Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by a check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by a check mark whether the registrant submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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. ☒
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Indicate by a check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes ☐ No ☒.
The Registrant estimates that the aggregate market value of the Common Stock on June 30,
2016 (based upon the closing price shown on the NASDAQ Global Select Market on June 30, 2016) held by non-affiliates
was $206,175,247.
The number of shares of Common Stock, par value $.01, of the Registrant outstanding as
of January 31, 2017 was 73,955,169 shares.
Portions of the Registrant’s definitive Proxy Statement to be filed in connection
with the solicitation of proxies for its 2017 Annual Meeting of Stockholders are incorporated by reference into Items 10,
11, 12, 13 and 14 under Part III hereof.
PART I
Forward-Looking Statements
This report includes forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created
in Section 21E. In particular, statements about our expectations, beliefs, plans, objectives or assumptions of future events
or performance are contained or incorporated by reference in this report. All statements other than statements of historical facts
contained herein are forward-looking statements. We have based these forward-looking statements on our current expectations about
future events. While we believe these expectations are reasonable, forward-looking statements are inherently subject to risks and
uncertainties, many of which are beyond our control. Our actual results may differ materially from those suggested by these forward-looking
statements for various reasons, including those discussed in this report under the heading “Risk Factors.” Given these
risks and uncertainties, you are cautioned not to place undue reliance on our forward-looking statements. The forward-looking statements
included in this report are made only as of the date hereof. We do not undertake, and specifically decline, any obligation to update
any of these statements or to publicly announce the results of any revisions to any forward-looking statements to reflect future
events or developments. When used in the report, unless otherwise indicated, “we,” “our,” “us,”
the “Company” and “BioCryst” refer to BioCryst Pharmaceuticals, Inc.
Our Business
We are a biotechnology company that designs, optimizes and develops
novel small molecule drugs that block key enzymes involved in the pathogenesis of diseases. We focus on the treatment of rare diseases
in which significant unmet medical needs exist and align with our capabilities and expertise. We integrate the disciplines of biology,
crystallography, medicinal chemistry and computer modeling to discover and develop small molecule pharmaceuticals through the process
known as structure-guided drug design. Structure-guided drug design is a drug discovery approach by which we design synthetic compounds
from detailed structural knowledge of the active sites of enzyme targets associated with particular diseases. We use X-ray crystallography,
computer modeling of molecular structures and advanced chemistry techniques to focus on the three-dimensional molecular structure
and active site characteristics of the enzymes that control cellular biology. Enzymes are proteins that act as catalysts for many
vital biological reactions. Our goal generally is to design a compound that will fit in the active site of an enzyme and thereby
prevent its catalytic activity. Molecules from our discovery efforts which are commercially available or that are in active development
are summarized in the table below:
Drug/Drug Candidate
|
|
Drug Class
|
|
Therapeutic
Area(s)
|
|
Phase
|
|
Rights
|
RAPIVAB
®
(peramivir injection)
|
|
Intravenous Neuraminidase Inhibitor
|
|
Acute uncomplicated Influenza
|
|
Approved
(US & Canada)
|
|
Seqirus (worldwide, except Japan, Taiwan, Korea and Israel) BioCryst retains full U.S. Government stockpiling rights
|
|
|
|
|
|
|
|
|
|
ALPIVAB
TM
(peramivir injection)
|
|
Intravenous Neuraminidase Inhibitor
|
|
Acute uncomplicated Influenza
|
|
MAA filed and being reviewed by the EMA
|
|
Seqirus (worldwide, except Japan, Taiwan, Korea and Israel)
|
|
|
|
|
|
|
|
|
|
RAPIACTA
®
(peramivir injection)
|
|
Intravenous Neuraminidase Inhibitor
|
|
Uncomplicated seasonal influenza
|
|
Approved
(Japan & Taiwan)
|
|
Shionogi
(Japan & Taiwan)
|
|
|
|
|
|
|
|
|
|
PERAMIFLU
®
(peramivir injection)
|
|
Intravenous Neuraminidase Inhibitor
|
|
Uncomplicated seasonal influenza
|
|
Approved
(Korea)
|
|
Green Cross
(Korea)
|
|
|
|
|
|
|
|
|
|
BCX7353
|
|
Oral Serine Protease Inhibitor Targeting Kallikrein (intended to be
a once-daily treatment)
|
|
HAE
|
|
Phase 2
|
|
BioCryst
(worldwide)
|
|
|
|
|
|
|
|
|
|
Other 2
nd
generation
HAE compounds
|
|
Oral Serine Protease Inhibitors Targeting Kallikrein
|
|
HAE and other indications
|
|
Preclinical
|
|
BioCryst
(worldwide)
|
|
|
|
|
|
Galidesivir (formerly BCX4430)
|
|
RNA dependent-RNA Polymerase Inhibitor
|
|
Broad spectrum antiviral for 20 RNA viruses, including Ebola, Marburg, and Zika
|
|
Phase 1
|
|
BioCryst
(worldwide)
|
|
|
|
|
|
|
|
|
|
Forodesine
|
|
Oral Purine Nucleoside Phosphorylase Inhibitor
|
|
Oncology- PTCL
|
|
JNDA filed and being reviewed by the PMDA in Japan
|
|
Mundipharma
(worldwide)
|
Business Strategy
Our business strategy is to create shareholder value by focusing our
discovery and development efforts on oral drugs for rare diseases for which a significant unmet medical need exists. We select
disease targets and product candidates in which a small molecule would offer a significant benefit over existing products or would
be the first to market. We strive to advance our product candidate portfolio from discovery to commercial markets efficiently by
utilizing a small group of talented and highly-skilled employees working in conjunction with strategic outsource partners. BioCryst
is unique in its approach to treat orphan diseases with orally-administered, small molecules utilizing crystallography and structure-guided
drug design. The principal elements of our strategy are:
|
•
|
|
Focusing on High Value-Added Structure-Guided Drug Design Technologies.
We utilize structure-guided drug design in order to most efficiently develop new therapeutic candidates. Structure-guided drug design is a process by which we design a product candidate through detailed analysis of the enzyme target, which the product candidate must inhibit in order to stop the progression of the disease or disorder. We believe that structure-guided drug design is a powerful tool for the efficient development of small-molecule product candidates that have the potential to be safe and effective. Our structure-guided drug design technologies typically allow us to design and synthesize multiple product candidates that inhibit the same enzyme target, with the goal of establishing broad patent protection and formulating compounds with competitive advantages.
|
|
•
|
|
Selecting Inhibitors that are Promising Product Candidates.
We start by selecting disease targets with well-understood biology and characteristics that fit with our ability to utilize structure-guided drug design capabilities to build potent and specific enzyme inhibitors. Next, we narrow our selection of these product candidates based on product characteristics, such as initial indications of safety and biologic activity on the target.
|
|
•
|
|
Developing our Product Candidates Efficiently.
An important element of our business strategy is to efficiently progress our product candidates through the development process. In order to accomplish this, we strive for disease targets with a defined clinical and regulatory pathway for approval. In addition, we control fixed costs and overhead by outsourcing with strategic partners and contractors or entering into license agreements with third parties, including the U.S. Government. We maintain a streamlined corporate infrastructure that focuses our expertise. By contracting with the U.S. Government and outsourcing certain aspects of our operations, we are able to control overhead costs and focus financial resources directly where they provide the most benefit and reduce our business risk.
|
We are a Delaware corporation originally founded in 1986. Our corporate
headquarters is located at 4505 Emperor Blvd., Suite 200, Durham, North Carolina 27703 and the corporate telephone number
is (919) 859-1302. For more information about us, please visit our website at www.biocryst.com. The information on our website
is not incorporated into this Form 10-K.
Peramivir injection
(RAPIVAB
®
, RAPIACTA
®
, PERAMIFLU
®
,
ALPIVAB
TM
)
Peramivir is an intravenous neuraminidase inhibitor approved in multiple
countries for the treatment of patients with influenza. Influenza is a seasonal virus with the highest infection rates generally
observed in colder months. In countries for which peramivir is commercially available, influenza occurs primarily during the September
to April timeframe. Peramivir is available commercially in the United States and has been approved for commercial use in Canada
under the name RAPIVAB
®
, in Japan and Taiwan as RAPIACTA
®
, and in Korea as PERAMIFLU
®
.
Peramivir was most recently approved in Canada in January 2017,
and was approved in the United States in December 2014, in each case for the treatment of acute uncomplicated influenza in
patients 18 years and older who have been symptomatic for no more than two days. Data from over 2,700 subjects treated with
peramivir in 27 clinical trials was utilized to support regulatory approval in these countries. We made RAPIVAB available for
commercial sale in the U.S. through agreements with specialty distributorships during the 2014-2015 influenza season. On June
17, 2015, we announced that we licensed RAPIVAB (peramivir injection) for the treatment of influenza to CSL Limited
(“CSL“), a global biopharmaceutical company. RAPIVAB is being commercialized by a subsidiary of CSL called
Seqirus UK Limited (“SUL” or “Seqirus”), which specializes in influenza prevention through the supply of seasonal and
pandemic influenza vaccine to global markets. Under the terms of the agreement, SUL obtained worldwide rights to
commercialize RAPIVAB, with the exception of Japan, Korea, Taiwan and Israel. BioCryst retained all rights to pursue pandemic
stockpiling orders for RAPIVAB from the U.S. Government, while SUL is responsible for government stockpiling outside the U.S.
With the out-license of RAPIVAB to SUL, and our recent Canadian regulatory approval, our current goals for RAPIVAB are to:
(1) obtain a stockpiling procurement contract with the U.S. Government (2) fulfill our post-approval development
requirements, including conducting a pediatric trial in the United States and submitting a supplemental New Drug Application
(“sNDA”) for a pediatric indication; and receiving regulatory approval for our Marketing Authorization
Application (“MAA”) in the European Union.
In January 2017, we announced that the European Medicines Agency (“EMA”)
has accepted the filing of our peramivir injection MAA for treatment of symptoms typical of influenza in adults 18 years and
older. If the MAA is approved, Seqirus will commercialize peramivir as ALPIVAB
TM
in the European Union. The acceptance
of the MAA begins the review process by the EMA under the centralized licensing procedure for all 28 member states of the European
Union, Norway and Iceland.
RAPIVAB was developed under a $234.8 million contract from the Biomedical
Advanced Research and Development Authority within the United States Department of Health and Human Services (“BARDA/HHS”),
which expired on June 30, 2014. See “Collaborations and In-License Relationships—BARDA/HHS” below for a further
discussion of this development contract.
In January 2010, our partner Shionogi & Co., Ltd. (“Shionogi”)
received the first approval for peramivir injection and launched it in Japan under the commercial name RAPIACTA. It is approved
for the treatment of adults, children and infants with uncomplicated seasonal influenza and those patients at high-risk for complications
associated with influenza. In August 2010, Green Cross Corporation (“Green Cross”) received marketing and manufacturing
approval from the Korean Food & Drug Administration under the commercial name PERAMIFLU to treat patients with influenza
A & B viruses, including pandemic H1N1 and avian influenza. In addition, we have a regional collaboration for the development
and commercialization of peramivir in Israel.
Hereditary Angioedema (“HAE”) Drug Candidates
2nd generation HAE compounds:
The goal of our second
generation HAE discovery program is to discover and develop oral molecules for the prevention of HAE attacks which have a superior
selectivity and bioavailability profile while maintaining similar potency as compared to avoralstat. HAE is a rare, severely debilitating
and potentially fatal genetic condition that occurs in approximately 1 in 50,000 people. HAE symptoms include recurrent episodes
of edema in various locations, including the hands, feet, face, genitalia and airway. Airway swelling is particularly dangerous
and can lead to death by asphyxiation. In addition, patients often have bouts of excruciating abdominal pain, nausea and vomiting
caused by swelling in the intestinal wall. By inhibiting plasma kallikrein, our HAE drug candidates suppress bradykinin production.
Bradykinin is the mediator of acute swelling attacks in HAE patients.
In December 2013, we announced the selection of two optimized plasma
kallikrein inhibitors to advance into preclinical development as potential once-daily, oral prophylactic treatments for HAE. Based
on early preclinical development studies, these structurally different molecules have a similar mechanism of action as avoralstat
and have achieved the principal goal of improved bioavailability. Both BCX7353 and the other compound had roughly five times better
bioavailability than avoralstat, our first oral drug candidate to treat HAE. These compounds demonstrated sub-nanomolar potency
on the isolated enzyme and single digit nanomolar potency in suppressing kallikrein activity in an ex-vivo activated normal human
plasma kallikrein inhibition (“aPKI”) assay. Plasma concentrations of each of the optimized compounds exceeded the
aPKI assay EC80 concentration at 24 hours after a single oral dose of 10 mg/kg in rats, indicating potential for once-daily dosing.
In January 2015, we selected BCX7353 to advance into Phase 1 development as a once-daily, oral prophylactic HAE treatment. In
addition to BCX7353, we continue to work on and advance other second generation compounds. These molecules are in preclinical
development and are being assessed for safety and efficacy in prophylactic HAE treatment as well as for other potential indications.
We will provide additional information on these molecules as we approach an Investigational New Drug (“IND”) filing
or we obtain data suggesting efficacy and safety surrounding these molecules in HAE and other therapeutic indications.
BCX7353:
BCX7353 is structurally different from and
is expected to have superior efficacy as compared to avoralstat, but has a similar mechanism of action targeting plasma kallikrein.
On May 13, 2015, we announced the initiation of a Phase 1 clinical trial to evaluate the safety, pharmacokinetics and pharmacodynamics
of orally-administered BCX7353 in healthy volunteers.
In October 2015, we successfully completed a Phase
1 clinical trial of BCX7353 in Western and Japanese healthy volunteers. In the Western portion of this trial, we studied BCX7353
single doses of up to 1000mg, once-daily doses of up to 500mg for seven days, and once-daily doses of 350mg for 14 days in healthy
Western volunteers. Plasma levels increased in approximate proportion to dose, and drug exposure was not affected by dosing with
food. The half-life of BCX7353 was estimated at 50-60 hours. After daily dosing, blood levels met or exceeded a predicted target
therapeutic range throughout the 24 hour dosing interval. Inhibition of the target enzyme, plasma kallikrein, was measured in
a sensitive and specific bioassay. Daily dosing with BCX7353 strongly inhibited plasma kallikrein at all four dose levels; the
degree of inhibition was dose-related (p < 0.0001) and inhibition was sustained throughout the 24 hour dosing interval. This
pharmacodynamic effect correlated strongly to the achieved drug concentration (r = 0.91, p < 0.0001).
In the Japanese portion of this trial, we enrolled
cohorts of healthy Japanese volunteers and gave single oral doses of BCX7353 of 100mg and 500mg, and daily doses of 250mg of BCX7353
for seven days. Compared to Western subjects administered the same dose level, plasma drug levels in Japanese subjects were moderately
higher. Kallikrein inhibition on day seven of daily dosing with 250mg in Japanese subjects was similar to that seen at the 350mg
daily and 500mg daily dose levels in Western subjects.
The combined data from all Phase 1 clinical trials
completed as of July 2016 indicates that oral BCX7353 has been generally safe and well tolerated in a total of 117 healthy volunteers,
46 receiving single doses of up to 1000 mg, and 71 receiving once-daily doses of up to 500 mg for 7 days and 350 mg for 14 days.
In our Phase 1 trials, we have observed an approximate 5% rate of drug-related rash in healthy volunteers administered daily doses
of BCX7353 for at least 7 days. This drug-related rash appears within the first 14 days of drug administration and resolves within
a few days after discontinuing the drug. No serious adverse events have been seen and no dose-limiting toxicity has been identified.
There have been no clinically significant laboratory abnormalities, ECG changes, or vital sign changes observed.
The safety, tolerability, drug exposure and on-target plasma kallikrein
inhibition results strongly supported advancing the development program into a Phase 2 study in HAE patients. In August 2016, we
commenced a Phase 2 trial (“APeX-1”) to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics and efficacy
of BCX7353 as a preventative treatment to reduce the frequency of attacks in HAE patients.
APEX-1 trial
:
In August 2016, we announced that we
had dosed the first subject in the APeX-1 clinical trial of BCX7353 for the oral treatment of HAE. APeX-1 is a multi-part, Phase
2, randomized, double-blind, placebo-controlled, dose ranging trial to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics
and efficacy of BCX7353 as a preventative treatment to eliminate or reduce the frequency of angioedema attacks in HAE patients.
APEX-1 is being conducted in several European countries, Australia and Canada. In part 1 of APeX-1, subjects with HAE were randomized
in a 1:1 ratio to receive an oral dose of either 350 mg of BCX7353 once daily (“QD”) or placebo QD for 28 days. The
primary efficacy endpoints of APeX-1 are the number of angioedema attacks; attack rate per week, counts of attacks, proportion
of subjects with no attacks, and number of attack-free days. Efficacy analyses will be conducted for HAE attacks reported over
the entire dosing interval (Days 1 through 28) and during the dosing period in which plasma concentrations of BCX7353 should be
at steady-state conditions (Days 8 through 28). Secondary efficacy endpoints include severity and duration of angioedema attacks
and measures of health-related quality of life. Safety will be characterized through evaluation of adverse events and laboratory
testing. Pharmacokinetics and pharmacodynamic effects will be assessed through measurement of plasma drug levels and kallikrein
inhibition. A total of approximately 36 subjects have been enrolled in part 1.
On February 27, 2017, we reported statistically
significant and clinically meaningful reductions in attack frequency from an interim analysis of part 1 of our ongoing multi-part
APeX-1 clinical trial in HAE patients. In the interim analysis, twenty-eight subjects, randomized equally to receive BCX7353 350 mg
QD or placebo for 28 days. The baseline attack rate was approximately 1/week and average C1 inhibitor levels were less than
20% of the normal mean, indicating a severely affected patient population. Baseline characteristics of trial participants were
generally well balanced between the two groups with the exception of prior androgen use, which was more common in the BCX7353 group
(11 of 14 compared with 6 of 14 on placebo). Compliance with study drug dosing in the trial was excellent and was greater than
98%.
The pre-specified per-protocol (“PP”)
interim analysis included data on 24 subjects with confirmed Type 1 or Type 2 HAE and completing 28 days of treatment (11 on BCX7353
and 13 on placebo). The mean rate of independently-adjudicated angioedema attacks for the pre-defined effective dosing period (weeks
2 through 4) in BCX7353-treated subjects was 0.34/week compared to 0.92/week for placebo, a reduction of 0.57/week (63%), p = 0.006.
In the intent-to-treat (“ITT”) population of 28 subjects, the rate of attack for the effective dosing period for BCX7353
and placebo groups was 0.44/week and 0.91/week, a reduction of 0.47/week (52%), p = 0.035.
A pre-planned analysis of peripheral and
abdominal attacks showed reductions of 88% and 24%, respectively, for BCX7353 compared with placebo (PP analysis, weeks 2 through
4). To understand this difference, patient diaries were reviewed and abdominal attacks (n = 9, BCX7353 and n = 14,
placebo) were subdivided into two groups: attacks with abdominal symptoms only and attacks with a combination of abdominal and
peripheral symptoms (mixed attacks). This post-hoc analysis showed that there were 2, 2 and 7 peripheral, mixed and abdominal-only
attacks on BCX7353 compared with 22, 12 and 2 attacks, respectively, for placebo. Based on this distribution, it is likely that
subjects recorded abdominal adverse events as HAE attack symptoms in their diary. Accordingly, this post-hoc analysis
indicated an 88% reduction in the number of attacks for subjects treated with BCX7353, as compared to the placebo arm, characterized
by either peripheral symptoms-only or a combination of peripheral and abdominal symptoms.
Pharmacokinetic and pharmacodynamic analyses indicate steady state
BCX7353 plasma levels in HAE subjects were similar to those in healthy subjects administered the same dose in a previously completed
Phase 1 trial. Steady state trough drug levels (24 hours after dosing) were 11 – 32 times the 50% effective concentration
(EC
50
) for plasma kallikrein inhibition. These observed steady state drug levels greatly exceeded our proposed therapeutic
target range of 4 – 8 times the EC
50.
Daily oral dosing with BCX7353 strongly inhibited plasma kallikrein
throughout the 24-hour dosing interval and the degree of inhibition was similar to that seen with this dose in the healthy subject
Phase 1 trial.
Oral BCX7353 350 mg QD for 28 days
was generally safe and well tolerated in subjects with HAE. There were no serious adverse events (AEs) and no related severe
AEs. Two subjects in the BCX7353 treatment group discontinued study drug before day 28, one due to an unrelated pre-existing
liver disorder, and one due to an adverse event of gastroenteritis associated with elevated liver enzymes. Treatment-emergent
adverse events occurring in at least two subjects overall, enumerated by treatment group (BCX7353 [n=14] and placebo [n=14]),
respectfully, were: common cold (3, 4); diarrhea (4, 2); flatulence (2, 0); and fatigue (2, 0). No clinically
significant changes in hematology parameters, renal function tests, electrolytes, or urinalysis were observed. One subject
treated with BCX7353, with pre-existing colitis, hepatic steatosis (i.e., a fatty liver) and more than 20 years of prior
androgen use, had an elevation of alanine aminotransferase (ALT) > 3 times the upper limit of normal at the end of
treatment, which resolved.
Based upon this interim analysis, the efficacy, safety and
tolerability profile of BCX7353 observed strongly supports its continued development as a prophylactic treatment for HAE.
Furthermore, the steady state drug levels observed greatly exceeded our proposed therapeutic target range of
4 – 8 times the EC
50
, thereby supporting and prompting us to evaluate doses of BCX7353 lower than
the 350 QD tested in part 1 of the trial. Therefore, the APeX-1 trial has been amended to add a 62.5 mg QD dose level, and to
increase the number of subjects at the 125 mg QD and 250 mg QD dose levels, in order to more fully
characterize dose response. Specifically, part 2 of APeX-1 will enroll 14 additional subjects with HAE and they will be
randomized to 250mg of BCX7353 QD (n=6), 125mg of BCX7353 QD (n=6) or placebo (n=2) and part 3 of APeX-1 will enroll 20
additional subjects with HAE and they will be randomized to 250mg of BCX7353QD (n=6), 125mg of BCX7353 QD (n=6), 62.5mg of
BCX7353 QD (n=6) or placebo (n=2).
On October 27, 2015 The Japanese Ministry of Health Labor & Welfare
(“MHLW”) announced that BioCryst’s BCX7353 was one of six products designated under MLHW’s new Sakigake
fast track review system. The Sakigake Designation System promotes R&D in Japan, aiming at early market availability for innovative
pharmaceutical products. This designation provides for additional interactions with the regulatory agency in Japan from early
development through filing, prioritized development and review, and introduction of the product as soon as possible to address
a serious unmet medical need. We expect the results of APeX-1 to help us and the MHLW determine the regulatory pathway and timeline
for BCX7353 in Japan.
Avoralstat
:
Avoralstat was BioCryst’s first drug
candidate as an oral prophylactic treatment for HAE, from a suite of molecules being developed for the prevention of HAE attacks.
In December 2014, we began dosing patients in OPuS-2 (
O
ral
P
rophylaxi
S-2
), a blinded, randomized, placebo-controlled
clinical trial of orally-administered avoralstat in patients with HAE. OPuS-2 was a 12-week, three-arm, parallel cohort design
trial to evaluate the efficacy and safety of two doses of avoralstat, 300 mg and 500 mg, administered three-times daily compared
with placebo. This trial was conducted in the U.S. and select European countries, and it enrolled approximately 100 HAE patients.
In the OPuS-2 study, HAE patients with a historical attack frequency of greater than 0.45 attacks per week were randomized to
treatment with either 500 mg or 300 mg of avoralstat, or placebo, administered three times daily for 12 weeks. The primary goals
of the trial were to characterize the efficacy of avoralstat in reducing the frequency of angioedema attacks, and to evaluate
the safety and tolerability of 12 weeks of avoralstat treatment. The primary efficacy endpoint was angioedema attack frequency.
In February 2016, we announced results from OPuS-2. Thirty-eight
subjects received avoralstat 500 mg, 36 subjects received avoralstat 300 mg, and 36 subjects received placebo. Treatment with
500 mg and 300 mg of avoralstat three times daily failed to demonstrate a statistically significantly lower mean attack rate versus
placebo. The mean (standard deviation) attack rates per week were 0.63 (0.57) on avoralstat 500 mg and 0.71 (0.66) on avoralstat
300 mg, compared to 0.61 (0.41) on placebo. Statistically significant improvements in duration of attacks and in the Angioedema
Quality of Life total score were observed comparing the 500 mg three times a day avoralstat arm to placebo. Following the analysis
of OPuS-2 results, the decision was made to discontinue further development of softgel avoralstat formulation
in
order to focus development efforts on novel dosage forms of avoralstat to achieve meaningfully better drug exposure. In August
2016, we reported a clinical pharmacology study of several avoralstat dosage formulations. Cohorts of healthy volunteers received single doses ranging from 200 mg to 2000 mg of avoralstat in tablet or suspension formulations, with no clinically significant
adverse events reported. While these dosing formulations improved total avoralstat exposure by up to approximately five times
compared to a 500 mg dose given as soft gel capsules, the plasma concentration-time profile did not met our objectives of twice-daily
dosing with drug levels at or above the target range. Therefore, we decided to stop further development of avoralstat.
Galidesivir (formerly BCX4430)
Galidesivir is a broad-spectrum antiviral (“BSAV”) research
program and is currently being developed under contracts with the National Institute of Allergy and Infectious Diseases (“NIAID/HHS”)
and the U.S. Department of Health and Human Services (“BARDA/HHS”). The objective of our BSAV program is to develop
galidesivir as a broad-spectrum therapeutic for viruses that pose a threat to national health and security. The primary focus of
the program is treatment of hemorrhagic fever viruses. NIAID/HHS funding has supported galidesivir’s development as a treatment
for Marburg virus and Ebola virus. In March 2014, galidesivir was featured in an online
Nature
publication depicting successful
efficacy results in animal models of infection with Marburg virus and Ebola virus. Galidesivir completely protected cynomolgus
macaques from Marburg virus infection when administered by intramuscular (“i.m.”) injection 48 hours post-infection. Post-exposure
i.m. administration of galidesivir also protected rodents against Marburg virus and Ebola virus infections. In addition, galidesivir
was shown to be active in vitro against a broad range of other RNA viruses, including the emerging viral pathogen Middle East Respiratory
Syndrome Coronavirus (“MERS-CoV”). The publication, which reported the protection of non-human primates from filovirus
disease by galidesivir, describes efficacy results generated from an ongoing collaboration between scientists in the U.S. Army
Medical Research Institute of Infection Diseases (“USAMRIID”) and us. Galidesivir has been shown to be active
against more than 20 RNA viruses in nine different families, including filoviruses, togaviruses, bunyaviruses, arenaviruses, paramyxoviruses,
coronaviruses and flaviviruses. In tests conducted at USAMRIID, galidesivir protected animals against parenteral exposures
to Marburg, Ebola and Rift Valley Fever viruses and from exposures to aerosolized Marburg virus, an experimental condition designed
to mimic an exposure scenario that could result during a bioterrorist attack.
On December 15, 2014, we announced the dosing of the first subject
in a randomized, placebo-controlled Phase 1 clinical trial to evaluate i.m. administration of galidesivir in healthy volunteers.
The main goals of this first-in-human study are to evaluate the safety, tolerability and pharmacokinetics of escalating doses of
galidesivir administered via i.m. injection in healthy subjects. In part one of the study, subjects received a single dose of galidesivir;
in part two of the study, subjects received galidesivir for seven days. There were six single-dose cohorts and four multiple-dose
cohorts evaluated, and 91 healthy volunteers participated. In August 2016, we reported the results of this study. Galidesivir administered
by i.m. injection was generally safe and well tolerated over the range of doses up to 10 mg/kg, and durations tested (up to 7 days).
Fifty subjects received doses of study drug and there were no serious or severe adverse events. The most frequently reported adverse
event across all cohorts was injection site pain and there were no clinically significant laboratory abnormalities which occurred
at any doses. In addition, co-administration of lidocaine with galidesivir was determined to ameliorate injection site pain without
altering the plasma pharmacokinetics profile of galidesivir. From this clinical trial, we determined galidesivir was safe and well
tolerated, and that exposure was dose-proportional and supported the continued development of this BSAV drug candidate for serious
emerging viral infections.
On December 23, 2014, we announced results from a successful proof-of-concept
study of galidesivir for the treatment of experimental Ebola virus infection in Rhesus macaques, conducted at USAMRIID. The primary
goal of the study was to assess the effect of galidesivir treatment on survival through Day 41 in animals infected with Ebola virus.
Dosing of placebo or galidesivir by i.m. injection was initiated 30-120 minutes after virus challenge and continued twice
a day (“BID”) for 14 days. Animals were dosed with either placebo, 16 mg/kg of galidesivir BID or 25 mg/kg of galidesivir
BID. Survival at day 41 in the 16 mg/kg BID group of galidesivir treated animals was 4 of 6 (66.7%, p < 0.001 compared to 0%
survival in controls) and 6 of 6 in the 25 mg/kg BID group (100%, p < 0.001 compared to controls). The overall survival rate
for galidesivir treated animals at day 41 was 10 of 12 (83%, p < 0.001 compared to controls). Preliminary evaluation of the
quantity of virus in the blood showed an approximate 3-log reduction in Ebola virus RNA copies/mL of plasma, compared with control
animals. This Rhesus macaque study was conducted following the completion, in November 2014, of a dose-ranging study of galidesivir
for the experimental treatment of cynomolgus macaques infected with Ebola virus. The cynomolgus macaque study was designed to evaluate
whether galidesivir showed a meaningful benefit for survival in Ebola virus non-human primate (“NHP”) disease models
and explore a dose range. In this study galidesivir demonstrated a statistically significant prolongation of survival for the animals
at the highest dose regimen tested, but no animals survived beyond 21 days.
On March 7, 2016, results from a preclinical study
of our antiviral galidesivir in interferon-receptor-deficient mice infected with Zika virus were presented at a World Health Organization
(“WHO”) conference in Geneva, Switzerland. The primary goal of the study was to assess the effect of galidesivir treatment
on survival through Day 28 in interferon-receptor-deficient mice infected with the Zika virus. Galidesivir was administered by
i.m. injection twice a day beginning four hours prior to virus challenge and continuing for eight days; two dose levels were tested.
In the standard dose galidesivir group, 7 of 8 mice survived through Day 28. In the low dose galidesivir group (n=8), and in control
groups administered vehicle placebo (n=8) or ribavirin at two dose levels (n=16); no animals survived to Day 28. Overall survival
for the standard dose level of galidesivir was superior to both the placebo and the ribavirin treatment control groups (p <
0.0001). For both dose levels of galidesivir, median survival was superior to both control groups (>28 days for galidesivir
standard dose and 23 days for low dose) compared to 14 to 17 days for controls.
Additional studies of galidesivir in the same mouse
model were conducted at Utah State University. In one study, surviving mice that were previously treated with the standard dose
of galidesivir after initial Zika virus challenge were re-challenged with the Zika virus on Day 28, without additional galidesivir
treatment. All the re-challenged mice survived through day 56 with no disease signs observed, indicating the development of effective
immune responses. A further experiment using the same AG129 mouse model tested the delayed treatment with galidesivir after viral
challenge. Groups of mice received galidesivir 150 mg/kg twice-daily by i.m. injection starting on days 1, 3, 5, or 7 post infection,
or vehicle (control group). All galidesivir treated groups showed a statistically significant survival benefit compared to vehicle
controls.
On October 29, 2016, galidesivir nonclinical results from a Zika virus infection model were presented
in a late-breaker scientific session at IDWeek by Dr. James B. Whitney, PhD, Assistant Professor of Medicine, Harvard Medical School,
and Principal Investigator in the Center for Virology and Vaccine Research at Beth Israel Deaconess Medical Center in Boston. Three
groups of five healthy animals were inoculated with a Puerto Rico strain of Zika virus and administered either galidesivir by i.m.
injection 100 mg/kg BID loading dose followed by 25 mg/kg BID for nine days, galidesivir loading dose of 100 mg/kg BID, or vehicle
control. Both galidesivir groups showed reduction in the proportion of animals viremic and in the amount of virus shed of into
cerebrospinal fluid, saliva and urine. Galidesivir dosing in rhesus macaques was well-tolerated and offered significant protection
against Zika virus infection. In a follow-on experiment, the same animals were rechallenged with a Thai strain of Zika virus, 72
days after initial inoculation. All animals demonstrated immune responses, and the initial treatments with galidesivir did not
impair the generation of immunity.
Forodesine
Forodesine is a Purine Nucleoside Phosphorylase
(“PNP”) inhibitor in development by Mundipharma as a treatment for cancer under a world-wide license agreement.
PNP is a purine salvage pathway enzyme. High doses of PNP inhibitors could be useful in the treatment of hematological
malignancies. Mundipharma has received orphan drug status for forodesine, and following its successful completion of a Phase
2 pivotal study in recurrent/refractory peripheral T-cell lymphoma (“PTCL”) patients in Japan, and has filed a Japanese New Drug
Application (“JNDA”) with the Japanese Pharmaceuticals and Medical Devices Agency (“PMDA”). This JNDA
is currently under review for regulatory approval in Japan.
On November 11, 2011, we entered into an Amended and Restated
License and Development Agreement (the “Amended and Restated Agreement”) with Mundipharma, amending and restating the
February 1, 2006 exclusive, royalty-bearing Development and License Agreement for the development and commercialization of
forodesine for use in the field of oncology. Under the terms of the Amended and Restated Agreement, Mundipharma obtained worldwide
rights to forodesine, so Mundipharma controls the worldwide development and commercialization of forodesine and assumes all future
development and commercialization costs.
We have licensed the PNP technology from Albert Einstein College of
Medicine of Yeshiva University (“AECOM”) and Industrial Research, Ltd. (“IRL”) and will owe sublicense
payments to AECOM/IRL based on the future milestone payments and royalties received by us from Mundipharma and any other partners
for which we out-license our PNP inhibitors. On November 17, 2011, we amended our agreement with AECOM/IRL whereby AECOM/IRL
agreed to accept a reduction of one-half of the percentage of Net Proceeds (as defined in the license agreement) received by us
under our Amended and Restated Agreement with Mundipharma. This reduction does not apply to royalty payments made as a result of
sales of licensed products by our sub licensees.
Collaborations and In-License Relationships
U.S. Department of Health and Human Services (“BARDA/HHS”)
.
In January 2007, BARDA/HHS awarded us a $102.6 million, four-year contract for the advanced development of peramivir for the treatment
of influenza. During 2009, peramivir clinical development shifted to focus on intravenous delivery and the treatment of hospitalized
patients. To support this focus, a September 2009 contract modification was awarded to extend the i.v. peramivir program and to
increase funding by $77.2 million. On February 24, 2011, we announced that BARDA/HHS had awarded us a $55.0 million contract
modification, intended to fund completion of the Phase 3 development of i.v. peramivir for the treatment of patients hospitalized
with influenza. That contract modification brought the total contract award from BARDA/HHS to $234.8 million and provided funding
to support the filing of an NDA to seek regulatory approval for i.v. peramivir in the U.S. In December 2014, the FDA approved the
NDA. The BARDA/HHS contract expired on June 30, 2014 according to its terms, but final governmental audits have not been conducted
to close out the contract.
On March 31, 2015, we announced that BARDA/HHS awarded us a contract
for the continued development of galidesivir as a potential treatment for diseases caused by RNA pathogens, including filoviruses. This
BARDA/HHS contract has a potential value of $39.1 million if all contract options are exercised. As of December 31, 2016, a total
of $20.6 million has been awarded under exercised options within this contract.
National Institute of Allergy and Infectious Diseases (“NIAID/HHS”)
.
In September 2013, NIAID/HHS contracted with us for the development of galidesivir as a treatment for Marburg, and subsequently,
Ebola virus disease. NIAID/HHS, part of the National Institutes of Health, made an initial award of $5.0 million to us. All options
under this contract have been awarded and the total contract value is $39.5 million. The goals of this contract, including amendments,
are to file IND applications for i.v. and i.m. galidesivir for the treatment of Marburg virus disease and other hemorrhagic fever
viruses, to study galidesivir as a treatment for Ebola virus disease, and to conduct a Phase 1 human clinical trial.
The contracts with BARDA/HHS and NIAID/HHS are cost-plus-fixed-fee
contracts. That is, we are entitled to receive reimbursement for all costs incurred in accordance with the contracts provisions
that are related to the development of peramivir and galidesivir plus a fixed fee, or profit. BARDA/HHS and NIAID/HHS will make
periodic assessments of progress and the continuation of the contract is based on our performance, the timeliness and quality of
deliverables, and other factors. The government has rights under certain contract clauses to terminate these contracts. These contracts
are also terminable by the government at any time for breach or without cause.
Seqirus UK Limited
.
On June 16, 2015, we and SUL, a
limited company organized under the laws of the United Kingdom and a subsidiary of CSL Limited, a company organized under the laws
of Australia, entered into a License Agreement (the "SUL Agreement") granting SUL and its affiliates worldwide rights
to develop, manufacture and commercialize RAPIVAB (peramivir injection) for the treatment of influenza except for the rights to
conduct such activities in Israel, Japan, Korea and Taiwan (the permitted geographies together constituting the "Territory").
