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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                to


Commission File Number 000-24537



DYAX CORP.(Exact name of registrant as specified in its charter)

Delaware(State of Incorporation)

04-3053198(IRS Employer Identification No.)


300 Technology Square, Cambridge, Massachusetts 02139(Address of principal executive offices and zip code)

Registrant's
telephone number, including area code:(617) 225-2500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:Common Stock, $.01 Par Value

Name of each exchange on which registered:The NASDAQ Stock Market LLC
(NASDAQ Global Market)


Securities registered pursuant to Section 12(g) of the Act: None



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o    No ý

Indicate by checkmark 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 Company 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 checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. 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 definition of "large accelerated filer," "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 (Do not check if a smaller reporting company)

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

The aggregate market value of the registrant's common stock held by nonaffiliates of the registrant as of the last business day of the registrant's most recently
completed fiscal second quarter, June 30, 2008, based on the last reported sale price of the registrant's common stock of $3.10 per share was $177,313,797. The number of shares outstanding of
the registrant's Common Stock, $.01 Par Value, as of February 20, 2009, was 63,090,580.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Definitive Proxy Statement for its 2009 Annual Meeting of Shareholders to be held on May 14, 2009, which Definitive Proxy
Statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant's fiscal year-end of December 31, 2008, are incorporated by
reference into Part III of this Form 10-K.



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As used in this Form 10-K, "Dyax," "the Company," "we," "our," and "us" refer to Dyax Corp., except where the context otherwise requires or as
otherwise indicated.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements, including statements
regarding:



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 "believe," "anticipate," "plan," "expect," "intend," "project," "future," "may," "will," "could," "would" and
similar words to help identify forward-looking statements. The statements contained in this report are not guarantees of future performance and involve certain risks, uncertainties and assumptions,
which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Risks and uncertainties which may affect us are
set forth in Item 1A of this report entitled "Risk Factors". You should carefully review the risks described therein and in other documents we file from time to time with the Securities and
Exchange Commission ("SEC"), including the Quarterly Reports on Form 10-Q to be filed in 2009. We caution you not to place undue reliance on these forward looking statements, which
speak only as of the date on which they are made. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise.

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DYAX CORP.    ANNUAL REPORT ON FORM 10-K    For the year ended December 31, 2008

INDEX



Item No.



PagePART I1.

Business


11A.

Risk Factors


181B.

Unresolved Staff Comments


322.

Properties


323.

Legal Proceedings


324.

Submission of Matters to a Vote of Security Holders


32PART II5.

Market for the Company's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities


336.

Selected Consolidated Financial Data


347.

Management's Discussion and Analysis of Financial Condition and Results of
Operations


357A.

Quantitative and Qualitative Disclosures about Market Risk


488.

Financial Statements and Supplementary Data


499.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure


799A.

Controls and Procedures


799B.

Other Information


80PART III10.

Directors, Executive Officers and Corporate Governance


8111.

Executive Compensation


8112.

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters


8113.

Certain Relationships and Related Transactions, and Director
Independence


8214.

Principal Accounting Fees and Services


82PART IV15.

Exhibits, Financial Statement Schedules


82Signatures


88


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PART I

ITEM 1.    BUSINESS

OVERVIEW

We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of novel biotherapeutics
for unmet medical needs, with an emphasis on inflammatory and oncology indications. We use our proprietary drug discovery technology, known as phage display, to identify antibody, small protein and
peptide compounds for clinical development. This phage display technology fuels our internal pipeline of promising drug candidates, attracts numerous licensees and collaborators, and has the potential
to generate important revenues in the future.

Our
lead product candidate, DX-88, is a small recombinant protein that is a highly specific inhibitor of human plasma kallikrein. We and our collaborators are currently
developing DX-88 in multiple indications.

The
most advanced indication for DX-88 is in the treatment of hereditary angioedema (HAE), a potentially life-threatening inflammatory condition.
DX-88 has orphan drug designation in the United States and European Union (EU), as well as Fast Track designation in the United States for the treatment of acute attacks of HAE. In this
indication, we have completed three Phase 2 trials and two Phase 3 trials of DX-88 for subcutaneous administration. On September 23, 2008, we submitted a Biologics
License Application (BLA) with the United States Food and Drug Administration (FDA) for the use of DX-88 for the treatment of acute attacks of HAE and the FDA has designated this
application for priority review. On February 4, 2009, the FDA's Pulmonary-Allergy Advisory Committee voted in favor of approval of DX-88 for HAE. The Committee's findings will be
weighed by the FDA in determining whether our BLA for DX-88 is to be approved.

If
the BLA is approved, we intend to market and sell DX-88 on our own in North America. We are currently negotiating with potential partners to commercialize
DX-88 for HAE and other angioedema indications in markets outside of North America.

Outside
of HAE, DX-88 is also being developed in additional indications. These include ACE inhibitor-induced angioedema, a life threatening inflammatory response brought on
by adverse reactions to ACE inhibitors; acquired angioedema, a condition associated with B-cell lymphoma and autoimmune disorders; the use of DX-88 for the prevention of blood
loss during surgery, and the use of DX-88 for the treatment of retinal diseases.

We
have completed a Phase 1/2 trial of DX-88 for the prevention of blood loss during on-pump coronary artery bypass graft (CABG) procedures. In April 2008,
we entered into an exclusive license and collaboration agreement with Cubist Pharmaceuticals (Cubist), for the development and commercialization in North America and Europe of the intravenous
formulation of
DX-88 for the prevention of blood loss during surgery. Under this agreement, Cubist assumed responsibility for all further development and costs associated with the use of
DX-88 in this indication in the Cubist territory. Cubist has announced plans to conduct two additional Phase 2 trials, a dose-ranging, placebo controlled trial in low
risk patients undergoing primary CABG or valve replacement surgery, and a trial to study the safety and efficacy of a single dose of DX-88 compared with tranexamic acid in patients who
have a higher risk of bleeding.

We
have entered into a license agreement with Fovea Pharmaceuticals (Fovea) for the ocular formulation of DX-88 for the treatment of retinal diseases in the EU. Under this
agreement, Fovea will fully fund development for the first indication, retinal vein occlusion-induced macular edema, for which an Investigational New Drug (IND) application is expected in 2009. Dyax
retains all rights to commercialize DX-88 in this indication outside of the EU.

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In
addition to DX-88, we have identified two product candidates for preclinical development, DX-2240 and DX-2400, two fully human monoclonal
antibodies with therapeutic potential in oncology indications. In February 2008, we entered into an exclusive license agreement with sanofi-aventis under which they will be responsible for the
continued development of DX-2240. DX-2400 is currently in preclinical development and is being evaluated for testing in a range of oncology indications.

All
of the compounds in our pipeline were discovered using our proprietary phage display technology, which allows us to rapidly identify product candidates that bind with high affinity
and specificity to therapeutic targets. Although we use this technology primarily to advance our own internal development activities, we also leverage it through licenses and collaborations designed
to generate revenues and provide us access to co-develop and/or co-promote drug candidates identified by other biopharmaceutical and pharmaceutical companies. Through our
Licensing and Funded Research Program (LFRP), we have agreements with more than 70 licensees and collaborators, which have thus far resulted in 13 product candidates that licensed third parties have
advanced into clinical trials and one product that has received market approval from the FDA. Current and future revenues generated through the LFRP are currently pledged to secure payment of a loan
we received from Cowen Healthcare Royalty Partners LP (Cowen Healthcare) in August 2008.

OUR BUSINESS STRATEGY

Our strategic goal is to develop new biotherapeutics for unmet medical needs, with an emphasis on inflammatory and oncology
indications. We intend to accomplish this goal through the following activities:



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DX-88 FRANCHISE

What is DX-88?

DX-88, also known generically as ecallantide, is a compound that we developed using our phage display technology and that
we have shownin vitroto 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 responsible for the regulation of the inflammation and coagulation pathways. Excess plasma kallikrein activity is thought to play a role in a number of inflammatory and
autoimmune diseases.

DX-88 for the Treatment of HAE

Hereditary angioedema, or HAE, is a genetic disease that can cause swelling of the larynx, gastrointestinal tract and extremities. In
severe cases of HAE involving swelling of the larynx, HAE is life-threatening and may require insertion of a breathing tube to prevent asphyxiation. No approved therapy exists in the
United States for acute attacks of HAE. The frequency of attacks may be reduced with the chronic use of anabolic steroids. While this can reduce the frequency of attacks in some people, steroids are
ineffective in treating an acute attack and are associated with many serious side-effects. Published research indicates that plasma kallikrein is likely a primary mediator of both pain and
swelling in HAE. We believe that DX-88 has the potential to decrease both the severity and duration of symptoms during acute HAE attacks and, therefore, may provide an effective treatment
for this disease.

HAE
affects between 1 in 10,000 to 1 in 50,000 people around the world. Despite the fact that 85% of patients experience symptoms before age 20, 68% of patients are not diagnosed
until after age 20, which
makes it difficult to accurately determine the size of the HAE patient population. HAE patient association registries estimate there is an immediately addressable target population of 10,000 patients
across the United States and Europe.

The
clinical development of DX-88 for HAE is summarized as follows:



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Our
study results in patients exposed to multiple doses of DX-88 suggest that it can provide repeated therapeutic benefit to HAE patients for all types of HAE attacks,
including potentially fatal laryngeal attacks. Furthermore, there is no apparent decrease in DX-88's therapeutic effects on HAE attacks in these patients. To date, DX-88 is
generally well tolerated, with the most serious risks being hypersensitivity reactions, including anaphylaxis, which are resolved with treatment. Other adverse events include headache, nausea and
fatigue.

Based
on the positive safety and efficacy results from our EDEMA4 and EDEMA3 trials, we submitted our BLA to the FDA on September 23, 2008. The FDA accepted our BLA for filing and
has designated the application for priority review. The FDA's Pulmonary-Allergy Drugs Advisory Committee reviewed our submission for the subcutaneous formulation of DX-88 for HAE on
February 4, 2009, and the Committee voted in favor of approval of DX-88 for HAE by a margin of six votes in favor to five votes against, with two voters abstaining. The Committee's
findings will be weighed by the FDA in determining whether our BLA for DX-88 is to be approved. In addition to the overall vote in favor of approval, the Committee provided recommendations
aimed to better understand DX-88's safety characteristics in the subset of patients that experience hypersensitivity reactions. We are currently in the process of discussing the elements
of a safe use program with the FDA.

Given
our familiarity with the HAE market and its relatively small number of treating allergists, we intend to independently commercialize DX-88 in North America. For markets
outside of North America, we will seek to establish arrangements where DX-88 is sold by pharmaceutical companies that are already well established in these regions. Because regulatory
approvals for new pharmaceutical products can be, and often are, significantly delayed or refused for numerous reasons, DX-88 may not be approved on the timeline we expect, or at all.

DX-88 for the Treatment of Other Angioedemas

Another form of angioedema is induced by the use of so-called ACE inhibitors. With an estimated 30 to 40 million
prescriptions written annually worldwide, ACE inhibitors are widely prescribed to reduce Angiotensin Converting Enzyme (ACE) and generally reduce high blood pressure and vascular constriction.
Approximately 17% of all angioedemas admitted to medical centers for treatment are identified as ACE inhibitor-induced angioedema. Research suggests the use of ACE inhibitors increases the relative
activity 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, DX-88 has the potential to be effective for treating this condition. We are working with investigators affiliated with the University of Cincinnati as they prepare
to initiate an investigator sponsored study for drug-induced angioedema.

Acquired
angioedema is a condition associated with B-cell lymphoma and autoimmune disorders. Dr. Marco Cicardi, of the University of Milan, plans to sponsor a
compassionate use study of DX-88 with these forms of acquired angioedema, which study will be conducted at three sites in Italy during 2009.

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DX-88 for On-Pump CTS

Industry publications report that there are an estimated one million procedures performed worldwide each year involving
on-pump cardiothoracic surgery (CTS). On-pump CTS procedures, which are performed for patients who have narrowings or blockages of the coronary arteries, often involve use of a
heart-lung machine commonly referred to as the "pump". In these procedures, the heart is stopped with medications, and the pump performs the work of the heart and lungs during surgery.
This allows the surgeon to position the heart as needed, to accurately identify the arteries and to perform the bypass procedure while the heart is stationary.

The
use of the pump during CTS procedures elicits an adverse systemic inflammatory response. Many patients undergoing on-pump CTS procedures experience significant
intraoperative blood loss that requires transfusion. Plasma kallikrein has been implicated in the body's response to on-pump heart surgery as a major contributor to the significant blood
loss seen in on-pump CTS patients and to the pathologic inflammation that plays a role in the complications of on-pump CTS procedures.

In
April 2008, Dyax entered into an exclusive license and collaboration agreement with Cubist for the development and commercialization in North America and Europe of the intravenous
formulation of DX-88 for the prevention of blood loss during surgery. Under this agreement, Cubist assumed responsibility for all further development and costs associated with
DX-88 in the licensed indications in the Cubist territory.

Having
determined that the existing experience from a Phase 2 clinical trial of DX-88 sponsored by Dyax (Kalahari 1) was sufficient to help with the design of a
subsequent dose-ranging trial, Cubist closed the Kalahari 1 study in June 2008. Based on the top-line results from the Kalahari 1 trial, Cubist is planning two additional
Phase 2 trials. They have completed plans to initiate a dose-ranging, placebo controlled trial in low risk patients undergoing CABG surgery and are working towards initiating a
trial to study the safety and efficacy of a single dose of DX-88 compared with tranexamic acid in patients who have a higher risk of bleeding. Based on the final protocols for these two
trials, Cubist expects to enroll a total of approximately 650 patients.

OTHER DISCOVERY AND DEVELOPMENT PROGRAMS

Pipeline Programs

In addition to our drug candidates in clinical trials, our phage display technology and expertise has allowed us to develop a pipeline
of drug candidates. Our goal is to maintain at least ten ongoing therapeutic programs in our pipeline at all times. Of our existing pipeline candidates, the most advanced are DX-2240 and
DX-2400, two fully human monoclonal antibodies with therapeutic potential in oncology indications.

Our
DX-2240 antibody has a novel mechanism of action that targets the Tie-1 receptor on tumor blood vessels. In preclinical animal models, DX-2240 has
demonstrated activity against a broad range of solid tumor types. Data also indicates increased activity when combined with antiangiogenic therapies such as Avastin® and
Nexavar®. In February 2008, we entered into agreements with sanofi-aventis, under which we granted sanofi-aventis exclusive worldwide rights to develop and commercialize
DX-2240 as a therapeutic product, as well as a non-exclusive license to our proprietary antibody phage display technology.

Our
DX-2400 antibody is a specific inhibitor of matrix metalloproteinase 14 (MMP-14) on tumor cells and tumor blood vessels. To date, small molecule approaches
have failed to produce compounds that distinguish between closely related MMPs. In contrast, our technology has allowed us to identify a highly selective inhibitor of MMP-14 that does not
inhibit other proteases that we have tested. In animal models, DX-2400 has been shown to significantly inhibit tumor progression and metastasis in a dose-dependent manner in
breast, prostate, pancreatic and melanoma tumors. Herceptin®, a leading

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breast
cancer treatment, is effective in only the subtype of breast tumors which are Her2+. Current data suggests that DX-2400 may be effective against both Her2+ and Her2-
breast tumors, potentially offering promise for treatment of a wider range of breast cancer patients. DX-2400 is currently in preclinical development and is being evaluated for testing in
a range of oncology indications.

Co-Development Programs

We collaborate with other biopharmaceutical companies to discover and jointly develop therapeutic leads. In our typical
co-development collaborations, we use our phage display libraries to identify antibody, peptide and small protein compounds that bind to disease targets provided by our
co-development collaborator. With our collaborator, we evaluate the leads that we generate during the research phase of our collaboration to determine if we wish to jointly develop and
commercialize such leads as therapeutics. Our co-development collaborators currently include Athera, CSIRO and Syntonix Pharmaceuticals, a wholly owned subsidiary of Biogen Idec.

OUR KEY PRODUCT DEVELOPMENT LICENSES AND COLLABORATIONS

Cubist Pharmaceuticals

In April 2008, we granted Cubist an exclusive license for the development and commercialization of the intravenous formulation of
DX-88 for the prevention of blood loss during surgery in North America and Europe. Pursuant to our License and Collaboration Agreement with Cubist, we retain exclusive rights to
DX-88 in all other indications, including our HAE program, as well as for the manufacturing of DX-88.

Pursuant
to the terms of the license agreement, Cubist paid us a $15 million upfront payment and an additional $2.5 million milestone payment in 2008, and Cubist may pay us
up to an additional $214 million in clinical, regulatory and sales-based milestone payments. Cubist also is obligated to pay us tiered, double-digit royalties based on its sales of
DX-88. The license agreement provides an option for us to retain certain U.S. co-promotion rights. Cubist will be responsible for all further development costs associated with
DX-88 in the licensed indications for the Cubist territory. Except under certain circumstances, we will supply Cubist with DX-88 material for development and commercialization.
The license agreement may be terminated by Cubist without cause on prior notice to us and by either party in the event of a breach of specified provisions of the license agreement by the other party.

sanofi aventis

In February 2008, we entered into agreements with sanofi-aventis under which we granted sanofi-aventis exclusive worldwide rights to
develop and commercialize DX-2240 as a therapeutic product, as well as non-exclusive rights to our proprietary antibody phage display technology. Under the terms of the
agreements, in addition to approximately $24.7 million in payments we received in 2008, we are eligible to receive development milestone payments, as well as royalties based on commercial sales
of DX-2240 and other antibodies developed by sanofi-aventis. The royalty payment obligations terminates on a country-by-country basis on the later of the tenth
anniversary of the first commercial sale in the respective country or the last to expire of any specified patents subject to the license in that country. As exclusive licensee, sanofi-aventis will be
responsible for the ongoing development and commercialization of DX-2240. For other antibody product candidates
discovered by sanofi-aventis, it will retain similar responsibilitites and we will retain co-development and profit-sharing rights.

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LICENSING AND FUNDED RESEARCH PROGRAM

Under our LFRP, we maintain more than 70 revenue generating licenses and collaborations with other biopharmaceutical and pharmaceutical
companies. Currently, the types of licenses and collaborations that we enter into have one of three distinct structures:



Currently,
13 product candidates generated by our licensees or collaborators under the LFRP are in clinical trials, one of which is in Phase 3 clinical development, five are in
Phase 2 clinical development and seven are in Phase 1 clinical development. 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. We anticipate that we will receive milestones and royalties from our
licensees and collaborators to the extent that these product candidates advance in development and are ultimately commercialized.

Going
forward, we expect to enter into licenses and collaborations that are designed to maximize the strategic value of our proprietary phage display technology. For example, in February
2009, we expanded our antibody funded research and library licence agreement with Biogen Idec. Under the terms of the expanded agreement, we have guaranteed a minimum of ten additional product
licenses to Biogen Idec. Additionally, we have granted Biogen Idec a non-exclusive license to our antibody libraries and we will conduct antibody discovery funded research over a
three-year period. In exchange,

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we
received a $5.0 million upfront fee, guaranteed research funding, and are eligible to receive $85 million in development and sales milestones as well as royalties for each antibody
product commercialized by Biogen Idec using our technology.

Cowen Healthcare Financing

In August 2008, we entered into an agreement with Cowen Healthcare for a $50.0 million loan secured by our LFRP. We used
$35.1 million from the proceeds of this loan to pay off our remaining obligations under an agreement with Paul Royalty, pursuant to which we received an upfront payment of $30 million in
2006.

The
loan from Cowen Healthcare, which matures in August 2016, bears interest at an annual rate of 16%, payable quarterly. We may prepay the loan without penalty, in whole or in part,
beginning on the third anniversary of the closing date. In connection with this loan, we have entered into a security agreement granting Cowen Healthcare a security interest in the intellectual
property related to the LFRP, and the revenues generated by us through the license of the intellectual property related to the LFRP. The security agreement does not apply to our internal drug
development or to any of our co-development programs.

Under
the terms of the agreement, we are required to repay the loan based on our annual net LFRP receipts. Until June 30, 2013, required payments are tiered as follows: 75% of the
first $10 million in specified annual LFRP receipts, 50% of the next $5 million, and 0% of annual included LFRP receipts over $15 million. After June 30, 2013, and until
the maturity date or the complete amortization of the loan, Cowen Healthcare will receive 75% 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 us. After five years, we must repay to
Cowen Healthcare all additional accumulated principal above the original $50.0 million loan amount. In addition, under the terms of the Agreement, we are 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 amortize principal 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.

LFRP Strategy

Recently, many large pharmaceutical companies have taken steps to acquire or exclusively license drug discovery technologies. As a
result, discovery technologies with proven success such as phage display are becoming less accessible within the industry. We believe that this trend provides Dyax a more favorable position from which
to leverage our technology and
structure potential LFRP opportunities with greater strategic benefit. In evaluating future opportunities, we will consider the following criteria:



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OUR PHAGE DISPLAY TECHNOLOGY

What Is Phage Display?

