e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2010
Commission File Number 000-23186
BIOCRYST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
|
|
|
DELAWARE
(State of other jurisdiction of
incorporation or organization)
|
|
62-1413174
(I.R.S. Employer Identification No.) |
|
|
|
4505 Emperor Blvd., Suite 200
Durham, North Carolina
(Address of principal executive offices)
|
|
27703
(Zip Code) |
(919) 859-1302
(Registrants telephone number, including area code)
Indicate by 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or 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.
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares of Common Stock, par value $.01, of the Registrant outstanding as of October
27, 2010 was 44,923,403.
BIOCRYST PHARMACEUTICALS, INC.
INDEX
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BIOCRYST PHARMACEUTICALS, INC.
BALANCE SHEETS
September 30, 2010 and December 31, 2009
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
(Unaudited) |
|
|
(Note 1) |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
11,174 |
|
|
$ |
41,125 |
|
Restricted cash |
|
|
625 |
|
|
|
625 |
|
Marketable securities |
|
|
49,595 |
|
|
|
27,839 |
|
Receivables from collaborations |
|
|
25,564 |
|
|
|
33,722 |
|
Inventories |
|
|
898 |
|
|
|
6,281 |
|
Prepaid expenses and other current assets |
|
|
1,187 |
|
|
|
1,056 |
|
Deferred collaboration expense |
|
|
719 |
|
|
|
374 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
89,762 |
|
|
|
111,022 |
|
Marketable securities |
|
|
10,648 |
|
|
|
24,670 |
|
Furniture and equipment, net |
|
|
3,087 |
|
|
|
3,872 |
|
Deferred collaboration expense |
|
|
7,857 |
|
|
|
2,626 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
111,354 |
|
|
$ |
142,190 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
3,261 |
|
|
$ |
18,070 |
|
Accrued expenses |
|
|
13,613 |
|
|
|
15,795 |
|
Accrued vacation |
|
|
823 |
|
|
|
839 |
|
Deferred rent |
|
|
52 |
|
|
|
52 |
|
Deferred collaboration revenue |
|
|
2,497 |
|
|
|
2,497 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
20,246 |
|
|
|
37,253 |
|
Deferred rent |
|
|
191 |
|
|
|
230 |
|
Deferred collaboration revenue |
|
|
16,568 |
|
|
|
18,441 |
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock: shares authorized 5,000
Series B Junior Participating Preferred
Stock, $.001 par value; shares authorized
95; shares issued and outstanding none |
|
|
|
|
|
|
|
|
Common stock, $.01 par value: shares
authorized 95,000; shares issued and
outstanding 44,923 in 2010 and 43,907 in
2009 |
|
|
449 |
|
|
|
439 |
|
Additional paid-in capital |
|
|
360,153 |
|
|
|
348,572 |
|
Accumulated other comprehensive income (loss) |
|
|
119 |
|
|
|
(25 |
) |
Accumulated deficit |
|
|
(286,372 |
) |
|
|
(262,720 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
74,349 |
|
|
|
86,266 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
111,354 |
|
|
$ |
142,190 |
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
3
BIOCRYST PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
Periods Ended September 30, 2010 and 2009
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
325 |
|
|
$ |
|
|
Royalties |
|
|
|
|
|
|
|
|
|
|
711 |
|
|
|
|
|
Collaborative and other research and development |
|
|
12,000 |
|
|
|
10,548 |
|
|
|
44,651 |
|
|
|
19,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
12,000 |
|
|
|
10,548 |
|
|
|
45,687 |
|
|
|
19,694 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold |
|
|
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
Research and development |
|
|
19,197 |
|
|
|
18,181 |
|
|
|
58,851 |
|
|
|
40,683 |
|
General and administrative |
|
|
3,793 |
|
|
|
3,064 |
|
|
|
10,799 |
|
|
|
7,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
22,990 |
|
|
|
21,245 |
|
|
|
69,736 |
|
|
|
48,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(10,990 |
) |
|
|
(10,697 |
) |
|
|
(24,049 |
) |
|
|
(28,823 |
) |
Interest and other income |
|
|
126 |
|
|
|
70 |
|
|
|
397 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(10,864 |
) |
|
$ |
(10,627 |
) |
|
$ |
(23,652 |
) |
|
$ |
(28,603 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share |
|
$ |
(0.24 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.53 |
) |
|
$ |
(0.75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
44,884 |
|
|
|
38,460 |
|
|
|
44,445 |
|
|
|
38,300 |
|
See accompanying notes to financial statements.
4
BIOCRYST PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2010 and 2009
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(23,652 |
) |
|
$ |
(28,603 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,097 |
|
|
|
1,217 |
|
Stock-based compensation expense |
|
|
4,994 |
|
|
|
4,179 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables from collaborations |
|
|
8,158 |
|
|
|
356 |
|
Inventories |
|
|
5,383 |
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
(131 |
) |
|
|
(2,064 |
) |
Deferred collaboration expense |
|
|
335 |
|
|
|
284 |
|
Accounts payable and accrued expenses |
|
|
(17,007 |
) |
|
|
670 |
|
Deferred rent |
|
|
(39 |
) |
|
|
36 |
|
Deferred collaboration revenue |
|
|
(1,873 |
) |
|
|
(1,929 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(22,735 |
) |
|
|
(25,854 |
) |
Investing activities |
|
|
|
|
|
|
|
|
Acquisitions of furniture and equipment |
|
|
(312 |
) |
|
|
(511 |
) |
Purchases of marketable securities |
|
|
(50,094 |
) |
|
|
(18,466 |
) |
Sales and maturities of marketable securities |
|
|
42,504 |
|
|
|
39,109 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(7,902 |
) |
|
|
20,132 |
|
Financing activities |
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
492 |
|
|
|
1,412 |
|
Employee stock purchase plan sales |
|
|
282 |
|
|
|
194 |
|
Common stock issuance costs |
|
|
(84 |
) |
|
|
|
|
Purchases of treasury stock |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
686 |
|
|
|
1,606 |
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(29,951 |
) |
|
|
(4,116 |
) |
Cash and cash equivalents at beginning of period |
|
|
41,125 |
|
|
|
22,342 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
11,174 |
|
|
$ |
18,226 |
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
5
BIOCRYST PHARMACEUTICALS, INC.
NOTES
TO FINANCIAL STATEMENTS (Unaudited)
Note 1 Significant Accounting Policies
Basis of Presentation
The balance sheet as of September 30, 2010, the statements of operations for the three and
nine months ended September 30, 2010 and 2009, and the statements of cash flows for the nine months
ended September 30, 2010 and 2009 have been prepared by the Company in accordance with accounting
principles generally accepted in the United States and have not been audited. Such financial
statements reflect all adjustments that are, in managements opinion, necessary to present fairly,
in all material respects, the Companys financial position, results of operations, and cash flows.
There were no adjustments other than normal recurring adjustments.
These financial statements should be read in conjunction with the financial statements for the
year ended December 31, 2009 and the notes thereto included in the Companys 2009 Annual Report on
Form 10-K. Interim operating results are not necessarily indicative of operating results for the
full year. The balance sheet as of December 31, 2009 has been derived from the audited financial
statements included in the Companys most recent Annual Report on Form 10-K.
Cash and Cash Equivalents
The Company generally considers cash equivalents to be all cash held in commercial checking
accounts, money market accounts or investments in debt instruments with maturities of three months
or less at the time of purchase.
Restricted Cash
During 2009, the Company initiated a new corporate card program. As a result, the Company was
required to place $625,000 into an interest bearing money market account to serve as collateral for
the program.
Marketable Securities
The objective of the Companys 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 credit exposure. 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 that it has a material exposure to interest rate risk arising from its
investments. Generally, the Companys investments are not collateralized. The Company has not
realized any significant losses from its investments.
The Company classifies all of its marketable securities as available-for-sale. Unrealized
gains and losses on securities available-for-sale are recognized in other comprehensive income,
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 securities available-for-sale
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. At September
30, 2010, the Company believes that the costs of its securities are recoverable in all material
respects.
The following table summarizes the fair value of the Companys securities by type at September
30, 2010. The estimated fair value of the Companys securities was based on independent quoted
market prices and represents the highest priority of Level 1 in the fair value hierarchy as defined
in generally accepted accounting principles. Amounts are in thousands.
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated Fair |
|
|
|
Amortized Cost |
|
|
Accrued Interest |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
U.S. Treasury securities |
|
$ |
12,511 |
|
|
$ |
16 |
|
|
$ |
33 |
|
|
$ |
|
|
|
$ |
12,560 |
|
Obligations of U.S. government agencies |
|
|
14,128 |
|
|
|
54 |
|
|
|
24 |
|
|
|
|
|
|
|
14,206 |
|
Corporate debt securities |
|
|
9,284 |
|
|
|
44 |
|
|
|
50 |
|
|
|
(2 |
) |
|
|
9,376 |
|
Commercial paper |
|
|
17,256 |
|
|
|
|
|
|
|
1 |
|
|
|
(13 |
) |
|
|
17,244 |
|
Asset backed securities |
|
|
1,285 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
1,288 |
|
Certificates of deposit |
|
|
1,000 |
|
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
1,006 |
|
Municipal obligations |
|
|
4,522 |
|
|
|
21 |
|
|
|
20 |
|
|
|
|
|
|
|
4,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable securities |
|
$ |
59,986 |
|
|
$ |
138 |
|
|
$ |
134 |
|
|
$ |
(15 |
) |
|
$ |
60,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the scheduled maturity for the Companys securities
available-for-sale at September 30, 2010. Amounts are in thousands.
|
|
|
|
|
|
|
2010 |
|
Maturing in one year or less |
|
$ |
49,595 |
|
Maturing after one year through two years |
|
|
9,673 |
|
Maturing after two years |
|
|
975 |
|
|
|
|
|
Total marketable securities |
|
$ |
60,243 |
|
|
|
|
|
Receivables from Collaborations
Receivables are recorded for amounts due to the Company related to reimbursable research and
development costs. These receivables are evaluated to determine if any reserve or allowance should
be established at each reporting date. At September 30, 2010, the Company had the following
receivables from collaborations. Amounts are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed |
|
|
Unbilled |
|
|
Total |
|
U.S. Department of Health and Human Services |
|
$ |
9,683 |
|
|
$ |
15,727 |
|
|
$ |
25,410 |
|
Other |
|
|
97 |
|
|
|
57 |
|
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,780 |
|
|
$ |
15,784 |
|
|
$ |
25,564 |
|
|
|
|
|
|
|
|
|
|
|
Included in receivables from the U.S. Department of Health and Human Services (HHS) is
$9,054,000 related to indirect cost rate adjustments for calendar years 2007, 2008, 2009, and 2010.
These adjustments are calculated as the difference between the actual indirect costs incurred
against the contract during a calendar year and the indirect costs that are invoiced at a
provisional billing rate during the calendar year. Because these adjustment amounts represent
actual costs incurred in performance of the contract and the costs are allowable, reasonable, and
allocable to the contract, the Company has recorded revenue accordingly. The Companys calculations
of its indirect cost rates are subject to an audit by the federal government. The Company does not
anticipate receiving payment for these indirect cost rate adjustments until those audits have been
completed.
Inventories
Inventories on hand as of September 30, 2010 are related to peramivir manufacturing supplies
(vials, stoppers, and seals) that are unused and have an alternative future use.