RAPIVAB is an intravenous treatment for acute uncomplicated influenza and is currently approved for use in the United States, Canada,
Japan, Taiwan and Korea. RAPIVAB is the first and only intravenous influenza treatment in the world and was approved by the U.S.
Food and Drug Administration in December 2014 for the treatment of acute uncomplicated influenza in patients 18 years and older
who have been symptomatic for no more than two days. Peramivir was approved by Health Canada in January 2017. We retain all rights
and associated economics to procure pandemic stockpiling orders for RAPIVAB from the U.S. Government, while SUL has the right to
pursue government stockpiling outside the U.S.
Pursuant to the SUL Agreement, RAPIVAB will be commercialized by CSL's
subsidiary, SUL, which specializes in influenza prevention through the supply of seasonal and pandemic vaccine to global markets.
SUL will manufacture, commercialize and exercise decision-making authority with respect to the development and commercialization
of RAPIVAB within the Territory and be responsible for all related costs, including sales and promotion. We will exercise sole
decision-making authority with regard to the development and commercialization of RAPIVAB outside of the Territory and are responsible
for all associated costs.
Under the terms of the SUL Agreement, we are responsible for fulfilling
all post-marketing approval commitments in connection with the FDA's approval of the NDA, and upon fulfillment will transfer ownership
of and financial responsibility for the NDA to SUL. Pursuant to potential rights to sell RAPIVAB/ALPIVAB in Canada and the EU, we are also
responsible for regulatory filings and interactions with the Health Canada and the European Medicines Agency until marketing approval
for RAPIVAB/ALPIVAB is obtained and assigned to SUL. In accordance with the SUL Agreement, we and SUL formed a joint steering committee,
composed of an equal number of representatives from each party, to oversee, review and coordinate the conduct and progress of the
commercialization of RAPIVAB in the Territory and any additional development.
Under the terms of the SUL Agreement, we received an upfront payment
of $33.7 million, and may receive up to $12.0 million in additional milestone payments related to the successful achievement of
regulatory milestones, including marketing approval (i) by the FDA for a pediatric indication, (ii) by the EMA for an adult indication
in the EU and (iii) by Health Canada for an adult indication in Canada. We expect to receive a $2.0 million milestone payment
as a result of the Health Canada approval of RAPIVAB in the first quarter of 2017. We are also entitled under the SUL Agreement
to receive tiered royalties at a percentage rate beginning in the mid-teens contingent upon meeting minimum thresholds of net
sales, as well as a low-thirties percentage of the gross profit from government stockpiling purchases made outside the U.S. Specifically,
we receive tiered royalties at a percentage rate in the mid-teens to low-forties on net sales in the U.S. during a Contract Year
(defined as July 1 - June 30) and tiered royalties at a percentage rate in the mid-teens to mid-twenties on net sales in the Territory,
other than in the U.S., during a Calendar Year, each subject to certain downward adjustments for circumstance or events impacting
the overall market opportunity. SUL's royalty payment obligations commence on the date of the SUL Agreement and expire, on a country-by-country
basis, upon the later of (i) the expiration of legal exclusivity in such country and (ii) ten years from the date of the SUL Agreement
(the "Royalty Term"). We developed RAPIVAB under a license from UAB and will owe sublicense payments to them on any
future milestone payments and/or royalties received by us from SUL.
The term of the SUL Agreement shall continue on a country-by-country
basis until the expiration of the last-to-expire Royalty Term in any such country in the Territory. Either party may terminate
the SUL Agreement in its entirety if the other party breaches a payment obligation, otherwise materially breaches the SUL Agreement,
subject to applicable cure periods, or if the other party suffers an insolvency event. We may also terminate the SUL Agreement
if SUL or any of its affiliates seek to challenge the validity of our patents. Termination does not affect a party's rights which
have accrued prior thereto, but there are no stated payments in connection with termination other than payments of obligations
previously accrued. For all terminations exercised by us, the SUL Agreement provides for the termination of any sublicenses granted
by SUL to third parties, and in the case of termination by us for cause, the ceasing of SUL's activities with respect to RAPIVAB,
the discontinued use of all of our intellectual property and the termination of licenses and rights previously granted to SUL.
If requested by us, SUL shall also promptly sell to us all licensed product it then holds in stock, otherwise, SUL may continue
to sell such licensed product for designated periods.
Shionogi & Co., Ltd. (“Shionogi”)
.
On February 28, 2007, we entered into a License, Development and Commercialization Agreement (as amended, supplemented or
otherwise modified, the “Shionogi Agreement”), an exclusive license agreement with Shionogi to develop and commercialize
peramivir in Japan for the treatment of seasonal and potentially life-threatening human influenza. In October 2008, we and Shionogi
amended the Shionogi Agreement to expand the territory covered by the agreement to include Taiwan. Under the terms of the Shionogi
Agreement, Shionogi obtained rights to injectable formulations of peramivir in Japan in exchange for a $14.0 million upfront
payment. The license provided for development milestone payments (up to $21.0 million), which have all been paid, and for
commercial milestone payments (up to $95.0 million) in addition to double-digit (between 10% and 20%) royalty payments on
product sales of peramivir.
Generally, all payments under the Shionogi Agreement are non-refundable
and non-creditable, but they are subject to audit. Shionogi is responsible for all development, regulatory, and marketing costs
in Japan. The term of the Shionogi Agreement is from February 28, 2007 until terminated. Either party may terminate in the
event of an uncured breach. Shionogi has the right of termination without cause. In the event of termination, all license and rights
granted to Shionogi shall terminate and shall revert back to us. We developed peramivir under a license from the University of
Alabama Birmingham (“UAB”) and have paid sublicense payments to UAB on the upfront payments and will owe sublicense
payments on any future event payments and/or royalties received by us from Shionogi.
Shionogi Royalty Monetization and Non-Recourse Notes Payable
.
On March 9, 2011, we completed a $30.0 million financing transaction to monetize certain future royalty and milestone
payments under the Shionogi Agreement, pursuant to which JPR Royalty Sub LLC (“Royalty Sub”) a wholly-owned subsidiary
of BioCryst, issued the PhaRMA Notes discussed below. We received net proceeds of $22.7 million from this transaction.
As part of the transaction, we entered into a purchase and sale agreement
dated as of March 9, 2011 with Royalty Sub, whereby we transferred to Royalty Sub, among other things, (i) its rights
to receive certain royalty and milestone payments from Shionogi arising under the Shionogi Agreement, and (ii) the right to
receive payments under a Japanese yen/US dollar foreign currency hedge arrangement (as further described below, the “Currency
Hedge Agreement”) put into place by us in connection with the transaction. Royalty payments will be paid by Shionogi in Japanese
yen and milestone payments will be paid in U.S. dollars. Our collaboration with Shionogi was not impacted by this transaction.
On March 9, 2011, Royalty Sub completed a private placement to institutional
investors of $30.0 million in aggregate principal amount of its PhaRMA Senior Secured 14.0% Notes due 2020 (the “PhaRMA Notes”).
The PhaRMA Notes were issued by Royalty Sub under an Indenture, dated as of March 9, 2011 (the “Indenture”), by
and between Royalty Sub and U.S. Bank National Association, as Trustee. Principal and interest on the PhaRMA Notes issued are payable
from, and are secured by, the rights to royalty and milestone payments under the Shionogi Agreement transferred by us to Royalty
Sub and payments, if any, made to Royalty Sub under the Currency Hedge Agreement. The PhaRMA Notes bear interest at 14% per
annum, payable annually in arrears on September 1st of each year (the “Payment Date”). We remain entitled to receive
any royalties and milestone payments related to sales of peramivir by Shionogi following repayment by Royalty Sub of the PhaRMA
Notes.
Royalty Sub’s obligations to pay principal and interest on the
PhaRMA Notes are obligations solely of Royalty Sub and are without recourse to any other person, including the Company, except
to the extent of our pledge of its equity interests in Royalty Sub in support of the PhaRMA Notes. We may, but are not obligated
to, make capital contributions to a capital account that may be used to redeem, or on up to one occasion pay any interest shortfall
on, the PhaRMA Notes.
In September 2013, Royalty Sub paid $1.8 million of interest
on the PhaRMA Notes from royalty payments received from RAPIACTA sales from the preceding four calendar quarters. This payment
resulted in an obligation shortfall of approximately $2.4 million associated with accrued interest due September 3, 2013.
As stipulated under the PhaRMA Notes Indenture, if the amount available for payment on any Payment Date is insufficient to pay
all of the interest due on a Payment Date, the shortfall in interest will accrue interest at the interest rate applicable to the
PhaRMA Notes compounded annually. Accordingly, commencing in September 2013, interest began to accrue at 14% per annum
on the interest shortfall of $2.4 million. In March, June and August of 2014, Royalty Sub paid additional interest of $446,000,
$1.9 million and $70,000, respectively, bringing the shortfall down to $222,000 as of September 30, 2014. Under the terms of the
Indenture, Royalty Sub’s inability to pay the full amount of interest payable in September 2013 by the next succeeding
Payment Date for the PhaRMA Notes, which was September 1, 2014, constituted an event of default. Accordingly, we have classified
the PhaRMA Notes and related accrued interest as current liabilities on our balance sheet. As a result of the event of default
under the PhaRMA Notes, the holders of the PhaRMA Notes may pursue acceleration of the PhaRMA Notes, may foreclose on the collateral
securing the PhaRMA Notes and the equity interest in Royalty Sub and exercise other remedies available to them under the Indenture
in respect of the PhaRMA Notes. In such event, we may not realize the benefit of future royalty payments that might otherwise accrue
to us following repayment of the PhaRMA Notes and we might otherwise be adversely affected. Due to the non-recourse nature of the
PhaRMA Notes, in the event of any potential acceleration or foreclosure, we believe the primary impact to us would be the loss
of future royalty payments from Shionogi and legal costs associated with retiring the PhaRMA Notes. In addition, we may incur costs
associated with liquidating the related Currency Hedge Agreement, which would no longer be required in the event of foreclosure
or if the PhaRMA Notes cease to be outstanding. As the PhaRMA Notes are the obligation of Royalty Sub, we do not currently expect
the event of default on the PhaRMA Notes to have a significant impact on our future results of operations or cash flows. As of
December 31, 2016, the PhaRMA Notes remain in default.
The Indenture does not contain any financial covenants. The Indenture
includes customary representations and warranties of Royalty Sub, affirmative and negative covenants of Royalty Sub, Events of
Default and related remedies, and provisions regarding the duties of the Trustee, indemnification of the Trustee, and other matters
typical for indentures used in structured financings of this type. The PhaRMA Notes are redeemable at the option of Royalty Sub
at any time at a redemption price equal to 100% of the outstanding principal balance of the PhaRMA Notes being redeemed, plus accrued
and unpaid interest through the redemption date on the PhaRMA Notes being redeemed.
Foreign Currency Hedge
.
In connection with the issuance
by Royalty Sub of the PhaRMA Notes, we entered into a Currency Hedge Agreement to hedge certain risks associated with changes in
the value of the Japanese yen relative to the U.S. dollar. Under the Currency Hedge Agreement, we have the right to purchase dollars
and sell yen at a rate of 100 yen per dollar for which we may be required to pay a premium in each year from 2017 through 2020.
A payment of $2.0 million will be required if, on May 18 of the relevant year, the U.S. dollar is worth 100 yen or less,
as determined in accordance with the Currency Hedge Agreement.
The Currency Hedge Agreement does not qualify for hedge accounting
treatment; therefore, mark-to-market adjustments are recognized in our Consolidated Statement of Comprehensive Loss. Cumulative
mark-to-market adjustments resulted in losses of $1.7 million and $0.6 million and a gain of $5.5 million for the twelve months
ended December 30, 2016, 2015 and 2014, respectively. In addition, realized currency exchange gains of $0.8 million and $1.7
million were recognized in 2016 and 2015, respectively, related to the exercise of a U.S. dollar/Japanese yen currency option under
our foreign currency hedge. We are also required to post collateral in connection with the mark-to-market adjustments based on
defined thresholds. As of December 31, 2016, no collateral was posted under the Currency Hedge Agreement. We will not be required
at any time to post collateral exceeding the maximum premium payments remaining payable under the Currency Hedge Agreement. The
maximum amount of hedge collateral we would be required to post is $7.8 million. We are required to maintain a foreign currency
hedge at 100 yen per dollar under the agreements governing the PhaRMA Notes.
Green Cross
.
In June 2006, we entered into an agreement
with Green Cross to develop and commercialize peramivir in Korea. Under the terms of the agreement, Green Cross is responsible
for all development, regulatory, and commercialization costs in Korea. We received a one-time license fee of $250,000. The license
provides that we will share in profits resulting from the sale of peramivir in Korea, including the sale of peramivir to the Korean
government for stockpiling purposes. Furthermore, Green Cross will pay us a premium over its cost to supply peramivir for development
and any future marketing of peramivir products in Korea. Both parties have the right to terminate in the event of an uncured material
breach. In the event of termination, all rights, data, materials, products and other information would be transferred to us.
In August 2010, we announced that Green Cross had received marketing
and manufacturing approval from the Korean Food & Drug Administration for i.v. peramivir, under the commercial name PERAMIFLU
®
.
PERAMIFLU is intended to treat patients with influenza A & B viruses, including pandemic H1N1 and avian influenza. Green
Cross received the indication of single dose administration of 300 mg i.v. peramivir.
Other Peramivir Collaborations
.
In addition to our collaborations
with Shionogi and Green Cross, in March 2011 we entered into an arrangement with Neopharm Scientific Limited, granting certain
commercial and distribution rights for peramivir in Israel.
Mundipharma
.
In February 2006, we entered into an exclusive,
royalty bearing right and license agreement with Mundipharma for the development and commercialization of forodesine, a PNP inhibitor,
for use in oncology (the “Original Agreement”). Under the terms of the Original Agreement, Mundipharma obtained rights
to forodesine in markets across Europe, Asia, and Australasia in exchange for a $10.0 million up-front payment. In addition,
Mundipharma contributed $10.0 million of the documented out-of-pocket development costs incurred by us in respect of the current
and planned trials as of the effective date of the agreement, and Mundipharma would conduct additional clinical trials at their
own cost up to a maximum of $15.0 million. The Original Agreement provided for the possibility of future event payments totaling
$155.0 million for achieving specified development, regulatory and commercial events (including certain sales level amounts
following a product’s launch) for certain indications. In addition, the Original Agreement provided that we would receive
royalties (ranging from single digits to mid-teens) based on a percentage of net product sales, which varies depending upon when
certain indications receive NDA approval in a major market country and can vary by country depending on the patent coverage or
sales of generic compounds in a particular country. Generally, all payments under the Original Agreement were nonrefundable and
non-creditable, but they are subject to audit. We licensed forodesine and other PNP inhibitors from AECOM/IRL and will owe sublicense
payments to AECOM/IRL on all milestone payments and royalties received by us from Mundipharma.
On November 11, 2011, we entered into the Amended and Restated
Agreement with Mundipharma (the “Amended and Restated Agreement”). Under the terms of this Amended and Restated Agreement,
Mundipharma obtained worldwide rights to forodesine in the field of oncology. Mundipharma will control the development and commercialization
of forodesine and assume all future development and commercialization costs. The Amended and Restated Agreement provides for the
possibility of future event payments totaling $15.0 million for achieving specified regulatory events for certain indications.
In addition, the Amended and Restated Agreement provides that we will receive tiered royalties ranging from mid- to high-single
digit percentages of net product sales in each country where forodesine is sold by Mundipharma. These royalties are subject to
downward adjustments based on the then-existing patent coverage and/or the availability of generic compounds in each country. Generally,
all payments under the Amended and Restated Agreement are nonrefundable and non-creditable, but they are subject to audit.
Mundipharma will also have a right of exclusive negotiations with
us for a limited period of time if they initiate negotiations for a specified backup PNP inhibitor. Otherwise, they will be able
to participate in the same negotiations process we enter into with another company for the backup PNP inhibitor. The Amended and
Restated Agreement will continue for the commercial life of the licensed products, but may be terminated by either party following
an uncured material breach by the other party or in the event the pre-existing third party license with AECOM/IRL expires. It may
be terminated by Mundipharma upon 60 days written notice without cause or under certain other conditions as specified in the
Amended and Restated Agreement. If Mundipharma terminates the Amended and Restated Agreement, Mundipharma would no longer have
any rights in forodesine and the rights would revert back to us; provided, however, that in the event the we determine to subsequently
use the data developed under the Amended and Restated Agreement for development and commercialization of forodesine in the field
of oncology, then we would have to pay Mundipharma 150% of the cost of such data for such use.
Albert Einstein College of Medicine of Yeshiva University and
Industrial Research, Ltd. (“AECOM” and “IRL” respectively)
.
In June 2000, we licensed a series
of potent inhibitors of PNP from AECOM and IRL, (collectively, the “Licensors”). The lead product candidate from this
collaboration is forodesine. We have obtained worldwide exclusive rights to develop and ultimately distribute it, or any other,
product candidates that might arise from research on these inhibitors. We have the option to expand our license agreement with
the Licensors to include other inventions in the field made by the investigators or employees of the Licensors. We agreed to use
commercially reasonable efforts to develop these drugs. In addition, we have agreed to pay certain milestone payments for each
licensed product (which range in the aggregate from $1.4 million to almost $4.0 million per indication) for future development
of these inhibitors, single digit royalties on net sales of any resulting product made by us, and to share approximately one quarter
of future payments received from other third-party partners, if any. In addition, we have agreed to pay annual license fees, which
can range from $150,000 to $500,000, that are creditable against actual royalties and other payments due to the Licensors. This
agreement may be terminated by us at any time by giving 60 days advance notice or in the event of material uncured breach
by the Licensors.
In May 2010, we amended the license agreement through which we obtained
worldwide exclusive rights to develop and ultimately distribute any product candidates that might arise from research on a series
of PNP inhibitors, including forodesine. Under the terms of the amendment, the Licensors agreed to accept a reduction of one-half
in the percentage of future payments received from third-party sub licensees of the licensed PNP inhibitors that must be paid to
the Licensors. This reduction does not apply to (i) any milestone payments we may receive in the future under our license
agreement with Mundipharma and (ii) royalties received from its sub licensees in connection with the sale of licensed products,
for which the original payment rate will remain in effect. The rate of royalty payments to the Licensors based on net sales of
any resulting product made by us remains unchanged. At our sole option and subject to certain agreed upon conditions, any future
non-royalty payments due to be paid by us to the Licensors under the license agreement may be made either in cash, in shares of
our common stock, or in a combination of cash and shares.
On November 17, 2011, we further amended our agreements with
the Licensors whereby the Licensors agreed to accept a reduction of one-half in the percentage of Net Proceeds (as defined in the
license agreement) received by us under our Amended and Restated Agreement with Mundipharma that will be paid to AECOM/IRL.
On June 19, 2012, we further amended our agreements with the
Licensors whereby the parties clarified the definition of the field with respect to PNP inhibition and the Licensors agreed to
grant an exclusive worldwide license of galidesivir to us for any antiviral use.
The University of Alabama at Birmingham (“UAB”)
.
We currently have agreements with UAB for influenza neuraminidase and complement inhibitors. Under the terms of these agreements,
UAB performed specific research for us in return for research payments and license fees. UAB has granted us certain rights to any
discoveries in these areas resulting from research developed by UAB or jointly developed with us. We have agreed to pay single
digit royalties on sales of any resulting product and to share in future payments received from other third-party partners. We
have completed the research under the UAB agreements. These two agreements have initial 25-year terms, are automatically renewable
for five-year terms throughout the life of the last patent and are terminable by us upon three months’ notice and by UAB
under certain circumstances. Upon termination both parties shall cease using the other parties’ proprietary and confidential
information and materials, the parties shall jointly own joint inventions and UAB shall resume full ownership of all UAB licensed
products. There is currently no activity between us and UAB on these agreements, but when we license this technology, such as in
the case of the Shionogi and Green Cross agreements, or commercialize products related to these programs, we will owe sublicense
fees or royalties on amounts it receives.
Government Contracts
U.S. Department of Health and Human Services (“BARDA/HHS”)
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In January 2007, BARDA/HHS awarded us a $102.6 million four-year contract for the advanced development of peramivir for the treatment
of influenza. During 2009, peramivir clinical development shifted to focus on intravenous delivery and the treatment of hospitalized
patients. To support this focus, a September 2009 contract modification was awarded to extend the i.v. peramivir program and to
increase funding by $77.2 million. On February 24, 2011, we announced that BARDA/HHS had awarded us a $55.0 million contract
modification, intended to fund completion of the Phase 3 development of i.v. peramivir for the treatment of patients hospitalized
with influenza. That contract modification brought the total contract award from BARDA/HHS to $234.8 million and provided funding
to support the filing of an NDA to seek regulatory approval for i.v. peramivir in the U.S. In December 2013, we submitted an NDA
filing for i.v. peramivir to the FDA and the NDA was approved in December 2014. The BARDA/HHS contract expired on June 30, 2014
according to its terms.
On March 31, 2015, we announced that BARDA/HHS awarded us a contract
for the continued development of galidesivir as a potential treatment for diseases caused by RNA pathogens, including filoviruses. This
BARDA/HHS contract has a potential value of $39.1 million if all contract options are exercised. As of December 31, 2016, a total
of $20.6 million has been awarded under exercised options within this contract.
National Institute of Allergy and Infectious Diseases (“NIAID/HHS”)
.
In September 2013, NIAID/HHS contracted with us for the development of galidesivir as a treatment for Marburg, and subsequently,
Ebola virus disease. NIAID/HHS, part of the National Institutes of Health, made an initial award of $5.0 million to us. All options
under this contract have been awarded and the total contract value is $39.5 million. The goals of this contract, including amendments,
are to file IND applications for i.v. and i.m. galidesivir for the treatment of Marburg virus disease and other hemorrhagic fever
viruses, to study galidesivir as a treatment for Ebola virus disease and to conduct a Phase 1 human clinical trial.
The contracts with BARDA/HHS and NIAID/HHS are cost-plus-fixed-fee
contracts. That is, we are entitled to receive reimbursement for all costs incurred in accordance with the contracts provisions
that are related to the development of peramivir and galidesivir plus a fixed fee, or profit. BARDA/HHS and NIAID/HHS will make
periodic assessments of progress and the continuation of the contract is based on our performance, the timeliness and quality of
deliverables, and other factors. The government has rights under certain contract clauses to terminate these contracts. These contracts
are also terminable by the government at any time for breach or without cause.
Patents and Proprietary Information
Our success will depend in part on our ability to obtain and enforce
patent protection for our products, methods, processes and other proprietary technologies, preserve our trade secrets, and operate
without infringing on the proprietary rights of other parties, both in the United States and in other countries. We own or have
rights to certain proprietary information, proprietary technology, issued and allowed patents and patent applications which relate
to compounds we are developing. We actively seek, when appropriate, protection for our products, proprietary technology and proprietary
information by means of U.S. and foreign patents, trademarks and contractual arrangements. In addition, we rely upon trade
secrets and contractual arrangements to protect certain of our proprietary information, proprietary technology and products.
The patent positions of companies like ours are generally uncertain
and involve complex legal and factual questions. Our ability to maintain and solidify our proprietary position for our technology
will depend on our success in obtaining effective patent claims and enforcing those claims once granted. We do not know whether
any of our patent applications or those patent applications that we license will result in the issuance of any patents. Our issued
patents and those that may issue in the future, or those licensed to us, may be challenged, invalidated, rendered unenforceable
or circumvented, which could limit our ability to stop competitors from marketing related products or the length of term of patent
protection that we may have for our products. In addition, the rights granted under any issued patents may not provide us with
competitive advantages against competitors with similar compounds or technology. Furthermore, our competitors may independently
develop similar technologies or duplicate any technology developed by us in a manner that does not infringe our patents or other
intellectual property. Because of the extensive time required for development, testing and regulatory review of a potential product,
it is possible that, before any of our product candidates or those developed by our partners can be commercialized, any related
patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the
patent.
As of December 31, 2016, we have been issued approximately 15
U.S. patents that expire between 2017 and 2034 and that relate to our HAE program compounds, neuraminidase inhibitor compounds,
BSAV compounds and PNP compounds. We have licensed a number of compounds protected by certain composition of matter patents from
AECOM and IRL, plus additional manufacturing patents, totaling 14 additional U.S. patents that expire between 2017 and 2029. Additionally,
we have approximately 13 Patent Cooperation Treaty or U.S. patent applications pending related to HAE program compounds,
neuraminidase inhibitor compounds, BSAV compounds and PNP compounds. Our pending applications may not result in issued patents,
our patents may not cover the products of interest or may not be enforceable in all, or any jurisdictions and our patents may
not provide us with sufficient protection against competitive products or otherwise be commercially viable. After expiration of
composition of matter patents for our products and product candidates, we may rely on data exclusivity, or in some cases, method
of use patents. The enforceability of these patents varies from jurisdiction to jurisdiction and may not be allowed or enforceable
in some territories where we may seek approval. We may not have the funds to continue patent prosecution or to defend all of our
existing patents in our current patent estate and may selectively abandon patents or patent families worldwide or in certain territories.
Our success is also dependent upon the skills, knowledge and experience
of our scientific and technical personnel, none of which is patentable. To help protect our rights, we require all employees, consultants,
advisors and partners to enter into confidentiality agreements, which prohibit the disclosure of confidential information to anyone
outside of BioCryst and, where possible, require disclosure and assignment to us of their ideas, developments, discoveries and
inventions. These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information
in the event of any unauthorized use or disclosure or the lawful development by others of such information.
Competition
The pharmaceutical and biotechnology industries are intensely competitive.
Many companies, including biotechnology, chemical and pharmaceutical companies, are actively engaged in activities similar to ours,
including research, development, and commercialization of drugs for the treatment of rare medical conditions. Many of these companies
have substantially greater financial and other resources, larger research and development staffs, and more extensive commercial
and manufacturing organizations than we do. In addition, many have considerable experience in preclinical testing, clinical trials
and other regulatory approval procedures. In addition, there are also academic institutions, governmental agencies and other research
organizations who conduct research in areas in which we are working. We expect to encounter significant competition for any of
the pharmaceutical products we plan to develop. Companies that successfully complete clinical trials, obtain required regulatory
approvals and commence commercial marketing and sales of their products may achieve a significant competitive advantage.
Antivirals
:
The pharmaceutical market for products that
prevent or treat influenza is very competitive. Key competitive factors for RAPIVAB (peramivir injection) include, among others,
efficacy, ease of use, safety, price and cost-effectiveness, storage and handling requirements and reimbursement. A number of neuraminidase
inhibitors are currently available in the U.S. and/or other counties, including Japan, for the prevention or treatment of
influenza, including seasonal flu vaccines and F. Hoffmann-La Roche Ltd.’s (“Roche”) TAMIFLU
®
(oseltamivir), generic oseltamivir, GlaxoSmithKline plc’s (“GSK”) RELENZA
®
and Daiichi Sankyo
Co., Ltd.’s INAVIR
®
. In addition, FUJIFILM Corporation’s favipiravir, a polymerase inhibitor, is approved
in Japan. Roche’s neuraminidase inhibitor is also approved for prophylaxis of influenza.
In January 2011, GSK announced initiation of a multi-country Phase
3 study of i.v. zanamivir (the same active ingredient as in RELENZA) in hospitalized patients with influenza. The GSK study was
completed during the 2014-2015 flu season. In addition to these companies with neuraminidase inhibitors, there are other companies
working to develop additional antiviral drugs to be used against various strains of influenza. Currently, there are a number of
other companies developing potential new influenza therapies. Various government entities throughout the world are offering incentives,
grants and contracts to encourage additional investment into preventative and therapeutic agents against influenza, which may have
the effect of further increasing the number of our competitors and/or providing advantages to certain competitors.
Galidesivir is a product candidate in our BSAV research program and
is currently being developed under contracts with NIAID/HHS and BARDA/HHS. The objective of our BSAV program is to develop galidesivir
as a broad-spectrum therapeutic for viruses that pose a threat to national health and security. The U.S. Government is investing
in a number of programs intended to address gaps in its medical countermeasure plan. Therapeutic products with potentially promising
data to treat Ebola include FUJIFILM Corporation’s favipiravir (polymerase inhibitor), Tekmira Pharmaceuticals Corporation’s
TKM-Ebola (RNAi interference based) and Mapp Biopharmaceutical, Inc.’s ZMapp (antibody-based). Both TKM-Ebola and ZMapp have
been used in Ebola patients. Gilead Sciences, Inc announced in October 2015 that it had provided the investigational compound,
GS-5734, to two patients with Ebola for compassionate use.
HAE
:
HAE is an autosomal dominant disease characterized
by painful, unpredictable, recurrent attacks of inflammation affecting the hands, feet, face, abdomen, urogenital tract, and the
larynx. The inflammation can be disfiguring, debilitating, or in the case of laryngeal attacks, life-threatening. Prevalence for
HAE is uncertain but is estimated to be approximately 1 case per 50,000 persons without known differences among ethnic groups and
is caused by deficient (Type I) or dysfunctional (Type II) levels of C1-Inhibitor (“C1-INH”), a naturally occurring
molecule that is known to inhibit kallikrein, bradykinin, and other serine proteases in the blood. If left untreated, HAE can result
in a mortality rate as high as 40% primarily due to upper airway obstruction. There are a number of licensed therapies for HAE,
including the following:
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C1-INH therapy is available as an acute therapy (Berinert
®
) and as a prophylactic therapy (Cinryze
®
). These therapies are available intravenously and work by replacing the missing or malfunctioning C1-INH protein in patients. Recominant C1-INH (Ruconest
®
) is also available as an acute therapy.
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Kallikrein Inhibition
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Kalbitor
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(ecallantide) is a specific recombinant plasma kallikrein inhibitor that halts the production of bradykinin and can be dosed subcutaneously in an inpatient setting.
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Bradykinin receptor antagonist
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Firazyr
®
(icatibant) is a competitive antagonist of the bradykinin B2 receptor. Firazyr is approved for the treatment of acute attacks and is administered by subcutaneous administration.
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Other medications - Prophylactic administration of synthetic attenuated androgens (generically available as danazol or stanozolol) has been utilized to reduce the frequency or severity of attacks. However, long-term use of danazol or stanozolol may result in virilization and arterial hypertension. Six-month liver function tests, annual lipid profiles, and biennial hepatic ultrasound are recommended because these medications increase production of C1-INH in the liver.
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In addition to BCX7353 and our other second generation compounds,
there are a number of other HAE therapies in development. These include a prophylactic plasma derived C1-INH delivered by subcutaneous
injection developed by CSL (Biologics License Application accepted for review by FDA in August 2016); SHP643 (DX2930), a monoclonal
antibody administered by subcutaneous injection for prophylactic treatment of HAE in Phase 3 (Shire PLC); ISIS-PKK, a RNA-targeted
antisense drug to inhibit prekallikrein for prophylactic treatment of HAE in Phase 1 (ISIS Pharmaceuticals, Inc.); and one oral
kallikrein inhibitor being developed by KalVista (Phase 1 commenced in 2016).
In order to compete successfully in these and other therapeutic areas,
we must develop proprietary positions in patented drugs for therapeutic markets that have not been satisfactorily addressed by
conventional research strategies and, in the process, expand our expertise in structure-based drug design. Our product candidates,
even if successfully tested and developed, may not be adopted by physicians over other products and may not offer economically
feasible alternatives to other therapies.
Research and Development
We initiated our research and development activities in 1986. We have
assembled a scientific research staff with expertise in a broad base of advanced research technologies including protein biochemistry,
X-ray crystallography, chemistry and pharmacology. Our research facilities, located in Birmingham, Alabama, include protein biochemistry
and organic synthesis laboratories, testing facilities, X-ray crystallography, computer and graphics equipment and facilities to
make product candidates on a small scale for early stage clinical trials. During the years ended December 31, 2016, 2015 and 2014,
our research and development expenses were $61.0 million, $72.8 million and $51.8 million, respectively.
Compliance
We conduct our business in an ethical, fair, honest and lawful manner.
We act responsibly, respectfully and with integrity in our relationships with patients, health care professionals, collaborators,
governments, regulatory entities, stockholders, suppliers and vendors.
In order to ensure compliance with applicable laws and regulations,
our Chief Financial Officer, General Counsel and Vice President of Human Resources oversee compliance training, education, auditing
and monitoring; enforce disciplinary guidelines for any infractions of our corporate polices; implement new policies and procedures;
respond to any detected issues; and undertake corrective action procedures. Our controls address compliance with laws and regulations
that govern public pharmaceutical companies including, but not limited to, the following: federal and state law, such as the Sarbanes-Oxley
Act of 2002 and the U.S. Foreign Corrupt Practices Act of 1977; NASDAQ listing requirements; the regulations of the Financial Industry
Regulatory Authority; the Securities and Exchange Commission (“SEC”); the FDA; and the United States Department of
Health and Human Services. Our standard operating procedures are designed to provide a framework for corporate governance in accordance
with ethical standards and best legal practices.
Government Regulation
The FDA regulates the pharmaceutical and biotechnology industries
in the U.S., and our product candidates are subject to extensive and rigorous domestic government regulations prior to commercialization.
The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage,
approval, advertising, promotion, sale and distribution of pharmaceutical products. In foreign countries, our products are also
subject to extensive regulation by foreign governments. These government regulations will be a significant factor in the production
and marketing of any pharmaceutical products that we develop. Failure to comply with applicable FDA and other regulatory requirements
at any stage during the regulatory process may subject us to sanctions, including:
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delays;
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warning letters;
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fines;
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product recalls or seizures;
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injunctions;
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penalties;
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refusal of the FDA to review pending market approval applications or supplements to approval applications;
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total or partial suspension of production;
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civil penalties;
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withdrawals of previously approved marketing applications; and
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criminal prosecutions.
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The regulatory review and approval process is lengthy, expensive and
uncertain. Before obtaining regulatory approvals for the commercial sale of any products, we or our partners must demonstrate that
our product candidates are safe and effective for use in humans. The approval process takes many years, substantial expenses may
be incurred and significant time may be devoted to clinical development.
Before testing potential product candidates in humans, we carry out
laboratory and animal studies to determine safety and biological activity. After completing preclinical trials, we must file an
IND, including a proposal to begin clinical trials, with the FDA. Thirty days after filing an IND, a Phase 1 human clinical trial
can start, unless the FDA places a hold on the trial.
Clinical trials to support a NDA are typically conducted in three
sequential phases, but the phases may overlap.
Phase 1—During Phase 1, the initial introduction of the drug
into healthy volunteers, the drug is tested to assess metabolism, pharmacokinetics and pharmacological actions and safety, including
side effects associated with increasing doses.
Phase 2—Phase 2 usually involves trials in a limited patient
population to: (1) assess the efficacy of the drug in specific, targeted indications; (2) assess dosage tolerance and
optimal dosage; and (3) identify possible adverse effects and safety risks.
Phase 3 (pivotal)—If a compound is found to be potentially effective
and to have an acceptable safety profile in Phase 2 evaluations, Phase 3 clinical trials, also called pivotal studies, major studies
or advanced clinical trials, are undertaken to further demonstrate clinical efficacy and to further test for safety within an expanded
patient population at geographically dispersed clinical trial sites. In general, the FDA requires that at least two adequate and
well-controlled Phase 3 clinical trials be conducted.
Initiation and completion of the clinical trial phases are dependent
on several factors including things that are beyond our control. For example, the clinical trials cannot begin at a particular
site until that site receives approval from its Institutional Review Board (“IRB”), which reviews the protocol and
related documents. This process can take from several weeks to several months. In addition, clinical trials are dependent on patient
enrollment, but the rate at which patients enroll in the study depends on:
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willingness of investigators to participate in a study;
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ability of clinical sites to obtain approval from their IRB;
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the availability of the required number of eligible subjects to be enrolled in a given trial;
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the availability of existing or other experimental drugs for the disease we intend to treat;
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the willingness of patients to participate; and
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the patients meeting the eligibility criteria.
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Delays in planned patient enrollment may result in increased expense
and longer development timelines.
After successful completion of the required clinical testing, generally
an NDA is submitted. Upon receipt of the NDA, the FDA will review the application for completeness. Within 60 days, the FDA will
determine if the application is sufficiently complete to warrant full review and will consider the application “filed”
at that time. Also upon receipt of the application, the FDA will assign a review priority to the application. Priority review applications
are usually reviewed within 8 months; standard review applications are usually reviewed within 12 months. The FDA will usually
refer NDAs for new molecular entities to an appropriate advisory committee for review and evaluation in regards to providing a
recommendation as to whether the application should be approved. The FDA is not bound to follow the recommendation of an advisory
committee.
Following the review of the application, which may include requests
for additional information from the sponsor and results from inspections of manufacturing and clinical sites, the FDA will
issue an “action letter” on the application. The action letter will either be an “approval letter,” in
which case the product may be lawfully marketed in the United States, or a “complete response letter.” A complete response
letter will state that the FDA cannot approve the NDA in its present form and, usually, will describe all of the specific deficiencies
that the FDA has identified in the application. The complete response letter, when possible, will include the FDA’s recommended
actions to place the application in a condition for approval. Deficiencies can be minor (e.g., labeling changes) or major (e.g.,
requiring additional clinical trials). A complete response letter may also be issued before the FDA conducts the required facility
inspection and/or reviews labeling, leaving the possibility that additional deficiencies in the original NDA could be subsequently
cited. An applicant receiving a complete response letter is permitted to resubmit the NDA addressing the identified deficiencies
(in which case a new two or six month review cycle will begin), or withdraw the NDA. The FDA may consider a failure to take action
within one year of a complete response letter to be a request to withdraw, unless the applicant has requested an extension of time
in which to resubmit. If the FDA approves an NDA, the marketing of the product will be limited to the particular disease states
and conditions of use that are described in the product label.