Living organisms, such as viruses, have the ability to display a foreign gene product, or protein, on their surfaces. Based on this
ability of organisms to display proteins, our scientists in the late 1980s invented protein phage display, a novel method to individually display up to tens of billions of human antibodies, peptides
or small proteins on the surface of a small bacterial virus called a bacteriophage, or phage. Using phage display, we have built large collections, or libraries, of antibodies, small proteins or
peptides that we use to rapidly identify those compounds that bind with high affinity and high specificity to targets of interest.

Through
the use of our proprietary phage display technology, we have been able to establish a broad discovery platform to identify compounds that interact with a wide array of targets,
including membrane proteins and circulating proteins which have been shown to be involved in pathologic processes. Our discovery capabilities have been further enhanced through automation, which has
enabled us to evaluate a large number of molecules binding to each target. In this way we can rapidly identify and select a specific antibody, peptide or small protein with the desired biochemical and
biological characteristics. While our discovery research efforts are focused primarily on monoclonal antibodies, we are also testing the in vitro and in vivo activity of several of our peptide and
small protein compounds.

Scientists
can use phage display to improve the speed and cost effectiveness of drug discovery and optimization. Phage display offers important advantages over, and can be used to
improve, other drug discovery technologies that are currently employed to identify biopharmaceutical leads.

Over
the past several years, we have brought on-line high-throughput automated capacity, developed state-of-the-art antibody
phage display libraries, and successfully implemented a strategy under which, as of today, we believe we have obtained freedom to operate in the antibody phage display area through cross-licenses with
Affimed Therapeutics, Affitech, Biosite (now owned by Inverness Medical Innovations), Cambridge Antibody Technology Limited (now known as MedImmune Limited and owned by AstraZeneca), Domantis (a
wholly-owned subsidiary of GlaxoSmithKline), Genentech and XOMA. As a result of these activities, we now have an industry-leading technology that allows us to identify fully human antibodies with high
specificity and high affinity and to move product candidates rapidly into both in vitro testing and optimization.

Although
we use this technology primarily to advance our own internal development activities, we also leverage it broadly through licenses and collaborations so that other
biopharmaceutical and pharmaceutical companies can use it to discover and develop biopharmaceutical leads.

Our
phage display process generally consists of the following steps:



Generating a Phage Display Library

The generation of a phage display library is based upon a single protein framework and contains tens of billions of variants of this
protein. The first step in generating a library is the selection of the protein framework upon which the library will be created. This selection is based on the desired product properties, such as
structure, size, stability, or lack of immunogenicity. We then determine which amino acids in the framework will be varied, but do not vary amino acids that contribute to the framework structure. We
also control the exact numbers and types of different amino acids that are

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varied,
so that the resulting phage display library consists of a diverse set of chemical entities, each of which retains the desired physical and chemical properties of the original framework.

The
next step is the creation of a collection of genes that encode the designed variations of the framework protein. We can easily generate diverse collections of up to hundreds of
millions of different synthetic DNA sequences. Each new DNA sequence, or gene, encodes a single protein sequence that may be displayed on the surface of the individual phage that contains this gene.
The scientists combine the new DNA sequences with phage genome DNA and certain enzymes so that the new DNA is inserted into a specific location of the phage genome. The result is that the new protein
is displayed on the phage surface fused to one of the naturally occurring phage proteins. The phage acts as a physical link between the displayed protein and its gene.

In
addition to fused synthetic DNA sequences, we may also use cDNA, or genomic DNA, which are sequences that represent all of the expressed genes in a cell or organism, to create a
library. We have also inserted genes from antibody expressing human cells into the phage genome. Using these genes, we have constructed phage display libraries that express tens of billions of
different human antibodies on the phage surface. From one of these libraries, individual antibody fragments can be selected and used to express highly specific human monoclonal antibodies.

The
new phage genome is then transferred into laboratory bacteria, where the phage genome directs the bacterial cells to produce thousands of copies of each new phage. The collection of
phage displaying multiple antibodies, peptides or small proteins is referred to as a phage display library.
Because we can reproduce the phage display library by infecting a new culture of laboratory bacteria to produce millions of additional copies of each phage, we can use each library for a potentially
unlimited number of selections.

Screening the Phage Display Library Against a Target of Interest

We can then select binding compounds with high affinity and high specificity by exposing the library to a specified target of interest
and isolating the various phage that display compounds that bind to the target. Each individual phage contains the gene encoding one potential binding compound, and once its displayed protein is
selected in the screening procedure, it can be retrieved and amplified by growth in laboratory bacteria.

To
identify specific binders from a phage display library, we expose the library to the target under desired binding conditions. The target may be attached to a fixed surface, such as
the bottom of a tube, or a bead, allowing removal of phage that do not express binding compounds that recognize the target. Once these unbound phage are washed away, the phage containing the selected
binding compounds can be released from the target. Since the phage are still viable, they can be amplified rapidly by again infecting bacteria. The capacity of the phage to replicate itself is an
important feature that makes it particularly well suited for rapid discovery of specific binding compounds. We can amplify a single phage by infecting bacteria and producing millions of identical
phage in one day.

If
the binding affinities of the compounds identified in an initial screening for a target are not considered sufficiently high, information derived from the binding compounds identified
in the initial screening can be used to design a new focused library. The design, construction and screening of a second generation library, known as affinity maturation, can lead to increases of
10- to 100-fold or more in the affinity of the binding compounds for the target.

Evaluating the Selected Compounds That Bind to the Target of Interest

Screening phage display libraries generally results in the identification of one or more groups of related binding compounds such as
antibodies, peptides or small proteins. These groups of compounds are valuable in providing information about which chemical features are necessary for binding to the

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target
with affinity and specificity, as well as which features can be altered without affecting binding. Using DNA sequencing, we can determine the amino acid sequences of the binding compounds and
identify the essential components of desired binding properties by comparing similarities and differences in such sequences. If desired, scientists can further optimize the binding compounds by
building additional phage display libraries based on these key components and repeating this process. We can complete the entire selection process in several weeks. We can produce small amounts of the
binding compound by growing and purifying the phage. For production of larger amounts, we can remove the gene from the phage DNA and place it into a standard recombinant protein expression system.
Alternatively, if the identified binding compound is sufficiently small, it can be chemically synthesized. These binding compounds can be evaluated for desired properties including affinity,
specificity and stability under conditions that will be encountered during its intended use. From each group of compounds, scientists can identify, develop and test a compound with the desired
properties for utility as a biopharmaceutical, diagnostic, research reagent or affinity separations product.

The
entire phage display process for identifying compounds that bind to targets of interest is nearly identical whether the ultimate product is to be used for biopharmaceuticals,
diagnostics, research reagents or separations, which allows for an efficient use of scientific resources across a broad array of commercial applications.

Advantages of Phage Display Technology in Therapeutic Drug Discovery

We believe our phage display technology has the following advantages over other drug discovery technologies:



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COMPETITION

We compete in an industry 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.

Our
principal focus is on the development of therapeutic products. We will 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.

For
DX-88 as a treatment for HAE, our principal competitors include:



Other
competitors include companies that market or are developing corticosteroid drugs or other anti-inflammatory compounds.

The
principal competitors for DX-88 as a treatment for reducing blood loss in cardiothoracic surgery procedures are manufacturers of aminocaproic acid, a drug used in this
indication. A number of other organizations, including Novo Nordisk A/S, Vanderbilt University and The Medicines Company, are developing other products for this indication.

For
our potential oncology product candidates, our potential competitors include numerous pharmaceutical and biotechnology companies, many of which have greater financial resources and
experience than we do.

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In
addition, most large pharmaceutical companies seek to develop orally available small molecule compounds against many of the targets for which we and others are seeking to develop
antibody, peptide and/or small protein products.

Our
phage display technology is one of several technologies available to generate libraries of compounds that can be leveraged to discover new antibody, peptide and/or small protein
products. The primary competing technology platforms that pharmaceutical, diagnostics and biotechnology companies use to identify antibodies that bind to a desired target are transgenic mouse
technology and the humanization of murine antibodies derived from hybridomas. Medarex, Inc., Genmab A/S, and PDL Biopharma are leaders in these technologies. Further, other companies such as
BioInvent International AB and XOMA Ltd. have access to phage display technology and compete with us by offering licenses and research services to pharmaceutical and biotechnology companies.

In
addition, we may experience competition from companies that have acquired or may acquire technology from universities and other research institutions. As these companies develop their
technologies, they may develop proprietary positions that may prevent us from successfully commercializing our products.

PATENTS AND PROPRIETARY RIGHTS

Our success is significantly dependent upon our ability to obtain patent protection for our products and technologies, to defend and
enforce our issued patents, including patents related to phage display, and to avoid the infringement of patents issued to others. Our policy generally is to file for patent protection on methods and
technology useful for the display of binding molecules and on biopharmaceutical, diagnostic and separation product candidates.

Our
proprietary position in the field of phage display is based upon patent rights, technology, proprietary information, trade secrets and know-how. Our patents and patent
applications for phage display, known as the Ladner patents, include U.S. Patent Nos. 5,837,500, which expires June 29, 2010, 5,571,698, which expires June 29, 2010, 5,403,484,
which expires April 4, 2012, 5,223,409, which expires June 29, 2010, 6,979,538, which expires June 29, 2010, 7,118,879, which expires June 29, 2010, 7,208,293, which
expires June 29, 2010, 7,413,537, which expires November 29, 2012, and issued patents in Canada, Israel, and Japan, as well as pending patent applications in the United States and other
countries. These phage display patent rights contain claims covering inventions in the field of the surface display of proteins and certain other peptides, including surface display on bacteriophage.

For
our therapeutic product candidates, we file for patent protection on groups of antibodies, peptides and small proteins that we identify using phage display. These patent rights now
include U.S. Patent Nos. 5,994,125, which expires January 11, 2014, 5,795,865, which expires August 18, 2015, 6,057,287, which expires August 18, 2015, 6,333,402, which
expires January 11, 2014, 7,064,107, which expires June 6, 2023 , 7,153,829, which expires July 2, 2023, 7,166,576, which expires September 27, 2024, 7,235,530, which
expires September 27, 2024, 7,276,480, which expires June 6, 2023 and European Patent No. 739355 which expires January 11, 2015, as well as issued patents in Canada and
Japan, claiming sequences of peptides that have human kallikrein inhibitory activity, including the sequence for DX-88, and polynucleotide sequences encoding these peptides.

There
are no legal challenges to our phage display patent rights or our other patent rights now pending in the United States. However, we cannot assure that a challenge will not be
brought in the future. We plan to protect our patent rights in a manner consistent with our product development and business strategies. If we bring legal action against an alleged infringer of any of
our patents, we expect the alleged infringer to claim that our patent is invalid, not infringed, or not enforceable for one or more reasons, thus subjecting that patent to a judicial determination of
infringement, validity and enforceability. In addition, in certain situations, an alleged infringer could seek a declaratory judgment of non-infringement, invalidity or unenforceability of
one or more of our patents. We cannot be sure

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that
we will have sufficient resources to enforce or defend our patents against any such challenges or that a challenge will not result in an adverse judgment against us or the loss of one or more of
our patents. Uncertainties resulting from the initiation and continuation of any patent or related litigation, including those involving our patent rights, could have a material adverse effect on our
ability to maintain and expand our licensing program and collaborations, and to compete in the marketplace.

Our
first phage display patent in Europe, European Patent No. 436,597, known as the 597 Patent, was ultimately revoked in 2002 in a proceeding in the European Patent Office. We
have one divisional patent application of the 597 Patent pending in the European Patent Office. We cannot be assured that we will prevail in the prosecution of this patent application. We will not be
able to prevent other parties from using our phage display technology in Europe if the European Patent Office does not grant us another patent.

Our
phage display patent rights are central to our non-exclusive patent licensing program and our performance under our related agreement with Cowen Healthcare. We offer
non-exclusive licenses under our phage display patent rights to companies and non-profit institutions in the fields of therapeutics, diagnostics and other select fields. In
jurisdictions where we have not applied for, obtained, or maintained patent rights, we will be unable to prevent others from developing or selling products or technologies derived using phage display.
In addition, in jurisdictions where we have phage display patent rights, we cannot assure that we will be able to prevent others from selling or importing products or technologies derived using phage
display.

We
are aware that other parties have patents and pending applications to various products and processes relating to phage display technology. Through licensing our phage display patent
rights, we have secured a limited ability to practice under some of the third party patent rights relating to phage display technology. These rights are a result of our standard license agreement,
which contains a covenant by the licensee that it will not sue us under the licensee's phage display improvement patents. In addition, we have sought and obtained affirmative rights of license or
ownership under certain patent rights relating to phage display technology owned by other parties. For example, under our amended license agreement with Cambridge Antibody Technology Limited (now know
as MedImmune Limited and owned by AstraZeneca), we have a worldwide research license under all the CAT antibody phage display patents and have options to obtain product licenses from CAT to develop
and commercialize antibody products, for which CAT will receive milestones and royalties. We have also entered into licensing agreements with Affimed Therapeutics, Affitech, Biosite (now owned by
Inverness Medical Innovations), Domantis (a wholly-owned subsidiary of GlaxoSmithKline) and Genentech, Inc. under which we granted each of those companies rights to practice our phage display
patents and in return received rights to practice under their phage display related patents. These types of agreements in which each party licenses technology to the other are referred to as
cross-licensing agreements. We have also entered into a cross-licensing agreement with XOMA Ireland Limited under which we received a license to use XOMA's antibody expression technology to develop
antibody products for ourselves and our collaborators. We also received a license from XOMA to produce antibodies. In exchange we agreed to pay XOMA a license fee and a royalty in connection with the
sale of any of our antibody products. We also granted XOMA a license to our phage display patents and agreed to provide them with limited quantities of our antibody phage display libraries.

GOVERNMENT REGULATION

The production and marketing of any of our future biopharmaceutical products will be subject to numerous governmental laws and
regulations on safety, effectiveness and quality, both in the United States and in other countries where we intend to sell the products. In addition, our research and development activities in the
United States are subject to various health and safety, employment and other laws and regulations.

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United States FDA Approval

In the United States, the FDA rigorously regulates products intended for diagnostic or therapeutic use in humans.

The
steps required before a new pharmaceutical can be sold in the United States include:



All
our internal product candidates, including DX-88, and the pharmaceutical and diagnostic products of our collaborators and licensees, will need to complete successfully
the FDA-required testing and approvals before they can be marketed. There is no assurance that we or our collaborators can gain the necessary approvals. Failure to do so would have a
material adverse effect on our ability to achieve our business goals and implement our business strategy. In addition, following approval, manufacturers must continue to report all adverse events of
which they become aware to the FDA. On occasion such events may be sufficiently serious to warrant changes in the approved uses of products, or in especially serious cases, removal from the market.
This, should it occur, could also produce material adverse effects on our business.

Foreign Regulatory Approval

In many countries outside the United States, especially within the European Union (EU), governmental regulatory authorities similar to
the FDA must approve the investigational program and/or marketing application for pharmaceutical and diagnostic products. New legislation for investigative medicinal products was implemented by all EU
member states on May 1, 2004. Despite attempts to harmonize regulations in all member states, differences continue to exist which may result in delays in the initiation of clinical trials.
Following the conclusion of the clinical evaluation of a medicinal product, a marketing authorization is prepared and submitted. The format of the required documentation has been harmonized to some
extent in the United States, the European Union, and Japan. In addition, the national laws governing manufacturing requirements, advertising and promotion, and pricing and reimbursement may vary
widely. Therefore, the time to market can vary widely among different regions and countries. In addition, the export to foreign countries for investigation and/or marketing of medicinal products that
have been manufactured in the US but not approved for marketing by the FDA is subject to US law as well as the laws of the importing country and may require one or more regulatory authorizations.
There is no assurance that we will be able to gain the necessary authorizations in a timely fashion or at all. Failure to do so would have a material adverse effect on our ability to achieve our
business goals and implement our business strategy.

Environmental, Health, Safety and Other Regulations

In addition to the laws and regulations that apply to the development, manufacture and sale of our products, our operations are subject
to numerous foreign, federal, state and local laws and regulations.

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Our
research and development activities involve the use, storage, handling and disposal of hazardous materials and chemicals and, as a result, we are required to comply with regulations and standards
of the Occupational Safety and Health Act and other safety and environmental laws. Although we believe that our activities currently comply with all applicable laws and regulations, the risk of
accidental contamination or injury cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result, which could have a material adverse effect on
our business, financial condition and results of operations.

MANUFACTURING

In preparation for the potential launch of DX-88 for HAE in the United States we have established a commercial supply chain, consisting
of sole source third party suppliers to manufacture, test and distribute this product.

Our
DX-88 drug substance, or active pharmaceutical ingredient (API), is manufactured by Avecia Biologics Limited (Avecia) in the United Kingdom. As a result of previously completed
manufacturing activities conducted at Avecia, we have a significant inventory of DX-88 API, which we believe is sufficient to meet the initial market demand for DX-88 following launch. We are in the
process of completing a long-term commercial supply agreement under which Avecia will conduct the ongoing manufacturing activities necessary to supply product for both approved commercial use as well
as any clinical trials by Dyax and its collaborators.

Under
a commercial Supply Agreement with Hollister-Steir Laboratories, LLC (Hollister-Steir), dated February 2, 2009, API will be converted into final drug product by Hollister-Steir at
its facilities in Spokane, Washington.

Among
the conditions for FDA approval of our BLA is the requirement that the quality control and manufacturing procedures utilized by our contractors conform to applicable regulations
relating to
current Good Manufacturing Practice (cGMP). Avecia underwent a successful pre-approval inspection by the FDA for DX-88 in January, 2009. Hollister-Steir has been previously approved by the FDA.

Distribution

In order to adequately monitor the administration and safe use of DX-88 for HAE, we are implementing an exclusive
distribution model. Under this model, the distribution of DX-88 to treating physicians and hospitals will be conducted through a single specialty pharmacy or its affiliated wholesale
distributor. We have identified a preferred distribution service provider and are currently in the process of negotiating commercial agreements.

SALES AND MARKETING

We do not currently have any therapeutic products approved for sale. For the DX-88 HAE indication, where patients are
treated primarily by limited numbers of specialty physicians, we intend to independently commercialize DX-88 in North America. Launch strategy and planning activities for the United States
are ongoing; however, we do not expect to establish direct sales capability until shortly before DX-88 is approved by the FDA. Key launch preparations include strategic brand planning,
reimbursement and specialty pharmacy distribution implementation, and physician, patient and payer customer research activities. For markets outside of North America, we will seek to establish
arrangements where DX-88 is sold by pharmaceutical companies that are already well established.

For
products that are indicated for conditions where patients may be treated by large numbers of internists, general surgeons, or family practitioners, we will seek to establish
arrangements under which our products will be sold and marketed by large pharmaceutical organizations with established sales forces. We expect that these arrangements will generally be worldwide on a
product-by-product basis.

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OUR CORPORATE INFORMATION

We are a Delaware corporation, incorporated in 1989, and merged with Protein Engineering Corporation in 1995. Our principal executive
offices are located at 300 Technology Square, Cambridge, Massachusetts 02139, and our telephone number is (617) 225-2500. Our website address is http://www.dyax.com.

Segment Information

We provide financial information by geographical area in Note 14 to our Consolidated Financial Statements included in
Item 8 of this report. We are incorporating that information into this section by this reference.

Employees

As of December 31, 2008, we had 164 employees worldwide, including 31 with Ph.D.s and/or M.D.s. Approximately 112 of our
employees are in research and development, and 52 in marketing, business development and administration. Our workforce is non-unionized, and we believe that our relations with employees
are good.

Additional Information

We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and amendments to these reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 available without charge through our website,
www.dyax.com, as soon as reasonably practicable after filing them with the Securities and Exchange Commission. Information contained on the website is not part of this report.

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ITEM 1A.    RISK FACTORS

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 since our inception in 1989. We incurred net losses of $66.5 million, $56.3 million, and
$50.3 million years ended December 31, 2008, 2007 and 2006, respectively. As of December 31, 2008, we had an accumulated deficit of approximately $355.4 million. We expect
to incur substantial additional net losses over the next several years as our research, development, preclinical testing, clinical trial and commercial activities increase, particularly with respect
to our current lead product candidate, DX-88.

We
have not generated any revenue from product sales to date, and it is possible that we will never have significant, if any, product sales revenue. Currently, we generate 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, either alone or with our collaborators, must successfully develop, manufacture and market our current product candidates, including DX-88, and other products and continue
to leverage our phage display technology to generate research funding and licensing revenue. It is possible that we will never have significant product sales revenue or receive significant royalties
on our licensed product candidates or licensed technology in order to achieve or sustain future profitability.

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

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



We
expect that existing cash, cash equivalents, and short-term investments together with anticipated cash flow from existing product development, collaborations and license
fees will be sufficient to support our current operations through at least 2009. We will need additional funds if our cash requirements exceed our current expectations or if we generate less revenue
than we expect.

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We
may seek additional funding through our existing equity line of credit, 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 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.

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 U.S. 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 US 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.

