a facility to
manufacture affinity separations products under these conditions, and we may not
be able to do so by the time such facility is needed. We are currently
contracting the production of affinity ligands from manufacturers who have
appropriate facilities; however, should this situation change, our inability to
obtain these components could have a material adverse effect on our business,
financial condition or results of operations.
43
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In addition, we currently plan to rely on third party manufacturers for
production of our biopharmaceutical leads for both development and commercial
quantities. We are currently contracting the production of DX-88 from
manufacturers who have facilities that comply with Good Manufacturing Practices.
We cannot assure you that these third parties will be able to complete
successfully on our behalf the required preclinical studies, clinical
development, regulatory approval, manufacturing and marketing of any such
biopharmaceutical products.
SALES AND MARKETING
For the biopharmaceutical and diagnostic products that result from our research
and development efforts, we primarily plan to commercialize these products
through licensing, marketing, offering and other arrangements with
pharmaceutical and diagnostic companies. If we decide to market and sell any of
these products ourselves, we do not expect to establish direct sales capability
until shortly before the products are approved for commercial sale.
Our Biotage separations business has a sales and marketing group of 20 people in
the United States and Europe. We also sell these products via stocking
distributors. In selected countries we sell Biotage products via independent
distributors. As new products are introduced and the market for our Biotage
products grows, we anticipate increasing our direct marketing and sales
capacity.
For the custom affinity separations products business, we have ongoing marketing
efforts to develop new collaborative arrangements. For other affinity ligand
products that we may develop outside of a collaborative arrangement, we plan to
market and sell the ligands, either as stand-alone products or integrated with
separations media and equipment, through a combination of direct sales,
distributors and other marketing arrangements.
FACILITIES
We currently lease and occupy 30,100 square feet of laboratory and office space
in Cambridge, Massachusetts under three leases, as well as 28,200 square feet of
manufacturing, office and storage space in Charlottesville, Virginia. The leases
for the Cambridge facilities expire in December 2000, June 2001 with monthly
options to extend the lease term through December 2001, and June 2002. The lease
for the Charlottesville facility expires in April 2002. We also lease
approximately 4,000 square feet of office space in the United Kingdom to support
marketing efforts for our Biotage label products and 3,100 square feet of
laboratory and office space in the Netherlands to support research efforts. We
believe that our current space is adequate for our needs through 2001 and that
we will be able to obtain additional space, as needed, on commercially
reasonable terms.
LEGAL PROCEEDING
Except for the proceedings described in the Patents and Proprietary Rights
section above, we are not a party to any material legal proceedings.
EMPLOYEES
As of July 1, 2000, we had 152 employees, including 28 Ph.Ds and one M.D.
Approximately 62 of our employees are in research and development, 25 in
manufacturing, 35 in sales and marketing and 30 in administration. Our workforce
is predominantly non-unionized, and we believe that our relations with employees
are good.
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STRATEGIC AND SCIENTIFIC ADVISORS
We have a Strategic Advisory Committee as well as scientific advisory boards for
the therapeutics and diagnostics and for separations research programs. Members
of the Strategic Advisory Committee meet with our management on a quarterly
basis and, like the members of the scientific advisory boards, are available to
our management and scientific staff on an as-needed basis for consultation in
their respective areas of expertise. All of the advisors are employed by and/or
have consulting arrangements with other entities and are expected to devote only
a small portion of their time to Dyax. No advisor is employed by Dyax. Advisors'
other commitments to or consulting or advisory contracts with their employers or
other entities may conflict or compete with their obligations to Dyax.
Our advisors are paid an annual retainer for attending meetings, reimbursed for
their expenses and have been granted options to purchase common stock under our
1995 Equity Incentive Plan. We have entered into consulting agreements with a
number of the Scientific Advisory Board members. The agreements generally are
subject to termination by either party with advance notice.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADVISOR
NAME PROFESSIONAL AFFILIATION SINCE
------------------------------------------------------------------------------------------------------
STRATEGIC ADVISORS
Charles L. Cooney, Ph.D.*.................... Professor, Department of Chemical and 1992
Biochemical Engineering and Executive
Officer, Department of Chemical Engineering,
Massachusetts Institute of Technology.
Peter Feinstein.............................. Managing Director, Feinstein Kean Healthcare 1997
and Kendall Strategies Inc.
James W. Fordyce............................. Managing General Partner, Prince Ventures LP, 1997
and President, Albert and Mary Lasker
Foundation.
John G. Gorman, M.D.......................... Professor of Pathology, New York University 1998
School of Medicine and Former Director, Blood
Bank, NYU.
Harvey F. Lodish, Ph.D....................... Professor of Biology, Massachusetts Institute 1997
of Technology and Member, Whitehead Institute
for Biomedical Research.
Erkki Ruoslahti, M.D., Ph.D.................. President and Chief Executive Officer, 1999
Burnham Institute.
William A. Scott, Ph.D....................... President and Chief Executive Officer, 1997
Physiome Sciences, Inc., and previously
Senior Vice President of Exploratory and Drug
Discovery Research, Bristol-Myers Squibb
Pharmaceutical Research Institute.
Thomas P. Stossel, M.D.**.................... American Cancer Society Professor of 1995
Medicine, Harvard Medical School, and Senior
Physician, Hematology-Oncology Division,
Brigham and Women's Hospital.
Henri A. Termeer............................. Chairman, President and Chief Executive 1997
Officer, Genzyme Corporation.
Christopher T. Walsh, Ph.D................... Hamilton Kuhn Professor, Department of 1997
Biological Chemistry and Molecular
Pharmacology, Harvard Medical School.
George M. Whitesides, Ph.D.**................ Mallinckrodt Professor of Chemistry, Harvard 1995
University.
Peter Wirth, Esq............................. Executive Vice President and Chief Legal 1997
Officer, Genzyme Corporation.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADVISOR
NAME PROFESSIONAL AFFILIATION SINCE
------------------------------------------------------------------------------------------------------
SCIENTIFIC ADVISORS--THERAPEUTICS AND IMAGING
Thomas J. Brady, M.D......................... Director, Nuclear MRI Center, Massachusetts 1996
General Hospital; Professor of Radiology,
Harvard Medical School.
Leonard Guarente, Ph.D....................... Professor of Biology, Massachusetts Institute 1995
of Technology.
Jordan Gutterman, M.D........................ Virginia Cockrell Professor of Medicine, 1996
University of Texas, M.D. Anderson Cancer
Center.
Phillip W. Robbins, Ph.D..................... Professor of Biochemistry, Massachusetts 1995
Institute of Technology.
Thomas M. Roberts, Ph.D...................... Chair, Department of Cancer Biology at Dana 1995
Farber Cancer Institute; Chair, Division of
Medical Sciences and Professor of Pathology,
Harvard Medical School.
H. William Strauss, M.D...................... Chief, Division of Nuclear Medicine, Stanford 1998
University.
Ralph Weissleder, M.D., Ph.D................. Director, Center for Molecular Imaging 1998
Research, Massachusetts General Hospital.
Andrew Wright, Ph.D.......................... Professor of Microbiology, Tufts University 1995
Medical School.
SCIENTIFIC ADVISORS--SEPARATIONS
Hubert Koster, Ph.D.......................... Professor of Chemistry and Biochemistry, 1997
University of Hamburg; President and Chief
Executive Officer, Sequenom, Inc.
Jack Johanssen, Ph.D......................... President and CEO, Boston Probes, Inc. 1997
Irving W. Wainer, Ph.D....................... Professor of Pharmacology, Georgetown 1996
University Medical Center; Director,
Georgetown University Bioanalytical Center.
</TABLE>
* Dr. Cooney is also a member of Scientific Advisors--Therapeutics and
Imaging, and Scientific Advisors--Separations.
** Drs. Stossel and Whitesides are members of our Scientific
Advisors--Therapeutic and Imaging.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below lists our executive officers and directors as of July 1, 2000:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
---------------------------------------------------------------------------------------------------------
Henry E. Blair................................ 56 Chairman of the Board, President and Chief
Executive Officer
Gregory D. Phelps............................. 51 Vice Chairman of the Board
L. Edward Cannon, Ph.D........................ 53 Executive Vice President, President,
Therapeutic and Imaging Division and Director
Robert A. Dishman, Ph.D....................... 56 Executive Vice President, President,
Separations Division and Director
Stephen S. Galliker........................... 53 Executive Vice President, Finance and
Administration, and Chief Financial Officer
Robert Charles Ladner, Ph.D................... 55 Senior Vice President and Chief Science
Officer
Constantine E. Anagnostopoulos, Ph.D. (1)..... 77 Director
James W. Fordyce (1).......................... 54 Director
Thomas L. Kempner (2)......................... 72 Director
Henry R. Lewis, Ph.D. (1)(2).................. 74 Director
John W. Littlechild........................... 48 Director
Alix Marduel, M.D............................. 42 Director
David J. McLachlan (2)........................ 61 Director
</TABLE>
------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
HENRY E. BLAIR has served as the Chairman of the Board and President of Dyax
since the merger of Protein Engineering Corporation with Dyax in August 1995 and
as acting Chief Executive Officer from August 1995 until his appointment as
Chief Executive Officer in April 1997. He also served as a director and officer
of Dyax since its formation in 1989. Mr. Blair is also a director of and
consultant to Genzyme Corporation, a biotechnology company, which he co-founded
in 1981. Mr. Blair also co-founded Biocode, Inc. and GelTex
Pharmaceuticals, Inc. In addition, he is a director of Celtrix
Pharmaceuticals, Inc. and Genzyme Transgenics Corporation and a member of the
Board of Overseers at both Tufts University School of Medicine and the Lahey
Hitchcock Clinic.
GREGORY D. PHELPS has been Vice Chairman and a director of Dyax since
August 1998. Mr. Phelps was an executive officer of Genzyme from 1991 to 1997,
most recently as Executive Vice President. At Genzyme, he supervised the
company's therapeutics business, research and development and corporate
development activities. Mr. Phelps served as Chief Executive Officer of
Viagene, Inc., a biotechnology company, from 1988 to 1990. Mr. Phelps presently
serves as a director of Ostex International, Inc. and as a director of Atlantic
BioPharmaceuticals, Inc.
L. EDWARD CANNON, PH.D. has served as Executive Vice President of Dyax and
President of the Therapeutics and Diagnostics Division since 1995. He served as
the Chief Executive Officer and held other senior management roles at Protein
Engineering Corporation from October 1992 to August 1995 and has been a director
of Dyax since its merger with Protein Engineering Corporation. Dr. Cannon
founded Hygeia Sciences, Inc. in 1980 and served as its Chief Scientific Officer
and Senior Vice President from 1986 to 1991.
ROBERT A. DISHMAN, PH.D. has served as Executive Vice President of Dyax and
President of the Separations Division since the merger of Protein Engineering
Corporation with Dyax and has been a director since April 1994. He was President
and Chief Executive Officer of Dyax from April 1994 until August 1995. Prior to
April 1994, Dr. Dishman co-founded and served as Chief Executive Officer of the
predecessor of ArQule Inc. and served as Executive Vice President and Chief
Operating Officer of
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Sepracor, Inc. Dr. Dishman also served as President of Millipore's MilliGen
bioscience Division, which he founded, and Vice President, Business, Development
and Marketing, of Millipore's Waters Chromatography Division.
STEPHEN S. GALLIKER has served Dyax as Executive Vice President Finance and
Administration, and Chief Financial Officer since September 1999. He was Chief
Financial Officer of Excel Switching Corporation, a developer and manufacturer
of open switching platforms for telecommunications networks, from July 1996 to
September 1999 and was Excel's Vice President, Finance and Administration from
September 1997. Mr. Galliker was employed by Ultracision, Inc., a developer and
manufacturer of ultrasonically powered surgical instruments from September 1992
to June 1996. At Ultracision, Inc., Mr. Galliker was Chief Financial Officer and
Vice President of Finance until November 1995 and Chief Operating Officer from
December 1995 to June 1996.
ROBERT CHARLES LADNER, PH.D. joined Dyax as Senior Vice President and Chief
Science Officer in August 1995. He was a co-founder of Protein Engineering
Corporation where he served as Senior Vice President and Scientific Director
from 1987 until its merger with Dyax. Previously, Dr. Ladner served as Senior
Scientist of Genex Corp., where he was an inventor of single chain antibodies.
CONSTANTINE E. ANAGNOSTOPOULOS, PH.D. has been a director of Dyax since 1991. He
is a Managing General Partner of Gateway Associates L.P., a venture capital
management firm which is the general partner of Gateway Venture Partners II and
Gateway Venture Partners III. Dr. Anagnostopoulos was formerly a corporate
officer of Monsanto Company. He is also a director of Genzyme Corporation.
JAMES W. FORDYCE has been a director of Dyax since August 1995. Since 1981, he
has served as a general partner of Prince Ventures Partners LP, a venture
capital management firm, and its affiliated partnerships. Prince Venture
Partners IV is a venture capital limited partnership, managed by Prince Ventures
LP, which specializes in early stage investments in companies involved in the
medical and life science areas. He is also President of the Albert and Mary
Lasker Foundation.
THOMAS L. KEMPNER has been a director of Dyax since August 1995 and previously
was a director of Protein Engineering Corporation. Mr. Kempner is the Chairman
and Chief Executive Officer of Loeb Partners Corporation, an investment banking,
registered broker/dealer and registered investment advisory firm. He is also
President of Loeb Partners Corporation, the general partner of the Loeb
Investment Partnerships. Mr. Kempner is also a director of Alcide Corporation,
CCC Information Services Group, Inc., Evercel, Inc., FuelCell Energy, IGENE
BioTechnology, Inc., Insight Communications Company, Inc., Intermagnetics
General Corporation, and Roper Starch Worldwide, Inc.
HENRY R. LEWIS, PH.D. has been a director of Dyax since August 1995 and
previously was a director of Protein Engineering Corporation. Mr. Lewis is a
consultant to several companies. From 1986 to February 1991, Mr. Lewis was the
Vice Chairman of the board of directors of Dennison Manufacturing Company, a
manufacturer and distributor of products for the stationery, technical paper and
industrial and retail systems markets. From 1982 to 1986, he was a Senior Vice
President of Dennison Manufacturing Company. Mr. Lewis is also a director of
Genzyme Corporation.
JOHN W. LITTLECHILD has been a director of Dyax since 1998. Mr. Littlechild is a
general partner of HealthCare Partners, V, which is the general partner of
HealthCare Ventures V, L.P. He also serves in a similar capacity with other
related entities. Mr. Littlechild is also a member of HealthCare Ventures LLC a
venture management company that, among other things, provides management
services to HealthCare Ventures V, L.P., and its related entities. From 1984 to
1991, Mr. Littlechild was a Senior Vice President of Advent International
Corporation, a venture capital company in Boston and London. Prior to working at
Advent in Boston, Mr. Littlechild was involved in establishing Advent in the
United Kingdom. Mr. Littlechild serves on the board of directors of various
health care and biotechnology companies, including AVANT
Immunotherapeutics, Inc., and Diacrin, Inc., which are biotechnology companies,
and Orthofix International N.V., a medical device company.
ALIX MARDUEL, M.D. has been a director of Dyax since October 1998. Since 1997,
she has been a general partner of Alta Partners, a venture capital partnership
investing in information technologies and life science companies. Prior to
joining Alta Partners, from 1990 to 1997 Dr. Marduel managed investments in
medical companies for Sofinnova, Inc., a venture capital company.
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<PAGE>
DAVID J. MCLACHLAN has been a director of Dyax since May 1999. Mr. McLachlan has
been a consultant to Genzyme Corporation since June 1999. He was Genzyme's Chief
Financial Officer and Executive Vice President from 1989 to 1999. He currently
serves as a director of Aronex Pharmaceuticals, Inc., a biotechnology company;
Hearx, Ltd., a hearing care company; and the Massachusetts Biotechnology
Council.
BOARD OF DIRECTORS
The size of the board of directors is currently set at eleven members. There are
no family relationships among any of the directors or executive officers.
Our certificate of incorporation gives the holders of each series of the
Class A Series 3, Class A Series 4, and Class A Series 5 Preferred Stock the
right to elect one director. These rights will terminate upon the closing of
this offering, when all outstanding preferred stock converts automatically into
common stock. All directors hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified. Officers
serve until the next annual meeting of the board of directors, or until their
earlier death, resignation or removal.
AUDIT COMMITTEE
The Audit Committee provides the board of directors with an independent review
of our financial health and of the reliability of our financial controls and
financial reporting systems. The Audit Committee, which consists of Dr. Lewis
(Chair), Mr. Kempner and Mr. McLachlan, reviews our financial controls,
evaluates the scope of the annual audit, reviews audit results, consults with
management and our independent accountants prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries
into aspects of our internal accounting controls and financial affairs.
COMPENSATION COMMITTEE
The Compensation Committee determines the compensation of our executive
officers, including the Chief Executive Officer. The Compensation Committee also
administers our Amended and Restated 1995 Equity Incentive Plan and loans to
officers. The Compensation Committee consists of Mr. Fordyce (Chair),
Dr. Anagnostopoulos, and Dr. Lewis.
DIRECTOR COMPENSATION
Directors who are also our employees receive no additional compensation for
serving as directors. Our non-employee directors receive $12,000 per year as
compensation for their services as directors. We pay non-employee directors who
serve as the chairman of a committee of the board of directors an additional
$3,000 per year. In addition, all of our non-employee directors are eligible to
receive stock options under the Company's Amended and Restated 1995 Equity
Incentive Plan.
In October 1998, we granted Dr. Anagnostopoulos, Mr. Fordyce, Mr. Kempner and
Mr. Lewis options to purchase 19,560 shares of common stock at an exercise price
of $2.00 per share in substitution for options we granted to them in
January 1998. The shares underlying these options immediately vested with
respect to 13,040 shares and the remaining 6,520 shares vested on June 29, 2000.
In November 1999, we granted options to all of our non-employee directors to
purchase shares of our common stock at an exercise price of $2.00 per share.
Dr. Anagnostopoulos, Mr. Fordyce, Mr. Kempner and Mr. Lewis were granted options
to purchase 5,000 shares which will vest on the earlier of our 2001 annual
stockholders' meeting or June 30, 2001. We granted Mr. Littlechild and
Dr. Marduel options to purchase 20,000 shares, which were vested immediately
with respect to 10,000 shares, with an additional 5,000 shares that vested on
June 29, 2000, and the remaining 5,000 shares to vest on the earlier of our 2001
annual stockholders' meeting or June 30, 2001. We also granted Mr. McLachlan an
option to purchase 15,000 shares, which were vested immediately with respect to
5,000 shares, with an additional 5,000 shares that vested on June 29, 2000, and
the remaining 5,000 shares to vest on the earlier of our 2001 annual
stockholders' meeting or June 30, 2001.