We and all of our contract manufacturers are also required to comply
with the applicable FDA current Good Manufacturing Practice, or cGMP, regulations during clinical development and to ensure that
the product can be consistently manufactured to meet the specifications submitted in an NDA. The cGMP regulations include requirements
relating to product quality as well as the corresponding maintenance of records and documentation. Manufacturing facilities must
be approved by the FDA before they can be used to manufacture our products. Based on an inspection, the FDA determines whether
manufacturing facilities are in compliance with applicable regulations. Manufacturing facilities in non-United States countries
that are utilized to manufacture drugs for distribution into the United States are also subject to inspection by the FDA. Additionally,
failure to comply with local regulatory requirements could affect production and availability of product in relevant markets.
Human Resources
As of January 31, 2017, we had approximately 65 employees,
of whom approximately 45 were engaged in the research and development function of our operations. Our research and development
staff, 25 of whom hold Ph.D. or M.D. degrees, have diversified experience in biochemistry, pharmacology, X-ray crystallography,
synthetic organic chemistry, computational chemistry, medicinal chemistry, clinical development and regulatory affairs.
Our employees are not represented by any collective bargaining agreements,
and we have never experienced a work stoppage. Employees are required to execute confidentiality and assignment of intellectual
property agreements. We consider our relations with our employees to be satisfactory.
Available Information
Our website address is www.biocryst.com. We make available, free of
charge, at our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC. We also make available at our website copies
of our audit committee charter, compensation committee charter, corporate governance and nominating committee charter and our code
of business conduct, which applies to all our employees as well as the members of our Board of Directors. Any amendment to, or
waiver from, our code of business conduct will be posted on our website.
Financial Information
For information related to our revenues, profits, net loss and total
assets, in addition to other financial information, please refer to the Financial Statements and Notes to Financial Statements
contained in this Annual Report. Financial information about revenues derived from foreign countries is included in Note 1
to the Financial Statements contained in this Annual Report.
An investment in our stock involves risks. You should carefully
read this entire report and consider the following uncertainties and risks, which may adversely affect our business, financial
condition or results of operations, along with all of the other information included in our other filings with the Securities and
Exchange Commission, before deciding to buy our common stock.
Risks Relating to Our Business
We have incurred losses since our inception, expect to continue to incur
such losses, and may never be profitable.
Since our inception, we have not achieved sustained profitability.
We expect to incur additional losses for the foreseeable future, and our losses could increase as our research and development
efforts progress. We expect that such losses will fluctuate from quarter to quarter and losses and fluctuations may be substantial.
To become profitable, we, or our collaborative partners, must successfully
manufacture and develop product candidates, receive regulatory approval, and successfully commercialize and/or enter into profitable
agreements with other parties. It could be several years, if ever, before we receive significant revenue from any current or future
license agreements or revenues directly from product sales.
Because of the numerous risks and uncertainties associated with developing
our product candidates and their potential for commercialization, we are unable to predict the extent of any future losses. Even
if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we are
unable to achieve and sustain profitability, the market value of our common stock will likely decline.
Our success depends upon our ability to advance our products through
the various stages of development, especially through the clinical trial process.
To receive the regulatory approvals necessary for the sale of our
product candidates, we or our partners must demonstrate through preclinical studies and clinical trials that each product candidate
is safe and effective. The development process and related regulatory process are complex and uncertain. Because of the cost and
duration of clinical trials, we may decide to discontinue development of product candidates that are unlikely to show good results
in the clinical trials, unlikely to help advance a product to the point of a meaningful collaboration, or unlikely to have reasonable
commercial potential. We may suffer significant setbacks in pivotal pre-clinical studies and clinical trials (e.g. galidesivir,
BCX7353, other kallikrein inhibitors and our other rare disease product candidates), even after earlier clinical trials show promising
results. The development of our product candidates, including our clinical trials, may not be adequately designed or executed,
which could affect the potential outcome and analysis of study results. Any of our product candidates may produce undesirable side
effects in humans. The pre-clinical and clinical data from our product candidates could cause us or regulatory authorities to interrupt,
delay, modify or halt preclinical or clinical trials of a product candidate. Undesirable or inconclusive data or side effects in
humans could also result in the FDA or foreign regulatory authorities refusing to approve the product candidate for any targeted
indications. In addition, the FDA or other regulatory agencies may determine that study data from our product candidates necessitates
additional studies or study designs which differ from our planned development strategy, and regulatory agencies may also require
patient monitoring and testing or may implement restrictions or other conditions on our development activities, any of which could
materially impact the cost and timing of our planned development strategy. We, our partners, the FDA or foreign regulatory authorities
may suspend or terminate clinical trials at any time if we or they believe the trial participants face unacceptable health risks.
Clinical trials may fail to demonstrate that our product candidates are safe or effective and have acceptable commercial viability.
Regulatory authorities may interrupt, delay or halt clinical trials for a product candidate for any number of reasons.
Our ability to successfully complete clinical trials is dependent
upon many factors, including but not limited to:
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our ability to find suitable clinical sites and investigators to enroll patients;
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the ability to maintain contact with patients to provide complete data after treatment;
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our product candidates may not prove to be either safe or effective;
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clinical protocols or study procedures may not be adequately designed or followed by the investigators;
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formulation improvements may not work as expected, which could negatively impact commercial demand for our product candidates;
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manufacturing or quality control problems could affect the supply of product candidates for our trials; and
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delays or changes in our planned development strategy, the regulations or guidelines, or other unexpected conditions or requirements of government agencies.
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Clinical trials are lengthy and expensive. We or our partners incur
substantial expense for, and devote significant time to, preclinical testing and clinical trials, yet we cannot be certain that
the tests and trials will ever result in the commercial sale of a product. For example, clinical trials require adequate supplies
of drug and sufficient patient enrollment. Lack of adequate drug supply or delays in patient enrollment can result in increased
costs and longer development times. Even if we or our partners successfully complete clinical trials for our product candidates,
we or our partners might not file the required regulatory submissions in a timely manner and may not receive regulatory approval
for the product candidates.
We focus on rare diseases, which may create additional risks and challenges.
Because we focus on developing drugs as treatments for rare diseases,
we may seek orphan drug, breakthrough therapy or fast track designations for our product candidates in the United States or the
equivalent designations elsewhere in the world. Often, regulatory agencies have broad discretion in determining whether or not
to grant such designations. We cannot guarantee that we will be able to receive orphan drug status from the FDA or equivalent regulatory
designations elsewhere. We also cannot guarantee that we will obtain breakthrough therapy or fast track designation, which may
provide certain potential benefits such as more frequent meetings with the FDA to discuss the development plan, intensive guidance
on an efficient drug development program, and potential eligibility for rolling review or priority review. Even if we are successful
in obtaining any such designation by the FDA or other regulatory agency for our product candidates, such designations may not lead
to faster development or regulatory review or approval, and it does not increase the likelihood that our product candidates will
receive marketing approval. We may not be able to obtain or maintain such designations for our product candidates, and our competitors
may obtain these designations for their product candidates, which could impact our ability to develop and commercialize our product
candidates or compete with such competitors, which may adversely impact our business, financial condition or results of operations.
Although we have received Sakigake designation for BCX7353 in Japan,
we may not experience a faster development, review or approval process compared to the conventional process.
Our clinical trials may not adequately show that our product candidates
are safe or effective.
Progression of our product candidates through the clinical development
process is dependent upon our trials indicating our product candidates have adequate safety and efficacy in the patients being
treated by achieving pre-determined safety and efficacy endpoints according to the clinical trial protocols. Failure to achieve
any of these endpoints in any of our programs, including BCX7353, and our other rare disease product candidates, could result in
delays in our trials or require the performance of additional unplanned trials. This could result in delays in the development
of our product candidates and could result in significant unexpected costs or the termination of programs.
If our development collaborations with third parties, such as our development
partners and contract research organizations, fail, the development of our product candidates will be delayed or stopped.
We rely heavily upon third parties for many important stages of our
product candidate development, including but not limited to:
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discovery of compounds that cause or enable biological reactions necessary for the progression of the disease or disorder, called enzyme targets;
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licensing or designing of enzyme inhibitors for development as product candidates;
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execution of certain preclinical studies and late-stage development for our compounds and product candidates;
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management of our clinical trials, including medical monitoring and data management;
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execution of additional toxicology studies that may be required to obtain approval for our product candidates;
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formulation improvement strategies and methods; and
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manufacturing the starting materials and drug substance required to formulate our products and the product candidates to be used in our clinical trials, toxicology studies and any potential commercial product.
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Our failure to engage in successful collaborations at any one of these
stages would greatly impact our business. If we do not license enzyme targets or inhibitors from academic institutions or from
other biotechnology companies on acceptable terms, our drug development efforts would suffer. Similarly, if the contract research
organizations that conduct our initial or late-stage clinical trials, conduct our toxicology studies, manufacture our starting
materials, drug substance and product candidates or manage our regulatory function breached their obligations to us or perform
their services inconsistent with industry standards and not in accordance with the required regulations, this would delay or prevent
both the development of our product candidates and the availability of any potential commercial product.
If we lose our relationship with any one or more of these parties,
we could experience a significant delay in both identifying another comparable provider and then contracting for its services.
We may be unable to retain an alternative provider on reasonable terms, if at all. Even if we locate an alternative provider, it
is likely that this provider may need additional time to respond to our needs and may not provide the same type or level of service
as the original provider. In addition, any provider that we retain will be subject to applicable FDA current Good Laboratory Practices
(“cGLP”), current Good Manufacturing Practices (“cGMP”) and current Good Clinical Practices (“cGCP”),
and comparable foreign standards. We do not have control over compliance with these regulations by these providers. Consequently,
if these practices and standards are not adhered to by these providers, the development and commercialization of our product candidates
could be delayed. If any of the foregoing risks are realized, our business, financial condition and results of operations could
be materially adversely affected.
Because we have limited manufacturing experience, we depend on third-party
manufacturers to manufacture our product, product candidates and the materials for our product candidates. Often, especially early
in the development and commercialization process, we have only one source for manufacturing. If we cannot rely on existing third-party
manufacturers, we will be required to incur significant costs and potential delays in finding new third-party manufacturers.
We have limited manufacturing experience and only a small scale manufacturing
facility. We currently rely upon a very limited number of third-party manufacturers to manufacture the materials required for our
product, product candidates and most of the preclinical and clinical quantities of our product candidates. We depend on these third-party
manufacturers to perform their obligations in a timely manner and in accordance with applicable governmental regulations. Our third-party
manufacturers, which may be the only manufacturer we have engaged for a particular product, may encounter difficulties with meeting
our requirements including but not limited to problems involving:
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inconsistent production yields;
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product liability claims or recalls of commercial product;
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difficulties in scaling production to commercial and validation sizes;
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interruption of the delivery of materials required for the manufacturing process;
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scheduling of plant time with other vendors or unexpected equipment failure;
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potential catastrophes that could strike their facilities or have an effect on infrastructure;
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potential impurities in our drug substance or products that could affect availability of product for our clinical trials or future commercialization;
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poor quality control and assurance or inadequate process controls; and
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lack of compliance or cooperation with regulations and specifications or requests set forth by the FDA or other foreign regulatory agencies, particularly associated with peramivir, BCX7353, galidesivir and our early stage compounds.
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These contract manufacturers may not be able to manufacture the materials
required for our product candidates at a cost or in quantities necessary to make them commercially viable. We also have no control
over whether third-party manufacturers breach their agreements with us or whether they may terminate or decline to renew agreements
with us. To date, our third-party manufacturers have met our manufacturing requirements, but they may not continue to do so. Furthermore,
changes in the manufacturing process or procedure, including a change in the location where the drug is manufactured or a change
of a third-party manufacturer, may require prior review and approval in accordance with the FDA’s cGMP and comparable foreign
requirements. This review may be costly and time-consuming and could delay or prevent the launch of a product. The FDA or similar
foreign regulatory agencies may at any time implement new standards, or change their interpretation and enforcement of existing
standards for manufacture, packaging or testing of products. If we or our contract manufacturers are unable to comply, we or they
may be subject to regulatory action, civil actions or penalties any of which could be costly to the Company and could result in
a delay or shortage of product.
If we are unable to maintain current manufacturing or other contract
relationships, or enter into new agreements with additional manufacturers on commercially reasonable terms, or if there is poor
manufacturing performance or failure to comply with any regulatory agency on the part of any of our third-party manufacturers,
we may not be able to complete development of, seek timely approval of, or market, our product candidates.
Our raw materials, drug substances, and product candidates are manufactured
by a limited group of suppliers, including some at a single facility. If any of these suppliers were unable to produce these items,
this could significantly impact our supply of product candidate material for further preclinical testing and clinical trials.
We face intense competition, and if we are unable to compete effectively,
the demand for our products, if any, may be reduced.
The biotechnology and pharmaceutical industries are highly competitive
and subject to rapid and substantial technological change. There are many companies seeking to develop products for the same indications
that we currently target. Our competitors in the United States and elsewhere are numerous and include, among others, major multinational
pharmaceutical and chemical companies and specialized biotechnology firms. Most of these competitors have greater resources than
we do, including greater financial resources, larger research and development staffs and more experienced marketing and manufacturing
organizations. In addition, most of our competitors have greater experience than we do in conducting clinical trials and obtaining
FDA and other regulatory approvals. Accordingly, our competitors may succeed in obtaining FDA or other regulatory approvals of
product candidates more rapidly than we do. Companies that complete clinical trials, obtain required regulatory approvals, and
commence commercial sale of their drugs before we do may achieve a significant competitive advantage, including patent and FDA
exclusivity rights that would delay our ability to market products. We face, and will continue to face, competition in the licensing
of potential product candidates for desirable disease targets licensing of desirable product candidates, and development and marketing
of our product candidates from academic institutions, government agencies, research institutions and biotechnology and pharmaceutical
companies. Competition may also arise from, among other things:
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other drug development technologies;
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methods of preventing or reducing the incidence of disease, including vaccines; and
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new small molecule or other classes of therapeutic agents.
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Developments by others may render our product candidates or technologies
obsolete or noncompetitive.
We are performing research on or developing products for the treatment
of several rare disorders, including HAE, as well as developing broad spectrum antivirals for use as medical countermeasures. We
expect to encounter significant competition for any of the pharmaceutical products we plan to develop. Companies that complete
clinical trials, obtain required funding or government support, obtain required regulatory approvals and commence commercial sales
or stockpiling orders of their products before their competitors may achieve a significant competitive advantage. Such is the case
with the current neuraminidase inhibitors marketed by GSK and Roche for influenza; CINRYZE
®
, KALBITOR
®
and FIRAZYR
®
, marketed by Shire Pharmaceuticals, Inc. for HAE; and BERINERT
®
, marketed by CSL for
HAE. Therapeutic products with potentially promising data to treat Ebola include Mapp Biopharmaceutical, Inc.’s ZMapp (antibody-based)
and Gilead Sciences, Inc.’s product currently under development (small molecule), both of which have been used in Ebola infected
patients. Further, several pharmaceutical and biotechnology firms, including major pharmaceutical companies and specialized structure-based
drug design companies, have announced efforts in the field of structure-based drug design and molecules in development in the fields
of HAE and in other therapeutic areas where we have discovery and development efforts ongoing. If one or more of our competitors’
products or programs are successful, the market for our products may be reduced or eliminated.
Compared to us, many of our competitors and potential competitors
have substantially greater:
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capital resources;
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research and development resources, including personnel and technology;
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regulatory experience;
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preclinical study and clinical testing experience;
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manufacturing and marketing experience; and
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production facilities.
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Any of these competitive factors could impede our funding efforts,
render technology and product candidates noncompetitive or eliminate or reduce demand for our product candidates.
We face risks related to our government-funded programs; if BARDA/HHS
or NIAID/HHS were to eliminate, reduce or delay funding from our contracts, this would have a significant negative impact on the
programs associated with such funding and could have a significant negative impact on our revenues and cash flows.
Our projections of revenues and incoming cash flows are substantially
dependent upon BARDA/HHS and NIAID/HHS reimbursement for the costs related to our galidesivir program. If BARDA/HHS or NIAID/HHS
were to eliminate, reduce or delay the funding for these programs or disallow some of our incurred costs, we would have to obtain
additional funding for continued development or regulatory registration for these product candidates or significantly reduce or
stop the development effort.
In contracting with BARDA/HHS and NIAID/HHS, we are subject to various
U.S. Government contract requirements, including general clauses for a cost-reimbursement research and development contract, which
may limit our reimbursement or if we are found to be in violation could result in contract termination. If the U.S. Government
terminates any of its contracts with us for its convenience, or if we default by failing to perform in accordance with the contract
schedule and terms, significant negative impact on our cash flows and operations could result.
Our government contracts with BARDA/HHS and NIAID/HHS have special contracting
requirements, which create additional risks of reduction or loss of funding.
We have completed work under a contract with BARDA/HHS for the development
of our neuraminidase inhibitor, RAPIVAB. We also have entered into contracts with BARDA/HHS and NIAID/HHS for the development of
galidesivir as a treatment for diseases caused by RNA pathogens, including Marburg virus disease and Ebola virus disease. In contracting
with these government agencies, we are subject to various U.S. Government contract requirements, including general clauses for
a cost-reimbursement research and development contract, which may limit our reimbursement or, if we are found to be in violation,
could result in contract termination.
U.S. Government contracts typically contain a number of extraordinary
provisions that would not typically be found in commercial contracts and which may create a disadvantage and additional risks to
us as compared to competitors that do not rely on U.S. Government contracts. These risks include the ability of the U.S. Government
to unilaterally:
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terminate or reduce the scope of our contract with or without cause;
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interpret relevant regulations (federal acquisition regulation clauses);
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require performance under circumstances which may not be favorable to us;
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require an in process review where the U.S. Government will review the project and its options under the contract;
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control the timing and amount of funding, which impacts the development progress of our programs; and
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audit and object to our contract-related costs and fees, including allocated indirect costs.
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Our government contracts with BARDA/HHS and NIAID/HHS have termination
and audit provisions which create additional risks to us.
The U.S. Government may terminate its contracts with us either for
its convenience or if we default by failing to perform in accordance with the contract schedule and terms. Termination for convenience
provisions generally enable us to recover only our costs incurred or committed, and settlement expenses and profit on the work
completed prior to termination. Termination does not permit these recoveries under default provisions. In the event of termination
or upon expiration of a contract, the U.S. Government may dispute wind-down and termination costs and may question prior expenses
under the contract and deny payment of those expenses. Should we choose to challenge the U.S. Government for denying certain payments
under a contract, such a challenge could subject us to substantial additional expenses which we may or may not recover. Further,
if the U.S. Government terminates its contracts with us for its convenience, or if we default by failing to perform in accordance
with the contract schedule and terms, significant negative impact on our cash flows and operations could result.
As a U.S. Government contractor, we are required to comply with applicable
laws, regulations and standards relating to our accounting practices and are subject to periodic audits and reviews. As part of
any such audit or review, the U.S. Government may review the adequacy of, and our compliance with, our internal control systems
and policies, including those relating to our purchasing, property, estimating, compensation and management information systems.
Audits conducted by the U.S. Government for the completed BARDA/HHS peramivir contract have been performed and concluded through
fiscal 2009; all subsequent fiscal years are still open and auditable. Audits under the active BARDA/HHS and NIAID/HHS galidesivir
contracts may occur at the election of the U.S. Government and have been concluded through fiscal 2013. Based on the results of
its audits, the U.S. Government may adjust our contract-related costs and fees, including allocated indirect costs. This adjustment
could impact the amount of revenues reported on a historic basis and could impact our cash flows under the contracts prospectively.
In addition, in the event BARDA/HHS or NIAID/HHS determines that certain costs and fees were unallowable or determines that the
allocated indirect cost rate was higher than the actual indirect cost rate, BARDA/HHS or NIAID/HHS would be entitled to recoup
any overpayment from us as a result. In addition, if an audit or review uncovers any improper or illegal activity, we may be subject
to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of profits, suspension
of payments, fines and suspension or prohibition from doing business with the U.S. Government. We could also suffer serious harm
to our reputation if allegations of impropriety were made against us. In addition, under U.S. Government purchasing regulations,
some of our costs may not be reimbursable or allowed under our contracts. Further, as a U.S. Government contractor, we are subject
to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities
as compared to private sector commercial companies.
If we fail to reach milestones or to make annual minimum payments or
otherwise breach our obligations under our license agreements, our licensors may terminate our agreements with them and seek additional
remedies.
If we are unable or fail to meet payment obligations, performance
milestones relating to the timing of regulatory filings, product supply obligations, post approval commitments for RAPIVAB, or
development and commercial diligence obligations; are unable or fail to make milestone payments or material data use payments in
accordance with applicable provisions; or fail to pay the minimum annual payments under our respective licenses, our licensors
may terminate the applicable license or seek other available remedies. As a result, our development of the respective product candidate
or commercialization of the product would cease.
If we fail to obtain additional financing or acceptable partnership
arrangements, we may be unable to complete the development and commercialization of our product candidates or continue operations.
As our programs advance, our costs are likely to increase. Our current
and planned discovery activities, pre-clinical and clinical trials, the related development, manufacturing, regulatory approval
process requirements, and the additional personnel resources and testing required for supporting the development of our product
candidates will consume significant capital resources. Our expenses, revenues and cash utilization rate could vary significantly
depending on many factors, including: our ability to raise additional capital; the development progress of our collaborative agreements
for our product candidates; the amount of funding we receive from NIAID/HHS and BARDA/HHS for galidesivir or from other new partnerships
with third parties for the development of our product candidates, including BCX7353 and our other rare disease product candidates;
the commercial success of peramivir achieved by our partners; the amount or profitability of any orders for peramivir or galidesivir
by any government agency or other party; the progress and results of our current and proposed clinical trials for our most advanced
product candidates, including BCX7353 and our other rare disease product candidates; the progress made in the manufacture of our
lead products and the progression of our other programs.
We expect that we will be required to raise additional capital to
complete the development and commercialization of our current product candidates and we may seek to raise capital at any time.
Additional funding, whether through additional sales of securities, additional borrowings, or collaborative arrangements with partners,
including governmental agencies in general and from any BARDA/HHS or NIAID/HHS contract specifically, may not be available when
needed or on terms acceptable to us. The issuance of preferred or common stock or convertible securities, with terms and prices
significantly more favorable than those of the currently outstanding common stock, could have the effect of diluting or adversely
affecting the holdings or rights of our existing stockholders. Additional borrowings may subject us to more restrictive covenants
than are currently applicable to us under our September 23, 2016 Senior Credit Facility with an affiliate of MidCap Financial Services,
LLC (“MidCap”), as administrative agent (the “Senior Credit Facility”). In addition, collaborative arrangements
may require us to transfer certain material rights to such corporate partners. Insufficient funds or lack of an acceptable partnership
may require us to delay, scale-back or eliminate certain of our research and development programs.
In order to continue future operations and continue our drug
development programs, we will be required to raise additional capital. In addition to seeking strategic partnerships,
transactions and government funding, we may decide to access the equity or debt markets, incur additional borrowings, or seek
other sources to meet liquidity needs. Our ability to raise additional capital may be limited and may greatly depend upon the
success of ongoing development related to our current drug development programs, including post approval studies for
RAPIVAB, the progress, timeline and ultimate outcome of our kallikrein inhibitors, including the BCX7353 program
(including, but not limited to, formulation progress, phase 3 trials, long-term human safety studies, and the timing of
carcinogenicity or other required studies), the progress of our other rare disease product candidates, funding for and
continued successful development of galidesivir, and the progress of our early discovery programs. In addition, constriction
and volatility in the equity and debt markets may restrict our future flexibility to raise capital when such needs arise.
Furthermore, we have exposure to many different industries, financing partners and counterparties, including commercial
banks, investment banks and partners (which include investors, licensing partners, and the U.S. Government) which may be
unstable or may become unstable in the current economic and political environment. Any such instability may impact these
parties’ ability to fulfill contractual obligations to us or they might limit or place burdensome conditions upon
future transactions with us. Also, it is possible that suppliers may be negatively impacted. Any such unfavorable outcomes in
our current programs or unfavorable economic conditions could place severe downward pressure on the price of our common stock
and may decrease opportunities to raise capital in the capital or credit markets, and further could reduce the return
available on invested corporate cash, which, if severe and sustained, could have a material and adverse impact on our results
of operations and cash flows and limit our ability to continue development of our product candidates.
We may not be able to continue as a going concern if we do not obtain
additional capital.
We have sustained operating losses for the majority of our corporate
history and expect that our 2017 expenses will exceed our 2017 revenues. We expect to continue to incur operating losses and negative
cash flows until revenues reach a level sufficient to support ongoing operations.
Our liquidity needs will be largely determined by the success of operations
in regards to the progression of our product candidates in the future. Our plans to alleviate the doubt regarding our ability to
continue as a going concern primarily include our ability to control the timing and spending on our research and development programs
and raising additional funds through equity financings. We also may consider other plans to fund operations including: (1)
securing or increasing U.S. Government funding of our programs, including obtaining procurement contracts; (2) out-licensing rights
to certain of our products or product candidates, pursuant to which the we would receive cash milestones; (3) raising additional
capital through debt financings or from other sources; (4) obtaining additional product candidate regulatory approvals, which would
generate revenue, milestones and cash flow; (5) reducing spending on one or more research and development programs by discontinuing
development; and/or (6) restructuring operations to change our overhead structure.
There can be no assurance that any of our plans will be successful
or that additional capital will be available to us on reasonable terms, or at all, when needed. If we are unable to obtain sufficient
additional capital, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether
or file for bankruptcy.
If we fail to successfully commercialize or establish collaborative
relationships to commercialize certain of our product candidates, or if any partner terminates or fails to perform its obligations
under agreements with us, potential revenues from commercialization of our product candidates could be reduced, delayed or eliminated.
Our business strategy is to increase the asset value of our product
candidate portfolio. We believe this is best achieved by retaining full product rights or through collaborative arrangements with
third parties as appropriate. As needed, potential third-party relationships could include preclinical development, clinical development,
regulatory approval, marketing, sales and distribution of our product candidates.
Currently, we have established collaborative relationships with Mundipharma
for the development and commercialization of forodesine and with each of Shionogi and Green Cross for the development and commercialization
of peramivir in Japan, Taiwan and South Korea. Most recently we have established a collaborative relationship with Seqirus UK
Limited for RAPIVAB on a worldwide basis other than Israel, Japan, Korea and Taiwan. The process of establishing and implementing
collaborative relationships is difficult, time-consuming and involves significant uncertainty, including:
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our partners may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical results, including post approval clinical commitments, a change in business strategy, a change of control or other reasons;
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our contracts for collaborative arrangements may expire;
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our partners may choose to pursue alternative technologies, including those of our competitors;
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we may have disputes with a partner that could lead to litigation or arbitration;
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we do not have day to day control over the activities of our partners and have limited control over their decisions;
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our ability to generate future event payments and royalties from our partners depends upon their abilities to establish the safety and efficacy of our product candidates, obtain regulatory approvals and achieve market acceptance of products developed from our product candidates;
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we or our partners may fail to properly initiate, maintain or defend our intellectual property rights, where applicable, or a party may utilize our proprietary information in such a way as to invite litigation that could jeopardize or potentially invalidate our proprietary information or expose us to potential liability;
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we or our partners may not devote sufficient capital or resources towards our product candidates; and
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we or our partners may not comply with applicable government regulatory requirements.
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If we or our partners fail to fulfill our responsibilities in a timely
manner, or at all, our commercialization efforts related to that collaboration could be reduced, delayed or terminated, or it may
be necessary for us to assume responsibility for activities that would otherwise have been the responsibility of our partner. If
we are unable to establish and maintain collaborative relationships on acceptable terms, we may have to delay or discontinue further
development of one or more of our product candidates, undertake commercialization activities at our own expense or find alternative
sources of funding. Any delay in the development or commercialization of our product candidates would severely affect our business,
because if our product candidates do not progress through the development process or reach the market in a timely manner, or at
all, we may not receive additional future event payments and may never receive milestone, product sales or royalty payments.
We do not have a great deal of experience in commercializing our products
or technologies, and our future revenue generation is uncertain.
We do not have a great deal of experience in commercializing our product
candidates or technologies. We currently have limited marketing and commercial capability, no direct or third-party sales force
and limited distribution capabilities. We may be unable to establish or sufficiently increase these capabilities for products we
currently, or plan to, commercialize. In addition, our revenue from collaborative agreements may be dependent upon the status of
our preclinical and clinical programs.
Our ability to receive revenue from products we commercialize presents
several risks, including:
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we or our collaborators may fail to successfully complete clinical trials, or satisfy post-marketing commitments, sufficient to obtain and keep FDA marketing approval;
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many competitors are more experienced and have significantly more resources, and their products could reach the market faster, be more cost effective or have a better efficacy or tolerability profile than our product candidates;
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we may fail to employ a comprehensive and effective intellectual property strategy, which could result in decreased commercial value of our Company and our products;
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we may fail to employ a comprehensive and effective regulatory strategy, which could result in a delay or failure in commercialization of our products;
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our ability to successfully commercialize our products is affected by the competitive landscape, which cannot be fully known at this time;
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reimbursement is constantly changing, which could greatly affect usage of our products; and
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future revenue from product sales would depend on our ability to successfully complete clinical studies, obtain regulatory approvals, and manufacture, market and commercialize our approved drugs.
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Commercialization of peramivir by our partners is subject to the potential
commercialization risks described herein and numerous additional risks. Any potential revenue benefits to us in the form of milestone
payments, royalties or other consideration are highly speculative.
Commercialization success of peramivir is uncertain and is subject
to all the risks and uncertainties disclosed in our other risk factors relating to drug development and commercialization. In addition,
commercialization of peramivir products is subject to further risks and may be negatively impacted by a number of factors, including,
but not limited to, the following:
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peramivir may not prove to be adequately safe and effective for market approval in markets other than the United States, Japan, Korea and Taiwan;
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necessary funding for post-marketing commitments and further development of peramivir may not be available timely, at all, or in sufficient amounts;
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flu prevention or pandemic treatment concerns may not materialize at all, or in the near future;
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advances in flu vaccines or other antivirals, including competitive i.v. antivirals, could substantially replace potential demand for peramivir;
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a limited number of governmental entities are expected to be the primary potential stockpiling customers for peramivir and if we are not successful at marketing peramivir to these entities for any reason, we will not receive substantial revenues from stockpiling orders;
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government and third party payors may not provide sufficient coverage or reimbursement which would negatively impact the demand for peramivir;
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we may not be able to supply commercial material to our partners and our partners may not be able to maintain or establish sufficient and acceptable commercial manufacturing, either directly or through third-party manufacturers;
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the commercial demand and acceptance for peramivir by healthcare providers and by patients may not be sufficient to result in substantial revenues of peramivir to our partners and may result in little to no milestones or royalties to us;
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effectiveness of marketing and commercialization efforts for peramivir by our
partners;
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market satisfaction with existing alternative therapies;
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perceived efficacy relative to other available therapies;
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disease prevalence;
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cost of treatment;
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pricing and availability of alternative products;
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marketing and sales activities of competitors;
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shifts in the medical community to new treatment paradigms or standards of care; and
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relative convenience and ease of administration.
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We are subject to various federal and state laws related to RAPIVAB and
other products under development and, if we or our partners do not comply with these regulations, we could face substantial penalties.
Our or our partners’ activities related to RAPIVAB, or any of
our other products under development and following their regulatory approval, are subject to regulatory and law enforcement authorities
in addition to the FDA, including the Federal Trade Commission, the Department of Justice, and state and local governments. In
the case of our collaboration with SUL, although SUL is responsible for RAPIVAB marketing and commercialization efforts, we continue
to carry certain risks associated with RAPIVAB because we hold the RAPIVAB NDA. For example, we are responsible for reporting adverse
drug experiences, we have responsibility for certain post-approval studies, we may have responsibilities and costs related to a
recall or withdrawal of RAPIVAB from sale, we may incur liability associated with RAPIVAB manufacturing contracted by us or in
support of any of our partners, we are required to maintain records and provide data and reports to regulatory agencies related
to RAPIVAB (e.g. risk evaluation and mitigation strategies, track and trace requirements, adverse events), and we may incur certain
promotional regulatory and government pricing risks, all of which could have a material adverse impact on our operations and financial
condition. In addition, we are now subject to the federal physician sunshine act and certain similar legislation in various states.
We are subject to various federal and state laws pertaining to health care “fraud and abuse,” including both federal
and state anti-kickback laws. Although we seek to comply with these statutes, it is possible that our practices, or those of our
distributors, might be challenged under anti-kickback or similar laws. Violations of the physician sunshine act and similar state
legislation or the fraud and abuse laws may be punishable by civil or criminal sanctions, including fines and civil monetary penalties,
and future exclusion from participation in government healthcare programs.
We have a number of outstanding post-marketing commitments to the
FDA that we retain, despite our partnership with SUL, which we may not complete successfully or on time for any number of reasons,
including but not limited to lack of funds to complete the studies and insufficient interest by appropriate sites, investigators
or study subjects. For example, as a condition of the approval of RAPIVAB, we are required to complete a pediatric patient study
of RAPIVAB and to submit the final results of this clinical trial to the FDA. Depending on the outcome of this clinical trial,
we may be unable to expand the indication for RAPIVAB or we may be required to include specific warnings or limitations on dosing
this product, which could negatively impact sales of RAPIVAB and negatively impact our relationship with our partner. We may be
subject to penalties if we fail to comply with post-approval legal and regulatory requirements and our products could be subject
to continual recordkeeping and reporting requirements, review and periodic inspections by the FDA and other regulatory bodies.
Regulatory approval of a product may be subject to limitations on the indicated uses for which the product may be marketed or to
the other restrictive conditions of approval that limit our ability to promote, sell or distribute a product. Furthermore, the
approval of RAPIVAB and any other future product candidates may be subject to requirements for costly post-marketing testing and
surveillance to monitor its safety or efficacy.
Advertising and promotion are subject to stringent FDA rules and oversight
and as the holder of the NDA we may be held responsible for any advertising and promotion conducted by our partner that is not
in compliance with the rules and regulations. In particular, the claims in all promotional materials and activities must be consistent
with the FDA approvals for approved products, and must be appropriately substantiated and fairly balanced with information on the
safety risks and limitations of the products. Adverse event information concerning approved products must be reviewed and as the
NDA holder of RAPIVAB we are required to make expedited and periodic adverse event reports to the FDA and other regulatory authorities.
In addition, the research, manufacturing, distribution, sale and promotion
of products are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including
the Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human Services, the U.S. Department
of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments. Until we can
successfully transfer the pricing responsibilities to our partner, we remain responsible for pricing and rebate programs. Pricing
and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, as amended,
and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply
Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially
subject to federal and state consumer protection and unfair competition laws.
If our operations with respect to RAPIVAB or our other products that
are subject to healthcare laws and regulations are found to be in violation of any of the healthcare fraud and abuse laws described
above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties,
damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring
of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs
can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any
action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal
expenses and divert our management's attention from the operation of our business. Moreover, achieving and sustaining compliance
with all applicable federal and state fraud and abuse laws may be costly.
We and our partners may be subject to new legislation, regulatory proposals
and healthcare payor initiatives that may increase our costs of compliance and adversely affect our or our partners’ ability
to market our products, including RAPIVAB, obtain collaborators and raise capital.
The Patient Protection and Affordable Care Act, or PPACA, made extensive
changes to the delivery of health care in the U.S. The PPACA includes numerous provisions that affect pharmaceutical companies,
some of which became effective immediately and others of which will be taking effect over the next several years. For example,
the PPACA seeks to expand health care coverage to the uninsured through private health insurance reforms and an expansion of Medicaid.
The PPACA will also impose substantial costs on pharmaceutical manufacturers, such as an increase in liability for rebates paid
to Medicaid, new drug discounts that must be offered to certain enrollees in the Medicare prescription drug benefit, an annual
fee imposed on all manufacturers of brand prescription drugs in the U.S., and an expansion of an existing program requiring pharmaceutical
discounts to certain types of hospitals and federally subsidized clinics. The PPACA also contains cost containment measures that
could reduce reimbursement levels for health care items and services generally, including pharmaceuticals. It also will require
reporting and public disclosure of payments and other transfers of value provided by pharmaceutical companies to physicians and
teaching hospitals. We cannot predict what effect the PPACA or other healthcare reform initiatives that may be adopted in the future
will have on our business. Further, it remains unclear whether there will be any changes made to provisions of the PPACA or other
health care laws through acts of Congress in the future. The continuing efforts of the government, insurance companies, managed
care organizations and other payors of health care services to contain or reduce costs of health care could result in decreased
net revenues from our pharmaceutical products and decrease potential returns from our development efforts. In addition, pharmaceutical
and device manufacturers will also be required to report and disclose investment interests held by physicians and their immediate
family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties
for payments, transfers of value or ownership or investment interests not reported in an annual submission. Compliance with the
PPACA and state laws with similar provisions is difficult and time consuming, and companies that do not comply with these state
laws face civil penalties. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some
of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have a material
adverse effect on our business, financial condition, results of operations and growth prospects.
