10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2011
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)

300 TECHNOLOGY SQUARE, CAMBRIDGE, MA 02139

(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 October 26, 2011: 98,748,086

DYAX CORP.

TABLE OF CONTENTS

PART I		FINANCIAL INFORMATION
Item 1	-	Financial Statements	Page
		Consolidated Balance Sheets (Unaudited) as of September 30, 2011 and December 31, 2010	3
		Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) for the three and nine months ended September 30, 2011 and 2010	4
		Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2011 and 2010	5
		Notes to Consolidated Financial Statements (Unaudited)	6
Item 2	-	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4	-	Controls and Procedures	36
PART II		OTHER INFORMATION
Item 1a	-	Risk Factors	36
Item 5	-	Other Information of the Form 10-Q	55
Item 6	-	Exhibits	56
Signatures			57
Exhibit Index			58

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PART I – FINANCIAL INFORMATION

Item 1 – FINANCIAL STATEMENTS

Dyax Corp. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

	September 30, 2011			December 31, 2010
	(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	15,281		$	18,601
Short-term investments		33,093			58,783
Accounts receivable, net of allowances for doubtful accounts of $75 and $45 at September 30, 2011 and December 31, 2010, respectively		6,790			5,315
Inventory		6,859			1,696
Current portion of restricted cash		1,266			922
Other current assets		2,977			3,248
Total current assets		66,266			88,565
Fixed assets, net		1,957			2,178
Restricted cash		1,100			1,266
Other assets		669			422
Total assets	$	69,992		$	92,431
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses	$	10,417		$	10,672
Current portion of deferred revenue		7,016			8,738
Current portion of long-term obligations		199			586
Other current liabilities		1,428			700
Total current liabilities		19,060			20,696
Deferred revenue		10,310			12,598
Note payable		55,461			56,406
Long-term obligations		—			68
Deferred rent and other long-term liabilities		—			30
Total liabilities		84,831			89,798
Commitments and contingencies (Notes 7, 8 and 10)
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding		—			—
Common stock, $0.01 par value; 200,000,000 shares authorized; 98,748,086 and 98,508,487 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively		987			985
Additional paid-in capital		447,534			443,926
Accumulated deficit		(463,386	)		(442,322	)
Accumulated other comprehensive income		26			44
Total stockholders' equity (deficit)		(14,839	)		2,633
Total liabilities and stockholders' equity (deficit)	$	69,992		$	92,431

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

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Dyax Corp. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(In thousands, except share and per share data)
Revenues:
Product sales, net	$	6,597		$	2,622		$	15,888		$	5,796
Development and license fee revenues		3,535			4,329			24,333			36,345
Total revenues, net		10,132			6,951			40,221			42,141
Costs and expenses:
Cost of product sales		260			119			781			247
Research and development expenses		8,659			7,940			26,238			23,743
Selling, general and administrative expenses		8,790			7,668			27,120			24,619
Total costs and expenses		17,709			15,727			54,139			48,609
Loss from operations		(7,577	)		(8,776	)		(13,918	)		(6,468	)
Other income (expense):
Interest and other income		382			123			544			198
Interest and other expenses		(2,528	)		(2,601	)		(7,690	)		(9,291	)
Total other expense		(2,146	)		(2,478	)		(7,146	)		(9,093	)
Net loss		(9,723	)		(11,254	)		(21,064	)		(15,561	)
Other comprehensive income (loss):
Unrealized gain (loss) on investments		(27	)		(1	)		(18	)		33
Comprehensive loss	$	(9,750	)	$	(11,255	)	$	(21,082	)	$	(15,528	)
Basic and diluted net loss per share	$	(0.10	)	$	(0.11	)	$	(0.21	)	$	(0.17	)
Shares used in computing basic and diluted net loss per share		98,748,086			98,401,835			98,720,137			91,502,187

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

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Dyax Corp. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended September 30,
	2011			2010
	(In thousands)
Cash flows from operating activities:
Net loss	$	(21,064	)	$	(15,561	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of purchased premium/discount		190			26
Depreciation and amortization of fixed assets and intangible assets		973			1,134
Non-cash interest expense		1,612			1,145
Compensation expenses associated with stock-based compensation plans		3,110			2,935
Loss on disposal of fixed assets		--			51
Provision for doubtful accounts		10			15
Changes in operating assets and liabilities:
Accounts receivable		(1,485	)		937
Prepaid research and development and other current assets		271			(622	)
Inventory		(5,075	)		(752	)
Other long-term assets		(247	)		168
Accounts payable and accrued expenses		(1,540	)		(4,113	)
Deferred revenue		(4,010	)		(9,442	)
Long-term deferred rent		(30	)		(194	)
Other long-term liabilities		--			11
Net cash used in operating activities		(27,285	)		(24,262	)
Cash flows from investing activities:
Purchase of investments		(3,021	)		(53,667	)
Proceeds from maturity of investments		28,502			21,999
Purchase of fixed assets		(236	)		(176	)
Proceeds from sale of fixed assets		--			29
Restricted cash		(178	)		700
Net cash provided by (used in) investing activities		25,067			(31,115	)
Cash flows from financing activities:
Net proceeds from common stock offerings		323			61,133
Repayment of long-term obligations		(1,584	)		(2,613	)
Proceeds from the issuance of common stock under employee stock purchase plan and exercise of stock options		159			263
Net cash provided by (used in) financing activities		(1,102	)		58,783
Net increase (decrease) in cash and cash equivalents		(3,320	)		3,406
Cash and cash equivalents at beginning of the period		18,601			29,386
Cash and cash equivalents at end of the period	$	15,281		$	32,792
Supplemental disclosure of cash flow information:
Interest paid	$	6,923		$	9,416

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

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DYAX CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS OVERVIEW

Dyax Corp. (Dyax or the Company) is a biopharmaceutical company focused on the discovery, development and commercialization of novel biotherapeutics for unmet medical needs. The Company currently has three major business components:

●   Dyax commercializes KALBITOR® (ecallantide) for treatment of acute attacks of hereditary angioedema (HAE) in the United States and is also developing KALBITOR for use in other indications.  Outside of the United States, Dyax has established partnerships to obtain regulatory approval for and commercialize KALBITOR in other major markets and is evaluating opportunities in additional territories.

●   Dyax leverages its proprietary phage display technology through its Licensing and Funded Research Program, or LFRP.  This program has resulted in a portfolio of product candidates being developed by its licensees, which currently includes 17 product candidates in clinical development.  The LFRP generated $26 million in revenue in 2010, and to the extent that one or more of these product candidates are commercialized according to published timelines, milestone and royalty revenues under the LFRP are expected to experience significant growth over the next several years.

●   Dyax uses its phage display technology to identify new drug candidates for its own preclinical pipeline.

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 and in accordance with instructions to the Quarterly Report on Form 10-Q.  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, 2010.  The accompanying December 31, 2010 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the dates of the financial statements and (iii) the reported amounts of revenue and expenses during the reporting periods.  Actual results could differ from those estimates.  The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.  

 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 B.V.  All inter-company accounts and transactions have been eliminated.

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Use of Estimates

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

Concentration of Credit Risk 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and trade accounts receivable.  At September 30, 2011 and December 31, 2010, approximately 91% and 98%, respectively, of the Company's cash, cash equivalents and short-term investments were invested in money market funds backed by U.S. Treasury obligations, U.S. Treasury notes and bills, and obligations of United States government agencies held by one financial institution.  The Company maintains balances in various operating accounts in excess of federally insured limits.

The Company provides most of its services and licenses its technology to pharmaceutical and biomedical companies worldwide, and makes all product sales to its distributors.  Concentrations of credit risk with respect to trade receivable balances are usually limited on an ongoing basis, due to the diverse number of licensees and collaborators comprising the Company's customer base.  As of September 30, 2011, two customers accounted for 46% and 35% of the accounts receivable balance.  Three customers accounted for approximately 35%, 28% and 24%, of the Company's accounts receivable balance as of December 31, 2010, all of which were collected in the first quarter of 2011.

Cash and Cash Equivalents

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

 Investments  

Short-term investments primarily consist of investments with original maturities greater than ninety days and remaining maturities less than one year at quarter end.  The Company has also classified its investments with maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. The Company considers its investment portfolio of investments available-for-sale.  Accordingly, these investments are recorded at fair value, which is based on quoted market prices.  As of September 30, 2011, the Company's investments consisted of U.S. Treasury notes and bills with an amortized cost and estimated fair value of $33.1 million, and an unrealized gain of $26,000, which is recorded in other comprehensive income on the accompanying consolidated balance sheet.  As of December 31, 2010, the Company's investments consisted of United States Treasury notes and bills with an amortized cost of $58.7 million, an estimated fair value of $58.8 million, and had an unrealized gain of $44,000, which is recorded in other comprehensive income on the accompanying consolidated balance sheet.

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 employee stock-based compensation costs capitalized under Accounting Standards Codification (ASC) 718.

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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.

Impairment of Long-Lived Assets

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

Revenue Recognition

The Company’s principal sources of revenue are product sales of KALBITOR, 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 wholesale and specialty distributors, and are recorded upon delivery, net of applicable reserves for trade prompt pay discounts, government rebates, a patient assistance program, product returns and other applicable allowances.

Product Sales Allowances.  The Company establishes reserves for trade prompt pay discounts, government rebates, a patient assistance program, 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, the patient financial assistance program, 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 for patient service initiatives. 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 the services are at fair value and represent a separate and identifiable benefit related to these services and, accordingly, has classified them as selling, general and administrative expense.

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Prompt Payment Discounts.  The Company offers a prompt payment discount to its distributors.  Since the Company expects that its 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.  The accrual is adjusted quarterly to reflect actual earned discounts.

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 with respect to certain other qualifying federal and state government programs.  The Company estimates the amount of these reductions based on KALBITOR patient data and actual sales data.  These allowances are adjusted each period based on actual experience.

Medicaid rebate reserves relate to the Company’s estimated obligations to states 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.

The Company offers a financial assistance program, which involves the use of a patient voucher, for qualified KALBITOR patients in order to aid a patient’s access to KALBITOR.  The Company estimates its liability from this voucher program based on actual redemption rates.

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. It permits returns if the product is damaged or defective when received by customers or if the product has expired.  The Company estimates product returns based upon historical trends in the pharmaceutical industry and trends for similar products sold by others.

9

During the three and nine months ended September 30, 2011 and 2010, provisions for product sales allowances reduced gross product sales as follows (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Total gross product sales	$	6,931		$	2,767		$	16,634		$	6,114
Prompt pay and other discounts	$	(193	)	$	(56	)	$	(447	)	$	(146	)
Government rebates and chargebacks		(130	)		(88	)		(274	)		(161	)
Returns		(11	)		(1	)		(25	)		(11	)
Product sales allowances	$	(334	)	$	(145	)	$	(746	)	$	(318	)
Total product sales, net	$	6,597		$	2,622		$	15,888		$	5,796
Total product sales allowances as a percent of gross product sales		4.8	%		5.2	%		4.5	%		5.2	%

Development and License Fee Revenues

In January 2011, the Company adopted a new U.S. GAAP accounting standard which amends existing revenue recognition accounting guidance to provide accounting principles and application guidance on whether multiple deliverables exist, whether and how the deliverables should be separated, and the consideration allocated.  The new guidance amends the requirement to establish objective evidence of fair value of undelivered products and services and provides for separate revenue recognition based upon management’s best estimate of selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item.  The adoption of this standardwill be applied to all new or materially amended agreements which include multiple deliverables in 2011.  In 2011, the Company applied the amended revenue guidance to several revenue arrangements entered into during the period, including one amendment which was determined to be a material modification to an existing agreement (see Note 3, Significant Transactions – Sigma-Tau).  

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.

Before January 1, 2011, we evaluated license arrangements with multiple elements in accordance with Accounting Standards Codification, or ASC, 605-25 Revenue Recognition – Multiple-Element Arrangements.  In October 2009, the Financial Accounting Standards Board, or FASB, issued ASU 2009-13 Revenue Arrangements with Multiple Deliverables, or ASU 2009-13, which 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;

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●   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; vendor objective evidence (VOE), if available and VSOE is not available; or the best estimate of selling price (BESP), if neither VSOE or VOE is available;

●   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.  For more advanced stage development licensing agreements, these arrangements are unique in nature and therefore the Company generally cannot establish VSOE for the elements within the arrangement.  For earlier stage funded research agreements, the Company can establish the fair value of the elements based on VSOE.  This type of agreement is less unique from licensee to licensee and the Company has more history of entering funded research agreements.

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 performed for revenue recognized. Revenue is recognized using either a proportional performance or straight-line method. The Company recognizes revenue using the 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.

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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. If the achievement of a milestone is considered probable at the inception of the collaboration, the related milestone payment is included with other collaboration consideration, such as up-front fees and research funding, in the Company's revenue model. Milestones that involve substantial effort on the Company's part and the achievement of which are not considered probable at the inception of the collaboration are considered "substantive milestones." All milestones achieved after January 1, 2011 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.  For all milestones achieved prior to 2011, substantive milestones were included in the Company's revenue model when achievement of the milestone was considered probable. Milestones that are tied to regulatory approval are not considered probable of being achieved until such approval is received. Milestones tied to counter-party performance are not included in the Company's revenue model until the performance conditions are met.

Royalty revenue is recognized upon the sale of the related products provided the Company has no remaining performance obligations under the arrangement.

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.

Patent Licenses.  The Company generally licenses its patent rights covering phage display on a non-exclusive basis to third parties for use in connection with the research and development of therapeutic, diagnostic, and other products.

Standard terms of the patent rights agreements generally include non-refundable signing fees, non-refundable license maintenance fees, development milestone 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. Perpetual patent licenses are recognized immediately if the Company has no future obligations and the payments are upfront.

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. Milestone payments under these license arrangements are recognized when the milestone is achieved if the Company has no future obligations under the license. 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. Royalty revenue is recognized upon the sale of the related products provided the Company has no remaining performance obligations under the arrangement.

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

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 were expensed when incurred as a research and development cost and accordingly, KALBITOR units sold during the three and nine months ended September 30, 2011 and 2010 do not reflect 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 current statutory tax rates.  At September 30, 2011 and December 31, 2010, 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.  For the three and nine months ending September 30, 2011 the Company recorded other expense of $32,000 and other income of $15,000, respectively, for the translation of foreign currency.  For the three and nine months ending September 30, 2010, the Company recorded other income of $61,000 and other expenses of $33,000, respectively, for the translation of foreign currency.

Share-Based Compensation

The Company’s share-based compensation program consists of share-based awards granted to employees in the form of stock options, 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.

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Income or Loss Per Share

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 period ended September 30, 2011 and, therefore, are excluded from the calculation of diluted net loss per share.

Stock options and warrants to purchase a total of 11,682,969 and 9,932,997 shares of common stock were outstanding at September 30, 2011 and 2010, respectively.

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.

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.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies, which are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that 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.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04). This newly issued accounting standard clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This ASU is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011, which for Dyax will be January 1, 2012. The Company does not expect that adoption of this standard will have a material impact on its financial position or results of operations.

In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, “Comprehensive Income (Topic 220)” (ASU 2011-05). This newly issued accounting standard (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income nor do the amendments affect how earnings per share is calculated or presented. This ASU is required to be applied retrospectively and is effective for fiscal years and interim periods within those years beginning after December 15, 2011, which for Dyax will be January 1, 2012. As this accounting standard only requires enhanced disclosure, the adoption of this standard will not impact the Company’s financial position or results of operations.

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3. SIGNIFICANT TRANSACTIONS

Sigma-Tau

In June 2010, the Company entered into a strategic partnership agreement with Defiante Farmaceutica S.A., a subsidiary of the pharmaceutical company Sigma-Tau SpA (Sigma-Tau) to develop and commercialize subcutaneous ecallantide for the treatment of HAE and other therapeutic indications throughout Europe, North Africa, the Middle East and Russia.  In December 2010, the original agreement was amended to expand the partnership to commercialize KALBITOR for the treatment of HAE in Australia and New Zealand (the first amendment).  In May 2011, the Company further amended its agreement with Sigma-Tau to include development and commercialization rights in Latin America (excluding Mexico), the Caribbean, Taiwan, Singapore and South Korea (the second amendment).

Under the terms of the original agreement, Sigma-Tau made a $2.5 million upfront payment.  In addition, Sigma-Tau purchased 636,132 shares of the Company's common stock at a price of $3.93 per share, which represented a 50% premium over the 20-day average closing price through June 17, 2010, for an aggregate purchase price of $2.5 million. 

Under the terms of the first amendment, Sigma-Tau made an additional $500,000 upfront payment to the Company and also purchased 151,515 shares of the Company's common stock at a price of $3.30 per share, which represented a 50% premium over the 20-day average closing price through December 20, 2010, for an aggregate purchase price of $500,000.  Both payments were received in January 2011. 

Under the terms of the second amendment, Sigma-Tau is required to make additional $7.0 million in non-refundable payments to the Company during 2011, of which $4.0 million was received in July 2011.

The Company is also eligible to receive over $115 million in development and sales milestones related to ecallantide and royalties equal to 41% of net sales of product, as adjusted for product costs.  Sigma-Tau will pay costs associated with regulatory approval and commercialization in the licensed territories.  In addition, the Company and Sigma-Tau will share equally the costs for all development activities for optional future indications developed in partnership with Sigma-Tau in the territories covered under the initial Sigma-Tau agreement. The partnership agreement may be terminated by Sigma-Tau, at will, upon 6 months’ prior written notice.  Either party may terminate the partnership agreement in the event of an uncured material breach or declaration or filing of bankruptcy by the other party.

Prior to the second amendment in May 2011, revenue related to this multiple element arrangement was being recognized in accordance with ASC 605.  The Company evaluated the terms of the second amendment relative to the entire arrangement and determined the amendment to be a material modification to the existing agreement for financial reporting purposes.  As a result, the Company evaluated the entire arrangement under the guidance of ASU No. 2009-13 which was adopted in 2011.  

Under the terms of the original agreement and first amendment, 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 and development, 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. These deliverables were grouped into one unit of accounting due to the lack of objective and reliable evidence of fair value.  The second unit of accounting related to the manufacturing services, and was determined to meet all of the criteria to be a separate unit of accounting.  The Company had the ability to estimate the scope and timing of its involvement in the future development of the program as the Company's obligations under the development period are clearly defined.  Therefore, the Company recognized revenue related to the first unit of accounting utilizing a proportional performance model based on the actual effort performed in proportion to the total estimated level of effort.   Under this model, the Company estimated the level of effort to be expended over the term of the agreement and recognized revenue based on the lesser of the amount calculated based on proportional performance of total expected revenue or the amount of non-refundable payments earned.  As of the date of the second amendment, $4.8 million of revenue was recognized for the first unit of accounting.  To date, no revenue has been recognized related to manufacturing services as none have been provided.

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As the second amendment represented a material modification to the existing agreement, the Company re-evaluated the entire arrangement under ASU No. 2009-13, and determined all undelivered items under the agreement and divided them into separate units of accounting based on whether the deliverable provided stand-alone value to the licensee. These units of accounting consist of (i) the license to develop and commercialize ecallantide for the treatment of HAE and other therapeutic indications in the territories granted under the second amendment, (ii) steering committee services and (iii) committed future development services.  The Company then determined the best estimate selling price (BESP) for the license and steering committee services and the fair value of committed future development services was determined using vendor objective evidence.   The Company’s process for determining BESP involves management’s judgment and includes factors such as discounted cash flows, estimated direct expenses and other costs and available data.

Based on the change in revenue guidance applied to this arrangement, previously deferred revenue of $3.4 million was recognized during the second quarter of 2011.  This amount represents the existing deferred revenue balance and guaranteed payments less the total of BESP for the undelivered units of accounting.

As the license granted under the second amendment was delivered during the quarter, revenue related to this unit of $5.8 million was also recognized in the second quarter of 2011.   Revenue related to steering committee services of $190,000 was deferred and is being recognized under the proportional performance model as meetings are held through the estimated development period of ecallantide in the Sigma-Tau Territories.  Revenues associated with future committed development services will be recognized as incurred and billed to Sigma-Tau for reimbursement.  As future milestones are achieved and to the extent they involve substantial effort on the Company’s part, revenue will be recognized in the period in which the milestone is achieved.  The manufacturing services were determined to represent a contingent deliverable and, as such, have been excluded from the current revenue model.

The Company recognized revenue of approximately $280,000 and $12.2 million related to this agreement for the three and nine months ended September 30, 2011, respectively.  Revenue for the three and nine months ending September 30, 2011 would have been $1.2 million and $7.4 million, respectively, if revenue had been recognized under the previous revenue recognition model, prior to adoption of ASU 2009-13.

As of September 30, 2011 and December 31, 2010, the Company has deferred $174,000 and $3.1 million, respectively, of revenue related to this arrangement, which is recorded in deferred revenue on the accompanying consolidated balance sheets at such dates.  The deferred revenue balance at September 30, 2011, relates to the joint steering committee obligation which is estimated to continue until the middle of 2014.  As of September 30, 2011 and December 30, 2010, the Company had receivable balances due from Sigma-Tau of $3.1 million and $1.4 million, respectively.   

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CMIC

In September 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.  The Company is also eligible to receive up to $102 million in development and sales milestones for ecallantide in HAE and other angioedema indications and royalties of 20%-24% of net product sales. CMIC is solely responsible for all costs associated with development, regulatory activities, and commercialization of ecallantide for all angioedema indications in Japan. CMIC will purchase drug product from the Company on a cost-plus basis for clinical and commercial supply.

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 includes the product license, the committed future development services and the steering committee involvement.  The second unit of accounting relates to the manufacturing services.  At this time 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 and therefore, the Company cannot reasonably estimate the level of effort required to fulfill its obligations under the first unit of accounting.  As a result, the Company is recognizing revenue under the first unit of accounting on a straight-lined basis over the estimated development period of ecallantide for the treatment of HAE and other indications in the CMIC territory of approximately seven years.

The Company recognized revenue of approximately $148,000 and $444,000 related to this agreement for the three and nine months ended September 30, 2011, respectively.  As of September 30, 2011 and December 31, 2010, the Company has deferred approximately $3.4 million and $3.9 million, respectively, of revenue related to this arrangement, which is recorded in deferred revenue on the accompanying consolidated balance sheets.

Sale of Xyntha Royalty Rights

In April 2010, the Company sold its rights to royalties and other payments related to the commercialization of the product Xyntha®, which was developed by one of the Company's licensees under the Company's phage display LFRP.  Under the terms of this sale, the Company received an upfront cash payment of $9.8 million and earned an additional $1.5 million milestone payment based on 2010 product sales.  The Company is also eligible to receive an additional $500,000 milestone payment based on 2011 product sales.  A portion of the cash payments received were required to be applied to the Company's loan with Cowen Healthcare (see Note 7 – Note Payable), totaling a $2.2 million principal reduction and interest expense of $1.4 million.  The Company has determined that it has no substantive future obligations under the arrangement.

Cubist Pharmaceuticals Inc.

In 2008, the Company entered into an exclusive license and collaboration agreement with Cubist Pharmaceuticals, Inc. (Cubist), for the development and commercialization in North America and Europe of the intravenous formulation of ecallantide for the reduction of blood loss during surgery. Under this agreement, Cubist assumed responsibility for all further development and costs associated with ecallantide in the licensed indications in the Cubist territory. The Company received $17.5 million in license and milestone fees in 2008 as a result of the Cubist agreement. Additionally, the Company received $3.6 million for drug product supply and reimbursement of costs incurred in 2008 related to the conduct of the Phase 2 clinical trial.

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On March 31, 2010, Cubist announced its intention to terminate this agreement with the Company.  Based upon Cubist's decision, $13.8 million of deferred revenue was recognized as revenue during the three months ended March 31, 2010, as the development period had ended.

4. FAIR VALUE MEASUREMENTS

The following tables present information about the Company's financial assets that have been measured at fair value as of September 30, 2011 and December 31, 2010 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices, for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.

Description    (in thousands)	September 30, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	10,807	$	10,807	$	—	$	—
Marketable debt securities		33,093		33,093		—		—
Total	$	43,900	$	43,900	$	—	$	—

Description   (in thousands)	December 31, 2010		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	16,931	$	16,931	$	—	$	—
Marketable debt securities		58,783		58,783		—		—
Total	$	75,714	$	75,714	$	—	$	—

As of September 30, 2011 and December 31, 2010, the Company's investments consisted of U.S. Treasury notes and bills which are categorized as Level 1. The fair values of cash equivalents and marketable debt securities are determined through market, observable and corroborated sources. The carrying amounts reflected in the consolidated balance sheets for cash, cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses and other current liabilities approximate fair value due to their short-term maturities.

5. INVENTORY

In December 2009, the Company received marketing approval of KALBITOR from the FDA. Costs associated with the manufacture of KALBITOR prior to regulatory approval were expensed when incurred, and therefore were not capitalized as inventory.  As a result, the Company’s finished goods inventory does not include all costs of manufacturing drug substance currently being sold.  Subsequent to FDA approval, all costs associated with the manufacture of KALBITOR have been recorded as inventory, which consists of the following (in thousands):

	September 30, 2011		December 31, 2010
Raw Materials	$	1,364	$	766
Work in Progress		5,286		723
Finished Goods		209		207
Total	$	6,859	$	1,696

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6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following (in thousands):

	September 30, 2011		December 31, 2010
Accounts payable	$	2,889	$	1,398
Accrued employee compensation and related taxes		3,499		4,847
Accrued external research and development and contract manufacturing		1,374		1,180
Accrued legal		476		500
Other accrued liabilities		2,179		2,747
Total	$	10,417	$	10,672

7. NOTE PAYABLE

In 2008, the Company entered into an agreement with Cowen Healthcare Royalty Partners, LP (Cowen Healthcare) for a $50.0 million loan secured by the Company's phage display LFRP (Tranche A loan). The Company used $35.1 million from the proceeds of the Tranche A loan to pay off its remaining obligation under a then existing agreement with Paul Royalty Fund Holdings II, LP.  In March 2009, the Company amended and restated the loan agreement with Cowen Healthcare to include a Tranche B loan of $15.0 million.

The Tranche A and Tranche B loans (collectively, the Loan) mature in August 2016.  The Tranche A portion bears interest at an annual rate of 16%, payable quarterly, and the Tranche B portion bears interest at an annual rate of 21.5%, payable quarterly. The Loan may be prepaid without penalty, in whole or in part, beginning in August 2012.  In connection with the Loan, the Company has entered into a security agreement granting Cowen Healthcare a security interest in the intellectual property related to the LFRP, and the revenues generated by the Company through the license 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.

Under the terms of the loan agreement, the Company is required to repay the Loan based on the annual net LFRP receipts.  Until June 30, 2013, required payments are tiered as follows: 75% of the first $10.0 million in specified annual LFRP receipts, 50% of the next $5.0 million and 25% of annual included LFRP receipts over $15.0 million.  After June 30, 2013, and until the maturity date or the complete amortization of the Loan, Cowen Healthcare will receive 90% of all included LFRP receipts.  If the Cowen Healthcare 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 Cowen Healthcare 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 date of funding of each tranche of the loan, the Company must repay to Cowen Healthcare all additional accumulated principal above the original $50.0 million and $15.0 million loan amounts of Tranche A and Tranche B, respectively.

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In addition, under the terms of the loan agreement, the Company is permitted to sell or otherwise transfer collateral generating cash proceeds of up to $25.0 million. Twenty percent of these cash proceeds will be applied to principal and accrued interest on the Loan plus any applicable prepayment premium and an additional 5.0% of such proceeds will be paid to Cowen Healthcare as a cash premium.  In 2010, the Company sold its rights to royalties and other payments related to the commercialization of a product developed by one of the Company’s licensees under the LFRP.  Under the terms of the sale, the Company has received $11.3 million and is eligible to receive an additional $500,000 based on 2011 product sales (see Note 3, Significant Transactions - Sale of Xyntha Royalty Rights).

In connection with the Tranche A loan, the Company issued to Cowen Healthcare a warrant to purchase 250,000 shares of the Company's common stock at an exercise price of $5.50 per share.  The warrant expires in August 2016 and became exercisable on August 5, 2009.  The Company estimated the relative fair value of the warrant to be $853,000 on the date of issuance, using the Black-Scholes valuation model, assuming a volatility factor of 83.64%, risk-free interest rate of 4.07%, an eight-year expected term and an expected dividend yield of zero.  In conjunction with the Tranche B loan, the Company issued to Cowen Healthcare a warrant to purchase 250,000 shares of the Company’s common stock at an exercise price of $2.87 per share.  The warrant expires in August 2016 and became exercisable on March 27, 2010.  The Company estimated the relative fair value of the warrant to be $477,000 on the date of issuance, using the Black-Scholes valuation model, assuming a volatility factor of 85.98%, risk-free interest rate of 2.77%, a seven-year, four-month expected term and an expected dividend yield of zero.  The relative fair values of the warrants as of the date of issuance are recorded in additional paid-in capital on the Company's consolidated balance sheets.

The cash proceeds from the Loan were recorded as a note payable on the Company's consolidated balance sheet.  The note payable balance was reduced by $1.3 million for the fair value of the Tranche A and Tranche B warrants, and by $580,000 for payment of Cowen Healthcare’s legal fees in conjunction with the Loan.  Each of these amounts is being accreted over the life of the note.

The following table reflects the activity on the Loan for financial reporting purposes for the nine months ended September 30, 2011 and the year ended December 31, 2010 (in thousands):

	2011			2010
Balance, January 1	$	56,406		$	58,096
Accretion on warrants and discount		184			246
Loan activity:
Interest expense		7,470			11,420
Payments applied to principal		(1,129	)		(1,935	)
Payments applied to interest		(6,042	)		(10,721	)
Accrued interest payable		(1,428	)		(700	)
Ending balance	$	55,461		$	56,406

The Loan principal balance at September 30, 2011, and December 31, 2010 was $56.7 million and $57.8 million, respectively.  The estimated fair value of the note payable was $52.2 million at September 30, 2011.

In August 2011, Cowen Healthcare assigned their rights and interests under the loan agreement to an affiliate, Vanderbilt Royalty Sub L.P.  Cowen Healthcare continues to act as the agent under the loan agreement and will continue to manage all obligations with respect to the Loan.

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8. FACILITY LEASE

In July 2011, the Company entered into a lease agreement for new premises located in Burlington, Massachusetts.  The premises, consisting of approximately 44,500 rentable square feet of office and laboratory facilities, will be used as the Company’s principal offices and corporate headquarters.  The Company intends to relocate all of its operations presently conducted in Cambridge, Massachusetts to the new facility in January 2012.  The term of the new 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.  During July, 2011, the Company provided the landlord a letter of credit of $1.1 million to secure its obligations under the lease.  The landlord has provided the Company with a tenant improvement allowance of up to $1.9 million an additional tenant improvement loan option of up to $668,000.

In connection with this relocation, the Company has exercised its right to terminate the lease agreement for the Company’s current headquarters in Cambridge, Massachusetts to coincide approximately with the commencement of the new lease.