49
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid to or earned during the
fiscal year ended December 31, 1999 for our Chief Executive Officer and our four
most highly compensated executive officers. We refer to these persons as the
named executive officers. For additional compensation information, see the
section of this prospectus entitled "Employment Agreements."
<TABLE>
--------------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
------------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDER-LYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS/SARS COMPENSATION(1)
---------------------------------------------- -------- -------- ------------------ ------------
<S> <C> <C> <C> <C>
Henry E. Blair................................ $324,869 $100,000 30,000 $ 131
President and Chief Executive Officer
Gregory D. Phelps............................. 228,916 50,000 15,000 84
Vice-Chairman of the Board
Robert A. Dishman, Ph.D....................... 210,421 41,250 15,000 25,941(2)
Executive Vice President
L. Edward Cannon, Ph.D........................ 197,558 50,000 48,000 84
Executive Vice President
Stephen S. Galliker(3)........................ 51,210 16,667 137,500 21
Executive Vice President and Chief Financial
Officer
</TABLE>
------------------------
(1) Represents group term life insurance premiums paid by us.
(2) Consists of a group life insurance premium of $131 plus $25,810 in interest
forgiven on a loan made to Dr. Dishman in 1998. See "Certain Relationships
and Related Transactions."
(3) Mr. Galliker joined us in August 1999. His initial salary is $185,000 per
year. Upon joining us Mr. Galliker purchased 25,000 shares of common stock
and 22,500 shares of restricted common stock at fair market value. The
25,000 shares of common stock vested immediately upon purchase and the
22,500 shares of restricted stock vest in 24 substantially equal monthly
installments beginning October 1, 1999.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table contains certain information regarding options we granted to
our named executive officers during the twelve months ended December 31, 1999.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INDIVIDUAL GRANTS
---------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE
OPTIONS/SARS VALUE AT ASSUMED ANNUAL
NUMBER OF GRANTED TO RATES OF STOCK PRICE
SECURITIES EMPLOYEES APPRECIATION FOR OPTION
UNDERLYING IN EXERCISE TERM(2)
OPTION/SARS FISCAL OR BASE EXPIRATION -----------------------
NAME GRANTED YEAR(1) PRICE DATE 5% 10%
----------------------------------- --------- ----------- -------- -------- ---------- ----------
Henry E. Blair..................... 30,000 3.3% $2.00 10/29/09 $ 558,478 $ 848,880
Gregory D. Phelps.................. 15,000 1.7 2.00 10/29/09 279,239 424,440
Robert A. Dishman, Ph.D............ 15,000 1.7 2.00 10/29/09 279,239 424,440
L. Edward Cannon, Ph.D............. 33,000 3.6 2.00 7/14/09 614,325 933,768
15,000 1.7 2.00 10/14/09 279,239 424,440
Stephen S. Galliker................ 52,500 5.8 2.00 9/9/09 977,336 1,485,540
75,000 8.3 2.00 9/9/09 1,396,195 2,122,200
10,000 1.1 2.00 10/29/09 186,159 282,960
</TABLE>
------------------------
(1) Based on an aggregate of 906,220 options that we granted in the year ended
December 31, 1999 to our employees and consultants, including the named
executive officers.
(2) The dollar amounts under these columns are the result of calculations at
rates set by the SEC and, therefore, are not intended to forecast possible
future appreciation, if any, in the price of the underlying common stock.
The potential realizable values are calculated on the basis of an assumed
initial public offering price of $14.00 per share, assume that the market
price appreciates from this price at the indicated rate for the entire term
of each option and that each option is exercised and sold on the last day of
its term at the appreciated price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table below contains certain information concerning options held
by our named executive officers as of December 31, 1999.
<TABLE>
<CAPTION>
-----------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END(1) FISCAL YEAR-END(2)
--------------------- -----------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------------------------ -------- ---------- ---------- ----------
Henry E. Blair........................................ 35,030 68,870 $ 432,809 $ 836,973
Gregory D. Phelps..................................... 62,125 110,875 745,500 1,330,500
Robert A. Dishman, Ph.D............................... 77,395 28,143 928,740 337,716
L. Edward Cannon, Ph.D................................ 100,654 70,034 1,338,622 848,835
Stephen S. Galliker................................... 11,668 125,832 140,016 1,509,984
</TABLE>
------------------------
(1) None of the named executive officers exercised options in 1999.
(2) Based on the difference between the option exercise price and the assumed
initial public offering price of $14.00 per share of common stock.
EMPLOYMENT AGREEMENTS
Our only executive officers with employment agreements are Dr. Dishman,
Dr. Ladner, Mr. Galliker and Mr. Phelps.
Dr. Dishman's employment agreement, dated February 18, 1998, entitles him to an
annual base salary of at least $200,000. If we terminate Dr. Dishman without
cause, we must pay him his annual base salary rate for six months. These
payments
51
<PAGE>
continue for up to an additional six months if Dr. Dishman does not obtain
comparable employment. We may reduce these payments by any amounts earned by
Dr. Dishman during this period. In addition, his unvested stock options
accelerate and become immediately exercisable. We also granted Dr. Dishman a
restricted stock award to purchase 78,240 shares of our common stock at a price
of $4.60 per share. Upon his purchase of the restricted stock and his exercise
in full of an earlier option to purchase 37,490 shares of our common stock, we
loaned Dr. Dishman an aggregate of $453,600 in exchange for his issuance to us
of two promissory notes for $360,000 and $93,600. The notes are secured by the
shares of common stock purchased under the restricted stock award and the option
exercise. These notes are payable in four years, and are subject to
acceleration. These loans are due and payable on the earlier of February 18,
2002 or the last trading date under our then applicable insider trading policy
during the trading period immediately after the second quarterly earnings
announcement made after the expiration of his lock-up agreement. As long as
Dr. Dishman remains our employee, we will forgive all interest accrued on the
notes annually or through the date of any earlier termination of his employment.
Dr. Ladner's employment agreement terminates in August 2001. He is entitled to
receive a minimum base salary of $172,000 under his employment agreement. If we
terminate Dr. Ladner without cause, we must pay him his annual base salary for
one year and 50% of his vested options will become exercisable.
Mr. Galliker is entitled to receive a minimum base salary of $185,000 under his
employment agreement. We will also pay Mr. Galliker a housing allowance of
$15,000 a year until he finds permanent housing in the Cambridge area.
Mr. Galliker received three option grants, giving him options to purchase a
total of 137,500 shares of our common stock at an exercise price of $2.00 per
share. These options become exercisable as to 3,750 shares per month during the
first two years of Mr. Galliker's employment and as to approximately 1,771
shares per month during the third and fourth years of his employment. Pursuant
to the terms of his agreement, Mr. Galliker purchased 22,500 shares of
restricted common stock. We have the right to repurchase these shares from
Mr. Galliker if his employment with us terminates, but this repurchase right
lapses in monthly installments over a two-year period, and will lapse in its
entirety upon the closing of this offering. Mr. Galliker also purchased 25,000
shares of common stock at $2.00 per share which are not subject to a repurchase
option. We have a right of first refusal if Mr. Galliker transfers these shares.
If we terminate Mr. Galliker's employment without cause, we must continue to pay
him at his current salary for six months, reduced by any compensation that
Mr. Galliker earns for other work performed during this six-month period. The
agreement also provides that 50% of Mr. Galliker's unvested shares of restricted
common stock and 50% of his unvested options will become immediately exercisable
following a change in control of the company if his employment is terminated or
he resigns because the terms of his employment have been adversely changed.
Mr. Phelps is entitled to an annual base salary of $200,000 under his employment
agreement. In addition, we granted Mr. Phelps options to purchase a total of
148,000 shares of common stock at an exercise price of $2.00 per share. In
consideration of this grant, Mr. Phelps agreed to cancel an option to purchase
48,000 shares that he had previously received while he was a consultant. These
options become exercisable in substantially equal monthly installments over a
four-year period. Mr. Phelps's employment agreement provides that if we
terminate him for any reason, 50% of his unvested options will become
immediately exercisable. The agreement also provides that 50% of Mr. Phelps'
unvested options will become immediately exercisable following a change in
control of the company if he is terminated or quits because the terms of his
employment have been adversely changed.
STOCK PLANS
AMENDED AND RESTATED 1995 EQUITY INCENTIVE PLAN
We adopted our 1995 Equity Incentive Plan in August 1995. We amended and
restated the plan in January 1998. The Amended and Restated 1995 Equity
Incentive Plan gives us flexibility in awarding equity incentives by permitting
multiple types of incentives. The plan's purposes are:
- to attract and retain our key employees, consultants and directors; and
- to enable those employees, consultants and directors to participate in our
long-term growth.
Our equity plan provides for the grant of stock options, stock appreciation
rights, performance shares, restricted stock or stock units for the purchase of
an aggregate of 3,364,200 shares of our common stock of which 320,143 shares
remain available for future grants, subject to adjustment to reflect stock
splits and similar capital changes, to officers, employees and other
52
<PAGE>
individuals. The board of directors has appointed the compensation committee to
administer this equity plan. The compensation committee selects the participants
and establishes the terms and conditions of each option or other equity right
granted under the 1995 Equity Incentive Plan The compensation committee has
broad discretion to set these terms, except that all incentive stock options
must have an exercise price at least equal to 100% of the fair market value of
the underlying shares on the date of grant, and the term of any incentive stock
option may not exceed ten years. The purpose of these restrictions is to ensure
that incentive stock options qualify for favorable tax treatment under
Section 422 of the Internal Revenue Code.
As of July 1, 2000, we had outstanding under our 1995 Equity Incentive Plan
options to purchase 2,333,472 shares of common stock, of which options to
purchase 1,139,390 shares were exercisable as of that date. We had issued an
aggregate of 710,585 shares under the plan, consisting of 470,745 shares issued
upon exercise of stock options and 239,840 shares of restricted common stock. As
of July 1, 2000, 320,143 shares of common stock remained available for future
grants under this plan. The board of directors and stockholders have approved an
increase in the number of shares reserved for issuance under the 1995 Equity
Incentive Plan to 4,500,000 shares effective upon the completion of this
offering.
1998 EMPLOYEE STOCK PURCHASE PLAN
We adopted the 1998 Employee Stock Purchase Plan in January 1998. Under this
plan, our employees may purchase shares of our common stock at a discount from
fair market value. We have reserved 97,800 shares of common stock for issuance
under this plan. To date, we have not issued any shares under this plan.
The 1998 Employee Stock Purchase Plan is intended to qualify as an employee
stock purchase plan, within the meaning of Section 423 of the Internal Revenue
Code. The compensation committee has discretion to grant rights to purchase
stock under the plan and to determine other terms and conditions of grants under
the plan. The purchase price per share of common stock is 85% of the lesser of
its fair market value at the beginning of the offering period or on the
applicable exercise date. Employees may pay the purchase price through payroll
deductions, periodic lump-sum payments, or a combination of both. Eligible
employees participate voluntarily, and they may withdraw from any offering at
any time before stock is purchased. The 1998 Employee Stock Purchase Plan will
terminate on January 30, 2008.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee determines salaries, incentives and other
compensation for our directors and officers. The compensation committee also
administers incentive compensation and benefit plans. For more information, see
the discussion of "Stock Plans" earlier in this section. The compensation
committee currently consists of Dr. Anagnostopoulos, Dr. Lewis, and
Mr. Fordyce. For more information, see the sections of this prospectus entitled
"Principal Stockholders" and "Certain Relationships and Related Transactions."
53
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Blair serves as an outside director of and consultant to Genzyme
Corporation. Two of our other directors, Constantine Anagnostopoulos and Henry
Lewis, are also directors of Genzyme. We sublease a portion of our facilities in
Cambridge, Massachusetts, from Genzyme pursuant to a lease we entered into on
September 21, 1996. This sublease was amended on December 31, 1997, and has been
extended on two occasions. The most recent extension expires on June 30, 2001.
We have an option to extend that period until the end of 2001. The size of the
facilities we sublease from Genzyme is 16,183 square feet, and the rent is
currently $40 per square foot. We believe these terms are neither more nor less
favorable than we would have received if we had leased a comparable facility
from a third party.
In October 1998, we loaned $1,300,000 to Henry Blair, our Chairman and Chief
Executive Officer, in connection with a purchase of real property. This loan was
secured by Mr. Blair's interest in the real property and by his shares of our
capital stock. Interest accrues on the unpaid principal balance at the rate of
one and a half percent less than the base rate of Fleet National Bank, provided
that the interest rate will not be less than the minimum rate required to avoid
imputed interest for federal tax purposes. As modified pursuant to a resolution
of the board of directors in March 2000, this loan is due and payable whenever
the Compensation Committee determines that repayment is in the best interest of
Dyax, and in any event (i) if Mr. Blair ceases to be our Chairman and Chief
Executive Officer; (ii) if our cash and marketable investments total less than
$10,000,000; or (iii) on the last trading date under our then applicable insider
trading policy during the trading period immediately after the second quarterly
earnings announcement made after the expiration of his lock-up agreement. As of
May 15, 2000, the full principal amount remained outstanding under this loan.
In February 1998, we loaned Robert Dishman, an Executive Vice President and one
of our directors, an aggregate of $453,600 to enable him to purchase restricted
stock and exercise an option to purchase common stock. These loans are described
more fully under Management--Employment Agreements. As modified pursuant to a
resolution of the board of directors in March 2000, these loans are due and
payable on the earlier of February 18, 2002 or the last trading date under our
then applicable insider trading policy during the trading period immediately
after the second quarterly earnings announcement made after the expiration of
his lock-up agreement. As of July 1, 2000, approximately $462,200 in unpaid
principal and accrued interest remained outstanding under these loans.
In October 1999, when Stephen Galliker, our Executive Vice President and Chief
Financial Officer, joined us, he purchased 47,500 shares of common stock.
Mr. Galliker paid $2.00 per share, for an aggregate purchase price of $95,000.
We have a right to repurchase 22,500 of the shares from Mr. Galliker at his
purchase price if he ceases to be employed by us, but this right lapses in
monthly installments over a two-year period from October 1, 1999.
Mr. Fordyce was elected to our board of directors in August 1995 pursuant to
voting rights that our charter grants to holders of our Class A convertible
preferred stock. These voting rights will terminate following the automatic
conversion of all outstanding shares of our Class A convertible preferred stock
into shares of common stock, which will occur in connection with this offering.
See "Description of Capital Stock." Mr. Fordyce is a general partner of Prince
Ventures Partners LP, which is the general partner of Prince Venture Partners
IV. Prince Venture Partners IV is one of our stockholders. In August 1995, we
sold 375,000 shares of Class A Series 3 convertible preferred stock to Prince
Venture Partners IV at a purchase price of $2.00 per share. In October 1996, we
sold 478,556 shares of Class A Series 4 convertible preferred stock to Prince
Venture Partners IV at a purchase price of $3.13 per share. In September 1997,
Prince Venture Partners IV purchased from a group of related stockholders
(1) 119,946 shares of Class A Series 1 convertible preferred stock at a purchase
price of $1.73 per share; and (2) 20,413 shares of common stock at a purchase
price of $0.50 per share.
Dr. Anagnostopoulos, who is one of our directors, is a general partner of
Gateway Associates, L.P., which is the general partner of Gateway Venture
Partners. Gateway Venture Partners is one of our stockholders. In August 1995,
we issued 191,409 shares of Class A Series 1 convertible preferred stock to
Gateway Venture Partners III, L.P., in connection with a recapitalization that
took place at that time. Also in August 1995, we sold 150,000 shares of Class A
Series 3 convertible preferred stock to Gateway Venture Partners III, L.P., at a
purchase price of $2.00 per share. In October 1996, we sold 75,000 shares of
Class A Series 4 convertible preferred stock to Gateway Venture Partners III,
L.P., at a purchase price of $3.13 per share.
Mr. Kempner, who is one of our directors, is the President of Pinpoint Partners
Corporation, which is the general partner of each of Loeb Investment Co. 106,
Loeb Investment Co. 106A, Loeb Investment Co. 106B and Loeb Investment Co. 106C
For
54
<PAGE>
purposes of simplicity, we refer to these organizations collectively as the
"Loeb Investment Partnerships." All of these entities own stock in our company.
In August 1995, we issued an aggregate of 279,990 shares of Class A Series 2
convertible preferred stock to the Loeb Investment Partnerships in connection
with our merger with Protein Engineering Corporation. Also in August 1995, we
sold an aggregate of 150,000 shares of Class A Series 3 convertible preferred
stock to certain of the Loeb Investment Partnerships at a purchase price of
$2.00 per share. In October 1996, we sold an aggregate of 286,845 shares of
Class A Series 4 convertible preferred stock to certain of the Loeb Investment
Partnerships at a purchase price of $3.13 per share. In March 1997, we sold an
aggregate of 32,644 shares of Class A Series 4 convertible preferred stock to
certain of the Loeb Investment Partnerships at a purchase price of $3.13 per
share. In October 1998, we sold 255,137 shares of Class A Series 5 convertible
preferred stock to certain of the Loeb Investment Partnerships at a purchase
price of $5.45 per share.
Mr. Littlechild, who is one of our directors, is a general partner of HealthCare
Ventures V, L.P., which is one of our stockholders. In August 1998, we sold
1,651,376 shares of Class A Series 5 convertible preferred stock to HealthCare
Ventures V, L.P., at a purchase price of $5.45 per share. In connection with
this transaction, and pursuant to rights held by the holders of our Class A
Series 5 convertible preferred stock, Mr. Littlechild was elected to our board
of directors.
Dr. Marduel, who is one of our directors, is a general partner of Alta Partners.
The principals of Alta Partners control Alta BioPharma Partners LP, Alta
Embarcadero BioPharma LLC, and Dyax Chase Partners (AltaBio) LLC. In
October 1998, we sold an aggregate of 1,376,147 shares of Class A Series 5
convertible preferred stock at a price of $5.45 per share to these entities. In
connection with these transactions, and pursuant to rights held by the holders
of our Class A Series 5 convertible preferred stock, Dr. Marduel was elected to
our board of directors.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below provides certain information about beneficial ownership of our
stock as of July 1, 2000, and as adjusted to reflect the sale of 4,000,000
shares of common stock that we anticipate selling in connection with this
offering. The table shows information for:
- each person, or group of affiliated persons, who is known to us to
beneficially own more than 5% of our common stock;
- each of our directors;
- each of our named executive officers; and
- all of our directors and executive officers as a group.