In addition, there have been a number of other legislative and regulatory
proposals aimed at changing the pharmaceutical industry. In particular, legislation has been enacted in certain states and proposed
at a federal level that requires development of an electronic pedigree to track and trace each prescription drug at the saleable
unit level through the distribution system. Compliance with these electronic pedigree requirements may increase our operational
expenses and impose significant administrative burdens. In addition, our compliance may be deemed insufficient and we could face
a material adverse effect on our business, financial condition, results of operations and growth prospects. As a result of
these and other new proposals, we may determine to change our current manner of operation, provide additional benefits or change
our contract arrangements, any of which could have a material adverse effect on our business, financial condition and results of
operations.
Managed care organizations are increasingly challenging the prices
charged for medical products and services and, in some cases, imposing restrictions on the coverage of particular drugs. Many managed
care organizations negotiate the price of medical services and products and develop formularies which establish pricing and reimbursement
levels. Exclusion of a product from a formulary can lead to its sharply reduced usage in the managed care organization’s
patient population. The process for obtaining coverage can be lengthy and costly, and we expect that it could take several months
before a particular payor initially reviews our product and makes a decision with respect to coverage. For example, third-party
payors may require cost-benefit analysis data from us in order to demonstrate the cost-effectiveness of RAPIVAB or any other product
we might bring to market. For any individual third-party payor, we may not be able to provide data sufficient to gain reimbursement
on a similar or preferred basis to competitive products, or at all which may have a material adverse effect on our business, financial
condition and results of operations.
There are risks related to the potential government use or sale of peramivir
(RAPIVAB).
United States Government use or sale of RAPIVAB in emergency situations,
or otherwise, may result in the use of RAPIVAB outside of its approved use. To the extent that RAPIVAB is used as a treatment for
influenza by the U.S. Government or peramivir by any other government entity, there can be no assurance that it will prove to be
generally safe, well-tolerated and effective. Such government use of RAPIVAB/peramivir may create certain liabilities for us or
our partners in the case of government use outside of the U.S. There is no assurance that we or our manufacturers will be able
to fully meet the demand for peramivir in the event of additional orders. Further, we may not achieve a favorable price for additional
orders of RAPIVAB in the U.S. or peramivir in any other country. Our competitors may develop products that could compete with or
replace peramivir. We may face competition in markets where we have no existing intellectual property protection or are unable
to successfully enforce our intellectual property rights.
There is no assurance that the non-U.S. partnerships that we have
entered into for peramivir will result in any order for peramivir in those countries. There is no assurance that peramivir will
be approved for any use or will achieve market approval in additional countries. In the event that any emergency use or market
approval is granted, there is no assurance that any government order or commercialization of peramivir in any countries will be
substantial or will be profitable to us. In addition, the sale of peramivir, emergency use or other use of peramivir in any country
may create certain liabilities for us and our partners.
If we or our partners do not obtain and maintain governmental approvals
for our product candidates under development, we or our partners will not be able to sell these potential products, which would
significantly harm our business because we will receive no revenue.
We or our partners must obtain regulatory approval before marketing
or selling our future product candidates. If we or our partners are unable to receive regulatory approval and do not market or
sell our future product candidates, we will never receive any revenue from such product sales. In the United States, we or our
partners must obtain FDA approval for product candidates that we intend to commercialize. The process of preparing for and obtaining
FDA approval may be lengthy and expensive, and approval is never certain. Products distributed abroad are also subject to foreign
government regulation and export laws of the United States. Because of the risks and uncertainties in biopharmaceutical development,
our product candidates could take a significantly longer time to gain regulatory approval than we expect or may never gain approval.
If the FDA delays regulatory approval of our product candidates, our management’s credibility, our value and our operating
results may suffer. Even if the FDA or foreign regulatory agencies approve a product candidate, the approval may limit the indicated
uses for a product candidate and/or may require post-approval studies.
The FDA regulates, among other things, the record keeping and storage
of data pertaining to potential pharmaceutical products. We currently store most of our preclinical research data, our clinical
data and our manufacturing data at our facility. While we do store duplicate copies of most of our clinical data offsite and a
significant portion of our data is included in regular backups of our systems, we could lose important data if our facility incurs
damage, or if our vendor data systems fail, suffer damage or are destroyed. If we receive approval to market our potential products,
whether in the United States or internationally, we will continue to be subject to extensive regulatory requirements. These requirements
are wide ranging and govern, among other things:
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adverse drug experience reporting regulations;
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product promotion;
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product manufacturing, including good manufacturing practice requirements; and
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product changes or modifications.
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Our failure to comply with existing or future regulatory requirements,
or our loss of, or changes to, previously obtained approvals, could have a material adverse effect on our business because we will
not receive product or royalty revenues if we or our partners do not receive approval of our products for marketing.
Royalties and milestone payments from Shionogi under our license agreement
with Shionogi (the “Shionogi Agreement”) will be required to be used by Royalty Sub to service its obligations under
its PhaRMA Notes, and generally will not be available to us for other purposes until Royalty Sub has repaid in full its obligations
under the PhaRMA Notes.
In March 2011, our wholly-owned subsidiary Royalty Sub issued $30.0
million in aggregate principal amount of PhaRMA Notes. The PhaRMA Notes are secured principally by (i) certain royalty and milestone
payments under the Shionogi Agreement, pursuant to which Shionogi licensed from us the rights to market peramivir in Japan and
Taiwan, (ii) rights to certain payments under a Japanese yen/U.S. dollar foreign currency hedge arrangement put into place by us
in connection with the issuance of the PhaRMA Notes and (iii) the pledge by us of our equity interest in Royalty Sub. Payments
from Shionogi to us under the Shionogi Agreement will generally not be available to us for other purposes until Royalty Sub has
repaid in full its obligations under the PhaRMA Notes. Accordingly, these funds will be required to be dedicated to Royalty Sub’s
debt service and not available to us for product development or other purposes. As of September 1, 2014, the payments from Shionogi
were insufficient for Royalty Sub to service its obligations under the PhaRMA Notes, resulting in an event of default with respect
to the PhaRMA Notes. As a result of this event of default, the holders of the PhaRMA Notes may be able to pursue acceleration of
the PhaRMA Notes and foreclose on the collateral securing the PhaRMA Notes and our equity interest in Royalty Sub and may exercise
other remedies available to them under the indenture or other documents related to the PhaRMA Notes. In such event, we may
not realize the benefit of future royalty payments that might otherwise accrue to us following repayment of the PhaRMA Notes, we
may incur legal costs and we might otherwise be adversely affected.
Because an event of default has occurred under the PhaRMA Notes, the
holders of the PhaRMA Notes may be able to pursue acceleration of the PhaRMA Notes and foreclose on the collateral securing the
PhaRMA Notes and our equity interest in Royalty Sub, in which case we may not realize the benefit of future royalty payments that
might otherwise accrue to us following repayment of the PhaRMA Notes and we could otherwise be adversely affected.
Royalty Sub’s ability to service its payment obligations in
respect of the PhaRMA Notes, and our ability to benefit from our equity interest in Royalty Sub, is subject to numerous risks.
Royalty Sub’s ability to service the PhaRMA Notes may be adversely affected by, among other things, changes in or any termination
of our relationship with Shionogi, reimbursement, regulatory, manufacturing and/or intellectual property issues, product returns,
product recalls, product liability claims and allegations of safety issues, as well as other factors. As Royalty Sub has been unable
to service its obligations under the PhaRMA Notes and an event of default has occurred under the PhaRMA Notes, the holders of the
PhaRMA Notes may be able to pursue acceleration of the PhaRMA Notes and foreclose on the collateral securing the PhaRMA Notes and
our equity interest in Royalty Sub and may exercise other remedies available to them under the indenture or other documents
related to the PhaRMA Notes. In such event, we may not realize the benefit of future royalty payments that might otherwise
accrue to us following repayment of the PhaRMA Notes, we may incur legal costs and we might otherwise be adversely affected.
We may be required to pay significant premiums under the foreign currency
hedge arrangement entered into by us in connection with the issuance of the PhaRMA Notes. In addition, because our potential obligations
under the foreign currency hedge are marked to market, we may experience additional quarterly volatility in our operating results
and cash flows attributable to the foreign currency hedge arrangement.
In connection with the issuance by Royalty Sub of the PhaRMA Notes,
we entered into a foreign currency hedge arrangement to hedge certain risks associated with changes in the value of the Japanese
yen relative to the U.S. dollar. Under the foreign currency hedge agreement, we may be required to pay an annual premium in the
amount of $2.0 million in each May continuing through May 2020. Such payment will be required if, in May of the relevant year,
the spot rate of exchange for Japanese yen-U.S. dollars (determined in accordance with the foreign currency hedge arrangement)
is such that the U.S. dollar is worth 100 yen or less. We will be required to mark-to-market our potential obligations under the
currency hedge and post cash collateral, which may cause us to experience additional quarterly volatility in our operating results
and cash flows as a result. Additionally, we may be required to pay significant premiums or a termination fee under the foreign
currency hedge agreement entered into by us in connection with the issuance of the PhaRMA Notes. We are required to maintain a
foreign currency hedge at 100 yen per dollar under the agreements governing the PhaRMA Notes.
Our Senior Credit Facility
contains restrictions that limit our flexibility in operating our business. We may be required to make a prepayment or repay the
outstanding indebtedness earlier than we expect if a prepayment event or an event of default occurs, including a material adverse
change with respect to us, which could have a material adverse effect on our business.
The Senior Credit Facility contains various
covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other
things:
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convey, sell, lease, license, transfer or otherwise dispose of certain parts of our business or property;
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change the nature of our business;
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liquidate or dissolve;
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enter into certain change in control or acquisition transactions;
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incur or assume certain debt;
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grant certain types of liens on our assets;
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modify, liquidate or transfer assets in certain collateral accounts;
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pay dividends or make certain distributions to our stockholders;
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make certain investments;
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enter into material transactions with affiliates; and
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modify existing debt or collaboration arrangements.
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The restrictive covenants contained in the
Senior Credit Facility could cause us to be unable to pursue business opportunities that we or our stockholders may consider beneficial
without the lender’s permission or without repaying all Senior Credit Facility obligations.
A breach of any of these covenants could result in an event of default
under the Senior Credit Facility. An event of default will also occur if, among other things, a material adverse change in our
business, operations or condition occurs, which could potentially include negative results in clinical trials, or a material impairment
of the prospect of our repayment of any portion of the amounts we owe under the Senior Credit Facility occurs. In the case of a
continuing event of default under the agreement, the lender could elect to declare all amounts outstanding to be immediately due
and payable, proceed against the collateral in which we granted to the lender a security interest under the Senior Credit Facility,
or otherwise exercise the rights of a secured creditor. Amounts outstanding under the Senior Credit Facility are secured by substantially
all of our assets and those of our subsidiaries, excluding certain specified assets but including proceeds from those assets.
If we fail to adequately protect or enforce our intellectual property
rights or secure rights to patents of others, the value of those rights would diminish.
Our success will depend in part on our ability and the abilities of
our partners to obtain, protect and enforce viable intellectual property rights including but not limited to trade name, trademark
and patent protection for our Company and its products, methods, processes and other technologies we may license or develop, to
preserve our trade secrets, and to operate without infringing the proprietary rights of third parties both domestically and abroad.
The patent position of biotechnology and pharmaceutical companies is generally highly uncertain, involves complex legal and factual
questions and has recently been the subject of much litigation. Neither the United States Patent and Trademark Office (“USPTO”),
the Patent Cooperation Treaty offices, nor the courts of the United States and other jurisdictions have consistent policies nor
predictable rulings regarding the breadth of claims allowed or the degree of protection afforded under many biotechnology and pharmaceutical
patents. Further, we may not have worldwide patent protection for all of our product candidates and our intellectual property rights
may not be legally protected or enforceable in all countries throughout the world. In some jurisdictions, some of our product candidates
in certain programs, including our HAE program, may have short or no composition of matter patent life and we may therefore rely
on orphan drug exclusivity or data exclusivity. There can be no assurance that we will obtain orphan drug exclusivity or data exclusivity
in every jurisdiction. Further, in some jurisdictions, we may rely on formulation patents or method of use patents. Both the ability
to achieve issuance and the enforcement of formulation and method of use patents can be highly uncertain and can vary from jurisdiction
to jurisdiction, and such patents may therefore not adequately prevent competitors and potential infringers in some jurisdictions.
The validity, scope, enforceability and commercial value of the rights protected by such patents, therefore, is highly uncertain.
We also rely on trade secrets to protect technology in cases when
we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. If we cannot maintain
the confidentiality of our technology and other confidential information in connection with our collaborators and advisors, our
ability to receive patent protection or protect our proprietary information may be imperiled.
We may be involved in lawsuits to protect or enforce our patents, the
patents of our partners or our other intellectual property rights, which could be expensive, time consuming and unsuccessful
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Competitors may infringe or otherwise violate our patents, the patents
of our licensors or our other intellectual property rights. To counter infringement or unauthorized use, we may be required to
file legal claims, which can be expensive and time-consuming and unsuccessful. An adverse result in any litigation or defense proceeding
could put one or more of our patents at risk. Our success depends in part on avoiding the infringement of other parties’
patents and other intellectual property rights as well as avoiding the breach of any licenses relating to our technologies and
products. In the United States, patent applications filed in recent years are confidential for 18 months, while older applications
are not published until the patent issues. As a result, avoiding patent infringement may be difficult and we may inadvertently
infringe third-party patents or proprietary rights. These third parties could bring claims against us, our partners or our licensors
that even if resolved in our favor, could cause us to incur substantial expenses and, if resolved against us, could additionally
cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, our partners or our licensors,
we or they could be forced to stop or delay research, development, manufacturing or sales of any infringing product in the country
or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Such a license may not be
available on acceptable terms, or at all, particularly if the third party is developing or marketing a product competitive with
the infringing product. Even if we, our partners or our licensors were able to obtain a license, the rights may be nonexclusive,
which would give our competitors access to the same intellectual property.
If we or our partners are unable or fail to adequately initiate, protect,
defend or enforce our intellectual property rights in any area of commercial interest or in any part of the world where we wish
to seek regulatory approval for our products, methods, processes and other technologies, the value of the product candidates to
produce revenue would diminish. Additionally, if our products, methods, processes, and other technologies or our commercial use
of such products, processes, and other technologies, including but not limited to any trade name, trademark or commercial strategy
infringe the proprietary rights of other parties, we could incur substantial costs. The USPTO and the patent offices of other jurisdictions
have issued to us a number of patents for our various inventions and we have in-licensed several patents from various institutions.
We have filed additional patent applications and provisional patent applications with the USPTO. We have filed a number of corresponding
foreign patent applications and intend to file additional foreign and U.S. patent applications, as appropriate. We have also filed
certain trademark and trade name applications worldwide. We cannot assure you as to:
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the degree and range of protection any patents will afford against competitors with similar products;
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if and when patents will issue;
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if patents do issue we cannot be sure that we will be able to adequately defend such patents and whether or not we will be able to adequately enforce such patents; or
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whether or not others will obtain patents claiming aspects similar to those covered by our patent applications.
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If the USPTO or other foreign patent office upholds patents issued
to others or if the USPTO grants patent applications filed by others, we may have to:
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obtain licenses or redesign our products or processes to avoid infringement;
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stop using the subject matter claimed in those patents; or
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pay damages.
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We may initiate, or others may bring against us, litigation or
administrative proceedings related to intellectual property rights, including proceedings before the USPTO or other foreign patent
office. Any judgment adverse to us in any litigation or other proceeding arising in connection with a patent or patent application
could materially and adversely affect our business, financial condition and results of operations. In addition, the costs of any
such proceeding may be substantial whether or not we are successful.
Our success is also dependent upon the skills, knowledge and experience,
none of which is patentable, of our scientific and technical personnel. To help protect our rights, we require all employees, consultants,
advisors and partners to enter into confidentiality agreements that prohibit the disclosure of confidential information to anyone
outside of our company and require disclosure and assignment to us of their ideas, developments, discoveries and inventions. These
agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of
any unauthorized use or disclosure or the lawful development by others of such information, and if any of our proprietary information
is disclosed, our business will suffer because our revenues depend upon our ability to license or commercialize our product candidates
and any such events would significantly impair the value of such product candidates.
Our failure to comply with data protection
laws and regulations could lead to government enforcement actions and significant penalties against us and adversely impact our
operating results.
European Union (“EU”) Member
States, Switzerland and other countries have adopted data protection laws and regulation, which impose significant compliance obligations. For
example, the EU Data Protection Directive, as implemented into national laws by the EU Member States, imposes strict obligations
and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and
adverse event reporting. Data protection authorities from the different EU Member States may interpret the EU Data Protection
Directive and national laws differently, which adds to the complexity of processing personal data in the European Union, and guidance
on implementation and compliance practices is often updated or otherwise revised. Our failure to comply with these laws and
regulations could lead to government enforcement actions and significant penalties against us and adversely impact our operating
results.
We are subject to periodic litigation, which
could result in losses or unexpected expenditure of time and resources.
From time to time, we may be called upon to defend ourselves against
lawsuits relating to our business. Due to the inherent uncertainties in litigation, we cannot accurately predict the ultimate
outcome of any such proceedings. An unfavorable outcome in any such proceedings could have an adverse impact on our business,
financial condition and results of operations. If our stock price is volatile, we may become involved in securities class
action lawsuits in the future. Any litigation in the future, regardless of its merits, could result in substantial costs and
a diversion of management’s attention and resources that are needed to successfully run our business.
We face an inherent risk of liability in the event that the use or misuse
of our products results in personal injury or death and our product liability insurance coverage may be insufficient.
If the use or misuse of peramivir or any other regulatory body-approved
products we or a partner may sell in the future harms people, we may be subject to costly and damaging product liability claims
brought against us by consumers, healthcare providers, pharmaceutical companies, third-party payors or others. The use of our product
candidates in clinical trials, including post marketing clinical studies, could also expose us to product liability claims. We
cannot predict all of the possible harms or side effects that may result from the use of our products or the testing of product
candidates and, therefore, the amount of insurance coverage we currently may not be adequate to cover all liabilities or defense
costs we might incur. A product liability claim or series of claims brought against us could give rise to a substantial liability
that could exceed our resources. Even if claims are not successful, the costs of defending such claims and potential adverse publicity
could be harmful to our business.
We face an inherent risk of product liability exposure related to
the testing of our product candidates in human clinical trials and will face even greater risks upon any commercialization by us
of our product candidates. We have product liability insurance covering our commercial sale of peramivir and our clinical trials.
Clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient
insurance or increase our existing coverage at a reasonable cost to protect us against losses that could have a material adverse
effect on our business. An individual may bring a product liability claim against us if one of our products or product candidates
causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any product liability claim brought
against us, with or without merit, could result in:
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liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available;
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an increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all;
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withdrawal of clinical trial volunteers or patients;
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damage to our reputation and the reputation of our products, resulting in lower sales;
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regulatory investigations that could require costly recalls or product modifications;
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litigation costs; and
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the diversion of management’s attention from managing our business.
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Insurance coverage is increasingly more costly and difficult to obtain
or maintain.
While we currently have insurance for our business, property, directors
and officers, and our products insurance is increasingly more costly and narrower in scope, and we may be required to assume more
risk in the future. If we are subject to claims or suffer a loss or damage in excess of our insurance coverage, we will be required
to bear any loss in excess of our insurance limits. If we are subject to claims or suffer a loss or damage that is outside of our
insurance coverage, we may incur significant uninsured costs associated with loss or damage that could have an adverse effect on
our operations and financial position. Furthermore, any claims made on our insurance policies may impact our ability to obtain
or maintain insurance coverage at reasonable costs or at all.
If our facility incurs damage or power is lost for a significant length
of time, our business will suffer.
We store clinical and stability samples at our facility that could
be damaged if our facility incurs physical damage or in the event of an extended power failure. We have backup power systems in
addition to backup generators to maintain power to all critical functions, but any loss of these samples could result in significant
delays in our drug development process.
In addition, we store most of our preclinical and clinical data at
our facilities. Duplicate copies of most critical data are secured off-site. Any significant degradation or failure of our computer
systems could cause us to inaccurately calculate or lose our data. Loss of data could result in significant delays in our drug
development process and any system failure could harm our business and operations.
A significant disruption in our information technology systems or a
cyber-security breach could adversely affect our business.
We are increasingly dependent on information technology systems to
operate our business. Like other companies in our industry, our networks and infrastructure may be vulnerable to cyber-attacks
or intrusions, including by computer hackers, foreign governments, foreign companies or competitors, or may be breached by employee
error, malfeasance or other disruption. A breakdown, invasion, corruption, destruction or interruption of critical information
technology systems could negatively impact operations. If our systems are damaged, fail to function properly or otherwise
become unavailable, we may incur substantial costs to repair or replace them, and we may experience loss of critical data and interruptions
or delays in our ability to perform critical functions, which could adversely affect our business, financial condition or results
of operations. Any compromise of our data security could also result in a violation of applicable privacy and other laws, significant
legal and financial exposure, damage to our reputation, loss or misuse of the information and a loss of confidence in our data
security measures, which could harm our business. There can be no assurance that our efforts to protect our data and information
technology systems will prevent breakdowns or breaches in our systems, or those of third parties with which we do business, and
any such events could adversely affect our business.
If we fail to retain our existing key personnel or fail to attract and
retain additional key personnel, the development of our product candidates and commercialization of our products and the related
expansion of our business will be delayed or stopped.
We are highly dependent upon our senior management and scientific
team, the unexpected loss of whose services might impede the achievement of our development and commercial objectives. Competition
for key personnel with the experience that we require is intense and is expected to continue to increase. Our inability to attract
and retain the required number of skilled and experienced management, commercial, operational and scientific personnel will harm
our business because we rely upon these personnel for many critical functions of our business.
If because of our use of hazardous materials, we violate any environmental
controls or regulations that apply to such materials, we may incur substantial costs and expenses in our remediation efforts.
Our research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of these materials and some waste products. Accidental contamination or injury from these
materials could occur. In the event of an accident, we could be liable for any damages that result and any liabilities could exceed
our resources. Compliance with environmental laws and regulations or a violation of such environmental laws and regulations could
require us to incur substantial unexpected costs, which would materially and adversely affect our results of operations.
Risks relating to investing in our common stock
Our existing principal stockholders hold a substantial amount of our
common stock and may be able to influence significant corporate decisions, which may conflict with the interest of other stockholders.
Several of our stockholders own greater than 5% of our outstanding
common stock. Our top ten stockholders own more than 50% of BioCryst and can individually, and as a group, influence our operations
based upon their concentrated ownership. These stockholders, if they act together, may be able to influence the outcome of matters
requiring approval of the stockholders, including the election of our directors and other corporate actions.
Our stock price has been, and is likely to continue to be, highly volatile,
which could result in the value of an investment in our common stock to decline significantly.
The market prices for securities of biotechnology companies in general
have been highly volatile and may continue to be highly volatile in the future. Moreover, our stock price has fluctuated frequently,
and these fluctuations are often not related to our financial results. For the twelve months ended December 31, 2016, the 52-week
range of the market price of our stock was from $1.63 to $10.24 per share. The following factors, in addition to other risk factors
described in this section, may have a significant impact on the market price of our common stock:
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announcements of technological innovations or new products by us or our competitors;
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•
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developments or disputes concerning patents or proprietary rights;
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•
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additional dilution through sales of our common stock or other derivative securities;
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•
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status of new or existing licensing or collaborative agreements and government contracts;
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•
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announcements relating to the status of our programs;
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•
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developments and announcements regarding new and virulent strains of influenza;
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•
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we or our partners achieving or failing to achieve development milestones;
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•
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publicity regarding actual or potential medical results relating to products under development by us or our competitors;
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publicity regarding certain public health concerns for which we are or may be developing treatments;
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regulatory developments in both the United States and foreign countries;
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public concern as to the safety of pharmaceutical products;
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•
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actual or anticipated fluctuations in our operating results;
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changes in financial estimates or recommendations by securities analysts;
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changes in the structure of healthcare payment systems, including developments in price control legislation;
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•
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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•
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additions or departures of key personnel or members of our board of directors;
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purchases or sales of substantial amounts of our stock by existing stockholders, including officers or directors;
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economic and other external factors or other disasters or crises; and
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period-to-period fluctuations in our financial results.
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Future sales and issuances of securities may dilute the ownership interests
of our current stockholders and cause our stock price to decline.
Future sales of our common stock by current stockholders into the
public market could cause the market price of our stock to fall. As of January 31, 2017, there were 73,955,169 shares of our
common stock outstanding. We may from time to time issue securities in relation to a license arrangement, collaboration, merger
or acquisition. We may also sell, for our own account, shares of common stock or other equity securities, from time to time at
prices and on terms to be determined at the time of sale.
As of January 31, 2017, there were 11,835,438 stock options and restricted stock units outstanding,
2,750,318 shares available for issuance under our Amended and Restated Stock Incentive Plan, and 363,646 shares available for issuance
under our Employee Stock Purchase Plan. In addition, we could also make equity compensation grants outside of our Stock Incentive
Plan. The shares underlying existing stock options, restricted stock units and possible future stock options, stock appreciation
rights and stock awards have been registered pursuant to registration statements on Form S-8.
If some or all of such shares are sold or otherwise issued into the
public market over a short period of time, our current stockholders’ ownership interests may be diluted and the value of
all publicly traded shares is likely to decline, as the market may not be able to absorb those shares at then-current market prices.
Additionally, such sales and issuances may make it more difficult for us to sell equity securities or equity-related securities
in the future at a time and price that our management deems acceptable, or at all.
We have anti-takeover provisions in our corporate charter documents
that may result in outcomes with which you do not agree.
Our board of directors has the authority to issue up to 4,800,000
shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions of those shares without
further vote or action by our stockholders. The rights of the holders of any preferred stock that may be issued in the future may
adversely affect the rights of the holders of common stock. The issuance of preferred stock could make it more difficult for third
parties to acquire a majority of our outstanding voting stock.
In addition, our certificate of incorporation provides for staggered
terms for the members of the board of directors and supermajority approval of the removal of any member of the board of directors
and prevents our stockholders from acting by written consent. Our certificate also requires supermajority approval of any amendment
of these provisions. These provisions and other provisions of our by-laws and of Delaware law applicable to us could delay or make
more difficult a merger, tender offer or proxy contest involving us.
We have never paid dividends on our common stock and do not anticipate
doing so in the foreseeable future.
We have never paid cash dividends on our stock. We currently intend
to retain all future earnings, if any, for use in the operation of our business. Accordingly, we do not anticipate paying cash
dividends on our common stock in the foreseeable future.
Information Regarding Forward-Looking Statements
This filing contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created
in Section 21E. All statements other than statements of historical facts contained in this filing are forward-looking statements.
These forward-looking statements can generally be identified by the use of words such as “may,” “will,”
“intends,” “plans,” “believes,” “anticipates,” “expects,” “estimates,”
“predicts,” “potential,” the negative of these words or similar expressions. Statements that describe our
future plans, strategies, intentions, expectations, objectives, goals or prospects are also forward-looking statements. Discussions
containing these forward-looking statements are principally contained in “Business,” “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as any amendments
we make to those sections in filings with the SEC. These forward-looking statements include, but are not limited to, statements
about:
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the preclinical development, clinical development, commercialization, or post-marketing studies of our product candidates and products, including our HAE program, peramivir, galidesivir, and early stage discovery programs;
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the potential funding from our contracts with NIAID/HHS and BARDA/HHS for the development of galidesivir;
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•
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the potential for government stockpiling orders of peramivir, additional regulatory approvals of peramivir or milestones royalties or profit from sales of peramivir by us or our partners;
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•
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the potential use of peramivir as a treatment for H1N1, H5N1, and H7N9 or other strains of influenza;
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•
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the implementation of our business model, strategic plans for our business, products, product candidates and technology;
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•
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our ability to establish and maintain collaborations or out-license rights to our drug candidates;
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•
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plans, programs, progress and potential success of our collaborations, including SUL for peramivir, Mundipharma for forodesine and Shionogi and Green Cross for peramivir in their territories;
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•
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Royalty Sub’s ability to service its payment obligations in respect of the PhaRMA Notes, and our ability to benefit from our equity interest in Royalty Sub;
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•
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the foreign currency hedge agreement entered into by us in connection with the issuance by Royalty Sub of the PhaRMA Notes;
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•
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the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
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•
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our ability to operate our business without infringing the intellectual property rights of others;
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•
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estimates of our expenses, revenues, capital requirements, annual cash utilization, and our needs for additional financing;
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•
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our ability to continue as a going concern;
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•
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the timing or likelihood of regulatory filings or regulatory agreements, deferrals, and approvals;
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•
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our ability to raise additional capital to fund our operations or repay our recourse debt obligations;
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our ability to comply with the covenants as set forth in the agreements governing our debt obligations;
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our financial performance; and
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•
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competitive companies, technologies and our industry.
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These statements relate to future events or to our future financial
performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking
statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those
listed under “Risk Factors.” Any forward-looking statement reflects our current views with respect to future events
and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry
and future growth. Except as required by law, we assume no obligation to update or revise these forward-looking statements for
any reason, even if new information becomes available in the future.
ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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None.
We lease property in both Durham, North Carolina and Birmingham, Alabama.
Our headquarters, including our clinical and regulatory operations, are based in Durham, while our principal research facility
is located in Birmingham. We currently lease approximately 15,000 square feet in Durham through June 30, 2020 and lease approximately
32,000 square feet in Birmingham through October 31, 2026. We believe that our facilities are adequate for our current and planned
future operations.
ITEM 3.
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LEGAL PROCEEDINGS
|
None.
ITEM 4.
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MINE SAFETY DISCLOSURES
|
Not applicable.
PART II
ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market Information
Our common stock trades on the NASDAQ Global Select Market under the
symbol BCRX. The following table sets forth the low and high sales prices of our common stock as reported by the NASDAQ Global
Select Market for each quarter in 2016 and 2015:
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2016
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2015
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Low
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|
High
|
|
Low
|
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High
|
First quarter
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$
|
1.63
|
|
|
$
|
10.24
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|
|
$
|
7.85
|
|
|
$
|
12.71
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|
Second quarter
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|
$
|
2.49
|
|
|
$
|
4.03
|
|
|
$
|
8.50
|
|
|
$
|
16.43
|
|
Third quarter
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|
$
|
2.82
|
|
|
$
|
5.80
|
|
|
$
|
10.26
|
|
|
$
|
16.83
|
|
Fourth quarter
|
|
$
|
3.75
|
|
|
$
|
7.56
|
|
|
$
|
8.01
|
|
|
$
|
12.88
|
|
The last sale price of the common stock on January 31, 2017 as
reported by the NASDAQ Global Select Market was $6.30 per share.
Holders
As of January 31, 2017, there were approximately 182 holders
of record of our common stock.
Dividends
We have never paid cash dividends and do not anticipate paying cash
dividends in the foreseeable future.
Stock Performance Graph
This performance graph is not “soliciting material,” is
not deemed filed with the SEC and is not to be incorporated by reference in any filing by us under the Securities Act or the Exchange
Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. The
stock price performance shown on the graph is not necessarily indicative of future price performance.
PERFORMANCE GRAPH FOR BIOCRYST
Indexed Comparison Since 2011
|
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Beginning
Investment
12/31/11
|
|
Investment
at 12/31/12
|
|
Investment
at 12/31/13
|
|
Investment
at 12/31/14
|
|
Investment
at 12/31/15
|
|
Investment
at 12/31/16
|
BioCryst Pharmaceuticals, Inc.
|
|
$
|
100.00
|
|
|
$
|
57.49
|
|
|
$
|
307.69
|
|
|
$
|
492.31
|
|
|
$
|
417.81
|
|
|
$
|
256.28
|
|
NASDAQ Stock Market (U.S.)
|
|
|
100.00
|
|
|
|
116.43
|
|
|
|
155.41
|
|
|
|
174.78
|
|
|
|
175.62
|
|
|
|
198.47
|
|
NASDAQ Pharmaceutical Stocks
|
|
|
100.00
|
|
|
|
114.32
|
|
|
|
155.11
|
|
|
|
188.95
|
|
|
|
199.22
|
|
|
|
197.05
|
|
The above graph measures the change in a $100 investment in our common
stock based on its closing price of $2.47 on December 31, 2011 and its year-end closing price thereafter. Our relative performance
is then compared with the CRSP Total Return Indexes for the NASDAQ Stock Market (U.S.) and NASDAQ Pharmaceutical Stocks.
Recent Sales of Unregistered Securities: None.
Issuer Purchases of Equity Securities
There were no repurchases of our common stock or shares surrendered
to satisfy tax obligations during the fourth quarter of 2016.
ITEM 6.
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SELECTED FINANCIAL DATA
|
The selected Statement of Operations Data and Balance Sheet data with
respect to the years ended December 31, 2016, 2015, 2014, 2013, and 2012 set forth below are derived from our consolidated
financial statements. The selected financial data set forth below should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7 below and our consolidated
financial statements and the notes thereto appended to this annual report.
|
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Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
(In thousands, except per share amounts)
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
26,353
|
|
|
$
|
48,257
|
|
|
$
|
13,608
|
|
|
$
|
17,331
|
|
|
$
|
26,293
|
|
Cost of product sold
|
|
|
2,297
|
|
|
|
1,368
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
Research and development expenses
|
|
|
61,008
|
|
|
|
72,758
|
|
|
|
51,796
|
|
|
|
41,943
|
|
|
|
49,160
|
|
General and administrative expenses
|
|
|
11,253
|
|
|
|
13,047
|
|
|
|
7,461
|
|
|
|
6,007
|
|
|
|
9,130
|
|
Royalty expense
|
|
|
402
|
|
|
|
528
|
|
|
|
121
|
|
|
|
98
|
|
|
|
132
|
|
Restructuring costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,759
|
|
Loss from operations
|
|
|
(48,607
|
)
|
|
|
(39,444
|
)
|
|
|
(45,771
|
)
|
|
|
(30,717
|
)
|
|
|
(33,888
|
)
|
Net loss
|
|
|
(55,144
|
)
|
|
|
(43,019
|
)
|
|
|
(45,189
|
)
|
|
|
(30,108
|
)
|
|
|
(39,081
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.75
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.68
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(0.79
|
)
|
Weighted average shares outstanding
|
|
|
73,699
|
|
|
|
72,901
|
|
|
|
66,773
|
|
|
|
55,216
|
|
|
|
49,474
|
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
(In thousands)
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
$
|
65,122
|
|
|
$
|
100,858
|
|
|
$
|
114,038
|
|
|
$
|
40,788
|
|
|
$
|
37,058
|
|
Receivables
|
|
|
8,768
|
|
|
|
6,243
|
|
|
|
9,490
|
|
|
|
2,115
|
|
|
|
4,562
|
|
Inventory
|
|
|
500
|
|
|
|
1,612
|
|
|
|
683
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
|
89,847
|
|
|
|
122,359
|
|
|
|
134,238
|
|
|
|
45,791
|
|
|
|
53,925
|
|
Long-term deferred revenue
|
|
|
8,184
|
|
|
|
9,674
|
|
|
|
3,552
|
|
|
|
4,736
|
|
|
|
5,920
|
|
Non-recourse notes payable
|
|
|
28,243
|
|
|
|
27,804
|
|
|
|
27,364
|
|
|
|
26,925
|
|
|
|
26,486
|
|
Senior credit facility
|
|
|
22,777
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Accumulated deficit
|
|
|
(566,061
|
)
|
|
|
(510,917
|
)
|
|
|
(467,898
|
)
|
|
|
(422,709
|
)
|
|
|
(392,601
|
)
|
Total stockholders’ equity (deficit)
|
|
|
1,578
|
|
|
|
47,724
|
|
|
|
75,635
|
|
|
|
(1,126
|
)
|
|
|
(454
|
)
|
ITEM 7.
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This Annual Report on Form 10-K contains certain statements
of a forward-looking nature relating to future events or the future financial performance of BioCryst. Such statements are only
predictions and the actual events or results may differ materially from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include those discussed below and elsewhere in this report, as well
as those discussed in other filings made by BioCryst with the Securities and Exchange Commission.
The following Management’s Discussion and Analysis (“MD&A”)
is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement
to, and should be read in conjunction with, our audited financial statements and the accompanying notes to the financial statements
and other disclosures included in this Annual Report on Form 10-K (including the disclosures under “Item 1A. Risk
Factors”).
Cautionary Statement
The discussion herein contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor”
created in Section 21E. Forward looking statements regarding our financial condition and our results of operations that are
based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted
within the United States (“U.S. GAAP”), as well as projections for the future. The preparation of these financial statements
requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. Our estimates are based
on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results
of our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources.
