A biotechnology company with a novel and powerful platform technology has several strategic options for growing and increasing its value. It can:

• evolve from a “tools” company into a product development company
• acquire companies with complementary technologies
• consolidate businesses
• stay “as is”

A company’s position in the therapeutic value chain determines which option will provide maximum growth potential and value. For example, a company with a technology that provides lead compounds (e.g., Genentech or Celltech) will find it much easier to become a products company than one that starts with bioinformatics technology to identify novel targets (e.g., Incyte or Affymetrix). Obviously, mergers and acquisitions between those two types of companies have taken place: Oxford Glycosciences and Celltech, Millennium with Leukosite and COR Therapeutics. This article will describe the business strategy Dyax Corp. used to grow from a technology provider into a product development company, the strategic growth option Dyax management identified as most likely to provide the highest return in its situation.

Figure 1: Dyax has built phage display libraries with billions of different human antibodies, small proteins, and peptides. These libraries are panned with disease targets to identify potential biopharmaceuticals for oncology and inflammatory diseases

From a technology provider
Dyax Corp. was well-suited to grow into a product development company because its phage-display technology allows target validation, lead identification, and lead optimization. In the late 1980s, Dyax scientists patented phage display, a method to individually display tens of billions of peptides and proteins, including human antibodies and enzymes, on the surface of a small bacterial virus called a phage (bacteriophage). Using phage display, Dyax has been able to produce and search through large collections, libraries, of peptides and proteins to rapidly identify those compounds that bind with high affinity and high specificity to targets of interest (Figure 1). Phage display can also be used to optimize antibodies or other biopharmaceutical leads. The first fully human antibody, Humira, which was derived and optimized using phage display by Cambridge Antibody Technology (CAT) was approved for marketing in the United States in December 2002. Dyax and CAT have crosslicensed their patents relating to antibody phage display.

Dyax was formed in 1995 through the merger of Protein Engineering Corporation (PEC) and Biotage, Inc. Biotage brought a revenue stream to Dyax, and PEC brought the core phage-display patent estate (Ladner patent portfolio), peptide and protein phage display expertise and intellectual property (IP), and two protein therapeutic candidates. A patent license program was initiated to nonexclusively license the Ladner patent estate to other companies. It generates revenues from modest upfront and annual license fees for use of the patents in discovery, with milestones and royalties due upon product commercialization.

The acquisition of TargetQuest BV in 1999 (now Dyax SA in Liege, Belgium) brought human antibody phage-display expertise and IP to Dyax, further expanding Dyax’s biopharmaceutical discovery capabilities. Dyax is the only phage-display company with the broad ability to discover human antibodies, peptides, and proteins for a given target.

Dyax had its initial public offering in 2000 and raised US$69 million. At the time of the IPO, the two small protein leads identified by PEC were in phase I trials for two orphan indications: cystic fibrosis and hereditary angioedema (HAE). The major focus of the now publicly traded company was to bring these products to market with partners and to initiate new discovery programs, thereby transforming itself into a biopharmaceutical product development company.

To a therapeutic products company
In 2001, to initiate the transition to a therapeutic products company, Dyax CEO Henry Blair, a cofounder of Genzyme and several other biotechnology companies, filled key management positions with seasoned executives and set up clinical, regulatory, and manufacturing groups. Other strategic moves, discussed in more detail below, include

• Focusing on therapeutic development by finding partners for the noncore applications of the phage-display technology platform
• Filling the pipeline by initiating new discovery programs and acquiring new clinical targets
• Initiating key IP crosslicenses to bring peace and clarity to phage display
• Broadening therapeutic discovery programs by continuing to work on peptides and proteins in addition to antibodies
• Advancing clinical leads in current indications and exploring additional indications for these leads

Figure 2: Dyax revenue from Biotage and Dyax Biopharma, in millions. Biopharma revenue includes revenue from technology and product collaborations and Dyax’s patent licensing program. CAGR = compound annual growth rate.

Partners for Noncore Areas: In 2000 and 2001, Dyax entered into exclusive collaborations with Bracco and Becton Dickinson to work on in vivo imaging and antibody research reagents, respectively. A nonexclusive license to Amersham Biosciences was granted for affinity separations.

One of the initial drivers behind the merger of Biotage and PEC was the possibility of using PEC’s phage-display expertise to identify peptide ligands that could be used to complement Biotage’s separations expertise for the purification of drugs. But for various reasons, little actual synergy developed between the businesses. Dyax does have a few important clients who have adopted phage-derived peptide ligands for affinity purification of pharmaceuticals; for example, Wyeth and Human Genome Sciences Inc. (HGSI) are using Dyax peptides as affinity ligands for the purification of ReFactoAF and BLyS, respectively.

Biotage’s cartridge-based liquid chromatography separation systems and consumables brought to Dyax a growing revenue stream (Figure 2). Although revenues from Biotage increased 10-fold from 1994 to 2002, Biotage was not a strategic fit for Dyax’s biopharmaceutical goal, and this wholly owned subsidiary of Dyax was sold for $35 million to Prosequencing AB in October 2003. This sale netted Dyax $28 million in cash to support its research and development activities and ongoing clinical trials.

Target Acquisition and Initiation of New Discovery Programs: An aggressive effort to fill the research pipeline throughout 2001–2002 resulted in the initiation of 13 new discovery programs, primarily in oncology and inflammation. After a stringent evaluation from the IP, business, and clinical points of view, clinical targets were licensed from academics, acquired through collaborations with other biotech companies, and accessed from the literature (public domain).