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is computed using the straight-line
method with estimated useful lives of five and seven 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 remaining lease term, whichever is less.
In accordance with generally accepted accounting principles, the Company periodically reviews
its furniture 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,
7
the assets are written down to their estimated fair values. Furniture 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 general and administrative expenses as incurred, as
recoverability of such expenditures is uncertain.
Accrued Expenses
The Company records all expenses in the period incurred. In addition to recording expenses for
invoices received, the Company estimates the cost of services provided by third parties or
materials purchased for which no invoices have been received as of the balance sheet dates. Accrued
expenses as of September 30, 2010 consisted primarily of development and clinical trial expenses
payable to contract research organizations (CROs) in connection with the Companys research and
development programs.
Income Taxes
The liability method is used in the Companys 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
will be in effect when the differences are expected to reverse.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income is comprised of unrealized gains and losses on
securities available-for-sale and is disclosed as a separate component of stockholders equity. The
Company had approximately $119,000 of unrealized gains on its securities available-for-sale that
are included in accumulated other comprehensive income at September 30, 2010.
Other comprehensive loss for the periods ended September 30, 2010 and 2009 appear in the
following table. Amounts are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss |
|
$ |
(10,864 |
) |
|
$ |
(10,627 |
) |
|
$ |
(23,652 |
) |
|
$ |
(28,603 |
) |
Unrealized gain (loss) on securities available-for-sale |
|
|
56 |
|
|
|
|
|
|
|
144 |
|
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
$ |
(10,808 |
) |
|
$ |
(10,627 |
) |
|
$ |
(23,508 |
) |
|
$ |
(28,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Recognition
Prior to the fourth quarter of 2009, the Companys revenues have generally been limited to
license fees, event payments, research and development fees, government contracts, and interest
income. Revenue from license fees, event payments, and research and development fees is recognized
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. In the event a license agreement contains multiple
deliverables, the Company evaluates 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.
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. Event
payments are recognized as revenue upon the achievement of specified events if (1) the event is
substantive in nature and the achievement of the event was not reasonably assured at the inception
of the agreement and (2) the fees are non-refundable and non-creditable. Any event payments
received prior to satisfying these criteria are recorded as deferred revenue. Under the Companys
contract with HHS, revenue is recognized as reimbursable when direct and indirect costs are
incurred.
During 2010, the Company recognized revenues related to product sales of peramivir. Sales are
recognized when products are shipped, title and risk of loss have passed, and collectability is
reasonably assured. The Company did not provide a right of product return in conjunction with these
sales.
8
Also in 2010, the Company recognized revenues from royalties related to sales of peramivir by
the Companys partner, Shionogi & Co., Ltd. Royalty revenue is recognized based on estimates of
royalties earned during the applicable period and adjusted for differences between the estimated
and actual royalties in the following period.
The Company recorded the following revenues from collaborations for the periods ended
September 30, 2010 and 2009. Amounts are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Product sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NT Pharma, Co., Ltd. |
|
$ |
|
|
|
$ |
|
|
|
$ |
250 |
|
|
$ |
|
|
moksha8 Pharmaceuticals, Inc. |
|
|
|
|
|
|
|
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product sales |
|
|
|
|
|
|
|
|
|
|
325 |
|
|
|
|
|
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shionogi & Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total royalties |
|
|
|
|
|
|
|
|
|
|
711 |
|
|
|
|
|
Collaborative and other research and development revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Department of Health and Human Services |
|
|
11,167 |
|
|
|
8,544 |
|
|
|
28,780 |
|
|
|
16,350 |
|
Shionogi & Co., Ltd. |
|
|
280 |
|
|
|
1,565 |
|
|
|
13,655 |
|
|
|
2,170 |
|
Mundipharma International Holdings Limited |
|
|
422 |
|
|
|
359 |
|
|
|
1,460 |
|
|
|
1,056 |
|
Green Cross Corporation |
|
|
131 |
|
|
|
55 |
|
|
|
756 |
|
|
|
93 |
|
Other |
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total collaborative and other research and development revenues |
|
|
12,000 |
|
|
|
10,548 |
|
|
|
44,651 |
|
|
|
19,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
12,000 |
|
|
$ |
10,548 |
|
|
$ |
45,687 |
|
|
$ |
19,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses
The Companys 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 the
Companys 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 Companys 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 the Company to pay fees related to
sublicense agreements or maintenance fees. Generally, 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.
At September 30, 2010, the Company had deferred collaboration expenses of approximately
$8,576,000. Approximately $2,720,000 of these deferred expenses were sub-license payments, paid to
the Companys academic partners upon receipt of consideration from various commercial partners.
These deferred expenses would not have been incurred without receipt of such payments from the
Companys 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.
The remaining $5,856,000 of the deferred expenses relates to consideration provided to AECOM
and IRL (collectively, the Licensors) in May 2010 for modifications made to the existing
licensing agreement. Under the terms of the amendment, the Company issued consideration in the form
of common stock and cash to the Licensors in exchange for a reduction in the percentage of certain
future payments the Company receives from third-party sub-licensees that must be paid to the
Licensors (see Note 3 for further information). Amortization of this deferred expense began in May
2010 and will end in September 2027, which is the expiration date for the last-to-expire patent
covered by the agreement. The Company believes that this accounting treatment is reasonable and
consistent with its collaboration accounting policies.
9
Stock-Based Compensation
All grants of stock option awards and restricted stock awards are recognized in the Companys
income statement 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.
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 Companys employee stock purchase plan
were anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires the Company to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could differ from those estimates.
Note 2 Stock-Based Compensation
As of September 30, 2010, the Company had two stock-based employee compensation plans, the
Stock Incentive Plan (Incentive Plan), which was amended and restated in March 2010 and approved
by the Companys stockholders in May 2010, and the Employee Stock Purchase Plan (ESPP), which was
also amended and restated in March 2010 and approved by the Companys stockholders in May 2010. In
addition, during 2007, the Company made an inducement grant outside of the Incentive Plan and ESPP
to recruit a new employee to a key position within the Company. Stock-based compensation expense of
$4,994,000 ($4,751,000 of expense related to the Incentive Plan, $131,000 of expense related to the
ESPP, and $112,000 of expense related to the inducement grant) was recognized during the first nine
months of 2010, while $4,179,000 ($3,886,000 of expense related to the Incentive Plan, $181,000 of
expense related to the ESPP, and $112,000 of expense related to the inducement grant) was
recognized during the first nine months of 2009.
There was approximately $7,960,000 of total unrecognized compensation cost related to
non-vested stock option awards and restricted stock awards granted by the Company as of September
30, 2010. That cost is expected to be recognized as follows: $1,309,000 in 2010, $2,909,000 in
2011, $1,895,000 in 2012, $1,583,000 in 2013, and $264,000 in 2014.
Stock Incentive Plan
The Company grants stock option awards and restricted stock 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 Companys stock at the date of
grant. Stock option awards granted to employees generally vest 25% after one year and monthly
thereafter on a pro rata basis over the next three years until fully vested after four years. Stock
option awards granted to non-employee directors of the Company generally vest over one year. All
stock option awards have contractual terms of 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Awards |
|
|
Options |
|
|
Average |
|
|
|
Available |
|
|
Outstanding |
|
|
Exercise Price |
|
Balance December 31, 2009 |
|
|
1,773,372 |
|
|
|
5,826,528 |
|
|
$ |
6.58 |
|
Plan amendment |
|
|
1,300,000 |
|
|
|
|
|
|
|
|
|
Stock option awards granted |
|
|
(1,546,320 |
) |
|
|
1,546,320 |
|
|
|
6.68 |
|
Stock option awards exercised |
|
|
|
|
|
|
(203,893 |
) |
|
|
2.41 |
|
Stock option awards canceled |
|
|
108,758 |
|
|
|
(108,758 |
) |
|
|
10.09 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2010 |
|
|
1,635,810 |
|
|
|
7,060,197 |
|
|
|
6.67 |
|
|
|
|
|
|
|
|
|
|
|
|
10
For stock option awards granted under the Incentive Plan during the first nine months of 2010
and 2009, 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 the first nine months of 2010 and 2009 was $4.66 and $1.50,
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 summarizes the key
assumptions used by the Company to value the stock option awards granted during the first nine
months of 2010 and 2009. 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 an average of the implied volatility on the Companys publicly traded stock
options, the volatility over the most recent period corresponding with the expected life, and the
Companys long-term reversion volatility. The Company has assumed no expected dividend yield, as
dividends have never been paid to stock or option holders and will not be paid 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 to
Employees and Directors under the Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Expected Life in Years |
|
|
5.5 |
|
|
|
5.6 |
|
Expected Volatility |
|
|
89.3 |
% |
|
|
104.3 |
% |
Expected Dividend Yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
Risk-Free Interest Rate |
|
|
2.4 |
% |
|
|
2.1 |
% |
During 2007, the Company granted 50,000 restricted stock awards under the Incentive Plan with
a grant date fair value of $11.81. During the first quarter of 2009, 25,000 of these restricted
stock awards vested. The remainder of these restricted stock awards will vest during the first
quarter of 2011.
During the second quarter of 2008, the Company also granted 76,536 restricted stock awards
under the Incentive Plan with a grant date fair value of $3.12. All of these restricted stock
awards vested on December 31, 2009.
Employee Stock Purchase Plan
The Company has reserved a total of 825,000 shares of common stock to be purchased under the
ESPP, of which 230,165 shares remain available for purchase at September 30, 2010. 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 3,000
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 $25,000 or more in any one
calendar year. The Company issued 51,329 shares during the first nine months of 2010 under the
ESPP. 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.
Stock Inducement Grant
In March 2007, the Companys Board of Directors approved a stock inducement grant of 110,000
stock option awards and 10,000 restricted stock awards to recruit a new employee to a key position
within the Company. The stock option awards were granted in April 2007 with an exercise price equal
to the market price of the Companys stock at the date of grant. The awards vest 25% after one year
and monthly thereafter on a pro rata basis over the next three years until fully vested after four
years. The stock option awards have contractual terms of 10 years. The vesting exercise provisions
of both the stock option awards and the restricted stock awards granted under the inducement grant
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 respective agreements. The weighted average
grant date fair value of these stock option awards was $5.25. The exercise price of the stock
option awards and the grant date fair value of the restricted stock awards granted under the
inducement grant was $8.20. As of September 30, 2010, 8,541 shares granted under the restricted
stock awards have vested.
11
Note 3 Collaborative Agreements
U.S. Department of Health and Human Services (HHS). In January 2007, the Company was awarded
a four-year contract from HHS to develop its influenza neuraminidase inhibitor, peramivir, for the
treatment of seasonal and life-threatening influenza. The contract commits $102.6 million to
support manufacturing, process validation, clinical studies, and other product approval
requirements for peramivir. The contract with HHS is defined as a cost-plus-fixed-fee contract.
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 peramivir plus a fixed fee, or
profit. HHS will make periodic assessments of progress and the continuation of the contract is
based on the Companys performance, the timeliness and quality of deliverables, and other factors.
The contract is terminable by the government at any time for breach or without cause.
In September 2009, HHS and the Company executed a contract modification that awarded an
additional $77.2 million to the Company to complete Phase 3 development of intravenous (i.v.)
peramivir, bringing the total award from HHS for the development of peramivir to $179.9 million.
The modification also extended the contract term by 12 months to five years.