9. STOCKHOLDER’S EQUITY (DEFICIT) AND STOCK-BASED COMPENSATION

Common Stock

In January 2011, the Company issued 151,515 shares of its common stock for an aggregate purchase price of $500,000 in connection with an amendment to a strategic partnership (see Note 3, Significant Transactions - Sigma Tau).

In May 2011, the Company’s stockholders approved an amendment to Dyax’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock to 200,000,000 shares.

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 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 generally 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. The Equity Plan is intended to attract and retain employees and to provide an incentive for employees, consultants and directors to assist the Company to achieve long-range performance goals and to enable them to participate in the long-term growth of the Company.  At September 30, 2011, a total of 3,389,540 shares were available for future grants under the Equity Plan.

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 for the three and nine months ended September 30, 2011 was approximately $8,000 and $32,000, respectively, and $16,000 and $47,000, respectively, for the three and nine months ended September 30, 2010.  There were 87,188 and 99,934 shares purchased under the Plan during the nine months ended September 30, 2011 and 2010, respectively. At September 30, 2011, a total of 506,892 shares were reserved and available for issuance under this Plan.

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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 is 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, during the three and nine months ended September 30, 2011 and 2010 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Compensation expense related to:
Equity Incentive Plan	$	883	$	955	$	3,078	$	2,888
Employee Stock Purchase Plan		8		16		32		47
	$	891	$	971	$	3,110	$	2,935
Stock-based compensation expense charged to:
Research and development expenses	$	273	$	348	$	896	$	1,066
Selling, general and administrative expenses	$	618	$	623	$	2,214	$	1,869

Stock-based compensation of $18,000 and $25,000 was capitalized into inventory for the nine months ended September 30, 2011 and 2010, respectively.  Capitalized stock-based compensation is recognized into cost of product sales when the related product is sold.

10. INCOME TAXES

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using future expected enacted rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized.  At December 31, 2010, we had $1.8 million of net operating losses, which were attributable to deductions from the exercise of equity awards. 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, the Company's management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, and has determined that it is not "more likely than not" that the Company will recognize the benefits of the deferred tax assets.  Accordingly, a valuation allowance of approximately $187.7 million was in place at December 31, 2010.

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. As of September 30, 2011, the Company had no unrecognized tax benefits.

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The tax years 1996 through 2010 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the United States, as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period.  The Company is currently not under examination in any jurisdictions for any tax years.

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 about:

●   the potential benefits and commercial potential of KALBITOR (ecallantide) for its approved indication and any additional indications;

●   our commercialization of KALBITOR, including revenues and cost of product sales;

●   the potential for market approval for KALBITOR in the EU, Japan and other markets outside the United States;

●   plans and anticipated timing for pursuing additional indications and uses for ecallantide;

●   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;

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

●   expected future revenues and operating results, including our financial guidance for 2011 and later periods.

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. However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission.

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BUSINESS OVERVIEW

We are a biopharmaceutical company focused on the discovery, development and commercialization of novel biotherapeutics for unmet medical needs.  We currently have three major business components:

●   KALBITOR and the Ecallantide Franchise

We commercialize KALBITOR(ecallantide) on our own in the United States for treatment of acute attacks of HAE and are also developing KALBITOR for use in other indications.  Outside of the United States, we have established partnerships to obtain regulatory approval for and commercialize KALBITOR in other major markets and are evaluating opportunities in additional territories.

●   Phage Display Licensing and Funded Research Program

We leverage our proprietary phage display technology through our Licensing and Funded Research Program, or LFRP.  This program has resulted in a portfolio of product candidates being developed by our licensees, which currently includes 17 product candidates in clinical development.  The LFRP generated $26 million in revenue in 2010, and to the extent that one or more of these product candidates are commercialized according to published timelines, milestone and royalty revenues under the LFRP are expected to experience significant growth over the next several years.

●   Dyax Pipeline

We use our phage display technology to identify new drug candidates for our preclinical pipeline.

KALBITOR AND THE ECALLANTIDE FRANCHISE

Using our phage display technology, we developed ecallantide, a compound shown in vitro to be a high affinity, high specificity inhibitor of human plasma kallikrein. Plasma kallikrein, an enzyme found in blood, is believed to be a key component in the regulation of inflammation and contact activation pathways. Excess plasma kallikrein activity is thought to play a role in a number of inflammatory diseases, including HAE.

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 between 1 in 10,000 to 1 in 50,000 people around the world. HAE patient association registries estimate there is an immediately addressable target population of approximately 6,000 patients in the United States.

In February 2010, we began commercializing KALBITOR in the United States for treatment of acute attacks of HAE in patients 16 years of age and older.  We are commercializing KALBITOR on our own in the United States.  Working through corporate partners, we intend to seek approval for and commercialize KALBITOR for HAE and other angioedema indications in markets outside of the United States.  We have entered into agreements to develop and commercialize subcutaneous ecallantide for the treatment of HAE and other therapeutic indications throughout Europe, Japan, Australia, New Zealand and other countries in Asia, North Africa, the Middle East, Latin America and the Caribbean.

We are also exploring the use of ecallantide for the treatment of drug-induced angioedema, a life threatening inflammatory response brought on by adverse reactions to angiotensin-converting enzyme (ACE) inhibitors. We filed an Investigational New Drug application (IND) for this indication with the United States Food and Drug Administration (FDA) and in August 2011, we commenced patient treatments in this dose-ranging Phase 2 clinical study.  In addition, we have licensed ecallantide for development through a collaboration with Fovea Pharmaceuticals SA, a subsidiary of sanofi-aventis, for treatment of retinal diseases.

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KALBITOR

In December 2009, ecallantide was approved by the FDA under the brand name KALBITOR for treatment of HAE in patients 16 years of age and older regardless of anatomic location. KALBITOR, a potent, selective and reversible plasma kallikrein inhibitor discovered and developed by us, is the first subcutaneous HAE treatment approved in the United States.
 

As part of product approval, we have established a Risk Evaluation and Mitigation Strategy (REMS) program to communicate the risk of anaphylaxis and the importance of distinguishing between hypersensitivity reaction and HAE attack symptoms. To communicate these risks, the REMS requires a communication plan which consists of a "Dear Healthcare Professional" letter to be provided to doctors identified as likely to prescribe KALBITOR and treat HAE patients.

In February 2010, we also initiated a 4-year Phase 4 observational study which will be conducted with 200 HAE patients to evaluate immunogenicity and hypersensitivity with exposure to KALBITOR for treatment of acute attacks of HAE. The study is designed to identify predictive risk factors and develop effective screening tools to mitigate the risk of hypersensitivity and anaphylaxis.

United States Sales and Marketing

We have established a commercial organization to support sales of KALBITOR in the United States. We believe that a field-based team of approximately 25 professionals, consisting of sales representatives and corporate account directors, is appropriate to effectively market KALBITOR in the United States at this time, where patients are treated primarily by a limited number of specialty physicians, consisting mainly of allergists and immunologists.

KALBITOR Access®

In furtherance of our efforts to facilitate access to KALBITOR in the United States, we have created the KALBITOR Access program, designed as a one-stop point of contact for information about KALBITOR, which offers treatment support service 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 distributed through exclusive wholesale and co-exclusive specialty pharmacy arrangements.

We have agreements with two wholly-owned subsidiaries of AmerisourceBergen Specialty Group, Inc. (ABSG) for the distribution of KALBITOR:

●   US Bioservices Corporation (US Bio), serves as a specialty pharmacy for KALBITOR and also administers KALBITOR Access, which provides comprehensive call center services for patients and healthcare providers seeking information and access to KALBITOR; and

●   ASD Specialty Healthcare Inc. (ASD), serves as a wholesale distributor for KALBITOR to treating hospitals in the United States.

These agreements have a term through November 2012 and each contains customary termination provisions and may be terminated by us for any reason upon six months prior written notice.

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In August 2011, we expanded our distribution network to provide home infusion of KALBITOR through a specialty pharmacy arrangement with Walgreens Infusion Services, Inc. (Walgreens).   Under this renewable one-year agreement, Walgreens will provide eligible HAE patients with on-demand nursing services for the home administration of KALBITOR by a healthcare professional, as well as treatment at Walgreens’ infusion centers.

Ecallantide for Treatment of Other Angioedemas

In addition to its approved commercial use, we are also developing ecallantide in other angioedema indications.  One form of angioedema is induced by the use of so-called ACE inhibitors.  With an estimated 51 million prescriptions written annually worldwide, ACE inhibitors are widely prescribed to reduce ACE and generally reduce high blood pressure and vascular constriction.  It is estimated that up to 2% of patients treated with ACE inhibitors suffer from angioedema attacks, which represents approximately 30% of all angioedemas treated in emergency rooms.  Research suggests the use of ACE inhibitors increases levels of bradykinin, a protein that causes blood vessels to enlarge, or dilate, which can also cause the swelling known as angioedema. As a specific inhibitor of plasma kallikrein, an enzyme needed to produce bradykinin, ecallantide has the potential to be effective for treating this condition.  We filed an IND for a placebo-controlled, dose–ranging Phase 2 clinical study for this indication and, in August 2011, we commenced patient treatments in this clinical study.  Data from this trial is expected in the second half of 2012.

Ecallantide for Ophthalmic Indications

We entered into a license agreement in 2009 with Fovea Pharmaceuticals SA, a subsidiary of sanofi-aventis, for the development of ecallantide in the EU for treatment of retinal diseases. Under this agreement, Fovea will fully fund development for the first indication, retinal vein occlusion-induced macular edema.  In September 2011, Fovea voluntarily suspended their ongoing Phase 1 clinical study for this indication, due to adverse changes observed in the eyes of certain monkeys exposed to ecallantide.  Fovea is performing additional non-clinical investigations.  Review of the full data set is expected to be completed at the end of 2011, at which time Fovea will make a decision as to next steps for this trial.

Under the license agreement, we are entitled to receive tiered royalties, ranging from the high teens to mid-twenties, based on sales of ecallantide by Fovea in the EU.  If we elect to commercialize ecallantide in this indication outside of the EU, Fovea will be entitled to receive royalties from us, ranging from the low to mid-teens, based on our sales of ecallantide outside the EU. The term of the agreement continues until the expiration of the licensed patents or, if later, the eleventh anniversary of the first commercial sale of ecallantide in an ophthalmic indication. The agreement may be terminated by Fovea on prior notice to us and by either party for cause.

Higher Strength Ecallantide Formulation

We are currently in the process of developing a one milliliter higher strength formulation of ecallantide, which may provide an even more convenient administration to patients.  This program is designed to allow for a single-shot dose of KALBITOR to be used in a commercial setting, which would be a product improvement over the current three-shot formulation.  Under our development timeline, we expect to commence a bioequivalence study in the fourth quarter of 2011.

Manufacturing

In connection with the commercial launch of KALBITOR in the United States, we have established a commercial supply chain, consisting of single-source third party suppliers to manufacture, test and distribute this product. All third party manufacturers involved in the KALBITOR manufacturing process are required to comply with current good manufacturing practices, or cGMPs.

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To date, ecallantide drug substance used in the production of KALBITOR has been manufactured in the United Kingdom by Fujifilm Diosynth Biotechnologies (UK) Ltd., formerly known as MSD Biologics Limited, (Fujifilm).  Our inventories are sufficient to supply all ongoing studies relating to ecallantide and KALBITOR and to meet anticipated market demand into 2014. Under existing arrangements with Fujifilm, they have agreed to conduct additional manufacturing campaigns, as necessary, to supplement existing inventory.

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 Hollister-Steir at its facilities in Spokane, Washington under a commercial supply agreement. This process, known in the industry as the "fill and finish" process, is not unique to KALBITOR and alternative manufacturers are readily available in the event that we elect, or are required, to relocate the "fill and finish" process.  KALBITOR in its "filled and finished" form has additional refrigerated shelf-life of three years.

Ecallantide Outside of the United States

In markets outside of the United States, we intend to seek approval and commercialize ecallantide for HAE and other angioedema indications in conjunction with multiple partners by entering into license or collaboration agreements with companies that have established distribution systems and direct sales forces in such territories.

In June 2010, we entered into a strategic partnership agreement with Sigma-Tau to develop and commercialize subcutaneous ecallantide for the treatment of HAE and other therapeutic indications throughout Europe, North Africa, the Middle East and Russia.  Under the terms of the agreement, Sigma-Tau made a $2.5 million upfront payment to us and also purchased 636,132 shares of our common stock at a price of $3.93 per share, which represented a 50% premium over the 20-day average closing price through June 17, 2010, for an aggregate purchase price of $2.5 million.  We will also be eligible to receive over $100 million in development and sales milestones related to ecallantide and royalties equal to 41% of net sales of product.  Sigma-Tau will pay the costs associated with regulatory approval and commercialization in the licensed territories.  In addition, we and Sigma-Tau will share equally the costs for all development activities for future indications developed in partnership with Sigma-Tau.

The Marketing Authorization Application (MAA) was submitted in May 2010 to the European Medicines Agency (EMA) for ecallantide for the treatment of HAE in the European Union (EU).    In June 2011 we received the Day 180 consolidated list of questions from the EMA and in October 2011, we and Sigma-Tau took part in an Oral Explanation to the Committee for Medicinal Products for Human Use (CHMP), to discuss our submission. We anticipate a CHMP opinion by end of November 2011.  If approved, KALBITOR will receive marketing authorization in 27 EU member states.

In December 2010, we amended our agreement with Sigma-Tau to expand our collaboration to commercialize KALBITOR for the treatment of HAE in Australia and New Zealand.  Under the terms of the amendment, in January 2011, Sigma-Tau made a $500,000 upfront payment to us and also purchased 151,515 shares of our common stock at a price of $3.30 per share, which represented a 50% premium over the 20-day average closing price through December 20, 2010, for an aggregate purchase price of $500,000.  We will also be eligible to receive up to $2 million in regulatory and commercialization milestones and royalties equal to 41% of net sales of product, as adjusted for product costs.

In May 2011, we further amended our agreement with Sigma-Tau to expand our collaboration to commercialize KALBITOR for the treatment of HAE in Southeast Asia and Latin America (excluding Mexico), and the Caribbean.  Under the terms of the second amendment, Sigma-Tau will pay us an additional $7.0 million in upfront fees during 2011, of which $4.0 million was received in July 2011.  In addition, we are eligible to receive up to $10.0 million in regulatory, approval and reimbursement milestones and royalties equal to 41% of net sales of product, as adjusted for product costs, in the additional territories.

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Sigma-Tau will pay the costs associated with regulatory approval and commercialization in all licensed territories.

In September 2010, we entered in 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, we received a $4.0 million upfront payment.  We will also be eligible to receive up to $102 million in development and sales milestones for ecallantide in HAE and other angioedema indications and royalties of 20%-24% of net product sales. CMIC is solely responsible for all costs associated with development, regulatory activities, and commercialization of ecallantide for all angioedema indications in Japan. CMIC will purchase drug product from us on a cost-plus basis for clinical and commercial supply.

CMIC has a clinical development plan that was established in consultation with the Japanese regulatory authorities under which they will commence clinical studies in Japan during 2012.  Under CMIC’s development timeline, approval to commercialize subcutaneous ecallantide for the treatment of HAE in Japan would be received in 2014.

We have also entered into an agreement with Neopharm Scientific Ltd., (Neopharm) to obtain regulatory approval and commercialize ecallantide for HAE and other angioedema indications in Israel. Under the terms of the agreement, we will provide Neopharm drug supply at a price equal to 50% of net sales.  In June 2011, Neopharm received a commercial registration license from the Israeli Ministry of Health.  Reimbursement approval is currently pending.

Other than the specific licenses granted to Sigma-Tau, CMIC and Neopharm, as described above, we retain the rights to ecallantide in all other territories.

LICENSING AND FUNDED RESEARCH PROGRAM

LFRP Product Development

We believe that our phage display libraries, which have been developed using our core technology and know-how, represent the "gold standard" for therapeutic discovery.  We leverage our proprietary phage display technology and libraries through our LFRP licenses and collaborations.  This program currently generates significant revenues and has the potential for substantially greater revenues if and when product candidates that are discovered by our licensees receive marketing approval and are commercialized.   We have approximately 75 ongoing LFRP license agreements.  Currently, 17 product candidates generated by our licensees or collaborators under the LFRP portfolio are in clinical development, four of which are in Phase 3, four are in Phase 2 and nine are in Phase 1 trials.  In addition, one product has received market approval from the FDA.  Furthermore, we estimate that our licensees and collaborators have over 70 additional product candidates in various stages of research and preclinical development.  Our licensees and collaborators are responsible for all costs associated with development of these product candidates.  We will receive milestones and/or royalties from our licensees and collaborators to the extent these product candidates advance in development and are ultimately commercialized.

The chart below provides a summary of the clinical stage product candidates under the LFRP.

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Generally, under the terms of our LFRP licenses, we are entitled to receive royalties on commercial sales of products for at least ten years after initial commercialization. To the extent that the product candidates in the chart above receive marketing approval and are commercialized according to published timelines, we expect to receive royalties from commercial sales beginning in 2014.  Furthermore, based upon our own analysis as to the probability of receiving marketing approval and the large markets being addressed, our long term plan includes estimates of annual revenues under the LFRP of more than $70 million by 2016. In addition, several of our LFRP collaborations provide us access to co-develop and/or co-promote drug candidates identified by other biopharmaceutical and pharmaceutical companies.

To date, we have received more than $150 million under the LFRP, primarily related to license fees and milestones.  In 2010, we recognized approximately $26 million of LFRP revenues, including an $11.3 million buy-out of one royalty obligation for Xyntha®.  We expect revenues under the LFRP to grow over time as more products advance through clinical development.

In addition, under a loan arrangement with Cowen Healthcare, we obtained $65 million in debt funding, secured exclusively by the LFRP.  This debt, which has a principal balance of $56.7 million as of September 30, 2011, is being repaid from a portion of LFRP receipts, is required to be repaid in full by 2016, and may be prepaid without penalty in August 2012.

Currently, the types of licenses and collaborations that we enter into have one of three distinct structures:

●   Library Licenses. Under our library license program, we grant our licensees rights to use our phage display libraries in connection with their internal therapeutic development programs.  We also provide these licensees with related materials and training so that they may rapidly identify compounds that bind with high affinity to therapeutic targets.  The period during which our licensees may use our libraries is typically limited to a 4 to 5 year term.  Library license agreements contain significant up-front license fees, annual maintenance fees, milestone payments based on successful product development, and royalties based on any future product sales.  We have approximately 20 library licensees including Amgen, Aveo, Bayer Schering, Biogen Idec, Boehringer Ingelheim, CSL, ImClone Systems (a wholly-owned subsidiary of Eli Lilly), Merck Serono, Novo Nordisk, sanofi-aventis and Trubion (now known as Emergent BioSolutions).

●   Funded Research. Under our funded research program, we perform funded research for various collaborators using our phage display technology to identify, characterize and optimize antibodies that bind to disease targets provided by the collaborators.  Our funded research collaborators with products currently in development include Baxter Healthcare, Biogen Idec, Merck Serono, Merrimack, and Trubion (now known as Emergent BioSolutions).

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●   Patent Licenses. Under our patent license program, we grant other biopharmaceutical and pharmaceutical companies non-exclusive licenses to use our core phage display patents (known as the Ladner patents) to discover and develop biologic compounds for use in specified fields.  We generally grant licenses on a non-exclusive basis so that we may retain broad rights to practice our phage display technology in multiple fields.  Our license agreements generally provide for up-front license fees, annual maintenance fees, milestone payments based on successful product development, and royalties based on any future product sales for a period of ten years after commercialization of any resulting product.  In addition, under the terms of our license agreements, most licensees have agreed not to sue us for using phage display improvement patents which they developed and some have granted us specific access to certain phage-display technologies which they have developed or which they control.  We believe that these provisions allow us to practice enhancements to phage display developed by our licensees.  We currently have approximately 45 patent licensees worldwide.  Once the Ladner patents expire in 2012, we will no longer be entering into additional patent license agreements.

We expect to continue to enter into licenses and collaborations that are designed to maximize the strategic value of our proprietary phage display technology.

DYAX PIPELINE

We are also developing a pipeline of drug candidates using our phage display technology. We use phage display to identify antibody, small protein and peptide compounds with therapeutic potential for development in our own internal programs.  These preclinical drug candidates may be developed independently or through strategic partnerships with other biotechnology and pharmaceutical companies.  Although we will continue to seek to retain ownership and control of our internally discovered drug candidates by taking them further into preclinical and clinical development, we will also partner certain candidates in order to balance the risks associated with drug discovery and maximize return for our stockholders.

We currently have several preclinical candidates in our internal pipeline generated from phage display technology.  Our goal is to file a new IND application every 24 months.  Candidates are targeted which have defined regulatory pathways and address meaningful market opportunities.

Results of Operations

Three Months Ended September 30, 2011 and 2010

Revenues.   Total revenues for the three months ended September 30, 2011 (the 2011 Quarter) were $10.1 million, compared with $7.0 million for the three months ended September 30, 2010 (the 2010 Quarter).

Our financial guidance for total revenue in 2011 is $50 - 52 million, including KALBITOR sales of $20 - $24 million. In addition, our long term plan is to achieve potential revenue growth in 2016 of $110 - $125 million for KALBITOR sales and LFRP revenue of $70 - $85 million.

Product Sales.  We began selling KALBITOR in the United States for treatment of acute attacks of HAE in patients 16 years of age and older in February 2010.  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, limited return rights and contractual limits on inventory levels, we anticipate that distributors will carry limited inventory.

We record product sales allowances and accruals related to trade prompt pay discounts, government rebates, a patient financial assistance program, product returns and other applicable allowances.  For the 2011 Quarter, product sales of KALBITOR were $6.6 million, net of product discounts and allowances of $334,000 compared with product sales of $2.6 million, net of product discounts and allowances of $144,000 during the 2010 Quarter.

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Development and License Fees.  We derive revenues from licensing, funded research and development fees, including milestone payments from our licensees and collaborators. This revenue fluctuates from quarter-to-quarter due to the timing of the clinical activities of our collaborators and licensees.  This revenue was $3.5 million in the 2011 Quarter and $4.3 million in the 2010 Quarter.

Cost of Product Sales.We incurred $260,000 of costs associated with product sales during the 2011 Quarter and $119,000 of costs associated with product sales during the 2010 Quarter.  These costs primarily include the cost of testing, filling, packaging and distributing the product, as well as a royalty due on net sales of KALBITOR.  Costs associated with the manufacture of KALBITOR prior to FDA approval were previously expensed when incurred, and therefore are not included in the cost of product sales during these periods.  The supply of KALBITOR produced prior to FDA approval is expected to meet anticipated commercial needs through early 2012.  When this supply has been fully depleted, we expect our costs of product sales will increase, reflecting the full manufacturing cost of KALBITOR.

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

	Three Months  Ended September 30,
	2011		2010
	(In thousands)
KALBITOR development costs	$	5,272		$	4,145
Other research and development expenses		2,556			3,397
LFRP pass-through license fees		831			398
Research and development expenses	$	8,659		$	7,940

Our research and development expenses arise primarily from compensation and other related costs for our personnel dedicated to research, development, medical and pharmacovigilence 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.  Costs associated with obtaining regulatory approval for the treatment of HAE in Europe, which are being reimbursed by Sigma-Tau, were $430,000 and $252,000 during the 2011 Quarter and 2010 Quarter, respectively.

Research and development expenses may increase in future periods, primarily due to clinical trial costs associated with our exploration of using ecallantide for the treatment of ACE-inhibitor-induced angioedema, including the Phase 2 clinical study that was initiated during 201l.  Until the Phase 2 clinical study is completed, we are not able to predict the future clinical costs that may be incurred for this indication.

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 2011 and 2010 Quarters were $8.8 million and $7.7 million, respectively.  Costs increased during the 2011 Quarter primarily due to the expansion of infrastructure to support KALBITOR commercial efforts.

Interest Expense.  Interest expense was $2.5 million in the 2011 Quarter compared to $2.6 million in 2010.  Interest expense under the Cowen Healthcare loan decreased due to principal payments made in the second quarter of 2011.

Nine Months Ended September 30, 2011 and 2010

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Revenues.   Total revenues for the nine months ended September 30, 2011 (the 2011 Period) were $40.2 million, compared with $42.1 million for the nine months ended September 30, 2010 (the 2010 Period).

Product Sales.  We began selling KALBITOR in the United States for treatment of acute attacks of HAE in patients 16 years of age and older in February 2010.  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, limited return rights and contractual limits on inventory levels, we anticipate that our distributors will carry limited inventory.

We record product sales allowances and accruals related to trade prompt pay discounts, government rebates, a patient financial assistance program, product returns and other applicable allowances.  For the 2011 Period, product sales of KALBITOR were $15.9 million, net of product discounts and allowances of $746,000 compared with product sales of $5.8 million, net of product discounts and allowances of $317,000 during the 2010 Period.

Development and License Fees.  We derive revenues from licensing, funded research and development fees, including milestone payments from our licensees and collaborators. This revenue fluctuates from quarter-to-quarter due to the timing of the clinical activities of our collaborators and licensees.  Development and license fee revenue was $24.3 million in the 2011 Period and $36.3 million in the 2010 Period. This 2011 change was due to $9.8 million in revenue recognized in the 2010 Period under the sale of rights to royalties and other payments related to the product Xyntha, which was developed by one of our licensees under the LFRP, and $13.8 million of previously deferred revenue associated with the Cubist license, which was fully recognized during the 2010 Period based upon Cubist’s announcement to end its DX-88 development program.  The absence of these revenues in the 2011 Period was partially offset by $12.2 million recognized in the 2011 Period in connection with our amended agreement with Sigma-Tau.   

Cost of Product Sales.We incurred $781,000 of costs associated with product sales during the 2011 Period and $247,000 of costs associated with product sales during the 2010 Period.  These costs primarily include the cost of testing, filling, packaging and distributing the product, as well as a royalty due on net sales of KALBITOR.  Costs associated with the manufacture of KALBITOR prior to FDA approval were previously expensed when incurred, and therefore are not included in the cost of product sales during these periods.  The supply of KALBITOR produced prior to FDA approval is expected to meet anticipated commercial needs through early 2012.  When this supply has been fully depleted, we expect our costs of product sales will increase, reflecting the full manufacturing cost of KALBITOR.

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

	Nine Months Ended September 30,
	2011		2010
	(In thousands)
KALBITOR development costs	$	15,692		$	12,736
Other research and development expenses		8,266			9,073
LFRP pass-through license fees		2,280			1,934
Research and development expenses	$	26,238		$	23,743

Our research and development expenses arise primarily from compensation and other related costs for our personnel dedicated to research, development, medical and pharmacovigilence 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.  In addition, costs associated with obtaining regulatory approval for the treatment of HAE in Europe, which are being reimbursed by Sigma-Tau, were $1.8 million and $420,000 during the 2011 Period and 2010 Period, respectively.

Research and development expenses may increase in future periods, primarily due to clinical trial costs associated with our exploration of using ecallantide for the treatment of ACE-inhibitor-induced angioedema, including the Phase 2 clinical study that was initiated during 2011.  Until the Phase 2 clinical study is completed, we are not able to predict the future clinical costs that may be incurred for this indication.

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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 2011 and 2010 Periods were $27.1 million and $24.6 million, respectively.  Costs increased during the 2011 Period primarily due to the expansion of infrastructure to support KALBITOR commercial efforts.

Interest Expense.  Interest expense was $7.7 million in the 2011 Period compared to $9.2 million in 2010.  This decrease is primarily due to additional interest expense in the 2010 Period of approximately $1.3 million for payments due under the Cowen Healthcare loan in connection with the sale of our rights to royalties and other payments related to the Xyntha product.

Liquidity and Capital Resources

	September 30, 2011		December 31, 2010
	(in thousands)
Cash and cash equivalents	$	15,281	$	18,601
Short-term investments		33,093		58,783
Total cash, cash equivalents and investments	$	48,374	$	77,384

The following table summarizes our cash flow activity for the nine months ended September 30, 2011 and 2010 (in thousands):

	Nine Months Ended September 30,
	2011			2010
Net cash used in operating activities	$	(27,285	)	$	(24,262	)
Net cash provided by (used in) investing activities		25,067			(31,115	)
Net cash provided by (used in) financing activities		(1,102	)		58,783
Net increase (decrease) in cash and cash equivalents		(3,320	)	$	3,406

We require cash to fund our operating activities, manufacture inventory, make capital expenditures, acquisitions and investments, and service debt.  Through September 30, 2011, we have funded our operations principally through the sale of equity securities, which have provided aggregate net cash proceeds since inception of approximately $397 million.  We have also borrowed funds under our loan agreement with Cowen Healthcare, which are 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.

Our long term plan is to achieve cash-flow breakeven during 2013.

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Operating Activities

The principal use of cash in our operations was to fund our net loss, which was $21.1 million during the 2011 Period.  Of this net loss, certain costs were non-cash charges, such as non-cash interest expense of $1.6 million, depreciation and amortization costs of $1.2 million and stock-based compensation expense of $3.1 million.  In addition to non-cash charges, we also had net cash out flow due to changes in other operating assets and liabilities, including an increase in inventory of $5.1 million, an increase in accounts receivable of $1.5 million and a decrease in deferred revenue of $4.0 million.  

The principal use of cash in our operations was to fund our net loss, which was $15.6 million during the 2010 period.  Of this net loss, certain costs were non-cash charges, such as depreciation and amortization costs of $1.2 million and stock-based compensation expense of $2.9 million.  In addition to non-cash charges, we also had a net change in other operating assets and liabilities of $14.0 million, including a decrease in accounts payable and accrued expenses of $4.1 million, a decrease in accounts receivable of $937,000, and a decrease in deferred revenue of $9.4 million.  The change in deferred revenue is primarily due to the recognition of $13.8 million of revenue associated with Cubist’s announced termination of its ecallantide development program.

Investing Activities

Our investing activities for the 2011 Period primarily consisted of investment maturities of $28.5 million, partially offset by $3.0 million in investment purchases.  Additionally, we had an increase of $178,000 in restricted cash primarily due to a new $1.1 million letter of credit under our new lease in Burlington, Massachusetts, partially offset by the contractual reduction of the letter of credit that serves as our security deposit for the lease of our facility in Cambridge, Massachusetts.

In July, 2011, we entered into a lease agreement for new premises located in Burlington, Massachusetts.  The premises, consisting of approximately 44,500 rentable square feet of office and laboratory facilities, will be used as our principal offices and corporate headquarters.  We intend to relocate all of our operations presently conducted in Cambridge, Massachusetts to the new facility in January 2012.  The term of the new lease is ten years, and we have 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.  We have provided the landlord a letter of credit of $1.1 million to secure our obligations under the lease.  The landlord has provided us with a tenant improvement allowance of approximately $1.9 million and an additional tenant improvement loan option of up to $668,000. Net of the tenant improvement allowance and loan, we expect to incur approximately $1.3 million of tenant improvements for the new premises through the first quarter of 2012.