Except as otherwise noted, the persons or entities in this table have sole
voting and investing power with respect to all shares of common stock
beneficially owned by them, subject to community property laws, where
applicable.
The "Percentage Ownership" column below is based on a total of 2,507,413 shares
of common stock outstanding before the offering and 18,091,872 shares of common
stock outstanding after the offering and gives effect to the conversion of
14,696,987 shares of preferred stock into 11,584,459 shares of common stock. For
purposes of the table below, we treat shares of common stock subject to options
that are currently exercisable or exercisable within 60 days after July 1, 2000
to be outstanding and to be beneficially owned by the person holding the options
for the purpose of computing the percentage ownership of the person, but we do
not treat the shares as outstanding for the purpose of computing the percentage
ownership of any other stockholder.
<TABLE>
<CAPTION>
--------------------------------------------------
<S> <C> <C> <C>
PERCENTAGE OWNERSHIP
SHARES BENEFICIALLY ------------------------
OWNED BEFORE AFTER
PRIOR TO OFFERING OFFERING OFFERING
------------------- ----------- ----------
HealthCare Ventures V, L.P.(1)..................... 1,651,376 11.7% 9.1%
The Entities Affiliated with Alta Partners(2)...... 1,376,147(2) 9.8% 7.6%
Loeb Investment Partnerships(3).................... 906,044(3) 6.4% 5.0%
New York Life Insurance Company(4)................. 726,908 5.2% 4.0%
Henry E. Blair..................................... 721,767(5) 5.1% 4.0%
Gregory D. Phelps.................................. 122,208(6) * *
L. Edward Cannon, Ph.D............................. 117,945(7) * *
Robert A. Dishman, Ph.D............................ 279,937(8) 2.0% 1.5%
Stephen S. Galliker................................ 90,834(9) * *
Constantine E. Anagnostopoulos, Ph.D............... 306,252(10) 2.2% 1.7%
James W. Fordyce................................... 677,372(11) 4.8% 3.7%
Thomas L. Kempner.................................. 926,107(12) 6.6% 5.1%
Henry R. Lewis, Ph.D............................... 62,907(13) * *
John W. Littlechild................................ 1,666,376(14) 11.8% 9.2%
Alix Marduel....................................... 1,391,147(15) 9.9% 7.7%
David J. McLachlan................................. 10,000(16) * *
All current executive officers and directors as a
group
(13 persons)..................................... 6,569,403(17) 45.0% 35.3%
</TABLE>
------------------------
* Indicates beneficial ownership of less than one percent.
** The address of the directors and executive officers is One Kendall Square,
Cambridge, MA 02139
(1) The stockholder's address is One Kendall Square, Building 300, Cambridge, MA
02139. The natural persons who control the 1,651,376 shares owned by
HealthCare Ventures V, L.P. are John W. Littlechild, William Crouse,
Harold R. Werner, and James H. Cavanaugh, Ph.D.
(2) Consists of 855,393 shares held by Alta Biopharma Partners LP, 32,242 shares
held by Alta Embarcadero Biopharma LLC, and 488,512 shares held by Dyax
Chase Partners (AltaBio) LLC. As general partners and managing members of
these entities, the principals of Alta Partners exercise control over voting
and investment decisions with respect to these
56
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shares. The principals of Alta Partners are Jean Deleage, Garrett Gruener,
Dan Janney, Alix Marduel, Guy Nohra and Marino Polestra. The shareholder's
address is One Embarcadero Center, Suite 4050, San Francisco, CA 94111.
(3) Includes: (i) 125,813 shares owned by Loeb Investment Co. 106, (ii) 218,988
shares owned by Loeb Investment Co. 106A, (iii) 97,800 shares owned by Loeb
Investment Co. 106B, and (iv) 208,307 shares owned by Loeb Investment Co.
106C. Pinpoint Partners Corporation, the general partner of each of the
named Loeb partnerships, exercises sole voting and investment control with
respect to all shares held by each of the Loeb partnerships. The natural
person who has the power to control such shares is Thomas L. Kempner. The
stockholder's address is c/o Irwin Rowe, 61 Broadway, 24th Floor, New York,
NY 10006.
(4) The stockholder's address is 51 Madison Avenue, New York, NY 10010.
(5) Includes (i) 114,100 shares which are held in trust for the benefit of
Mr. Blair's spouse and child, as to which Mr. Blair disclaims beneficial
ownership, and (ii) 52,346 shares of common stock issuable upon exercise of
outstanding options exercisable within the 60-day period following July 1,
2000.
(6) Includes 53,395 shares of common stock issuable to Mr. Phelps upon exercise
of outstanding options exercisable within the 60-day period following
July 1, 2000.
(7) Consists of 117,945 shares of common stock issuable to Dr. Cannon upon
exercise of outstanding options exercisable within the 60-day period
following July 1, 2000.
(8) Includes 86,892 shares of common stock issuable to Dr. Dishman upon exercise
of outstanding options exercisable within the 60-day period following
July 1, 2000.
(9) Includes 43,334 shares of common stock issuable to Mr. Galliker upon
exercise of outstanding options exercisable within the 60-day period
following July 1, 2000.
(10) Includes 285,811 shares held by Gateway Venture Partners.
Dr. Anagnostopoulos is a general partner of Gateway Associates, L.P., the
general partner of Gateway Venture Partners. He disclaims beneficial
ownership of these shares, except to the extent of his pecuniary interest in
the entities. Also includes 19,560 shares of common stock issuable upon
exercise of outstanding options exercisable within the 60-day period
following July 1, 2000.
(11) Includes 648,032 shares held by Prince Venture Partners IV. Mr. Fordyce is
a general partner of Prince Ventures Limited Partnership, the general
partner of Prince Venture Partners IV. He disclaims beneficial ownership of
these shares, except to the extent of his pecuniary interest in the
entities. Also includes 10,799 shares of common stock issuable upon exercise
of outstanding options exercisable within the 60-day period following
July 1, 2000.
(12) Includes 906,044 shares of common stock held by the Loeb partnerships named
in note (3) above. Mr. Kempner is the President of Loeb Partners
Corporation, the general partner of each of the Loeb partnerships. Also
includes 20,063 shares of common stock issuable upon exercise of outstanding
options exercisable within the 60-day period following July 1, 2000.
(13) Includes 22,549 shares of common stock issuable to Dr. Lewis upon exercise
of outstanding options exercisable within the 60-day period following
July 1, 2000.
(14) Includes 1,651,376 shares held by HealthCare Venture V, L.P.
Mr. Littlechild is the general partner of HealthCare Partners LP, which is
the general partner of Health Care Venture V, L.P. Mr. Littlechild disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest in the limited partnerships. Also includes 15,000 shares of common
stock issuable upon exercise of outstanding options exercisable within the
60-day period following July 1, 2000.
(15) Includes 855,393 shares held by Alta Biopharma Partners LP, 32,242 shares
held by Alta Embarcadero Biopharma LLC, and 488,512 shares held by Dyax
Chase Partners (AltaBio) LLC. The principals of Alta Partners exercise
control over voting and investment decisions with respect to these
securities. Dr. Marduel is a general partner of Alta Partners. She disclaims
beneficial ownership of these shares, except to the extent of her pecuniary
interest in the entities. Also includes 15,000 shares of common stock
issuable upon exercise of outstanding options exercisable within the 60-day
period following July 1, 2000.
(16) Consists of 10,000 shares of common stock issuable to Mr. McLachlan upon
exercise of outstanding options exercisable within the 60-day period
following July 1, 2000.
(17) Includes 511,488 shares of common stock issuable upon exercise of
outstanding options exercisable within the 60-day period following July 1,
2000.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock currently consists of 20,000,000 shares of common
stock, par value $0.01 per share, and 15,312,391 shares of preferred stock,
$0.01 par value per share. Upon completion of this offering, our authorized
capital stock will consist of 50,000,000 shares of common stock and 1,000,000
shares of preferred stock. These totals give effect to the amendment and
restatement of our Restated Certificate of Incorporation to delete references to
the Class A Series 1, Series 2, Series 3, Series 4 and Series 5 convertible
preferred stock.
On July 1, 2000, the following numbers of shares of common and preferred stock
were outstanding:
<TABLE>
<S> <C>
Common Stock................................................ 2,507,413 shares
Class A Series 1 Preferred Stock............................ 1,942,936 shares
Class A Series 2 Preferred Stock............................ 703,970 shares
Class A Series 3 Preferred Stock............................ 2,000,000 shares
Class A Series 4 Preferred Stock............................ 4,297,137 shares
Class A Series 5 Preferred Stock............................ 5,752,944 shares
</TABLE>
All of the outstanding preferred stock will convert into 11,584,459 shares of
common stock upon completion of this offering. Upon completion of this offering,
we expect to have about 18,091,872 shares of common stock outstanding. As of
July 1, 2000, we had approximately 340 stockholders.
The following summary of certain provisions of our common and preferred stock
does not purport to complete. You should refer to our restated certificate of
incorporation and our by-laws, both of which are included as exhibits to the
registration statement we have filed with the SEC in connection with this
offering. The summary below is also qualified by provisions of applicable law.
COMMON STOCK
Holders of common stock are entitled to one vote per share on matters on which
our stockholders vote. There are no cumulative voting rights. Holders of common
stock are entitled to receive dividends, if declared by our board of directors,
out of funds that we may legally use to pay dividends. See the section of this
prospectus entitled "Dividend Policy" for further information. If we liquidate
or dissolve, holders of common stock are entitled to share ratably in our assets
once our debts and any liquidation preference owed to any then-outstanding
preferred stockholders are paid. No shares of preferred stock will be
outstanding immediately after the closing of this offering. All shares of common
stock that are outstanding as of the date of this prospectus and, upon issuance
and sale, all shares we are selling in this offering, will be fully-paid and
nonassessable.
PREFERRED STOCK
We are currently authorized to issue 15,312,391 shares of preferred stock. Upon
completion of this offering, all issued and outstanding shares of preferred
stock will convert into a total of 11,584,459 shares of common stock.
Immediately after this conversion, the outstanding shares of preferred stock
will be cancelled, and the total number of shares of preferred stock that we are
authorized to issue will be reduced to 1,000,000 shares.
Upon completion of this offering, our board of directors will have the authority
to issue up to 1,000,000 shares of preferred stock in one or more series and to
fix the rights of each series. These rights may include dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences, sinking fund terms, and the number
of shares that constitute any series. The board of directors may exercise this
authority without any further action by our stockholders.
We believe the power to issue preferred stock will provide our board of
directors with flexibility in connection with certain possible corporate
transactions. The issuance of preferred stock, however, could adversely affect
the voting power of holders of our common stock, restrict their rights to
receive payment upon liquidation, and have the effect of delaying, deferring, or
preventing a change in control. We have no present plans to issue any shares of
preferred stock.
58
<PAGE>
WARRANTS
In connection with our merger with Protein Engineering Corporation in 1995, we
issued warrants to purchase a total of 27,022 shares of common stock at an
exercise price of $3.97 per share. We issued these warrants in substitution for
warrants that Protein Engineering Corporation issued previously. The warrants
will expire on August 10, 2000. The exercise price for each warrant is subject
to adjustment in the event of a stock split, stock dividend, combination, or
similar transaction.
REGISTRATION RIGHTS
The holders of the 11,584,459 shares of common stock to be issued upon
conversion of all series of our Class A convertible preferred stock are entitled
to demand that we register those shares, known as registrable shares, under the
Securities Act commencing one year after the closing of this offering. In
addition, if we propose to register any more of our securities under the
Securities Act after the closing of this offering, either for our own account or
for the account of other security holders, the holders of these rights are
entitled to notice of that further registration and are entitled to have their
registrable shares included in it. These rights, however, are subject to
conditions and limitations, including thresholds as to minimum values of shares
required for a demand registration and the right of the underwriters of a
registered offering of Dyax to limit the number of shares included in the
offering. Holders of registrable shares can require us to file the registration
at our expense and, subject to some conditions and limitations, we are required
to use our best efforts to effect the registration. Furthermore, holders of
these rights may require us to file additional registration statements on
Form S-3 for the sale their registrable shares at any time after the first
anniversary of the closing of this offering if they are not then able to sell
all of their shares under Rule 144. Holders of these rights did not have the
right to have their registrable shares registered under the Securities Act as
part of this offering.
ANTI-TAKEOVER MEASURES
DELAWARE LAW
Section 203 of the Delaware General Corporation Law is applicable to takeovers
of Delaware corporations. Subject to exceptions enumerated in Section 203,
Section 203 provides that a corporation shall not engage in any business
combination with any "interested stockholder" for a three-year period following
the date that the stockholder becomes an interested stockholder unless:
- prior to that date, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced, though some shares may be excluded from the calculation; and
- on or subsequent to that date, the business combination is approved by the
board of directors of the corporation and by the affirmative votes of holders
of at least two-thirds of the outstanding voting stock that is not owned by
the interested stockholder.
Except as specified in Section 203, an interested stockholder is generally
defined to include any person who, together with any affiliates or associates of
that person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, any time within three years immediately prior to the
relevant date. Under certain circumstances, Section 203 makes it more difficult
for an interested stockholder to effect various business combinations with a
corporation for a three-year period, although the stockholders may elect not to
be governed by this section, by adopting an amendment to the certificate of
incorporation or by-laws, effective 12 months after adoption. Our certificate of
incorporation and by-laws do not opt out from the restrictions imposed under
Section 203. We anticipate that the provisions of Section 203 may encourage
companies interested in acquiring is to negotiate in advance with the board
because the stockholder approval requirement would be avoided if a majority of
the directors then in office excluding an interested stockholder approve either
the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder. These provisions may have the effect of
deterring hostile takeovers or delaying changes in control, which could depress
the market price of our common stock and deprive stockholders of opportunities
to realize a premium on shares of common stock held by them.
59
<PAGE>
CHARTER AND BY-LAW PROVISIONS
In addition to the board of directors' ability to issue shares of preferred
stock, our restated certificate of incorporation and by-laws contain the
following provisions that may have the effect of discouraging unsolicited
acquisition proposals:
- our restated certificate of incorporation classifies the board of directors
into three classes with staggered three-year terms;
- our by-laws include a provision prohibiting stockholder action by written
consent;
- under the certificate of incorporation and by-laws, our board of directors may
enlarge the size of the board and fill the vacancies;
- our restated certificate of incorporation requires the approval of 66 2/3% of
the outstanding capital stock to merge the company into another entity, sell
all or substantially all of our assets, or engage in any other business
combination not approved by the board of directors;
- our restated certificate of incorporation provides that some of its provisions
may only be changed by an affirmative vote of 66 2/3% of our outstanding
capital stock;
- our by-laws provide that a stockholder may not nominate candidates for the
board of directors at any annual or special meeting unless that stockholder
notifies us of its intention a specified period in advance and provides us
with certain required information;
- our by-laws provide that special meetings of stockholders may only be called
by the President or by the board of directors; and
- stockholders who wish to bring business before the stockholders at our annual
meeting must provide advance notice.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be American Stock
Transfer & Trust Company.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. We cannot
assure you that a liquid trading market for our common stock will develop or be
sustained after this offering. Future sales of substantial amounts of common
stock in the public market after this offering, or the anticipation of those
sales, could adversely affect market prices prevailing from time to time and
could impair our ability to raise capital through sales of our equity
securities.
After the closing of this offering, we will have 18,091,872 shares of common
stock outstanding, assuming that there are no exercises of currently outstanding
warrants or options and that the underwriters do not exercise their
over-allotment option. Of these 18,091,872 shares, the 4,000,000 shares sold in
this offering will be freely tradable, unless they are purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act.
The remaining 14,091,872 shares of common stock will be owned by our existing
shareholders and are deemed "restricted shares" under Rule 144 and may not be
resold except pursuant to an effective registration statement or an applicable
exemption from registration, including Rule 144. At the end of the 180-day
period, approximately 14,089,494 shares will be eligible for sale under
Rules 144 and 701, and the remaining shares will become eligible from time to
time thereafter.
In general, under Rule 144 as currently in effect, a person, or persons whose
shares are aggregated, who has beneficially owned restricted shares for at least
one year is entitled to sell within any three-month period up to that number of
shares that does not exceed the greater of: (1) one percent of the number of
shares of common stock then outstanding, which will be approximately 180,918
shares after this offering, or (2) the average weekly trading volume of the
common stock during the four calendar weeks preceding the filing of a Form 144
with respect to the sale. Sales under Rule 144 are also subject to certain
"manner of sale" provisions and notice requirements and to the requirement that
the issuer has made current public information about itself available. Under
Rule 144(k), a person who is not deemed to have been an affiliate of the issuer
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, including the
holding period of any prior owner except an affiliate, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation, or notice provisions of Rule 144.
Our directors and executive officers, along with all of our other current
stockholders, will have entered into lock-up agreements. Pursuant to these
agreements, our stockholders agree, with limited exceptions, not to sell, offer
to sell, contract to sell, grant any option to sell, exercise any registration
rights, grant an option to purchase, effect a short sale, or otherwise dispose
of or engage in any hedging or other transaction that is designed or reasonably
expected to lead to a disposition of any shares of common stock or any option to
purchase common stock or any securities exchangeable for or convertible into
common stock for a period of 180 days after the date of this prospectus.
Ninety days after the date of this prospectus, we plan to file registration
statements under the Securities Act to register:
- approximately 2,653,615 shares of common stock issuable under our Amended and
Restated 1995 Equity Incentive Plan; and
- approximately 97,800 shares of common stock issuable under our 1998 Employee
Stock Purchase Plan.
Upon registration, after expiration of any lock-up agreements, these shares will
be eligible for immediate sale upon exercise, except for shares acquired by
affiliates, which will be subject to the requirements of Rule 144 described
above.
61
<PAGE>
UNDERWRITING
We and the underwriters named below have entered into an underwriting agreement
covering the common stock to be offered in this offering. J.P. Morgan Securities
Inc., Lehman Brothers Inc. and Pacific Growth Equities, Inc. are acting as
representatives of the underwriters. Each underwriter has agreed to purchase the
number of shares of common stock set forth opposite its name in the following
table.
<TABLE>
<CAPTION>
-------------
<S> <C>
NUMBER OF
UNDERWRITERS SHARES
---------
J.P. Morgan Securities Inc..................................
Lehman Brothers Inc.........................................
Pacific Growth Equities, Inc................................
---------
Total..................................................... 4,000,000
=========
</TABLE>
The underwriting agreement provides that if the underwriters take any of the
shares presented in the table above, then they must take all of these shares. No
underwriter is obligated to take any shares allocated to a defaulting
underwriter except under limited circumstances.
