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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO.
Commission File Number 000-23186
BIOCRYST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1413174
(State of other (I.R.S. employer identification
jurisdiction of no.)
incorporation or
organization)
2190 PARKWAY LAKE DRIVE;
BIRMINGHAM, ALABAMA 35244
(Address and zip code of principal executive offices)
(205) 444-4600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
TITLE OF EACH CLASS
Common Stock, $.01 Par Value
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No__.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ].
While it is difficult to determine the number of shares owned by
non-affiliates, the Registrant estimates that the aggregate market value of the
Common Stock on March 15, 1997 (based upon the closing price shown on the Nasdaq
National Market on March 14, 1997) held by non-affiliates was approximately
$142,707,656. For this computation, the Registrant has excluded the market value
of all shares of its Common Stock reported as beneficially owned by officers,
directors and certain significant stockholders of the Registrant. Such exclusion
shall not be deemed to constitute an admission that any such stockholder is an
affiliate of the Registrant.
The number of shares of Common Stock, par value $.01, of the Registrant
outstanding as of March 15, 1997 was 13,770,632 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. BUSINESS
GENERAL
BioCryst Pharmaceuticals, Inc. ("BioCryst" or the "Company") is an emerging
pharmaceutical company using structure-based drug design to discover and design
novel, small-molecule pharmaceutical products for the treatment of immunological
and infectious diseases and disorders. The Company believes that structure-based
drug design, by precisely designing compounds to fit the active site of target
proteins, offers the potential for developing drugs for many indications that
have improved efficacy and fewer side effects than currently marketed drugs for
the same indications. The Company is conducting five clinical trials with its
lead drug, BCX-34, including a Phase III trial with a topical formulation for
cutaneous T-cell lymphoma ("CTCL"), a Phase III trial with a topical formulation
for psoriasis, a Phase I/II trial with an oral formulation for CTCL, a Phase
I/II trial with an oral formulation for psoriasis and a Phase I/II trial with a
topical formulation for atopic dermatitis. BioCryst has additional drug
discovery projects underway using its structure-based drug design technologies
to develop inhibitors of influenza neuraminidase and enzymes and proteins
involved in the complement cascade, which is implicated in several major
inflammatory conditions.. One of the elements of the Company's strategic plan is
to leverage its clinical progress by entering into pharmaceutical collaborations
with drug companies in major world markets. BioCryst entered into an exclusive
license agreement with Torii Pharmaceutical Co., Ltd. ("Torii"), a Japanese
pharmaceutical company, for the development and commercialization in Japan of
BCX-34 and certain other purine nucleoside phosphorylase ("PNP") inhibitor
compounds. PNP is an enzyme believed to be involved in T-cell proliferation.
BioCryst's lead immunological drug program targets T-cell proliferative
disorders, which arise when T-cells, immune system cells that normally fight
infection, attack normal body cells or multiply uncontrollably. These disorders
are varied and include CTCL (a severe form of cancer), psoriasis, transplant
rejection and certain autoimmune diseases. BioCryst has designed and synthesized
several chemically distinct classes of compounds which inhibit PNP, an enzyme
believed to be involved in T-cell proliferation.
The Company has completed six Phase I clinical trials, three Phase I/II
clinical trials and three Phase II clinical trials with topical BCX-34 and has
completed one Phase I trial with oral and intravenous formulations of the drug.
BCX-34 has been tested in over 280 subjects, and no significant drug-related
side effects have been observed. The completed Phase II trials of topical BCX-34
were double-blinded, placebo-controlled and enrolled 30 CTCL patients and 130
psoriasis patients. A majority of the patients from the Phase II CTCL trial
volunteered to roll over into an extended, open-label trial. In addition, the
Company has initiated preclinical studies using an ophthalmic formulation of
BCX-34 for potential use in treating uveitis, sjogren's syndrome and corneal
transplant rejection.
BioCryst's scientists include recognized world leaders in the fields of
X-ray crystallography and medicinal chemistry, two core disciplines associated
with structure-based drug design. The Company has certain collaborative
arrangements with The University of Alabama at Birmingham ("UAB"), which has one
of the leading X-ray crystallography centers in the world and has been
successful in characterizing a significant number of medically relevant protein
targets. The Company believes that based upon its scientific staff and
management, the number of compounds it has designed and its clinical development
program, it is a leader in the practical application of structure-based drug
design.
In May 1996, the Company entered into an agreement pursuant to which it
granted Torii an exclusive license, with the right to sublicense, to develop,
manufacture and commercialize BCX-34 and certain other PNP inhibitor compounds
in Japan for the treatment of rheumatoid arthritis, T-cell cancers (including
CTCL) and atopic dermatitis. Upon entering into the agreement, Torii paid the
Company $1.5 million in license fees and made a $1.5 million equity investment
in the Company, purchasing 76,608 shares of
1
Common Stock at a purchase price of $19.58 per share. In order for Torii to
maintain its licensing rights, it is obligated to make payments to the Company
of up to $19.0 million upon the achievement of specified development milestones.
Torii is responsible for all development, regulatory and commercialization
expenses in Japan and is obligated to pay royalties to the Company on sales of
licensed products in Japan. The agreement will remain in effect, unless earlier
terminated, until the last to expire of any patent rights licensed under the
agreement, or in the event no patents issue, for twenty years from May 31, 1996.
The agreement is subject to termination by Torii at any time and by the Company
in certain circumstances, including any material breaches of the agreement by
Torii. Pursuant to the agreement, Torii may negotiate a license with the Company
to develop BCX-34 and certain other PNP inhibitor compounds for additional
indications.
PRODUCTS IN DEVELOPMENT
The following table summarizes BioCryst's development projects:
DELIVERY STAGE OF
PROGRAM/COMPOUND INDICATION/APPLICATION FORM DEVELOPMENT
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PNP INHIBITORS (BCX-34) CTCL Topical Phase III
Oral Phase I/II
Psoriasis Topical Phase III
Oral Phase I/II
Atopic dermatitis Topical Phase I/II
HIV Oral Preclinical
Rheumatoid arthritis Oral Preclinical
Transplant rejection Oral Preclinical
Ophthalmic diseases and disorders Ophthalmic Preclinical
INFLUENZA NEURAMINIDASE
INHIBITORS Influenza Oral Preclinical
COMPLEMENT INHIBITORS Cardiac bypass surgery Intravenous/ Preclinical
Oral
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See "--Government Regulation" for a description of drug development phases and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors That May Affect Future Results, Financial
Condition and the Market Price of Securities" for a discussion of certain
factors that can adversely affect the Company's drug development programs.
PNP INHIBITORS (BCX-34)
The human immune system employs specialized cells and proteins, including
cells known as T-cells and B-cells, to control infection and recognize and
attack foreign disease-causing viruses, bacteria and parasites. The immune
system can also cause diseases or disorders when it inappropriately identifies
the body's own tissue as foreign and, among other things, produces T-cells that
attack normal body cells. Such diseases are referred to as autoimmune diseases
and include psoriasis, in which the immune system attacks skin tissue, and
rheumatoid arthritis, in which the immune system attacks joint tissue. This
immune system response also causes transplant rejection in which the T-cells of
the immune system attack the transplanted organ or tissue. The immune system may
also produce T-cells that multiply uncontrollably. T-cell proliferation in such
cases is associated with cancers such as cutaneous T-cell lymphoma. Within the
past decade, drugs have been developed that treat autoimmune and related
diseases by selectively suppressing the immune system. However, most current
immunosuppressive drugs have dose-limiting side effects, including severe
toxicity.
The link between T-cell proliferative disorders and the PNP enzyme was first
discovered approximately 20 years ago when a patient, who was genetically
deficient in PNP, exhibited limited T-cell activity,
2
but reasonably normal activity of other immune functions. Since then, additional
patients with inherited PNP deficiency have been reported. In most patients, the
T-cell population was less than 20% of normal levels, often as low as 1-3% of
normal levels. However, B-cell function was normal in approximately two-thirds
of these patients. These findings suggested that inhibition of PNP might produce
selective suppression of T-cell function without significantly impairing B-cell
function.
BioCryst has designed and synthesized several chemically distinct classes of
small molecule compounds (six of which have been patented in the United States)
which inhibit the PNP enzyme. In IN VITRO preclinical studies, the Company's PNP
inhibitor compounds selectively and potently suppressed human T-cells associated
with certain T-cell proliferative disorders. One member of a patented class of
PNP inhibitor compounds, BCX-34, which was designed and developed by BioCryst,
to date has been the most promising of the Company's compounds as a potential
treatment for a number of T-cell proliferative diseases and related disorders.
The Company is in the clinical stage of development of topical and oral
formulations of BCX-34 and is in the preclinical stage of development of an
ophthalmic formulation. Additionally, the Company has an intravenous formulation
for future development. A topical formulation may be most suitable for treating
certain dermal indications as a result of being able to directly administer the
drug to diseased skin, thereby minimizing systemic absorption. An orally
deliverable product may allow systemic application of the drug in diseases that
either cannot be treated topically or can be treated more successfully with an
oral formulation. An ophthalmic formulation in the form of eye droplets may be
most suitable for treating certain ophthalmic indications as a result of being
able to directly administer the drug to the eye. An intravenous formulation may
allow more precise dosage control and direct systemic application into the
bloodstream and may permit usage of BCX-34 where other methods of delivery may
not be suitable.
CUTANEOUS T-CELL LYMPHOMA. CTCL is a severe form of cancer which is
characterized by the development of scaly patches on the skin, progressing to
ulcers and tumors of the skin, lymph nodes and internal organs. CTCL is a
chronic disease involving the proliferation of certain types of T-cells.