We
developed the protocol for our EDEMA4 clinical trial utilizing the FDA's Special Protocol Assessment, or SPA, process. This process is designed to provide a reasonable level of
certainty to sponsors of investigational drugs that the FDA will not question the adequacy of a pivotal clinical trial once the related protocol has been reviewed and cleared by the FDA. However, the
SPA process does not preclude the FDA from raising new concerns at any time during the review process, and applicable FDA regulation further provides that FDA can require trial design changes if there
arises a substantial scientific issue essential to determining the safety or effectiveness of the drug. Consequently, the FDA may ultimately not accept our EDEMA4 trial design as adequate to support
regulatory approval, regardless of the clinical results obtained.

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

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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.

The FDA may require us to perform additional post-approval clinical trials or take other potentially limiting or costly actions if we or others identify side
effects after our products are on the market.

The FDA may (i) require sponsors of products to conduct post-approval clinical studies to assess a known serious
risk, signals of serious risk or to identify an unexpected serious risk; (ii) mandate labeling changes to products, at any point in a product's lifecycle, based on new safety information and
(iii) require sponsors to implement a Risk Evaluation and Mitigation Strategy (REMS) for a product which could include a medication guide, patient package insert, a communication plan to
healthcare providers, or other elements as the FDA deems are necessary to assure safe use of the drug, which could include imposing certain restrictions on distribution or use of a product. Further,
regulatory agencies could change existing, or promulgate new, regulations at any time which may affect our ability to obtain or maintain approval of our existing or future products or require
significant additional costs to obtain or maintain such approvals.

If
we or others identify safety concerns before approval of the product or after a product is on the market, the regulatory agencies such as the FDA or EMEA may impose risk management
activities upon us and/or may require additional or more extensive clinical trials or a pharmacovigilance program prior to the marketing approval of our product any of which could have a material
adverse effect on sales of the affected products and on our business and results of operations. Regulatory agencies such as the FDA could require us to engage in risk management activities, possibly
including a REMS, which could modify or restrict our promotional activities, restrict or encumber the ability of healthcare providers to prescribe, dispense or use our products or limit patient access
to our products. If results from mandated clinical trials as part of a pharmacovigilance program are negative or any risk management activities resulted in decreased use of our products, it could have
a material adverse effect on sales of the affected products and on our business and results of operations.

Even if we obtain regulatory approval, our biopharmaceutical products will continue to be subject to governmental review. If we, or our suppliers, fail to comply with FDA or
other government regulations, our business, financial condition, and results of operations would be adversely affected.

Even if regulatory approval is obtained, our biopharmaceutical products will continue to be subject to extensive and rigorous
regulation by the FDA and comparable foreign authorities. These regulations govern, among other things, the manufacturing, labeling, storage, advertising, promotion, sale, and distribution of our
products.

Previously
unidentified adverse events or an increased frequency of adverse events that may occur post-approval could result in labeling modifications of approved products,
which could adversely affect future marketing. Approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. Later discovery of
previously unknown problems with a product, manufacturer or facility may result in the FDA and/or other regulatory agencies requiring further clinical research or restrictions on the product or the
manufacturer, including withdrawal of the drug product from the market.

In
addition, the facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA. If our contract manufacturers cannot successfully
manufacture material that conforms to our specifications and the FDA's strict regulatory requirements, they will not be able to secure FDA approval for the manufacturing facilities. Our contract
manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMP and similar regulatory requirements. Failure
by any of our contract manufacturers to comply with applicable regulations could

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result
in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market our product candidates, delays, suspensions or withdrawals of approvals,
operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business.

The
restriction, suspension, or revocation of regulatory approvals or any other failure to comply with regulatory requirements could have a material adverse effect on our business,
financial condition, and results of operations.

Our biopharmaceutical product candidates must undergo rigorous clinical trials which could substantially delay or prevent their development or marketing.

Before we can commercialize any biopharmaceutical product, 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. For example, four other companies have been conducting clinical trials of treatments for HAE,
and this may have caused delays in recruitment for our HAE trials. 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.

Although
we have estimated elsewhere in this Annual Report on Form 10-K when we might obtain regulatory approval of DX-88 for HAE, because of the risks and
uncertainties in biopharmaceutical development, 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:



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. Our IND Applications for our recombinant protein DX-88, for example, were placed on clinical hold by the FDA in May
2004, following the FDA's evaluation of certain animal test data submitted by us. Although that study was allowed to continue, we were required by the FDA to conduct additional testing at additional
expense. There is no guarantee that we will be able to resolve similar issues in the future, either quickly, or at all. In addition, our or our

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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, handling regulatory processes, and conducting sales and marketing activities. 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. For example, in 2008, the contract research organization collecting and assembling the data from our EDEMA4 trial announced that it was terminating that
line of business, which forced us to find a new contractor and delay the filing of our BLA for HAE by almost two months. We may also experience unexpected cost increases that are beyond our control.

Problems
with the timeliness or quality of the work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider.
However, changing our service provider may be costly and may delay our trials, 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.

Similarly,
we may be unable to enter into third party arrangements for the marketing and sale of biopharmaceuticals on acceptable terms. For certain products, we may incur substantial
expenses to develop our own marketing and sales force in order to commercialize our biopharmaceuticals and our efforts may not be successful or the product may not be approved.

As
a result we may experience delays in the commercialization of our biopharmaceuticals and we may be unable to compete effectively which would adversely impact our business, operating
results and financial condition.

Because we currently lack the resources, capability and experience necessary to manufacture biopharmaceuticals, we will depend on third parties to perform this function,
which may adversely affect our ability to commercialize any biopharmaceuticals we may develop.

We do not currently operate manufacturing facilities for the clinical or commercial production of biopharmaceuticals and do not plan to
have that capacity for the foreseeable future. We also lack the resources, capability and experience necessary to manufacture biopharmaceuticals. As a result, we will 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 would adversely affect our ability to develop, obtain regulatory approval for or market 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. There is no assurance that contractors will have the capacity to manufacture or test our products at the
required scale and within

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the
required time frame or that the supply of clinical materials can be maintained during the clinical development of our biopharmaceutical candidates.

We
will be dependent on a single contract manufacturer to produce drug substance for DX-88 for HAE, if it is approved for sale. They will be subject to ongoing periodic
inspection by the FDA and corresponding foreign agencies to ensure strict compliance with current
good manufacturing practices and other governmental regulations and standards. We have limited control over our contract manufacturer maintaining adequate quality control, quality assurance and
qualified personnel. Failure by our contract manufacturer to comply with or maintain any of these standards could adversely affect our ability to further develop, obtain regulatory approval for or
market DX-88 and would adversely impact our business.

If we are unable to find distributors for our DX-88 product candidate outside the United States, we may be unable to generate significant revenues from, or
recoup our investments in, DX-88.

We are familiar with the HAE patient community and its relatively small number of treating allergists, and we believe the optimal
commercialization strategy for the HAE indication is to build an internal sales team to promote DX-88 in the United States and to establish regional collaborations for distribution in
other major market countries. If we are not able to find a suitable distributor or distributors, or if we are unable to negotiate acceptable terms for distribution, we may not be able to fully develop
and commercialize DX-88, which would adversely affect our business prospects and the value of our common stock.

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 entered into a Loan Agreement with Cowen Healthcare providing us with a loan of approximately $50 million, which has a
principle balance of $48.1 million at December 31, 2008. The loan bears interest at a rate of 16% per annum payable quarterly and matures in August 2016. In connection with this loan, we
have entered into a security agreement granting Cowen Healthcare a security interest in substantially all of the assets related to the LFRP. We are required to repay the loan based on a percentage of
our 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 principal or paid in cash by us. We may prepay the loan in whole or in part at any time after August 2011. 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 2011. 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 were 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 may not 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.

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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 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 and market acceptance.

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



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.

Product liability and other claims against us may reduce demand for our product candidates or result in substantial damages.

We face an inherent risk of product liability exposure related to testing our product candidates in human clinical trials and will face
even greater risks if we sell our product candidates commercially.

An
individual may bring a product liability claim against us if 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:



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. If we are sued for any injury caused by our products or processes, then our liability could exceed our product liability insurance coverage and our total assets.

We and our collaborators may not be able to gain market acceptance of our biopharmaceutical product candidates, which could adversely affect our revenues.

We cannot be certain that any of our biopharmaceutical product candidates, even if successfully approved by the regulatory authorities,
will gain market acceptance among physicians, patients, healthcare payors, or others. We may not achieve market acceptance even if clinical trials demonstrate safety and efficacy of our
biopharmaceutical candidates and the necessary regulatory and reimbursement approvals are obtained. The degree of market acceptance of our biopharmaceutical candidates will depend on a number of
factors, including:



If
our products do not achieve significant market acceptance, our potential future revenues could be adversely affected which would have a material adverse effect on our business,
financial condition, and results of operations.

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.

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

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new
products for those indications. Many of our competitors have greater financial resources and experience than we do.

For
DX-88 as a treatment for HAE, our principal competitors include:



Other
competitors include companies that market or are developing corticosteroid drugs or other anti-inflammatory compounds.

The
principal competitors for DX-88 as a treatment for reducing blood loss in cardiothoracic surgery procedures, are manufacturers of aminocaproic acid, a drug used in this
indication. A number of other organizations, including Novo Nordisk A/S, Vanderbilt University and The Medicines Company, are developing other products for this indication.

For
our potential oncology product candidates, our potential competitors include numerous pharmaceutical and biotechnology companies, many of which have greater financial resources and
experience than we do.

In
addition, most large pharmaceutical companies seek to develop orally available small molecule compounds against many of the targets for which we and others are seeking to develop
antibody, peptide and/or small protein products.

Our
phage display technology is one of several technologies available to generate libraries of compounds that can be leveraged to discover new antibody, peptide and/or small protein
products. The primary competing technology platforms that pharmaceutical, diagnostics and biotechnology companies use to identify antibodies that bind to a desired target are transgenic mouse
technology and the humanization of murine antibodies derived from hybridomas. Medarex, Inc., Genmab A/S, and PDL Biopharma are leaders in these technologies. Further, other companies such as
BioInvent International

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AB
and XOMA Ltd. have access to phage display technology and compete with us by offering licenses and research services to pharmaceutical and biotechnology companies.

In
addition, we may experience competition from companies that have acquired or may acquire technology from universities and other research institutions. As these companies develop their
technologies, they may develop proprietary positions that may prevent us from successfully commercializing our products.

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:



The
Company's 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 Inverness Medical Innovations), Cambridge Antibody Technology
Limited (now known as MedImmune Limited and owned by AstraZeneca), Domantis Limited (a wholly-owned subsidiary of GlaxoSmithKline), Genentech, Inc. and XOMA Ireland Limited, other third party
patent owners may contend that we need a license or other rights under their patents in order for us to commercialize a process or product. In addition, we may choose to license patent rights from
other

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third
parties. In order for us to commercialize a process or product, we may need to license the patent or other rights of other parties. If a third party does not offer us a needed license or offers
us a license only on terms that are unacceptable, we may be unable to commercialize one or more of our products. If a third party does not offer a needed license to our collaborators and as a result
our collaborators stop work under their agreement with us, we might lose future milestone payments and royalties, which would adversely affect us. If we decide not to seek a license, or if licenses
are not available on reasonable terms, we may become subject to infringement claims or other legal proceedings, which could result in substantial legal expenses. If we are unsuccessful in these
actions, adverse decisions may prevent us from commercializing the affected process or products and could require us to pay substantial monetary damages.

We
seek affirmative rights of license or ownership under existing patent rights relating to phage display technology of others. For example, through our patent licensing program, we have
secured a limited freedom to practice some of these patent rights pursuant to our standard license agreement, which contains a covenant by the licensee that it will not sue us under certain of the
licensee's phage display improvement patents. We cannot guarantee, 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 have one divisional patent application of the 597 Patent pending in the
European Patent Office. We cannot be assured that we will prevail in the prosecution of this patent application. We will not be able to prevent other parties from using our phage display technology in
Europe if the European Patent Office does not grant us another phage display patent.

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 Cambridge Antibody Technology Limited (now known as MedImmune 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 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

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claims
or other legal proceedings, which could result in substantial legal expenses. If we are unsuccessful in these actions, adverse decisions may prevent us from commercializing the affected process
or products. Moreover, if we are unable to maintain the covenants with regard to phage display improvements that we obtain from our licensees through our patent licensing program and the licenses that
we have obtained to third party phage display patent rights, it could have a material adverse effect on our business.

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

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

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

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



Our
revenues and costs in any period are not reliable indicators of our future operating results. If the revenues we receive are less than the revenues we expect for a given fiscal
period, then we may be unable to reduce our expenses quickly enough to compensate for the shortfall. 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.

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

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ability
to develop and commercialize our products and processes may be delayed which would have an adverse effect on our business, financial condition, and results of operations.

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

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

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 DX-88. 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:



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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.

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
February 20, 2009, 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:



While
we cannot predict the individual 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 and our shareholder rights plan 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

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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. Our shareholder rights plan could result in
the significant dilution of the proportionate ownership of any person that engages in an unsolicited attempt to take over our company and, accordingly, could discourage potential acquirers.

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 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

We lease space at 300 Technology Square in Cambridge, Massachusetts. This building serves as our corporate headquarters and main
research facility. Currently, we lease approximately 91,000 square feet of which we sublease 24,000 square feet to two tenants under separate sublease agreements, each of which will expire on
October 31, 2009. Our lease will expire on February 29, 2012, although we have the option to extend our lease for two additional five-year terms. We had previously provided
the lessor with a Letter of Credit in the amount of $4.3 million, and per the terms of the agreement, the Letter of Credit was reduced to approximately $2.7 million, after the fifth year
of the lease term which was February 15, 2008.

Through
our subsidiary, Dyax S.A., we have 10,000 square feet of leased laboratory and office space in Liege, Belgium. In connection with the closure of our Liege-based research
facility during 2008, this facility has been vacated and the lease will terminate in June 2009.

ITEM 3.    LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the quarter ended December 31, 2008, no matters were submitted to a vote of security holders through the solicitation of
proxies or otherwise.

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PART II

ITEM 5.    MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The NASDAQ Global Market under the symbol DYAX. As of February 20, 2009, there were 63,090,580
shares of our common stock outstanding, which were held by approximately 187 common stockholders of record.

The
following table sets forth, for the periods indicated, the high and low selling prices for our common stock as reported on NASDAQ Global Market:

High

LowFiscal year ended December 31, 2008:First Quarter

$
4.93

$
3.15Second Quarter

$
5.18

$
3.05Third Quarter

$
5.35

$
2.80Fourth Quarter

$
4.53

$
1.94




High

LowFiscal year ended December 31, 2007:First Quarter

$
4.69

$
2.88Second Quarter

$
6.95

$
3.95Third Quarter

$
4.54

$
3.43Fourth Quarter

$
4.64

$
3.41


We
have never declared or paid cash dividends on our capital stock. We currently intend to retain our future earnings, if any, for use in our business and therefore do not anticipate
paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs and plans for expansion.

We
provide equity compensation plan information in the section entitled "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" included in
Item 12 of this report. We are incorporating that information into this section by this reference.

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ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes certain selected consolidated financial data, which should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this Form 10-K. The
selected consolidated financial data at December 31, 2008 and 2007, and for the years ended December 31, 2008, 2007 and 2006 have been prepared from our audited financial statements
included in this Form 10-K. The selected consolidated financial data at December 31, 2006, 2005 and 2004, and for the years ended December 31, 2005 and 2004 have been
prepared from our audited financial statements not included in this Annual Report on Form 10-K.

December 31,2008

2007

2006

2005

2004(In thousands, except share and per share data)Consolidated Statement of
Operations Data:Product development and license fee revenues

$
43,429

$
26,096

$
12,776

$
19,859

$
16,590Research and development:Research and development expenses


68,077


64,010


53,637


47,376


39,432Less research and development expenses reimbursed by joint venture (Dyax-Genzyme LLC)





(7,000
)

(16,100
)

(20,688
)

(10,408
)Net research and development


68,077


57,010


37,537


26,688


29,024General and administrative expenses


22,663


15,740


14,658


12,784


14,451Equity loss in joint venture
(Dyax-Genzyme LLC)





3,831


10,352


11,952


5,988Restructuring costs


4,631











Impairment of fixed assets


352











Total operating expenses


95,723


76,581


62,547


51,424


49,463Loss from operations


(52,294
)

(50,485
)

(49,771
)

(31,565
)

(32,873
)Other (expense) income, net


(5,910
)

(5,824
)

(552
)

621


(241
)Loss on extinguishment of debt


(8,264
)










Net loss

$
(66,468
)
$
(56,309
)
$
(50,323
)
$
(30,944
)
$
(33,114
)Basic and diluted net loss per share

$
(1.08
)
$
(1.06
)
$
(1.18
)
$
(0.87
)
$
(1.06
)Shares used in computing basic and diluted net loss per share


61,626,095


53,072,993


42,532,466


35,455,782


31,207,218




December 31,2008

2007

2006

2005

2004(In thousands)Consolidated Balance Sheet Data:Cash and cash equivalents

$
27,668

$
29,356

$
11,295

$
8,640

$
6,978Short-term investments


30,792


34,055


47,169


42,024


50,163Long-term investments








1,992





Working capital


40,736


53,115


46,369


41,756


46,832Total assets


75,075


83,615


88,173


75,917


82,760Long-term obligations, less current portion


48,499


30,016


40,210


9,819


10,645Accumulated deficit


(355,400
)

(288,932
)

(232,623
)

(182,300
)

(151,356
)Total stockholders' equity (deficit)


(20,044
)

29,496


23,461


40,938


47,831


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Table of Contents

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of novel biotherapeutics
for unmet medical needs, with an emphasis on inflammatory and oncology indications. We use our proprietary drug discovery
technology, known as phage display, to identify antibody, small protein and peptide compounds for clinical development. This phage display technology fuels our internal pipeline of promising drug
candidates, attracts numerous licensees and collaborators, and has the potential to generate important revenues in the future.

Our
lead product candidate, DX-88, is a small recombinant protein that is a highly specific inhibitor of human plasma kallikrein. We and our collaborators are currently
developing DX-88 in multiple indications.

The
most advanced indication for DX-88 is in the treatment of HAE, a potentially life-threatening inflammatory condition. DX-88 has orphan drug
designation in the United States and EU, as well as Fast Track designation in the United States for the treatment of acute attacks of HAE. In this indication, we have completed three Phase 2
trials and two Phase 3 trials of DX-88 for subcutaneous administration. On September 23, 2008, we submitted a BLA with the United States FDA for the use of DX-88
for the treatment of acute attacks of HAE and the FDA has designated this application for priority review. On February 4, 2009, the FDA's Pulmonary-Allergy Advisory Committee voted in favor of
approval of DX-88 for HAE. The Committee's findings will be weighed by the FDA in determining whether our BLA for DX-88 is to be approved.

If
the BLA is approved, we intend to market and sell DX-88 on our own in North America. We are currently negotiating with potential partners to commercialize
DX-88 for HAE and other angioedema indications in markets outside of North America.

Outside
of HAE, DX-88 is also being developed in additional indications. These include ACE inhibitor-induced angioedema, a life threatening inflammatory response brought on
by adverse reactions to ACE inhibitors; acquired angioedema, a condition associated with B-cell lymphoma and autoimmune disorders; the use of DX-88 for the prevention of blood
loss during surgery, and the use of DX-88 for the treatment of retinal diseases.

We
have completed a Phase 1/2 trial of DX-88 for the prevention of blood loss during on-pump CABG procedures. In April 2008, we entered into an exclusive license
and collaboration agreement with Cubist, for the development and commercialization in North America and Europe of the intravenous formulation of DX-88 for the prevention of blood loss
during surgery. Under this agreement, Cubist assumed responsibility for all further development and costs associated with the use of DX-88 in this indication in the Cubist territory.
Cubist has announced plans to conduct two additional Phase 2 trials, a dose-ranging, placebo controlled trial in low risk patients undergoing primary CABG or valve replacement
surgery, and a trial to study the safety and efficacy of a single dose of DX-88 compared with tranexamic acid in patients who have a higher risk of bleeding.

We
have entered into a license agreement with Fovea for the ocular formulation of DX-88 for the treatment of retinal diseases in the EU. Under this agreement, Fovea will
fully fund development for the first indication, retinal vein occlusion-induced macular edema, for which an IND application is expected in 2009. Dyax retains all rights to commercialize
DX-88 in this indication outside of the EU.

In
addition to DX-88, we have identified two product candidates for preclinical development, DX-2240 and DX-2400, two fully human monoclonal
antibodies with therapeutic potential in oncology indications. In February 2008, we entered into an exclusive license agreement with sanofi-aventis under

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which
they will be responsible for the continued development of DX-2240. DX-2400 is currently in preclinical development and is being evaluated for testing in a range of
oncology indications.

All
of the compounds in our pipeline were discovered using our proprietary phage display technology, which allows us to rapidly identify product candidates that bind with high affinity
and specificity to therapeutic targets. Although we use this technology primarily to advance our own internal development activities, we also leverage it through licenses and collaborations designed
to generate revenues and provide us access to co-develop and/or co-promote drug candidates identified by other biopharmaceutical and pharmaceutical companies. Through our LFRP,
we have agreements with more than 70 licensees and collaborators, which have thus far resulted in 13 product candidates that licensed third parties have advanced into clinical trials and one product
that has received market approval from the FDA. A portion of the current and future revenues generated through the LFRP are pledged to secure payment of a loan we received from Cowen Healthcare in
August 2008.

