BioCryst Pharmaceuticals, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Financial amounts below are in millions of dollars unless stated otherwise. BioCryst is a development-stage biotechnology company focused on rare and infectious diseases; it reported ongoing operating losses and negative operating cash flow.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 / prior balance date |
|---|---|---|
| Total revenue | $3.46 | $3.55 |
| Research and development expense | $9.18 | $7.22 |
| General and administrative expense | $1.59 | $1.58 |
| Operating loss | $(7.39) | $(5.32) |
| Net loss | $(10.14) | $(4.51) |
| Basic and diluted loss per share | $(0.17) | $(0.09) |
| Net cash used in operating activities | $(8.96) | $(11.20) |
| Cash and cash equivalents, March 31 | $13.58 | $21.16 at December 31, 2013 |
| Investments, March 31 | $20.49 | $19.47 at December 31, 2013 |
| Net working capital, March 31 | $22.0 | $26.9 at December 31, 2013 |
| Non-recourse notes payable | $30.0 | $30.0 at December 31, 2013 |
Revenue consisted principally of $1.82 million in peramivir royalties and $1.64 million in collaborative and other R&D revenue, including government-contract reimbursements. The filing does not provide a clear gross margin measure; it reports no separate gross profit line. Total assets were $43.39 million and stockholders’ deficit was $5.72 million at March 31.
Cash, cash equivalents and investments totaled approximately $34.07 million at March 31; the company separately cited $34.22 million of cash and investments for its runway estimate. Operating cash use was partly offset by $3.80 million from stock-option exercises. Cash and cash equivalents fell $7.58 million during the quarter. The company reported that available cash and investments were expected to fund planned operations into Q1 2015.
Changes, outlook and material developments
- Revenue decreased about 3% year over year. R&D expense increased about 27%, primarily reflecting greater spending on BCX4161 and BCX4430 and the start of spending on second-generation HAE compounds. Lower peramivir and discontinued-program spending partly offset the increases.
- Net loss more than doubled, reflecting higher R&D expense and a $1.53 million foreign-currency hedge loss, compared with a $1.96 million hedge gain in Q1 2013. Interest expense was $1.24 million, versus $1.18 million.
- Management’s 2014 outlook was operating cash use of $35–$43 million and operating expenses of $48–$59 million. The expense forecast excludes stock-based compensation; the cash-use forecast excludes royalty monetization, hedge collateral movements, stock sales and other non-routine cash flows.
- The company stated that operations substantially beyond Q1 2015 would require one or more of additional government funding, out-licensing, new financing, product approvals, reduced R&D spending or operational restructuring. It expected 2014 operating expenses to exceed revenue and anticipated continuing losses.
- The FDA accepted the intravenous peramivir NDA for review and was expected to act by December 23, 2014. BARDA funding for peramivir was scheduled to expire May 31, 2014. The contract manufacturer had received an FDA Warning Letter and, following re-inspection, a Form 483; the filing said the effect on the NDA and product supply was unclear.
- BioCryst planned to report BCX4161 Phase 2a OPuS-1 results no later than June 30, 2014. NIAID funding for BCX4430 could reach $22 million if all options were exercised; $7.5 million had been awarded through exercised options as of March 31. The filing also reported published animal-model results for BCX4430.
Risks, debt and unusual items
- PhaRMA Notes: Royalty Sub’s $30 million notes bear 14% annual interest and are payable from specified Shionogi royalties and related hedge payments. Interest shortfall was approximately $2.10 million at March 31 after a $0.45 million payment in March. If the shortfall plus accrued interest was not paid by September 1, 2014, the notes could default, potentially exposing collateral and BioCryst’s equity interest in Royalty Sub to remedies by noteholders. Royalty receipts generally are not available to BioCryst for other uses until the notes are repaid.
- Currency hedge: The hedge generated a $1.53 million Q1 loss; $1.53 million of collateral was posted and a $0.98 million derivative liability was recorded. Depending on exchange rates, annual premiums of $1.95 million may be due from 2014 through 2020. The company’s right to terminate certain later-year coverage required notice before May 18, 2014 and a termination payment.
- Funding dependence: The company relied substantially on BARDA and NIAID reimbursements for peramivir and BCX4430 development. Government contracts may be audited, modified or terminated, and delays or reductions could harm revenue, cash flow and development plans. Management said additional capital would be needed to complete development and commercialization of current candidates.
- Development and commercialization: Clinical, regulatory, manufacturing, partner, intellectual-property and competitive risks could delay or prevent product approvals and future revenue. Peramivir’s manufacturing observations could affect approval or supply; HAE and antiviral programs depend on successful clinical development and continued funding.
- The filing reclassified $0.20 million of Q1 2013 patent expense from R&D to G&A; this had no effect on total operating expenses or net loss. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether peramivir’s FDA review and the manufacturer’s remediation affect approval timing or supply, and whether BARDA funding continued after May 31, 2014.
- Whether royalties were sufficient to cure the PhaRMA Notes interest shortfall by September 1, 2014, and any resulting default or collateral consequences.
- Actual cash use versus the 2014 forecast, financing availability and the assumptions underlying the stated Q1 2015 cash runway.
- BCX4161 trial results, BCX4430 contract-option funding and progress of other development programs.
- Future foreign-exchange hedge collateral, premium payments and reported mark-to-market volatility.