According to a medical journal, approximately 1,000 new cases of CTCL are
diagnosed annually in the United States. There is no known cure and the median
survival time is approximately four years after systemic progression of the
disease. Existing therapies for CTCL are generally considered inadequate. In
October 1993, the Company obtained from the United States Food and Drug
Administration (the "FDA") orphan drug designation for BCX-34 to treat CTCL and
may qualify for accelerated review as a new drug to treat serious and
life-threatening illnesses.
The Company is conducting a Phase III trial with topical BCX-34 for the
treatment of CTCL. This trial, being conducted at 10 major medical centers, is a
randomized, double-blind, placebo-controlled trial designed to include 90
patients with early stage CTCL. Patients in this study apply either BCX-34 (1%
concentration) or placebo cream over their entire body twice daily for six
months. Prior to commencing this trial, the Company completed in 1995 a
two-stage dose-ranging Phase II trial, which was conducted at UAB and Washington
University in St. Louis. The first stage of the Phase II trial was randomized,
double-blinded and placebo-controlled and enrolled 30 patients with CTCL. In
this trial, patients applied one of three concentrations of BCX-34 (0.3%, 1% or
5%) and placebo cream to different targeted disease lesions twice daily for six
weeks. This trial did not achieve a statistically significant outcome.
Twenty-four of the study patients from the dose-ranging trials continued in an
open-label (i.e., non-blinded) trial applying BCX-34 (1%) to all disease lesions
twice daily for six months. The results from the extended trial demonstrated
clinical improvement in 75% of the patients. Seven patients had complete
remissions (lesions cleared both clinically and histologically), two patients
were clinically clear and nine patients had partial clearance. Six patients had
stable or progressive disease or dropped out of the trial. There were no
significant drug related adverse events. The foregoing results are not
definitive, as positive Phase III clinical trial results are required to
determine safety and efficacy of BCX-34. The Company believes the results of the
open-label trial suggest that more than six weeks are required to obtain
efficacy in the topical treatment of CTCL.
3
The Company completed a Phase I oral and intravenous trial of BCX-34 in May
1995. In this trial, three CTCL patients received a single intravenous dose,
followed a week later by a single oral dose, followed three weeks later by
five-day consecutive oral dosing. This pharmacology study suggested that BCX-34
is well tolerated systemically and that the drug is highly bioavailable in
humans. In late 1995, the Company initiated a Phase I/II dose escalation oral
trial in CTCL and other T-cell cancer patients. This is an open label trial
designed to provide safety and pharmacokinetic data on BCX-34 as well as provide
potential efficacy data. As of December 31, 1996, 12 patients have been enrolled
and dosed in this study, and preliminary data indicate biological activity.
PSORIASIS. Psoriasis is a common chronic and recurrent disease involving
T-cells characterized by red, thick scaling of the skin, which can develop at
any time in life. According to the National Psoriasis Foundation, it is
estimated that approximately five million people suffer from some form of
psoriasis in the United States and 150,000 to 260,000 new cases are diagnosed
annually. About 10% of these cases are classified as "severe" and are most
likely to require physician's care and drug intervention. In some cases, the
condition may be accompanied by a form of arthritis which can be debilitating.
Current therapies for psoriasis either are of limited benefit or have severe
side effects.
The Company completed a Phase II trial with topical BCX-34 for the treatment
of psoriasis in April 1996. This trial, which was conducted at four clinical
research centers (two of which were in northern sites and two of which were in
sunbelt sites), was a randomized, double-blind, placebo-controlled trial that
enrolled 90 patients with plaque stage psoriasis. Patients applied either BCX-34
(1% concentration) or placebo cream over their disease lesions twice daily for
12 weeks. Overall, the trial did not demonstrate a statistically significant
drug effect relative to the placebo. A subsequent analysis performed by the
Company showed that the placebo-treated patients at sunbelt sites had a
statistically significant greater therapeutic response than those at the
northern sites. The Company believes that the response in placebo-treated
patients at sunbelt sites may have been increased by the recognized therapeutic
effect sun exposure has on psoriasis. The Company designed its Phase III trial
protocol to take into consideration this factor. The Company believes that the
outcome of the Phase II trial was sufficient to justify proceeding to a Phase
III trial. Preceding this Phase II trial was another Phase II trial completed in
December 1994. This Phase II trial was randomized, double-blinded and
placebo-controlled and enrolled 40 patients at UAB with plaque stage psoriasis.
In this trial, patients applied one of four concentrations of BCX-34 (0.1%,
0.3%, 1% or 5%) and placebo cream to different targeted disease lesions twice
daily for six weeks. While there were no significant drug related adverse
events, this trial did not achieve a statistically significant outcome. The
foregoing results are not definitive as positive Phase III clinical trial
results are required to determine safety and efficacy of BCX-34. The Company has
initiated a Phase III topical trial which is randomized, double-blinded and
placebo-controlled and enrolling 350 patients at 15 centers. The Company has
also initiated a Phase I/II trial with oral BCX-34 for the treatment of
psoriasis.
ATOPIC DERMATITIS. Atopic dermatitis, sometimes referred to as eczema, is a
chronic skin condition occurring primarily in infants and children and, to a
lesser extent, in adults. The disorder is characterized by severe itching, a
rash with small bumps, redness, thickened skin from repeated scratching, and
sometimes secondary infection of the skin. Recent market reviews have suggested
that over 1.8 million individuals in the United States suffer from atopic
dermatitis.
Several biochemical mechanisms of the disease have been studied, including
abnormal T-cell function. It is uncertain whether inhibiting T-cell
proliferation with BCX-34 will be helpful in treating the disease, but other
agents which inhibit T-cells have been used in treating atopic dermatitis. These
other agents have limited therapeutic benefit or generally cause adverse side
effects which can be severe. In June 1996, the Company initiated a Phase I/II
clinical trial with topical BCX-34 for atopic dermatitis.
HIV. Due to the increasing number of HIV-infected people, HIV infection is
a major health concern. Despite extensive research and development, the
treatment of HIV infection remains unsatisfactory due to the toxicity or limited
therapeutic benefit of currently approved therapies. The Centers for Disease
Control
4
and Prevention ("CDC") estimates that there are approximately one million people
in the United States infected with HIV. HIV drug research has focused primarily
on developing inhibitors of the enzymes reverse transcriptase ("RT") and HIV
protease. Initially, scientists thought blocking the HIV essential RT enzyme
would shut down replication of HIV and curb the progression of HIV infection to
AIDS. Several RT inhibitors are now approved, but the clinical usefulness of
these drugs has been limited by their toxicity and by the ability of HIV to
mutate into forms that are resistant to them. A second approach of HIV drug
research and treatment has targeted the HIV protease enzyme. HIV protease is an
enzyme that performs an essential role in the infectious cycle of HIV. It is
believed that blocking HIV protease renders HIV unable to form a new infectious
virus. Although numerous companies are developing protease inhibitors, the
long-term therapeutic potential of these drugs is uncertain.
A new approach to human immunodeficiency virus ("HIV") drug research focuses
on the T-cell host rather than the virus. It is believed that while resting,
nondividing CD4 T-cells can be infected by the virus, the virus does not
multiply. Since T-cell activation and growth appear to be essential for virus
replication, a treatment which inhibits T-cell growth might decrease the overall
viral burden. The Company believes, based in part upon preliminary preclinical
in vitro tests, that BCX-34 could potentially be useful in treating HIV-infected
patients by reversibly inhibiting the growth of infected T-cells. The Company
collaborated with researchers at the UAB Center for AIDS Research on the design
of an oral Phase I/II study which is planned to be initiated in 1997.
RHEUMATOID ARTHRITIS. Rheumatoid arthritis is an autoimmune disease that
involves inflammation of the membranes lining joints, causing joint pain,
swelling, and deformities. According to a scientific journal, it is estimated
that approximately 1% to 2% of the U.S. adult population are afflicted with
rheumatoid arthritis. There are many drugs used to treat the disease, but such
drug treatments only alleviate the symptoms of rheumatoid arthritis. The Company
believes T-cell controlling agents such as PNP inhibitors and specifically an
oral formulation of BCX-34, offer promise as a potential drug treatment for
rheumatoid arthritis. Among other potential competitors, Novartis
Pharmaceuticals Corporation, formerly Ciba-Geigy Corporation, ("Novartis") has
rights to develop a group of PNP inhibitors excluding BCX-34, licensed from
BioCryst, with potential application in the treatment of rheumatoid arthritis.
TRANSPLANT REJECTION. Risk of rejection is one of the most frequent
complications following transplant surgery. Rejection is caused by the body's
immune response in which T-cells are generated to attack the transplanted organ
or tissue. In general, for organ and bone marrow transplants, rejection is an
acute risk during the initial hospital stay for the transplant surgery and
thereafter a chronic risk of varying degrees of severity. The Company believes
selective suppression of the immune response may reduce the risk of rejection.
The immunosuppressant drugs which are currently used to control or prevent
rejection often cause significant detrimental side effects. A number of new
drugs are in various stages of development by other researchers and companies
for the control and prevention of transplant rejection. The Company is at the
preclinical stage of development of an oral formulation of BCX-34 for treatment
of transplant rejection.
OPHTHALMIC DISEASES AND DISORDERS. There are a number of inflammatory
diseases of the eye that involve T-cells. A leading ophthalmic inflammatory
disease is uveitis, which is characterized by eye swelling, ocular accumulation
of fatty deposits and impaired vision. The most severe cases of uveitis, such as
Behcet's syndrome and Vogt-Koyanagi-Harada syndrome, may result in blindness.
