Dyax 10Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2014

Or

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

For the transition period from to .

Commission File No. 000-24537

DYAX CORP.

(Exact Name of Registrant as Specified in its Charter)

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

55 Network Drive, Burlington, MA 01803

(Address of Principal Executive Offices)

(617) 225-2500

(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ý NO o

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

YES ý NO o

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

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

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

YES o NO ý

Number of shares outstanding of Dyax Corp.’s Common Stock, par value $0.01, as of April 25, 2014: 135,801,421

DYAX CORP.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1 – FINANCIAL STATEMENTS

Dyax Corp. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

	March 31, 2014			December 31, 2013
	(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	59,378		$	68,085
Short-term investments		127,785			43,296
Accounts receivable, net		5,075			6,506
Inventory		2,940			2,827
Other current assets		1,997			1,618
Total current assets		197,175			122,332
Fixed assets, net		4,827			4,960
Restricted cash		1,100			1,100
Other assets		5,555			5,815
Total assets	$	208,657		$	134,207
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	10,051		$	12,542
Current portion of deferred revenue		2,386			2,686
Current portion of long-term obligations		480			468
Other current liabilities		1,905			1,812
Total current liabilities		14,822			17,508
Deferred revenue		5,439			5,335
Notes payable		81,678			81,516
Long-term obligations		336			463
Deferred rent and other long-term liabilities		3,121			3,063
Total liabilities		105,396			107,885
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; 0 and 41,418 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively		—			—
Common stock, $0.01 par value; 200,000,000 shares authorized; 135,777,869 and 121,704,480 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively		1,358			1,217
Additional paid-in capital		641,524			559,065
Accumulated deficit		(539,674	)		(533,963	)
Accumulated other comprehensive income		53			3
Total stockholders' equity		103,261			26,322
Total liabilities and stockholders' equity	$	208,657		$	134,207

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

Dyax Corp. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	Three Months Ended March 31,
	2014			2013
	(In thousands, except share and per share data)
Revenues:
Product sales, net	$	12,507		$	8,587
Development and license fees		1,610			3,453
Total revenues, net		14,117			12,040

Costs and expenses:
Cost of product sales		785			708
Research and development expenses		6,869			8,671
Selling, general and administrative expenses		9,489			11,124
Total costs and expenses		17,143			20,503
Loss from operations		(3,026	)		(8,463	)

Other income (expense):
Interest and other income		38			5
Interest and other expenses		(2,723	)		(2,735	)
Total other expense, net		(2,685	)		(2,730	)
Net loss		(5,711	)		(11,193	)

Other comprehensive income:
Unrealized gain (loss) on investments		50			(3	)
Comprehensive loss	$	(5,661	)	$	(11,196	)

Basic and diluted net loss per share	$	(0.05	)	$	(0.11	)
Shares used in computing basic and diluted net loss per share		124,618,519			99,644,227

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

Dyax Corp. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended March
	2014			2013
	(In thousands)
Cash flows from operating activities:
Net loss	$	(5,711	)	$	(11,193	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of purchased premium/discount		92			14
Depreciation of fixed assets		211			214
Non-cash interest expense		162			1,509
Compensation expenses associated with stock-based compensation plans		1,240			1,944
Changes in operating assets and liabilities:
Accounts receivable		1,431			(55	)
Other current assets		(379	)		103
Inventory		133			1,034
Accounts payable and accrued expenses		(2,675	)		(894	)
Deferred revenue		(196	)		(188	)
Long-term deferred rent		(50	)		(30	)
Other		127			(88	)
Net cash used in operating activities		(5,615	)		(7,630	)
Cash flows from investing activities:
Purchase of investments		(84,531	)		—
Proceeds from maturity of investments		—			3,000
Purchase of fixed assets		(79	)		(168	)
Net cash (used in) provided by investing activities		(84,610	)		2,832
Cash flows from financing activities:
Gross proceeds from common stock offering		85,100			—
Fees associated with common stock offering		(5,106	)		—
Repayment of long-term obligations		(116	)		(108	)
Proceeds from the issuance of common stock under employee stock purchase plan and exercise of stock options		1,640			987
Net cash provided by financing activities		81,518			879
Net decrease in cash and cash equivalents		(8,707	)		(3,919	)
Cash and cash equivalents at beginning of the period		68,085			20,018
Cash and cash equivalents at end of the period	$	59,378		$	16,099
Supplemental disclosure of cash flow information:
Interest paid	$	2,468		$	1,219
Unpaid fees associated with common stock offering	$	277		$	—

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

DYAX CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS OVERVIEW

Dyax Corp. (“Dyax” or “the Company”) is a biopharmaceutical company focused on:

●	Hereditary Angioedema and Other Plasma-Kallikrein-Mediated Disorders

The Company develops and commercializes treatments for hereditary angioedema (HAE) and is working to identify other disorders that are mediated by plasma kallikrein (PKM disorders).

The Company developed KALBITOR® (ecallantide) on its own, and is selling it in the United States for the treatment of acute attacks of HAE. Additionally, the Company is developing DX-2930, a fully human monoclonal antibody inhibitor of plasma kallikrein, which is believed to be a candidate to treat HAE prophylactically.

The Company has also developed a biomarker assay that detects the activation of plasma kallikrein in patient blood. It intends to use this assay to potentially expedite the development of DX-2930 and to assist in identifying other PKM disorders.

●	Licensing and Funded Research Portfolio (LFRP)

The Company has a portfolio of product candidates being developed by licensees using its phage display technology. This portfolio currently includes one approved product and multiple product candidates in various stages of clinical development, including three in Phase 3 trials, for which the Company is eligible to receive future royalties and/or milestone payments. Recently, CYRAMZATM (ramucirumab) received approval from the U.S. Food and Drug Administration (FDA) as a single-agent treatment for advanced gastric cancer after prior chemotherapy.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. It is management’s opinion that the accompanying unaudited interim consolidated financial statements reflect all adjustments (which are normal and recurring) necessary for a fair statement of the results for the interim periods. The financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The accompanying December 31, 2013 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the dates of the financial statements and (iii) the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and the Company's European subsidiaries Dyax S.A. and Dyax BV. All inter-company accounts and transactions have been eliminated.

Use of Estimates

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and trade accounts receivable. At March 31, 2014 and December 31, 2013, approximately 98% and 89%, respectively, of the Company's cash, cash equivalents and short-term investments were invested in money market funds backed by U.S. Treasury obligations, U.S. Treasury notes and bills, and obligations of United States government agencies held by one financial institution. The Company maintains balances in various operating accounts in excess of federally insured limits.

The Company provides most of its services and licenses its technology to pharmaceutical and biomedical companies worldwide, and makes all product sales to its distributors. Concentrations of credit risk with respect to trade receivable balances associated the Company’s development and license fee revenue are usually limited on an ongoing basis, due to the diverse number of licensees and collaborators comprising the Company's customer base. Trade receivable balances associated with the Company’s product sales are comprised of only a few customers, due to the limited number of distributors the Company uses in its distribution network. The Company completes ongoing credit evaluations of their customers. As of March 31, 2014, two customers accounted for 40% (Walgreens) and 26% (US Bio) of the accounts receivable balance. As of December 31, 2013, two customers accounted for 35% (US Bio) and 26% (Walgreens) of the accounts receivable balance.

Cash and Cash Equivalents

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

Investments

Short-term investments consist of investments with original maturities greater than ninety days and remaining maturities less than one year at period end. The Company has also classified its investments with maturities beyond one year as short-term, based on their highly liquid nature and as these marketable securities represent the investment of cash that is available for current operations. The Company considers its portfolio of investments as available-for-sale. Accordingly, these investments are recorded at fair value, which is based on quoted market prices. As of March 31, 2014, the Company's investments consisted of U.S. Treasury notes and bills with an amortized cost of $127.7 million, an estimated fair value of $127.8 million, and had an unrealized gain of $53,000, which has been recorded in other comprehensive income. As of December 31, 2013, the Company's investments consisted of United States Treasury notes and bills with an estimated fair value and amortized cost of $43.3 million, and had an unrealized gain of $3,000, which is recorded in other comprehensive income.

Inventories

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

Fixed Assets

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

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

Impairment of Long-Lived Assets

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

Revenue Recognition

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

Product Sales and Allowances

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

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

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

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

Inventory maintenance fees are calculated as a percentage of KALBITOR sales price and accordingly, are classified as a reduction in product sales revenue.

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

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

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

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

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

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

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

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

(In thousands)	Prompt pay and other discounts			Patient financial assistance			Government rebates and chargebacks			Returns			Total
Balance, as of December 31, 2012	$	388		$	165		$	565		$	551		$	1,669
Current provisions relating to sales in current year		2,565			498			2,806			145			6,014
Adjustments relating to prior years		23			(38	)		(79	)		(141	)		(235	)
Payments relating to sales in current year		(2,165	)		(378	)		(1,380	)		—			(3,923	)
Payments/returns relating to sales in prior years		(327	)		(157	)		(278	)		(232	)		(994	)
Balance, as of December 31, 2013		484			90			1,634			323			2,531
Current provisions relating to sales in current year		718			32			769			56			1,575
Adjustments relating to prior years		5			(22	)		(155	)		140			(32	)
Payments relating to sales in current year		(485	)		(32	)		(226	)		—			(743	)
Payments/returns relating to sales in prior years		(383	)		(16	)		(746	)		(8	)		(1,153	)
Balance, as of March 31, 2014	$	339		$	52		$	1,276		$	511		$	2,178

Development and License Fee Revenues

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

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

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

●

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

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

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

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

When we are unable to establish the selling price of an element using VSOE or VOE, management determines BESP for that element. The objective of BESP is to determine the price at which we would transact a sale if the element within the license agreement was sold on a stand-alone basis. Our process for establishing BESP involves management’s judgment and considers multiple factors including discounted cash flows, estimated direct expenses and other costs and available data.

