UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X]   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000

OR

[ ]   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from _________________ to ________________.

Commission File Number 000-23186

BIOCRYST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

2190 Parkway Lake Drive; Birmingham, Alabama 35244
(Address and zip code of principal executive offices)

(205) 444-4600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Title of each class
Common Stock, $.01 Par Value

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_    No ___.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X].

Although it is difficult to determine the number of shares owned by non-affiliates, the Registrant estimates that the aggregate market value of the Common Stock on March 20, 2001 (based upon the closing price shown on the Nasdaq National Market on March 20, 2001) held by non-affiliates was approximately $68,223,883. For this computation, the Registrant has excluded the market value of all shares of its Common Stock reported as beneficially owned by officers, directors and certain significant stockholders of the Registrant. Such exclusion shall not be deemed to constitute an admission that any such stockholder is an affiliate of the Registrant.

The number of shares of Common Stock, par value $.01, of the Registrant outstanding as of March 20, 2001 was 17,539,960 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement to be filed in connection with the solicitation of proxies for its 2001 Annual Meeting of Stockholders are incorporated by reference into Items 11, 12 and 13 under Part III hereof.

PART I

ITEM 1. BUSINESS

Overview

     BioCryst Pharmaceuticals, Inc. is a biotechnology company focused on the development of pharmaceuticals for the treatment of infectious, inflammatory and cardiovascular diseases and disorders. Our most advanced drug candidate, RWJ-270201 (formerly referred to as BCX-1812), is an influenza neuraminidase inhibitor designed to treat and prevent viral influenza. We have licensed this drug candidate to The R.W. Johnson Pharmaceutical Research Institute, or RWJPRI, and Ortho-McNeil Pharmaceutical, Inc., both Johnson & Johnson companies.

Our Business Strategy

     Our business strategy is to use structure-based drug design technologies to develop innovative, small-molecule pharmaceuticals to treat a variety of diseases and disorders. We focus our drug development efforts on the development of potent, selective inhibitors of enzymes associated with several diseases. Enzymes are proteins that cause or enable biological reactions necessary for the progression of the disease or disorder. The specific enzymes on which we focus are called enzyme targets. Inhibition of these enzyme targets might be effective in the treatment of infectious, inflammatory, cardiovascular and other diseases and disorders. Inhibition means interfering with the functioning of an enzyme target, thereby stopping or slowing the progression of the disease or disorder. The principal elements of our strategy are:

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     An important element of our business strategy is to control fixed costs and overhead through contracting and entering into license agreements with other parties. We maintain a streamlined corporate infrastructure that focuses exclusively on our strongest areas of expertise. By contracting with other parties specializing in aspects of our business in which we are not as strong, we believe that we can control costs, enable our drug candidates to reach the market more quickly and reduce our business risk. Key elements of our contracting strategy include:

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Products in Development

     The following table summarizes BioCryst’s development projects as of March 1, 2001:

Neuraminidase Inhibitor (RWJ-270201)

   Influenza Background

     Overview. Influenza, commonly known as the flu, is perceived by many people as a transient, inconvenient viral infection that leaves its sufferers bed-ridden for a few days. In truth, however, flu is a virulent, acute respiratory disease that is sometimes deadly. In North America, Western Europe and Japan, an estimated 70 million to 150 million individuals suffer from influenza annually. The flu is particularly dangerous to the elderly, young children and debilitated patients, accounting for approximately 20,000 deaths in the United States each year. The flu and associated complications are the sixth leading cause of death in the United States. A 1994 article in The New England Journal of Medicine estimated that the annual cost to the U.S. economy associated with influenza epidemics was in excess of $12 billion.

     Flu epidemics are regional outbreaks that cause an average of 40,000 flu-related deaths. Flu pandemics, however, are much more severe. Pandemics are worldwide outbreaks of a particular strain of the virus that occur relatively infrequently but can be disastrous. The Spanish flu pandemic of 1918-19 killed more than 20 million people worldwide. In the United States alone, the Asian flu of 1957-58 resulted in 70,000 deaths, and the Hong Kong flu of 1968-69 caused 34,000 deaths. The worldwide deaths caused by the Asian and Hong Kong pandemics topped 1.5 million, with an estimated impact to the world economy of $32 billion. Due to increases in the world population and international air travel, mutation of the flu virus could spread rapidly, resulting in widespread morbidity and mortality.

     Symptoms and Treatment of Influenza. Although influenza is considered a respiratory disease, flu sufferers usually become acutely ill with high fever, chills, headache, weakness, loss of appetite and aching joints. The flu sufferer may also have a sore throat, dry cough and burning eyes.

     For most healthy children and adults, influenza is typically a moderately severe illness. However, for people with pre-existing medical conditions, influenza can be very severe and, in many cases, fatal. In these patients, bacterial infections may occur because the body’s immune system is so weakened by influenza that its defenses against bacteria are low. Bacterial pneumonia is the most common complication of influenza.