In connection with this relocation, we have exercised our right to terminate the lease agreement for our current headquarters in Cambridge, Massachusetts to coincide approximately with the commencement of the new lease.

Our investing activities for the 2010 Period primarily consisted of the purchase of investments totaling of approximately $53.7 million, offset by investment maturities of $22.0 million, as well as a decrease of $700,000 in restricted cash from the contractual reduction of the letter of credit that serves as our security deposit for the lease of our facility in Cambridge, Massachusetts.

Financing Activities

Our financing activities for the 2011 Period consisted of net proceeds of $323,000 from the sale of 151,515 shares of our common stock, as well as repayments of long-term debt totaling $1.6 million including $1.1 million to Cowen Healthcare.

Our financing activities for the 2010 Period consisted of net proceeds of $61.1 million from the sale of 20,186,132 shares of our common stock, as well as repayments of long-term debt totaling $2.6 million, including $1.9 million to Cowen Healthcare.

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We expect to continue to manage our cash requirements by completing additional partnerships, collaborations, and financial and strategic transactions.  We expect that existing cash, cash equivalents, and short-term investments together with anticipated cash flow from existing development, collaborations and license agreements and product sales of KALBITOR will be sufficient to support our current operations through 2012.  We will need additional funds if our cash requirements exceed our current expectations or if we generate less revenue than we expect during this period.

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, 2010, 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 nine months ended September 30, 2011.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

In our Annual Report on Form 10-K for the year ended December 31, 2010, our critical accounting policies and estimates were identified as those relating to revenue recognition, allowance for doubtful accounts, share-based compensation,  valuation of long-lived assets and deferred tax assets.  With the exception of revenue recognition polices for multiple deliverable arrangements which were revised in 2011 to comply with amended accounting guidance, there have been no material changes to our critical accounting policies from the information provided in our 2010 Annual Report on Form 10-K.

Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk consists primarily of our cash and cash equivalents and short-term investments. We place our investments in high-quality financial instruments, primarily U.S. Treasury notes and bills, which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. As of September 30, 2011, we had cash, cash equivalents and investments of approximately $48.4 million. Our investments will decline by an immaterial amount if market interest rates increase, and therefore, our exposure to interest rate changes is immaterial. Declines of interest rates over time will, however, reduce our interest income from our investments.

As of September 30, 2011, we had $56.8 million of principal outstanding under short-term and long-term obligations, including our note payable. 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.

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Item 4 - CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during our fiscal quarter ended September 30, 2011 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 significant additional net losses and may never achieve or sustain profitability.

We have incurred net losses on an annual basis since our inception.  As of September 30, 2011 we had an accumulated deficit of approximately $463.4 million.  We expect to incur additional net losses in 2011 and 2012 as our research, development, preclinical testing, clinical trial and commercial activities continue.

We have generated minimal revenue from product sales to date, and it is possible that we will never have significant product sales revenue.  Currently, we generate a significant amount of our revenue from collaborators through license and milestone fees, research and development funding, and maintenance fees that we receive in connection with the licensing of our phage display technology.  To become profitable, we, alone or with our collaborators, must either generate higher product sales from the commercialization of KALBITOR or increase licensing receipts under our LFRP.  It is possible that we will never have sufficient product sales revenue or receive sufficient royalties on our licensed product candidates or licensed technology in order to achieve or sustain future profitability.

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We will 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 to commercialize KALBITOR and to develop and commercialize other product candidates.  Our future capital requirements will depend on many factors, including:
 

● future sales levels of KALBITOR and other commercial products and the profitability of such sales, if any;

● the timing and cost to develop, obtain regulatory approvals for and commercialize our pipeline products;

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

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

● our decision to manufacture, or have third parties manufacture, the materials used in KALBITOR and other pipeline products;

● competing technological and market developments;

● the progress of our drug discovery and development programs;

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

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

● the overall condition of the financial markets.

We expect that 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 through 2012. We will need additional funds if our cash requirements exceed our current expectations or if we generate less revenue than we expect.

We may seek additional funding through collaborative arrangements, and 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 and if we are unable to obtain funding on a timely basis, we may be required to curtail significantly our research, development or commercialization programs which could adversely affect our business prospects.

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:

● the amount of future sales of KALBITOR and related costs to commercialize the product;

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

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● the establishment of new collaboration and licensing arrangements;

● the timing and results of clinical trials, including a failure to receive the required regulatory approvals to commercialize our product candidates;

● the timing, receipt and amount of payments, if any, from current and prospective collaborators, including the completion of certain milestones; and

● revenue recognition and other accepted accounting policies.

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 depend heavily on the success of our lead product, KALBITOR, which was approved in the United States for treatment of acute attacks of HAE in patients 16 years and older.

Our ability to generate product sales will depend on commercial success of KALBITOR in the United States and whether physicians, patients and healthcare payers view KALBITOR as therapeutically effective relative to cost.  We initiated the commercial launch of KALBITOR in the United States in February 2010.

The commercial success of KALBITOR and our ability to generate and increase product sales will depend on several factors, including the following:

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

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

● acceptance of KALBITOR in the medical community;

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

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

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

● competition from other products that treat HAE;

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

● our maintenance of commercial manufacturing capabilities through third-party manufacturers.

If we are unable to develop substantial 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.

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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 10,000 to 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 and the number of HAE patients in the United States may turn out to be lower than expected or may not otherwise utilize treatment with KALBITOR for all or any of their acute HAE attacks, all of which 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 significantly more expensive than traditional drug treatments and most patients require some form of third party insurance coverage 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 country specific governmental organizations, to defray the cost of KALBITOR.  If these entities refuse to provide coverage and reimbursement with respect to KALBITOR or determine to provide a lower 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 to control and reduce healthcare costs.  Government and other third-party payers are challenging the prices charged for healthcare products and increasingly limiting and attempting to limit both coverage and level of reimbursement for prescription drugs.

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

We may not be able to gain or maintain 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 gain or maintain market acceptance among physicians, patients, healthcare payers, and others.  Although we have received regulatory approval for KALBITOR in the United States, such approval does not guarantee future revenue.  We cannot predict whether physicians, other healthcare providers, government agencies or private insurers will determine that KALBITOR is safe and therapeutically effective relative to cost.  Medical doctors' willingness to prescribe, and patients' willingness to accept, KALBITOR depends on many factors, including prevalence and severity of adverse side effects in both clinical trials and commercial use, effectiveness of our marketing strategy and the pricing of KALBITOR, publicity concerning our products or competing products, HAE patient's ability to obtain and maintain third-party coverage or reimbursement, and availability of 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 achieve market acceptance, we may not be able to market and sell it successfully, which would limit our ability to generate revenue and 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 intense competition and rapid technological change.  New developments occur and are expected to continue to occur at a rapid pace.  Discoveries or commercial developments by our competitors may render some or all of our technologies, products or potential products obsolete or non-competitive.

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Our principal focus is on the development of human therapeutic products.  We plan to conduct research and development programs to develop and test product candidates and demonstrate to appropriate regulatory agencies that these products are safe and effective for therapeutic use in particular indications.  Therefore our principal competition going forward, as further described below, will be companies who either are already marketing products in those indications or are developing new products for those indications.  Many of our competitors have greater financial resources and experience than we do.

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

● CSL Behring— CSL Behring markets a plasma-derived C1-esterase inhibitor, known as Berinert®, which is administered intravenously. Berinert is approved in the US for the treatment of acute abdominal or facial attacks of HAE in adult and adolescent patients, and has orphan drug designation from the FDA. Berinert is also sold in Europe, Japan and several rest-of-world markets for the treatment of acute HAE attacks.  Additionally, CSL Behring completed a clinical trial evaluating subcutaneous administration of Berinert.

● ViroPharma Inc.— ViroPharma markets a plasma-derived C1-esterase inhibitor, known as Cinryze®, which is administered intravenously. 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. The therapeutic indication in Europe is for 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 approval also includes a self administration option for appropriately trained patients. ViroPharma has also completed a Phase 2 trial evaluating subcutaneous administration of Cinryze and in September 2011, announced the initiation of another Phase 2 trial using a new subcutaneous formulation that uses a proprietary drug delivery platform from Halozyme.

● Jerini AG/Shire plc— Jerini/Shire markets its bradykinin receptor antagonist, known as Firazyr® (icatibant), which is administered subcutaneously. Firazyr is approved in the US, Europe, and certain other countries. Firazyr is approved in these markets for the treatment of acute HAE attacks in adult patients.  The approval also includes a self-administration option. Firazyr has orphan drug designations from the FDA and in Europe.

● Pharming Group NV— Pharming markets Ruconest™ which is approved in the EU for the treatment of acute HAE attacks in adult patients.  Ruconest is a recombinant C1-esterase inhibitor, which is delivered intravenously.. In the US, Pharming's recombinant C1-esterase inhibitor is known as Rhucin®. In December 2010, Pharming and US partner Santarus announced the submission of a Biologics License Application (BLA) for Rhucin. In February 2011, the companies announced the receipt of a "refusal to file" letter in which the FDA indicated that the BLA was not sufficiently complete to enable a critical medical review. Also in February, the companies announced the initiation of a new Phase 3 trial.  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 market corticosteroid drugs, including the manufacturers of danazol, as well as companies developing plasma kallikrein inhibitors, including BioCryst.

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. Other companies that compete with us in the display technology space include BioInvent, Micromet, Xoma, Adimab and several others. Additional platforms 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 candidates with novel scaffolds that may possess similar properties to monoclonal antibodies.

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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.

In addition, we may experience competition from companies that have acquired or may acquire technology from universities and other research institutions.

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 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 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 restrictions on KALBITOR 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 are and will continue to be in compliance with all applicable laws and regulations. Failure to comply with the laws, including statutes and regulations, administered by the FDA or other agencies could result in:

● administrative and judicial sanctions, including warning letters;

● fines and other civil penalties;

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● withdrawal of a previously granted approval;

● interruption of production;

● operating restrictions;

● product recall or seizure; injunctions; and

● criminal prosecution.

The discovery of previously unknown problems with a product, including KALBITOR, or 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 for KALBITOR in the United States, our results of operations and business prospects will be materially harmed.

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

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

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

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

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

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

Some of these risks are unknown at this time.

We have tested KALBITOR in only a small number of patients.  As more patients begin to use KALBITOR, new risks and side effects may be discovered, and risks previously viewed as inconsequential could be determined to be significant.  Previously unknown risks and adverse effects of KALBITOR may also 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 physicians are permitted to use products for off-label uses.  In addition, we expect to study ecallantide in diseases other than HAE in controlled clinical settings, and expect independent investigators to do so as well.  In the event of any new risks or adverse effects discovered as new patients are treated for HAE, regulatory authorities may 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 also experience a significant drop in the potential sales of KALBITOR, 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.  In addition, 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.

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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 or may be 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.

Although we obtained regulatory approval of KALBITOR for treatment of acute attacks of HAE in patients 16 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 affect on our business prospects.

If we are unable to establish and maintain effective sales, marketing and distribution capabilities, or to 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 establish the capabilities to 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 establish and maintain our own capabilities or enter into and maintain any marketing or distribution agreements with third-party providers on acceptable terms, if at all.

In the United States, we sell KALBITOR to ABSG which provides a distribution network for KALBITOR, including a call center to support its commercialization, and to Walgreens which provides nursing services for home administration of KALBITOR.  Neither ABSG nor Walgreens set or determine demand for KALBITOR.  We expect our distribution arrangements to continue for the foreseeable future.  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, at some time 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 for the three-year term of the contract with ABSG and we also believe we can 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.

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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 building up and 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.

If we market KALBITOR in a manner that violates health care 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 on the one hand and prescribers, patients, purchasers and formulary managers on the other.  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, and 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 physicians are permitted to, based on their medical judgment, 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 for acute attacks of HAE in patients 16 years and older and provide promotional materials and training programs to physicians regarding the use of KALBITOR for this indication.  Although we believe our marketing, promotional materials and training programs for physicians 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 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, which 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.

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The majority of states also 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 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 that scrutiny.

In recent years, several states and localities, including California, the District of Columbia, Maine, Massachusetts, Minnesota, Nevada, New Mexico, Vermont, and West Virginia, have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, and file periodic reports with the state or make periodic public disclosures on sales, marketing, pricing, clinical trials, and other activities.  Similar legislation is being considered in other states.  Many of these requirements are new and uncertain, and the penalties for failure to comply with these requirements are unclear.  Nonetheless, although we have established compliance policies that comport with the Code of Interactions with Healthcare Providers adopted by Pharmaceutical Research Manufacturers of America (PhRMA Code) and the Office of Inspector General's (OIG) Compliance Program Guidance for Pharmaceutical Manufacturers,  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 adverse publicity.

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 required that we implement a REMS for KALBITOR and conduct post-marketing studies to assess a risk of hypersensitivity reactions, including anaphylaxis.  The REMS consists of a communication plan to healthcare providers.  The FDA and 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 is 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, which would limit our ability to generate product sales and adversely affect our results of operations and business prospects.

We rely on third-party manufacturers to produce our preclinical and clinical drug supplies and we intend to rely on third parties to produce commercial supplies of KALBITOR and 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 and clinical testing 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 facilities that are capable of producing material for preclinical and clinical studies and we cannot assure you that they will be able to supply sufficient clinical materials during the clinical development of our biopharmaceutical candidates.  Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including 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 any of our product candidates.

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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 will need to increase their scale of production or we will need to secure alternate suppliers.

We are dependent on a single contract manufacturer to produce drug substance for ecallantide, which may adversely affect our ability to commercialize KALBITOR and other potential ecallantide products.

We currently rely on Fujifilm to produce the bulk drug substance used in the manufacture of KALBITOR and other potential ecallantide products.  Our business, therefore, faces risks of difficulties with, and interruptions in, performance by Fujifilm, the occurrence of which could adversely impact the availability and/or sales of KALBITOR and other potential ecallantide products in the future.  The failure of Fujifilm 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 and other potential ecallantide products, could harm our relationships with our collaborators or customers and could negatively affect our revenues and operating results.  If the operations of Fujifilm are disrupted, we may be forced to secure alternative sources of supply, which may be unavailable on commercially acceptable terms, cause delays in our ability to deliver products to our customers, 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 or any other product previously granted to us and for other regulatory action, including recall or seizure, fines, imposition of operating restrictions, total or partial suspension of production or injunctions.

We do not currently have a long-term commercial supply agreement with Fujifilm for the production of ecallantide drug substance.  We are working to establish a long-term supply contract with Fujifilm.  However, we cannot guarantee that we will be able to enter into long-term supply contracts on commercially reasonable terms, or at all.  We believe that our supply of the ecallantide drug substance used to manufacture KALBITOR will be sufficient to supply all ongoing studies relating to ecallantide and KALBITOR and to meet anticipated market demand into 2014. These estimates are subject to changes in market conditions and other factors beyond our control.  If we are unable to execute a long-term supply agreement or otherwise secure a dependable source for drug substance before our inventory of ecallantide drug substance is exhausted, it could adversely affect our ability to further develop and commercialize KALBITOR and other potential ecallantide products, generate revenue from product sales, increase our costs and negatively affect our operating results.

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

In addition to KALBITOR, we are developing ecallantide in further indications and other potential biopharmaceutical products.  Before we can commercialize 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.  As a result of all of these factors, 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:

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

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

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

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

We lack experience in and/or capacity for conducting clinical trials and handling regulatory processes.  This lack of experience and/or capacity 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 have had and 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.

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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, and 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.  Currently, 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, and if obtained 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 produced greater scrutiny, which may lead to 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 a boxed warning or additional limitations on the use of products, 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 conducting research and development activities on our behalf have not complied with regulations in the research and development of a product candidate, 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 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 our product candidates in human clinical trials.

An individual may bring a product liability claim against us if KALBITOR or one of our product candidates causes, or merely appears to have caused, an injury.  Moreover, in some of our 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.

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These types of product liability claims may result in:

● decreased demand for KALBITOR and other product candidates;

● injury to our reputation;

● withdrawal of clinical trial volunteers;

● related litigation costs; and

● substantial monetary awards to plaintiffs.

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

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

Our business strategy includes leveraging certain product candidates, as well as 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 Cowen Healthcare, the relevant product candidates must advance through clinical trials, establish safety and efficacy, and achieve regulatory approvals, obtain market acceptance and generate revenues.

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

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

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

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

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

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

We cannot assure you that 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.

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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 prevent us from commercializing any of our products.

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

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

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

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

Patent rights relating to our phage display technology are central to our LFRP.  As part of our LFRP, we generally seek to negotiate license agreements with parties practicing technology covered by our patents.  In countries where we do not have and/or have not applied for phage display patent rights, we will be unable to prevent others from using phage display or developing or selling products or technologies derived using phage display.  In addition, in jurisdictions 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 inability to license or 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.  Also, 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.), CAT, 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.

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

In patent offices outside the United States, we may be forced to respond to third party challenges to our patents.  For example, our first phage display patent in Europe, European Patent No. 436,597, known as the 597 Patent, was ultimately revoked in 2002 in proceedings in the European Patent Office.  We are not able to prevent other parties from using certain aspects of our phage display technology in Europe.

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.

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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 Cowen Healthcare debt service obligations could adversely affect our financial condition and our loan agreement obligations could impair our operating flexibility.

We have a loan with Cowen Healthcare which has an aggregate principal balance of $56.7 million at September 30, 2011.  The loan bears interest at a rate of 16% per annum for Tranche A and 21.5% per annum for Tranche B payable quarterly, all of which matures in August 2016.  In connection with the loan, we have entered into a security agreement granting Cowen Healthcare a security interest in substantially all of the assets related to our LFRP.  We are required to repay the loan based on a percentage of LFRP related revenues, including royalties, milestones, and license fees received by us under 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.  We may prepay the loan in whole or in part at any time after August 2012.  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 loan may become due and payable at Cowen Healthcare's option, including a prepayment premium prior to August 2012.  We must comply with certain loan covenants which if not observed could make all loan principal, interest and all other amounts payable under the loan immediately due and payable.

Our obligations under the Cowen Healthcare agreement require that we dedicate a substantial portion of cash flow from our LFRP receipts to service the loan, which will reduce the amount of cash flow available for other purposes.  If the LFRP fails to generate sufficient receipts to fund quarterly principal and interest payments to Cowen, 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 loan are 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 Cowen Healthcare, 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 Cowen.  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 Cowen Healthcare 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, then we may not be able to develop our products or processes.

We are highly dependent on qualified scientific and management personnel, and we face intense competition from other companies and research and academic institutions for qualified personnel.  If we lose 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.

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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.

Our business is subject to risks associated with international contractors and exchange rate risk.

Since the closing of our European subsidiary operations in 2008, none of our business is conducted in currencies other than our reporting currency, the United States dollar.  We do, however, rely on an international contract manufacturer for the production of our drug substance for ecallantide.  We recognize foreign currency gains or losses arising from our transactions in the period in which we incur those gains or losses.  As a result, currency fluctuations among the United States dollar and the currencies in which we do business have caused foreign currency transaction gains and losses in the past and will likely do so in the future.  Because of the variability of currency exposures and the potential volatility of currency exchange rates, we may suffer significant foreign currency transaction losses in the future due to the effect of exchange rate fluctuations.

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

Keeping abreast of, and in compliance 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, have required an increased 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, and 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:

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

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

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

● the assumption of significant liabilities of acquired businesses.

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

53

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 October 26, 2011, 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:

● public announcements by us, our competitors or others;

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

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

● regulatory decisions in both the United States and abroad;

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

● issuance of new debt or equity securities;

● general market conditions and comments by securities analysts; and

● quarterly fluctuations in our revenues and financial results.

While we cannot predict the effect that these 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 and to determine the terms of those shares of stock without any further action by our stockholders.  If the board of directors exercises this power to issue preferred stock, it could be more difficult for a third party to acquire a majority of our outstanding voting stock.  Our charter also provides staggered terms for the members of our board of directors.  This may prevent stockholders from replacing the entire board in a single proxy contest, making it more difficult for a third party to acquire control of us without the consent of our board of directors.  Our equity incentive plans generally permit our board of directors to provide for acceleration of vesting of options granted under these plans in the event of certain transactions that result in a change of control.  If our board of directors used its authority to accelerate vesting of options, then this action could make an acquisition more costly, and it could prevent an acquisition from going forward.

54

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

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

Item 5 – OTHER INFORMATION OF THE FORM 10-Q:

On July 28, 2011 Dyax notified its landlord, ARE-Tech Square, LLC, that its lease dated as of June 13, 2001 for the property located at 300 Technology Square, Cambridge, Massachusetts would terminate on January 28, 2012 instead of at its stated term on February 29, 2012.

55

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†	Third Amendment dated as of July 8, 2011 to Distribution Agreement by and between the Company and US Bioservices Corporation.  Filed herewith.
10.2†	First Amendment dated as of August 25, 2011 to Distribution Agreement by and between the Company and ASD Specialty Healthcare Inc. Filed herewith.
10.3	Lease, dated as of July 14, 2011, by and between the Company and Netview 5 and 6 LLC.  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 September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2011 and 2010, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (iv) Notes to Consolidated Financial Statements, tagged as blocks of text.

†	This Exhibit has been filed separately with the Comission pursuant to an application for confidential treatment. The confidential portions of this Exhibit have been omitted and are marked by an asterisk.
**	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

56

DYAX CORP.

SIGNATURE

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

	DYAX CORP.
Date: November 3, 2011
	/s/George Migausky
	George Migausky Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

57

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†	Third Amendment dated as of July 8, 2011 to Distribution Agreement by and between the Company and US Bioservices Corporation.  Filed herewith.
10.2†	First Amendment dated as of August 25, 2011 to Distribution Agreement by and between the Company and ASD Specialty Healthcare Inc. Filed herewith.
10.3	Lease, dated as of July 14, 2011, by and between the Company and Netview 5 and 6 LLC.  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 September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2011 and 2010, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (iv) Notes to Consolidated Financial Statements, tagged as blocks of text.

†	This Exhibit has been filed separately with the Comission pursuant to an application for confidential treatment. The confidential portions of this Exhibit have been omitted and are marked by an asterisk.
**	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

58

EX-10.1

Dyax Corp. has requested that portions of this document be accorded confidential treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

Exhibit 10.1

CONFIDENTIAL DOCUMENT

EXECUTION COP

THIRD AMENDMENT TO

SERVICES AGREEMENT

(Specialty Pharmacy and Hub Services)

This Third Amendment to Services Agreement (this “Amendment”) is made and entered into as of July 8, 2011 (the “Amendment Effective Date”), by and between DYAX CORP. (“Dyax”) and US BIOSERVICES CORPORATION, on behalf of itself and its subsidiaries (“US Bio”).

WHEREAS, Dyax and US Bio entered into that certain Services Agreement, dated November 19, 2009, as amended on February 15, 2011 and May 31, 2011 (the “Agreement”), pursuant to which US Bio provides services to Dyax in connection with the product Kalbitor®; and

WHEREAS, pursuant to and in accordance with Section 17.5 of the Agreement, the parties desire to amend the Agreement to implement certain changes to the terms and conditions of the Agreement, as described below.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.           Defined Terms.

Any capitalized terms that are used in this Amendment but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.

1.           Amendments.

A.   Engagement.  Section 2.1 of the Agreement is hereby deleted in its entirety and replaced with the following language:

2.1  Engagement.  Upon the terms and conditions set forth herein, Dyax hereby engages US Bio on an exclusive basis during the Term (subject to Section 2.3(a) and Section 15.4), to (i) dispense and distribute Product to Specialty Pharmacy Customers for the Field in the Territory, and (ii) provide the Hub Services. US Bio hereby accepts such engagement and shall dispense and distribute Product to Specialty Pharmacy Customers in the Territory and provide the Hub Services in a professional and responsible manner and in accordance with the terms of this Agreement and all Applicable Laws.

B.   Exclusivity. The first sentence of Section 2.3(a) of the Agreement is deleted in its entirety and replaced with the following language:

(a)      The parties acknowledge and agree that as a result of the exclusive nature of the US Bio engagement, (i) subject to the immediately following sentence and Section 15.4, during the Term, Dyax shall not engage any party other than US Bio or its Affiliates to dispense and distribute Product to Specialty Pharmacy Customers for the Field in the Territory or perform the Hub Services, (ii) during the Term and for [*****] thereafter, US Bio shall not, and shall cause its Affiliates providing specialty pharmacy services not to, provide services substantially similar to the Hub Services (excluding the dispensing and sale of products) for any Competing Product, and (iii) during the Term and for [*****] thereafter, US Bio shall not promote any Competing Product (excluding the dispensing and sale of Competing Products and inclusion of Competing Products on a referral form).Notwithstanding the terms set forth in clause (i) of this Section 2.3(a), (A) if US Bio is unable to dispense Product to a particular Patient due to US Bio’s out-of-network status with, the Patient’s payer within [*****] (or such other time period as mutually agreed upon by the parties), Dyax shall have the right to allow access to Product for such Patient through another specialty pharmacy which purchases the Product for such Patient from US Bio’s Affiliate, ASD Healthcare;  and (B) in the event Dyax desires to have Product shipped to a Patient’s home for administration by a home health care provider in a home setting or at such home health care provider’s affiliated infusion center, Dyax shall have the right to distribute Product independent of US Bio and its Affiliates to designated specialty pharmacies(the “Designated SP”), provided that the home health care provider is owned by, or under common control with, the Designated SP and further provided that Dyax is responsible for ensuring that the Designated SP dispenses and sells Product only to patients for administration by the home health care provider in a home setting or at its affiliated infusion center.  Dyax shall ensure that (i) it has a written agreement in place with the Designated SP restricting Product sales consistent with the foregoing, and will audit Designated SP on a semi-annual basis to ensure that the Designated SP is only processing orders for Product intended for administration by a home health care provider owned by or under common control with the Designated SP in the patient’s home or at an affiliated infusion center.

Confidential materials omitted and filed separately with the Securities and Exchange Commission.  Asterisks denote such omission.

2.           No Other Amendments.

Except as expressly amended hereby, the Agreement, as originally executed and previously amended, remains in full force and effect.  It is agreed by the parties that all references to the Agreement hereafter made by them in any document or instrument delivered pursuant to or in connection with the Agreement shall be deemed to refer to the Agreement as amended hereby.

3.           Entire Agreement.

This Amendment and the Agreement embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter.

4.           Counterparts.

This Amendment may be executed in multiple counterparts, each of which will be considered an original, but which together will constitute one and the same document.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers or representatives as of the Amendment Effective Date.

US Bioservices Corporation		Dyax Corp.
By:	/s/ Craig Miller	By:	/s/ RJ Berard
Name:	Craig Miller	Name:	RJ Berard
Title:	President	Title:	VP, Commercial

Confidential materials omitted and filed separately with the Securities and Exchange Commission.  Asterisks denote such omission.

EX-10.2

Dyax Corp. has requested that portions of this document be accorded confidential treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

Exhibit 10.2

CONFIDENTIAL DOCUMENT

EXECUTION COPY

FIRST AMENDMENT TO

DISTRIBUTION SERVICES AGREEMENT

(Wholesale Distribution)

This First Amendment to the Distribution Services Agreement (this “Amendment”) is made and entered into as of August 25, 2011 (the “Amendment Effective Date”), by and between DYAX CORP. (“Dyax”) and ASD Specialty Healthcare, Inc. (“ASD”).

WHEREAS, Dyax and ASD entered into that certain Distribution Services Agreement, dated November 19, 2009 (the “Agreement”), pursuant to which ASD is to provide distribution services to Dyax in connection with the product Kalbitor®; and

WHEREAS, pursuant to and in accordance with Section 15.5 of the Agreement, the parties desire to amend the Agreement to implement certain changes to the terms and conditions of the Agreement, as described below.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.   Defined Terms.

Any capitalized terms that are used in this Amendment but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.

2.      Amendments.

A.   “Wholesale Customers” The parties agree that Section 1.12 of the Agreement shall be deleted in its entirety and replaced with the following language:

1.12 “Wholesale Customers” shall mean hospital, institutional and other pharmacies that purchase Product for their own account for later resale or dispense to Patients.  For the purpose of this Agreement “Wholesale Customer” shall also include physicians who purchase Product on a “buy and bill” basis.  For the avoidance of doubt, “Wholesale Customers” shall not include distributors, other wholesalers or specialty pharmacies, except that ASD may sell to(i) specialty pharmacies which Dyax and US Bio have agreed in writing are eligible to dispense Product to specific patients on a case by case basis, and (ii) the Designated SP, as that term is defined in Section 2.3(a) of the Services Agreement between Dyax and ASD’s Affiliate, US Bioservices Corporation.

B.   “Extended Terms Customers”. The parties agree that a new Section 1.13 shall be added to the Agreement which shall read in its entirety as follows:

1.13           “Extended Terms Customers” shall mean “buy and bill” physician Wholesale Customers which are eligible to purchase Product from Besse on extended payment terms in accordance with Section 3.6.  For the purposes of the forgoing, a “buy and bill” physician Wholesale Customer will be deemed eligible for extended payment terms if the customer does not accept ASD’s standard terms of sale and Dyax has approved account set-up and provided notice via Kalbitor Access to Besse.

Confidential materials omitted and filed separately with the Securities and Exchange Commission.  Asterisks denote such omission.

C.   “Reserved Rights”. The parties agree that section 2.4(iii)of the Agreement shall be deleted in its entirety and replaced with the following language:

(iii) offer for sale, sell or distribute Product to any person or entity other than a Wholesale Customer, including the Designated SP, as that term is defined in Section 2.3(a) of the Services Agreement between Dyax and ASD’s Affiliate, US Bioservices Corporation, either directly or through  its third party logistics provider, anywhere in the world.

D.   “Extended Payment Terms.” The Parties agree that a new Section 3.6 shall be added to the Agreement which shall read in its entirety as follows:

The parties agree that Besse Medical, a division of ASD Specialty Healthcare, Inc. (“Besse”) shall be authorized to purchase and distribute the Product to Extended Terms Customers in accordance with this Section 3.6.  Dyax appoints Besse as an ADR for the Product during the Term.

(a)    The Parties shall mutually agree upon a method to notify and obtain approval from Dyax as to whether the ordered Product will be sold by Besse to an Extended Terms Customer.

(b)   Besse shall ship the Product in accordance with the Product label to each Extended Terms Customer within one (1) business day of order receipt from the customer via UPS Next Day Air Service (standard air).  No additional freight fees will be billed to the Extended Terms Customer, except that the Extended Term Customer will be billed the incremental difference in the event that expedited shipping is requested.

(c)   Besse shall offer Extended Terms Customer extended invoice dating, with a length of time to pay mutually agreed upon by Besse and such Extended Terms Customer, which shall not be less than [*****].  Besse Medical shall not be obligated to pay the invoice(s) until the product(s) have been utilized and paid for, in full, by the physician office.  Besse will sell the Product to the physician office at a price [*****] at the time of order placement.

(d)   Besse will instruct the Extended Terms Customer that it will be expected to make payment for the Product as soon as the Product is utilized.  Besse Medical will work with its affiliate, US Bioservices Corporation, to determine the method of utilization notification.  Besse will re-invoice the customer at Net [*****] once notified that Product has been used.

