BioCryst Pharmaceuticals, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Financial amounts below are in U.S. dollars; unless stated otherwise, figures are millions. BioCryst is a clinical-stage biotechnology company focused on rare diseases and has incurred operating losses and negative operating cash flows since inception.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $4.8 | $25.8 | $9.6 | $32.7 |
| Operating expenses | $16.9 | $20.5 | $40.8 | $41.8 |
| Operating income (loss) | $(12.1) | $5.3 | $(31.2) | $(9.1) |
| Net income (loss) | $(16.3) | $4.9 | $(39.1) | $(10.3) |
| Net loss per diluted share | $(0.22) | $0.06 income | $(0.53) | $(0.14) |
| Operating cash flow | Not provided by quarter | $(30.0) | $14.4 provided |
- Revenue mix: Q2 2016 included $4.2 million in collaborative and R&D revenue and $0.6 million in royalties; no product sales were reported. For the first half, royalties were $2.5 million and collaborative and R&D revenue was $7.1 million. The filing reports no clear product-sales revenue for the first half in its income statement.
- Margins: Gross margin is not meaningful given the company’s development-stage profile and no Q2 product sales. R&D expense was $14.2 million in Q2 and $34.7 million for the first half; G&A was $2.7 million and $5.9 million, respectively.
- Cash and investments: At June 30, cash and cash equivalents were $8.7 million, restricted cash $4.4 million, and investments $51.2 million. The company cited $64.3 million in cash, restricted cash and investments and estimated runway through mid-2017. Cash and cash equivalents decreased $20.2 million during the first half.
- Liquidity: Current assets were $46.1 million versus current liabilities of $56.2 million, a $10.1 million working-capital deficit. Receivables from collaborations were $2.2 million, including $2.0 million from the U.S. Department of Health and Human Services.
- Debt and obligations: Non-recourse notes payable were $28.0 million on the balance sheet; related interest payable was $9.2 million. The PhaRMA Notes have $30.0 million principal and remain in default. A $2.6 million lease financing obligation was reported as long-term liability.
- Derivative: The yen-dollar currency hedge generated a $5.6 million mark-to-market loss for the first half in the financial statements; $1.6 million of collateral was posted. The hedge may require annual payments of $2.0 million in 2017–2020 under specified exchange-rate conditions, and collateral could reach $7.8 million.
Material changes versus prior comparable periods
- First-half revenue fell $23.1 million year over year, mainly because 2015 included $21.7 million recognized from the SUL RAPIVAB license upfront payment. Q2 revenue declined $21.1 million for the same principal reason, alongside lower BCX4430-related collaboration revenue.
- First-half net loss widened to $39.1 million from $10.3 million. The period included a $5.6 million hedge mark-to-market loss, compared with a $1.2 million gain in the first half of 2015.
- First-half R&D expense rose $1.1 million. Spending increased on BCX7353 and RAPIVAB, partly offset by lower spending on BCX4430 and second-generation kallikrein inhibitors. Q2 R&D expense declined year over year, primarily due to lower BCX4430 development costs.
- First-half G&A expense declined $1.7 million to $5.9 million, reflecting lower grants to HAE advocacy groups and reduced administrative costs.
- Property and equipment rose to $10.1 million from $5.1 million at year-end 2015; first-half capital expenditures were $5.1 million. Total assets declined to $82.2 million from $122.4 million, and stockholders’ equity fell to $13.4 million from $47.7 million.
Outlook, programs and key risks
- 2016 outlook: Management forecast operating cash usage of $55–$75 million and operating expenses of $78–$98 million. The expense forecast excludes equity-based compensation; the cash forecast excludes royalty monetization, hedge collateral movements and other non-routine cash flows. Management expected available resources to fund operations through mid-2017.
- Funding need: To fund operations substantially beyond mid-2017, BioCryst said it would need some combination of increased U.S. Government funding, licensing or milestone proceeds, additional capital, product approvals and revenue, reduced R&D spending, or restructuring. Additional financing may be unavailable or dilutive.
- Pipeline: BCX7353 was advancing to a Phase 2 HAE trial, with screening commenced; Phase 1 results showed generally good tolerability, with drug-related rash reported in about 5% of volunteers receiving repeated dosing. BCX4430’s Phase 1 intramuscular trial was completed in May 2016, and development depended substantially on BARDA and NIAID contracts.
- Avoralstat: The OPuS-2 trial failed to meet its primary efficacy endpoint. The company discontinued the softgel formulation. The filing also reports, as a subsequent August 2016 development, that it stopped further avoralstat development after alternate formulations did not meet exposure objectives.
- RAPIVAB: SUL holds broad commercialization rights, while BioCryst retains U.S. Government stockpiling rights and certain regulatory and post-marketing responsibilities. A Canadian application was submitted in January 2016; potential SUL regulatory milestones total up to $12 million.
- Principal risks: Continued losses and financing dependence; clinical, regulatory and commercialization uncertainty; reliance on government reimbursements and contract continuation; reliance on partners and single-source manufacturers; and volatility from the foreign-currency hedge. The PhaRMA Notes default could permit acceleration or foreclosure and may deprive BioCryst of future Shionogi royalties, although the notes are non-recourse except for pledged Royalty Sub equity.
- Unusual reporting item: The MD&A describes a Q2 2016 hedge mark-to-market loss of $3.7 million, while the income statement reports $2.877 million for the quarter. The filing’s Q2 hedge-loss figures are therefore inconsistent; investors should consult the filed statements and notes.
Most important facts to verify
- Whether the $64.3 million liquidity measure includes all restricted or pledged cash, and how quickly those funds are available for operations.
- Whether government contract funding and reimbursements continue on schedule, and whether the stated mid-2017 runway remains achievable.
- The status and consequences of the PhaRMA Notes default, including potential remedies, interest accrual and any effect on future Shionogi royalties.
- The reported hedge mark-to-market amounts, collateral requirements and potential future premiums, given the Q2 discrepancy between MD&A and financial statements.
- Progress, safety and efficacy results for BCX7353 and BCX4430, as well as RAPIVAB regulatory commitments and potential stockpiling demand.
- Potential dilution from future financing: 73.7 million common shares were outstanding as of July 31, 2016, and the company had shelf registration capacity available.