BioCryst Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Business context
BioCryst is a clinical-stage biotechnology company focused on small-molecule treatments, including oral therapies for rare diseases. It reported ongoing operating losses and negative operating cash flow, with development spending concentrated on BCX7353 and other programs. Its revenues came principally from royalties, government-funded research and development, and collaboration payments; partners handle most peramivir sales.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $1.5 | $8.8 | $17.9 | $21.3 |
| Research and development expense | $22.0 | $17.5 | $61.5 | $50.0 |
| General and administrative expense | $7.9 | $3.3 | $25.0 | $9.2 |
| Operating loss | $28.5 | $13.3 | $69.0 | $39.6 |
| Net loss | $29.6 | $15.1 | $73.8 | $46.2 |
| Net loss per share | $0.28 | $0.18 | $0.73 | $0.58 |
| Interest expense | $2.3 | $2.1 | $6.8 | $6.3 |
For the first nine months, operating cash used was $68.6 million, compared with $30.6 million in 2017. Cash, cash equivalents and restricted cash totaled $54.1 million at September 30; investments totaled $96.9 million. Working capital was $64.1 million. The company reported $30.0 million outstanding under its senior credit facility at a 10.1% interest rate, plus non-recourse royalty-backed notes that remained in default. The balance sheet reports $29.0 million of non-recourse notes payable.
Net loss and loss per share increased year over year. No positive operating margin was reported; the company had an operating loss in both comparable periods.
Material changes and unusual items
- Q3 revenue fell primarily because 2017 included a $5.0 million RAPIVAB milestone and $1.5 million of peramivir product sales to Green Cross, neither repeated in Q3 2018.
- Nine-month revenue declined by $3.4 million. 2017 included $4.1 million of Japanese government stockpiling royalties and $1.5 million of Green Cross product sales; 2018 also had lower galidesivir development activity under government contracts.
- R&D expense rose, mainly with increased HAE and preclinical program spending. Nine-month G&A rose by $15.8 million, including approximately $10.7 million of costs from the terminated Idera merger and a $4.9 million reserve related to collectability of the SUL EMA approval milestone.
- The proposed Idera merger was terminated after BioCryst stockholders did not approve it; BioCryst reimbursed Idera $6.0 million in July.
- In July, BioCryst refinanced its prior facility with a fully funded $30.0 million secured loan bearing interest at LIBOR, subject to a 0.5% floor, plus 8%. Payments are interest-only through July 2019, followed by scheduled principal and interest payments. In August, it raised approximately $53.4 million net from a public stock offering.
- Adoption of ASC 606 increased reported nine-month collaborative and other R&D revenue by $0.9 million and reduced reported net loss by $0.8 million versus the presentation without adoption; it did not affect total net cash.
Outlook, management commentary and key risks
- Management expected 2018 operating cash usage of $85–$105 million and operating expenses of $90–$110 million, excluding equity-based compensation from the expense range.
- Management believed available resources would fund operations into 2020, but disclosed that ongoing losses and negative cash flows raise doubt about the company’s ability to continue as a going concern through 2020. Additional funding may be needed; possible actions include financing, partnerships, government contracts, licensing, spending reductions or restructuring.
- Management expected future collaborative and R&D revenue to be lower than in prior years, with no remaining milestones under the SUL agreement and reduced government-contract activity. It expected R&D spending to remain at least at the current run rate and potentially increase as programs advance.
- The CDC awarded a $34.7 million contract for up to 50,000 RAPIVAB doses over five years for the Strategic National Stockpile. This is a procurement contract, not an indication that the full amount was recognized as revenue in the period.
- BCX7353 was in Phase 3 prevention testing and a long-term safety study; BioCryst also reported positive results from the 750 mg ZENITH-1 acute-treatment cohort. After quarter-end, the company announced completion of APeX-2 enrollment and said it expected to file an NDA in Q4 2019.
- BioCryst and SUL were in arbitration over multiple contract issues, including the EMA approval milestone. Collection and timing are uncertain. Arbitration with Shionogi over milestones and escalating royalties also remained unresolved; related proceeds would primarily benefit Royalty Sub and its noteholders.
- Key risks include clinical and regulatory uncertainty, dependence on government funding and collaboration partners, single-source manufacturing, the possibility of additional capital needs and dilution, and covenants and default provisions under the secured credit facility. The company also noted the PhaRMA notes default, potential enforcement against Royalty Sub collateral, and possible currency-hedge payments or collateral requirements.
Important facts for investors to verify
- Cash burn, investment liquidity and whether the stated runway into 2020 remains achievable without additional financing.
- Progress, safety and efficacy outcomes for BCX7353 trials, and the timing and requirements for any NDA filing.
- Outcome of the SUL arbitration, collectability of the EMA milestone, and status of the Shionogi arbitration.
- Government-contract funding, performance and reimbursement levels, including the scope and timing of CDC procurement orders.
- Senior credit facility terms, covenant compliance, repayment schedule, and the status and consequences of the defaulted non-recourse notes.
- Future R&D and G&A spending, including whether merger-related and milestone-reserve costs recur.