(e)   Besse agrees to facilitate payment from each Extended Terms Customer.  If the Extended Terms Customer pays with a credit card, Besse will not charge the physician office for any credit card fees and will instead pass through any credit card fees to Dyax for reimbursement.

(f)   Dyax shall invoice Besse separately for each unit of Product that Besse indicates it will sell to an Extended Terms Customer.  All Dyax invoices for units of Product shall be due and payable by Besse within [*****] after receipt by Besse of payment in full for such unit of Product by such Extended Terms Customer, provided, however, if Besse pays such invoice within such [*****] after receipt of such payment, Besse shall be entitled to a [*****] prompt payment discount off of the invoice amount.  ASD shall not be entitled to the discount set forth in Section 3.2(b) of the Agreement for Product purchased and distributed through Besse.

Amendment to Services Agreement Page 2 of 4

Confidential materials omitted and filed separately with the Securities and Exchange Commission.  Asterisks denote such omission.

(g)   Besse Medical agrees to accept back the product from an Extended Terms Customer if it has not been used within [*****] of ship date to such Extended Terms Customer (or such other time period, as mutually agreed upon by Dyax and Besse) with no additional shipping charges.  If Product is returned unused by an Extended Terms Customer pursuant to the foregoing, Dyax agrees to allow Besse to return units that neither Besse nor the Extended Terms Customer has paid for at no cost.  Besse agrees to return the Product to Dyax at Besse’s expense.  Dyax agrees to pay Besse a [*****] handling fee per returned unit to cover labor, shipping and handling charges incurred by Besse during the applicable sale and return as well as the return back to Dyax.

(h)   Dyax shall allow Besse to exchange any Product unit returned to Besse by an Extended Terms Customer for any reason including, but not limited to, freight company errors or delays or perceived temperature excursions.

3.           No Other Amendments.

Except as expressly amended hereby, the Agreement, as originally executed remains in full force and effect.  It is agreed by the parties that all references to the Agreement hereafter made by them in any document or instrument delivered pursuant to or in connection with the Agreement shall be deemed to refer to the Agreement as amended hereby.

4.           Entire Agreement.

This Amendment and the Agreement embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to the subject matter.

5.           Counterparts.

This Amendment may be executed in multiple counterparts, each of which will be considered an original, but which together will constitute one and the same document.

Amendment to Services Agreement Page 3 of 4

Confidential materials omitted and filed separately with the Securities and Exchange Commission.  Asterisks denote such omission.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers or representatives as of the Amendment Effective Date.

ASD SPECIALTY HEALTHCARE, INC.		DYAX CORP.
By:	/s/ Chris B. Myers	By:	/s/ Ivana Magovčević-Liebisch
Name:	Chris B. Myers	Name:	Ivana Magovčević-Liebisch
Title:	COO	Title:	Executive VP, Chief Business Officer & General Counsel

Amendment to Services Agreement Page 4 of 4

Confidential materials omitted and filed separately with the Securities and Exchange Commission.  Asterisks denote such omission.

EX-10.3

Exhibit 10.3

NETWORK DRIVE AT NORTHWEST PARK

OFFICE LEASE

NETVIEW 5 AND 6 LLC

(AS LANDLORD)

AND

DYAX CORP

(AS TENANT)

FOR PREMISES AT

55 NETWORK DRIVE

BURLINGTON, MASSACHUSETTS

TABLE OF CONTENTS

TABLE OF CONTENTS			2
ARTICLE 1 REFERENCE DATA			4
1.1	SUBJECT REFERRED TO.		4
1.2	EXHIBITS.		5
ARTICLE 2 PREMISES AND TERM			6
2.1	PREMISES.		6
2.2	TERM.		6
2.3	EXTENSION OPTION.		6
ARTICLE 3 IMPROVEMENTS; TENANT'S WORK; ALLOWANCE.			8
3.1	PERFORMANCE OF WORK AND APPROVAL OF LANDLORD'S WORK.		8
3.2	TENANT'S WORK.		8
3.3	TI ALLOWANCE.		9
3.4	SUPPLEMENTAL ALLOWANCE.		9
3.5	ACCEPTANCE OF THE PREMISES.		10
3.6	PRE-COMMENCEMENT ENTRY.		10
ARTICLE 4 RENT			10
4.1	THE FIXED RENT.		10
4.1.1		Supplemental Rent.	10
4.2	ADDITIONAL RENT.		10
4.2.1		Real Estate Taxes.	10
4.2.2		Personal Property Taxes.	11
4.2.3		Operating Costs.	11
4.2.4		Insurance.	13
4.2.5		Utilities.	13
4.3	LATE PAYMENT OF RENT.		14
4.4	LETTER OF CREDIT.		14
4.4.1		Amount of Letter of Credit.	14
4.4.2		Renewal of Letter of Credit.	14
4.4.3		Draws to Cure Defaults.	15
4.4.4		Draws to Pay Damages.	15
4.4.5		Issuing Bank.	15
4.4.6		Draws for Failure to Deliver Substitute Letter of Credit.	15
4.4.7		Transferability.	15
4.4.8		Return of Letter of Credit at End of Term.	15
ARTICLE 5 LANDLORD'S COVENANTS			15
5.1	AFFIRMATIVE COVENANTS.		15
5.1.1		Heat and Air-Conditioning.	15
5.1.2		Electricity.	16
5.1.3		Laboratory Utilities.	16
5.1.4		Cleaning; Water.	16
5.1.5		Elevator; Fire Alarm.	16
5.1.6		Repairs.	16
5.1.7		Compliance with Laws.	16
5.2	INTERRUPTION.		17
5.3	OUTSIDE SERVICES.		17
5.4	ACCESS.		17
5.5	BUILDING AMENITIES.		17
5.6	REPRESENTATIONS.		17
5.7	INDEMNIFICATION.		17
ARTICLE 6 TENANT'S ADDITIONAL COVENANTS			18
6.1	AFFIRMATIVE COVENANTS.		18
6.1.1		Perform Obligations.	18
6.1.2		Use.	18
6.1.3		Repair and Maintenance.	18
6.1.4		Compliance with Law.	18
6.1.5		Indemnification.	18
6.1.6		Landlord's Right to Enter.	19
6.1.7		Personal Property at Tenant's Risk.	19
6.1.8		Payment of Landlord's Cost of Enforcement.	19
6.1.9		Yield Up.	19
6.1.10		Rules and Regulations.	20
6.1.11		Estoppel Certificate.	20
6.1.12		Landlord's Expenses Re Consents.	20
6.2	NEGATIVE COVENANTS.		20
6.2.1		Assignment and Subletting.	20
6.2.2		Nuisance.	21

6.2.3		Intentionally Omitted.	21
6.2.4		Floor Load; Heavy Equipment.	21
6.2.5		Installation, Alterations or Additions.	22
6.2.6		Abandonment.	22
6.2.7		Signs.	22
6.2.8		Parking and Storage.	22
ARTICLE 7 CASUALTY OR TAKING			22
7.1	TERMINATION.		22
7.2	RESTORATION.		23
7.3	AWARD.		23
ARTICLE 8 DEFAULTS			23
8.1	EVENTS OF DEFAULT.		23
8.2	REMEDIES.		24
8.3	REMEDIES CUMULATIVE.		24
8.4	LANDLORD'S RIGHT TO CURE DEFAULTS.		24
8.5	EFFECT OF WAIVERS OF DEFAULT.		24
8.6	NO WAIVER, ETC.		24
8.7	NO ACCORD AND SATISFACTION.		24
ARTICLE 9 RIGHTS OF MORTGAGE HOLDERS			24
9.1	RIGHTS OF MORTGAGE HOLDERS.		24
9.2	LEASE SUPERIOR OR SUBORDINATE TO MORTGAGES.		25
ARTICLE 10 HAZARDOUS MATERIALS			25
10.1	NO RELEASES OF HAZARDOUS MATERIALS.		25
10.2	NOTICES OF RELEASE OF HAZARDOUS MATERIALS.		25
10.3	LANDLORD'S RIGHT TO INSPECT.		26
10.4	LANDLORD'S RIGHT TO AUDIT.		26
10.5	TENANT AUDIT.		26
10.6	REMEDIATION.		26
10.7	TENANT'S REPORTING REQUIREMENTS; MANAGEMENT AND SAFETY PLAN.		26
10.8	INDEMNIFICATIONS.		26
ARTICLE 11 MISCELLANEOUS PROVISIONS			26
11.1	NOTICES FROM ONE PARTY TO THE OTHER.		26
11.2	QUIET ENJOYMENT.		26
11.3	LEASE NOT TO BE RECORDED.		27
11.4	LIMITATION OF LANDLORD'S LIABILITY.		27
11.5	FORCE MAJEURE.		27
11.6	LANDLORD'S DEFAULT.		27
11.7	BROKERAGE.		27
11.8	APPLICABLE LAW AND CONSTRUCTION; MERGER; JURY TRIAL.		27
11.9	CONSENTS.		27
11.10	AUTHORITY.		28
11.11	DISCLOSURE.		28

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OFFICE L E A S E

ARTICLE 1

Reference Data

1.1   Subject Referred To.

Each reference in this Lease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Section 1.1.

Date of this Lease:	July 14, 2011
Building:	The three-story building in Burlington Massachusetts, located on the parcel of land identified as Lot 6 as shown on the “Definitive Subdivision Plan, Sun Microsystems” prepared by Vanasse Hangen Brustlin, Inc., recorded with Middlesex County (South District) Registry of Deeds as Plan 672 of 2007, and known as  55 Network Drive (the Building and such parcel of land hereinafter being collectively referred to as the “Property”).  The Property is located within the office park located off Network Drive in Burlington, Massachusetts, known Network Drive at Northwest Park (the “Park”).
Premises:	A portion of the 3rd floor of the Building comprised of approximately 44,171 rentable square feet] and a portion of the 2nd floor of the Building comprised of approximately 397 rentable square feet, substantially as shown on Exhibit A and Exhibit A-1 attached hereto.
Rentable Floor Area of Premises:	44,568 rentable square feet
Landlord:	Netview 5 and 6 LLC
Original Notice Address of Landlord:	c/o Nordblom Management Company, Inc. 15 Third Avenue Burlington, Massachusetts  01803
Tenant:	Dyax Corp, a Delaware corporation
Original Notice Address of Tenant:	55 Network Drive Burlington, MA  01803
Expiration Date:	The last day of the tenth (10th) Lease Year (as hereinafter defined)
Commencement Date:	See Section 2.2.
Rent Commencement Date:	The date which is 210 days after the Commencement Date.
Annual Fixed Rent Rate:1	Commencement Date-Rent Commencement Date:                  $0.00 Rent Commencement Date-through 2nd Lease Year:               $1,381,608.00 3rd and 4th Lease Years:                                                                $1,493,028.00 5th and 6th Lease Years:                                                                $1,582,164.00 7th and 8th Lease Years:                                                                $1,671,300.00 9th and 10th Lease Years:                                                              $1,760,436.00
Monthly Fixed Rent Rate:	Commencement Date-Rent Commencement Date:                  $0.00 Rent Commencement Date-through 2nd Lease Year:               $115,134.00 3rd and 4th Lease Years:                                                                $124,419.00 5th and 6th Lease Years:                                                                $131,847.00 7th and 8th Lease Years:                                                                $139,275.00 9th and 10th Lease Years:                                                              $146,703.00
TI Allowance:	$1,940,000.00
Supplemental Allowance:	Up to $15.00/RSF, subject to Section 3.4.
Letter of Credit Amount:	$1,100,000.00, subject to reduction pursuant to Section 4.4.
Tenant’s Percentage:	The ratio of the Rentable Floor Area of the Premises to the total rentable area of the Building (130,706 rentable square feet), which shall initially be deemed to be 34.10%.

______________________________

1 The Annual Fixed Rent Rate and the Monthly Fixed Rent Rate set forth above are net of electricity charges, which shall be paid for by Tenant during the Term commencing as of the Commencement Date, in accordance with Section 4.2.5 of the Lease.

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Base Taxes:	Taxes for fiscal tax year 2012 (i.e., July 1, 2011 – June 30, 2012).
Base Operating Costs:	Operating Costs for calendar year 2012.
Permitted Uses:	General offices, and non-vivarium bio-medical laboratory, and uses ancillary thereto.
CommercialGeneral  LiabilityInsurance Limits:	$3,000,000 per occurrence $5,000,000 general aggregate

1.2   Exhibits.

The Exhibits listed below in this section are incorporated in this Lease by reference and are to be construed as a part of this Lease.
EXHIBIT A	Plan showing the 3rd floor portion of the Premises.
EXHIBIT A-1	Plan showing the 2nd floor portion of the Premises.
EXHIBIT B	Commencement Date Notification
EXHIBIT C	Landlord’s Base Building Work
EXHIBIT C-1	Initial Schematic Design Plans
EXHIBIT D	Work Change Order
EXHIBIT E	Rules and Regulations
EXHIBIT F	Form Tenant Estoppel Certificate
EXHIBIT G	Landlord’s Consent and Waiver
EXHIBIT H	Form Letter of Credit
EXHIBIT I	Construction Schedule

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ARTICLE 2

Premises and Term

2.1   Premises. Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord, subject to and with the benefit of the terms, covenants, conditions and provisions of this Lease, and of any agreements, cross easements and restrictions, as the same may be amended from time to time, applicable to the Property, all of which Tenant and Landlord shall observe and perform insofar as the same are applicable to the Property.  Excluded from the Premises are the roof, exterior walls and their surfaces, the common stairways, stairwells, elevators and elevator shafts, and pipes, ducts, conduits, wires, and appurtenant fixtures serving exclusively or in common other parts of the Building (and any areas, such as the space above the ceiling or in the walls, that may contain such pipes, ducts, conduits, wires or appurtenant fixtures), and if Tenant’s space includes less than entire rentable area of any floor, excluding the central core area of such floor.

Tenant shall have, as appurtenant to the Premises, rights to use in common, subject to reasonable rules of general applicability to tenants of the Building from time to time made by Landlord of which Tenant is given notice:  (a)  the common lobbies, hallways, stairways, and elevators of the Building, (b)  common walkways, roadways, and driveways necessary for access to the Building and the Property, (c)  the common parking areas serving the Building, and (d)  if the Premises include less than the entire rentable area of any floor, the common toilets and other common facilities in the central core area of such floor; and (e) all so-called common areas and amenities of the Park serving the Property for the benefit of tenants for access, egress and the like, including the common on-site cafeteria.  The areas and facilities described in clauses (a) through (d) above are referred to as “Building Common Areas.”  The areas, facilities and amenities of the Park described to in clause (e) are referred to as “Campus Common Areas.”

Tenant shall have the right, on an unreserved first-come-first-served basis, to use up to 3.3 parking spaces per 1000 rentable square feet of the Premises, in the surface parking area serving the Building, or in a parking area proximate to the Building.  Landlord shall have the right to relocate the parking area, or any portion thereof, at any time during the term of this Lease, so long as Tenant’s parking rights pursuant to this paragraph are not diminished and the relocated parking is in an area reasonably proximate to the Building.

Landlord reserves the right from time to time, subject to Section 6.1.6 hereof, without unreasonable interference with use of the Premises:  (a)  to install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building, or either, pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises or Building, (b)  to alter or relocate any other common facility, (c)  to make any repairs and replacements to the Premises which Landlord may deem necessary, and (d)  in connection with any excavation made upon adjacent land of Landlord or others, to enter, and to license others to enter, upon the Premises to do such work as the person causing such excavation deems necessary to preserve the wall of the Building from injury or damage and to support the same.  Landlord shall at all times, use diligent efforts to minimize interference with or disruption to Tenant’s use of the Premises.

Landlord and Tenant agree that the rentable square footage areas of the Premises and Building are as set forth in Section 1.1 and that such areas as specified in Section 1.1 shall be the areas used for the purposes of making any calculations hereunder in which rentable square footage is a factor, except if (a) additional square footage is added to the Building, or (b) Landlord determines in its sole but reasonable discretion that it is necessary to re-measure the Building or Premises following a casualty or taking or in any other commercially reasonable instance where a reasonably prudent landlord would re-measure the Building or Premises due to changed circumstances.

2.2   Term. TO HAVE AND TO HOLD for a term (the “Original Term”) beginning on the date (the “Commencement Date”), which shall be the earlier of (a) January 15, 2012 or (b) the date on which Tenant’s Work has been substantially completed with only punch list items outstanding, and a certificate of occupancy has issued (which may be temporary), and ending on the Expiration Date, unless sooner terminated or extended as hereinafter provided.  When the dates of the beginning and end of the term and the date of rent commencement have been determined, such dates shall be evidenced by a document, in the form attached hereto as Exhibit B, which Landlord shall complete and deliver to Tenant, and which shall be deemed conclusive unless Tenant shall notify Landlord of any disagreement therewith within fifteen (15) days of receipt.

The term “Lease Year” as used herein shall mean a period of twelve (12) consecutive full calendar months.  The first Lease Year shall begin on the Commencement Date if the Commencement Date is the first day of a calendar month; if not, then the first Lease Year shall commence upon the first day of the calendar month next following the Commencement Date.  Each succeeding Lease Year shall commence upon the anniversary date of the first Lease Year.

2.3   Extension Option. (A) Tenant shall have one option (the “Extension Option”) to extend the term of this Lease, for an additional period of five (5) years.  Such period (the "Extended Term") shall begin immediately upon the expiration of the Original Term of this Lease, provided that each of the following conditions has been satisfied:

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(i)   As of the date of an Extension Notice (defined below) and as of the commencement of the Extended Term, Tenant shall not then be in default beyond the expiration of applicable notice and cure periods;

(ii)   As of the date of the Extension Notice and also immediately prior to the commencement of the Extended Term, Tenant shall have a net worth and revenues not less than Tenant’s net worth and revenues as of the Date of this Lease; and

(iii)   Simultaneously with the delivery of the Extension Notice, and also as of  the date that is five (5) days prior to the commencement of the Extended Term, Tenant shall have delivered to Landlord audited statements prepared by Tenant’s accountant using generally accepted accounting principles evidencing Tenant’s net worth and revenues during the fiscal year(s) of Tenant ended closest to the date of  the Extension Notice and closest to the commencement of the Extended Term, as appropriate, together with statements from Tenant’s Chief Financial Officer certifying that Tenant’s net worth and revenues are not less than they had been as of the Date of this Lease. The requirements of the preceding sentence shall not apply so long as the Tenant under this Lease is a publicly traded company.

(iv)   Further, if Tenant had previously been in default under this Lease more than two (2) times in the 4-year period preceding Tenant’s Extension Notice and had not cured both such defaults before the expiration of the cure periods set forth in Section 8.1, then this Extension Option shall be null and void and Tenant shall have no right to extend this Lease.

(B)All of the terms, covenants and provisions of this Lease shall apply to the Extended Term except that the Annual Fixed Rent Rate for the Extended Term shall be the then-fair market rental rate during the Extended Term for comparable space in comparable first class buildings in the Burlington market taking into consideration all relevant market factors, including without limitation, free rent periods, tenant improvements, base years for operating cost and tax, and amenities (the "Fair Market Rate") as of the commencement of the Extended Term but in no event less than $35.50 per rentable square foot.  If Tenant shall elect to exercise the Extension Option, it shall do so by giving Landlord written notice (the “Extension Notice”) of its intention to do so not later than twelve (12) months prior to the expiration of the Original Term of this Lease.  Subject to Tenant’s right to withdraw its Extension Notice as set forth below, if Tenant gives the Extension Notice and satisfies the conditions specified above, the extension of this Lease shall be automatically effected without the execution of any additional documents.  The Original Term and the Extended Term are hereinafter collectively sometimes called the "Term" or the “term”.

(C)Not later than eleven (11) months prior to the expiration of the Original Term, Landlord shall notify Tenant of Landlord’s determination of the Fair Market Rate for the Extended Term.  Within ten (10) days after Landlord gives Tenant Landlord’s proposal for the Fair Market Rate, Tenant shall notify Landlord in writing whether Tenant accepts or disputes such rate.  If Tenant notifies Landlord that Tenant disputes Landlord’s designation, Tenant’s notification shall include Tenant’s determination of the Fair Market Rate and the parties shall commence negotiations to agree upon the Fair Market Rate by the end of a second ten (10) day period (such 10-day period is referred to as the “Negotiation Period”).    If Landlord and Tenant are unable to reach agreement on the Fair Market Rate by the end of the Negotiation Period, then Tenant shall have the right to withdraw its exercise of the Extension Option by delivering written notice of withdrawal ("Tenant's Extension Notice Withdrawal") to Landlord no later than three (3) business days after the expiration of the Negotiation Period.

(D)If Tenant does not deliver the Tenant’s Extension Notice Withdrawal as aforesaid, Landlord and Tenant shall each simultaneously submit to the other in a sealed envelope its good faith estimate of the Fair Market Rate no later than seven (7) days after the end of the Negotiation Period.  If the higher of such estimates is not more than one hundred five percent (105%) of the other estimate, then the Fair Market Rate shall be the average of the two estimates. If the matter is not resolved by the exchange of estimates, then Fair Market Rate shall be determined by an independent arbitrator as set forth below.  If Tenant fails to timely deliver the Tenant’s Extension Notice Withdrawal and/or its good faith estimate of the Fair Market Rate, then the extension of this Lease shall be conclusively effected and Tenant shall be deemed to have accepted Landlord’s estimate of the Fair Market Rate submitted pursuant to this subparagraph.

(E)Within seven (7) days after the exchange of estimates, the parties shall select, as an arbitrator, a mutually acceptable commercial real estate broker or appraiser licensed in the Commonwealth of Massachusetts specializing in the field of commercial office leasing in the Burlington area, having no less than ten (10) years' experience (an “Approved Arbitrator”).  If the parties cannot agree on such person, then within a second period of seven (7) days, each shall select one Approved Arbitrator and the two appointed Arbitrators shall, within five (5) days, select a third Approved Arbitrator who shall be the final decision-maker (the “Final Arbitrator”).  If one party shall fail to timely make such appointment, then the person chosen by the other party shall be the sole arbitrator. Once the Final Arbitrator has been selected as provided for above, then, as soon thereafter as practicable, but in any case within fourteen (14) days after his or her appointment, the arbitrator shall determine the Fair Market Rate by selecting either the Landlord’s estimate of Fair Market Rate or the Tenant’s estimate of Fair Market Rate.  Such arbitrator must choose the proposed Fair Market Rate that he/she determines is closest to the actual market rental rate for the Premises. There shall be no discovery or similar proceedings. The arbitrator’s decision as to which estimate shall be the Fair Market Rate for the Extended Term (or with respect to any expansion space, as applicable) shall be rendered in writing to both Landlord and Tenant and shall be final and binding upon them and shall be the Annual Fixed Rent Rate for the Extended Term.  The costs of the Final Arbitrator will be equally divided between Landlord and Tenant.  Any fees of any counsel engaged by Landlord or Tenant, however, shall be borne by the party that retained such counsel.

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(F)Once the Fair Market Rate has been determined, the parties shall promptly execute an amendment to this Lease setting  forth the Fixed Rent for the Premises during the Extended Term.  For any part of the Extended Term during which the Fixed Rent Rate is in dispute, or has not yet been finally determined, Tenant shall make payments to Landlord on account of Fixed Rent at the rate per square foot of Rentable Floor Area of the Premises last paid under this Lease.  The parties shall adjust for any overpayments or underpayments upon final determination of such rent.

(G)Tenant’s rights to extend pursuant to this Section 2.3 are personal to the initial named Tenant, Dyax Corp, and may not be assigned except in connection with an assignment of this Lease to a Permitted Transferee (defined in Section 6.2.1 hereof).

(H)It is agreed that time is of the essence of this Section 2.3.

ARTICLE 3

Improvements; Tenant’s Work; Allowance.

3.1 Performance of Work and Approval of Landlord’s Work. Landlord shall, at its sole expense, cause to be performed the base building work described in Exhibit C attached hereto, and shall demise the Premises with glass at the top of the stairs to the third floor in a manner similar to that provided to e-Dialog on the 4th floor of 65 Network Drive (or as mutually and reasonably agreed upon by the parties) (the “Base Building Work”).  All such work shall be done in a good and workmanlike manner employing good materials and so as to conform to all applicable building laws.  Tenant agrees that Landlord may make any changes in such work which may become reasonably necessary or advisable, other than substantial changes, without approval of Tenant, provided written notice is promptly given to Tenant; and Landlord may make substantial changes in such work, with the written approval of Tenant, which shall not be unreasonably withheld or delayed.  Landlord shall use diligence to cause Landlord’s Base Building Work to be substantially completed (with only punch list items remaining) by the date set forth in the Construction Schedule (the “Delivery Date”), subject to the Force Majeure events and any delays actually caused by the action or inaction of Tenant.  Landlord shall use diligence to complete any punch list items within thirty (30) days of the Delivery Date.  Landlord agrees that Tenant may make changes in such work with the approval of Landlord and the execution by Landlord and Tenant of a Work Change Order, in the form attached hereto as Exhibit D.  The Base Building Work will be completed and delivered in compliance with applicable laws, regulations, permits and building codes, including life safety.  Included as part of the Base Building Work, Landlord shall also separately sub-meter the Premises for Tenant’s office electricity.

3.2   Tenant’s Work. (A) Except for the Base Building Work, all work that is necessary or desirable for Tenant’s use and occupancy of the Premises shall be performed by Tenant (“Tenant’s Work”).  Tenant shall be permitted to access the Premises for the conduct of the Tenant’s Work upon the full execution and delivery of this Lease, and shall diligently pursue the same to completion so long as the Tenant’s Work does not delay the Base Building Work.  During Tenant’s period of occupancy of the Premises for the performance of Tenant’s Work, Tenant shall be subject to all of the terms and conditions of this Lease but shall not be obligated to pay (i) Fixed Rent to Landlord unless the Rent Commencement Date has occurred and (ii) charges for utilities unless the Commencement Date has occurred.  Landlord shall not charge Tenant any fees for plan review and approval or construction oversight or supervision.

(B)Tenant’s Work shall be performed by Tenant substantially as shown on Tenant’s initial schematic design plan attached hereto as Exhibit C-1 attached hereto, in accordance with the terms of this Lease, including, without limitation, the requirements of Section 6.2.5 hereof.  Tenant’s Work shall be at Tenant’s sole cost and expense and performed pursuant to architectural, electrical and mechanical construction drawings, plans and specifications which shall emanate from and be consistent with said Exhibit C-1, and which shall be first approved by Landlord.  Landlord shall approve or disapprove Tenant’s plans within five (5) business days following Landlord’s receipt of a full set of Tenant’s final construction plans and specifications and any other information reasonably required by Landlord, noting specific reasons for disapproval or request for additional information.  Tenant shall revise and resubmit the plans to Landlord within five (5) business days thereafter, and the process shall be repeated until Landlord has approved Tenant’s plans.  The plans approved by Landlord shall be referred to herein as the “Final Plans.”  Once the Final Plans have been approved by Landlord, Landlord shall not be permitted to require any changes to the details, features or components of the Final Plans, except where necessary as a result of existing conditions in the Building.  Any and all changes made by Tenant to the Final Plans must also be approved in writing by Landlord.   Landlord’s approval of Tenant’s plans in each instance shall not be unreasonably withheld, conditioned or delayed for any plans which (i) do not involve or affect any structural or exterior element of the Building or any portion thereof, provided that Tenant’s equipment is located in Landlord approved locations whether in the Building, adjacent to the Building or on the roof of the Building, or (ii) do not adversely affect the proper functioning of the Building systems or other facilities, or (iii) will not change the aesthetic character of the interior architectural design of the Building (excluding the Premises) and common areas.  It is understood and agreed that the Base Building Work and the Tenant’s Work will be performed concurrently by the same general contractor that was approved by Landlord and Tenant prior to the Date of this Lease (the “General Contractor”).  All contractors employed by Tenant shall be require to carry worker’s compensation insurance in accordance with statutory requirements and comprehensive public liability insurance covering such contractors on or about the Premises in amounts at least equal to the limits set forth in Section 1.1, and to submit certificates evidencing such coverage to Landlord prior to the commencement of such work.  Landlord shall have the right to require Tenant to use Landlord’s roofing contractor for any work that involves penetration of the roof.

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(C)Each of Landlord and Tenant shall cause their respective architects, contractors, and construction representatives to coordinate their work with the General Contractor and in accordance with a mutually acceptable construction schedule so as to ensure timely completion of the Landlord’s Base Building Work and the Tenant’s Work.  The construction schedule has not been finalized as of the Date of this Lease; however each of Landlord and Tenant agree to cause their respective representatives to cooperate and act reasonably and with diligence to approve the construction schedule following the execution of this Lease.  The approved construction schedule will be attached hereto as Exhibit I (the “Construction Schedule”).  If Landlord fails to complete any component of the Base Building Work by the respective date set forth in the Construction Schedule for completion of such component for any reason other than a Force Majeure event or delay caused by Tenant, and such failure actually causes a delay in the performance of the Tenant’s Work in accordance with the Construction Schedule, as confirmed by the General Contractor (a “Base Building Work Delay”), then the Rent Commencement Date shall be postponed on a day for day basis beginning on the first day a Base Building Work Delay actually causes delay in the timely performance of the Tenant’s Work as aforesaid and shall end on the date on which the Base Building Work Delay no longer causes delay in Tenant’s Work, as confirmed by the General Contractor.

3.3  TI Allowance. (A) Landlord shall provide Tenant with an amount equal to the TI Allowance to be used for the construction of its office and lab space. The Allowance shall be used by Tenant for hard and soft construction costs in connection with Tenant’s Work, including architectural, engineering and permitting fees.  The TI Allowance shall be payable to Tenant in periodic disbursements (not more frequently than every thirty (30) days) within thirty (30) days after Landlord’s receipt of all of the following documentation to Landlord’s reasonable satisfaction:

(i) a requisition for payment from Tenant’s architect in the form of AIA Document G702 for all work for which disbursement is to be made;

(ii) partial or final waivers of lien (conditional or unconditional, as applicable) from all contractors, subcontractors and suppliers performing work or providing materials to date,

(iii) the submission by Tenant of a written statement from Tenant’s architect or engineer that the Tenant’s Work for which payment is being requisitioned has been completed in accordance with the approved plans,

(iv) copies of paid invoices or receipts evidencing Tenant’s costs for which payment is being requested, and

(v) a reasonable breakdown of the aggregate cost of all Tenant’s Work completed to date.

