March 31, 2007 (State of other jurisdiction of 62-1413174 Accelerated filerþ Non-accelerated filero
SECURITIES AND EXCHANGE COMMISSION
For the quarterly period ended September 30, 2006
DELAWAREBIOCRYST PHARMACEUTICALS, INC.(Exact name of registrant as specified in its charter)DELAWARE62-1413174
incorporation or organization)
(I.R.S. employer
identification no.)2190 Parkway Lake Drive; Birmingham, Alabama 35244(Address of principal executive offices)(205) 444-4600(Registrant's telephone number, including area code)
(Address of principal executive offices)
(Registrant’s telephone number, including area code)YesxNooLarge accelerated filero xYesoNoxNovember 1, 2006April 30, 2007 was 29,233,888.29,360,050.
1
2006 2005 (Unaudited) (Note 1) Assets Cash and cash equivalents $ 7,733 $ 29,157 Marketable securities 36,082 21,103 Receivable from collaboration 3,139 30,000 Prepaid expenses and other current assets 1,705 840 Total current assets 48,659 81,100 Marketable securities 17,813 9,728 Furniture and equipment, net 2,679 2,408 Patents and licenses, net 260 187 Deferred collaboration expense 10,787 5,825 Total assets $ 80,198 $ 99,248 Liabilities and Stockholders’ Equity Accounts payable $ 7,974 $ 8,813 Accrued expenses 1,630 1,252 Accrued vacation 602 443 Deferred revenue 2,699 874 Total current liabilities 12,905 11,382 Deferred revenue 37,271 29,426 Stockholders' equity: Preferred stock: shares authorized – 5,000 Series A Convertible Preferred stock, $.01 par value; shares authorized – 1,800; shares issued and outstanding – none Series B Junior Participating Preferred Stock, $.001 par value; shares authorized – 45; shares issued and outstanding – none Common stock, $.01 par value; shares authorized – 45,000; shares issued and outstanding – 29,232 in 2006 and 28,814 in 2005 292 288 Additional paid-in capital 215,107 210,015 Accumulated other comprehensive income 54 — Accumulated deficit (185,431 ) (151,863 ) Total stockholders' equity 30,022 58,440 Total liabilities and stockholders' equity $ 80,198 $ 99,248 2
BALANCE SHEETSSeptember 30, 2006March 31, 2007 and December 31, 20052006
(In thousands, except per share data) 2007 2006 (Unaudited) (Note 1) Cash and cash equivalents $ 9,207 $ 4,418 Marketable securities 27,849 33,040 Receivables from collaborations — billed 3,871 249 Receivables from collaborations — unbilled 4,496 4,307 Prepaid expenses and other current assets 1,865 3,776 Total current assets 47,288 45,790 Marketable securities 5,793 8,778 Furniture and equipment, net 3,062 3,029 Patents and licenses, net 303 290 Deferred collaboration expense 11,470 10,598 Total assets $ 67,916 $ 68,485 Accounts payable $ 8,209 $ 5,887 Accrued expenses 1,537 1,507 Accrued vacation 672 641 Deferred revenue 3,161 2,699 Total current liabilities 13,579 10,734 Deferred revenue 40,344 36,596 Stockholders’ equity: Preferred stock: shares authorized — 5,000 Series B Junior Participating Preferred Stock, $.001 par value; shares authorized — 45; shares issued and outstanding — none Common stock, $.01 par value: shares authorized —
45,000; shares issued and outstanding —
29,350 in 2007 and 29,249 in 2006 294 292 Additional paid-in capital 217,979 216,311 Accumulated other comprehensive income 26 33 Accumulated deficit (204,306 ) (195,481 ) Total stockholders’ equity 13,993 21,155 Total liabilities and stockholders’ equity $ 67,916 $ 68,485
|
| Three Months |
| Nine Months |
| ||||||||
|
|
|
| ||||||||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
| ||||
|
|
|
|
|
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaborative and other research and development |
| $ | 1,790 |
| $ | 32 |
| $ | 4,120 |
| $ | 131 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 16,650 |
|
| 7,164 |
|
| 35,884 |
|
| 17,602 |
|
General and administrative |
|
| 1,599 |
|
| 795 |
|
| 4,478 |
|
| 2,218 |
|
|
|
|
|
|
| ||||||||
Total expenses |
|
| 18,249 |
|
| 7,959 |
|
| 40,362 |
|
| 19,820 |
|
|
|
|
|
|
| ||||||||
Loss from operations |
|
| (16,459 | ) |
| (7,927 | ) |
| (36,242 | ) |
| (19,689 | ) |
Interest and other income |
|
| 856 |
|
| 282 |
|
| 2,674 |
|
| 751 |
|
|
|
|
|
|
| ||||||||
Net loss |
| $ | (15,603 | ) | $ | (7,645 | ) | $ | (33,568 | ) | $ | (18,938 | ) |
|
|
|
|
|
| ||||||||
Basic and diluted net loss per common share |
| $ | (.53 | ) | $ | (.29 | ) | $ | (1.15 | ) | $ | (.75 | ) |
|
|
|
|
|
| ||||||||
Weighted average shares outstanding |
|
| 29,222 |
|
| 26,209 |
|
| 29,116 |
|
| 25,336 |
|
2007 | 2006 | |||||||
Revenues: | ||||||||
Collaborative and other research and development | $ | 9,159 | $ | 771 | ||||
Expenses: | ||||||||
Research and development | 16,195 | 8,043 | ||||||
General and administrative | 2,372 | 1,495 | ||||||
Total expenses | 18,567 | 9,538 | ||||||
Loss from operations | (9,408 | ) | (8,767 | ) | ||||
Interest and other income | 583 | 885 | ||||||
Net loss | $ | (8,825 | ) | $ | (7,882 | ) | ||
Basic and diluted net loss per common share | $ | (.30 | ) | $ | (.27 | ) | ||
Weighted average shares outstanding | 29,274 | 28,938 |
3
|
| 2006 |
| 2005 |
| ||
|
|
|
| ||||
Operating activities: |
|
|
|
|
|
|
|
Net loss |
| $ | (33,568 | ) | $ | (18,938 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 593 |
|
| 657 |
|
Stock-based compensation expense |
|
| 2,238 |
|
| 20 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Receivable from collaboration |
|
| 26,861 |
|
| — |
|
Prepaid expenses and other current assets |
|
| (865 | ) |
| 55 |
|
Deferred collaboration expense |
|
| (4,962 | ) |
| — |
|
Accounts payable and accrued expenses |
|
| (302 | ) |
| 613 |
|
Deferred revenue |
|
| 9,670 |
|
| — |
|
|
|
|
| ||||
Net cash used in operating activities |
|
| (335 | ) |
| (17,593 | ) |
Investing activities: |
|
|
|
|
|
|
|
Acquisitions of furniture and equipment |
|
| (859 | ) |
| (179 | ) |
Purchases of patents and licenses |
|
| (78 | ) |
| (38 | ) |
Purchases of marketable securities |
|
| (42,101 | ) |
| (16,050 | ) |
Maturities of marketable securities |
|
| 19,091 |
|
| 10,129 |
|
|
|
|
| ||||
Net cash used in investing activities |
|
| (23,947 | ) |
| (6,138 | ) |
Financing activities: |
|
|
|
|
|
|
|
Employee stock purchase plan sales |
|
| 191 |
|
| 137 |
