BioCryst Pharmaceuticals, Inc. — Q2 2011 Form 10-Q
Business context and reporting period. BioCryst is a clinical-stage biotechnology company developing small-molecule drugs. This unaudited report covers the quarter and six months ended June 30, 2011; balance-sheet comparisons are with December 31, 2010. Its principal programs discussed are intravenous peramivir, BCX4208 for gout, and forodesine.
Financial results and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $3.7 million | $7.6 million | $9.2 million | $33.7 million |
| Research and development expense | $14.0 million | $14.7 million | $26.9 million | $39.7 million |
| General and administrative expense | $4.0 million | $3.2 million | $8.0 million | $7.0 million |
| Operating loss | $(14.2) million | $(10.3) million | $(25.7) million | $(13.1) million |
| Net loss | $(16.3) million | $(10.2) million | $(29.3) million | $(12.8) million |
| Net loss per share | $(0.36) | $(0.23) | $(0.65) | $(0.29) |
There were no product sales in the 2011 periods shown, and no meaningful product gross margin is reported. At June 30, cash and cash equivalents were $17.0 million, restricted cash $1.4 million, and marketable securities $53.6 million; management described cash, cash equivalents and securities as approximately $72.0 million. Operating cash use was $17.8 million for the first half, versus $13.5 million in 2010. Financing provided $23.5 million, principally reflecting the royalty monetization proceeds and related financing costs. Total assets were $108.4 million; current assets were $79.9 million and current liabilities $22.0 million. Stockholders’ equity was $39.3 million, down from $65.5 million at year-end 2010.
Royalty Sub issued $30.0 million of 14% senior secured, non-recourse notes due 2020, backed by specified Shionogi royalty and milestone rights. BioCryst reported approximately $23.0 million net proceeds after transaction costs and funding an interest reserve. The notes are Royalty Sub obligations, though BioCryst pledged its equity in the subsidiary. BioCryst also had a currency hedge; its six-month fair-value loss was $2.3 million and $2.5 million of cash collateral was posted.
Material changes versus prior period
- First-half revenue fell $24.5 million year over year, reflecting prior-year Shionogi milestone revenue and peramivir API sales, as well as lower HHS contract revenue.
- First-half R&D expense declined $12.8 million, mainly because of lower peramivir and forodesine costs and the absence of prior-year peramivir API manufacturing costs; increased BCX4208 spending partly offset the decrease.
- Net loss widened despite lower R&D spending, due to much lower revenue, $1.5 million of interest expense and the $2.3 million currency-hedge loss in the first half.
- HHS awarded a $55.0 million contract modification in February 2011, taking the total peramivir contract award to $234.8 million and extending the term through December 31, 2013.
Outlook, commentary and risks
Management expected 2011 cash utilization of approximately $35 million, excluding the royalty monetization, and believed available funds plus expected collaborator and HHS receipts could fund operations for at least 24 months. These are forward-looking estimates dependent on trial progress, enrollment, reimbursement timing and other factors. The company stated it expects to need additional capital to complete development and commercialization. A $70 million securities registration statement became effective July 13, 2011; no securities had been issued under it as of the filing.
The HHS-funded peramivir Phase 3 study was revised to target 600 patients, from 445, focus its primary efficacy analysis on a subset of approximately 160 patients not receiving neuraminidase inhibitors as standard care, and add at least 45 sites. Management warned that enrollment timing depends on influenza prevalence and site performance. Shionogi royalty income was deferred pending resolution of product-return uncertainty. For BCX4208, Phase 2b add-on study enrollment exceeded target and the company planned to report 12-week and partial six-month data later in 2011; longer-term safety remained to be evaluated. Forodesine development in the U.S. would not be funded absent a partner.
Unusual items included a first-quarter CRO cost reconciliation that reduced peramivir R&D expense by $3.0 million and collaboration revenue by $3.6 million, increasing net loss by $0.6 million. BioCryst was in a contractual dispute with Mundipharma over forodesine costs, with estimated maximum exposure of approximately $2.4 million; no liability was accrued and dispute resolution could include arbitration. HHS indirect-cost calculations, including unbilled receivables, are subject to government audit. The company reported effective disclosure controls and no material change in internal control over financial reporting; it stated there were no material changes to the risk factors in its 2010 Form 10-K.
Key facts for investors to verify
- Whether HHS funding and reimbursement support the modified peramivir Phase 3 program, and whether patient enrollment and results meet expectations.
- Whether available liquidity and expected collaborator receipts support the stated 24-month runway, including the timing and terms of any capital raise.
- Cash flows and royalty performance supporting Royalty Sub’s 14% notes, and potential BioCryst exposure under the currency hedge and collateral requirements.
- Resolution and final financial exposure of the Mundipharma dispute; also the outcome of HHS audits of indirect-cost receivables.
- BCX4208 longer-term safety and efficacy, and whether forodesine obtains a U.S. partner or remains without company-funded further studies.