BioCryst Pharmaceuticals, Inc. — Q3 2011 Form 10-Q
Business context and reporting period. Biotechnology company developing small-molecule drug candidates. This unaudited filing covers the quarter and nine months ended September 30, 2011; comparisons are with the same 2010 periods. The business remained substantially dependent on collaboration and government-contract revenue, particularly HHS funding for intravenous peramivir.
Financial performance and liquidity
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $5.2 million | $12.0 million | $14.4 million | $45.7 million |
| Research and development expense | $14.8 million | $19.2 million | $41.7 million | $58.9 million |
| General and administrative expense | $3.3 million | $3.8 million | $11.3 million | $10.8 million |
| Operating loss | $(12.8) million | $(11.0) million | $(38.5) million | $(24.0) million |
| Net loss | $(14.5) million | $(10.9) million | $(43.8) million | $(23.7) million |
| Basic and diluted loss per share | $(0.32) | $(0.24) | $(0.97) | $(0.53) |
Revenue, costs and margins. 2011 revenue was entirely collaborative and R&D revenue; there were no product sales or recognized royalties in the periods shown. The filing does not provide a meaningful commercial gross margin. Nine-month revenue declined mainly because of lower HHS peramivir revenue, the absence of 2010 Shionogi and peramivir API receipts, and a $3.6 million reduction in HHS revenue from a clinical-study cost estimate reconciliation. Lower R&D spending partly offset the revenue decline.
Cash flow and balance sheet. Net cash used in operations was $28.3 million for the first nine months, versus $22.7 million in 2010. Investing activities provided $14.0 million; financing provided $23.1 million, including the royalty-backed financing. At September 30, cash and cash equivalents were $22.4 million and marketable securities totaled $38.0 million, or approximately $60.4 million combined. Current assets were $60.4 million and current liabilities $19.3 million. Total assets were $92.5 million; stockholders’ equity was $26.0 million, down from $65.5 million at year-end 2010.
Debt and unusual financial items. Royalty Sub issued $30.0 million of non-recourse notes bearing 14% annual interest and due in 2020, secured principally by specified Shionogi royalty and milestone payments. Net proceeds were approximately $23.0 million after transaction costs and funding an interest reserve. The notes are obligations of Royalty Sub, not generally recourse to BioCryst, though BioCryst pledged its equity interest in the subsidiary. BioCryst recorded $2.6 million of interest expense and a $2.9 million mark-to-market loss on its yen currency hedge for the nine months; $3.0 million of cash collateral was posted. The filing reports no material investment-related interest-rate exposure.
Material changes, outlook and risks
- Comparative results: Nine-month net loss widened by $20.1 million year over year, despite a $17.2 million reduction in R&D expense, because revenue fell substantially and the new financing and hedge generated interest and derivative losses. Q3 net loss also increased year over year.
- Peramivir: HHS’s February 2011 contract modification added $55.0 million, bringing the total award to $234.8 million and extending the contract through December 31, 2013, intended to fund Phase 3 completion and an NDA filing. Study 301’s target enrollment increased from 445 to 600; management said enrollment timing depends on influenza activity and site performance. An interim analysis was expected no later than mid-2012.
- BCX4208: The filing reports positive top-line Phase 2b add-on results announced October 5, 2011, after quarter-end: response rates for the tested doses were 33%–49%, versus 18% for placebo. Dose-related lymphocyte reductions occurred; two patients in the 20 mg group and eight in the 40 mg group discontinued under pre-specified CD4+ stopping rules. Longer-term safety and further study results remained outstanding.
- Forodesine and contingency: Development in the U.S. was not planned without a partner. BioCryst disputed certain Mundipharma manufacturing and development costs, had not accrued an obligation, and estimated maximum exposure at approximately €1.67 million (about $2 million). Discussions were ongoing, with arbitration possible under the agreement.
- Liquidity outlook: Management expected 2011 operating cash utilization of approximately $35 million, excluding the royalty monetization, and believed available resources plus expected collaborator and HHS receipts could fund operations beyond fiscal 2012. Management cautioned that this forward-looking assessment could change materially. The company expected to require additional capital to complete development and commercialization; a $70 million shelf registration was effective, with no securities issued under it as of the filing.
- Key risks: Continued losses and financing needs; HHS reimbursement, audit, termination or funding risks; clinical-trial enrollment, efficacy, safety and regulatory uncertainty; reliance on partners and contract manufacturers; seasonal and uncertain Japanese peramivir sales supporting Royalty Sub debt service; yen-hedge collateral, premiums and earnings volatility; and dilution or program reductions if financing is unavailable. Management stated disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- HHS contract funding, allowable-cost determinations and the schedule and outcome of the modified peramivir Phase 3 study.
- Cash burn against the approximately $35 million 2011 estimate, and the assumptions supporting management’s beyond-fiscal-2012 liquidity outlook.
- Royalty Sub’s Shionogi receipts and debt-service capacity, including the restrictions on royalties and milestones pledged to the notes.
- Future currency-hedge valuation changes, collateral calls and potential premium or termination payments.
- Resolution and eventual financial treatment of the Mundipharma dispute, and BCX4208’s longer-term safety and efficacy findings.