Shionogi & Co., Ltd. (Shionogi"). In March 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 in exchange for a $14.0
million up-front payment. The license provides for potential future milestone event payments (up to
$21.0 million) and commercial event milestone payments (up to $95.0 million) in addition to double
digit (between 10 and 20% range) royalty payments on product sales of peramivir. Generally, all
payments under the agreement are nonrefundable and non-creditable, but they are subject to audit.
Shionogi will be responsible for all development, regulatory, and marketing costs in Japan. The
term of the agreement is from February 28, 2007 until terminated by either party in accordance with
the license agreement. Either party may terminate in the event of an uncured breach. Shionogi has
the right of without cause termination. In the event of termination all license and rights granted
to Shionogi shall terminate and shall revert back to the Company. The Company developed peramivir
under a license from UAB and will owe sublicense payments to UAB on the upfront payment and any
future event 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 and to provide rights for Shionogi to perform
a Phase 3 clinical trial in Hong Kong.
The Company deferred the $14.0 million up-front payment that was initially received from
Shionogi. This deferred revenue began to be amortized to revenue in April 2007 and will continue
through December 2018. In December 2007, the Company received a $7.0 million milestone payment from
Shionogi for its initiation of a Phase 2 clinical trial with i.v. peramivir. In November 2009, the
Company received a second $7.0 million milestone payment from Shionogi for its filing of a New Drug
Application (NDA) in Japan to seek regulatory approval for i.v. peramivir. In January 2010, the
Company received a third $7.0 million milestone payment from Shionogi related to its achievement in
obtaining marketing and manufacturing approval of i.v. peramivir in Japan.
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 $250,000. The agreement also provides for
relatively insignificant future milestone payments. 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. 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 the Company. The Company deferred the up-front payment that was received
from Green Cross. This deferred revenue began to be amortized to revenue in August 2006 and
continued through November 2009.
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. Under the terms of the 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 the Company in respect of the current and planned trials as of the
effective date of the agreement, and Mundipharma will conduct additional clinical trials at their
own cost up to a maximum of $15.0 million. The license provides for possibility of future event
payments totaling $155.0 million for
12
achieving specified development, regulatory and commercial events (including certain sales
level amounts following a products launch) for certain indications. In addition, the agreement
provides that the Company will 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 agreement are
nonrefundable and non-creditable, but they are subject to audit. The Company licensed forodesine
and other PNP inhibitors from AECOM and IRL and will owe sublicense payments to these third parties
on the upfront payment, event payments, and royalties received by the Company from Mundipharma.
For five years, Mundipharma will have a right of first negotiation on existing backup PNP
inhibitors the Company develops through Phase 2b in oncology, but any new PNP inhibitors will be
exempt from this agreement and the Company will retain all rights to such compounds. The Company
retained the rights to forodesine in the U.S. and Mundipharma is obligated by the terms of the
agreement to use commercially reasonable efforts to develop the licensed product in the territory
specified by the agreement. The 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 and IRL expires. It may be
terminated by Mundipharma upon 60 days written notice without cause or under certain other
conditions as specified in the agreement and all rights, data, materials, products and other
information would be transferred back to the Company at no cost. In the event the Company
terminates the agreement for material default or insolvency, the Company could have to pay
Mundipharma 50% of the costs of any independent data owned by Mundipharma in accordance with the
terms of the agreement.
The Company deferred the $10.0 million up-front payment that was received from Mundipharma in
February 2006. This deferred revenue began to be amortized to revenue in February 2006 and will end
in October 2017, which is the date of expiration for the last-to-expire patent covered by the
agreement. The costs reimbursed by Mundipharma for the current and planned trials of forodesine
were recorded as revenue when the expense was incurred up to the $10.0 million limit stipulated in
the agreement.
The Company is currently in dispute with Mundipharma regarding the contractual obligations of
the parties with respect to certain costs related to the manufacturing and development of
forodesine. The Company does not believe that it is responsible for any of the disputed amounts.
The Company is engaged in ongoing discussion to resolve this dispute. The maximum potential
exposure to the Company is estimated to be approximately 1,665,110 (or approximately $2.3 million
based on the exchange rate on September 30, 2010). No amounts have been accrued as of September
30, 2010.
AECOM and IRL. In June 2000, the Company licensed a series of potent PNP inhibitors from the
Licensors. The license agreement was amended in July 2002, April 2005, December 2009 and May 2010.
The lead drug candidates from this collaboration are forodesine and BCX4208. The Company has
obtained worldwide exclusive rights to develop and ultimately distribute these, or any other, drug
candidates that might arise from research on these PNP 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 has agreed to use commercially reasonable efforts to
develop these drugs. This license 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.
In addition, the Company 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 the Company, and to share approximately one quarter of future payments received from third-party
sublicensees of the licensed PNP inhibitors, if any. The Company also agreed to pay annual license
fees ranging from $150,000 to $500,000, creditable against actual royalties and other payments due
to the Licensors.
In May 2010, the Company and the Licensors agreed to further amend the terms of the license
agreement. 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 sublicensees 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 sublicensees of the Company 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 the modifications to the license agreement, the Company issued to the
Licensors shares of the Companys common stock with an aggregate value of approximately $5,911,000
based upon the volume weighted average price of the Companys common stock for the twenty trading
days preceding the date of the amendment, resulting in 761,326 shares issued. These shares were
issued pursuant to the Companys effective registration statement on Form S-3. The Company also
paid the Licensors approximately
13
$90,000 in order to correct a calculation error with respect to the number of shares that were
issued. The consideration issued to the Licensors related to the modification began to be amortized
to expense in May 2010 and will end in September 2027, which is the expiration date for the
last-to-expire patent covered by the agreement. The Licensors agreed that they would not, during
any trading day, sell or otherwise transfer or dispose of more than an amount of shares equal to
30% of the average daily number of shares of the Companys common stock traded over the previous
ten trading days. The Company also agreed to pay certain fees or commissions incurred by the
Licensors in connection with subsequent sales of the shares issued pursuant to the amendment.
Additionally, at the Companys sole option and subject to certain agreed upon conditions, any
future non-royalty payments due to be paid by the Company to the Licensors under the license
agreement may be made either in cash, in shares of the Companys common stock, or in a combination
of cash and shares.
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 each party shall cease using the other partys 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 and
Green Cross agreements, or commercializes products related to these programs, the Company will owe
sublicense fees or royalties on amounts it receives.
Emory University (Emory). In June 2000, the Company licensed intellectual property from
Emory related to the hepatitis C polymerase target associated with hepatitis C viral infections.
Under the original terms of the agreement, the research investigators from Emory provided the
Company with materials and technical insight into the target. The Company has agreed to pay Emory
single digit royalties on sales of any resulting product and to share in future payments received
from other third party partners, if any. The Company can terminate this agreement at any time by
giving 90 days advance notice. Upon termination, the Company would cease using the licensed
technology.
Note 4 Income Taxes
The Company has incurred net losses since inception and, consequently, has not recorded any
U.S. federal and state income taxes. The majority of the Companys 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.
As of December 31, 2009, the Company had net federal operating loss carryforwards of
$187,428,000, net state operating loss carryforwards of $224,657,000, and research and development
credit carryforwards of $32,116,000, all of which expire at various dates from 2010 through 2029.
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 concluded at December 31, 2009 that it had one uncertain tax position
pertaining to its research and development credit carryforwards. The Company has not yet conducted
an in-depth study of its research and development credits. This study could result in an increase
or decrease to the Companys research and development credits. Until studies are conducted of the
Companys research and development credits, no amounts are being recorded as unrecognized tax
benefits, separate from the valuation allowance against deferred tax assets. Any future changes to
the Companys unrecognized tax benefits would be offset by an adjustment to the valuation allowance
and there would be no impact on the Companys financial statements.
Additionally, utilization of the Companys net operating loss carryforwards could be subject
to a substantial annual limitation due to ownership change limitations described in Section 382 of
the Internal Revenue Code and similar state provisions. The annual limitations could result in the
expiration of net operating loss carryforwards before utilization. The Company has not performed a
Section 382 change in control study since 2007 in order to determine if there is an annual
limitation on the amount of net operating
14
loss carryforward that can be deducted in any single year. However, it is not anticipated that
any such analysis would have an impact on the Companys financial statements as a result of
offsetting changes in the valuation allowance.
Tax years 2006-2008 remain open to examination by the major taxing jurisdictions to which the
Company is subject. Additionally, years prior to 2006 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 during the nine months ended
September 30, 2010 and 2009.
Note 5 Subsequent Event
In October 2010, the Company announced a restructuring plan to consolidate core functions and
outsource non-core activities. As a result of this plan, the Company expects to make future
payments of $0.7 million to $0.9 million related to termination benefits, relocation, and
recruiting expenses. In addition, the Company anticipates recording an impairment charge of
approximately $1.0 million related to the disposition of fixed assets and the abandonment of
leasehold improvements.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements, including statements
regarding future results, performance, or achievements of the Company. Such statements are only
predictions and the actual events or results may differ materially from the results discussed in
the forward-looking statements. Factors that could cause or contribute to such differences include
those discussed below as well as those discussed in other filings made by the Company with the
Securities and Exchange Commission, including the Companys Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on
Form 8-K. See Information Regarding Forward-Looking Statements.
Recent Corporate Highlights
Collaborative Agreements. In January 2007, the U.S. Department of Health and Human
Services (HHS) awarded us a $102.6 million, four-year contract for the advanced development of
peramivir. In September 2009, we received an award of $77.2 million toward completion of the Phase
3 development of intravenous (i.v.) peramivir pursuant to a contract modification with HHS. The
modification also extended the contract term by 12 months to
five years. Through September 30, 2010, we have recognized
approximately $143.9 million of revenue against the contract with HHS.
We previously disclosed that we had submitted a proposal for a second contract modification to HHS
for additional funding toward completion of the modified Phase 3 development of i.v. peramivir.
This proposal included an additional outpatient efficacy study. We also previously disclosed that
HHS had approved start-up activities for the Phase 3 program under the existing contract.
On October 29, 2010, HHS contacted us informally regarding our proposal. During those informal
communications, HHS indicated that we should explore certain changes to our currently ongoing
Phase 3 i.v. peramivir study for the treatment of hospitalized patients with serious influenza,
including potentially increasing the size of the study. The necessity for a second pivotal study
in acute, uncomplicated outpatient populations was discussed by a HHS interagency panel including
the U.S. Food and Drug Administration (FDA) and was
deemed unnecessary for a label indication for
acute, complicated hospitalized patients. HHS indicated that it plans to reimburse authorized
start-up costs as well as termination costs related to this outpatient efficacy study. In light of
these informal communications by HHS, we plan to wind down the study. We are currently waiting
for formal communications from HHS. We will submit a revised proposal to HHS to reflect the
agreed upon Phase 3 development program for i.v. peramivir in hospitalized patients after
additional discussions with both FDA and HHS.
Under the defined scope of work in the contract with HHS for the development of peramivir, a
process was undertaken to validate a U.S.-based manufacturer and the related method for producing
commercial batches of peramivir active pharmaceutical ingredient (API). As a required outcome of
this validation process, large quantities of peramivir API were produced. In accordance with our
accounting practices, we recorded all costs associated with this validation process as research and
development expenses in our Statements of Operations. Simultaneously, revenue from the HHS
contract was also recorded in our Statement of Operations. HHS subsequently reimbursed us for
these costs and upon reimbursement from HHS, the associated peramivir API became property of the
U.S. government.