(B)  Notwithstanding the foregoing, 20% of each disbursement of the TI Allowance will be held back by Landlord.  The aggregate sum of the amounts so held back is referred to as  the “Retainage Amount”.  Landlord shall disburse the Retainage Amount to Tenant once Landlord receives all of the following:  (a) unconditional releases and waivers of lien from all contractors, subcontractors and suppliers involved in the performance of Tenant’s Work (unless the same were previously furnished pursuant to clause (ii) above), (b) a written statement from Tenant’s architect or engineer that the Tenant’s Work has been completed in accordance with the approved Tenant’s Plans, (c) a copy of the final certificate of occupancy for the Premises (d) one (1) set of “as-built” plans for Tenant’s Work, and (e) Tenant has paid the total cost of Tenant’s Work and delivered to Landlord evidence of such payment.  If the Town of Burlington will only issue a temporary certificate of occupancy for the Premises at the time Tenant has satisfied the conditions of clauses (a), (b), (d) and (e) above, Landlord will disburse 10% of the Retainage Amount and will hold back the remaining 10% of the Retainage Amount until such time that Tenant delivers to Landlord a copy of the final certificate of occupancy issued  by the Town of Burlington.  Any unused or unrequested portion of the TI Allowance shall accrue to Landlord.  If the final actual cost of the Tenant’s Work shall be in excess of the TI Allowance, then the entire amount of such excess cost shall be paid solely by Tenant and Landlord shall be under no obligation to pay any such excess.

(C)  In addition to the Allowance and to assist Tenant in completing its build-out of the Premises, Tenant shall have the right to use all existing building materials and equipment currently on-site within the Premises and elsewhere within the Building, provided that in the case of materials and equipment located outside of the Premises, the same are not built-in items or otherwise attached or installed (rolls of carpeting, and unattached hvac equipment being examples of permissible items).

3.4   Supplemental Allowance. Tenant may request in writing, on or before November 30, 2011, the Supplemental Allowance to be added to and made a part of the TI Allowance, specifying the amount Tenant desires to utilize.  Any unused portion of the Supplemental Allowance shall accrue to Landlord.  In the event that Tenant makes such request on or before such date, then the Supplemental Allowance shall be added to the TI Allowance, and the Fixed Rent shall be adjusted pursuant to Section 4.1.1 below.  The Supplemental Allowance shall be used in connection with the construction of depreciable improvements in the Premises included in Tenant’s Work.

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3.5 Acceptance of the Premises. Tenant or its representatives may, at reasonable times, enter upon the Premises during the progress of the Base Building Work to inspect the progress thereof and to determine if such work is being performed in accordance with the requirements of Section 3.1. Tenant shall promptly give to Landlord notices of any alleged failure by Landlord to comply with those requirements.  Landlord’s Base Building Work shall be deemed approved by Tenant when Tenant occupies the Premises for the conduct of its business, except for items of Landlord’s Base Building Work which are uncompleted or do not conform to Exhibit C and as to which Tenant shall, in either case, have given written notice to Landlord prior to such occupancy.  A certificate of completion by a licensed architect or registered engineer shall be conclusive evidence that Landlord’s Base Building Work has been completed except for items stated in such certificate to be incomplete or not in conformity with Exhibit C.

3.6 Pre-commencement Entry. With Landlord’s prior consent, which shall not be unreasonably withheld, Tenant shall have the right to enter the Premises at least thirty (30) days prior to the Commencement Date, during normal business hours and without payment of rent, but otherwise subject to all of the terms and conditions of this Lease, to perform work for the installation of Tenant’s furnishings, fixtures and equipment so long as such work does not delay the performance of Landlord’s Base Building Work.

ARTICLE 4

Rent

4.1   The Fixed Rent. Commencing on the Rent Commencement Date, Tenant covenants and agrees to pay rent to Landlord, by electronic fund transfer (or by such other method, as set forth below, or to such other person or entity as Landlord may by notice in writing to Tenant from time to time direct), at the Annual Fixed Rent Rate, in equal installments at the Monthly Fixed Rent Rate (which is 1/12th of the Annual Fixed Rent Rate), in advance, without notice or demand, and without setoff, abatement, suspension, deferment, reduction or deduction, except as otherwise expressly provided herein, on the first day of each calendar month included in the term; and for any portion of a calendar month at beginning of the term, at the rate for the first lease year payable in advance for such portion. It is the intention of the parties hereto that the obligations of Tenant hereunder shall be separate and independent covenants and agreements, that the Annual Fixed Rent, the Additional Rent and all other sums payable by Tenant to Landlord shall continue to be payable in all events and that the obligations of Tenant hereunder shall continue unaffected, unless the requirement to pay or perform the same shall have been terminated pursuant to an express provision of this Lease.

If Landlord shall give notice to Tenant that all rent and/or other payments due hereunder are to be made to Landlord by check, or by any other commercially reasonable means, Tenant shall make all such payments as shall be due after receipt of said notice by means as designated by Landlord, with such payments to be made to such address and to such person or entity as is specified by Landlord.

4.1.1 Supplemental Rent. If Tenant requests the Supplemental Allowance to be added to the TI Allowance, then, no later than thirty (30) days following the Commencement Date, the parties shall enter into an amendment to this Lease whereby the Annual Fixed Rent Rate specified in Section 1.1 shall be increased by the amortized amount of the Supplemental Allowance disbursed to Tenant, amortized over the Original Term at a rate of eight percent (8%) annually.

4.2   Additional Rent. Tenant covenants and agrees to pay, as Additional Rent, insurance costs, utility charges, personal property taxes and Tenant’s Percentage of increases in Taxes and Operating Costs with respect to the Premises and the Property as provided in this Section 4.2 as follows:

4.2.1 Real Estate Taxes. If Taxes (as hereinafter defined) for any Tax Year during the Term shall exceed Base Taxes, Tenant shall reimburse Landlord, as additional rent, for Tenant’s Percentage of such excess (such amount hereinafter referred to as “Tax Excess”).  Tenant shall remit to Landlord, on the first day of each calendar month, estimated payments on account of Tax Excess, such monthly amounts to be sufficient to provide Landlord, by the time real estate tax payments are due and payable to any governmental authority responsible for collection of same, a sum equal to the Tax Excess, as reasonably estimated by Landlord from time to time on the basis of the most recent tax data available.  If the total of such monthly remittances for any Tax Year is greater than the actual Tax Excess for such Tax year, Landlord shall promptly pay to Tenant, or credit against the next accruing payments to be made by Tenant pursuant to this subsection 4.2.1, the difference; if the total of such remittances is less than the actual Tax Excess for such Tax Year, Tenant shall pay the difference to Landlord within thirty (30) days following Landlord’s written notice to Tenant, which notice shall set forth the manner of computation of Tax Excess.   If, after Tenant shall have made reimbursement to Landlord pursuant to this subsection 4.2.1, Landlord shall receive a refund of any portion of Taxes paid by Tenant with respect to any Tax Year during the term hereof as a result of an abatement of such Taxes by legal proceedings, settlement or otherwise (without either party having any obligation to undertake any such proceedings), Landlord shall promptly pay to Tenant, or credit against the next accruing payments to be made by Tenant pursuant to this subsection 4.2.1, the Tenant’s Percentage of the refund (less the proportional, pro rata expenses, including attorneys’ fees and appraisers’ fees, incurred in connection with obtaining any such refund), as relates to the Tax Excess paid by Tenant to Landlord with respect to any Tax Year for which such refund is obtained.

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In the event this Lease shall commence, or shall end (by reason of expiration of the term or earlier termination pursuant to the provisions hereof), on any date other than the first or last day of the Tax Year, or should the Tax Year or period of assessment of real estate taxes be changed or be more or less than one (1) year, as the case may be, then the amount of Tax Excess which may be payable by Tenant as provided in this subsection 4.2.1 shall be appropriately apportioned and adjusted.

The term “Taxes” shall mean all taxes, assessments, betterments and other charges and impositions (including, but not limited to, fire protection service fees and similar charges) levied or assessed, or which may be equitably attributable to the Property, for or in respect of the Property, at any time during the term by any governmental authority, or taxes in lieu thereof, and additional types of taxes to supplement real estate taxes due to legal limits imposed thereon.  If, at any time during the term of this Lease, any tax or excise on rents or other taxes, however described, are levied or assessed against Landlord with respect to the rent reserved hereunder, either wholly or partially in substitution for, or in addition to, real estate taxes assessed or levied on the Property, such tax or excise on rents shall be included in Taxes; however, Taxes shall not include franchise, estate, inheritance, succession, capital levy, transfer, income or excess profits taxes assessed on Landlord.  Taxes shall include any estimated payment made by Landlord on account of a fiscal tax period for which the actual and final amount of taxes for such period has not been determined by the governmental authority as of the date of any such estimated payment.  Currently, the Building and the adjacent building known as 65 Network Drive are located on land which is identified as a single tax parcel included in one tax bill from the Town of Burlington.  Until such time that separate tax parcels are defined and assessed by the Town to include a separately identified tax parcel including the Building and the Premises, Taxes hereunder shall include the Tenant’s Percentage of the portion of such Taxes allocated by the Town of Burlington to the Building, plus the Tenant’s Percentage of the portion of such Taxes equitably attributable to the land comprising the Property, which is equitably attributable to the Building.

4.2.2 Personal Property Taxes.  Tenant shall pay all taxes charged, assessed or imposed upon the personal property of Tenant in or upon the Premises.

4.2.3 Operating Costs.  If, during the Term, Operating Costs (as hereinafter defined) incurred by Landlord in any calendar year shall exceed Base Operating Costs, Tenant shall reimburse Landlord, as additional rent, for Tenant’s Percentage of any such excess (such amount being hereinafter referred to as the “Operating Costs Excess”).  Tenant shall remit to Landlord, on the first day of each calendar month, estimated payments on account of Operating Costs Excess, such monthly amounts to be sufficient to provide Landlord, by the end of the calendar year, a sum equal to the Operating Costs Excess, as reasonably estimated by Landlord from time to time.  If, at the expiration of the year in respect of which monthly installments of Operating Costs Excess shall have been made as aforesaid, the total of such monthly remittances is greater than the actual Operating Costs Excess for such year, Landlord shall promptly pay to Tenant, or credit against the next accruing payments to be made by Tenant pursuant to this subsection 4.2.3, the difference; if the total of such remittances is less than the Operating Costs Excess for such year, Tenant shall pay the difference to Landlord within thirty (30) days from the date Landlord shall furnish to Tenant an itemized statement of the Operating Costs Excess, prepared, allocated and computed in accordance with generally accepted accounting principles.  Any reimbursement for Operating Costs due and payable by Tenant with respect to periods of less than twelve (12) months shall be equitably prorated.   The term “Operating Costs” shall mean all costs and expenses incurred for the operation, cleaning, maintenance, repair and upkeep of the Property, and the portion of such costs and expenses with  regard to the Campus Common Areas which is equitably allocable to the Property, including, without limitation, all costs of maintaining and repairing the Property and the Park (including snow removal, landscaping and grounds maintenance, operation and maintenance of parking lots, sidewalks, walking paths, access roads and driveways, Building exterior and service areas, security, operation and repair of heating and air-conditioning equipment, elevators, lighting and any other Building equipment or systems) and of all repairs and replacements (other than repairs or replacements for which Landlord has received full reimbursement from contractors, other tenants of the Building or from others) necessary to keep the Property and the Park in good working order, repair, appearance and condition; all payments under any cross easement agreement, declaration of restrictive covenants and like instruments pertaining to the sharing of costs by the Building and other buildings in the Park; all costs, including material and equipment costs, for cleaning and janitorial services to the Building (including window cleaning of the Building); all costs of any reasonable insurance carried by Landlord relating to the Property; all costs related to provision of heat (including oil, electric and/or gas), chilled water for air-conditioning, and water (including sewer charges) and other utilities to the Premises, if not sub-metered, and to the Building Common Areas and the Property (exclusive of reimbursement to Landlord for any of same received as a result of direct billing to Tenant or any tenant of the Building); payments under all service contracts relating to the foregoing; all compensation, fringe benefits, payroll taxes and workmen’s compensation insurance premiums related thereto with respect to any employees of Landlord or its affiliates engaged in security and maintenance of the Property and the Park; costs of maintaining and operating any amenities available for the general use of all tenants now or hereafter located in the Campus Common Areas including an on-site cafeteria (including a monthly cafeteria subsidy, if any); attorneys’ fees and disbursements (exclusive of any such fees and disbursements incurred in tax abatement proceedings or the preparation of leases) and auditing and other professional fees and expenses; and a management fee which shall be consistent with market rates for comparable buildings in the Burlington area.

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There shall not be included in such Operating Costs (a) brokerage fees (including rental fees) related to the operation of the Building; (b) interest, amortization and depreciation charges incurred on the Property; (c) expenditures made by Tenant with respect to (i)  cleaning, maintenance and upkeep of the Premises, and (ii) the provision of electricity to the Premises; (d) depreciation on equipment or systems serving the Building or the Park; (e) costs in connection with leasing, releasing, or subleasing space at the Building or the Park (including but not limited to brokerage commissions); (f) costs incurred in connection with the sale, financing or refinancing of the Building and/or the Park; (g) the cost of repairs or other work to the extent Landlord is reimbursed by insurance or condemnation proceeds or by any other third party; (h) costs incurred in enforcing leases against other tenants; (i) the cost of special services rendered to tenants (including Tenant) for which a special charge is made; (j) any expense to the extent resulting from the negligent act or omission of Landlord, its agents, contractors or employees; (k) costs resulting from Landlord's breach of this Lease or any lease for space in the Building or the Park or Landlord’s enforcement of any lease for space in the Building or the Park; (l) except to the extent required by a new law, regulation or code or a new interpretation of an existing law, regulation or code, the cost of correcting any code or legal violations in the Building, including but not limited to the American with Disabilities Act; (m) capital costs and expenses, except as provided below; and capital expenses not otherwise included in Landlord's Operating Costs pursuant to the next paragraph; (n) costs of cleaning Tenant’s lab space; and (o) costs (other than the cost of routine maintenance and monitoring) of remediation of Hazardous Materials which are in or on the Building or the Park as of the Date of this Lease.

If, during the term of this Lease, Landlord shall replace any capital items or make any capital expenditures which (a) are intended to reduce Operating Costs or (b) are required to comply with laws enacted after the date of this Lease, or (c) are required to replace worn-out items as may be necessary to maintain the Building in good working order, repair and condition and not to enhance the Building over and above its current appearance and condition (collectively called “capital expenditures”) the total amount of which is not properly included in Operating Costs for the calendar year in which they were made, there shall nevertheless be included in Operating Costs for each calendar year in which and after such capital expenditure is made the annual charge-off of such capital expenditure.  Annual charge-off shall be determined by (i) dividing the original cost of the capital expenditure by the number of years of useful life thereof (with the useful life being reasonably determined by Landlord in accordance with generally accepted accounting principles and practices in effect at the time of acquisition of the capital item), and (ii)  adding to such quotient an interest factor computed on the unamortized balance of such capital expenditure based upon an interest rate reasonably determined by Landlord as being the interest rate then being charged for long-term mortgages by institutional lenders on like properties within the locality in which the Building is located.

If during any portion of any year for which Operating Costs are being computed, including the base year, the Building was not fully occupied by tenants or if Landlord was not supplying all tenants with the services, amenities or benefits being supplied hereunder, actual Operating Costs incurred shall be reasonably extrapolated by Landlord to the estimated Operating Costs that would have been incurred if the Building were fully occupied by tenants or if such services were being supplied to all tenants, and such extrapolated amount shall, for the purposes of this Section 4.2.3, be deemed to be the Operating Costs for such year.

Tenant shall have the right to examine, copy and audit Landlord’s books and records establishing the Operating Costs set forth in this Section 4.2.3 of this Lease, for the calendar year immediately preceding Landlord’s annual year-end reconciliation statement of Operating Costs.  Tenant shall give Landlord at least 30 days prior written notice (the “Audit Notice”) of its intention to examine and audit such books and records, and such examination and audit shall take place at Landlord’s or Landlord’s building manager’s office no later than one hundred and twenty (120) days following Tenant’s receipt of any year-end reconciliation statement and shall be completed no later than ninety (90) days following the date Tenant was first given access to Landlord’s books and records.  No subtenant shall have any right to conduct an audit.  As a condition to performing any such inspection, Tenant and its examiners may be required to execute and deliver to Landlord an agreement to keep confidential any information which Tenant and the examining party discover about the Building in connection with such examination, except for disclosures required by law, court order or regulatory authorities, or to Tenant's attorneys, accountants, auditors, or potential purchasers of  the Tenant company.  Tenant agrees to use for such audit a certified public accountant or an accounting firm that is not being paid on a contingency fee basis.  All costs of the examination and audit shall be borne by Tenant; provided, however, that if such examination and audit establishes that the Operating Costs Excess for the year in question is less than the amount set forth in Landlord’s statements delivered to Tenant by more than five percent (5%), then Landlord shall pay to Tenant the reasonable costs of such examination and audit.  If, pursuant to the audit, the payments made for such year by Tenant exceed Tenant’s required payment on account thereof for such year, such overpayment shall be credited against Rent next due, or refunded to Tenant if the term of this Lease has then expired and Tenant has no further obligation to Landlord; but, if the payments made by Tenant for such year are less than Tenant’s required payment as established by the examination and audit, Tenant shall pay the deficiency to Landlord within thirty (30) days after conclusion of the examination and audit.  If there is any dispute over the results of the audit, Landlord shall have ninety (90) days following receipt of the audit results to obtain an audit from an accountant of Landlord's choice, at Landlord's cost and expense.  In the event that Landlord's and Tenant's accountants shall be unable to reconcile the results which thirty (30) days following completion of Landlord’s accountants’ review, then, both accountants shall mutually agree upon a third accountant whose determination shall be conclusive.  The cost of any such third accountant shall be shared equally between Landlord and Tenant.

 

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4.2.4 Insurance.   Tenant shall, at its expense, as Additional Rent, take out and maintain throughout the Term the following insurance protecting Landlord:

4.2.4.1   Commercial general liability insurance naming Landlord, Tenant, and Landlord’s managing agent and any mortgagee of which Tenant has been given notice as insureds or additional insureds  and indemnifying the parties so named against all claims and demands for death or any injury to person or damage to property which may be claimed to have occurred on the Premises (or the Property, insofar as used by customers, employees, servants or invitees of the Tenant), in amounts which shall, at the beginning of the term, be at least equal to the limits set forth in Section 1.1, and, which, from time to time during the Term, shall be for such higher limits, if any, as are customarily carried in the area in which the Premises are located on property similar to the Premises and used for similar purposes; and workmen’s compensation insurance with statutory limits covering all of Tenant’s employees working on the Premises.

4.2.4.2   Special Risk property insurance with the usual extended coverage endorsements covering all Tenant’s furniture, furnishings, fixtures and equipment, and business interruption insurance with extra expense coverage.

4.2.4.3   All such policies shall be obtained from responsible companies qualified to do business and in good standing in Massachusetts, which companies and the amount of insurance allocated thereto shall be subject to Landlord’s approval.  Tenant agrees to furnish Landlord with certificates evidencing all such insurance prior to the beginning of the term hereof and evidencing renewal thereof at least thirty (30) days prior to the expiration of any such policy.  Each such policy shall provide that the insurer will deliver to Landlord a notice of cancellation with respect to the interest of Landlord within ten (10) days following the date of any such cancellation.  In the event provision for any such insurance is to be by a blanket insurance policy, the policy shall allocate a specific and sufficient amount of coverage to the Premises.

4.2.4.4   All insurance which is carried by either party with respect to the Building, Premises or to furniture, furnishings, fixtures, or equipment therein or alterations or improvements thereto, whether or not required, shall include provisions which either designate the other party as one of the insured or deny to the insurer acquisition by subrogation of rights of recovery against the other party to the extent such rights have been waived by the insured party prior to occurrence of loss or injury, insofar as, and to the extent that, such provisions may be effective without making it impossible to obtain insurance coverage from responsible companies qualified to do business in the state in which the Premises are located (even though extra premium may result therefrom).  In the event that extra premium is payable by either party as a result of this provision, the other party shall reimburse the party paying such premium the amount of such extra premium.  If at the request of one party, this non-subrogation provision is waived, then the obligation of reimbursement shall cease for such period of time as such waiver shall be effective, but nothing contained in this subsection shall derogate from or otherwise affect releases elsewhere herein contained of either party for claims.  Each party shall be entitled to have certificates of any policies containing such provisions.  Each party hereby waives all rights of recovery against the other for loss or injury against which the waiving party is protected by insurance containing said provisions, reserving, however, any rights with respect to any excess of loss or injury over the amount recovered by such insurance.  Tenant shall not acquire as insured under any insurance carried on the Premises by Landlord any right to participate in the adjustment of loss or to receive insurance proceeds and agrees upon request promptly to endorse and deliver to Landlord any checks or other instruments in payment of loss in which Tenant is named as payee.

4.2.5 Utilities.  A. Tenant shall reimburse Landlord through Operating Costs, pursuant to Section 4.2.3, for all charges, without Landlord mark-up, for gas and chilled water for normal office heating and cooling, and water for ordinary cleaning and lavatory use during the Term.   B.  Commencing on the Commencement Date, to the extent not specifically included in Operating Costs, Tenant shall pay to Landlord by means of a monthly escrow payments (as hereinafter set forth) all charges, without mark-up by Landlord, for (i) the cost of electricity for Tenant’s lights, outlets and VAV boxes in the office portion of the Premises, and for above-normal office usage (if any) of chilled water at the office portion of the Premises, and (ii) the cost of electricity, gas and water utilized in connection with Tenant’s laboratory space, including all utilities associated with Tenant’s laboratory HVAC.  Commencing on the Commencement Date and each month thereafter, Tenant shall pay to Landlord, as Additional Rent, charges for utilities (the “Utilities Charges”) estimated on account of Tenant’s consumption of electricity in the Premises for its lights, outlets, and VAV boxes, and where applicable, for chilled water consumption in excess of normal office use, and for electricity, gas and water to Tenant’s lab space.  Landlord shall reasonably estimate the amount of Utilities Charges payable by Tenant per month and shall notify Tenant prior to the Commencement Date of the initial estimate of Utilities Charges to be paid by Tenant.  Tenant shall pay the Utilities Charges on the first day of each calendar month included in the Term, in the same manner as Tenant pays Fixed Rent pursuant to Section 4.1 above.  On a monthly basis, or when billed by the utility, Landlord will reconcile the estimated Utilities Charges paid by Tenant with the actual amounts owing from Tenant based on the number of kilowatt hours of electricity used in the Premises for the preceding month as registered on the sub-meters for the Premises, and where applicable, based on the excess chilled water consumption as registered on the BTU meters for the areas of excess use.  If it is determined Tenant has been overcharged, then such overpayment will be credited against Tenant’s account for the following month.  If Tenant has underpaid, then Landlord will invoice Tenant for the amount owed and Tenant shall pay such amount within thirty (30) days after billing.  Landlord reserves the right to adjust the monthly Utilities Charges from time to time based on the most current data available for Tenant’s electrical  and chilled water consumption in the Premises, and Tenant shall thereafter pay the adjusted Utilities Charges to Landlord until further notice.  Tenant acknowledges that there may be third-party fees assessed to Landlord in connection with reading any utility meters and agrees that the actual amount of such fees may be included in the Utilities Charges.

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C.  Tenant shall pay all charges for telephone, cable and other utilities or services not supplied by Landlord, whether designated as a charge, tax, assessment, fee or otherwise, all such charges to be paid as the same from time to time become due.  Except as otherwise provided in Article 5, it is understood and agreed that Tenant shall make its own arrangements for the installation or provision of all such utilities and that Landlord shall be under no obligation to furnish any utilities to the Premises and shall not be liable for any interruption or failure in the supply of any such utilities to the Premises.

4.3   Late Payment of Rent.  If any installment of rent is paid more than three (3) business days after the date the same was due, and if on a prior occasion in the twelve (12) month period prior to the date such installment was due an installment of rent was paid after the same was due, then Tenant shall pay Landlord a late payment fee equal to five (5%) percent of the overdue payment.

4.4   Letter of Credit.  The performance of Tenant’s obligations under this Lease shall be secured by a letter of credit throughout the term hereof in accordance with and subject to the following terms and conditions:

4.4.1 Amount of Letter of Credit.   (A) Concurrently with Tenant’s execution and delivery of this Lease,  Tenant shall deliver to Landlord an irrevocable standby letter of credit (the “Original Letter of Credit”) which shall be (i) materially and substantially in the form of Exhibit H attached to this Lease (the “Form LC”), (ii) issued by a commercial bank reasonably satisfactory to Landlord upon which presentment may be made in Boston, Massachusetts, (iii) in the amount equal to the Letter of Credit Amount, and (iv) for a term of at least 1 year, subject to the provisions of Section 4.4.2 below.  The Original Letter of Credit, any Additional Letters(s) of Credit and Substitute Letter(s) of Credit are referred to herein as the “Letter of Credit.”   (B)  Tenant shall be entitled to reduce the Letter of Credit Amount by $100,000.00 at the beginning of the 5th Lease Year, and thereafter further reduced by $100,000.00 at the beginning of any subsequent Lease Year for which Tenant seeks a reduction, if each of the following conditions is satisfied at the time of any reduction hereunder:

(i) Tenant is a publicly-traded company;

(ii) Tenant has a net worth not less than Tenant’s net worth as of the Date of this Lease;

(iii) Tenant has sufficient cash to cover two years of operations (based on an average of the preceding two operating years of Tenant);

(iv) Tenant provides Landlord with a current audited financial statement evidencing satisfaction of clauses (ii) and (iii) above, provided however, or if Tenant is then a public company, Landlord will utilize such public financial information readily available to Landlordand

(v) Tenant is not in monetary default under this Lease at the time of any reduction.

If each condition is satisfied, then the Letter of Credit Amount shall be reduced by $100,000.00 at the beginning of the applicable Lease Year in which Tenant seeks reduction, until the Letter of Credit Amount is reduced to $500,000.00, after which time there shall be no further reduction in the Letter of Credit Amount.  Tenant shall be responsible, at its sole expense, for taking all steps necessary to effect any reduction under this subparagraph (B).

4.4.2 Renewal of Letter of Credit.  Each Letter of Credit shall be automatically renewable in accordance with the second to last paragraph of the Form LC; provided however, that Tenant shall be required to deliver to Landlord a new letter of credit (a "Substitute Letter of Credit") satisfying the requirements for the Original Letter of Credit under Section 4.4.1 on or before the date 30 days prior to the expiration of the term of the Letter of Credit then in effect, if the issuer of such Letter of Credit gives notice of its election not to renew such Letter of Credit for any additional period pursuant thereto.  Should any Letter of Credit contain a final expiration date, in addition to a current expiration date, such final expiration date shall be no earlier than 45 days following the Expiration Date of this Lease.

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4.4.3 Draws to Cure Defaults. If the Fixed Rent, Additional Rent or any other sum payable to Landlord hereunder shall be overdue and unpaid or should Landlord make payments on behalf of the Tenant, or Tenant shall fail to perform any of the terms of this Lease in all cases beyond the expiration of all applicable notice and cure periods, then Landlord shall have the right, at any time thereafter to draw down from the Letter of Credit the amount necessary to cure such default. In the event of any such draw by the Landlord, Tenant shall, within 30 days of written demand therefor, deliver to Landlord an additional Letter of Credit ("Additional Letter of Credit") satisfying the requirements for the Original Letter of Credit, except that the amount of such Additional Letter of Credit shall be the amount of such draw.

4.4.4 Draws to Pay Damages.In addition, if (i) this Lease shall have been terminated as a result of Tenant's default under this Lease beyond the expiration of the applicable cure period, and/or (ii) this Lease shall have been rejected in a bankruptcy or other creditor-debtor proceeding, then Landlord shall have the right at any time thereafter to draw down from the Letter of Credit an amount sufficient to pay any and all damages payable by Tenant on account of such termination or rejection, as the case may be, pursuant to Article 8 hereof. In the event of bankruptcy or other creditor-debtor proceeding against Tenant, all proceeds of the Letter of Credit shall be deemed to be applied first to the payment of rent and other charges due Landlord for all periods prior to the filing of such proceedings.

4.4.5 Issuing Bank.  In the event the issuer of any Letter of Credit becomes insolvent or is placed into receivership or conservatorship by the Federal Deposit Insurance Corporation, or any successor or similar entity, or if a trustee, receiver or liquidator is appointed for the issuer, then, effective as of the date of such occurrence, the Letter of Credit shall be deemed to not meet the requirements of this Section 4.4 and Tenant shall, within ten (10) business days of written notice from Landlord, deliver to Landlord a Substitute Letter of Credit which otherwise meets the requirements of this Section, or, alternatively, Tenant shall, within such five-day period deliver cash to Landlord in the Letter of Credit Amount, which Landlord shall hold as “Security Proceeds” which shall be governed by subject to the provisions of Section 4.4.6 below.

4.4.6 Draws for Failure to Deliver Substitute Letter of Credit.  If Tenant fails timely to deliver to Landlord a Substitute Letter of Credit, then Landlord shall have the right, at any time thereafter, without giving any notice to Tenant, to draw down the Letter of Credit and to hold the proceeds thereof  ("Security Proceeds") in a bank account in the name of Landlord, which may be withdrawn and applied by Landlord under the same circumstances and for the same purposes as if the Security Proceeds were a Letter of Credit. Upon any such application of Security Proceeds by Landlord, Tenant shall, within 30 days of written demand therefor, deliver to Landlord an Additional Letter of Credit in the amount of Security Proceeds so applied.

4.4.7 Transferability.  Landlord shall be entitled to transfer its beneficial interest under the Letter of Credit or any Security Proceeds in connection with (i) Landlord’s sale or transfer of the Building, or (ii) the addition, deletion or modification of any beneficiaries under the Letter of Credit, and the Letter of Credit shall specifically state on its face that it is transferable by Landlord, its successors and assigns.  Landlord shall pay all costs and fees charged to effect such transfer.

4.4.8 Return of Letter of Credit at End of Term.  Within 45 days after the expiration of  the term, to the extent Landlord has not previously drawn upon any Letter of Credit or Security Proceeds held by Landlord, Landlord shall return the same to Tenant provided that there is not at such time any continuing default of any of Tenant’s obligations under this Lease.

ARTICLE 5

Landlord’s Covenants

5.1   Affirmative Covenants.  Landlord covenants with Tenant to provide the following services during the Term in scope and quality at least equivalent to that provided as of the Commencement Date:

5.1.1 Heat and Air-Conditioning.  To furnish to the Premises heat and air-conditioning (reserving the right, at any time, to change energy or heat sources) sufficient to maintain the Premises at comfortable temperatures (subject to all federal, state, and local regulations relating to the provision of heat), during the hours of 7:00 a.m. until 6:00 p.m. on Mondays through Fridays and 7:00 a.m. until 1:00 p.m. on Saturdays (“Normal Business Hours”), excluding all legal holidays on which the Building is normally closed.  All charges for gas, electricity, and chilled water furnished to the Premises for normal office heating and air-conditioning will be included in Operating Costs pursuant to Section 4.2.3 and paid for by Tenant pursuant to said Section 4.2.3.  Heat and air-conditioning will be available to Tenant after Normal Business Hours by prior request of Landlord’s managing agent at least 24 hours in advance.  If Tenant shall use chilled water after Normal Business Hours, or in excess of reasonable quantities for normal office use, and if such after-hours or excess use shall result in an additional cost to Landlord on account thereof, Tenant shall, upon demand, reimburse Landlord for the actual utility costs plus any additional costs as reasonably estimated by Landlord (such as wear and tear on the equipment).  The cost for heat and air-conditioning after Normal Business Hours is allocated per wing of the Building and not per floor, and is currently $80.00 per hour per wing.  Landlord reserves the right to install a separate sub-meter, at Tenant’s expense, to measure the flow of chilled water to the Premises, if deemed necessary by Landlord.