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     The development of effective therapeutics has challenged medical researchers due to the seasonal variation in viral strains and the highly infectious nature of influenza. Patients, therefore, have limited treatment options. Amantadine and rimantadine are used for treatment of influenza A but are ineffective against influenza B. In addition, these drugs cause some adverse side effects, and the virus may develop resistance to these drugs.

     Vaccines are available against the disease but have limitations: people require advance vaccination; vaccines are limited by their specificity to particular strains of the virus; and vaccines offer little protection if the vaccine is inaccurate. In addition, many people decline the required injections because of fear and/or discomfort. The ability of the virus to change its structure to avoid the body’s natural defenses is a serious obstacle to developing an effective vaccine against influenza. Different strains can arise when surface antigens on the virus (the portion of the virus that causes an immune reaction in humans) undergo minor genetic mutations each year as the virus replicates. Because of this mutation ability, the immunity acquired in response to infection by a particular strain of the virus does not provide adequate protection against viruses that subsequently arise. The production of a new vaccine each year is not only complex and expensive, but also an inefficient method of global disease control.

     Inhibiting Influenza Neuraminidase. Research during the past two decades has seen dramatic advances in understanding the molecular structure and function of the influenza virus. Considerable attention has been focused on the enzyme neuraminidase, which is located on the surface of the virus. Neuraminidase assists in the release and spread of the flu virus by breaking the chemical strands that hold the new viruses to the cell surface, allowing the replicated virus to spread and infect other cells. This process progresses until the host’s immune response can produce enough antibodies to bring the infection under control.

     Research suggests that inhibiting the neuraminidase enzyme would keep new viruses attached to the cell surface, thereby preventing the spread of the virus and the further infection of other cells. The subsequent quantities of virus in the bloodstream would not be enough to cause disease but would be sufficient to induce the body to mount an immune response.

     In addition to our neuraminidase inhibitor, both Hoffmann-La Roche, in collaboration with Gilead Sciences, and GlaxoSmithKline have neuraminidase inhibitors. Hoffmann-La Roche’s neuraminidase inhibitor is a twice-a-day, orally active neuraminidase inhibitor, while GlaxoSmithKline’s neuraminidase inhibitor is administered by dry powder inhaler twice a day. Both drugs have approval for marketing in the United States and other countries for treatment and prevention of influenza.

     Our Influenza Neuraminidase Inhibitor

     Background. In 1987, scientists at The University of Alabama at Birmingham, or UAB, in collaboration with our scientists, began determining the molecular structure of the influenza neuraminidase enzyme from several different strains of influenza, using X-ray crystallography. Subsequently, our scientists and UAB scientists developed numerous new inhibitors of these enzymes using structure-based drug design. We licensed the influenza neuraminidase program from UAB in 1994 and proceeded to complete the studies of the enzyme’s molecular structure needed to advance the development of neuraminidase inhibitors. The structure of the active site of influenza neuraminidase is similar among different viral strains. Because of this similarity, we believe that our neuraminidase inhibitors may be effective in the treatment and prevention of influenza, regardless of changes in the virus.

     Four of the patented compounds from our development efforts emerged as viable product development candidates. Preclinical studies demonstrated that our lead candidate, RWJ-270201, has the following benefits:

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     Clinical Development. In September 1998, we entered an exclusive worldwide license agreement with The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil to develop and market our proprietary influenza neuraminidase inhibitors to treat and prevent viral influenza. Since we began our collaboration with RWJPRI and Ortho-McNeil, RWJ-270201 has moved through a series of Phase I and Phase II clinical trials and is now in Phase III clinical trials. In August 1999, we announced the preliminary results of a Phase II placebo-controlled, randomized study conducted by RWJPRI for the treatment of healthy volunteers infected with a strain of influenza A. RWJPRI advised us that the data from this Phase II study indicated a statistically significant reduction of flu virus in the body and that the drug was well-tolerated at all dosage levels. Phase III clinical trials were initiated in North America and Europe in February 2000, but there can be no guarantee that these trials will be completed and or successful.

     On October 11, 2000 we were notified by The R.W. Johnson Pharmaceutical Research Institute that “due solely to logistical considerations,” during the 2000-2001 influenza season, they would not be able to “initiate two clinical studies in the Northern Hemisphere for our influenza neuraminidase inhibitor in elderly patients.” However, they informed us that they “anticipate proceeding as planned with the pivotal Phase III clinical studies of RWJ-270201 in the Northern Hemisphere during the 2000-2001 influenza season.” RWJPRI also informed BioCryst that it is unlikely they will be able to file a new drug application for RWJ-270201 with the U.S. Food and Drug Administration before 2002.

