Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BCRX > SEC Filings for BCRX > Form 10-Q on 9-Aug-2006All Recent SEC Filings

Show all filings for BIOCRYST PHARMACEUTICALS INC

Form 10-Q for BIOCRYST PHARMACEUTICALS INC


9-Aug-2006

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements, including statements regarding future results, performance, or achievements of the Company. Such statements are only predictions and the actual events or results may differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below as well as those discussed in other filings made by the Company with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form 8-K.

Overview

Since our inception in 1986, we have been engaged in research and development activities and organizational efforts, including:

• identifying and licensing enzyme targets;

• drug discovery;

• structure-based design of drug candidates;

• small-scale synthesis of compounds;

• conducting preclinical studies and clinical trials;

• establishing collaborative relationships with third parties for contract research related to the development of our drug candidates to support manufacturing, clinical development and regulatory compliance;

• establishing collaborative relationships with biotechnology or pharmaceutical companies and governmental agencies or other third parties for the further development and potential commercialization of our compounds;

• recruiting our scientific and management personnel;

• establishing laboratory facilities; and

• raising capital.

Our revenues have generally been limited to license fees, milestone payments, research and development fees, and interest income. Revenue is recognized in accordance with SAB No. 104 and EITF Issue 00-21. License fees, future event payments, and research and development fees are recognized as revenue when the earnings process is complete and we have no further continuing performance obligations or we have completed the performance obligations under the terms of the agreement. Fees received under licensing agreements that are related to future performance are deferred and recognized as earned over an estimated period determined by management based on the terms of the agreement and the products licensed. For example, in the Roche and Mundipharma license agreements announced in November 2005 and February 2006, respectively, we have determined to defer the upfront payments over the remaining life of the patents which are 17 years (through August 2023) and 12 years (through October 2017), respectively. In the event a license agreement contains multiple deliverables, we evaluate whether the deliverables are separate or combined units of accounting in accordance with EITF Issue 00-21. Revisions to revenue or profit estimates as a result of changes in the estimated revenue period are recognized prospectively.

Future event payments are recognized as revenue upon the achievement of specified events if (1) the event is substantive in nature and the achievement of the event was not reasonably assured at the inception of the agreement and
(2) the fees are non-refundable and non-creditable. Any event payments received prior to satisfying these criteria are recorded as deferred revenue.

Significant direct costs incurred upon entering into a licensing arrangement, such as our sublicense fees to AECOM and IRL, are deferred and charged to expense in proportion to the revenue recognized. Under the guidance of EITF Issue 99-19, and EITF Issue 01-14, reimbursements received for direct out-of-pocket expenses related to research and development costs are recorded as revenue in the income statement rather than as a reduction in expenses.

Royalty revenue is recognized based on estimates of royalties earned during the applicable period and adjusted for differences between the estimated and actual royalties in the following period. If royalties can not be reasonably estimated, revenue is recognized upon receipt of royalty statements from the licensee. We have not received any royalties from the sale of licensed pharmaceutical products.

It could be several years, if ever, before we will recognize significant revenue from royalties received pursuant to our license agreements or revenue directly from product sales. Future revenues, if any, are likely to fluctuate substantially from quarter to quarter.

We have incurred operating losses since our inception. Our accumulated deficit at June 30, 2006 was $169.8 million. We expect to incur substantial expenditures relating to the development of our current and future drug candidates. During the three years ended December 31, 2005, we spent 54.6% of our research and development expenses on contract research and development, including:

• payments to consultants;

• funding of research at academic institutions;

• toxicology studies on existing and potential drugs;

• manufacturing of our raw materials, drug substance and drug products;

• large scale synthesis and formulation of compounds;

• preclinical studies;

• engaging investigators to conduct clinical trials;

• hiring contract research organizations for regulatory and clinical functions; and

• using statisticians to evaluate the results of clinical trials.

