BioCryst Pharmaceuticals, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Amounts are in U.S. dollars; financial statement amounts are shown in millions unless noted. The company develops small-molecule medicines, principally for rare diseases, and has a history of operating losses.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $8.8 | $7.8 | $21.3 | $17.4 |
| Operating loss | $(13.3) | $(9.2) | $(39.6) | $(40.4) |
| Net loss | $(15.1) | $(11.5) | $(46.2) | $(50.6) |
| Net loss per share | $(0.18) | $(0.16) | $(0.58) | $(0.69) |
| Operating cash flow | Not separately reported | Not separately reported | $(30.6) | $(47.6) |
- Nine-month revenue increased 23%, while net loss narrowed by $4.4 million. Q3 net loss widened by $3.6 million year over year, as higher operating expenses and interest expense more than offset revenue growth.
- Nine-month R&D expense was $50.0 million versus $48.9 million. BCX7353 R&D spending rose to $29.9 million from $15.2 million; galidesivir spending fell to $3.5 million from $7.2 million. Q3 R&D rose to $17.5 million from $14.1 million.
- Q3 product sales were $1.5 million and related cost of products sold was $1.1 million (approximately 24% gross margin on those sales). The filing does not report an overall operating margin.
- At September 30, cash and cash equivalents were $117.8 million, investments were $48.4 million, and restricted cash was $3.1 million. Net working capital was $106.1 million, up from $12.6 million at year-end 2016. The company reported $2.0 million in U.S. Government receivables as a principal liquidity source.
- Nine-month financing cash flow was $135.1 million, principally from $133.5 million net proceeds from March and September common-stock offerings. Cash and cash equivalents increased $95.7 million during the period.
- Senior Credit Facility borrowings were $23.0 million, bearing 9.2% interest; scheduled principal payments begin in 2018. The separate $30.0 million PhaRMA Notes carry a 14% rate and remained in default at September 30, 2017. Those notes are obligations of a non-recourse subsidiary, secured principally by specified Shionogi royalties and related hedge rights.
Changes versus the prior comparable period
- Nine-month revenue growth reflected $7.0 million in Seqirus RAPIVAB milestones (Canadian approval and pediatric U.S. approval), higher peramivir royalties, and $1.5 million of product sales to Green Cross. These gains were partly offset by lower U.S. Government contract revenue.
- Q3 revenue increased by $1.0 million. The $5.0 million pediatric-approval milestone and Green Cross product sales were partly offset by a $3.1 million decline in RAPIACTA royalties, primarily due to lower Japanese government stockpiling sales.
- Interest expense increased to $6.3 million for nine months from $4.4 million, primarily reflecting the Senior Credit Facility. The foreign-currency hedge produced a $1.9 million nine-month mark-to-market loss, versus a $7.4 million loss in 2016.
- Common shares issued and outstanding increased from 73.8 million at December 31, 2016 to 98.4 million at October 31, 2017, reflecting the equity offerings and other share activity.
Outlook, developments and key risks
- Management expected 2017 operating cash usage in the upper half of its previously disclosed $30–$50 million range and operating expenses in the upper half of its $53–$73 million range. The expense range excludes equity-based compensation. Management believed available resources would fund operations at least through Q3 2019; this is an estimate dependent on development spending, funding and other assumptions.
- The company expected 2017 expenses to exceed revenue and anticipated continued operating losses and negative operating cash flows until revenue is sufficient to support operations. Management identified potential future funding actions including government contracts, licensing, equity or debt financing, spending reductions, and restructuring.
- BCX7353’s APeX-1 results showed reduced HAE attack rates at several doses, with the 125 mg salt-reference dose producing a reported 73% reduction versus placebo in both per-protocol and intention-to-treat analyses. Management said the results supported Phase 3 development. The filing described plans to begin Phase 3 and long-term safety trials in Q1 2018, subject to the stated program requirements. ZENITH-1 was evaluating an oral liquid formulation for acute HAE attacks.
- RAPIVAB received FDA approval for use in pediatric patients two years and older; a possible additional $5.0 million milestone depended on EU marketing approval. Peramivir revenue remains exposed to seasonality, partner performance and unpredictable government stockpiling orders.
- Management said galidesivir’s IV Phase 1 trial had been delayed pending agreement with the FDA on the nonclinical efficacy program; development under existing government contracts was restrained pending additional studies or funding authorization.
- Key risks include clinical and regulatory setbacks, reliance on partners and third-party manufacturers, potentially reduced or delayed U.S. Government funding and reimbursement, ongoing cash burn and possible need for additional capital, dilution, and debt covenant restrictions. The PhaRMA Notes’ default and the currency hedge create further risks; the hedge could require annual $2.0 million payments in 2018–2020 if specified exchange-rate conditions are met, and collateral of up to $5.85 million could be required.
- Disclosure controls were reported effective as of September 30, 2017, with no material change in internal control over financial reporting reported for the quarter.
Most important facts for investors to verify
- Whether cash burn and development spending remain consistent with management’s runway estimate through Q3 2019.
- Progress, trial design, enrollment, safety and results for BCX7353 Phase 3, long-term safety and acute-treatment studies.
- Galidesivir’s nonclinical requirements, government-contract funding and reimbursement status.
- Future peramivir royalties, government stockpiling orders, partner sales and the potential EU approval milestone.
- Status and potential remedies relating to the defaulted PhaRMA Notes, Senior Credit Facility obligations and currency-hedge collateral or payments.
- Potential dilution from additional financing, outstanding equity awards and registered resale shares.