     The R.W. Johnson Pharmaceutical Research Institute also notified BioCryst in late December 2000 that they would not initiate the North American Phase III clinical trial of RWJ-270201 during the 2000-2001 flu season, as planned. The FDA requested additional monitoring requirements that would require amending the study protocol for the North American Phase III trial. The necessary timing to accomplish this would delay the start of the trial and impact RWJPRI’s ability to enroll sufficient numbers of influenza subjects during this influenza season. Therefore, RWJPRI did not move this trial forward in North American during the 2000-2001 influenza season. As of March 2001, Phase III studies in Europe are ongoing.

PNP Inhibitor (BCX-1777)

     T-cell Related Diseases

     Overview. The human immune system employs specialized cells, including T-cells, to control infection by recognizing and attacking disease-causing viruses, bacteria and parasites. T-cells are an essential part of the body’s immune system that serve a dual purpose to both orchestrate and participate in the body’s immune response. For the most part, this system works flawlessly to protect the body. However, there are diseases in which T-cells multiply uncontrollably (T-cell proliferative diseases) or attack normal cells (autoimmune diseases). Proliferating T-cells have been implicated in a number of T-cell cancers, including cutaneous T-cell lymphoma.

     PNP Inhibition. Purine nucleoside phosphorylase, or PNP, is an enzyme that is believed to play an important role in T-cell proliferation, because PNP is necessary to maintain normal DNA synthesis in T-cells. We believe that inhibiting PNP is a new mechanism for suppressing T-cell replication without significantly affecting other cells, and we believe this may prove to have an impact on the treatment of several diseases.

     Our PNP Inhibitor

     Background. In June 2000, we licensed a series of potent inhibitors of purine nucleoside phosphorylase from Albert Einstein College of Medicine of Yeshiva University and Industrial Research, Ltd, New Zealand. The lead drug candidate from this collaboration, BCX-1777, is a more potent inhibitor of human lymphocyte proliferation than other known PNP inhibitors including our earlier PNP inhibitor, BCX-34. Extensive preclinical studies indicate that BCX-1777 can modulate T-cell activities in ways that we have never been able to achieve with BCX-34.

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     We designed our initial drug candidate, BCX-34, to suppress T-cell replication without significantly affecting other cells. The Phase III clinical trials with the cream formulation of BCX-34 conducted in 1996 and 1997 did not show statistically significant results between the treated and placebo groups for the treatment of psoriasis, and cutaneous T-cell lymphoma. Therefore, we discontinued the topical program.

     An oral formulation of BCX-34 was developed and tested, but the dose levels were inadequate to inhibit enough of the enzyme to affect T-cell numbers. These clinical trials, however, were effective in establishing the safety of BCX-34 at various dose levels and activity at the maximum oral dose absorbable by the body. Consequently, we have discontinued further studies with BCX-34 and its series of compounds while we are moving forward with BCX-1777, which is 100 to 1000 times more potent than BCX-34 in vitro.

     Current Development Strategy. We expect to initiate the first clinical trial with an intravenous formulation of BCX-1777 mid-2001, which will be a Phase I study in healthy volunteers. In addition to assessing safety, we plan to monitor biochemical markers that reflect T-cell activity. In particular, we hope to determine if this more potent inhibitor of PNP is adequate for generating the biochemical changes necessary to affect T-cell diseases. Potential therapeutic indications include acute lymphoblastic leukemia, psoriasis, and rheumatoid arthritis.

Complement Inhibitors

     Complement Cascade

     Overview. The human body is equipped with defense mechanisms that respond aggressively to infection or injury. This response is uniquely designed for each challenge, whether caused by viruses, bacteria, or other matter harmful to the body. Once the immune system recognizes a “foreign invader,” complement is activated to destroy or remove it. The complement cascade is the term for a system of functionally linked enzymes that assists in the removal of bacteria or destruction of cells that the body does not recognize as its own.

     If these enzymes do not operate properly, they can cause adverse biological effects including tissue damage. This occurs in an unregulated way in certain medical situations such as cardiopulmonary bypass surgery.

     Our Complement Inhibitors

     Background. In October 1996, we established a collaborative drug discovery effort with 3-Dimensional Pharmaceuticals, Inc. in Philadelphia. Then, in 1997, working closely with scientists at UAB, we characterized the three-dimensional structure of one of the components of the complement cascade. Using X-ray crystallographic and molecular modeling techniques, we then designed and synthesized a class of small molecule compounds that are highly potent inhibitors of complement and certain other blood enzymes. However, these compounds were too close to toxicologic limits to be used during cardiopulmonary bypass surgery. Discovery work continues to design and develop small molecule inhibitors to block activation of the complement cascade.

     Current Development Strategy. We are focused on development of orally active inhibitors of the complement cascade for treatment of cardiovascular and inflammatory diseases and disorders. Specifically, our research and development is concentrated on the complement enzyme C1s. Together with 3-Dimensional Pharmaceuticals, Inc., we have developed a number of small molecule compounds that have potent activity against the enzyme C1s. Using structure-based drug design, our scientists are optimizing these compounds to identify promising candidates for preclinical testing. Therapeutic opportunities include rheumatoid arthritis, lupus, psoriasis and reperfusion injury.

