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BCRX > SEC Filings for BCRX > Form 10-Q on 9-May-2014All Recent SEC Filings




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 and elsewhere in this report, 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. See "Information Regarding Forward-Looking Statements."

Cautionary Statement

The discussion herein contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created in Section 21E. Forward-looking statements regarding our financial condition and our results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted within the United States ("U.S. GAAP"), as well as projections for the future. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results of our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We operate in a highly competitive environment that involves a number of risks, some of which are beyond our control. We are subject to risks common to biotechnology and biopharmaceutical companies, including risks inherent in our drug discovery, drug development and commercialization efforts, clinical trials, uncertainty of regulatory actions and marketing approvals, reliance on collaborative partners, enforcement of patent and proprietary rights, the need for future capital, competition associated with products, potential competition associated with our product candidates and retention of key employees. In order for any of our product candidates to be commercialized, it will be necessary for us, or our collaborative partners, to conduct clinical trials, demonstrate efficacy and safety of the product candidate to the satisfaction of regulatory authorities, obtain marketing approval, enter into manufacturing, distribution and marketing arrangements, and obtain market acceptance and adequate reimbursement from government and private insurers. We cannot provide assurance that we will generate significant revenues or achieve and sustain profitability in the future. In addition, we can provide no assurance that we will have sufficient funding to meet our future capital requirements. Statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report which are not historical facts are, or may constitute, forward-looking statements. Forward-looking statements involve known and unknown risks that could cause our actual results to differ materially from expected results. The most significant known risks are discussed in the section entitled "Risk Factors." Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you not to place undue reliance on any forward-looking statements.

Our revenues are difficult to predict and depend on numerous factors, including the prevalence and severity of influenza in regions for which peramivir has received regulatory approval, seasonality of influenza, ongoing discussions with government agencies regarding future peramivir and/or BCX4430 development, as well as entering into, or modifying, licensing agreements for our product candidates. Furthermore, revenues related to our collaborative development activities are dependent upon the progress toward and the achievement of developmental milestones by us or our collaborative partners.

Our operating expenses are also difficult to predict and depend on several factors, including research and development expenses (and whether these expenses are reimbursable under government contracts), drug manufacturing, and clinical research activities, the ongoing requirements of our development programs, and the availability of capital and direction from regulatory agencies, which are difficult to predict. Management may be able to control the timing and level of research and development and general and administrative expenses, but many of these expenditures will occur irrespective of our actions due to contractually committed activities and/or payments.

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As a result of these factors, we believe that period to period comparisons are not necessarily meaningful and you should not rely on them as an indication of future performance. Due to all of the foregoing factors, it is possible that our operating results will be below the expectations of market analysts and investors. In such event, the prevailing market price of our common stock could be materially adversely affected.


We are a biotechnology company that designs, optimizes and develops novel drugs that block key enzymes involved in the pathogenesis of diseases. We focus on rare and infectious diseases in which unmet medical needs exist and that are aligned with our capabilities and expertise. We integrate the disciplines of biology, crystallography, medicinal chemistry and computer modeling to discover and develop small molecule pharmaceuticals through the process known as structure-guided drug design.

Critical Accounting Policies and Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, judgments and the policies underlying these estimates on a periodic basis, as situations change, and regularly discuss financial events, policies, and issues with members of our audit committee and our independent registered public accounting firm. We routinely evaluate our estimates and policies regarding revenue recognition, administration, inventory and manufacturing, taxes, stock-based compensation, research and development, consulting and other expenses and any associated liabilities.

Recent Corporate Highlights


In December 2013, we submitted a NDA filing for i.v. peramivir to the FDA seeking an indication as the first i.v. neuraminidase inhibitor approved in the U.S. for the treatment of acute uncomplicated influenza in adults. The NDA submission includes results in over 2,700 subjects treated with peramivir in 27 clinical trials. On February 24, 2014, the FDA notified us that our NDA filing was accepted for review. The FDA is expected to take action on our application by December 23, 2014. The BARDA/HHS contract funding peramivir development expires on May 31, 2014.

Following the issuance of a Warning Letter, and a recent re-inspection by the FDA, our contract manufacturer for peramivir drug product received a Form 483, which contained a number of observations that need to be addressed. It is unclear how these findings may impact the peramivir NDA or supply of peramivir drug product. BioCryst and the contract manufacturer are working with the FDA to meet the requirements for approval of the peramivir NDA.


