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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, 1996
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)
DELAWARE 62-1413174
(State of other (I.R.S. employer identification
jurisdiction of no.)
incorporation or
organization)
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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
None None
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 ].
While 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 15, 1997 (based upon the closing price shown on the Nasdaq
National Market on March 14, 1997) held by non-affiliates was approximately
$142,707,656. 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 15, 1997 was 13,770,632 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. BUSINESS
GENERAL
BioCryst Pharmaceuticals, Inc. ("BioCryst" or the "Company") is an emerging
pharmaceutical company using structure-based drug design to discover and design
novel, small-molecule pharmaceutical products for the treatment of immunological
and infectious diseases and disorders. The Company believes that structure-based
drug design, by precisely designing compounds to fit the active site of target
proteins, offers the potential for developing drugs for many indications that
have improved efficacy and fewer side effects than currently marketed drugs for
the same indications. The Company is conducting five clinical trials with its
lead drug, BCX-34, including a Phase III trial with a topical formulation for
cutaneous T-cell lymphoma ("CTCL"), a Phase III trial with a topical formulation
for psoriasis, a Phase I/II trial with an oral formulation for CTCL, a Phase
I/II trial with an oral formulation for psoriasis and a Phase I/II trial with a
topical formulation for atopic dermatitis. BioCryst has additional drug
discovery projects underway using its structure-based drug design technologies
to develop inhibitors of influenza neuraminidase and enzymes and proteins
involved in the complement cascade, which is implicated in several major
inflammatory conditions.. One of the elements of the Company's strategic plan is
to leverage its clinical progress by entering into pharmaceutical collaborations
with drug companies in major world markets. BioCryst entered into an exclusive
license agreement with Torii Pharmaceutical Co., Ltd. ("Torii"), a Japanese
pharmaceutical company, for the development and commercialization in Japan of
BCX-34 and certain other purine nucleoside phosphorylase ("PNP") inhibitor
compounds. PNP is an enzyme believed to be involved in T-cell proliferation.
BioCryst's lead immunological drug program targets T-cell proliferative
disorders, which arise when T-cells, immune system cells that normally fight
infection, attack normal body cells or multiply uncontrollably. These disorders
are varied and include CTCL (a severe form of cancer), psoriasis, transplant
rejection and certain autoimmune diseases. BioCryst has designed and synthesized
several chemically distinct classes of compounds which inhibit PNP, an enzyme
believed to be involved in T-cell proliferation.
The Company has completed six Phase I clinical trials, three Phase I/II
clinical trials and three Phase II clinical trials with topical BCX-34 and has
completed one Phase I trial with oral and intravenous formulations of the drug.
BCX-34 has been tested in over 280 subjects, and no significant drug-related
side effects have been observed. The completed Phase II trials of topical BCX-34
were double-blinded, placebo-controlled and enrolled 30 CTCL patients and 130
psoriasis patients. A majority of the patients from the Phase II CTCL trial
volunteered to roll over into an extended, open-label trial. In addition, the
Company has initiated preclinical studies using an ophthalmic formulation of
BCX-34 for potential use in treating uveitis, sjogren's syndrome and corneal
transplant rejection.
BioCryst's scientists include recognized world leaders in the fields of
X-ray crystallography and medicinal chemistry, two core disciplines associated
with structure-based drug design. The Company has certain collaborative
arrangements with The University of Alabama at Birmingham ("UAB"), which has one
of the leading X-ray crystallography centers in the world and has been
successful in characterizing a significant number of medically relevant protein
targets. The Company believes that based upon its scientific staff and
management, the number of compounds it has designed and its clinical development
program, it is a leader in the practical application of structure-based drug
design.
In May 1996, the Company entered into an agreement pursuant to which it
granted Torii an exclusive license, with the right to sublicense, to develop,
manufacture and commercialize BCX-34 and certain other PNP inhibitor compounds
in Japan for the treatment of rheumatoid arthritis, T-cell cancers (including
CTCL) and atopic dermatitis. Upon entering into the agreement, Torii paid the
Company $1.5 million in license fees and made a $1.5 million equity investment
in the Company, purchasing 76,608 shares of
1
Common Stock at a purchase price of $19.58 per share. In order for Torii to
maintain its licensing rights, it is obligated to make payments to the Company
of up to $19.0 million upon the achievement of specified development milestones.
Torii is responsible for all development, regulatory and commercialization
expenses in Japan and is obligated to pay royalties to the Company on sales of
licensed products in Japan. The agreement will remain in effect, unless earlier
terminated, until the last to expire of any patent rights licensed under the
agreement, or in the event no patents issue, for twenty years from May 31, 1996.
The agreement is subject to termination by Torii at any time and by the Company
in certain circumstances, including any material breaches of the agreement by
Torii. Pursuant to the agreement, Torii may negotiate a license with the Company
to develop BCX-34 and certain other PNP inhibitor compounds for additional
indications.
PRODUCTS IN DEVELOPMENT
The following table summarizes BioCryst's development projects:
DELIVERY STAGE OF
PROGRAM/COMPOUND INDICATION/APPLICATION FORM DEVELOPMENT
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PNP INHIBITORS (BCX-34) CTCL Topical Phase III
Oral Phase I/II
Psoriasis Topical Phase III
Oral Phase I/II
Atopic dermatitis Topical Phase I/II
HIV Oral Preclinical
Rheumatoid arthritis Oral Preclinical
Transplant rejection Oral Preclinical
Ophthalmic diseases and disorders Ophthalmic Preclinical
INFLUENZA NEURAMINIDASE
INHIBITORS Influenza Oral Preclinical
COMPLEMENT INHIBITORS Cardiac bypass surgery Intravenous/ Preclinical
Oral
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See "--Government Regulation" for a description of drug development phases and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors That May Affect Future Results, Financial
Condition and the Market Price of Securities" for a discussion of certain
factors that can adversely affect the Company's drug development programs.
PNP INHIBITORS (BCX-34)
The human immune system employs specialized cells and proteins, including
cells known as T-cells and B-cells, to control infection and recognize and
attack foreign disease-causing viruses, bacteria and parasites. The immune
system can also cause diseases or disorders when it inappropriately identifies
the body's own tissue as foreign and, among other things, produces T-cells that
attack normal body cells. Such diseases are referred to as autoimmune diseases
and include psoriasis, in which the immune system attacks skin tissue, and
rheumatoid arthritis, in which the immune system attacks joint tissue. This
immune system response also causes transplant rejection in which the T-cells of
the immune system attack the transplanted organ or tissue. The immune system may
also produce T-cells that multiply uncontrollably. T-cell proliferation in such
cases is associated with cancers such as cutaneous T-cell lymphoma. Within the
past decade, drugs have been developed that treat autoimmune and related
diseases by selectively suppressing the immune system. However, most current
immunosuppressive drugs have dose-limiting side effects, including severe
toxicity.
The link between T-cell proliferative disorders and the PNP enzyme was first
discovered approximately 20 years ago when a patient, who was genetically
deficient in PNP, exhibited limited T-cell activity,
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but reasonably normal activity of other immune functions. Since then, additional
patients with inherited PNP deficiency have been reported. In most patients, the
T-cell population was less than 20% of normal levels, often as low as 1-3% of
normal levels. However, B-cell function was normal in approximately two-thirds
of these patients. These findings suggested that inhibition of PNP might produce
selective suppression of T-cell function without significantly impairing B-cell
function.
BioCryst has designed and synthesized several chemically distinct classes of
small molecule compounds (six of which have been patented in the United States)
which inhibit the PNP enzyme. In IN VITRO preclinical studies, the Company's PNP
inhibitor compounds selectively and potently suppressed human T-cells associated
with certain T-cell proliferative disorders. One member of a patented class of
PNP inhibitor compounds, BCX-34, which was designed and developed by BioCryst,
to date has been the most promising of the Company's compounds as a potential
treatment for a number of T-cell proliferative diseases and related disorders.
The Company is in the clinical stage of development of topical and oral
formulations of BCX-34 and is in the preclinical stage of development of an
ophthalmic formulation. Additionally, the Company has an intravenous formulation
for future development. A topical formulation may be most suitable for treating
certain dermal indications as a result of being able to directly administer the
drug to diseased skin, thereby minimizing systemic absorption. An orally
deliverable product may allow systemic application of the drug in diseases that
either cannot be treated topically or can be treated more successfully with an
oral formulation. An ophthalmic formulation in the form of eye droplets may be
most suitable for treating certain ophthalmic indications as a result of being
able to directly administer the drug to the eye. An intravenous formulation may
allow more precise dosage control and direct systemic application into the
bloodstream and may permit usage of BCX-34 where other methods of delivery may
not be suitable.
CUTANEOUS T-CELL LYMPHOMA. CTCL is a severe form of cancer which is
characterized by the development of scaly patches on the skin, progressing to
ulcers and tumors of the skin, lymph nodes and internal organs. CTCL is a
chronic disease involving the proliferation of certain types of T-cells.
According to a medical journal, approximately 1,000 new cases of CTCL are
diagnosed annually in the United States. There is no known cure and the median
survival time is approximately four years after systemic progression of the
disease. Existing therapies for CTCL are generally considered inadequate. In
October 1993, the Company obtained from the United States Food and Drug
Administration (the "FDA") orphan drug designation for BCX-34 to treat CTCL and
may qualify for accelerated review as a new drug to treat serious and
life-threatening illnesses.
The Company is conducting a Phase III trial with topical BCX-34 for the
treatment of CTCL. This trial, being conducted at 10 major medical centers, is a
randomized, double-blind, placebo-controlled trial designed to include 90
patients with early stage CTCL. Patients in this study apply either BCX-34 (1%
concentration) or placebo cream over their entire body twice daily for six
months. Prior to commencing this trial, the Company completed in 1995 a
two-stage dose-ranging Phase II trial, which was conducted at UAB and Washington
University in St. Louis. The first stage of the Phase II trial was randomized,
double-blinded and placebo-controlled and enrolled 30 patients with CTCL. In
this trial, patients applied one of three concentrations of BCX-34 (0.3%, 1% or
5%) and placebo cream to different targeted disease lesions twice daily for six
weeks. This trial did not achieve a statistically significant outcome.
Twenty-four of the study patients from the dose-ranging trials continued in an
open-label (i.e., non-blinded) trial applying BCX-34 (1%) to all disease lesions
twice daily for six months. The results from the extended trial demonstrated
clinical improvement in 75% of the patients. Seven patients had complete
remissions (lesions cleared both clinically and histologically), two patients
were clinically clear and nine patients had partial clearance. Six patients had
stable or progressive disease or dropped out of the trial. There were no
significant drug related adverse events. The foregoing results are not
definitive, as positive Phase III clinical trial results are required to
determine safety and efficacy of BCX-34. The Company believes the results of the
open-label trial suggest that more than six weeks are required to obtain
efficacy in the topical treatment of CTCL.