Hepatitis C

     Overview. Hepatitis C has been described by some as the nation’s most common blood-borne infection. Up to 3% of the world population has been infected with the Hepatitis C virus. According to the National Centers for Disease Control, as many as 75% of those infected with the Hepatitis C virus will develop liver disease. The virus that causes Hepatitis C comes from a family of enveloped RNA viruses named Flaviviridae. While there are several approved treatments for chronic Hepatitis C using a combination therapy of interferon and ribavirin, there are some potentially severe side effects to these treatments.

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     Background. In June 2000, we licensed intellectual property from Emory University related to the Hepatitis C polymerase target associated with Hepatitis C viral infections. Under the terms of the agreement, the research investigators from Emory provide us with materials and technical insight into the target.

     Current Development Strategy. We are targeting HCV polymerase through collaborative and in-house efforts. Specifically, we are focused on development of orally active inhibitors against the RNA-dependent RNA polymerase. Competition for this target is less intense than for the HCV protease target and history suggests the likelihood of designing an inhibitor against this target is better than for the more difficult serine protease.

Tissue Factor/VIIa

     Overview. A series of complicated reactions take place in the body whenever a blood clot begins to form. The major initiator of these reactions is an enzyme system called the Tissue Factor/VIIa complex. Animal tests show that various inhibitors of the Tissue Factor/VIIa complex can minimize blood clot formation as well as blood vessel reactions. This sort of inhibition has been tested with a number of biological agents including the natural inhibitor of the pathway, various mutants of tissue factor and antibodies against VIIa. However, there are no drugs currently on the market that intervene at the Tissue Factor/VIIa level.

     Background. We have an agreement with Sunol Molecular Corp. to expedite the discovery of new drug candidates designed to inhibit Tissue Factor/VIIa. Under the terms of this agreement, Sunol supplies us protein for our drug design program.

     Current Development Strategy. Our Tissue Factor/VIIa inhibitor project has emerged as our highest discovery priority. We have designed and synthesized a group of compounds that are potent and selective inhibitors of Tissue Factor/VIIa and further optimization is ongoing. We believe that small molecule inhibitors of Tissue Factor/VIIa may potentially be useful for treating acute coronary syndromes and complications associated with cardiovascular procedures, such as coronary angioplasty and stint insertions, because any type of damage to arteries and blood vessels exposes tissue factor, which then triggers clot formation. Myocardial infarction, unstable angina during and following angioplasty procedures and sepsis are all potential treatment options.

Parainfluenza Hemagglutinin-Neuraminidase

     Overview. The parainfluenza virus, or PIV, affects approximately five million infants, children and adults each year in the United States. The most common illness in children is an acute febrile respiratory infection. In its usual setting, hoarseness, croup, fever and a persistent cough develop, while young children and immunosuppressed adults can develop bronchitis and bronchial pneumonia. In the United States each year, approximately 70,000 children are hospitalized due to severe complications of parainfluenza virus infections.

     PIVs are negative-sense, single-stranded RNA viruses that possess two surface glycoproteins, hemagglutinin-neuraminidase, or HN and fusion F, or “spikes” on their surface. There are four types of PIV
(1 through 4) and two subtypes (4a and 4b) that cause infection. PIV is spread from respiratory secretions through close contact with infected persons or contact with contaminated surfaces or objects. Research suggests that parainfluenza virus infection and further spread of the virus could be prevented by blocking a single site on the surface of the virus HN — hemagglutinin-neuraminidase. The importance of HN in the life cycle and pathogenesis of PIV has been studied extensively. HN has three important functions:

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     Background. In October 1999, we entered into an agreement with St. Jude Children’s Research Hospital in Tennessee, University of Bath in England and University of St. Andrews in Scotland for research and development related to PIV. Under the agreement, St. Jude Children’s Hospital, University of Bath and University of St. Andrews will provide us with compounds that will form the basis for our design and development of potential drug candidates for the treatment of parainfluenza virus infections.

     Current Development Strategy. Scientists at BioCryst have developed several potential compounds with potent activity against human PIV. In addition, we are working to develop animal models of the human viral disease. These disease models are important for further preclinical evaluation and our ability to assess safety and efficacy early on in the course of our studies.

Structure-Based Drug Design

     Structure-based drug design is a drug discovery approach by which we design synthetic compounds from detailed structural knowledge of the active sites of enzyme targets associated with particular diseases. Enzymes are proteins that act as catalysts for many vital biological reactions. Our goal generally is to design a compound that will fit in the active site of an enzyme (the active site of an enzyme is the area into which a chemical or biological molecule fits to initiate a biochemical reaction) and thereby interfere with the progression of disease.