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

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

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

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

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

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

Costs of revenues related to product development and license fees are classified as research and development in the consolidated statements of operations and comprehensive loss.

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

Payments received that have not met the appropriate criteria for revenue recognition are recorded as deferred revenue.

Phage Display Patent Licenses. The Company previously licensed its phage display patents on a non-exclusive basis to third parties for use in connection with the research and development of therapeutic, diagnostic, and other products. The core patents in this portfolio expired in November 2012. Even after patent expiration, the Company generally remains eligible under these patent licenses to receive milestones and/or royalties for products discovered prior to patent expiration, although certain existing patent licenses will no longer have a royalty obligation. The Company does not expect the expiration of these patents to have a material impact on the LFRP.

Standard terms of the patent rights agreements include non-refundable signing fees, non-refundable license maintenance fees, development milestone payments and/or royalties on product sales. Signing fees and maintenance fees are generally recognized on a straight line basis over the term of the agreement or through the date of patent expiry, if shorter, except that in the case of perpetual patent licenses for which fees were recognized immediately if it was determined that the Company had no future obligations under the agreement and the payments were made upfront. If the Company has no remaining performance obligations under the patent license agreement, milestones are recognized as revenue in the period in which the milestone is achieved.

LFRP Milestones

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

Based on information available to the Company regarding pre-clinical and clinical candidates in the LFRP developed using its technology and through intellectual property rights granted, it is estimated that the Company could receive up to $81 million in development milestones, $68 million in regulatory filing milestones and $98 million in marketing approval milestones. As achievement of these milestones is outside the control of the Company and is contingent upon the licensees’ efforts, they have been determined to be non-substantive milestones.

The Company recognized revenue of approximately $75,000 and $1.2 million related to milestones from the LFRP for the three months ended March 31, 2014 and 2013, respectively.

Substantive Milestones. Under certain collaboration agreements, the Company performs funded research for various collaborators using its phage display technology and libraries. These arrangements typically include technical milestones which are based on agreed upon objectives to be met under the research campaign, which are considered to be commensurate with the Company’s performance and therefore have been determined to be substantive milestones.

There was no amount recognized for technical milestones during the three months ended March 31, 2014 and 2013. The Company is not eligible to receive any future technical milestones at this time.

Non-LFRP Milestones

In certain countries outside of the U.S., the Company has entered into licensing agreements for the development and commercialization of KALBITOR for the treatment of HAE and other angioedema indications. Under these agreements, the Company is eligible to receive certain development and sales milestones. See Note 3, Significant Transactions.

Royalty Revenues

Royalty revenue is recognized when it becomes determinable and collectability is reasonably assured; otherwise the Company recognizes royalty revenue upon receipt of payment.

Cost of Product Sales

Cost of product sales includes costs to procure, manufacture and distribute KALBITOR and manufacturing royalties. Costs associated with the manufacture of KALBITOR prior to regulatory approval in the United States were expensed when incurred as a research and development cost and accordingly, KALBITOR units sold during the three months ended March 31, 2013 do not include the full cost of drug manufacturing. For the three months ended March 31, 2014, KALBITOR units sold included the full cost of drug manufacturing.

Research and Development

Research and development costs include all direct costs, including salaries and benefits for research and development personnel, outside consultants, costs of clinical trials, sponsored research, clinical trials insurance, other outside costs, depreciation and facility costs related to the development of drug candidates.

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes in accordance with ASC 740. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities using the enacted statutory tax rates. At March 31, 2014 and December 31, 2013, there were no unrecognized tax benefits.

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

Translation of Foreign Currencies

Assets and liabilities of the Company's foreign subsidiaries are translated at period end exchange rates. Amounts included in the statements of operations are translated at the average exchange rate for the period. All currency translation adjustments are recorded to other income (expense) in the consolidated statement of operations and comprehensive loss. The Company recorded no other income or expense for the three months ended March 31, 2014 and expense of $8,000 was recorded for the three months ended March 31, 2013.

Share-Based Compensation

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

Income or Loss Per Share

The Company follows the two-class method when computing net loss per share, as it has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends, as if all income for the period had been distributed.

The Company presents two earnings or loss per share (EPS) amounts, basic and diluted in accordance with ASC 260. Basic earnings or loss per share is computed using the weighted average number of shares of common stock outstanding. Diluted net loss per share does not differ from basic net loss per share since potential common shares from the exercise of stock options, warrants or rights under the Purchase Plan are anti-dilutive for the three months ended March 31, 2014 and 2013, and therefore, are excluded from the calculation of diluted net loss per share.

The weighted average of stock options outstanding totaled 11,123,840 as of March 31, 2014, and the weighted average of stock options and warrants outstanding totaled 12,492,591 as of March 31, 2013.

Comprehensive Income (Loss)

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

Business Segments

The Company discloses business segments under ASC 280, Segment Reporting. The statement established standards for reporting information about operating segments and disclosures about products and services, geographic areas and major customers. The Company operates as one business segment within predominantly one geographic area.

New Accounting Pronouncements

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

3. SIGNIFICANT TRANSACTIONS

CVie

In 2013, the Company entered into an agreement with CVie Therapeutics (CVie), a subsidiary of Lee’s Pharmaceutical Holdings Ltd., to develop and commercialize KALBITOR for the treatment of HAE and other angioedema indications in China, Hong Kong and Macau. Under the terms of this exclusive license agreement, Dyax received a $1.0 million upfront payment and is eligible to receive up to $11 million in future regulatory and sales milestones. Additionally, the Company is eligible to receive royalties on net product sales. CVie is solely responsible for all costs associated with development, regulatory activities and the commercialization of KALBITOR in its licensed territories. CVie will purchase drug product from the Company on a cost-plus basis for its commercial supply when and if KALBITOR is approved for commercial sale in the CVie territories.

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

At this time, the Company cannot reasonably estimate the level of effort required to fulfill its obligations and, therefore, is recognizing revenue on a straight-line basis over the estimated development period in the CVie territories, which was extended through 2019.

No revenue was recognized under this arrangement for the three months ended March 31, 2014, as the Company has not commenced delivery of clinical drug product. As of March 31, 2014, the Company has deferred $828,000 of revenue related to this arrangement, which is recorded in deferred revenue on the accompanying consolidated balance sheets.

Novellus

In 2013, the Company entered into an agreement with Novellus Biopharma AG (Novellus) to develop and commercialize KALBITOR for the treatment of HAE and other angioedema indications in select countries in Latin America, including Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. Under the terms of the exclusive license agreement, the Company was entitled to receive payments totaling $800,000 in 2013, of which $500,000 was received through year-end. Additionally, the Company is eligible to receive up to $5.2 million in future regulatory and sales milestones and royalties on net product sales. Novellus is solely responsible for all costs associated with development, regulatory activities, and the commercialization of KALBITOR in their licensed territories. Novellus will purchase drug product from the Company on a cost-plus basis for its commercial supply.

The Company will recognize revenue related to this arrangement, including the upfront payments, on a unit output basis, as products under clinical and commercial supply are provided to Novellus. As no supply has been provided to Novellus to date, no revenue has been recognized for the three months ended March 31, 2014, and the Company has deferred $800,000 of revenue related to this arrangement, which is recorded in deferred revenue on the accompanying consolidated balance sheets.

CMIC

In 2010, the Company entered into an agreement with CMIC Co., Ltd. (CMIC) to develop and commercialize subcutaneous ecallantide for the treatment of HAE and other angioedema indications in Japan. Under the terms of the agreement, the Company received a $4.0 million upfront payment and was eligible to receive development and sales milestones for ecallantide in HAE and other angioedema indications and royalties on net product sales. CMIC was solely responsible for all costs associated with development, regulatory activities, and commercialization of ecallantide for all angioedema indications in Japan.

CMIC provided the Company written notice of CMIC’s intent to terminate the agreement, effective in June 2014, at which time all of the rights to develop ecallantide in Japan will return to the Company. The Company has no obligations to CMIC in connection with, or following the termination.

Upon the commencement of the agreement in 2010, the Company analyzed this multiple element arrangement in accordance with ASC 605 and evaluated whether the performance obligations under this agreement, including the product license, development of ecallantide for the treatment of HAE and other angioedema indications in Japan, steering committee, and manufacturing services should be accounted for as a single unit or multiple units of accounting. The Company determined that there were two units of accounting. The first unit of accounting included the product license, the committed future development services and the steering committee involvement. The second unit of accounting relates to the manufacturing services. As the scope and timing of the future development of ecallantide for the treatment of HAE and other indications in the CMIC territory are the joint responsibility of the Company and CMIC, the Company could not reasonably estimate the level of effort required to fulfill its obligations under the first unit of accounting, and, as a result, the Company was recognizing revenue under the first unit of accounting on a straight-line basis over the estimated development period of ecallantide for the treatment of HAE in the CMIC territory. Upon receiving notification of CMIC’s irrevocable intent to terminate, it was determined the Company had no further obligations under this arrangement, and therefore, the full amount of deferred revenue of $2.0 million was recognized in the quarter ending December 31, 2013.

The Company recognized revenue of approximately $191,000 related to this agreement for the three months ended March 31, 2013. No revenue was recorded for the three months ended March 31, 2014 and there will be no further revenue recorded under this agreement.

Sigma Tau

The Company entered into a collaboration agreement and several amendments thereto with Sigma-Tau Rare Diseases S.A. (as successor-in-interest to Defiante Farmaceutica S.A.) (Sigma Tau) to develop and commercialize subcutaneous ecallantide for the treatment of HAE and other therapeutic indications in various territories throughout the world.