15
Under the terms of the contract, if we determine the amount of peramivir API produced under
the contract is in excess of what is necessary to complete the contract, we can acquire any excess
peramivir API at cost to use for our own purposes. We believe that as a result of the
manufacturing campaign described above, more peramivir API has been produced than is required to
support U.S. regulatory approval. Therefore, we determined that there was an excess of up to $5.0
million of peramivir API manufactured under this validation process. HHS is reviewing our estimate
calculation, but has acknowledged that at least half of the amount in our estimate is indeed excess
to the requirements of the HHS contract. We are evaluating whether any of the excess peramivir API
will be needed by us to support other contracts, partners, or activities, and if so, the
acquisition process to obtain the excess peramivir API from HHS. Acquisition of a portion or all
of the excess peramivir API from HHS will impact our financial statements.
In January 2006, the Company received FDA Fast Track designation for peramivir. In October
2009, the FDA granted an Emergency Use Authorization (EUA) for i.v. peramivir, which expired in
June 2010 with the expiration of the declared emergency. As a result, peramivir is now only
available in the U.S. through clinical trials. In September 2009, we received a Request for
Proposal (RFP) from HHS for the supply of i.v. peramivir for the treatment of critically ill
influenza patients. On November 4, 2009 we received an initial order for 10,000 courses of i.v.
peramivir (600 mg once-daily for five days) for an aggregate purchase price of $22.5 million. We
shipped the entire order from existing i.v. peramivir inventory to HHS on November 4, 2009. Under
the Indefinite Delivery Indefinite Quantity contract issued to us on November 3, 2009, HHS may
place additional orders for peramivir up to a total of 40,000 courses at the same unit price as the
first order. We are also required to maintain the ability to manufacture additional treatment
courses dependent on the volume and size of anti-viral orders received from HHS. In addition,
separate from the RFP process, we have donated and transferred to HHS an initial supply sufficient
for 1,200 courses of i.v. peramivir 600 mg once-daily for five days.
The minimum and maximum quantities of i.v. peramivir that may be ordered by HHS under the RFP
are 1,000 and 40,000 treatment courses. We also are required to maintain the ability to manufacture
additional courses for treatment or prophylaxis, dependent on the volume and size of orders
received from HHS. Based on the RFP, we initiated manufacture of approximately 130,000 courses of
i.v. peramivir at a cost of approximately $10.0 million, so that we would have additional inventory
available in advance of potential orders. In addition, we have sufficient quantities of API of i.v.
peramivir available to produce up to 350,000 additional courses.
In addition to the contract with HHS, in February 2007, we established a collaborative
relationship with Shionogi & Co., Ltd. (Shionogi) for the development and commercialization of
peramivir in Japan. We received an upfront payment of $14.0 million and the agreement provided for
additional future clinical event milestone payments of up to $21.0 million. In October 2008, we and
Shionogi amended the license agreement to expand the territory in the agreement to include Taiwan
and to provide rights for Shionogi to perform a Phase 3 clinical trial in Hong Kong.
In July 2009, Shionogi announced positive results in two Phase 3 clinical trials of i.v.
peramivir. The studies were sponsored by Shionogi and conducted during the 2008-2009 influenza
season. Shionogi and Green Cross Corporation (Green Cross), the license holder of peramivir in
Korea pursuant to a June 2006 license agreement with us, co-conducted the portion of the studies in
Korea. Doses of i.v. peramivir of 300 mg and 600 mg, administered in single and multiple doses,
were found to be generally safe and well-tolerated in these trials. Shionogi presented the data at
the 2009 ICAAC / IDSA annual meeting in San Francisco, California.
Shionogi previously completed a Phase 2 study of i.v. peramivir administered via a single dose
infusion in the outpatient setting for treatment of seasonal influenza. Shionogi presented the data
at the 2008 ICAAC / IDSA annual meeting in Washington, D.C.
In January 2010, Shionogi received marketing and manufacturing approval for i.v. peramivir in
Japan, and we received a third and final regulatory milestone payment of $7.0 million in January
2010 as a result of this approval. We may receive future commercial event milestone payments of up
to $95.0 million from Shionogi. Shionogi has commercially launched peramivir under the commercial
name RAPIACTA® in Japan. Shionogi has received the indications of single dose administration of 300
mg i.v. peramivir for adult uncomplicated seasonal influenza infection, as well as single and
multiple dose administration of 600 mg i.v. peramivir for the patients at high-risk for
complications associated with influenza. Shionogi is authorized to supply peramivir as either a 300
mg i.v. bag or a 150 mg vial for i.v. drip infusion. Shionogi also announced that it has completed
clinical studies for pediatric patients and has filed an additional application for pediatric use
of RAPIACTA® in Japan.
On October 27, 2010, the Company announced that Shionogi had received approval of an
additional indication for use of i.v. peramivir to treat children and infants with influenza in
Japan. Shionogi has stated that it intends to secure an adequate supply of RAPIACTA® to treat
approximately one million people during the upcoming influenza season, and that it is taking steps
to ensure its manufacturing capability and a stable supply to meet urgent demands.
16
Additionally, on August 16, 2010, we announced that our partner, Green Cross, had received
marketing and manufacturing approval from the Korean Food & Drug Administration for intravenous
(i.v.) peramivir 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. Green Cross intends to launch peramivir under the commercial name PeramiFlu® in Korea.
In November 2009, after review through the Central Pharmaceutical Affairs Council, peramivir
received approval for limited use in Korea in emergency cases. Approximately 50 individuals were
treated under emergency use in Korea.
In addition to Shionogi and Green Cross, we have entered into several agreements with
companies outside the U.S. to represent us and peramivir primarily for stockpiling opportunities.
For example, on December 23, 2009, we entered into an agreement with Merck Serono, S.A., through
its affiliate, Ares Trading S.A., to exclusively represent us and peramivir for stockpiling
opportunities in Europe, Russia, Canada and Singapore. Also in December 2009, we entered into an
agreement with Hikma Pharmaceuticals, PLC to represent us and peramivir for stockpiling
opportunities in the Middle East and North Africa, excluding Israel. In January 2010 we entered
into an agreement with moksha8 Pharmaceuticals, Inc. to exclusively represent us and peramivir for
influenza stockpiling opportunities in Brazil and Mexico.
Data related to i.v. peramivir was presented at the 50th Annual ICAAC Meeting on
September 15, 2010. The first poster presentation concluded that there is no evidence of a
pharmacokinetic interaction between i.v. peramivir (600 mg) with oral oseltamivir (75 mg) or oral
rimantadine (100 mg) when administered simultaneously in hospitalized patients with influenza. The
second poster presentation concluded that i.v. peramivir administered at two single doses (600 mg
and 1200 mg) was not associated with QTc prolongation or other repolarization abnormalities, and
that peramivir was generally safe and well-tolerated.
Additional data related to i.v. peramivir was presented at the 48th Annual Infectious Diseases
Society of America (IDSA) meeting on October 22, 2010. The first poster presentation concluded that
peramivir and oseltamivir treatment resulted in similar clinical outcomes in patients hospitalized with influenza in the overall study
population (N=137). However, in the sub-group of influenza B infected patients (N=32), peramivir
treatment resulted in significantly faster reduction of viral replication and showed a trend to
more rapid normalization of clinical outcomes compared to oral oseltamivir treatment. This
presentation concluded that the resumption of normal activities four days earlier in the
peramivir-treated subjects may be a clinically meaningful outcome, that these findings may reflect
superior anti-viral activity of peramivir compared to oseltamivir against influenza B, and that the
findings should be further investigated. The second poster presentation described the effects of
influenza infection on lymphocyte and neutrophil populations, and concluded that in placebo- or
oseltamivir-controlled trials, peramivir had no apparent effects on leukocyte counts or risk of
neutropenia in patients with influenza. Results were drawn from an analysis of data from five randomized Phase
2 and Phase 3 clinical trials which included over 2,200 influenza patients treated with peramivir
or a control.
Clinical Trials. In July 2007, we initiated a Phase 2 clinical trial of i.v. peramivir
to compare the efficacy and safety of i.v. peramivir to orally administered oseltamivir in patients
who require hospitalization due to acute influenza. The primary objective of the study was to
evaluate time to clinical stability, which is a composite endpoint comprised of normalization of
temperature, oxygen saturation, respiratory rate, systolic blood pressure and heart rate. This type
of endpoint has previously been used in pneumonia studies, but not in influenza. Secondary
objectives of the study included evaluation of viral shedding, mortality, clinical relapse and time
to resumption of usual activities. We presented the results at the XI International Symposium on
Respiratory Viral Infection held in Bangkok, Thailand in
February 2009, with additional analyses (as noted above)
presented at the 48th Annual IDSA meeting on October 22, 2010.
In September 2009 we announced that we were initiating two Phase 3 studies of i.v. peramivir
for the treatment of hospitalized patients with serious influenza. The combined enrollment target
for these studies was approximately 700 patients, and approximately 300 study locations are
targeted to participate in these studies globally. These studies are intended to support U.S.
regulatory approval of i.v. peramivir as a treatment for influenza. The Phase 3 development program
of i.v. peramivir for the treatment of hospitalized patients is
ongoing. In light
of the recent communication with
HHS, we expect to modify the Phase 3 studies to increase the
likelihood of a favorable clinical outcome.
17
In September 2009, we announced the initiation of a clinical study of BCX4208 for the
treatment of gout, which is caused by elevated levels of uric acid in blood. We believe that
BCX4208 is a good candidate to control gout because data from a prior Phase 2 clinical trial of
BCX4208 for psoriasis indicated a dose related reduction in uric acid that was sustained for the
duration of drug exposure. Our gout clinical trial was a Phase 2, randomized, double-blind,
placebo-controlled study to evaluate the efficacy and safety of orally administered BCX4208 in
subjects with gout. The trial contained two parts: part one, which was a parallel-group study of
multiple doses of BCX4208 randomized against a placebo and part two, which was a sequential-group
study of escalating doses of BCX4208, randomized against placebo.
In April 2010 we announced positive top-line results from a planned interim analysis of part
one of our gout clinical study. The studys primary endpoint was the change in serum uric acid
(sUA) concentration after 21 days of treatment compared to baseline concentration prior to
treatment. Part one of the study randomized 60 gout patients with sUA concentrations greater than
or equal to 8 mg/dL to placebo or to one of three different doses of BCX4208, a PNP inhibitor,
administered once-daily for 21 days. All three doses of BCX4208 demonstrated a statistically
significant reduction in sUA levels compared to placebo at day 22. BCX4208 doses of 40 mg, 80 mg
and 120 mg per day showed median reductions in sUA levels of 2.7, 3.3 and 3.4 mg/dL, respectively.
The median reductions of sUA concentrations for these three doses ranged from 32.2% to 34.6%
of baseline level. BCX4208 also demonstrated a statistically significant difference in the
proportion of subjects with sUA levels less than 6 mg/dL, compared to subjects treated with
placebo, on day 22. Among patients with a baseline sUA concentration below 10 mg/dL, up to 63%
showed sUA levels below 6 mg/dL on day 22.
BCX4208 was generally safe and well-tolerated at the doses evaluated in part one of this
study. Reductions in peripheral blood lymphocytes were observed in patients treated with BCX4208.
