BioCryst Pharmaceuticals, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance-sheet comparisons are with December 31, 2016. BioCryst is a biotechnology company developing small-molecule medicines, with a focus on rare diseases and unmet medical needs.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Total revenue | $9.4 million | $4.8 million; up about 96% |
| Royalty revenue | $6.3 million | $1.9 million |
| Research and development expense | $16.8 million | $20.6 million |
| General and administrative expense | $3.1 million | $3.2 million |
| Operating loss | $10.7 million | $19.0 million |
| Net loss | $14.2 million, or $0.19 per share | $22.8 million, or $0.31 per share |
| Cash used in operations | $8.5 million | $18.8 million |
Revenue growth primarily reflected higher peramivir royalties, including Japanese government stockpiling sales, and a $2.0 million Health Canada approval milestone. Lower government-contract revenue for galidesivir partly offset the increase. R&D expense fell mainly after avoralstat development for HAE was terminated; BCX7353 spending increased.
At March 31, cash and cash equivalents were $75.2 million, restricted cash was $2.8 million, and investments were $27.3 million. Working capital was $54.9 million, versus $12.6 million at year-end. The company raised approximately $47.8 million net from a March public offering of 6.1 million shares at $8.50 per share. Cash and investments were expected to fund operations into 2018.
Total assets were $129.5 million and stockholders’ equity was $38.5 million. The Senior Credit Facility had $23.0 million outstanding at an 8.8% variable rate; scheduled principal payments begin in 2018. The non-recourse PhaRMA Notes had a reported carrying amount of $28.4 million and remained in default. Accrued interest payable was $10.3 million. The filing does not present a conventional operating margin; the company reported operating losses.
Material changes and business developments
- Japanese government stockpiling of RAPIACTA generated $4.1 million of net royalties in Q1 2017. These stockpiling proceeds were available for general corporate use, unlike most Shionogi royalties pledged to PhaRMA debt service.
- Interim Phase 2 APeX-1 results for oral BCX7353 showed fewer HAE attacks at 350 mg once daily versus placebo over the specified treatment period. The per-protocol analysis reported a 63% reduction and the intent-to-treat analysis a 52% reduction. The company amended the trial to assess lower doses. Results were interim and based on small groups.
- In April 2017, after quarter-end, Mundipharma received Japanese approval for forodesine (Mundesine) for relapsed/refractory peripheral T-cell lymphoma.
- At quarter-end, peramivir had approvals in the United States, Canada, Japan, Taiwan and Korea; EU adult marketing review and a U.S. pediatric label expansion application were pending.
Outlook, risks and unusual items
- For 2017, management forecast operating cash usage of $30–$50 million and operating expenses of $53–$73 million. The expense range excludes equity-based compensation; the cash forecast excludes royalty-monetization effects, hedge collateral and other non-routine cash flows.
- The company expected 2017 expenses to exceed revenue and anticipated continued operating losses and negative operating cash flows. The filing states that planned operations raise doubt about the company’s ability to continue as a going concern, notwithstanding management’s estimated runway into 2018. Plans include controlling R&D spending and raising capital, as well as pursuing government funding, licensing, additional financing or restructuring.
- Funding and results depend on clinical and regulatory progress, partner sales and payments, government contract reimbursement and potential stockpiling orders. BARDA and NIAID contracts may be terminated; costs are subject to government audit. The company also relies on third parties, including single-source manufacturers.
- The PhaRMA Notes default creates a risk of creditor remedies and loss of future Shionogi royalties that might otherwise become available after repayment. The yen-dollar hedge produced a $1.5 million Q1 mark-to-market loss; up to $7.8 million of collateral could be required, and annual premiums of up to $2.0 million may be payable through 2020 if the specified exchange-rate condition is met.
- The Senior Credit Facility is secured by substantially all company and subsidiary assets and contains restrictive covenants. Additional equity or debt financing may be needed and could dilute existing shareholders or impose further restrictions.
- BCX7353 interim safety data included one discontinuation associated with gastroenteritis and elevated liver enzymes, and one elevated ALT result in a subject with pre-existing conditions that resolved. Larger and longer studies are needed to confirm efficacy and safety.
Important facts for investors to verify
- Whether cash burn, spending and financing needs remain consistent with management’s 2017 ranges and stated runway into 2018.
- Subsequent BCX7353 trial results, including dose response, safety and the significance of the interim findings.
- Progress on pending peramivir regulatory applications and the amount and timing of partner royalties, milestones and government stockpiling orders.
- Government reimbursement, contract continuation and audit outcomes for galidesivir development.
- Status and potential consequences of the PhaRMA Notes default, hedge premiums and collateral exposure, and compliance with Senior Credit Facility covenants.
- Potential dilution from the March offering, equity awards and planned Baker Entities resale registration rights.