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, 2005 |
|
|
|
|
OR |
|
|
|
|
|
o |
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 jurisdiction of incorporation or organization) |
|
(I.R.S. employer identification no.) |
|
|
|
|
|
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 o |
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
|
Yes x |
No o |
The number of shares of Common Stock, par value $.01, of the Registrant outstanding as of April 26, 2005 was 26,149,427.
BIOCRYST PHARMACEUTICALS, INC.
INDEX
|
|
|
Page No. |
|
|
|
|
|
Item 1. |
|
|
|
|
Condensed Balance Sheets – March 31, 2005 and December 31, 2004 |
2 |
|
|
Condensed Statements of Operations – Three Months Ended March 31, 2005 and 2004 |
3 |
|
|
Condensed Statements of Cash Flows – Three Months Ended March 31, 2005 and 2004 |
4 |
|
|
5 |
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
7 |
|
Item 3. |
20 |
|
|
Item 4. |
20 |
|
|
|
|
|
|
Item 1. |
21 |
|
|
Item 2. |
21 |
|
|
Item 3. |
21 |
|
|
Item 4. |
21 |
|
|
Item 5. |
21 |
|
|
Item 6. |
21 |
|
|
|
23 |
|
BIOCRYST PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
March 31, 2005 and December 31, 2004
(In thousands, except per share data)
|
|
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
|
||
|
|
|
(Unaudited) |
|
(Note 1) |
|
||
|
Assets |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
22,049 |
|
$ |
8,838 |
|
|
Securities held-to-maturity |
|
|
18,988 |
|
|
14,335 |
|
|
Prepaid expenses and other current assets |
|
|
671 |
|
|
699 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
41,708 |
|
|
23,872 |
|
|
Securities held-to-maturity |
|
|
4,889 |
|
|
5,530 |
|
|
Furniture and equipment, net |
|
|
2,634 |
|
|
2,817 |
|
|
Patents |
|
|
258 |
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
49,489 |
|
$ |
32,468 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,672 |
|
$ |
1,970 |
|
|
Accrued expenses |
|
|
1,011 |
|
|
864 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
2,683 |
|
|
2,834 |
|
|
Deferred revenue |
|
|
300 |
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,983 |
|
|
3,134 |
|
|
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 - 26,149 in 2005 and 21,758 in 2004 |
|
|
262 |
|
|
218 |
|
|
Additional paid-in capital |
|
|
177,653 |
|
|
154,880 |
|
|
Accumulated deficit |
|
|
(131,409 |
) |
|
(125,764 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
46,506 |
|
|
29,334 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
49,489 |
|
$ |
32,468 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed financial statements.
2
BIOCRYST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2005 and 2004
(In thousands, except per share)
(Unaudited)
|
|
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
|
||
|
Revenues: |
|
|
|
|
|
|
|
|
Collaborative and other research and development |
|
$ |
41 |
|
$ |
0 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
5,175 |
|
|
4,983 |
|
|
General and administrative |
|
|
696 |
|
|
660 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
5,871 |
|
|
5,643 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(5,830 |
) |
|
(5,643 |
) |
|
Interest and other income |
|
|
185 |
|
|
181 |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,645 |
) |
$ |
(5,462 |
) |
|
|
|
|
|
|
|
|
|
|
Amounts per common share: |
|
|
|
|
|
|
|
|
Basic and diluted net loss (Note 2) |
|
$ |
(.24 |
) |
$ |
(.28 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (Note 2) |
|
|
23,620 |
|
|
19,587 |
|
See accompanying notes to condensed financial statements.