3
The Company completed a Phase I oral and intravenous trial of BCX-34 in May
1995. In this trial, three CTCL patients received a single intravenous dose,
followed a week later by a single oral dose, followed three weeks later by
five-day consecutive oral dosing. This pharmacology study suggested that BCX-34
is well tolerated systemically and that the drug is highly bioavailable in
humans. In late 1995, the Company initiated a Phase I/II dose escalation oral
trial in CTCL and other T-cell cancer patients. This is an open label trial
designed to provide safety and pharmacokinetic data on BCX-34 as well as provide
potential efficacy data. As of December 31, 1996, 12 patients have been enrolled
and dosed in this study, and preliminary data indicate biological activity.
PSORIASIS. Psoriasis is a common chronic and recurrent disease involving
T-cells characterized by red, thick scaling of the skin, which can develop at
any time in life. According to the National Psoriasis Foundation, it is
estimated that approximately five million people suffer from some form of
psoriasis in the United States and 150,000 to 260,000 new cases are diagnosed
annually. About 10% of these cases are classified as "severe" and are most
likely to require physician's care and drug intervention. In some cases, the
condition may be accompanied by a form of arthritis which can be debilitating.
Current therapies for psoriasis either are of limited benefit or have severe
side effects.
The Company completed a Phase II trial with topical BCX-34 for the treatment
of psoriasis in April 1996. This trial, which was conducted at four clinical
research centers (two of which were in northern sites and two of which were in
sunbelt sites), was a randomized, double-blind, placebo-controlled trial that
enrolled 90 patients with plaque stage psoriasis. Patients applied either BCX-34
(1% concentration) or placebo cream over their disease lesions twice daily for
12 weeks. Overall, the trial did not demonstrate a statistically significant
drug effect relative to the placebo. A subsequent analysis performed by the
Company showed that the placebo-treated patients at sunbelt sites had a
statistically significant greater therapeutic response than those at the
northern sites. The Company believes that the response in placebo-treated
patients at sunbelt sites may have been increased by the recognized therapeutic
effect sun exposure has on psoriasis. The Company designed its Phase III trial
protocol to take into consideration this factor. The Company believes that the
outcome of the Phase II trial was sufficient to justify proceeding to a Phase
III trial. Preceding this Phase II trial was another Phase II trial completed in
December 1994. This Phase II trial was randomized, double-blinded and
placebo-controlled and enrolled 40 patients at UAB with plaque stage psoriasis.
In this trial, patients applied one of four concentrations of BCX-34 (0.1%,
0.3%, 1% or 5%) and placebo cream to different targeted disease lesions twice
daily for six weeks. While there were no significant drug related adverse
events, this trial did not achieve a statistically significant outcome. The
foregoing results are not definitive as positive Phase III clinical trial
results are required to determine safety and efficacy of BCX-34. The Company has
initiated a Phase III topical trial which is randomized, double-blinded and
placebo-controlled and enrolling 350 patients at 15 centers. The Company has
also initiated a Phase I/II trial with oral BCX-34 for the treatment of
psoriasis.
ATOPIC DERMATITIS. Atopic dermatitis, sometimes referred to as eczema, is a
chronic skin condition occurring primarily in infants and children and, to a
lesser extent, in adults. The disorder is characterized by severe itching, a
rash with small bumps, redness, thickened skin from repeated scratching, and
sometimes secondary infection of the skin. Recent market reviews have suggested
that over 1.8 million individuals in the United States suffer from atopic
dermatitis.
Several biochemical mechanisms of the disease have been studied, including
abnormal T-cell function. It is uncertain whether inhibiting T-cell
proliferation with BCX-34 will be helpful in treating the disease, but other
agents which inhibit T-cells have been used in treating atopic dermatitis. These
other agents have limited therapeutic benefit or generally cause adverse side
effects which can be severe. In June 1996, the Company initiated a Phase I/II
clinical trial with topical BCX-34 for atopic dermatitis.
HIV. Due to the increasing number of HIV-infected people, HIV infection is
a major health concern. Despite extensive research and development, the
treatment of HIV infection remains unsatisfactory due to the toxicity or limited
therapeutic benefit of currently approved therapies. The Centers for Disease
Control
4
and Prevention ("CDC") estimates that there are approximately one million people
in the United States infected with HIV. HIV drug research has focused primarily
on developing inhibitors of the enzymes reverse transcriptase ("RT") and HIV
protease. Initially, scientists thought blocking the HIV essential RT enzyme
would shut down replication of HIV and curb the progression of HIV infection to
AIDS. Several RT inhibitors are now approved, but the clinical usefulness of
these drugs has been limited by their toxicity and by the ability of HIV to
mutate into forms that are resistant to them. A second approach of HIV drug
research and treatment has targeted the HIV protease enzyme. HIV protease is an
enzyme that performs an essential role in the infectious cycle of HIV. It is
believed that blocking HIV protease renders HIV unable to form a new infectious
virus. Although numerous companies are developing protease inhibitors, the
long-term therapeutic potential of these drugs is uncertain.
A new approach to human immunodeficiency virus ("HIV") drug research focuses
on the T-cell host rather than the virus. It is believed that while resting,
nondividing CD4 T-cells can be infected by the virus, the virus does not
multiply. Since T-cell activation and growth appear to be essential for virus
replication, a treatment which inhibits T-cell growth might decrease the overall
viral burden. The Company believes, based in part upon preliminary preclinical
in vitro tests, that BCX-34 could potentially be useful in treating HIV-infected
patients by reversibly inhibiting the growth of infected T-cells. The Company
collaborated with researchers at the UAB Center for AIDS Research on the design
of an oral Phase I/II study which is planned to be initiated in 1997.
RHEUMATOID ARTHRITIS. Rheumatoid arthritis is an autoimmune disease that
involves inflammation of the membranes lining joints, causing joint pain,
swelling, and deformities. According to a scientific journal, it is estimated
that approximately 1% to 2% of the U.S. adult population are afflicted with
rheumatoid arthritis. There are many drugs used to treat the disease, but such
drug treatments only alleviate the symptoms of rheumatoid arthritis. The Company
believes T-cell controlling agents such as PNP inhibitors and specifically an
oral formulation of BCX-34, offer promise as a potential drug treatment for
rheumatoid arthritis. Among other potential competitors, Novartis
Pharmaceuticals Corporation, formerly Ciba-Geigy Corporation, ("Novartis") has
rights to develop a group of PNP inhibitors excluding BCX-34, licensed from
BioCryst, with potential application in the treatment of rheumatoid arthritis.
TRANSPLANT REJECTION. Risk of rejection is one of the most frequent
complications following transplant surgery. Rejection is caused by the body's
immune response in which T-cells are generated to attack the transplanted organ
or tissue. In general, for organ and bone marrow transplants, rejection is an
acute risk during the initial hospital stay for the transplant surgery and
thereafter a chronic risk of varying degrees of severity. The Company believes
selective suppression of the immune response may reduce the risk of rejection.
The immunosuppressant drugs which are currently used to control or prevent
rejection often cause significant detrimental side effects. A number of new
drugs are in various stages of development by other researchers and companies
for the control and prevention of transplant rejection. The Company is at the
preclinical stage of development of an oral formulation of BCX-34 for treatment
of transplant rejection.
OPHTHALMIC DISEASES AND DISORDERS. There are a number of inflammatory
diseases of the eye that involve T-cells. A leading ophthalmic inflammatory
disease is uveitis, which is characterized by eye swelling, ocular accumulation
of fatty deposits and impaired vision. The most severe cases of uveitis, such as
Behcet's syndrome and Vogt-Koyanagi-Harada syndrome, may result in blindness.
Clinical studies conducted by third parties with currently approved
immunosuppressants support the idea that T-cells participate in the pathogenesis
of these diseases and that oral and ophthalmic formulations of BCX-34 may
potentially be efficacious in treating these diseases. The Company is in the
preclinical stage of development of an ophthalmic formulation of BCX-34 for
direct delivery of the drug to the eye.
5
INFLUENZA NEURAMINIDASE INHIBITORS
Influenza is a viral disease which is particularly dangerous to the very
young, the elderly and debilitated patients and those who have suppressed immune
systems. The CDC estimates that approximately 10% to 20% of the U.S. population
is infected with influenza during most influenza seasons. The current standard
for preventing flu is by vaccination, which is of limited benefit as vaccines
are designed to resist a specific flu strain. No satisfactory treatment
currently exists. Since the early 1980's, UAB scientists have been investigating
the active site and function of the enzyme influenza neuraminidase. Influenza
neuraminidase is an enzyme on the surface of the influenza virus which is
associated with the spread of influenza and is believed to permit the influenza
virus to invade human cells. Scientists at UAB and the Company have
characterized the molecular structure of influenza neuraminidase and have
initiated the design and synthesis of specific inhibitors. Research at UAB and
the Company to date indicates that the active site for influenza neuraminidase
remains substantially unchanged for the major strains of influenza. The Company
believes that a neuraminidase inhibitor may be useful as a treatment for
influenza. and is in the preclinical stage of development of inhibitors of
influenza neuraminidase. Funded in part by a National Institutes of Health
("NIH") Phase I Small Business Innovation Research ("SBIR") grant and a State of
Alabama grant, the Company has developed lead compounds which in IN VITRO
studies have indicated inhibition of influenza neuraminidase. At least one major
pharmaceutical company is engaged in clinical studies of an influenza
neuraminidase inhibitor compound intended to treat influenza, and the Company
believes that several other pharmaceutical companies are engaged in research to
design or discover inhibitors of influenza neuraminidase.
COMPLEMENT INHIBITORS
The human body is equipped with immunological defense mechanisms to respond
aggressively to infection or injury. One of these mechanisms, called complement,
is a system of functionally linked proteins that interact with one another in a
highly regulated manner. The complement system functions as a "cascade." Once an
activator of the system converts an inactive enzyme to an active enzyme, the
activated enzyme activates more proteins at the next stage, which in turn
activate other proteins. This mechanism, if inappropriately activated, can cause
acute medical reactions, including inflammatory reactions that accompany
hemodialysis, myocardial infarction, bypass surgery and post heart attack
reperfusion injury. There are two pathways of complement activation, the
classical pathway and the alternative pathway. The classical pathway is usually
initiated by antigen-antibody complexes, while the alternative pathway is
activated by bacterial, viral and parasite cell surfaces.
Due to the biochemical mechanism of the complement cascade, BioCryst
believes complement inhibitors may have therapeutic applications in several
acute and chronic immunological disorders. BioCryst is focusing its research
efforts on designing protein and enzyme inhibitors to limit the rapid and
aggressive damage caused by the complement cascade. The Company is initially
focusing on designing inhibitors for factor D and factor B, enzymes playing a
role in the alternative pathway, and the enzyme C1s, which plays a role in the
classical pathway. Working with UAB scientists and funded in part by SBIR grants
from the NIH, BioCryst has characterized the three-dimensional structure of
factor D and has developed various assay systems for screening complement
inhibitors. The Company is performing preclinical studies with certain
inhibitors it has designed and synthesized. The Company continues to design
additional inhibitors. The Company has a collaboration agreement to use
combinatorial chemistry to help identify certain inhibitors. See "Research and
Development--3-Dimensional Pharmaceuticals."
DRUG DISCOVERY METHODS
Drugs are chemical compounds that interact with target molecules, typically
proteins, within the human body to affect a molecule's normal function. Ideally,
drugs accomplish their intended therapeutic functions while creating as few side
effects as possible. The interaction can be illustrated as follows: the drug
molecule inserts itself in the target protein like a key inserted in a lock, and
either stimulates, or more
6
commonly suppresses, a protein's normal function. The results vary depending
upon the role of the target protein. A drug that is selective or specific, i.e.,
that binds to or blocks the target protein without affecting other proteins or
receptors, is generally more effective, less likely to cause side effects and
can be administered in smaller doses.
TRADITIONAL DRUG DISCOVERY
Historically, most pharmaceutical companies have relied on costly and
time-consuming screening to discover new chemical entities for development.
While screening has been the basis for the discovery of virtually all drugs
currently in use, the cost has been substantial. On average, it has generally
been necessary to assess hundreds or thousands of chemical compounds to find a
lead compound which successfully completes the development process. If screening
produces a lead compound, it is likely that the compound's mode of action will
be unknown and the risk of side effects caused by a lack of target specificity
will be high. Newer techniques, such as combinatorial chemistry and high
throughput screening, have enhanced the range of compounds that can be examined
quickly. However, screening-based research has, to date, failed to yield
acceptably safe and effective drugs for many important therapeutic needs.
Most pharmaceutical companies presently use some form of pharmacology-based
rational drug design which primarily utilizes certain receptors or purified
enzyme preparations in assays to identify lead compounds and to design molecules
to perform specific therapeutic tasks. Development of lead compounds is
conducted by systematic empirical methods and computer modeling. While this
approach is more refined than random screening, it is still a costly and
time-consuming effort which is limited by the amount and quality of information
available about the target protein.
STRUCTURE-BASED DRUG DESIGN
Structure-based drug design is a drug discovery approach by which synthetic
compounds are designed from detailed structural knowledge of the active sites of
protein targets associated with particular diseases. The Company's
structure-based drug design involves the integrated application of traditional
biology and medicinal chemistry along with an array of advanced technologies,
including X-ray crystallography, combinatorial chemistry, computer modeling of
molecular structures and protein biophysical chemistry, to focus on the
three-dimensional molecular structure and active site characterization of the
proteins that control cellular biology. BioCryst believes that structure-based
drug design is an improvement over traditional drug screening techniques. By
identifying the target protein in advance and by discovering the chemical and
molecular structure of the protein, scientists believe it is possible to design
a more optimal drug to interact with the protein.
The initial targets for structure-based drug design are selected based on
their involvement in the biological pathways integral to the course of a
disease. Once a target is selected, its structure is determined by X-ray
crystallography, a method used in determining the precise three-dimensional
molecular structure of the proteins. This structure is then used as a blueprint
for the drug design of a lead compound. The compounds are modeled for their fit
in the active site of the target, considering both steric aspects (I.E.,
geometric shape) and functional group interactions, such as hydrogen bonding and
hydrophobic interactions.
The initial design phase is followed by the synthesis of the lead compound,
quantitative measurements of its ability to interact with the target protein,
and X-ray crystallographic analysis of the compound-target complex. This
analysis reveals important, empirical information on how the compound actually
binds to the target and the nature and extent of changes induced in the target
by the binding. These data, in turn, suggest ways to refine the lead compound to
improve its binding to the target protein. The refined lead compound is then
synthesized and complexed with the target, and further refined in a reiterative
process. If lead compounds are available from other studies, such as screening
of combinatorial libraries, these compounds may serve as starting points for
this optimization cycle using structure-based drug design.
7
Once a sufficiently potent compound has been designed and optimized, its
activity is evaluated in a biological system to establish the compound's ability
to function in a physiological environment. If the compound fails at any stage
of the biological evaluation, the design team reviews the structural model and
uses crystallography to adjust structural features of the compound to overcome
the difficulty. This process continues until a designed compound exhibits the
desired properties.
The compound is then evaluated in an experimental disease model. If the
compound fails, the reasons for failure (E.G., adverse metabolism, plasma
binding, distribution, etc.) are determined and, again, new modified compounds
are designed to overcome the deficiencies without interfering with their ability
to interact with the active site of the target protein. The experimental drug is
then ready for conventional drug development (E.G., studies in safety
assessment, formulation, clinical trials, etc.).
This reiterative analysis and compound modification is possible because of
the structural data obtained by X-ray crystallographic analysis at each stage.
This capability renders structure-based drug design a powerful tool for rapid
and efficient development of drugs that are highly specific for particular
protein target sites.
RESEARCH AND DEVELOPMENT
GENERAL
BioCryst initiated its research and development program in 1986, with drug
synthesis beginning in 1987. The Company has assembled a scientific research
staff with expertise in a broad base of advanced research technologies including
protein biochemistry, X-ray crystallography, chemistry and pharmacology. Of the
Company's 53 employees at February 28, 1997, 42 were employed in its research
and development, preclinical studies and clinical trials programs. The Company's
staff includes 20 persons with Ph.D. or M.D. degrees.
The Company's research facilities include protein biochemistry and organic
synthesis laboratories, IN VITRO and IN VIVO testing facilities, X-ray
crystallography, computer and graphics equipment and formulation facilities.
In addition to its research programs pursued in-house, BioCryst collaborates
with academic institutions to support research in areas of the Company's product
development interests and to conduct its clinical trials. Usually, research
assistance provided by outside academic institutions is performed in conjunction
with additional in-house research. The faculty member supervising the outside
research effort may also participate as a consultant to the Company's in-house
effort. The Company's primary academic collaboration is with UAB and is
described under "Business--Research and Development--UAB Collaborative
Arrangements."
During the years ended December 31, 1994, 1995 and 1996, the Company spent
an aggregate of $20,245,068 on research and development. Of that amount,
$5,551,660 was spent in 1994, $7,107,249 was spent in 1995 and $7,586,159 was
spent in 1996. Approximately $11,796,000 of that amount was spent on in-house
research and development and $8,449,000 was spent on contract research and
development.
TORII
In May 1996, the Company entered into an agreement pursuant to which it
granted Torii an exclusive license, with the right to sublicense, to develop,
manufacture and commercialize BCX-34 and certain other PNP inhibitor compounds
in Japan for the treatment of rheumatoid arthritis, T-cell cancers (including
CTCL) and atopic dermatitis. Upon entering into the agreement, Torii paid the
Company $1.5 million in license fees and made a $1.5 million equity investment
in the Company, purchasing 76,608 shares of Common Stock at a purchase price of
$19.58 per share. In order for Torii to maintain its licensing rights, it is
obligated to make payments to the Company of up to $19.0 million upon the
achievement of specified development milestones. Torii is responsible for all
development, regulatory and commercialization
8
expenses in Japan and is obligated to pay royalties to the Company on sales of
licensed products in Japan. The agreement will remain in effect, unless earlier
terminated, until the last to expire of any patent rights licensed under the
agreement, or in the event no patents issue, for twenty years from May 31, 1996.
The agreement is subject to termination by Torii at any time and by the Company
in certain circumstances, including any material breaches of the agreement by
Torii. Pursuant to the agreement, Torii may negotiate a license with the Company
to develop BCX-34 and certain other PNP inhibitor compounds for additional
indications.
3-DIMENSIONAL PHARMACEUTICALS
In October 1996, the Company signed an agreement with 3-Dimensional
Pharmaceuticals, Inc. ("3DP") of Exton, Pennsylvania, under which the companies
will share resources and technology to expedite the identification of inhibitors
of key serine protease enzymes which represent promising targets for inhibition
of complement activation. The agreement combines BioCryst's capabilities in
structure-based drug design with the selection power of 3DP's
DirectedDiversity-Registered Trademark-, a proprietary method of directing
combinatorial chemistry and high throughput screening toward specific molecular
targets, used to rapidly discover and optimize new drugs. Under the terms of
this agreement, the companies will be responsible for their own research costs.
If compounds are discovered as a result of the collaboration, the companies will
then negotiate clinical development and commercialization rights to those
compounds.
UAB COLLABORATIVE ARRANGEMENTS
UAB has one of the leading X-ray crystallography centers in the world with
approximately 100 full-time staff members and approximately $9.0 million in
research grants and contract funding in 1995. In 1986, the Company entered into
an agreement with UAB which granted the Company exclusive rights to any
discoveries resulting from research relating to PNP.
Since 1990, the Company has entered into several other research agreements
with UAB to perform research for the Company. The agreements provide that UAB
perform specific research for the Company in return for research payments and
license fees. In November 1994, the Company entered into an agreement with UAB
for the joint research and development relating to development of an influenza
neuraminidase inhibitor. UAB has granted the Company certain rights to any
discoveries in this area resulting from research previously developed by UAB or
jointly developed with BioCryst. The Company has agreed to fund certain UAB
research laboratories, to expend at least $6 million for the project over a
period coinciding with the period the Company funds UAB's research laboratories,
to pay certain royalties on sales of any resulting product and to share in
future payments received from other third-party collaborators. In July 1995, the
Company entered into an agreement with UAB for the joint research and
development relating to factor D inhibitors. UAB has also granted the Company
certain rights to any discoveries in this area resulting from research
previously developed by UAB or jointly developed with BioCryst. The Company has
agreed to fund certain UAB research laboratories, to expend at least $1.0
million for the project over a three-year period, to pay certain royalties on
sales of any resulting product and to share in future payments received from
other third-party collaborators. These two agreements have initial 25-year terms
(automatically renewable for five-year terms throughout the life of the last
patent or extension thereof incorporating the license rights) and are terminable
by the Company upon three months' notice and by UAB under certain circumstances.
BioCryst believes that due to the expertise of the faculty at UAB in the
various disciplines employed by BioCryst in its structure-based drug design
programs, including X-ray crystallography, and UAB's past performance in
identifying and characterizing medically relevant protein targets, BioCryst's
relationship with UAB is important to the success of BioCryst. No assurance can
be given, however, that UAB's research will be beneficial to BioCryst or that
BioCryst will be able to maintain its relationship with UAB. See Note 8 to Notes
to Financial Statements.
9
GRANTS AND TECHNOLOGY AGREEMENTS
In 1987, the Company entered into a research agreement under which BioCryst
received approximately $960,000 over four years from Novartis to fund its
research of PNP inhibitors and Novartis was granted certain rights to enter into
various option and license agreements for PNP inhibitors. In 1990, Novartis
exercised its right pursuant to which the Company granted Novartis an exclusive
option to enter into a worldwide exclusive license for several of the Company's
PNP inhibitor compounds. The license does not include BCX-34. Novartis signed
that license agreement and paid the Company a $500,000 fee (up to $300,000 of
which is refundable in certain circumstances) following patent issuance in 1993.
The terms of the license also call for Novartis to make milestone payments based
upon the estimated annual United States sales of the licensed products plus
royalties. No assurance can be given that any additional revenues will be
realized by the Company pursuant to the license. Novartis' other rights to enter
into various option and license agreements for PNP inhibitors have expired. See
Note 8 to Notes to Financial Statements.
In 1991 and 1992, BioCryst was awarded three $50,000 Phase I SBIR grants by
the NIH. They were used to support the design and synthesis of inhibitors to
influenza neuraminidase, factor D and aldose reductase. In 1992, the Company was
also awarded $47,500 by the Alabama Department of Economic and Community Affairs
which was used in the design and synthesis of inhibitors of influenza
neuraminidase. In February 1994, BioCryst was awarded a two-year $500,000 Phase
II SBIR grant by the NIH. The grant was used to support the design of inhibitors
of factor D. There is no assurance that BioCryst will be awarded any future
grants.
PATENTS AND PROPRIETARY INFORMATION
The Company owns or has rights to certain proprietary information, issued
and allowed patents and patent applications which relate to compounds it is
developing. The Company actively seeks, when appropriate, protection for its
products and proprietary information by means of United States and foreign
patents, trademarks and contractual arrangements. In addition, the Company plans
to rely upon trade secrets and contractual arrangements to protect certain of
its proprietary information and products. The Company has been issued six United
States patents which expire between 2009 to 2013 and relate to its PNP inhibitor
compounds. The Company's current lead compound, BCX-34, is covered by one of the
patents. This group also includes BCX-5, which may require a license from
Warner-Lambert Company ("Warner-Lambert") to market a product containing this
compound. The Company has the right of first refusal to negotiate a license from
Warner-Lambert for that compound, however, there can be no assurance that such a
license would be available or obtainable on terms acceptable to the Company. Two
patent applications relating to other of the Company's PNP inhibitor compounds
are pending at the U.S. Patent and Trademark Office ("PTO"). The Company has
also been issued a patent by the PTO covering the manufacturing process of its
PNP inhibitors which expires in 2015. In addition, one patent has issued by the
PTO which expires in 2015 and one patent application has been filed with the PTO
relating to inhibitors of influenza neuraminidase. There can be no assurance
that any patents will provide the Company with sufficient protection against
competitive products or otherwise be commercially valuable.
The Company's success will depend in part on its ability to obtain and
enforce patent protection for products developed by it, preserve its trade
secrets, and operate without infringing on the proprietary rights of third
parties, both in the United States and other countries. In the absence of patent
protection, the Company's business may be adversely affected by competitors who
develop substantially equivalent technology. Because of the substantial length
of time and expense associated with bringing new products through development
and regulatory approval to the marketplace, the pharmaceutical and biotechnology
industries place considerable importance on obtaining and maintaining patent and
trade secret protection for new technologies, products and processes. There can
be no assurance that patents will be issued from such applications, that the
Company will develop additional products that are patentable or that present or
future patents will provide sufficient protection to the Company's present or
future technologies, products
10
and processes. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information, design
around the Company's patents or obtain access to the Company's know-how or that
others will not successfully challenge the validity of the Company's patents or
be issued patents which may prevent the sale of one or more of the Company's
product candidates, or require licensing and the payment of significant fees or
royalties by the Company to third parties in order to enable the Company to
conduct its business. Legal standards relating to the scope of claims and the
validity of patents in the fields in which the Company is pursuing research and
development are still evolving, are highly uncertain and involve complex legal
and factual issues. No assurance can be given as to the degree of protection or
competitive advantage any patents issued to the Company will afford, the
validity of any such patents or the Company's ability to avoid violating or
infringing any patents issued to others. Further, there can be no guarantee that
any patents issued to or licensed by the Company will not be infringed by the
products of others. Litigation and other proceedings involving the defense and
prosecution of patent claims can be expensive and time consuming, even in those
instances in which the outcome is favorable to the Company, and can result in
the diversion of resources from the Company's other activities. An adverse
outcome could subject the Company to significant liabilities to third parties,
require the Company to obtain licenses from third parties or require the Company
to cease any related research and development activities or sales.
The Company depends upon the knowledge, experience and skills (which are not
patentable) of its key scientific and technical personnel. To protect its rights
to its proprietary information, the Company requires all employees, consultants,
advisors and collaborators to enter into confidentiality agreements which
prohibit the disclosure of confidential information to anyone outside the
Company and require disclosure and assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance that these
agreements will effectively prevent the unauthorized use or disclosure of the
Company's confidential information.
The Company's research has been or is being funded in part by Small Business
Innovation Research or National Institutes of Health grants. As a result of such
funding, the United States Government has or will have certain rights in the
inventions developed with the funding. These rights include a non-exclusive,
paid-up, worldwide license under such inventions for any governmental purpose.
In addition, the government has the right to require the Company to grant an
exclusive license under any of such inventions to a third party if the
government determines that (i) adequate steps have not been taken to
commercialize such inventions, (ii) such action is necessary to meet public
health or safety needs or (iii) such action is necessary to meet requirements
for public use under federal regulation. Federal law requires that any exclusive
licensor of an invention that was partially funded by federal grants (which is
the case with the subject matter of certain patents issued in the Company's
name) agree that it will not grant exclusive rights to use or sell the invention
in the United States unless the grantee agrees that any products embodying the
invention will be manufactured substantially in the United States, although such
requirement is subject to a discretionary waiver by the government. It is not
expected that the government will exercise any such rights.
MARKETING, DISTRIBUTION AND SALES
The Company lacks experience in marketing, distributing or selling
pharmaceutical products and will have to develop a pharmaceutical sales force
and/or rely on collaborators, licensees or on arrangements with others to
provide for the marketing, distribution and sales of any products it may
develop. There can be no assurance that the Company will be able to establish
marketing, distribution and sales capabilities or make arrangements with
collaborators, licensees or others to perform such activities.
COMPETITION
The pharmaceutical industry is intensely competitive. Many companies,
including biotechnology, chemical and pharmaceutical companies, are actively
engaged in activities similar to those of the Company,
11
including research and development of drugs for the treatment of immunological
and infectious 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 the Company. 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 which are conducting research in areas in which the Company is
working; they may also market commercial products, either on their own or
through collaborative efforts.
BioCryst expects to encounter significant competition for the pharmaceutical
products it plans 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, certain 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
field of PNP inhibitors, and the Company is aware that other companies or
institutions are pursuing development of new drugs and technologies directly
targeted at applications for which the Company is developing its drug compounds.
The Company expects that the technology for structure-based drug design will
attract significant additional competitors over time. In order to compete
successfully, the Company's goal is to develop proprietary positions in patented
drugs for therapeutic markets which have not been satisfactorily addressed by
conventional research strategies and, in the process, extend its expertise in
structure-based drug design.
GOVERNMENT REGULATION
BioCryst's research and development activities are, and its future business
will be, subject to significant regulation by numerous governmental authorities
in the United States, primarily, but not exclusively, by the FDA, and other
countries. Pharmaceutical products intended for therapeutic or diagnostic use in
humans are governed principally by the Federal Food, Drug and Cosmetic Act and
by FDA regulations in the United States and by comparable laws and regulations
in foreign countries. The process of completing clinical testing and obtaining
FDA approval for a new drug product requires a number of years and the
expenditure of substantial resources.
Following drug discovery, the steps required before a new pharmaceutical
product may be marketed in the United States include (1) preclinical laboratory
and animal tests, (2) the submission to the FDA of an application for an
Investigational New Drug ("IND"), (3) clinical and other studies to assess
safety and parameters of use, (4) adequate and well-controlled clinical trials
to establish the safety and effectiveness of the drug, (5) the submission of a
New Drug Application ("NDA") to the FDA, and (6) FDA approval of the NDA prior
to any commercial sale or shipment of the drug.
Typically, preclinical studies are conducted in the laboratory and in animal
model systems to gain preliminary information on the drug's pharmacology and
toxicology and to identify any potential safety problems that would preclude
testing in humans. The results of these studies are submitted to the FDA as part
of the IND application. Testing in humans may commence 30 days after submission
of the IND to the FDA unless the FDA objects, although companies typically wait
for approval from the FDA before commencing clinical trials. A three phase
clinical trial program is usually required for FDA approval of a pharmaceutical
product. Phase I clinical trials are designed to determine the metabolism and
pharmacologic effects of the drug in humans, the side effects associated with
increasing doses, and, possibly, to obtain early indications of efficacy. These
studies generally involve a small number of healthy volunteer subjects, but may
be conducted in people with the disease the drug is intended to treat. Phase II
studies are conducted in an expanded population to evaluate the effectiveness of
the drug for a particular indication and thus involve patients with the disease
under study. These studies are also intended to elicit additional safety data on
the drug, including evidence of the short-term side effects and other risks
associated with the drug. Phase III studies are generally designed to provide
the substantial evidence of safety and effectiveness of a drug required to
obtain FDA approval. They often involve a substantial number of patients in
12
multiple study centers and may include chronic administration of the drug in
order to assess the overall benefit-risk relationship of the drug. A clinical
trial may combine the elements of more than one phase, and typically two or more
Phase III studies are required. Upon completion of clinical testing which
demonstrates that the product is safe and effective for a specific indication,
an NDA may be submitted to the FDA. This application includes details of the
manufacturing and testing processes, preclinical studies and clinical trials.
The designation of a clinical trial as being of a particular phase is not
necessarily indicative that such a trial will be sufficient to satisfy the
requirements of a particular phase. For example, no assurance can be given that
a Phase III clinical trial will be sufficient to support an NDA without further
clinical trials. The FDA monitors the progress of each of the three phases of
clinical testing and may alter, suspend or terminate the trials based on the
data that have been accumulated to that point and its assessment of the
risk/benefit ratio to the patient. Typical estimates of the total time required
for completing such clinical testing vary between four and ten years. FDA
approval of the NDA is required before the applicant may market the new product
in the United States. The clinical testing and FDA review process for new drugs
are likely to require substantial time, effort and expense. There can be no
assurance that any approval will be granted to the Company on a timely basis, if
at all. The FDA may refuse to approve an NDA if applicable statutory and/or
regulatory criteria are not satisfied, or may require additional testing or
information. There can be no assurance that such additional testing or the
provision of such information, if required, will not have a material adverse
effect on the Company. The regulatory process can be modified by Congress or the
FDA in specific situations.
In 1988, the FDA issued regulations intended to expedite the development,
evaluation, and marketing of new therapeutic products to treat life-threatening
and severely debilitating illnesses for which no satisfactory alternative
therapies exist. These regulations provide for early consultation between the
sponsor and the FDA in the design of both preclinical studies and clinical
trials. Phase I clinical trials may sometimes be carried out in people with the
disease that the drug is intended to treat rather than in healthy volunteers, as
is customary, followed by studies to establish effectiveness in Phase II. If the
results of Phase I and Phase II trials support the safety and effectiveness of
the therapeutic agent, and their design and execution are deemed satisfactory
upon review by the FDA, marketing approval can be sought at the end of Phase II
trials. NDA approval granted under these regulations may be restricted by the
FDA as necessary to ensure safe use of the drug. In addition, post-marketing
clinical studies may be required. If after approval a post-marketing clinical
study establishes that the drug does not perform as expected, or if
post-marketing restrictions are not adhered to or are not adequate to ensure
safe use of the drug, FDA approval may be withdrawn. The expedited approval may
shorten the traditional drug development process by an estimated two to three
years. There can be no assurance, however, that any compound the Company may
develop will be eligible for evaluation by the FDA under the 1988 regulations
or, if eligible, will be approved for marketing at all or, if approved for
marketing, will be approved for marketing sooner than would be traditionally
expected.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition," which generally is a
disease or condition that affects populations of fewer than 200,000 individuals
in the United States. Orphan drug designation must be requested before
submitting an NDA. After the FDA grants orphan drug designation, the generic
identity of the therapeutic agent and its potential orphan use are publicized by
the FDA. Under current law, orphan drug designation grants certain U.S.
marketing exclusivity to the first company to receive FDA approval to market
such designated drug, subject to certain limitations. A product that is
considered by the FDA to be different from a particular orphan drug or is
approved for different indications is not barred from sale in the United States
during the seven year exclusivity period. Orphan drug designation does not
convey any advantage in, or shorten the duration of, the regulatory approval
process. In October 1993, the Company obtained from the FDA an orphan drug
designation for BCX-34 to treat CTCL, and may request orphan drug designation
for more of its products and/or additional indications as part of its overall
regulatory strategy in the future. There is no assurance, however, that any of
its products will receive an orphan drug designation or be the first to be
approved by the FDA for the designated indication and, hence, obtain orphan drug
marketing
13
exclusivity. Although obtaining FDA approval to market a product with an orphan
drug designation can be advantageous, there can be no assurance that the scope
of protection or the level of marketing exclusivity that is currently afforded
by orphan drug designation and marketing approval will remain in effect in the
future. There can be no assurance that the Company will receive FDA approval to
market BCX-34 to treat CTCL. In addition, it is possible that other competitors
of the Company could obtain orphan drug designation for product candidates that
are not the same as BCX-34 though they are intended for use to treat CTCL.
Even after initial FDA approval has been obtained, further studies may be
required to provide additional data on safety or to gain approval for the use of
a product as a treatment in clinical indications other than those for which the
product was initially tested. The FDA may also require post-marketing testing
and surveillance programs to monitor the drug's effects. Side effects resulting
from the use of pharmaceutical products may prevent or limit the further
marketing of products.
Once the sale of a product is approved, the FDA regulates production,
marketing, and other activities under the Federal Food, Drug, and Cosmetic Act
and the FDA's implementing regulations. A post-marketing testing, surveillance
and reporting program may be required to continuously monitor the product's
usage and effects. Product approvals may be withdrawn, or other actions may be
ordered, or sanctions imposed if compliance with regulatory requirements is not
maintained. Other countries in which any products developed by the Company or
its licensees may be marketed impose a similar regulatory process.
In June 1995, the Company notified the FDA that it had submitted incorrect
efficacy data to the FDA pertaining to its Phase II dose-ranging studies of
BCX-34 for CTCL and psoriasis. Upon learning of the error, the Company initiated
internal and external audits and submitted corrected analyses to the FDA. In
addition, the Company hired a new Vice President of Clinical Development and
outside expert personnel to manage clinical development and monitor studies,
developed additional standard operating procedures, and contracted with a
contract research organization to assist the Company in monitoring its trial for
BCX-34 for CTCL.
In November 1995, the FDA inspected the Company in relation to a February
1995 48-hour skin stripping study involving application of BCX-34. At the
conclusion of the inspection, the FDA issued to the Company a List of
Inspectional Observations ("Form FDA 483") including the observation that there
was no documentation of any monitoring of the study or of several other studies.
The Company responded to this and the other observation in the Form FDA 483.
Although the FDA has not raised any additional questions in the matter, the
Company does not know whether its responses were satisfactory to the FDA.
In June 1996, the FDA inspected the Company and one of its clinical sites in
relation to Phase II dose-ranging studies of BCX-34 for CTCL and psoriasis, each
of which was concluded in early 1995. At the conclusion of the inspection, the
FDA issued to the Company a Form FDA 483 citing deficiencies relating to the
monitoring of the studies and the Company's procedures for generating,
archiving, and safeguarding the randomization tables used in the studies. The
deficient procedures failed to prevent the use of an incorrect randomization
table which ultimately resulted in the initial submission to the FDA of data
which reported false statistical significance. The FDA issued a Form FDA 483 to
the principal investigator at one of the Company's clinical sites, citing
numerous significant deficiencies in the conduct of the Phase II dose-ranging
study of BCX-34 for CTCL and psoriasis. These deficiencies included improper
delegations of authority by the principal investigator, failures to follow the
protocols, institutional review board deviations, and discrepancies or
deficiencies in documentation and reporting. As a result of the FDA inspections,
the FDA may not accept data from these studies. As a consequence of the FDA
inspections and such resulting Form FDA 483s, the Company's ongoing clinical
studies, and in particular, the Phase III trial with topical BCX-34 for CTCL,
are likely to receive increased scrutiny from the FDA since the same clinical
site which received the Form FDA 483 is involved in that trial. This may delay
the regulatory review process or
14
require the Company to increase the number of patients at other sites to obtain
approval (which can not be assured on a timely basis or at all).
The Company believes that its procedures and monitoring practices are now in
compliance with the FDA's requirements governing Good Clinical Practice ("GCP").
There can be no assurance, however, that the FDA will agree or that, even if it
does agree, it will not seek to impose administrative, civil, or other sanctions
in connection with the earlier studies and submission. Administrative sanctions
could include refusing to accept earlier studies and requiring the Company to
repeat one or more clinical studies, which would be the only studies the FDA
would accept for purposes of substantive scientific review of any NDA by the
agency.
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other similar Federal, state and local regulations governing
permissible laboratory activities, waste disposal handling of toxic, dangerous
or radioactive materials and other matters. The Company believes that it is in
compliance with such regulations.
For marketing outside the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and devices. The requirements relating to the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country.
HUMAN RESOURCES
As of February 28, 1997, the Company had 53 employees, of whom 42 were
engaged in research and development and 11 were in general and administrative
functions. The Company's scientific staff (20 of whom hold Ph.D. or M.D.
degrees) has diversified experience in biochemistry, pharmacology, X-ray
crystallography, synthetic organic chemistry, computational chemistry, medicinal
chemistry and pharmacology. The Company considers its relations with its
employees to be satisfactory.
SCIENTIFIC ADVISORY BOARD AND CONSULTANTS
BioCryst has assembled a Scientific Advisory Board comprised of six members
(the "Scientific Advisors") who are leaders in certain of the Company's core
disciplines or who otherwise have specific expertise in its therapeutic focus
areas. The Scientific Advisory Board meets as a group at scheduled meetings and
the Scientific Advisors meet more frequently, on an individual basis, with the
Company's scientific personnel and management to discuss the Company's ongoing
research and drug discovery and development projects. The Company also has
consulting agreements with a number of other scientists (the "Consultants") with
expertise in the Company's core disciplines or in its therapeutic focus areas
who are consulted from time to time by the Company.
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 have been issued a total of 4,975 shares of Common Stock for nominal
consideration and granted stock options to purchase a total of 71,000 shares of
Common Stock at a weighted average exercise price of $5.99 per share.
Consultants have also been granted stock options to purchase a total of 52.500
shares at a weighted average exercise price of $4.92 per share. The Scientific
Advisors and the Consultants are all employed by or have consulting agreements
with entities other than the Company, some of which may compete with the Company
in the future. The Scientific Advisors and the Consultants are expected to
devote only a small portion of their time to the business of the Company,
although no specific time commitment has been established. They are not expected
to participate actively in the Company's affairs or in the development of the
Company's technology. Certain 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 the Company. The loss
15
of the services of certain of the Scientific Advisors and the Consultants could
adversely affect the Company to the extent that the Company is pursuing research
or development in areas of such Scientific Advisors' and Consultants' expertise.
To the extent members of the Company's Scientific Advisory Board or the
Consultants have consulting arrangements with or become employed by any
competitor of the Company, the Company 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 company utilizing core technology which is similar to
the core technology employed by BioCryst.
The Scientific Advisory Board consists of the following individuals:
NAME POSITION
- -------------------------------------------------------- --------------------------------------------------------
Albert F. LoBuglio, M.D. (Chairman)..................... Professor of Medicine and the Director of the
Comprehensive Cancer Center of UAB
Gordon N. Gill, M.D..................................... Professor of Medicine and Chair of the Faculty of Basic
Biomedical Sciences at the University of California, San
Diego School of Medicine
Robert E. Handschumacher, Ph.D.......................... Retired Professor and former Chairman of the Department
of Pharmacology at Yale University School of Medicine
Herbert A. Hauptman, Ph.D............................... Research Professor in Biophysical Science at the State
University of New York (Buffalo), the President of the
Hauptman-Woodward Medical Research Institute, Inc.
(formerly the Medical Foundation (Buffalo), Inc.), and
Research Professor in Biophysical Sciences at the State
University of New York (Buffalo), recipient of the Nobel
Prize in Chemistry (1985)
Yuichi Iwaki, M.D., Ph.D................................ Professor of Urology and Pathology, University of
Southern California School of Medicine
Hamilton O. Smith, M.D.................................. Professor, Molecular Biology and Genetics Department at
The Johns Hopkins University School of Medicine,
recipient of the Nobel Prize in Medicine (1978)
Any inventions or processes independently discovered by the Scientific
Advisors or the Consultants may not become the property of the Company 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 competitors
of the Company pursuant to sponsored research agreements. The Company requires
the Scientific Advisors and the Consultants to enter into confidentiality
agreements which prohibit the disclosure of confidential information to anyone
outside the Company and require disclosure and assignment to the Company of
their ideas, developments, discoveries or inventions. However, no assurance can
be given that competitors of the Company will not gain access to trade secrets
and other proprietary information developed by the Company and disclosed to the
Scientific Advisors and the Consultants.
16
ITEM 2. PROPERTIES
The Company's administrative offices and principal research facility are
located in 22,800 square feet of leased office space in Riverchase
Industrial/Research Park in Birmingham, Alabama. The lease runs through March
31, 2000 with an option to lease for an additional three years at current market
rates. The Company believes that its facilities are adequate for its current
operations. Additional facilities will be necessary to manufacture sufficient
quantities under good manufacturing practices to conduct extensive clinical
trials or if the Company undertakes commercial manufacturing. See Note 4 to the
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
In October 1996, the Company settled a suit and counterclaim between
BioCryst and Warner-Lambert, agreeing that an option agreement and an option
extensions between the parties are expired and are of no force or effect, and
further that neither party has any obligation to the other pursuant to the
option agreement or the option extension. Warner-Lambert granted BioCryst an
exclusive irrevocable right of first refusal to obtain from Warner-Lambert a
property right interest in any technology covered under patent rights and
proprietary information held by Warner-Lambert covering any PNP inhibitors
(including BCX-5), derivative compounds, improvements, and patent rights, such
property right infers having the form of ownership via assignment of patent
rights or an exclusive or nonexclusive license, as the case may be, to practice
an invention owned by Warner-Lambert.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
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 MarketSM under the symbol BCRX. Public trading commenced on March
4, 1994. Prior to that date, there was no public market for the Company's stock.
The following table sets forth the low and high prices as reported by Nasdaq for
each quarter in 1996 and 1995:
1996 1995
-------------------- --------------------
LOW HIGH LOW HIGH
--------- --------- --------- ---------
First quarter.............................................. $ 8.63 $ 10.25 $ 4.63 $ 7.00
Second quarter............................................. 9.13 20.75 5.50 13.75
Third quarter.............................................. 10.63 17.13 7.75 12.25
Fourth quarter............................................. 10.50 17.13 8.50 11.25
The last sale price of the common stock on March 14, 1997 as reported by
Nasdaq was $13.00 per share.
As of February 28, 1997, there were approximately 593 holders of record of
the common stock.
The Company has never paid cash dividends and does not anticipate paying
cash dividends.
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE)
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
STATEMENT OPERATIONS DATA:
Total revenues.............................................. $ 2,652 $ 885 $ 734 $ 363 $ 185
Research and development expenses........................... $ 7,586 $ 7,107 $ 5,552 $ 4,196 $ 3,019
Net loss.................................................... $ (7,698) $ (8,576) $ (6,938) $ (5,196) $ (4,051)
Net loss per share.......................................... $ (.69) $ (.96) $ (1.02) $ (1.55) $ (1.31)
Weighted average shares outstanding......................... 11,171 8,905 6,787 3,352 3,101
DECEMBER 31,
(IN THOUSANDS)
---------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------
BALANCE SHEET DATA:
Cash, cash equivalents and securities.................. $ 35,785 $ 11,414 $ 10,873 $ 2,873 $ 1,284
Total assets........................................... 37,149 13,056 12,803 5,203 3,555
Long-term debt and obligations under capital leases,
excluding current portion............................ 58 300 573 855 931
Accumulated deficit.................................... (37,766) (30,067) (21,491) (14,553) (9,357)
Total stockholders' equity............................. 35,403 11,326 11,176 2,877 1,534
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS ANNUAL REPORT CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE 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.
OVERVIEW
Since its inception in 1986, the Company has been engaged in research and
development activities (including drug discovery, manufacturing compounds,
conducting preclinical studies and clinical trials) and organizational efforts
(including recruiting its scientific and management personnel), establishing
laboratory facilities, engaging its Scientific Advisory Board and raising
capital. The Company has not received any revenue from the sale of
pharmaceutical products and does not expect to receive such revenues to a
significant extent for at least several years, if at all. The Company has
incurred operating losses since its inception. The Company expects to incur
significant additional operating losses over the next several years and expects
such losses to increase as the Company's research and development and clinical
trial efforts expand.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995
Collaborative and other research and development revenue increased 601.0% to
$1,558,543 in 1996 from $222,329 in 1995, primarily due to the $1.5 million
license fee received from Torii. This was offset by the decrease in the Factor D
grant from 1995 due to its completion in early 1996. Interest and other income
increased 65.1% to $1,093,617 in 1996 from $662,259 in 1995, primarily due to
interest earned on funds from the Company's public offering in September 1996
and private placements in March 1996 and May 1995.
Research and development expenses increased 6.7% to $7,586,159 in 1996 from
$7,107,249 in 1995. The increase was primarily attributable to expenses
associated with increased personnel. The costs associated with manufacturing
compounds, clinical trials and preclinical studies were approximately the same
in both 1996 and 1995. These costs tend to fluctuate from period to period
depending upon the stage of development and the conduct of clinical trials.
General and administrative expenses increased 20.6% to $2,664,197 in 1996
from $2,209,488 in 1995. The increase was primarily the result of approximately
$574,000 in consulting fees and withholding taxes incurred in connection with
the license agreement with Torii which was offset by reversal of a liability
recorded in 1995 for use taxes assessed that the Company successfully contested
in 1996.
Interest expense decreased 30.6% to $100,031 in 1996 from $144,115 in 1995.
The decrease was primarily due to a decline in capitalized lease obligations,
along with long-term debt, resulting in lesser interest expense. The Company
obtained most of its leases in connection with the move to its new facilities in
April 1992.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994
Collaborative and other research and development revenue decreased 17.4% to
$222,329 in 1995 from $269,126 in 1994, primarily as a result of 1994 including
$50,000 from non-recurring contract research. Interest and other income
increased 42.5% to $662,259 in 1995 from $464,690 in 1994, primarily due to
higher rates and the investment of funds received from the Company's initial
public offering in March 1994 and private placements in September 1994 and May
1995.
Research and development expenses increased 28.0% to $7,107,249 in 1995 from
$5,551,660 in 1994. The increase was primarily attributable to expenses
associated with conducting clinical trials, preclinical
19
studies and large scale synthesis of BCX-34 (generic name peldesine) and
increased personnel costs and expenses associated with joint research and
development contracts with UAB for the influenza neuraminidase and Factor D
projects and outside research on PNP inhibitors.
General and administrative expenses increased 16.0% to $2,209,488 in 1995
from $1,904,046 in 1994. The increase was primarily the result of increased
franchise taxes, increased stockholder and investor communication expenses
associated with being a public company and higher business insurance costs.
These increases were partially offset by two non-recurring charges in
1994--payments made pursuant to a consulting agreement entered into upon the
former president's termination in the second quarter of 1994 and contractual
deferred compensation paid to the former president of the Company upon the
initial public offering in the first quarter of 1994.
Interest expense decreased 33.3% to $144,115 in 1995 from $215,985 in 1994.
The decrease was primarily due to a decline in capitalized lease obligations,
along with long-term debt, resulting in lesser interest expense. The Company
obtained most of its leases in connection with the move to its new facilities in
April 1992.
LIQUIDITY AND CAPITAL RESOURCES
Cash expenditures have exceeded revenues since the Company's inception.
Operations have principally been funded through public offerings and private
placements of equity and debt securities, equipment lease financing, facility
leases, collaborative and other research and development agreements (including a
license and options for licenses), research grants and interest income. In
addition, the Company has attempted to contain costs and reduce cash flow
requirements by renting scientific equipment or facilities, contracting with
third parties to conduct certain research and development and using consultants.
The Company expects to incur additional expenses, resulting in significant
losses, as it continues and expands its research and development activities and
undertakes additional preclinical studies and clinical trials of compounds which
have been or may be discovered. The Company also expects to incur substantial
administrative, manufacturing and commercialization expenditures in the future
as it seeks FDA approval for its compounds and establishes its manufacturing
capability under Good Manufacturing Practices ("GMP"), and substantial expenses
related to the filing, prosecution, maintenance, defense and enforcement of
patent and other intellectual property claims.
At December 31, 1996, the Company's cash, cash equivalents and securities
held-to-maturity were $35,784,668, an increase of $24,370,624 from December 31,
1995 principally due to the Company's equity offerings.
The Company received $500,000 in 1993 as a license fee from Novartis. The
Company is required to refund up to $300,000 of the fee if sales of any
resultant products are below specified levels (see Note 8).
The Company has financed its equipment purchases primarily with lease lines
of credit. The Company currently has a $500,000 line of credit with its bank to
finance capital equipment. In January 1992, the Company entered into an
operating lease for its current facilities which, based on an extension signed
in December 1994, expires on March 31, 2000, with an option to lease for an
additional three years at current market rates. The operating lease requires the
Company to pay monthly rent (ranging from $10,241 and escalating annually to a
minimum of $12,457 per month in the final year), and a pro rata share of
operating expenses and real estate taxes in excess of base year amounts.
At December 31, 1996, the Company had long-term capital lease and operating
lease obligations which provide for aggregate minimum payments of $434,561 in
1997, $205,233 in 1998 and $148,395 in 1999. The Company is required to expend
$6 million, of which approximately $2.6 million was expended through December
31, 1996, over a period coinciding with funding by the Company to UAB on its
influenza neuraminidase project in order to maintain a worldwide license from
UAB. In addition, the Company has committed to conducting certain clinical
trials and animal studies in 1997 for an aggregate amount of approximately $2.4
million at December 31, 1996.
20
As described in Note 8, the Company entered into a license agreement with
Torii under which Torii paid the Company $1.5 million in license fees and made a
$1.5 million equity investment in the Company in 1996. While the license
agreement provides for potential milestone payments of up to $19.0 million and
royalties on future sales of licensed products in Japan, there can be no
assurance that Torii will continue to develop the product in Japan or that if it
does so that it will result in meeting the milestones or achieving future sales
of licensed products in Japan.
The Company plans to finance its needs principally from its existing capital
resources and interest thereon, from payments under collaborative and licensing
agreements with corporate partners, through research grants, and to the extent
available, through lease or loan financing and future public or private
financings. The Company believes that its available funds will be sufficient to
fund the Company's operations at least through the end of 1998. However, this is
a forward-looking statement, and no assurance can be given that there will be no
change that would consume available resources significantly before such time.
See "Certain Factors That May Affect Future Results, Financial Condition and the
Market Price of Securities." The Company's long-term capital requirements and
the adequacy of its available funds will depend upon many factors, including
results of research and development, results of product testing, relationships
with strategic partners, changes in the focus and direction of the Company's
research and development programs, competitive and technological advances and
the FDA regulatory process. Additional funding, whether through additional sales
of securities or collaborative or other arrangements with corporate partners or
from other sources, may not be available when needed or on terms acceptable to
the Company. Insufficient funds may require the Company to delay, scale-back or
eliminate certain of its research and development programs or to license third
parties to commercialize products or technologies that the Company would
otherwise undertake itself.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL CONDITION AND THE
MARKET PRICE OF SECURITIES
EARLY STAGE OF DEVELOPMENT; UNCERTAINTY OF PRODUCT DEVELOPMENT;
TECHNOLOGICAL UNCERTAINTY
BioCryst is at an early stage of development. All of the Company's compounds
are in research and development, and no revenues have been generated from sales
of its compounds. It will be a number of years, if ever, before the Company will
recognize significant revenues from product sales or royalties. To date, most of
the Company's resources have been dedicated to the research and development of
pharmaceutical compounds based upon its PNP program for the treatment of T-cell
proliferative diseases and disorders and for the development of inhibitors of
influenza neuraminidase and enzymes and proteins involved in the complement
cascade. The Company is conducting preclinical and clinical studies with its
lead drug, BCX-34, and results from these studies may not support future human
clinical testing or further development of the compound. T-cell proliferative
diseases, as well as the other disease indications the Company is studying, are
highly complex and their causes are not fully known. The Company's compounds
under development will require significant additional, time-consuming and costly
research and development, preclinical testing and extensive clinical testing
prior to submission of any regulatory application for commercial use. Product
development of new pharmaceuticals is highly uncertain, and unanticipated
developments, clinical or regulatory delays, unexpected adverse side effects or
inadequate therapeutic efficacy could slow or prevent product development
efforts and have a material adverse effect on the Company. BioCryst's lead drug,
BCX-34, reversibly inhibits T-cell activity, an essential component of the human
immune system. In addition to any direct toxicities or side effects the drug may
cause, BCX-34, while inhibiting T-cells, may compromise the immune system's
ability to fight infection. Although the Company will monitor immunosuppression
during drug dosing, there can be no assurance that the drug will not cause
irreversible immunosuppression. There can be no assurance that the Company's
research or product development efforts as to any particular compound will be
successfully completed, that the compounds currently under development will be
safe or efficacious, that required regulatory approvals can be obtained, that
products can be manufactured at acceptable cost and with appropriate quality or
that any approved products can be successfully marketed or will be accepted by
patients, health care providers and
21
third-party payers. Few drugs discovered by use of structure-based drug design
have been successfully developed, approved by the FDA or marketed. Within the
pharmaceutical industry, treatment of the disease indications being pursued by
the Company, especially T-cell proliferative diseases such as CTCL and
psoriasis, have proven difficult. There can be no assurance that drugs resulting
from the approach of structure based drug design employed by the Company will
overcome the difficulties of drug discovery and development or result in
commercially successful products. See "Business--Products in Development."
UNCERTAINTY ASSOCIATED WITH PRECLINICAL AND CLINICAL TESTING
Before obtaining regulatory approvals for the commercial sale of any of its
products, BioCryst must undertake extensive preclinical and clinical testing to
demonstrate their safety and efficacy in humans. The Company has limited
experience in conducting clinical trials. To date, the Company has conducted
initial preclinical testing of certain of its compounds and is testing topical
and oral formulations of BCX-34 in various clinical trials. The results of
initial preclinical and clinical testing of compounds under development by the
Company are neither necessarily predictive of results that will be obtained from
subsequent or more extensive preclinical and clinical testing nor necessarily
acceptable to the FDA to support applications for marketing permits. Even if the
results of subsequent clinical tests are positive, products, if any, resulting
from the Company's research and development programs are not likely to be
commercially available for several years. Additionally, the Company has made and
may in the future make changes to the formulation of its drugs and/or to the
processes for manufacturing its drugs. Any such future changes in formulation or
manufacturing processes could result in delays in conducting further preclinical
and clinical testing, in unexpected adverse events in further preclinical and
clinical testing, and/or in additional development expenses. Furthermore, there
can be no assurance that clinical studies of products under development will be
acceptable to the FDA or demonstrate the safety and efficacy of such products at
all or to the extent necessary to obtain regulatory approvals of such products.
The Company's Phase II trial with topical BCX-34 for the treatment of psoriasis
completed in April 1996 did not achieve a statistically significant outcome. See
"Business--PNP Inhibitors (BCX-34)". Companies in the industry have suffered
significant setbacks in advanced clinical trials, even after promising results
in earlier trials. the failure to comply with data integrity GCP requirements or
to adequately demonstrate the safety and efficacy of a therapeutic product under
development could delay or prevent regulatory approval of the product, and would
have a material adverse effect on the Company.
The rate of completion of clinical trials is dependent upon, among other
factors, the rate of enrollment of patients. Patient accrual is a function of
many factors, including the size of the patient population, the proximity of
patients to clinical sites, the eligibility criteria for the study and the
existence of competitive clinical trials. Delays in planned patient enrollment
in the Company's current trials or future clinical trials may result in
increased costs and/or program delays which could have a material adverse effect
on the Company.
GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVAL
The research, testing, manufacture, labeling, distribution, advertising,
marketing and sale of drug products are subject to extensive regulation by
governmental authorities in the United States and other countries. Prior to
marketing, compounds developed by the Company must undergo an extensive
regulatory approval process required by the FDA and by comparable agencies in
other countries. This process, which includes preclinical studies and clinical
trials of each compound to establish its safety and effectiveness and
confirmation by the FDA that good laboratory, clinical and manufacturing
practices were maintained during testing and manufacturing, can take many years,
requires the expenditure of substantial resources and gives larger companies
with greater financial resources a competitive advantage over the Company. To
date, no compound or drug candidate being evaluated by the Company has been
submitted for approval to the FDA or any other regulatory authority for
marketing, and there can be no assurance that any such product or compound will
ever be approved for marketing or that the Company will be able to obtain the
labeling claims desired for its products or compounds. The Company is and will
continue to
22
be dependent upon the laboratories and medical institutions conducting its
preclinical studies and clinical trials to maintain both good laboratory and
good clinical practices and, except for the formulating and packaging of small
quantities of its drug formulations which the Company is currently undertaking,
upon the manufacturers of its compounds to maintain compliance with current GMP
requirements. Data obtained from preclinical studies and clinical trials are
subject to varying interpretations which could delay, limit or prevent FDA
regulatory approval. Delays or rejections may be encountered based upon changes
in FDA policy for drug approval during the period of development and FDA
regulatory review. Similar delays also may be encountered in foreign countries.
Moreover, even if approval is granted, such approval may entail commercially
unacceptable limitations on the labeling claims for which a compound may be
marketed. Even if such regulatory approval is obtained, a marketed drug or
compound and its manufacturer are subject to continual review and inspection,
and later discovery of previously unknown problems with the product or
manufacturer may result in restrictions or sanctions on such product or
manufacturer, including withdrawal of the product from the market, and other
enforcement actions.
In June 1995 the Company notified the FDA that it had submitted incorrect
efficacy data to the FDA pertaining to its Phase II dose-ranging studies of
BCX-34 for CTCL and psoriasis. The FDA inspected the Company in November 1995 in
relation to a study involving the topical application of BCX-34 concluded in
early 1995, and in June 1996 the FDA inspected the Company and one of its
clinical sites in relation to a Phase II dose-ranging study of BCX-34 for CTCL
and a Phase II dose ranging study for psoriasis, both of which were concluded in
early 1995. After each inspection, the FDA issued to the Company a Form FDA 483
setting forth certain deficient GCP procedures followed by the Company, some of
which resulted in submission to the FDA of efficacy data which reported false
statistical significance. The FDA also issued a Form FDA 483 to the principal
investigator at one of the Company's clinical sites citing numerous significant
deficiencies in the conduct of the Phase II dose-ranging studies of BCX-34 for
CTCL and psoriasis. These deficiencies included improper delegations of
authority by the principal investigator, failures to follow the protocols,
institutional review board deviations, and discrepancies or deficiencies in
documentation and reporting. The CTCL and the psoriasis dose-ranging Phase II
clinical trials did not result in an overall statistically significant drug
effect and as a result of the FDA inspections the FDA may not accept data from
these studies. As a consequence of the FDA inspections and such resulting Form
483s, the Company's ongoing clinical studies, and in particular, the Phase III
trial with topical BCX-34 for CTCL, are likely to receive increased scrutiny
since the same clinical site which received the 483 is involved in that trial;
this may delay the regulatory review process or require the Company to increase
the number of patients at other sites to obtain approval (which can not be
assured on a timely basis or at all). The Company has adjusted certain of its
procedures, but there can be no assurance that the FDA will find such
adjustments to be in compliance with FDA requirements or that, even if it does
find such adjustments to be in compliance, it will not seek to impose
administrative, civil or other sanctions in connection with the earlier studies.
Administrative sanctions could include refusing to accept earlier studies and
requiring the Company to repeat one or more clinical studies, which would be the
only studies the FDA would accept for purposes of substantive scientific review
of any NDA by the agency. See "Business--Government Regulation."
Such sanctions or other government regulation may delay or prevent the
marketing of products being developed by the Company, impose costly procedures
upon the Company's activities and confer a competitive advantage to larger
companies or companies that are more experienced in regulatory affairs and that
compete with the Company. There can be no assurance that FDA or other regulatory
approval for any products developed by the Company will be granted on a timely
basis, or at all. Delay in obtaining or failure to obtain such regulatory
approvals will materially adversely affect the marketing of any products which
may be developed by the Company, as well as the Company's results of operations.
See "Business-- Government Regulation."
23
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
BioCryst, to date, has generated no revenue from product sales and has
incurred losses since its inception. As of December 31, 1996, the Company's
accumulated deficit was approximately $33.6 million. Losses have resulted
principally from costs incurred in research activities aimed at discovering,
designing and developing the Company's pharmaceutical product candidates and
from general and administrative costs. These costs have exceeded the Company's
revenues, which to date have been generated primarily from collaborative
arrangements, licenses, research grants and from interest income. The Company
expects to incur significant additional operating losses over the next several
years and expects such losses to increase as the Company's research and
development and clinical trial efforts expand. The Company's ability to achieve
profitability depends upon its ability to develop drugs and to obtain regulatory
approval for its products, to enter into agreements for product development,
manufacturing and commercialization, and to develop the capacity to manufacture,
market and sell its products. There can be no assurance that the Company will
ever achieve significant revenues or profitable operations.
ADDITIONAL FINANCING REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company has incurred negative cash flows from operations in each year
since its inception. The Company expects that the funding requirements for its
operating activities will increase substantially in the future due to expanded
research and development activities (including preclinical studies and clinical
trials), the development of manufacturing capabilities and the development of
marketing and distribution capabilities. The Company anticipates that its
capital resources are adequate to satisfy its capital requirements at least
through 1998. However, this is a forward-looking statement, and no assurance can
be given that there will be no change that would consume available resources
significantly before such time. The Company's future capital requirements will
depend on many factors, including continued scientific progress in its research,
drug discovery and development programs, the magnitude of these programs,
progress with preclinical studies and clinical trials, prosecuting and enforcing
patent claims, competing technological and market developments, changes in
existing collaborative research or development relationships, the ability of the
Company to establish additional collaborative relationships, and the cost of
manufacturing scale-up and effective marketing activities and arrangements. The
Company anticipates, based on its current business plan, that it will be
necessary to raise additional funds in 1999 or earlier. Additional funds, if
any, may possibly be raised through financing arrangements or collaborative
relationships and/or the issuance of preferred or common stock or convertible
securities, on terms and prices significantly more favorable than those of the
currently outstanding Common Stock, which could have the effect of diluting or
adversely affecting the holdings or rights of existing stockholders of the
Company. In addition, collaborative arrangements may require the Company to
transfer certain material rights to such corporate partners. If adequate funds
are not available, the Company will be required to delay, scale back or
eliminate one or more of its research, drug discovery or development programs or
attempt to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish some or all of its rights to
certain of its intellectual property, product candidates or products. No
assurance can be given that additional financing will be available to the
Company on acceptable terms, if at all.
COMPETITION
The Company is engaged in the pharmaceutical industry, which is
characterized by extensive research efforts, rapid technological progress and
intense competition. There are many public and private companies, including
well-known pharmaceutical companies, chemical companies, specialized
biotechnology companies and academic institutions, engaged in developing
synthetic pharmaceuticals and biotechnological products for human therapeutic
applications that represent significant competition to the Company. Existing
products and therapies and improvements thereto will compete directly with
products the Company is seeking to develop and market, and the Company is aware
that other companies or institutions
24
are pursuing development of new drugs and technologies directly targeted at
applications for which the Company is developing its drug compounds. Many of the
Company's competitors have substantially greater financial and technical
resources and production and marketing capabilities and experience than does the
Company. The Company has granted Novartis a worldwide exclusive license to
several compounds in the Company's sixth group of PNP inhibitors. Such
arrangements with Ciba does not include BCX-34 or most of the Company's other
compounds. No assurance can be given that Ciba will or will not develop
compounds under such arrangements, will be able to obtain FDA approval for any
licensed compounds, that any such licensed compounds if so approved will be able
to be commercialized successfully, or that the Company will realize any revenues
pursuant to such arrangements. If commercialized, these compounds could compete
directly against other compounds, including BCX-34, being developed by the
Company.
Many of the Company's competitors have significantly greater experience in
conducting preclinical studies and clinical trials of new pharmaceutical
products and in obtaining FDA and other regulatory approvals for health care
products. Accordingly, BioCryst's competitors may succeed in obtaining approvals
for their products more rapidly than the Company and in developing products that
are safer or more effective or less costly than any that may be developed by the
Company and may also be more successful than the Company in the production and
marketing of such products. Many of the Company's competitors also have current
GMP facilities and significantly greater experience in implementing GMP or in
obtaining and maintaining the requisite regulatory standards for manufacturing.
Moreover, other technologies are, or may in the future become, the basis for
competitive products. Competition may increase further as a result of the
potential advances from structure-based drug design and greater availability of
capital for investment in this field. There can be no assurance that the
Company's competitors will not succeed in developing technologies and products
that are more effective than any being developed by the Company or that would
render the Company's technology and product candidates obsolete or
noncompetitive. See "Business--Competition."
DEPENDENCE ON COLLABORATIVE PARTNERS; RELATIONSHIP WITH THE UNIVERSITY OF
ALABAMA AT BIRMINGHAM
The Company's strategy for research, development and commercialization of
certain of its products is to rely in part upon various arrangements with
corporate partners, licensees and others. As a result, the Company's products
are dependent in large part upon the subsequent success of such third parties in
performing preclinical studies and clinical trials, obtaining regulatory
approvals, manufacturing and marketing. The Company has recently entered into an
exclusive license agreement with Torii to develop, manufacture and commercialize
in Japan BCX-34 and certain other PNP inhibitor compounds for three indications.
The Company has also entered into collaborative arrangements with Novartis and
intends to pursue additional collaborations in the future. See "Business
- -Collaborative Arrangements." There can be no assurance that the Company will be
able to negotiate additional acceptable collaborative arrangements or that such
arrangements will be successful. No assurance can be given that the Company's
collaborative partners will be able to obtain FDA approval for any licensed
compounds, that any such licensed compounds, if so approved, will be able to be
commercialized successfully, or that the Company will realize any revenues
pursuant to such arrangements. Although the Company believes that parties to
collaborative arrangements generally have an economic motivation to succeed in
performing their contractual responsibilities, the amount and timing of
resources which they devote to these activities are not within the control of
the Company. There can be no assurance that such parties will perform their
obligations as expected or that current or potential collaborators will not
pursue treatments for other diseases or seek alternative means of developing
treatments for the diseases targeted by collaborative programs with the Company
or that any additional revenues will be derived from such arrangements. If any
of the Company's collaborators breaches or terminates its agreement with the
Company or otherwise fails to conduct its collaborative activities in a timely
manner, the development or commercialization of the product candidate or
research program under such collaboration agreement may be delayed, the Company
may be required to undertake unforeseen additional responsibilities or to devote
unforeseen additional resources to such development or
25
commercialization, or such development or commercialization could be terminated.
The termination or cancellation of collaborative arrangements could also
adversely affect the Company's financial condition, intellectual property
position and operations. In addition, disagreements between collaborators and
the Company have in the past and could in the future lead to delays in the
collaborative research, development or commercialization of certain product
candidates, or could require or result in legal process or arbitration for
resolution. These consequences could be time-consuming, expensive and could have
material adverse effects on the Company.
The successful commercialization of the Company's compounds and product
candidates is also dependent upon the Company's ability to develop collaborative
arrangements with academic institutions and consultants to support research and
development efforts and to conduct clinical trials. The Company's primary
academic collaboration is with UAB. The Company is highly dependent upon its
collaborative arrangements with UAB to support its ongoing research and
development programs and the termination or cessation of such relationship could
have a material adverse effect upon the Company. There can be no assurance that
the Company's current arrangements with UAB will continue or that the Company
will be able to develop successful collaborative arrangements with academic
institutions and consultants in the future. See "Business--Collaborative
Arrangements--UAB Collaborative Arrangements."
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
enforce patent protection for its products, preserve its trade secrets, and
operate without infringing on the proprietary rights of third parties, both in
the United States and in other countries. In the absence of patent protection,
the Company's business may be adversely affected by competitors who develop
substantially equivalent technology. See "Business--Patents and Proprietary
Information." Because of the substantial length of time and expense associated
with bringing new products through development and regulatory approval to the
marketplace, the pharmaceutical and biotechnology industries place considerable
importance on obtaining and maintaining patent and trade secret protection for
new technologies, products and processes. To date, the Company has been issued
six United States patents related to its PNP inhibitor compounds. One of these
compounds is under a patent issued to Warner-Lambert and the Company may require
a license from Warner-Lambert to market a product containing one or both of
these compounds. The Company has the right of first refusal to negotiate a
license from Warner-Lambert for that compound, however, there can be no
assurance that such a license would be available or obtainable on terms
acceptable to the Company. Two patent applications relating to additional PNP
inhibitor compounds are pending at the PTO. A patent has also been issued by the
PTO on a new process to prepare BCX-34 and other PNP inhibitors. In addition,
one patent has issued by the PTO and one patent application has been filed with
the PTO relating to inhibitors of influenza neuraminidase. The Company has filed
certain corresponding foreign patent applications and intends to file additional
foreign patent applications and additional United States patent applications, as
appropriate. There can be no assurance that patents will be issued from such
applications, that the Company will develop additional products that are
patentable or that present or future patents will provide sufficient protection
to the Company's present or future technologies, products and processes. In
addition, there can be no assurance that others will not independently develop
substantially equivalent proprietary information, design around the Company's
patents or obtain access to the Company's know-how or that others will not
successfully challenge the validity of the Company's patents or be issued
patents which may prevent the sale of one or more of the Company's product
candidates, or require licensing and the payment of significant fees or
royalties by the Company to third parties in order to enable the Company to
conduct its business. Legal standards relating to the scope of claims and the
validity of patents in the fields in which the Company is pursuing research and
development are still evolving, are highly uncertain and involve complex legal
and factual issues. No assurance can be given as to the degree of protection or
competitive advantage any patents issued to the Company will afford, the
validity of any such patents or the Company's ability to avoid infringing any
patents issued to others. Further, there can be no guarantee that any patents
issued to or licensed by the
26
Company will not be infringed by the products of others. Litigation and other
proceedings involving the defense and prosecution of patent claims can be
expensive and time consuming, even in those instances in which the