BioCryst Pharmaceuticals, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2016. The filing was signed February 27, 2017. Amounts below are in U.S. dollars; financial figures are generally in millions unless stated otherwise.
Business context
BioCryst is a biotechnology company developing small-molecule medicines, with a focus on rare diseases and structure-guided drug design. Its portfolio included approved peramivir products, BCX7353 in Phase 2 for hereditary angioedema (HAE), galidesivir in Phase 1 for emerging viral infections, and forodesine licensed to Mundipharma. The company relies substantially on government research contracts, licensing partners and future financing; it reports a history of operating losses.
Financial performance and position
| Metric | 2016 | 2015 |
|---|---|---|
| Total revenue | $26.4 | $48.3 |
| Operating expenses | $75.0 | $87.7 |
| Operating loss | $(48.6) | $(39.4) |
| Net loss | $(55.1) | $(43.0) |
| Basic and diluted loss per share | $(0.75) | $(0.59) |
| Net cash used in operating activities | $(53.4) | $(13.1) |
| Cash and cash equivalents | $22.1 | $28.9 |
| Investments, fair value | $41.5 | $70.3 |
- Revenue fell 45% year over year. The 2015 comparison included $21.8 million of revenue recognized from the Seqirus RAPIVAB license transaction; 2016 also had lower RAPIVAB product sales and lower galidesivir-related collaboration revenue.
- 2016 revenue included $9.7 million of peramivir royalties, including $5.7 million attributable to a Japanese government stockpiling order; $14.4 million of collaborative and research revenue; and $2.3 million of product sales. Management cautioned that stockpiling revenue may not recur annually.
- Research and development expense was $61.0 million, down from $72.8 million, primarily reflecting reduced avoralstat and other HAE-program spending. BCX7353 spending rose to $21.4 million from $11.8 million. General and administrative expense declined to $11.3 million from $13.0 million.
- Net loss increased by $12.1 million despite lower operating expenses, principally alongside the substantial revenue decline and higher interest expense. Operating margin was approximately negative 184% of revenue; the filing does not present a conventional consolidated gross-margin measure.
- Operating cash use rose to $53.4 million from $13.1 million. Cash and investments totaled about $63.6 million at year-end, excluding restricted cash. Net working capital was $12.6 million, versus $1.5 million at year-end 2015.
- Debt included $23.0 million principal under the Senior Credit Facility and $30.0 million principal under the PhaRMA non-recourse notes; the balance sheet recorded the latter at $28.2 million and the senior facility at $22.8 million, net of financing costs. Interest expense was $6.5 million. Stockholders’ equity declined to $1.6 million from $47.7 million.
Material changes and developments
- Peramivir royalties increased $7.3 million year over year, led in part by the Japanese stockpiling order. The company retained U.S. government stockpiling rights; Seqirus held commercialization rights in most other markets.
- R&D expense decreased overall, but portfolio spending shifted toward BCX7353 and away from avoralstat. BioCryst discontinued avoralstat after trials failed to meet the primary attack-rate endpoint and later formulations did not achieve the desired dosing profile.
- In September 2016, BioCryst borrowed $23.0 million under a MidCap facility, which was fully funded at closing. It carries a floating rate of LIBOR (minimum 0.5%) plus 8%, with interest-only payments through 2017 and scheduled principal payments thereafter, plus a 5% final payment fee.
- The PhaRMA notes remained in default at year-end following an earlier interest-payment shortfall. The notes are obligations of a subsidiary and non-recourse to BioCryst, except for its pledged equity in that subsidiary; noteholders may pursue remedies against collateral. Related Shionogi royalties are generally directed to debt service until repayment.
Outlook, risks and unusual items
- 2017 outlook: Management projected operating cash use of $30–$50 million and operating expenses of $53–$73 million, excluding equity-based compensation. The cash-use forecast excludes royalty-monetization effects, hedge collateral movements and other non-routine cash flows.
- Management expected available cash and investments to fund operations into 2018, but stated that planned operations raised doubt about the company’s ability to continue as a going concern. It anticipated 2017 expenses would exceed revenues and identified additional financing, cost controls, government funding, licensing and potential program reductions as possible responses.
- After year-end, Canada approved RAPIVAB and the EMA accepted the European marketing application. BioCryst stated it expected a $2.0 million Health Canada milestone payment in the first quarter of 2017. These were subsequent events, not 2016 results.
- Also after year-end, an interim Phase 2 APeX-1 analysis reported reduced HAE attack rates for BCX7353 versus placebo: 63% in the per-protocol analysis and 52% in the intent-to-treat analysis for the stated effective dosing period. The analysis was based on small groups; two treated subjects discontinued, and one had a liver-enzyme elevation that resolved. The trial was amended to evaluate lower doses.
- Other major risks include clinical and regulatory failure, dependence on government-contract reimbursements and partners, uncertain RAPIVAB demand and stockpiling, limited manufacturing sources, competition, patent protection, and the need for additional capital. Government contracts may be audited, reduced or terminated.
- The currency hedge generated a net loss of about $0.8 million in 2016. Under its terms, potential annual payments of approximately $2.0 million may be due from 2017 through 2020 depending on the yen-dollar exchange rate; maximum required collateral was stated as $7.8 million. No hedge collateral was posted at year-end.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control were effective as of year-end. The filing reported no legal proceedings.
Important facts for investors to verify
- Liquidity runway and financing plans, given $53.4 million of 2016 operating cash use, the going-concern disclosure and the 2017 cash-use forecast.
- Terms, current status and potential remedies relating to the defaulted PhaRMA notes, including the use of Shionogi royalties and currency-hedge exposure.
- Whether the BCX7353 interim efficacy and safety findings are confirmed in the remaining trial parts and at lower doses.
- RAPIVAB commercial royalties, regulatory milestones and potential government stockpiling orders; the Japanese 2016 stockpiling contribution may not recur.
- Continued availability and reimbursement under BARDA/HHS and NIAID/HHS contracts, and any effect of government audits or funding decisions.