Clinical studies conducted by third parties with currently approved
immunosuppressants support the idea that T-cells participate in the pathogenesis
of these diseases and that oral and ophthalmic formulations of BCX-34 may
potentially be efficacious in treating these diseases. The Company is in the
preclinical stage of development of an ophthalmic formulation of BCX-34 for
direct delivery of the drug to the eye.
5
INFLUENZA NEURAMINIDASE INHIBITORS
Influenza is a viral disease which is particularly dangerous to the very
young, the elderly and debilitated patients and those who have suppressed immune
systems. The CDC estimates that approximately 10% to 20% of the U.S. population
is infected with influenza during most influenza seasons. The current standard
for preventing flu is by vaccination, which is of limited benefit as vaccines
are designed to resist a specific flu strain. No satisfactory treatment
currently exists. Since the early 1980's, UAB scientists have been investigating
the active site and function of the enzyme influenza neuraminidase. Influenza
neuraminidase is an enzyme on the surface of the influenza virus which is
associated with the spread of influenza and is believed to permit the influenza
virus to invade human cells. Scientists at UAB and the Company have
characterized the molecular structure of influenza neuraminidase and have
initiated the design and synthesis of specific inhibitors. Research at UAB and
the Company to date indicates that the active site for influenza neuraminidase
remains substantially unchanged for the major strains of influenza. The Company
believes that a neuraminidase inhibitor may be useful as a treatment for
influenza. and is in the preclinical stage of development of inhibitors of
influenza neuraminidase. Funded in part by a National Institutes of Health
("NIH") Phase I Small Business Innovation Research ("SBIR") grant and a State of
Alabama grant, the Company has developed lead compounds which in IN VITRO
studies have indicated inhibition of influenza neuraminidase. At least one major
pharmaceutical company is engaged in clinical studies of an influenza
neuraminidase inhibitor compound intended to treat influenza, and the Company
believes that several other pharmaceutical companies are engaged in research to
design or discover inhibitors of influenza neuraminidase.
COMPLEMENT INHIBITORS
The human body is equipped with immunological defense mechanisms to respond
aggressively to infection or injury. One of these mechanisms, called complement,
is a system of functionally linked proteins that interact with one another in a
highly regulated manner. The complement system functions as a "cascade." Once an
activator of the system converts an inactive enzyme to an active enzyme, the
activated enzyme activates more proteins at the next stage, which in turn
activate other proteins. This mechanism, if inappropriately activated, can cause
acute medical reactions, including inflammatory reactions that accompany
hemodialysis, myocardial infarction, bypass surgery and post heart attack
reperfusion injury. There are two pathways of complement activation, the
classical pathway and the alternative pathway. The classical pathway is usually
initiated by antigen-antibody complexes, while the alternative pathway is
activated by bacterial, viral and parasite cell surfaces.
Due to the biochemical mechanism of the complement cascade, BioCryst
believes complement inhibitors may have therapeutic applications in several
acute and chronic immunological disorders. BioCryst is focusing its research
efforts on designing protein and enzyme inhibitors to limit the rapid and
aggressive damage caused by the complement cascade. The Company is initially
focusing on designing inhibitors for factor D and factor B, enzymes playing a
role in the alternative pathway, and the enzyme C1s, which plays a role in the
classical pathway. Working with UAB scientists and funded in part by SBIR grants
from the NIH, BioCryst has characterized the three-dimensional structure of
factor D and has developed various assay systems for screening complement
inhibitors. The Company is performing preclinical studies with certain
inhibitors it has designed and synthesized. The Company continues to design
additional inhibitors. The Company has a collaboration agreement to use
combinatorial chemistry to help identify certain inhibitors. See "Research and
Development--3-Dimensional Pharmaceuticals."
DRUG DISCOVERY METHODS
Drugs are chemical compounds that interact with target molecules, typically
proteins, within the human body to affect a molecule's normal function. Ideally,
drugs accomplish their intended therapeutic functions while creating as few side
effects as possible. The interaction can be illustrated as follows: the drug
molecule inserts itself in the target protein like a key inserted in a lock, and
either stimulates, or more
6
commonly suppresses, a protein's normal function. The results vary depending
upon the role of the target protein. A drug that is selective or specific, i.e.,
that binds to or blocks the target protein without affecting other proteins or
receptors, is generally more effective, less likely to cause side effects and
can be administered in smaller doses.
TRADITIONAL DRUG DISCOVERY
Historically, most pharmaceutical companies have relied on costly and
time-consuming screening to discover new chemical entities for development.
While screening has been the basis for the discovery of virtually all drugs
currently in use, the cost has been substantial. On average, it has generally
been necessary to assess hundreds or thousands of chemical compounds to find a
lead compound which successfully completes the development process. If screening
produces a lead compound, it is likely that the compound's mode of action will
be unknown and the risk of side effects caused by a lack of target specificity
will be high. Newer techniques, such as combinatorial chemistry and high
throughput screening, have enhanced the range of compounds that can be examined
quickly. However, screening-based research has, to date, failed to yield
acceptably safe and effective drugs for many important therapeutic needs.
Most pharmaceutical companies presently use some form of pharmacology-based
rational drug design which primarily utilizes certain receptors or purified
enzyme preparations in assays to identify lead compounds and to design molecules
to perform specific therapeutic tasks. Development of lead compounds is
conducted by systematic empirical methods and computer modeling. While this
approach is more refined than random screening, it is still a costly and
time-consuming effort which is limited by the amount and quality of information
available about the target protein.
STRUCTURE-BASED DRUG DESIGN
Structure-based drug design is a drug discovery approach by which synthetic
compounds are designed from detailed structural knowledge of the active sites of
protein targets associated with particular diseases. The Company's
structure-based drug design involves the integrated application of traditional
biology and medicinal chemistry along with an array of advanced technologies,
including X-ray crystallography, combinatorial chemistry, computer modeling of
molecular structures and protein biophysical chemistry, to focus on the
three-dimensional molecular structure and active site characterization of the
proteins that control cellular biology. BioCryst believes that structure-based
drug design is an improvement over traditional drug screening techniques. By
identifying the target protein in advance and by discovering the chemical and
molecular structure of the protein, scientists believe it is possible to design
a more optimal drug to interact with the protein.
The initial targets for structure-based drug design are selected based on
their involvement in the biological pathways integral to the course of a
disease. Once a target is selected, its structure is determined by X-ray
crystallography, a method used in determining the precise three-dimensional
molecular structure of the proteins. This structure is then used as a blueprint
for the drug design of a lead compound. The compounds are modeled for their fit
in the active site of the target, considering both steric aspects (I.E.,
geometric shape) and functional group interactions, such as hydrogen bonding and
hydrophobic interactions.
The initial design phase is followed by the synthesis of the lead compound,
quantitative measurements of its ability to interact with the target protein,
and X-ray crystallographic analysis of the compound-target complex. This
analysis reveals important, empirical information on how the compound actually
binds to the target and the nature and extent of changes induced in the target
by the binding. These data, in turn, suggest ways to refine the lead compound to
improve its binding to the target protein. The refined lead compound is then
synthesized and complexed with the target, and further refined in a reiterative
process. If lead compounds are available from other studies, such as screening
of combinatorial libraries, these compounds may serve as starting points for
this optimization cycle using structure-based drug design.
7
Once a sufficiently potent compound has been designed and optimized, its
activity is evaluated in a biological system to establish the compound's ability
to function in a physiological environment. If the compound fails at any stage
of the biological evaluation, the design team reviews the structural model and
uses crystallography to adjust structural features of the compound to overcome
the difficulty. This process continues until a designed compound exhibits the
desired properties.
The compound is then evaluated in an experimental disease model. If the
compound fails, the reasons for failure (E.G., adverse metabolism, plasma
binding, distribution, etc.) are determined and, again, new modified compounds
are designed to overcome the deficiencies without interfering with their ability
to interact with the active site of the target protein. The experimental drug is
then ready for conventional drug development (E.G., studies in safety
assessment, formulation, clinical trials, etc.).
This reiterative analysis and compound modification is possible because of
the structural data obtained by X-ray crystallographic analysis at each stage.
This capability renders structure-based drug design a powerful tool for rapid
and efficient development of drugs that are highly specific for particular
protein target sites.
RESEARCH AND DEVELOPMENT
GENERAL
BioCryst initiated its research and development program in 1986, with drug
synthesis beginning in 1987. The Company has assembled a scientific research
staff with expertise in a broad base of advanced research technologies including
protein biochemistry, X-ray crystallography, chemistry and pharmacology. Of the
Company's 53 employees at February 28, 1997, 42 were employed in its research
and development, preclinical studies and clinical trials programs. The Company's
staff includes 20 persons with Ph.D. or M.D. degrees.
The Company's research facilities include protein biochemistry and organic
synthesis laboratories, IN VITRO and IN VIVO testing facilities, X-ray
crystallography, computer and graphics equipment and formulation facilities.
In addition to its research programs pursued in-house, BioCryst collaborates
with academic institutions to support research in areas of the Company's product
development interests and to conduct its clinical trials. Usually, research
assistance provided by outside academic institutions is performed in conjunction
with additional in-house research. The faculty member supervising the outside
research effort may also participate as a consultant to the Company's in-house
effort. The Company's primary academic collaboration is with UAB and is
described under "Business--Research and Development--UAB Collaborative
Arrangements."
During the years ended December 31, 1994, 1995 and 1996, the Company spent
an aggregate of $20,245,068 on research and development. Of that amount,
$5,551,660 was spent in 1994, $7,107,249 was spent in 1995 and $7,586,159 was
spent in 1996. Approximately $11,796,000 of that amount was spent on in-house
research and development and $8,449,000 was spent on contract research and
development.
