BioCryst Pharmaceuticals, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also reports fourth-quarter results; the company is a development-stage biotechnology business focused on small-molecule therapies, particularly for rare diseases. Financial amounts below are in U.S. dollars; millions are used unless stated otherwise.
Financial performance and position
| Metric | FY2017 | FY2016 | Change / context |
|---|---|---|---|
| Revenue | $25.2 million | $26.4 million | Down 4.4% |
| Operating expenses | $82.6 million | $75.0 million | Up 10.2% |
| Operating loss | $57.4 million | $48.6 million | Loss widened; operating margin was approximately -228% |
| Net loss | $65.8 million | $55.1 million | Loss widened 19.3% |
| Net loss per share | $0.78 | $0.75 | Weighted-average shares rose to 84.5 million from 73.7 million |
| Operating cash flow | $(41.1) million | $(53.4) million | Cash used declined year over year |
| Cash, cash equivalents and investments | $159.0 million | $65.1 million | Includes restricted cash; management cited $50.3 million cash and $105.4 million investments as principal liquidity |
| Working capital | $50.6 million | $12.6 million | Improved primarily from equity offerings |
| Debt | $23.0 million Senior Credit Facility principal; $28.7 million non-recourse notes carrying amount | — | Senior facility rate was 9.4%; PhaRMA Notes bear 14% interest and remain in default |
Fourth-quarter 2017 revenue was $3.9 million, net loss was $19.5 million, and loss per share was $0.20. The company reported $134.0 million net proceeds from two 2017 common-stock offerings. No cash-flow statement margin was reported; the filing does not provide a clear gross or operating profit margin for a profitable period.
Revenue mix and material changes
- FY2017 revenue comprised $10.5 million of peramivir royalties, $13.1 million of collaborative and research revenue, and $1.5 million of product sales. Government-contract reimbursements were $4.6 million, down from $12.4 million in 2016.
- Revenue declined modestly versus 2016 as government reimbursements and partner product sales fell; $7.0 million of RAPIVAB regulatory milestones partly offset those declines.
- R&D expense increased to $67.0 million from $61.0 million, including $41.0 million for BCX7353 versus $21.4 million in 2016. Higher HAE development costs, staffing, preclinical programs and performance-based stock compensation contributed.
- SG&A rose to $13.9 million from $11.3 million, partly due to stock compensation and Idera merger-related and business-development costs. Interest expense increased to $8.6 million from $6.5 million.
- FY2017 net loss widened despite lower operating cash use. Cash and cash equivalents increased to $50.3 million from $22.1 million, while investments rose to $105.4 million from $41.5 million.
Business developments, outlook and risks
- BCX7353: Phase 2 APeX-1 results showed the 125 mg once-daily dose reduced all HAE attacks by 73% versus placebo in the prespecified weeks 2–4 analysis; the 125 mg group also had a higher attack-free proportion. Higher doses had more gastrointestinal adverse events, and liver-enzyme elevations occurred in some higher-dose subjects. Phase 3 APeX-2 and long-term safety APeX-S trials were initiated or in screening; ZENITH-1 was evaluating acute treatment.
- Other pipeline: Galidesivir development focus shifted to Marburg virus, with a planned IV IND for post-exposure prophylaxis and treatment. Two FOP candidates, BCX9250 and BCX9499, were in preclinical development; management targeted Phase 1 studies beginning in 2019. RAPIVAB received U.S. pediatric approval and Canadian approval; the EMA’s CHMP issued a positive opinion for ALPIVAB, with a final decision expected in Q2 2018. Mundesine was approved in Japan in 2017 and BioCryst receives royalties.
- 2018 outlook: Management forecast operating cash use of $67–$90 million and operating expenses of $85–$110 million, excluding equity-based compensation. It expected 2018 expenses to exceed revenue and said available resources were expected to fund operations through at least Q3 2019; the filing states that planned operations raise doubt about the company’s ability to continue as a going concern beyond that period. Additional capital or spending reductions may be needed.
- Debt and liquidity risks: The PhaRMA Notes, issued by a subsidiary and secured mainly by Shionogi royalties, were in default following an unpaid interest shortfall. Noteholders may accelerate the notes or foreclose on collateral; royalty cash flows are generally dedicated to debt service. Senior Credit Facility covenants restrict certain transactions and substantially all company assets secure the facility. Future funding is uncertain.
- Contingencies and disputes: BioCryst initiated arbitration against Shionogi over sales milestones and escalating royalties; outcomes are uncertain and any recovery would principally benefit Royalty Sub and noteholders. BioCryst and Seqirus were also using formal dispute resolution for collaboration decisions. A purported stockholder lawsuit filed in March 2018 challenged merger disclosures; defendants considered it without merit.
- Proposed merger: A January 2018 agreement with Idera contemplated a combination, subject to shareholder and other conditions, with BioCryst holders receiving 0.50 Holdco shares per BioCryst share. On a pro forma fully diluted basis, BioCryst holders were expected to own 51.6% of the combined company. Closing was expected in Q2 2018; the filing’s financial statements are on a stand-alone BioCryst basis.
- Key business risks include clinical and regulatory failure, competition in HAE and rare diseases, dependence on government contract reimbursement and collaborators, reliance on third-party manufacturers, and the need for additional financing. The 2017 financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Current cash runway, financing plans and actual operating cash use against the 2018 forecast and Q3 2019 runway estimate.
- BCX7353 Phase 3 and long-term safety progress, including efficacy, tolerability and liver-enzyme monitoring.
- Resolution of the Shionogi arbitration and PhaRMA Notes default, including any effects on royalty cash flows or collateral.
- Outcome of the Seqirus dispute, peramivir commercialization and any EMA approval or milestone payment.
- Whether the Idera merger closed on its proposed terms, and the status and potential effect of the stockholder lawsuit.
- Continuing government funding and reimbursement for galidesivir, and the timing and cost of planned Marburg development.