     Our structure-based drug design involves the application of both traditional biology and medicinal chemistry and an array of advanced technologies. We use X-ray crystallography, computer modeling of molecular structures and advanced chemistry techniques to focus on the three-dimensional molecular structure and active site characteristics of the enzymes that control cellular biology.

     We believe that structure-based drug design technologies are superior to drug screening techniques. By identifying the target enzyme in advance and by discovering the chemical and molecular structure of the enzyme, we believe it is possible to design a better drug to interact with the enzyme. In addition, the structural data obtained by X-ray crystallographic analysis allow additional analysis and compound modification at each stage of the biological evaluation. This capability makes structure-based drug design a powerful tool for efficient development of drugs that are highly specific for particular enzyme target sites.

Research and Development

     We initiated our research and development program in 1986, with drug synthesis beginning in 1987. We have assembled a scientific research staff with expertise in a broad base of advanced research technologies including protein biochemistry, X-ray crystallography, chemistry and pharmacology. Our research facilities include protein biochemistry and organic synthesis laboratories, testing facilities, X-ray crystallography, computer and graphics equipment and facilities to make drug candidates on a small scale.

     During the years ended December 31, 1998, 1999 and 2000, we spent an aggregate of $26.6 million on research and development. Approximately $18.5 million of that amount was spent on in-house research and development, and $8.1 million was spent on contract research and development.

Collaborative Relationships

   Corporate Alliances

     3-Dimensional Pharmaceuticals, Inc.

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     In October 1996, we signed a research collaboration agreement with 3-Dimensional Pharmaceuticals. Under this agreement, the companies will share resources and technology to expedite the discovery of new drug candidates for our complement inhibition program. The agreement combines our capabilities in structure-based drug design with the selection power of 3-Dimensional Pharmaceuticals’ Directed Diversity^® technology, a proprietary method of directing combinatorial chemistry and high throughput screening toward specific molecular targets. In June 1999, we updated and renewed our original agreement to concentrate on selected complement enzymes as targets for the design of inhibitors. Under the terms of the 50-50 agreement, the companies conduct joint research to identify inhibitors of key serine proteases, which represent promising targets for inhibition of complement activation. If a drug candidate emerges as a result of the joint research, the companies will negotiate the product development and commercialization rights and responsibilities.

     The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil Pharmaceutical, Inc.

     We have entered into an exclusive worldwide license agreement with RWJPRI and Ortho-McNeil to develop and market our proprietary influenza neuraminidase inhibitors to treat and prevent viral influenza. In 1998, we received an initial $6.0 million payment from Ortho-McNeil and an additional $6.0 million common stock equity investment from Johnson & Johnson Development Corporation. In June 1999, we received a $2.0 million milestone payment from Ortho-McNeil in connection with the initiation of Phase II clinical testing in the United States. In February 2000, BioCryst received a $4 million milestone payment from RWJPRI in connection with the initiation of Phase III clinical trials of RWJ-270201, RWJPRI’s oral influenza neuraminidase inhibitor, in North America and Europe. In addition, we may receive additional cash payments upon achievement of specified developmental and regulatory milestones and royalties on product sales, if any.

     RWJPRI is responsible for research and development of the compounds, including expenses. Ortho-McNeil will market products approved by the FDA for marketing in the United States. Other Johnson & Johnson companies, including Janssen-Cilag, will market products approved for marketing outside the United States.

     Novartis AG

     In 1990, we entered into an exclusive worldwide license agreement with Novartis AG, formerly Ciba-Geigy, for use of certain of our PNP inhibitors, not including BCX-34. We received an initial $500,000 payment from Novartis, up to $300,000 of which is refundable in circumstances specified in the agreement. The agreement also provides for Novartis to pay us royalties on sales, if any, of the PNP inhibitors. We may never receive any revenue based on this license agreement.

     Sunol Molecular Corp.

     In April 1999, we entered into an agreement with Sunol. This agreement requires Sunol to conduct research and supply us with protein targets for drug design to expedite the discovery of new drug candidates designed to inhibit Tissue Factor/VIIa for our cardiovascular program.

   Academic Alliances

     The University of Alabama at Birmingham

     We have had a close relationship with The University of Alabama at Birmingham, or UAB, since our formation. Our Chairman and Chief Executive Officer, Dr. Bugg, was the previous Director of the UAB Center for Macromolecular Crystallography, and our President and Chief Operating Officer, Dr. Bennett, was the former President of UAB, the former Chairman of the Department of Medicine at UAB and a former Chairman of the Department of Microbiology at UAB. Several of our consultants are employed by UAB. UAB has one of the largest X-ray crystallography centers in the world with approximately 126 full-time staff members and approximately $19.9 million in research grants and contract funding in 2000. Three of our early programs, PNP, influenza neuraminidase and complement inhibitors, originated at UAB.