|
Exercise of stock options |
|
| 2,667 |
|
| 1,168 |
|
Sale of common stock, net of issuance costs |
|
| — |
|
| 22,685 |
|
|
|
|
| ||||
Net cash provided by financing activities |
|
| 2,858 |
|
| 23,990 |
|
|
|
|
| ||||
(Decrease) increase in cash and cash equivalents |
|
| (21,424 | ) |
| 259 |
|
Cash and cash equivalents at beginning of period |
|
| 29,157 |
|
| 8,838 |
|
|
|
|
| ||||
Cash and cash equivalents at end of period |
| $ | 7,733 |
| $ | 9,097 |
|
|
|
|
|
2007 | 2006 | |||||||
Operating activities: | ||||||||
Net loss | $ | (8,825 | ) | $ | (7,882 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 231 | 205 | ||||||
Stock-based compensation expense | 1,376 | 420 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables from collaborations | (3,811 | ) | 29,370 | |||||
Prepaid expenses and other current assets | 1,911 | (1,887 | ) | |||||
Deferred collaboration expense | (872 | ) | (2,075 | ) | ||||
Accounts payable and accrued expenses | 2,383 | (1,663 | ) | |||||
Deferred revenue | 4,210 | 9,859 | ||||||
Net cash (used in) provided by operating activities | (3,397 | ) | 26,347 | |||||
Investing activities: | ||||||||
Acquisitions of furniture and equipment | (261 | ) | (556 | ) | ||||
Purchases of patents and licenses | (16 | ) | (36 | ) | ||||
Purchases of marketable securities | — | (17,639 | ) | |||||
Maturities of marketable securities | 8,169 | 3,500 | ||||||
Net cash provided by (used in) investing activities | 7,892 | (14,731 | ) | |||||
Financing activities: | ||||||||
Employee stock purchase plan sales | 129 | 100 | ||||||
Exercise of stock options | 165 | 2,142 | ||||||
Net cash provided by financing activities | 294 | 2,242 | ||||||
Increase in cash and cash equivalents | 4,789 | 13,858 | ||||||
Cash and cash equivalents at beginning of period | 4,418 | 29,157 | ||||||
Cash and cash equivalents at end of period | $ | 9,207 | $ | 43,015 | ||||
4
1. Summary of
Certain amounts
5
following table. Note that amounts are in thousands.
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, 2007 | March 31, 2006 | |||||||
Net loss | $ | (8,825 | ) | $ | (7,882 | ) | ||
Unrealized loss on securities available-for-sale | (7 | ) | — | |||||
Other comprehensive income (loss) | $ | (8,832 | ) | $ | (7,882 | ) | ||
6
5
Marketable Securities7
Accumulated Other Comprehensive Income
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 $54,251 of unrealized gains on its securities that are included in accumulated other comprehensive income at September 30, 2006. Other comprehensive income for the three and nine months ended September 30, 2006 appearsconformity with accounting principles generally accepted in the following table. NoteUnited States requires management to make estimates and assumptions that affect the amounts are in thousands.
|
| Three Months |
| Nine Months |
| ||
|
|
|
| ||||
Net loss |
| $ | (15,603 | ) | $ | (33,568 | ) |
Unrealized gain on securities available-for-sale |
|
| 45 |
|
| 54 |
|
|
|
|
| ||||
Other comprehensive income |
| $ | (15,558 | ) | $ | (33,514 | ) |
|
|
|
|
Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“Statement No. 123R”), which revises Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“Statement No. 123”), supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and amends Statement of Financial Accounting Standard No. 95, Statement of Cash Flows. Generally, the approach in Statement No. 123R is similar to the approach described in Statement No. 123. However, Statement No. 123R requires all share-based payments to employees, including grants of stock options, to be recognizedreported in the income statement based on their fair values. Pro forma disclosure, allowed by Statement No. 123, is no longer an alternative.
In March 2005, the Securitiesfinancial statements. Examples include accrued clinical and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107, preclinical expenses. Actual results could differ from those estimates.
6
Statement No. 123R permits companies to adopt its requirements using one of two methods, a “modified prospective” transition method or a “modified retrospective” transition method. Both methods are similar, except that the modified retrospective transition method permits entities to restate, based on the amounts previously recognized under Statement No. 123 for purposes of pro forma disclosures, either (a) all prior periods presented or (b) prior interim periods of the year of adoption.
At September 30, 2006, the Company had two stock-based employee compensation plans, the Stock Incentive Plan (the “Plan”) and the Employee Stock Purchase Plan (the “ESPP”), which are described in more detail below. Prior to January 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of APB No. 25 and other related Interpretations, as permitted by Statement No. 123. No stock-based compensation cost related to the Company’s employees was recognized in the Statements of Operations for any period ending prior to January 1, 2006, as all options granted by the Company had exercise prices equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement No. 123R, using the modified prospective transition method. Under that transition method, total compensation cost of $2,237,538 ($2,167,629 of expense related to the Plan and $69,909 of expense related to the ESPP) was recognized during the first nine months of 2006 and includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of Statement No. 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of Statement No. 123R. In accordance with the modified prospective transition method adopted, results for prior periods have not been restated. The following table illustrates the pro forma effect on net loss and net loss per share had the Company applied the fair value recognition provisions of Statement No. 123R for the three and nine month periods ended September 30, 2005. For purposes of the pro forma disclosure, the value of the options was estimated using a Black-Scholes option pricing model and amortized to expense over the vesting periods of the options using a straight-line expense attribution method. Note that amounts are in thousands, except per share data.