The underwriters are offering the shares of common stock, subject to the prior
sale of shares, and when, as and if these shares are delivered to and accepted
by them. The underwriters will initially offer to sell shares to the public at
the initial public offering price shown on the cover page of this prospectus.
The underwriters may sell shares to securities dealers at a discount of up to
$ per share from the initial public offering price. Any of these securities
dealers may resell shares to other brokers or dealers at a discount of up to
$ per share from the initial public offering price. After the initial public
offering, the underwriters may vary the public offering price and other selling
terms.
If the underwriters sell more shares than the total number shown in the table
above, the underwriters have the option to buy up to an additional 600,000
shares of common stock from us to cover these sales. They may exercise this
option during the 30-day period from the date of this prospectus. If any shares
are purchased with this option, the underwriters will purchase shares in
approximately the same proportion as shown in the table above.
The following table shows the per share and total underwriting discounts that we
will pay to the underwriters. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
---------------------
<S> <C> <C>
NO FULL
EXERCISE EXERCISE
--------- ---------
Per share................................................... $ $
Total..................................................... $ $
</TABLE>
The underwriters may purchase and sell shares of common stock in the open market
in connection with this offering. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
slowing a decline in the market price of the common stock while this offering is
in progress. The underwriters may also impose a penalty bid, which means that an
underwriter must repay to the other underwriters a portion of the underwriting
discount received by it. An underwriter may be subject to a penalty bid if the
representatives of the underwriters, while engaging in stabilizing or short
covering transactions, repurchase shares sold by or for the account of that
underwriter. These activities may stabilize, maintain or otherwise affect the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.
62
<PAGE>
A prospectus in electronic format will be made available on an Internet site
maintained by one or more of the underwriters participating in this offering.
We estimate that the total expenses of this offering payable by us, excluding
underwriting discounts, will be $1.08 million.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
We and our executive officers, directors and all of our existing stockholders
will have agreed that, with limited exceptions, during the period beginning from
the date of this prospectus and continuing to and including the date 180 days
after the date of this prospectus, that we will not, directly or indirectly,
offer, sell, offer to sell, contract to sell or otherwise dispose of any shares
of common stock or any of our securities which are substantially similar to the
common stock, including but not limited to any securities that are convertible
into or exchangeable for, or that represent the right to receive, common stock
or any such substantially similar securities or enter into any swap, option,
future, forward or other agreement that transfers, in whole or in part, the
economic consequence of ownership of common stock or any securities
substantially similar to the common stock, other than pursuant to employee stock
option plans existing on the date of this prospectus, without the prior written
consent of J.P. Morgan Securities Inc.
At our request, the underwriters have reserved shares of common stock for sale
to our directors, officers, employees, consultants and family members of the
foregoing. We expect these persons to purchase no more than 5 percent of the
common stock offered in this offering. The number of shares available for sale
to the general public will be reduced to the extent such persons purchase such
reserved shares.
We have applied to list our common stock on the Nasdaq National Market under the
symbol "DYAX."
It is expected that delivery of the shares will be made to investors on or about
, 2000.
There has been no public market for the common stock prior to this offering. We
and the underwriters will negotiate the initial offering price. In determining
the price, we and the underwriters expect to consider a number of factors in
addition to prevailing market conditions, including:
- the history of and prospects for our industry and for biotechnology companies
generally;
- an assessment of our management;
- our present operations;
- our historical results of operations;
- the trend of our revenues and earnings; and
- our earnings prospects.
We and the underwriters will consider these and other relevant factors in
relation to the price of similar securities of generally comparable companies.
Neither we nor the underwriters can assure investors that an active trading
market will develop for the common stock, or that the common stock will trade in
the public market at or above the initial offering price.
One or more of the underwriters may facilitate the marketing of this offering
online directly or through one of its affiliates. In those cases, prospective
investors may view offering terms and a prospectus online and, depending upon
the particular underwriter, place orders online or through their financial
advisors.
From time to time in the ordinary course of their respective businesses, certain
of the underwriters and their affiliates have engaged and may in the future
engage in commercial banking and/or investment banking transactions with us and
our affiliates.
63
<PAGE>
LEGAL MATTERS
Palmer & Dodge LLP, Boston, Massachusetts, will pass upon the validity of the
common stock offered by this prospectus for us. Nathaniel S. Gardiner, Esq., a
partner of Palmer & Dodge LLP, is our corporate secretary. Debevoise & Plimpton,
New York, New York, will pass upon certain legal matters in connection with this
offering for the underwriters.
EXPERTS
The consolidated financial statements of Dyax Corp. as of December 31, 1998 and
1999 and for the three years in the period ended December 31, 1999 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Statements relating to United States patent matters involving our patented phage
display technology in the portions of this prospectus entitled risk factors and
business, insofar as they constitute summaries of matters of United States
patent law, have been reviewed and approved by Yankwich & Associates, as experts
in patent law.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Although we
have disclosed the material terms of any contracts, agreements, or other
documents that are referenced in this prospectus, you should refer to the
exhibits attached to the registration statement for copies of the actual
contracts, agreements, or other documents. When we complete this offering, we
will be required to file annual and quarterly reports, special reports, proxy
statements, and other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You also may read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street N.W., Washington, DC 20549; 7 World Trade Center, Suite 1300, New
York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street N.W., Washington, DC 20549. Please call the SEC at 1-800-732-0330
for further information on the operation of the public reference facilities. Our
SEC filings are also available at the office of the Nasdaq National Market. For
further information on obtaining copies of our public filings at the Nasdaq
National Market, you should call (212) 656-5060.
You should rely only on the information contained in the registration statement,
including its exhibits. We have not, and the underwriters have not, authorized
any other person to provide you with different information. This prospectus is
not an offer to sell, nor is it seeking an offer to buy, the securities in any
state where the offer or sale is not permitted. The information in this
prospectus is complete and accurate as of the date on the front cover. The
information may have changed since that date.
64
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
and March 31, 2000 Actual (unaudited) and March 31, 2000
Pro Forma (unaudited)..................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 (unaudited) and March 31, 2000
(unaudited)............................................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1998 and 1999 and
for the three months ended March 31, 2000 (unaudited)..... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 (unaudited) and March 31, 2000
(unaudited)............................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Dyax Corp.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Dyax
Corp. and its subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 29, 2000
F-2
<PAGE>
DYAX CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
-------------------------------------------------
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31, MARCH 31,
------------------------- -----------
MARCH 31, 2000
1998 1999 2000
----------- ----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $25,491,000 $16,726,000 $18,160,000
Accounts receivable, net of allowances for doubtful
accounts of $129,000 at December 31, 1998 and 1999
and March 31, 2000................................... 2,913,000 3,098,000 2,964,000
Inventories............................................ 2,305,000 2,912,000 2,853,000
Other current assets................................... 226,000 335,000 339,000
----------- ----------- -----------
Total current assets................................. 30,935,000 23,071,000 24,316,000
Fixed assets, net........................................ 1,595,000 2,709,000 2,931,000
Notes receivable, officers............................... 1,336,000 1,745,000 1,753,000
Goodwill and other intangibles, net...................... 387,000 1,990,000 1,768,000
Other assets............................................. 163,000 93,000 77,000
----------- ----------- -----------
Total assets......................................... $34,416,000 $29,608,000 $30,845,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................. 3,312,000 5,850,000 3,534,000
Current portion of deferred revenue.................... 859,000 1,603,000 3,500,000
Current portion of capital leases...................... 249,000 339,000 409,000
----------- ----------- -----------
Total current liabilities............................ 4,420,000 7,792,000 8,243,000
Capital leases........................................... 586,000 1,249,000 1,383,000
Deferred revenue......................................... -- 1,267,000 6,425,000
----------- ----------- -----------
Total liabilities.................................... 5,006,000 10,308,000 15,251,000
Commitments (Notes 9 and 10)
Stockholders' equity:
Class A convertible preferred stock, $.01 par value;
15,312,391 shares authorized; 14,696,987 shares
issued and outstanding at December 31, 1998 and 1999,
and March 31, 2000 actual, $57,301,000 liquidation
preference at March 31, 2000; and no shares issued
and outstanding at March 31, 2000 on a pro forma
basis................................................ 57,426,000 57,426,000 57,426,000 $ --
Common stock, $.01 par value; 20,000,000 shares
authorized; 1,873,851, 2,353,790 and 2,491,777 shares
issued at December 31, 1998 and 1999 and March 31,
2000, respectively; and 14,076,236 shares issued at
March 31, 2000 on a pro forma basis.................. 19,000 24,000 25,000 141,000
Additional paid-in capital............................... 12,536,000 18,938,000 19,345,000 76,655,000
Receivable from officer for common stock purchase........ (418,000) (418,000) (418,000) (418,000)
Accumulated (deficit).................................... (38,468,000) (51,655,000) (56,146,000) (56,146,000)
Treasury stock (1,378 common shares at cost)............. -- -- -- --
Deferred compensation.................................... (1,562,000) (4,907,000) (4,683,000) (4,683,000)
Accumulated other comprehensive loss..................... (123,000) (108,000) 45,000 45,000
----------- ----------- ----------- ------------
Total stockholders' equity........................... 29,410,000 19,300,000 15,594,000 $ 15,594,000
----------- ----------- ----------- ------------
Total liabilities and stockholders' equity........... $34,416,000 $29,608,000 $30,845,000
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
DYAX CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
----------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales.................................. $ 7,138,000 $ 9,641,000 $ 12,596,000 $ 2,840,000 $ 3,378,000
Product development and license fee revenues... 2,192,000 4,490,000 4,237,000 825,000 1,429,000
----------- ----------- ------------ ----------- -----------
Total revenues................................... 9,330,000 14,131,000 16,833,000 3,665,000 4,807,000
Operating expenses:
Cost of products sold.......................... 2,931,000 4,164,000 5,515,000 1,274,000 1,493,000
Research and development (excluding stock-based
compensation of $0, $306,000 and $423,000 for
the years ended December 31, 1997, 1998 and
1999, respectively; $103,000 and $182,000 for
the three months ended March 31, 1999 and
2000,
respectively)................................ 5,625,000 6,778,000 10,618,000 2,322,000 3,703,000
Selling, general and administrative (excluding
stock-based compensation of $75,000, $375,000
and $516,000 for the years ended December 31,
1997, 1998 and 1999, respectively; $126,000
and $222,000 for the three months ended
March 31, 1999 and 2000, respectively)....... 6,787,000 10,061,000 14,069,000 2,964,000 3,856,000
Stock-based compensation....................... 75,000 681,000 939,000 229,000 404,000
----------- ----------- ------------ ----------- -----------
Total operating expenses......................... 15,418,000 21,684,000 31,141,000 6,789,000 9,456,000
----------- ----------- ------------ ----------- -----------
Loss from operations............................. (6,088,000) (7,553,000) (14,308,000) (3,124,000) (4,649,000)
----------- ----------- ------------ ----------- -----------
Interest income (expense), net................. 265,000 401,000 856,000 261,000 158,000
Investment income.............................. -- -- 265,000 -- --
----------- ----------- ------------ ----------- -----------
Net loss......................................... $(5,823,000) $(7,152,000) $(13,187,000) $(2,863,000) $(4,491,000)
----------- ----------- ------------ ----------- -----------
Other comprehensive income (loss):
Foreign currency translation adjustments....... (171,000) 18,000 15,000 (21,000) 153,000
----------- ----------- ------------ ----------- -----------
Other comprehensive income (loss).............. (171,000) 18,000 15,000 (21,000) 153,000
----------- ----------- ------------ ----------- -----------
Comprehensive loss............................... $(5,994,000) $(7,134,000) $(13,172,000) $(2,884,000) $(4,338,000)
=========== =========== ============ =========== ===========
Basic and diluted net loss per share............. $ (3.95) $ (4.22) $ (6.81) $ (1.65) $ (1.97)
Shares used in computing basic and diluted net
loss per share................................. 1,473,474 1,694,782 1,936,907 1,738,693 2,277,725
Unaudited pro forma basic and diluted net loss
per share (Note 4)............................. $ (.97) $ (.32)
Shares used in computing unaudited pro forma
basic and diluted net loss per share (Note
4)............................................. 13,604,750 13,956,254
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
DYAX CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONVERTIBLE PREFERRED STOCK
-----------------------------------------------------------------------
CLASS A
--------------------------------------------------------
SERIES 1 SERIES 2 SERIES 3 SERIES 4 SERIES 5
SHARES SHARES SHARES SHARES SHARES AMOUNT
--------- -------- --------- --------- --------- ------------
Balance at December 31, 1996 as previously
reported......................................... 1,942,936 703,970 2,000,000 3,514,377 -- $ 24,821,000
Pooling of interests with Target Quest, BV.........
--------- ------- --------- --------- --------- ------------
Balance at December 31, 1996 as restated........... 1,942,936 703,970 2,000,000 3,514,377 -- 24,821,000
Issuance of preferred stock........................ 782,760 2,437,000
Issuance of Target Quest BV common stock...........
Exercise of stock options under the 1989 plan......
Exercise of stock options under the 1995 plan......
Issuance of restricted stock under the 1995 plan...
Deferred compensation..............................
Compensation expense associated with stock
options..........................................
Foreign currency translation adjustment............
Net Loss...........................................
--------- ------- --------- --------- --------- ------------
Balance at December 31, 1997....................... 1,942,936 703,970 2,000,000 4,297,137 -- 27,258,000
Issuance of preferred stock........................ 5,752,944 30,168,000
Exercise of stock options under the 1995 plan......
Issuance of restricted stock under the 1995 plan...
Loan to purchase common stock......................
Deferred compensation..............................
Compensation expense associated with stock
options..........................................
Cancellation of shares.............................
Foreign currency translation adjustment............
Net Loss...........................................
--------- ------- --------- --------- --------- ------------
Balance at December 31, 1998....................... 1,942,936 703,970 2,000,000 4,297,137 5,752,944 57,426,000
Shares issued for acquisition of Target Quest,
LLC..............................................
Exercise of stock options under the 1995 plan......
Issuance of restricted stock under the 1995 plan...
Deferred compensation..............................
Compensation expense associated with stock
options..........................................
Foreign currency translation adjustment............
Net Loss...........................................
--------- ------- --------- --------- --------- ------------
Balance at December 31, 1999....................... 1,942,936 703,970 2,000,000 4,297,137 5,752,944 57,426,000
Exercise of stock options under the 1995 plan......
Deferred compensation..............................
Compensation expense associated with stock
options..........................................
Foreign currency translation adjustment............
Net Loss...........................................
--------- ------- --------- --------- --------- ------------
Balance at March 31, 2000 (unaudited).............. 1,942,936 703,970 2,000,000 4,297,137 5,752,944 $ 57,426,000
========= ======= ========= ========= ========= ============
<CAPTION>
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RECEIVABLE
COMMON STOCK FOR
------------------------------- ADDITIONAL COMMON
PAR TREASURY PAID-IN STOCK ACCUMULATED
SHARES VALUE STOCK CAPITAL PURCHASE (DEFICIT)
--------- -------- -------- ----------- --------- ------------
Balance at December 31, 1996 as previously
reported......................................... 1,021,409 $10,000 -- $ 9,629,000 $(25,493,000)
Pooling of interests with Target Quest, BV......... 412,500 4,000 (4,000)
--------- ------- -------- ----------- --------- ------------
Balance at December 31, 1996 as restated........... 1,433,909 14,000 -- 9,625,000 (25,493,000)
Issuance of preferred stock........................
Issuance of Target Quest BV common stock........... 20,000
Exercise of stock options under the 1989 plan...... 93
Exercise of stock options under the 1995 plan...... 142,466 2,000 46,000
Issuance of restricted stock under the 1995 plan... 114,100 1,000 87,000
Deferred compensation.............................. 1,750,000
Compensation expense associated with stock
options.......................................... 7,000
Foreign currency translation adjustment............
Net Loss........................................... (5,823,000)
--------- ------- -------- ----------- --------- ------------
Balance at December 31, 1997....................... 1,690,568 17,000 -- 11,535,000 (31,316,000)
Issuance of preferred stock........................
Exercise of stock options under the 1995 plan...... 105,197 1,000 81,000
Issuance of restricted stock under the 1995 plan... 78,240 1,000 359,000
Loan to purchase common stock...................... (418,000)
Deferred compensation.............................. 561,000
Compensation expense associated with stock
options..........................................
Cancellation of shares............................. (154)
Foreign currency translation adjustment............
Net Loss........................................... (7,152,000)
--------- ------- -------- ----------- --------- ------------
Balance at December 31, 1998....................... 1,873,851 19,000 -- 12,536,000 (418,000) (38,468,000)
Shares issued for acquisition of Target Quest,
LLC.............................................. 379,152 4,000 1,969,000
Exercise of stock options under the 1995 plan...... 53,287 1,000 54,000
Issuance of restricted stock under the 1995 plan... 47,500 95,000
Deferred compensation.............................. 4,284,000
Compensation expense associated with stock
options..........................................
Foreign currency translation adjustment............
Net Loss........................................... (13,187,000)
--------- ------- -------- ----------- --------- ------------
Balance at December 31, 1999....................... 2,353,790 24,000 -- 18,938,000 (418,000) (51,655,000)
Exercise of stock options under the 1995 plan...... 137,987 1,000 -- 227,000
Deferred compensation.............................. 180,000
Compensation expense associated with stock
options..........................................
Foreign currency translation adjustment............
Net Loss........................................... -- (4,491,000)
--------- ------- -------- ----------- --------- ------------
Balance at March 31, 2000 (unaudited).............. 2,491,777 $25,000 -- $19,345,000 $(418,000) $(56,146,000)
========= ======= ======== =========== ========= ============
<CAPTION>
-----------------------------------------
<S> <C> <C> <C>
ACCUMULATED
DEFERRED OTHER
COMPEN- COMPREHENSIVE
SATION LOSS TOTAL
----------- ------------- -----------
Balance at December 31, 1996 as previously
reported......................................... -- $ 30,000 $ 8,997,000
Pooling of interests with Target Quest, BV......... --
----------- --------- -----------
Balance at December 31, 1996 as restated........... -- 30,000 8,997,000
Issuance of preferred stock........................ 2,437,000
Issuance of Target Quest BV common stock........... 20,000
Exercise of stock options under the 1989 plan...... --
Exercise of stock options under the 1995 plan...... 48,000
Issuance of restricted stock under the 1995 plan... 88,000
Deferred compensation.............................. $(1,750,000) --
Compensation expense associated with stock
options.......................................... 68,000 75,000
Foreign currency translation adjustment............ (171,000) (171,000)
Net Loss........................................... (5,823,000)
----------- --------- -----------
Balance at December 31, 1997....................... (1,682,000) (141,000) 5,671,000
Issuance of preferred stock........................ 30,168,000
Exercise of stock options under the 1995 plan...... 82,000
Issuance of restricted stock under the 1995 plan... 360,000
Loan to purchase common stock...................... (418,000)
Deferred compensation.............................. (561,000) --
Compensation expense associated with stock
options.......................................... 681,000 681,000
Cancellation of shares.............................