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     When we were founded in 1986, we entered into an agreement with UAB that granted us exclusive rights to discoveries resulting from research relating to PNP. We also entered into an agreement with UAB that gives us the first option to obtain a non-exclusive license to patents and copyrights of UAB not developed in collaboration with us or an exclusive license, in some cases worldwide, to patents, copyrights or intellectual property arising from research of UAB collaborators or investigators under contract to us. Subsequently, we entered into agreements with UAB for influenza neuraminidase and complement inhibitors. Under the terms of these agreements, UAB performed specific research for us in return for research payments and license fees. UAB has granted us certain rights to any discoveries in these areas resulting from research developed by UAB or jointly developed with us. We have agreed to pay royalties on sales of any resulting product and to share in future payments received from other third-party collaborators. UAB has received and will continue to receive a portion of any license fees, milestone payments and royalties we receive from RWJPRI and Ortho-McNeil for the influenza collaboration. We have completed the research under the UAB influenza agreement. We are continuing to fund the research program under the complement inhibitors agreement, which entitles us to an assignment of, or a right to an exclusive license for, any inhibitors of specified complement enzymes developed by UAB scientists during the period of support or for a one-year period thereafter. These two agreements have initial 25-year terms, are automatically renewable for five-year terms throughout the life of the last patent and are terminable by us upon three-month’s notice and by UAB under certain circumstances.

     St. Jude Children’s Research Hospital, University of Bath and University of St. Andrews

     In October 1999, we entered into an agreement with St. Jude Children’s Research Hospital in Tennessee, University of Bath in England and University of St. Andrews in Scotland for research and development related to the parainfluenza virus, or PIV. Under the agreement, these organizations will provide us with compounds that will form the basis for our design and development of potential drug candidates for the treatment of PIV. Under the terms of these agreements, these organizations perform specific research for us in return for research payments and license fees. These organizations have granted us certain rights to any discoveries in these areas resulting from research developed by them or jointly developed with us. We have agreed to pay certain royalties on sales of any resulting product and to share in future payments received from other third-party collaborators, if any.

     Albert Einstein College of Medicine of Yeshiva University and Industrial Research, Ltd, New Zealand

     In June 2000, we licensed a series of potent inhibitors of purine nucleoside phosphorylase, or PNP, from Albert Einstein College of Medicine of Yeshiva University and Industrial Research, Ltd, New Zealand. The lead drug candidate from this collaboration is BCX-1777. We have the rights to develop and ultimately distribute this, or any other, drug candidate that might arise from research on these inhibitors. We have agreed to pay certain milestone payments for future development of these inhibitors, pay certain royalties on sales of any resulting product, and to share in future payments received from other third-party collaborators, if any.

     Emory University

     In June 2000, we licensed intellectual property from Emory University related to the Hepatitis C polymerase target associated with Hepatitis C viral infections. Under the terms of the agreement, the research investigators from Emory provide us with materials and technical insight into the target. We have agreed to pay Emory royalties on sales of any resulting product and to share in future payments received from other third party collaborators, if any.

Patents and Proprietary Information

     Our success will depend in part on our ability to obtain and enforce patent protection for our products, methods, processes and other proprietary technologies, preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States and in other countries. We own or have rights to certain proprietary information, proprietary technology, issued and allowed patents and patent applications which relate to compounds we are developing. We actively seek, when appropriate, protection for our products, proprietary technology and proprietary information by means of U.S. and foreign patents, trademarks and contractual arrangements. In addition, we rely upon trade secrets and contractual arrangements to protect certain of our proprietary information, proprietary technology and products.

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     To date, we have been issued several U.S. patents that expire between 2009 and 2015 and relate to our PNP inhibitor compounds. We have also filed a patent application for new processes to prepare certain PNP inhibitors, and an application related to our PNP inhibitor compounds. The following patent applications are still pending: four U.S. patent applications, and two patent cooperation treaty (PCT) applications related to our neuraminidase inhibitors; a PCT application related to compounds and methods for detecting influenza virus; a U.S. application related to complement inhibitors; a PCT application relating to inhibiting T-cell proliferation; and a provisional U.S. application related to deazaguanine analogs, two provisional U.S. patent applications related to paramyxovirus neuraminidase; two provisional U.S. patent applications related to serine protease inhibitors; and a provisional U.S. patent application related to elevating inosine levels; and a provisional U.S. application related to RNA viral polymerase inhibitors. Our pending applications may not result in issued patents, and our patents may not provide us with sufficient protection against competitive products or otherwise be commercially available.

     Our success is also dependent upon the skills, knowledge and experience of our scientific and technical personnel, none of which is patentable. To help protect our rights, we require all employees, consultants, advisors and collaborators to enter into confidentiality agreements which prohibit the disclosure of confidential information to anyone outside of our company and requires disclosure and assignment to us of their ideas, developments, discoveries and inventions. These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information.

