BioCryst Pharmaceuticals, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Financial statement amounts are in U.S. dollars; figures below are generally in millions unless noted. BioCryst is a clinical-stage biotechnology company focused on rare diseases and antiviral programs, and has incurred losses and negative operating cash flows since inception.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $11.0 | $3.2 | $43.7 | $8.2 |
| Research and development expense | $20.1 | $13.0 | $53.7 | $33.3 |
| SG&A expense | $2.7 | $1.8 | $10.3 | $5.4 |
| Operating loss | $(13.2) | $(11.6) | $(22.3) | $(30.6) |
| Net loss | $(14.6) | $(8.7) | $(24.9) | $(33.5) |
| Basic and diluted loss per share | $(0.20) | $(0.12) | $(0.34) | $(0.52) |
- Nine-month revenue growth was principally attributable to the Seqirus UK Limited (SUL) RAPIVAB license, RAPIVAB sales, and increased government-contract reimbursements. SUL revenue recognized included about $21.8 million for license rights and $3.7 million for inventory; $7.0 million of the upfront payment remained contingent on EU approval, with other consideration deferred for regulatory support.
- R&D spending increased as avoralstat, BCX7353 and BCX4430 programs advanced. Nine-month R&D costs included $19.4 million for avoralstat, $16.4 million for second-generation HAE compounds and $9.7 million for BCX4430.
- For the nine months, net cash provided by operating activities was $1.7 million, compared with $24.7 million used in 2014. The 2015 cash flow benefited from changes in accrued expenses and other working-capital items; it should not be read as evidence of recurring operating profitability. Investing activities used $15.0 million and financing activities provided $5.4 million. Cash and cash equivalents declined $7.9 million to $46.6 million.
- At September 30, cash and cash equivalents were $46.6 million and investments were $71.5 million, for reported cash and investments of $118.1 million; restricted cash was an additional $1.6 million. Collaboration receivables were $7.5 million. Working capital was $20.1 million, down from $32.1 million at year-end 2014.
- Royalty Sub had $30.0 million of 14% non-recourse PhaRMA Notes, classified as current following a September 2014 payment default; accrued interest payable was $5.5 million. The notes are secured by specified Shionogi royalties and related collateral. The filing says holders may pursue acceleration or foreclosure. The company reports no financial covenants and says the notes are non-recourse, but loss of future royalties and legal or hedge-related costs remain possible.
- Product sales were $5.7 million for Q3 and $6.2 million for the nine-month period; corresponding cost of products sold was $1.3 million for each period. The filing does not present a standalone product gross-margin measure.
Material changes and developments
- In June 2015, BioCryst licensed RAPIVAB rights to SUL across most global markets, retaining specified territories and U.S. government pandemic stockpiling rights. SUL assumes commercialization and related costs in its territory; BioCryst remains responsible for certain U.S. post-marketing commitments and regulatory work for potential Canadian and EU approvals.
- Nine-month revenue rose substantially year over year, while operating loss narrowed. The improvement in operating loss did not translate into a lower quarterly net loss: Q3 2015 included a $0.5 million currency-hedge mark-to-market loss, versus a $4.1 million gain in Q3 2014.
- BioCryst received a new BARDA contract for BCX4430 with a $13.3 million base and up to $22.9 million in options; $16.3 million had been awarded under exercised options by quarter-end. NIAID’s BCX4430 contract had up to $34.0 million in potential funding, with $29.9 million awarded under exercised options.
- Common shares outstanding were 73.3 million at October 31, 2015, versus 72.0 million at December 31, 2014. The company reported approximately $160 million of remaining capacity under effective shelf registrations.
Outlook, commentary and risks
- Management expected existing cash and investments to fund planned operations into 2017. To operate substantially beyond then, BioCryst said it would need additional government funding, licensing or milestone receipts, new capital, product approvals, spending reductions, and/or restructuring.
- 2015 guidance was operating cash usage of $8–18 million and operating expenses of $75–95 million. The expense range excludes equity-based compensation; the cash-use estimate includes the SUL upfront payment and excludes royalty-monetization and hedge-collateral impacts. Management said actual results could vary with development costs, funding and other factors.
- After quarter-end, the company reported that OPuS-2 avoralstat enrollment was complete, with results expected in early 2016. The FDA had not agreed to defer the two-year rat carcinogenicity study; without a deferral, management expected an NDA filing in 2018. The EMA had agreed to defer those results as a post-filing commitment.
- After quarter-end, BioCryst reported positive Phase 1 results for BCX7353 and expected to begin a Phase 2 HAE trial in early 2016. These are management-reported development updates, not established commercial outcomes.
- Key risks include continued losses and future financing needs; clinical, regulatory and manufacturing setbacks; dependence on government contract reimbursements and partners; concentration in specialty distributors; and potential dilution from future securities issuance. Government contracts may be modified, audited, reduced or terminated. BioCryst also relies on single-source manufacturers for RAPIVAB and other candidates.
- RAPIVAB’s commercial prospects depend on partner execution, market demand, reimbursement and possible U.S. government stockpiling orders. The company continues to hold the U.S. NDA and retains related post-marketing, promotional, pricing and regulatory responsibilities.
- The foreign currency hedge can create earnings volatility and may require annual payments of up to $2.0 million in 2016–2020 under specified exchange-rate conditions. Maximum potential hedge collateral at September 30 was $9.8 million; none was posted at that date.
Important facts for investors to verify
- Confirm the status and consequences of the PhaRMA Notes default, including any holder action and the availability of future Shionogi royalties.
- Track cash burn, working capital, government reimbursements and whether the stated runway into 2017 remains supportable against development plans.
- Review SUL’s commercialization progress, RAPIVAB sales and stockpiling prospects, regulatory milestones, and the timing and conditions of royalty receipts.
- Monitor OPuS-2 results and the FDA’s position on the avoralstat carcinogenicity study, as well as BCX7353 Phase 2 initiation and results.
- Reconcile the filing’s RAPIVAB revenue disclosures: the statements report $6.2 million of nine-month product sales, while MD&A also describes approximately $0.6 million of sell-through product revenue alongside $5.7 million of RAPIVAB revenue. The text does not clearly explain that presentation difference.
- Assess potential dilution from equity compensation and shelf offerings, and the impact of future spending or financing needs on existing shareholders.