3
BIOCRYST PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2005 and 2004
(In thousands)
(Unaudited)
|
|
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,645 |
) |
$ |
(5,462 |
) |
|
Depreciation and amortization |
|
|
224 |
|
|
244 |
|
|
Non-monetary compensation |
|
|
7 |
|
|
13 |
|
|
Changes in operating assets and liabilities, net |
|
|
(123 |
) |
|
986 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(5,537 |
) |
|
(4,219 |
) |
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchases of furniture and equipment |
|
|
(41 |
) |
|
(123 |
) |
|
Purchases of patents and licenses |
|
|
(9 |
) |
|
(6 |
) |
|
Purchases of marketable securities |
|
|
(5,812 |
) |
|
(12,818 |
) |
|
Maturities of marketable securities |
|
|
1,800 |
|
|
5,870 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(4,062 |
) |
|
(7,077 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
Employee stock purchase plan sales |
|
|
65 |
|
|
59 |
|
|
Exercise of stock options |
|
|
41 |
|
|
91 |
|
|
Sale of common stock, net of issuance costs |
|
|
22,704 |
|
|
20,280 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
22,810 |
|
|
20,430 |
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
13,211 |
|
|
9,134 |
|
|
Cash and cash equivalents at beginning of period |
|
|
8,838 |
|
|
8,348 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
22,049 |
|
$ |
17,482 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed financial statements.
4
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Preparation
The condensed balance sheet as of March 31, 2005, the condensed statements of operations for the three months ended March 31, 2005 and 2004, and the statements of cash flows for the three months ended March 31, 2005 and 2004 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, 2005, the results of operations for the three months ended March 31, 2005 and 2004, and cash flows for the three months ended March 31, 2005 and 2004. There were no adjustments other than normal recurring adjustments. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Examples include accrued clinical and preclinical expenses. Actual results could differ from those estimates.
These condensed financial statements should be read in conjunction with the financial statements for the year ended December 31, 2004 and the notes thereto included in the Company’s 2004 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, 2004 has been derived from the audited financial statements included in the previously mentioned Annual Report.
Certain amounts in the Condensed Statement of Cash Flows for the three months ended March 31, 2004 have been reclassified to conform to the Condensed Statement of Cash Flows for the three months ended March 31, 2005. The changes had no effect on the results of operations previously reported.
Note 2. Net Loss Per Share
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 is equivalent to basic net loss per share for all periods presented herein because common equivalent shares from unexercised stock options and common shares expected to be issued under the Company’s employee stock purchase plan were anti-dilutive.
Note 3. Stock-Based Compensation
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 noncompensatory 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 shareholders. Consequently, no compensation expense for employees and directors is recognized unless there has been a modification to their grants as was the case for the directors in May 2004, resulting in a recognized expense of $457,000 during 2004. 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.
5
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 month periods ended March 31, 2005 and 2004.
|
|
|
Three Months Ended |
|
||||
|
|
|
|
|
||||
|
|
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
|
||
|
Net loss as reported |
|
$ |
(5,645 |
) |
$ |
(5,462 |
) |
|
Add stock-based employee compensation expense included in reported net loss |
|
|
7 |
|
|
13 |
|
|
Deduct stock-based employee compensation expense determined under Statement No. 123 |
|
|
(426 |
) |
|
(313 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(6,064 |
) |
$ |
(5,762 |
) |
|
|
|
|
|
|
|
|
|
|
Amounts per common share: |
|
|
|
|
|
|
|
|
Net loss per share, as reported |
|
$ |
(.24 |
) |
$ |
(.28 |
) |
|
Pro forma net loss per share |
|
$ |
(.26 |
) |
$ |
(.29 |
) |
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“Statement No. 123R”), which is a revision of Statement No. 123 and supersedes APB No. 25. The Statement addresses the accounting for transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The Statement eliminates the ability to account for share-based compensation transactions using APB No. 25, and generally would require instead that such transactions be accounted for using a grant date fair-value based method. Companies will now be required to recognize an expense for compensation cost related to share-based payment arrangements including stock options and employee stock purchase plans. In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107, Share-Based Payment (“SAB 107”), which provided further clarification on the implementation of Statement No. 123R. In April 2005, the SEC announced a deferral of the effective date of Statement No. 123R for calendar year companies until January 1, 2006. It is expected that the new rules of Statement No. 123R will be applied on a modified prospective basis. The Company is currently evaluating option valuation methodologies and assumptions in light of Statement No. 123R and SAB 107. Current estimates of option values using the Black-Scholes method (as shown above) may not be indicative of results from valuation methodologies ultimately adopted by the Company.
Note 4. Stockholders’ Equity
In February 2005, the Company entered into a Placement Agency Agreement with Leerink Swann & Company in connection with a registered direct offering of 4,350,000 shares of its common stock at an offering price of $5.50 per share. The common stock was issued pursuant to a prospectus supplement filed with the SEC in connection with a shelf takedown from the Company’s registration statement on Form S-3.