|
| Three Months |
| Nine Months |
| ||
|
|
|
| ||||
Net loss as reported |
| $ | (7,645 | ) | $ | (18,938 | ) |
Add stock-based compensation expense for consultants included in reported net loss |
|
| 7 |
|
| 20 |
|
Deduct total stock-based compensation expense for employees and consultants as determined under Statement No. 123 |
|
| (449 | ) |
| (1,312 | ) |
|
|
|
| ||||
Pro forma net loss |
| $ | (8,087 | ) | $ | (20,230 | ) |
|
|
|
| ||||
Amounts per common share: |
|
|
|
|
|
|
|
Net loss per share, as reported |
| $ | (.29 | ) | $ | (.75 | ) |
Pro forma net loss per share |
| $ | (.31 | ) | $ | (.80 | ) |
For each option award granted under the Plan during the first nine months of 2005, the Black-Scholes option pricing model used the assumptions in the table below.
| ||||
|
| |||
|
|
| ||
|
|
| ||
|
|
|
The weighted average grant date fair value of the options granted under the Plan during the first nine months of 2005 was $3.40.
Statement 123R also requires that the benefits from tax deductions in excess of recognized compensation cost should be reported as a financing cash flow rather than as an operating cash flow. The Company has never recognized any benefits from such tax deductions, as the Company has always maintained a loss position.
7
Stock Incentive Plan
The Company grants stock option incentiveawards and restricted stock awards to employees, directors, and consultants of the Company under the Plan. TheStock Incentive Plan most recently(“Plan”), as amended and restated the Company’s 1991 Stock Incentiveon March 7, 2006. The Plan and was subsequently approved by the Company’s stockholders on May 17, 2006. The Plan2006 and permits the Company to issue stock options to its employees, directors, and consultantsawards for approximately 55.0 million shares of common stock.stock over the term of the Plan as amended and restated. Under the Plan, stock option incentive awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. OptionsStock option awards granted to employees and consultants 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. OptionsStock option awards granted to non-employee directors of the Company generally vest over one year. All optionsstock option awards have contractual terms of 10 years. The vesting exercise provisions of optionsall awards granted under the 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 Plan.
| ||||
|
| |||
|
|
| ||
|
|
| ||
|
|
|
2007 | 2006 | |||||||
Expected Life | 5.7 | 5.9 | ||||||
Expected Volatility | 77.6 | % | 85.7 | % | ||||
Expected Dividend Yield | 0.0 | % | 0.0 | % | ||||
Risk-Free Interest Rate | 4.7 | % | 4.4 | % |
|
| Options |
| Options |
| Weighted |
| |||
|
|
|
|
| ||||||
Balance December 31, 2005 |
|
| 443,047 |
|
| 3,241,351 |
| $ | 7.60 |
|
Options plan amended |
|
| 1,500,000 |
|
| — |
|
| — |
|
Options granted |
|
| (1,115,904 | ) |
| 1,115,904 |
|
| 12.43 |
|
Options exercised |
|
| — |
|
| (394,115 | ) |
| 6.85 |
|
Options canceled |
|
| 1,800 |
|
| (1,800 | ) |
| 22.81 |
|
|
|
|
|
|
|
| ||||
Balance September 30, 2006 |
|
| 828,943 |
|
| 3,961,340 |
|
| 9.03 |
|
|
|
|
|
|
|
|
Weighted | ||||||||||||
Awards | Awards | Average | ||||||||||
Available | Outstanding | Exercise Price | ||||||||||
Balance December 31, 2006 | 820,754 | 3,952,568 | $ | 8.94 | ||||||||
Stock option awards granted | (492,833 | ) | 492,833 | 11.69 | ||||||||
Restricted stock awards granted | (50,000 | ) | 50,000 | — | ||||||||
Stock option awards exercised | — | (36,244 | ) | 4.55 | ||||||||
Stock option awards canceled | 1,488 | (1,488 | ) | 22.72 | ||||||||
Balance March 31, 2007 | 279,409 | 4,457,669 | 9.17 | |||||||||
8
The following table summarizes, at September 30, 2006, by price range: (1) for options outstanding under the Plan, the number of options outstanding, their weighted average remaining life and their weighted average exercise price; and (2) for options exercisable under the Plan, the number of options exercisable and their weighted average exercise price:
|
| Outstanding |
| Exercisable |
| |||||||||||
|
|
|
| |||||||||||||
Range |
|
| Number |
|
| Life |
|
| Price |
|
| Number |
|
| Price |
|
|
|
|
|
|
| |||||||||||
$0 to 3 |
|
| 469,907 |
|
| 6.2 |
| $ | 1.15 |
|
| 421,769 |
| $ | 1.18 |
|
3 to 6 |
|
| 708,627 |
|
| 7.9 |
|
| 4.18 |
|
| 379,426 |
|
| 4.02 |
|
6 to 9 |
|
| 1,156,469 |
|
| 5.1 |
|
| 7.78 |
|
| 930,633 |
|
| 7.68 |
|
9 to 12 |
|
| 121,453 |
|
| 9.7 |
|
| 10.33 |
|
| 9,953 |
|
| 9.88 |
|
12 to 15 |
|
| 1,196,617 |
|
| 8.1 |
|
| 12.88 |
|
| 249,604 |
|
| 13.79 |
|
15 to 18 |
|
| 78,327 |
|
| 1.0 |
|
| 16.34 |
|
| 75,827 |
|
| 16.32 |
|
18 to 21 |
|
| 6,200 |
|
| 9.4 |
|
| 19.34 |
|
| — |
|
| — |
|
21 to 24 |
|
| 204,120 |
|
| 3.2 |
|
| 22.84 |
|
| 204,120 |
|
| 22.84 |
|
24 to 30 |
|
| 19,620 |
|
| 3.6 |
|
| 26.83 |
|
| 19,620 |
|
| 26.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
$0 to 30 |
|
| 3,961,340 |
|
| 6.6 |
|
| 9.03 |
|
| 2,290,952 |
|
| 8.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual life of options exercisable under the Plan at September 30, 2006 is 4.8 years.
The aggregate intrinsic value of options outstanding under the Plan at September 30, 2006 is $35,754,032. The aggregate intrinsic value of options currently exercisable under the Plan at September 30, 2006 is $19,141,482. The aggregate intrinsic value represents the value (the period’s closing market price, less the exercise price, times the number of in-the-money options) that would have been received by all option holders under the Plan had they exercised their options at the end of the period.