Foreign currency translation adjustment............ 18,000 18,000
Net Loss........................................... (7,152,000)
----------- --------- -----------
Balance at December 31, 1998....................... (1,562,000) (123,000) 29,410,000
Shares issued for acquisition of Target Quest,
LLC.............................................. 1,973,000
Exercise of stock options under the 1995 plan...... 55,000
Issuance of restricted stock under the 1995 plan... 95,000
Deferred compensation.............................. (4,284,000) --
Compensation expense associated with stock
options.......................................... 939,000 939,000
Foreign currency translation adjustment............ 15,000 15,000
Net Loss........................................... (13,187,000)
----------- --------- -----------
Balance at December 31, 1999....................... (4,907,000) (108,000) 19,300,000
Exercise of stock options under the 1995 plan...... 228,000
Deferred compensation.............................. (180,000) --
Compensation expense associated with stock
options.......................................... 404,000 404,000
Foreign currency translation adjustment............ 153,000 153,000
Net Loss........................................... (4,491,000)
----------- --------- -----------
Balance at March 31, 2000 (unaudited).............. $(4,683,000) $ 45,000 $15,594,000
=========== ========= ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
DYAX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $(5,823,000) $(7,152,000) $(13,187,000) $(2,863,000) $(4,491,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 309,000 455,000 629,000 122,000 180,000
Loss on disposal of fixed assets.................... 39,000 -- -- -- --
Amortization of goodwill and other intangibles...... 24,000 24,000 474,000 10,000 224,000
Compensation expense associated with stock
options........................................... 75,000 681,000 939,000 229,000 404,000
Changes in operating assets and liabilities:
Accounts receivable................................. (703,000) (919,000) (203,000) (591,000) 133,000
Inventories......................................... (835,000) (141,000) (613,000) 224,000 60,000
Notes receivable, officers.......................... -- (1,336,000) (409,000) -- (10,000)
Other assets........................................ (128,000) (231,000) (41,000) (60,000) 13,000
Accounts payable and accrued expenses............... 597,000 1,128,000 2,528,000 (490,000) (2,316,000)
Deferred revenue.................................... 805,000 (653,000) 2,013,000 133,000 7,055,000
----------- ----------- ------------ ----------- -----------
Net cash (used in) provided by operating activities..... (5,640,000) (8,144,000) (7,870,000) (3,286,000) 1,252,000
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.............................. (961,000) (893,000) (1,762,000) (423,000) (404,000)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock,
including $3.0 million from a related party in 1998
(see Note 14)....................................... 2,437,000 30,168,000 -- -- --
Proceeds from the issuance of restricted common stock
and exercise of stock options....................... 156,000 25,000 150,000 4,000 228,000
Proceeds from sale-leaseback of equipment............. 446,000 355,000 1,077,000 433,000 286,000
Repayment of capital lease obligations................ (121,000) (753,000) (285,000) (46,000) (82,000)
----------- ----------- ------------ ----------- -----------
Net cash provided by financing activities............... 2,918,000 29,795,000 942,000 391,000 432,000
Effect of foreign currency translation on cash
balances.............................................. (146,000) (29,000) (75,000) (21,000) 154,000
----------- ----------- ------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents.... (3,829,000) 20,729,000 (8,765,000) (3,339,000) 1,434,000
Cash and cash equivalents at beginning of the period.... 8,591,000 4,762,000 25,491,000 25,491,000 16,726,000
----------- ----------- ------------ ----------- -----------
Cash and cash equivalents at end of the period.......... $ 4,762,000 $25,491,000 $ 16,726,000 $22,152,000 $18,160,000
=========== =========== ============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid......................................... $ 74,000 $ 98,000 $ 81,000 $ 14,000 $ 24,000
Income taxes paid..................................... $ -- $ -- $ 58,000 $ 58,000 $ --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of property and equipment under capital
leases.............................................. $ 446,000 $ 355,000 $ 1,077,000 $ 433,000 $ 286,000
Deferred compensation................................. $ 1,750,000 $ 561,000 $ 4,124,000 $ -- $ 170,000
Issuance of promissory note in conjunction with
purchase of restricted common stock................. $ -- $ 454,000 $ -- $ -- $ --
Fair value of common stock issued in purchase
acquisitions........................................ $ -- $ -- $ 1,973,000 $ -- $ --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
1. NATURE OF BUSINESS
Dyax Corp. (the "Company") is a biopharmaceutical company that has developed and
patented phage display technology with broad applications in the discovery and
development of compounds for the treatment and diagnosis of diseases and for the
purification and manufacture of biopharmaceuticals and other chemicals. Through
the use of phage display technology, Dyax's scientists, collaborators and
licensees seek to discover proteins and peptides, including human antibodies,
that bind tightly to specific molecular targets. The Company believes that its
technology has significant advantages over other technologies for rapidly and
cost effectively determining the potential medical uses of newly discovered
proteins and genes, discovering biopharmaceutical product candidates, and
purifying any resulting biopharmaceuticals. The Company also develops,
manufactures and sells chromatography separations systems and products under the
Biotage trade name.
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, dependence on collaborative
arrangements, development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of proprietary technology,
and compliance with FDA and other governmental regulations and approval
requirements.
2. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries, Biotage
(UK), Ltd., a United Kingdom sales subsidiary, Target Quest BV, a Netherlands
research subsidiary and Target Quest LLC, a U.S. based sales and marketing
subsidiary. All intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles 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, receivable collectibility, inventory
valuation, useful lives with respect to long lived assets, valuation of common
stock and related 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 and trade accounts receivable. At December 31, 1999, approximately
70% of the Company's cash and cash equivalents was invested in a single U.S.
government securities fund held by one financial institution.
The Company provides most of its products and services to pharmaceutical and
biomedical companies worldwide. Concentrations of credit risk with respect to
trade receivable balances are limited due to the diverse number of customers
comprising the Company's customer base. The Company performs ongoing credit
evaluations of its customers' financial conditions and maintains reserves for
potential credit loss. Activity for fiscal 1997, 1998 and 1999 included
provisions of $40,000, $48,000 and $0, respectively, and $0 for each of the
three-month periods ended March 31, 1999 and 2000. Receivable write offs in
1997, 1998, 1999 and for each of the three month periods ended March 31, 1999
and 2000 were nominal.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist principally of
cash and a U.S. government securities fund. The Company currently invests its
excess cash in a single U.S. government securities fund held by a financial
institution. The Company has periodically maintained balances in various
operating accounts in excess of federally insured limits.
F-7
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Inventories are reviewed
for slow moving, obsolete and excess items on a quarterly basis and, if
necessary, a provision is recorded in the results of operations.
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 and 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 depreciated
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.
GOODWILL: Goodwill, which represents the excess purchase price over the fair
value of net assets acquired, is amortized on a straight-line basis over its
useful life, currently 2.5 to 15 years. These amortization periods will be
evaluated by management on a continuing basis, and will be adjusted if the lives
are impaired. As of December 31, 1998 and 1999, and March 31, 2000, accumulated
amortization of goodwill was $113,000, $565,000 and $783,000, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS: The Company reviews long-lived assets,
including goodwill, 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 an impairment is indicated, the asset is
written down to its estimated fair value on a discounted cash flow basis.
REVENUE RECOGNITION: Product revenue, which is derived from sales of Biotage
chromatography separations systems and products, is recognized upon shipment to
the customer and satisfaction of all obligations. For products that require
significant installation services, revenue is recognized upon product
installation. One customer accounted for approximately 12% and 10% of product
revenue in 1997 and 1998, respectively, although the largest customer was
different in each year. No customer accounted for more than 10% of sales in
1999. The Company is not dependent on any single customer for a significant
portion of its ongoing revenues.
The Company enters into product development agreements with collaborative
partners for the development of therapeutic, diagnostic and separations
products. The terms of the agreements may include non-refundable signing fees,
funding for research and development, payments based on the achievement of
certain milestones and royalties on any product sales derived from
collaborations. Non-refundable signing fees, with respect to product development
agreements and collaborations, for which the Company has no future obligations,
are recognized ratably over the term of the agreement. Collaborative research,
product development and government grant revenues, where the amounts recorded
are not refundable if research efforts are unsuccessful, are recognized as the
related expenses are incurred. Milestone payments are recognized as revenue on a
retrospective basis. Accordingly, upon achievement of the milestone, a portion
of the milestone payment equal to the percentage of the collaboration completed
through that date will be recognized. The remainder will be recognized as
services are performed, generally straight-line, over the remaining term of the
collaboration. Sales royalties are recognized when earned.
The Company evaluates all collaborative agreements on a monthly basis to
determine the appropriate revenue recognition for that period. The evaluation
includes all of the potential revenue components from each specific
collaborative agreement. All accounting estimates are consistent with the
policies stated above. Revenue recorded on government grants are consistent with
guidelines issued by the governing body issuing the grant.
F-8
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
The Company licenses its patent rights covering phage display on a non-exclusive
basis in the fields of therapeutics, antibody-based IN VITRO diagnostics and
research products. Standard terms of the license agreements, which require no
further active performance by the Company, generally include non-refundable
signing fees, non-refundable annual maintenance fees, milestone payments and
royalties on product sales. Signing fees and annual maintenance fees are
recognized in equal monthly installments over the one year period to which the
payment applies. Milestone payments are recognized when the milestone is
achieved and royalties are recognized when they are earned.
Revenue from National Institute of Standards and Technology grants, to conduct
research and development, is recognized as eligible costs are incurred, up to
the funding limit. Eligible grant related costs which have been incurred in
advance of cash receipts are recorded as receivables.
Payments received that have not met the appropriate criteria for revenue
recognition are recorded as deferred revenue.
PRODUCT WARRANTY: The Company provides customers with up to a twelve-month
warranty on its chromatography products from the date of customer startup or up
to a fourteen-month warranty from the date of shipment, whichever is less.
Estimated warranty obligations, which are included in the results of operations,
are evaluated and provided for at the time of sale. Product warranty costs were
not significant for any period presented.
RESEARCH AND DEVELOPMENT: Research and development costs are expensed as
incurred.
PATENTS: The Company owns, or is in the process of applying for, patents in the
United States and other countries. All costs associated with these filings are
expensed as incurred.
INCOME TAXES: The Company utilizes the asset and liability method of accounting
for income taxes as set forth in Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for 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 current statutory tax rates.
TRANSLATION OF FOREIGN CURRENCIES: Assets and liabilities of the Company's
foreign subsidiaries are translated at year-end exchange rates. Amounts included
in the statements of operations are translated at the average exchange rate for
the year. The resulting currency translation adjustments are made directly to a
separate component of stockholders' equity. Gains and losses that result from
transactions in foreign currencies, which are included in the statement of
operations, have not been material.
COMPREHENSIVE INCOME (LOSS): The Company accounts for comprehensive income
(loss) under SFAS No. 130, "Reporting Comprehensive Income." The statement
established standards for reporting and displaying comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. The statement required that all components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
INTERIM FINANCIAL INFORMATION (UNAUDITED): The financial statements for the
three months ended March 31, 1999 and 2000 are unaudited but include all
adjustments (consisting only of normal recurring adjustments), which the Company
considers necessary for a fair statement of the operating results and cash flows
for such periods.
NET LOSS PER SHARE: The Company accounts for and discloses earnings per share
("EPS") under SFAS No. 128, "Earnings per Share". This statement specified the
computation, presentation and disclosure requirements of EPS to simplify the
existing computational guidelines and increased comparability on an
international basis. This statement replaced primary EPS with
F-9
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
basic EPS, the principle difference being the exclusion of common stock
equivalents in the computation of basic EPS. In addition, this statement
required the dual presentation of basic and diluted EPS on the face of the
statement of operations.
Under SFAS No. 128, the Company is required to present two EPS amounts, basic
and diluted. Basic EPS is calculated based on income available to common
stockholders and the weighted-average number of common shares outstanding during
the reporting period. Diluted EPS may include additional dilution from potential
common stock, such as stock issuable pursuant to the exercise of stock options
and warrants outstanding, the conversion of preferred stock and conversion of
debt, unless their inclusion would be antidilutive.
BUSINESS SEGMENTS: The Company discloses business segments under SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
statement established standards for reporting information about operating
segments in annual financial statements of public enterprises and in interim
financial reports issued to shareholders. It also established standards for
related disclosures about products and services, geographic areas and major
customers.
RECENT PRONOUNCEMENTS: In December 1999, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in
Financial Statements", which provides guidance related to revenue recognition
based on interpretations and practices promulgated by the SEC. The Company has
retroactively adopted the guidance of SAB 101 for all periods presented in these
financial statements.
In June 1998, the Financial Accounting Standards Board, ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
standard established accounting and reporting standards requiring the
recognition of all derivative instruments as either assets or liabilities in the
statement of financial position and the measure of those instruments at fair
value. In June 1999, the FASB issued SFAS No. 137, which defers the effective
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. Because the
Company does not currently hold any derivative instruments and does not
currently engage in hedging activities, we expect the adoption of SFAS No. 133
will not have a material impact on our financial position or operating results.
In March 2000, the FASB issued FASB Interpretation ("FIN") 44, "Accounting for
Certain Transactions Involving Stock Compensation--an interpretation of
Accounting Principles Board ("APB") Opinion 25". FIN 44 clarifies the
application of APB Opinion 25 and among other issues clarifies the following:
the definition of an employee for purposes of applying APB Opinion 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence of various modifications to the terms of previously
fixed stock options or awards; and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions in FIN 44 cover specific events that occurred after
either December 15, 1998 or January 12, 2000. The Company does not expect the
application of FIN 44 to have a material impact on the Company's financial
position or results of operations.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED): In March 2000, the Board of
Directors authorized management of the Company to file a Registration Statement
with the Securities and Exchange Commission for the Company to sell shares of
its common stock in an initial pubic offering. If the initial public offering
contemplated by this Registration Statement is consummated under the terms
presently anticipated, all outstanding shares of convertible preferred stock at
March 31, 2000 will convert into 11,584,459 shares of common stock and certain
shares of the unvested restricted stock will vest. The unaudited pro forma
presentation of stockholders' equity has been prepared assuming all preferred
stock was converted into common stock at March 31, 2000.
RECLASSIFICATIONS: Certain reclassifications may have been made to the prior
years financial statements to conform to current presentation.
F-10
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
3. BUSINESS COMBINATIONS
On July 14, 1999, the Company acquired all of the capital stock of Target Quest,
B.V., a Netherlands corporation, in exchange for 412,500 shares of Dyax common
stock. Management determined that the fair value of these shares at the time of
the acquisition was $5.21 per share. The acquisition was accounted for as a
pooling of interests. Target Quest, B.V. is a research business specializing in
the development of human antibodies. Target Quest, B.V.'s revenues are derived
from collaborative agreements and government grants. It is reflected in the
Therapeutics/Diagnostics segment. The Company's historical consolidated
financial statements have been restated to reflect the combined financial
position and results of operations and cash flows of Dyax and Target Quest, B.V.
for all periods presented.
The results of operations for Dyax and Target Quest, B.V. and the combined
amounts presented for periods preceding the acquisition were as follows:
<TABLE>
<CAPTION>
----------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
Net Revenue:
Dyax...................................................... $ 9,235,000 $13,739,000 $ 16,408,000
Target Quest, B.V......................................... 95,000 392,000 425,000
----------- ----------- ------------
$ 9,330,000 $14,131,000 $ 16,833,000
=========== =========== ============
Net Income (Loss):
Dyax...................................................... $(5,833,000) $(7,176,000) $(13,429,000)
Target Quest, B.V......................................... 10,000 24,000 242,000
----------- ----------- ------------
$(5,823,000) $(7,152,000) $(13,187,000)
=========== =========== ============
</TABLE>
For the six month period ended June 30, 1999, Target Quest B.V. had revenues of
$490,000 and net income of $206,000, before elimination of intercompany
activity.
Also on July 14, 1999, the Company acquired the 33% share of Target Quest, LLC,
that was not owned by Target Quest, B.V., in exchange for 379,152 shares of Dyax
common stock. The acquisition of the remaining 33% interest of Target
Quest, LLC, together with the acquisition of Target Quest, B.V., which owned 67%
of Target Quest, LLC, gave the Company 100% ownership of Target Quest, LLC. The
acquisition was accounted for as a purchase and accordingly, the results of its
operations have been included in the consolidated financial statements
commencing on July 1, 1999, the effective accounting date of the acquisition.
The entire excess purchase price of approximately $2,078,000 was allocated to a
marketing agreement between Target Quest, LLC and Target Quest B.V. This amount
is being amortized over the 2.5 years of the marketing rights on a straight line
basis and is included in goodwill and other intangible assets on the
accompanying balance sheet. Target Quest, LLC was formed in late 1998, but did
not commence operations until 1999. For the six month period ended June 30,
1999, Target Quest, LLC had revenues of $293,000 and a net loss of $310,000.
The following unaudited pro forma results of operations for the year ended
December 31, 1999, give effect to the Company's acquisition of Target Quest,
LLC, as if the transaction had occurred at the beginning of the year. The pro
forma results of
F-11
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
operations do not purport to represent (i) what the Company's results of
operations actually would have been if the acquisition had occurred at the
beginning of the period or (ii) what such results will be for any future
periods.
<TABLE>
<CAPTION>
-----------------------------
<S> <C>
UNAUDITED PRO FORMA RESULTS
FOR THE YEAR
ENDED DECEMBER 31, 1999
------------
Net Revenue................................................. $ 16,930,000
Net Loss.................................................... $(13,290,000)
</TABLE>
4. NET LOSS PER SHARE AND UNAUDITED PRO FORMA NET LOSS PER SHARE
Net loss per share is computed under SFAS No. 128. Basic net loss per share is
computed using the weighted average number of shares of common stock
outstanding. Diluted loss per share does not differ from basic loss per share
since potential common shares from the conversion of preferred stock and
exercise of stock options and warrants are antidilutive for all periods
presented and therefore are excluded from the calculation of diluted net loss
per share. Pro forma basic and diluted net loss per share have been calculated
assuming the conversion of all outstanding shares of preferred stock into common
shares, as if the shares had converted immediately upon their issuance, and
assuming certain shares of unvested restricted stock become vested upon an
initial public offering.