The protocol included stopping rules for total lymphocyte counts and CD4+ cell counts below certain
thresholds; no subjects were discontinued for these reasons, and all 60 subjects completed the
first part of this study. Overall, the frequency of adverse events in each of the BCX4208 treatment
groups was comparable to that observed in the placebo group. All patients received prophylactic
medicine for gout flares; the incidence of gout flares observed was low.
We announced on August 5, 2010 that we achieved positive top-line results in part two of our
gout clinical study, after completion of dose cohorts at 160 mg and 240 mg per day. The primary
endpoint of part two of this study was the change in sUA concentration at day 22, following 21 days
of once-daily treatment, compared to baseline sUA concentration prior to treatment. Data was
evaluated using least square means (LSM) and an analysis of covariance (ANCOVA) model with
factors for treatment and baseline sUA.
All doses of BCX4208 evaluated met the primary endpoint of the study, including both doses
studied in part two. BCX4208 doses of 160 mg and 240 mg per day showed LSM reductions in sUA levels
of 3.6 and 4.5 mg/dL at day 22 (p<0.001 for both doses), compared to placebo change of -0.02
mg/dL. The LSM reduction of sUA concentration percent change from baseline level was 35.7% for the
160 mg dose and 46.0% for the 240 mg dose (p<0.001 for both doses). BCX4208 also demonstrated a
statistically significant difference in the proportion of subjects with sUA levels less than 6
mg/dL, compared to subjects treated with placebo, on day 22. The proportion of subjects achieving
sUA levels less than 6 mg/dL was 47% for the 160 mg dose and 77% for the 240 mg dose, compared to
0% in the placebo group.
Part two of the study was designed to sequentially evaluate the safety and efficacy of up to
three higher doses (160 mg, 240 mg and 320 mg once-daily) of BCX4208, and included various stopping
criteria related to both safety and efficacy. Enrollment in the study was closed after the 240 mg
treatment group achieved two efficacy stopping criteria: greater than 4 mg/dL reduction in sUA from
baseline, and greater than 60% of patients achieving sUA concentration below 6 mg/dL.
BCX4208 was generally safe and well-tolerated at all doses evaluated in this study. Reductions
in peripheral blood lymphocytes were observed in patients treated with BCX4208. The protocol
included individual subject stopping criteria for CD4+ cell counts below certain thresholds; no
subjects were discontinued for this reason. Overall, the frequency of adverse events in each of the
BCX4208 treatment groups was comparable to that observed in the placebo group. Additional studies
designed to evaluate longer-term exposure are needed to further define the safety and tolerability
profile of BCX4208.
Detailed results from our gout clinical study
have been accepted for poster presentation at the American College of
Rheumatology meeting in Atlanta on November 8, 2010.
Additionally, on June 1, 2010, we announced that we were initiating a Phase 2 study of BCX4208
alone and in combination with allopurinol in patients with gout. On September 16, 2010, we
announced positive top-line results from this randomized, double-blind,
18
multi-center, placebo-controlled Phase 2 study. The study was designed to evaluate the
urate-lowering activity and safety of several doses of BCX4208 alone and in combination with
selected doses of allopurinol administered once-daily.
The study utilized a factorial design. The primary endpoint was change in sUA after 21 days of
treatment compared to baseline concentration prior to treatment. Eighty-seven gout patients with
sUA concentrations greater than or equal to 8 mg/dL were randomized to receive BCX4208 at daily
doses of 20 mg, 40 mg and 80 mg administered orally as monotherapy or in combination with
allopurinol at daily doses of 100 mg, 200 mg and 300 mg administered orally.
A dose-response was demonstrated for both BCX4208 and allopurinol, and the combination of
BCX4208 and allopurinol was shown to be superior to either drug alone in sUA reduction. The mean
reduction in sUA from baseline observed in the nine groups of patients receiving combinations of
BCX4208 and allopurinol ranged from 2.4 to 5.6 mg/dL. In five of these nine combination groups, 80%
or more of the patients achieved a sUA concentration of less than 6 mg/dL. Combinations of lower
doses of BCX4208 with allopurinol showed synergistic effects in sUA reduction.
These doses of BCX4208 alone and in combination with allopurinol were generally safe and
well-tolerated. Consistent with prior BCX4208 clinical studies, reductions in peripheral blood
lymphocytes were observed in patients treated with BCX4208. The protocol included stopping rules
for CD4+ cell counts below certain thresholds; no subjects were discontinued for this reason.
We are finalizing plans for a 12 week, randomized, controlled study of BCX4208 as add-on
therapy in gout patients who have failed to adequately respond to allopurinol. The study, which we
believe will enroll over 200 subjects, is expected to begin enrollment in early 2011. We also plan
to initiate a long-term safety study in 2011.
On September 15, 2010, we announced preliminary top-line results from our pivotal
multinational, open-label, single-arm trial evaluating 200 mg once-daily oral forodesine in the
treatment of relapsed or refractory cutaneous T-cell lymphoma (CTCL). This trial is being
conducted under a Special Protocol Assessment (SPA) agreement negotiated with the FDA.
The studys primary endpoint was objective response rate, defined as complete or partial
cutaneous response that is sustained for at least 28 days, in patients with later stage (stage IIB,
III and IVA) disease who had previously received at least three systemic therapies for their
disease. Eleven of 101 (11% (95% confidence interval: 6-19%)) later stage patients enrolled
achieved a partial cutaneous response, while no patients achieved a complete response. Of the
remaining later stage patients, 56 (55%) had stable disease as their best response, 30 (30%) had
progressive disease, with a median time to progression of 353 days, and four (4%) were not
evaluable. The median number of prior systemic therapies was four (range 3-15) among patients with
later stage disease. Oral forodesine was generally safe and well-tolerated in this study, and was
administered daily for up to 839 days.
Eligible patients were those with CTCL of stages IB through IVA whose disease was persistent,
progressive or recurrent during or after treatment with at least three systemic therapies, one of
which must have been oral bexarotene. A total of 144 patients with CTCL, with a median duration of
illness of 52.5 months, were enrolled. The most common adverse events reported were peripheral
edema, fatigue, insomnia, diarrhea, headache and nausea.
Long-term data from our Phase 2 study of forodesine in patients with CTCL was presented at the
45th Annual Meeting of the American Society of Clinical Oncology in May 2009. This poster
presentation reviewed the safety and efficacy of forodesine for CTCL patients of stage Ib to stage
IV who failed standard therapies and received forodesine treatment for greater than 12 months.
Also on September 15, 2010, we announced interim results from our exploratory Phase 2 study to
investigate the efficacy and safety of 200 mg twice-daily oral forodesine as monotherapy for
chronic lymphocytic leukemia (CLL). This ongoing study enrolled 25 CLL patients who had failed at
least one prior treatment regimen. The primary endpoint of this single-arm, open-label study was
overall response rate. Consistent with
results of previous clinical trials, forodesine was generally safe and well-tolerated in this
study. Final results from this study are expected later in 2010, and we plan to present these
results at an upcoming medical meeting.
We are exploring the interest level of potential partners as a possible path forward for the
future development of forodesine in the U.S.
19
|
|
License Agreement with Albert Einstein College of Medicine of Yeshiva University and
Industrial Research, Ltd. (AECOM and IRL respectively). |
In May 2010, we entered into an amendment to the License Agreement dated June 27, 2000, as
subsequently amended (the License Agreement), by and among us and AECOM and IRL (the
Licensors). The amendment further amended the License Agreement through which we obtained
worldwide exclusive rights to develop and ultimately distribute any drug candidates that might
arise from research on a series of PNP inhibitors, including forodesine and BCX4208. 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 sublicensees 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 dated February 1, 2006 with Mundipharma and (ii)
royalties received from our sublicensees 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.
In consideration for the modifications to the license agreement, we issued to the Licensors
shares of our common stock with an aggregate value of approximately $5.9 million and paid the
Licensors approximately $90,000 in cash. Additionally, 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.
Results of Operations (three months ended September 30, 2010 compared to the three months ended
September 30, 2009)
For the three months ended September 30, 2010, total revenues increased to $12.0 million
compared to $10.5 million for the three months ended September 30, 2009. This $1.5 million increase
was driven by higher revenue from the contract with HHS for the continued development of
intravenous (i.v.) peramivir, offset by lower revenue from our collaboration with Shionogi.
Research and development (R&D) expenses increased to $19.2 million for the third quarter of
2010 from $18.2 million in the same quarter of last year. This increase was driven by higher
development costs of $2.8 million associated with the BCX4208 program for the treatment of gout,
partially offset by decreases in development costs of $1.9 million associated with the forodesine
and peramivir clinical programs.
General and administrative (G&A) expenses increased to $3.8 million for the third quarter of
2010 from $3.1 million in the same quarter as last year. This increase was primarily due to higher
consulting fees and personnel related costs.
The Companys net loss for the three months ended September 30, 2010 was $10.9 million, or
$0.24 per share, compared to a net loss of $10.6 million, or $0.28 per share for the three months
ended September 30, 2009.
Results of Operations (nine months ended September 30, 2010 compared to the nine months ended
September 30, 2009)
For the nine months ended September 30, 2010, total revenues increased to $45.7 million
compared to $19.7 million for the nine months ended September 30, 2009. This $26.0 million
increase was driven primarily by a $12.4 million increase in revenue from the contract with HHS, as
well as the receipt of a $7.0 million milestone payment from our partner, Shionogi, and the sale of
$6.4 million of peramivir API to collaborators Shionogi and Green Cross during the first quarter
2010.
R&D expenses increased to $58.9 million for the first nine months of 2010 from $40.7 million
in the same period as last year. The $18.2 million increase was primarily due to an increase of
$6.5 million in development costs associated with the peramivir program, $6.3 million of
manufacturing costs related to production of peramivir API for Shionogi and Green Cross, $6.3
million in higher development costs associated with the BCX4208 program, and $1.0 million in higher
pre-clinical program costs. These increases in R&D expenses were partially offset by a decrease of
$2.1 million in development costs associated with the forodesine program.
G&A expenses increased to $10.8 million for the nine months ended September 30, 2010 from $7.8
million for the nine months ended September 30, 2009, primarily due to increases in consulting fees
and personnel related costs.
The net loss for the nine months ended September 30, 2010 was $23.7 million, or $0.53 per
share, compared to a net loss of $28.6 million, or $0.75 per share for the nine months ended
September 30, 2009.
20
Liquidity and Capital Resources
Cash expenditures have exceeded revenues since our inception. Our operations have principally
been funded through public offerings and private placements of equity and cash from collaborative
and other research and development agreements, including government contracts.
We have attempted to contain costs and reduce cash flow requirements by renting scientific
equipment and facilities, contracting with other parties to conduct certain research and
development 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
in general and specifically related to our clinical trial activity. We also expect to incur
substantial expenses related to the filing, prosecution, maintenance, defense and enforcement of
patent and other intellectual property claims and additional regulatory costs as our clinical
products 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. Our policy is to
place our cash, cash equivalents and investments with high credit quality financial institutions,
commercial companies, and government agencies in order to limit the amount of credit exposure. We
have not realized any significant losses from our investments.
At December 31, 2009, we had long-term operating lease obligations, which provide for
aggregate minimum payments of $565,000 in 2010, $854,000 in 2011 and $871,000 in 2012. These
obligations include the future rental of our operating facilities.