We operate in a highly competitive environment that involves a number
of risks, some of which are beyond our control. We are subject to risks common to biotechnology and biopharmaceutical companies,
including risks inherent in our drug discovery, drug development and commercialization efforts, clinical trials, uncertainty of
regulatory actions and marketing approvals, reliance on collaborative partners, enforcement of patent and proprietary rights, the
need for future capital, competition associated with products, potential competition associated with our product candidates and
retention of key employees. In order for any of our product candidates to be commercialized, it will be necessary for us, or our
collaborative partners, to conduct clinical trials, demonstrate efficacy and safety of the product candidate to the satisfaction
of regulatory authorities, obtain marketing approval, enter into manufacturing, distribution and marketing arrangements, and obtain
market acceptance and adequate reimbursement from government and private insurers. We cannot provide assurance that we will generate
significant revenues or achieve and sustain profitability in the future. In addition, we can provide no assurance that we will
have sufficient funding to meet our future capital requirements. Statements contained in Management’s Discussion and Analysis
of Financial Condition and Results of Operations and elsewhere in this report which are not historical facts are, or may constitute,
forward-looking statements. Forward-looking statements involve known and unknown risks that could cause our actual results to differ
materially from expected results. The most significant known risks are discussed in the section entitled “Risk Factors.”
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We caution you not to place undue reliance on any forward-looking statements.
Our revenues are difficult to predict and depend on numerous factors,
including the prevalence and severity of influenza in regions for which peramivir has received regulatory approval, seasonality
of influenza, ongoing discussions with government agencies regarding future peramivir and/or galidesivir development and stockpiling
procurement, as well as entering into, or modifying, licensing agreements for our product candidates. Furthermore, revenues related
to our collaborative development activities are dependent upon the progress toward and the achievement of developmental milestones
by us or our collaborative partners.
Our operating expenses are also difficult to predict and depend on
several factors, including research and development expenses (and whether these expenses are reimbursable under government contracts),
drug manufacturing, and clinical research activities, the ongoing requirements of our development programs, and the availability
of capital and direction from regulatory agencies, which are difficult to predict. Management may be able to control the timing
and level of research and development and general and administrative expenses, but many of these expenditures will occur irrespective
of our actions due to contractually committed activities and/or payments.
As a result of these factors, we believe that period to period comparisons
are not necessarily meaningful and you should not rely on them as an indication of future performance. Due to all of the foregoing
factors, it is possible that our operating results will be below the expectations of market analysts and investors. In such event,
the prevailing market price of our common stock could be materially adversely affected.
Overview
We are a biotechnology company that designs, optimizes and develops
novel small molecule drugs that block key enzymes involved in the pathogenesis of diseases. We focus on the treatment of rare diseases
in which significant unmet medical needs exist and align with our capabilities and expertise. We integrate the disciplines of biology,
crystallography, medicinal chemistry and computer modeling to discover and develop small molecule pharmaceuticals through the process
known as structure-guided drug design.
Critical Accounting Policies and Estimates
The accompanying discussion and analysis of our financial condition
and results of operations are based upon our consolidated financial statements and the related disclosures, which have been prepared
in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities.
We evaluate our estimates, judgments and the policies underlying these estimates on a periodic basis, as situations change, and
regularly discuss financial events, policies, and issues with members of our audit committee and our independent registered public
accounting firm. We routinely evaluate our estimates and policies regarding revenue recognition, administration, inventory and
manufacturing, taxes, stock-based compensation, research and development, consulting and other expenses and any associated liabilities.
Recent Corporate Highlights
RAPIVAB/RAPIACTA/PERAMIFLU/ALPIVAB (peramivir injection)
Peramivir (i.e., product sold or marketed under the RAPIVAB, RAPIACTA,
and PERAMIFLU trade names) is approved for commercial sale in the United States, Canada, Japan, Taiwan and Korea and has a pending
approval in the European Union. We receive royalty revenue from commercial and governmental stockpiling sales of the product from
our partners with the exception of U.S. Government stockpiling sales for which we remain directly responsible. In 2016, our Japanese
partner, Shionogi, fulfilled a relatively large stockpiling order to the Japanese government in advance of the 2016/2017 influenza
season for which we recorded $5.7 million of net royalties. Although this was not the first Japanese Government order, it represented
the largest sales volume in a fiscal year from RAPIACTA’s history of availability. Proceeds from these stockpiling sales
to the Japanese Government are available to us for general corporate use and are not dedicated to satisfying non-recourse obligations
under the PhaRMA Notes.
On January 8, 2017, we announced that
Health Canada approved RAPIVAB
®
for treatment of acute, uncomplicated influenza in Canada
.
On
January 30, 2017, we announced that the European Medicines Agency (“EMA”) accepted our Marketing Authorization Application
(“MAA”) for treatment of symptoms typical of influenza in adults 18 years and older. The acceptance of the MAA
begins the review process by the EMA under the centralized licensing procedure for all 28 member states of the European Union,
Norway and Iceland.
BCX7353
In August 2016, we announced that we had dosed the first subject
in the APeX-1 clinical trial of BCX7353 for the oral treatment of HAE. APeX-1 is a multi-part, Phase 2, randomized, double-blind,
placebo-controlled, dose ranging trial to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics and efficacy of
BCX7353 as a preventative treatment to eliminate or reduce the frequency of angioedema attacks in HAE patients. APEX-1 is being
conducted in several European countries, Australia and Canada. In part 1 of APeX-1, subjects with HAE were randomized in a 1:1
ratio to receive an oral dose of either 350 mg of BCX7353 once daily (“QD”) or placebo QD for 28 days. The primary
efficacy endpoints of APeX-1 are the number of angioedema attacks; attack rate per week, counts of attacks, proportion of subjects
with no attacks, and number of attack-free days. Efficacy analyses will be conducted for HAE attacks reported over the entire
dosing interval (Days 1 through 28) and during the dosing period in which plasma concentrations of BCX7353 should be at steady-state
conditions (Days 8 through 28). Secondary efficacy endpoints include severity and duration of angioedema attacks and measures
of health-related quality of life. Safety will be characterized through evaluation of adverse events and laboratory testing. Pharmacokinetics
and pharmacodynamic effects will be assessed through measurement of plasma drug levels and kallikrein inhibition. A total of approximately
36 subjects have been enrolled in part 1.
On February 27, 2017, we reported statistically
significant and clinically meaningful reductions in attack frequency from an interim analysis of part 1 of our ongoing multi-part
APeX-1 clinical trial in HAE patients. In the interim analysis, twenty-eight subjects, randomized equally to receive BCX7353 350 mg
QD or placebo for 28 days. The baseline attack rate was approximately 1/week and average C1 inhibitor levels were less than
20% of the normal mean, indicating a severely affected patient population. Baseline characteristics of trial participants were
generally well balanced between the two groups with the exception of prior androgen use, which was more common in the BCX7353 group
(11 of 14 compared with 6 of 14 on placebo). Compliance with study drug dosing in the trial was excellent and was greater than
98%.
The pre-specified per-protocol (“PP”)
interim analysis included data on 24 subjects with confirmed Type 1 or Type 2 HAE and completing 28 days of treatment (11 on BCX7353
and 13 on placebo). The mean rate of independently-adjudicated angioedema attacks for the pre-defined effective dosing period (weeks
2 through 4) in BCX7353-treated subjects was 0.34/week compared to 0.92/week for placebo, a reduction of 0.57/week (63%), p = 0.006.
In the intent-to-treat (“ITT”) population of 28 subjects, the rate of attack for the effective dosing period for BCX7353
and placebo groups was 0.44/week and 0.91/week, a reduction of 0.47/week (52%), p = 0.035.
A pre-planned analysis of peripheral and
abdominal attacks showed reductions of 88% and 24%, respectively, for BCX7353 compared with placebo (PP analysis, weeks 2 through
4). To understand this difference, patient diaries were reviewed and abdominal attacks (n = 9, BCX7353 and n = 14,
placebo) were subdivided into two groups: attacks with abdominal symptoms only and attacks with a combination of abdominal and
peripheral symptoms (mixed attacks). This post-hoc analysis showed that there were 2, 2 and 7 peripheral, mixed and abdominal-only
attacks on BCX7353 compared with 22, 12 and 2 attacks, respectively, for placebo. Based on this distribution, it is likely that
subjects recorded abdominal adverse events as HAE attack symptoms in their diary. Accordingly, this post-hoc analysis
indicated an 88% reduction in the number of attacks for subjects treated with BCX7353, as compared to the placebo arm, characterized
by either peripheral symptoms-only or a combination of peripheral and abdominal symptoms.
Pharmacokinetic and pharmacodynamic analyses indicate steady state
BCX7353 plasma levels in HAE subjects were similar to those in healthy subjects administered the same dose in a previously completed
Phase 1 trial. Steady state trough drug levels (24 hours after dosing) were 11 – 32 times the 50% effective concentration
(EC
50
) for plasma kallikrein inhibition. These observed steady state drug levels greatly exceeded our proposed therapeutic
target range of 4 – 8 times the EC
50.
Daily oral dosing with BCX7353 strongly inhibited plasma kallikrein
throughout the 24-hour dosing interval and the degree of inhibition was similar to that seen with this dose in the healthy subject
Phase 1 trial.
Oral BCX7353 350 mg QD for 28 days
was generally safe and well tolerated in subjects with HAE. There were no serious adverse events (AEs) and no related severe
AEs. Two subjects in the BCX7353 treatment group discontinued study drug before day 28, one due to an unrelated pre-existing
liver disorder, and one due to an adverse event of gastroenteritis associated with elevated liver enzymes. Treatment-emergent
adverse events occurring in at least two subjects overall, enumerated by treatment group (BCX7353 [n=14] and placebo [n=14]),
respectfully, were: common cold (3, 4); diarrhea (4, 2); flatulence (2, 0); and fatigue (2, 0). No clinically
significant changes in hematology parameters, renal function tests, electrolytes, or urinalysis were observed. One subject
treated with BCX7353, with pre-existing colitis, hepatic steatosis (i.e., a fatty liver) and more than 20 years of prior
androgen use, had an elevation of alanine aminotransferase (ALT) > 3 times the upper limit of normal at the end of
treatment, which resolved.
Based upon this interim analysis, the efficacy, safety and
tolerability profile of BCX7353 observed strongly supports its continued development as a prophylactic treatment for HAE.
Furthermore, the steady state drug levels observed greatly exceeded our proposed therapeutic target range of
4 – 8 times the EC
50
, thereby supporting and prompting us to evaluate doses of BCX7353 lower than
the 350 QD tested in part 1 of the trial. Therefore, the APeX-1 trial has been amended to add a 62.5 mg QD dose level, and to
increase the number of subjects at the 125 mg QD and 250 mg QD dose levels, in order to more fully
characterize dose response. Specifically, part 2 of APeX-1 will enroll 14 additional subjects with HAE and they will be
randomized to 250mg of BCX7353 QD (n=6), 125mg of BCX7353 QD (n=6) or placebo (n=2) and part 3 of APeX-1 will enroll 20
additional subjects with HAE and they will be randomized to 250mg of BCX7353QD (n=6), 125mg of BCX7353 QD (n=6), 62.5mg of
BCX7353 QD (n=6) or placebo (n=2).
Avoralstat
On February 8, 2016, we announced results from OPuS-2. In the
OPuS-2 study, HAE patients with a historical attack frequency of greater than 0.45 attacks per week were randomized to treatment
with either 500 mg or 300 mg of avoralstat, or placebo, administered three times daily for 12 weeks. Treatment with 500 mg and
300 mg of avoralstat three times daily failed to demonstrate a statistically significantly lower mean attack rate versus placebo.
The mean (standard deviation) attack rates per week were 0.63 (0.57) on avoralstat 500mg and 0.71 (0.66) on avoralstat 300mg,
compared to 0.61 (0.41) on placebo. Statistically significant improvements in duration of attacks and in the Angioedema Quality
of Life total score were observed comparing the 500 mg three times a day avoralstat arm to placebo. Following the analysis of
OPuS-2 results, the decision was made to discontinue further development of the softgel avoralstat formulation in order to focus
development efforts on novel dosage forms of avoralstat to achieve meaningfully better drug exposure.
In August 2016, we reported a clinical pharmacology study of several
avoralstat dosage formulations. Cohorts of healthy volunteers received single doses of avoralstat ranging from 200 mg to 2000 mg
in tablet or suspension formulations, with no clinically significant adverse events reported. While these formulations improved
total avoralstat exposure (AUC) up to approximately five-fold compared to a 500 mg dose given as soft gel capsules, the plasma
concentration-time profile has not met our objectives of twice-daily dosing with drug levels at or above the target range. For
that reason, we decided to stop further development of avoralstat.
Galidesivir (formerly BCX4430)
On March 7, 2016, results from a preclinical study of our antiviral
galidesivir in interferon-receptor-deficient mice infected with Zika virus were presented at a World Health Organization conference
in Geneva, Switzerland. The primary goal of the study was to assess the effect of galidesivir treatment on survival through Day
28 in interferon-receptor-deficient mice infected with the Zika virus. Galidesivir was administered by i.m. injection twice a day
beginning four hours prior to virus challenge and continuing for eight days; two dose levels were tested. In the standard dose
galidesivir group, 7 of 8 mice survived through Day 28. In the low dose galidesivir group (n=8), and in control groups administered
vehicle placebo (n=8) or ribavirin at two dose levels (n=16), no animals survived to Day 28. Overall survival for the standard
dose level of galidesivir was superior to both the placebo and the ribavirin treatment control groups (p < 0.0001). For both
dose levels of galidesivir, median survival was superior to both control groups (>28 days for galidesivir standard dose and
23 days for low dose) compared to 14 to 17 days for controls.
Additional studies of galidesivir in the same mouse model were
conducted at Utah State University. In one study, surviving mice that were previously treated with the standard dose of galidesivir
after initial Zika virus challenge, were re-challenged with the Zika virus on Day 28, without additional galidesivir treatment.
All the re-challenged mice survived through day 56 with no disease signs observed, indicating the development of effective immune
responses. A further experiment using the same AG129 mouse model tested the delayed treatment with galidesivir after viral challenge.
Groups of mice received galidesivir 150 mg/kg twice-daily by i.m. injection starting on days 1, 3, 5, or 7 post infection, or vehicle
(control group). All galidesivir treated groups showed a statistically significant survival benefit compared to vehicle controls.
On October 29, 2016, galidesivir nonclinical
results from a Zika virus infection model were presented in a late-breaker scientific session at IDWeek by Dr. James B. Whitney,
PhD, Assistant Professor of Medicine, Harvard Medical School, and Principal Investigator in the Center for Virology and Vaccine
Research at Beth Israel Deaconess Medical Center in Boston. Three groups of five healthy rhesus macaques were inoculated with
a Puerto Rico strain of Zika virus and administered either galidesivir by i.m. injection 100 mg/kg BID loading dose followed by
25 mg/kg BID for nine days, galidesivir loading dose of 100 mg/kg BID, or vehicle control. Both galidesivir groups showed reduction
in the proportion of animals viremic and in the amount of virus shed of into cerebrospinal fluid, saliva and urine. Galidesivir
dosing in rhesus macaques was well-tolerated and offered significant protection against Zika virus infection. In a follow-on experiment,
the same animals were rechallenged with a Thai strain of Zika virus, 72 days after initial inoculation. All animals demonstrated
immune responses, and the initial treatments with galidesivir did not impair the generation of immunity.
Results of Operations
Year Ended December 31, 2016 Compared to 2015
Total 2016 revenues decreased to $26.4 million as compared to
2015 revenues of $48.3 million. The decrease in 2016 revenues, as compared to 2015, was primarily due to the RAPIVAB
out-licensing transaction to Seqirus, which resulted in the recognition of $21.8 million of collaborative revenue in 2015 and
a $4.0 million decrease in 2016 RAPIVAB product sales, as well as a reduction in collaboration revenue associated with lower
galidesivir development activity in 2016. All of these decreases were slightly offset by a $7.3 million increase in 2016
peramivir royalty revenue derived from BioCryst’s commercial partners. A component of the peramivir royalty revenue was
$5.7 million of Japanese government stockpiling revenue that is available for general corporate use. Although these orders
provided a significant cash infusion, stockpiling royalty revenues may not recur on an annual basis as they are subject to
the Japanese government’s appropriation and stockpiling process, which is difficult to predict. Revenues in 2016
included $2.3 million of peramivir product revenue from inventory sales to our commercial partners, $9.7 million of royalty
revenue from SUL, Shionogi and Green Cross associated with sales of peramivir in the United States, Japan, Korea and Taiwan,
$9.5 million of reimbursement of collaborative expenses from NIAID/HHS and BARDA/HHS related to the development of
galidesivir, $2.9 million of reimbursement of collaborative expenses from BARDA/HHS related to the development of RAPIVAB and
$1.8 million associated with collaborative revenue amortization from other corporate partnerships. The 2015 revenue consisted
of $5.7 million of RAPIVAB product revenue and $21.8 million of collaborative revenue related to the SUL Agreement, $2.4
million of royalty revenue from SUL, Shionogi and Green Cross associated with sales of peramivir in the United States, Japan
and Korea, $16.3 million of reimbursement of collaborative expenses from BARDA/HHS and NIAID/HHS related to the development
of peramivir and galidesivir, and $1.4 million associated with collaborative revenue amortization from other
corporate partnerships. In addition, we recorded approximately $0.6 million of RAPIVAB revenue under the
“Sell-Through” revenue recognition methodology, but going forward we will recognize all future commercial RAPIVAB
sales as royalty revenue under one of our partnership arrangements. With the expiration of BARDA/HHS peramivir contract,
unless we enter into new government contracts, all significant and future reimbursement of collaborative expenses will be
under the NIAID/HHS and BARDA/HHS galidesivir development contracts. Our RAPIVAB revenue will be difficult to predict because
of volatility in prevalence, timing and severity of influenza season to season.
Research and Development (“R&D”)
expenses decreased to $61.0 million in 2016 from $72.8 million in 2015. The decrease in 2016 R&D expenses, as compared to
2015, reflects lower spending on our HAE portfolio of compounds associated with the discontinuation of avoralstat
development.
The following table summarizes our R&D expenses for the periods
indicated (amounts are in thousands).
|
|
2016
|
|
2015
|
|
2014
|
R&D expenses by program:
|
|
|
|
|
|
|
|
|
|
|
|
|
Avoralstat
|
|
$
|
13,433
|
|
|
$
|
27,769
|
|
|
$
|
19,005
|
|
BCX7353
|
|
|
21,410
|
|
|
|
11,819
|
|
|
|
—
|
|
Other 2nd generation HAE compounds
|
|
|
1,139
|
|
|
|
9,320
|
|
|
|
11,681
|
|
Galidesivir
|
|
|
9,458
|
|
|
|
12,400
|
|
|
|
13,060
|
|
Peramivir
|
|
|
5,552
|
|
|
|
3,690
|
|
|
|
2,898
|
|
Other research, preclinical and development costs
|
|
|
10,016
|
|
|
|
7,760
|
|
|
|
5,152
|
|
Total R&D expenses
|
|
$
|
61,008
|
|
|
$
|
72,758
|
|
|
$
|
51,796
|
|
R&D expenses include all direct and indirect expenses and are
allocated to specific programs at the point of development of a lead product candidate. Direct expenses are charged directly to
the program to which they relate and indirect expenses are allocated based upon internal direct labor hours dedicated to each respective
program. Direct expenses consist of compensation for R&D personnel and costs of outside parties to conduct laboratory studies,
develop manufacturing processes, manufacture the product candidates, conduct and manage clinical trials, as well as other costs
related to our clinical and preclinical studies. Indirect R&D expenses consist of lab supplies and services, facility expenses,
depreciation of development equipment and other overhead of our research and development efforts. R&D expenses vary according
to the number of programs in clinical development and the stage of development of our clinical programs. Later stage clinical programs
tend to cost more than earlier stage programs due to the longer length of time of the clinical trials and the higher number of
patients enrolled in these clinical trials.
Selling, General and administrative (“SG&A”) expenses
decreased to $11.3 million in 2016 compared to $13.0 million in 2015. The decrease of $1.7 million was primarily due to lower unrestricted
grants awarded to HAE patient advocacy groups, as well as a general reduction of administrative expenses in 2016.
Interest expense increased to $6.5 million in 2016 primarily associated
with our execution of a $23.0 million Senior Credit Facility with an affiliate of MidCap Financial Services, LLC (“MidCap”)
in September 2016 (the “Senior Credit Facility”), as compared to $5.2 million in 2015. In addition, a mark to market
loss of $1.7 million was recognized in 2016 related to the foreign currency hedge entered into in conjunction with the royalty
monetization transaction, compared to a mark to market loss of $0.6 million in 2015, both resulting from changes in the U.S. dollar/Japanese
yen exchange rate during the respective years. In addition, realized currency exchange gains of $0.8 million and $1.7 million
were recognized in 2016 and 2015, respectively, related to the exercise of a U.S. dollar/Japanese yen currency option under our
foreign currency hedge. Thus, a resulting net loss of $0.8 million is recognized on our foreign currency derivative for 2016 compared
to a net gain of $1.1 million for 2015. We entered into a foreign currency hedge agreement to hedge changes in the value of the
Japanese yen relative to the U.S. dollar. The currency hedge does not qualify for hedge accounting treatment and therefore mark
to market adjustments are recognized in our Consolidated Statements of Comprehensive Loss. Although we cannot predict the future
yen/dollar exchange rate, the applicable foreign currency rates moved such that we currently have no collateral posted; however,
it is possible that collateral will be required to be posted in the future. We are unable to predict future changes in the yen/dollar
exchange rate or increases/decreases in our hedge gains/losses associated with the currency hedge agreement.
Year Ended December 31, 2015 Compared to 2014
Total 2015 revenues increased to $48.3 million as compared to
2014 revenues of $13.6 million. The increase in 2015 was primarily due to recognizing revenue associated with the SUL
out-licensing transaction, RAPIVAB product revenue and increased collaboration revenue associated with galidesivir
development. The 2015 revenue consisted of $5.7 million of RAPIVAB product revenue and $21.8 million of collaborative revenue
related to the SUL Agreement, $2.4 million of royalty revenue from SUL, Shionogi and Green Cross associated with sales of
peramivir in the United States, Japan and Korea, $16.3 million of reimbursement of collaborative expenses from BARDA/HHS and
NIAID/HHS related to the development of peramivir and galidesivir, and $1.4 million associated with collaborative revenue
amortization from other corporate partnerships. In addition, we recorded approximately $0.6 million of RAPIVAB revenue under
the “Sell-Through” revenue recognition methodology, but going forward will recognize all future commercial
RAPIVAB sales as royalty revenue under one of our partnership arrangements. RAPIVAB was available for commercial sale in the
U.S. on December 26, 2014. The 2014 revenue consisted of $3.0 million of royalty revenue from Shionogi and Green Cross
associated with sales of peramivir in Japan and Korea, $9.4 million of reimbursement of collaborative expenses from BARDA/HHS
related to the development of peramivir, $1.2 million associated with collaborative revenue amortization from other corporate
partnerships and $33,000 of RAPIVAB revenue. With the expiration of BARDA/HHS peramivir contract, unless we enter into new
government contracts, all significant and future reimbursement of collaborative expenses will be under the NIAID/HHS and
BARDA/HHS galidesivir development contracts. Our RAPIVAB revenue will be difficult to predict because of volatility
in prevalence, timing and severity of influenza season to season.
R&D expenses increased to $72.8 million in 2015 from $51.8 million
in 2014. 2015 R&D expenses, compared with 2014, reflect increased spending on our HAE programs and slightly higher spending
on our RAPIVAB program. In addition, our 2014 equity compensation expense allocated to R&D increased due to the vesting of
two underlying milestones under previously issued performance-based stock options for the successful outcome of OPuS-1 and RAPIVAB
approval in the U.S.
SG&A expenses increased to $13.0 million in 2015 compared to $7.5
million in 2014. The increase of $5.5 million is primarily associated with increased marketing and medical affairs activities associated
with our HAE programs, as well as unrestricted grants awarded to the U.S. and international HAE patient advocacy groups.
Interest expense, related to the non-recourse notes issued in conjunction
with the peramivir royalty monetization transaction in March 2011, increased slightly to $5.2 million in 2015 as compared to $5.0
million in 2014. In addition, a mark to market loss of $0.6 million was recognized in 2015 related to the foreign currency hedge
entered into in conjunction with the royalty monetization transaction, compared to a mark to market gain of $5.5 million in 2014,
both resulting from changes in the U.S. dollar/Japanese yen exchange rate during the respective years. In addition, a realized
currency exchange gain of $1.7 million was recognized in 2015 related to the exercise of a U.S. dollar/Japanese yen currency option
under our foreign currency hedge. Thus, a resulting $1.1 million net gain is recognized on our foreign currency derivative for
2015.
Liquidity and Capital Resources
Cash expenditures have exceeded revenues since our inception and
we expect our 2017 operating expenses to exceed our 2017 revenues. Our operations have principally been funded through public
offerings and private placements of equity securities; cash from collaborative and other research and development agreements,
including U.S. Government contracts for RAPIVAB and galidesivir; and to a lesser extent, the PhaRMA Notes financing and the Senior
Credit Facility. To date, we have been awarded a BARDA/HHS RAPIVAB development contract totaling $234.8 million, which expired
on June 30, 2014, a NIAID/HHS galidesivir development contract totaling $39.5 million, which is ongoing, and a BARDA/HHS galidesivir
development contract totaling $39.1 million, which is also ongoing. The total amount of NIAID/HHS and BARDA/HHS galidesivir funding
obligated under awarded options is $39.5 million and $20.6 million, respectively. We may issue securities through private
placement transactions or registered public offerings pursuant to a registration statement filed with the SEC. In addition to
the above, we have received funding from other sources, including other collaborative and other research and development agreements;
government grants; equipment lease financing; facility leases; research grants; and interest income on our investments.
As of December 31, 2016, we had net working capital of $12.6 million,
an increase of approximately $11.1 million from $1.5 million at December 31, 2015. The increase in working capital was principally
due to proceeds from the Senior Credit Facility partially offset by our normal operating expenses associated with the development
of our product candidates. Our principal sources of liquidity at December 31, 2016 were approximately $22.1 million in cash and
cash equivalents and approximately $41.5 million in investments considered available-for-sale. We anticipate our cash and investments
will fund our operations into 2018.
We intend to contain costs and cash flow requirements by closely managing
our third party costs and headcount, leasing scientific equipment and facilities, contracting with other parties to conduct certain
research and development projects and using consultants. We expect to incur additional expenses, potentially resulting in significant
losses, as we continue to pursue our research and development activities and begin to build a commercial infrastructure. We may
incur additional expenses related to the filing, prosecution, maintenance, defense and enforcement of patent and other intellectual
property claims and additional regulatory costs as our clinical programs advance through later stages of development. The objective
of our investment policy is to ensure the safety and preservation of invested funds, as well as maintaining liquidity sufficient
to meet cash flow requirements. We place our excess cash with high credit quality financial institutions, commercial companies,
and government agencies in order to limit the amount of our credit exposure. We have not realized any significant losses on our
investments.
We plan to finance our needs principally from the following:
|
•
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|
lease or loan financing and future public or private equity financing;
|
|
|
|
|
|
•
|
|
our existing capital resources and interest earned on that capital;
|
|
|
|
|
|
•
|
|
payments under existing and executing new contracts with the U.S. Government; and
|
|
|
|
|
|
•
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|
payments under collaborative and licensing agreements with corporate partners.
|
As our programs continue to advance, our costs will increase. Our
current and planned clinical trials, plus the related development, manufacturing, regulatory approval process requirements and
additional personnel resources and testing required for the continuing development of our product candidates will consume significant
capital resources and will increase our expenses. Our expenses, revenues and cash utilization rate could vary significantly depending
on many factors, including our ability to raise additional capital, the development progress of our collaborative agreements for
our product candidates, the amount and timing of funding we receive from existing U.S. Government contracts for galidesivir, the
amount of funding or assistance, if any, we receive from new U.S. Government contracts or other new partnerships with third parties
for the development and or commercialization of our product candidates, the progress and results of our current and proposed clinical
trials for our most advanced product candidates, the progress made in the manufacturing of our lead product candidates and the
progression of our other programs.
With the funds available at December 31, 2016, we believe these resources
will be sufficient to fund our operations into 2018. We have sustained operating losses for the majority of our corporate history
and expect that our 2017 expenses will exceed our 2017 revenues. We expect to continue to incur operating losses and negative
cash flows until revenues reach a level sufficient to support ongoing operations. Accordingly, our planned operations raise doubt
about our ability to continue as a going concern. Our liquidity needs will be largely determined by the success of operations
in regards to the progression of our product candidates in the future. Our plans to alleviate the doubt of our going concern,
which are probable of effectively being implemented and mitigating these conditions, primarily include our ability to control
the timing and spending on our research and development programs and raising additional funds through equity financings. We also
may consider other plans to fund operations including: (1) securing or increasing U.S. Government funding of our programs,
including obtaining procurement contracts; (2) out-licensing rights to certain of our products or product candidates, pursuant
to which the we would receive cash milestones; (3) raising additional capital through debt financings or from other sources;
(4) obtaining additional product candidate regulatory approvals, which would generate revenue, milestones and cash flow;
(5) reducing spending on one or more research and development programs by discontinuing development; and/or (6) restructuring
operations to change our overhead structure. We may issue securities, including common stock, preferred stock, depositary shares,
stock purchase contracts, warrants and units, through private placement transactions or registered public offerings, pursuant
to our registration statement on Form S-3 initially filed with the Securities and Exchange Commission (“SEC”) on March
3, 2015. Our future liquidity needs, and ability to address those needs, will largely be determined by the success of our product
candidates and key development and regulatory events and our decisions in the future.
Our long-term capital requirements and the adequacy of our available
funds will depend upon many factors, including:
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our ability to perform under our government contracts and receive reimbursement, and receive stockpiling procurement contracts;
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the magnitude of work under our government contracts;
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the progress and magnitude of our research, drug discovery and development programs;
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changes in existing collaborative relationships or government contracts;
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our ability to establish additional collaborative relationships with academic institutions, biotechnology or pharmaceutical companies and governmental agencies or other third parties;
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the extent to which our partners, including governmental agencies, will share in the costs associated with the development of our programs or run the development programs themselves;
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our ability to negotiate favorable development and marketing strategic alliances for certain product candidates or a decision to build or expand internal development and commercial capabilities;
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successful commercialization of marketed products by either us or a partner;
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the scope and results of preclinical studies and clinical trials to identify and develop product candidates;
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our ability to engage sites and enroll subjects in our clinical trials;
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the scope of manufacturing of our product candidates to support our preclinical research and clinical trials;
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increases in personnel and related costs to support the development and commercialization of our product candidates;
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the scope of manufacturing of our drug substance and product candidates required for future NDA filings;
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competitive and technological advances;
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the time and costs involved in obtaining regulatory approvals;
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post-approval commitments for RAPIVAB and other products that receive regulatory approval; and
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the costs involved in all aspects of intellectual property strategy and protection including the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims.
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We expect that we will be required to raise additional capital to
complete the development and commercialization of our current product candidates and we may seek to raise capital in the future.
Additional funding, whether through additional sales of equity or debt securities, collaborative or other arrangements with corporate
partners or from other sources, including governmental agencies in general and existing government contracts specifically, may
not be available when needed or on terms acceptable to us. The issuance of preferred or common stock or convertible securities,
with terms and prices significantly more favorable than those of the currently outstanding common stock, could have the effect
of diluting or adversely affecting the holdings or rights of our existing stockholders. In addition, collaborative arrangements
may require us to transfer certain material rights to such corporate partners. Insufficient funds may require us to delay, scale
back or eliminate certain of our research and development programs. Our future working capital requirements, including the need
for additional working capital, will be largely determined by the advancement of our portfolio of product candidates as well as
rate of reimbursement by U.S. Government agencies of our galidesivir expenses and any future decisions regarding the future of
the RAPIVAB and galidesivir programs, including those relating to stockpiling procurement. More specifically, our working capital
requirements will be dependent on the number, magnitude, scope and timing of our development programs; regulatory approval of our
product candidates; obtaining funding from collaborative partners; the cost, timing and outcome of regulatory reviews, regulatory
investigations, and changes in regulatory requirements; the costs of obtaining patent protection for our product candidates; the
timing and terms of business development activities; the rate of technological advances relevant to our operations; the efficiency
of manufacturing processes developed on our behalf by third parties; and the level of required administrative support for our daily
operations.
The restrictive covenants contained in the Senior Credit Facility
could cause us to be unable to pursue business opportunities that we or our stockholders may consider beneficial without the lender’s
permission or without repaying all Senior Credit Facility obligations. These covenants limit our ability to, among other things,
convey, sell, lease, license, transfer or otherwise dispose of certain parts of our business or property; change the nature of
our business; liquidate or dissolve; enter into certain change in control or acquisition transactions; incur or assume certain
debt; grant certain types of liens on our assets; modify, liquidate or transfer assets in certain collateral accounts; pay dividends
or make certain distributions to our stockholders; make certain investments; enter into material transactions with affiliates;
and modify existing debt or collaboration arrangements. A breach of any of these covenants could result in an event of default
under the Senior Credit Facility.
Financial Outlook for 2017
Based upon our development plans, expected operations and our awarded
government contracts, we expect 2017 operating cash usage to be in the range of $30 to $50 million, and expect our total 2017 operating
expenses to be in the range of $53 to $73 million. Our operating expense range excludes equity-based compensation expense due to
the difficulty in accurately projecting this expense as it is significantly impacted by the volatility and price of the Company’s
stock, as well as vesting of the Company’s outstanding performance-based stock options. Our operating cash forecast excludes
any impact of our royalty monetization, hedge collateral posted or returned, and any other non-routine cash outflows or inflows.
Our ability to remain within our operating expense and operating cash target ranges is subject to multiple factors, including unanticipated
or additional general development and administrative costs and other factors described under the Risk Factors located elsewhere
in this report.
Off-Balance Sheet Arrangements
As of December 31, 2016, we are not involved in any unconsolidated
entities or off–balance sheet arrangements.
Contractual Obligations
In the table below, we set forth our enforceable and legally binding
obligations and future commitments and obligations related to all contracts that we are likely to continue regardless of the fact
that they are cancelable as of December 31, 2016. Some of the amounts we include in this table are based on management’s
estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by
third parties, and other factors. Because these estimates and assumptions are necessarily subjective, the obligations we will actually
pay in future periods may vary from those reflected in the table.
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Payments Due by Period
(In thousands)
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Contractual Obligations
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Total
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Less Than
1 Year
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1-3 Years
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3-5 Years
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More Than
5 Years
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Operating lease obligations
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$
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6,151
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$
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871
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$
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1,660
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$
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1,131
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$
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2,489
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Purchase obligations(1)
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32,964
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32,964
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—
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—
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—
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Contingent license obligations
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1,775
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225
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450
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350
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750
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Non-recourse notes payable(2)
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53,871
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11,621
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8,400
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33,850
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—
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Senior credit facility
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29,519
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1,982
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16,625
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10,912
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—
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Total
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$
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124,280
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$
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47,663
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$
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27,135
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$
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46,243
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$
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3,239
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(1)
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Purchase obligations include commitments related to clinical development, manufacturing and research operations and other purchase commitments.
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(2)
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Assumes the PhaRMA Notes will be repaid at maturity and the related interest costs will accrue and be paid annually through maturity. This assumption is based on the unpredictable nature of the royalty payments from Shionogi, which are designated for both principal and interest payments on the PhaRMA Notes.
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Under the Currency Hedge Agreement, we have the right to purchase
dollars and sell yen at a rate of 100 yen per dollar for which we may be required to pay a premium in each year from 2017 through
2020. A payment of $2.0 million will be required if, during the relevant year, the dollar is worth 100 yen or less. As of December 31,
2016, we have no hedge collateral posted against the Currency Hedge Agreement. Because the posting of additional collateral and
payment of annual premiums is contingent on the value of the yen relative to the dollar and other factors, such payments have been
excluded from the foregoing table.
In addition to the above, we have committed to make potential future
“sublicense” payments to third-parties as part of in-licensing and development programs. Payments under these agreements
generally become due and payable only upon achievement of certain developmental, regulatory and/or commercial milestones. Because
the achievement of these milestones is neither probable nor reasonably estimable, such contingencies have not been recorded on
our balance sheet.
Critical Accounting Policies
We have established various accounting policies that govern the application
of U.S. GAAP, which were utilized in the preparation of our consolidated financial statements. Certain accounting policies involve
significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities.
Management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management
are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the
nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which
could have a material impact on the carrying values of assets and liabilities and the results of operations.
While our significant accounting policies are more fully described
in Note 1 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31,
2016, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating
our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial
statements.
Inventory
Our inventories consist of peramivir finished goods and work in process,
which are valued at the lower of cost or market using the first-in, first-out (i.e., FIFO) method. Cost includes materials, labor,
overhead, shipping and handling costs. Our inventories are subject to expiration dating. We regularly evaluate the carrying value
of our inventories and provide valuation reserves for any estimated obsolete, short-dated or unmarketable inventories. In addition,
we may experience spoilage of our raw materials and supplies. Our determination that a valuation reserve might be required, in
addition to the quantification of such reserve, requires us to utilize significant judgment. In connection with the FDA approval
of RAPIVAB and other regulatory approvals, we began capitalizing costs associated with the production of peramivir inventories.
Accrued Expenses
We enter into contractual agreements with third-party vendors who
provide research and development, manufacturing, and other services in the ordinary course of business. Some of these contracts
are subject to milestone-based invoicing and services are completed over an extended period of time. We record liabilities under
these contractual commitments when an obligation has been incurred. This accrual process involves reviewing open contracts and
purchase orders, communicating with our applicable personnel to identify services that have been performed and estimating the level
of service performed and the associated cost when we have not yet been invoiced or otherwise notified of actual cost. The majority
of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of
each balance sheet date based on the facts and circumstances known to us. We periodically confirm the accuracy of our estimates
with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include:
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fees paid to Clinical Research Organizations (“CROs”) in connection with preclinical and toxicology studies and clinical trials;
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fees paid to investigative sites in connection with clinical trials;
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fees paid to contract manufacturers in connection with the production of our raw materials, drug substance and product candidates; and
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professional fees.