The following sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ----------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- -----------
Numerator:
Net loss............................ $(5,823,000) $(7,152,000) $(13,187,000) $(2,863,000) $(4,491,000)
=========== =========== ============ =========== ===========
Denominator:
Weighted average common shares, basic
and diluted......................... 1,473,474 1,694,782 1,936,907 1,738,693 2,277,725
=========== =========== ============ =========== ===========
Net loss per share:
Basic and diluted................... $ (3.95) $ (4.22) $ (6.81) $ (1.65) $ (1.97)
=========== =========== ============ =========== ===========
</TABLE>
The following potentially dilutive common shares were excluded because their
effect was antidiliutive:
<TABLE>
<CAPTION>
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, MARCH 31,
----------------------------------- -----------------------
1997 1998 1999 1999 2000
--------- ---------- ---------- ---------- ----------
Convertible preferred stock.................. 5,831,515 11,584,459 11,584,459 11,584,459 11,584,459
Stock options................................ 970,711 1,603,143 2,335,455 1,595,475 2,210,787
Warrants..................................... 27,022 27,022 27,022 27,022 27,022
Unvested restricted stock.................... 92,707 142,423 133,585 135,292 117,122
</TABLE>
Pro forma net loss per share is computed using the weighted average number of
shares of common stock outstanding, including potentially dilutive common shares
arising from convertible preferred stock (using the if-converted method), which
will automatically convert into common stock upon an initial public offering, as
if converted at the original date of issuance for both basic and diluted
earnings per share and including certain shares of unvested restricted stock
that will become vested upon an initial public offering.
F-12
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
The following sets forth the computation of unaudited pro forma net loss per
share:
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1999 MARCH 31, 2000
------------ ------------
Numerator:
Net loss.................................................. $(13,187,000) $ (4,491,000)
============ ============
Denominator:
Weighted average common shares, basic and diluted......... 13,604,750 13,956,254
============ ============
Pro forma net loss per share:
Basic and diluted......................................... $ (.97) $ (.32)
============ ============
</TABLE>
The following potentially dilutive common shares were excluded from the pro
forma calculation because their effect was antidilutive:
<TABLE>
<CAPTION>
-----------------------
<S> <C> <C>
DECEMBER 31, MARCH 31,
---------- ----------
1999 2000
---------- ----------
Stock options............................................... 2,335,455 2,210,787
Warrants.................................................... 27,022 27,022
Unvested restricted stock................................... 35,659 28,527
</TABLE>
5. INVENTORY
Inventories consist of the following:
<TABLE>
<CAPTION>
------------------------------------
<S> <C> <C> <C>
DECEMBER 31, MARCH 31,
----------------------- ----------
1998 1999 2000
---------- ---------- ----------
Raw materials............................................... $1,596,000 $2,191,000 $1,758,000
Work in process............................................. 17,000 169,000 300,000
Finished products........................................... 692,000 552,000 795,000
---------- ---------- ----------
$2,305,000 $2,912,000 $2,853,000
========== ========== ==========
</TABLE>
F-13
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
6. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
------------------------------------
<S> <C> <C> <C>
DECEMBER 31, MARCH 31,
----------------------- ----------
1998 1999 2000
---------- ---------- ----------
Laboratory and production equipment......................... $1,584,000 $1,855,000 $2,236,000
Furniture and office equipment.............................. 783,000 868,000 889,000
Leasehold improvements...................................... 732,000 1,032,000 1,034,000
Leased laboratory, production and office equipment.......... 801,000 1,878,000 1,878,000
---------- ---------- ----------
Total....................................................... 3,900,000 5,633,000 6,037,000
Less: accumulated depreciation.............................. (2,305,000) (2,924,000) (3,106,000)
---------- ---------- ----------
$1,595,000 $2,709,000 $2,931,000
========== ========== ==========
</TABLE>
There was $90,000, $323,000 and $425,000 of accumulated amortization of leased
assets at December 31, 1998 and 1999, and March 31, 2000 respectively.
7. NOTES RECEIVABLE, OFFICERS
During 1998, in connection with the sale of 78,240 shares of restricted common
stock and the exercise of options to purchase 37,490 shares of common stock, the
Company agreed to loan to an officer an aggregate of $454,000 in a non-cash
transaction pursuant to promissory notes, of which $418,000 was used to purchase
the related common stock and is included as a reduction to stockholders' equity.
The remaining $36,000 balance of the loan, the proceeds of which were to pay
certain tax liabilities in connection with the exercise of the options, is
included in notes receivable, officers. The notes, which bear interest at 5.69%
per annum and which are each collateralized by a corresponding pledge of the
shares of common stock purchased under the restricted stock award and received
upon exercise of the stock options, are due and payable on the earlier of
February 18, 2002 or the last trading date under the Company's then applicable
insider trading policy during the trading period immediately after the second
quarterly earnings announcement made after the expiration of his lock-up
agreement. As long as the officer remains employed by the Company, the Company
will forgive all interest accrued on the notes on February 18 annually, or
through the date of any earlier termination of employment. (see Note 11)
In October 1998, the Company provided a mortgage loan and pledge agreement in
the amount of $1,300,000 to its President and Chief Executive Officer, who is
also Chairman of the Company's Board of Directors, to purchase a residence
within commuting distance of the Company's headquarters. The loan bears interest
at the Prime Rate less 1.5% (7.00% at December 31, 1999) and is collateralized
by the real estate acquired with the loan proceeds and 825,159 shares of
Series A Preferred Stock owned by this officer. The agreement requires that
aggregate collateral value of at least 150% of the outstanding loan principal be
maintained throughout the life of the loan. Payments in the amount of $8,220 are
due monthly to the Company and all remaining unpaid principal and accrued
interest is payable at the earlier of (i) the date on which the Chairman of the
Company and Chief Executive Officer ceases to hold those offices; (ii) if the
Company's cash and marketable investments total less than $10,000,000; or
(iii) on the last trading date under the Company's then applicable insider
trading policy during the trading period immediately after the second quarterly
earnings announcement made after the expiration of his lock-up agreement, or
(vi) upon the occurrence of an event of default under the loan and pledge
agreement.
In June 1999, the Company provided a loan to an officer of the Company in the
amount of $100,000. The note, which bears interest at the Prime Rate plus one
percent per annum and which is secured by marketable securities, is payable in
F-14
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
June 2004, subject to acceleration, and becomes due immediately if the officer's
employment is terminated other than by the Company without cause. As long as the
officer remains employed by the Company, the Company will forgive $20,000 and
all accrued interest on June 14 annually. Upon the officer's death or permanent
disability, the remaining principal of the loan plus all accrued interest will
be forgiven.
Aggregate accrued interest receivable under notes receivable, officers was
$30,000, $35,000 and $17,000 at December 31, 1998 and 1999 and March 31, 2000,
respectively. For the year ended December 31, 1999 and the three-month period
ended March 31, 2000, interest due on obligations from employees was forgiven in
the amounts of $25,810 and $26,517, respectively. The Company has not forgiven
any principal. The Company records interest income monthly and records
compensation expense for the total amount forgiven annually, after all
conditions for forgiveness are met.
In connection with the acquisition of 33% of Target Quest, LLC in July 1999, the
Company granted lines of credit to former members of the limited liability
company to pay federal and state taxes incurred as a result of the sale of their
membership interests. The lines of credit are collaterized by common shares of
Dyax stock. Any amounts borrowed on the lines of credit are payable at the
earliest of (i) an occurrence of default, (ii) the first anniversary of the
closing of a public offering of Dyax common stock and (iii) any transaction
involving the sale or exchange of substantially all of the borrower's shares of
Dyax common stock. As of December 31, 1999 and March 31, 2000, the Company has
recorded notes receivable of $309,000 and $317,000, respectively, under the
lines of credit.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
------------------------------------
<S> <C> <C> <C>
DECEMBER 31, MARCH 31,
----------------------- ----------
1998 1999 2000
---------- ---------- ----------
Accounts payable............................................ $2,101,000 $3,864,000 $2,311,000
Accrued wages and related taxes............................. 759,000 1,283,000 707,000
Accrued warranty and installation costs..................... 160,000 146,000 146,000
Other accrued liabilities................................... 292,000 557,000 370,000
---------- ---------- ----------
Total....................................................... $3,312,000 $5,850,000 $3,534,000
========== ========== ==========
</TABLE>
9. CAPITAL LEASES
The Company had a capital lease agreement providing the Company with a
$3,000,000 lease facility for qualified fixed assets. In 1998 and 1999, the
Company sold to the lessor and leased back $355,000 and $1,077,000,
respectively, of laboratory, production and office equipment under this lease
facility in non-cash transactions. The lease facility expired in December 1999.
A new capital lease agreement, signed in February 2000, provides a $2,000,000
lease facility, which includes prior commitments. The lease facility is
available for future draw downs until December 2000.
F-15
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
Minimum future payments under the Company's capital leases as of December 31,
1999 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
2000........................................................ $ 464,000
2001........................................................ 464,000
2003........................................................ 463,000
2004........................................................ 348,000
2005 and thereafter......................................... 163,000
----------
Total future minimum lease payments......................... 1,902,000
Less: amount representing interest.......................... (314,000)
----------
Present value of future minimum lease payments.............. 1,588,000
Less: current portion....................................... (339,000)
----------
Capital leases-long term.................................... $1,249,000
==========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company has operating leases for laboratory and office facilities in
Cambridge, Massachusetts through June 2002 and operating leases for production,
laboratory and office facilities in Charlottesville, Virginia through
April 2002. The Charlottesville lease has a renewal option with an escalation
clause. The Company also leases office space in the United Kingdom under an
operating lease which permits the Company to renew after each five-year period;
however, should the Company elect not to renew, there is a termination fee equal
to one year's rent, which has been included in the following commitment schedule
as part of the last year's payment under the current five-year term. In
addition, the Company leases various laboratory and office equipment and
facilities under operating leases with one to five year terms.
Minimum future lease payments under non-cancelable operating leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
2000........................................................ $1,498,000
2001........................................................ $ 890,000
2002........................................................ $ 211,000
2003........................................................ $ 75,000
2004........................................................ $ 75,000
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $925,000, $1,161,000 and $1,498,000, respectively, and $317,000
and $383,000 for the three months ended March 31, 1999 and 2000, respectively.
The Company's first phage display patent in Europe was opposed by two parties in
late 1997. The oppositions primarily relate to whether the written description
of the inventions in the Company's European patent is sufficient under European
patent law. A hearing on these oppositions was held on April 6, 2000 and,
although the Company has not yet received the written opinion of the Opposition
Division, the patent was revoked. The Company plans to appeal this decision to
the Technical Board of Appeals. This appeal will suspend the Opposition
Division's decision and reinstate the Company's patent pending the decision of
the Technical Board of Appeals. Although Dyax will be able to enforce this
patent during the appeal, any infringement action that is filed will likely be
stayed pending the results of the appeal. The appeal could take several years to
resolve. The Company expects to receive a second European patent in 2000 for
phage display. The Company cannot assure that it will prevail in the appeal
proceedings or in any other opposition or litigation contesting the validity or
scope of the European patents. If the Company is not successful in the defense
of the European patent, or if additional valid and
F-16
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
enforceable patents do not result from the Company's pending European patent
applications, the Company will not be able to prevent other parties from using
phage display in Europe.
The Company is engaged in a United States court proceeding relating to patents
owned by a third party. The third party has sued the Company for patent
infringement of three United States patents. The amended complaint filed
March 13, 2000 alleges that the Company's licensing of its phage display patents
rights infringes these patents. In addition, plaintiffs have contended that Dyax
make, use, sell or offer to sell methods and products that infringe the patents.
The Company has moved to dismiss the action for lack of proper jurisdiction. The
Company cannot predict the outcome of this litigation.
11. STOCKHOLDERS' EQUITY
COMMON STOCK: Effective as of March 23, 1998, the Company implemented a reverse
stock split for all common stock outstanding whereby each stockholder received
0.652 share for each share of common stock, $0.01 par value. All periods
presented were retroactively restated to reflect the reverse stock split.
PREFERRED STOCK: In March 1997, the Company issued 782,760 shares of Class A
Series 4 Preferred Stock, $0.01 par value per share, at $3.13 per share. Net
proceeds were $2,437,000 after deducting related expenses of $13,000.
Commencing in August 1998 and concluding in November 1998, the Company issued
5,752,944 shares of Class A Series 5 Preferred Stock, $0.01 par value per share,
at $5.45 per share. Net proceeds were $30,168,000 after deducting related
expenses of $1,186,000.
Class A, Series 1, 2, 3 and 4, preferred shares are convertible at the option of
the holder, at any time, into common shares on a 0.652 share of common stock for
one share of preferred stock, Series 5 is convertible on a one-for-one basis.
The conversion ratio may be adjusted to provide protection against future
dilution. Also, Class A preferred shares are automatically convertible into
common shares, on a basis of 0.652 share of common stock for one share of
Preferred Stock as to Series 1, 2, 3 and 4 and an equal number of common shares
for shares of Preferred Stock as to Series 5, upon the closing of a public
offering of common stock by the Company, where the price per share is at least
$15.00 per share, with net proceeds to the Company of at least $20,000,000.
Holders of Class A Preferred Stock are entitled to receive non-cumulative
dividends at the same rate as common stock holders. Holders of Class A Preferred
Stock are entitled to one vote per share and, for certain events such as certain
preferred stock transactions, modifying rights, preferences, privileges or
limitations of Class A Preferred Stock, amending the Certificate of
Incorporation or certain significant corporate transactions, a majority vote of
Class A Preferred Stock holders is required. In addition, Class A Series 3, 4
and 5 Preferred Stock holders are each entitled to vote as a separate class for
the election of one Director by each of these three Series. Holders of Class A
Series 1, 2, 3, 4 and 5 Preferred Stock have liquidation preferences in the
aggregate amounts of $4,247,000, $4,250,000, $4,000,000, $13,450,000 and
$31,354,000, respectively. As of March 31, 2000 the Company has reserved
sufficient shares of common stock for the conversion of all Series of Preferred
Stock into an aggregate of 11,584,459 shares of common stock.
STOCK OPTIONS: The Company's 1995 Equity Incentive Plan (the "Plan") is an
equity plan under which equity awards, including awards of incentive and
nonqualified stock options to purchase shares of common stock and restricted
shares to employees and consultants of the Company may be granted by action of
the Compensation Committee of the Board of Directors. Options are generally
granted at the current fair market value, although in certain circumstances
granted below fair market value, on the date of grant as determined by the Board
of Directors, generally vest ratably over a 48 month period, and expire within
ten years from date of grant. During 1999, the Board of Directors increased the
common stock options available for grant under the Plan to 3,364,200. On
October 9, 1998, the Company's Board of Directors authorized the amendment of
all stock options granted during 1998, 295,809 shares, under the Plan to provide
for such options to have an amended exercise price equal to the then fair value
of $2.00 per share, which amendment was deemed to be the cancellation
F-17
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
of the existing options and the grant of new options pursuant to the plan. At
March 31, 2000, there were 2,669,251 shares of common stock reserved for
issuance under outstanding and future grants under the Plan of which 458,464
shares remained available for future grant. Since the Plan's inception, 694,949
shares have been issued under the plan.
Stock option activity for the 1995 Equity Incentive Plan is summarized as
follows:
<TABLE>
<CAPTION>
----------------------
<S> <C> <C>
WEIGHTED
AVG.
OPTION EXERCISE
SHARES PRICE
--------- -----
Outstanding at December 31, 1996............................ 500,744 $0.30
Granted..................................................... 629,050 1.28
Exercised................................................... (142,466) 0.33
Canceled.................................................... (16,617) 0.36
---------
Outstanding at December 31, 1997............................ 970,711 0.93
Granted..................................................... 1,067,571 2.95
Exercised................................................... (105,197) 0.78
Canceled.................................................... (329,942) 4.98
---------
Outstanding at December 31, 1998............................ 1,603,143 1.45
Granted..................................................... 906,220 2.04
Exercised................................................... (53,287) 1.02
Canceled.................................................... (120,621) 1.48
---------
Outstanding at December 31, 1999............................ 2,335,455 1.69
Granted..................................................... 36,300 5.87
Exercised................................................... (137,987) 1.65
Canceled.................................................... (22,981) 1.70
---------
Outstanding at March 31, 2000 (unaudited)................... 2,210,787 1.76
=========
</TABLE>
Summarized information about stock options outstanding at December 31, 1999 is
as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------- --------------------
WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------------- --------- -------- -------- --------- --------
0.3$0 to $0.99.... 387,034 6.4 $0.45 331,097 $0.40
1.5$3 ...... 345,420 7.8 $1.53 188,241 $1.53
2.0$0 to $2.50.... 1,603,001 9.3 $2.02 489,496 $2.05
--------- ---------
2,335,455 1,008,834
</TABLE>
The weighted average fair value of options granted under the Plan during 1997,
1998 and 1999, as determined under the minimum value method was $0.40, $0.73 and
$0.63, respectively. Total options exercisable at December 31, 1997, 1998, 1999
and March 31, 2000 were 233,165, 499,509, 1,008,834 and 982,538, respectively.
F-18
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
SFAS No. 123, "Accounting for Stock-Based Compensation", requires that companies
either recognize compensation expense for grants of stock, stock options and
other equity instruments to employees based on fair value, or provide pro forma
disclosure of net income in the notes to the financial statements. The Company
has adopted the disclosure provisions of SFAS No. 123 and applies APB Opinion
No. 25 and related interpretations in accounting for its plan. If compensation
costs for the Company's employee and director stock-based compensation plan had
been determined based on the fair value at the grant dates as calculated in
accordance with SFAS No. 123, the Company's net loss and net loss per share for
the years ended December 31, 1997, 1998 and 1999 would have increased to the pro
forma amounts shown below:
<TABLE>
<CAPTION>
----------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
Net loss as reported........................................ $(5,823,000) $(7,152,000) $(13,187,000)
Pro forma net loss.......................................... $(5,843,000) $(7,277,000) $(13,412,000)
Basic and diluted net loss per share as reported............ $ (3.95) $ (4.22) $ (6.81)
Pro forma basic and diluted net loss per share.............. $ (3.97) $ (4.29) $ (6.92)
</TABLE>
The fair value of each stock option granted is estimated on the grant date using
the minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER31,
------------------------------
1997 1998 1999
-------- -------- --------
Expected option term........................................ 6.0 6.0 6.0
Risk-free interest rate..................................... 6.31% 4.56% 6.19%
Expected dividend yield..................................... None None None
</TABLE>
Because the determination of the fair value of all options granted after the
Company becomes a public entity will include an expected volatility factor,
additional options grants are expected to be made subsequent to December 31,
1999 and most options vest over several years, the above pro forma effects are
not necessarily indicative of the pro forma effects on future years.