We plan to finance our needs principally from the following:
|
|
|
payments under our contract with HHS; |
|
|
|
|
our existing capital resources; |
|
|
|
|
payments under collaborative and licensing agreements with corporate partners; and |
|
|
|
|
lease or loan financing and future public or private financing. |
As of September 30, 2010, we held cash, cash equivalents and securities of $72.0 million, a
decrease of $22.2 million as compared to December 31, 2009, primarily due to monthly cash burn from
operations offset by cash received from collaborations. As a result, our net cash burn rate has
been approximately $2.5 million per month for the first nine
months of 2010.
We
previously projected that our 2010 cash use would be within but at the high end of our previous
guidance range of $25.0 to $30.0 million. With the initiation of
the modified phase 3 program for i.v. peramivir, our clinical
development expenses for the fourth quarter of 2010 will be higher
than originally anticipated. This creates a timing effect on our 2010
cash use, as HHS reimbursement will not occur until 2011. As a result, we now expect our cash
use for 2010 to be approximately $33.0 million.
As our clinical programs continue to progress and patient enrollment increases, 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 drug candidates will consume significant capital resources
and will increase our expenses. Our expenses, revenues and burn rate could vary significantly
depending on many factors, including our ability to raise additional capital, the development
progress of our collaborative agreements for our drug candidates, the amount and timing of funding
we receive from HHS for peramivir, the amount of funding or assistance, if any, we receive from
other governmental agencies or other new partnerships with third parties for the development of our
drug candidates, the progress and results of our current and proposed clinical trials for our most
advanced drug products, the progress made in the manufacturing of our lead products and the
progression of our other programs.
With the funds available at September 30, 2010 and future amounts that are expected to be
received from HHS, Shionogi, and our other collaborators, we believe that our resources are
sufficient to fund our operations for at least the next twelve months. However, this is a forward
looking statement, and there may be changes that would consume available resources significantly
before such time.
21
Our long-term capital requirements and the adequacy of our available funds will depend upon
many factors, including:
|
|
|
our ability to perform under the contract with HHS and receive reimbursement; |
|
|
|
|
the progress and magnitude of our research, drug discovery and development programs; |
|
|
|
|
changes in existing collaborative relationships or government contracts; |
|
|
|
|
our ability to establish additional collaborative relationships with academic
institutions, biotechnology or pharmaceutical companies and governmental agencies or other
third parties; |
|
|
|
|
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; |
|
|
|
|
our ability to negotiate favorable development and marketing strategic alliances for
certain drug candidates or a decision to build or expand internal development and commercial
capabilities; |
|
|
|
|
successful commercialization of marketed products by either us or a partner; |
|
|
|
|
the scope and results of preclinical studies and clinical trials to identify and evaluate
drug candidates; |
|
|
|
|
our ability to engage sites and enroll subjects in our clinical trials; |
|
|
|
|
the scope of manufacturing of our drug candidates to support our preclinical research and
clinical trials; |
|
|
|
|
increases in personnel and related costs to support the development of our drug
candidates; |
|
|
|
|
the scope of manufacturing of our drug substance and drug products required for future
NDA filings; |
|
|
|
|
competitive and technological advances; |
|
|
|
|
the time and costs involved in obtaining regulatory approvals; and |
|
|
|
|
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. |
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 we
deem market conditions to be favorable. Additional funding, whether through additional sales of
securities or collaborative or other arrangements with corporate partners or from other sources,
including governmental agencies in general and from the 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. 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.
Off-Balance Sheet Arrangements
As of September 30, 2010, we are not involved in any unconsolidated entities or off-balance
sheet arrangements.
Contractual Obligations
Our contractual obligations as of December 31, 2009 are described in our Annual Report on Form
10-K for the year ended December 31, 2009. There have been no material changes in contractual
obligations outside the ordinary course of business since December 31, 2009.
22
Critical Accounting Policies
We have established various accounting policies that govern the application of accounting
principles generally accepted in the United States, which were utilized in the preparation of our
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 financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2009, and
Note 1 to our financial statements included in Part I, Item I of this report, 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.
Revenue Recognition
Prior to the fourth quarter of 2009, our revenues have generally been limited to license fees,
event payments, research and development fees, government contracts, and interest income. Revenue
from license fees, event payments, and research and development fees is recognized 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 as earned
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.
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. Event payments are recognized as revenue upon the achievement of specified events if (1)
the event is substantive in nature and the achievement of the event was not reasonably assured at
the inception of the agreement and (2) the fees are non-refundable and non-creditable. Any event
payments received prior to satisfying these criteria are recorded as deferred revenue. Under our
contract with HHS, revenue is recognized as reimbursable direct and indirect costs are incurred.
Royalty revenue is recognized based on estimates of royalties earned during the applicable
period and adjusted for differences between the estimated and actual royalties in the following
period.
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 contract research organizations (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 the
University of Alabama at Birmingham (UAB), which require fees related to sublicense agreements or
maintenance fees. Generally, 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.
At September 30, 2010, we had deferred collaboration expenses of approximately $8.6 million.
Approximately $2.7 million of these deferred expenses were sub-license payments, paid to our
academic partners upon receipt of consideration from various commercial partners. These deferred
expenses would not have been incurred without receipt of such payments from our commercial
23
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.
The remaining $5.9 million of the deferred expenses relates to consideration provided to
Licensors in May 2010 for modifications made to the existing licensing agreement. Under the terms
of the amendment, we issued consideration in the form of common stock and cash to the Licensors in
exchange for a reduction in the percentage of certain future payments we receive from third-party
sub-licensees that must be paid to the Licensors. Amortization of this deferred expense began in
May 2010 and will end in September 2027, which is the expiration date for the last-to-expire patent
covered by the agreement. We believe that this accounting treatment is reasonable and consistent
with our collaboration accounting policies.
We group our R&D expenses into two major categories: direct external expenses and all other
R&D expenses. Direct external expenses consist of costs of outside parties to conduct laboratory
studies, to develop manufacturing processes and manufacture the product candidate, to conduct and
manage clinical trials and similar costs related to our clinical and preclinical studies. These
costs are accumulated and tracked by program. All other R&D expenses consist of costs to compensate
personnel, to purchase lab supplies and services, to maintain our facility, equipment and overhead
and similar costs of our research and development efforts. These costs apply to work on our
clinical and preclinical candidates as well as our discovery research efforts. These costs have not
been charged directly to each program historically because the number of product candidates and
projects in research and development may vary from period to period and because we utilize internal
resources across multiple projects at the same time.
The following table summarizes our R&D expenses for the periods indicated. Amounts are in
thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Direct external R&D expenses by program: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PNP Inhibitor (forodesine) |
|
$ |
1,402 |
|
|
$ |
2,444 |
|
|
$ |
5,077 |
|
|
$ |
7,186 |
|
Neuraminidase Inhibitor (peramivir) |
|
|
8,906 |
|
|
|
9,778 |
|
|
|
28,514 |
|
|
|
15,713 |
|
PNP Inhibitor (BCX4208) |
|
|
3,165 |
|
|
|
348 |
|
|
|
7,077 |
|
|
|
728 |
|
Other |
|
|
422 |
|
|
|
|
|
|
|
981 |
|
|
|
|
|
Indirect R&D expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and fringe benefits |
|
|
3,030 |
|
|
|
3,044 |
|
|
|
10,018 |
|
|
|
9,252 |
|
Operating expenses |
|
|
483 |
|
|
|
936 |
|
|
|
1,715 |
|
|
|
2,016 |
|
Professional services |
|
|
146 |
|
|
|
70 |
|
|
|
515 |
|
|
|
923 |
|
Travel |
|
|
106 |
|
|
|
126 |
|
|
|
238 |
|
|
|
309 |
|
Overhead allocation |
|
|
1,537 |
|
|
|
1,435 |
|
|
|
4,716 |
|
|
|
4,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total R&D expenses |
|
$ |
19,197 |
|
|
$ |
18,181 |
|
|
$ |
58,851 |
|
|
$ |
40,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At this time, due to the risks inherent in the clinical trial process and given the stages of
our various product development programs, we are unable to estimate with any certainty the costs we
will incur in the continued development of our drug candidates for potential commercialization.
While we are currently focused on advancing each of our development programs, our future R&D
expenses will depend on the determinations we make as to the scientific and clinical success of
each drug candidate, as well as ongoing assessments as to each drug candidates commercial
potential. As such, we are unable to predict how we will allocate available resources among our
product development programs in the future. In addition, we cannot forecast with any degree of
certainty the development progress of our existing partnerships for our drug candidates, which drug
candidates will be subject to future collaborations, when such arrangements will be secured, if at
all, and to what degree such arrangements would affect our development plans and capital
requirements.
The successful development of our drug candidates is uncertain and subject to a number of
risks. We cannot be certain that any of our drug candidates will prove to be safe and effective or
will meet all of the applicable regulatory requirements needed to receive and maintain marketing
approval. Data from preclinical studies and clinical trials are susceptible to varying
interpretations that could delay, limit or prevent regulatory clearance. We, the FDA, or other
regulatory authorities may suspend clinical trials at any time if we or they believe that the
subjects participating in such trials are being exposed to unacceptable risks or if such regulatory
agencies find deficiencies in the conduct of the trials or other problems with our products under
development. Delays or rejections may be encountered based on additional governmental regulation,
legislation, administrative action or changes in FDA or other regulatory policy during development
or the review process. Other risks associated with our product development programs are described
in Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q, as updated from time to
time in our subsequent periodic reports and current reports filed with the SEC. Due to these
uncertainties, accurate and meaningful estimates of the ultimate cost to bring a
24
product to market, the timing of completion of any of our product development programs and the
period in which material net cash inflows from any of our product development programs will
commence are unavailable.
Stock-Based Compensation
All grants of stock option awards and restricted stock awards, are recognized in our income
statement 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 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.
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 Risk Factors and Managements 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:
|
|
|
the initiation, timing, progress and results of our preclinical testing, clinical trials,
and other research and development efforts; |
|
|
|
|
the potential funding from our contract with HHS for the development of peramivir; |
|
|
|
|
the potential for a stockpiling order or profit from any order for peramivir; |
|
|
|
|
the potential use of peramivir as a treatment for H1N1 flu (or other strains of flu); |
|
|
|
|
the ongoing and future preclinical or clinical development and commercialization of our
product candidates, including peramivir, forodesine, BCX4208 and other PNP inhibitor and
hepatitis C development programs; |
|
|
|
|
the implementation of our business model, strategic plans for our business, product
candidates and technology; |
|
|
|
|
our ability to establish and maintain collaborations; |
|
|
|
|
plans, programs, progress and potential success of our collaborations, including
Mundipharma for forodesine and Shionogi and Green Cross for peramivir; |
|
|
|
|
the scope of protection we are able to establish and maintain for intellectual property
rights covering our product candidates and technology; |
|
|
|
|
our ability to operate our business without infringing the intellectual property rights
of others; |
|
|
|
|
estimates of our expenses, future revenues, capital requirements and our needs for
additional financing; |
|
|
|
|
the timing or likelihood of regulatory filings and approvals; |
|
|
|
|
our financial performance; and |
|
|
|
|
competitive companies, technologies and our industry. |
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
25
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 3. Quantitative and Qualitative Disclosures about Market Risk
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. Our policy is to
place our cash, cash equivalents and investments 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. 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.
We have not realized any significant losses from our investments.