TORII
In May 1996, the Company entered into an agreement pursuant to which it
granted Torii an exclusive license, with the right to sublicense, to develop,
manufacture and commercialize BCX-34 and certain other PNP inhibitor compounds
in Japan for the treatment of rheumatoid arthritis, T-cell cancers (including
CTCL) and atopic dermatitis. Upon entering into the agreement, Torii paid the
Company $1.5 million in license fees and made a $1.5 million equity investment
in the Company, purchasing 76,608 shares of Common Stock at a purchase price of
$19.58 per share. In order for Torii to maintain its licensing rights, it is
obligated to make payments to the Company of up to $19.0 million upon the
achievement of specified development milestones. Torii is responsible for all
development, regulatory and commercialization
8
expenses in Japan and is obligated to pay royalties to the Company on sales of
licensed products in Japan. The agreement will remain in effect, unless earlier
terminated, until the last to expire of any patent rights licensed under the
agreement, or in the event no patents issue, for twenty years from May 31, 1996.
The agreement is subject to termination by Torii at any time and by the Company
in certain circumstances, including any material breaches of the agreement by
Torii. Pursuant to the agreement, Torii may negotiate a license with the Company
to develop BCX-34 and certain other PNP inhibitor compounds for additional
indications.
3-DIMENSIONAL PHARMACEUTICALS
In October 1996, the Company signed an agreement with 3-Dimensional
Pharmaceuticals, Inc. ("3DP") of Exton, Pennsylvania, under which the companies
will share resources and technology to expedite the identification of inhibitors
of key serine protease enzymes which represent promising targets for inhibition
of complement activation. The agreement combines BioCryst's capabilities in
structure-based drug design with the selection power of 3DP's
DirectedDiversity-Registered Trademark-, a proprietary method of directing
combinatorial chemistry and high throughput screening toward specific molecular
targets, used to rapidly discover and optimize new drugs. Under the terms of
this agreement, the companies will be responsible for their own research costs.
If compounds are discovered as a result of the collaboration, the companies will
then negotiate clinical development and commercialization rights to those
compounds.
UAB COLLABORATIVE ARRANGEMENTS
UAB has one of the leading X-ray crystallography centers in the world with
approximately 100 full-time staff members and approximately $9.0 million in
research grants and contract funding in 1995. In 1986, the Company entered into
an agreement with UAB which granted the Company exclusive rights to any
discoveries resulting from research relating to PNP.
Since 1990, the Company has entered into several other research agreements
with UAB to perform research for the Company. The agreements provide that UAB
perform specific research for the Company in return for research payments and
license fees. In November 1994, the Company entered into an agreement with UAB
for the joint research and development relating to development of an influenza
neuraminidase inhibitor. UAB has granted the Company certain rights to any
discoveries in this area resulting from research previously developed by UAB or
jointly developed with BioCryst. The Company has agreed to fund certain UAB
research laboratories, to expend at least $6 million for the project over a
period coinciding with the period the Company funds UAB's research laboratories,
to pay certain royalties on sales of any resulting product and to share in
future payments received from other third-party collaborators. In July 1995, the
Company entered into an agreement with UAB for the joint research and
development relating to factor D inhibitors. UAB has also granted the Company
certain rights to any discoveries in this area resulting from research
previously developed by UAB or jointly developed with BioCryst. The Company has
agreed to fund certain UAB research laboratories, to expend at least $1.0
million for the project over a three-year period, to pay certain royalties on
sales of any resulting product and to share in future payments received from
other third-party collaborators. These two agreements have initial 25-year terms
(automatically renewable for five-year terms throughout the life of the last
patent or extension thereof incorporating the license rights) and are terminable
by the Company upon three months' notice and by UAB under certain circumstances.
BioCryst believes that due to the expertise of the faculty at UAB in the
various disciplines employed by BioCryst in its structure-based drug design
programs, including X-ray crystallography, and UAB's past performance in
identifying and characterizing medically relevant protein targets, BioCryst's
relationship with UAB is important to the success of BioCryst. No assurance can
be given, however, that UAB's research will be beneficial to BioCryst or that
BioCryst will be able to maintain its relationship with UAB. See Note 8 to Notes
to Financial Statements.
9
GRANTS AND TECHNOLOGY AGREEMENTS
In 1987, the Company entered into a research agreement under which BioCryst
received approximately $960,000 over four years from Novartis to fund its
research of PNP inhibitors and Novartis was granted certain rights to enter into
various option and license agreements for PNP inhibitors. In 1990, Novartis
exercised its right pursuant to which the Company granted Novartis an exclusive
option to enter into a worldwide exclusive license for several of the Company's
PNP inhibitor compounds. The license does not include BCX-34. Novartis signed
that license agreement and paid the Company a $500,000 fee (up to $300,000 of
which is refundable in certain circumstances) following patent issuance in 1993.
The terms of the license also call for Novartis to make milestone payments based
upon the estimated annual United States sales of the licensed products plus
royalties. No assurance can be given that any additional revenues will be
realized by the Company pursuant to the license. Novartis' other rights to enter
into various option and license agreements for PNP inhibitors have expired. See
Note 8 to Notes to Financial Statements.
In 1991 and 1992, BioCryst was awarded three $50,000 Phase I SBIR grants by
the NIH. They were used to support the design and synthesis of inhibitors to
influenza neuraminidase, factor D and aldose reductase. In 1992, the Company was
also awarded $47,500 by the Alabama Department of Economic and Community Affairs
which was used in the design and synthesis of inhibitors of influenza
neuraminidase. In February 1994, BioCryst was awarded a two-year $500,000 Phase
II SBIR grant by the NIH. The grant was used to support the design of inhibitors
of factor D. There is no assurance that BioCryst will be awarded any future
grants.
PATENTS AND PROPRIETARY INFORMATION
The Company owns or has rights to certain proprietary information, issued
and allowed patents and patent applications which relate to compounds it is
developing. The Company actively seeks, when appropriate, protection for its
products and proprietary information by means of United States and foreign
patents, trademarks and contractual arrangements. In addition, the Company plans
to rely upon trade secrets and contractual arrangements to protect certain of
its proprietary information and products. The Company has been issued six United
States patents which expire between 2009 to 2013 and relate to its PNP inhibitor
compounds. The Company's current lead compound, BCX-34, is covered by one of the
patents. This group also includes BCX-5, which may require a license from
Warner-Lambert Company ("Warner-Lambert") to market a product containing this
compound. The Company has the right of first refusal to negotiate a license from
Warner-Lambert for that compound, however, there can be no assurance that such a
license would be available or obtainable on terms acceptable to the Company. Two
patent applications relating to other of the Company's PNP inhibitor compounds
are pending at the U.S. Patent and Trademark Office ("PTO"). The Company has
also been issued a patent by the PTO covering the manufacturing process of its
PNP inhibitors which expires in 2015. In addition, one patent has issued by the
PTO which expires in 2015 and one patent application has been filed with the PTO
relating to inhibitors of influenza neuraminidase. There can be no assurance
that any patents will provide the Company with sufficient protection against
competitive products or otherwise be commercially valuable.
The Company's success will depend in part on its ability to obtain and
enforce patent protection for products developed by it, preserve its trade
secrets, and operate without infringing on the proprietary rights of third
parties, both in the United States and other countries. In the absence of patent
protection, the Company's business may be adversely affected by competitors who
develop substantially equivalent technology. Because of the substantial length
of time and expense associated with bringing new products through development
and regulatory approval to the marketplace, the pharmaceutical and biotechnology
industries place considerable importance on obtaining and maintaining patent and
trade secret protection for new technologies, products and processes. There can
be no assurance that patents will be issued from such applications, that the
Company will develop additional products that are patentable or that present or
future patents will provide sufficient protection to the Company's present or
future technologies, products
10
and processes. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information, design
around the Company's patents or obtain access to the Company's know-how or that
others will not successfully challenge the validity of the Company's patents or
be issued patents which may prevent the sale of one or more of the Company's
product candidates, or require licensing and the payment of significant fees or
royalties by the Company to third parties in order to enable the Company to
conduct its business. Legal standards relating to the scope of claims and the
validity of patents in the fields in which the Company is pursuing research and
development are still evolving, are highly uncertain and involve complex legal
and factual issues. No assurance can be given as to the degree of protection or
competitive advantage any patents issued to the Company will afford, the
validity of any such patents or the Company's ability to avoid violating or
infringing any patents issued to others. Further, there can be no guarantee that
any patents issued to or licensed by the Company will not be infringed by the
products of others. Litigation and other proceedings involving the defense and
prosecution of patent claims can be expensive and time consuming, even in those
instances in which the outcome is favorable to the Company, and can result in
the diversion of resources from the Company's other activities. An adverse
outcome could subject the Company to significant liabilities to third parties,
require the Company to obtain licenses from third parties or require the Company
to cease any related research and development activities or sales.
The Company depends upon the knowledge, experience and skills (which are not
patentable) of its key scientific and technical personnel. To protect its rights
to its proprietary information, the Company requires all employees, consultants,
advisors and collaborators to enter into confidentiality agreements which
prohibit the disclosure of confidential information to anyone outside the
Company and require disclosure and assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance that these
agreements will effectively prevent the unauthorized use or disclosure of the
Company's confidential information.
The Company's research has been or is being funded in part by Small Business
Innovation Research or National Institutes of Health grants. As a result of such
funding, the United States Government has or will have certain rights in the
inventions developed with the funding. These rights include a non-exclusive,
paid-up, worldwide license under such inventions for any governmental purpose.
