Dyax Corp. (NASDAQ: DYAX) recently reported solid Q2 earnings, with encouraging updates on its major initiatives (particularly DX-2930, its big pipeline candidate -- more on that in a moment). The stock looks interesting, and it has a cool growth profile, given revenue streams from an expansive drug licensing portfolio. But there are three big reasons to bypass the stock. Let's dig in.
Concentrated value
When you look at Dyax's pipeline and listen to management's remarks, you notice that DX-2930, Dyax's drug for prevention of attacks of hereditary angioedema, or HAE, is the big value driver. And there's reason for management to be excited: In a phase 1b trial earlier this year, as DX-2930 showed statistically significant 100% and 88% reductions in HAE attacks in patient groups who received 300 mg and 400 mg doses of the drug, respectively.
While the data is exciting, it still only reflects a 37-patient phase 1b trial. Dyax will have to conduct a much larger phase 3 trial to better analyze the drug's safety and efficacy before submitting it for FDA approval. But the potential looks powerful. Analysts have previously estimated that DX-2930 could bring in $400 million or $500 million in peak sales, but those estimates were before management announced that it also plans to test the drug in diabetic macular edema.
Things look good... but the drug still has a way to go, and approval is far from guaranteed. Are you ready to bet your money on a company whose value is largely tied up in one drug that's only reported phase 1 data?
Moneymakers not that impressive so far
That's not to say that Dyax only has one drug. Far from it. In fact, the company has an 11-drug licensing and funded research portfolio, or LFRP, which it licenses out to a variety of partners, including big name such as Eli Lilly and Baxter. That portfolio brought in about $8.5 million last quarter from a combination of licensing fees and royalties on Lilly's Cyramza, the only drug from that portfolio that's been commercialized thus far. Dyax also has a marketed drug called Kalbitor, which treats HAE attacks and is expected to make between $60 million and $70 million in revenue this year.
All told, it's just not really that much. And while the drugs in the LFRP -- assuming they're successes in the clinic -- would probably bring in more money over time for Dyax, there's a potential big problem for Kalbitor.
Remember, if DX-2930 is approved, it could help prevent HAE attacks. Kalbitor helps treat HAE attacks. I see a potential trade-off there. Now, DX-2930 is expected to bring in a lot more money than Kalbitor, so it's still a win for the company if DX-2930 gets approved. But that's another problem the company would face as it struggles to turn the corner to profitability.
And look at that price!
Dyax isn't cheap, even by biotech's generally relaxed standards. Analysts polled by S&P Capital IQ estimate that Dyax will bring in almost $600 million in revenue in 2019. At today's roughly $3 billion market cap, that means the company is trading at around 5 times 2019 sales. That's expensive, particularly given that approval of DX-2930, which is a huge part of the company's value proposition, is by no means assured.
Let me be plain: I like Dyax as a company. But not at this price and with these other potential issues. I want to see phase 3 data from DX-2930 before being prepared to potentially buy. Of course, there's a problem with that: If the data look good, I'd be surprised if the stock didn't move higher -- thereby destroying the value proposition yet again for me. As for you, maybe you're less risk-averse than I am, or maybe you're willing to pay a little extra for the quality of the company's pipeline. There's a good argument for that kind of thinking in biotech. But Dyax isn't a company I'm going to change my investing philosophy for, so I'm happy sitting safely on the sidelines.