Item 4. 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 Exchange Act is recorded, processed, summarized and reported in a timely manner
under the Exchange Act. We carried out an evaluation, 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. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2010, the Companys disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports filed or submitted by it under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms, and include controls and procedures designed to ensure that
information required to be disclosed by the Company in such reports is accumulated and communicated
to the Companys management, including the Chief Executive Officer and Chief Financial Officer of
the Company, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting that occurred
during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk Factors
Risks Relating to Our Business
We have incurred substantial losses since our inception in 1986, expect to continue to incur such
losses, and may never be profitable.
Since our inception in 1986, we have not been profitable. We expect to incur additional losses
for the foreseeable future, and our losses could increase as our research and development efforts
progress. To become profitable, we must successfully manufacture and develop drug product
candidates, receive regulatory approval, and successfully commercialize or enter into profitable
agreements with other parties. It could be several years, if ever, before we receive royalties 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.
26
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 clinical trial process is 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 trials, unlikely to help advance a product
to the point of a meaningful collaboration, or unlikely to have a reasonable commercial potential.
We may suffer significant setbacks in pivotal clinical trials, even after earlier clinical trials
show promising results. 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. These side effects could cause us or regulatory
authorities to interrupt, delay or halt clinical trials of a product candidate. These side effects
could also result in the FDA or foreign regulatory authorities refusing to approve the product
candidate for any targeted indications. 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.
Our ability to successfully complete clinical trials is dependent upon many factors, including
but not limited to:
|
|
|
our ability to find suitable clinical sites and investigators to enroll patients; |
|
|
|
|
the availability of and willingness of patients to participate in our clinical trials; |
|
|
|
|
difficulty in maintaining contact with patients to provide complete data after treatment; |
|
|
|
|
our product candidates may not prove to be either safe or effective; |
|
|
|
|
clinical protocols or study procedures may not be adequately designed or followed by the
investigators; |
|
|
|
|
manufacturing or quality control problems could affect the supply of drug product for our
trials; and |
|
|
|
|
delays or changes in requirements by governmental agencies. |
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 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. 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 candidate.
Our clinical trials may not adequately show that our drugs are safe or effective.
Progression of our drug products through the clinical development process is dependent upon
our trials indicating our drugs have adequate safety profiles and show positive therapeutic effects
in the patients being treated by achieving pre-determined endpoints according to the trial
protocols. Failure to achieve either of these could result in delays in our trials or even 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.
If we fail to obtain additional financing, we may be unable to complete the development and
commercialization of our product candidates or continue our research and development programs.
As our clinical programs continue to grow and patient enrollment increases, 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 supporting the development of our product candidates will consume significant capital
resources. Our expenses, revenues and burn 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 HHS for peramivir, the
amount of funding or assistance, if any, we receive from other governmental agencies or other new
partnerships with third parties for the development of our product candidates, the amount or
profitability of any orders for peramivir by any government agency or other party, the progress and
results of our current and proposed clinical trials for our most advanced drug products, the
progress made in the manufacturing of our lead products and the progression of our other programs.
27
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 we
deem market conditions to be favorable. Additional funding, whether through additional sales of
securities or collaborative or other arrangements with corporate partners or from other sources,
including governmental agencies in general and from any 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. 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.
If HHS were to eliminate, reduce or delay funding from our contract, or dispute some of our
incurred costs or other actions taken under the contract, this would have a significant negative
impact on our revenues, cash flows and the development of peramivir.
Our projections of revenues and incoming cash flows are substantially dependent upon HHS
reimbursement for the costs related to our peramivir program. If HHS were to eliminate, reduce or
delay the funding for this program or disallow some of our incurred costs, we would have to obtain
additional funding for development of this drug candidate or significantly reduce or stop the
development effort. Further, HHS may challenge actions that we have taken or may take under our
contract, which could negatively impact our operating results and cash flows.
In contracting with 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.
U.S. government contracts typically contain extraordinary provisions which would not typically be
found in commercial contracts. For instance, government contracts permit unilateral modification by
the government, interpretation of relevant regulations (i.e., federal acquisition regulation
clauses), and the ability to terminate without cause. As such, we may be at a disadvantage as
compared to other commercial contracts. In addition, U.S. government contracts are subject to audit
and modification by the government at its sole discretion. If the government terminates its
contract 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 contract with HHS has special contracting requirements, which create additional risks of
reduction or loss of funding.
We have entered into a contract with HHS for the advanced development of our neuraminidase
inhibitor, peramivir. We also have obligations with HHS under the Indefinite Delivery Indefinite
Quantity contract issued in November 2009. In contracting with HHS, we are subject to various U.S.
government contract requirements, including general clauses for a cost-reimbursement research and
development contract. U.S. government contracts typically contain unfavorable termination
provisions and are subject to audit and modification by the government at its sole discretion,
which subjects us to additional risks. These risks include the ability of the U.S. government to
unilaterally:
|
|
|
terminate or reduce the scope of our contract; and |
|
|
|
|
audit and object to our contract-related costs and fees, including allocated indirect
costs. |
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 for default
provisions does not permit these recoveries.
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. Based on the
results of its audits, the U.S. government may adjust our contract-related costs and fees,
including allocated indirect costs. 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
28
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 successfully commercialize or establish collaborative relationships to commercialize
certain of our drug 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 drug 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 alliances could
include preclinical development, clinical development, regulatory approval, marketing, sales and
distribution of our drug 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. The process of establishing and implementing
collaborative relationships is difficult, time-consuming and involves significant uncertainty,
including:
|
|
|
our partners may seek to renegotiate or terminate their relationships with us due to
unsatisfactory clinical results, a change in business strategy, a change of control or other
reasons; |
|
|
|
|
our contracts for collaborative arrangements may expire; |
|
|
|
|
our partners may choose to pursue alternative technologies, including those of our
competitors; |
|
|
|
|
we may have disputes with a partner that could lead to litigation or arbitration; |
|
|
|
|
we do not have day to day control over the activities of our partners and have limited
control over their decisions; |
|
|
|
|
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; |
|
|
|
|
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; |
|
|
|
|
our partners may not devote sufficient capital or resources towards our product
candidates; and |
|
|
|
|
our partners may not comply with applicable government regulatory requirements. |
If any partner fails to fulfill its 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
compounds would severely affect our business, because if our compounds 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 product or royalty payments.
We have not commercialized any products or technologies and our future revenue generation is
uncertain.
We have not commercialized any products or technologies, and we may never be able to do so. We
currently have no marketing capability and no direct or third-party sales or distribution
capabilities and may be unable to establish these capabilities for products we plan to
commercialize. In addition, our revenue from collaborative agreements is dependent upon the status
of our preclinical and clinical programs. If we fail to advance these programs to the point of
being able to enter into successful collaborations, we will not receive any future event or other
collaborative payments.
29
Our ability to receive revenue from products we commercialize presents several risks,
including:
|
|
|
we or our collaborators may fail to successfully complete clinical trials sufficient to
obtain FDA marketing approval; |
|
|
|
|
many competitors are more experienced and have significantly more resources and their
products could be more cost effective or have a better efficacy or tolerability profile than
our product candidates; |
|
|
|
|
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; |
|
|
|
|
we may fail to employ a comprehensive and effective regulatory strategy which could
result in a delay or failure in commercialization of our products; |
|
|
|
|
our ability to successfully commercialize our products are affected by the competitive
landscape, which cannot be fully known at this time; |
|
|
|
|
reimbursement is constantly changing which could greatly affect usage of our products;
and |
|
|
|
|
any future revenue directly from product sales would depend on our ability to
successfully complete clinical studies, obtain regulatory approvals, manufacture, market and
commercialize any approved drugs. |
If our development collaborations with third parties, such as our development partners and contract
research organizations, fail, the development of our drug product candidates will be delayed or
stopped.
We rely heavily upon other parties for many important stages of our drug development programs,
including but not limited to:
|
|
|
discovery of compounds that cause or enable biological reactions necessary for the
progression of the disease or disorder, called enzyme targets; |
|
|
|
|
licensing or design of enzyme inhibitors for development as drug product candidates; |
|
|
|
|
execution of some preclinical studies and late-stage development for our compounds and
product candidates; |
|
|
|
|
management of our clinical trials, including medical monitoring and data management; |
|
|
|
|
execution of additional toxicology studies that may be required to obtain approval for
our product candidates; and |
|
|
|
|
manufacturing the starting materials and drug substance required to formulate our drug
products and the drug products to be used in both our clinical trials and toxicology
studies. |
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 product 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 drug products 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 the development of our product candidates.
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, and our business, financial condition and results of
operations could be materially adversely affected.
30
Our development of peramivir for influenza is subject to all disclosed drug development and
potential commercialization risks and numerous additional risks. Any potential revenue benefits to
us are highly speculative.
Further development and potential commercialization of peramivir is subject to all the risks
and uncertainties disclosed in our other risk factors relating to drug development and
commercialization. In addition, potential commercialization of peramivir is subject to further
risks, including but not limited to the following:
|
|
|
the i.v. peramivir currently in clinical development may not prove to be safe and
sufficiently effective for market approval in the United States or other major markets; |
|
|
|
|
necessary government or other third party funding and clinical testing for further
development of peramivir may not be available timely, at all, or in sufficient amounts; |
|
|
|
|
the flu prevention or pandemic treatment concerns may not materialize at all, or in the
near future; |
|
|
|
|
advances in flu vaccines or other antivirals, including competitive i.v. antivirals,
could substantially replace potential demand for peramivir; |
|
|
|
|
any substantial demand for pandemic or seasonal flu treatments may occur before peramivir
can be adequately developed and tested in clinical trials; |
|
|
|
|
government use of peramivir may compete with our clinical trials; |
|
|
|
|
peramivir may not prove to be accepted by patients and physicians as a treatment for
seasonal influenza compared to the other currently marketed antiviral drugs, which would
limit revenue from non-governmental entities; |
|
|
|
|
numerous large and well-established pharmaceutical and biotech companies will be
competing to meet the market demand for flu drugs and vaccines; |
|
|
|
|
the only major markets in which patents relating to peramivir have issued or been allowed
are the United States, Canada, Japan, Australia and many contracting and extension states of
the European Union, while no patent applications or issued patents for peramivir exist in
other potentially significant markets; |
|
|
|
|
regulatory authorities may not make needed accommodations to accelerate the drug testing
and approval process for peramivir; and |
|
|
|
|
in the next few years, it is expected that a limited number of governmental entities will
be the primary potential 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 from these entities. |
If any or all of these and other risk factors occur, we will not attain significant revenues
or gross margins from peramivir and our stock price will be adversely affected.
There are risks related to the potential emergency use or sale of peramivir.
To the extent that peramivir is used as a treatment for H1N1 flu (or other strains of flu),
there can be no assurance that it will prove to be generally safe, well tolerated and effective. In
January 2006, the Company received FDA Fast Track designation for peramivir. In October 2009, the
FDA granted Emergency Use Authorization (EUA) for i.v. peramivir, which expired in June 2010 with
the expiration of the declared emergency. As a result, peramivir is now only available in the U.S.
through clinical trials.
Emergency use of peramivir may create certain liabilities for us. 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 peramivir
in the U.S. or in any other country. There is no assurance that the FDA will grant another EUA for
peramivir. 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 emergency use or will achieve market approval in additional countries. In the
event that any emergency use is granted, there is no assurance that any order by any non-U.S.
partnership
31
will be substantial or will be profitable to us. The sale of peramivir, emergency use or other
use of peramivir in any country may create certain liabilities for us.