In addition, the government has the right to require the Company to grant an
exclusive license under any of such inventions to a third party if the
government determines that (i) adequate steps have not been taken to
commercialize such inventions, (ii) such action is necessary to meet public
health or safety needs or (iii) such action is necessary to meet requirements
for public use under federal regulation. Federal law requires that any exclusive
licensor of an invention that was partially funded by federal grants (which is
the case with the subject matter of certain patents issued in the Company's
name) agree that it will not grant exclusive rights to use or sell the invention
in the United States unless the grantee agrees that any products embodying the
invention will be manufactured substantially in the United States, although such
requirement is subject to a discretionary waiver by the government. It is not
expected that the government will exercise any such rights.
MARKETING, DISTRIBUTION AND SALES
The Company lacks experience in marketing, distributing or selling
pharmaceutical products and will have to develop a pharmaceutical sales force
and/or rely on collaborators, licensees or on arrangements with others to
provide for the marketing, distribution and sales of any products it may
develop. There can be no assurance that the Company will be able to establish
marketing, distribution and sales capabilities or make arrangements with
collaborators, licensees or others to perform such activities.
COMPETITION
The pharmaceutical industry is intensely competitive. Many companies,
including biotechnology, chemical and pharmaceutical companies, are actively
engaged in activities similar to those of the Company,
11
including research and development of drugs for the treatment of immunological
and infectious diseases and disorders. Many of these companies have
substantially greater financial and other resources, larger research and
development staffs, and more extensive marketing and manufacturing organizations
than the Company. In addition, some of them have considerable experience in
preclinical testing, clinical trials and other regulatory approval procedures.
There are also academic institutions, governmental agencies and other research
organizations which are conducting research in areas in which the Company is
working; they may also market commercial products, either on their own or
through collaborative efforts.
BioCryst expects to encounter significant competition for the pharmaceutical
products it plans 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. In
addition, certain 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
field of PNP inhibitors, and the Company is aware that other companies or
institutions are pursuing development of new drugs and technologies directly
targeted at applications for which the Company is developing its drug compounds.
The Company expects that the technology for structure-based drug design will
attract significant additional competitors over time. In order to compete
successfully, the Company's goal is to develop proprietary positions in patented
drugs for therapeutic markets which have not been satisfactorily addressed by
conventional research strategies and, in the process, extend its expertise in
structure-based drug design.
GOVERNMENT REGULATION
BioCryst's research and development activities are, and its future business
will be, subject to significant regulation by numerous governmental authorities
in the United States, primarily, but not exclusively, by the FDA, and other
countries. Pharmaceutical products intended for therapeutic or diagnostic use in
humans are governed principally by the Federal Food, Drug and Cosmetic Act and
by FDA regulations in the United States and by comparable laws and regulations
in foreign countries. The process of completing clinical testing and obtaining
FDA approval for a new drug product requires a number of years and the
expenditure of substantial resources.
Following drug discovery, the steps required before a new pharmaceutical
product may be marketed in the United States include (1) preclinical laboratory
and animal tests, (2) the submission to the FDA of an application for an
Investigational New Drug ("IND"), (3) clinical and other studies to assess
safety and parameters of use, (4) adequate and well-controlled clinical trials
to establish the safety and effectiveness of the drug, (5) the submission of a
New Drug Application ("NDA") to the FDA, and (6) FDA approval of the NDA prior
to any commercial sale or shipment of the drug.
Typically, preclinical studies are conducted in the laboratory and in animal
model systems to gain preliminary information on the drug's pharmacology and
toxicology and to identify any potential safety problems that would preclude
testing in humans. The results of these studies are submitted to the FDA as part
of the IND application. Testing in humans may commence 30 days after submission
of the IND to the FDA unless the FDA objects, although companies typically wait
for approval from the FDA before commencing clinical trials. A three phase
clinical trial program is usually required for FDA approval of a pharmaceutical
product. Phase I clinical trials are designed to determine the metabolism and
pharmacologic effects of the drug in humans, the side effects associated with
increasing doses, and, possibly, to obtain early indications of efficacy. These
studies generally involve a small number of healthy volunteer subjects, but may
be conducted in people with the disease the drug is intended to treat. Phase II
studies are conducted in an expanded population to evaluate the effectiveness of
the drug for a particular indication and thus involve patients with the disease
under study. These studies are also intended to elicit additional safety data on
the drug, including evidence of the short-term side effects and other risks
associated with the drug. Phase III studies are generally designed to provide
the substantial evidence of safety and effectiveness of a drug required to
obtain FDA approval. They often involve a substantial number of patients in
12
multiple study centers and may include chronic administration of the drug in
order to assess the overall benefit-risk relationship of the drug. A clinical
trial may combine the elements of more than one phase, and typically two or more
Phase III studies are required. Upon completion of clinical testing which
demonstrates that the product is safe and effective for a specific indication,
an NDA may be submitted to the FDA. This application includes details of the
manufacturing and testing processes, preclinical studies and clinical trials.
The designation of a clinical trial as being of a particular phase is not
necessarily indicative that such a trial will be sufficient to satisfy the
requirements of a particular phase. For example, no assurance can be given that
a Phase III clinical trial will be sufficient to support an NDA without further
clinical trials. The FDA monitors the progress of each of the three phases of
clinical testing and may alter, suspend or terminate the trials based on the
data that have been accumulated to that point and its assessment of the
risk/benefit ratio to the patient. Typical estimates of the total time required
for completing such clinical testing vary between four and ten years. FDA
approval of the NDA is required before the applicant may market the new product
in the United States. The clinical testing and FDA review process for new drugs
are likely to require substantial time, effort and expense. There can be no
assurance that any approval will be granted to the Company on a timely basis, if
at all. The FDA may refuse to approve an NDA if applicable statutory and/or
regulatory criteria are not satisfied, or may require additional testing or
information. There can be no assurance that such additional testing or the
provision of such information, if required, will not have a material adverse
effect on the Company. The regulatory process can be modified by Congress or the
FDA in specific situations.
In 1988, the FDA issued regulations intended to expedite the development,
evaluation, and marketing of new therapeutic products to treat life-threatening
and severely debilitating illnesses for which no satisfactory alternative
therapies exist. These regulations provide for early consultation between the
sponsor and the FDA in the design of both preclinical studies and clinical
trials. Phase I clinical trials may sometimes be carried out in people with the
disease that the drug is intended to treat rather than in healthy volunteers, as
is customary, followed by studies to establish effectiveness in Phase II. If the
results of Phase I and Phase II trials support the safety and effectiveness of
the therapeutic agent, and their design and execution are deemed satisfactory
upon review by the FDA, marketing approval can be sought at the end of Phase II
trials. NDA approval granted under these regulations may be restricted by the
FDA as necessary to ensure safe use of the drug. In addition, post-marketing
clinical studies may be required. If after approval a post-marketing clinical
study establishes that the drug does not perform as expected, or if
post-marketing restrictions are not adhered to or are not adequate to ensure
safe use of the drug, FDA approval may be withdrawn. The expedited approval may
shorten the traditional drug development process by an estimated two to three
years. There can be no assurance, however, that any compound the Company may
develop will be eligible for evaluation by the FDA under the 1988 regulations
or, if eligible, will be approved for marketing at all or, if approved for
marketing, will be approved for marketing sooner than would be traditionally
expected.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition," which generally is a
disease or condition that affects populations of fewer than 200,000 individuals
in the United States. Orphan drug designation must be requested before
submitting an NDA. After the FDA grants orphan drug designation, the generic
identity of the therapeutic agent and its potential orphan use are publicized by
the FDA. Under current law, orphan drug designation grants certain U.S.
marketing exclusivity to the first company to receive FDA approval to market
such designated drug, subject to certain limitations. A product that is
considered by the FDA to be different from a particular orphan drug or is
approved for different indications is not barred from sale in the United States
during the seven year exclusivity period. Orphan drug designation does not
convey any advantage in, or shorten the duration of, the regulatory approval
process. In October 1993, the Company obtained from the FDA an orphan drug
designation for BCX-34 to treat CTCL, and may request orphan drug designation
for more of its products and/or additional indications as part of its overall
regulatory strategy in the future. There is no assurance, however, that any of
its products will receive an orphan drug designation or be the first to be
approved by the FDA for the designated indication and, hence, obtain orphan drug
marketing
13
exclusivity. Although obtaining FDA approval to market a product with an orphan
drug designation can be advantageous, there can be no assurance that the scope
of protection or the level of marketing exclusivity that is currently afforded
by orphan drug designation and marketing approval will remain in effect in the
future. There can be no assurance that the Company will receive FDA approval to
market BCX-34 to treat CTCL. In addition, it is possible that other competitors
of the Company could obtain orphan drug designation for product candidates that
are not the same as BCX-34 though they are intended for use to treat CTCL.
Even after initial FDA approval has been obtained, further studies may be
required to provide additional data on safety or to gain approval for the use of
a product as a treatment in clinical indications other than those for which the
product was initially tested. The FDA may also require post-marketing testing
and surveillance programs to monitor the drug's effects. Side effects resulting
from the use of pharmaceutical products may prevent or limit the further
marketing of products.
Once the sale of a product is approved, the FDA regulates production,
marketing, and other activities under the Federal Food, Drug, and Cosmetic Act
and the FDA's implementing regulations. A post-marketing testing, surveillance
and reporting program may be required to continuously monitor the product's
usage and effects. Product approvals may be withdrawn, or other actions may be
ordered, or sanctions imposed if compliance with regulatory requirements is not
maintained. Other countries in which any products developed by the Company or
its licensees may be marketed impose a similar regulatory process.