The following table summarizes, at September 30, 2006 the number of non-vested options under the Plan and their weighted average grant date fair value:
|
| Number |
| Weighted |
| ||
|
|
|
| ||||
Balance December 31, 2005 |
|
| 1,042,181 |
| $ | 3.82 |
|
Options granted |
|
| 1,115,904 |
|
| 8.70 |
|
Options vested |
|
| (487,697 | ) |
| 3.82 |
|
Options canceled |
|
| — |
|
| — |
|
|
|
|
|
|
| ||
Balance September 30, 2006 |
|
| 1,670,388 |
|
| 7.08 |
|
The total fair value of the options vested under the Plan during the first nine months of 2006 was $1,861,806.
The number of options vested and expected to vest as of September 30, 2006 is 3,719,481. The weighted average exercise price of those options is $9.05 and their weighted average remaining contractual life is 6.5 years.
99,61384,656 shares remain available for purchase at September 30, 2006.March 31, 2007. 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 25,98814,957 shares during the first ninethree months of 20062007 under the ESPP. Expense of $69,909 related to the ESPP was recognized during the first nine months of 2006, whileThe fair value expense of $51,372 related tooptions granted under the ESPP would have been recognized during the first nine months of 2005 had the Company not followed the guidance of APB No. 25. For both periods, expense was determined using a Black-Scholes option pricing model.As of September 30, 2006, there was approximately $9,754,430 of total unrecognized compensation cost related to non-vested employee stock option awards granted under the Plan and the ESPP. That cost is expected to be recognized as follows: $1,077,213 in the remainder of 2006, $3,370,558 in 2007, $2,533,441 in 2008, $2,011,857 in 2009, and $761,361 in 2010.92.Note 3 — Collaborative Agreementsand February 2006, the Company announced a collaborative relationshipsrelationship with F.Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (“Roche”) for the development and commercialization of BCX-4208. In February 2006, the Company announced a collaborative relationship with Mundipharma International Holdings Limited (“Mundipharma”), respectively. for the development and commercialization of Fodosine™. For these license agreements, the Company has decided to defer the upfront payments received in these collaborations over the remaining life of the patents of the compounds licensed, which is through August 2023 for the Roche agreement and through October 2017 for the Mundipharma agreement. These upfront payments have been classified as deferred revenue on the balance sheet and the significant direct costs incurred upon entering into these licensing agreements related to sublicense fees paid to Albert Einstein College of Medicine (“AECOM”)AECOM and Industrial Research, Ltd. (“IRL”)IRL have been recorded as deferred assets on the balance sheet. As the Company recognizes the revenue related to these agreements, which began in February 2006 for the Mundipharma agreement and is expected to begin in the fourth quarter ofOctober 2006 for the Roche agreement, the Company will also recognize the proportionate amount of expense related to the deferred assets. addition, in June 2006 and in February 2007, the Company announced aentered into collaborative relationshiprelationships with Green Cross Corporation (“Green Cross”). and Shionogi & Co., Ltd. (“Shionogi”), respectively, for the development and commercialization of peramivir. Consistent with the accounting treatment in the Roche and Mundipharma license arrangements, the Company has deferred the upfront payment made by Green Cross and the sublicense fee payable by the Company to the University of Alabama at Birmingham (“UAB”).UAB. The recognition of the revenue and the expense from the Green Cross agreement began in August 2006 and will continue through November 2009. The upfront payment from Shionogi, which was received by the Company in April 2007, has not been recorded as a receivable as of March 31, 2007 since neither party had completed their performance obligations prior to quarter end. The recognition of the revenue and the expense from the Shionogi agreement will begin in April 2007 and will continue through December 2017.3.9
Also in September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”). This bulletin expresses the Staff’s views regarding the process of quantifying financial statement misstatements. The interpretations in this bulletin were issued to address diversity in practice in quantifying financial statement misstatements and the potential under current practice for the accumulation of improper amounts on the balance sheet. SAB No. 108 is effective for annual financial statements starting with the year ending December 31, 2006. The Company is evaluating the impact of this bulletin and based on current information, the Company does not believe that it will have a material impact on its financial statements.
In July 2006, the FASB issued Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN No. 48”). This interpretation creates a single model to address uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The interpretation also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for years beginning after December 15, 2006. Management of the Company is evaluating the impact of this pronouncement, but does not anticipate that it will have a significant impact on its financial statements.
results may differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below as well as those discussed in other filings made by the Company with the Securities and Exchange Commission, including the Company’s Annual Report onForm 10-K, Quarterly Reports onForm 10-Q and current reports onForm . • • • • • • 10108-K.8-Kidentifying and licensing enzyme targets; drug discovery; structure-based design of drug candidates; small-scale synthesis of compounds; conducting preclinical studies and clinical trials; establishing collaborative relationships with third parties for contract research related to the development of our drug candidates to support manufacturing, clinical development and regulatory compliance;
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| establishing collaborative relationships with biotechnology or pharmaceutical companies and governmental agencies or other third parties for the further development and potential commercialization of our compounds; | ||
• | recruiting our scientific and management personnel; | ||
• | establishing laboratory facilities; and | ||
• | raising capital. |
Future 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.
Significant direct costs incurred upon entering into a licensing arrangement, such as our sublicense fees to AECOM and IRL, are deferred and charged to expense in proportion to the revenue recognized. Under the guidance of EITF Issue 99-19 and EITF Issue 01-14, 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.
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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. If royalties can not be reasonably estimated, revenue is recognized upon receipt of royalty statements from the licensee. We have not received any royalties from the sale of licensed pharmaceutical products.
It could be several years, if ever, before we will recognize significant revenue from royalties received pursuant to our license agreements or revenue directly from product sales. Future revenues, if any, are likely to fluctuate substantially from quarter to quarter.