In March 2013, Sigma Tau’s rights to remaining territories were eliminated under a termination agreement between the Company and Sigma Tau. The principal terms of the termination agreement included provision for (i) the revocation of all licenses granted by the Company to Sigma Tau, (ii) the termination of all other obligations under the license agreement, (iii) the issuance of 271,665 shares of the Company’s common stock to Sigma Tau, and (iv) the right of Sigma Tau to receive $500,000 for every $5.0 million of compensation received by the Company during the next ten years in relation to the potential license or supply of ecallantide exclusively in those territories that had been previously licensed to Sigma Tau. During the three months ended March 31, 2013, in accordance with ASC 605-50, the $1.1 million determined to be the fair value of the common stock as of the date of issuance was recorded as a reduction to development and license fee revenue on the statement of operations and $85,000 of deferred revenue attributable to the JSC services was recognized as revenue. No additional revenue is expected to be recognized in future periods.

4. FAIR VALUE MEASUREMENTS

The following tables present information about the Company's financial assets that have been measured at fair value as of March 31, 2014 and December 31, 2013 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices, for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.

Description (in thousands)	March 31, 2014		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money Market Funds	$	56,098	$	56,098	$	—	$	—
Marketable debt securities		127,785		—		127,785		—
Total	$	183,883	$	56,098	$	127,785	$	—

Description (in thousands)	December 31, 2013		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money Market Funds	$	55,569	$	55,569	$	—	$	—
Marketable debt securities		43,296		—		43,296		—
Total	$	98,865	$	55,569	$	43,296	$	—

The following tables summarize the Company’s marketable securities at March 31, 2014 and December 31, 2013:

	March 31, 2014
Description (in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
US Treasury Bills and Notes (due within 1 year)		$	29,229		$	15		$	—		$	29,244
US Treasury Bills and Notes (due after 1 year through 2 years)			98,503			38						98,541
Total		$	127,732		$	53		$	—		$	127,785

	December 31, 2013
Description (in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
US Treasury Bills and Notes (due within 1 year)		$	2,001		$	1		$	—		$	2,002
US Treasury Bills and Notes (due after 1 year through 2 years)			41,292			2						41,294
Total		$	43,293		$	3		$	—		$	43,296

As of March 31, 2014 and December 31, 2013, the Company's cash equivalents which are invested in money market funds are valued based on Level 1 inputs. As of March 31, 2014 and December 31, 2013, the Company’s short-term investments consisted of U.S. Treasury notes and bills valued based on Level 2 inputs. These assets have been initially valued at the transaction price and subsequently valued utilizing a third party pricing service. We validate the prices provided by our third party pricing service by understanding the models used and obtaining market values from other pricing sources.

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

5. INVENTORY

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

Inventory that will be sold beyond the Company's normal operating cycle is classified as non-current and grouped with Other Assets on the Company's balance sheet. As of March 31, 2014 and December 31, 2013, approximately $5.3 million and $5.5 million of inventory, respectively, is classified as non-current.

Inventory consists of the following:

	March 31, 2014		December 31, 2013
	(in thousands)
Raw Materials	$	1,116	$	1,116
Work in Progress		5,184		5,965
Finished Goods		1,933		1,281
Total	$	8,233	$	8,362

6. FIXED ASSETS

Fixed assets consist of the following:

	March 31, 2014			December 31, 2013
	(in thousands)
Laboratory equipment	$	3,932		$	3,932
Furniture and office equipment		833			815
Software and computers		2,923			2,958
Leasehold improvements		4,554			4,510
Construction in process		—			—
Total		12,242			12,215
Less: accumulated depreciation		(7,415	)		(7,255	)
	$	4,827		$	4,960

Depreciation expense for the three months ended March 31, 2014 and 2013 was approximately $211,000 and $213,000, respectively.

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

	March 31, 2014		December 31, 2013
	(in thousands)
Accounts payable	$	1,315	$	1,407
Accrued employee compensation and related taxes.		2,505		4,609
Accrued external research and development and sales expenses		2,144		1,778
Accrued legal		698		456
Accrued sales allowances		1,601		1,918
Other accrued liabilities		1,788		2,374
Total	$	10,051	$	12,542

8. LONG-TERM OBLIGATIONS

Notes Payable - HealthCare Royalty Partners

In 2012, the Company completed the second closing under an agreement with an affiliate of HealthCare Royalty Partners (HC Royalty), which the Company entered into in December 2011 to refinance its existing loans from HC Royalty. At March 31, 2014, the aggregate principal amount of the loan was $84.5 million, consisting of a $22.8 million Tranche A Loan and a $61.7 million Tranche B Loan (collectively, the “Loan”). The Loan bears interest at a rate of 12% per annum, payable quarterly. The Loan will mature in August 2018, and can be repaid without penalty beginning in August 2015.

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

Under the terms of the agreement, the Company is required to repay the Loan based on the annual net LFRP receipts. Until September 30, 2016, required payments are equal to the sum of 75% of the first $15.0 million in specified annual LFRP receipts and 25% of specified annual LFRP receipts over $15.0 million. After September 30, 2016, and until the maturity date or the complete repayment of the Loan, HC Royalty will receive 90% of all included LFRP receipts. If the HC Royalty portion of LFRP receipts for any quarter exceeds the interest for that quarter, then the principal balance will be reduced. Any unpaid principal will be due upon the maturity of the Loan. If the HC Royalty portion of LFRP revenues for any quarterly period is insufficient to cover the cash interest due for that period, the deficiency may be added to the outstanding principal or paid in cash by the Company. After five years from the dates of the Tranche A Loan and the Tranche B Loan, respectively, the Company must repay to HC Royalty all additional accumulated principal above the original loan amounts of $21.7 million and $58.8 million, respectively.

Tranche A Loan

Under the terms of the agreement, the Company received a loan of $20 million (Tranche A Loan) in 2011 and a commitment to refinance the amounts outstanding under the Company’s March 2009 amended and restated loan agreement (the March 2009 Loan) at a reduced interest rate in August 2012. The Tranche A Loan was unsecured and accrued interest at an annual rate of 13% through August 2012.

Upon execution of the Tranche A Loan, the terms of the original loans were determined to be modified under ASC 470. During the quarter ended March 31, 2014, interest expense on the Loan is being recorded in the Company’s financial statements at an effective interest rate of 12.5%.

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

Tranche B Loan

In 2012, the Company completed a second closing with an affiliate of HC Royalty to refinance approximately $57.6 million outstanding under the March 2009 Loan under the same terms as the Tranche A Loan (Tranche B Loan).

The Loan principal balance at each of March 31, 2014 and December 31, 2013 was $84.5 million.

Activity under the Loan, adjusted for discounts associated with the debt issuance, including warrants and fees, is presented for financial reporting purposes for the three months ended March 31, 2014 and for the year ended December 31, 2013, as follows:

	March 31, 2014			December 31, 2013
	(in thousands)
Beginning balance	$	81,516		$	78,061
Accretion of discount		50			198
Loan activity:
Interest Expense		2,646			10,447
Payments applied to principal		—			—
Payments applied to interest		(629	)		(5,378	)
Accrued interest payable		(1,905	)		(1,812	)
Ending balance	$	81,678		$	81,516

The estimated fair value of the note payable was $83.3 million at March 31, 2014 which was calculated based on level 3 inputs due to the limited availability of comparable data points. The note payable was valued using expected cash flows discounted at our estimate of the currently available market interest rate.

Equipment Loan

In 2012, the Company entered into an equipment lease line of credit for up to $3 million with Silicon Valley Bank. When drawn, the note bears interest at a 6% annual rate. The Company drew down $1.4 million from this line during 2012, which is being financed over a 3-year term. The outstanding balance of this loan was $816,000 and $931,000 as of March 31, 2014 and December 31, 2013, respectively.

Facility Lease

In 2012, the Company relocated its operations to a new facility in Burlington, Massachusetts. The new premises, consisting of approximately 45,000 rentable square feet of office and laboratory facilities, serve as the Company’s principal offices and corporate headquarters. The term of the Burlington lease is ten years, and the Company has rights to extend the term for an additional five years at fair market value subject to specified terms and conditions. The aggregate minimum lease commitment over the ten year term of the new lease is approximately $15.0 million. The Company has provided the landlord a Letter of Credit of $1.1 million to secure its obligations under the lease. Under the terms of the Burlington lease agreement, the landlord has provided the Company with a tenant improvement allowance of $2.6 million which was used towards the cost of leasehold improvements. The Company has capitalized approximately $4.5 million in leasehold improvements associated with the Burlington facility. Costs reimbursed under the tenant improvement allowance have been recorded as deferred rent and are being amortized as a reduction to rent expense over the lease term.

9. STOCKHOLDER’S EQUITY AND STOCK-BASED COMPENSATION

Issuance of Common Stock

In March 2014, the Company issued 9,200,000 shares of common stock at $9.25 per share in an underwritten public offering. Net proceeds from the offering were approximately $79.7 million, after deducting offering expenses.

In February 2014, the sole holder of 41,418 shares of preferred stock outstanding elected to convert this preferred stock into 4,141,800 shares of common stock. The Company has no remaining preferred stock outstanding.

Equity Incentive Plan

The Company's 1995 Equity Incentive Plan (the Equity Plan), as amended, is an equity plan under which equity awards, including awards of restricted stock, RSUs and incentive and nonqualified stock options to purchase shares of common stock may be granted to employees, consultants and directors of the Company by action of the Compensation Committee of the Board of Directors. Options are granted at the current fair market value on the date of grant, generally vest ratably over a 48-month period, and expire within ten years from date of grant. RSUs are valued at the current fair market value on the date of grant, and generally vest annually in equal installments over a four-year period. The Equity Plan is intended to attract and retain employees and to provide an incentive for employees, consultants and directors to assist the Company to achieve long-range performance goals and to enable them to participate in the long-term growth of the Company. At March 31, 2014, a total of 1,715,853 shares were available for future grants under the Equity Plan.