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5.1.2 Electricity.  To furnish to the Premises, separately sub-metered and paid for by Tenant directly to Landlord pursuant to Section 4.2.5 above, electricity for Tenant’s lights, outlets and VAV boxes, and for Tenant’s laboratory space.  The Premises currently provides eight (8) watts of electrical power per rentable square foot, for lights, outlets and VAV boxes, exclusive of electricity for office hvac.  If Tenant shall require electricity in excess of normal office use for Tenant’s Permitted Uses in the office portions of the Premises, then Landlord reserves the right to install a sub-meter, at Tenant’s expense, to measure Tenant’s excessive usage and will bill Tenant separately for its excessive usage.  In addition, if (i)  in Landlord’s reasonable judgment, Landlord’s facilities are inadequate for such excess requirements, or (ii) such excess use shall result in an additional burden on the Building utilities systems and additional cost to Landlord on account thereof, as the case may be, (a)  Tenant shall, upon demand, reimburse Landlord for such additional cost, as aforesaid, or (b)  Landlord, upon written request, and at the sole cost and expense of Tenant, will furnish and install such additional wire, conduits, feeders, switchboards and appurtenances as reasonably may be required to supply such additional requirements of Tenant (if electricity therefor is then available to Landlord), provided that the same shall be permitted by applicable laws and insurance regulations and shall not cause permanent damage or injury to the Building or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations or repairs.

5.1.2.1   Building Generator.  The Building is equipped with a 600 kw standby generator (the “Building Generator”).  As of the Date of this Lease, the Building Generator has available capacity for non-exclusive use by tenants of the Building.  Tenant shall be permitted to use up to 150 kw of the available capacity for Tenant’s “special needs” areas.   If Tenant requires additional generator capacity above what is stated in this Section 5.1.2.1, Tenant will be required to make its own arrangements to accommodate Tenant’s needs.  Tenant acknowledges and agrees that the life safety loads shall remain priority one in the Building Generator, and that Landlord makes no guarantee that emergency power will be available when needed.

5.1.3  Laboratory Utilities.  Landlordshall furnish electricity, water, and gas for Tenant’s laboratory space in the Premises.All charges for electricity, gas and water for Tenant’s laboratory space (which includes all utilities for HVAC), shall be measured by separate submeters for each utility, and the cost of the same shall be paid to Landlord pursuant to Section 4.2.5 above.

5.1.4 Cleaning; Water.  To provide cleaning to the office portion of the Premises in accordance with cleaning and janitorial standards generally prevailing throughout the term hereof in comparable office buildings within the municipality in which the Building is located; and to furnish water to the Premises for ordinary cleaning, lavatory and toilet facilities (which shall be paid for by Tenant through Operating Costs).

5.1.5 Elevator; Fire Alarm.  To furnish passenger elevator service from the lobby to the Premises and a product lift from the loading dock to the Premises for Tenant’s dedicated use; and to maintain fire alarm systems within the Building.

5.1.6 Repairs.  Except as otherwise expressly provided herein, to make such maintenance, repairs and replacements to the roof, exterior walls (excluding interior surfaces of exterior walls), floor slabs and other structural components of the Building, and to the common areas, facilities and plumbing, electrical, heating, ventilating and air-conditioning systems of the Building and Park, including the Campus Common Areas, as may be necessary to maintain and keep them in good repair and condition in the same first-class condition as they are currently in, and in compliance with applicable laws (exclusive of equipment installed by Tenant and except for those repairs required to be made by Tenant pursuant to Section 6.1.3 hereof and repairs or replacements occasioned by any act or negligence of Tenant, its servants, agents, customers, contractors, employees, invitees, or licensees).

5.1.7 Compliance with Laws.  Landlord shall comply with all applicable laws relating to the Building and the Campus Common Areas, provided that compliance with such applicable laws is not the responsibility of Tenant under this Lease or another tenant or occupant under its lease, and provided further that Landlord’s failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would unreasonably and materially affect the safety of Tenant, its employees or visitors, or otherwise materially interfere with or materially affect Tenant’s Permitted Use of the Premises.  Notwithstanding the foregoing, Landlord shall not be obligated to comply with any law to the extent it has a good faith objection to such compliance and is pursuing the same with applicable authorities.

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5.2   Interruption.Landlord shall be under no responsibility or liability for failure or interruption of any of the above-described services, repairs or replacements caused by Force Majeure, and in no event for any indirect or consequential damages to Tenant; and failure or omission on the part of the Landlord to furnish any of same for any of the reasons set forth in this paragraph shall not be construed as an eviction of Tenant, actual or constructive, nor entitle Tenant to an abatement of rent, nor render the Landlord liable in damages, nor release Tenant from prompt fulfillment of any of its covenants under this Lease.   Notwithstanding the foregoing, if (i) an interruption or curtailment, suspension or stoppage of an Essential Service (as said term is hereinafter defined) shall occur, except if any of the same is due to any act or neglect of Tenant or Tenant’s agents employees, contractors or invitees or any person claiming by, through or under Tenant (any such interruption of an Essential Service being hereinafter referred to as a “Service Interruption”), and (ii) such Service Interruption is due to the gross negligence or willful misconduct of Landlord or Landlord’s agents, servants, employees or contractors or is within Landlord’s reasonable control to remedy (as opposed to an event or circumstance that is due to a cause beyond Landlord’s reasonable control generally affecting other buildings in the vicinity of the Building, such as a neighborhood power outage), and (iii) such Service Interruption continues for more than five (5) consecutive days after Landlord shall have received notice thereof from Tenant, and (iv) as a result of such Service Interruption, Tenant is unable, and ceases, to conduct its business operations in all or a portion of the Premises, then the Fixed Rent and Additional Rent on account of Operating Costs and Taxes shall abate entirely or proportionately, as applicable, for each day during which such Service Interruption continues after such five (5) consecutive day period until such date that the Premises, or the affected portion thereof, shall be rendered tenantable (or such earlier date, if any, as Tenant shall reoccupy the Premises or the affected portion thereof for the conduct of its business).  The amount of the abated Rent shall be in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises.  For purposes hereof, the term “Essential Services” shall mean the following services in accordance with Landlord’s obligations under this Lease:  water and sewer service, HVAC, gas and electricity.

5.3   Outside Services.  In the event Tenant wishes to provide outside services for the Premises over and above those services to be provided by Landlord as set forth herein, Tenant shall first obtain the prior written approval of Landlord for the installation and/or utilization of such services (“Outside services” shall include, but shall not be limited to, cleaning services, television, so-called “canned music” services, security services, catering services and the like.)  In the event Landlord approves the installation and/or utilization of such services, such installation and utilization shall be at Tenant’s sole cost, risk and expense.

5.4  Access.  Subject to Landlord’s security requirements (if any), Tenant shall have access to the Premises, the Building and the parking area serving the Building 24 hours per day, 7 days per week.

5.5  Building Amenities.  During the Term of this Lease, Landlord shall cause to be operated a full-service café with catering service for use by all tenants.  Landlord shall construct or provide, at its sole expense, and maintain throughout the Term an unstaffed fitness center in the Park for general availability to all tenants, with no user or membership fees charged to Tenant and its employees.  Landlord agrees to operate the same throughout the Term.  Regarding the conference center, Landlord shall assist Tenant in arranging for access to a shared conference facility, which is currently leased to Oracle.  Oracle has indicated to Landlord that it will work with other tenants of the Park to provide reasonable access to such conference facility, at Oracle’s discretion and for a nominal fee.

5.6   Representations.  Landlord hereby represents and warrants to Tenant as of the Date of this Lease that to Landlord’s actual knowledge (a) the base building systems and all electrical, plumbing and mechanical systems serving the Premises will be in good working order and condition as of the Commencement Dateand(b) Landlord has not received any written notice by a governmental authority that the Premises and the Building are in violation of any applicable law in effect, including the Americans with Disabilities Act, and as currently interpreted on the Date of this Lease.  Landlord represents to Tenant to Landlord’s actual knowledge that, except as may be disclosed in that certain Phase 1 Environmental Site Assessment Report prepared by Sleeman Hanley & DiNitto dated June 15, 2007 (the “Phase 1 Report”), there are no Hazardous Materials (defined in Article 10) in, on, about or under the Premises or the Park in violation of any laws.  Tenant hereby acknowledges receipt of the Phase 1 Report.

5.7 Indemnification.  Landlord shall save harmless, exonerate and indemnify Tenant, its employees and agents (such agents and employees being referred to collectively as the “Tenant Related Parties”) from and against any and all claims, liabilities or penalties asserted by or on behalf of any person, firm, corporation or public authority on account of injury, death, damage or loss to person or property occurring outside the Premises but within the Building or on the Campus Common Areas arising out of the gross negligence, fault or misconduct of Landlord or Landlord’s failure to perform and observe the obligations expressly assumed under the provisions of this Lease, except if the same was caused by the negligence, fault or misconduct of Tenant or the Tenant Related Parties.  In respect of all of the foregoing, Landlord shall indemnify Tenant and the Tenant Related Parties from and against all costs, expenses (including reasonable attorneys' fees), and liabilities incurred in or in connection with any such claim, action or proceeding brought thereon; and, in case of any action or proceeding brought against Tenant or the Tenant Related Parties by reason of any such claim, Landlord, upon notice from Tenant and at Landlord’s expense, shall resist or defend such action or proceeding and employ counsel therefor reasonably satisfactory to Tenant provided that Tenant shall be deemed to have approved counsel provided by Landlord’s liability insurer.

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ARTICLE 6

Tenant’s Additional Covenants

6.1   Affirmative Covenants.  Tenant covenants at all times during the term and for such further time (prior or subsequent thereto) as Tenant occupies the Premises or any part thereof:

6.1.1 Perform Obligations.  To perform promptly all of the obligations of Tenant set forth in this Lease; and to pay when due the Fixed Rent and Additional Rent and all charges, rates and other sums which by the terms of this Lease are to be paid by Tenant.

6.1.2 Use.  To use the Premises only for the Permitted Uses, and in compliance with all laws, orders, ordinance, regulations, codes, permits and licenses now or hereafter applicable to the Premises.  Tenant shall apply for and obtain all licenses, permits and approvals from the Town of Burlington necessary for Tenant’s specific use of the Premises, at Tenant’s sole expense.  With respect to any licenses or permits for which Tenant may apply, pursuant to this subsection 6.1.2 or any other provision hereof, Tenant shall furnish Landlord copies of applications therefor on or before their submission to the governmental authority.  For any special permits or approvals required by the Town of Burlington for Tenant’s specific use of the Premises, Landlord agrees to assist Tenant in obtaining the same, at no cost to Landlord.

6.1.2.1   Prohibited Occupants. Tenant acknowledges and agrees that the Premises, and any other premises in the Park subsequently leased to Tenant, may not be leased to, or physically used or occupied by any of the following entities (the “Prohibited Occupants”):

Cisco	Dell	Yahoo
EMC	Google
Hewlett-Packard	IBM
Microsoft	Network Appliance
Red Hat	VMWare

It is understood that Landlord has imposed the foregoing prohibition for the benefit of certain other tenants of the Property, and Tenant acknowledges that such tenants are third party beneficiaries of the foregoing restriction and use prohibition.  If Tenant allows of the Premises to be physically used or occupied by any of the Prohibited Occupants in violation of this provision, Landlord may take any and all action necessary to cause such use or occupancy to cease.

6.1.3 Repair and Maintenance.  To maintain the Premises in neat order and condition and to perform all routine and ordinary repairs to the Premises and to any mechanical, plumbing, heating, electrical, ventilating and air-conditioning systems located within the Premises and installed by Tenant or for Tenant’s dedicated use such as are necessary to keep them in good working order, appearance and condition, as the case may require, reasonable use and wear thereof and damage by fire or by unavoidable casualty only excepted; to keep all glass in windows and doors of the Premises (except glass in the exterior walls of the Building) whole and in good condition with glass of the same quality as that injured or broken; and to make as and when needed as a result of misuse by, or neglect or improper conduct of Tenant or Tenant’s servants, employees, agents, invitees or licensees or otherwise, all repairs necessary, which repairs and replacements shall be in quality and class equal to the original work.  Landlord, upon default of Tenant beyond expiration of the applicable notice and cure periods hereunder and upon prior notice to Tenant (except in an emergency where no prior notice or the benefit of any cure period shall be afforded Tenant), may elect, at the expense of Tenant, to perform all such cleaning and maintenance and to make any such repairs or to repair any damage or injury to the Building or the Premises caused by moving property of Tenant in or out of the Building, or by installation or removal of furniture or other property, or by misuse by, or neglect, or improper conduct of, Tenant or Tenant’s servants, employees, agents, contractors, customers, patrons, invitees, or licensees.

6.1.4 Compliance with Law.  To make all repairs, alterations, additions or replacements to the Premises required by any law or ordinance or any order or regulation of any public authority; to keep the Premises equipped with all safety appliances so required; and to comply with the orders and regulations of all governmental authorities with respect to zoning, building, fire, health and other codes, regulations, ordinances or laws applicable to the Premises, except that Tenant may defer compliance so long as the validity of any such law, ordinance, order or regulations shall be contested by Tenant in good faith and by appropriate legal proceedings, if Tenant first gives Landlord appropriate assurance or security against any loss, cost or expense on account thereof.

6.1.5 Indemnification.  To save harmless, exonerate and indemnify Landlord, its agents (including, without limitation, Landlord’s managing agent) and employees (such agents and employees being referred to collectively as the “Landlord Related Parties”) from and against any and all claims, liabilities or penalties asserted by or on behalf of any person, firm, corporation or public authority on account of injury, death, damage or loss to person or property in or upon the Premises and the Property arising out of the use or occupancy of the Premises by Tenant or by any person claiming by, through or under Tenant (including, without limitation, all patrons, employees and customers of Tenant), or arising out of any delivery to or service supplied to the Premises, or on account of or based upon anything whatsoever done on the Premises, except if the same was caused by the willful negligence, fault or misconduct of Landlord or the Landlord Related Parties.  In respect of all of the foregoing, Tenant shall indemnify Landlord and the Landlord Related Parties from and against all costs, expenses (including reasonable attorneys’ fees), and liabilities incurred in or in connection with any such claim, action or proceeding brought thereon; and, in case of any action or proceeding brought against Landlord or the Landlord Related Parties by reason of any such claim, Tenant, upon notice from Landlord and at Tenant’s expense, shall resist or defend such action or proceeding and employ counsel therefor reasonably satisfactory to Landlord; provided that Landlord shall be deemed to have approved counsel provided by Tenant’s liability insurer.  The preceding indemnification shall expressly survive the expiration or earlier termination of this Lease.

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6.1.6 Landlord’s Right to Enter.  Upon reasonable prior notice to Tenant (which may be by email), except in emergencies, to permit Landlord and its agents to enter into and examine the Premises at reasonable times and to show the Premises, and to make repairs to the Premises.  Tenant shall at all times have the right to accompany Landlord, its agents and contractors while on the Premises, except in emergencies.

6.1.7 Personal Property at Tenant’s Risk.  All of the furnishings, fixtures, equipment, effects and property of every kind, nature and description of Tenant and of all persons claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises, shall be at the sole risk and hazard of Tenant and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft or from any other cause, no part of said loss or damage is to be charged to or to be borne by Landlord, except that Landlord shall in no event be indemnified or held harmless or exonerated from any liability to Tenant or to any other person, for any injury, loss, damage or liability to the extent prohibited by law.

6.1.8 Payment of Landlord’s Cost of Enforcement.  To pay on demand Landlord’s expenses, including reasonable attorneys’ fees, incurred in enforcing any obligation of Tenant under this Lease or in curing any default by Tenant under this Lease as provided in Section 8.4.

6.1.9 Yield Up.  At the expiration of the term or earlier termination of this Lease:  to surrender all keys to the Premises; to remove all of its trade fixtures and personal property in the Premises; to deliver to Landlord one (1) set of as-built plans showing the Premises at yield up if Tenant had made alterations or installations during the Term for which plans were required after the Tenant’s Work (if Tenant has made no alterations or installations after the Tenant’s Work, the as-built plans initially delivered pursuant to Section 3.3(B) shall suffice); to remove such installations made by it as Landlord may request (including computer and telecommunications wiring and cabling, it being understood that if Tenant leaves such wiring and cabling in a useable condition, Landlord, although having the right to request removal thereof, is less likely to so request) and all Tenant’s signs wherever located; to repair all damage caused by such removal and to yield up the Premises (including all installations and improvements made by Tenant except for trade fixtures and such of said installations or improvements as Landlord shall request Tenant to remove), broom-clean and in the same good order and repair in which Tenant is obliged to keep and maintain the Premises by the provisions of this Lease, reasonable wear and tear and damage caused by casualty and condemnation excepted.  Tenant, at the time of making any installation, alteration, or improvement may request in writing Landlord’s written permission to leave the same in the Premises at the expiration or earlier termination of this Lease.  Landlord shall, after receipt of Tenant’s request, notify Tenant in writing as to whether such installation may or may not remain in the Premises at the expiration or earlier termination of this Lease.  If Landlord so notifies Tenant that such installation, alteration, or improvement may remain in the Premises at the expiration or earlier termination of this Lease, Landlord shall thereafter not be permitted to request or require that the same be removed at the expiration or earlier termination of the Lease.  Any property not so removed shall be deemed abandoned and, if Landlord so elects, deemed to be Landlord’s property, and may be retained or removed and disposed of by Landlord in such manner as Landlord shall determine and Tenant shall pay Landlord the entire cost and expense incurred by it in effecting such removal and disposition and in making any incidental repairs and replacements to the Premises and for use and occupancy during the period after the expiration of the term and prior to its performance of its obligations under this subsection 6.1.9.  Tenant shall further indemnify Landlord against all loss, cost and damage resulting from Tenant’s failure and delay in surrendering the Premises as above provided; however, notwithstanding the foregoing, Tenant shall not be liable for any consequential damages if Tenant occupies the Premises for sixty (60) or fewer days beyond the expiration or earlier termination of this Lease and had notified Landlord in writing at least six (6) months prior to the Expiration Date that Tenant intended to hold over.  Except as specifically provided for in this Section 6.1.9, Tenant shall not be liable for any consequential damages for breach of any provision of this Lease.
If the Tenant remains in the Premises beyond the expiration or earlier termination of this Lease, such holding over shall be without right and shall not be deemed to create any tenancy, but the Tenant shall be a tenant at sufferance only at a daily rate of rent equal to two (2) times the rent and other charges in effect under this Lease as of the day prior to the date of expiration of this Lease.

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6.1.10 Rules and Regulations.  To comply with the Rules and Regulations set forth in Exhibit E, and with all reasonable Rules and Regulations of general applicability to all tenants of the Building and the Park hereafter made by Landlord, and of which Tenant has been given notice, concerning, among other things, the use of the cafeteria and fitness center and conference center; Landlord shall not be liable to Tenant for the failure of other tenants to conform to such Rules and Regulations, of which Tenant has been given notice; Landlord shall not be liable to Tenant for the failure of other tenants to conform to such Rules and Regulations.  Landlord agrees to enforce the Rules and Regulations in a nondiscriminatory manner among all tenants of the Building and Park.

6.1.11 Estoppel Certificate.  Upon not less than ten (10) days’ prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing, which may be in the form attached hereto as Exhibit F or in another form reasonably similar thereto, or such other form as Landlord may provide from time to time, certifying all or any of the following:  (i) that this Lease is unmodified and in full force and effect, (ii) whether the term has commenced and Fixed Rent and Additional Rent have become payable hereunder and, if so, the dates to which they have been paid, (iii) whether or not Landlord is in default in performance of any of the terms of this Lease, (iv) whether Tenant has accepted possession of the Premises, (v) whether Tenant has made any claim against Landlord under this Lease and, if so, the nature thereof and the dollar amount, if any, of such claim, (vi) whether there exist any offsets or defenses against enforcement of any of the terms of this Lease upon the part of Tenant to be performed, and (vii) such further information with respect to the Lease or the Premises as Landlord may reasonably request.  Any such statement delivered pursuant to this subsection 6.1.11 may be relied upon by any prospective purchaser or mortgagee of the Premises, or any prospective assignee of such mortgage.  Tenant shall also deliver to Landlord such financial information as may be reasonably required by Landlord to be provided to any mortgagee or prospective purchaser of the Premises.

6.1.12 Landlord’s Expenses Re Consents. To reimburse Landlord promptly on demand for all reasonable, out-of-pocket legal expenses incurred by Landlord in connection with all requests by Tenant for consent or approval hereunder, $1,500.00 for each routine transaction, and not to exceed amounts reasonable under the circumstances for more complex transactions involving greater involvement by counsel.

6.2 Negative Covenants.  Tenant covenants at all times during the term and such further time (prior or subsequent thereto) as Tenant occupies the Premises or any part thereof:

6.2.1 Assignment and Subletting.  Not to assign, transfer, mortgage or pledge this Lease or to sublease (which term shall be deemed to include the granting of licenses and the like) all or any part of the Premises or suffer or permit this Lease or the leasehold estate hereby created or any other rights arising under this Lease to be assigned, transferred or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law, or permit the occupancy of the Premises by anyone other than Tenant without the prior written consent of Landlord.  In the event Tenant desires to assign this Lease or sublet any portion or all of the Premises, Tenant shall notify Landlord in writing (“Tenant’s Transfer Notice”) of Tenant’s intent to so assign this Lease or sublet the Premises, the proposed effective date of such subletting or assignment and in connection with a sublease, and the square footage of the proposed sublet space, and shall request in such notification that Landlord consent thereto.  Landlord may terminate this Lease (i) in the case of a proposed assignment, or (ii) in the case of a proposed subletting of more than 50% of the Premises for a term of more than five (5) years or for the balance of the Term, by giving written notice of termination to Tenant, with such termination to be effective as of the effective date of such assignment or subletting.  If Landlord elects to exercise its termination right, it shall give written notice thereof to Tenant within ten (10) business days after the date of Tenant’s Transfer Notice and Landlord’s receipt of all information reasonably requested by Landlord to evaluate Tenant’s request.  If Landlord fails to respond by the expiration of such 10-day period, Tenant shall send Landlord a second notice captioned, “SECOND REQUEST FOR CONSENT,” and Landlord’s failure to respond within five (5) business days after receiving Tenant’s second request shall be deemed a waiver of Landlord’s recapture right.  If Landlord does not so terminate, or is deemed to have waived its right to terminate, Landlord’s consent shall not be unreasonably withheld, conditioned or delayed with respect to an assignment or to a subletting, provided that the following conditions are met:

(i) the assignee or subtenant shall use the Premises only for the Permitted Uses;

(ii) with respect to a subletting, that after such subletting the initial Tenant named herein occupies at least thirty (30%) percent of the Rentable Floor Area of the Premises;

(iii) the amount of the aggregate rent to be paid by the proposed subtenant is not less than the then current sublease market rate for comparable first class sublease space in the Burlington area;

(iv) the proposed assignee or subtenant is not then a tenant in the Building or the Park, or an entity with which Landlord is actively negotiating or with which Landlord has actively negotiated within the preceding four (4) months regarding the possibility of leasing space in the Building or the Park (as evidenced by a written proposal, for example); and

(v) the proposed assignee or subtenant is not a Prohibited Occupant as defined under subsection 6.1.2.1.

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Tenant shall furnish Landlord with any information reasonably requested by Landlord to enable Landlord to determine whether the proposed assignment or subletting complies with the foregoing requirements, including without limitation, financial statements relating to the proposed assignee or subtenant.

Tenant shall, as Additional Rent, reimburse Landlord promptly for Landlord’s reasonable legal expenses incurred in connection with any request by Tenant for such consent.  If Landlord consents thereto, no such subletting or assignment shall in any way impair the continuing primary liability of Tenant hereunder, and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the obligation to obtain the Landlord’s written approval in the case of any other subletting or assignment.

If for any assignment or sublease consented to by Landlord hereunder Tenant receives rent or other consideration, either initially or over the term of the assignment or sublease, in excess of the rent called for hereunder, or in case of sublease of part, in excess of such rent fairly allocable to the part, after appropriate adjustments to assure that all other payments called for hereunder are appropriately taken into account and after first deducting Tenant’s reasonable expenses in connection with the assignment or sublease, including but not limited to marketing expenses, legal fees, brokerage costs, free rent periods, tenant improvements and demising costs to pay to Landlord as additional rent fifty (50%) percent of the excess of each such payment of rent or other consideration received by Tenant promptly after its receipt.

Any other provision of this Section 6.2.1 notwithstanding, Tenant shall have the right, without Landlord’s prior written consent and without any right of Landlord to terminate this Lease, to assign this Lease or sublease all or a portion of the Premises in connection with any of the following transactions with an entity (such entity, a “Permitted Transferee”):  (A) into or with which Tenant is merged or consolidated (even if the Lease is not actually assigned because the named Tenant is the surviving entity) or to which all or substantially all of Tenant’s assets or stock are transferred, provided that in any of such events (i) the resulting entity has a net worth computed in accordance with generally accepted accounting principles at least equal to the net worth of Tenant as of the Date of this Lease, (ii) proof reasonably satisfactory to Landlord of such net worth shall have been delivered to Landlord at least ten (10) days after the effective date of any such transaction, and (iii) the assignee agrees directly with Landlord, by written instrument in form reasonably satisfactory to Landlord and such assignee, to assume and perform all the obligations of Tenant under this Lease; and (B) which is either a parent of Tenant, controlled by Tenant or under common control with Tenant, provided the initial named Tenant remains primarily liable under this Lease.  “Control” for the purposes hereof shall mean ownership of 50% or more of all financial interest and 50% percent or more of the voting interest.

If at any time during the term of this Lease, there is a name change, reformation or reorganization of the Tenant entity, Tenant shall so notify Landlord and deliver evidence reasonably satisfactory to Landlord documenting such name change, reformation or reorganization.  If, at any time during the term of this Lease, there is a transfer of a controlling interest in the stock, membership or general partnership interests of Tenant, Tenant shall so notify Landlord and (whether or not Tenant so notifies Landlord) such transfer shall be deemed an assignment subject to the provisions of this Section 6.2.1.  The provisions of the immediately preceding sentence shall not apply so long as Tenant is a publicly traded company listed on a recognized securities exchange, nor shall such provisions apply to any privatization of Tenant, provided that the resulting entity has a net worth at least equal to the net worth of Tenant as of the Date of this Lease and proof reasonably satisfactory to Landlord has been delivered to Landlord no later than thirty (30) days after the effective date of such transaction effecting privatization.

6.2.2 Nuisance.  Not to injure, deface or otherwise harm the Premises; nor commit any nuisance; nor permit in the Premises any vending machine (except such as is used for the sale of merchandise to employees of Tenant) or inflammable fluids or chemicals (except such as are customarily used in connection with the Permitted Use); nor permit any cooking to such extent as requires special exhaust venting; nor permit the emission of any objectionable noise or odor; nor make, allow or suffer any waste; nor make any use of the Premises which is improper, offensive or contrary to any law or ordinance or which will invalidate any of Landlord’s insurance; nor conduct any auction, fire, “going out of business” or bankruptcy sales.

6.2.3 Intentionally Omitted.

6.2.4 Floor Load; Heavy Equipment.  Not to place a load upon any floor of the Premises exceeding the floor load per square foot area which such floor was designed to carry and which is allowed by law.  Landlord reserves the right to prescribe the weight and position of all heavy business machines and equipment, including safes, which shall be placed so as to distribute the weight.  Business machines and mechanical equipment which cause vibration or noise shall be placed and maintained by Tenant at Tenant’s expense in settings sufficient to absorb and prevent vibration, noise and annoyance.  Tenant shall not move any safe, heavy machinery, heavy equipment, freight or fixtures into or out of the Premises except in such manner and at such time as Landlord shall in each instance authorize.

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6.2.5 Installation, Alterations or Additions.   Not to make any installations, alterations or additions in, to or on the Premises nor to permit the making of any holes in the walls, partitions, ceilings or floors nor the installation or modification of any locks or security devices without on each occasion obtaining the prior written consent of Landlord which shall not be unreasonably withheld, conditioned or delayed, and then only pursuant to plans and specifications approved by Landlord in advance in each instance.  Notwithstanding the foregoing, Tenant shall have the right, without Landlord’s prior consent, to make (i) cosmetic changes, such as paint and carpet, that are not visible from the Building Common Areas, and (ii) nonstructural alterations that do not involve the expenditure of more than $25,000.00 in the aggregate in any one instance during a 12-month period.  Tenant agrees to employ for any work one or more responsible contractors of whom Landlord has given prior approval, which approval shall not be unreasonably withheld, conditioned or delayed and whose labor will work without interference with other labor working on the Property, and to cause such contractors employed by Tenant to carry worker’s compensation insurance in accordance with statutory requirements and comprehensive public liability insurance covering such contractors on or about the Premises in amounts at least equal to the limits set forth in Section 1.1 and to submit certificates evidencing such coverage to Landlord prior to the commencement of such work.    Tenant shall pay promptly when due the entire cost of any work to the Premises undertaken by Tenant so that the Premises shall at all times be free of liens for labor and materials, and at Landlord’s request Tenant shall furnish to Landlord a bond or other security acceptable to Landlord assuring that any work commenced by Tenant will be completed in accordance with the plans and specifications theretofore approved by Landlord and assuring that the Premises will remain free of any mechanics’ lien or other encumbrance arising out of such work.  In any event, Tenant shall forthwith bond against or discharge any mechanics’ liens or other encumbrances that may arise out of such work.  Tenant shall procure all necessary licenses and permits at Tenant’s sole expense before undertaking such work.  All such work shall be done in a good and workmanlike manner employing materials of good quality and so as to conform with all applicable zoning, building, fire, health and other codes, regulations, ordinances and laws.  Tenant shall save Landlord harmless and indemnified from all injury, loss, claims or damage to any person or property occasioned by or growing out of such work.   Not to grant a security interest in, or to lease, any personal property or equipment being installed in the Premises, including, without limitation, demountable partitions (the “Collateral”)  without first obtaining an agreement for the benefit of Landlord in the form attached hereto as Exhibit G, from the secured party or lessor (“Secured Party”) that stipulates in the event either the Lease is terminated or Tenant defaults in its obligations to Secured Party, then (i) Secured Party will remove the Collateral within ten (10) business days after notice from Landlord of the expiration or earlier termination of this Lease, or within ten (10) business days after Secured Party notifies Landlord that Secured Party has the right to remove the Collateral on account of Tenant’s default in its obligations to Secured Party, (ii) Secured Party will restore the area affected by such removal, and (iii) that a failure to so remove the Collateral will subject such property to the provisions of subsection 6.1.9 of the Lease.