In June 1995, the Company notified the FDA that it had submitted incorrect
efficacy data to the FDA pertaining to its Phase II dose-ranging studies of
BCX-34 for CTCL and psoriasis. Upon learning of the error, the Company initiated
internal and external audits and submitted corrected analyses to the FDA. In
addition, the Company hired a new Vice President of Clinical Development and
outside expert personnel to manage clinical development and monitor studies,
developed additional standard operating procedures, and contracted with a
contract research organization to assist the Company in monitoring its trial for
BCX-34 for CTCL.
In November 1995, the FDA inspected the Company in relation to a February
1995 48-hour skin stripping study involving application of BCX-34. At the
conclusion of the inspection, the FDA issued to the Company a List of
Inspectional Observations ("Form FDA 483") including the observation that there
was no documentation of any monitoring of the study or of several other studies.
The Company responded to this and the other observation in the Form FDA 483.
Although the FDA has not raised any additional questions in the matter, the
Company does not know whether its responses were satisfactory to the FDA.
In June 1996, the FDA inspected the Company and one of its clinical sites in
relation to Phase II dose-ranging studies of BCX-34 for CTCL and psoriasis, each
of which was concluded in early 1995. At the conclusion of the inspection, the
FDA issued to the Company a Form FDA 483 citing deficiencies relating to the
monitoring of the studies and the Company's procedures for generating,
archiving, and safeguarding the randomization tables used in the studies. The
deficient procedures failed to prevent the use of an incorrect randomization
table which ultimately resulted in the initial submission to the FDA of data
which reported false statistical significance. The FDA issued a Form FDA 483 to
the principal investigator at one of the Company's clinical sites, citing
numerous significant deficiencies in the conduct of the Phase II dose-ranging
study of BCX-34 for CTCL and psoriasis. These deficiencies included improper
delegations of authority by the principal investigator, failures to follow the
protocols, institutional review board deviations, and discrepancies or
deficiencies in documentation and reporting. As a result of the FDA inspections,
the FDA may not accept data from these studies. As a consequence of the FDA
inspections and such resulting Form FDA 483s, the Company's ongoing clinical
studies, and in particular, the Phase III trial with topical BCX-34 for CTCL,
are likely to receive increased scrutiny from the FDA since the same clinical
site which received the Form FDA 483 is involved in that trial. This may delay
the regulatory review process or
14
require the Company to increase the number of patients at other sites to obtain
approval (which can not be assured on a timely basis or at all).
The Company believes that its procedures and monitoring practices are now in
compliance with the FDA's requirements governing Good Clinical Practice ("GCP").
There can be no assurance, however, that the FDA will agree or that, even if it
does agree, it will not seek to impose administrative, civil, or other sanctions
in connection with the earlier studies and submission. Administrative sanctions
could include refusing to accept earlier studies and requiring the Company to
repeat one or more clinical studies, which would be the only studies the FDA
would accept for purposes of substantive scientific review of any NDA by the
agency.
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other similar Federal, state and local regulations governing
permissible laboratory activities, waste disposal handling of toxic, dangerous
or radioactive materials and other matters. The Company believes that it is in
compliance with such regulations.
For marketing outside the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and devices. The requirements relating to the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country.
HUMAN RESOURCES
As of February 28, 1997, the Company had 53 employees, of whom 42 were
engaged in research and development and 11 were in general and administrative
functions. The Company's scientific staff (20 of whom hold Ph.D. or M.D.
degrees) has diversified experience in biochemistry, pharmacology, X-ray
crystallography, synthetic organic chemistry, computational chemistry, medicinal
chemistry and pharmacology. The Company considers its relations with its
employees to be satisfactory.
SCIENTIFIC ADVISORY BOARD AND CONSULTANTS
BioCryst has assembled a Scientific Advisory Board comprised of six members
(the "Scientific Advisors") who are leaders in certain of the Company's core
disciplines or who otherwise have specific expertise in its therapeutic focus
areas. The Scientific Advisory Board meets as a group at scheduled meetings and
the Scientific Advisors meet more frequently, on an individual basis, with the
Company's scientific personnel and management to discuss the Company's ongoing
research and drug discovery and development projects. The Company also has
consulting agreements with a number of other scientists (the "Consultants") with
expertise in the Company's core disciplines or in its therapeutic focus areas
who are consulted from time to time by the Company.
The Scientific Advisors and the Consultants are reimbursed for their
expenses and receive nominal cash compensation in connection with their service
and have been issued options and/or shares of Common Stock. The Scientific
Advisors have been issued a total of 4,975 shares of Common Stock for nominal
consideration and granted stock options to purchase a total of 71,000 shares of
Common Stock at a weighted average exercise price of $5.99 per share.
Consultants have also been granted stock options to purchase a total of 52.500
shares at a weighted average exercise price of $4.92 per share. The Scientific
Advisors and the Consultants are all employed by or have consulting agreements
with entities other than the Company, some of which may compete with the Company
in the future. The Scientific Advisors and the Consultants are expected to
devote only a small portion of their time to the business of the Company,
although no specific time commitment has been established. They are not expected
to participate actively in the Company's affairs or in the development of the
Company's technology. Certain of the institutions with which the Scientific
Advisors and the Consultants are affiliated may adopt new regulations or
policies that limit the ability of the Scientific Advisors and the Consultants
to consult with the Company. The loss
15
of the services of certain of the Scientific Advisors and the Consultants could
adversely affect the Company to the extent that the Company is pursuing research
or development in areas of such Scientific Advisors' and Consultants' expertise.
To the extent members of the Company's Scientific Advisory Board or the
Consultants have consulting arrangements with or become employed by any
competitor of the Company, the Company could be materially adversely affected.
One member of the Scientific Advisory Board, Dr. Gordon N. Gill, is a member of
the Board of Directors of the Agouron Institute. The Agouron Institute is a
shareholder in, and has had contractual relationships with, Agouron
Pharmaceuticals, Inc., a company utilizing core technology which is similar to
the core technology employed by BioCryst.
The Scientific Advisory Board consists of the following individuals:
NAME POSITION
- -------------------------------------------------------- --------------------------------------------------------
Albert F. LoBuglio, M.D. (Chairman)..................... Professor of Medicine and the Director of the
Comprehensive Cancer Center of UAB
Gordon N. Gill, M.D..................................... Professor of Medicine and Chair of the Faculty of Basic
Biomedical Sciences at the University of California, San
Diego School of Medicine
Robert E. Handschumacher, Ph.D.......................... Retired Professor and former Chairman of the Department
of Pharmacology at Yale University School of Medicine
Herbert A. Hauptman, Ph.D............................... Research Professor in Biophysical Science at the State
University of New York (Buffalo), the President of the
Hauptman-Woodward Medical Research Institute, Inc.
(formerly the Medical Foundation (Buffalo), Inc.), and
Research Professor in Biophysical Sciences at the State
University of New York (Buffalo), recipient of the Nobel
Prize in Chemistry (1985)
Yuichi Iwaki, M.D., Ph.D................................ Professor of Urology and Pathology, University of
Southern California School of Medicine
Hamilton O. Smith, M.D.................................. Professor, Molecular Biology and Genetics Department at
The Johns Hopkins University School of Medicine,
recipient of the Nobel Prize in Medicine (1978)
Any inventions or processes independently discovered by the Scientific
Advisors or the Consultants may not become the property of the Company and will
probably remain the property of such persons or of such persons' employers. In
addition, the institutions with which the Scientific Advisors and the
Consultants are affiliated may make available the research services of their
personnel, including the Scientific Advisors and the Consultants, to competitors
of the Company pursuant to sponsored research agreements. The Company requires
the Scientific Advisors and the Consultants to enter into confidentiality
agreements which prohibit the disclosure of confidential information to anyone
outside the Company and require disclosure and assignment to the Company of
their ideas, developments, discoveries or inventions. However, no assurance can
be given that competitors of the Company will not gain access to trade secrets
and other proprietary information developed by the Company and disclosed to the
Scientific Advisors and the Consultants.
16
ITEM 2. PROPERTIES
The Company's administrative offices and principal research facility are
located in 22,800 square feet of leased office space in Riverchase
Industrial/Research Park in Birmingham, Alabama. The lease runs through March
31, 2000 with an option to lease for an additional three years at current market
rates. The Company believes that its facilities are adequate for its current
operations. Additional facilities will be necessary to manufacture sufficient
quantities under good manufacturing practices to conduct extensive clinical
trials or if the Company undertakes commercial manufacturing. See Note 4 to the
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
In October 1996, the Company settled a suit and counterclaim between
BioCryst and Warner-Lambert, agreeing that an option agreement and an option
extensions between the parties are expired and are of no force or effect, and
further that neither party has any obligation to the other pursuant to the
option agreement or the option extension. Warner-Lambert granted BioCryst an
exclusive irrevocable right of first refusal to obtain from Warner-Lambert a
property right interest in any technology covered under patent rights and
proprietary information held by Warner-Lambert covering any PNP inhibitors
(including BCX-5), derivative compounds, improvements, and patent rights, such
property right infers having the form of ownership via assignment of patent
rights or an exclusive or nonexclusive license, as the case may be, to practice
an invention owned by Warner-Lambert.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock MarketSM under the symbol BCRX. Public trading commenced on March
4, 1994. Prior to that date, there was no public market for the Company's stock.
The following table sets forth the low and high prices as reported by Nasdaq for
each quarter in 1996 and 1995:
1996 1995
-------------------- --------------------
LOW HIGH LOW HIGH
--------- --------- --------- ---------
First quarter.............................................. $ 8.63 $ 10.25 $ 4.63 $ 7.00
Second quarter............................................. 9.13 20.75 5.50 13.75
Third quarter.............................................. 10.63 17.13 7.75 12.25
Fourth quarter............................................. 10.50 17.13 8.50 11.25
The last sale price of the common stock on March 14, 1997 as reported by
Nasdaq was $13.00 per share.