Marketing and Sales

     We lack experience in marketing, distributing and selling pharmaceutical products. Our strategy is to rely on collaborators, licensees or arrangements with others to provide for the marketing, distribution and sales of any products we may develop. We may not be able to establish and maintain acceptable commercial arrangements with collaborators, licensees or others to perform such activities.

     If approved, RWJ-270201 will likely be the third influenza neuraminidase inhibitor to the market behind the influenza neuraminidase inhibitors currently marketed by GlaxoSmithKline and Hoffmann-LaRoche, in collaboration with Gilead Sciences. We believe this may provide marketing challenges. However, we believe that there may be some advantages to not being first to market. We expect that both GlaxoSmithKline and Hoffmann-La Roche will play a major role in establishing the influenza treatment market and creating a demand for neuraminidase inhibitors on which Ortho-McNeil will be able to capitalize if our neuraminidase inhibitor is approved for marketing. Because neuraminidase inhibitors represent a new class of drugs that could impact a large number of people, a major education effort will be required to promote acceptance by both the treating physicians and the target population.

Competition

     The pharmaceutical and biotechnology industries are intensely competitive. Many companies, including biotechnology, chemical and pharmaceutical companies, are actively engaged in activities similar to ours, including research and development of drugs for the treatment of infectious, inflammatory and cardiovascular diseases and disorders. Many of these companies have substantially greater financial and other resources, larger research and development staffs, and more extensive marketing and manufacturing organizations than we do. In addition, some of them have considerable experience in preclinical testing, clinical trials and other regulatory approval procedures. There are also academic institutions, governmental agencies and other research organizations that are conducting research in areas in which we are working. They may also market commercial products, either on their own or through collaborative efforts.

     We expect to encounter significant competition for any of the pharmaceutical products we plan to develop. Companies that complete clinical trials, obtain required regulatory approvals and commence commercial sales of their products before their competitors may achieve a significant competitive advantage. In addition, several pharmaceutical and biotechnology firms, including major pharmaceutical companies and specialized structure-based drug design companies, have announced efforts in the field of structure-based drug design and in the fields of PNP and complement inhibitors, Hepatitis C, Tissue Factor VIIa, parainfluenza and rhinovirus. In addition, we are aware that other companies or institutions are pursuing development of new drugs and technologies directly targeted at applications for which we are developing our drug compounds. For example, GlaxoSmithKline’s influenza neuraminidase inhibitor has received approval from the FDA to market their inhibitor in the United States and other countries. This product is administered in the form of a dry-powder inhaler, which could be difficult to use in some cases and may cause patient discomfort. The FDA also approved the influenza neuraminidase inhibitor developed by Hoffmann-La Roche, in collaboration with Gilead Sciences. We believe this may provide marketing challenges. In addition, other therapies are being developed for the treatment or prevention of influenza. Aviron is seeking marketing approval for the prevention of influenza in healthy children and healthy adults for their vaccine, FluMist™. The FDA is currently reviewing the Biologics License Application for FluMist™.

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     In order to compete successfully, we must develop proprietary positions in patented drugs for therapeutic markets that have not been satisfactorily addressed by conventional research strategies and, in the process, expand our expertise in structure-based drug design. Our products, even if successfully tested and developed, may not be adopted by physicians over other products and may not offer economically feasible alternatives to other therapies.

Government Regulation

     The FDA regulates the pharmaceutical and biotechnology industries in the United States, and our drug candidates are subject to extensive and rigorous domestic government regulations prior to commercialization. The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of pharmaceutical products. In foreign countries, our products are also subject to extensive regulation by foreign governments. These government regulations will be a significant factor in the production and marketing of any pharmaceutical products that we develop. Failure to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process may subject us to sanctions, including:

     The regulatory review and approval process is lengthy, expensive and uncertain. Before obtaining regulatory approvals for the commercial sale of any products, we or our licensees must demonstrate that our product candidates are safe and effective for use in humans. The approval process takes many years, substantial expenses may be incurred and significant time may be devoted to clinical development.

     Before testing potential candidates in humans, we carry out laboratory and animal studies to determine safety and biological activity. After completing preclinical trials, we must file an investigational new drug application, including a proposal to begin clinical trials, with the FDA. We have filed eight investigational new drug applications to date and plan to file, or rely on certain partners to file, additional investigational new drug applications in the future. Thirty days after filing an investigational new drug application, a Phase I human clinical trial can start unless the FDA places a hold on the study.

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     Our Phase I trials are designed to determine safety in a small group of patients or healthy volunteers. We also assess tolerances and the metabolic and pharmacologic actions of our drug candidates at different doses. After we complete the initial trials, we conduct Phase II trials to assess safety and efficacy and establish the optimal dose in patients. If Phase II trials are successful, we or our licensees conduct Phase III trials to verify the results in a larger patient population. Phase III trials are required for FDA approval to market a drug. A Phase III trial may require hundreds or even thousands of patients and is the most expensive to conduct. The goal in Phase III is to collect enough safety and efficacy data to obtain FDA approval for treatment of a particular disease.