We
incurred losses in 2008 and expect to continue to incur significant operating losses over at least the next several years. We do not expect to generate profits until the therapeutic
products from our development portfolio reach the market after being subjected to the uncertainties of the regulatory approval process.

Clinical Development Programs

DX-88 for HAE.We are developing DX-88 as a treatment for HAE.

The
clinical development of DX-88 for HAE is summarized as follows:



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Our
study results in patients exposed to multiple doses of DX-88 suggest that it can provide repeated therapeutic benefit to HAE patients for all types of HAE attacks,
including potentially fatal laryngeal attacks. Furthermore, there is no apparent decrease in DX-88's therapeutic effects on HAE attacks in these patients. To date, DX-88 is
generally well tolerated, with the most serious risks being hypersensitivity reactions, including anaphylaxis, which are resolved with treatment. Other adverse events include headache, nausea and
fatigue.

Based
on the positive safety and efficacy results from our EDEMA4 and EDEMA3 trials, we submitted our BLA to the FDA on September 23, 2008. The FDA accepted our BLA for filing and
has designated the application for priority review. The FDA's Pulmonary-Allergy Drugs Advisory Committee reviewed our submission for the subcutaneous formulation of DX-88 for HAE on
February 4, 2009, and the Committee voted in favor of approval of DX-88 for HAE by a margin of six votes in favor to five votes against, with two voters abstaining. In addition to
the overall vote in favor of approval, the Committee provided recommendations aimed to better understand DX-88's safety characteristics in the subset of patients that experience
hypersensitivity reactions. We are currently in the process of discussing the elements of a safe use program with the FDA.

Given
our familiarity with the HAE market and its relatively small number of treating allergists, we intend to independently commercialize DX-88 in North America. For markets
outside of North America, we will seek to establish arrangements where DX-88 is sold by pharmaceutical companies that we already well established in these regions. Because regulatory approvals for new
pharmaceutical
products can be, and often are, significantly delayed or refused for numerous reasons, DX-88 may not be approved on the timeline we expect, or at all.

The
following table illustrates the activity associated with DX-88 for HAE included in our consolidated statements of operations and comprehensive loss:

Years Ended December 31,2008

2007

2006(In thousands)DX-88 for HAE costs

$
31,063

$
25,858

$
15,808DX-88 drug substance manufacturing costs


2,970


7,339


9,821Total research and development expenses for DX-88 for HAE


34,033


33,197


25,629Research and development expenses reimbursed by joint venture (Dyax-Genzyme LLC)





(7,000
)

(16,100
)Equity loss in joint venture (Dyax-Genzyme LLC) separately classified within the consolidated statements of operations and comprehensive
loss





3,831


10,352Net DX-88 for HAE program costs

$
34,033

$
30,028

$
19,881


During
2008, the total research and development expenses on this program totaled $34.0 million compared with $33.2 million in 2007 and $25.6 million in 2006. The
increase in spending from 2007 to 2008 is attributable to increased clinical costs for our EDEMA4 Phase 3 trial, as well as an increase in personnel expenses required to support the advancement
of the HAE program, and was partially offset by a decrease in manufacturing costs related to the process validation campaign completed in 2007.

DX-88
for HAE research and development expenses increased $7.6 million in 2007 over 2006 because of increased preclinical costs for additional toxicology studies,
increased clinical costs for the close out of the EDEMA3 trial and start up costs for the EDEMA4 trial, and an increase in personnel expenses.

Dyax-Genzyme LLC
was responsible for the reimbursement of all development expenses related to the HAE program until the termination of the LLC on February 20, 2007.
This reimbursement was

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recorded
as research and development expenses reimbursed by joint venture (Dyax-Genzyme LLC) in our consolidated statements of operations and comprehensive loss. During 2006,
Dyax-Genzyme LLC reimbursed us $16.1 million for our expenses relating to the program. For 2007, Dyax-Genzyme LLC reimbursed us for $7.0 million for our
expenses through the date of the termination.

Dyax-Genzyme LLC
had net losses representing the total research and development expenses incurred by Dyax and Genzyme on DX-88 for HAE. Our portion of the
losses, accounted for under the equity method, were $3.8 million and $10.4 million for the years ended December 31, 2007, and 2006 respectively, and were proportional to our
50.01% financial interest in the program prior to the collaboration's termination. Our portion of the losses is separately classified as equity loss in joint venture on our consolidated statements of
operations and comprehensive loss. All expenditures on the program after February 20, 2007 became the sole responsibility of Dyax and are included in research and development expense on our
consolidated statement of operations and comprehensive loss.

DX-88 for the Treatment of Other Angioedemas

Another form of angioedema is induced by the use of so-called ACE inhibitors. With an estimated 30 to 40 million
prescriptions written annually worldwide, ACE inhibitors are widely prescribed to reduce Angiotensin Converting Enzyme (ACE) and generally reduce high blood pressure and vascular constriction.
Approximately 17% of all angioedemas admitted to medical centers for treatment are identified as ACE inhibitor-induced angioedema. Research suggests the use of ACE inhibitors increases the relative
activity 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, DX-88 has the potential to be effective for treating this condition. The Company is working with investigators affiliated with the University of Cincinnati as they
prepare to initiate an investigator sponsored study for drug-induced angioedema.

Acquired
angioedema is a condition associated with B-cell lymphoma and autoimmune disorders. Dr. Marco Cicardi, of the University of Milan, plans to sponsor a
compassionate use study of DX-88 with these forms of acquired angioedema, which study will be conducted at three sites in Italy during 2009.

DX-88 for On-Pump CTS

Industry publications report that there are an estimated one million procedures performed worldwide each year involving
on-pump cardiothoracic surgery, or CTS. On-pump CTS procedures, which are performed for patients who have narrowings or blockages of the coronary arteries, often involve use of
a heart-lung machine commonly referred to as the "pump". In these procedures, the heart is stopped with medications, and the pump does the work of the heart and lungs during surgery. This
allows the surgeon to position the heart as needed, to accurately identify the arteries and to perform the bypass while the heart is stationary.

The
use of the pump during CTS procedures elicits an adverse systemic inflammatory response. Many patients undergoing on-pump CTS procedures experience significant
intraoperative blood loss that requires transfusion. Plasma kallikrein has been implicated in the body's response to on-pump heart surgery as a major contributor to the significant blood
loss seen in on-pump CTS patients and to the pathologic inflammation that plays a role in the complications of on-pump CTS procedures.

In
April, 2008, Dyax entered into an exclusive license and collaboration agreement with Cubist for the development and commercialization in North America and Europe of the intravenous
formulation of DX-88 for the prevention of blood loss during surgery. Under this agreement, Cubist assumed responsibility for all further development and costs associated with
DX-88 in the licensed indications in the Cubist territory.

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Having
determined that the existing experience from a Phase 2 clinical trial of DX-88 sponsored by Dyax (Kalahari 1) was sufficient to help with the design of a subsequent
dose-ranging trial, Cubist closed the Kalahari 1 study in June 2008. Based on the top-line results from the Kalahari 1 trial, Cubist is planning two additional
Phase 2 trials. They have completed plans to initiate a dose-ranging, placebo controlled trial in low risk patients undergoing CABG surgery and are working towards initiating a
trial to study the safety and efficacy of a single dose of DX-88 compared with tranexamic acid in patients who have a higher risk of bleeding. Based on the final protocols for these two
trials, Cubist expects to enroll a total of approximately 650 patients.

During
2008, research and development expenses for the CTS program totaled $3.9 million compared to $3.2 million in 2007. During 2008, we billed Cubist $1.7 million
for reimbursement of services related to the Phase 2 Kalahari 1 trial incurred in 2008. No future expenditures are expected to be incurred by us for this program.

Goals for Clinical Development Programs

Our goal for the ongoing clinical development program for DX-88 is to obtain marketing approval from the FDA and analogous
international regulatory agencies. Cash inflows for either of these programs, other than upfront and milestone payments from any collaboration we may enter into, will not commence until after
marketing approvals are obtained, and then only if the product candidate finds acceptance in the marketplace as a treatment for its disease indication. Because of the many risks and uncertainties
related to the completion of clinical trials, receipt of marketing approvals and acceptance in the marketplace, we cannot predict when cash inflows from these programs will commence, if ever.

Other Discovery and Development Programs

In addition to our drug candidates in clinical trials, our phage display technology and expertise has allowed us to develop a pipeline
of drug candidates. Our goal is to maintain at least ten ongoing therapeutic programs in our pipeline at all times. Of our existing pipeline candidates, the most advanced are DX-2240 and
DX-2400, two fully human monoclonal antibodies with therapeutic potential in oncology indications.

Our
DX-2240 antibody has a novel mechanism of action that targets the Tie-1 receptor on tumor blood vessels. In preclinical animal models, DX-2240 has
demonstrated activity against a broad range of solid tumor types. Data also indicates increased activity when combined with antiangiogenic therapies such as Avastin® and
Nexavar®. In February 2008, we entered into agreements with sanofi-aventis, under which we granted sanofi-aventis exclusive worldwide rights to develop and commercialize
DX-2240 as a therapeutic product, as well as a non-exclusive license to our proprietary antibody phage display technology.

Our
DX-2400 antibody is a specific inhibitor of MMP-14 on tumor cells and tumor blood vessels. To date, small molecule approaches have failed to produce compounds
that distinguish between closely related MMPs. In contrast, our technology has allowed us to identify a highly selective inhibitor of MMP-14 that does not inhibit other proteases that we
have tested. In animal models, DX-2400 has been shown to significantly inhibit tumor
progression and metastasis in a dose-dependent manner in breast, prostate, pancreatic and melanoma tumors. Herceptin®, a leading breast cancer treatment, is effective in only
the subtype of breast tumors which are Her2+. Current data suggests that DX-2400 may be effective against both Her2+ and Her2- breast tumors, potentially offering promise for
treatment of a wider range of breast cancer patients. DX-2400 is currently in preclinical development and is being evaluated for testing in a range of oncology indications.

Given
the uncertainties of the research and development process, it is not possible to predict with confidence if we will be able to enter into additional partnerships or otherwise
internally develop any of

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these
other preclinical drug candidates into marketable pharmaceutical products. We monitor the results of our discovery research and our nonclinical and clinical trials and frequently evaluate our
pre-clinical pipeline in light of new data and scientific, business and commercial insights with the objective of balancing risk and potential. This process can result in relatively abrupt
changes in focus and priority as new information becomes available and we gain additional insights into ongoing programs and potential new programs.

Results of Operations

Revenues.Substantially all our revenue has come from licensing, funded research and development fees, including milestone
payments from our
licensees and collaborators. This revenue fluctuates from year to year due to the timing of the clinical activities of our collaborators and licensees. Total revenue for 2008 was $43.4 million,
compared with $26.1 million in 2007 and $12.8 million in 2006.

The
increase of $17.3 million in revenue from 2007 to 2008 reflects revenue of $23.2 million associated with our agreement with sanofi-aventis, $3.2 million from our
agreement with Cubist, and a $3.0 million increase in library license fees primarily due to new agreements and milestones in 2008. These increases were partially offset by a decrease in patent
license activity due to revenue in 2007 including $15.0 million recognized from a fully paid-up license agreement signed with Morphosys.

The
increase of $13.3 million in revenue from 2006 to 2007 was primarily related to the recognition of $15.0 million from the license agreement with MorphoSys and a
$1.2 million increase in revenue from
library license agreements. These increases were partially offset by a $3.6 million decrease in revenue associated with our former DX-890 product collaboration, which concluded in
2006.

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

Year Ended December 31,2008

2007

2006(In thousands)Research and development per consolidated statements of operations and comprehensive loss

$
68,077

$
64,010

$
53,637Less research and development expenses reimbursed by joint venture (Dyax-Genzyme LLC)





(7,000
)

(16,100
)Net research and development expenses


68,077


57,010


37,537Equity loss in joint venture (Dyax-Genzyme LLC) separately classified within the consolidated statements of operations and comprehensive
loss





3,831


10,352Research and development expenses adjusted to include equity loss in joint venture

$
68,077

$
60,841

$
47,889


Our
research and development expenses arise primarily from compensation and related costs for personnel dedicated to research and development activities and for the fees paid and costs
reimbursed to outside parties to conduct research, clinical trials and to manufacture drug material prior to FDA approval. While expenses we incur on the DX-88 program for HAE are included
in our research and development expenses, expenses through February 20, 2007 were reimbursed by the Dyax-Genzyme LLC joint venture and excluded from net research and development
expenses. As we jointly funded the losses of that program with Genzyme, our equity loss in joint venture represents our share of all expenses for the development of DX-88 for HAE through
February 20, 2007 by

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Dyax-Genzyme LLC.
Subsequent to the termination of the joint venture on February 20, 2007, there has been no reimbursement from Genzyme nor any equity loss in the joint
venture.

Research
and development expense increased by $4.1 million in 2008 compared to 2007, excluding DX-88 for HAE reimbursements by the joint venture and equity loss in
joint venture. This includes a $2.9 million decrease associated with the closure of our Liege operations. Development costs for DX-88 clinical candidates increased
$1.5 million due to increases in internal costs, clinical trial costs and a decrease in manufacturing. Third-party license fees associated with LFRP and licensing increased $4.5 million
in 2008. Other development costs for preclinical candidates increased approximately $1.0 million in 2008 primarily related to an increase in personnel expenses.

Of
the $10.4 million increase in research and development expenses from 2006 to 2007, $10.0 million is attributable to DX-88 for HAE costs due to increases in
clinical trial costs, personnel costs, additional preclinical toxicology studies, and increased manufacturing costs related to drug product validation studies. The additional $400,000 increase in
research and development expenses is attributable to an increase in clinical trial costs for DX-88 in the on-pump CTS program, offset by a decrease in preclinical and small
scale manufacturing costs associated with preclinical candidates.

Combining
net research and development expenses and equity loss in joint venture, our adjusted net research and development expenses increased $13.0 million from 2006 to 2007 due
primarily to $10.4 million increase in HAE program costs and a decrease in reimbursement by the Dyax-Genzyme LLC joint venture. The offsetting decrease in our equity loss in
joint venture reflects the termination of the joint venture in February 2007.

Our
management believes that the above presentation of adjusted net research and development expenses, although a non-GAAP measure, provides investors a better understanding
of how total research and development efforts affected our consolidated statements of operations and comprehensive loss in prior year periods. Our presentation of this measure, however, may not be
comparable to similarly titled measures used by other companies.

General and Administrative.Our general and administrative expenses consist primarily of the costs of our management and
administrative staff, as
well as expenses related to business development, protecting our intellectual property, administrative occupancy, professional fees, market research and promotion activities and the reporting
requirements of a public company. General and administrative expenses were $22.7 million in 2008 compared to $15.7 million in 2007 and $14.7 million in 2006. The increase from
2007 to 2008 was primarily due to increased infrastructure to support our planned commercialization of DX-88 for HAE in North America. The increase from 2006 to 2007 was due to increased
share-based compensation expense, recruiting fees and other personnel costs.

Restructuring and Impairment.In 2008, we incurred restructuring fees of $4.6 million and recorded an
impairment charge related to fixed assets of $352,000 in connection with the closing of our Liege based research facility.

Loss on Extinguishment of Debt.In 2008, we incurred a one-time loss on extinguishment of debt of $8.3 million related to
fully
paying off our debt with Paul Royalty.

Interest Expense.Interest expense was $7.8 million in 2008 compared to $9.1 million in 2007 and $3.8 million in
2006. The
decrease from 2007 to 2008 is primarily due to a decrease in interest by repaying our loan with Paul Royalty in August 2008 and replacing it with a lower interest loan with Cowen Healthcare. Interest
on the Paul Royalty agreement was calculated using the effective interest method based on our expected future payments to Paul Royalty. See Notes to Consolidated Financial Statements, Note 8 of
Item 8 "Financial Statements and Supplementary Data" for additional information regarding this agreement.

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Interest Income.Interest income was $1.5 million, $3.3 million and $3.2 million in 2008, 2007 and 2006,
respectively. The
decrease in 2008 was due primarily to lower interest rates on our short-term investments.

Liquidity and Capital Resources

December 31,2008

2007

2006(in thousands)Cash and cash equivalents

$
27,668

$
29,356

$
11,295Short-term investments


30,792


34,055


47,169Long-term investments








1,992Total cash, cash equivalents, short-term and long-term investments

$
58,460

$
63,411

$
60,456


The
following table summarizes our cash flow activity for the years ended December 31, 2008, 2007 and 2006 (in thousands):

Years Ended December 31,2008

2007

2006Net cash used in operating activities


(20,488
)

(40,217
)

(31,140
)Net cash provided by (used in) investing activities


3,764


35,303


(23,401
)Net cash provided by financing activities


14,984


22,921


57,238Effect of foreign currency translation on cash balances


52


54


(42
)Net increase (decrease) in cash and cash equivalents

$
(1,688
)
$
18,061

$
2,655


We
require cash to fund our operating expenses, to make capital expenditures, acquisitions and investments, and to service debt. Through December 31, 2008, we have funded our
operations principally through the sale of equity securities, which have provided aggregate net cash proceeds since inception of approximately $296 million, including net proceeds of
$10.0 million from our private sale of stock in July 2008. We also generate funds from product development and license fees and from debt proceeds. Our excess funds are currently invested in
short-term investments primarily consisting of U.S. Treasury notes and bills and money market funds backed by U.S. Treasury obligations.

Operating Activities.

The principal use of cash in our operations is to fund our net loss which was $66.5 million in 2008. Of this net loss, certain
costs were non-cash charges, such as depreciation and amortization costs of $3.3 million, interest expense of $7.4 million and stock-based compensation expense under
FAS 123(R) of $4.5 million, and certain revenues, for which we received payment totaling $21.9 million, were deferred for financial reporting purposes in 2008. In addition, when
we repaid the Paul Royalty loan, $8.3 million was recorded as loss on extinguishment of debt and that cash payment is reflected in financing activities. The decrease in cash used in operating
activities was $19.7 million from 2008 to 2007, primarily due to the revenue deferred in 2008.

For
2007, our net loss was $56.3 million, of which certain costs were non-cash charges such as depreciation and amortization of $3.5 million, interest expense
of $8.2 million, stock-based compensation expense under FAS 123(R) of $2.9 million, and equity on loss of joint venture of
$3.8 million. The increase in cash used in operating activities was $9.1 million from 2007 to 2006, primarily due to a higher net loss.

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For 2006, our net loss was $50.3 million, of which certain costs were non-cash charges such as depreciation and amortization of
$3.5 million, interest expenses of $2.7 million, stock-based compensation expense under FAS 123(R) of $2.3 million, and equity in loss of joint venture of
$10.4 million. The increase in cash used in operating activities was $12.8 million from 2006 to 2005, primarily due to a higher net loss.

Investing Activities.

Our investing activities for 2008 primarily consist of the timing of the maturity and purchase of our short-term
investments and a $1.6 million decrease in restricted cash from a contractual reduction of our letter of credit that serves as our security deposit for the lease of our facility in Cambridge,
Massachusetts. In addition we purchased equipment totaling $1.4 million.

Our
investing activities for 2007 are related to the $17.0 million of cash received in connection with the purchase of Genzyme's interest in the
Dyax-Genzyme LLC joint venture, the release of $7.2 million from restricted cash in association with paying off the Genzyme note, the purchase of fixed
assets totaling $1.1 million, and the timing of the maturity and purchase of our short-term investments.

Our
investing activities for 2006 consisted of an increase in restricted cash of $7.1 million, primarily due to the posting of a $7.2 million letter of credit to securitize
our amended and restated senior secured promissory note with Genzyme. Additionally in 2006 there was a $9.8 million investment in joint venture, fixed asset purchases of $1.1 million and
the timing of the maturity of short-term investments.

Financing Activities.

Our financing activities for 2008 primarily consist of net proceeds of $49.6 million from our note payable to Cowen Healthcare,
a $10.0 million private sale of common stock, proceeds from long-term obligations of $1.1 million and $1.5 million in proceeds from the issuance of common stock under
our employee stock purchase plan and the exercise of stock options. We also repaid the Paul Royalty loan for $35.1 million and other long-term obligations of $12.1 million.

Our
financing activities for 2007 primarily consist of the net proceeds of $41.3 million from an underwritten public offering, and the repayment of long-term
obligations of $19.6 million, which includes $7.2 million to pay off the Genzyme note, and payments to Paul Royalty.

In
2006, we received net proceeds of $30.2 million from an underwritten public offering, and $29.5 million from Paul Royalty and repaid long-term obligations of
$3.5 million.

We
have financed fixed asset purchases through capital leases and debt. Capital lease obligations are collateralized by the assets under lease.

In
conjunction with our collaboration agreement with Genzyme for the development of DX-88, Genzyme had loaned us $7.0 million pursuant to a senior secured promissory
note. In August, 2007, we paid all the principal and accrued interest due under this note, and the $7.2 million letter of credit that secured the loan was released and the cash collateral was
reclassified from restricted cash.