In November 2013, we enrolled the first patient in a proof of concept Phase 2a clinical trial in patients with HAE (entitled "OPuS-1"). This clinical trial is evaluating 400 mg of BCX4161 administered three times daily for 28 days in a randomized, placebo-controlled, two-period cross-over design. This trial is designed to provide proof of concept for oral kallikrein inhibition as a treatment strategy for HAE. Twenty-four HAE patients who have a high frequency of attacks (more than one per week) have been enrolled. We intend to report results from OPuS-1 no later than June 30, 2014.

In March 2013, we initiated a BCX4161 Phase 1 clinical trial to support its development as a treatment for HAE. In July 2013, we announced that the Phase 1 clinical trial of orally-administered BCX4161 in healthy volunteers successfully met all of its objectives. The safety, tolerability, drug exposure and on-target kallikrein inhibition results of the Phase 1 trial strongly supported advancing the development program into a Phase 2a study in HAE patients.

2nd generation HAE compounds

In December 2013, we announced the selection of two optimized plasma kallikrein inhibitors to advance into preclinical development as potential once-daily, oral treatments for the prevention of HAE attacks. The second generation discovery program's goals of improving selectivity and bioavailability compared to BCX4161 were both met, with no identified off-target effects. The nonclinical development of these two compounds continues to progress as planned with studies being completed that continue to support the opportunity for once-daily dosing for the prevention of HAE attacks.

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In September 2013, NIAID/HHS contracted with us for the development of BCX4430 as a treatment for Marburg virus disease. NIAID/HHS, part of the National Institutes of Health, made an initial award of $5.0 million to us. The total funding under the contract could be up to $22.0 million, if all contract options are exercised by NIAID/HHS. The goals of this contract are to file IND applications for i.v. and i.m. BCX4430 for the treatment of Marburg virus disease and to conduct an initial Phase 1 human clinical trial. As of March 31, 2014, a total of $7.5 million has been awarded under exercised options within the contract.

In March 2014, we announced the publication in the online version of the journal Nature of compelling BCX4430 efficacy results in animal models of infection with Marburg virus and Ebola virus, two highly virulent pathogens responsible for viral hemorrhagic fever diseases. The Nature publication, "Protection against filovirus diseases by a novel broad-spectrum nucleoside analog BCX4430," represents the first report of protection of non-human primates from filovirus disease by a small molecule drug.

Results of Operations (three months ended March 31, 2014 compared to the three months ended March 31, 2013)

For the three months ended March 31, 2014, total revenues were $3.5 million as compared to $3.6 million for the three months ended March 31, 2013. Revenues in the first quarter of 2014 included $1.8 million of royalty revenue from Shionogi and Green Cross associated with sales of peramivir in Japan and Korea, $1.3 million of reimbursement of collaborative expenses from NIAID/HHS and BARDA/HHS related to the development of BCX4430 and i.v. peramivir and $0.3 million associated with collaborative revenue amortization from other corporate partnerships. Revenues in the first quarter of 2013 included $1.9 million of royalty revenue from Shionogi and Green Cross associated with sales of peramivir in Japan and Korea, $1.3 million of reimbursement of collaborative expenses from BARDA/HHS related to the development of i.v. peramivir and $0.3 million associated with collaborative revenue amortization from other corporate partnerships.

Research and development ("R&D") expenses increased to $9.2 million for the first quarter of 2014 from $7.2 million in 2013. The 2014 R&D expenses compared to 2013 reflect increased spending on our BCX4161 and BCX4430 programs, partially offset by the termination of our BCX5191 development program and the conclusion of clinical development of peramivir.

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The following table summarizes our R&D expenses for the periods indicated (amounts are in thousands).

                                                           Three Months Ended
                                                                March 31,
                                                            2014          2013
     R&D expenses by program:
     BCX4161                                             $    4,335      $ 2,694
     BCX4430                                                  1,750        1,295
     2nd generation HAE compounds                             1,360           -
     Peramivir                                                  695        1,447
     Ulodesine                                                   -           347
     BCX5191                                                     -           475
     Forodesine                                                  -            12
     Other research, preclinical and development costs        1,043          945

     Total R&D expenses                                  $    9,183      $ 7,215

General and administrative expenses were $1.6 million for each of the three month periods ended March 31, 2014 and 2013, and reflect stabilization of costs following the restructuring of our operations announced in December 2012.