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We base our expenses related to clinical trials on our estimates of
the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and
manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to
contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful
enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over
which services will be performed and the level of effort expended in each period. If the actual timing of the performance of services
or the level of effort varies from our estimate, we will adjust the accrual accordingly. If we do not identify costs that we have
begun to incur or if we underestimate or overestimate the level of these costs, our actual expenses could differ from our estimates.
Revenue Recognition
We recognize revenues from collaborative and other research and development
arrangements and product sales. Revenue is realized or realizable and earned when all of the following criteria are met: (i) persuasive
evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s
price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.
Collaborative and Other Research and Development Arrangements and Royalties
Revenue from license fees, royalty payments, event payments, and
research and development fees are recognized as revenue when the earnings process is complete and we have no further continuing
performance obligations or we have completed the performance obligations under the terms of the agreement. Fees received under
licensing agreements that are related to future performance are deferred and recognized over an estimated period determined by
management based on the terms of the agreement and the products licensed. In the event a license agreement contains multiple deliverables,
we evaluate whether the deliverables are separate or combined units of accounting. Revisions to revenue or profit estimates as
a result of changes in the estimated revenue period are recognized prospectively.
Under certain of our license agreements, we receive royalty payments
based upon our licensees’ net sales of covered products. We recognize royalty revenues when we can reliably estimate such
amounts and collectability is reasonably assured. Royalty revenue paid by Shionogi on their product sales is subject to returns.
For arrangements that involve the delivery of more than one element,
each product, service and/or right to use assets is evaluated to determine whether it qualifies as a separate unit of accounting.
This determination is based on whether the deliverable has “stand-alone value” to the customer. The consideration that
is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable.
The estimated selling price of each deliverable is determined using the following hierarchy of values: (i) vendor-specific objective
evidence of fair value, (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of selling price
(“BESP”). The BESP reflects our best estimate of what the selling price would be if the deliverable was regularly sold
by us on a stand-alone basis. In most cases we expect to use TPE or BESP for allocating consideration to each deliverable. The
consideration allocated to each unit of accounting is recognized as the related goods or services are delivered, limited to the
consideration that is not contingent upon future deliverables. Analyzing the arrangement to identify deliverables requires the
use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another
performance obligation.
In June 2015, we entered into a License Agreement (the "SUL Agreement")
granting SUL and its affiliates worldwide rights, excluding Israel, Japan, Korea and Taiwan, to develop, manufacture and commercialize
RAPIVAB. The SUL Agreement provides for various types of payments, including a non-refundable upfront fee, milestone payments,
and future royalties. Analysis of the SUL Agreement identified three deliverables: (i) license rights, (ii) inventory and (iii)
regulatory support to obtain Canadian and EU marketing approvals. We received an upfront payment of $33.7 million from SUL of which
$7.0 million was determined to be contingent upon EU marketing approval and will be deferred until that time. Approximately $21.8
million of the upfront payment was allocated to the license rights and recognized as revenue in the second quarter. Approximately
$3.7 million of the upfront payment was allocated to the sale of inventory and was recognized in the third quarter when the inventory
transfer was completed. Approximately $1.2 million of the revenue from the SUL Agreement will be recognized ratably over the expected
period of involvement in these regulatory support activities.
Milestone payments are recognized as licensing revenue upon the achievement
of specified milestones if (i) the milestone is substantive in nature and the achievement of the milestone was not reasonably assured
at the inception of the SUL Agreement; and (ii) the fees are non-refundable. Any milestone payments received prior to satisfying
these revenue recognition criteria are recorded as deferred revenue.
Under the terms of the SUL Agreement, we may receive up to $12.0 million
in additional payments related to the successful achievement of regulatory milestones, including marketing approval (i) by the
FDA for a pediatric indication, (ii) by the EMA for an adult indication in the EU and (iii) by Health Canada for an adult indication
in Canada. We evaluated each event based payment under the provisions of ASU 2010-17,
Milestone Method of Revenue Recognition
,
and determined that each event based payment met the criteria to be considered substantive and represents a milestone under the
milestone method of accounting. No event based payments were achieved during the periods presented.
Reimbursements received for direct out-of-pocket expenses related
to research and development costs are recorded as revenue in the income statement rather than as a reduction in expenses. Under
our contracts with BARDA/HHS and NIAID/HHS, revenue is recognized as reimbursable direct and indirect costs are incurred.
Product Sales
We recognize revenue for sales of RAPIVAB when title and substantially
all the risks and rewards of ownership have transferred to the customer, which generally occurs on the date of shipment from our
specialty distributors, utilizing the Sell-Through revenue recognition methodology. Product sales are recognized when there is
persuasive evidence that an arrangement exists, title has passed, the price was fixed and determinable, and collectability is reasonably
assured. Product sales are recognized net of estimated allowances, discounts, sales returns, chargebacks and rebates. In the United
States, prior to completion of the SUL transaction, we sold RAPIVAB to specialty distributors, who, in turn, sell to physician
offices, hospitals and federal, state and commercial health care organizations. With the completion of the SUL worldwide license
of RAPIVAB, SUL will be responsible for sales of RAPIVAB, other than U.S. Government stockpiling sales and the sale of inventory
from us to peramivir commercial partners. With the completion of the SUL collaboration, all peramivir third-party sales (i.e.,
RAPIVAB, RAPIACTA, and PERAMIFLU) will be made by the Company’s partners, except for U.S. Government stockpiling sales, and
the Company will be reliant on these partners to generate sales and provide for sales discounts and rebates.
Sales deductions consist of statutory rebates to state Medicaid, Medicare
and other government agencies and sales discounts (including trade discounts and distribution service fees). These deductions are
recorded as reductions to revenue from RAPIVAB in the same period as the related sales with estimates of future utilization derived
from historical experience adjusted to reflect known changes in the factors that impact such reserves.
We utilize data from external sources to help estimate gross-to-net
sales adjustments as they relate to the recognition of revenue for RAPIVAB sold. External sourced data includes, but is not limited
to, information obtained from specialty distributors with respect to their inventory levels and sell-through to customers, and
information from third-party suppliers of market research data to the pharmaceutical industry.
We have categorized and described more fully the following significant
sales deductions, all of which involve estimates and judgments, which we consider to be critical accounting estimates, and requires
us to use information from external sources.
Rebates and Chargebacks
Statutory rebates to state Medicaid agencies and Medicare are based
on statutory discounts to RAPIVAB’s selling price. As it can take up to nine months or more for information to be received
on actual usage of RAPIVAB in Medicaid and other governmental programs, we maintain reserves for amounts payable under these programs
relating to RAPIVAB sales.
Chargebacks claimed by specialty distributors are based on the differentials
between product acquisition prices paid by the specialty distributors and lower government contract pricing paid by eligible customers
covered under federally qualified programs.
The amount of the reserve for rebates and chargebacks is based on
multiple qualitative and quantitative factors, including the historical and projected utilization levels, historical payment experience,
changes in statutory laws and interpretations as well as contractual terms, product pricing (both normal selling prices and statutory
or negotiated prices), changes in prescription demand patterns and utilization of our product through public benefit plans, and
the levels of RAPIVAB inventory in the distribution channel. We acquire prescription utilization data from third-party suppliers
of market research data to the pharmaceutical industry. We update our estimates and assumptions each period and record any necessary
adjustments to reserves. Settlements of rebates and chargebacks typically occur within nine months from point of sale. To the extent
actual rebates and chargebacks differ from our estimates, additional reserves may be required or reserves may need to be reversed,
either of which would impact current period product revenue.
Discounts and Sales Incentives
Discounts and other sales incentives primarily consist of Inventory
Management Agreement (“IMA”) fees. Per contractual agreements with our specialty distributors, we provide an IMA fee
based on a percentage of their purchases of RAPIVAB. The IMA fee rates are set forth in our individual contracts. We track sales
to our specialty distributors each period and accrue a liability relating to the unpaid portion of these fees by applying contractual
rates to such sales.
Product Returns
We do not record a product return allowance as we do not offer the
ability to return goods once a bona fide shipment has been accepted by a specialty distributor.
Research and Development Expenses
Our research and development costs are charged to expense when incurred.
Advance payments for goods or services that will be used or rendered for future research and development activities are deferred
and capitalized. Such amounts are recognized as expense when the related goods are delivered or the related services are performed.
Research and development expenses include, among other items, personnel costs, including salaries and benefits, manufacturing costs,
clinical, regulatory, and toxicology services performed by CROs, materials and supplies, and overhead allocations consisting of
various administrative and facilities related costs. Most of our manufacturing and clinical and preclinical studies are performed
by third-party CROs. Costs for studies performed by CROs are accrued by us over the service periods specified in the contracts
and estimates are adjusted, if required, based upon our on-going review of the level of services actually performed.
Additionally, we have license agreements with third parties, such
as AECOM, IRL, and UAB, which require fees related to sublicense agreements or maintenance fees. We expense sublicense payments
as incurred unless they are related to revenues that have been deferred, in which case the expenses are deferred and recognized
over the related revenue recognition period. We expense maintenance payments as incurred.
Deferred collaboration expenses represent sub-license payments paid
to our academic partners upon receipt of consideration from various commercial partners, and other consideration to our academic
partners for modification to existing license agreements. These deferred expenses would not have been incurred without receipt
of such payments or modifications from our commercial partners and are being expensed in proportion to the related revenue being
recognized. We believe that this accounting treatment appropriately matches expenses with the associated revenue.
We group our R&D expenses into two major categories: direct
external expenses and indirect expenses. Direct expenses consist of compensation for R&D personnel and costs of outside parties
to conduct laboratory studies, develop manufacturing processes and manufacture the product candidate, conduct and manage clinical
trials, as well as other costs related to our clinical and preclinical studies. These costs are accumulated and tracked by active
program. Indirect expenses consist of lab supplies and services, facility expenses, depreciation of development equipment and other
overhead of our research and development efforts. These costs apply to work on non-active product candidates and our discovery
research efforts.
Stock-Based Compensation
All share-based payments, including grants of stock option awards
and restricted stock unit awards, are recognized in our Consolidated Statements of Comprehensive Loss based on their fair values.
Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense
on a straight-line basis over the requisite service period of the award. Determining the appropriate fair value model and the related
assumptions for the model requires judgment, including estimating the life of an award, the stock price volatility, and the expected
term. We utilize the Black-Scholes option-pricing model to value our awards and recognize compensation expense on a straight-line
basis over the vesting periods. The estimation of share-based payment awards that will ultimately vest requires judgment, and to
the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative
adjustment in the period estimates are revised. In addition, we have outstanding performance-based stock options for which no compensation
expense is recognized until “performance” has occurred. Significant management judgment is also required in determining
estimates of future stock price volatility and forfeitures to be used in the valuation of the options. Actual results, and future
changes in estimates, may differ substantially from our current estimates.
Foreign Currency Hedge
In connection with our issuance of the PhaRMA Notes, we entered into
a foreign Currency Hedge Agreement to hedge certain risks associated with changes in the value of the Japanese yen relative to
the U.S. dollar. Under the Currency Hedge Agreement, we have the right to purchase dollars and sell yen at a rate of 100 yen
per dollar for which we may be required to pay a premium in each year from 2017 through 2020, provided the Currency Hedge Agreement
remains in effect. A payment of $2.0 million will be required if, on May 18 of the relevant year, the U.S. dollar is
worth 100 yen or less as determined in accordance with the Currency Hedge Agreement. In conjunction with establishing the Currency
Hedge Agreement, we will be required to post collateral to the counterparty, which may cause us to experience additional quarterly
volatility in our financial results. We will not be required at any time to post collateral exceeding the maximum premium payments
remaining payable under the Currency Hedge Agreement. As of December 31, 2016, the maximum amount of hedge collateral we may be required
to post is $7.8 million.
The Currency Hedge Agreement does not qualify for hedge accounting
treatment and therefore mark to market adjustments will be recognized in our Consolidated Statements of Comprehensive Loss. Mark
to market adjustments are determined by quoted prices in markets that are not actively traded and for which significant inputs
are observable directly or indirectly, representing the Level 2 in the fair value hierarchy as defined by generally accepted accounting
principles (“U.S. GAAP”). The Company is also required to post collateral in connection with the mark to market adjustments
based on defined thresholds. As of December 31, 2016, no collateral was posted under the agreement.
Tax
We account for uncertain tax positions in accordance with U.S. GAAP.
Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities
and any valuation allowance recorded against net deferred tax assets. We have recorded a valuation allowance against all potential
tax assets, due to uncertainties in our ability to utilize deferred tax assets, primarily consisting of certain net operating losses
carried forward, before they expire. The valuation allowance is based on estimates of taxable income in each of the jurisdictions
in which we operate and the period over which our deferred tax assets will be recoverable.
Impact of Inflation
We do not believe that our operating results have been materially
impacted by inflation during the past three years. However, we cannot be assured that our operating results will not be adversely
affected by inflation in the future. We will continually seek to mitigate the adverse effects of inflation on the services that
we use through improved operating efficiencies and cost containment initiatives.
Recent Accounting Pronouncements
Note 12 to the Consolidated Financial Statements included in
Item 8 of this Annual Report on Form 10-K discusses accounting pronouncements recently issued or proposed but not yet
required to be adopted.
ITEM 7A.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
|
Interest Rate Risk
We are subject to interest rate risk on our investment portfolio and borrowings under our fixed-interest
rate PhaRMA Notes and our variable-interest rate Senior Credit Facility. The interest rate applicable to our borrowings under PhaRMA
Notes is fixed at 14% and the Senior Credit Facility bears a floating interest rate based on LIBOR. Increases in interest rates
could therefore increase the associated interest payments that we are required to make on the Senior Credit Facility. As of December
31, 2016, our Senior Credit Facility had an interest rate of 8.6%.
We invest in marketable securities in accordance with our investment
policy. The primary objectives of our investment policy are to preserve capital, maintain proper liquidity to meet operating needs
and maximize yields. Our investment policy specifies credit quality standards for our investments and limits the amount of credit
exposure to any single issue, issuer or type of investment. We place our excess cash with high credit quality financial institutions,
commercial companies, and government agencies in order to limit the amount of credit exposure. Some of the securities we invest
in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment
to fluctuate.
Our investment exposure to market risk for changes in interest rates relates to the increase or decrease
in the amount of interest income we can earn on our portfolio, changes in the market value due to changes in interest rates and
other market factors as well as the increase or decrease in any realized gains and losses. Our investment portfolio includes only
marketable securities and instruments with active secondary or resale markets to help ensure portfolio liquidity. A hypothetical
100 basis point increase or decrease in interest rates along the entire interest rate yield curve would not significantly affect
the fair value of our interest sensitive financial instruments, including our borrowings, but may affect our future earnings and
cash flows. We generally have the ability to hold our fixed-income investments to maturity and therefore do not expect that our
operating results, financial position or cash flows will be materially impacted due to a sudden change in interest rates. However,
our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal
if forced to sell securities which have declined in market value due to changes in interest rates or other factors, such as changes
in credit risk related to the securities’ issuers. To minimize this risk, we schedule our investments to have maturities
that coincide with our expected cash flow needs, thus avoiding the need to redeem an investment prior to its maturity date. Accordingly,
we do not believe that we have material exposure to interest rate risk arising from our investments. Generally, our investments
are not collateralized. We have not realized any significant losses from our investments.
We do not use interest rate derivative instruments to manage exposure
to interest rate changes. We ensure the safety and preservation of invested principal funds by limiting default risk, market risk
and reinvestment risk. We reduce default risk by investing in investment grade securities.
Foreign Currency Risk
The majority of our transactions occur in U.S. dollars and we do not
have significant operating subsidiaries or significant investments in foreign countries. Therefore, we are not subject to significant
foreign currency exchange risk in our normal operations.
In connection with the issuance by Royalty Sub of the PhaRMA Notes,
we entered into a Currency Hedge Agreement to hedge certain risks associated with changes in the value of the Japanese yen relative
to the U.S. dollar. Under the Currency Hedge Agreement, we are required to post collateral based on our potential obligations under
the Currency Hedge Agreement as determined by periodic mark-to-market adjustments. Provided the Currency Hedge Agreement remains
in effect, we may be required to pay an annual premium in the amount of $2.0 million from May 2017 through May 2020.
Such payment will be required if, in May of the relevant year, the spot rate of exchange for Japanese yen-U.S. dollars (determined
in accordance with the Currency Hedge Agreement) is such that the U.S. dollar is worth 100 yen or less.
ITEM 8.
|
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
BIOCRYST PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
|
|
December 31,
|
|
|
2016
|
|
2015
|
ASSETS
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,104
|
|
|
$
|
28,899
|
|
Restricted cash
|
|
|
1,546
|
|
|
|
1,612
|
|
Investments
|
|
|
32,546
|
|
|
|
22,664
|
|
Receivables from collaborations
|
|
|
8,768
|
|
|
|
6,243
|
|
Inventory
|
|
|
500
|
|
|
|
1,612
|
|
Prepaid expenses and other current assets
|
|
|
1,438
|
|
|
|
2,674
|
|
Deferred collaboration expense
|
|
|
85
|
|
|
|
90
|
|
Total current assets
|
|
|
66,987
|
|
|
|
63,794
|
|
Investments
|
|
|
8,926
|
|
|
|
47,683
|
|
Property and equipment, net
|
|
|
9,922
|
|
|
|
5,149
|
|
Deferred collaboration expense
|
|
|
199
|
|
|
|
265
|
|
Other assets
|
|
|
3,813
|
|
|
|
5,468
|
|
Total assets
|
|
$
|
89,847
|
|
|
$
|
122,359
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,269
|
|
|
$
|
9,307
|
|
Accrued expenses
|
|
|
10,836
|
|
|
|
16,237
|
|
Interest payable
|
|
|
8,990
|
|
|
|
6,746
|
|
Deferred collaboration revenue
|
|
|
2,022
|
|
|
|
2,163
|
|
Non-recourse notes payable
|
|
|
28,243
|
|
|
|
27,804
|
|
Total current liabilities
|
|
|
54,360
|
|
|
|
62,257
|
|
Deferred collaboration revenue
|
|
|
8,184
|
|
|
|
9,674
|
|
Deferred rent
|
|
|
244
|
|
|
|
329
|
|
Lease financing obligation
|
|
|
2,704
|
|
|
|
2,375
|
|
Senior credit facility
|
|
|
22,777
|
|
|
|
—
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; shares authorized — 5,000; no shares outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.01 par value; shares authorized — 200,000; shares issued and outstanding — 73,782 in 2016 and 73,355 in 2015
|
|
|
738
|
|
|
|
734
|
|
Additional paid-in capital
|
|
|
566,913
|
|
|
|
558,113
|
|
Accumulated other comprehensive loss
|
|
|
(12
|
)
|
|
|
(206
|
)
|
Accumulated deficit
|
|
|
(566,061
|
)
|
|
|
(510,917
|
)
|
Total stockholders’ equity
|
|
|
1,578
|
|
|
|
47,724
|
|
Total liabilities and stockholders’ equity
|
|
$
|
89,847
|
|
|
$
|
122,359
|
|
See accompanying notes to consolidated financial statements.
BIOCRYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, except per share amounts)
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Revenues
|
|
|
|
|
|
|
Product sales, net
|
|
$
|
2,269
|
|
|
$
|
6,291
|
|
|
$
|
33
|
|
Royalty revenue
|
|
|
9,682
|
|
|
|
2,386
|
|
|
|
3,025
|
|
Collaborative and other research and development
|
|
|
14,402
|
|
|
|
39,580
|
|
|
|
10,550
|
|
Total revenues
|
|
|
26,353
|
|
|
|
48,257
|
|
|
|
13,608
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
2,297
|
|
|
|
1,368
|
|
|
|
1
|
|
Research and development
|
|
|
61,008
|
|
|
|
72,758
|
|
|
|
51,796
|
|
Selling, general and administrative
|
|
|
11,253
|
|
|
|
13,047
|
|
|
|
7,461
|
|
Royalty
|
|
|
402
|
|
|
|
528
|
|
|
|
121
|
|
Total operating expenses
|
|
|
74,960
|
|
|
|
87,701
|
|
|
|
59,379
|
|
Loss from operations
|
|
|
(48,607
|
)
|
|
|
(39,444
|
)
|
|
|
(45,771
|
)
|
Interest and other income
|
|
|
793
|
|
|
|
535
|
|
|
|
93
|
|
Interest expense
|
|
|
(6,487
|
)
|
|
|
(5,200
|
)
|
|
|
(4,998
|
)
|
(Loss) gain on foreign currency derivative
|
|
|
(843
|
)
|
|
|
1,090
|
|
|
|
5,487
|
|
Net loss
|
|
$
|
(55,144
|
)
|
|
$
|
(43,019
|
)
|
|
$
|
(45,189
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.75
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.68
|
)
|
Weighted average shares outstanding
|
|
|
73,699
|
|
|
|
72,901
|
|
|
|
66,773
|
|
Unrealized gain (loss) on available for sale investments
|
|
$
|
194
|
|
|
$
|
(76
|
)
|
|
$
|
(134
|
)
|
Comprehensive loss
|
|
$
|
(54,950
|
)
|
|
$
|
(43,095
|
)
|
|
$
|
(45,323
|
)
|
See accompanying notes to consolidated financial statements.
BIOCRYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(55,144
|
)
|
|
$
|
(43,019
|
)
|
|
$
|
(45,189
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization, and impairment
|
|
|
483
|
|
|
|
180
|
|
|
|
177
|
|
Loss on disposal of property and equipment
|
|
|
17
|
|
|
|
—
|
|
|
|
27
|
|
Stock-based compensation expense
|
|
|
8,487
|
|
|
|
9,705
|
|
|
|
10,177
|
|
Amortization of debt issuance costs
|
|
|
558
|
|
|
|
439
|
|
|
|
439
|
|
Amortization of premium/discount on investments
|
|
|
523
|
|
|
|
570
|
|
|
|
150
|
|
Change in fair value of foreign currency derivative
|
|
|
(811
|
)
|
|
|
564
|
|
|
|
(5,487
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(2,525
|
)
|
|
|
3,247
|
|
|
|
(7,375
|
)
|
Inventory
|
|
|
1,112
|
|
|
|
(929
|
)
|
|
|
(683
|
)
|
Prepaid expenses and other assets
|
|
|
3,702
|
|
|
|
637
|
|
|
|
(2,093
|
)
|
Deferred collaboration expense
|
|
|
71
|
|
|
|
(102
|
)
|
|
|
59
|
|
Accounts payable and accrued expenses
|
|
|
(10,524
|
)
|
|
|
13,676
|
|
|
|
4,656
|
|
Interest payable
|
|
|
2,244
|
|
|
|
717
|
|
|
|
2,162
|
|
Deferred revenue
|
|
|
(1,631
|
)
|
|
|
1,199
|
|
|
|
4,429
|
|
Net cash used in operating activities:
|
|
|
(53,438
|
)
|
|
|
(13,116
|
)
|
|
|
(38,551
|
)
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
(5,277
|
)
|
|
|
(5,122
|
)
|
|
|
(106
|
)
|
Proceeds from sale of property and equipment
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
Change in restricted cash
|
|
|
66
|
|
|
|
(1,462
|
)
|
|
|
1
|
|
Purchases of investments
|
|
|
(14,106
|
)
|
|
|
(53,830
|
)
|
|
|
(73,875
|
)
|
Sales and maturities of investments
|
|
|
42,652
|
|
|
|
42,410
|
|
|
|
34,000
|
|
Net cash provided (used) in investing activities:
|
|
|
23,339
|
|
|
|
(18,004
|
)
|
|
|
(39,980
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock, net
|
|
|
—
|
|
|
|
—
|
|
|
|
106,600
|
|
Net proceeds from common stock issued under stock-based compensation plans
|
|
|
317
|
|
|
|
5,479
|
|
|
|
5,307
|
|
Proceeds from senior credit facility
|
|
|
22,658
|
|
|
|
—
|
|
|
|
—
|
|
Increase in lease financing obligation
|
|
|
329
|
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by financing activities:
|
|
|
23,304
|
|
|
|
5,479
|
|
|
|
111,907
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(6,795
|
)
|
|
|
(25,641
|
)
|
|
|
33,376
|
|
Cash and cash equivalents at beginning of year
|
|
|
28,899
|
|
|
|
54,540
|
|
|
|
21,164
|
|
Cash and cash equivalents at end of year
|
|
$
|
22,104
|
|
|
$
|
28,899
|
|
|
$
|
54,540
|
|
See accompanying notes to consolidated financial statements.
BIOCRYST PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except per share amounts)
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Other
Comprehensive
(Loss) Income
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity (Deficit)
|
Balance at December 31, 2013
|
|
$
|
591
|
|
|
$
|
420,988
|
|
|
$
|
4
|
|
|
$
|
(422,709
|
)
|
|
$
|
(1,126
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(45,189
|
)
|
|
|
(45,189
|
)
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
(134
|
)
|
|
|
—
|
|
|
|
(134
|
)
|
Exercise of stock options, 1,314 shares, net
|
|
|
13
|
|
|
|
4,984
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,997
|
|
Employee stock purchase plan sales, 49 shares, net
|
|
|
1
|
|
|
|
309
|
|
|
|
—
|
|
|
|
—
|
|
|
|
310
|
|
Issuance of common stock, 11,500 shares, net
|
|
|
115
|
|
|
|
106,485
|
|
|
|
—
|
|
|
|
—
|
|
|
|
106,600
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
10,177
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,177
|
|
Balance at December 31, 2014
|
|
|
720
|
|
|
|
542,943
|
|
|
|
(130
|
)
|
|
|
(467,898
|
)
|
|
|
75,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(43,019
|
)
|
|
|
(43,019
|
)
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
(76
|
)
|
|
|
—
|
|
|
|
(76
|
)
|
Exercise of stock options, 1,359 shares, net
|
|
|
14
|
|
|
|
5,110
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,124
|
|
Employee stock purchase plan sales, 41 shares, net
|
|
|
—
|
|
|
|
355
|
|
|
|
—
|
|
|
|
—
|
|
|
|
355
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
9,705
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,705
|
|
Balance at December 31, 2015
|
|
|
734
|
|
|
|
558,113
|
|
|
|
(206
|
)
|
|
|
(510,917
|
)
|
|
|
47,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(55,144
|
)
|
|
|
(55,144
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
194
|
|
|
|
—
|
|
|
|
194
|
|
Exercise of stock options, 351 shares, net
|
|
|
3
|
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
Employee stock purchase plan sales, 75 shares, net
|
|
|
1
|
|
|
|
328
|
|
|
|
—
|
|
|
|
—
|
|
|
|
329
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
8,487
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,487
|
|
Balance at December 31, 2016
|
|
$
|
738
|
|
|
$
|
566,913
|
|
|
$
|
(12
|
)
|
|
$
|
(566,061
|
)
|
|
$
|
1,578
|
|
See accompanying notes to consolidated financial statements.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 1 — Significant Accounting Policies and Concentrations of Risk
The Company
BioCryst Pharmaceuticals, Inc. (the “Company”) is a biotechnology
company that designs, optimizes and develops novel small molecule drugs that block key enzymes involved in the pathogenesis of
diseases. The Company focuses on the treatment of rare diseases in which significant unmet medical needs exist and align with its
capabilities and expertise. The Company was incorporated in Delaware in 1986 and its headquarters is located in Durham, North Carolina.
The Company integrates the disciplines of biology, crystallography, medicinal chemistry and computer modeling to discover and develop
small molecule pharmaceuticals through the process known as structure-guided drug design. BioCryst has incurred losses and negative
cash flows from operations since inception.
With the funds available at December 31, 2016, the Company believes
these resources will be sufficient to fund its operations into 2018. The Company has sustained operating losses for the majority
of its corporate history and expects that its 2017 expenses will exceed its 2017 revenues. The Company expects to continue to incur
operating losses and negative cash flows until revenues reach a level sufficient to support ongoing operations. Accordingly, its
planned operations raise doubt about its ability to continue as a going concern. The Company’s liquidity needs
will be largely determined by the success of operations in regards to the progression of its product candidates in the future.
The Company’s plans to alleviate the doubt of its going concern, which are probable of effectively being implemented and
mitigating these conditions, primarily include its ability to control the timing and spending on its research and development programs
and raising additional funds through equity financings. The Company also may consider other plans to fund operations including:
(1) securing or increasing U.S. Government funding of its programs, including obtaining procurement contracts; (2) out-licensing
rights to certain of its products or product candidates, pursuant to which the Company would receive cash milestones; (3) raising
additional capital through debt financings or from other sources; (4) obtaining additional product candidate regulatory approvals,
which would generate revenue, milestones and cash flow; (5) reducing spending on one or more research and development programs
by discontinuing development; and/or (6) restructuring operations to change its overhead structure. The Company may issue
securities, including common stock, preferred stock, depositary shares, stock purchase contracts, warrants and units, through private
placement transactions or registered public offerings, pursuant to its registration statement on Form S-3 initially filed with
the Securities and Exchange Commission (“SEC”) on March 3, 2015. The Company’s future liquidity needs, and ability
to address those needs, will largely be determined by the success of its product candidates and key development and regulatory
events and its decisions in the future.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, JPR Royalty Sub LLC (“Royalty Sub”) and MDCP, LLC (“MDCP”).
Both subsidiaries were formed to facilitate financing transactions for the Company. Royalty Sub was formed in connection with
a $30,000 financing transaction the Company completed on March 9, 2011. See Note 3, Royalty Monetization, for a further
description of this transaction. MDCP was formed in connection with a $23,000 Senior Credit Facility that the Company closed on
September 23, 2016. See Note 4, Senior Credit Facility, for a further description of this transaction. All intercompany transactions
and balances have been eliminated.
The Company’s consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Such consolidated financial
statements reflect all adjustments that are, in management’s opinion, necessary to present fairly, in all material respects,
the Company’s consolidated financial position, results of operations, and cash flows. There were no adjustments other than
normal recurring adjustments.
Reclassifications
During the first quarter of 2016, the Company adopted Accounting Standards
Update No. 2015-03,
Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs
. Accordingly, debt issuance costs of $2,196 classified as other current assets as of December 31, 2015 have been reclassified
and netted against non-recourse notes payable to conform to the 2016 presentation.
Cash and Cash Equivalents
The Company generally considers cash equivalents to be all cash held
in commercial checking accounts, certificates of deposit, money market accounts or investments in debt instruments with maturities
of three months or less at the time of purchase. The carrying value of cash and cash equivalents approximates fair value due to
the short-term nature of these items.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Restricted Cash
Restricted cash as of December 31, 2016 reflects $141 in royalty revenue
paid by Shionogi & Co., Ltd. (“Shionogi”) designated for interest on the PhaRMA Notes (defined in Note 3)
and $1,405 the Company is required to maintain as collateral for a letter of credit associated with the lease execution and build-out
of its new Birmingham research facilities.
Investments
The Company invests in high credit quality investments in accordance
with its investment policy, which is designed to minimize the possibility of loss. The objective of the Company’s investment
policy is to ensure the safety and preservation of invested funds, as well as maintaining liquidity sufficient to meet cash flow
requirements. The Company places its excess cash with high credit quality financial institutions, commercial companies, and government
agencies in order to limit the amount of its credit exposure. In accordance with its policy, the Company is able to invest in marketable
debt securities that may consist of U.S. Government and government agency securities, money market and mutual fund investments,
municipal and corporate notes and bonds, commercial paper and asset or mortgage-backed securities, among others. The Company’s
investment policy requires it to purchase high-quality marketable securities with a maximum individual maturity of three years
and requires an average portfolio maturity of no more than 18 months. Some of the securities the Company invests in may have market
risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize
this risk, the Company schedules its investments with maturities that coincide with expected cash flow needs, thus avoiding the
need to redeem an investment prior to its maturity date. Accordingly, the Company does not believe it has a material exposure to
interest rate risk arising from its investments. Generally, the Company’s investments are not collateralized. The Company
has not realized any significant losses from its investments.
The Company classifies all of its investments as available-for-sale.
Unrealized gains and losses on investments are recognized in comprehensive loss, unless an unrealized loss is considered to be
other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments
for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Company believes the individual unrealized losses represent temporary
declines primarily resulting from interest rate changes. Realized gains and losses are reflected in interest and other income
in the Consolidated Statements of Comprehensive Loss and are determined using the specific identification method with transactions
recorded on a settlement date basis. Investments with original maturities at date of purchase beyond three months and which mature
at or less than 12 months from the balance sheet date are classified as current. Investments with a maturity beyond 12 months
from the balance sheet date are classified as long-term. At December 31, 2016, the Company believes that the cost of its investments
is recoverable in all material respects.
The following tables summarize the fair value of the Company’s
investments by type. The estimated fair values of the Company’s fixed income investments are classified as Level 2 in the
fair value hierarchy as defined in U.S. GAAP. These valuations are based on observable direct and indirect inputs, primarily quoted
prices of similar, but not identical, instruments in active markets or quoted prices for identical or similar instruments in markets
that are not active. These fair values are obtained from independent pricing services which utilize Level 2 inputs.
|
|
December 31, 2016
|
|
|
Amortized
Cost
|
|
Accrued
Interest
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
Obligations of U.S. Government and its agencies
|
|
$
|
20,266
|
|
|
$
|
34
|
|
|
$
|
2
|
|
|
$
|
(4
|
)
|
|
$
|
20,298
|
|
Corporate debt securities
|
|
|
6,179
|
|
|
|
26
|
|
|
|
2
|
|
|
|
(8
|
)
|
|
|
6,199
|
|
Certificates of deposit
|
|
|
14,962
|
|
|
|
17
|
|
|
|
7
|
|
|
|
(11
|
)
|
|
|
14,975
|
|
Total investments
|
|
$
|
41,407
|
|
|
$
|
77
|
|
|
$
|
11
|
|
|
$
|
(23
|
)
|
|
$
|
41,472
|
|
|
|
December 31, 2015
|
|
|
Amortized
Cost
|
|
Accrued
Interest
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair Value
|
Obligations of U.S. Government and its agencies
|
|
$
|
26,557
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
(99
|
)
|
|
$
|
26,546
|
|
Corporate debt securities
|
|
|
21,820
|
|
|
|
184
|
|
|
|
—
|
|
|
|
(41
|
)
|
|
|
21,963
|
|
Certificates of deposit
|
|
|
21,884
|
|
|
|
20
|
|
|
|
6
|
|
|
|
(72
|
)
|
|
|
21,838
|
|
Total investments
|
|
$
|
70,261
|
|
|
$
|
292
|
|
|
$
|
6
|
|
|
$
|
(212
|
)
|
|
$
|
70,347
|
|
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The following table summarizes the scheduled maturity for the Company’s
investments at December 31, 2016 and 2015.
|
|
2016
|
|
2015
|
Maturing in one year or less
|
|
$
|
32,546
|
|
|
$
|
22,664
|
|
Maturing after one year through two years
|
|
|
8,926
|
|
|
|
28,395
|
|
Maturing after two years
|
|
|
—
|
|
|
|
19,288
|
|
Total investments
|
|
$
|
41,472
|
|
|
$
|
70,347
|
|
Receivable from Collaborations
Receivables from collaborations are recorded for amounts due to the
Company related to reimbursable research and development costs from the U.S. Department of Health and Human Services, royalty receivables
from Shionogi, Green Cross Corporation (“Green Cross”) and Seqirus UK Limited (“SUL”), and product sales
to SUL. These receivables are evaluated to determine if any reserve or allowance should be established at each reporting date.
At December 31, 2016 and December 31, 2015, the Company had the following receivables.
|
|
December 31, 2016
|
|
|
Billed
|
|
Unbilled
|
|
Total
|
U.S. Department of Health and Human Services
|
|
$
|
—
|
|
|
$
|
3,495
|
|
|
$
|
3,495
|
|
Shionogi & Co. Ltd.
|
|
|
3,451
|
|
|
|
—
|
|
|
|
3,451
|
|
Green Cross Corporation
|
|
|
686
|
|
|
|
—
|
|
|
|
686
|
|
Seqirus UK Limited
|
|
|
957
|
|
|
|
179
|
|
|
|
1,136
|
|
Total receivables
|
|
$
|
5,094
|
|
|
$
|
3,674
|
|
|
$
|
8,768
|
|
|
|
December 31, 2015
|
|
|
Billed
|
|
Unbilled
|
|
Total
|
U.S. Department of Health and Human Services
|
|
$
|
—
|
|
|
$
|
5,536
|
|
|
$
|
5,536
|
|
Shionogi & Co. Ltd.
|
|
|
469
|
|
|
|
—
|
|
|
|
469
|
|
Seqirus UK Limited
|
|
|
210
|
|
|
|
28
|
|
|
|
238
|
|
Total receivables
|
|
$
|
679
|
|
|
$
|
5,564
|
|
|
$
|
6,243
|
|
Monthly invoices are submitted to the U.S. Department of Health and
Human Services related to reimbursable research and development costs. The Company is also entitled to monthly reimbursement of
indirect costs based on rates stipulated in the underlying contract. The Company’s calculations of its indirect cost rates
are subject to audit by the U.S. Government.