In
October 2008, we entered into an equity line of credit arrangement with Azimuth Opportunity Ltd. (Azimuth). We entered into a Common Stock Purchase Agreeement with Azimuth,
which provides that Azimuth is committed to purchase up to $50.0 million of our common stock, or the number of shares which is one share less than twenty percent of the issued and outstanding
shares of our common stock as of October 30, 2008, which is subject to automatic reduction in certain circumstances, over the approximately 18-month term of the Purchase Agreement.
From time to time during the term of the purchase agreement, and at our sole discretion, we may present Azimuth with draw down notices to purchase Dyax common stock over 10 consecutive trading days or
such other

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period
mutually agreed upon by us and Azimuth. Each draw down is subject to limitations based on the price of our common stock and a limit of 2.5% of our market capitalization at the time of such draw
down, provided, however, Azimuth will not be required to purchase more than approximately $7.7 million of our common stock in any single draw down excluding shares under any call option, as
described below. We are able to present Azimuth with up to 24 draw down notices during the term of the purchase agreement, with a minimum of five trading days required between each draw down period.
Unless otherwise agreed by us and Azimuth. only one draw down is allowed in each draw down pricing period, with a minimum price of $2.00 per share.

In
2008, we completed several partnerships and financial transations and we expect to continue to manage our cash burn by completing additional partnerships, collaborations and strategic
transactions. We expect that existing cash, cash equivalents, and short-term investments together with anticipated cash flow from existing product development, collaborations and license
agreements will be sufficient to support our current operations through at least 2009. 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 existing equity line of credit agreement with Azimuth, 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.

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

Contractual Obligations

Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude contingent
liabilities for which we cannot reasonably predict future payment. The following chart represents our total contractual obligations, including principal and interest, at December 31, 2008,
aggregated by type (in thousands):

Payments due by periodContractual obligations

Total

Less than 1 year

1-3 years

3-5 years

More than 5 yearsNote Payable(1)

$
78,273

$
6,989

$
18,411

$
29,954

$
22,919Capital leases


1,784


967


817





Leasehold improvement arrangements


1,307


413


825


69


Operating lease obligations(2)


16,362


4,257


11,093


1,012


Patent and product license obligations(3)


3,935


368


2,352


1,215


Obligations for research, development and manufacturing(4)


13,271


13,022


213


36


Total contractual obligations

$
114,932

$
26,016

$
33,711

$
32,286

$
22,919


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In
addition, we have received a €825,000 grant from the Walloon region of Belgium. The grant includes specific criteria regarding employment and
investment levels that need to be met. The employment criteria were met in 2006. The investment criteria were not fully met as of December 31, 2008. Pursuant to the closure of the Liege
facility in 2008, we have refunded approximately $162,000 as of December 31, 2008 and are working with the Walloon region to determine what portion of the residual balance will need to be
refunded. The residual balance as of December 31, 2008 was approximately $983,000.

Critical Accounting Estimates

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue
recognition, receivable collectibles, royalty interest obligations, useful lives with respect to long-lived and intangible assets and valuation of common stock, related stock options, and
deferred tax assets. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including
assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their
nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates. We believe that our judgment and assumptions with respect to the following significant
accounting policies are most critical to the accounting estimates used in the preparation of our consolidated financial statements.

Royalty Interest Obligation.Prior to August 2008, under our Royalty Interest Assignment Agreement with Paul Royalty, we had
recorded the upfront
cash proceeds of $30.0 million, less $500,000 in cost reimbursements paid to Paul Royalty, as a debt instrument. Based upon our best estimate of future royalty interest obligation payments,
interest expense was calculated using the effective interest method. Our best estimate of future royalty interest obligation payments was based upon returning to Paul Royalty an internal rate of
return of 25% through future net LFRP receipts. In August 2008, we repaid this loan and no longer estimate interest on this agreement.

Share-Based Compensation.Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting
Standards No. 123
(revised 2004), "Accounting for Stock-Based Compensation" which required us to recognize the expense related to the fair value of stock-based compensation awards in our consolidated statement of
operations. We elected to follow the modified prospective transition method allowed by SFAS 123(R), and therefore, only applied the provisions of SFAS 123(R) to awards modified or
granted after January 1, 2006. In addition, for awards that were unvested as of January 1, 2006 we will recognize compensation expense in our consolidated statement of operations over
the remaining vesting period. Prior to January 1, 2006, we accounted for stock-based compensation using the intrinsic value method prescribed in APB No. 25, "Accounting for Stock Issued
to Employees."

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SFAS 123(R)
requires companies to estimate the fair value of stock-based awards on the date of grant using an option-pricing model. We use the Black-Scholes option pricing model.
A number of assumptions are used by the Black-Scholes option-pricing model to compute the grant date fair value, including expected price volatility, option term, risk-free interest rate,
and dividend yield. Expected volatilities are based on historical volatilities of our stock. The expected option term is derived from historical data on exercise behavior. The dividend yield is based
on historical dividend payments. The risk-free rate for periods within the contractual life of the option is based on the U.S. treasury yield curve in effect at the time of grant. The
value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statement of operations. Our stock options
primarily have a graded-vesting schedule. We recognize expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award
was, in-substance, multiple awards. The equity-based compensation expense recorded in future income statements could fluctuate based on the terms of the awards, the assumptions used in the
valuation model, or the status of those employees receiving awards.

Revenue Recognition.We make significant assumptions and estimates relating to revenue recognition, which include the expected
term of the agreement
and total expected cost. Our assumptions and estimates may prove to be inaccurate. Therefore, although we make every effort to ensure the accuracy of our estimates, any significant unanticipated
changes in our estimates could have a material impact on revenues and our results of operations.

Our
revenue recognition policies are in accordance with the Securities and Exchange Commission's (SEC) Staff Accounting Bulletin No. 101,Revenue
Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin No. 104,Revenue Recognition,and
Emerging Issues Task Force Issue No. 00-21,Revenue Arrangements with Multiple Deliverables.

We
enter into biopharmaceutical product development agreements with collaborators for the research and development of therapeutic, diagnostic and other products. The terms of the
agreements may include non-refundable signing and licensing fees, funding for research and development, milestone payments and royalties on any product sales derived from the
collaborations. Non-refundable signing and licensing fees are recognized as services are performed over the expected term of the collaboration. Funding for research and development, where
the amounts recorded are non-refundable, is recognized as the related expenses are incurred. Milestones that are based on designated achievement points and that are considered at risk and
substantive at the inception of the collaboration are recognized as earned when the corresponding payment is considered reasonably assured. We evaluate whether milestones are at risk and substantive
based on the contingent nature of the milestone, specifically reviewing factors such as the technological
and commercial risk that must be overcome and the level of the investment required. Milestones that are not considered at risk and substantive are recognized, when achieved, in proportion to the
percentage of the collaboration completed through the date of achievement. The remainder is recognized as services are performed over the remaining term of the collaboration. Royalties are recognized
when earned. We evaluate all collaboration agreements on a quarterly basis to determine the appropriate revenue recognition for that period. The evaluation includes all of the potential revenue
components from each specific collaboration agreement.

We
generally license our patent rights covering phage display as well as our proprietary phage display libraries 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 license patent rights agreements, for which we have no future obligations, 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 recognized ratably over the period to which the payment applies. Perpetual patent licenses are recognized immediately if we have no future obligations. Standard terms of the proprietary phage
display libraries agreements generally include non-refundable signing

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fees,
non-refundable license maintenance fees, development milestone payments and royalties on product sales. Signing fees and maintenance fees are recognized ratably over the period to
which the payment applies, which is normally between 3 and 5 years, but specific contract terms may extend this period up to 14 years. Upon the achievement of milestones under
non-exclusive phage display patent licenses and phage display libraries a portion of the milestone payment equal to the percentage of the license agreement that has elapsed is recognized
as revenue. Milestone payments under these license arrangements are recognized when the milestone is achieved if we have no future obligations under the license, and royalties are recognized when they
are earned.

Allowance for Doubtful Accounts.We estimate the uncollectibility of our accounts receivable. When evaluating the adequacy of
our allowance for
doubtful accounts, we analyze our accounts receivable aging, historical bad debts, customer concentrations, customer credit-worthiness and current economic trends. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Valuation of Long-Lived and Intangible Assets.We review long-lived assets, including capitalized license rights, 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. Factors considered important which could trigger an impairment review include the following:



Each
impairment test is based on a comparison of the undiscounted cash flow to the recorded value of the asset. When it is determined that the carrying value of intangibles and
long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, the asset is written down to its estimated fair value on a
discounted cash flow basis. Our intangible assets at December 31, 2008 consisted of licenses for antibody technology from third parties. No impairment losses have been recognized in any of the
periods presented in our consolidated financial statements.

Tax Loss Carryforwards

As of December 31, 2008, we had federal net operating loss (NOL) and research and experimentation credit carryforwards of
approximately $243.1 million and $29.5 million, respectively, which may be available to offset future federal income tax liabilities and which began to expire in 2009. We have recorded a
deferred tax asset of approximately $1.9 million reflecting the benefit of deductions from the exercise of stock options. This deferred asset has been fully reserved until it is more likely
than not that the benefit from the exercise of stock options will be realized. The benefit from this $1.9 million deferred tax asset will be recorded as a credit to additional
paid-in capital when realized. As required by SFAS No. 109, our management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax
assets, which are comprised principally of NOL and research and experimentation credit carryforwards. Management has determined at this time that it is more likely than not that we will not recognize
the benefits of federal and state deferred tax assets and, as a result, a valuation allowance of approximately $142.6 million has been established at December 31, 2008.

Recent Accounting Pronouncements

On May 5, 2008, SFAS No. 162,The Hierarchy of Generally Accepted Accounting
Principles, was issued. This Standard identifies the sources of accounting principles and the framework for selecting

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the
principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the U.S. The adoption of this standard has not
had a material impact on our financial statements or results of operations.

Effective
January 1, 2008, we implemented SFAS No. 157, "Fair Value Measurement"(SFAS 157), for our financial assets
and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported
at fair value at least annually. In accordance with the provisions of FASB Staff Position (FSP) No. FAS 157-2,Effective Date of FASB Statement
No. 157, we elected to defer implementation of SFAS 157 as it relates to our non-financial assets and non-financial liabilities that are
recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1, 2009. We are evaluating the impact, if any, this Standard will have on our financial
statements.

ITEM 7A.    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 December 31, 2008, we had cash, cash equivalents, and short-term investments of approximately $58.5 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 December 31, 2008, we had $50.8 million 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 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements



PageReport of Independent Registered Public Accounting Firm

50Consolidated Balance Sheets as of December 31, 2008 and 2007

51Consolidated Statements of Operations and Comprehensive Loss for the years ended
December 31, 2008, 2007 and 2006

52Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended
December 31, 2008, 2007 and 2006

53Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and
2006

54Notes to Consolidated Financial Statements

55Financial Statement Schedule

83


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Dyax Corp.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the
financial position of Dyax Corp. and its subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2008, based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting
appearing in Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.

As
discussed in Note 12 to the consolidated financial statements the Company has changed the manner in which it accounts for uncertain tax positions in 2007.

A
company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/
PricewaterhouseCoopers LLP

Boston,
Massachusetts
March 3, 2009

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Dyax Corp. and Subsidiaries        Consolidated Balance Sheets

December 31,
2008

December 31,
2007(In thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents

$
27,668

$
29,356Short-term investments


30,792


34,055Accounts receivable, net of allowances for doubtful accounts of $42 and $55 at December 31, 2008 and 2007, respectively


4,692


4,118Prepaid research and development


1,656


1,271Other current assets


814


1,292Total current assets


65,622


70,092Fixed assets, net


6,137


7,884Intangibles, net


428


931Restricted cash


2,888


4,483Other assets





225Total assets

$
75,075

$
83,615LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)Current liabilities:Accounts payable and accrued expenses

$
12,069

$
10,537Current portion of deferred revenue


10,700


3,832Current portion of long-term obligations


1,134


1,482Other current liabilities


983


1,126Total current liabilities


24,886


16,977Deferred revenue


20,686


5,675Note payable


46,947


Long-term obligations


1,552


30,016Deferred rent and other long-term liabilities


1,048


1,451Total liabilities


95,119


54,119Commitments and Contingencies (Notes 8, 11, 15)Stockholders' equity:Preferred stock, $0.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding





Common stock, $0.01 par value; 125,000,000 shares authorized; 63,040,420 and 60,427,178 shares issued and outstanding at December 31, 2008 and 2007,
respectively


630


604Additional paid-in capital


334,082


317,296Accumulated deficit


(355,400
)

(288,932
)Accumulated other comprehensive income


644


528Total stockholders' equity (deficit)


(20,044
)

29,496Total liabilities and stockholders' equity (deficit)

$
75,075

$
83,615


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

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Dyax Corp. and Subsidiaries        Consolidated Statements of Operations and Comprehensive Loss

Years Ended December 31,2008

2007

2006(In thousands, except share and per share data)Product development and license fee revenues

$
43,429

$
26,096

$
12,776Research and development:Research and development expenses


68,077


64,010


53,637Less research and development expenses reimbursed by joint venture (Dyax-Genzyme LLC)





(7,000
)

(16,100
)Net research and development


68,077


57,010


37,537General and administrative expenses


22,663


15,740


14,658Equity loss in joint venture (Dyax-Genzyme LLC)





3,831


10,352Restructuring costs


4,631





Impairment of fixed assets


352





Total operating expenses


95,723


76,581


62,547Loss from operations


(52,294
)

(50,485
)

(49,771
)Other income (expense):Interest income


1,507


3,258


3,246Interest expense


(7,753
)

(9,082
)

(3,798
)Gain on sale of fixed assets


336





Loss on extinguishment of debt


(8,264
)




Total other income expense, net


(14,174
)

(5,824
)

(552
)Net loss


(66,468
)

(56,309
)

(50,323
)Other comprehensive (loss) income:Foreign currency translation adjustments


71


24


(66
)Unrealized gain on investments


45


99


50Comprehensive loss


(66,352
)

(56,186
)
$
(50,339
)Basic and diluted loss per share:Net loss

$
(1.08
)
$
(1.06
)
$
(1.18
)Shares used in computing basic and diluted net loss per share


61,626,095


53,072,993


42,532,466


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

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Dyax Corp. and Subsidiaries        Consolidated Statements of Changes in Stockholders' Equity (Deficit)        For the years ended December 31, 2008, 2007 and
2006        (In thousands, except share data)

Common StockAccumulated
Other
Comprehensive
Income (Loss)Shares

Par
Value

Additional
Paid-in
Capital

Accumulated
Deficit

TotalBalance at December 31, 2005


38,028,363

$
380

$
222,437

$
(182,300
)
$
421

$
40,938Exercise of stock options


73,117


1


114








115Issuance of common stock for employee stock purchase plan


98,621


1


300








301Sale of common stock, net of expenses of $86


5,500,000


55


30,109








30,164Compensation expense associated with stock options








2,282








2,282Unrealized gain on short-term investments














50


50Foreign currency translation














(66
)

(66
)Net loss











(50,323
)




(50,323
)Balance at December 31, 2006


43,700,101


437


255,242


(232,623
)

405


23,461Exercise of stock options


152,139


1


325








326Issuance of common stock for employee stock purchase plan


99,938


1


247








248Shares issued to purchase joint venture (Dyax-Genzyme LLC)


4,400,000


44


17,398








17,442Sale of common stock, net of expenses of $191


12,075,000


121


41,211








41,332Compensation expense associated with stock options








2,873








2,873Unrealized gain on short-term investments














99


99Foreign currency translation














24


24Net loss











(56,309
)




(56,309
)Balance at December 31, 2007


60,427,178


604


317,296


(288,932
)

528


29,496Exercise of stock options


505,269


5


1,173








1,178Issuance of common stock for employee stock purchase plan


99,941


1


286








287Sale of common stock


2,008,032


20


9,980








10,000Compensation expense associated with stock options








4,494








4,494Issuance of warrants








853








853Unrealized gain on short-term investments














45


45Foreign currency translation














71


71Net loss











(66,468
)




(66,468
)Balance at December 31, 2008


63,040,420


630


334,082

$
(355,400
)
$
644

$
(20,044
)


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

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Dyax Corp. and Subsidiaries        Consolidated Statements of Cash Flows

Years Ended December 31,2008

2007

2006(In thousands)Cash flows from operating activities:Net loss

$
(66,468
)
$
(56,309
)
$
(50,323
)Adjustments to reconcile net loss to net cash used in operating activities:Amortization of purchased premium/discount


50


(962
)

(1,670
)Depreciation and amortization of fixed assets


2,812


3,012


2,944Amortization of intangibles


516


526


511Non-cash interest expense


7,386


8,210


2,682Amortization of deferred rent


(403
)

(375
)

(215
)Impairment of fixed assets


352





Gain on disposal of fixed assets


(350
)




Compensation expenses associated with stock-based compensation plans


4,494


2,873


2,282Equity loss in joint venture (Dyax-Genzyme LLC)





3,831


10,352Extinguishment of debt


8,264





Provision for doubtful accounts


(14
)

(25
)

(25
)Other





285


Changes in operating assets and liabilitiesAccounts receivable


(560
)

(1,973
)

(418
)Net amount due from joint venture (Dyax-Genzyme LLC)





461


(674
)Prepaid research and development, and other assets


90


(762
)

2,099Accounts payable and accrued expenses


1,606


1,164


2,222Deferred revenue


21,879


(399
)

(970
)Other long-term liabilities


(142
)

226


63Net cash used in operating activities


(20,488
)

(40,217
)

(31,140
)Cash flows from investing activities:Purchase of investments


(41,732
)

(63,153
)

(108,067
)Proceeds from maturity of investments


44,990


79,320


102,650Purchase of fixed assets


(1,439
)

(1,065
)

(1,057
)Proceeds from sale of fixed assets


350





Cash received in purchase of joint venture (Dyax-Genzyme LLC)





17,000


Restricted cash


1,595


7,038


(7,099
)Investment in joint venture (Dyax-Genzyme LLC)





(3,837
)

(9,828
)Net cash provided by (used in) investing activities


3,764


35,303


(23,401
)Cash flows from financing activities:Proceeds from the issuance of common stock under employee stock purchase plan and exercise of stock options


1,465


574


416Net proceeds from common stock offerings


10,000


41,332


30,164Proceeds from note payable


49,600





Proceeds from long-term obligations, net of fees


1,103


663


30,379Debt acquisition costs








(257
)Repayment of Paul Royalty on extinguishment of debt


(35,080
)




Repayment of long-term obligations


(12,104
)

(19,648
)

(3,464
)Net cash provided by financing activities


14,984


22,921


57,238Effect of foreign currency translation on cash balances


52


54


(42
)Net increase (decrease) in cash and cash equivalents


(1,688
)

18,061


2,655Cash and cash equivalents at beginning of the period


29,356


11,295


8,640Cash and cash equivalents at end of the period

$
27,668

$
29,356

$
11,295Supplemental disclosure of cash flow information:Interest paid

$
3,595

$
849

$
1,108Supplemental disclosure of non cash investing and financing activities:Acquisition of property and equipment under long-term obligations

$
31

$
432

$
584Shares issued to purchase joint venture assets (Dyax-Genzyme LLC)

$


$
17,442

$
Warrant issued in connection with note payable

$
853

$


$



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

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Dyax Corp. and Subsidiaries        Notes to Consolidated Financial Statements

1. Nature of Business

Dyax Corp. (Dyax or the Company) is a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of novel biotherapeutics for unmet medical
needs, with an emphasis on inflammatory and oncology indications. Dyax uses its proprietary drug discovery technology to identify antibody, small protein and peptide compounds for clinical
development. This technology has provided an internal pipeline of promising drug candidates and numerous licenses and collaborators that generate revenues through funded research, license fees,
milestone payments and royalties.

The
Company is subject to risks common to companies in the biotechnology industry including, but not limited to, risks of preclinical and clinical trials, dependence on collaborative
arrangements, development by its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with the United States Food and Drug
Administration (FDA) and other governmental regulations and approval requirements.

The
Company expects that existing cash, cash equivalents, and short-term investments together with anticipated cash flow from existing product development, collaborations and license
arrangements will be sufficient to support the Company's current operations through at least 2009. In addition, the Company has available access to additional funding under an existing equity
line of credit agreement. If the Company's cash requirements exceed its current expectations or if the Company generates less revenue than it expects, the Company will need additional funds. The
Company may seek additional funding through its existing equity line of credit, collaborative arrangements, and public or private financings. However, the Company may not be able to obtain financing
on acceptable terms or at all, and the Company may not be able to enter into additional collaborative arrangements. Arrangements with collaborators or others may require the Company to relinquish
rights to certain of its technologies,
product candidates or products. The terms of any financing may adversely affect the holdings or the rights of the Company's stockholders. If the Company needs additional funds and it is unable to
obtain funding on a timely basis, the Company would significantly curtail its research, development or commercialization programs in an effort to provide sufficient funds to continue its operations,
which could adversely affect its business prospects.

