BioCryst Pharmaceuticals, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless noted. BioCryst is a biotechnology company focused on developing small-molecule treatments, including therapies for rare diseases.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $12.5m | $3.1m | $16.5m | $12.5m |
| Operating expenses | $30.7m | $18.6m | $56.9m | $38.7m |
| Loss from operations | $(18.3)m | $(15.5)m | $(40.5)m | $(26.2)m |
| Net loss | $(18.4)m | $(16.9)m | $(44.2)m | $(31.1)m |
| Net loss per share | $(0.19) | $(0.21) | $(0.45) | $(0.40) |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $(33.5)m | $(18.2)m |
Revenue growth was driven mainly by $12.0m associated with the Seqirus (SUL) collaboration, including recognition of $7.0m of previously deferred revenue and a $5.0m EMA-approval milestone. Royalty revenue declined: $3.8m for the first half of 2018 versus $6.8m in 2017, primarily due to lower Japanese government stockpiling sales. The filing does not present a gross margin measure.
First-half R&D expense rose to $39.5m from $32.5m, largely reflecting higher spending on BCX7353 and other rare-disease programs. First-half G&A increased to $17.1m from $5.9m, including a $4.9m reserve related to collection of the disputed SUL milestone and approximately $6.4m in merger-related costs. The six-month net loss also included $4.4m of interest expense and a $0.3m loss on the foreign-currency derivative.
At June 30, cash and cash equivalents were $27.1m, restricted cash $7.6m, and investments $87.4m. Working capital was $18.5m, down from $50.6m at year-end 2017. Total assets were $136.6m and stockholders’ equity was $46.2m. Cash, cash equivalents and restricted cash decreased by $18.8m during the first half.
Debt included the senior credit facility, with $19.55m of borrowings outstanding before subsequent refinancing, and the non-recourse PhaRMA notes, which bear 14% interest and remain in default. The notes are secured principally by specified Shionogi royalties and related collateral; the filing reports $14.8m of interest payable. The PhaRMA notes’ default dates to 2014.
Material changes and subsequent events
- BioCryst’s proposed merger with Idera was terminated on July 10, 2018 after BioCryst stockholders did not approve it. BioCryst paid Idera $6.0m in July for transaction expenses.
- On July 20, 2018, BioCryst entered a fully funded $30.0m amended and restated MidCap facility, replacing its prior facility. It carries a floating rate of LIBOR, subject to a 0.5% floor, plus 8%, with interest-only payments through July 2019 followed by 30 months of scheduled principal and interest payments.
- On August 6, 2018, BioCryst completed a public offering of 10,454,546 shares at $5.50 per share, receiving approximately $53.4m net proceeds. The company said these financing transactions were expected to extend its operating runway into 2020.
Outlook, risks and unusual items
Management expected 2018 operating cash usage of $85m–$105m and operating expenses of $90m–$110m, excluding equity-based compensation from the expense range. The cash forecast excludes royalty-monetization effects, hedge collateral movements, and other non-routine cash flows. Management expects 2018 expenses to exceed revenue and continued operating losses and negative cash flows; it stated that planned operations raise doubt about the company’s ability to continue as a going concern through 2020, notwithstanding the post-quarter financings.
BioCryst and SUL are in formal dispute resolution over multiple agreement matters, including the $5.0m EMA milestone that BioCryst recognized and maintains is payable. The company recorded a $4.9m reserve for collectability concerns. Management also warned that future revenue could be lower, especially outside influenza season, because government-contract activity had declined and no SUL milestones remained other than the disputed item.
BCX7353 was in Phase 3 APeX-2 and long-term safety APeX-S trials; the acute-treatment ZENITH-1 trial had completed enrollment across three cohorts. These development programs, including clinical outcomes, enrollment, manufacturing, regulatory review and competing HAE therapies, create material execution risk. Other key risks include reliance on government funding for galidesivir, reliance on partners for peramivir sales, single-source manufacturing, the restrictive covenants and secured collateral under the senior facility, and potential additional financing needs.
The company adopted ASC 606 on January 1, 2018 using the modified retrospective method. Adoption changed the timing of certain license-fee recognition and increased first-half 2018 reported collaborative revenue by $0.6m versus the prior accounting treatment; it did not affect total net cash. The filing also reports a pending Shionogi arbitration concerning sales milestones and escalating royalties; any recovery would primarily benefit Royalty Sub and holders of the PhaRMA notes.
Investor verification priorities
- Confirm the status and outcome of the SUL dispute, including collection of the $5.0m milestone and the adequacy of the $4.9m reserve.
- Review APeX-2 and other BCX7353 trial results, timelines, regulatory requirements and the effect of development spending on cash runway.
- Reconcile the company’s runway and 2018 cash-use guidance with the July debt refinancing, August equity proceeds, merger-related payments and ongoing cash burn.
- Assess the PhaRMA notes’ continuing default, accrued interest, collateral and possible remedies, as well as the separate Shionogi arbitration.
- Track government-contract funding and reimbursement for galidesivir, peramivir royalty trends, and dependence on commercial partners and third-party manufacturers.