BioCryst Pharmaceuticals, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unless otherwise noted, financial figures below are in millions of dollars.
Business context and reporting period
BioCryst is a biotechnology company developing medicines for rare diseases and other conditions. Its lead programs include BCX7353 for hereditary angioedema (HAE), BCX9930 for complement-mediated diseases, and galidesivir for viral diseases. Peramivir sales are largely handled by commercial partners, with BioCryst retaining certain U.S. government stockpiling rights.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $1.4 | $12.5 | $7.3 | $16.5 |
| Research and development expense | $27.7 | $21.0 | $55.2 | $39.5 |
| General and administrative expense | $8.7 | $9.5 | $14.9 | $17.1 |
| Net loss | $37.6 | $18.4 | $68.7 | $44.2 |
| Net loss per share | $0.34 | $0.19 | $0.62 | $0.45 |
| Cash used in operating activities | Not presented by quarter | Not presented by quarter | $51.5 | $33.5 |
Q2 revenue comprised $0.7 million of peramivir royalties and $0.8 million of government-contract research reimbursement; there were no product sales in the quarter. Six-month revenue also included $1.7 million of peramivir product sales. The filing does not provide a meaningful operating margin measure; BioCryst reported operating losses in both periods.
At June 30, cash and cash equivalents were $30.8 million, restricted cash was $4.6 million, and investments totaled $62.1 million, including $0.7 million classified as long-term. Net working capital was $31.8 million. Total assets were $116.3 million and stockholders’ equity was negative $9.2 million.
Senior credit facility debt was approximately $50.0 million, with a 10.4% interest rate; non-recourse PhaRMA notes were carried at $29.3 million. Interest expense was $3.0 million in Q2 and $5.8 million for the six months. The PhaRMA notes bear 14% interest and remain in default. Operating lease liabilities totaled $5.2 million.
Changes versus the prior comparable periods
- Revenue declined sharply from Q2 and first-half 2018, principally because the prior-year periods included $12.0 million tied to the EMA approval of peramivir: $7.0 million of deferred revenue and a $5.0 million milestone. First-half 2019 also had lower royalty revenue, partly offset by product sales and higher government-contract reimbursements.
- R&D expense increased 32% in Q2 and 40% in the first half, primarily reflecting progression of the HAE programs and BCX9930 entering clinical testing. Q2 2019 also included about $2.0 million of performance-based stock compensation.
- Net loss widened to $37.6 million in Q2 and $68.7 million for the first half. Higher R&D spending and interest expense contributed; the prior-year comparison also benefited from the one-time revenue items noted above.
- Operating cash use rose to $51.5 million from $33.5 million for the first half. Cash, cash equivalents and restricted cash nevertheless increased by $7.1 million, supported by investment maturities and $19.5 million of credit-facility proceeds.
- The company adopted the new lease accounting standard in January 2019, recognizing right-of-use assets and lease liabilities; management reported no material impact on the income statement.
Outlook, management commentary and risks
- Management expects 2019 operating cash use of $105–$130 million and operating expenses of $120–$145 million. The expense range excludes equity-based compensation; approximately $3.5 million of additional stock-option expense was expected in the second half. The cash-use forecast excludes certain non-routine items.
- Management expected available funds and the credit facility to fund operations into 2020, but disclosed that planned operations raise doubt about the company’s ability to continue as a going concern through 2020. It expects 2019 expenses to exceed revenue and continued operating losses and negative cash flows.
- The $100 million credit facility included $50 million funded at closing, with additional tranches subject to development-related contingencies. It requires at least $25 million of unrestricted cash; the minimum rises to $40 million if the second tranche is drawn. Failure to meet covenants could trigger default remedies.
- In May 2019, the Phase 3 APeX-2 trial met its primary endpoint at both BCX7353 doses; the 150 mg dose reduced HAE attack rate by 44% versus placebo. Management expected to file an NDA in Q4 2019. It planned to begin the acute-treatment Phase 3 ZENITH-2 trial in 2020, subject to regulatory agreement and formulation work. BCX9930 entered Phase 1, with results expected in Q4 2019.
- BioCryst and Seqirus are in arbitration over multiple SUL Agreement issues, including an EMA approval milestone and commercialization. The outcome is uncertain. A separate Shionogi arbitration concerns sales milestones and royalty rates; any recovery would primarily benefit Royalty Sub and PhaRMA noteholders.
- Key risks include dependence on additional financing and government contract reimbursements, clinical and regulatory uncertainty, reliance on partners and single-source manufacturers, competition, and potential dilution. The yen hedge can create earnings volatility and may require a $1.95 million payment in 2020 if the specified exchange-rate condition is met.
Important facts for investors to verify
- Progress and regulatory timing for BCX7353, including the expected Q4 2019 NDA filing and the planned acute-treatment trial.
- Actual cash burn versus 2019 guidance, unrestricted cash covenant headroom, and availability of conditional credit tranches.
- Funding and reimbursement status of BARDA/HHS and NIAID/HHS contracts, and any government procurement orders.
- Developments and potential financial effects of the Seqirus and Shionogi arbitrations, and the continuing PhaRMA notes default.
- Potential need for additional capital and the implications of the disclosed going-concern doubt.