In 1997, 1998 and 1999 and the three months ended March 31, 2000, the Company
recorded $1,750,000, $561,000 (including $285,000 related to the sale of shares
of common stock to an officer of the Company), $4,284,000 and $180,000,
respectively, of deferred compensation related to stock option grants to
employees. The deferred compensation represents differences between the
estimated fair value of common stock on the date of grant and the exercise
price. The deferred compensation is being amortized and charged to operations
over the vesting period of the related options. Total stock option-related
compensation expense for 1997, 1998 and 1999 was $75,000, $681,000 and $939,000,
respectively, and $229,000 and $404,000 for the three months ended March 31,
1999 and 2000, respectively.
RESTRICTED STOCK PURCHASE AGREEMENTS: In March 1997, the Company issued 114,100
shares of common stock at a purchase price of $0.77 per share to an officer
under its 1995 Equity Incentive Plan, subject to a stock restriction agreement
whereby the Company has the right, but not the obligation, to repurchase the
unvested portion of the shares of common stock at the original purchase price
per share in the event of termination of the officer's employment with the
Company. Shares subject to this agreement vest monthly over a 48-month period.
At December 31, 1999 and March 31, 2000, there were 35,659 and 28,527,
respectively, unvested common shares at a weighted average fair value, as
determined under the minimum value method, of $0.23 per share. The restriction
may be terminated at any time at the Company's election.
F-19
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
In February 1998, the Company issued 78,240 shares of its common stock at a
purchase price of $4.60 per share to an officer under its 1995 Equity Incentive
Plan, subject to a stock restriction agreement whereby the Company has the
right, but not the obligation, to repurchase the unvested portion of the shares
of common stock at the original purchase price per share upon termination of the
officer's employment with the Company. Shares subject to this agreement vest
monthly over a 24-month period, beginning in February 2000, except that unvested
shares will vest in full upon the closing of an initial public offering of the
Company's common stock or upon the sale of the Company during the officer's
employment with the Company or within 180 days after termination without cause.
At December 31, 1999 and March 31, 2000, there were 78,240 and 71,720,
respectively, unvested shares at a weighted average fair value, as determined
under the minimum value method, of $1.40 per share. The restriction may be
terminated at any time at the Company's election. The Company recorded $285,000
of deferred compensation during 1998 in connection with the sale of shares of
common stock to the officer based upon an estimated fair value at the date of
issuance of $8.25 per share. The deferred compensation amount is being charged
to operations either over a 24-month period beginning in February 2000 or in its
entirety upon the closing of an initial public offering of the Company's common
stock.
During the fourth quarter of 1999, the Company issued 47,500 shares of common
stock, under two separate agreements, at a purchase price of $2.00 per share, to
an officer under its 1995 Equity Incentive Plan, subject to stock restriction
agreements whereby the Company has the right of first refusal with respect to
these shares. The first agreement involved 25,000 shares, which vested
immediately. The second agreement involved 22,500 shares, which vest monthly
over a 24-month period with certain acceleration provisions, and are subject to
the Company's right to repurchase the unvested portion of the shares of common
stock at the original purchase price per share in the event of termination of
the officer's employment with the Company. One half of any unvested shares of
restricted common stock and one half of any unvested options automatically vest
upon any merger, consolidation or other sale resulting in a change in control of
the company if the officer's employment is terminated or he resigns because the
terms of his employment agreement have been adversely changed. At December 31,
1999 and March 31, 2000, there were 19,686 and 16,875, respectively, unvested
common shares at a weighted average fair value, as determined under the minimum
value method, of $0.61 per share. The restriction may be terminated at any time
at the Company's election.
WARRANTS: At December 31, 1997, 1998, 1999 and March 31, 2000, the Company had
outstanding warrants to purchase 27,022 shares of the Company's common stock at
$3.97 per share. In 1997, warrants for 18,910 shares expired and the remaining
warrants expire on August 10, 2000. An equal number of shares of common stock
have been reserved for the exercise of outstanding warrants at March 31, 2000.
1998 EMPLOYEE STOCK PURCHASE PLAN: In January 1998, the Company adopted the
Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"), under which
employees may in the future purchase shares of Common Stock at a discount from
fair market value. There are 97,800 shares of Common Stock reserved for issuance
under the Purchase Plan. To date the Company has not offered or issued shares of
Common Stock under the Purchase Plan. Rights to purchase Common Stock under the
Purchase Plan are granted at the discretion of the Compensation Committee, which
determines the frequency and duration of individual offerings under the Purchase
Plan and the dates when stock may be purchased. Eligible employees participate
voluntarily and may withdraw from any offering at any time before stock is
purchased. The purchase price per share of Common Stock in an offering is 85% of
the lesser of its fair market value at the beginning of the offering period or
on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both.
12. EMPLOYEE SAVINGS AND RETIREMENT PLAN
The Company has an employee savings and retirement plan (the "Plan"), qualified
under section 401(k) of the Internal Revenue Code, covering substantially all of
the Company's employees. Employees may elect to contribute a portion of their
F-20
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
pretax compensation to the Plan up to the annual maximum allowed under the Plan.
The Plan does not provide for a fixed matching contribution by the Company,
however, for each plan year the Company may contribute to the Plan at its
discretion. No contributions to the Plan were made by the Company in 1997, 1998,
1999 or the three months ending March 31, 1999 or 2000.
13. INCOME TAXES
For the years ended December 31, 1997, 1998 and 1999, the Company had income tax
provisions of $0, $0 and $58,000, respectively.
Temporary differences that give rise to significant deferred tax assets as of
December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
---------------------------------------
<S> <C> <C> <C>
1997 1998 1999
----------- ----------- -----------
Deferred Tax Asset:
Allowance for doubtful accounts............................. $ 32,000 $ 52,000 $ 52,000
Inventory costs............................................. 86,000 69,000 106,000
Depreciation and amortization............................... 97,000 139,000 120,000
Accrued expenses............................................ -- -- 140,000
Other....................................................... 116,000 96,000 79,000
Net operating loss carryforwards............................ 12,890,000 15,288,000 20,251,000
Research credit carryforwards............................... 742,000 897,000 1,168,000
Valuation allowance......................................... (13,963,000) (16,541,000) (21,916,000)
----------- ----------- -----------
Net deferred tax asset...................................... -- -- --
=========== =========== ===========
</TABLE>
As of December 31, 1999, the Company has federal net operating loss ("NOL") and
research and experimentation credit carryforwards of approximately $49,744,000
and $1,167,000, respectively, which may be available to offset future federal
income tax liabilities and expire at various dates through 2019. As required by
SFAS No. 109, management has evaluated the positive and negative evidence
bearing upon the realizabilty of its deferred tax assets, which are comprised
principally of net operating loss and research and experimentation credit
carryforwards. Management has determined that it is more likely than not the
Company will be unable to recognize the benefits of federal and state deferred
tax assets and, as a result, a valuation allowance of approximately $21,916,000
has been established at December 31, 1999.
Ownership changes, as defined in the Internal Revenue Code, may limit the amount
of net operating loss carryforwards that can be utilized annually to offset
future taxable income. Subsequent ownership changes could further affect the
limitation in future years.
As of December 31, 1999, the Company's UK subsidiary had NOL carryforwards of
approximately $1,361,000, which are indefinitely available to offset future
taxable income in the United Kingdom.
14. RELATED PARTY TRANSACTIONS
The President, Chief Executive Officer and Chairman of the Board of the Company
also serves as an outside director of and consultant to Genzyme Corporation
("Genzyme") and as an outside director of Genzyme Transgenics Corporation. In
1996, the Company entered into a sublease agreement with Genzyme for laboratory
and office facilities in Cambridge, Massachusetts, which was extended to
June 2001. A total of $590,000, $615,000 and $615,000 was recorded as rent
expense during 1997, 1998 and 1999, respectively. Rent expense of $154,000 was
recorded in both the three month periods ended March 31, 1999
F-21
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
and 2000. During 1996, the Company signed two patent license agreements with
Genzyme under the Company's standard license terms. The Company recorded license
revenues of $51,000, $50,000 and $50,000 in 1997, 1998 and 1999, respectively,
and $13,000 in each of the three-month periods ended March 31, 1999 and 2000,
respectively, in connection with the signing and maintenance fees on these two
agreements. During 1998, the Company had two funded discovery projects with
Genzyme Transgenic Corporation and one funded discovery project with Genzyme
Diagnostics Corporation resulting in recorded revenues of $145,000 and $123,000
in 1997 and 1998, respectively. The funded discovery projects were all concluded
during 1998.
In June 1998, the Company and Genzyme also entered into a joint development and
commercialization agreement for one of the Company's proprietary therapeutic
compounds for the treatment of chronic inflammatory diseases, with initial
development to be focused on the treatment of hereditary angioedema. Under the
agreement, the Company will initially fund up to $6.0 million dollars of
development costs and thereafter the parties will fund equally all development
costs. Through December 31, 1999, the Company funded approximately $1.8 million
of development costs, exclusive of any allocation of general and administrative
expenses. Genzyme has extended to the Company a $3.0 million line of credit,
which the Company may use to fund a portion of such development costs or for any
of the Company's other research and development programs. At December 31, 1999,
the Company had not utilized any of the available line of credit. In addition,
the Company will be entitled to receive significant milestone payments and up to
50% of the profits from sales of products developed under this collaboration.
The Company believes that the proposed collaboration with Genzyme will provide
Dyax with significant financial and other resources to continue preclinical and
clinical development of this proprietary compound. In addition, Genzyme
purchased $3.0 million of the Company's Class A Series 5 Preferred Stock at
$5.45 per share.
15. BUSINESS SEGMENTS
The Company discloses business segments under SFAS No. 131. The accounting
policies of the segments are the same as those described in Note 2, Accounting
Policies. Segment data does not include allocation of corporate administrative
costs to each of its operating segments. The Company evaluates the performance
of its segments and allocates resources to them based on earnings (losses)
before corporate administrative costs, interest and taxes.
The Company has two reportable segments: Separations and
Therapeutics/Diagnostics. The Separations Products segment develops,
manufactures, markets and sells chromatography separations equipment and media
cartridges under the Biotage trade name. The Therapeutics/Diagnostic segment
develops therapeutic and diagnostic products using the Company's proprietary
Phage Display technology, licenses this proprietary technology to third parties
and sells affinity ligand based separations products developed using the
Company's Phage Display technology.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technologies and marketing strategies.
F-22
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
The following table presents certain segment financial information and the
reconciliation of segment financial information to consolidated totals as of
the:
<TABLE>
<CAPTION>
---------------------------------------
<S> <C> <C> <C>
THERAPEUTICS/
YEAR ENDED DECEMBER 31, 1997 SEPARATIONS DIAGNOSTICS TOTAL
----------- ----------- -----------
Revenue from external customers............................. $ 7,188,000 $ 2,142,000 $ 9,330,000
Segment loss from operations................................ $(1,401,000) $(3,282,000) $(4,683,000)
Depreciation and amortization............................... $ (202,000) $ (106,000) $ (308,000)
Segment assets.............................................. $ 4,831,000 $ 1,089,000 $ 5,920,000
</TABLE>
<TABLE>
<CAPTION>
THERAPEUTICS/
SEPARATIONS DIAGNOSTICS TOTAL
YEAR ENDED DECEMBER 31, 1998 ----------- ------------- -----------
<S> <C> <C> <C>
Revenue from external customers............................. $ 9,641,000 $ 4,490,000 $14,131,000
Segment loss from operations................................ $(1,524,000) $(2,126,000) $(3,650,000)
Depreciation and amortization............................... $ (219,000) $ (221,000) $ (440,000)
Segment assets.............................................. $ 5,527,000 $ 2,252,000 $ 7,779,000
</TABLE>
<TABLE>
<CAPTION>
THERAPEUTICS/
SEPARATIONS DIAGNOSTICS TOTAL
YEAR ENDED DECEMBER 31, 1999 ----------- ------------- -----------
<S> <C> <C> <C>
Revenue from external customers............................. $12,596,000 $ 4,237,000 $16,833,000
Segment loss from operations................................ $(2,790,000) $(6,203,000) $(8,993,000)
Depreciation and amortization............................... $ (305,000) $ (276,000) $ (581,000)
Segment assets.............................................. $ 7,010,000 $ 2,257,000 $ 9,267,000
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------
<S> <C> <C> <C>
THERAPEUTICS/
THREE MONTHS ENDED MARCH 31, 1999 SEPARATIONS DIAGNOSTICS TOTAL
----------- ----------- -----------
Revenue from external customers............................. $ 2,840,000 $ 825,000 $ 3,665,000
Segment loss from operations................................ $ (496,000) $(1,398,000) $(1,894,000)
Depreciation and amortization............................... $ (62,000) $ (48,000) $ (110,000)
Segment assets.............................................. $ 5,660,000 $ 2,812,000 $ 8,472,000
</TABLE>
<TABLE>
<CAPTION>
THERAPEUTICS/
SEPARATIONS DIAGNOSTICS TOTAL
THREE MONTHS ENDED MARCH 31, 2000 ----------- ------------- -----------
<S> <C> <C> <C>
Revenue from external customers............................. $ 3,378,000 $ 1,429,000 $ 4,807,000
Segment loss from operations................................ $(1,004,000) $(2,043,000) $(3,047,000)
Depreciation and amortization............................... $ (89,000) $ (70,000) $ (159,000)
Segment assets.............................................. $ 6,681,000 $ 2,096,000 $ 8,777,000
</TABLE>
F-23
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997 1998 1999 1999 2000
RECONCILIATIONS: ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Income from operations:
Income from operations for
reportable segments............ $(4,683,000) $(3,650,000) $ (8,993,000) $ (1,894,000) $ (3,047,000)
Unallocated amounts:
Corporate expenses............. (1,405,000) (3,903,000) (5,315,000) (1,230,000) (1,602,000)
Investment income.............. -- -- 265,000 -- --
Interest income, net........... 265,000 401,000 856,000 261,000 158,000
----------- ----------- ------------ ------------ ------------
Consolidated net loss........ $(5,823,000) $(7,152,000) $(13,187,000) $ (2,863,000) $ (4,491,000)
=========== =========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Depreciation and amortization:
Depreciation and amortization for
reportable segments............ $ (308,000) $ (440,000) $ (581,000) $ (110,000) $ (159,000)
Unallocated amounts:
Corporate depreciation and
amortization................. (8,000) (22,000) (70,000) (18,000) (27,000)
----------- ----------- ------------ ------------ ------------
Consolidated depreciation and
amortization................. $ (316,000) $ (462,000) $ (651,000) $ (128,000) $ (186,000)
=========== =========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------- -----------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Assets:
Segment assets.................... $ 5,920,000 $ 7,779,000 $ 9,267,000 $ 8,472,000 $ 8,777,000
Unallocated amounts:
Corporate assets................ 4,716,000 26,637,000 20,341,000 23,323,000 22,068,000
----------- ----------- ----------- ------------ ------------
Consolidated assets........... $10,636,000 $34,416,000 $29,608,000 $ 31,795,000 $ 30,845,000
=========== =========== =========== ============ ============
</TABLE>
The Company operates in the geographic segments of the United States ("U.S.")
and Europe as indicated in the table below.
<TABLE>
<CAPTION>
-----------------------------------------
<S> <C> <C> <C> <C>
1997
-----------------------------------------
U.S EUROPE ELIMINATION TOTAL
-------- -------- -------- --------
Revenues.................................................... $ 7,891 $2,228 $(789) $ 9,330
Net income (loss)........................................... (6,779) 910 46 (5,823)
Long-lived assets........................................... 1,240 127 -- 1,367
Total assets................................................ 9,538 1,398 (300) 10,636
</TABLE>
F-24
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
1998
--------------------------------------------
U.S EUROPE ELIMINATION TOTAL
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 12,941 $2,992 $(1,802) $14,131
Net income (loss)........................................... (7,129) (28) 5 (7,152)
Long-lived assets........................................... 1,820 162 -- 1,982
Total assets................................................ 34,148 1,650 (1,382) 34,416
</TABLE>
<TABLE>
<CAPTION>
1999
--------------------------------------------
U.S EUROPE ELIMINATION TOTAL
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues.................................................... $15,372 $4,274 $(2,813) $16,833
Net income (loss)........................................... (12,940) (342) 95 (13,187)
Long-lived assets........................................... 4,264 436 -- 4,700
Total assets................................................ 29,064 2,380 (1,836) 29,608
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
--------------------------------------------
U.S EUROPE ELIMINATION TOTAL
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 3,100 $1,392 $ (827) $ 3,665
Net income (loss)........................................... (2,945) 84 (2) (2,863)
Long-lived assets........................................... 2,257 16 -- 2,273
Total assets................................................ 31,302 2,241 (1,748) 31,795
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
--------------------------------------------
U.S EUROPE ELIMINATION TOTAL
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 4,749 $ 566 $ (508) $ 4,807
Net income (loss)........................................... (4,135) (314) (42) (4,491)
Long-lived assets........................................... 4,206 493 -- 4,699
Total assets................................................ 30,959 1,854 (1,968) 30,845
</TABLE>
16. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130 in 1998. Accumulated other comprehensive income
(loss) is calculated as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, MARCH 31
--------------------------------- ---------------------
1997 1998 1999 1999 2000
--------- --------- --------- --------- ---------
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment:
Balance at beginning of each period......... $ 30,000 $(141,000) $(123,000) $(123,000) $(108,000)
Change during each period................... (171,000) 18,000 15,000 (21,000) 153,000
--------- --------- --------- --------- ---------
Balance at end of each period............... $(141,000) $(123,000) $(108,000) $(144,000) $ 45,000
========= ========= ========= ========= =========
</TABLE>
F-25
<PAGE>
DYAX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
17. COLLABORATION AND LICENSE AGREEMENT
In March 2000, the Company entered into a collaboration and license agreement
with Human Genome Sciences, Inc. ("HGSI"). Under this agreement the Company and
HGSI will use Dyax's phage display technology to identify and optimize product
leads that bind to therapeutic targets selected by HGSI, and also to develop new
technologies for purifying targets. The Company granted HGSI a non-exclusive
license to our phage display technology and compound libraries to create leads
that may be used as peptide drugs, human monoclonal antibody drugs and IN VITRO
diagnostic products. With the exception of selected IN VIVO imaging rights, HGSI
will retain the rights to all products that result from this collaboration. In
exchange, HGSI will pay the Company a minimum of $16.0 million in committed
license fees and research funding during the first three years of the five-year
agreement, $6.0 million of which was paid to the Company in March 2000. The
Company will also be entitled to receive milestone payments on therapeutic
products and royalties on all products developed by HGSI under the agreement and
will share HGSI's revenues on any of those products it out-licenses. The
$6.0 million cash payment is being recognized as revenue over the five-year
collaboration term of the agreement. For the three months ended March 31, 2000,
the Company recognized $166,000 of revenue under the collaboration and license
agreement. The excess cash received over the revenue recognized is recorded as
deferred revenue in the accompanying consolidated balance sheet.