The following table summarizes stock option activity for the period ended March 31, 2014:

	Number of Options			Number of RSUs
Outstanding as of December 31, 2013		10,628,879			253,124
Granted/Awarded		2,148,359			352,841
Options Exercised/Shares Issued		(629,712	)		(101,877	)
Cancelled		(100,729	)		(1,438	)
Outstanding as of March 31, 2014		12,046,797			502,650

Exercisable as of March 31, 2014		4,635,196			--

Employee Stock Purchase Plan

The Company's Purchase Plan allows employees to purchase shares of the Company's common stock at a discount from fair market value. Under this Plan, eligible employees may purchase shares during six-month offering periods commencing on June 1 and December 1 of each year at a price per share of 85% of the lower of the fair market value price per share on the first or last day of each six-month offering period. Participating employees may elect to have up to 10% of their base pay withheld and applied toward the purchase of such shares, subject to the limitation of 875 shares per participant per quarter. The rights of participating employees under the Purchase Plan terminate upon voluntary withdrawal from the Purchase Plan at any time or upon termination of employment. The compensation expense in connection with the Plan was approximately $69,000 and $46,000 for the three months ended March 31, 2014 and 2013 respectively. There were no shares purchased under the Plan during the three months ended March 31, 2014 and 2013. At March 31, 2014, a total of 267,960 shares were reserved and available for issuance under this Plan.

Stock-Based Compensation Expense

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

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

	Three Months Ended March 31,
	2014		2013
	(in thousands)
Compensation expense related to:
Equity Incentive Plan	$	1,171	$	1,898
Employee Stock Purchase Plan		69		46
	$	1,240	$	1,944

Stock-based compensation expense charged to:
Research and development	$	490	$	228

Selling, general and administrative	$	750	$	1,716

Stock-based compensation expense capitalized into inventory was $4,000 for each of the three months ended March 31, 2014 and 2013. Capitalized stock-based compensation is recognized into cost of product sales when the related product is sold.

Stock-based compensation expense for the three months ending March 31, 2013 included $1.1 million related to the modification of certain stock options held by to a former executive who ceased employment in March 2013.

10. INCOME TAXES

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

Included in the Company’s net operating loss (NOL) deferred tax asset at December 31, 2013 are approximately $8.2 million of tax deductions from the exercise of stock options. The Company has also recorded a deferred tax asset of approximately $1.8 million at December 31, 2013, reflecting the benefit of the deduction from the exercise of stock options which has been fully reserved until it is more likely than not that the benefit will be realized. The benefit from these deductions will be recorded as a credit to additional paid-in capital if and when realized through a reduction of taxes paid in cash.

As required by ASC 740, management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of NOL carryforwards, research and experimentation credit carryforwards, and capitalized start up expenditures and research and development expenditures amortizable over ten years straight-line. Management has determined at this time that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets and, as a result, a valuation allowance of approximately $213.9 million has been established at December 31, 2013.

Utilization of the NOLs and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986 (Section 382), as well as similar state and foreign provisions. Ownership changes may limit the amount of NOLs and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of 5% shareholders or public groups in the stock of a corporation by more than 50 percent in the aggregate over a three-year period. The Company completed a study to determine whether any ownership change has occurred since the Company's formation and has determined that transactions have resulted in two ownership changes, as defined by Section 382 as of December 31, 2013. There could be additional ownership changes in the future that could further limit the amount of NOLs and tax credit carryforwards that the Company can utilize.

As of December 31, 2013, the Company’s unrestricted federal tax NOLs available to reduce future taxable income without limitation are $262.0 million, which expire at various times beginning in 2024 through 2033. The Company’s federal research and experimentation and orphan drug credit carryforward as of December 31, 2013 available to reduce future tax liabilities without limitation are $56.8 million, which will expire at various dates beginning in 2024 through 2033. In addition, the Company has NOLs and federal tax credits that are restricted and expire at various times beginning in 2018 through 2024. These restricted NOLs and federal tax credits of $67.2 million and $4.8 million, respectively, may be utilized in part, subject to an annual limitation. Ownership changes after December 31, 2013 could further restrict the use of these NOLs and federal tax credits.

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

Note Regarding Forward-Looking Statements

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

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

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

●	the prospects for clinical development of DX-2930;

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

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

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

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

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

●	the effect of the expiration of certain of our phage display patents licensed to others under our LFRP; and

●	expected future revenues and operating results and cash flows.

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

BUSINESS OVERVIEW

We are a biopharmaceutical company focused on:

●	Hereditary Angioedema and Other Plasma-Kallikrein-Mediated Disorders

We develop and commercialize treatments for hereditary angioedema and are working to identify other disorders that are mediated by plasma kallikrein.

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

We have also developed a biomarker assay that detects the activation of plasma kallikrein in patient blood. We intend to use this assay to potentially expedite the development of DX-2930 and to assist in identifying other PKM disorders.

●	Licensing and Funded Research Portfolio

We have a portfolio of product candidates being developed by licensees using our phage display technology. This portfolio currently includes one approved product and multiple product candidates in various stages of clinical development, including three in Phase 3 trials, for which we are eligible to receive future royalties and/or milestone payments. Recently, CYRAMZA received approval from the FDA as a single-agent treatment for advanced gastric cancer after prior chemotherapy. We expect our revenues from the LFRP to experience growth beginning in 2014 to the extent that our licensees commercialize product candidates that gain marketing approval and market acceptance.

HEREDITARY ANGIOEDEMA AND OTHER PKM DISORDERS

We are focused on identifying and developing treatments for patients who experience PKM angioedema. Plasma kallikrein, an enzyme found in blood, produces bradykinin, a protein that causes blood vessels to enlarge or dilate, which can cause swelling known as angioedema. Plasma kallikrein is believed to be a key component in the regulation of inflammation and contact activation pathways. Excess plasma kallikrein activity plays a role in HAE and could potentially play a role in a number of inflammatory diseases, including Crohn’s disease, psoriasis, rheumatoid arthritis, and various mast cell disorders.

HAE AND KALBITOR

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

Our product, ecallantide, is approved by the FDA under the brand name KALBITOR for treatment of HAE in patients 12 years of age and older regardless of anatomic location. KALBITOR, a potent, selective and reversible plasma kallikrein inhibitor, was the first subcutaneous HAE treatment approved in the United States and the only subcutaneous therapy available to treat attacks in patients 12 years of age and older.

United States Sales and Marketing

We have a commercial organization to support sales of KALBITOR in the United States, including a field-based team of approximately 25 professionals, consisting of sales representatives, market access and field advocates and corporate account directors. At this time, our commercial organization is sized to market KALBITOR in the United States, where patients are treated primarily by a limited number of specialty physicians consisting mainly of allergists and immunologists.

KALBITOR Access®

To facilitate access to KALBITOR in the United States, we have established the KALBITOR Access program. This program, managed by Sonexus Health, is designed as a one-stop point of contact for information about KALBITOR. This program offers treatment support services for patients with HAE and their healthcare providers. KALBITOR case managers provide comprehensive product and disease information, treatment site coordination, financial assistance for qualified patients and reimbursement facilitation services.

Distribution

KALBITOR is currently distributed through a limited network of wholesale, hospital and specialty pharmacy arrangements. This network includes Walgreens Infusion Services, which is our largest provider of on-demand nursing services that provides home administration of KALBITOR by healthcare professionals to eligible HAE patients. The Walgreens agreement has a term through December 2014 and will renew annually unless amended or terminated by the parties.

In addition, we may enter into other arrangements to provide HAE patients with broader opportunities to access KALBITOR.

Post-Marketing Commitment

In 2010, we initiated a four-year Phase 4 observational study, which was scheduled to enroll 200 HAE patients over a three-year period, to evaluate immunogenicity and hypersensitivity with exposure to KALBITOR for treatment of acute attacks of HAE. Although the enrollment target was not met, the FDA has allowed us to maintain the original three-year enrollment schedule. We concluded enrollment in February 2013 and expect to provide a final report to the FDA in 2014.

Manufacturing

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

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

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

Our current inventory of “filled and finished” drug product is sufficient to meet anticipated KALBITOR market demand through 2015. In addition, our current inventory of unfilled drug substance is sufficient to meet anticipated KALBITOR market demand through 2018.

In November 2013, JHS received a Warning Letter from the FDA with respect to matters not specifically associated with KALBITOR, and a subsequent FDA inspection identified additional issues. JHS is working to resolve the issues raised by the FDA. If JHS fails to correct these issues, the FDA could impose restrictions on JHS’s manufacturing capabilities, which could adversely affect future “fill and finish” activities with respect to KALBITOR.

Single-Injection KALBITOR Formulation

We are in the process of developing a new formulation of ecallantide, which is intended to allow for a convenient single subcutaneous injection of KALBITOR, instead of the current formulation that requires three subcutaneous injections. We completed a bioequivalence clinical study that successfully demonstrated bioequivalence between the current formulation and the new single-injection formulation. We are now conducting ongoing stability testing of the new formulation. While stability testing and the regulatory review process are ongoing, we will continue to assess the commercial path forward for this program.

KALBITOR Outside of the United States

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

CVie – In 2013, we entered into an agreement with CVie Therapeutics (CVie), a subsidiary of Lee’s Pharmaceutical Holdings Ltd., to develop and commercialize KALBITOR for the treatment of HAE and other angioedema indications in China.

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

Novellus – In 2013, we entered into an agreement with Novellus Biopharma AG (Novellus) to develop and commercialize KALBITOR for the treatment of HAE and other angioedema indications in select countries in Latin America, including Argentina, Brazil, Chile, Colombia, Mexico and Venezuela.

