BioCryst Pharmaceuticals, Inc. — Q2 2014 Form 10-Q
Business context and reporting period
BioCryst is a clinical-stage biotechnology company developing small-molecule medicines, with a focus on rare diseases. This filing covers the quarter and six months ended June 30, 2014; financial amounts below are in millions of dollars unless stated otherwise. The company reported continuing operating losses and negative operating cash flow.
Financial results and liquidity
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $1.47 | $0.82 | $4.92 | $4.38 |
| Operating expenses | $13.09 | $12.96 | $23.93 | $21.83 |
| Operating loss | $(11.62) | $(12.14) | $(19.01) | $(17.46) |
| Net loss | $(14.65) | $(12.17) | $(24.79) | $(16.68) |
| Loss per share | $(0.23) | $(0.23) | $(0.40) | $(0.32) |
- Six-month revenue comprised $1.95 million in royalties, $2.39 million of government-contract reimbursements and $0.59 million of collaboration revenue amortization. Q2 revenue growth primarily reflected BCX4430 reimbursements from NIAID/HHS.
- Six-month R&D expense was $20.25 million, up from $18.74 million; G&A was $3.60 million, up from $3.01 million. R&D spending increased on HAE programs and stock compensation tied to positive OPuS-1 results, partly offset by a $5.0 million non-cash write-off in Q2 2013. Q2 2014 included a $2.2 million non-cash compensation charge related to performance-option vesting.
- Six-month operating cash use was $16.06 million, versus $14.09 million. Financing provided $108.17 million, largely from the June stock offering; cash and cash equivalents increased by $100.36 million.
- At June 30, cash and cash equivalents were $121.52 million and investments were $11.19 million, for total cash and investments of approximately $132.71 million. Working capital was $93.3 million. Total assets were $141.98 million and stockholders’ equity was $90.09 million, compared with a $1.13 million deficit at year-end 2013.
- Royalty Sub’s $30 million, 14% PhaRMA Notes were classified as current, along with accrued interest payable of $3.79 million on the balance sheet. These notes are non-recourse to BioCryst except for its pledged equity interest in Royalty Sub. The currency hedge generated a $3.35 million six-month mark-to-market loss; $2.70 million of collateral was posted.
Material changes versus the prior comparable period
- June 2014’s public offering of 11.5 million shares at $10 per share generated approximately $106.6 million net proceeds. Common shares outstanding were 71.7 million at June 30, versus 59.1 million at December 31, 2013.
- Six-month net loss widened by $8.1 million, mainly reflecting the unfavorable year-over-year swing in currency-hedge valuation (a $3.35 million loss versus a $3.07 million gain) and increased R&D and stock-based compensation.
- The BARDA/HHS peramivir development contract expired June 30, 2014. A separate new contract provides approximately $0.1 million for continued stability testing.
- Stock-based compensation rose to $5.13 million for the first six months from $2.52 million a year earlier.
Outlook, management commentary and key risks
- Management expected 2014 operating cash usage of $35–$43 million and operating expenses of $48–$59 million; the expense range excludes stock-based compensation. It expected existing cash and investments to fund planned operations beyond fiscal 2015. Continuing operations beyond 2016 would require additional funding, partnering, regulatory approvals, spending reductions or restructuring.
- The FDA accepted the i.v. peramivir NDA for review and was expected to act by December 23, 2014. The company was preparing for potential U.S. availability in the coming influenza season, but disclosed that its contract manufacturer had received an FDA Warning Letter and Form 483; further FDA and manufacturer interactions were needed.
- OPuS-1 for BCX4161 met its primary endpoint: the 24-patient trial reported a reduction of 0.45 attacks per week versus placebo (p<0.001). BioCryst planned OPuS-2, was moving to a soft-gel formulation and was awaiting FDA feedback on the proposed protocol. Phase 1 studies of second-generation HAE candidates were targeted for the first half of 2015.
- NIAID/HHS funding for BCX4430 could reach $22 million if all options were exercised; $9.4 million had been awarded by June 30. Government funding is subject to performance, audit and termination risks.
- Management expected Shionogi royalties to be insufficient to cover PhaRMA Notes interest arrears by September 1, 2014, potentially triggering default. Noteholders could pursue acceleration or foreclosure on collateral, affecting future royalties to BioCryst; the company said the expected direct impact was limited by the notes’ non-recourse structure.
- BioCryst remained loss-making, with revenues dependent on collaborations, government reimbursements and partner product sales. Clinical, regulatory, manufacturing, financing and partner-performance risks could increase spending or delay development and revenue.
Important facts for investors to verify
- Peramivir NDA status and whether the contract manufacturer addressed FDA observations in time for approval and supply.
- Whether RAPIACTA royalties covered the September 1, 2014 PhaRMA Notes interest shortfall, and any resulting default, remedies or hedge-related costs.
- OPuS-2 protocol feedback, formulation readiness, trial timing and results; progress toward planned second-generation HAE studies.
- Future NIAID/HHS option awards and reimbursement timing, and the effect of BARDA contract expiration on peramivir funding.
- Actual cash burn versus 2014 outlook, stock-based compensation excluded from the expense guidance, and the assumptions underlying the stated runway.