As of February 28, 1997, there were approximately 593 holders of record of
the common stock.
The Company has never paid cash dividends and does not anticipate paying
cash dividends.
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE)
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
STATEMENT OPERATIONS DATA:
Total revenues.............................................. $ 2,652 $ 885 $ 734 $ 363 $ 185
Research and development expenses........................... $ 7,586 $ 7,107 $ 5,552 $ 4,196 $ 3,019
Net loss.................................................... $ (7,698) $ (8,576) $ (6,938) $ (5,196) $ (4,051)
Net loss per share.......................................... $ (.69) $ (.96) $ (1.02) $ (1.55) $ (1.31)
Weighted average shares outstanding......................... 11,171 8,905 6,787 3,352 3,101
DECEMBER 31,
(IN THOUSANDS)
---------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------
BALANCE SHEET DATA:
Cash, cash equivalents and securities.................. $ 35,785 $ 11,414 $ 10,873 $ 2,873 $ 1,284
Total assets........................................... 37,149 13,056 12,803 5,203 3,555
Long-term debt and obligations under capital leases,
excluding current portion............................ 58 300 573 855 931
Accumulated deficit.................................... (37,766) (30,067) (21,491) (14,553) (9,357)
Total stockholders' equity............................. 35,403 11,326 11,176 2,877 1,534
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS ANNUAL REPORT CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
SUCH STATEMENTS ARE ONLY PREDICTIONS AND THE ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW
AS WELL AS THOSE DISCUSSED IN OTHER FILINGS MADE BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
Since its inception in 1986, the Company has been engaged in research and
development activities (including drug discovery, manufacturing compounds,
conducting preclinical studies and clinical trials) and organizational efforts
(including recruiting its scientific and management personnel), establishing
laboratory facilities, engaging its Scientific Advisory Board and raising
capital. The Company has not received any revenue from the sale of
pharmaceutical products and does not expect to receive such revenues to a
significant extent for at least several years, if at all. The Company has
incurred operating losses since its inception. The Company expects to incur
significant additional operating losses over the next several years and expects
such losses to increase as the Company's research and development and clinical
trial efforts expand.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995
Collaborative and other research and development revenue increased 601.0% to
$1,558,543 in 1996 from $222,329 in 1995, primarily due to the $1.5 million
license fee received from Torii. This was offset by the decrease in the Factor D
grant from 1995 due to its completion in early 1996. Interest and other income
increased 65.1% to $1,093,617 in 1996 from $662,259 in 1995, primarily due to
interest earned on funds from the Company's public offering in September 1996
and private placements in March 1996 and May 1995.
Research and development expenses increased 6.7% to $7,586,159 in 1996 from
$7,107,249 in 1995. The increase was primarily attributable to expenses
associated with increased personnel. The costs associated with manufacturing
compounds, clinical trials and preclinical studies were approximately the same
in both 1996 and 1995. These costs tend to fluctuate from period to period
depending upon the stage of development and the conduct of clinical trials.
General and administrative expenses increased 20.6% to $2,664,197 in 1996
from $2,209,488 in 1995. The increase was primarily the result of approximately
$574,000 in consulting fees and withholding taxes incurred in connection with
the license agreement with Torii which was offset by reversal of a liability
recorded in 1995 for use taxes assessed that the Company successfully contested
in 1996.
Interest expense decreased 30.6% to $100,031 in 1996 from $144,115 in 1995.
The decrease was primarily due to a decline in capitalized lease obligations,
along with long-term debt, resulting in lesser interest expense. The Company
obtained most of its leases in connection with the move to its new facilities in
April 1992.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994
Collaborative and other research and development revenue decreased 17.4% to
$222,329 in 1995 from $269,126 in 1994, primarily as a result of 1994 including
$50,000 from non-recurring contract research. Interest and other income
increased 42.5% to $662,259 in 1995 from $464,690 in 1994, primarily due to
higher rates and the investment of funds received from the Company's initial
public offering in March 1994 and private placements in September 1994 and May
1995.
Research and development expenses increased 28.0% to $7,107,249 in 1995 from
$5,551,660 in 1994. The increase was primarily attributable to expenses
associated with conducting clinical trials, preclinical
19
studies and large scale synthesis of BCX-34 (generic name peldesine) and
increased personnel costs and expenses associated with joint research and
development contracts with UAB for the influenza neuraminidase and Factor D
projects and outside research on PNP inhibitors.
General and administrative expenses increased 16.0% to $2,209,488 in 1995
from $1,904,046 in 1994. The increase was primarily the result of increased
franchise taxes, increased stockholder and investor communication expenses
associated with being a public company and higher business insurance costs.
These increases were partially offset by two non-recurring charges in
1994--payments made pursuant to a consulting agreement entered into upon the
former president's termination in the second quarter of 1994 and contractual
deferred compensation paid to the former president of the Company upon the
initial public offering in the first quarter of 1994.
Interest expense decreased 33.3% to $144,115 in 1995 from $215,985 in 1994.
The decrease was primarily due to a decline in capitalized lease obligations,
along with long-term debt, resulting in lesser interest expense. The Company
obtained most of its leases in connection with the move to its new facilities in
April 1992.
LIQUIDITY AND CAPITAL RESOURCES
Cash expenditures have exceeded revenues since the Company's inception.
Operations have principally been funded through public offerings and private
placements of equity and debt securities, equipment lease financing, facility
leases, collaborative and other research and development agreements (including a
license and options for licenses), research grants and interest income. In
addition, the Company has attempted to contain costs and reduce cash flow
requirements by renting scientific equipment or facilities, contracting with
third parties to conduct certain research and development and using consultants.
The Company expects to incur additional expenses, resulting in significant
losses, as it continues and expands its research and development activities and
undertakes additional preclinical studies and clinical trials of compounds which
have been or may be discovered. The Company also expects to incur substantial
administrative, manufacturing and commercialization expenditures in the future
as it seeks FDA approval for its compounds and establishes its manufacturing
capability under Good Manufacturing Practices ("GMP"), and substantial expenses
related to the filing, prosecution, maintenance, defense and enforcement of
patent and other intellectual property claims.
At December 31, 1996, the Company's cash, cash equivalents and securities
held-to-maturity were $35,784,668, an increase of $24,370,624 from December 31,
1995 principally due to the Company's equity offerings.
The Company received $500,000 in 1993 as a license fee from Novartis. The
Company is required to refund up to $300,000 of the fee if sales of any
resultant products are below specified levels (see Note 8).
The Company has financed its equipment purchases primarily with lease lines
of credit. The Company currently has a $500,000 line of credit with its bank to
finance capital equipment. In January 1992, the Company entered into an
operating lease for its current facilities which, based on an extension signed
in December 1994, expires on March 31, 2000, with an option to lease for an
additional three years at current market rates. The operating lease requires the
Company to pay monthly rent (ranging from $10,241 and escalating annually to a
minimum of $12,457 per month in the final year), and a pro rata share of
operating expenses and real estate taxes in excess of base year amounts.
At December 31, 1996, the Company had long-term capital lease and operating
lease obligations which provide for aggregate minimum payments of $434,561 in
1997, $205,233 in 1998 and $148,395 in 1999. The Company is required to expend
$6 million, of which approximately $2.6 million was expended through December
31, 1996, over a period coinciding with funding by the Company to UAB on its
influenza neuraminidase project in order to maintain a worldwide license from
UAB. In addition, the Company has committed to conducting certain clinical
trials and animal studies in 1997 for an aggregate amount of approximately $2.4
million at December 31, 1996.
20
As described in Note 8, the Company entered into a license agreement with
Torii under which Torii paid the Company $1.5 million in license fees and made a
$1.5 million equity investment in the Company in 1996. While the license
agreement provides for potential milestone payments of up to $19.0 million and
royalties on future sales of licensed products in Japan, there can be no
assurance that Torii will continue to develop the product in Japan or that if it
does so that it will result in meeting the milestones or achieving future sales
of licensed products in Japan.
The Company plans to finance its needs principally from its existing capital
resources and interest thereon, from payments under collaborative and licensing
agreements with corporate partners, through research grants, and to the extent
available, through lease or loan financing and future public or private
financings. The Company believes that its available funds will be sufficient to
fund the Company's operations at least through the end of 1998. However, this is
a forward-looking statement, and no assurance can be given that there will be no
change that would consume available resources significantly before such time.