Receivables from Product Sales
Receivables from product sales are recorded for amounts due to the
Company related to sales of RAPIVAB. These receivables are evaluated to determine if any reserve or allowance should be established
at each reporting date.
Inventory
At December 31, 2016 and December 31, 2015, the Company’s inventory
consisted primarily of peramivir work in process and is being manufactured for the Company’s partners. Inventory is stated
at the lower of cost, determined under the first-in, first-out (“FIFO”) method, or market. The Company expenses costs
related to the production of inventories as research and development expenses in the period incurred until such time it is believed
that future economic benefit is expected to be recognized, which generally is reliant upon receipt of regulatory approval. Upon
regulatory approval, the Company will capitalize subsequent costs related to the production of inventories.
During 2014, in connection with the FDA approval of RAPIVAB, the Company
began capitalizing costs associated with the production of RAPIVAB inventories.
The Company’s inventory consisted of the following:
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
Work in process
|
|
$
|
500
|
|
|
$
|
1,612
|
|
Net inventories
|
|
$
|
500
|
|
|
$
|
1,612
|
|
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets. Computer equipment is depreciated over a life of
three years. Laboratory equipment, office equipment, and software are depreciated over a life of five years. Furniture and fixtures
are depreciated over a life of seven years. Leasehold improvements are amortized over their estimated useful lives or the expected
lease term, whichever is less. Property consists of a leased building which did not meet the sale-leaseback criteria and is recorded
at its fair value, less depreciation. The building is being depreciated over a period equal to the expected term of the related
lease.
In accordance with U.S. GAAP, the Company periodically reviews its
property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of such assets
may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from
the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover
the carrying amount of the assets, the assets are written down to their estimated fair values. Property and equipment to be disposed
of are reported at the lower of carrying amount or fair value less cost to sell.
Patents and Licenses
The Company seeks patent protection on all internally developed processes
and products. All patent related costs are expensed to selling, general and administrative expenses when incurred as recoverability
of such expenditures is uncertain.
Accrued Expenses
The Company generally enters into contractual agreements with third-party
vendors who provide research and development, manufacturing, and other services in the ordinary course of business. Some of these
contracts are subject to milestone-based invoicing and services are completed over an extended period of time. The Company records
liabilities under these contractual commitments when it determines an obligation has been incurred, regardless of the timing of
the invoice. This process involves reviewing open contracts and purchase orders, communicating with applicable Company personnel
to identify services that have been performed on its behalf and estimating the level of service performed and the associated cost
incurred for the service when the Company has not yet been invoiced or otherwise notified of actual cost. The majority of service
providers invoice the Company monthly in arrears for services performed. The Company makes estimates of accrued expenses as of
each balance sheet date in its financial statements based on the facts and circumstances. The Company periodically confirms the
accuracy of its estimates with the service providers and makes adjustments if necessary. Examples of estimated accrued expenses
include:
|
•
|
|
fees paid to Clinical Research Organizations (“CROs”) in connection with preclinical and toxicology studies and clinical trials;
|
|
|
|
|
|
|
|
•
|
|
fees paid to investigative sites in connection with clinical trials;
|
|
|
|
|
|
|
|
•
|
|
fees paid to contract manufacturers in connection with the
production of the Company’s raw materials, drug substance and drug products; and
|
|
|
|
|
|
|
•
|
|
professional fees.
|
The Company bases its expenses related to clinical trials on its estimates
of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and
manage clinical trials on the Company’s behalf. The financial terms of these agreements are subject to negotiation, vary
from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such
as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, the Company
estimates the time period over which services will be performed and the level of effort expended in each period. If the actual
timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly.
As of December 31, 2016 and December 31, 2015, the carrying value of accrued expenses approximates their fair value due to their
short-term settlement.
Accrued expenses were comprised of the following:
|
|
December 31,
|
|
|
2016
|
|
2015
|
Compensation and benefits
|
|
$
|
425
|
|
|
$
|
424
|
|
Development costs
|
|
|
7,427
|
|
|
|
10,398
|
|
Inventory
|
|
|
705
|
|
|
|
549
|
|
Professional fees
|
|
|
242
|
|
|
|
242
|
|
Duties and taxes
|
|
|
56
|
|
|
|
102
|
|
Other
|
|
|
1,981
|
|
|
|
4,522
|
|
Total accrued expenses
|
|
$
|
10,836
|
|
|
$
|
16,237
|
|
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Income Taxes
The liability method is used in the Company’s accounting for
income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is comprised of unrealized gains
and losses on available-for-sale investments and is disclosed as a separate component of stockholders’ equity. Amounts reclassified
from accumulated other comprehensive loss are recorded as interest and other income on the Consolidated Statements of Comprehensive
Loss. During 2016 and 2015, realized gains of $11 and $13, respectively, were reclassified out of accumulated other comprehensive
loss.
Revenue Recognition
The Company recognizes revenues from collaborative and other research
and development arrangements, royalties and product sales when realized or realizable and earned. Revenue is realized or realizable
and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery
has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability
is reasonably assured.
Collaborative and Other Research and Development Arrangements and Royalties
Revenue from license fees, royalty payments, event payments, and
research and development fees are recognized as revenue when the earnings process is complete and the Company has no further continuing
performance obligations or the Company has completed the performance obligations under the terms of the agreement. Fees received
under licensing agreements that are related to future performance are deferred and recognized over an estimated period determined
by management based on the terms of the agreement and the products licensed. Revisions to revenue or profit estimates as a result
of changes in the estimated revenue period are recognized prospectively.
Under certain of the Company’s license agreements, the Company
receives royalty payments based upon its licensees’ net sales of covered products. The Company recognizes royalty revenues
when it can reliably estimate such amounts and collectability is reasonably assured.
For arrangements that involve the delivery of more than one
element, each product, service and/or right to use assets is evaluated to determine whether it qualifies as a separate unit
of accounting. This determination is based on whether the deliverable has “stand-alone value” to the customer.
The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative
selling price of each deliverable. The estimated selling price of each deliverable is determined using the following
hierarchy of values: (i) vendor-specific objective evidence of fair value, (ii) third-party evidence of selling price
(“TPE”) and (iii) best estimate of selling price (“BESP”). The BESP reflects the Company’s best
estimate of what the selling price would be if the deliverable was regularly sold by the Company on a stand-alone basis. In
most cases the Company expects to use TPE or BESP for allocating consideration to each deliverable. The consideration
allocated to each unit of accounting is recognized as the related goods or services are delivered, limited to the
consideration that is not contingent upon future deliverables. Analyzing the arrangement to identify deliverables requires
the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or
another performance obligation.
In June 2015, the Company entered into a License Agreement (the “SUL
Agreement”) granting SUL and its affiliates worldwide rights, excluding Israel, Japan, Korea and Taiwan, to develop, manufacture
and commercialize RAPIVAB. The SUL Agreement provides for various types of payments, including a non-refundable upfront fee, milestone
payments, and future royalties. Analysis of the SUL Agreement identified three deliverables: (i) license rights, (ii) inventory
and (iii) regulatory support to obtain Canadian and European Union (“EU”) marketing approvals. The Company received
an upfront payment of $33,740 from SUL, of which $7,000 was determined to be contingent upon EU marketing approval and will be
deferred until that time. Approximately $21,777 of the upfront payment was allocated to the license rights and recognized as revenue
in 2015. Approximately $3,740 of the upfront payment was allocated to the pending sale of inventory and was recognized in 2015,
when the inventory transfer was completed. Approximately $1,223 of the revenue from the SUL Agreement will be recognized over the
expected period of involvement in these regulatory support activities.
Milestone payments are recognized as licensing revenue upon the
achievement of specified milestones if (i) the milestone is substantive in nature and the achievement of the milestone was not
reasonably assured at the inception of the agreement; and (ii) the fees are non-refundable. Any milestone payments received prior
to satisfying these revenue recognition criteria are recorded as deferred revenue.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Under the terms of the SUL Agreement, the Company may receive up to
$12,000 in additional payments related to the successful achievement of regulatory milestones, including marketing approval (i)
by the FDA for a pediatric indication, (ii) by the EMA for an adult indication in the EU and (iii) by Health Products and Food
Branch of Health Canada (“Health Canada”) for an adult indication in Canada. The Company evaluated each event based
payment under the provisions of ASU 2010-17,
Milestone Method of Revenue Recognition
, and determined that each event based
payment met the criteria to be considered substantive and represents a milestone under the milestone method of accounting. No event
based payments were achieved during the periods presented.
Reimbursements received for direct out-of-pocket expenses related
to research and development costs are recorded as revenue in the Consolidated Statements of Comprehensive Loss rather than as a
reduction in expenses. Under the Company’s contracts with the Biomedical Advanced Research and Development Authority within
the United States Department of Health and Human Services (”BARDA/HHS”) and the National Institute of Allergy and Infectious
Diseases (“NIAID/HHS”), revenue is recognized as reimbursable direct and indirect costs are incurred.
Product Sales
The Company recognizes revenue for sales of RAPIVAB when
title and substantially all the risks and rewards of ownership have transferred to the customer, which generally occurs on
the date of shipment from the Company’s specialty distributors, utilizing the Sell-Through revenue recognition
methodology. Product sales are recognized when there is persuasive evidence that an arrangement exists, title has passed, the
price is fixed and determinable, and collectability is reasonably assured. Product sales are recognized net of estimated
allowances, discounts, sales returns, chargebacks and rebates. In the United States, and prior to the SUL Agreement, the
Company sold RAPIVAB to specialty distributors, who in turn, sell to physician offices, hospitals and federal, state and
commercial health care organizations. With the completion of the SUL worldwide license of RAPIVAB, SUL will be
responsible for sales of RAPIVAB, other than U.S. Government stockpiling sales. With the completion of the SUL collaboration,
all peramivir sales (i.e., RAPIVAB, RAPIACTA, and PERAMIFLU) will be made by the Company’s partners, except for U.S.
Government stockpiling sales, and the Company will be reliant on these partners to generate sales.
Sales deductions consist of statutory rebates to state Medicaid, Medicare
and other government agencies and sales discounts (including trade discounts and distribution service fees). These deductions are
recorded as reductions from revenue from RAPIVAB in the same period as the related sales with estimates of future utilization derived
from historical experience adjusted to reflect known changes in the factors that impact such reserves.
The Company utilizes data from external sources to help it estimate
gross-to-net sales adjustments as they relate to the recognition of revenue for RAPIVAB sold. Externally sourced data includes,
but is not limited to, information obtained from specialty distributors with respect to their inventory levels and their sell-through
to customers, as well as information from third-party suppliers of market research data to the pharmaceutical industry.
The Company accounts for these sales deductions in accordance with
authoritative guidance on revenue recognition when consideration is given by a vendor to a customer.
The Company has categorized and described more fully the following
significant sales deductions, all of which involve estimates and judgments, which the Company considers to be critical accounting
estimates, and require it to use information from external sources.
Rebates and Chargebacks
Statutory rebates to state Medicaid agencies and Medicare are based
on statutory discounts to RAPIVAB’s selling price. As it can take up to nine months or more for information to be received
on actual usage of RAPIVAB in Medicaid and other governmental programs, the Company maintains reserves for amounts payable under
these programs relating to RAPIVAB sales.
Chargebacks claimed by specialty distributors are based on the
differentials between product acquisition prices paid by the specialty distributors and lower government contract pricing paid
by eligible customers covered under federally qualified programs.
The amount of the reserve for rebates and chargebacks is based
on multiple qualitative and quantitative factors, including the historical and projected utilization levels, historical payment
experience, changes in statutory laws and interpretations as well as contractual terms, product pricing (both normal selling prices
and statutory or negotiated prices), changes in prescription demand patterns and utilization of the Company’s product through
public benefit plans, and the levels of RAPIVAB inventory in the distribution channel. The Company acquires prescription utilization
data from third-party suppliers of market research data to the pharmaceutical industry. The Company updates its estimates and assumptions
each period and records any necessary adjustments to its reserves. Settlements of rebates and chargebacks typically occur within
nine months from point of sale. To the extent actual rebates and chargebacks differ from the Company’s estimates, additional
reserves may be required or reserves may need to be reversed, either of which would impact current period product revenue.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Discounts and Sales Incentives
Discounts and other sales incentives primarily consist of Inventory
Management Agreement (“IMA”) fees. Per contractual agreements with the Company’s specialty distributors, the
Company provides an IMA fee based on a percentage of their purchases of RAPIVAB. The IMA fee rates are set forth in individual
contracts. The Company tracks sales to these distributors each period and accrues a liability relating to the unpaid portion of
these fees by applying the contractual rates to such product sales. With the completion of the SUL collaboration, all peramivir
sales (i.e., RAPIVAB, RAPIACTA, and PERAMIFLU) will be made by the Company’s partners, except for U.S. Government stockpiling
sales, and the Company will be reliant on these partners to generate sales and to provide for discounts and sales incentives.
Product Returns
The Company does not record a product return allowance as it does
not offer the ability to return goods once a bonafide shipment has been accepted by a specialty distributor.
The Company recorded the following revenues for the years ended December 31:
|
|
2016
|
|
2015
|
|
2014
|
Product sales, net
|
|
$
|
2,269
|
|
|
$
|
6,291
|
|
|
$
|
33
|
|
Royalty revenue
|
|
|
9,682
|
|
|
|
2,386
|
|
|
|
3,025
|
|
Collaborative and other research and development revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Department of Health and Human Services
|
|
|
12,449
|
|
|
|
16,337
|
|
|
|
9,366
|
|
Green Cross Corporation
|
|
|
—
|
|
|
|
132
|
|
|
|
—
|
|
Shionogi & Co. Ltd.
|
|
|
1,184
|
|
|
|
1,184
|
|
|
|
1,184
|
|
Seqirus UK Limited
|
|
|
769
|
|
|
|
21,927
|
|
|
|
—
|
|
Total collaborative and other research and development revenues
|
|
|
14,402
|
|
|
|
39,580
|
|
|
|
10,550
|
|
Total revenues
|
|
$
|
26,353
|
|
|
$
|
48,257
|
|
|
$
|
13,608
|
|
Advertising
The Company engages in very limited distribution and direct-response
advertising when promoting RAPIVAB. Advertising and promotional costs are expensed as the costs are incurred. The Company did not
incur advertising and product promotion expenses in 2016. Advertising and product promotion expenses were $103 and $290 for the
years ended December 31, 2015 and 2014, respectively.
Research and Development Expenses
The Company’s research and development costs are charged to
expense when incurred. Research and development expenses include all direct and indirect development costs related to the development
of the Company’s portfolio of product candidates. Advance payments for goods or services that will be used or rendered for
future research and development activities are deferred and capitalized. Such amounts are recognized as expense when the related
goods are delivered or the related services are performed. Research and development expenses include, among other items, personnel
costs, including salaries and benefits, manufacturing costs, clinical, regulatory, and toxicology services performed by CROs, materials
and supplies, and overhead allocations consisting of various administrative and facilities related costs. Most of the Company’s
manufacturing and clinical and preclinical studies are performed by third-party CROs. Costs for studies performed by CROs are accrued
by the Company over the service periods specified in the contracts and estimates are adjusted, if required, based upon the Company’s
on-going review of the level of services actually performed.
Additionally, the Company has license agreements with third parties,
such as Albert Einstein College of Medicine of Yeshiva University (“AECOM”), Industrial Research, Ltd. (“IRL”),
and the University of Alabama at Birmingham (“UAB”), which require fees related to sublicense agreements or maintenance
fees. The Company expenses sublicense payments as incurred unless they are related to revenues that have been deferred, in which
case the expenses are deferred and recognized over the related revenue recognition period. The Company expenses maintenance payments
as incurred.
Deferred collaboration expenses represent sub-license
payments, paid to the Company’s academic partners upon receipt of consideration from various commercial partners, and
other consideration paid to the Company’s academic partners for modification to existing license agreements. These
deferred expenses would not have been incurred without receipt of such payments or modifications from the Company’s
commercial partners and are being expensed in proportion to the related revenue being recognized. The Company believes that
this accounting treatment appropriately matches expenses with the associated revenue.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Stock-Based Compensation
All share-based payments, including grants of stock option awards
and restricted stock unit awards, are recognized in the Company’s Consolidated Statements of Comprehensive Loss based on
their fair values. The fair value of stock option awards is estimated using the Black-Scholes option pricing model. The fair value
of restricted stock unit awards is based on the grant date closing price of the common stock. Stock-based compensation cost is
recognized as expense on a straight-line basis over the requisite service period of the award. In addition, we have outstanding
performance-based stock options for which no compensation expense is recognized until “performance” is deemed to have
occurred.
Interest Expense and Deferred Financing Costs
Interest expense for the years ended December 31, 2016, 2015
and 2014 was $6,487, $5,200 and $4,998, respectively, and primarily relates to the issuance of the PhaRMA Notes (defined in
Note 3) and the Senior Credit Facility (defined in Note 4). Costs directly associated with the issuance of the PhaRMA Notes
and the Senior Credit Facility have been capitalized and are netted against the non-recourse notes payable and Senior Credit
Facility on the Consolidated Balance Sheets. These costs are being amortized to interest expense over the terms of the PhaRMA
Notes and the Senior Credit Facility using the effective interest rate method. Amortization of deferred financing costs and
original issue discount included in interest expense was $558, $439 and $439 for each of the years ended December 31,
2016, 2015 and 2014, respectively.
Lease Financing Obligation
Based on the terms of the lease agreement for the new research facility
in Birmingham, Alabama, the Company had construction period risks during the construction period and the Company was deemed the
owner of the building (for accounting purposes only) during the construction period, which ended in 2016. Accordingly, the Company
recorded an asset of $1,589 at December 31, 2015, representing the Company’s leased portion of the building and recorded
a corresponding liability. Upon completion of leasehold improvement construction, the Company did not meet the sale-leaseback
criteria for de-recognition of the building asset and liability. Therefore, the lease is accounted for as a financing obligation.
The asset will be depreciated over the expected duration of the lease of 20.5 years, and rental payments will be treated as principal
and interest payments on the lease financing obligation liability. The underlying accounting for this transaction has no impact
on cash flows associated with the underlying lease or construction in process. Interest expense for the year ended December 31,
2016 includes $408 related to the lease financing obligation.
At December 31, 2016 and 2015, the lease financing obligation balance
was $2,704 and $2,375, respectively and was recorded as a long term liability on the consolidated balance sheets. At December 31,
2016 the remaining future minimum payments under the lease financing obligation are $4,768.
Currency Hedge Agreement
In connection with the issuance by Royalty Sub of the
PhaRMA Notes, the Company entered into a Currency Hedge Agreement to hedge certain risks associated with changes in the value
of the Japanese yen relative to the U.S. dollar. The Currency Hedge Agreement does not qualify for hedge accounting
treatment; therefore mark to market adjustments are recognized in the Company’s Consolidated Statements of
Comprehensive Loss. Cumulative mark to market adjustments for the years ended December 31, 2016, 2015 and 2014 resulted
in losses of $1,654 and $564 and a gain of $5,487, respectively. Mark to market adjustments are determined by a third party
pricing model which uses quoted prices in markets that are not actively traded and for which significant inputs are
observable directly or indirectly, representing Level 2 in the fair value hierarchy as defined by U.S. GAAP. In addition,
realized currency exchange gains of $811 and $1,654 were recognized in 2016 and 2015, respectively, related to the exercise
of a U.S. dollar/Japanese yen currency option under the Company’s foreign currency hedge. The Company is also required
to post collateral in connection with the mark to market adjustments based on defined thresholds. As of December 31, 2016 and
December 31, 2015, no hedge collateral was posted under the Currency Hedge Agreement.
Net Loss 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, outstanding warrants, and common shares expected to be
issued under the Company’s employee stock purchase plan were anti-dilutive. The calculation of diluted earnings per share
for the years ended December 31, 2016, 2015, and 2014 does not include 1,226, 3,524 and 3,991 respectively, of potential common
shares as their impact would be anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP
requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results
could differ from those estimates.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Significant Customers and Other Risks
Significant Customers
Prior to the SUL Agreement, the Company relied primarily on three
specialty distributors to purchase and supply the majority of RAPIVAB. These three pharmaceutical specialty distributors accounted
for greater than 90% of all RAPIVAB product sales and accounted for predominantly all of the Company’s outstanding receivables
from product sales. The loss of one or more of these specialty distributors as a customer could have negatively impacted the commercialization
of RAPIVAB. However, the Company will utilize these specialty distributors on a limited basis subsequent to the SUL collaboration
as SUL, and other peramivir collaboration partners, will be responsible for commercial sales on a worldwide basis. In addition,
in connection with the SUL collaboration, all peramivir sales (i.e., RAPIVAB, RAPIACTA, and PERAMIFLU) will be made by the Company’s
partners and the Company will be reliant on these partners to generate sales and remit cash to satisfy receivables.
Other than royalty revenues, the Company’s primary source
of revenue that has an underlying cash flow stream is the reimbursement of RAPIVAB and galidesivir (formerly BCX4430) development
expenses earned under cost-plus-fixed-fee contracts with BARDA/HHS and NIAID/HHS. The Company relies on BARDA/HHS and NIAID/HHS
to reimburse predominantly all of the development costs for its galidesivir program. Accordingly, reimbursement of these expenses
represents a significant portion of the Company’s collaborative and other research and development revenues. The completion
(as with the June 30, 2014 BARDA/HHS peramivir development contract) or termination of the NIAID/HHS and BARDA/HHS galidesivir
contracts could negatively impact the Company’s future Consolidated Statements of Comprehensive Loss and Cash Flows. The
Company recognizes royalty revenue from the net sales of RAPIACTA by Shionogi; however, the underlying cash flow from these royalty
payments, except for Japanese government stockpiling sales, goes directly to pay the interest, and then the principal, on the Company’s
non-recourse notes payable. Payment of the interest and the ultimate repayment of principal of these notes will be entirely funded
by future royalty payments derived from net sales of RAPIACTA. Further, the Company’s drug development activities are performed
by a limited group of third party vendors. If any of these vendors were unable to perform their services, this could significantly
impact the Company’s ability to complete its drug development activities.
Risks from Third Party Manufacturing and Distribution Concentration
The Company relies on single source manufacturers for active pharmaceutical
ingredient and finished drug product manufacturing of product candidates in development. Delays in the manufacture or distribution
of any product could adversely impact the commercial revenue and future procurement stockpiling of the Company’s product
candidates in development.
Credit Risk
Cash equivalents and investments are financial instruments which
potentially subject the Company to concentration of risk to the extent recorded on the Consolidated Balance Sheets. The Company
deposits excess cash with major financial institutions in the United States. Balances may exceed the amount of insurance provided
on such deposits. The Company believes it has established guidelines for investment of its excess cash relative to diversification
and maturities that maintain safety and liquidity. To minimize the exposure due to adverse shifts in interest rates, the Company
maintains a portfolio of investments with an average maturity of approximately 18 months or less. Other than product sale and collaborative
partner receivables discussed above, the majority of the Company’s receivables from collaborations are due from the U.S.
Government, for which there is no assumed credit risk.
Going Concern
The Company’s liquidity needs will be largely determined by
the success of operations in regards to the progression of its product candidates in the future. The Company’s plans to alleviate
the doubt of its going concern, which are probable of effectively being implemented and mitigating these conditions, primarily
include its ability to control the timing and spending on its research and development programs and raising additional funds through
equity financings. The Company also may consider other plans to fund operations including: (1) securing or increasing U.S.
Government funding of its programs, including obtaining procurement contracts; (2) out-licensing rights to certain of its
products or product candidates, pursuant to which the Company would receive cash milestones; (3) raising additional capital
through debt financings or from other sources; (4) obtaining additional product candidate regulatory approvals, which would
generate revenue, milestones and cash flow; (5) reducing spending on one or more research and development programs by discontinuing
development; and/or (6) restructuring operations to change its overhead structure. The Company may issue securities, including
common stock, preferred stock, depositary shares, stock purchase contracts, warrants and units, through private placement transactions
or registered public offerings, pursuant to its registration statement on Form S-3 initially filed with the Securities and Exchange
Commission (“SEC”) on March 3, 2015. The Company’s future liquidity needs, and ability to address those needs,
will largely be determined by the success of its product candidates and key development and regulatory events and its decisions
in the future.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 2 — Property and Equipment
Property and equipment consisted of the following at December 31:
|
|
2016
|
|
2015
|
Furniture and fixtures
|
|
$
|
540
|
|
|
$
|
718
|
|
Office equipment
|
|
|
141
|
|
|
|
1,122
|
|
Software
|
|
|
1,117
|
|
|
|
1,427
|
|
Laboratory equipment
|
|
|
3,252
|
|
|
|
6,004
|
|
Leased equipment
|
|
|
—
|
|
|
|
63
|
|
Leasehold improvements
|
|
|
8,294
|
|
|
|
5,610
|
|
Construction in progress
|
|
|
—
|
|
|
|
2,821
|
|
Building
|
|
|
1,495
|
|
|
|
1,589
|
|
|
|
|
14,839
|
|
|
|
19,354
|
|
Less accumulated depreciation and amortization
|
|
|
(4,917
|
)
|
|
|
(14,205
|
)
|
Property and equipment, net
|
|
$
|
9,922
|
|
|
$
|
5,149
|
|
Depreciation and amortization expense for the years ended December 31,
2016, 2015 and 2014 was $483, $180 and $177, respectively.
Note 3— Royalty Monetization
Overview
On March 9, 2011, the Company completed a $30,000 financing
transaction to monetize certain future royalty and milestone payments under the Shionogi Agreement, pursuant to which Shionogi
licensed from the Company the rights to market RAPIACTA in Japan and, if approved for commercial sale, Taiwan. The Company received
net proceeds of $22,691 from the transaction after transaction costs of $4,309 and the establishment of a $3,000 interest
reserve account by Royalty Sub, available to help cover interest shortfalls in the future. All of the interest reserve account
has been fully utilized with the September 2012 interest payment.
As part of the transaction, the Company entered into a purchase and
sale agreement dated as of March 9, 2011 with Royalty Sub, whereby the Company transferred to Royalty Sub, among other things,
(i) its rights to receive certain royalty and milestone payments from Shionogi arising under the Shionogi Agreement, and (ii) the
right to receive payments under a Japanese yen/US dollar foreign currency hedge arrangement (as further described below, the “Currency
Hedge Agreement”) put into place by the Company in connection with the transaction. Royalty payments will be paid by Shionogi
in Japanese yen and milestone payments will paid in U.S. dollars. The Company’s collaboration with Shionogi was not impacted
as a result of this transaction.
Non-Recourse Notes Payable
On March 9, 2011, Royalty Sub completed a private placement to
institutional investors of $30,000 in aggregate principal amount of its PhaRMA Senior Secured 14.0% Notes due 2020 (the “PhaRMA
Notes”). The PhaRMA Notes were issued by Royalty Sub under an Indenture, dated as of March 9, 2011 (the “Indenture”),
by and between Royalty Sub and U.S. Bank National Association, as Trustee. Principal and interest on the PhaRMA Notes issued are
payable from, and are secured by, the rights to royalty and milestone payments under the Shionogi Agreement transferred by the
Company to Royalty Sub and payments, if any, made to Royalty Sub under the Currency Hedge Agreement. The PhaRMA Notes bear interest
at 14% per annum, payable annually in arrears on September 1st of each year. The Company remains entitled to receive
any royalties and milestone payments related to sales of peramivir by Shionogi following repayment of the PhaRMA Notes.
Royalty Sub’s obligations to pay principal and interest on the
PhaRMA Notes are obligations solely of Royalty Sub and are without recourse to any other person, including the Company, except
to the extent of the Company’s pledge of its equity interests in Royalty Sub in support of the PhaRMA Notes. The Company
may, but is not obligated to, make capital contributions to a capital account that may be used to redeem, or on up to one occasion
pay any interest shortfall on, the PhaRMA Notes.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
In September 2013, Royalty Sub paid $1,844 of interest on the
PhaRMA Notes from royalty payments received from RAPIACTA
®
sales from the preceding four calendar quarters. This
payment resulted in an obligation shortfall of approximately $2,356 associated with accrued interest due September 3, 2013.
As stipulated under the PhaRMA Notes Indenture, if the amount available for payment on any Payment Date is insufficient to pay
all of the interest due on a Payment Date, the shortfall in interest will accrue interest at the interest rate applicable to the
PhaRMA Notes compounded annually. Accordingly, commencing in September 2013, the Company began accruing interest at 14% per
annum on the interest shortfall of $2,356. In March, June and August of 2014, Royalty Sub paid additional interest of $446, $1,882
and $70, respectively, bringing the 2013 shortfall down to $222 as of September 30, 2014. Under the terms of the Indenture, Royalty
Sub’s inability to pay the full amount of interest payable in September 2013 by the next succeeding Payment Date for
the PhaRMA Notes, which was September 1, 2014, constituted an event of default. Accordingly, the PhaRMA Notes and related
accrued interest have been classified as current liabilities on the December 31, 2014 balance sheet. As a result of the event of
default under the PhaRMA Notes, the holders of the PhaRMA Notes may pursue acceleration of the PhaRMA Notes, may foreclose on the
collateral securing the PhaRMA Notes and the equity interest in Royalty Sub and exercise other remedies available to them under
the Indenture in respect of the PhaRMA Notes. In such event, the Company may not realize the benefit of future royalty payments
that might otherwise accrue to it following repayment of the PhaRMA Notes and it might otherwise be adversely affected. Due to
the non-recourse nature of the PhaRMA Notes, in the event of any potential acceleration or foreclosure, the primary impact to the
Company would be the loss of future royalty payments from Shionogi and legal costs associated with retiring the PhaRMA Notes. In
addition, the Company may incur costs associated with liquidating the related Currency Hedge Agreement, which would no longer be
required in the event of foreclosure, or if the PhaRMA Notes cease to be outstanding. As the PhaRMA Notes are the obligation of
Royalty Sub and non-recourse to the Company, the event of default of the PhaRMA Notes is not expected to have a significant impact
on the Company’s future results of operations or cash flows. As of December 31, 2016, the PhaRMA Notes remain in default.
The Indenture does not contain any financial covenants. The Indenture
includes customary representations and warranties of Royalty Sub, affirmative and negative covenants of Royalty Sub, Events of
Default and related remedies, and provisions regarding the duties of the Trustee, indemnification of the Trustee, and other matters
typical for indentures used in structured financings of this type.
As of December 31, 2016, the aggregate fair value of the PhaRMA
Notes was estimated to be approximately 50% of its carrying value of $30,000. The estimated fair value of the PhaRMA Notes is classified
as Level 2 in the fair value hierarchy as defined in U.S. GAAP.
The PhaRMA Notes are redeemable at the option of Royalty Sub at any
time at a redemption price equal to the outstanding principal balance of the PhaRMA Notes being redeemed plus accrued and unpaid
interest through the redemption date on the PhaRMA Notes being redeemed.
Foreign Currency Hedge
In connection with the issuance by Royalty Sub of the PhaRMA Notes,
the Company entered into a Currency Hedge Agreement to hedge certain risks associated with changes in the value of the Japanese
yen relative to the U.S. dollar. Under the Currency Hedge Agreement, the Company has the right to purchase dollars and sell yen
at a rate of 100 yen per dollar for which the Company may be required to pay a premium in each year from 2017 through 2020, provided
the Currency Hedge Agreement remains in effect. A payment of $1,950 will be required if, on May 18 of the relevant year,
the U.S. dollar is worth 100 yen or less as determined in accordance with the Currency Hedge Agreement.
The Currency Hedge Agreement does not qualify for
hedge accounting treatment; therefore mark to market adjustments are recognized in the Company’s Consolidated Statement
of Comprehensive Loss. Cumulative mark to market adjustments in 2016, 2015 and 2014 resulted in losses of $1,654 and $564 and
a gain of $5,487, respectively. In addition, realized currency exchange gains of $811 and $1,654 were recognized in 2016
and 2015, respectively, related to the exercise of a U.S. dollar/Japanese yen currency option under the Company’s
foreign currency hedge. The Company is also required to post collateral in connection with the mark to market adjustments
based on defined thresholds. As of December 31, 2016 and 2015, no collateral was posted under the Currency Hedge
Agreement. The Company will not be required at any time to post collateral exceeding the maximum premium payments remaining
payable under the Currency Hedge Agreement. As of December 31, 2016, the maximum amount of hedge collateral the Company may
be required to post is $7,800.
Note 4 — Senior Credit Facility
On September 23, 2016, the Company closed a $23,000 Senior Credit
Facility with an affiliate of MidCap Financial Services, LLC (“MidCap”), as administrative agent (the “Senior
Credit Facility”). The Senior Credit Facility was fully funded at closing and bears a variable interest rate of LIBOR (which
shall not be less than 0.5%) plus 8%. The Senior Credit Facility includes an interest-only payment period through fiscal 2017 and
scheduled monthly principal and interest payments for the subsequent 40 months. The Company has the option to repay the Senior
Credit Facility at any time prior to the scheduled principal repayment date subject to prepayment fees. Final payment of the Senior
Credit Facility is subject to a final payment fee equal to 5% of the principal funded under the Senior Credit Facility.
As of December 31, 2016, the Company had borrowings of $23,000
under the Senior Credit Facility bearing an interest rate of 8.6%. The carrying amount of the debt approximates its fair value
based on prevailing interest rates as of the balance sheet date. Scheduled principal repayments of the Senior Credit Facility are
as follows:
Principal Payments
|
2017
|
|
$
|
—
|
|
2018
|
|
|
6,900
|
|
2019
|
|
|
6,900
|
|
2020
|
|
|
6,900
|
|
2021
|
|
|
2,300
|
|
|
|
|
|
|
Total
|
|
$
|
23,000
|
|
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The debt agreement contains two provisions that if deemed probable
would create the recognition of an embedded feature; however, at this time we do not believe either provision is probable.
Note 5 — Lease Obligations and Other Contingencies
The Company has the following minimum payments under operating lease
obligations that existed at December 31, 2016:
2017
|
|
$
|
871
|
|
2018
|
|
|
838
|
|
2019
|
|
|
822
|
|
2020
|
|
|
653
|
|
2021
|
|
|
478
|
|
Thereafter
|
|
|
2,489
|
|
Total minimum payments
|
|
$
|
6,151
|
|
The obligations in the preceding table are primarily related to the
Company’s leases for buildings in Birmingham, Alabama and Durham, North Carolina. The lease for the Company’s headquarters
in Durham, North Carolina expires June 30, 2020. The lease for the Company’s research facility in Birmingham, Alabama
expires October 31, 2026. Rent expense for operating leases was $721, $664 and $633 in 2016, 2015, and 2014, respectively.
Lease Financing Obligation
Based on the terms of the lease agreement for the new research facility
in Birmingham, Alabama, the Company had construction period risks during the construction period and the Company was deemed the
owner of the building (for accounting purposes only) during the construction period, which ended in 2016. Accordingly, the Company
recorded an asset of $1,589 at December 31, 2015, representing the Company’s leased portion of the building and recorded
a corresponding liability. Upon completion of leasehold improvement construction, the Company did not meet the sale-leaseback criteria
for de-recognition of the building asset and liability. Therefore, the lease is accounted for as a financing obligation. The asset
will be depreciated over the expected duration of the lease, and rental payments will be treated as principal and interest payments
on the lease financing obligation liability. The underlying accounting for this transaction has no impact on cash flows associated
with the underlying lease and or construction in process.
At December 31, 2016 and 2015, the lease financing obligation balance
was $2,704 and $2,375, respectively and was recorded as a long term liability on the consolidated balance sheets. The remaining
future minimum payments under the lease financing obligation are $4,768.
Note 6 — Stockholders’ Equity
Sales of Common Stock
On March 3, 2015, the Company filed a $150,000 shelf registration
statement on Form S-3 with the SEC. This shelf registration statement became effective upon filing and allows the Company to sell
securities, including common stock, preferred stock, depository shares, stock purchase contracts, warrants and units, from time
to time at prices and on terms to be determined at the time of sale. On February 26, 2016, the Company filed a post-effective amendment
to this registration statement, which allowed for its use by the Company when declared effective by the SEC’s staff on April
18, 2016.
Note 7 — Stock-Based Compensation
Stock Incentive Plan
As of December 31, 2016, the Company had two stock-based employee
compensation plans, the Stock Incentive Plan (“Incentive Plan”) and the Employee Stock Purchase Plan (“ESPP”).
The Incentive Plan was amended and restated in April 2016 and approved by the Company’s stockholders in May 2016. The ESPP
was amended and restated in March 2014 and approved by the Company’s stockholders in May 2014. Stock-based compensation expense
of $8,487 ($8,340 of expense related to the Incentive Plan, $147 of expense related to the ESPP) was recognized during 2016, while
$9,705 ($9,485 of expense related to the Incentive Plan, $220 of expense related to the ESPP) was recognized during 2015, and $10,177
($9,963 of expense related to the Incentive Plan, $214 of expense related to the ESPP) was recognized during 2014.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The Company accounts for stock-based compensation in accordance with
FASB authoritative guidance regarding share-based payments. Total stock-based compensation was allocated as follows:
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Research and development
|
|
$
|
6,088
|
|
|
$
|
7,580
|
|
|
$
|
8,906
|
|
General and administrative
|
|
|
2,399
|
|
|
|
2,125
|
|
|
|
1,271
|
|
Total stock-based compensation expense
|
|
$
|
8,487
|
|
|
$
|
9,705
|
|
|
$
|
10,177
|
|
The Company grants stock option awards and restricted stock unit awards
to its employees, directors, and consultants under the Incentive Plan. Under the Incentive Plan, stock option awards are granted
with an exercise price equal to the market price of the Company’s stock at the date of grant. Commencing March 1, 2011,
stock option awards granted to employees generally vest 25% each year until fully vested after four years. In January 2013, the
Company made retention grants of stock option awards and restricted stock units. These awards vest 50% each year until fully vested
after two years. In August 2013 and December 2014, the Company issued 1,032 and 1,250 performance-based stock options, respectively.