6.2.6 Abandonment.  Not to abandon the Premises during the term, it being understood and agreed that vacancy of the Premises shall not be construed as abandonment so long as all of Tenant’s other obligations under this Lease continue to be timely performed and reasonable measures are taken by Tenant to manage the vacant space.

6.2.7 Signs.  Not without Landlord’s prior written approval to paint or place any signs or place any curtains, blinds, shades, awnings, aerials, or the like, visible from outside the Premises.  Notwithstanding the foregoing, Landlord, at its sole cost and expense, shall provide Tenant with building standard identification on the digital directory in the lobby of the Building and on the monument signs located outside the main entrance of the Building and on Network Drive.  In addition, Tenant shall have the non-exclusive right to install an identification sign on the exterior Building facade, the size and location of which must first be approved by Landlord and be in compliance with the Network Drive Sign Policy (the receipt of which Tenant hereby acknowledges).  All of Tenant’s signage is subject to and must comply with applicable building codes and zoning ordinances of the Town of Burlington.  Tenant shall be solely responsible for all costs of installing, maintaining and removing its exterior sign.

6.2.8 Parking and Storage.  Not to permit any storage of materials outside of the Premises; nor to permit the use of the parking areas for either temporary or permanent storage of trucks; nor permit the use of the Premises for any use for which heavy trucking would be customary.

ARTICLE 7

Casualty or Taking

7.1   Termination.  In the event that the Premises or the Building, or any material part thereof, shall be taken by any public authority or for any public use, or shall be destroyed or damaged by fire or casualty, or by the action of any public authority, then this Lease may be terminated at the election of Landlord.  Such election, which may be made notwithstanding the fact that Landlord’s entire interest may have been divested, shall be made by the giving of notice by Landlord to Tenant within sixty (60) days after the date of the taking or casualty.  In the event that the Premises are substantially destroyed or damaged by fire or casualty, or taken by the action of public authority such that restoration or reconstruction would be necessary, and, in the reasonable opinion of an independent architect or engineer selected by Landlord, cannot be repaired or restored within two hundred and forty (240) days from the date of the casualty or taking, then this Lease may be terminated at the election of Landlord or Tenant, which election shall be made by the giving of notice to the other party within thirty (30) days after the date the opinion of the architect or engineer is made available to the parties, which notice shall specify the effective date of termination, which shall not be less than thirty (30) nor more than sixty (60) days after the date of such parties’ termination notice.  Landlord shall endeavor to deliver the architect’s opinion to Tenant within forty-five (45) days following the casualty or taking.  In addition, with respect to a taking or casualty occurring during the last twenty-four (24) months of the Term which causes the Premises to be damaged to the extent that 35% or more of the Rentable Floor Area of the Premises is damaged or destroyed, then Tenant may elect to terminate this Lease, which election shall be made within twenty (20) days after the taking or casualty and effective as of the date that is forty-five (45) days after the date of Tenant’s written notice of its election.

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7.2   Restoration.  If neither Landlord nor Tenant elects to so terminate, this Lease shall continue in force and a just proportion of the rent reserved, according to the nature and extent of the damages sustained by the Premises, shall be suspended or abated until the Premises, or what may remain thereof, shall be put by Landlord in proper condition for use, which Landlord covenants to do with reasonable diligence to the extent permitted by the net proceeds of insurance recovered or damages awarded for such taking, destruction or damage and subject to zoning and building laws or ordinances then in existence.  “Net proceeds of insurance recovered or damages awarded” refers to the gross amount of such insurance or damages actually received by Landlord and released to Landlord by Landlord’s lender, less the reasonable expenses of Landlord incurred in connection with the collection of the same, including without limitation, fees and expenses for legal and appraisal services.  Subject to the provisions of Section 11.5 (which shall operate to extend the time period set forth herein by no more than sixty (60) days), if Landlord shall not have restored the Premises, or in the case of a taking, what may remain thereof (excluding the initial tenant improvements and any other alterations or installations made by or on behalf of Tenant) within two hundred and forty (240) days from the date of casualty or taking, or within one hundred and twenty (120) days from any casualty or taking occurring during the last eighteen (18) months of the Term, Tenant shall have the right to terminate this Lease by giving notice of such termination to Landlord, effective at the expiration of thirty (30) days from the giving of such notice; provided however, that such termination will be rendered ineffective if, prior to the expiration of said 30-day period, Landlord shall have completed such restoration.  The foregoing termination right shall be Tenant’s sole remedy at law or in equity for Landlord’s failure to restore the Premises within the aforesaid time periods.

7.3 Award.  Irrespective of the form in which recovery may be had by law, all rights to damages or compensation shall belong to Landlord in all cases except for any awards for Tenant’s relocation costs and personal property, trade fixtures and equipment, which shall belong to Tenant.  Tenant hereby grants to Landlord all of Tenant’s rights to such damages and covenants to deliver such further assignments thereof as Landlord may from time to time request, other than for Tenant’s relocation award, as aforesaid.

ARTICLE 8

Defaults

8.1 Events of Default.(a)  If Tenant shall default in the performance of any of its obligations to pay the Fixed Rent, Additional Rent or any other sum due Landlord hereunder and if such default shall continue for ten (10) days after written notice from Landlord designating such default or if within thirty (30) days after written notice from Landlord to Tenant specifying any other default or defaults Tenant has not commenced diligently to correct the default or defaults so specified or has not thereafter diligently pursued such correction to completion, or (b)  if any assignment shall be made by Tenant in violation of the provisions of Section 6.2.1 of this Lease, or (c) if any assignment shall be made by Tenant or any guarantor of Tenant for the benefit of creditors, or (d)  if Tenant’s leasehold interest shall be taken on execution, or (e)  if a lien or other involuntary encumbrance is filed against Tenant’s leasehold interest or Tenant’s other property, including said leasehold interest, and is not discharged within ten (10) days thereafter, or (f)  if a petition is filed by Tenant or any guarantor of Tenant for liquidation, or for reorganization or an arrangement under any provision of any bankruptcy law or code as then in force and effect, or (g)  if an involuntary petition under any of the provisions of any bankruptcy law or code is filed against Tenant or any guarantor of Tenant and such involuntary petition is not dismissed within thirty (30) days thereafter, or (h) if Tenant shall fail to provide and maintain the insurance required by Section 4.2 hereof for more than five (5) business days after notice from Landlord, then, and in any of such cases, Landlord and the agents and servants of Landlord lawfully may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter without demand or notice and with or without process of law (forcibly, if necessary) enter into and upon the Premises or any part thereof in the name of the whole or mail a notice of termination addressed to Tenant, and repossess the same as of Landlord’s former estate and expel Tenant and those claiming through or under Tenant and remove its and their effects (forcibly,  if necessary) without being deemed guilty of any manner of trespass and without prejudice to any remedies which might otherwise be used for arrears of rent or prior breach of covenants, and upon such entry or mailing as aforesaid this Lease shall terminate, Tenant hereby waiving all statutory rights to the Premises (including without limitation rights of redemption, if any, to the extent such rights may be lawfully waived) and Landlord, without notice to Tenant, may store Tenant’s effects, and those of any person claiming through or under Tenant, at the expense and risk of Tenant, and, if Landlord so elects, may sell such effects at public auction or private sale and apply the net proceeds to the payment of all sums due to Landlord from Tenant, if any, and pay over the balance, if any, to Tenant.

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8.2 Remedies.In the event that this Lease is terminated under any of the provisions contained in Section 8.1 or shall be otherwise terminated for breach of any obligation of Tenant, Tenant covenants to pay punctually to Landlord all the sums and to perform all the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated.  In calculating the amounts to be paid by Tenant pursuant to the next preceding sentence Tenant shall be credited with any amount paid to Landlord as compensation as in this Section 8.2 provided and also with the net proceeds of any rent obtained by Landlord by reletting the Premises, after deducting all Landlord’s expense in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, fees for legal services and expenses of preparing the Premises for such reletting, it being agreed by Tenant that Landlord may (i)  relet the Premises or any part or parts thereof, for a term or terms which may at Landlord’s option be equal to or less than or exceed the period which would otherwise have constituted the balance of the term and may grant such concessions and free rent as Landlord in its sole judgment considers advisable or necessary to relet the same and (ii)  make such alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing or failure to relet or to collect rent under reletting shall operate or be construed to release or reduce Tenant’s liability as aforesaid. In lieu of full recovery by Landlord of the sums payable under the foregoing provisions of this Section 8.2 (except for the amount of any rent of any kind accrued and unpaid at the time of termination) Landlord may by written notice to Tenant, elect to recover, and Tenant shall thereupon pay forthwith to Landlord, as compensation, the excess of the total rent reserved for the residue of the term over the rental value of the Premises for said residue of the term.  In calculating the rent reserved there shall be included, in addition to the Fixed Rent and Additional Rent, the unamortized amounts of the TI Allowance and any Supplemental Allowance from the date of  termination of this Lease through the remainder of the Original Term. Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than, equal to, or less than the amount of the loss or damages referred to above.

8.3   Remedies Cumulative.  Any and all rights and remedies which Landlord may have under this Lease, and at law and equity, shall be cumulative and shall not be deemed inconsistent with each other, and any two or more of all such rights and remedies may be exercised at the same time insofar as permitted by law.  Except as specifically provided for in Section 6.1.9 above, Tenant shall not be liable for any consequential or incidental damages for breach of any provision of this Lease.

8.4   Landlord’s Right to Cure Defaults.  Landlord may, but shall not be obligated to, cure, at any time, without notice, any default by Tenant under this Lease; and whenever Landlord so elects, all costs and expenses incurred by Landlord, including reasonable attorneys’ fees, in curing a default shall be paid, as Additional Rent, by Tenant to Landlord on demand, together with lawful interest thereon from the date of payment by Landlord to the date of payment by Tenant.

8.5   Effect of Waivers of Default. Any consent or permission by Landlord to any act or omission which otherwise would be a breach of any covenant or condition herein, shall not in any way be held or construed (unless expressly so declared) to operate so as to impair the continuing obligation of any covenant or condition herein, or otherwise, except as to the specific instance, operate to permit similar acts or omissions.

8.6   No Waiver, etc. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation.  The receipt by Landlord of rent with knowledge of the breach of any covenant of this Lease shall not be deemed to have been a waiver of such breach by Landlord.  No consent or waiver, express or implied, by Landlord to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty.

8.7   No Accord and Satisfaction.  No acceptance by Landlord of a lesser sum than the Fixed Rent, Additional Rent or any other charge then due shall be deemed to be other than on account of the earliest installment of such rent or charge due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent or other charge be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such installment or pursue any other remedy in this Lease provided.

ARTICLE 9

Rights of Mortgage Holders

9.1   Rights of Mortgage Holders.  The word “mortgage” as used herein includes mortgages, deeds of trust or other similar instruments evidencing other voluntary liens or encumbrances, and modifications, consolidations, extensions, renewals, replacements and substitutes thereof.  The word “holder” shall mean a mortgagee, and any subsequent holder or holders of a mortgage.  Until the holder of a mortgage shall enter and take possession of the Property for the purpose of foreclosure, such holder shall have only such rights of Landlord as are necessary to preserve the integrity of this Lease as security.  Upon entry and taking possession of the Property for the purpose of foreclosure, such holder shall have all the rights of Landlord.  No such holder of a mortgage shall be liable either as mortgagee or as assignee, to perform, or be liable in damages for failure to perform, any of the obligations of Landlord unless and until such holder shall enter and take possession of the Property for the purpose of foreclosure.  Upon entry for the purpose of foreclosure, such holder shall be liable to perform all of the obligations of Landlord, subject to and with the benefit of the provisions of Section 11.4, provided that a discontinuance of any foreclosure proceeding shall be deemed a conveyance under said provisions to the owner of the equity of the Property.

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The covenants and agreements contained in this Lease with respect to the rights, powers and benefits of a holder of a mortgage (particularly, without limitation thereby, the covenants and agreements contained in this Section 9.1) constitute a continuing offer to any person, corporation or other entity, which by accepting a mortgage subject to this Lease, assumes the obligations herein set forth with respect to such holder; such holder is hereby constituted a party of this Lease as an obligee hereunder to the same extent as though its name were written hereon as such; and such holder shall be entitled to enforce such provisions in its own name.  Tenant agrees on request of Landlord to execute and deliver from time to time any agreement which may be necessary to implement the provisions of this Section 9.1.

9.2   Lease Superior or Subordinate to Mortgages. It is agreed that the rights and interest of Tenant under this Lease shall be (i)  subject or subordinate to any present or future mortgage or mortgages and to any and all advances to be made thereunder, and to the interest of the holder thereof in the Premises or any property of which the Premises are a part if Landlord shall elect by notice to Tenant to subject or subordinate the rights and interest of Tenant under this Lease to such mortgage or (ii)  prior to any present or future mortgage or mortgages, if Landlord shall elect, by notice to Tenant, to give the rights and interest of Tenant under this Lease priority to such mortgage; in the event of either of such elections and upon notification by Landlord to that effect, the rights and interest of Tenant under this Lease should be deemed to be subordinate to, or have priority over, as the case may be, said mortgage or mortgages, irrespective of the time of execution or time of recording of any such mortgage or mortgages, provided that, in the case of subordination of this Lease to any future mortgages, subordination is expressly conditioned upon such holder’s agreement not to terminate, interfere with or disturb the rights, use, occupancy, options or possession of Tenant under this Lease so long as Tenant is not in default beyond all cure periods hereunder, nor to join Tenant as a party defendant in any action or proceeding for the sole purpose of terminating Tenant’s leasehold interest under this Lease, and to recognize and be bound by the terms of this Lease so long as Tenant agrees to attorn to such holder.  Landlord shall use diligent efforts to obtain from any such future holder of a mortgage an SNDA for Tenant’s benefit in a form containing the foregoing provisions.  Tenant agrees it will, upon not less than ten (10) days’ prior written request by Landlord, execute, acknowledge and deliver any and all instruments deemed by Landlord necessary or desirable to give effect to or notice of such subordination or priority.  Any Mortgage to which this Lease shall be subordinated may contain such terms, provisions and conditions as the holder deems usual or customary.  Landlord will use reasonable efforts to obtain a so-called subordination, non-disturbance and attornment agreement (“SNDA”) from Landlord’s existing lender, on such lender’s standard form.  In the event Tenant wishes to negotiate lender’s form of SNDA, it shall do so directly with the lender and shall be solely responsible for any fees imposed by such lender.

ARTICLE 10

Hazardous Materials

10.1   No Releases of Hazardous Materials. Tenant covenants and agrees not to use, release, dispose, manufacture, store, or transport any Hazardous Materials (hereinafter defined) at, on, under or from the Premises and the Property except in compliance with any and all laws, regulations, ordinances or orders promulgated, and as may be amended, by any governmental authority having jurisdiction over Hazardous Materials or the Property (collectively, “Legal Requirements”), and except for those Hazardous Materials used in the ordinary course of Tenant’s business, but only in compliance with all applicable Legal Requirements and any reasonable requirements of Landlord (such as requirements for fencing or other locked enclosures).  Tenant shall comply with all governmental reporting requirements with respect to Hazardous Materials and all chemicals and flammable substances (in whatever form) used by Tenant in its business operations, and shall deliver to Landlord copies of all such reports.  In the event that a release or threat of release of Hazardous Materials occurs at, from or upon the Premises or Property during the Term, and such release was caused by Tenant or any Tenant Related Parties, Tenant shall at its expense perform all actions required under any and all applicable Legal Requirements to assess, contain, remove or respond to such release or threat of release; provided, however, that Tenant’s work or actions hereunder shall be subject to Landlord’s prior approval, which approval shall not be unreasonably withheld.  The term “Hazardous Materials” shall mean any and all materials defined or classified as “hazardous materials” “hazardous waste,” “hazardous substance,” “toxic substance,” “hazardous pollutant,” “toxic pollutant” or “oil” under 42 U.S.C. §9601 et. seq. (CERCLA), 42 U.S.C. §6901 et. seq. (RCRA), M.G.L. c. 21C or M.G.L. c. 21E and any regulations promulgated pursuant to those statutes, all as amended.

10.2   Notices of Release of Hazardous Materials.  Tenant shall promptly notify Landlord in writing of all spills, releases or threat of release of Hazardous Materials caused by or involving Tenant or its business operations, and all notices, orders, fines or communications of any kind received by Tenant from any governmental authority or third party concerning the presence or suspected presence of Hazardous Materials on the Premises or the Property, the migration or suspected migration of Hazardous Materials from the Premises or the Property to other property, or the migration or suspected migration of Hazardous Materials from other property to the Premises or the Property.

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10.3   Landlord’s Right to Inspect.   Subject to Section 6.1.6 hereof, Landlord, its officers, employees, contractors and agents shall have the right, but not the duty, to inspect areas of the Premises to determine whether Tenant is complying with CERCLA, RCRA, Chapter 21C, Chapter 21E, and other state and federal environmental laws, or regulations promulgated pursuant to any of the foregoing, as amended.  Landlord shall use reasonable efforts to minimize interference with Tenant’s business, but shall not be liable for any interference caused thereby, provided Landlord shall have used such reasonable efforts.

10.4   Landlord’s Right to Audit.  Subject to Section 6.1.6 hereof, Tenant shall permit Landlord, its employees and its agents (including its environmental consultant), access to all areas of the Premises, from time to time during the term, for the purposes of conducting an environmental assessment or inspection  during regular business hours, or during other hours either by agreement of the parties or in the event of an environmental emergency.  In the event Landlord shall exercise its rights under this Section 10.4, Landlord shall use reasonable efforts to minimize interference with Tenant’s business, but shall not be liable for any interference caused thereby, provided Landlord shall have used such reasonable efforts.

10.5   Tenant Audit. Landlord shall have the right, from time to time, during the Term of this Lease, and upon the expiration of the Term of this Lease, to require that Tenant hire, and in such event, Tenant shall at its own expense hire, an environmental consultant satisfactory to Landlord to undertake an environmental assessment, inspection and/or sampling at the Premises and/or Property to determine whether Hazardous Materials have been released during the term of the Lease.  Landlord’s  right under this Section 10.5 shall only be exercised if Landlord has reasonable cause to believe that a release or threat of release of Hazardous Materials has occurred.

10.6   Remediation.  Should the assessment, inspection or sampling performed pursuant to Sections 10.4 or 10.5 above, or any other assessment, inspection or sampling, reveal that there has been a release or threat of release of Hazardous Materials by Tenant or its employees, agents or contractors, then Tenant shall, at its expense, undertake all remediation and/or response action required by any governmental authority, and Tenant shall promptly thereafter restore any areas damaged or affected by such remediation and/or response action.

10.7   Tenant’s Reporting Requirements; Management and Safety Plan.  Upon the execution of this Lease, Tenant shall submit to Landlord a list that specifies the materials that Tenant will use or store on the Premises in the ordinary course of its business.  Tenant shall provide Landlord with an updated list every twelve (12) months, or sooner if and when Tenant is required to file reports to comply with Legal Requirements.  Within thirty (30) days after the Date of this Lease, Tenant shall prepare and deliver to Landlord and Landlord’s environmental consultant a so-called “Chemical Management and Facility Safety Plan.”  Tenant shall operate its business at the Premises in accordance with the procedures and practices set forth in said Plan, and shall promptly remedy from time to time any practices, procedures or conditions, at Tenant’s expense, that violate, or which in the reasonable judgment of Landlord or its consultant, would with the passage of time violate, the provisions of this Article 10.

10.8   Indemnifications.  Tenant agrees to indemnify and save Landlord harmless from all claims, liability, loss or damage arising on account of the use, release, threat of release, holding, handling, transport, storage, or disposal of Hazardous Materials by Tenant, its employees, agents or contractors at, on, upon or from the Premises or Property from and after the Date of this Lease, including, without limitation, liability under any federal, state, or local laws, requirements and regulations, or damage to any of the systems of the Building or the Property. Landlord agrees to indemnify and save Tenant harmless from all claims, liability, loss or damage arising on account of the use, release, threat of release, holding, handling, transport, storage, or disposal of Hazardous Materials by Landlord, its employees, agents, contractors or previous tenants at, on, upon or from the Premises or Property prior to the Date of this Lease, including, without limitation, liability under any federal, state, or local laws, requirements and regulations, or damage to any of the systems of the Building or the Property provided, however, that with respect to claims against Tenant by employees or former employees of Tenant relating to any pre-existing Hazardous Materials, Landlord shall have no duty to defend Tenant, and Landlord’s obligation to indemnify Tenant in such cases shall apply only if such employee’s claim prevails, despite Tenant having used reasonable efforts to defend such claim, in a judicial proceeding in a court of competent jurisdiction through final judgment, with no further appeal.  Landlord shall not be responsible for any claims for consequential damages or lost profits of Tenant.   The provisions of this Section 10.8 shall survive the expiration or earlier termination of this Lease.

ARTICLE 11

Miscellaneous Provisions

11.1   Notices from One Party to the Other.  All notices required or permitted hereunder shall be in writing and addressed, if to the Tenant, at the Original Notice Address of Tenant or such other address as Tenant shall have last designated by notice in writing to Landlord and, if to Landlord, at the Original Notice Address of Landlord or such other address as Landlord shall have last designated by notice in writing to Tenant.  Any notice shall be deemed duly given when mailed to such address postage prepaid, by certified mail, return receipt requested, or when delivered to such address by hand.

11.2   Quiet Enjoyment.  Landlord agrees that upon Tenant’s paying the rent and performing and observing the agreements, conditions and other provisions on its part to be performed and observed, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises during the term hereof without any manner of hindrance or molestation from Landlord or anyone claiming under Landlord, subject, however, to the terms of this Lease.

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11.3   Lease not to be Recorded.  Tenant agrees that it will not record this Lease.  Both parties shall, upon the request of either, execute and deliver a notice of this Lease in such form, if any, as may be permitted by applicable statute.  Tenant, concurrently with its execution of any notice of this Lease, shall execute, acknowledge and deliver a so-called “notice of termination of lease” to be held in escrow by Landlord’s attorney until the expiration or earlier termination of this Lease.

11.4   Limitation of Landlord’s Liability.   The term “Landlord” as used in this Lease, so far as covenants or obligations to be performed by Landlord are concerned, shall be limited to mean and include only the owner or owners at the time in question of the Property, and in the event of any transfer or transfers of title to said property, the Landlord (and in case of any subsequent transfers or conveyances, the then grantor) shall be concurrently freed and relieved from and after the date of such transfer or conveyance, without any further instrument or agreement of all liability as respects the performance of any covenants or obligations on the part of the Landlord contained in this Lease thereafter to be performed, it being intended hereby that the covenants and obligations contained in this Lease on the part of Landlord, shall, subject as aforesaid, be binding on the Landlord, its successors and assigns, only during and in respect of their respective successive periods of ownership of said leasehold interest or fee, as the case may be.  Tenant, its successors and assigns, shall not assert nor seek to enforce any claim for breach of this Lease against any of Landlord’s assets other than Landlord’s interest in the Property and in the rents, issues and profits thereof, and Tenant agrees to look solely to such interest for the satisfaction of any liability or claim against Landlord under this Lease, it being specifically agreed that in no event whatsoever shall Landlord (which term shall include, without limitation, any general or limited partner, trustees, beneficiaries, officers, directors, or stockholders of Landlord) ever be personally liable for any such liability.

11.5   Force Majeure. In any case where either party hereto is required to do any act, delays caused by or resulting from Acts of God, war, civil commotion, fire, flood or other casualty, labor difficulties, shortages of labor, materials or equipment, government regulations, unusually severe weather, or other causes beyond such party’s reasonable control (any of the foregoing causes being referred to herein as “Force Majeure”) shall not be counted in determining the time during which work shall be completed, whether such time be designated by a fixed date, a fixed time or a “reasonable time,” and such time shall be deemed to be extended by the period of such delay.

11.6   Landlord’s Default.  Landlord shall not be deemed to be in default in the performance of any of its obligations hereunder unless it shall fail to perform such obligations and such failure shall continue for a period of thirty (30) days or such additional time as is reasonably required to correct any such default after written notice has been given by Tenant to Landlord (and to all mortgagees of which Tenant has notice) specifying the nature of Landlord’s alleged default.  Landlord shall not be liable in any event for incidental or consequential damages to Tenant by reason of Landlord’s default, whether or not notice is given.  Tenant shall have no right to terminate this Lease for any default by Landlord hereunder and no right, for any such default, to offset or counterclaim against any rent due hereunder.

11.7   Brokerage.  Landlord and Tenant warrant and represent that they have dealt with no broker in connection with the consummation of this Lease, other than Jones Lang LaSalle, and in the event of any brokerage claims, other than by Jones Lang LaSalle, against either party predicated upon prior dealings with the other party, then the other party agrees to defend the same and indemnify and hold Landlord or Tenant, as applicable, harmless against any such claim.

11.8   Applicable Law and Construction; Merger; Jury Trial.This Lease may be executed in counterpart copies each of which shall be deemed an original, and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts and, if any provisions of this Lease shall to any extent be invalid, the remainder of this Lease shall not be affected thereby.  This Lease and the Exhibits attached hereto and forming a part hereof constitute all the covenants, promises, agreements, and understandings between Landlord and Tenant concerning the Premises and the Building and there are no covenants, promises, agreements or understandings, either oral or written, between them other than as are set forth in this Lease.  Neither Landlord nor Landlord's agents shall be bound to any representations with respect to the Premises, the Building or the Property except as herein expressly set forth, and all representations, either oral or written, shall be deemed to be merged into this Lease. Tenant shall and does hereby waive trial by jury in any action, proceeding, or claim brought by or against Landlord regarding any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant or Tenant’s use or occupancy of the Premises.  The titles of the several Articles and Sections contained herein are for convenience only and shall not be considered in construing this Lease.  Unless repugnant to the context, the words “Landlord” and “Tenant” appearing in this Lease shall be construed to mean those named above and their respective heirs, executors, administrators, successors and assigns, and those claiming through or under them respectively.  If there be more than one tenant, the obligations imposed by this Lease upon Tenant shall be joint and several.

11.9   Consents.With respect to any provision of this Lease which either provides or is held to provide that Landlord shall not unreasonably withhold or unreasonably delay any consent or approval, Tenant shall not be entitled to make any claim for, and Tenant hereby expressly waives, any claim for damages, it being understood and agreed that Tenant's sole remedy therefor shall be an action for specific performance.

27

11.10   Authority.   In the event the Tenant is a corporation, partnership or limited liability company, Tenant hereby represents and warrants that: the Tenant is a duly constituted corporation, partnership or limited liability company, as the case may be, qualified to do business in the Commonwealth of Massachusetts; that the person executing this Lease is duly authorized to execute and deliver this Lease on behalf of said corporation(s), partnership(s) or limited liability company(ies); and that the by-laws of Tenant authorize Tenant to enter into this Lease.

11.11   Disclosure.Notwithstanding anything to the contrary contained in this Lease, Landlord hereby acknowledges and agrees that Tenant may disclose this Lease and the terms of this Lease in accordance with the Security and Exchange Commission’s rules and regulations, including but not limited to, Tenant’s filing of its Form 10Q and Form 8K with the Security and Exchange Commission.

WITNESS the execution hereof under seal on the day and year first above written:

LANDLORD:
NETVIEW 5 AND 6 LLC, a Delaware limited liability company
By:	NetView Investments LLC, a Delaware limited liability company, its Manager
	By:	NetView Holdings LLC, a Massachusetts limited liability company,  its Manager
		By:	Nordblom Development Company, Inc., a Massachusetts corporation, its Manager
			By:	/s/ Ogden Hunnewell
			Name:	Ogden Hunnewell
			Title:	Exec. VP

TENANT:

DYAX CORP

  /s/ George Migausky

By: George Migausky

Its: Exec. Vice President & Chief Financial Officer

Hereunto duly authorized

28

EX-31.1

Exhibit 31.1

Certification Pursuant to Section 240.13a-14 or 240.15d-14

of the Securities Exchange Act of 1934, as amended

I, Gustav A. Christensen, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Dyax Corp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  November 3, 2011
	/s/ Gustav A. Christensen
	Gustav A. Christensen
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 240.13a-14 or 240.15d-14

of the Securities Exchange Act of 1934, as amended

I, George Migausky, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Dyax Corp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  November 3 , 2011
	/s/ George Migausky
	George Migausky
	Executive Vice President and
	Chief Financial Officer

EX-32

Exhibit 32

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

Each of the undersigned officers of Dyax Corp. (the "Company") certifies, under the standards set forth in and solely for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 3, 2011	/s/ Gustav A. Christensen
	Gustav A. Christensen
	President and Chief Executive Officer

Dated: November 3, 2011	/s/ George Migausky
	George Migausky
	Executive Vice President and
	Chief Financial Officer

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data	Sep. 30, 2011	Dec. 31, 2010
Accounts receivable, allowances for doubtful accounts	$ 75	$ 45
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	98,748,086	98,508,487
Common stock, shares outstanding	98,748,086	98,508,487

XML

Consolidated Statements of Operations and Comprehensive Income (Loss) (USD $) In Thousands, except Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Revenues:
Product sales, net	$ 6,597	$ 2,622	$ 15,888	$ 5,796
Development and license fee revenues	3,535	4,329	24,333	36,345
Total revenues, net	10,132	6,951	40,221	42,141
Costs and expenses:
Cost of product sales	260	119	781	247
Research and development expenses	8,659	7,940	26,238	23,743
Selling, general and administrative expenses	8,790	7,668	27,120	24,619
Total costs and expenses	17,709	15,727	54,139	48,609
Loss from operations	(7,577)	(8,776)	(13,918)	(6,468)
Other income (expense):
Interest and other income	382	123	544	198
Interest and other expenses	(2,528)	(2,601)	(7,690)	(9,291)
Total other expense	(2,146)	(2,478)	(7,146)	(9,093)
Net loss	(9,723)	(11,254)	(21,064)	(15,561)
Other comprehensive income (loss):
Unrealized gain (loss) on investments	(27)	(1)	(18)	33
Comprehensive loss	$ (9,750)	$ (11,255)	$ (21,082)	$ (15,528)
Basic and diluted net loss per share	$ (0.10)	$ (0.11)	$ (0.21)	$ (0.17)
Shares used in computing basic and diluted net loss per share	98,748,086	98,401,835	98,720,137	91,502,187

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2011	Oct. 26, 2011
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Trading Symbol	DYAX
Entity Registrant Name	DYAX CORP
Entity Central Index Key	0000907562
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		98,748,086

XML

NOTE PAYABLE

9 Months Ended

Sep. 30, 2011

NOTE PAYABLE

7. NOTE PAYABLE

In 2008, the Company entered into an agreement with Cowen Healthcare Royalty Partners, LP (Cowen Healthcare) for a $50.0 million loan secured by the Company's phage display LFRP (Tranche A loan). The Company used $35.1 million from the proceeds of the Tranche A loan to pay off its remaining obligation under a then existing agreement with Paul Royalty Fund Holdings II, LP.  In March 2009, the Company amended and restated the loan agreement with Cowen Healthcare to include a Tranche B loan of $15.0 million.