F-26
<PAGE>
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[LOGO]
Through and including , 2000 (the 25(th) day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The table below lists the costs and expenses, other than underwriting discounts
and commissions, payable by us in connection with the sale of the common stock
we are registering. All amounts are estimates except the registration fee and
the NASD fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
Registration fee............................................ $ 19,800
NASD filing fee............................................. $ 8,000
Nasdaq National Market listing fee.......................... $ 5,000
Printing and engraving...................................... $ 200,000
Legal fees and expenses..................................... $ 500,000
Accounting fees and expenses................................ $ 230,000
Transfer agent fees......................................... $ 20,000
Miscellaneous............................................... $ 97,200
Total....................................................... $1,080,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows us to indemnify our
directors, officers, employees and agents against actual and reasonable expenses
they incur in connection with any action, suit or proceeding brought against
them because they are a director, officer, employee or agent. Under Delaware
law, we may pay all these expenses, provided that: (1) the person in question
acted in good faith and in a manner reasonably believed to be not opposed to our
best interests; and (2) in the case of a criminal proceeding, the person had no
reasonable cause to believe the conduct in question was unlawful. We shall make
no indemnification in connection with any proceeding brought on our behalf where
the person involved is adjudged to be liable to us, except as may be ordered by
a court.
Article VIII of the our Restated Certificate of Incorporation provides that we
shall, to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, indemnify anyone that we have the power to indemnify against
any expenses, liabilities or other matters referred to in or covered by that
section. This indemnification is not exclusive of any other rights to which
those seeking indemnification may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors, or otherwise. Both action in an
official capacity and action in another capacity while holding office may be
subject to indemnification. A person's right to indemnification does not cease
solely because that person ceases to be a director, officer, employee or agent,
or because that person dies.
Article IX of our Restated Certificate of Incorporation provides that no
director shall be personally liable to us or our stockholders for monetary
damages for any breach of fiduciary duty by a director as a director.
Notwithstanding that provision, Article IX provides that a director shall be
liable to the extent provided by applicable law:
- for breach of the director's duty of loyalty to us or our stockholders;
- for acts or omissions not in good faith, or acts involving intentional
misconduct or a knowing violation of law;
- pursuant to Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived improper personal benefit.
Article IX further states that if the Delaware General Corporation Law is
amended to allow further limitation of the liability of our directors or
officers, then the liability of those directors or officers shall be limited to
the fullest extent permitted by the Delaware General Corporation Law, as from
time to time amended. Article IX also stipulates that no amendment to or repeal
of Article IX shall apply to the liability or alleged liability of any director
or officer with respect to any acts or omissions occurring prior to such
amendment or repeal.
We carry Directors' and Officers' insurance that covers our directors and
officers against some liabilities they may incur when acting in their official
capacities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 1, 1997, we have issued and sold the following unregistered
securities:
(a) Issuances of Stock
On August 31, 1998, September 10, 1998, October 1, 1998, October 15, 1998,
November 13, 1998, and November 25, 1998, we sold an aggregate of 5,752,944
shares of Class A Series 5 Preferred Stock to HealthCare Ventures V, L.P.,
Hudson Trust, Rho Management Trust II, BancBoston Ventures, Inc., H&Q Healthcare
Investors, H&Q Life Sciences Investors, Zinsmeyer Trusts Partnership, Alta
BioPharma Partners, L.P., Alta Embarcadero BioPharma LLC, Dyax Chase Partners
(Alta Bio), LLC, Genzyme Corporation, Loeb Investors Co. 106C, New York Life
Insurance Company, CGC Investors, L.P., Charter Capital Growth, L.P., Charter
Growth Capital Co-Investment Fund, L.P., ING Baring (U.S.) Capital Corporation,
and individual investors, including Henry E. Blair, Robert Dishman, and certain
other persons not affiliated with us, at a purchase price of $5.45 per share for
an aggregate purchase price of $31,353,544.80.
On July 14, 1999, in connection with our acquisition of Target Quest B.V., we
issued an aggregate of 412,500 shares of our common stock to Bioquest B.V. in
exchange for all of the capital stock of the parent company of Target Quest B.V.
In addition, on July 14, 1999, we issued an aggregate of 379,152 shares of our
common stock to the nine holders of limited liability company interests of
Target Quest, LLC not owned by Target Quest B.V.
As of December 31, 1999 we had sold an aggregate of 239,840 shares of restricted
common stock to our employees under our Amended and Restated 1995 Equity
Incentive Plan, at prices ranging from $0.77 to $4.60 per share, for an
aggregate purchase price of $542,761.00.
(b) Grants and Exercises of Stock Options
As of July 1, 2000, we had outstanding under our 1995 Equity Incentive Plan
options to purchase 2,333,472 shares of common stock, of which options to
purchase 1,139,390 shares were exercisable as of that date. We had issued an
aggregate of 710,585 shares under the plan, consisting of 470,745 shares issued
upon exercise of stock options and 239,840 shares of restricted common stock. As
of July 1, 2000, 320,143 shares of common stock remained available for future
grants under this plan.
We engaged no underwriter in connection with any of the sales of securities
described above. Sales of common stock to employees have been made in reliance
upon the exemption for the registration requirements afforded by Section 4(2) of
the Securities Act and Rule 701 thereunder as sales of an issuer's securities
pursuant to a written contract relating to the compensation of such individuals.
Sales of shares of common stock and preferred stock were made in reliance upon
Section 4(2) of the Securities Act, and/or Regulation D promulgated thereunder.
At the time of issuance, all of the foregoing shares of common and preferred
stock were deemed to be restricted securities for the purposes of the Securities
Act, and the certificates representing those securities bore legends to that
effect.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
-------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant, as
amended through October 31, 1998.
3.2* Form of Restated Certificate of Incorporation of the
Registrant, as proposed to be amended and restated.
3.3 By-laws of the Registrant.
3.4* Form of Restated By-laws of the Registrant, as proposed to
be amended and restated.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Palmer & Dodge LLP.
10.1 Amended and Restated 1995 Equity Incentive Plan.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
-------------- ------------------------------------------------------------
<C> <S>
10.2 1998 Employee Stock Purchase Plan.
10.3** Employment Letter Agreement, dated September 1, 1999,
between Stephen S. Galliker and the Registrant.
10.4 Restricted Stock Purchase Agreement, dated October 1999,
between Stephen S. Galliker and the Registrant.
10.5** Restricted Stock Purchase Agreement, dated November 30,
1999, between Stephen S. Galliker and the Registrant.
10.6 Letter Agreement, dated September 1, 1998, between Gregory
D. Phelps and the Registrant.
10.7 Executive Employment Agreement, dated February 18, 1998,
between Robert Dishman and the Registrant.
10.8 Employment Agreement, dated August 1995, between Robert
Ladner and the Registrant.
10.9 Consulting Agreement, dated October 15, 1997, between James
W. Fordyce and the Registrant.
10.10 Loan and Pledge Agreement, dated October 30, 1998, between
Henry E. Blair and the Registrant.
10.11 Secured Convertible Term Note, dated August 11, 1995,
between Sheridan G. Snyder and the Registrant; Security
Agreement, dated May 11, 1993, between Sheridan G. Snyder
and the Registrant; and Assignment Agreement, dated May 11,
1993, between Sheridan G. Snyder and Crestar Bank, N.A. as
amended by the Amendment to Security Agreement and to
Assignment Agreement, dated August 10, 1995, between
Sheridan G. Snyder, Crestar Bank, N.A. and the Registrant.
10.12 Sublease, dated January 1999, between Mitotix, Inc. and the
Registrant.
10.13 Lease, dated June 30, 1999, between Alan G. Dillard, Jr.,
and the Registrant.
10.14 Lease Agreement, dated as of February 12, 1998, between
AStec Partnership and the Registrant.
10.15 Lease Agreement, dated as of February 11, 1997, between
AStec Partnership and the Registrant.
10.16 Sublease Agreement, dated September 21, 1996, as amended on
December 31, 1997, between Genzyme Corporation and the
Registrant.
10.17 Second Amendment to Sublease, dated March 21, 2000, between
Genzyme Corporation and the Registrant.
10.18 Lease Agreement, dated April 8, 1991, between Bridge Gate
Real Estates Limited, Harforde Court Management Limited and
the Registrant.
10.19 Lease Agreement, dated February 20, 1998, between Old
Kendall Property LLC and the Registrant.
10.20 Amendment, dated February 26, 1999, to lease between
Cambridge Athenaeum LLC (successor-in-interest to Old
Kendall Property LLC) and the Registrant.
10.21 Master Lease Agreement, dated December 30, 1997, between
Transamerica Business Credit Corporation and the Registrant.
10.22 Form of Sale and Leaseback Agreement, dated December 30,
1997, between Transamerica Business Credit Corporation and
the Registrant.
10.23+ Form of License Agreement (Therapeutic Field) between the
Licensee and the Registrant.
10.24+ Form of License Agreement (Antibody Diagnostic Field)
between the Licensee and the Registrant.
10.25+ Collaboration Agreement between Genzyme Corporation and Dyax
Corp., dated October 1, 1998.
10.26+ Research and Development Agreement, dated March 10, 1997,
between Debiopharm S.A. and the Registrant.
10.27+ Research and Development Marketing and Collaboration
Agreement, dated June 14, 1999, between Amersham Pharmacia
Biotech AB and the Registrant.
10.28+ Joint Collaboration Agreement, dated October 1, 1997,
between CropTech Development Corporation and the Registrant.
10.29+ Development Agreement for Affinity Chromatography
Purification Media, dated September 29, 1997, between
Genetics Institute, Inc. and the Registrant, with amendments
thereto.
10.30+ License, Technology Transfer, and Technology Services
Agreement, dated February 2, 2000, between Amgen Inc. and
the Registrant.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
-------------- ------------------------------------------------------------
<C> <S>
10.31+ Collaboration and License Agreement, dated March 17, 2000,
between Human Genome Sciences, Inc., and the Registrant
10.32 Form of Indemnification Agreement by and between certain
directors and executive officers of the Registrant and the
Registrant.
10.33** Collaboration Agreement, dated June 20, 1997, between EPIX
Medical Inc. and the Registrant.
10.34** Amended and Restated Registration Rights Agreement, dated
August 31, 1998, between holders of the Registrant's capital
stock named therein and the Registrant, as amended on
June 16, 2000.
10.35* Master Loan and Security Agreement, dated June 30, 2000,
between Transamerica Business Credit Corporation and the
Registrant.
21 Subsidiaries of the Registrant.
23.1** Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2* Consent of Palmer & Dodge LLP. Included in the opinion filed
as Exhibit 5.1.
23.3** Consent of Yankwich and Associates, special patent counsel
to the Registrant.
24.1 Powers of Attorney. Included on the signature page of this
Registration Statement.
27.1 Financial Data Schedule.
</TABLE>
------------------------
* To be filed by amendment.
** Filed herewith.
+ 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.
All other exhibits filed previously.
None.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons pursuant to the
provisions referenced in Item 14 of this Registration Statement, or otherwise,
we have been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether indemnification by us is against public policy as expressed
in the Securities Act. We will be governed by the final adjudication of such
issue.
We hereby undertake:
(1) to provide to the underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each purchaser;
(2) that, for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(3) that, for purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the city
of Cambridge, Massachusetts, on the 6th day of July, 2000.
<TABLE>
<S> <C> <C>
DYAX CORP.
BY: /S/ HENRY E. BLAIR
-------------------------------------------------
Henry E. Blair
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act, this Amendment No. 1
Registration Statement has been signed by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HENRY E. BLAIR President, Chief Executive Officer, and
------------------------------------------- Chairman of the Board of Directors July 6, 2000
Henry E. Blair (Principal Executive Officer)
* Executive Vice President of Finance and
------------------------------------------- Administration and Chief Financial July 6, 2000
Stephen S. Galliker Officer (Principal Financial Officer)
* Director
------------------------------------------- July 6, 2000
Gregory D. Phelps
* Director
------------------------------------------- July 6, 2000
L. Edward Cannon
* Director
------------------------------------------- July 6, 2000
Robert A. Dishman
* Director
------------------------------------------- July 6, 2000
Constantine E. Anagnostopoulos
* Director
------------------------------------------- July 6, 2000
James W. Fordyce
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director
------------------------------------------- July 6, 2000
Thomas L. Kempner
* Director
------------------------------------------- July 6, 2000
Henry R. Lewis
* Director
------------------------------------------- July 6, 2000
John W. Littlechild
* Director
------------------------------------------- July 6, 2000
Alix Marduel
* Director
------------------------------------------- July 6, 2000
David J. McLachlan
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ HENRY E. BLAIR
--------------------------------------
Henry E. Blair
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
-------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant, as
amended through October 31, 1998.
3.2* Form of Restated Certificate of Incorporation of the
Registrant, as proposed to be amended and restated.
3.3 By-laws of the Registrant.
3.4* Form of Restated By-laws of the Registrant, as proposed to
be amended and restated.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Palmer & Dodge LLP.
10.1 Amended and Restated 1995 Equity Incentive Plan.
10.2 1998 Employee Stock Purchase Plan.
10.3** Employment Letter Agreement, dated September 1, 1999,
between Stephen S. Galliker and the Registrant.
10.4 Restricted Stock Purchase Agreement, dated October 1999,
between Stephen S. Galliker and the Registrant.
10.5** Restricted Stock Purchase Agreement, dated November 30,
1999, between Stephen S. Galliker and the Registrant.
10.6 Letter Agreement, dated September 1, 1998, between Gregory
D. Phelps and the Registrant.
10.7 Executive Employment Agreement, dated February 18, 1998,
between Robert Dishman and the Registrant.
10.8 Employment Agreement, dated August 1995, between Robert
Ladner and the Registrant.
10.9 Consulting Agreement, dated October 15, 1997, between James
W. Fordyce and the Registrant.
10.10 Loan and Pledge Agreement, dated October 30, 1998, between
Henry E. Blair and the Registrant.
10.11 Secured Convertible Term Note, dated August 11, 1995,
between Sheridan G. Snyder and the Registrant; Security
Agreement, dated May 11, 1993, between Sheridan G. Snyder
and the Registrant; and Assignment Agreement, dated May 11,
1993, between Sheridan G. Snyder and Crestar Bank, N.A. as
amended by the Amendment to Security Agreement and to
Assignment Agreement, dated August 10, 1995, between
Sheridan G. Snyder, Crestar Bank, N.A. and the Registrant.
10.12 Sublease, dated January 1999, between Mitotix, Inc. and the
Registrant.
10.13 Lease, dated June 30, 1999, between Alan G. Dillard, Jr.,
and the Registrant.
10.14 Lease Agreement, dated as of February 12, 1998, between
AStec Partnership and the Registrant.
10.15 Lease Agreement, dated as of February 11, 1997, between
AStec Partnership and the Registrant.
10.16 Sublease Agreement, dated September 21, 1996, as amended on
December 31, 1997, between Genzyme Corporation and the
Registrant.
10.17 Second Amendment to Sublease, dated March 21, 2000, between
Genzyme Corporation and the Registrant.
10.18 Lease Agreement, dated April 8, 1991, between Bridge Gate
Real Estates Limited, Harforde Court Management Limited and
the Registrant.
10.19 Lease Agreement, dated February 20, 1998, between Old
Kendall Property LLC and the Registrant.
10.20 Amendment, dated February 26, 1999, to lease between
Cambridge Athenaeum LLC (successor-in-interest to Old
Kendall Property LLC) and the Registrant.
10.21 Master Lease Agreement, dated December 30, 1997, between
Transamerica Business Credit Corporation and the Registrant.
10.22 Form of Sale and Leaseback Agreement, dated December 30,
1997, between Transamerica Business Credit Corporation and
the Registrant.
10.23+ Form of License Agreement (Therapeutic Field) between the
Licensee and the Registrant.
10.24+ Form of License Agreement (Antibody Diagnostic Field)
between the Licensee and the Registrant.
10.25+ Collaboration Agreement between Genzyme Corporation and Dyax
Corp., dated October 1, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT
-------------- ------------------------------------------------------------
<C> <S>
10.26+ Research and Development Agreement, dated March 10, 1997,
between Debiopharm S.A. and the Registrant.
10.27+ Research and Development Marketing and Collaboration
Agreement, dated June 14, 1999, between Amersham Pharmacia
Biotech AB and the Registrant.
10.28+ Joint Collaboration Agreement, dated October 1, 1997,
between CropTech Development Corporation and the Registrant.
10.29+ Development Agreement for Affinity Chromatography
Purification Media, dated September 29, 1997, between
Genetics Institute, Inc. and the Registrant, with amendments
thereto.
10.30+ License, Technology Transfer, and Technology Services
Agreement, dated February 2, 2000, between Amgen Inc. and
the Registrant.
10.31+ Collaboration and License Agreement, dated March 17, 2000,
between Human Genome Sciences, Inc., and the Registrant
10.32 Form of Indemnification Agreement by and between certain
directors and executive officers of the Registrant and the
Registrant.
10.33** Collaboration Agreement, dated June 20, 1997, between EPIX
Medical Inc. and the Registrant.
10.34** Amended and Restated Registration Rights Agreement, dated
August 31, 1998, between holders of the Registrant's capital
stock named therein and the Registrant, as amended on
June 16, 2000.
10.35* Master Loan and Security Agreement, dated June 30, 2000,
between Transamerica Business Credit Corporation and the
Registrant.
21 Subsidiaries of the Registrant.
23.1** Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2* Consent of Palmer & Dodge LLP. Included in the opinion filed
as Exhibit 5.1.
23.3** Consent of Yankwich and Associates, special patent counsel
to the Registrant.
24.1 Powers of Attorney. Included on the signature page of this
Registration Statement.
27.1 Financial Data Schedule.
</TABLE>
------------------------
* To be filed by amendment.
** Filed herewith.
+ 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.
All other exhibits filed previously.