We have incurred operating losses since our inception. Our accumulated deficit at September 30, 2006 was $185.4 million. We expect to incur substantial expenditures relating to the development of our current and future drug candidates. During the three years ended December 31, 2005, we spent 54.6% of our research and development expenses on contract research and development, including:
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The above expenditures for contract research and development for our current and future drug candidates will vary from quarter-to-quarter depending on the status of our research and development projects. For example, we began clinical development of our neuraminidase inhibitor, peramivir, by starting the first clinical trial with an intravenous formulation during the first quarter of 2006. We also began the scale-up manufacturing required for validation of the manufacturing process for both peramivir and our lead product Fodosine™, BCX-1777, an inhibitor of the enzyme purine nucleoside phosphorylase (“PNP”). Fodosine™ is currently in various stages of clinical development in multiple oncology indications, including a Phase IIa trial in T-cell leukemia. We plan to initiate a pivotal Phase IIb trial with Fodosine™ by the end of 2006 under the terms of a Special Protocol Assessment (“SPA”) letter from the U.S. Food and Drug Administration (“FDA”) and we are also in the process of initiating Phase II trials with peramivir for the 2006-2007 flu season. As these trials progress and additional trials are started, our costs for clinical studies will increase significantly.
Changes in our existing and future research and development and collaborative relationships also will impact the status of our research and development projects. For example, in November 2005 we entered into a license agreement with Roche for the worldwide development and commercialization for our second PNP inhibitor, BCX-4208. In addition to an upfront payment plus an advance payment for specific manufacturing we performed, Roche has assumed financial responsibility for the future development costs associated with this program. In February 2006, we licensed Fodosine™ to Mundipharma for the development and commercialization of this drug in Europe, Asia and Australasia. In addition to the upfront payment of $10 million, Mundipharma will pay 50% of the clinical development costs we will incur for Fodosine™ on existing and planned clinical trials, but their portion shall not exceed $10 million.
Although we may, in some cases, be able to control the timing of development expenses, in part by accelerating or decelerating certain of these costs, many of these costs will be incurred irrespective of whether we are able to discover drug candidates or obtain collaborative partners for commercialization. As a result, we believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. If we fail to meet the research, clinical and financial expectations of securities analysts and investors, it could have a material adverse effect on the price of our common stock.
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Results of Operations (three months ended September 30, 2006 compared to the three months ended September 30, 2005)
Collaborative and other research and development revenues increased to $1,790,000 in the three months ended September 30, 2006 compared to $32,000 in the three months ended September 30, 2005, due to the recognition of revenue related to our collaboration with Mundipharma for the development and commercialization of forodesine hydrochloride (Fodosine™) in Europe and Asia. For this collaboration, we began recognizing the $10 million up front payment in February 2006, which will continue until it is fully recognized in October 2017. In addition, we recognized revenue for the portion of clinical expenses incurred during the quarter that will be reimbursed by Mundipharma and Roche according to the terms of the respective collaborations.
Research and development (“R&D”) expenses increased 132.4% to $16,650,000 in the three months ended September 30, 2006 from $7,164,000 in the three months ended September 30, 2005. The increase is primarily attributable to expenses for contract research and synthesis of compound related to the clinical development and manufacturing of our drug candidates, Fodosine™ and peramivir. We are currently in several additional clinical trials with Fodosine™ as compared to the same period in 2005 and we initiated clinical testing of peramivir late in the first quarter of 2006. In addition, we have also started the process of manufacturing validation for both Fodosine™ and peramivir. There was also an increase in compensation cost for the third quarter of 2006 compared to the third quarter of 2005, primarily related to the Company’s adoption of Statement No. 123R, which resulted in $501,000 of share-based compensation expense for the third quarter 2006, and the increase in headcount during 2006.
General and administrative expenses for the three months ended September 30, 2006 increased 87.5% to $1,599,000 as compared to $795,000 for the same period in 2005, primarily due to $560,000 of share-based compensation expense related to the adoption of Statement No. 123R, additional employment expenses related to an increase in personnel, and an increase in professional fees.
Interest income for the three months ended September 30, 2006 was $856,000, a 203.5% increase as compared to the same period in 2005. This increase was due to a higher average cash balance during the third quarter of 2006.
Results of Operations (nine months ended September 30, 2006 compared to the nine months ended September 30, 2005)
Collaborative and other research and development revenues increased to $4,120,000 for the nine months ended September 30, 2006 compared to $131,000 for the nine months ended September 30, 2005, due to the recognition of revenue related to our collaboration with Mundipharma for the development and commercialization of Fodosine™ in Europe and Asia. For this collaboration, we began recognizing the $10 million up front payment in February 2006, which will continue until it is fully recognized in October 2017. In addition, we recognized revenue for clinical expenses that will be reimbursed by Mundipharma and Roche according to the terms of the respective collaborations.
R&D expenses increased 103.9% to $35,884,000 for the nine months ended September 30, 2006 from $17,602,000 for the nine months ended September 30, 2005. The increase is primarily attributable to expenses for contract research and synthesis of compounds related to the clinical development and manufacturing of our drug candidates, Fodosine™ and peramivir. We are currently in several additional clinical trials with Fodosine™ as compared to the same period in 2005 and we initiated clinical testing of peramivir late in the first quarter of 2006. In addition, we have also started the process of manufacturing validation for both Fodosine™ and peramivir. There was also an increase in compensation cost for the first nine months of 2006 compared to the first nine months of 2005, primarily related to the Company’s adoption of Statement No. 123R, which resulted in $1,017,000 of share-based compensation expense, and the increase in headcount during 2006.
General and administrative expenses for the nine months ended September 30, 2006 increased 101.9% to $4,478,000 as compared to $2,218,000 for the same period in 2005, primarily due to $1,221,000 of share-based compensation expense related to the adoption of Statement No. 123R, additional compensation expense related to an increase in personnel, and an increase in professional fees primarily related to our recent collaborations.
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Interest income for the nine months ended September 30, 2006 was $2,674,000, a 256.1% increase as compared to the same period in 2005. This increase was due to a higher average cash balance during the third quarter of 2006 resulting from receipt of the upfront payments related to the Roche and Mundipharma collaborations.
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 debt securities. For example, during December 2005, we raised $30.0 million (approximately $29.9 million net of expenses) through a sale of 2,228,829 shares of our common stock. Other sources of funding have included the following:
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In addition, we have attempted to contain costs and reduce cash flow requirements by renting scientific equipment and facilities, contracting with other parties to conduct certain research and development and using consultants. We expect to incur additional expenses, potentially resulting in significant losses, as we continue to pursue our research and development activities, undertake additional preclinical studies and clinical trials of compounds which have been or may be discovered and as we validate the manufacturing process of our lead compounds. 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.
We invest our excess cash principally in U.S. marketable securities from a diversified portfolio of institutions with strong credit ratings and in U.S. government and agency bills and notes, and by policy, limit the amount of credit exposure at any one institution. These investments are generally not collateralized and mature within two years. We have not realized any losses from such investments.