These awards vest upon successful completion of specific development milestones. As of December 31, 2015, 75% of the August 2013
grants have vested based upon achievement of three milestones: (1) successful completion of the OPuS-1 clinical trial, for which
vesting occurred in the second quarter of 2014, (2) FDA approval of RAPIVAB for which vesting occurred in the fourth quarter of
2014, and (3) initiation of a Phase 1 clinical trial to evaluate the safety, pharmacokinetics and pharmacodynamics of orally-administered
BCX7353 in healthy volunteers, for which vesting occurred in the second quarter of 2015. Thus, as of December 31, 2016, 25%
of the August 2013 performance-based grants and 100% of the December 2014 performance-based grants remain unvested and no compensation
expense has been recognized for these portions of the previously issued performance-based grants. Stock option awards granted to
non-employee directors of the Company generally vest monthly over one year. All stock option awards have contractual terms of 5
to 10 years. The vesting exercise provisions of all awards granted under the Incentive Plan are subject to acceleration in
the event of certain stockholder-approved transactions, or upon the occurrence of a change in control as defined in the Incentive
Plan.
Related activity under the Incentive Plan is as follows:
|
|
Awards
Available
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise
Price
|
Balance at December 31, 2013
|
|
|
1,082
|
|
|
|
8,986
|
|
|
$
|
4.99
|
|
Plan amendment
|
|
|
3,750
|
|
|
|
—
|
|
|
|
—
|
|
Restricted stock awards granted
|
|
|
(593
|
)
|
|
|
—
|
|
|
|
—
|
|
Restricted stock awards cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock option awards granted
|
|
|
(1,965
|
)
|
|
|
1,965
|
|
|
|
10.99
|
|
Stock option awards exercised
|
|
|
—
|
|
|
|
(1,258
|
)
|
|
|
4.78
|
|
Stock option awards cancelled
|
|
|
88
|
|
|
|
(88
|
)
|
|
|
8.83
|
|
Balance at December 31, 2014
|
|
|
2,362
|
|
|
|
9,605
|
|
|
|
6.21
|
|
Restricted stock awards granted
|
|
|
(163
|
)
|
|
|
—
|
|
|
|
—
|
|
Restricted stock awards cancelled
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
Stock option awards granted
|
|
|
(2,217
|
)
|
|
|
2,217
|
|
|
|
11.52
|
|
Stock option awards exercised
|
|
|
—
|
|
|
|
(1,118
|
)
|
|
|
4.36
|
|
Stock option awards cancelled
|
|
|
33
|
|
|
|
(33
|
)
|
|
|
9.87
|
|
Balance at December 31, 2015
|
|
|
16
|
|
|
|
10,671
|
|
|
|
7.50
|
|
Plan amendment
|
|
|
3,800
|
|
|
|
|
|
|
|
|
|
Restricted stock awards granted
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
—
|
|
Restricted stock awards cancelled
|
|
|
22
|
|
|
|
—
|
|
|
|
—
|
|
Stock option awards granted
|
|
|
(2,248
|
)
|
|
|
2,248
|
|
|
|
3.20
|
|
Stock option awards exercised
|
|
|
—
|
|
|
|
(107
|
)
|
|
|
2.63
|
|
Stock option awards cancelled
|
|
|
717
|
|
|
|
(717
|
)
|
|
|
10.78
|
|
Balance at December 31, 2016
|
|
|
2,273
|
|
|
|
12,095
|
|
|
$
|
6.55
|
|
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
For stock option awards granted under the Incentive Plan during 2016,
2015 and 2014, the fair value was estimated on the date of grant using a Black-Scholes option pricing model and the assumptions
noted in the table below. The weighted average grant date fair value of these awards granted during 2016, 2015 and 2014 was $2.17,
$7.72 and $8.02, respectively. The fair value of the stock option awards is amortized to expense over the vesting periods using
a straight-line expense attribution method. The following explanations describe the assumptions used by the Company to value the
stock option awards granted during 2016, 2015, and 2014. The expected life is based on the average of the assumption that all outstanding
stock option awards will be exercised at full vesting and the assumption that all outstanding stock option awards will be exercised
at the midpoint of the current date (if already vested) or at full vesting (if not yet vested) and the full contractual term. The
expected volatility represents the volatility over the most recent period corresponding with the expected life. The Company has
assumed no expected dividend yield, as dividends have never been paid to stockholders and will not be for the foreseeable future.
The weighted average risk-free interest rate is the implied yield currently available on zero-coupon government issues with a remaining
term equal to the expected term.
Weighted Average Assumptions for Stock Option Awards Granted under the Incentive Plan
|
|
2016
|
|
2015
|
|
2014
|
Expected Life
|
|
|
5.5
|
|
|
|
5.5
|
|
|
|
5.5
|
|
Expected Volatility
|
|
|
82
|
%
|
|
|
81
|
%
|
|
|
87
|
%
|
Expected Dividend Yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-Free Interest Rate
|
|
|
1.4
|
%
|
|
|
1.6
|
%
|
|
|
1.6
|
%
|
The total intrinsic value of stock option awards exercised under the
Incentive Plan was $339 during 2016, $10,117 during 2015 and $8,522 during 2014. The intrinsic value represents the total proceeds
(fair market value at the date of exercise, less the exercise price, times the number of stock option awards exercised) received
by all individuals who exercised stock option awards during the period.
The following table summarizes, at December 31, 2016, by price
range: (1) for stock option awards outstanding under the Incentive Plan, the number of stock option awards outstanding, their
weighted average remaining life and their weighted average exercise price; and (2) for stock option awards exercisable under
the Plan, the number of stock option awards exercisable and their weighted average exercise price:
|
|
|
|
|
Outstanding
|
|
Exercisable
|
Range
|
|
|
|
Number
|
|
Weighted
Average
Remaining
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
|
|
Weighted
Average
Exercise
Price
|
$
|
0
|
to
|
3
|
|
1,919
|
|
|
5.7
|
|
|
$
|
1.64
|
|
|
|
1,510
|
|
|
$
|
1.53
|
|
|
3
|
to
|
6
|
|
4,749
|
|
|
6.9
|
|
|
|
4.02
|
|
|
|
2,578
|
|
|
|
4.48
|
|
|
6
|
to
|
9
|
|
1,153
|
|
|
3.5
|
|
|
|
7.10
|
|
|
|
1,118
|
|
|
|
7.11
|
|
|
9
|
to
|
12
|
|
3,457
|
|
|
7.2
|
|
|
|
11.10
|
|
|
|
1,074
|
|
|
|
11.29
|
|
|
12
|
to
|
15
|
|
722
|
|
|
8.0
|
|
|
|
12.39
|
|
|
|
195
|
|
|
|
12.73
|
|
|
15
|
to
|
18
|
|
95
|
|
|
8.5
|
|
|
|
15.39
|
|
|
|
24
|
|
|
|
15.39
|
|
$
|
0
|
to
|
18
|
|
12,095
|
|
|
6.6
|
|
|
$
|
6.55
|
|
|
|
6,499
|
|
|
$
|
5.66
|
|
The weighted average remaining contractual life of stock option awards
exercisable under the Incentive Plan at December 31, 2016 was 6.6 years.
The aggregate intrinsic value of stock option awards outstanding and
exercisable under the Incentive Plan at December 31, 2016 was $20,002. The aggregate intrinsic value represents the value
(the period’s closing market price, less the exercise price, times the number of in-the-money stock option awards) that would
have been received by all stock option award holders under the Incentive Plan had they exercised their stock option awards at the
end of the year.
The total fair value of the stock option awards vested under the Incentive
Plan was $6,380 during 2016, $4,492 during 2015 and $2,844 during 2014.
As of December 31, 2016, the number of stock option awards vested
and expected to vest under the Incentive Plan is 11,013. The weighted average exercise price of these stock option awards is $6.53
and their weighted average remaining contractual life is 6.5 years.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The following table summarizes the changes in the number and weighted-average
grant-date fair value of non-vested stock option awards during 2016:
|
|
Non-Vested
Stock Option
Awards
|
|
Weighted Average
Grant-Date Fair
Value
|
Balance December 31, 2015
|
|
|
4,863
|
|
|
$
|
6.40
|
|
Stock option awards granted
|
|
|
2,248
|
|
|
|
2.17
|
|
Stock option awards vested
|
|
|
(1,278
|
)
|
|
|
4.99
|
|
Stock option awards forfeited
|
|
|
(235
|
)
|
|
|
6.79
|
|
Balance December 31, 2016
|
|
|
5,598
|
|
|
$
|
5.40
|
|
As of December 31, 2016, there was approximately $14,541 of total
unrecognized compensation cost related to non-vested employee stock option awards and restricted stock units granted by the Company.
That cost is expected to be recognized as follows: $6,880 in 2017, $4,649 in 2018, $2,606 in 2019, and $406 in 2020.
Employee Stock Purchase Plan
The Company has reserved a total of 1,475 shares of common stock
to be purchased under the ESPP, of which 422 shares remain available for purchase at December 31, 2016. Eligible employees
may authorize up to 15% of their salary to purchase common stock at the lower of 85% of the beginning or 85% of the ending price
during six-month purchase intervals. No more than 3 shares may be purchased by any one employee at the six-month purchase dates
and no employee may purchase stock having a fair market value at the commencement date of $25 or more in any one calendar year.
There were 75, 41 and 49 shares of common stock purchased under the
ESPP in 2016, 2015, and 2014, respectively, at a weighted average price per share of $4.36, $8.65 and $6.29, respectively. Expense
of $147, $220 and $214 related to the ESPP was recognized during 2016, 2015, and 2014, respectively. Compensation expense for shares
purchased under the ESPP related to the purchase discount and the “look-back” option were determined using a Black-Scholes
option pricing model. The weighted average grant date fair values of shares granted under the ESPP during 2016, 2015, and 2014,
were $1.95, $4.93 and $4.41, respectively.
Note 8 — Income Taxes
The Company has incurred net losses since inception and, consequently,
has not recorded any U.S. Federal and state income tax expense or benefit. The differences between the Company’s effective
tax rate and the statutory tax rate in 2016, 2015, and 2014 are as follows:
|
|
2016
|
|
2015
|
|
2014
|
Income tax benefit at federal statutory rate (35%)
|
|
$
|
(19,300
|
)
|
|
$
|
(15,057
|
)
|
|
$
|
(15,816
|
)
|
State and local income taxes net of federal tax benefit
|
|
|
(1,173
|
)
|
|
|
(819
|
)
|
|
|
(1,286
|
)
|
Permanent items
|
|
|
1,057
|
|
|
|
560
|
|
|
|
258
|
|
Rate change
|
|
|
1,080
|
|
|
|
1,012
|
|
|
|
22
|
|
Expiration of attribute carryforwards
|
|
|
559
|
|
|
|
330
|
|
|
|
373
|
|
Research and development tax credits
|
|
|
(4,681
|
)
|
|
|
(10,454
|
)
|
|
|
(748
|
)
|
Orphan drug credit
|
|
|
1,798
|
|
|
|
4,307
|
|
|
|
—
|
|
Other
|
|
|
822
|
|
|
|
(218
|
)
|
|
|
(115
|
)
|
Change in valuation allowance
|
|
|
19,838
|
|
|
|
20,339
|
|
|
|
17,312
|
|
Income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company recognizes the impact of a tax position in its financial
statements if it is more likely than not that the position will be sustained on audit based on the technical merits of the position.
The Company has concluded that it has an uncertain tax position pertaining to its research and development and orphan drug credit
carryforwards. The Company has established these credits based on information and calculations it believes are appropriate and
the best estimate of the underlying credit. Any changes to the Company’s unrecognized tax benefits are offset by an adjustment
to the valuation allowance and there would be no impact on the Company’s financial statements. The Company does not expect
its unrecognized tax benefits to change significantly over the next 12 months.
A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows:
|
|
2016
|
|
2015
|
Balance at January 1,
|
|
$
|
3,085
|
|
|
$
|
472
|
|
Additions to current period tax positions
|
|
|
1,170
|
|
|
|
2,616
|
|
Additions to prior period tax positions
|
|
|
—
|
|
|
|
—
|
|
Reductions to prior period tax provisions
|
|
|
—
|
|
|
|
(3
|
)
|
Balance at December 31,
|
|
$
|
4,255
|
|
|
$
|
3,085
|
|
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The Company’s ability to utilize the net operating loss and
tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes
as defined in Section 382 of the Internal Revenue Code of 1986, as amended and similar state tax law.
Significant components of the Company’s deferred tax assets
and liabilities are as follows:
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net federal and state operating losses
|
|
$
|
158,618
|
|
|
$
|
142,836
|
|
Research and development credits
|
|
|
53,231
|
|
|
|
48,551
|
|
Fixed assets
|
|
|
—
|
|
|
|
1,054
|
|
Deferred revenue
|
|
|
3,484
|
|
|
|
4,240
|
|
Stock-based compensation
|
|
|
8,952
|
|
|
|
8,605
|
|
Other
|
|
|
2,849
|
|
|
|
2,590
|
|
Total deferred tax assets
|
|
|
227,134
|
|
|
|
207,876
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(674
|
)
|
|
|
—
|
|
Foreign currency derivative
|
|
|
(1,415
|
)
|
|
|
(2,668
|
)
|
Total deferred tax liabilities
|
|
|
(2,089
|
)
|
|
|
(2,668
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(225,045
|
)
|
|
|
(205,208
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The majority of the Company’s deferred tax assets relate to
net operating loss and research and development carryforwards that can only be realized if the Company is profitable in future
periods. It is uncertain whether the Company will realize any tax benefit related to these carryforwards. Accordingly, the Company
has provided a full valuation allowance against the net deferred tax assets due to uncertainties as to their ultimate realization.
The valuation allowance will remain at the full amount of the deferred tax assets until it is more likely than not that the related
tax benefits will be realized. The Company’s valuation allowance increased by $19,837 in 2016, $20,339 in 2015 and $17,312
in 2014.
As of December 31, 2016, the Company had federal operating loss
carryforwards of $431,983, state operating loss carryforwards of $403,237, and research and development and orphan drug credit
carryforwards of $57,487, which will expire at various dates from 2017 through 2035. The federal losses begin to expire in 2018,
the state losses begin to expire in 2017 and the research and development credit carryforwards begin to expire in 2018.
The Company’s federal and state operating loss carryforwards
include $15,655 of excess tax benefits related to a deduction from the exercise of stock options. The tax benefit of these deductions
has not been recognized in deferred tax assets. If utilized, the benefits from these deductions will be recorded as adjustments
to additional paid-in capital.
Tax years 2013-2015 remain open to examination by the major taxing
jurisdictions to which the Company is subject. Additionally, years prior to 2013 are also open to examination to the extent of
loss and credit carryforwards from those years. The Company recognizes interest and penalties accrued related to unrecognized tax
benefits as components of its income tax provision. However, there were no provisions or accruals for interest and penalties in
2016, 2015, and 2014.
Note 9 — Employee 401(k) Plan
In January 1991, the Company adopted an employee retirement plan (“401(k)
Plan”) under Section 401(k) of the Internal Revenue Code covering all employees. Employee contributions may be made
to the 401(k) Plan up to limits established by the Internal Revenue Service. Company matching contributions may be made at the
discretion of the Board of Directors. The Company made matching contributions of $504, $366 and $361, in 2016, 2015, and 2014,
respectively.
Note 10 — Collaborative and Other Research and Development Contracts
U.S. Department of Health and Human Services (“BARDA/HHS”).
In January 2007, the U.S. Department of Health and Human Services (“BARDA/HHS”) awarded the Company a $102,661,
four-year contract for the advanced development of peramivir for the treatment of influenza. During 2009, peramivir clinical development
shifted to focus on intravenous delivery and the treatment of hospitalized patients. To support this focus, a September 2009 contract
modification was awarded to extend the i.v. peramivir program and to increase funding by $77,191. On February 24, 2011, the
Company announced that BARDA/HHS had awarded it a $55,000 contract modification, intended to fund completion of the Phase 3 development
of i.v. peramivir for the treatment of patients hospitalized with influenza. That contract modification brought the total contract
award from BARDA/HHS to $234,852 and provided funding to support the filing of a NDA to seek regulatory approval for i.v. peramivir
in the U.S. In December 2013, BioCryst submitted an NDA filing for i.v. peramivir to the FDA and the NDA was approved in December
2014. The BARDA/HHS contract expired on June 30, 2014.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
On March 31, 2015, the Company announced that BARDA/HHS had awarded
the Company a contract for the continued development of galidesivir as a potential treatment for diseases caused by RNA pathogens,
including filoviruses. This BARDA/HHS contract includes a base contract of $16,265 to support galidesivir drug manufacturing,
as well as $22,855 in additional development options that can be exercised by the government, bringing the potential value of the
contract to $39,120. As of December 31, 2016, a total of $20,574 has been awarded under exercised options within this contract.
National Institute of Allergy and Infectious Diseases (“NIAID/HHS”).
In September 2013, NIAID/HHS contracted with the Company for the development of galidesivir as a treatment for Marburg virus
disease. NIAID/HHS, part of the National Institutes of Health, made an initial award of $5,000 to the Company. The goals of this
contract, including amendments, are to file IND applications for intravenous (“i.v.”) and intramuscular (“i.m.”)
galidesivir for the treatment of Marburg virus disease and other hemorrhagic fever virus diseases, including Ebola virus disease,
and to conduct an initial Phase 1 human clinical trial. As of December 31, 2016, the total NIAID/HHS contract amount to advance
the program through the completion of the Phase I clinical program is $39,477. As of December 31, 2016, all options have been
exercised under this contract.
The contracts with BARDA/HHS and NIAID/HHS are cost-plus-fixed-fee
contracts. That is, the Company is entitled to receive reimbursement for all costs incurred in accordance with the contract provisions
that are related to the development of galidesivir plus a fixed fee, or profit. BARDA/HHS and NIAID/HHS will make periodic assessments
of progress and the continuation of the contract is based on the Company’s performance, the timeliness and quality of deliverables,
and other factors. The government has rights under certain contract clauses to terminate these contracts. These contracts are terminable
by the government at any time for breach or without cause.
Seqirus UK Limited (“SUL”).
On June 16, 2015, the
Company and Seqirus UK Limited ("SUL"), a limited company organized under the laws of the United Kingdom and a subsidiary
of CSL Limited, a company organized under the laws of Australia, entered into a License Agreement (the "SUL Agreement")
granting SUL and its affiliates worldwide rights to develop, manufacture and commercialize RAPIVAB (peramivir injection) for the
treatment of influenza except for the rights to conduct such activities in Israel, Japan, Korea and Taiwan (the permitted geographies
together constituting the "Territory"). Peramivir is an intravenous treatment for acute uncomplicated influenza and is
currently approved for use in the United States, Canada, Japan, Taiwan and Korea. Peramivir is the first and only intravenous influenza
treatment in the world and was approved by the U.S. Food and Drug Administration in December 2014 for the treatment of acute uncomplicated
influenza in patients 18 years and older who have been symptomatic for no more than two days. The Company retains all rights and
associated economics to procure pandemic stockpiling orders for RAPIVAB from the U.S. Government, while SUL has the right to pursue
government stockpiling outside the U.S.
Pursuant to the SUL Agreement, RAPIVAB will be commercialized by CSL's
subsidiary, SUL, which specializes in influenza prevention through the supply of seasonal and pandemic vaccine to global markets.
SUL will manufacture, commercialize and exercise decision-making authority with respect to the development and commercialization
of RAPIVAB within the Territory and be responsible for all related costs, including sales and promotion.
Under the terms of the SUL Agreement, the Company is responsible for
fulfilling all post-marketing approval commitments in connection with the FDA's approval of the NDA, and upon fulfillment will
transfer ownership of and financial responsibility for the NDA to SUL. Pursuant to potential rights to sell RAPIVAB in Canada and
the EU, the Company is also responsible for regulatory filings and interactions with the Health Canada and the European Medicines
Agency ("EMA") until marketing approval for RAPIVAB is obtained and assigned to SUL. In accordance with the SUL Agreement,
the Company and SUL formed a joint steering committee, composed of an equal number of representatives from each party, to oversee,
review and coordinate the conduct and progress of the commercialization of RAPIVAB in the Territory and any additional development.
Under the terms of the SUL Agreement, the Company received an upfront
payment of $33,740, and may receive up to $12,000 in additional milestone payments related to the successful achievement of regulatory
milestones, including marketing approval (i) by the FDA for a pediatric indication, (ii) by the EMA for an adult indication in
the EU and (iii) by Health Canada for an adult indication in Canada. The Company is also entitled under the SUL Agreement to receive
tiered royalties at a percentage rate beginning in the mid-teens contingent upon meeting minimum thresholds of net sales, as well
as a low-thirties percentage of the gross profit from government stockpiling purchases made outside the U.S. Specifically, the
Company receives tiered royalties at a percentage rate in the mid-teens to low-forties on net sales in the U.S. during a Contract
Year (defined as July 1 - June 30) and tiered royalties at a percentage rate in the mid-teens to mid-twenties on net sales in the
Territory, other than in the U.S., during a Calendar Year, each subject to certain downward adjustments for circumstance or events
impacting the overall market opportunity. SUL's royalty payment obligations commence on the date of the SUL Agreement and expire,
on a country-by-country basis, upon the later of (i) the expiration of legal exclusivity in such country and (ii) ten years from
the date of the SUL Agreement (the "Royalty Term"). The Company developed peramivir under a license from UAB and will
owe sublicense payments to them on any future milestone payments and/or royalties received by the Company from SUL.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Shionogi & Co., Ltd. (“Shionogi”).
In
February 2007, the Company entered into an exclusive license agreement with Shionogi to develop and commercialize peramivir in
Japan for the treatment of seasonal and potentially life-threatening human influenza. Under the terms of the agreement, Shionogi
obtained rights to injectable formulations of peramivir in Japan. The Company developed peramivir under a license from UAB and
will owe sublicense payments to them on any future milestone payments and/or royalties received by the Company from Shionogi. In
October 2008, the Company and Shionogi amended the license agreement to expand the territory covered by the agreement to include
Taiwan. Shionogi has commercially launched peramivir under the commercial name RAPIACTA in Japan and Taiwan.
Green Cross Corporation (“Green Cross”).
In June
2006, the Company entered into an agreement with Green Cross to develop and commercialize peramivir in Korea. Under the terms of
the agreement, Green Cross will be responsible for all development, regulatory, and commercialization costs in Korea. The Company
received a one-time license fee of $250. The license also provides that the Company will share in profits resulting from the sale
of peramivir in Korea, including the sale of peramivir to the Korean government for stockpiling purposes. Furthermore, Green Cross
will pay the Company a premium over its cost to supply peramivir for development and any future marketing of peramivir products
in Korea.
Mundipharma International Holdings Limited (“Mundipharma”).
In February 2006, the Company entered into an exclusive, royalty bearing right and license agreement with Mundipharma for the development
and commercialization of forodesine, a Purine Nucleoside Phosphorylase (“PNP”) inhibitor, for use in oncology (the
“Original Agreement”). Under the terms of the Original Agreement, Mundipharma obtained rights to forodesine in markets
across Europe, Asia, and Australasia in exchange for a $10,000 up-front payment.
The Company deferred revenue recognition of the $10,000 up-front payment
that was received from Mundipharma in February 2006 because the Company was involved in the continued development of forodesine.
Amortization of this revenue commenced in February 2006 and was initially scheduled to end in October 2017, which is the date of
expiration for the last-to-expire patent covered by the agreement. The Company also deferred revenue recognition of a $5,000 payment
received from Mundipharma in connection with the initiation of a clinical trial in 2007. Amortization of this revenue commenced
in 2007 and was initially scheduled to end in October 2017. Under its agreement with AECOM/IRL, the Company paid sublicense payments
related to these upfront cash payments received from Mundipharma. Expense recognition of these sublicense payments was deferred
and recognized under the same term as the related deferred revenue.
On November 11, 2011, the Company entered into the Amended and
Restated License and Development Agreement (the “Amended and Restated Agreement”) with Mundipharma, amending and restating
the Original Agreement. Under the terms of the Amended and Restated Agreement, Mundipharma obtained worldwide rights to forodesine.
Commencing on November 11, 2011, Mundipharma controls the development and commercialization of forodesine and assumes all
future development and commercialization costs. The Amended and Restated Agreement provides for the possibility of future event
payments totaling $15,000 for achieving specified regulatory events for certain indications and tiered royalties ranging from mid
to high single-digit percentages of net product sales in each country where forodesine is sold by Mundipharma. These royalties
are subject to downward adjustments based on the then-existing patent coverage and/or the availability of generic compounds in
each country.
The Amended and Restated Agreement is a multiple element arrangement
for accounting purposes, in which the Company is required to deliver to Mundipharma both the worldwide rights to forodesine in
the field of oncology and the transfer of product data and know-how to permit Mundipharma to develop and commercialize forodesine
(the “Knowledge Transfer”). The Company accounted for these elements as a combined unit of accounting as they do not
have stand-alone value to Mundipharma. The worldwide license rights were granted to Mundipharma on November 11, 2011 and the
Knowledge Transfer was completed during the first quarter of 2012. Upon completion of the Knowledge Transfer, the remaining deferred
revenue and deferred expense was recognized in full.
Albert Einstein College of Medicine of Yeshiva University and Industrial
Research, Ltd. (“AECOM” and “IRL” respectively).
In June 2000, the Company licensed a series of potent
inhibitors of PNP from AECOM and IRL, (collectively, the “Licensors”). The lead product candidates from this collaboration
are forodesine and ulodesine. The Company has obtained worldwide exclusive rights to develop and ultimately distribute these, or
any other, product candidates that might arise from research on these inhibitors. The Company has the option to expand the Agreement
to include other inventions in the field made by the investigators or employees of the Licensors. The Company agreed to use commercially
reasonable efforts to develop these drugs. In addition, the Company has agreed to pay certain milestone payments for each licensed
product (which range in the aggregate from $1,400 to almost $4,000 per indication) for future development of these inhibitors,
single digit royalties on net sales of any resulting product made by the Company, and to share approximately one quarter of future
payments received from other third-party partners, if any. In addition, the Company has agreed to pay annual license fees, which
can range from $150 to $500, that are creditable against actual royalties and other payments due to the Licensors. This agreement
may be terminated by the Company at any time by giving 60 days advance notice or in the event of material uncured breach by
the Licensors.
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
In May 2010, the Company amended the licensee agreement through which
the Company obtained worldwide exclusive rights to develop and ultimately distribute any product candidates that might arise from
research on a series of PNP inhibitors, including forodesine and ulodesine. Under the terms of the amendment, the Licensors agreed
to accept a reduction of one-half in the percentage of future payments received from third-party sub licensees of the licensed
PNP inhibitors that must be paid to the Licensors. This reduction does not apply to (i) any milestone payments the Company
may receive in the future under its license agreement dated February 1, 2006 with Mundipharma and (ii) royalties received
from its sub licensees in connection with the sale of licensed products, for which the original payment rate will remain in effect.
The rate of royalty payments to the Licensors based on net sales of any resulting product made by the Company remains unchanged.
In consideration for these modifications in 2010, the Company issued
to the Licensors shares of its common stock with an aggregate value of $5,911 and paid the Licensors $90 in cash. Additionally,
at the Company’s sole option and subject to certain agreed upon conditions, any future non-royalty payments due to be paid
by it to the Licensors under the license agreement may be made either in cash, in shares of its common stock, or in a combination
of cash and shares.
On November 17, 2011, the Company further amended its agreements
with the Licensors whereby the Licensors agreed to accept a reduction of one-half in the percentage of Net Proceeds (as defined)
received by the Company under its Amended and Restated Agreement with Mundipharma that will be paid to AECOM/IRL.
On June 19, 2012, the Company further amended its agreements
with AECOM/IRL whereby the parties clarified the definition of the field with respect to PNP inhibition and AECOM/IRL agreed to
exclusive worldwide license of galidesivir to BioCryst for any antiviral use.
At its sole option and subject to certain agreed upon conditions,
any future non-royalty payments due to be paid by the Company to AECOM/IRL under the license agreement may be made either in cash,
in shares of the Company’s common stock, or in a combination of cash and shares.
On January 6, 2014, the Carbohydrate Chemistry Research Team from
Callaghan Innovation Research Limited, formerly Industrial Research Limited, transferred to Victoria University of Wellington (“VUW”)
to establish the Ferrier Research Institute. The intellectual property rights relating to this research team, and the contracts
relating to that intellectual property were transferred to a wholly owned subsidiary of VUW, including the contracts to which BioCryst
is a party. The parties executed novation agreements in order to effectuate the transfer. Except for a substitution of parties,
the terms and conditions of the contracts are substantially the same
The University of Alabama at Birmingham (“UAB”).
The Company currently has agreements with UAB for influenza neuraminidase and complement inhibitors. Under the terms of these agreements,
UAB performed specific research for the Company in return for research payments and license fees. UAB has granted the Company certain
rights to any discoveries in these areas resulting from research developed by UAB or jointly developed with the Company. The Company
has agreed to pay single digit royalties on sales of any resulting product and to share in future payments received from other
third-party partners. The Company has completed the research under the UAB agreements. These two agreements have initial 25-year
terms, are automatically renewable for five-year terms throughout the life of the last patent and are terminable by the Company
upon three months’ notice and by UAB under certain circumstances. Upon termination both parties shall cease using the other
parties’ proprietary and confidential information and materials, the parties shall jointly own joint inventions and UAB shall
resume full ownership of all UAB licensed products. There is currently no activity between the Company and UAB on these agreements,
but when the Company licenses this technology, such as in the case of the Shionogi, Green Cross and SUL agreements, or commercializes
products related to these programs, the Company will owe sublicense fees or royalties on amounts it receives.
Note 11 — Quarterly Financial Information (Unaudited)
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
2016 Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,820
|
|
|
$
|
4,787
|
|
|
$
|
7,763
|
|
|
$
|
8,983
|
|
Net Loss
|
|
|
(22,832
|
)
|
|
|
(16,281
|
)
|
|
|
(11,528
|
)
|
|
|
(4,503
|
)
|
Basic and diluted net loss per share
|
|
|
(0.31
|
)
|
|
|
(0.22
|
)
|
|
|
(0.16
|
)
|
|
|
(0.06
|
)
|
2015 Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,826
|
|
|
$
|
25,842
|
|
|
$
|
10,987
|
|
|
$
|
4,602
|
|
Net (Loss) Income
|
|
|
(15,164
|
)
|
|
|
4,901
|
|
|
|
(14,621
|
)
|
|
|
(18,135
|
)
|
Basic net (loss) income per share
|
|
|
(0.21
|
)
|
|
|
0.07
|
|
|
|
(0.20
|
)
|
|
|
(0.25
|
)
|
Diluted net (loss) income per share
|
|
|
(0.21
|
)
|
|
|
0.06
|
|
|
|
(0.20
|
)
|
|
|
(0.25
|
)
|
BIOCRYST PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 12 — Recent Accounting Pronouncements
In November 2016 the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update 2016-18:
Statement of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18”).
The new standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents
and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown on the statement of cash flows. The standard is effective for annual periods beginning after
December 15, 2017, and interim periods within those annual reporting periods. Early adoption is permitted. The Company is
currently evaluating the impact of this update on its consolidated financial statements.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15:
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”).
The amendments in this update clarify how entities should classify certain cash receipts and cash payments on the Consolidated
Statements of Cash Flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and
cash payments have aspects of more than one class of cash flows. ASU 2016-15 will be effective for annual periods beginning after
December 15, 2017, including interim periods within those annual reporting periods, but early adoption is permitted. The Company
is currently evaluating the impact of this update on its consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09:
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”).
The amendments in this update simplify several aspects of the accounting for employee share-based payment transactions, including
the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement
of cash flows. ASU 2016-09 will be effective for the Company in fiscal year 2017, but early adoption is permitted. The Company
is currently evaluating the impact of this update on its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No.
2016-02:
Leases (Topic 842)
(“ASU 2016-02”). The amendments in this update require lessees, among other things,
to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous
authoritative guidance. This update also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 will be effective
for the Company in fiscal year 2019, but early adoption is permitted. The Company is currently evaluating the impact of this update
on its consolidated financial statements.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01:
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
(“ASU 2016-01”). The amendments in this update address certain aspects of recognition, measurement, presentation and
disclosure of financial instruments. In particular, the amendments in this update supersede, for public business entities, the
requirement to disclose the methods and significant assumptions used in calculating the fair value of financial instruments required
to be disclosed for financial instruments measured at amortized cost on the balance sheet. ASU 2016-01 will be effective for the
Company in fiscal year 2018, but early adoption is permitted. The Company does not expect this standard to have a material impact
on its consolidated financial statements.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11:
Inventory (Topic 330): Simplifying the Measurement of Inventory
(“ASU 2015-11”), which changes the measurement
principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net
realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. The update does not apply to inventory that is measured using last-in, first-out or the retail inventory
method. The update applies to all other inventory, which includes inventory that is measured using first-in, first-out or average
cost methods. The amendments in ASU 2015-11 will be effective for the Company for fiscal years, and the interim periods within
those years, beginning after December 15, 2016. The amendments must be applied prospectively and early adoption is permitted. The
Company does not expect this standard to have a material impact on its consolidated financial statements.
In May 2014, the FASB issued Standards Update No. 2014-09:
Revenue
from Contracts with Customers (Topic 606)
(“ASU 2014-09”), which provides a single, comprehensive revenue recognition
model for all contracts with customers. The core principal of this ASU is that an entity should recognize revenue when it transfers
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty
of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets
recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB finalized a one year delay in the effective
date of this standard, which will now be effective January 1, 2018; however, early adoption is permitted any time after the original
effective date, January 1, 2017. The Company is not electing early adoption. Companies can transition to the new standard under
the full retrospective method or the modified retrospective method. The Company is currently evaluating the impact this standard
will have on its consolidated financial statements.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
BioCryst Pharmaceuticals, Inc.
We have audited the consolidated balance sheets of BioCryst Pharmaceuticals,
Inc. as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive loss, stockholders’ equity
and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BioCryst Pharmaceuticals, Inc. at December 31, 2016
and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,
2016, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), BioCryst Pharmaceuticals, Inc.’s internal control over financial reporting
as of December 31, 2016, based on criteria established in
Internal Control-Integrated Framework
issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 27, 2017 expressed an unqualified
opinion thereon.
|
|
/s/ Ernst & Young LLP
|
|
|
|
|
|
Raleigh, North Carolina
|
|
|
February 27, 2017
|
|
|
|
Report of Independent Registered Public Accounting
Firm
The Board of Directors and Stockholders
BioCryst Pharmaceuticals, Inc.
We have audited BioCryst Pharmaceuticals, Inc.’s internal control
over financial reporting as of December 31, 2016, based on criteria established in
Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). BioCryst Pharmaceuticals,
Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, BioCryst Pharmaceuticals, Inc. maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance sheets of BioCryst Pharmaceuticals, Inc. as of December 31,
2016 and 2015, and the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2016 of BioCryst Pharmaceuticals, Inc. and our report dated February 27,
2017 expressed an unqualified opinion thereon.
|
|
/s/ Ernst & Young LLP
|
|
|
|
|
|
Raleigh, North Carolina
|
|
|
February 27, 2017
|
ITEM 9.
|
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
ITEM 9A.
|
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures that are designed
to ensure that information relating to BioCryst Pharmaceuticals, Inc. required to be disclosed in our periodic filings under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported in
a timely manner under the Exchange Act of 1934. We carried out an evaluation as required by paragraph (b) of Rule 13a-15
or Rule 15d-15 under the Exchange Act, under the supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or Rule 15d-15 under the Exchange Act). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31, 2016, our disclosure controls and procedures
are effective. We believe that our disclosure controls and procedures will ensure that information required to be disclosed in
the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission, and include controls and procedures designed to ensure
that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our
Chairman and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management of BioCryst Pharmaceuticals, Inc. is responsible for establishing
and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control
over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a
process designed by, or under the supervision of our principal executive and principal financial officers and effected by our Board
of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the financial statements in accordance with U.S. GAAP.
Our internal control over financial reporting is supported by written
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
our transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of the financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In connection with the preparation of our annual financial statements,
management has undertaken an assessment of the effectiveness of our internal control over financial reporting as of December 31,
2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 Framework) (the COSO Framework). Management’s assessment included an evaluation
of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.
Based on this assessment, management has concluded that as of December 31,
2016, our internal control over financial reporting was effective. Management believes our internal control over financial reporting
will provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. GAAP.
Ernst & Young LLP, the independent registered public accounting
firm that audited our financial statements included in this report, has issued an attestation report on the Company’s internal
control over financial reporting, a copy of which appears on page 80 of this annual report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial
reporting that occurred during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
ITEM 9B.
|
|
OTHER INFORMATION
|
None.