Because we have limited manufacturing experience, we depend on third-party manufacturers to
manufacture our drug product candidates and the materials for our product candidates. If we cannot
rely on 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 third-party manufacturers to manufacture the materials required for our drug
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 may encounter
difficulties with meeting our requirements, including but not limited to problems involving:
|
|
|
inconsistent production yields; |
|
|
|
|
product liability claims; |
|
|
|
|
difficulties in scaling production to commercial and validation sizes; |
|
|
|
|
interruption of the delivery of materials required for the manufacturing process; |
|
|
|
|
scheduling of plant time with other vendors or unexpected equipment failure; |
|
|
|
|
potential catastrophes that could strike their facilities; |
|
|
|
|
potential impurities in our drug substance or drug products that could affect
availability of product for our clinical trials or future commercialization; |
|
|
|
|
poor quality control and assurance or inadequate process controls; and |
|
|
|
|
lack of compliance with regulations and specifications set forth by the FDA or other
foreign regulatory agencies. |
These contract manufacturers may not be able to manufacture the materials required or our drug
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 FDAs cGMPs 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 at any time may also 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.
If we are unable to enter into agreements with additional manufacturers on commercially
reasonable terms, or if there is poor manufacturing performance on the part of our third-party
manufacturers, we may not be able to complete development of, or market, our product candidates.
Our raw materials, drug substances, and drug products are manufactured by a limited group of
suppliers and some at a single facility. If any of these suppliers were unable to produce these
items, this could significantly impact our supply of drugs for further preclinical testing and
clinical trials.
If we or our partners do not obtain and maintain governmental approvals for our products 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 drug
products. If we or our partners are unable to receive regulatory approval and do not market or sell
our future drug products, we will never receive any revenue from such product sales. In the United
States, we or our partners must obtain FDA approval for each drug that we intend to commercialize.
The
32
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 U.S. The FDA has not approved any of our drug product candidates. 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 managements credibility, our
companys 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-marketing 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. If we get
approval to market our potential products, whether in the U.S. or internationally, we will continue
to be subject to extensive regulatory requirements. These requirements are wide ranging and govern,
among other things:
|
|
|
adverse drug experience reporting regulations; |
|
|
|
|
product promotion; |
|
|
|
|
product manufacturing, including good manufacturing practice requirements; and |
|
|
|
|
product changes or modifications. |
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.
In June 1995, we notified the FDA that we submitted incorrect data for our Phase 2 studies of
BCX-34 applied to the skin for CTCL and psoriasis. In November 1995, the FDA issued a List of
Inspectional Observations, Form FDA 483, which cited our failure to follow good clinical practices.
The FDA also inspected us in June 1996. The focus was on the two 1995 Phase 2 dose-ranging studies
of topical BCX-34 for the treatment of CTCL and psoriasis. As a result of the investigation, the
FDA issued us a Form FDA 483, which cited our failure to follow good clinical practices. We are no
longer developing BCX-34; however, as a consequence of these two investigations, our ongoing and
future clinical studies may receive increased scrutiny, which may delay the regulatory review
process.
Recently enacted health care reform legislation in the United States may adversely affect our
business and the potential return on future drug products.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act
and approved the Health Care and Education Affordability Reconciliation Act (the Acts). These
Acts will affect basic health care benefits, place limitations on health care spending, create
large-scale health services and products purchasing organizations and, more specifically, impose an
annual fee on the sale of branded prescription pharmaceuticals to federal health insurance programs
such as Medicare and Medicaid. Our business strategy is dependent upon the commercial success of
our future drug products, and the volume of sales of our future drug products will depend upon the
availability of reimbursement from third-party payors, including government payors such as Medicare
and Medicaid. The Acts may restrict the coverage and reimbursement of our future drug products by
Medicare, Medicaid and other government programs and impose fees on our sales of future drug
products. While we cannot predict how or to what extent these Acts or health care reform in general
will affect us, restrictions on coverage, reimbursement of our future drug products, or the
imposition of fees on future sales could have a material adverse affect on our business, financial
condition and results of operations.
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. We face, and will continue to face, competition in the
licensing of desirable disease targets, licensing of desirable drug 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:
33
|
|
|
other drug development technologies; |
|
|
|
|
methods of preventing or reducing the incidence of disease, including vaccines; and |
|
|
|
|
new small molecule or other classes of therapeutic agents. |
Developments by others may render our product candidates or technologies obsolete or
noncompetitive.
We and our partners are performing research on or developing products for the treatment of
several disorders including T-cell mediated disorders (T-cell cancers and other autoimmune
indications), gout, CTCL, CLL, influenza, and hepatitis C. We expect to encounter significant
competition for any of the pharmaceutical products we plan to develop. Companies that complete
clinical trials, obtain required regulatory approvals and commence commercial sales of their
products before their competitors may achieve a significant competitive advantage. Such is the case
with Eisais Targretin for CTCL and the current neuraminidase inhibitors marketed by Glaxo Smith
Kline and Roche for influenza. With respect to the neuraminidase inhibitors, these companies may
develop i.v. formulations that could compete with peramivir. 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 in the
fields of PNP, influenza, hepatitis C, and in other therapeutic areas where we have discovery
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:
|
|
|
capital resources; |
|
|
|
|
research and development resources, including personnel and technology; |
|
|
|
|
regulatory experience; |
|
|
|
|
preclinical study and clinical testing experience; |
|
|
|
|
manufacturing and marketing experience; and |
|
|
|
|
production facilities. |
Any of these competitive factors could reduce demand for our products.
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,
trade mark 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 U.S. 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 do not have worldwide patent protection for
our product candidates and our intellectual property rights may not be legally protected or
enforceable in all countries throughout the world. The validity, scope, enforceability and
commercial value of these rights, therefore, is highly uncertain.
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 U.S., 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
34
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 drug 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:
|
|
|
the degree and range of protection any patents will afford against competitors with
similar products; |
|
|
|
|
if and when patents will issue; |
|
|
|
|
if patents do issue we can not 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 |
|
|
|
|
whether or not others will obtain patents claiming aspects similar to those covered by
our patent applications. |
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:
|
|
|
obtain licenses or redesign our products or processes to avoid infringement; |
|
|
|
|
stop using the subject matter claimed in those patents; or |
|
|
|
|
pay damages. |
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.
There is a substantial risk of product liability claims in our business. If we are unable to obtain
sufficient insurance, a product liability claim against us could adversely affect 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 clinical trials in
the amount of approximately $11.0 million. 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:
|
|
|
liabilities that substantially exceed our product liability insurance, which we would
then be required to pay from other sources, if available; |
35
|
|
|
an increase of our product liability insurance rates or the inability to maintain
insurance coverage in the future on acceptable terms, or at all; |
|
|
|
|
withdrawal of clinical trial volunteers or patients; |
|
|
|
|
damage to our reputation and the reputation of our products, resulting in lower sales; |
|
|
|
|
regulatory investigations that could require costly recalls or product modifications; |
|
|
|
|
litigation costs; and |
|
|
|
|
the diversion of managements attention from managing our business. |
If our facility incurs damage or power is lost for a significant length of time, our business will
suffer.
We currently store numerous clinical and stability samples at our facility that could be
damaged if our facility incurred 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 currently store most of our preclinical and clinical data at our facility.
Duplicate copies of most critical data are stored off-site in a bank vault. 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.
If we fail to retain our existing key personnel or fail to attract and retain additional key
personnel, the development of our drug product candidates and the 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, operational and scientific personnel, will harm our business because we
rely upon these personnel for many critical functions of our business.
Our stock price is likely to be highly volatile and the value of your investment could 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 September 30, 2010, the 52-week range of the market price of our stock was
from $4.43 to $12.70 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:
|
|
|
announcements of technological innovations or new products by us or our competitors; |
|
|
|
|
developments or disputes concerning patents or proprietary rights; |
|
|
|
|
additional dilution through sales of our common stock or other derivative securities; |
|
|
|
|
status of new or existing licensing or collaborative agreements and government contracts; |
|
|
|
|
announcements relating to the status of our programs; |
|
|
|
|
we or our partners achieving or failing to achieve development milestones; |
|
|
|
|
publicity regarding actual or potential medical results relating to products under
development by us or our competitors; |
|
|
|
|
publicity regarding certain public health concerns for which we are or may be developing
treatments; |
36
|
|
|
regulatory developments in both the United States and foreign countries; |
|
|
|
|
public concern as to the safety of pharmaceutical products; |
|
|
|
|
actual or anticipated fluctuations in our operating results; |
|
|
|
|
changes in financial estimates or recommendations by securities analysts; |
|
|
|
|
changes in the structure of healthcare payment systems, including developments in price
control legislation; |
|
|
|
|
announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments; |
|
|
|
|
additions or departures of key personnel or members of our board of directors; |
|
|
|
|
purchases or sales of substantial amounts of our stock by existing stockholders,
including officers or directors; |
|
|
|
|
economic and other external factors or other disasters or crises; and |
|
|
|
|
period-to-period fluctuations in our financial results. |
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 could require us to incur substantial unexpected
costs, which would materially and adversely affect our results of operations.
Item 6. Exhibits
See the Exhibit Index attached to this quarterly report and incorporated herein by reference.
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this
8th day of November, 2010.
|
|
|
|
|
|
BIOCRYST PHARMACEUTICALS, INC.
|
|
|
/s/ Jon P. Stonehouse
|
|
|
Jon P. Stonehouse |
|
|
President and Chief Executive Officer |
|
|
|
|
|
/s/ Stuart Grant
|
|
|
Stuart Grant |
|
|
Chief Financial Officer |
|
|
|
|
|
/s/ J. Michael Mills
|
|
|
J. Michael Mills |
|
|
Controller and Principal Accounting Officer |
|
38
INDEX TO EXHIBITS
|
|
|
Number |
|
Description |
3.1
|
|
Third Restated Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 to
the Companys Form 8-K filed December 22, 2006. |
|
|
|
3.2
|
|
Certificate of Amendment to the Third Restated Certificate of Incorporation of Registrant.
Incorporated by reference to Exhibit 3.1 to the Companys Form 8-K filed July 24, 2007. |
|
|
|
3.3
|
|
Certificate of Increase of Authorized Number of Shares of Series B Junior Participating Preferred
Stock. Incorporated by reference to Exhibit 3.1 to the Companys Form 8-K filed November 4, 2008. |
|
|
|
3.4
|
|
Amended and Restated Bylaws of Registrant effective October 29, 2008. Incorporated by reference to
Exhibit 3.2 to the Companys Form 8-K filed November 4, 2008. |
|
|
|
4.1
|
|
Rights Agreement, dated as of June 17, 2002, by and between the Company and American Stock Transfer &
Trust Company, as Rights Agent, which includes the Certificate of Designation for the Series B Junior
Participating Preferred Stock as Exhibit A and the form of Rights Certificate as Exhibit B.
Incorporated by reference to Exhibit 4.1 to the Companys Form 8-A filed June 17, 2002. |
|
|
|
4.2
|
|
Amendment to Rights Agreement, dated as of August 5, 2007. Incorporated by reference to Exhibit 4.2 of
the Companys Form 10-Q filed August 9, 2007. |
|
|
|
(31.1)
|
|
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
(31.2)
|
|
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
(32.1)
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
(32.2)
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
39