We have financed some of our equipment purchases with lease lines of credit. In July 2000, we renegotiated our lease for our current facilities, which will expire on June 30, 2010. We have an option to renew the lease for an additional five years at the current market rate in effect on June 30, 2010 and a one-time option to terminate the lease on June 30, 2008 for a termination fee of approximately $124,000. The lease, as amended effective December 1, 2005 for a reduction of 7,200 square feet, requires us to pay monthly rent starting at $36,855 per month in December 2005 and escalating annually to a minimum of $41,481 per month in the final year, plus our pro rata share of operating expenses and real estate taxes in excess of base year amounts. As part of the lease, we have deposited a U.S. Treasury security in escrow for the payment of rent and performance of other obligations specified in the lease. This pledged amount is currently $132,000, which can be decreased by $65,000 annually throughout the term of the lease. Currently, we have approximately 3,600 square feet being subleased, which can be terminated with 30 days written notice.
In August 2006, we opened an office in Cary, North Carolina where we are currently leasing 3,375 square feet of office space for $4,500 per month.
We have not incurred any significant charges related to building renovations since 2001, but we currently have plans for some renovations and for the purchase of additional scientific equipment. Our anticipated capital expenditures for 2006 related to these items are not expected to exceed $1.5 million.
At December 31, 2005, we had long-term operating lease obligations, which provide for aggregate minimum payments of $533,904 in 2006, $486,119 in 2007 and $496,834 in 2008. These obligations include the future rental of our operating facility.
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We plan to finance our needs principally from the following:
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As of September 30, 2006, we had $61.6 million in cash, cash equivalents and securities. We believe that our currently available funds will be 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. Our long-term capital requirements and the adequacy of our available funds will depend upon many factors, including:
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To date, we have financed our operations primarily from sale of our equity securities and cash from collaborations and, to a lesser extent, interest. For the third quarter 2006, our average monthly cash burn from normal operations was approximately $4.4 million. For the year, our cash, cash equivalents and securities balance has increased from $60 million as of December 31, 2005 to $61.6 million as of September 30, 2006, primarily due to cash received from collaborations, totaling approximately $31.8 million net of sublicense fees, less the monthly cash burn from operations.
In June 2006 the Department of Health and Human Services (“HHS”) issued a Request for Proposal (“RFP”) for the potential funding of companies with antiviral drugs in development for both seasonal and avian influenza. We believe our peramivir program meets substantially all of the requirements outlined in the RFP and therefore we submitted a proposal to HHS on July 20, 2006 and we hope to be considered a competitive candidate for some of the funding to be made available under the RFP. We have made certain commitments related to the advancement of peramivir for both our intramuscular and intravenous formulations and we are currently preparing to begin two Phase II trials to be executed during the 2006-2007 influenza season using intravenous and intramuscular formulations. We are currently completing the Phase I trials to support these planned Phase II trials.
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In addition, on August 7, 2006, we announced that we had received a SPA letter from the FDA for the initiation of a pivotal clinical trial of our lead anti-cancer compound Fodosine™. The SPA letter documents the agreement between the FDA and the Company regarding the trial design’s suitability to support regulatory approval. We expect to initiate a multi-center, open-label pivotal clinical trial later this year with the goal of enrolling 100 patients.
Primarily as a result of the Phase II peramivir clinical trials during the 2006-7 influenza season, we estimate our monthly average cash burn rate will increase approximately $1 million from the third quarter 2006 rate, until completion of the peramivir Phase II trials. This estimate does not include potential funding, if any, which we may receive from HHS from our proposal in response to the RFP. We are hopeful that our proposal response to the RFP will be acceptable for funding, which would offset our projected burn rate if and when it became effective. In addition, we expect to achieve one milestone related to our collaboration with Mundipharma in 2006 or early 2007 and we will continue to be reimbursed for our clinical development costs up to the $10 million defined in our agreement. We currently have a balance receivable of approximately $3.1 million for their portion of the funding related to the clinical development of Fodosine™, which we expect to receive early in 2007.
As our clinical programs continue to grow and patient enrollment increases, our costs will increase. Our current and planned clinical trials plus the related manufacturing, personnel resources and testing required to support these trials will consume significant capital resources and will increase our expenses and our net loss.
Our 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 of funding or assistance, if any, we receive from governmental agencies or other new partnerships with third parties for the development of our drug candidates in general and for peramivir specifically, 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.
The collaboration with Roche for the worldwide development and commercialization of BCX-4208 provided an upfront payment plus an advance payment for specific manufacturing we performed. The initial $30 million was recorded as a receivable on our balance sheet at December 31, 2005 and was received in January 2006. Roche will take over the development and pay all costs associated with this program. The agreement also provides for future event payments and royalties to be made by Roche upon the achievement of certain clinical, regulatory and sales events.
In February 2006, we licensed Fodosine™ to Mundipharma for the development and commercialization of this drug in Europe, Asia and Australasia. In addition to the upfront payment of $10 million which was received in February 2006, Mundipharma will pay 50% of the clinical development costs we will incur for Fodosine™ on existing and planned clinical trials, but their portion shall not exceed $10 million. In addition, Mundipharma will conduct additional clinical trials at their own cost up to a maximum of $15 million. The agreement also provides for future event payments and royalties to be made by Mundipharma upon the achievement of certain clinical, regulatory and sales events.
For the Roche and Mundipharma collaborations, we will owe sublicense payments to AECOM and IRL on all upfront, future event payments and royalties. For the first nine months of 2006, we have paid approximately $8.2 million related to these agreements. The revenue from these agreements has been recorded as deferred revenue on our balance sheet and will be recognized over the remaining patent life of the related drug candidate. The payments to AECOM and IRL have been recorded as deferred assets on our balance sheet and will be recognized over the period of the related revenue recognition. Due to the nature of the potential milestones in our collaborations, it is difficult to predict if and when particular milestones will be achieved by us or our collaborators.
We expect that we will be required to raise additional capital to complete the development and commercialization of our current product candidates. 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 RFP 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.
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Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2006, we are not involved in any material unconsolidated entities or off-balance sheet arrangements.
Contractual Obligations
Our contractual obligations as of December 31, 2005 are described in our Annual Report on Form 10-K. There have been no material changes in contractual obligations outside the ordinary course of business since December 31, 2005.