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

CMIC – In Japan, we entered into an agreement with CMIC Co., Ltd to develop and commercialize subcutaneous ecallantide for the treatment of HAE and other angioedema indications. CMIC was solely responsible for all costs associated with development, regulatory activities and commercialization of ecallantide for all angioedema indications in Japan. CMIC’s clinical development plan was established in consultation with the Japanese regulatory authorities and CMIC completed a twelve-patient pharmacokinetic study and an open-label study of ten patients.

In December 2013, CMIC terminated their agreement with us effective June 4, 2014. At that time, all rights to develop and commercialize ecallantide in Japan will be returned to us. We have no obligations to CMIC in connection with, or following, the termination. CMIC intends to organize the data from the clinical studies into a format that could be submitted for approval to regulatory authorities in Japan. Upon receipt of this data, we intend to evaluate the regulatory and commercial paths forward with respect to ecallantide in Japan.

DX-2930 - ANTIBODY FOR HAE AND OTHER PKM DISORDERS

Based on our knowledge of angioedema and the kallikrein-kinin pathway, we are developing DX-2930, a potent and specific fully human monoclonal antibody that is an inhibitor of plasma kallikrein. DX-2930 is an investigational product candidate to treat HAE and other PKM disorders prophylactically. It has the potential for subcutaneous administration, with a half-life that could enable less frequent dosing than currently available prophylactic HAE therapies and an advantageous immunogenicity profile.

Preclinical pharmacokinetic and tolerability studies have demonstrated that DX-2930 has relevant activity in animal models. We have completed a Phase 1a clinical study to evaluate the safety and tolerability of a single subcutaneous administration of DX-2930.

The Phase 1a study was a randomized, double-blind placebo-controlled, single-dose-escalating trial in healthy subjects. Subjects received a single dose of DX-2930 [0.1, 0.3, 1.0, or 3.0 mg/kg] or placebo by subcutaneous injection, with 6 subjects receiving active drug and 2 subjects receiving placebo per dose level. A total of 32 subjects were enrolled, randomized, and dosed.

Study results demonstrated that DX-2930 was well tolerated at all dose levels. There were no serious adverse events or evidence of dose-limiting toxicity. The pharmacokinetic profile of DX-2930 demonstrated linear, dose-dependent exposure and a mean elimination half-life of 17 to 20 days across dose groups, following a single injection to healthy subjects. Pharmacodynamic results from two different exploratory biomarker assays confirmed ex vivo plasma kallikrein inhibition in a dose and time dependent manner.

The safety, tolerability, and kallikrein inhibition results of the Phase 1a study support advancing the DX-2930 development program into a Phase 1b study in mid-2014. The Phase 1b study is a blinded, multi-center, repeat-dose, and dose-escalation study exploring DX-2930 in patients with HAE.

Biomarker Assay Program

We have developed and utilize a biomarker assay that detects the activation of plasma kallikrein in patient blood. Confirmation of the role of plasma kallikrein in HAE will enable us to better understand the contact activation pathway and explore other disorders that result in inflammation and pain. We intend to use this assay to potentially expedite the development of DX-2930 and to assist in identifying if plasma kallikrein activation occurs in certain disorders, such as Crohn’s disease, psoriasis, rheumatoid arthritis and various mast cell disorders.

LICENSING AND FUNDED RESEARCH PORTFOLIO

We leverage our proprietary phage display technology and libraries through our LFRP licenses and collaborations. To date, we have recognized approximately $200 million of revenue under the LFRP licenses, primarily related to license fees and milestones. The product candidates in the LFRP portfolio have the potential to generate greater revenues for us if and when one or more of the product candidates that are discovered by our licensees receive marketing approval and are commercialized.

LFRP Product Development

Currently within our LFRP, there are multiple revenue-generating product candidates in clinical development. Our licensees and collaborators also have additional product candidates in various stages of preclinical development. Our LFRP licensees and collaborators are responsible for all costs associated with development of these product candidates. We expect our revenues from the LFRP to experience growth beginning in 2014, to the extent that our licensees begin to commercialize product candidates that gain marketing approval and market acceptance.

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

Licensee	Compound	Target	Indication	Status
Lilly/Imclone	CYRAMZA (ramucirumab) (IMC-1121b)	VEGFR-2/KDR	Gastric cancer (REGARD)	Approved
			Gastric cancer (RAINBOW)	Phase 3
			NSCLC (REVEL)	Phase 3
			Hepatocellular cancer (REACH)	Phase 3
			Colorectal cancer (RAISE)	Phase 3
			Various indications	Phase 2
			Solid tumors	Phase 1
Lilly/Imclone	Necitumumab (IMC-11F8)	EGFR	Squamous NSCLC	Phase 3
			Various indications	Phase 2
			Squamous NSCLC	Phase 1/2
Amgen	Trebananib (AMG 386)*	Ang-1/Ang-2	Ovarian cancer (TRINOVA-1, -2 and -3)	Phase 3
Merrimack/Sanofi	MM-121	ErbB3	Breast cancer	Phase 2
			Breast cancer	Phase 2
			Ovarian cancer	Phase 2
			Various indications	Phase 1
Biogen Idec	ANTI-LINGO-1 (BIIB 033)	LINGO-1	Acute optic neuritis (RENEW)	Phase 2
Biogen Idec	ANTI-LINGO-1 (BIIB 033)	LINGO-1	Multiple sclerosis (SYNERGY)	Phase 2
Merrimack	MM-141	IGF-1R & ErbB3	Solid tumors	Phase 1
Amgen	AMG 780	Ang-2	Solid tumors	Phase 1
Lilly/Imclone	IMC-3C5	VEGFR-3	Solid tumors	Phase 1
Baxter	Anti-MIF	MIF	Solid tumors	Phase 1
Undisclosed	Not identified	Not identified	Not identified	Phase 1

*indicates future milestones only

LFRP Phase 3 Product Candidates

CYRAMZA (ramucirumab) (IMC-1121B)

CYRAMZA (ramucirumab) is a recombinant human IgG1 monoclonal antibody being developed by Eli Lilly and Company (Lilly); Lilly acquired ImClone Systems in 2008. CYRAMZA is a vascular endothelial growth factor (VEGF) Receptor 2 antagonist that specifically binds VEGF Receptor 2 and blocks binding of VEGF receptor ligands VEGF-A, VEGF-C, and VEGF-D. VEGF Receptor 2 is an important mediator in the VEGF pathway. In an in vivo animal model, ramucirumab inhibited angiogenesis. Angiogenesis is a process by which new blood vessels form to supply blood to normal healthy tissues as well as tumors, enabling the cancer to grow. CYRAMZA is being studied for use as a treatment in multiple oncology indications. The following are the Lilly CYRAMZA development programs that are currently in or have completed Phase 3:

Gastric cancer

Lilly has completed two Phase 3 clinical trials, referred to as REGARD and RAINBOW, in advanced gastric cancer. REGARD was a randomized, double-blind, placebo-controlled study of CYRAMZA and best supportive care (BSC) in patients with advanced gastric cancer following progression after initial chemotherapy.

In April 2014, Lilly received FDA approval of CYRAMZA as a single-agent treatment for advanced gastric cancer after prior chemotherapy. The specific approved indication is as a single-agent treatment for patients with advanced or metastatic gastric cancer or gastroesophageal junction (GEJ) adenocarcinoma with disease progression on or after prior fluoropyrimidine- or platinum-containing chemotherapy. CYRAMZA is the first FDA-approved product for advanced gastric cancer after prior chemotherapy. Lilly has also applied to the European Medicines Agency (EMA) for a Marketing Authorization Application (MAA) for the same indication.

The RAINBOW trial was a randomized, double-blind, placebo-controlled study of CYRAMZA and paclitaxel, compared to placebo and paclitaxel, in patients with advanced gastric cancer following progression after initial chemotherapy. In 2013, Lilly announced that RAINBOW met its primary endpoint of improved overall survival and a secondary endpoint of improved progression-free survival. Lilly is in the process of filing regulatory applications in the United States and Europe based on this data. Detailed data from the RAINBOW trial was presented at the Gastrointestinal Cancers Symposium (also known as the American Society of Clinical Oncology (ASCO) GI meeting) in January 2014.

Non-small cell lung cancer (NSCLC)

Lilly has completed a randomized, double-blind Phase 3 clinical trial of CYRAMZA plus docetaxel versus docetaxel alone in patients with second-line NSCLC. This study, referred to as REVEL, was completed in 2013 and Lilly announced positive top-line results in February 2014. The REVEL trial showed a statistically significant improvement in the primary endpoint of overall survival in the CYRAMZA arm compared to the control arm. It also showed a statistically significant improvement in progression-free survival in the CYRAMZA arm versus the control arm. Lilly intends to submit the first application of these data to regulatory authorities in 2014 and is planning to present the detailed data at the ASCO annual meeting in May/June 2014.

Hepatocellular carcinoma (HCC)

Lilly is conducting a randomized, double-blind Phase 3 clinical trial of CYRAMZA and BSC versus placebo and BSC as second-line treatment in patients with HCC, after first-line therapy with sorafenib. The estimated primary completion date for this study, which is referred to as REACH, was March 2014 and Lilly expects to have top-line results in mid-2014.

Colorectal cancer

Lilly has a randomized, double-blind Phase 3 clinical trial of CYRAMZA plus folinic acid, 5-flurouracil and irinotecan (FOLFIRI) versus placebo plus FOLFIRI in second-line metastatic colorectal cancer. The estimated primary completion date for this trial, which is referred to as RAISE, is July 2014 and Lilly expects to have top-line results in the second half of 2014.