In February 2005, the Company entered into stock purchase agreements with a number of institutional investors for an aggregate of 4,350,000 shares of common stock at a gross purchase price of $5.50 per share or $23.9 million.
One of these agreements was with Baker Brothers Investments, L.P., Baker Brothers Investments II, L.P., Baker Biotech Fund I, L.P., Baker Biotech Fund II, L.P., Baker Biotech Fund II (Z), L.P., Baker Biotech Fund III, L.P., Baker Biotech Fund III (Z), L.P., Baker/Tisch Investments, L.P., and 14159, L.P., or the Baker investors, for a total of 1,454,545 shares. As part of this agreement, the Company has granted the Baker investors the right to appoint a member to its board of directors effective as of the closing of the offering, or for a period of twelve months following the closing. The Baker investors have not exercised this right.
The Company also issued an additional 41,140 shares during the three months ended March 31, 2005 as a result of exercises related to the Company’s stock option plan and employee stock purchase plan.
6
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. |
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 recognized 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.
We have incurred operating losses since our inception. Our accumulated deficit at March 31, 2005 was $131.4 million. We will require substantial expenditures relating to the development of our current and future drug candidates. During the three years ended December 31, 2004, we spent 45.5% of our research and development expenses on contract research and development, including:
|
|
• |
payments to consultants; |
|
|
|
|
|
|
• |
funding of research at academic institutions; |
|
|
|
|
|
|
• |
large scale synthesis and formulation of compounds; |
|
|
|
|
|
|
• |
preclinical studies; |
|
|
|
|
|
|
• |
engaging investigators to conduct clinical trials; |
|
|
|
|
|
|
• |
hiring contract research organizations for regulatory and clinical functions; and |
|
|
|
|
|
|
• |
using statisticians to evaluate the results of clinical trials. |
7
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, Fodosine™ (“forodesine hydrochloride”, or “BCX-1777”), an inhibitor of purine nucleoside phosphorylase. In addition, during the fourth quarter of 2004, we initiated a Phase I trial for Fodosine™ in cutaneous T-cell lymphoma (“CTCL”) and a Phase I trial with BCX-4208 in healthy volunteers. As these trials progress and additional trials are started in other indications, our costs for clinical studies will increase significantly. In addition, the costs associated with the manufacturing of Fodosine™ and BCX-4208 will increase as we scale up to the larger production runs required for both clinical development and additional toxicology studies.
Changes in our existing and future research and development and collaborative relationships also will 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, 2005 compared to the three months ended March 31, 2004)
Collaborative and other research and development revenues increased to $41,000 in the three months ended March 31, 2005 compared to $0 in the three months ended March 31, 2004, due to revenue from the National Institutes of Health related to an SBIR grant for support of our hepatitis C program. Interest and other income increased 2.2% to $185,000 in the first quarter of 2005 compared to $181,000 in the first quarter of 2004.
Research and development expenses increased 3.9% to $5,175,000 in the three months ended March 31, 2005 from $4,983,000 in the three months ended March 31, 2004. The increase is primarily attributable to increased expenses related to the clinical trials for our lead drug candidates, Fodosine™ and BCX-4208. These increases were partially offset by a decrease in preclinical testing related to BCX-4208 incurred in 2004 prior to its clinical development.
General and administrative expenses for the three months ended March 31, 2005 increased 5.5% to $696,000 as compared to $660,000 for the same period in 2004, primarily due to additional compensation cost which included the hiring of a Vice President of Business Development in February 2005.
Liquidity and Capital Resources
Cash expenditures have exceeded revenues since the Company’s inception. Our operations have principally been funded through public offerings and private placements of equity and debt securities. For example, during February 2005, we raised $23.9 million (approximately $22.7 million net of expenses) through the sale of 4,350,000 shares of our common stock. Other sources of funding have included the following:
|
|
• |
equipment lease financing, |
|
|
|
|
|
|
• |
facility leases, |
|
|
|
|
|
|
• |
collaborative and other research and development agreements (including licenses and options for licenses), |
|
|
|
|
|
|
• |
research grants and |
|
|
|
|
|
|
• |
interest income. |
8
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 unde