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, 2005, 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
Our revenues have generally been limited to license fees, milestone payments, research and development fees,contracts, and interest income. Revenue is recognized in accordance with SAB No. 104 and EITF Issue 00-21. License fees, future event payments, and research and development fees are recognized as revenue when the earnings process is complete and we have no further continuing performance obligations or we have completed the performance obligations under the terms of the agreement. Fees received under licensing agreements that are related to future performance are deferred and recognized as earned over an estimated period determined by management based on the terms of the agreement and the products licensed. For example, in the Roche and Mundipharma licenses agreements, we have determined to deferdeferred the upfront payments over the remaining life of the patents which are 17 years (through August 2023) for the Roche license agreementthrough 2023 and 12 years (through October 2017) for the Mundipharma license agreement.2017, respectively. In the event a license agreement contains multiple deliverables, we evaluate whether the deliverables are separate or combined units of accounting in accordance with EITF Issue 00-21. Revisions to revenue or profit estimates as a result of changes in the estimated revenue period are recognized prospectively.
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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. If royalties can not be reasonably estimated, revenue is recognized upon receipt of royalty statements from the licensee. We have not received any royalties from the sale of licensed pharmaceutical products.
• | payments to consultants; | ||
• | funding of research at academic institutions; | ||
• | toxicology studies on existing and potential drugs; | ||
• | manufacturing of our raw materials, drug substance and drug products; | ||
• | large scale synthesis and formulation of compounds; |
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• | preclinical studies; | ||
• | payments of amounts to academic institutions and others as a result of our recent collaborations; | ||
• | engaging investigators to conduct clinical trials; | ||
• | hiring CRO’s for regulatory and clinical functions; and | ||
• | using statisticians to evaluate the results of clinical trials. |
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• | other collaborative and other research and development agreements; | ||
• | government grants and contracts; | ||
• | equipment lease financing; | ||
• | facility leases; | ||
• | research grants; and | ||
• | interest income. |
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• | payments under our contract with HHS; | ||
• | our existing capital resources and interest earned on that capital; | ||
• | payments under collaborative and licensing agreements with corporate partners; and | ||
• | lease or loan financing and future public or private financing. |
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• | 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 our drug candidates; | ||
• | the scope and results of preclinical studies and clinical trials to identify and evaluate drug candidates; |
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• | our ability to enroll sites and patients 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 validation for the 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; | ||
• | the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; | ||
• | our dependence on others for development and commercialization of our product candidates; and | ||
• | successful commercialization of our products consistent with our licensing strategy. |
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Three Months Ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
Direct external R&D expenses by program: | ||||||||
PNP Inhibitor (Fodosine™) | $ | 3,367 | $ | 3,378 | ||||
PNP Inhibitor (BCX-4208) | 54 | 37 | ||||||
Neuraminidase Inhibitor (peramivir) | 5,354 | 1,622 | ||||||
Hepatitis C Polymerase Inhibitor | 445 | 243 | ||||||
Other | 155 | 26 | ||||||
All other R&D expenses: | ||||||||
Compensation and fringe benefits | 2,453 | 1,218 | ||||||
Supplies and services | 2,581 | 172 | ||||||
Maintenance, depreciation, and amortization | 306 | 238 | ||||||
Overhead allocation and other | 1,480 | 1,109 | ||||||
Total R&D expenses | $ | 16,195 | $ | 8,043 | ||||
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• | fees paid to | ||
• | fees paid to investigative sites in connection with clinical trials; | ||
• | fees paid to contract manufacturers in connection with the production of our raw materials, drug substance and drug products; and | ||
• | professional service fees. |
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Stock-Based Compensation
At September 30, 2006, we have two stock-based employee compensation plans, the Stock Incentive Plan (the “Plan”)
As of September 30, 2006, there was approximately $9,754,430 of total unrecognized compensation cost related to non-vested employee stock option awards granted under the Plan and the ESPP. That cost is expected to be recognized as follows: $1,077,213 in the remainder of 2006, $3,370,558 in 2007, $2,533,441 in 2008, $2,011,857 in 2009, and $761,361 in 2010.
Under the fair value recognition provisions of Statement No. 123R, 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. Consistent with the valuation method we used for disclosure-only purposes under the provisions of Statement No. 123, we use the Black-Scholes option pricing model to estimate fair value under Statement No. 123R. 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. Compensation cost is recognized on a straight-line basis over the requisite service period.
• | the initiation, timing, progress and results of our preclinical and clinical trials, research and development programs; | ||
• | the potential for funding from HHS for the | ||
• | the further preclinical or clinical development and commercialization of our product candidates; | ||
• | the implementation of our business model, strategic plans for our business, product candidates and technology; |
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| our ability to establish and maintain collaborations with biotechnology or pharmaceutical companies and governmental agencies or other third parties; | ||
• | 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; |
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• | 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. |
Factors” in our Annual Report on Form 10-K, as updated by Part II, Item 1A of this report.
20September 30, 2006,March 31, 2007, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by BioCryst in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by BioCryst in such reports is accumulated and communicated to the Company’s management, including the Chairman and Chief Executive Officer and Chief Financial Officer of BioCryst, as appropriate to allow timely decisions regarding required disclosure.September 30, 2006March 31, 2007 that have materially affected, or are reasonably likely to materially affect, BioCryst’s internal control over financial reporting.