The above expenditures for contract research and development for our current and future drug candidates will vary from quarter-to-quarter depending on the status of our research and development projects. For example, we began clinical development of our neuraminidase inhibitor, peramivir, by starting the first clinical trial with an intravenous formulation during the first quarter of 2006. We also began the scale-up manufacturing required for validation of the manufacturing process for both peramivir and our lead product Fodosine™, BCX-1777, an inhibitor of the enzyme purine nucleoside phosphorylase ("PNP"). Fodosine™ is currently in various stages of clinical development in multiple oncology indications, including a Phase II trial in T-cell leukemia. As these trials progress and additional trials are started, our costs for clinical studies will increase significantly.

Changes in our existing and future research and development and collaborative relationships also will impact the status of our research and development projects. For example, in November 2005 we entered into a license agreement with Roche for the worldwide development and commercialization for our second PNP inhibitor, BCX-4208. In addition to an upfront payment plus an advance payment for some manufacturing we will perform, Roche has assumed financial responsibility for the future development costs associated with this program. In February 2006, we licensed Fodosine™ to Mundipharma for the development and commercialization of this drug in Europe, Asia and Australasia. In addition to the upfront payment of $10 million, Mundipharma will pay 50% of the clinical development costs we will incur for Fodosine™ on existing and planned clinical trials, but their portion shall not exceed $10 million.

Although we may, in some cases, be able to control the timing of development expenses, in part by accelerating or decelerating certain of these costs, many of these costs will be incurred irrespective of whether we are able to discover drug candidates or obtain collaborative partners for commercialization. As a result, we believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. If we fail to meet the research, clinical and financial expectations of securities analysts and investors, it could have a material adverse effect on the price of our common stock.

Results of Operations (three months ended June 30, 2006 compared to the three months ended June 30, 2005)

Collaborative and other research and development revenues increased to $1,558,000 in the three months ended June 30, 2006 compared to $58,000 in the three months ended June 30, 2005, due to the recognition of revenue related to our collaboration with Mundipharma for the development and commercialization of forodesine hydrochloride (Fodosine™) in Europe and Asia. For this collaboration, we began recognizing the $10 million up front payment in February 2006, which will continue until it is fully recognized in October 2017. In addition, we recognized revenue for the portion of clinical expenses incurred during the quarter that will be reimbursed by Mundipharma according to the terms of the collaboration.

Research and development ("R&D") expenses increased 112.6% to $11,190,000 in the three months ended June 30, 2006 from $5,263,000 in the three months ended June 30, 2005. The increase is primarily attributable to expenses for contract research and synthesis of compound related to the clinical development and manufacturing of our drug candidates, Fodosine™ and peramivir. We are currently in several additional clinical trials with Fodosine™ as compared to the same period in 2005 and we initiated clinical testing of peramivir late in the first quarter of 2006. In addition, we have also started the process of manufacturing validation for both Fodosine™ and peramivir. There was also an increase in compensation cost for the second quarter of 2006 compared to the second quarter of 2005, primarily related to the Company's adoption of Statement No. 123R, which resulted in $337,000 of share-based compensation expense for the second quarter 2006, and the increase in headcount during 2006.

General and administrative expenses for the three months ended June 30, 2006 increased 90.4% to $1,384,000 as compared to $727,000 for the same period in 2005, primarily due to $420,000 of share-based compensation expense related to the adoption of Statement No. 123R, additional employment expenses related to an increase in personnel, and an increase in professional fees.

Interest income for the three months ended June 30, 2006 was $933,000, a 228.5% increase as compared to the same period in 2005. This increase was due to a higher average cash balance during the second quarter of 2006.

Results of Operations (six months ended June 30, 2006 compared to the six months ended June 30, 2005)

Collaborative and other research and development revenues increased to $2,330,000 for the six months ended June 30, 2006 compared to $99,000 for the six months ended June 30, 2005, due to the recognition of revenue related to our collaboration with Mundipharma for the development and commercialization of Fodosine™ in Europe and Asia. For this collaboration, we began recognizing the $10 million up front payment in February 2006, which will continue until it is fully recognized in October 2017. In addition, we began recognizing revenue during the first quarter of 2006 for clinical expenses that will be reimbursed by Mundipharma according to the terms of the collaboration.

R&D expenses increased 84.3% to $19,234,000 for the six months ended June 30, 2006 from $10,438,000 for the six months ended June 30, 2005. The increase is primarily attributable to expenses for contract research and synthesis of compounds related to the clinical development and manufacturing of our drug candidates, Fodosine™ and peramivir. We are currently in several additional clinical trials with Fodosine™ as compared to the same period in 2005 and we initiated clinical testing of peramivir late in the first quarter of 2006. In addition, we have also started the process of manufacturing validation for both Fodosine™ and peramivir. There was also an increase in compensation cost for the second quarter of 2006 compared to the second quarter of 2005, primarily related to the Company's adoption of Statement No. 123R, which resulted in $516,000 of share-based compensation expense for the first half of 2006, and the increase in headcount during 2006.

General and administrative expenses for the six months ended June 30, 2006 increased 102.3% to $2,879,000 as compared to $1,423,000 for the same period in 2005, primarily due to $661,000 of share-based compensation expense related to the adoption of Statement No. 123R, additional compensation expense related to an increase in personnel, and an increase in professional fees primarily related to our recent collaborations.

Interest income for the six months ended June 30, 2006 was $1,818,000, a 287.6% increase as compared to the same period in 2005. This increase was due to a higher average cash balance during the second quarter of 2006 resulting from receipt of the upfront payments related to the Roche and Mundipharma collaborations.

Liquidity and Capital Resources

Cash expenditures have exceeded revenues since our inception. Our operations have principally been funded through public offerings and private placements of equity and debt securities. For example, during December 2005, we raised $30.0 million (approximately $29.9 million net of expenses) through a sale of 2,228,829 shares of our common stock. Other sources of funding have included the following:

• collaborative and other research and development agreements (such as the Roche, Mundipharma and Green Cross licenses);

• equipment lease financing;

• facility leases;

• research grants; and

• interest income.

In addition, we have attempted to contain costs and reduce cash flow requirements by renting scientific equipment and facilities, contracting with other parties to conduct certain research and development and using consultants. We expect to incur additional expenses, potentially resulting in significant losses, as we continue to pursue our research and development activities, undertake additional preclinical studies and clinical trials of compounds which have been or may be discovered and as we validate the manufacturing process of our lead compounds. We also expect to incur substantial expenses related to the filing, prosecution, maintenance, defense and enforcement of patent and other intellectual property claims and additional regulatory costs as our clinical products advance through later stages of development.

We invest our excess cash principally in U.S. marketable securities from a diversified portfolio of institutions with strong credit ratings and in U.S. government and agency bills and notes, and by policy, limit the amount of credit exposure at any one institution. These investments are generally not collateralized and mature within two years. We have not realized any losses from such investments.

We have financed some of our equipment purchases with lease lines of credit. In July 2000, we renegotiated our lease for our current facilities, which will expire on June 30, 2010. We have an option to renew the lease for an additional five years at the current market rate in effect on June 30, 2010 and a one-time option to terminate the lease on June 30, 2008 for a termination fee of approximately $124,000. The lease, as amended effective December 1, 2005 for a reduction of 7,200 square feet, requires us to pay monthly rent starting at $36,855 per month in December 2005 and escalating annually to a minimum of $41,481 per month in the final year, plus our pro rata share of operating expenses and real estate taxes in excess of base year amounts. As part of the lease, we have deposited a U.S. Treasury security in escrow for the payment of rent and performance of other obligations specified in the lease. This pledged amount is currently $132,000, which can be decreased by $65,000 annually throughout the term of the lease. Currently, we have approximately 3,600 square feet being subleased, which can be terminated with 30 days written notice.

We have not incurred any significant charges related to building renovations since 2001, but we currently have plans for some renovations and for the purchase of additional scientific equipment. Our anticipated capital expenditures for 2006 related to these items are not expected to exceed $1.5 million.

At December 31, 2005, we had long-term operating lease obligations, which provide for aggregate minimum payments of $533,904 in 2006, $486,119 in 2007 and $496,834 in 2008. These obligations include the future rental of our operating facility.

We plan to finance our needs principally from the following:

• our existing capital resources and interest earned on that capital;

• payments under collaborative and licensing agreements with corporate partners; and

• lease or loan financing and future public or private financing.

As of June 30, 2006, we had $74.7 million in cash, cash equivalents and securities. We believe that our currently available funds will be sufficient to fund our operations at least through 2007. However, this is a forward looking statement, and there may be changes that would consume available resources significantly before such time. Our long-term capital requirements and the adequacy of our available funds will depend upon many factors, including:

• the progress and magnitude of our research, drug discovery and development programs;

• changes in existing collaborative relationships;

• our ability to establish additional collaborative relationships with academic institutions, biotechnology or pharmaceutical companies and governmental agencies or other third parties;

• the extent to which our collaborators, including governmental agencies will share in the costs associated with the development of our programs or run the development programs themselves;

• our ability to negotiate favorable development and marketing strategic alliances for our drug candidates;

• the scope and results of preclinical studies and clinical trials to identify drug candidates;

• the scope of manufacturing of our drug candidates to support our preclinical research and clinical trials;

• the scope of validation for the manufacturing of our drug substance and drug products required for future NDA filings;

• competitive and technological advances;

• the time and costs involved in obtaining regulatory approvals;

• the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;

• our dependence on others for development and commercialization of our product candidates; and

• successful commercialization of our products consistent with our licensing strategy.

To date, we have financed our operations primarily from sale of our equity securities and cash from collaborations and, to a lesser extent, interest. For the first six months of 2006, our average monthly cash burn from normal operations has been approximately $3.2 million. For the year, our cash, cash equivalents and securities balance has increased from $60 million as of December 31, 2005 to $74.6 million as of June 30, 2006, primarily due to cash received from collaborations, totaling approximately $31.8 million net of sublicense fees, less the monthly cash burn from operations.

In June 2006 the Department of Health and Human Services ("HHS") issued a Request for Proposal ("RFP") for the potential funding of companies with antiviral drugs in development for both seasonal and avian influenza. We believe our peramivir program meets substantially all of the requirements outlined in the RFP and therefore we submitted a proposal to HHS on July 20, 2006 and we hope to be considered a competitive candidate for some of the funding to be made available under the RFP. We have made certain commitments related to the advancement of peramivir for both our intramuscular and intravenous formulations so that we will be prepared to enter multiple Phase II trials during the 2006-2007 influenza season. We plan to be in several Phase II trials with peramivir using intravenous and intramuscular formulations for the 2006-2007 flu season and we are currently initiating the additional Phase I trials to support these planned Phase II trials.

In addition, on August 7, 2006, we announced that we had received a Special Protocol Assessment ("SPA") letter from the U.S. Food and Drug Administration ("FDA") for the initiation of a pivotal clinical trial of our lead anti-cancer compound Fodosine™. The SPA letter documents the agreement between the FDA and the Company regarding the trial design's suitability to support regulatory approval. We expect to initiate a multicenter, open-label pivotal clinical trial later this year with the goal of enrolling 100 patients. In our original request, we estimated the number of patients required for this trial would be approximately 50, based on other similar trials completed by other companies.

As a result of the commitments we have made for the clinical development of both peramivir and Fodosine™, plus the ongoing validation of the manufacturing process for these drug candidates, we expect that our monthly cash used by operations will increase significantly during the second half of 2006 to a level which could eventually exceed $5 million per month during this time. We are hopeful that our proposal response for the RFP will be acceptable for funding, which would significantly offset this projected burn rate if and when it became effective. In addition, we expect to achieve one milestone related to our collaboration with Mundipharma in 2006 and we will continue to be reimbursed for our clinical development costs up to the $10 million defined in our agreement. We currently have a balance receivable of approximately $2 million for their portion of the funding related to the clinical development of Fodosine™.

As our clinical programs continue to grow and patient enrollment increases, our costs will increase. Our current and planned clinical trials plus the related manufacturing, personnel resources and testing required to support these trials will consume significant capital resources and will increase our expenses and our net loss.

Our monthly burn rate could vary significantly depending on many factors, including our ability to raise additional capital, the development progress of our collaborative agreements for our drug candidates, the amount of funding or assistance we receive from governmental agencies or other new partnerships with third parties for the development of our drug candidates in general and for peramivir specifically, the progress and results of our current and proposed clinical trials for our most advanced drug products, the progress made in the manufacturing of our lead products and the progression of our other programs.

The collaboration with Roche for the worldwide development and commercialization of BCX-4208 provided an upfront payment plus an advance payment for specific manufacturing we will perform. We expect to fulfill our manufacturing obligation in the third quarter of 2006. The initial $30 million was recorded as a receivable on our balance sheet at December 31, 2005 and was received in January 2006. Roche will take over the development and pay all costs associated with this program. The agreement also provides for future event payments and royalties to be made by Roche upon the achievement of certain clinical, regulatory and sales events.

In February 2006, we licensed Fodosine™ to Mundipharma for the development and commercialization of this drug in Europe, Asia and Australasia. In addition to the upfront payment of $10 million which was received in February 2006, Mundipharma will pay 50% of the clinical development costs we will incur for Fodosine™ on existing and planned clinical trials, but their portion shall not exceed $10 million. In addition, Mundipharma will conduct additional clinical trials at their own cost up to a maximum of $15 million. The agreement also provides for future event payments and royalties to be made by Mundipharma upon the achievement of certain clinical, regulatory and sales events.

For the Roche and Mundipharma collaborations, we will owe sublicense payments to AECOM and IRL on all upfront, future event payments and royalties. For the first six months of 2006, we have paid approximately $8.2 million related to these agreements. The revenue from these agreements has been recorded as deferred revenue on our balance sheet and will be recognized over the remaining patent life of the related drug candidate. The payments to AECOM and IRL have been recorded as deferred assets on our balance sheet and will be recognized over the period of the related revenue recognition. Due to the nature of the potential milestones in our collaborations, it is difficult to predict if and when particular milestones will be achieved by us or our collaborators.

We expect that we will be required to raise additional capital to complete the development and commercialization of our current product candidates. Additional funding, whether through additional sales of securities or collaborative or other arrangements with corporate partners or from other sources, including governmental agencies in general and from the RFP specifically, may not be available when needed or on terms acceptable to us. The issuance of preferred or common stock or convertible securities, with terms and prices significantly more favorable than those of the currently outstanding common stock, could have the effect of diluting or adversely affecting the holdings or rights of our existing stockholders. In addition, collaborative arrangements may require us to transfer certain material rights to such corporate partners. Insufficient funds may require us to delay, scale-back or eliminate certain of our research and development programs.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities ("SPEs"), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of June 30, 2006, we are not involved in any material unconsolidated SPE or off-balance sheet arrangements.

Contractual Obligations

A summary of our obligations to make future payments under contracts existing as of December 31, 2005 is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2005. For the six months ended June 30, 2006, the Company has entered into various contracts in the ordinary course of business for several R&D related items, including manufacturing of various compounds, additional toxicology studies and clinical trials and has already paid for some of the obligations disclosed at December 31, 2005. The net effect of these changes was to increase the purchase obligations disclosed at December 31, 2005 by a total of approximately $8.2 million. These obligations could change during the course of the year depending on the status of each of our development programs.

For purposes of our disclosure of contractual obligations, purchase obligations include commitments related to clinical development, manufacturing and research operations and other significant purchase commitments.

In addition to the contractual obligations disclosed, we have committed to make potential future "sublicense" payments to third-parties related to the in-licensing for some of our development programs. Payments under these agreements generally become due and payable only upon achievement of certain developmental, regulatory and/or commercial milestones. Because the achievement of these milestones is neither probable nor reasonably estimable, such contingencies have not been recorded on our balance sheet.

Critical Accounting Policies

We have established various accounting policies that govern the application of accounting principles generally accepted in the United States, which were utilized in the preparation of our financial statements. Certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of operations.

. . .

  Add BCRX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BCRX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.