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

Necitumumab (IMC-11F8)

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

Necitumumab is being studied for use as a treatment in squamous non-small cell lung cancer, or NSCLC.

Lilly has completed a randomized, open-label Phase 3 clinical trial, referred to as SQUIRE, for necitumumab in combination with gemcitabine-cisplatin chemotherapy versus gemcitabine-cisplatin chemotherapy alone, for first-line squamous NSCLC. In 2013, Lilly announced that SQUIRE met its primary endpoint of increased overall survival. Lilly expects to submit a Biologics License Application (BLA) and MAA for this indication by year-end 2014 and is planning to present detailed data from the SQUIRE study at the ASCO annual meeting in May/June 2014.

In addition, necitumumab is in earlier-stage clinical trials for other indications.

Trebananib (AMG 386)

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

Trebananib is being studied for use as a treatment in ovarian cancer through three Phase 3 trials, referred to as TRINOVA-1, TRINOVA-2 and TRINOVA-3. TRINOVA-1 is a randomized, double-blind study with trebananib plus paclitaxel versus placebo plus paclitaxel in recurrent ovarian cancer. In 2013, Amgen announced that TRINOVA-1 met its primary endpoint of progression-free survival. Amgen expects to complete the analysis of overall survival data, a secondary endpoint of TRINOVA-1, in the second half of 2014.

TRINOVA-2 is a randomized, double-blind study of trebananib plus pegylated liposomal doxorubicin (PLD) or placebo plus PLD in women with recurrent partially platinum sensitive or resistant epithelial ovarian, primary peritoneal or fallopian tube cancer. The estimated primary completion date for this clinical trial is October 2014.

TRINOVA-3 is a randomized, double-blind study of trebananib with paclitaxel and carboplatin or placebo with paclitaxel and carboplatin in the first-line treatment of epithelial ovarian, primary peritoneal or fallopian tube cancers. The estimated primary completion date for this clinical trial is 2016.

LFRP Phase 2 Product Candidates

MM-121 (SAR256212)

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

Breast cancer

Merrimack has an ongoing randomized, open-label Phase 2 trial of preoperative use of MM-121 with paclitaxel in HER2-negative breast cancer. This study is intended to demonstrate whether the addition of MM-121 with paclitaxel is more effective than treatment of paclitaxel alone when administered as part of the neoadjuvant treatment in HER2-negative locally advanced operable breast cancer patients. Results from this study are expected in the first half of 2014.

Ovarian cancer

Merrimack has an ongoing randomized, open-label Phase 2 trial of MM-121 with paclitaxel in platinum resistant or refractory recurrent/advanced ovarian cancers. The estimated primary completion date for this this trial is in the fourth quarter of 2014.

Anti-LINGO-1 (BIIB 033)

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

Acute optic neuritis (AON)

Biogen Idec has an ongoing Phase 2 clinical trial of Anti-LINGO-1 in AON. This trial is a randomized, double-blind, parallel-group, placebo controlled Phase 2 study in subjects with their first episode of AON. Results from this study are expected in the second half of 2014.

Multiple sclerosis (MS)

In 2013, Biogen Idec initiated a randomized, double-blind, parallel-group, dose-ranging Phase 2 clinical trial investigating Anti-LINGO-1 used concurrently with Avonex in subjects with relapsing forms of multiple sclerosis. Data from this study, which is referred to as SYNERGY, are expected in the second half of 2015.

Cross-Licensed Technology

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

RESULTS OF OPERATIONS

Three Months Ended March 31, 2014 and 2013

Revenues. Total revenues for the three months ended March 31, 2014 (the 2014 Quarter) were $14.1 million, compared with $12.0 million for the three months ended March 31, 2013 (the 2013 Quarter).

Product Sales. We are commercializing KALBITOR in the United States for treatment of acute attacks of HAE. We sell KALBITOR to our distributors, and we recognize revenue when title and risk of loss have passed to the distributor, typically upon delivery. Due to the specialty nature of KALBITOR, the limited number of patients and limited return rights of our distributors, we anticipate that distributors will carry inventory that is in line with their forecasted business needs. Although fluctuations can occur due to the nature of acute HAE attacks, the aggregate amount of inventory held by our distributors generally does not exceed 60 days of anticipated demand.

We record product sales allowances and accruals related to trade prompt-pay discounts, government rebates, patient financial assistance programs, product returns and other applicable allowances. For the 2014 Quarter, product sales of KALBITOR were $12.5 million, net of product discounts and allowances of $1.6 million. During the 2013 Quarter, product sales were $8.6 million, net of product discounts and allowances of $793,000. The increase in net sales between the 2014 and 2013 Quarters was due to several offsetting factors:

●

Sales represented by patient demand units increased in the 2014 Quarter by approximately $3.4 million, a 39% increase over the 2013 Quarter,

●

Distributor channel adjustments reduced comparable 2014 Quarter net sales by approximately $780,000,

●

KALBITOR price increases, offset by higher gross to net sales adjustments, increased the 2014 Quarter’s net sales by approximately $1.5 million.

During the three months ended March 31, 2014 and 2013, provisions for product sales allowances reduced gross product sales as follows:


	2014			2013
	(in thousands)
Gross product sales	$	14,098		$	9,380

Prompt pay and other discounts	$	(717	)	$	(362	)
Government rebates and chargebacks		(678	)		(585	)
Returns		(196	)		154
Product sales allowances	$	(1,591	)	$	(793	)
Product sales, net	$	12,507		$	8,587

Product sales allowances, as a percent of gross product sales		11.3	%		8.5	%

Product sales allowances in the 2014 Quarter increased as a percentage of gross product sales due to higher distributor discounts, lower government rebates resulting from a change in the Medicaid patient mix, and a higher level of product returns.

Development and License Fees. We derive revenues from licensing, funded research and development fees and milestone payments from our licensees and collaborators, including our LFRP, in amounts that fluctuate from period to period due to the timing of the clinical activities of our collaborators and licensees. This revenue was $1.6 million in the 2014 Quarter compared to $3.5 million in the 2013 Quarter.

Cost of Product Sales. Cost of product sales includes the manufactured product and the cost of testing, filling, packaging and distributing KALBITOR, as well as a royalty due on net sales of KALBITOR. We incurred $785,000 of costs associated with product sales during the 2014 Quarter and $708,000 of costs associated with product sales during the 2013 Quarter.

In the 2013 Quarter, KALBITOR sales were comprised of a combination of product manufactured both prior to and following FDA approval. Costs associated with the manufacture of KALBITOR prior to FDA approval were previously expensed when incurred, and accordingly are not included in the cost of product sales in the 2013 Quarter. Utilizing the average cost per unit of KALBITOR manufactured after regulatory approval, cost of product sales with these manufacturing costs included for the 2013 Quarter would have approximated $745,000.

In the 2014 Quarter, the cost of product sales reflects the full KALBITOR manufacturing cost.

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

	Three Months Ended March 31,
	2014		2013
	(in thousands)
DX-2930 and other research and development	$	4,727	$	2,980
KALBITOR development		1,747		4,361
LFRP pass-through fees		395		1,330
Total	$	6,869	$	8,671

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

The change in research and development expenses during the 2014 Quarter compared to the 2013 Quarter was primarily due to drug substance costs of $940,000 expensed in the 2013 Quarter for KALBITOR inventory utilized in the reformulation program., lower costs associated with KALBITOR’s post-marketing commitments, and lower LFRP pass-through fees. These decreases were partially offset by higher additional costs associated with the development of DX-2930, our candidate to treat HAE prophylactically.

Selling, General and Administrative. Our selling, general and administrative expenses consist primarily of the sales and marketing costs of commercializing KALBITOR, costs of our management and administrative staff, as well as expenses related to business development, protecting our intellectual property, administrative occupancy, professional fees and the reporting requirements of a public company. Selling, general and administrative expenses for the 2014 and 2013 Quarters were $9.5 million and $11.1 million, respectively, including costs for patient services of $615,000 and $692,000, respectively. The higher selling, general and administrative expenses during the 2013 Quarter were primarily due to $1.1 million of non-cash, stock compensation expense associated with a stock option modification.

Interest and Other Expense. Interest expense, which is primarily related to our loan arrangement with HC Royalty, was approximately $2.7 million in each of the 2014 Quarter and the 2013 Quarter. Based on the 2011 modification of the HC Royalty loan, we record interest expense using the effective interest rate method for the different tranches of the loan. This effective interest rate is approximately 12.5% per annum.

Liquidity and Capital Resources

	March 31, 2014		December 31, 2013
	(in thousands)
Cash and cash equivalents	$	59,378	$	68,085
Short-term investments		127,785		43,296
Total cash, cash equivalents and investments	$	187,163	$	111,381

The following table summarizes our cash flow activity for the three months ended March 31, 2014 and 2013:

	2014			2013
	(in thousands)
Net cash used in operating activities	$	(5,615	)	$	(7,630	)
Net cash (used in) provided by investing activities		(84,610	)		2,832
Net cash provided by financing activities		81,518			879
Net decrease in cash and cash equivalents	$	(8,707	)	$	(3,919	)

We require cash to fund our operating activities, make capital expenditures, acquisitions and investments, and service debt. Through March 31, 2014, we have funded our operations through the sale of equity securities and from borrowed funds under our loan agreement with HC Royalty, which is secured by certain assets associated with our LFRP. In addition, we generate funds from product sales and development and license fees. Our excess funds are currently invested in short-term investments primarily consisting of United States Treasury notes and bills and money market funds backed by the United States Treasury.

Operating Activities

During the 2014 Quarter, the principal use of cash in our operations was to fund our net loss of $5.7 million. Of this net loss, certain costs were non-cash charges, such as stock-based compensation of $1.2 million, depreciation and amortization costs of $303,000, and non-cash interest expense of $162,000. In addition to non-cash charges, we also had net cash out flow due to changes in other operating assets and liabilities, including a decrease in accounts payable of $2.7 million, which was offset by a decrease in accounts receivable of $1.4 million.