20052006 Annual Report on Form 10-K includes a detailed discussion of our risk factors. The risk factors described below were disclosed on the Form 10-K. This discussion updates certain information asAs of September 30, 2006. It should be readMarch 31, 2007, there have been no material changes in conjunction with all the risk factors and information disclosed in thatthe Form 10-K.If we fail to obtain additional financing, we may be unable to complete thedevelopment and commercialization of our product candidates or continue ourresearch and development programs. To date, we have financed our operations primarily from sale of our equity securities and cash from collaborations and, to a lesser extent, interest. For the third quarter 2006, our average monthly cash burn from normal operations was approximately $4.4 million. For the year, our cash, cash equivalents and securities balance has increased from $60 million as of December 31, 2005 to $61.6 million as of September 30, 2006, primarily due to cash received from collaborations, totaling approximately $31.8 million net of sublicense fees, less the monthly cash burn from operations. In June 2006 the Department of Health and Human Services (“HHS”) issued a Request for Proposal (“RFP”) for the potential funding of companies with antiviral drugs in development for both seasonal and avian influenza. We believe our peramivir program meets substantially all of the requirements outlined in the RFP and therefore we submitted a proposal to HHS on July 20, 2006 and we hope to be considered a competitive candidate for some of the funding to be made available under the RFP. We have made certain commitments related to the advancement of peramivir for both our intramuscular and intravenous formulations and we are currently preparing to begin two Phase II trials to be executed during the 2006-2007 influenza season using intravenous and intramuscular formulations. We are currently completing the Phase I trials to support these planned Phase II trials. In addition, on August 7, 2006, we announced that we had received a SPA letter from the FDA for the initiation of a pivotal clinical trial of our lead anti-cancer compound Fodosine™. The SPA letter documents the agreement between the FDA and the Company regarding the trial design’s suitability to support regulatory approval. We expect to initiate a multi-center, open-label pivotal clinical trial later this year with the goal of enrolling 100 patients. Primarily as a result of the Phase II peramivir clinical trials during the 2006-7 influenza season, we estimate our monthly average cash burn rate will increase approximately $1 million from the third quarter 2006 rate, until completion of the peramivir Phase II trials. This estimate does not include potential funding, if any, which we may receive from HHS from our proposal in response to the RFP. We are hopeful that our proposal response to the RFP will be acceptable for funding, which would offset our projected burn rate if and when it became effective. In addition, we expect to achieve one milestone related to our collaboration with Mundipharma in 2006 or early 2007 and we will continue to be reimbursed for our clinical development costs up to the $10 million defined in our agreement. We currently have a balance receivable of approximately $3.1 million for their portion of the funding related to the clinical development of Fodosine™, which we expect to receive early in 2007. As our clinical programs continue to grow and patient enrollment increases, our costs will increase. Our current and planned clinical trials plus the related manufacturing, personnel resources and testing required to support these trials will consume significant capital resources and will increase our expenses and our net loss. Our 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 of funding or assistance, if any, we receive from governmental agencies or other new partnerships with third parties for the development of our drug candidates in general and for peramivir specifically, 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. Our long-term capital requirements and the adequacy of our available funds will depend upon many factors, including:21•the progress of our research, drug discovery and development programs;•changes in existing collaborative relationships;•our ability to establish additional collaborative relationships with academic institutions, biotechnology or pharmaceutical companies, governmental agencies or other third parties;•the extent to which our collaborators, including governmental agencies will share in the costs associated with the development of our programs or run the development programs themselves;•our ability to obtain funding for our peramivir program from the RFP issued by HHS;•our ability to negotiate favorable development and marketing alliances for our drug product candidates;•the magnitude of our research and development programs;•the scope and results of preclinical studies and clinical trials to identify drug product candidates and the costs of manufacturing drug product to support these studies and trials;•competitive and technological advances;•the time and costs involved in obtaining regulatory approvals;•the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;•our dependence on others for development and commercialization of our product candidates; and•successful commercialization of our products consistent with our licensing strategy. We will be required to raise additional capital to complete the development and commercialization of our current product candidates. Additional funding, whether through additional sales of securities or collaborative or other arrangements with corporate partners, governmental agencies or from other sources, 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 as described in the following risk factor related to collaborative relationships. Insufficient funds may require us to delay, scale-back or eliminate certain of our research and development programs. 2. The second paragraph of the risk factor entitled “If the clinical trials of our drug product candidates fail, our product candidates will not be marketed, which would result in a complete absence of product related revenue” is updated to read in full as follows: “We have negotiated a special protocol assessment, or SPA letter with the FDA, for the initiation of a pivotal clinical trial of our lead anti-cancer compound, Fodosine™. An SPA is an agreement between an applicant and the FDA on the design and the size of clinical trials that is intended to form the basis of a New Drug Application (“NDA”). Once the FDA and an applicant reach an agreement on an SPA, the SPA cannot be changed after the clinical trial begins, except in limited circumstances such as a change in the science or clinical knowledge about the conditions being studied. Any significant change to the protocols for a clinical trial subject to an SPA would require prior FDA approval, which could delay implementation of such a change and continuation and completion of the related clinical trial. Receipt of the SPA does not ensure that Fodosine™ will receive FDA approval or that the process will be accelerated.”
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21NumberDescriptionNumber
Description3.1 3.1CompositeThird Restated Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 to the Company'sCompany’s Form 10-Q for the second quarter ending June 30, 1995 dated August 11, 1995.3.23.2 Bylaws of Registrant as amended December 15, 2005. Incorporated by reference to Exhibit 3.1 to the Company'sCompany’s Form 8-K filed December 16, 2005.4.14.1 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 Company’s Form 8-A dated June 17, 2002. 10.110.1 Stock Incentive Plan, as amended and restated effective March 7, 2006. Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q dated August 9, 2006. 31.110.2 Employment Letter Agreement dated June 19, 2007, by and between the Company and W. James Alexander. 10.3 Amended and Restated Employment Letter Agreement dated February 14, 2007, by and between the Company and Jon P. Stonehouse. Incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K for the year ended December 31, 2006, dated March 14, 2007. 10.4 License, Development and Commercialization Agreement dated as of February 28, 2007, by and between the Company and Shionogi & Co., Ltd. (Portions omitted pursuant to request for confidential treatment and filed separately with the Commission.) 10.5 Employment Letter Agreement dated April 2, 2007, by and between the Company and David McCullough. 31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.231.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.132.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.232.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 23
BIOCRYST PHARMACEUTICALS, INC. | |||||
/s/Jon P. Stonehouse | |||||
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/s/Michael A. Darwin | |||||
Michael A. Darwin | |||||
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Number | Description | |
3.1 | Third Restated Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed December 22, 2006. | |
3.2 | Bylaws of Registrant as amended December 15, 2005. Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed December 16, 2005. | |
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 Company’s Form 8-A dated June 17, 2002. | |
10.1 | Stock Incentive Plan, as amended and restated effective March 7, 2006. Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q dated August 9, 2006. | |
10.2 | Employment Letter Agreement dated June 19, 2007, by and between the Company and W. James Alexander. | |
10.3 | Amended and Restated Employment Letter Agreement dated February 14, 2007, by and between the Company and Jon P. Stonehouse. Incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K for the year ended December 31, 2006, dated March 14, 2007. | |
10.4 | License, Development and Commercialization Agreement dated as of February 28, 2007, by and between the Company and Shionogi & Co., Ltd. (Portions omitted pursuant to request for confidential treatment and filed separately with the Commission.) | |
10.5 | Employment Letter Agreement dated April 2, 2007, by and between the Company and David McCullough. | |
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. |