Interest expense related to the non-recourse notes issued in conjunction with the non-dilutive peramivir royalty monetization transaction in March 2011 was $1.2 million in the first quarter of 2014 and 2013. In addition, a mark-to-market loss of $1.5 million was recognized in the first quarter of 2014 related to our foreign currency hedge, compared to a mark-to-market gain of $2.0 million in the same quarter in the prior year, both resulting from changes in the U.S. dollar/Japanese yen exchange rate in the related time periods.

Liquidity and Capital Resources

Cash expenditures have exceeded revenues since our inception and we expect our 2014 operating expenses to exceed our 2014 revenues. Our operations have principally been funded through public offerings and private placements of equity securities; cash from collaborative and other research and development agreements, including government contracts; and to a lesser extent, the PhaRMA Notes financing. On March 9, 2011, we completed a $30.0 million non-recourse debt financing transaction designed to monetize certain future royalty and milestone payments under our license agreement with Shionogi. We received net proceeds from this transaction of approximately $22.7 million, excluding hedge collateral posted subsequent to the closing of the transaction. In June 2011, we entered into an At Market Issuance Sales Agreement (the "ATM Agreement") with McNicoll, Lewis & Vlak ("MLV") pursuant to which we may issue and sell $70.0 million in shares of our common stock at current market prices under a Form S-3 registration statement with MLV acting as the sales agent. As of March 31, 2014, we have sold an aggregate of 7.8 million shares of common stock at an average per share price of $3.18 pursuant to the ATM Agreement for net proceeds of $24.0 million. In addition, in August 2013, we raised $18.5 million in net proceeds derived from the sale of 4.6 million shares of common stock at $4.40 per share in a public offering. In September 2013, NIAID/HHS awarded us a $22.0 million contract for the development of BCX4430 as a treatment for Marburg virus disease. The total option funding awarded under the contract to date is $7.5 million. In addition to the above, we have received funding from other sources, including other collaborative and other research and development agreements; government grants; equipment lease financing; facility leases; research grants; and interest income on our investments.

As of March 31, 2014, we had net working capital of $22.0 million, a decrease of approximately $4.9 million from $26.9 million at December 31, 2013. The decrease in working capital was principally due to our normal operating expenses associated with the development of our product candidates, partially offset by $3.8 million of proceeds from the exercise of stock options. Our principal sources of liquidity at March 31, 2014 were approximately $13.6 million in cash and cash equivalents; approximately $20.5 million in investments considered available-for-sale; and approximately $1.5 million in BARDA/HHS and NIAID/HHS receivables. In December 2012, we announced that we had restructured our operations to significantly reduce the size and operations of our Company in order to extend our existing cash runway. We anticipate our cash and investments will fund our operations into the first quarter of 2015.

We intend to contain costs and reduce cash flow requirements by closely managing our third party costs and headcount, leasing scientific equipment and facilities, contracting with other parties to conduct certain research and development projects and using consultants. We expect to incur additional expenses, potentially resulting in significant losses, as we continue to pursue our research and development activities, primarily related to our clinical trial activity. We may incur additional

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expenses related to the filing, prosecution, maintenance, defense and enforcement of patent and other intellectual property claims and additional regulatory costs as our clinical programs advance through later stages of development. The objective of our investment policy is to ensure the safety and preservation of invested funds, as well as maintaining liquidity sufficient to meet cash flow requirements. We place our excess cash with high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of our credit exposure. We have not realized any significant losses on our investments.

At December 31, 2013, we had long-term operating lease obligations, which provide for aggregate minimum payments of approximately $1.0 million in 2014 and $0.4 million in 2015. These obligations include the future rental of our operating facilities.

We plan to finance our needs principally from the following:

lease or loan financing and future public or private equity financing;

our existing capital resources and interest earned on that capital;

payments under our contracts with BARDA/HHS and NIAID/HHS; and

payments under collaborative and licensing agreements with corporate partners.