During the 2013 Quarter, the principal use of cash in our operations was to fund our net loss of $11.2 million. Of this net loss, certain costs were non-cash charges, such as non-cash interest expense of $1.5 million, depreciation and amortization costs of $228,000 and stock-based compensation expense of $1.9 million. In addition to non-cash charges, we also had net cash out-flow due to changes in other operating assets and liabilities, including a decrease in inventory of $1.0 million and a decrease in accounts payable and accrued expenses of $894,000.

Investing Activities

Our investing activities for the 2014 Quarter primarily consisted of the purchase of investments totaling $84.5 million, as well as the purchase of fixed assets totaling $79,000.

Our investing activities for the 2013 Quarter primarily consisted of investment portfolio maturities of $3.0 million, as well as the cost of fixed assets totaling $168,000.

Financing Activities

Our financing activities for the 2014 Quarter primarily consisted of gross proceeds of $85.1 million ($79.7 million net of offering costs) from the sale of common stock in March 2014, as well as proceeds from the exercise of stock options totaling $1.6 million. Repayment of long-term debt for the 2014 Quarter totaled $116,000.

Our financing activities for the 2013 Quarter consisted of proceeds from the exercise of stock options totaling $987,000, as well as the repayment of long-term debt totaling $108,000.

We expect that existing cash, cash equivalents, and investments, together with anticipated cash flow from product sales and existing development, collaborations and license agreements will be sufficient to support our current operations for at least the next twelve months. Existing funds may be used to prepay some or all of the debt to HC Royalty, which would enable us to use cash flow from our LFRP to fund our research and development efforts. We may seek additional funding through our collaborative arrangements and public or private financings. We may not be able to obtain financing on acceptable terms or at all, and we may not be able to enter into additional collaborative arrangements. Arrangements with collaborators or others may require us to relinquish rights to certain of our technologies, product candidates or products. The terms of any financing may adversely affect the holdings or the rights of our stockholders. If we need additional funds and are unable to obtain funding on a timely basis, we would curtail significantly our research, development or commercialization programs in an effort to provide sufficient funds to continue our operations, which could adversely affect our business prospects.

OFF BALANCE SHEET ARRANGEMENTS

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

COMMITMENTS AND CONTINGENCIES

In our Annual Report on Form 10-K for the year ended December 31, 2013, Part II, Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations, under the heading "Contractual Obligations, " we described our commitments and contingencies. There were no material changes in our commitments and contingencies during the three months ended March 31, 2014.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

In our Annual Report on Form 10-K for the year ended December 31, 2013, our critical accounting policies and estimates were identified as those relating to revenue recognition, allowance for doubtful accounts, share-based compensation and valuation of long-lived and intangible assets. There have been no material changes to our critical accounting policies from the information provided in our 2013 Annual Report on Form 10-K.

Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk consists primarily of our cash and cash equivalents and short-term investments. We place our investments in high-quality financial instruments, primarily U.S. Treasury notes and bills, which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. As of March 31, 2014, we had cash, cash equivalents and investments of approximately $187.2 million. Our investments will decline by an immaterial amount if market interest rates increase, and therefore, our exposure to interest rate changes is immaterial. Declines of interest rates over time will, however, reduce our interest income from our investments.

As of March 31, 2014, we had $85.3 million in short-term and long-term obligations outstanding, including our note payable to HC Royalty. Interest rates on all of these obligations are fixed and therefore are not subject to interest rate fluctuations.

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

Item 4 - CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during our fiscal quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A. – RISK FACTORS

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

Risks Related To Our Business

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

We have incurred net losses on an annual basis since our inception. As of March 31, 2014 we had an accumulated deficit of approximately $539.7 million. We expect to incur additional net losses in 2014 and beyond, as our research, development, preclinical testing, clinical trial and commercial activities continue.

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

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

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

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the amount of future sales of KALBITOR and costs to manufacture and commercialize the product, including sales variability due to fluctuating rates of treatment by patients and the amount of KALBITOR ordered by the distribution channel;

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

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the establishment of new collaboration and licensing arrangements;

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

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

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

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

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

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

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

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

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

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

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the timing of any principal payments of the HC Royalty loans before or at maturity;

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

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competing technological and market developments;

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

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the amount and timing of additional capital equipment purchases; and

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the overall condition of the financial markets.

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

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

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

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

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we or our collaborators must demonstrate through clinical trials that the proposed product is safe and effective for its intended use;

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

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

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

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

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

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

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

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acceptance of KALBITOR in the medical community;

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the frequency of HAE patients' use of KALBITOR to treat their acute attacks of HAE;

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

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

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competition from other products approved for the treatment of HAE;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For KALBITOR as a treatment for HAE, our principal competitors include:

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

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

In January 2014, Shire completed the acquisition of ViroPharma Inc., which markets Cinryze®, an intravenously-administered, plasma-derived C1-esterase inhibitor. Cinryze is approved in the US for routine prophylaxis against angioedema attacks in adolescent and adult patients with HAE, and has orphan drug designation from the FDA. The FDA has also approved patient labeling for Cinryze to include self-administration for routine prophylaxis once a patient is properly trained by his or her healthcare provider. ViroPharma has also received approval in the EU where the product is approved for the treatment and pre-procedure prevention of angioedema attacks in adults and adolescents with HAE, and routine prevention of angioedema attacks in adults and adolescents with severe and recurrent attacks of HAE, who are intolerant to or insufficiently protected by oral prevention treatments or patients who are inadequately managed with repeated acute treatment. The EU approval includes a self-administration option for appropriately trained patients. ViroPharma is conducting a Phase 2 trial evaluating subcutaneous administration of Cinryze.

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

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Pharming Group NV—Ruconest™ is a recombinant C1-esterase inhibitor, which is administered intravenously, and is approved in the EU for the treatment of acute HAE attacks in adult patients. In November 2012, Pharming and its U.S. partner Salix (formerly Santarus) announced positive topline data from their Phase 3 trial for Ruconest. Pharming's recombinant C1-esterase inhibitor has Fast Track status from the FDA and orphan drug designations from the FDA and in Europe.

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

Additionally, a significant number of companies compete with us in the antibody technology space by offering licenses and/or research services to pharmaceutical and biotechnology companies. Specifically, our phage display technology is one of several in vitro display technologies available to generate libraries of compounds that can be leveraged to discover new antibody products. Companies that compete with us in the display technology space include BioInvent, XOMA, Adimab and several others. Additional platforms that pharmaceutical and biotechnology companies use to identify antibodies that bind to a desired target are in vivo technology platforms which use direct immunization of mice or other species to generate fully human antibodies. Competitors in this space include GenMab, arGEN-X and several others. There are also a number of new technologies directed to the generation of candidate compounds with novel scaffolds that may possess similar properties to monoclonal antibodies.

In addition to the technologies described above, many pharmaceutical companies have either acquired antibody discovery technologies or developed humanized murine antibodies derived from hybridomas. Pharmaceutical companies also develop orally available small molecule compounds directed to the targets for which we and others are seeking to develop antibody, peptide and/or protein products.

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

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

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

As a condition of approval for marketing KALBITOR in the United States and other jurisdictions, the FDA or governmental authorities in those jurisdictions may require us to conduct additional clinical trials. For example, in connection with the approval of KALBITOR in the United States, we have agreed to conduct a Phase 4 clinical study to evaluate immunogenicity and hypersensitivity with exposure to KALBITOR for treatment of acute attacks of HAE. The FDA can propose to withdraw approval if new clinical data or any other information shows that KALBITOR is not safe for use or determines that such study is inadequate. We are required to report any serious and unexpected adverse experiences and certain quality problems with KALBITOR to the FDA and other health agencies. We, the FDA or another health agency may have to notify healthcare providers of any such developments. The discovery of any previously unknown problems with KALBITOR or its manufacturer may result in updates to the product label, restrictions on KALBITOR commercialization and the manufacturer or manufacturing facility, including withdrawal of KALBITOR from the market. Certain changes to an approved product, including the way it is manufactured or promoted, often require prior regulatory approval before the product as modified may be marketed.

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

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administrative and judicial sanctions, including warning letters;

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fines and other civil penalties;

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withdrawal of a previously granted approval to sell;

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interruption of production;

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operating restrictions;

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product recall or seizure; injunctions; and

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criminal prosecution.

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

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

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

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

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lessen the frequency with which physicians decide to prescribe KALBITOR;

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

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

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result in our need to withdraw or recall KALBITOR from the marketplace.

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

We have tested KALBITOR in only a limited number of patients. As more patients begin to use KALBITOR, new risks and side effects may be discovered. Risks previously viewed as inconsequential could be determined to be significant. Previously unknown risks and adverse effects of KALBITOR may be discovered in connection with unapproved, or off-label, uses of KALBITOR. We do not promote, or in any way support or encourage the promotion of KALBITOR for off-label uses in violation of relevant law, but current regulations allow physicians to use products for off-label uses. In the event of any new risks or adverse effects discovered as new patients are treated for HAE, regulatory authorities may modify or revoke their approvals and we may be required to conduct additional clinical trials, make changes in labeling of KALBITOR, reformulate KALBITOR or make changes and obtain new approvals for our and our suppliers' manufacturing facilities. We may experience a significant drop in the potential sales of KALBITOR, an increase in costs, experience harm to our reputation and the reputation of KALBITOR in the marketplace or become subject to government investigations or lawsuits, including class actions. Any of these results could decrease or prevent any sales of KALBITOR or substantially increase the costs and expenses of commercializing and marketing KALBITOR.

