BioCryst Pharmaceuticals, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. BioCryst is a drug-discovery and development company with no established product-sales revenue. Its reported revenue primarily reflects government-funded development work and collaboration arrangements.
Financial performance and liquidity
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $4.210 | $3.735 | $16.431 | $9.170 |
| Research and development expense | $12.777 | $14.442 | $28.302 | $27.941 |
| General and administrative expense | $1.609 | $3.536 | $3.306 | $6.971 |
| Operating loss | $(10.176) | $(14.243) | $(15.177) | $(25.742) |
| Net loss | $(12.276) | $(16.271) | $(18.328) | $(29.298) |
| Net loss per share | $(0.25) | $(0.36) | $(0.38) | $(0.65) |
- Revenue mix: Six-month 2012 revenue included $8.073 million reimbursed by BARDA/HHS, $7.766 million of Mundipharma deferred revenue recognized upon completion of a knowledge transfer, and $0.592 million from other collaborations. The Mundipharma recognition and associated $1.864 million expense were noncash in the period.
- Cash flow: Net cash used in operations was $18.590 million in the first half of 2012, versus $17.798 million in the comparable 2011 period. Investing activities provided $9.563 million and financing activities provided $14.507 million; cash and cash equivalents increased $5.480 million to $21.924 million.
- Balance sheet at June 30: Cash and cash equivalents were $21.924 million, restricted cash $2.230 million, and investments $29.309 million ($12.958 million current and $16.351 million long-term). Total assets were $76.236 million; current liabilities were $19.106 million; net working capital was approximately $26 million.
- Debt and liquidity: Royalty Sub had $30 million of non-recourse notes bearing 14% interest, secured primarily by Shionogi royalty and milestone rights. The company reported $4.970 million of posted currency-hedge collateral. The notes are non-recourse to BioCryst except for its pledge of its equity interest in Royalty Sub.
- Margins: The filing does not present a product gross margin; revenue is predominantly collaborative research and development revenue, and the company remained loss-making.
Changes versus the prior period
- Q2 revenue rose $0.475 million year over year, while first-half revenue rose $7.261 million, principally because of the $7.766 million one-time recognition of previously deferred Mundipharma revenue and higher BARDA/HHS reimbursement.
- Q2 operating loss narrowed by $4.067 million and net loss by $3.995 million year over year, mainly reflecting lower R&D and G&A expenses. First-half operating and net losses also narrowed substantially, despite slightly higher R&D expense.
- Q2 R&D expense declined, with lower ulodesine costs partly offset by greater spending on BCX4161 and BCX5191. First-half R&D expense increased slightly, including $1.864 million of recognized deferred Mundipharma-related expense.
- First-half interest expense increased to $2.320 million from $1.455 million, reflecting a full six months of PhaRMA Notes interest in 2012 versus a partial period in 2011. The first-half hedge loss fell to $0.959 million from $2.340 million.
- BioCryst sold 3.879 million shares through its at-the-market program in the first half for $15.339 million net proceeds, increasing shares outstanding and diluting existing holders.
Outlook, management commentary, and key risks
- 2012 guidance: Management revised expected net operating cash usage upward by $5 million to $37–$43 million; expected total operating expenses remained $57–$69 million. The increased cash-use forecast reflects higher preclinical hepatitis C spending and a lower net margin contribution from BARDA/HHS-funded peramivir work. The forecast excludes potential out-licensing proceeds.
- Runway and funding: Management believed available funds, expected BARDA/HHS receipts, and other financing sources would fund operations at least through 2013, while cautioning that this forward-looking estimate could change. The company expects to need additional capital to complete development and commercialization of its candidates.
- Peramivir: The final i.v. Phase 3 trial was enrolling. An interim analysis, including a futility assessment, was expected after the Southern Hemisphere flu season in Q4 2012. Management stated the trial could be stopped if the enrollment needed for statistical significance were projected to exceed 320 patients. The BARDA/HHS contract totals $234.852 million and runs through December 2013, but is terminable by the agency and subject to performance, audit, and reimbursement risks.
- PhaRMA interest shortfall: $4.2 million of annual interest was due September 1, 2012. Based on royalties received and the remaining interest reserve, management estimated a shortfall of approximately $0.5 million. An unpaid shortfall would accrue interest; it would not itself trigger default unless still unpaid by September 1, 2013. Management expected royalties to cover it by then but gave no assurance.
- Other programs: Management reported favorable 52-week ulodesine extension results and was planning a proposed Phase 3 program, anticipated to enroll approximately 1,800 patients. BCX4161 and BCX5191 first-in-human trials were targeted before year-end 2012. The company disclosed a non-final USPTO rejection affecting revised BCX5191 patent claims, with a response due by mid-November 2012.
- Principal risks: Continued losses and need for financing; dependence on BARDA/HHS reimbursement and a small number of collaborators and vendors; clinical, regulatory, manufacturing, and commercialization uncertainty; limited peramivir sales history and seasonality in Japan; potential dilution; and foreign-exchange hedge volatility and collateral requirements. The filing states that disclosure controls were effective as of June 30, 2012.
Important facts for investors to verify
- Whether the Q4 peramivir interim analysis supports continuing the Phase 3 trial, and the resulting enrollment, timing, and funding needs.
- Actual BARDA/HHS reimbursement, contract performance and audit outcomes, and the effect on the 2012 cash-use forecast.
- Shionogi RAPIACTA sales and royalties, the September 2012 interest payment and any shortfall, and Royalty Sub’s ability to service the 14% notes.
- Cash burn, remaining ATM capacity and subsequent share issuance, and whether financing is needed sooner than management’s stated runway estimate.
- Ulodesine Phase 3 plans and funding, BCX4161/BCX5191 trial starts, and the status of BCX5191 patent proceedings.