2. Accounting Policies

Basis of Consolidation:The accompanying consolidated financial statements include the accounts of the Company, Dyax-Genzyme LLC
and the Company's European research subsidiaries Dyax S.A. and Dyax BV (formerly known as TargetQuest BV). All inter-company accounts and transactions have been eliminated.

Use of Estimates:The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America
requires management to make certain estimates and assumptions that affect the amounts of assets and liabilities reported and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenue and expenses during the reporting periods. The significant estimates and assumptions in these financial statements include revenue recognition,
receivable collectibility, 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.

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Notes to Consolidated Financial Statements (Continued)

2. Accounting Policies (Continued)

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 December 31, 2008 and 2007, approximately 89% and 84% 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 U.S. government agencies held by one
financial institution. The Company also 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. Concentrations of credit risk with respect to trade receivable
balances are limited due to the diverse number of customers comprising the Company's customer base. Two customers accounted for approximately 48% and 35% of the Company's accounts receivable balance
at December 31, 2008, and these balances were paid subsequent to year end. One customer accounted for approximately 77% of the Company's accounts receivable balance at December 31, 2007.

Cash and Cash Equivalents:All highly liquid investments purchased with an original maturity of three months 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 consist of investments with original maturities greater than ninety days and less than one year
when
purchased. Long-term investments consist of investments with maturities of greater than one year. The Company considers its investment portfolio of investments
available-for-sale as defined by Statements of Financial Accounting Standards (SFAS) No. 115,Accounting for Certain Investments in Debt and
Equity Securities. Accordingly, these investments are recorded at fair value, which is based on quoted market prices. As of December 31, 2008, the Company's
short-term investments consisted of U.S. Treasury notes and bills with an amortized cost of $30.6 million, an estimated fair value of $30.8 million and had an unrealized gain
of $153,000, which is recorded in other comprehensive income on the accompanying consolidated balance sheets. All short-term investments mature in one year or less. As of
December 31, 2007, the Company's short-term investments consisted of U.S. Treasury notes and bills with an amortized cost of $33.9 million, an estimated fair value of
$34.1 million and had an unrealized loss of $107,000 which is recorded in other comprehensive income on the accompanying consolidated balance sheets.

As
of December 31, 2008 and 2007, the Company had no long-term investments.

Fixed Assets:Property and equipment are recorded at cost and depreciated over the estimated useful lives of the related assets using
the
straight-line method. Laboratory and production equipment, and furniture and office equipment are depreciated over a three to seven year period. Leasehold improvements are stated at cost
and are amortized over the lesser of the non-cancelable term of the related lease or their estimated useful lives. Leased equipment is 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.

Intangibles:Intangibles are recorded at cost and amortized over the estimated useful lives.

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Notes to Consolidated Financial Statements (Continued)

2. Accounting Policies (Continued)

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 an impairment is indicated, the asset is written down to its estimated fair value on a discounted cash flow basis.

Revenue Recognition:The Company's revenue recognition policies are in accordance with the Securities and Exchange Commission's (SEC)
Staff
Accounting Bulletin No. 101,Revenue Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin
No. 104,Revenue Recognition,and Emerging Issues Task Force Issue No. 00-21,Revenue Arrangements
with Multiple Deliverables.

The Company enters into biopharmaceutical product development agreements with collaborative partners 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, milestone payments and royalties on any
product sales derived from collaborations. Non-refundable signing and licensing fees are recognized as services are performed over the expected term of the collaboration. Funding for
research and development, where the amounts recorded are non-refundable is recognized as revenue as the related expenses are incurred. Milestones that are based on designated achievements
points and that are considered at risk and substantive at the inception of the collaboration are recognized as earned when the corresponding payment is considered reasonably assured. The Company
evaluates whether milestones are at risk and substantive based on the contingent nature of the milestone, specifically reviewing factors such as the technological and commercial risk that must be
overcome and the level of the investment required. Milestones that are not considered at risk and substantive are recognized, when achieved, in proportion to the percentage of the collaboration
completed through the date of achievement. The remainder is recognized as services are performed over the remaining term of the collaboration. Royalties are recognized when earned. 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. The Company evaluates all collaborative
agreements on a quarterly basis to determine the appropriate revenue recognition for that period. The evaluation includes all of the potential revenue components from each specific collaborative
agreement.

One
company accounted for approximately 54%, of product development and license fee revenue in 2008. One other company accounted for approximately 58% of product development and license
fee revenue in 2007. Two additional companies accounted for approximately 29% and 13% of product development and license revenue in 2006.

The
Company generally licenses its patent rights covering phage display as well as its proprietary phage display libraries 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 license patent rights agreements, for which the Company has no future obligations,
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 recognized ratably over the period to which the payment applies. Perpetual patent licenses are recognized immediately if the Company has no future obligations. Standard terms of
the proprietary phage display libraries agreements generally include non-refundable signing fees, non-refundable license maintenance fees, development milestone

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Notes to Consolidated Financial Statements (Continued)

2. Accounting Policies (Continued)

payments
and royalties on product sales. Signing fees and maintenance fees are recognized ratably over the period to which the payment applies. Upon the achievement of a milestone under
non-exclusive phage display patent licenses or phage display libraries a portion of the milestone payment equal to the percentage of the license period that has elapsed is recognized as
revenue. The remainder is recognized over the remaining term of the license agreement. Milestone payments under these license arrangements are recognized when the milestone is achieved if the Company
has no future obligations under the license. Royalties are recognized when they are earned.

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

Guarantees:The Financial Accounting Standards Board (FASB) issued interpretation No. 45Guarantor's
Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others(FIN 45). The Company has determined that there are no agreements that
fall within the scope of FIN 45. The Company generally does not provide indemnification with respect to the license of its phage display technology. The Company does generally provide
indemnifications for claims of third parties that arise out of activities that the Company performs under its collaboration, product development and cross-licensing activities. The maximum potential
amount of future payments the Company could be required to make under the indemnification provisions in some instances may be unlimited. The Company has not incurred any costs to defend lawsuits or
settle claims related to any indemnification obligations under its license agreements. As a result, the Company believes the estimated fair value of these obligations is minimal. The Company has no
liabilities recorded for any of its indemnification obligations recorded as of December 31, 2008 and 2007.

Investment in Joint Venture (Dyax-Genzyme LLC):Prior to February 20, 2007, the Company had a collaboration agreement with
Genzyme for
the development and commercialization of DX-88 for hereditary angioedema (HAE). Under this collaboration, the Company and Genzyme formed a joint venture, known as Dyax-Genzyme LLC,
through which they jointly owned the rights to DX-88 for the treatment of HAE. Dyax and Genzyme were each responsible for approximately 50% of ongoing costs incurred in connection with the
development and commercialization of DX-88 for HAE and each would have been entitled to receive approximately 50% of any profits realized as a result. Research and development expenses
incurred by each party related to the HAE program were billed to and reimbursed by the LLC. The Company presented this reimbursement as a reduction in research and development expenses because
it included funding that the Company provided to the LLC. Prior to termination of the LLC on February 20, 2007, the Company accounted for its interest in the LLC using the
equity method of accounting. Dyax's 50.01% share of the joint venture's loss was recorded as an Equity Loss in Joint Venture (Dyax-Genzyme LLC). Subsequent to the termination of
the LLC and acquisition of 100% of its assets by Dyax, the LLC investment and related accounts have been consolidated in the Company's financial statements.

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. Through February 20, 2007, these costs are partially offset by the reimbursement of expenses by the Dyax-Genzyme LLC. These costs have been charged to research
and development expense as incurred. Prepaid research and development on the consolidated balance sheets represents external drug manufacturing costs, and research and development service

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Notes to Consolidated Financial Statements (Continued)

2. Accounting Policies (Continued)

costs
that have been paid for in absence of the related product being received or the services being performed.

Income Taxes:The Company utilizes the asset and liability method of accounting for income taxes as set forth in SFAS No. 109, Accounting for Income Taxes(SFAS No. 109). 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.

The
Company adopted the provisions of FASB Interpretation No. 48"Accounting for Uncertainty in Income Taxes"("FIN 48"), an
interpretation of FASB Statement No. 109 ("SFAS 109"), on January 1, 2007. As a result of the implementation of FIN 48, no adjustment was required for unrecognized income
tax benefits. At the January 1, 2007 adoption date of FIN 48, and also at December 31, 2007 and December 31, 2008, there were no unrecognized tax benefits.

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. The resulting currency translation adjustments are made directly to a separate component of
stockholders' equity in the consolidated balance sheets. For the years ending December 31, 2008 and 2007, gains from transactions in foreign currencies were $71,000 and $24,000, respectively,
and for the year ending December 31, 2006 losses from transactions in foreign currencies were $66,000, which are included in the consolidated statements of operations and comprehensive loss.

Share-Based Compensation:Effective January 1, 2006, the Company adopted the provisions of SFAS 123
(Revised 2004) "Share-Based Payments" (SFAS 123(R)) which required it to recognize the expense related to the fair value of stock-based compensation awards in the consolidated statement of
operations. The Company elected to follow the modified prospective transition method allowed by SFAS 123(R), and therefore, only applied the provisions of SFAS 123(R) to awards modified
or granted after January 1, 2006. In addition, for awards which were unvested as of January 1, 2006, it is recognizing compensation expense in the consolidated statement of operations
over the remaining vesting period. The Company has elected to adopt the alternative transition method provided in FASB issued Staff Position No. FAS 123(R)-3, "Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment Awards". The alternative transition method includes simplified methods to establish the beginning balance of the additional
paid-in capital pool ("APIC pool") related to the tax effects of stock-based compensation, and for determining the impact on the APIC pool and consolidated statements of cash flows of the
tax effects of stock-based compensation that were outstanding upon adoption of FAS 123(R).

Net Loss Per Share:Net loss per share is computed under SFAS No. 128,Earnings per Share(SFAS No. 128). Under SFAS No. 128, the Company is required to present two EPS amounts, basic and diluted. Basic net 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 are
anti-dilutive for all periods presented and, therefore, are excluded from the calculation of diluted net loss per share. Stock options to purchase a total of 8,458,609, 7,011,450 and
5,860,432 shares were outstanding at December 31, 2008, 2007 and 2006, respectively.

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Notes to Consolidated Financial Statements (Continued)

2. Accounting Policies (Continued)

Comprehensive Income (Loss):The Company accounts for comprehensive income (loss) under SFAS No. 130,Reporting
Comprehensive Income.The statement established standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial
statements. The statement required that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements.

Accumulated
other comprehensive income (loss) is calculated as follows:

Unrealized
Gain (Loss) on
Investments

Foreign Currency
Translation
Adjustment

Accumulated Other
Comprehensive
Income(In thousands)Balance at January 1, 2006

$
(42
)
$
463

$
421Change for 2006


50


(66
)

(16
)Balance at December 31, 2006


8


397


405Change for 2007


99


24


123Balance at December 31, 2007


107


421


528Change for 2008


45


71


116Balance at December 31, 2008

$
152

$
492

$
644


Business Segments:The Company discloses business segments under SFAS No. 131,Disclosures about Segments
of an
Enterprise and Related Information(SFAS No. 131). The statement established standards for reporting information about operating segments in annual financial statements
of public enterprises and in interim financial reports issued to shareholders. It also established standards for related disclosures about products and services, geographic areas and major customers.
Prior to the closing of the Liege facility in 2008, the Company operated as one business segment in two geographic areas. Subsequent to the closing, the Company operates as one business segment with
one geographic area.

Recent Accounting Pronouncements:On May 5, 2008, SFAS No. 162,The Hierarchy of Generally Accepted
Accounting Principles, was issued. This Standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of
financial statements that are presented in conformity with generally accepted accounting principles in the U.S. The adoption of this Standard has not had a material impact on the Company's financial
statements or results of operations.

Effective
January 1, 2008, the Company implemented SFAS No. 157, "Fair Value Measurement"(SFAS 157), for its
financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are
re-measured and reported at fair value at least annually. In accordance with the provisions of FASB Staff Position (FSP) No. FAS 157-2,Effective
Date of FASB Statement No. 157, the Company elected to defer implementation of SFAS 157 as it relates to its non-financial assets and
non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1, 2009. The Company is evaluating the
impact, if any, this Standard will have on its financial statements.

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Notes to Consolidated Financial Statements (Continued)

3. Fair Value Measurements

The adoption of SFAS 157 with respect to financial assets and liabilities and non-financial assets and liabilities that are re-measured and reported at
fair value at least annually did not have an impact on the financial results of the Company. The Company will continue to evaluate the impact, if any, that the implementation of this standard will
have on its financial statements as it relates to its non-financial assets and liabilities.

The
following table presents information about the Company's financial assets that have been measured at fair value as of December 31, 2008 and indicates 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 (in millions):

Description

December 31,
2008

Quoted
Prices in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)Assets:Cash equivalents

$
20.7

$
20.7

$


$
Marketable debt securities


30.8


30.8





Total

$
51.5

$
51.5

$


$



As
of December 31, 2008, the Company's short-term investments consisted of U.S. Treasury notes and bills which are categorized as Level 1 in accordance with
SFAS 157. The fair values of our 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.

4. Strategic Collaborations

sanofi-aventis

In February 2008, the Company entered into an exclusive worldwide license with sanofi-aventis for the development and commercialization
of the fully human monoclonal antibody DX-2240 as a therapeutic product, as well as a non-exclusive license to the Company's proprietary antibody phage display technology.
Under these licenses, the Company is eligible to receive royalties based on commercial sales of DX-2240 and other antibodies developed by sanofi-aventis. As an exclusive licensee,
sanofi-aventis will be responsible for the ongoing development, commercialization and consolidation of sales of DX-2240. For certain other future antibody product candidates discovered by
sanofi-aventis, the Company will retain co-development and profit sharing rights, while sanofi-aventis will maintain ultimate responsibility for development and commercialization, and will
book sales worldwide.

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Notes to Consolidated Financial Statements (Continued)

4. Strategic Collaborations (Continued)

As a result of these agreements, the Company received approximately $24.7 million of cash, net of taxes, in 2008. Approximately $5.0 million was for the upfront
DX-2240 license fee, $1.5 million was for a license fee for Dyax's proprietary antibody phage display technology, approximately $10.0 million was a transfer fee for
DX-2240 inventory and know-how, and an additional $8.5 million was paid upon the transfer of additional specified deliverables. The Company applied the provisions of
Emerging Issues Task Force (EITF) Issue No. 00-21 "Revenue Arrangements with Multiple Deliverables" (EITF 00-21) to determine whether the performance obligations
under these agreements could be accounted for as a single unit or multiple units of accounting. The Company determined that these performance obligations represented a single
unit of accounting. As the Company has established fair value in relation to the antibody phage display technology license the Company will be recognizing the revenue over the performance period.
During the year ended December 31, 2008, the Company recognized revenue of $23.2 million associated with the DX-2240 license, as all the revenue recognition criteria has been
met and $530,000 related to the antibody phage display technology license.

Cubist Pharmaceuticals, Inc.

In April 2008, Dyax 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 DX-88 for the prevention of blood loss during surgery. Under this agreement, Cubist
has assumed responsibility for all further development and costs associated with DX-88 in the licensed indications in the Cubist territory. The Company will be eligible to receive
additional clinical, regulatory and sales-based milestone payments. The Company is also entitled to receive tiered, double-digit royalties based on sales of DX-88 by Cubist. The agreement
also provides an option for the Company to retain certain US co-promotion rights. The Company applied the provisions of EITF 00-21 to determine whether the performance
obligations under this agreement, including development, participation in steering committees, and manufacturing services should be accounted for as a single unit or multiple units of accounting.
Revenue is being recognized under a Contingency Adjusted Performance Model (CAPM).

As
a result of this agreement, the Company received a $17.5 million in license and milestone fees in 2008. Additionally, the Company received $1.9 million for reimbursement
of costs incurred in 2008 related to the Phase 2 clinical trial and for drug product supply, and the Company has billed an additional $1.7 million in 2008. These amounts, and any future
reimbursements and milestones, are being recorded as revenue over the remaining development period of DX-88 in the Cubist territory, which is currently estimated at five years. The Company
will periodically reassess the length of the estimated development period based upon the completed effort. As of December 31, 2008, the Company has deferred $17.9 million of revenue
related to this agreement, which is recorded in deferred revenue on the accompanying consolidated balance sheets. The Company recognized revenue of $3.2 million related to this agreement for
the year ended December 31, 2008.

MedImmune Limited

Under the terms of an amended and restated cross-licensing agreement between the Company and MedImmune Limited (formerly Cambridge
Antibody Technology), MedImmune has granted the Company worldwide licenses for research and certain other purposes under all of MedImmune's antibody phage display patents (the MedImmune patents). The
Company has also received options for licenses to develop therapeutic and diagnostic antibody products under the MedImmune patents.

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Notes to Consolidated Financial Statements (Continued)

4. Strategic Collaborations (Continued)

MedImmune
will receive milestone and royalty payments in connection with antibody products advanced into clinical trials by the Company, its collaborators or its customers, which will be recorded as
research and development expenses when incurred. MedImmune also has rights to share the Company's revenues from certain other applications of antibody phage display technology. Additionally, MedImmune
is not required to pay the Company royalties related to the Company's Ladner patents on antibody products developed by MedImmune.

5. Fixed Assets

Fixed assets consist of the following:

December 31,2008

2007(In thousands)Laboratory equipment

$
9,471

$
12,230Furniture and office equipment


1,225


1,206Software and computers


3,971


4,065Leasehold improvements


10,460


10,421Total


25,127


27,922Less: accumulated depreciation and amortization


(18,990
)

(20,038
)$
6,137

$
7,884


There
were $3.1 million and $5.4 million of assets under capital leases, which included laboratory and office equipment, with related accumulated amortization of
$1.4 million and $2.7 million, at December 31, 2008 and 2007, respectively. Amortization of assets under capital leases is included in depreciation and amortization of fixed
assets on the consolidated statements of cash flow.

6. Intangible Assets

In 2002, the Company entered into a cross-licensing agreement with XOMA Ireland Limited under which the Company received a license to use XOMA's patents and bacterial expression
technology to discover antibody products using phage display. The Company also received a license from XOMA to produce antibodies under the XOMA patents. In exchange for the rights to XOMA's
technology, the Company paid a technology license fee of $3.5 million over six installments through 2003, and agreed to pay a 0.5% royalty on net sales of any antibody product commercialized by
the Company or any
development partner. This fee was capitalized and is being amortized ratably over 7 years, management's estimate of the period that the capitalized license will generate revenues. The Company
also granted XOMA a license to its phage display patents and agreed to provide XOMA one of the Company's antibody phage display libraries.

As
of December 31, 2008 and 2007, the gross carrying amount of the intangible assets, consisting of the licensed patent technology, was $3.5 million and the related
accumulated amortization was $3.1 million and $2.6 million, respectively. The remaining unamortized portion of this intangible asset will be amortized in 2009.

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Notes to Consolidated Financial Statements (Continued)

7. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

December 31,2008

2007(In thousands)Accounts payable

$
1,325

$
3,288Accrued employee compensation and related taxes


4,914


3,892Accrued external research and development and contract manufacturing


3,529


1,815Other accrued liabilities


2,301


1,542$
12,069

$
10,537


8. Note Payable and Long-term Obligations

Long-term obligations and note payable consists of the following:

December 31,2008

2007(In thousands)Note payable

$
46,947

$
Obligations under royalty interest assignment agreement





28,077Obligations under capital lease arrangements


1,603


2,053Obligation under leasehold improvement arrangements


1,083


1,368Total long-term obligations


49,633


31,498Less: current portion


(1,134
)

(1,482
)Long-term obligations

$
48,499

$
30,016


Minimum
future payments under the Company's long-term obligations and note payable as of December 31, 2008 are as follows:

(In thousands)2009

$
8,3692010


9,7502011


10,3032012


8,4372013


21,586Thereafter


22,919Total future minimum payments


81,364Less: amount representing interest


(31,731
)Present value of future minimum payments


49,633Less: current portion


(1,134
)Long-term obligations and note payable

$
48,499


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Notes to Consolidated Financial Statements (Continued)

8. Note Payable and Long-term Obligations (Continued)

Note Payable:

In August 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 Licensing and Funded Research Program (LFRP). The Company used $35.1 million from the proceeds of this loan to pay off its
remaining obligation under and agreement with Paul Royalty.

The
loan, which matures in August 2016, bears interest at an annual rate of 16%, payable quarterly. The loan may be prepaid without penalty, in whole or in part, beginning on the third
anniversary of the closing date. In connection with this 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 Dyax 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. In connection with the loan, the Company issued to Cowen Healthcare a warrant to purchase 250,000 shares of the Company's common stock at a
50% premium over the 30-day average closing price. The warrant has an eight-year term and is exercisable beginning on the one-year anniversary of the closing date.
The
Company has estimated the relative fair value of the warrant to be $853,000, using the Black-Scholes valuation model, assuming a volatility factor of 83.64%, risk-free interest rate of
4.07%, an 8 year expected term and an expected dividend yield of zero. The relative fair value of the warrant is recorded in additional paid-in capital on the Company's consolidated
balance sheet.

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 million in specified annual LFRP receipts, 50% of the next $5 million and 0% of annual included LFRP receipts over $15 million until June 30,
2013. After June 30, 2013, and until the maturity date or the complete amortization of the loan, Cowen Healthcare will receive 75% 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, the Company must repay to Cowen Healthcare all additional accumulated principal above the original $50.0 million loan amount.

The
cash proceeds of $50.0 million was recorded as a note payable on the Company's consolidated balance sheet. The note payable balance was reduced by $853,000 for the fair value
of the warrant, and $400,000 was recorded as a discount against the note for a payment made to Cowen Healthcare for legal fees in conjunction with the agreement. Each of these amounts is being
accreted over the life of the note. During the year ended December 31, 2008, the Company recorded $64,000 of accretion associated with the debt discount and the warrant, $3.3 million in
interest expense, and made payments to Cowen totaling $5.1 million, of which $1.9 million was allocated to the principle amount in 2008. The loan balance at December 31, 2008 is
$48.1 and the amount recorded on the Company's consolidated balance sheet, which is net of the unamortized portions of the discount and warrant, is $46.9 million. The estimated fair value of
the note payable was $42.6 million at December 31, 2008.

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Notes to Consolidated Financial Statements (Continued)

8. Note Payable and Long-term Obligations (Continued)

Obligations under royalty interest assignment agreement with Paul Royalty:

In August 2006, the Company entered into a Royalty Interest Assignment Agreement with Paul Royalty Fund Holdings II, LP, under
which it received an upfront payment of $30 million. In exchange for this payment, the Company assigned Paul Royalty a portion of milestones, royalties and other license fees to be received by
it under the LFRP through 2017. This agreement was extinguished in August 2008 using proceeds from the Cowen Healthcare note payable, at which time all Paul Royalty rights to LFRP receipts were
terminated.

Under
the terms of the agreement, Paul Royalty was assigned a portion of the annual net LFRP receipts which were to have continued for up to 12 years, depending upon the
performance of the LFRP. The upfront cash payment of $30.0 million, less the $500,000 in cost reimbursements paid to Paul Royalty was recorded as a debt instrument in long-term
obligations on the Company's consolidated balance sheet. Based upon estimated future payments expected under this agreement, the Company determined the interest expense by using the effective interest
method. The best estimate of future payments was based upon returning to Paul Royalty an internal rate of return of 25%. Due to the application of the effective interest method and the total expected
payments, the Company recorded interest expense of $4.1 million and $8.2 million for the years ended December 31, 2008 and 2007, respectively. During the year ended
December 31, 2008 and 2007, the Company made payments totaling $40.2 million and $10.9 million, respectively, related to this obligation to Paul Royalty, including the 2008
pay-off amounts.

In
August 2008, the Company paid off this loan with a $35.1 million cash payment, of which $27.0 million was allocated to the principal amount, and $8.1 million was
recorded as loss on extinguishment of debt on the Company's consolidated statements of operations and comprehensive loss. As of December 31, 2008, there was no outstanding debt balance under
this agreement. The debt balance was $28.1 million at December 31, 2007 and is included in long-term obligations on the Company's consolidated balance sheet.

The
Company capitalized $257,000 of debt issuance costs related to this agreement which, prior to August 5, 2008, was being amortized over the term of the related debt using the
effective interest method. In August 2008, the unamortized debt issuance costs were fully amortized, and $212,000 of expense is included in loss on extinguishment of debt.

Obligations under capital lease arrangements:

Between 2001 and 2006 the Company signed capital lease and debt agreements for the purchase of qualified fixed assets and leasehold
improvements. Interest pursuant to these agreements ranges between 0% and 11.18%. Principal and interest are payable ratably over 24 months to 60 months. Capital lease obligations are
collateralized by the assets under lease. During each of the years ended December 31, 2008, 2007, and 2006, the Company sold to and leased back from the lenders $1.1 million of leasehold
improvements, laboratory, production and office equipment. As of December 31, 2008 and 2007, there was $1.6 million and $2.1 million (included in obligations under capital lease
arrangements) outstanding related to capital leases, which is included in long-term obligations on the Company's consolidated balance sheets.

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Dyax Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

8. Note Payable and Long-term Obligations (Continued)

Obligation under leasehold improvement arrangements:

In 2001, the Company entered into an agreement to initially lease approximately 67,000 square feet of laboratory and office space in
Cambridge, Massachusetts. Under the terms of the agreement, the landlord loaned the Company approximately $2.4 million to be used towards the cost of leasehold improvements. The loan bears
interest at a rate of 12.00% and is payable in 98 equal monthly installments through February 2012. As of December 31, 2008, and 2007, there was $1.1 million and $1.4 million
outstanding under the loan, which is included in long-term obligations on the Company's consolidated balance sheets.

Operating Leases

The Company leases space at 300 Technology Square in Cambridge, Massachusetts which serves as its corporate headquarters and research
facility. As part of the lease agreement, the Company received a $2.3 million leasehold improvement incentive in 2002. The leasehold improvement incentive was recorded as deferred rent and is
being amortized as a reduction to rent expense over the lease term. The Company currently leases approximately 91,000 square feet of which it subleases 24,000 square feet to two tenants under separate
sublease agreements, each of which will expire on October 31, 2009. The lease will expire on February 29, 2012, although the Company has the option to extend for two additional
five-year terms. The Company had previously provided the lessor with a Letter of Credit in the amount of $4.3 million, and under the terms of the agreement, the Letter of Credit was
reduced to approximately $2.7 million on February 15, 2008. The cash collateral is included in restricted cash on the consolidated balance sheets.

Through
Dyax S.A., the Company leased 10,000 square feet of leased laboratory and office space in Liege, Belgium. In connection with the closure of the Liege-based research
facility during 2008, this facility has been vacated and the lease will terminate in June 2009.

Gross
minimum future lease payments under the Company's non-cancelable operating leases as of December 31, 2008 are as follows:

(In thousands)2009

$
5,5472010


5,5472011


5,5472012


9682013


43Thereafter


Total

$
17,652


Rent
expense for the years ended December 31, 2008, 2007, and 2006 was approximately $6.2 million, $5.3 million and $4.6 million, respectively. Rent expense
for December 31, 2008, 2007 and 2006 was net of sublease payments of $1.5 million, $261,000 and $614,000 respectively.

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Table of Contents

Dyax Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

9. Restructuring Charges and Impairment of Fixed Assets

During 2008, a charge of approximately $4.6 million was recorded in connection with the closure of the Company's Liege-based research facility. This amount included severance
related charges of approximately $3.6 million, contract termination costs of approximately $688,000 and other exit costs of $363,000. The following table reflects restructuring charges through
December 31, 2008 (in thousands):

Employee
Termination Costs

Contract
Termination Costs

Other Exit
Costs

TotalAccrued restructuring balance as of December 31, 2007

$


$


$


$
Provision for the year ended December 31, 2008


3,581


688


363


4,632Utilization


(3,374
)

(652
)

(363
)

(4,389
)Changes in foreign exchange


(207
)

(36
)




(243
)Accrued restructuring balance as of December 31, 2008

$


$


$


$



During
the second quarter of 2008, a charge of approximately $352,000 was recorded for the impairment of fixed assets in connection with the closure of the Company's Liege-based research
facility.

The
Company received a €825,000 grant from the Walloon region of Belgium. The grant includes specific criteria regarding employment and investment levels that need to be
met. The employment criteria were met in 2006. The investment criteria were not fully met as of December 31, 2008. Pursuant to the closure of the Liege facility in 2008, the Company refunded
approximately $162,000 as of December 31, 2008 and is working with the Walloon region to determine what portion of the residual balance will need to be refunded. The residual balance as of
December 31, 2008 was approximately $983,000 which has been included in short-term liabilities on the consolidated balance sheet.

10. Stockholders' Equity

Preferred Stock:As of December 31, 2008 and 2007, there were a total of 1,000,000 shares of $0.01 par value preferred stock
authorized with
950,000 undesignated and 50,000 shares of previously undesignated preferred stock designated as Series A Junior Participating Preferred Stock.

Common Stock:In March 2006, the Company sold 5,500,000 shares of its common stock at a price of $5.65 per share in an underwritten
public offering,
which resulted in net proceeds to the Company of approximately $30.1 million.

In
July 2007, the Company issued and sold an aggregate of 12,075,000 shares of its common stock in an underwritten public offering at a price of $3.67 per share including 1,575,000
shares issued when the underwriters exercised their over-allotment option at the public offering price. The aggregate net proceeds to the Company were approximately $41.3 million
after deducting underwriting discounts and commissions and offering expenses.

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Table of Contents

Dyax Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

10. Stockholders' Equity (Continued)

In
July 2008, the Company entered into an agreement whereby Dompé Farmaceutici S.p.A. (Dompé) purchased 2,008,032 shares of Dyax common stock in a
private placement at $4.98 per share, which represented a 57% premium over the closing price on July 10, 2008 and a total investment of $10.0 million.

On
October 30, 2008, the Company entered into a Common Stock Purchase agreement with Azimuth Opportunity Ltd., which allows the Company to issue and sell to the Investor up
to an aggregate amount $50.0 million in common stock with a minimum price of $2.00 per share. As of December 31, 2008, no shares were issued or sold under this agreement. The agreement
will remain in effect through April, 2010, unless terminated earlier.

Effect of Adoption of SFAS 123(R), Share-Based Payment

As of January 1, 2006, the Company adopted SFAS 123(R) using the modified prospective method, which requires measurement
of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options was
determined using the Black-Scholes valuation model, which is consistent with the valuation techniques previously utilized by the Company for options in footnote disclosures required under
SFAS 123. 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 compensation expense recorded during the years ended December 31, 2008, 2007 and 2006 in accordance with SFAS 123(R) (in thousands):

Year Ended
December 31,
2008

Year Ended
December 31,
2007

Year Ended
December 31,
2006Stock options

$
4,369

$
2,771

$
2,168Employee stock purchase plan


125


102


114$
4,494

$
2,873

$
2,282Amount included in research and development expenses in the consolidated statements of operations and comprehensive loss

$
2,512

$
1,638

$
1,249Amount included in general and administrative expenses in the consolidated statements of operations and comprehensive loss

$
1,982

$
1,235

$
1,033


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Table of Contents

Dyax Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

10. Stockholders' Equity (Continued)

Valuation Assumptions for Stock Options

For the years ended December 31, 2008, 2007 and 2006, 2,578,000, 1,950,505 , and 1,436,575 stock options were granted,
respectively. The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Year Ended December 31,2008

2007

2006Expected Option Term (in years)


6


6


6Risk-free interest rate


2.70%3.47
%

3.94%4.75
%

4.52%4.91
%Expected dividend yield


0


0


0Volatility factor


73.62%78.16
%

80.12%83.64
%

86.26%92.04
%


Valuation Assumptions for Employee Stock Purchase Plans

The fair value of shares issued under the employee stock purchase plan was estimated on the commencement date of each offering period
using the Black-Scholes option-pricing model with the following assumptions:

Year Ended December 31,2008

2007

2006Expected Option Term (in years)


0.5


0.5


0.5Risk-free interest rate


0.42%1.99
%

3.56%4.91
%

2.67%4.98
%Expected dividend yield


0


0


0Volatility factor


56.91%114.36
%

53.93%95.73
%

40.19%70.42
%


Expected
volatilities are based on historical volatilities of our common stock; the expected life represents the weighted average period of time that options granted are expected to be
outstanding giving consideration to vesting schedules and our historical exercise patterns; and the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant
for periods corresponding with the expected life of the option.

Equity Incentive Plan

The Company's 1995 Equity Incentive Plan (the "Plan"), as amended to date, 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 Plan is intended to attract and retain employees and to provide an incentive for them 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 December 31, 2008, a total of 1,922,290 shares were available for future grants under
the Plan.

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Table of Contents

Dyax Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

10. Stockholders' Equity (Continued)

Stock Option Activity

The following table summarizes stock option activity for the year ended December 31, 2008:

Number of
Options

Weighted-Avg.
Exercise Price

Weighted-Avg.
Remaining
Contractual Life

Aggregate
Intrinsic Value
(in thousands)Outstanding as of December 31, 2007


7,011,450

$
5.56


6.89Granted at fair market value


2,578,000


4.06Exercised


(505,269
)

2.33Forfeited


(397,151
)

3.86Expired


(228,421
)

6.82Outstanding as of December 31, 2008


8,458,609


5.28


7.12

$
1,660Exercisable as of December 31, 2008


4,905,539

$
6.18


5.93

$
1,393Vested and unvested expected to vest as of December 31, 2008


8,297,895

$
5.30


7.07

$
1,652


The
aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company's common stock closing price of $3.64 as of December 31, 2008, which
would have been received by the option holders had all option holders exercised their options and sold the underlying common stock as of that date. The total number of
in-the-money options exercisable as of December 31, 2008 was 1,334,428.

The
weighted average grant date fair value of options, as determined under SFAS 123(R) and SFAS 123, granted during the years ended December 31, 2008, 2007 and 2006
was $4.06, $3.00 and $2.37 per share, respectively. The total intrinsic value of options exercised during years ended December 31, 2008, 2007 and 2006 was approximately $972,000, $294,000, and
$137,000, respectively. The total cash received from employees as a result of employee stock option exercises during the years ended December 31, 2008, 2007 and 2006 was approximately
$1.2 million, $326,000, and $115,000, respectively.

As
of December 31, 2008 future compensation cost related to non-vested stock options is approximately $10.9 million and will be recognized over an estimated
weighted average period of approximately 1.36 years.

The
following table summarizes non-vested stock option activity for the year ended December 31, 2008:

Non-vested
Number of OptionsNon-vested balance at December 31, 2007


2,772,449Granted at fair market value


2,578,000Vested


(1,400,228
)Forfeited


(397,151
)Non-vested balance at December 31, 2008


3,553,070


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Table of Contents

Dyax Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

10. Stockholders' Equity (Continued)

The
total fair value of shares vested during the year ended December 31, 2008 was $4.3 million.

The
Company settles employee stock option exercises with newly issued shares of common stock.

Employee Stock Purchase Plan

The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"), as amended in May 2002, 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 January 1
and July 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 this plan terminate upon voluntary withdrawal from the plan at any time or upon termination of employment. The compensation expense in connection with the plan for the
year ended December 31, 2008 was approximately $124,780. There were 99,941 and 99,938 shares purchased under the employee stock purchase plan during the years ended December 31, 2008 and
2007, respectively. At December 31, 2008, a total of 163,951 shares were reserved and available for issuance under this plan.

11. Employee Savings and Retirement Plans

The Company has an employee savings and retirement plan (the "Retirement Plan"), qualified under Section 401(k) of the Internal Revenue Code, covering substantially all of the
Company's employees. Employees may elect to contribute a portion of their pretax compensation to the Retirement Plan up to the annual maximum allowed under the Retirement Plan. Employees are 100%
vested in company matching contributions which have been 50% of employee contributions up to 6% of eligible pay. For the years ended December 31, 2008, 2007 and 2006, the Company's matching
contributions amounted to $423,000, $385,000 and $332,000, respectively.

12. 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.

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Table of Contents

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Notes to Consolidated Financial Statements (Continued)

12. Income Taxes (Continued)

The
provision for income taxes for continuing operations was at rates different from the U.S. federal statutory income tax rate for the following reasons:

2008

2007

2006Statutory federal income taxes


34.00
%

34.00
%

34.00
%State income taxes, net of federal benefit


4.18
%

4.83
%

5.67
%Research and development tax credits


2.69
%

4.52
%

8.72
%Other


(2.71
)%

0.09
%

0.16
%True up and expiring NOLs and research credits


(5.99
)%

(6.84
)%

(7.76
)%Valuation allowance


(32.17
)%

(36.6
)%

(40.79
)%Effective income tax rate



%


%


%


The
principal components of the Company's deferred tax assets and liabilities at December 31, 2008 and 2007, respectively are as follows:

2008

2007(in Thousands)Deferred Tax Asset:Allowance for doubtful accounts

$
17

$
22Depreciation and amortization


2,352


2,091Accrued expenses


164


101Other


89


(165
)Stock based compensation


1,229


2,068Deferred revenue


12,027


3,393Research credit carryforwards


33,304


29,753Net operating loss carryforwards


93,398


83,800Total gross deferred tax asset


142,580


121,063Valuation allowance


(142,580
)

(121,063
)Net deferred tax asset

$


$



As
of December 31, 2008, the Company had a federal net operating loss (NOL) of $243.1 million available to reduce future taxable income, which expires at various times
beginning in 2008 through 2028. The Company also has a federal and state research and experimentation credit carryforward of approximately $29.5 million as of December 31, 2008 available
to reduce future tax liabilities which will expire at various dates beginning in 2012 through 2028. The Company has state net operating loss carryforwards of approximately $171.2 million as of
December 31, 2008 available to reduce state future taxable income, which expires at various dates beginning in 2008 through 2012. The Company also has state research and development and
investment tax credit carryforwards of approximately $5.8 million as of December 31, 2008 available to reduce future tax liabilities which expire at various dates beginning in 2018
through 2023.

The
Company has recorded a deferred tax asset of approximately $1.9 million at December 31, 2008 reflecting the benefit of deductions from the exercise of stock options
which has been fully reserved until it is more likely than not that the benefit will be realized. The benefit from this

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Notes to Consolidated Financial Statements (Continued)

12. Income Taxes (Continued)

$1.9 million
deferred tax asset will be recorded as a credit to additional paid-in capital if and when realized through a reduction of cash taxes.

The
Company adopted SFAS 123(R) effective on January 1, 2006. This change in method of accounting required an adjustment during 2006 to the Company's
additional-paid-in-capital for the excess or shortfall of estimated future tax benefits of option exercises compared to the estimated future tax benefits recorded
on the Company's financial statements due to this accounting method change. The change in accounting method did not require a change in the
additional-paid-in-capital. All future tax benefits associated with option exercises will be recorded directly to additional paid in capital in accordance with the
requirements of SFAS 123(R).

As
required by SFAS No. 109, 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 more likely than not that the Company will recognize the benefits of the deferred tax assets. Accordingly, a valuation allowance of approximately $142.6 million was
established at December 31, 2008.

The
Company adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty in Income Tax ("FIN 48") an interpretation of FASB Statement No. 109
("SFAS 109") on January 1, 2007. As a result of the implementation of FIN 48, the Company recorded no adjustment for the unrecognized income tax benefits. At the adoption date of
FIN 48, January 1, 2007 and also at December 31, 2008, the Company had no unrecognized tax benefits.

The
Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2008, the Company had no accrued interest or penalties
related to uncertain tax position.

Utilization
of the NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could
occur in the future provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and tax
credits carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions
increasing the ownership of certain
shareholders or public groups in the stock of a corporation by more that 50 percentage points over a three-year period. Since the Company's formation, the Company has raised capital
through the issuance of capital stock on several occasions which, combined with the purchasing shareholders' subsequent disposition of those shares, may have resulted in a change of control, as
defined by Section 382, or could result in a change of control in the future upon subsequent disposition. The Company has not currently completed a study to assess whether a change of control
has occurred or whether there have been multiple changes of control since the Company's formation due to the significant complexity and cost associated with the study and that there could be
additional changes in control in the future. If the Company has experienced a change of control at any time since its formation, utilization of its NOL or tax credits carryforwards would be subject to
an annual limitation under Section 382. Further, until a study is completed and any limitation known, no amounts are being presented as an uncertain tax position under FIN 48.

In
addition to uncertainties surrounding the use of NOL carryforwards in a change of control, the Company has identified orphan drug and research and development credits as material
components of its deferred tax asset. The uncertainties in these components arise from judgements in the allocation of

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Notes to Consolidated Financial Statements (Continued)

12. Income Taxes (Continued)

costs
utilized to calculate these credits. The Company has not conducted studies to analyze these credits to substantiate the amounts due to the significant complexitiy and cost associated with such
study. Any limitation may result in expiration of a portion of the NOL or tax credits carryforwards before utilization. Further, until a study is completed and any limitation known, no amounts are
being presented as an uncertain tax position under FIN 48.

A
full valuation allowance has been provided against the Company's NOL carryforwards and research and development credits and, if an adjustment is required, this adjustment would be
offset by an adjustment to the valuation allowance. Thus there would be no impact to the consolidated balance sheet or statement of operations if an adjustment were required.

The
tax years 1994 through 2007 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.

13. Investment in Joint Venture (Dyax-Genzyme LLC) and Other Related Party Transactions

Prior to February 20, 2007, the Company had a collaboration agreement with Genzyme for the development and commercialization of DX-88 for HAE. Under this
collaboration, the Company and Genzyme formed a joint venture, known as Dyax-Genzyme LLC, through which they jointly owned the rights to DX-88 for the treatment of HAE. Dyax and
Genzyme were each responsible for approximately 50% of ongoing costs incurred in connection with the development and commercialization of DX-88 for HAE and each would have been entitled to
receive approximately 50% of any profits realized as a result. In addition, the Company was entitled to receive potential milestone payments from Genzyme in connection with the development of
DX-88.

On
February 20, 2007, the Company and Genzyme reached a mutual agreement to terminate this collaboration. Pursuant to the termination agreement, Genzyme made a
$17.0 million cash payment to the Dyax-Genzyme LLC. Furthermore, Genzyme assigned to Dyax all of its interests in the LLC, thereby transferring all the rights to the LLC's
assets to Dyax, including the $17.0 million cash payment. As a result Dyax now owns all of the rights to DX-88 worldwide including the right to develop and commercialize
DX-88 in HAE. In exchange, Dyax issued to Genzyme 4.4 million shares of its common stock. Dyax's acquisition of Genzyme's 49.99% portion of the LLC was accounted for as a
purchase of assets. Genzyme also agreed to provide transition services for a period following the termination of the agreements. In 2007, the transitional service fees totaled $1.1 million.
There were no transitional service fees in 2008 and no future transitional service fees are expected to be incurred.

Before
termination of the collaboration, research and development expenses incurred by each party related to the HAE program were billed to and reimbursed by Dyax-Genzyme LLC. The
Company and Genzyme were each required to fund 50% of the monthly expenses of Dyax-Genzyme LLC. The Company accounted for its interest in Dyax-Genzyme LLC using the equity method of
accounting. Under this method, the reimbursement of expenses to Dyax was recorded as a reduction to research and development expenses because it included funding that the Company provided to Dyax-
Genzyme LLC. Dyax's 50.01% share of Dyax-Genzyme LLC loss was recorded as an Equity Loss in Joint Venture (Dyax-Genzyme LLC) in the consolidated statements of operations and
comprehensive loss. Subsequent to the termination of the LLC and acquisition of 100% of its assets by

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Table of Contents

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Notes to Consolidated Financial Statements (Continued)

13. Investment in Joint Venture (Dyax-Genzyme LLC) and Other Related Party Transactions (Continued)

Dyax,
the LLC investment and related accounts have been consolidated in the Company's financial statements.

Summary
financial information for Dyax-Genzyme LLC is as follows:

Years Ended December 31,2007

2006(In thousands)Research and development

$
7,461

$
19,328Selling and marketing


162


1,110General and administrative


38


266Interest income





(4
)Net loss

$
7,661


20,700Current assets




$
1,967Non-current assets





514Current liabilities





(1,965
)Non-current liabilities





Net assets




$
516Amount due to Dyax from Dyax-Genzyme LLC (included in current liabilities above)




$
1,428Amount due from Dyax to Dyax-Genzyme LLC (included in current assets above)




$
966


Prior
to August 29, 2007, Genzyme held a senior secured promissory note issued by Dyax in 2002. The promissory note, in the principal amount of $7.0 million, accrued
interest at the prime rate plus 2%. Dyax's obligations under this note were secured by a collateralized $7.2 million letter of credit, which was classified as restricted cash on the Company's
consolidated balance sheet. In August, 2007, Dyax paid all the principal and accrued interest due under this note. The $7.2 million letter of credit that
secured the loan was released and the cash collateral was reclassified from restricted cash to cash and cash equivalents on the Company's balance sheet.

The
Company's Chairman, who is also its former President and Chief Executive Officer, was an outside director of Genzyme Corporation until May 2007.

At
December 31, 2008 and 2007, Genzyme owned approximately 7.9% and 8.2%, respectively, of the Company's common stock outstanding.

During
1996, the Company signed two patent license agreements with Genzyme consistent with the Company's standard license terms. During 2006, Genzyme terminated one of its patent license
agreements with Dyax in connection with the maintenance fee on the terminated agreement. The Company recorded no revenue for the year ended December 31, 2008 and 2007 and $4,000 for the year
ended December 31, 2006. The Company recorded license revenue of $25,000, for each year ended December 31, 2008, 2007 and 2006, in connection with the maintenance fee on the ongoing
agreement. As of December 31, 2008 and 2007, there were $25,000 and $0, respectively, of outstanding accounts receivable due from Genzyme related to the patent license agreement.

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Notes to Consolidated Financial Statements (Continued)

13. Investment in Joint Venture (Dyax-Genzyme LLC) and Other Related Party Transactions (Continued)

During
2004, the Company signed a library license agreement with Genzyme consistent with its standard license terms. The Company received $1.3 million from Genzyme and recorded
license revenue of $225,000 for each of the years ended December 31, 2008, 2007 and 2006 in connection with the technology access fees on this agreement. As of December 31, 2008 and
2007, there were no outstanding accounts receivable due from Genzyme related to the library license agreement.

14. Business Segments

The Company discloses business segments under SFAS 131, "Disclosures about Segments of an Enterprise and Related Information," which established standards for reporting
information about operating segments in annual financial statements of public business enterprises. It also establishes standards for related disclosures about products and service, geographic areas
and major customers. The Company has reevaluated its business activities that are regularly reviewed by the Chief Executive Officer for which discrete financial information is available. As a result
of this evaluation, the Company determined that it has one segment. As of December 31, 2008 there were no long-lived assets located in Europe due to the closure of the research
facility in Liege. As of December 31, 2007, the Company had approximately $738,000, respectively, of long-lived assets located in Europe, with the remainder held in the United
States. For the years ended December 31, 2008 and 2007, the Company did not have any revenues outside the United States.

15. Litigation

As of December 31, 2008, the Company was not engaged in any active court proceedings. The Company makes provisions for claims specifically identified for which it believes the
likelihood of an unfavorable outcome is probable and reasonably estimable. The Company records at least the minimum estimated liability related to claims where there is a range of loss and the loss is
considered probable. As
additional information becomes available, the Company assesses the potential liability related to its pending claims and revises its estimates. Future revisions in the estimates of the potential
liability could materially impact the results of operations and financial position. The Company maintains insurance coverage that limits the exposure for any single claim as well as total amounts
incurred per policy year, and it believes that its insurance coverage is adequate. The Company makes every effort to use the best information available in determining the level of liability reserves.

16. Subsequent Events

In February 2009, the Company expanded its antibody funded research and library licence agreement with Biogen Idec to include the additional discovery of antibody products identified
using the Company's phage display. Under the terms of the expanded agreement, the Company has guaranteed a minimum of ten additional product licenses to Biogen Idec. Additionally, the Company has
granted Biogen Idec a non-exclusive license to its antibody libraries and the Company will conduct antibody discovery funded research over a three-year period. In exhange, the
Company received a $5.0 million upfront fee, guaranteed research funding, and is eligible to receive $85 million in development and sales milestones, as well as royalties for each
antibody product commercialized by Biogen Idec using the Company's technology.

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Dyax Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

17. Unaudited Quarterly Operating Results

The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2008 and 2007:

Year ended December 31, 2008

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter(in thousands, except share and per share)Revenue

$
2,643

$
3,831

$
5,490

$
31,465Income (loss) from operations

$
(20,024
)
$
(23,515
)
$
(16,766
)
$
8,011Net (loss) income

$
(21,335
)
$
(24,912
)
$
(26,639
)
$
6,418Shares used in computing basic net (loss) income per share


60,504,620


60,562,606


62,439,236


62,974,171Shares used in computing diluted net (loss) income per share


60,504,620


60,562,606


62,439,236


63,210,448Basic and diluted net (loss) income per share:Net (loss) income

$
(0.35
)
$
(0.41
)
$
(0.43
)
$
0.10




Year ended December 31, 2007

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter(in thousands, except per share)Revenue

$
2,630

$
2,647

$
2,648

$
18,171Loss from operations

$
(18,603
)
$
(16,364
)
$
(13,950
)
$
(1,568
)Net loss

$
(20,017
)
$
(17,911
)
$
(15,312
)
$
(3,069
)Shares used in computing basic and diluted net loss per share


45,523,025


48,247,303


57,887,861


60,417,201Basic and diluted net loss per share:Net loss

$
(0.44
)
$
(0.37
)
$
(0.26
)
$
(0.05
)


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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's
reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, as the Company's are designed to do, and management necessarily was required to apply its judgment in evaluating the risk
related to controls and procedures.

In
connection with the preparation of this Form 10-K, as of December 31, 2008, an evaluation was performed under the supervision and with the participation of
our management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2008. These conclusions were communicated to the
Audit Committee.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rule 13a-15(f) under the Exchange Act. Our internal control system is designed to provide reasonable assurance to the Company's management and Board of Directors regarding the
preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our
management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making its assessment of internal control over financial
reporting, management used the criteria set forth by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission inInternal ControlIntegrated
Framework.Based on this assessment, our CEO and CFO concluded that our internal control over financial reporting was effective as of December 31, 2008 based on the
criteria set forth by COSO inInternal ControlIntegrated Framework.

Our
independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an attestation report on the effectiveness of our internal control over financial
reporting. This report appears in Item 8 above.

Change in Internal Control Over Financial ReportingThere were no changes in our internal control over financial reporting
that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B.    OTHER INFORMATION

We have entered into an agreement with Henry E. Blair, our Chairman of the Board and, until the end of 2008, our Chief Executive
Officer, which provides for Mr. Blair to continue as a full-time employee of Dyax during 2009 at his current monthly salary. If the current Chief Executive Officer and
Mr. Blair agree to a reduced commitment for Mr. Blair, his salary will be reduced pro rata based on the amount of his commitment, and on this basis it is contemplated that
Mr. Blair will be a part-time employee after 2009 until December 31, 2011. The agreement also provides that, among other things, if Mr. Blair is terminated by us
without cause or if there is a change in control of Dyax, Mr. Blair will be paid a lump sum cash payment equal to twelve times his monthly salary at the date of any such termination or change
in control. In addition, upon any termination of his employment other than by us for cause, we will provide Mr. Blair a Medicare supplement benefit at a cost to us equivalent to $6,000 per year
for ten years. In recognition of Mr. Blair's retirement as CEO, the Compensation Committee has also accelerated Mr. Blair's unvested options outstanding at January 2, 2009 and
extended the period of exercisability of all of his options to permit exercise of each such option for its stated term until the tenth anniversary of its date of grant; provided, however, that such
accelerated options will remain subject to forfeiture if Mr. Blair's employment is terminated for cause.

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Portions of the response to this item are incorporated herein by reference from the discussion responsive thereto under the captions
"Election of DirectorsNominees for Director", "Section 16(a) Beneficial Ownership Reporting Compliance", "Executive Officers" and "Corporate GovernanceBoard and
Committee Matters" in the Company's Definitive Proxy Statement relating to the 2009 Annual Meeting of Stockholders (the "2009 Proxy Statement").

We
have adopted a Code of Business Conduct and Ethics (the "code of ethics") that applies to all of our directors, officers and employees. The code of ethics is filed as an exhibit to
this Report. In addition, if we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to any of our executive officers
or directors, we will disclose the nature of such amendment or waiver as required by applicable law.

ITEM 11.    EXECUTIVE COMPENSATION

The response to this item is incorporated herein by reference from the discussion responsive thereto under the following captions in
the 2009 Proxy Statement: "Executive Compensation" and "Corporate GovernanceCompensation Committee Interlocks and Insider Participation."

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The response to this item is incorporated herein by reference in part from the discussion responsive thereto under the caption "Share
Ownership" in the 2009 Proxy Statement.

The
following table provides information about the securities authorized for issuance under the Company's equity compensation plans as of December 31, 2008:

Equity Compensation Plan Information

Plan Category

Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))(a)

(b)

(c)Equity compensation plans approved by security holders(1)


8,458,609

$
5.28


2,086,241Equity compensation plans not approved by security holders:








Totals:


8,458,609
(2)
$
5.28


2,086,241
(3)


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ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The response to this item is incorporated herein by reference from the discussion responsive thereto under the caption "Election of
DirectorsCertain Relationships and Related Transactions" and "Corporate GovernanceBoard and Committee Matters" in the 2009 Proxy Statement.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

The response to this item is incorporated herein by reference from the discussion responsive thereto under the captions "Corporate
GovernanceBoard and Committee Matters" and "Audit Committee ReportAudit Fees" in the 2009 Proxy Statement.

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The
financial statements are included under Part II, Item 8 of this Report.

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2.     FINANCIAL STATEMENTS SCHEDULE

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
For the years ended December 2008, 2007 and 2006
(In thousands)

Balance at
Beginning of
Period

Additions

Deductions

Balance at
End of
PeriodAllowance for Doubtful Accounts:2008

$
55

$
14

$
27

$
422007

$
80

$
25

$
50

$
552006

$
105

$


$
25

$
80




Balance at
Beginning of
Period

Additions

Deductions

Balance at
End of
PeriodDeferred Tax Asset Valuation Allowance:2008

$
121,063

$
25,039

$
3,522

$
142,5802007

$
100,458

$
23,709

$
3,104

$
121,0632006

$
79,894

$
25,653

$
5,089

$
100,458


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3.     EXHIBITS

The exhibits are listed below under Part IV, Item 15(b) of this Report.

(b)   EXHIBITS

Exhibit No.

Description3.1

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 June 30, 2004 and
incorporated herein by reference.3.2(a)

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, 2000 and incorporated
herein by reference.3.2(b)

Amendment to Article IV of the Bylaws of Dyax Corp. Filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 000-24537) filed on December 7, 2007 and incorporated herein by
reference.3.3

Certificate of Designations Designating the Series A Junior Participating Preferred Stock of the Company. Filed as Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 000-24537) filed
on June 27, 2001 and incorporated herein by reference.4.1

Specimen Common Stock Certificate. Filed as Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 333-37394) and incorporated herein by reference.4.2

Rights Agreement, dated as of June 27, 2001 between American Stock Transfer & Trust Company, as Rights Agent, and the Company. Filed as Exhibit 4.1 to the Company's Current Report on Form 8-K
(File No. 000-24537) filed on June 27, 2001 and incorporated herein by reference.4.3

Form of Warrant issued to Cowen Healthcare Royalty Partners, L.P. on August 5, 2008. Filed as an exhibit to Exhibit 10.4 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(a)

Amended and Restated 1995 Equity Incentive Plan. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 000-24537) filed on May 22, 2007 and incorporated herein by
reference.10.1(b)

Form of the Company's Incentive Stock Option Certificate under the Company's Amended and Restated 1995 Equity Incentive Plan for all U.S. employees, including its executive officers. Filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q (File No. 000-24537) for the quarter ended September 30, 2004 and incorporated herein by reference.10.1(c)

Form of the Company's Nonstatutory Stock Option Certificate under the Company's Amended and Restated 1995 Equity Incentive Plan for its U.S. employees, including its executive officers. Filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q (File No. 000-24537) for the quarter ended September 30, 2004 and incorporated herein by reference.10.1(d)

Form of the Company's Nonstatutory Stock Option Certificate under the Company's Amended and Restated 1995 Equity Incentive Plan for its non-employee directors. Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q (File No. 000-24537) for the quarter ended September 30, 2004 and incorporated herein by reference.


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Exhibit No.

Description10.2

1998 Employee Stock Purchase Plan. Filed as Exhibit 10.2 to the Company's Current Report on Form 8-K (File No. 000-24537) filed on May 22, 2007 and incorporated herein by reference.10.3*

Form of Change of Control Agreement between the Company and Clive R. Wood, Ph.D. and Ivana Magovcevic-Liebisch, Ph.D., J.D. Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K (File
No. 000-24537) for the year ended December 31, 2003 and incorporated herein by reference.10.4*

Employment Letter Agreement, dated as of July 8, 2008, between George Migausky and the Company. Filed as Exhibit 10.1 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.10.5*

Employment Letter Agreement, dated as of June 27, 2003, between the Company and Clive R. Wood, Ph.D. Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q (File No. 000-24537) for
the quarter ended March 31, 2004 and incorporated herein by reference.10.6*

Employment Letter Agreement, dated as of April 26, 2007, between the Company and Gustav Christensen. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 000-24537) filed on
May 2, 2007 and incorporated herein by reference.10.7*

Employment Letter Agreement, dated as of March 2, 2009, between the Company and Henry E. Blair. Filed herewith.10.8*

Form of Indemnification Agreement by and between certain directors and executive officers of the Company and the Company. Filed as Exhibit 10.32 to the Company's Registration Statement on Form S-1 (File
No. 333-37394) and incorporated herein by reference.10.9*

Severance Letter Agreement between Dyax Corp. and Ivana Magovcevic-Liebisch, Ph.D. J.D. dated as of November 16, 2006. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (File
No. 000-24537) filed on November 17, 2006 and incorporated herein by reference.10.10*

Retirement Agreement and General Release between the Company and Stephen S. Galliker dated as of July 16, 2008. Filed as Exhibit 10.3 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.10.11

Amended and Restated Registration Rights Agreement, dated as of February 12, 2001, between holders of the Company's capital stock named therein and the Company. Filed as Exhibit 10.33 to the Company's Annual
Report on Form 10-K (File No. 000-24537) for the year ended December 31, 2000 and incorporated herein by reference.10.12

Lease, dated as of June 13, 2001, between the Massachusetts Institute of Technology and the Company. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File No. 000-24537) for
the quarter ended June 30, 2001 and incorporated herein by reference.10.13

Master Lease Agreement and related documents between the Company and General Electric Capital Corporation dated as of May 1, 2001. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
(File No. 000-24537) for the quarter ended March 31, 2002 and incorporated herein by reference.


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Exhibit No.

Description10.14

Amended and Restated License Agreement between XOMA Ireland Limited and the Company dated as of October 27, 2006. Filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K (File No. 000-24537)
for the year ended December 31, 2007 and incorporated herein by reference.10.15(a)

Amendment Agreement between Cambridge Antibody Technology Limited and the Company dated as of January 6, 2003. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File
No. 000-24537) for the quarter ended March 31, 2003 and incorporated herein by reference.10.15(b)

Second Amendment Agreement between Cambridge Antibody Technology Limited and the Company dated as of September 18, 2003. Filed as Exhibit 99.2 to the Company's Current Report on Form 8-K (File
No. 000-24537) filed on December 29, 2003 and incorporated herein by reference.10.15(c)

Amended and Restated License Agreement between the Company and Cambridge Antibody Technology Limited dated as of July 30, 2007. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File
No. 000-24537) for the quarter ended September 30, 2007 and incorporated herein by reference.10.16

Product License Agreement between sanofi-aventis and the Company dated as of February 11, 2008. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File No. 000-24537) for the
quarter ended March 31, 2008 and incorporated herein by reference.10.17

License and Collaboration Agreement between Cubist Pharmaceuticals, Inc. and the Company dated as of April 23, 2008. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File
No. 000-24537) for the quarter ended June 30, 2008 and incorporated herein by reference.10.18

Securities Sale Agreement between Dompé Farmaceutici S.p.A. and the Company dated as of July 14, 2008. Filed as Exhibit 10.2 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.10.19

Common Stock Purchase Agreement between Azimuth Opportunity Ltd. and the Company dated as of October 30, 2008. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (File
No. 000-24537) filed on October 30, 2008 and incorporated herein by reference.10.20

Loan Agreement between Cowen Healthcare Royalty Partners, L.P. and the Company dated as of August 5, 2008. Filed as Exhibit 10.4 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.10.21

Termination Agreement by and between the Company and Genzyme Corporation dated February 20, 2007. Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (File No. 000-024537) for the
quarter ended March 31, 2007 and incorporated herein by reference.10.22

Information regarding modification of director compensation, incorporated by reference from Item 1.01 of the Company's Form 8-K (File No. 000-24537) filed on May 23, 2006.


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Exhibit No.

Description10.23*

Summary of Executive Compensation for Named Executive Officers. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 000-24537) filed on February 20, 2008 and incorporated herein
by reference.14.1

Code of Business Conduct and Ethics of the Company. Filed as Exhibit 14.1 to the Company's Annual Report on Form 10-K (File No. 000-24537) for the year ended December 31, 2005 and incorporated
herein by reference.21.1

Subsidiaries of the Company. Filed herewith.23.1

Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm. 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.32.1

Certification pursuant to 18 U.S.C. Section 1350. Filed herewith.99.1

Dyax-Genzyme LLC Financial Statements. Filed herewith.


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, this third day of March, 2009.

DYAX CORP.By:

/s/ GUSTAV A. CHRISTENSEN Gustav A. Christensen Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities and on the
dates indicated.

Name

Title

Date/s/ GUSTAV A. CHRISTENSEN Gustav A. Christensen

President and Chief Executive Officer, and (Principal Executive Officer) and Director

March 3, 2009/s/ GEORGE MIGAUSKY George Migausky

Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting
Officer)

March 3, 2009/s/ HENRY E. BLAIR Henry E. Blair

Chairman of the Board of Directors

March 3, 2009/s/ CONSTANTINE E. ANAGNOSTOPOULOS Constantine E. Anagnostopoulos

Director

March 3, 2009/s/ SUSAN B. BAYH Susan B. Bayh

Director

March 3, 2009/s/ JAMES W. FORDYCE James W. Fordyce

Director

March 3, 2009/s/ THOMAS L. KEMPNER Thomas L. Kempner

Director

March 3, 2009/s/ HENRY R. LEWIS Henry R. Lewis

Director

March 3, 2009/s/ DAVID J. MCLACHLAN David J. McLachlan

Director

March 3, 2009/s/ MARY ANN GRAY Mary Ann Gray

Director

March 3, 2009


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