BioCryst Pharmaceuticals, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Unless otherwise noted, financial amounts below are in U.S. dollars; income statement and cash flow figures are for the quarter. BioCryst is a biotechnology company developing small-molecule medicines, with a focus on rare diseases. The filing reports continuing operating losses and negative operating cash flow.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / prior balance date |
|---|---|---|
| Total revenue | $4.0 million | $9.4 million |
| Operating expenses | $26.2 million | $20.1 million |
| Operating loss | $22.2 million | $10.7 million |
| Net loss | $25.8 million | $14.2 million |
| Net loss per share, basic and diluted | $0.26 | $0.19 |
| Net cash used in operating activities | $19.7 million | $8.5 million |
| Cash, cash equivalents and restricted cash at quarter-end | $48.4 million | $78.0 million at March 31, 2017 |
| Cash and cash equivalents; investments; restricted cash at March 31, 2018 | $43.8 million; $89.1 million; $4.6 million | Cash and investments were $50.3 million and $105.4 million at December 31, 2017 |
| Net working capital | $28.8 million | $50.6 million at December 31, 2017 |
| Senior credit facility | $21.6 million carrying amount on balance sheet, current and long-term combined; $21.3 million principal disclosed | $23.2 million carrying amount at December 31, 2017 |
| Non-recourse notes payable | $28.8 million current liability on balance sheet | $28.7 million at December 31, 2017 |
Gross margin is not separately presented in the filing. Interest expense was $2.2 million, and the foreign-currency hedge generated a $1.8 million mark-to-market loss. Investing activities provided $15.9 million, principally from investment maturities and sales; financing activities used $1.5 million, including $1.7 million of senior-facility principal payments. The quarter-end cash, cash equivalents and restricted cash balance was down $5.2 million from the start of the quarter.
Material changes versus the prior-year quarter
- Revenue fell 58%, primarily because Q1 2017 included $4.1 million of royalties from Japanese government RAPIACTA stockpiling and a $2.0 million milestone related to Health Canada approval of RAPIVAB. Q1 2018 revenue included $3.7 million of royalties and $0.3 million of government-contract research reimbursement.
- Research and development expense rose to $18.4 million from $16.8 million. BCX7353 spending increased to $11.9 million from $9.3 million, alongside higher personnel and other preclinical costs; peramivir and galidesivir spending declined.
- General and administrative expense increased to $7.6 million from $3.1 million, primarily due to approximately $4.7 million of proposed-merger costs.
- Net loss widened to $25.8 million from $14.2 million, reflecting lower revenue and higher operating expenses.
- Operating cash use increased to $19.7 million from $8.5 million. The prior-year period included $47.8 million of net proceeds from a common-stock sale; there was no comparable stock-sale financing in Q1 2018.
BioCryst adopted ASC 606 on January 1, 2018 using the modified retrospective method; prior-year comparisons were not restated. Adoption increased reported Q1 2018 collaborative and other R&D revenue by $0.3 million relative to the prior accounting method and reduced reported net loss by $0.3 million. Adoption increased opening accumulated deficit by $1.1 million and did not affect net cash.
Outlook, developments and risks
- 2018 outlook: BioCryst maintained its stand-alone forecast of $67 million to $90 million in operating cash usage and $85 million to $110 million in operating expenses. Management expected results near the upper end of both ranges, citing merger costs and accelerated program development. The expense range excludes equity-based compensation; the cash forecast excludes certain non-routine cash flows, including hedge collateral.
- Liquidity and going concern: Management believed available cash and investments would fund operations at least through Q3 2019. It also stated that planned operations raise doubt about the company’s ability to continue as a going concern beyond Q3 2019. BioCryst expects 2018 expenses to exceed revenue and anticipates continued losses and negative cash flows; further financing, government funding, licensing proceeds, approvals, or spending reductions may be needed.
- Pipeline: BCX7353 Phase 3 prevention trial APeX-2 and long-term safety trial APeX-S had begun dosing; the acute-treatment ZENITH-1 trial was enrolling. These development programs entail clinical, regulatory, manufacturing, and funding risks.
- Peramivir: BioCryst reported that Australia and EU approvals were received in April 2018, after quarter-end. The company said it was in a formal dispute-resolution process with Seqirus, including over a $5.0 million EMA approval milestone it believes is due. Future stockpiling orders and partner sales are uncertain.
- Proposed Idera merger: The January 2018 merger agreement contemplated a combined company to be renamed Valenscion Incorporated, with a 0.50-share exchange ratio for each BioCryst share and 0.20 for each Idera share. Stockholder meetings were scheduled for July 10, 2018; completion was expected in Q3 2018, subject to approvals and other conditions. FTC early termination of the HSR waiting period was granted in February. Two putative stockholder lawsuits alleged omissions or misstatements in the preliminary merger registration materials; defendants considered the actions without merit.
- Debt and contingencies: The $30 million PhaRMA Notes remained in default at March 31, 2018. They are non-recourse other than BioCryst’s pledge of its Royalty Sub equity, but noteholders may pursue remedies against collateral. Shionogi royalty receipts backing the notes generally are not available for BioCryst’s other uses. The senior credit facility bears variable interest; its disclosed rate was 9.7%. The yen hedge produced quarterly earnings volatility and could require annual payments of about $2.0 million in May 2018–2020 if the contractual exchange-rate condition is met; maximum potential collateral at quarter-end was $5.9 million.
- Key operating risks: BioCryst depends on government reimbursement for much of galidesivir development, commercial partners for peramivir sales and royalties, and a limited number of third-party manufacturers and service providers. Clinical-trial outcomes, regulatory approvals, partner performance, competition, debt covenants, and access to additional capital could materially affect results and liquidity.
Investor verification priorities
- Track cash burn, available unrestricted liquidity, and progress toward management’s Q3 2019 funding horizon and 2018 forecast ranges.
- Verify BCX7353 trial enrollment, safety and efficacy updates, and the associated development spending.
- Check resolution of the Seqirus milestone dispute and actual peramivir partner royalties and government stockpiling activity.
- Monitor the Idera merger vote, closing conditions, transaction costs, and the merger-related lawsuits.
- Review the status and consequences of the PhaRMA Notes default, senior-facility repayment and covenants, and any yen-hedge payments or collateral requirements.