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

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

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

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

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

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

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

Our sales of KALBITOR are made primarily to a network of distributors, which, in turn, resell KALBITOR to end user customers. Product in the distribution channel consists of supply held by these distributors. Our product sales in a particular period may be affected by increases or decreases in the distribution channel inventory levels. While we attempt to assist our distributors in maintaining targeted inventory levels of KALBITOR, we may not be successful in achieving those targeted levels. Attempting to assist our distributors in maintaining targeted inventory levels of KALBITOR involves the exercise of judgment and use of assumptions about future uncertainties including end user customer demand and, as a result, actual demand may differ from our estimates.

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

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

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

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

We have a long-term commercial supply agreement with Fujifilm, under which they have committed to be available to manufacture ecallantide drug substance through 2020, and our commercial supply agreement with JHS runs through 2018. In addition, our current inventory of “filled and finished” drug product is sufficient to meet anticipated KALBITOR market demand through 2015 and our current inventory of unfilled drug substance is sufficient to meet anticipated KALBITOR market demand through 2018. These estimates are subject to changes in market conditions and other factors beyond our control. If Fujifilm or JHS is unable to dependably meet our demands for ecallantide drug substance or product, it could adversely affect our ability to further develop and commercialize KALBITOR, generate revenue from product sales, increase our costs and negatively affect our operating results.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This increasing concern has engendered greater scrutiny, which may lead to longer time to approval, fewer treatments being approved by the FDA or other regulatory bodies, as well as restrictive labeling of a product or a class of products for safety reasons, potentially including “boxed” warnings or additional limitations on the use of products, post-approval pharmacovigilance programs for approved products or requirement of risk management activities related to the promotion and sale of a product.

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

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

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

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

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

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decreased demand for KALBITOR or any other product candidates;

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injury to our reputation;

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withdrawal of clinical trial volunteers;

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related litigation costs; and

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substantial monetary awards to plaintiffs.

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

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

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

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

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

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

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

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control many of the decisions with respect to research, clinical trials and commercialization of product candidates we discover or develop with them or have licensed to them;

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

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

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

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

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

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

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

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

Patent rights relating to our phage display technology are central to our LFRP. In countries where we do not have and/or have not applied for phage display patent rights, we will be unable to prevent others from using phage display or developing or selling products or technologies derived using phage display. In jurisdictions where we have phage display patent rights, we may be unable to prevent others from selling or importing products or technologies derived elsewhere using phage display. Any inability to protect and enforce such phage display patent rights, whether by any invalidity of our patents or otherwise, could negatively affect future licensing opportunities and revenues from existing agreements under the LFRP.

In all of our activities, we also rely substantially upon proprietary materials, information, trade secrets and know-how to conduct our research and development activities and to attract and retain collaborators, licensees and customers. Although we take steps to protect our proprietary rights and information, including the use of confidentiality and other agreements with our employees and consultants and in our academic and commercial relationships, these steps may be inadequate, these agreements may be violated, or there may be no adequate remedy available for a violation. Our trade secrets or similar technology may otherwise become known to, or be independently developed or duplicated by, our competitors.

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

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

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

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

The issues relating to the validity, enforceability and possible infringement of our patents present complex factual and legal issues that we periodically reevaluate. Third parties have patent rights related to phage display, particularly in the area of antibodies. While we have gained access to key patents in the antibody area through our cross-licensing agreements with Affimed, Affitech, Biosite, Domantis, Genentech, XOMA and CAT, other third party patent owners may contend that we need a license or other rights under their patents in order for us to commercialize a process or product. In addition, we may choose to license patent rights from third parties. While we believe that we will be able to obtain any needed licenses, we cannot assure you that these licenses, or licenses to other patent rights that we identify as necessary in the future, will be available on reasonable terms, if at all. If we decide not to seek a license, or if licenses are not available on reasonable terms, we may become subject to infringement claims or other legal proceedings, which could result in substantial legal expenses. If we are unsuccessful in these actions, adverse decisions may prevent us from commercializing the affected process or products. Moreover, if we are unable to maintain the covenants with regard to phage display improvements that we obtain from our licensees through our patent licensing program and the licenses that we have obtained to third party phage display patent rights, it could have a material adverse effect on our business.

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

In all of our activities, we substantially rely on proprietary materials and information, trade secrets and know-how to conduct research and development activities and to attract and retain collaborative partners, licensees and customers. Although we take steps to protect these materials and information, including the use of confidentiality and other agreements with our employees and consultants in both academic commercial relationships, we cannot assure you that these steps will be adequate, that these agreements will not be violated, or that there will be an available or sufficient remedy for any such violation, or that others will not also develop the same or similar proprietary information.

Failure to meet our HC Royalty debt service obligations could adversely affect our financial condition and our loan agreement obligations could impair our operating flexibility.

Our loans from an affiliate of HC Royalty have an aggregate principal balance of $84.5 million at March 31, 2014. The loans bear interest at a rate of 12% per annum, payable quarterly, will mature in August 2018, and can be repaid without penalty beginning in August 2015.

In connection with this loan, we have entered into a security agreement granting HC Royalty a security interest in the intellectual property related to the LFRP and the revenues generated by us through licenses of our intellectual property related to the LFRP. We are required to repay the loans based on a percentage of LFRP-related revenues, including royalties, milestones, and license fees received by us for product candidates in the LFRP. If the LFRP revenues for any quarterly period are insufficient to cover the cash interest due for that period, the deficiency may be added to the outstanding loan principal or paid in cash by us. In the event of certain changes of control or mergers or sales of all or substantially all of our assets, any or all of the loans may become due and payable at HC Royalty’s option, including a prepayment premium obligation, which will expire in August 2015. We must comply with certain loan covenants which if not observed could make all loan principal, interest and all other amounts payable under the loans immediately due and payable.

Our obligations under the HC Royalty agreement require that we dedicate a substantial portion of cash flow from our LFRP receipts to service the loans, which will reduce the amount of cash flow available for other purposes while the loan is outstanding. If the LFRP fails to generate sufficient receipts to fund quarterly principal and interest payments to HC Royalty, we will be required to fund such obligations from cash on hand or from other sources, further decreasing the funds available to operate our business. In the event that amounts due under the loans is accelerated, payment would significantly reduce our cash, cash equivalents and short-term investments and we may not have sufficient funds to pay the debt if any of it is accelerated.

As a result of the security interest granted to HC Royalty, we are restricted in our ability to sell our rights to part or all of those assets, or take certain other actions, without first obtaining permission from HC Royalty. This requirement could delay, hinder or condition our ability to enter into corporate partnerships or strategic alliances with respect to these assets.

The obligations and restrictions under the HC Royalty agreement may limit our operating flexibility, make it difficult to pursue our business strategy and make us more vulnerable to economic downturns and adverse developments in our business.

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

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

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

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

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

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

Compliance with changing regulations relating to corporate governance and public disclosure may result in additional expenses.

Remaining compliant with changing laws, regulations and standards relating to corporate governance and public disclosure including the Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ Global Market rules requires a significant amount of management attention and external resources. We intend to invest all reasonably necessary resources to comply with evolving corporate governance and public disclosure standards. This investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

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:

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

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

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

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the assumption of significant liabilities of acquired businesses.

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

Risks Related To Our Common Stock

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

The market price of our common stock has been highly volatile. Since our initial public offering in August 2000 through April 30, 2014, the price of our common stock on the NASDAQ Global Market has ranged between $54.12 and $1.05. The market has experienced significant price and volume fluctuations for many reasons, some of which may be unrelated to our operating performance.

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

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public announcements by us, our competitors or others;

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developments concerning proprietary rights, including patents and litigation matters;

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

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regulatory decisions in both the United States and abroad;

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public concern about the safety or efficacy of new technologies;

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issuance of new debt or equity securities;

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general market conditions and comments by securities analysts; and

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quarterly fluctuations in our revenues and financial results.

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

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

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

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

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

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

Item 6 – EXHIBITS

EXHIBIT NO.		DESCRIPTION

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

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

3.3		Amended and Restated By-laws of the Company. Filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q (File No. 000-24537) for the quarter ended September 30, 2008 and incorporated herein by reference.

10.1		Form of the Company’s Restricted Stock Unit Certificate under the Company’s Amended and Restated 1995 Equity Incentive Plan for all non-executive U.S. employees. Filed herewith.

10.2†		Amended and Restated Second Technology Transfer and License Agreement by and between the Company and ImClone Systems Incorporated effective as of March 31, 2007, as amended by the First Amendment to Amended and Restated Second Technology Transfer and License Agreement effective as of March 31, 2011. Filed herewith.

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

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

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

101		The following materials from Dyax Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2014 and 2013, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013, and (iv) Notes to Consolidated Financial Statements.


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

DYAX CORP.

SIGNATURE

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

	DYAX CORP.

Date: May 2, 2014
	/s/George Migausky
	George Migausky Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

DYAX CORP.

EXHIBIT INDEX

EXHIBIT NO.		DESCRIPTION

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

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

3.3		Amended and Restated By-laws of the Company. Filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q (File No. 000-24537) for the quarter ended September 30, 2008 and incorporated herein by reference.

10.1		Form of the Company’s Restricted Stock Unit Certificate under the Company’s Amended and Restated 1995 Equity Incentive Plan for all non-executive U.S. employees. Filed herewith.

10.2†		Amended and Restated Second Technology Transfer and License Agreement by and between the Company and ImClone Systems Incorporated effective as of March 31, 2007, as amended by the First Amendment to Amended and Restated Second Technology Transfer and License Agreement effective as of March 31, 2011. Filed herewith.

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

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

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

101		The following materials from Dyax Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2014 and 2013, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013, and (iv) Notes to Consolidated Financial Statements.


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

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Dyax (DYAX) Inactive 10-Q2014 Q1 Quarterly report

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