     Initiation and completion of the clinical trial phases is dependent on several factors including things that are beyond our control. For example, the clinical trials are dependent on patient enrollment, but the rate at which patients enroll in the study depends on:

Delays in planned patient enrollment may result in increased expense.

     After completion of the clinical trials of a product, we or our licensees must submit a new drug application to the FDA for marketing approval before commercialization of the product. The FDA may not grant approval on a timely basis, if at all. The FDA, as a result of the Food and Drug Administration Modernization Act of 1997, has six months to review and act upon license applications for priority therapeutics that are for a life-threatening or unmet medical needs. Standard reviews can take between one and two years, and can even take longer if significant questions arise during the review process. The FDA may withdraw any required approvals, once obtained.

     In addition to clinical development regulations, we and our contract manufacturers and collaborators must comply with the applicable FDA current good manufacturing practice (“GMP”) regulations. GMP regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA. Such facilities must be approved before we can use them in commercial manufacturing of our potential products. We or our contract manufacturers may not be able to comply with the applicable GMP requirements and other FDA regulatory requirements. If we or our contract manufacturers fail to comply, our business, financial condition and results of operations will be materially adversely affected.

Human Resources

     As of March 20, 2001, we had 66 employees, of whom 50 were engaged in research and development and 16 were in general and administrative functions. Our scientific staff, 27 of whom hold Ph.D. or M.D. degrees, has diversified experience in biochemistry, pharmacology, X-ray crystallography, synthetic organic chemistry, computational chemistry, and medicinal chemistry. We consider our relations with our employees to be satisfactory.

Scientific Advisory Board and Consultants

     Our scientific advisory board is comprised of five scientific advisors who are leaders in certain of our core disciplines or who otherwise have specific expertise in our therapeutic focus areas. We also have consulting agreements with a number of other scientists with expertise in our core disciplines or who are specialists in diseases or treatments on which we focus. The scientific advisory board meets as a group at scheduled meetings and the consultants meet more frequently, on an individual basis, with our scientific personnel and management to discuss our ongoing research and drug discovery and development projects. The scientific advisory board consists of the following individuals:

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     The scientific advisors and the consultants are reimbursed for their expenses and receive nominal cash compensation in connection with their service and have been issued options and/or shares of common stock. The scientific advisors and the consultants are all employed by or have consulting agreements with entities other than us, some of which may compete with us in the future. The scientific advisors and the consultants are expected to devote only a small portion of their time to our business, although no specific time commitment has been established. They are not expected to participate actively in our affairs or in the development of our technology. Several of the institutions with which the scientific advisors and the consultants are affiliated may adopt new regulations or policies that limit the ability of the scientific advisors and the consultants to consult with us. The loss of the services of the scientific advisors and the consultants could adversely affect us to the extent that we are pursuing research or development in areas relevant to the scientific advisors’ and consultants’ expertise. To the extent members of our scientific advisory board or the consultants have consulting arrangements with or become employed by any of our competitors, we could be materially adversely affected. One member of the scientific advisory board, Dr. Gordon N. Gill, is a member of the Board of Directors of the Agouron Institute. The Agouron Institute is a shareholder in, and has had contractual relationships with, Agouron Pharmaceuticals, Inc., a subsidiary of Warner-Lambert, that uses a core technology similar to ours.

     Any inventions or processes independently discovered by the scientific advisors or the consultants may not become our property and will probably remain the property of such persons or of such persons’ employers. In addition, the institutions with which the scientific advisors and the consultants are affiliated may make available the research services of their personnel, including the scientific advisors and the consultants, to our competitors pursuant to sponsored research agreements. We require the scientific advisors and the consultants to enter into confidentiality agreements which prohibit the disclosure of confidential information to anyone outside of our company and require disclosure and assignment to us of their ideas, developments, discoveries or inventions. However, our competitors may gain access to trade secrets and other proprietary information developed by us and disclosed to the scientific advisors and the consultants.

ITEM 2. PROPERTIES

     Our administrative offices and principal research facility are located in 50,150 square feet of leased office space in Riverchase Industrial/Research Park in Birmingham, Alabama. The lease runs through June 30, 2010 with an option to lease for an additional five years at current market rates. We believe that our facilities are adequate for our current operations.

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ITEM 3. LEGAL PROCEEDINGS

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

     The Company’s common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market^sm under the symbol BCRX. The following table sets forth the low and high prices of our common stock as reported by Nasdaq for each quarter in 2000 and 1999:

The last sale price of the common stock on March 9, 2001 as reported by Nasdaq was $6.125 per share.

As of March 9, 2001, there were approximately 393 holders of record of the common stock.

The Company has never paid cash dividends and does not anticipate paying cash dividends in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA