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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2004
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)
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DELAWARE |
62-1413174 |
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(State of other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) |
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2190 Parkway Lake Drive; Birmingham, Alabama 35244 (Address of principal executive offices)
(205) 444-4600 (Registrant’s telephone number, including area code)
NONE (Former name, former address and former fiscal year, if changed since last report)
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 a check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X .
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 21,504,610 shares of the Company’s Common Stock, $.01 par value, were outstanding as of April 21, 2004. |
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BIOCRYST PHARMACEUTICALS, INC.
INDEX
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BIOCRYST PHARMACEUTICALS, INC. March 31, 2004 and December 31, 2003 (In thousands, except per share data) |
| 2004 (Unaudited) |
2003 (Note 1) |
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| Assets | ||||||||
| Cash and cash equivalents | $ | 21,059 | $ | 11,941 | ||||
| Securities held-to-maturity | 7,462 | 8,087 | ||||||
| Prepaid expenses and other current assets | 567 | 676 | ||||||
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| Total current assets | 29,088 | 20,704 | ||||||
| Securities held-to-maturity | 13,293 | 5,704 | ||||||
| Furniture and equipment, net | 3,387 | 3,508 | ||||||
| Patents | 185 | 179 | ||||||
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| Total assets | $ | 45,953 | $ | 30,095 | ||||
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| Liabilities and Stockholders’ Equity | ||||||||
| Accounts payable | $ | 1,054 | $ | 640 | ||||
| Accrued expenses | 1,171 | 708 | ||||||
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| Total current liabilities | 2,225 | 1,348 | ||||||
| Deferred revenue | 300 | 300 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock: shares authorized – 5,000 | ||||||||
| Series A Convertible Preferred stock, $.01 par value; shares | ||||||||
| authorized – 1,800; shares issued and outstanding – none | ||||||||
| Series B Junior Participating Preferred Stock, $.001 par value; shares | ||||||||
| authorized – 21.5; shares issued and outstanding – none | ||||||||
| Common stock, $.01 par value; shares authorized – | ||||||||
| 45,000; shares issued and outstanding – | ||||||||
| 21,505 in 2004 and 17,871 in 2003 | 215 | 179 | ||||||
| Additional paid-in capital | 153,334 | 132,928 | ||||||
| Accumulated deficit | (110,121 | ) | (104,660 | ) | ||||
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| Total stockholders’ equity | 43,428 | 28,447 | ||||||
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| Total liabilities and stockholders’ equity | $ | 45,953 | $ | 30,095 | ||||
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See accompanying notes to condensed financial statements. 2 |
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BIOCRYST PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF OPERATIONS Three Months Ended March 31, 2004 and 2003 (In thousands, except per share) (Unaudited) |
2004
2003
Revenues: Interest and other $ 181 $ 308
Total revenues 181 308
Expenses: Research and development 4,983 2,489 General and administrative 660 607
Total expenses 5,643 3,096
Net loss $ (5,462 ) $ (2,788 )
Amounts per common share: Net loss (Note 2) $ (.28 ) $ (.16 )
Weighted average shares outstanding (Note 2) 19,587 17,663
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See accompanying notes to condensed financial statements. 3 |
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BIOCRYST PHARMACEUTICALS, INC. CONDENSED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2004 and 2003 (In thousands) (Unaudited) |
| 2004
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2003
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| Operating activities: | ||||||||
| Net loss | $ | (5,462 | ) | $ | (2,788 | ) | ||
| Depreciation and amortization | 244 | 304 | ||||||
| Non-monetary compensation | 13 | 30 | ||||||
| Changes in operating assets and liabilities, net | 986 | (203 | ) | |||||
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| Net cash used in operating activities | (4,219 | ) | (2,657 | ) | ||||
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| Investing activities: | ||||||||
| Purchases of furniture and equipment | (123 | ) | (23 | ) | ||||
| Purchases of patents and licenses | (6 | ) | 0 | |||||
| Purchases of marketable securities | (11,726 | ) | (4,527 | ) | ||||
| Maturities of marketable securities | 4,762 | 5,008 | ||||||
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| Net cash (used in) provided by investing activities | (7,093 | ) | 458 | |||||
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| Financing activities: | ||||||||
| Proceeds from sale of common stock | 20,430 | 6 | ||||||
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| Net cash provided by financing activities | 20,430 | 6 | ||||||
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| Increase (decrease) in cash and cash equivalents | 9,118 | (2,193 | ) | |||||
| Cash and cash equivalents at beginning of period | 11,941 | 13,824 | ||||||
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| Cash and cash equivalents at end of period | $ | 21,059 | $ | 11,631 | ||||
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See accompanying notes to condensed financial statements. 4 |
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BIOCRYST PHARMACEUTICALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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Note 1. Basis of Preparation |
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The condensed balance sheet as of March 31, 2004 and the condensed statements of operations and cash flows for the three months ended March 31, 2004 and 2003 have been prepared by the Company in accordance with accounting principles generally accepted in the United States and have not been audited. Such financial statements reflect all adjustments that are, in management’s opinion, necessary to present fairly, in all material respects, the financial position at March 31, 2004 and the results of operations and cash flows for the three months ended March 31, 2004 and 2003. Preparing financial statements requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses. Examples include accrued clinical and preclinical expenses. Actual results may differ from these estimates.
These condensed financial statements should be read in conjunction with the financial statements for the year ended December 31, 2003 and the notes thereto included in the Company’s 2003 Annual Report on Form 10-K. Interim operating results are not necessarily indicative of operating results for the full year. The condensed balance sheet as of December 31, 2003 has been prepared from the audited financial statements included in the previously mentioned Annual Report.
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Note 2. Net Loss Per Share |
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The Company computes net loss per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share. Net loss per share is based upon the weighted average number of common shares outstanding during the period. Diluted loss per share includes common equivalent shares from unexercised stock options and common shares expected to be issued under the Company’s employee stock purchase plan. For all periods presented, diluted loss per share does not include the impact of potential common shares outstanding, as the impact of those shares is anti-dilutive.
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Note 3. Stock-Based Compensation |
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The Company accounts for stock-based compensation under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). Under APB No. 25, the Company’s stock option and employee stock purchase plans qualify as non-compensatory plans. Under Financial Accounting Standards Board Interpretation 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB No. 25, outside directors are considered employees for purposes of applying APB No. 25, if they are elected by the stockholders. Consequently, no compensation expense for employees and directors is recognized. Stock issued to non-employees is compensatory and compensation expense is recognized under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“Statement No. 123”) as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (“Statement No. 148”).
The following table illustrates the pro forma effect on net loss and net loss per share had the Company applied the fair value recognition provisions of Statement No. 123 for the three months ended March 31, 2004 and 2003. |
| 2004
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2003
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| Net loss as reported | $ | (5,462 | ) | $ | (2,788 | ) | |||
| Stock-based employee compensation expense determined | |||||||||
| under Statement No. 123 | (236 | ) | 632 | ||||||
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| Pro forma net loss | $ | (5,698 | ) | $ | (2,156 | ) | |||
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| Amounts per common share: | |||||||||
| Net loss per share, as reported | $ | (.28 | ) | $ | (.16 | ) | |||
| Pro forma net loss per share | $ | (.29 | ) | $ | (.12 | ) | |||
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Note 4– Stockholders’ Equity
On February 4, 2004, the Company entered into a Placement Agency Agreement with Leerink Swann & Company in connection with a registered direct offering of 3,571,667 shares of its common stock at an offering price of $6.00 per share. The common stock was issued pursuant to a prospectus supplement filed with the Securities and Exchange Commission pursuant to Rule 424(b)(2) of the Securities Act of 1933, as amended, in connection with a shelf takedown from the Company’s registration statement on Form S-3 (333-111226), filed on December 16, 2003 and which became effective on January 5, 2004.
On February 17, 2004, the Company entered into a Stock Purchase Agreement with Caduceus Private Investments II, LP, Caduceus Private Investments II (QP), LP and UBS Juniper Crossover Fund, L.L.C. As part of this agreement, Registrant has granted these investors the right to appoint a member to its board of directors effective as of the closing of the offering. On February 18, 2004, the Company announced it had completed a $21.4 million registered direct offering of 3,571,667 shares of its common stock to a group of institutional investors.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q 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, including the Company’s Annual Report on Form 10-K.
Overview
Since our inception in 1986, we have been engaged in research and development activities and organizational efforts, including: |
| • | identification and licensing of enzyme targets; |
| • | drug discovery; |
| • | structure-based design of drug candidates; |
| • | small-scale synthesis of compounds; |
| • | conducting preclinical studies and clinical trials; |
| • | recruiting our scientific and management personnel; |
| • | establishing laboratory facilities; and |
| • | raising capital. |
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Our revenues have generally been limited to license fees, milestone payments, interest income, and collaboration research and development fees. The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB No. 104”). Research and development revenue on cost-reimbursement agreements is recognized as expenses are incurred, up to contractual limits. Research and development fees, license fees and milestone payments are recognized as revenue when the earnings process is complete, the Company has no further continuing performance obligations and has completed its performance under the terms of the agreement, in accordance with SAB No. 104. License fees and milestone payments received under licensing agreements that are related to future performance are deferred and taken into income as earned over the estimated drug development period. The Company has not received any revenues or royalties from the sale of licensed pharmaceutical products. It could be several years, if ever, before we will recognize significant revenue from royalties received pursuant to our license agreements or revenue directly from product sales. Future revenues, if any, are likely to fluctuate substantially from quarter to quarter. 6 |
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We have incurred operating losses since our inception. Our accumulated deficit at March 31, 2004 was $110.1 million. We will require substantial expenditures relating to the development of our current and future drug candidates. During the three years ended December 31, 2003, we spent 34.1% of our research and development expenses on contract research and development, including:
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| • | payments to consultants; |
| • | funding of research at academic institutions; |
| • | large scale synthesis of compounds; |
| • | preclinical studies; |
| • | engaging investigators to conduct clinical trials; |
| • | hiring contract research organizations to monitor and gather data on clinical trials; and |
| • | using statisticians to evaluate the results of clinical trials. |
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The above expenditures for contract research and development for our current and future drug candidates will vary from quarter-to-quarter depending on the status of our research and development projects. For example, during the first quarter of 2004, we entered a Phase II trial for our lead drug candidate, BCX-1777. As this trial progresses and additional clinical sites and patients are added, our costs for clinical studies will increase significantly. In addition, the costs associated with the manufacturing of BCX-1777 will increase as we scale up to the larger production runs required for the clinical development of BCX-1777.
Changes in our existing and future research and development and collaborative relationships will also impact the status of our research and development projects. Although we may, in some cases, be able to control the timing of development expenses, in part by accelerating or decelerating certain of these costs, many of these costs will be incurred irrespective of whether we are able to discover drug candidates or obtain collaborative partners for commercialization. As a result, we believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. If we fail to meet the research, clinical and financial expectations of securities analysts and investors, it could have a material adverse effect on the price of our common stock.
Results of Operations (three months ended March 31, 2004 compared to the three months ended March 31, 2003)
Interest and other income decreased 41.2% to $181,000 in the first quarter of 2004 compared to $308,000 in the first quarter of 2003. This decrease was due to a reduction in interest rates.
Research and development expenses increased 100.2% to $4,983,000 in the three months ended March 31, 2004 from $2,489,000 in the three months ended March 31, 2003. The increase is primarily attributable to costs related to the clinical development of BioCryst’s lead drug candidate, BCX-1777, and the preclinical testing required for the potential clinical development of BCX-4208.
General and administrative expenses for the three months ended March 31, 2004 increased 8.7% to $660,000 as compared to $607,000 for the same period in 2003, the result of higher insurance costs and other professional fees. 7 |
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Liquidity and Capital Resources
Cash expenditures have exceeded revenues since the Company’s inception. Our operations have principally been funded through various sources, including the following: |
| • | public offerings and private placements of equity and debt securities, |
| • | equipment lease financing, |
| • | facility leases, |
| • | collaborative and other research and development agreements (including licenses and options for licenses), |
| • | research grants and |
| • | interest income. |
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In addition, we have attempted to contain costs and reduce cash flow requirements by renting scientific equipment and facilities, contracting with other parties to conduct certain research and development and using consultants. We expect to incur additional expenses, potentially resulting in significant losses, as we continue to pursue our research and development activities and undertake additional preclinical studies and clinical trials of compounds which have been or may be discovered. We also expect to incur substantial expenses related to the filing, prosecution, maintenance, defense and enforcement of patent and other intellectual property claims.
On August 5, 2002, at the request of Dr. Charles E. Bugg, our Chairman and Chief Executive Officer and Dr. J. Claude Bennett, our President, Chief Operating Officer and Medical Director, our Compensation Committee and board of directors approved a 25% reduction in their salaries, effective August 1, 2002. On December 8, 2003, the Compensation Committee and board of directors restored their salaries to the full amount in effect prior to August 1, 2002. This change became effective on January 1, 2004. In the event of any change of control of the Company, any cumulative salary reductions during the period from August 1, 2002 through December 31, 2003 would become due and payable to them. The aggregate monthly amount of the reduction was $14,677.
On October 24, 2003, our compensation committee voted to pay Dr. Charles E. Bugg, our Chairman and Chief Executive Officer, $484,500 as consideration for the cancellation of options held by Dr. Bugg to purchase 170,000 shares of our common stock. The expiration date of the options was November 18, 2003, and the exercise price of the options was $6.00 per share.
The Company invests its excess cash principally in U.S. marketable securities from a diversified portfolio of institutions with strong credit ratings and in U.S. government and agency bills and notes, and by policy, limits the amount of credit exposure at any one institution. These investments are generally not collateralized and mature within three years. The Company has not realized any losses from such investments. In addition, at March 31, 2004, approximately $14.2 million was invested in the Merrill Lynch Premier Institutional Fund, which invests primarily in commercial paper, U.S. government and agency bills and notes, corporate notes, certificates of deposit and time deposits. The Merrill Lynch Premier Institutional Fund is not insured. At March 31, 2004, our cash, cash equivalents and securities held-to-maturity were $41.8 million, an increase of $16.1 million from December 31, 2003, principally due to the fact that we raised an additional $21.3 million of capital during February 2004 through a registered offering of our common stock to selected institutional investors. This offering, net of expenses was approximately $20.3 million and we used approximately $4.2 million of cash in operations during the first quarter. 8 |
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We have financed some of our equipment purchases with lease lines of credit. We currently have a $500,000 general line of credit with our bank, secured by a pledge of $600,000 in marketable securities. There was nothing drawn against this line as of March 31, 2004. In July 2000, we renegotiated our lease for our current facilities, which will expire on June 30, 2010. We have an option to renew the lease for an additional five years at the current market rate in effect on June 30, 2010, and a one-time option to terminate the lease on June 30, 2008 for a termination fee of approximately $124,000. The lease, as amended effective July 1, 2001 for an additional 7,200 square feet, requires us to pay monthly rent starting at $33,145 per month in July 2001 and escalating annually to a minimum of $47,437 per month in the final year, plus our pro rata share of operating expenses and real estate taxes in excess of base year amounts. As part of the lease, we have deposited a U.S. Treasury security in escrow for the payment of rent and performance of other obligations specified in the lease. This pledged amount is currently $390,000, which will be decreased by $65,000 annually throughout the term of the lease. Currently, we have approximately 14,000 square feet of space available for sublease, of which 7,200 is currently being leased.
At December 31, 2003, we had long-term operating lease obligations, which provide for aggregate minimum payments of $594,897 in 2004, $605,139 in 2005 and $573,031 in 2006. These obligations include the future rental of our operating facility.
We plan to finance our needs principally from the following: |
| • | our existing capital resources and interest earned on that capital; |
| • | payments under collaborative and licensing agreements with corporate partners; and |
| • | lease or loan financing and future public or private financing. |
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We believe that our available funds will be sufficient to fund our operations at least through mid-year 2005. However, this is a forward looking statement, and there may be changes that would consume available resources significantly before such time. Our long-term capital requirements and the adequacy of our available funds will depend upon many factors, including: |
| • | the progress of our research, drug discovery and development programs; |
| • | changes in existing collaborative relationships; |
| • | our ability to establish additional collaborative relationships; |
| • | the magnitude of our research and development programs; |
| • | the scope and results of preclinical studies and clinical trials to identify drug candidates; |
| • | competitive and technological advances; |
| • | the time and costs involved in obtaining regulatory approvals; |
| • | the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; |
| • | our dependence on others for development and commercialization of our product candidates, and |
| • | successful commercialization of our products consistent with our licensing strategy. |
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In 2003, our operations consumed approximately $1,000,000 per month, but we expect that our monthly cash used by operations will continue to increase for the next several years. During 2004, we plan to both expand our existing clinical programs and initiate clinical programs for several new disease indications. These additional trials and the related manufacturing, personnel resources and testing required to support these studies will consume significant capital resources and significantly increase our expenses and our net loss. We expect our monthly burn rate to increase to approximately $2 million by mid-2004, as our Phase II trial for T-cell leukemia patients progresses. This monthly burn rate could increase more as the year progresses and in future years depending on many factors, including our ability to rai |