The Tranche A and Tranche B loans (collectively, the Loan) mature in August 2016.  The Tranche A portion bears interest at an annual rate of 16%, payable quarterly, and the Tranche B portion bears interest at an annual rate of 21.5%, payable quarterly. The Loan may be prepaid without penalty, in whole or in part, beginning in August 2012.  In connection with the Loan, the Company has entered into a security agreement granting Cowen Healthcare a security interest in the intellectual property related to the LFRP, and the revenues generated by the Company through the license 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.

Under the terms of the loan agreement, the Company is required to repay the Loan based on the annual net LFRP receipts.  Until June 30, 2013, required payments are tiered as follows: 75% of the first $10.0 million in specified annual LFRP receipts, 50% of the next $5.0 million and 25% of annual included LFRP receipts over $15.0 million.  After June 30, 2013, and until the maturity date or the complete amortization of the Loan, Cowen Healthcare will receive 90% of all included LFRP receipts.  If the Cowen Healthcare 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 Cowen Healthcare 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 date of funding of each tranche of the loan, the Company must repay to Cowen Healthcare all additional accumulated principal above the original $50.0 million and $15.0 million loan amounts of Tranche A and Tranche B, respectively.

In addition, under the terms of the loan agreement, the Company is permitted to sell or otherwise transfer collateral generating cash proceeds of up to $25.0 million. Twenty percent of these cash proceeds will be applied to principal and accrued interest on the Loan plus any applicable prepayment premium and an additional 5.0% of such proceeds will be paid to Cowen Healthcare as a cash premium.  In 2010, the Company sold its rights to royalties and other payments related to the commercialization of a product developed by one of the Company’s licensees under the LFRP.  Under the terms of the sale, the Company has received $11.3 million and is eligible to receive an additional $500,000 based on 2011 product sales (see Note 3, Significant Transactions - Sale of Xyntha Royalty Rights).

In connection with the Tranche A loan, the Company issued to Cowen Healthcare a warrant to purchase 250,000 shares of the Company's common stock at an exercise price of $5.50 per share.  The warrant expires in August 2016 and became exercisable on August 5, 2009.  The Company estimated the relative fair value of the warrant to be $853,000 on the date of issuance, using the Black-Scholes valuation model, assuming a volatility factor of 83.64%, risk-free interest rate of 4.07%, an eight-year expected term and an expected dividend yield of zero.  In conjunction with the Tranche B loan, the Company issued to Cowen Healthcare a warrant to purchase 250,000 shares of the Company’s common stock at an exercise price of $2.87 per share.  The warrant expires in August 2016 and became exercisable on March 27, 2010.  The Company estimated the relative fair value of the warrant to be $477,000 on the date of issuance, using the Black-Scholes valuation model, assuming a volatility factor of 85.98%, risk-free interest rate of 2.77%, a seven-year, four-month expected term and an expected dividend yield of zero.  The relative fair values of the warrants as of the date of issuance are recorded in additional paid-in capital on the Company's consolidated balance sheets.

The cash proceeds from the Loan were recorded as a note payable on the Company's consolidated balance sheet.  The note payable balance was reduced by $1.3 million for the fair value of the Tranche A and Tranche B warrants, and by $580,000 for payment of Cowen Healthcare’s legal fees in conjunction with the Loan.  Each of these amounts is being accreted over the life of the note.

The following table reflects the activity on the Loan for financial reporting purposes for the nine months ended September 30, 2011 and the year ended December 31, 2010 (in thousands):

	2011			2010
Balance January 1	$	56,406		$	58,096
Accretion on warrants and discount		184			246
Loan activity:
Interest expense		7,470			11,420
Payments applied to principal		(1,129	)		(1,935	)
Payments applied to interest		(6,042	)		(10,721	)
Accrued interest payable		(1,428	)		(700	)
Ending balance	$	55,461		$	56,406

                The Loan principal balance at September 30, 2011, and December 31, 2010 was $56.7 million and $57.8 million, respectively.  The estimated fair value of the note payable was $52.2 million at September 30, 2011.

In August 2011, Cowen Healthcare assigned their rights and interests under the loan agreement to an affiliate, Vanderbilt Royalty Sub L.P.  Cowen Healthcare continues to act as the agent under the loan agreement and will continue to manage all obligations with respect to the Loan.

XML

SIGNIFICANT TRANSACTIONS

9 Months Ended

Sep. 30, 2011

SIGNIFICANT TRANSACTIONS

3. SIGNIFICANT TRANSACTIONS

Sigma-Tau

In June 2010, the Company entered into a strategic partnership agreement with Defiante Farmaceutica S.A., a subsidiary of the pharmaceutical company Sigma-Tau SpA (Sigma-Tau) to develop and commercialize subcutaneous ecallantide for the treatment of HAE and other therapeutic indications throughout Europe, North Africa, the Middle East and Russia.  In December 2010, the original agreement was amended to expand the partnership to commercialize KALBITOR for the treatment of HAE in Australia and New Zealand (the first amendment).  In May 2011, the Company further amended its agreement with Sigma-Tau to include development and commercialization rights in Latin America (excluding Mexico), the Caribbean, Taiwan, Singapore and South Korea (the second amendment).

Under the terms of the original agreement, Sigma-Tau made a $2.5 million upfront payment.  In addition, Sigma-Tau purchased 636,132 shares of the Company's common stock at a price of $3.93 per share, which represented a 50% premium over the 20-day average closing price through June 17, 2010, for an aggregate purchase price of $2.5 million. 

Under the terms of the first amendment, Sigma-Tau made an additional $500,000 upfront payment to the Company and also purchased 151,515 shares of the Company's common stock at a price of $3.30 per share, which represented a 50% premium over the 20-day average closing price through December 20, 2010, for an aggregate purchase price of $500,000.  Both payments were received in January 2011. 

Under the terms of the second amendment, Sigma-Tau is required to make additional $7.0 million in non-refundable payments to the Company during 2011, of which $4.0 million was received in July 2011.

The Company is also eligible to receive over $115 million in development and sales milestones related to ecallantide and royalties equal to 41% of net sales of product, as adjusted for product costs.  Sigma-Tau will pay costs associated with regulatory approval and commercialization in the licensed territories.  In addition, the Company and Sigma-Tau will share equally the costs for all development activities for optional future indications developed in partnership with Sigma-Tau in the territories covered under the initial Sigma-Tau agreement. The partnership agreement may be terminated by Sigma-Tau, at will, upon 6 months’ prior written notice.  Either party may terminate the partnership agreement in the event of an uncured material breach or declaration or filing of bankruptcy by the other party.

Prior to the second amendment in May 2011, revenue related to this multiple element arrangement was being recognized in accordance with ASC 605.  The Company evaluated the terms of the second amendment relative to the entire arrangement and determined the amendment to be a material modification to the existing agreement for financial reporting purposes.  As a result, the Company evaluated the entire arrangement under the guidance of ASU No. 2009-13 which was adopted in 2011.  

Under the terms of the original agreement and first amendment, 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 and development, 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. These deliverables were grouped into one unit of accounting due to the lack of objective and reliable evidence of fair value.  The second unit of accounting related to the manufacturing services, and was determined to meet all of the criteria to be a separate unit of accounting.  The Company had the ability to estimate the scope and timing of its involvement in the future development of the program as the Company's obligations under the development period are clearly defined.  Therefore, the Company recognized revenue related to the first unit of accounting utilizing a proportional performance model based on the actual effort performed in proportion to the total estimated level of effort.   Under this model, the Company estimated the level of effort to be expended over the term of the agreement and recognized revenue based on the lesser of the amount calculated based on proportional performance of total expected revenue or the amount of non-refundable payments earned.  As of the date of the second amendment, $4.8 million of revenue was recognized for the first unit of accounting.  To date, no revenue has been recognized related to manufacturing services as none have been provided.

As the second amendment represented a material modification to the existing agreement, the Company re-evaluated the entire arrangement under ASU No. 2009-13, and determined all undelivered items under the agreement and divided them into separate units of accounting based on whether the deliverable provided stand-alone value to the licensee. These units of accounting consist of (i) the license to develop and commercialize ecallantide for the treatment of HAE and other therapeutic indications in the territories granted under the second amendment, (ii) steering committee services and (iii) committed future development services.  The Company then determined the best estimate selling price (BESP) for the license and steering committee services and the fair value of committed future development services was determined using vendor objective evidence.   The Company’s process for determining BESP involves management’s judgment and includes factors such as discounted cash flows, estimated direct expenses and other costs and available data.

Based on the change in revenue guidance applied to this arrangement, previously deferred revenue of $3.4 million was recognized during the second quarter of 2011.  This amount represents the existing deferred revenue balance and guaranteed payments less the total of BESP for the undelivered units of accounting.

As the license granted under the second amendment was delivered during the quarter, revenue related to this unit of $5.8 million was also recognized in the second quarter of 2011.   Revenue related to steering committee services of $190,000 was deferred and is being recognized under the proportional performance model as meetings are held through the estimated development period of ecallantide in the Sigma-Tau Territories.  Revenues associated with future committed development services will be recognized as incurred and billed to Sigma-Tau for reimbursement.  As future milestones are achieved and to the extent they involve substantial effort on the Company’s part, revenue will be recognized in the period in which the milestone is achieved.  The manufacturing services were determined to represent a contingent deliverable and, as such, have been excluded from the current revenue model.

The Company recognized revenue of approximately $280,000 and $12.2 million related to this agreement for the three and nine months ended September 30, 2011, respectively.  Revenue for the three and nine months ending September 30, 2011 would have been $1.2 million and $7.4 million, respectively, if revenue had been recognized under the previous revenue recognition model, prior to adoption of ASU 2009-13.

As of September 30, 2011 and December 31, 2010, the Company has deferred $174,000 and $3.1 million, respectively, of revenue related to this arrangement, which is recorded in deferred revenue on the accompanying consolidated balance sheets at such dates.  The deferred revenue balance at September 30, 2011, relates to the joint steering committee obligation which is estimated to continue until the middle of 2014.  As of September 30, 2011 and December 30, 2010, the Company had receivable balances due from Sigma-Tau of $3.1 million and $1.4 million, respectively.   

CMIC

In September 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.  The Company is also eligible to receive up to $102 million in development and sales milestones for ecallantide in HAE and other angioedema indications and royalties of 20%-24% of net product sales. CMIC is solely responsible for all costs associated with development, regulatory activities, and commercialization of ecallantide for all angioedema indications in Japan. CMIC will purchase drug product from the Company on a cost-plus basis for clinical and commercial supply.

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 includes the product license, the committed future development services and the steering committee involvement.  The second unit of accounting relates to the manufacturing services.  At this time 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 and therefore, the Company cannot reasonably estimate the level of effort required to fulfill its obligations under the first unit of accounting.  As a result, the Company is recognizing revenue under the first unit of accounting on a straight-lined basis over the estimated development period of ecallantide for the treatment of HAE and other indications in the CMIC territory of approximately seven years.

The Company recognized revenue of approximately $148,000 and $444,000 related to this agreement for the three and nine months ended September 30, 2011, respectively.  As of September 30, 2011 and December 31, 2010, the Company has deferred approximately $3.4 million and $3.9 million, respectively, of revenue related to this arrangement, which is recorded in deferred revenue on the accompanying consolidated balance sheets.

Sale of Xyntha Royalty Rights

In April 2010, the Company sold its rights to royalties and other payments related to the commercialization of the product Xyntha®, which was developed by one of the Company's licensees under the Company's phage display LFRP.  Under the terms of this sale, the Company received an upfront cash payment of $9.8 million and earned an additional $1.5 million milestone payment based on 2010 product sales.  The Company is also eligible to receive an additional $500,000 milestone payment based on 2011 product sales.  A portion of the cash payments received were required to be applied to the Company's loan with Cowen Healthcare (see Note 7 – Note Payable), totaling a $2.2 million principal reduction and interest expense of $1.4 million.  The Company has determined that it has no substantive future obligations under the arrangement.

Cubist Pharmaceuticals Inc.

In 2008, the Company entered into an exclusive license and collaboration agreement with Cubist Pharmaceuticals, Inc. (Cubist), for the development and commercialization in North America and Europe of the intravenous formulation of ecallantide for the reduction of blood loss during surgery. Under this agreement, Cubist assumed responsibility for all further development and costs associated with ecallantide in the licensed indications in the Cubist territory. The Company received $17.5 million in license and milestone fees in 2008 as a result of the Cubist agreement. Additionally, the Company received $3.6 million for drug product supply and reimbursement of costs incurred in 2008 related to the conduct of the Phase 2 clinical trial.

On March 31, 2010, Cubist announced its intention to terminate this agreement with the Company.  Based upon Cubist's decision, $13.8 million of deferred revenue was recognized as revenue during the three months ended March 31, 2010, as the development period had ended.

XML

STOCKHOLDER'S EQUITY (DEFICIT) AND STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

STOCKHOLDER'S EQUITY (DEFICIT) AND STOCK-BASED COMPENSATION

9. STOCKHOLDER’S EQUITY (DEFICIT) AND STOCK-BASED COMPENSATION

Common Stock

                 In January 2011, the Company issued 151,515 shares of its common stock for an aggregate purchase price of $500,000 in connection with an amendment to a strategic partnership (see Note 3, Significant Transactions - Sigma Tau).

                 In May 2011, the Company’s stockholders approved an amendment to Dyax’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock to 200,000,000 shares.

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 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 generally 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. The Equity Plan is intended to attract and retain employees and to provide an incentive for employees, consultants and directors to assist the Company to achieve long-range performance goals and to enable them to participate in the long-term growth of the Company.  At September 30, 2011, a total of 3,389,540 shares were available for future grants under the Equity Plan.

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 for the three and nine months ended September 30, 2011 was approximately $8,000 and $32,000, respectively, and $16,000 and $47,000, respectively, for the three and nine months ended September 30, 2010.  There were 87,188 and 99,934 shares purchased under the Plan during the nine months ended September 30, 2011 and 2010, respectively. At September 30, 2011, a total of 506,892 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 is 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, during the three and nine months ended September 30, 2011 and 2010 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Compensation expense related to:
Equity Incentive Plan	$	883	$	955	$	3,078	$	2,888
Employee Stock Purchase Plan		8		16		32		47
	$	891	$	971	$	3,110	$	2,935
Stock-based compensation expense charged to:
Research and development expenses	$	273	$	348	$	896	$	1,066
Selling, general and administrative expenses	$	618	$	623	$	2,214	$	1,869

Stock-based compensation of $18,000 and $25,000 was capitalized into inventory for the nine months ended September 30, 2011 and 2010, respectively.  Capitalized stock-based compensation is recognized into cost of product sales when the related product is sold.

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INCOME TAXES

9 Months Ended

Sep. 30, 2011

INCOME TAXES

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 expected enacted rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized.  At December 31, 2010, we had $1.8 million of net operating losses, which were attributable to deductions from the exercise of equity awards. 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, the Company's management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, and has determined that it is not "more likely than not" that the Company will recognize the benefits of the deferred tax assets.  Accordingly, a valuation allowance of approximately $187.7 million was in place at December 31, 2010.

                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. As of September 30, 2011, the Company had no unrecognized tax benefits.

The tax years 1996 through 2010 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the United States, as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period.  The Company is currently not under examination in any jurisdictions for any tax years.

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FACILITY LEASE

9 Months Ended

Sep. 30, 2011

FACILITY LEASE

8. FACILITY LEASE

In July 2011, the Company entered into a lease agreement for new premises located in Burlington, Massachusetts.  The premises, consisting of approximately 44,500 rentable square feet of office and laboratory facilities, will be used as the Company’s principal offices and corporate headquarters.  The Company intends to relocate all of its operations presently conducted in Cambridge, Massachusetts to the new facility in January 2012.  The term of the new 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.  During July, 2011, the Company provided the landlord a letter of credit of $1.1 million to secure its obligations under the lease.  The landlord has provided the Company with a tenant improvement allowance of up to $1.9 million an additional tenant improvement loan option of up to $668,000.

In connection with this relocation, the Company has exercised its right to terminate the lease agreement for the Company’s current headquarters in Cambridge, Massachusetts to coincide approximately with the commencement of the new lease.

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BUSINESS OVERVIEW

9 Months Ended

Sep. 30, 2011

BUSINESS OVERVIEW

1. BUSINESS OVERVIEW

Dyax Corp. (Dyax or the Company) is a biopharmaceutical company focused on the discovery, development and commercialization of novel biotherapeutics for unmet medical needs. The Company currently has three major business components:

●   Dyax commercializes KALBITOR® (ecallantide) for treatment of acute attacks of hereditary angioedema (HAE) in the United States and is also developing KALBITOR for use in other indications.  Outside of the United States, Dyax has established partnerships to obtain regulatory approval for and commercialize KALBITOR in other major markets and is evaluating opportunities in additional territories.

●   Dyax leverages its proprietary phage display technology through its Licensing and Funded Research Program, or LFRP.  This program has resulted in a portfolio of product candidates being developed by its licensees, which currently includes 17 product candidates in clinical development.  The LFRP generated $26 million in revenue in 2010, and to the extent that one or more of these product candidates are commercialized according to published timelines, milestone and royalty revenues under the LFRP are expected to experience significant growth over the next several years.

●   Dyax uses its phage display technology to identify new drug candidates for its own preclinical pipeline.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2011

FAIR VALUE MEASUREMENTS

4. FAIR VALUE MEASUREMENTS

The following tables present information about the Company's financial assets that have been measured at fair value as of September 30, 2011 and December 31, 2010 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices, for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.

Description    (in thousands)	September 30, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	10,807	$	10,807	$	—	$	—
Marketable debt securities		33,093		33,093		—		—
Total	$	43,900	$	43,900	$	—	$	—

Description   (in thousands)	December 31, 2010		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	16,931	$	16,931	$	—	$	—
Marketable debt securities		58,783		58,783		—		—
Total	$	75,714	$	75,714	$	—	$	—

As of September 30, 2011 and December 31, 2010, the Company's investments consisted of U.S. Treasury notes and bills which are categorized as Level 1. The fair values of cash equivalents and marketable debt securities are determined through market, observable and corroborated sources. The carrying amounts reflected in the consolidated balance sheets for cash, cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses and other current liabilities approximate fair value due to their short-term maturities.

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INVENTORY

9 Months Ended

Sep. 30, 2011

INVENTORY

5. INVENTORY

In December 2009, the Company received marketing approval of KALBITOR from the FDA. Costs associated with the manufacture of KALBITOR prior to regulatory approval were expensed when incurred, and therefore were not capitalized as inventory.  As a result, the Company’s finished goods inventory does not include all costs of manufacturing drug substance currently being sold.  Subsequent to FDA approval, all costs associated with the manufacture of KALBITOR have been recorded as inventory, which consists of the following (in thousands):

	September 30, 2011		December 31, 2010
Raw Materials	$	1,364	$	766
Work in Progress		5,286		723
Finished Goods		209		207
Total	$	6,859	$	1,696

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES

9 Months Ended

Sep. 30, 2011

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following (in thousands):

	September 30, 2011		December 31, 2010
Accounts payable	$	2,889	$	1,398
Accrued employee compensation and related taxes		3,499		4,847
Accrued external research and development and contract manufacturing		1,374		1,180
Accrued legal		476		500
Other accrued liabilities		2,179		2,747
Total	$	10,417	$	10,672

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Consolidated Statements of Cash Flows (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net loss	$ (21,064)	$ (15,561)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of purchased premium/discount	190	26
Depreciation and amortization of fixed assets and intangible assets	973	1,134
Non-cash interest expense	1,612	1,145
Compensation expenses associated with stock-based compensation plans	3,110	2,935
Loss on disposal of fixed assets		51
Provision for doubtful accounts	10	15
Changes in operating assets and liabilities:
Accounts receivable	(1,485)	937
Prepaid research and development and other current assets	271	(622)
Inventory	(5,075)	(752)
Other long-term assets	(247)	168
Accounts payable and accrued expenses	(1,540)	(4,113)
Deferred revenue	(4,010)	(9,442)
Long-term deferred rent	(30)	(194)
Other long-term liabilities		11
Net cash used in operating activities	(27,285)	(24,262)
Cash flows from investing activities:
Purchase of investments	(3,021)	(53,667)
Proceeds from maturity of investments	28,502	21,999
Purchase of fixed assets	(236)	(176)
Proceeds from sale of fixed assets		29
Restricted cash	(178)	700
Net cash provided by (used in) investing activities	25,067	(31,115)
Cash flows from financing activities:
Net proceeds from common stock offerings	323	61,133
Repayment of long-term obligations	(1,584)	(2,613)
Proceeds from the issuance of common stock under employee stock purchase plan and exercise of stock options	159	263
Net cash provided by (used in) financing activities	(1,102)	58,783
Net increase (decrease) in cash and cash equivalents	(3,320)	3,406
Cash and cash equivalents at beginning of the period	18,601	29,386
Cash and cash equivalents at end of the period	15,281	32,792
Supplemental disclosure of cash flow information:
Interest paid	$ 6,923	$ 9,416

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2011

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 and in accordance with instructions to the Quarterly Report on Form 10-Q.  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, 2010.  The accompanying December 31, 2010 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the dates of the financial statements and (iii) the reported amounts of revenue and expenses during the reporting periods.  Actual results could differ from those estimates.  The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.  

 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 B.V.  All inter-company accounts and transactions have been eliminated.

Use of Estimates

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

Concentration of Credit Risk 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and trade accounts receivable.  At September 30, 2011 and December 31, 2010, approximately 91% and 98%, respectively, of the Company's cash, cash equivalents and short-term investments were invested in money market funds backed by U.S. Treasury obligations, U.S. Treasury notes and bills, and obligations of United States government agencies held by one financial institution.  The Company maintains balances in various operating accounts in excess of federally insured limits.

The Company provides most of its services and licenses its technology to pharmaceutical and biomedical companies worldwide, and makes all product sales to its distributors.  Concentrations of credit risk with respect to trade receivable balances are usually limited on an ongoing basis, due to the diverse number of licensees and collaborators comprising the Company's customer base.  As of September 30, 2011, two customers accounted for 46% and 35% of the accounts receivable balance.  Three customers accounted for approximately 35%, 28% and 24%, of the Company's accounts receivable balance as of December 31, 2010, all of which were collected in the first quarter of 2011.

Cash and Cash Equivalents

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

 Investments  

Short-term investments primarily consist of investments with original maturities greater than ninety days and remaining maturities less than one year at quarter end.  The Company has also classified its investments with maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. The Company considers its investment portfolio of investments available-for-sale.  Accordingly, these investments are recorded at fair value, which is based on quoted market prices.  As of September 30, 2011, the Company's investments consisted of U.S. Treasury notes and bills with an amortized cost and estimated fair value of $33.1 million, and an unrealized gain of $26,000, which is recorded in other comprehensive income on the accompanying consolidated balance sheet.  As of December 31, 2010, the Company's investments consisted of United States Treasury notes and bills with an amortized cost of $58.7 million, an estimated fair value of $58.8 million, and had an unrealized gain of $44,000, which is recorded in other comprehensive income on the accompanying consolidated balance sheet.

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 employee stock-based compensation costs capitalized under Accounting Standards Codification (ASC) 718.

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.

Impairment of Long-Lived Assets

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

Revenue Recognition

The Company’s principal sources of revenue are product sales of KALBITOR, 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 wholesale and specialty distributors, and are recorded upon delivery, net of applicable reserves for trade prompt pay discounts, government rebates, a patient assistance program, product returns and other applicable allowances.

Product Sales Allowances.  The Company establishes reserves for trade prompt pay discounts, government rebates, a patient assistance program, 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, the patient financial assistance program, 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 for patient service initiatives. 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 the services are at fair value and represent a separate and identifiable benefit related to these services and, accordingly, has classified them as selling, general and administrative expense.

Prompt Payment Discounts.  The Company offers a prompt payment discount to its distributors.  Since the Company expects that its 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.  The accrual is adjusted quarterly to reflect actual earned discounts.

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 with respect to certain other qualifying federal and state government programs.  The Company estimates the amount of these reductions based on KALBITOR patient data and actual sales data.  These allowances are adjusted each period based on actual experience.

Medicaid rebate reserves relate to the Company’s estimated obligations to states 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.

The Company offers a financial assistance program, which involves the use of a patient voucher, for qualified KALBITOR patients in order to aid a patient’s access to KALBITOR.  The Company estimates its liability from this voucher program based on actual redemption rates.

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. It permits returns if the product is damaged or defective when received by customers or if the product has expired.  The Company estimates product returns based upon historical trends in the pharmaceutical industry and trends for similar products sold by others.

During the three and nine months ended September 30, 2011 and 2010, provisions for product sales allowances reduced gross product sales as follows (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Total gross product sales	$	6,931		$	2,767		$	16,634		$	6,114
Prompt pay and other discounts	$	(193	)	$	(56	)	$	(447	)	$	(146	)
Government rebates and chargebacks		(130	)		(88	)		(274	)		(161	)
Returns		(11	)		(1	)		(25	)		(11	)
Product sales allowances	$	(334	)	$	(145	)	$	(746	)	$	(318	)
Total product sales, net	$	6,597		$	2,622		$	15,888		$	5,796
Total product sales allowances as a percent of gross product sales		4.8	%		5.2	%		4.5	%		5.2	%

Development and License Fee Revenues

In January 2011, the Company adopted a new U.S. GAAP accounting standard which amends existing revenue recognition accounting guidance to provide accounting principles and application guidance on whether multiple deliverables exist, whether and how the deliverables should be separated, and the consideration allocated.  The new guidance amends the requirement to establish objective evidence of fair value of undelivered products and services and provides for separate revenue recognition based upon management’s best estimate of selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item.  The adoption of this standardwill be applied to all new or materially amended agreements which include multiple deliverables in 2011.  In 2011, the Company applied the amended revenue guidance to several revenue arrangements entered into during the period, including one amendment which was determined to be a material modification to an existing agreement (see Note 3, Significant Transactions – Sigma-Tau).  

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.

Before January 1, 2011, we evaluated license arrangements with multiple elements in accordance with Accounting Standards Codification, or ASC, 605-25 Revenue Recognition – Multiple-Element Arrangements.  In October 2009, the Financial Accounting Standards Board, or FASB, issued ASU 2009-13 Revenue Arrangements with Multiple Deliverables, or ASU 2009-13, which 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; vendor objective evidence (VOE), if available and VSOE is not available; or the best estimate of selling price (BESP), if neither VSOE or VOE is available;

●   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.  For more advanced stage development licensing agreements, these arrangements are unique in nature and therefore the Company generally cannot establish VSOE for the elements within the arrangement.  For earlier stage funded research agreements, the Company can establish the fair value of the elements based on VSOE.  This type of agreement is less unique from licensee to licensee and the Company has more history of entering funded research agreements.

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 performed for revenue recognized. Revenue is recognized using either a proportional performance or straight-line method. The Company recognizes revenue using the 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. If the achievement of a milestone is considered probable at the inception of the collaboration, the related milestone payment is included with other collaboration consideration, such as up-front fees and research funding, in the Company's revenue model. Milestones that involve substantial effort on the Company's part and the achievement of which are not considered probable at the inception of the collaboration are considered "substantive milestones." All milestones achieved after January 1, 2011 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.  For all milestones achieved prior to 2011, substantive milestones were included in the Company's revenue model when achievement of the milestone was considered probable. Milestones that are tied to regulatory approval are not considered probable of being achieved until such approval is received. Milestones tied to counter-party performance are not included in the Company's revenue model until the performance conditions are met.

Royalty revenue is recognized upon the sale of the related products provided the Company has no remaining performance obligations under the arrangement.

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.

Patent Licenses.  The Company generally licenses its patent rights covering phage display on a non-exclusive basis to third parties for use in connection with the research and development of therapeutic, diagnostic, and other products.

Standard terms of the patent rights agreements generally include non-refundable signing fees, non-refundable license maintenance fees, development milestone 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. Perpetual patent licenses are recognized immediately if the Company has no future obligations and the payments are upfront.

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. Milestone payments under these license arrangements are recognized when the milestone is achieved if the Company has no future obligations under the license. 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. Royalty revenue is recognized upon the sale of the related products provided the Company has no remaining performance obligations under the arrangement.

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

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 were expensed when incurred as a research and development cost and accordingly, KALBITOR units sold during the three and nine months ended September 30, 2011 and 2010 do not reflect 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 current statutory tax rates.  At September 30, 2011 and December 31, 2010, 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.  For the three and nine months ending September 30, 2011 the Company recorded other expense of $32,000 and other income of $15,000, respectively, for the translation of foreign currency.  For the three and nine months ending September 30, 2010, the Company recorded other income of $61,000 and other expenses of $33,000, respectively, for the translation of foreign currency.

Share-Based Compensation

The Company’s share-based compensation program consists of share-based awards granted to employees in the form of stock options, 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 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 period ended September 30, 2011 and, therefore, are excluded from the calculation of diluted net loss per share.

Stock options and warrants to purchase a total of 11,682,969 and 9,932,997 shares of common stock were outstanding at September 30, 2011 and 2010, respectively.

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.

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.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies, which are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that 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.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04). This newly issued accounting standard clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This ASU is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011, which for Dyax will be January 1, 2012. The Company does not expect that adoption of this standard will have a material impact on its financial position or results of operations.

In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, “Comprehensive Income (Topic 220)” (ASU 2011-05). This newly issued accounting standard (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income nor do the amendments affect how earnings per share is calculated or presented. This ASU is required to be applied retrospectively and is effective for fiscal years and interim periods within those years beginning after December 15, 2011, which for Dyax will be January 1, 2012. As this accounting standard only requires enhanced disclosure, the adoption of this standard will not impact the Company’s financial position or results of operations.

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Consolidated Balance Sheets (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 15,281	$ 18,601
Short-term investments	33,093	58,783
Accounts receivable, net of allowances for doubtful accounts of $75 and $45 at September 30, 2011 and December 31, 2010, respectively	6,790	5,315
Inventory	6,859	1,696
Current portion of restricted cash	1,266	922
Other current assets	2,977	3,248
Total current assets	66,266	88,565
Fixed assets, net	1,957	2,178
Restricted cash	1,100	1,266
Other assets	669	422
Total assets	69,992	92,431
Current liabilities:
Accounts payable and accrued expenses	10,417	10,672
Current portion of deferred revenue	7,016	8,738
Current portion of long-term obligations	199	586
Other current liabilities	1,428	700
Total current liabilities	19,060	20,696
Deferred revenue	10,310	12,598
Note payable	55,461	56,406
Long-term obligations		68
Deferred rent and other long-term liabilities		30
Total liabilities	84,831	89,798
Commitments and contingencies (Notes 7, 8 and 10)
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding
Common stock, $0.01 par value; 200,000,000 shares authorized; 98,748,086 and 98,508,487 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively	987	985
Additional paid-in capital	447,534	443,926
Accumulated deficit	(463,386)	(442,322)
Accumulated other comprehensive income	26	44
Total stockholders' equity (deficit)	(14,839)	2,633
Total liabilities and stockholders' equity (deficit)	$ 69,992	$ 92,431