As our programs continue to advance, our costs will increase. Our current and planned clinical trials, plus the related development, manufacturing, regulatory approval process requirements and additional personnel resources and testing required for the continuing development of our product candidates, will consume significant capital resources and will increase our expenses. Our expenses, revenues and cash utilization rate could vary significantly depending on many factors, including our ability to raise additional capital, the development progress of our collaborative agreements for our product candidates, the amount and timing of funding we receive from BARDA/HHS for peramivir and NIAID/HHS for BCX4430, the amount of funding or assistance, if any, we receive from other governmental agencies or other new partnerships with third parties for the development of our product candidates, the progress and results of our current and proposed clinical trials for our most advanced product candidates, the progress made in the manufacturing of our lead product candidates and the progression of our other programs.

With the funds available at March 31, 2014, we believe these resources will be sufficient to fund our operations into the first quarter of 2015. Our future liquidity needs, and ability to address those needs, will largely be determined by the success of our product candidates and key development and regulatory events in the future. In order to continue our operations substantially beyond the first quarter of 2015, we will need to: (1) successfully secure, or increase U.S. Government funding of our programs; (2) out-license rights to certain of our product candidates, pursuant to which the we would receive cash milestones;
(3) raise additional capital through equity or debt financings or from other sources; (4) obtain product candidate regulatory approvals, which would generate revenue and cash flow; (5) reduce spending on one or more research and development programs; and/or (6) restructure operations. Additionally, we retain the ability to offer for sale approximately $25 million and $125 million of securities, including common stock, preferred stock, debt securities, depositary shares and securities warrants from effective shelf registration statements, which we filed with the SEC on June 28, 2011 and November 6, 2013, respectively.

Our long-term capital requirements and the adequacy of our available funds will depend upon many factors, including:

our ability to perform under our government contracts and receive reimbursement;

the magnitude of work under our government contracts;

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

changes in existing collaborative relationships or government contracts;

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 partners, 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 certain product candidates or a decision to build or expand internal development and commercial capabilities;

successful commercialization of marketed products by either us or a partner;

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the scope and results of preclinical studies and clinical trials to identify and develop product candidates;

our ability to engage sites and enroll subjects in our clinical trials;

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

increases in personnel and related costs to support the development of our product candidates;

the scope of 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; and

the costs involved in all aspects of intellectual property strategy and protection including the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims.

We expect that we will be required to raise additional capital to complete the development and commercialization of our current product candidates and we may seek to raise capital in the near future. Additional funding, whether through additional sales of equity or debt securities, collaborative or other arrangements with corporate partners or from other sources, including governmental agencies in general and existing government contracts 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. Our future working capital requirements, including the need for additional working capital, will be largely determined by the advancement of our portfolio of product candidates as well as the rate of reimbursement by U.S. Government agencies of our peramivir and BCX 4430 expenses and any future decisions regarding the future of the peramivir and BCX4430 programs. More specifically, our working capital requirements will be dependent on the number, magnitude, scope and timing of our development programs; regulatory approval of our product candidates; obtaining funding from collaborative partners; the cost, timing and outcome of regulatory reviews, regulatory investigations, and changes in regulatory requirements; the costs of obtaining patent protection for our product candidates; the timing and terms of business development activities; the rate of technological advances relevant to our operations; the efficiency of manufacturing processes developed on our behalf by third parties; and the level of required administrative support for our daily operations.

Financial Outlook for 2014

Based upon current trends, assumptions and our development plans, we expect our 2014 operating cash usage to be in the range of $35 to $43 million, and expect our total 2014 operating expenses to be in the range of $48 to $59 million. Our operating expense range excludes stock-based compensation expense due to the difficulty in accurately projecting this expense, as it is significantly impacted by the volatility and price of the Company's stock, as well as the vesting of the Company's outstanding performance-based stock options. Our operating cash forecast excludes any impact of our royalty monetization, hedge collateral posted or returned, sale of stock in the marketplace, and any other non-routine cash outflows or inflows. Our ability to remain within our operating expense and operating cash target ranges is subject to multiple factors, including unanticipated or additional general development and administrative costs and other factors described under the Risk Factors located elsewhere in this report.

Off-Balance Sheet Arrangements

As of March 31, 2014, we do not have any unconsolidated entities or off-balance sheet arrangements.

Critical Accounting Policies

We have established various accounting policies that govern the application of U.S. GAAP, which were utilized in the preparation of our consolidated 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.

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While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in our 2013 Annual Report on . . .

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