In 2001, a codevelopment deal with Corvas International (which merged with Dendreon in 2003,) brought two novel serine protease targets to Dyax, with equal cost and revenue sharing to each company. To date, Dyax has identified antibodies, peptides, and small proteins that are very potent (picomolar to nanomolar) inhibitors of these serine proteases. These inhibitors are being further evaluated with in vitro and in vivo assays for their therapeutic potential in oncology.

Similar codevelopment and funded research deals are being discussed with proteomics and functional genomics companies and other biotechnology and pharmaceutical companies with targets amenable to biopharmaceutical development. Phage display can rapidly provide antibodies, peptides, and proteins for use as research reagents for target validation; those same research reagents can be developed further into therapeutic compounds. Dyax might also access targets through flexible and creative funded research and technology transfer deal structures, for example, offsetting upfront fees for an antibody library license in exchange for access to targets.

To accommodate its new discovery programs, the company has made a significant investment in automating phage-display screening and creating new antibody libraries and downstream technology, such as compatible vectors for phage display, antibody fragment (Fab), and human IgG expression allowing the rapid production of IgGs.

Discovery groups in Cambridge and Liege use the phage display libraries to identify the protein, peptide, and antibody compounds with the greatest potential to advance to clinical development. Dyax has small cell-culture facilities in Cambridge and Liege, which are adequate for producing material for in vitro studies. Contract organizations are used to conduct in vivo studies and manufacture GMP materials. Lead compounds from the discovery programs will be taken through in vivo efficacy and toxicology studies before being partnered out for further development.

Dyax has also invested in affinity maturation technology for cases in which very high affinity and specificity are needed. Thus, unlike antibody technology that involves mice, the Dyax technology provides multiple avenues to ensure that the needed affinity and specificity can be obtained quickly.

Patent licensing to bring peace and clarity to antibody phage display: Although phage display is widely recognized as a powerful tool for the discovery of fully human antibody therapeutics, the benefits of phage display have been clouded by an uncertain IP landscape. Litigation between CAT and Morphosys, and Biosite) and Xoma) brought about a negative perception of phage display.

Dyax is helping to bring peace and clarity to the IP surrounding antibody phage display by leveraging its core position and crosslicensing the Ladner patents with third-party phage display IP. From May 2002 to August 2003, Dyax entered into key crosslicense agreements with CAT, Affimed AG , Xoma, Genentech, and Biosite, which permit Dyax to sublicense these third-party rights to a Dyax collaborator along with a transfer of Dyax’s antibody phage display technology or antibodies discovered by Dyax.

Those crosslicenses have positioned Dyax as a one-stop shop for antibody phage display IP, reduced risks to the company’s development pipeline, and created greater comfort for Dyax’s collaborators. The company hopes that its solidified freedom-to-operate position, combined with a state-of-the-art antibody library shown to yield very specific binders with very high target affinity, will lead to additional funded research and technology-transfer deals in antibody phage display.

Peptides and small proteins as alternatives to antibodies: In addition to its human antibody libraries, Dyax has several peptide and small-protein phage display libraries for therapeutic discovery. The company can discover leads from all three kinds of libraries and further examine a particular lead based on functional activity in vitro and in vivo and on an analysis of IP, clinical relevance, and market opportunity.

Peptides offer some therapeutic advantages over antibodies:

• Regulatory advantages because they are chemically synthesized, not produced using recombinant antibodies
• Lower toxicity because there is no Fc-fragment region to cause uptake by nontarget cells
• A cleaner IP position and smaller royalty stack than for antibodies because both the IP on peptide and small-protein phage display and the IP on downstream processes (expression and manufacturing-related IP) are simpler than that required for antibodies
• Lower cost because peptides have a higher activity-to-mass ratio than antibodies, and chemical synthesis can be more economical than recombination production of antibodies
• A shorter half life than that of antibodies, which is desirable in applications such as in vivo diagnostics.

Dyax has developed a heterodimeric peptide to vascular endothelial growth factor receptor (VEGFR2), which is a tyrosine kinase receptor implicated in several cancers. This peptide has an affinity for VEGFR2 in the picomolar range and effectively antagonizes its receptor, similar to the best antagonistic antibodies discovered using phage display or hybridomas. The company also has two small proteins, DX-88 and DX-890, in three phase II trials. DX-88 is being delivered intravenously to patients in two phase II trials, one for the prevention of blood loss in cardiothoracic surgery (CTS) and the other for relief from the symptoms of HAE. DX-890 is being delivered locally into the lungs of patients in phase II trials for cystic fibrosis.

Advancing Clinical Leads and Exploring Additional Indications: Together with its partners Genzyme and Debiopharm, Dyax continues to advance DX-88 and DX-890 in the clinic. At press time, orphan drug status had been obtained for both compounds in Europe and for DX-88 in the United States. The company is exploring additional indications for these two clinical leads. In 2002, Dyax initiated a phase I/II trial for DX-88 in CTS to prevent the loss of blood associated with the coronary artery bypass graft procedure. The key role played by plasma kallikrein and human neutrophil elastase, the clinical targets inhibited by DX-88 and DX-890, respectively, suggests other conditions for which those compounds may be beneficial: renal toxicity associated with high-dose interleukin-2, acute exacerbations of chronic obstructed pulmonary disease, and ulcerative colitis.

Successful Transition
Dyax has successfully implemented its business strategy to become a fully integrated biopharmaceutical company. Lead compounds are moving through the clinic; the research pipeline is being kept stocked; revenue-generating technology transfer and funded research programs are being signed; and the infrastructure is in place to support the goal of having products on the market in the not-too-distant future.

Mark de Souza, PhD, is senior director of corporate development at Dyax Corporation, 300 Technology Square, Cambridge, MA 02139, 1-617-250-5726, fax 1-617-225-2501, mdesouza@dyax.com, www.dyax.com



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