See "Certain Factors That May Affect Future Results, Financial Condition and the
Market Price of Securities." The Company's long-term capital requirements and
the adequacy of its available funds will depend upon many factors, including
results of research and development, results of product testing, relationships
with strategic partners, changes in the focus and direction of the Company's
research and development programs, competitive and technological advances and
the FDA regulatory process. Additional funding, whether through additional sales
of securities or collaborative or other arrangements with corporate partners or
from other sources, may not be available when needed or on terms acceptable to
the Company. Insufficient funds may require the Company to delay, scale-back or
eliminate certain of its research and development programs or to license third
parties to commercialize products or technologies that the Company would
otherwise undertake itself.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL CONDITION AND THE
MARKET PRICE OF SECURITIES
EARLY STAGE OF DEVELOPMENT; UNCERTAINTY OF PRODUCT DEVELOPMENT;
TECHNOLOGICAL UNCERTAINTY
BioCryst is at an early stage of development. All of the Company's compounds
are in research and development, and no revenues have been generated from sales
of its compounds. It will be a number of years, if ever, before the Company will
recognize significant revenues from product sales or royalties. To date, most of
the Company's resources have been dedicated to the research and development of
pharmaceutical compounds based upon its PNP program for the treatment of T-cell
proliferative diseases and disorders and for the development of inhibitors of
influenza neuraminidase and enzymes and proteins involved in the complement
cascade. The Company is conducting preclinical and clinical studies with its
lead drug, BCX-34, and results from these studies may not support future human
clinical testing or further development of the compound. T-cell proliferative
diseases, as well as the other disease indications the Company is studying, are
highly complex and their causes are not fully known. The Company's compounds
under development will require significant additional, time-consuming and costly
research and development, preclinical testing and extensive clinical testing
prior to submission of any regulatory application for commercial use. Product
development of new pharmaceuticals is highly uncertain, and unanticipated
developments, clinical or regulatory delays, unexpected adverse side effects or
inadequate therapeutic efficacy could slow or prevent product development
efforts and have a material adverse effect on the Company. BioCryst's lead drug,
BCX-34, reversibly inhibits T-cell activity, an essential component of the human
immune system. In addition to any direct toxicities or side effects the drug may
cause, BCX-34, while inhibiting T-cells, may compromise the immune system's
ability to fight infection. Although the Company will monitor immunosuppression
during drug dosing, there can be no assurance that the drug will not cause
irreversible immunosuppression. There can be no assurance that the Company's
research or product development efforts as to any particular compound will be
successfully completed, that the compounds currently under development will be
safe or efficacious, that required regulatory approvals can be obtained, that
products can be manufactured at acceptable cost and with appropriate quality or
that any approved products can be successfully marketed or will be accepted by
patients, health care providers and
21
third-party payers. Few drugs discovered by use of structure-based drug design
have been successfully developed, approved by the FDA or marketed. Within the
pharmaceutical industry, treatment of the disease indications being pursued by
the Company, especially T-cell proliferative diseases such as CTCL and
psoriasis, have proven difficult. There can be no assurance that drugs resulting
from the approach of structure based drug design employed by the Company will
overcome the difficulties of drug discovery and development or result in
commercially successful products. See "Business--Products in Development."
UNCERTAINTY ASSOCIATED WITH PRECLINICAL AND CLINICAL TESTING
Before obtaining regulatory approvals for the commercial sale of any of its
products, BioCryst must undertake extensive preclinical and clinical testing to
demonstrate their safety and efficacy in humans. The Company has limited
experience in conducting clinical trials. To date, the Company has conducted
initial preclinical testing of certain of its compounds and is testing topical
and oral formulations of BCX-34 in various clinical trials. The results of
initial preclinical and clinical testing of compounds under development by the
Company are neither necessarily predictive of results that will be obtained from
subsequent or more extensive preclinical and clinical testing nor necessarily
acceptable to the FDA to support applications for marketing permits. Even if the
results of subsequent clinical tests are positive, products, if any, resulting
from the Company's research and development programs are not likely to be
commercially available for several years. Additionally, the Company has made and
may in the future make changes to the formulation of its drugs and/or to the
processes for manufacturing its drugs. Any such future changes in formulation or
manufacturing processes could result in delays in conducting further preclinical
and clinical testing, in unexpected adverse events in further preclinical and
clinical testing, and/or in additional development expenses. Furthermore, there
can be no assurance that clinical studies of products under development will be
acceptable to the FDA or demonstrate the safety and efficacy of such products at
all or to the extent necessary to obtain regulatory approvals of such products.
The Company's Phase II trial with topical BCX-34 for the treatment of psoriasis
completed in April 1996 did not achieve a statistically significant outcome. See
"Business--PNP Inhibitors (BCX-34)". Companies in the industry have suffered
significant setbacks in advanced clinical trials, even after promising results
in earlier trials. the failure to comply with data integrity GCP requirements or
to adequately demonstrate the safety and efficacy of a therapeutic product under
development could delay or prevent regulatory approval of the product, and would
have a material adverse effect on the Company.
The rate of completion of clinical trials is dependent upon, among other
factors, the rate of enrollment of patients. Patient accrual is a function of
many factors, including the size of the patient population, the proximity of
patients to clinical sites, the eligibility criteria for the study and the
existence of competitive clinical trials. Delays in planned patient enrollment
in the Company's current trials or future clinical trials may result in
increased costs and/or program delays which could have a material adverse effect
on the Company.
GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVAL
The research, testing, manufacture, labeling, distribution, advertising,
marketing and sale of drug products are subject to extensive regulation by
governmental authorities in the United States and other countries. Prior to
marketing, compounds developed by the Company must undergo an extensive
regulatory approval process required by the FDA and by comparable agencies in
other countries. This process, which includes preclinical studies and clinical
trials of each compound to establish its safety and effectiveness and
confirmation by the FDA that good laboratory, clinical and manufacturing
practices were maintained during testing and manufacturing, can take many years,
requires the expenditure of substantial resources and gives larger companies
with greater financial resources a competitive advantage over the Company. To
date, no compound or drug candidate being evaluated by the Company has been
submitted for approval to the FDA or any other regulatory authority for
marketing, and there can be no assurance that any such product or compound will
ever be approved for marketing or that the Company will be able to obtain the
labeling claims desired for its products or compounds. The Company is and will
continue to
22
be dependent upon the laboratories and medical institutions conducting its
preclinical studies and clinical trials to maintain both good laboratory and
good clinical practices and, except for the formulating and packaging of small
quantities of its drug formulations which the Company is currently undertaking,
upon the manufacturers of its compounds to maintain compliance with current GMP
requirements. Data obtained from preclinical studies and clinical trials are
subject to varying interpretations which could delay, limit or prevent FDA
regulatory approval. Delays or rejections may be encountered based upon changes
in FDA policy for drug approval during the period of development and FDA
regulatory review. Similar delays also may be encountered in foreign countries.
Moreover, even if approval is granted, such approval may entail commercially
unacceptable limitations on the labeling claims for which a compound may be
marketed. Even if such regulatory approval is obtained, a marketed drug or
compound and its manufacturer are subject to continual review and inspection,
and later discovery of previously unknown problems with the product or
manufacturer may result in restrictions or sanctions on such product or
manufacturer, including withdrawal of the product from the market, and other
enforcement actions.
In June 1995 the Company notified the FDA that it had submitted incorrect
efficacy data to the FDA pertaining to its Phase II dose-ranging studies of
BCX-34 for CTCL and psoriasis. The FDA inspected the Company in November 1995 in
relation to a study involving the topical application of BCX-34 concluded in
early 1995, and in June 1996 the FDA inspected the Company and one of its
clinical sites in relation to a Phase II dose-ranging study of BCX-34 for CTCL
and a Phase II dose ranging study for psoriasis, both of which were concluded in
early 1995. After each inspection, the FDA issued to the Company a Form FDA 483
setting forth certain deficient GCP procedures followed by the Company, some of
which resulted in submission to the FDA of efficacy data which reported false
statistical significance. The FDA also issued a Form FDA 483 to the principal
investigator at one of the Company's clinical sites citing numerous significant
deficiencies in the conduct of the Phase II dose-ranging studies of BCX-34 for
CTCL and psoriasis. These deficiencies included improper delegations of
authority by the principal investigator, failures to follow the protocols,
institutional review board deviations, and discrepancies or deficiencies in
documentation and reporting. The CTCL and the psoriasis dose-ranging Phase II
clinical trials did not result in an overall statistically significant drug
effect and as a result of the FDA inspections the FDA may not accept data from
these studies. As a consequence of the FDA inspections and such resulting Form
483s, the Company's ongoing clinical studies, and in particular, the Phase III
trial with topical BCX-34 for CTCL, are likely to receive increased scrutiny
since the same clinical site which received the 483 is involved in that trial;
this may delay the regulatory review process or require the Company to increase
the number of patients at other sites to obtain approval (which can not be
assured on a timely basis or at all). The Company has adjusted certain of its
procedures, but there can be no assurance that the FDA will find such
adjustments to be in compliance with FDA requirements or that, even if it does
find such adjustments to be in compliance, it will not seek to impose
administrative, civil or other sanctions in connection with the earlier studies.
Administrative sanctions could include refusing to accept earlier studies and
requiring the Company to repeat one or more clinical studies, which would be the
only studies the FDA would accept for purposes of substantive scientific review
of any NDA by the agency. See "Business--Government Regulation."
Such sanctions or other government regulation may delay or prevent the
marketing of products being developed by the Company, impose costly procedures
upon the Company's activities and confer a competitive advantage to larger
companies or companies that are more experienced in regulatory affairs and that
compete with the Company. There can be no assurance that FDA or other regulatory
approval for any products developed by the Company will be granted on a timely
basis, or at all. Delay in obtaining or failure to obtain such regulatory
approvals will materially adversely affect the marketing of any products which
may be developed by the Company, as well as the Company's results of operations.
See "Business-- Government Regulation."
23
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
BioCryst, to date, has generated no revenue from product sales and has
incurred losses since its inception. As of December 31, 1996, the Company's
accumulated deficit was approximately $33.6 million. Losses have resulted
principally from costs incurred in research activities aimed at discovering,
designing and developing the Company's pharmaceutical product candidates and
from general and administrative costs. These costs have exceeded the Company's
revenues, which to date have been generated primarily from collaborative
arrangements, licenses, research grants and from interest income. The Company
expects to incur significant additional operating losses over the next several
years and expects such losses to increase as the Company's research and
development and clinical trial efforts expand. The Company's ability to achieve
profitability depends upon its ability to develop drugs and to obtain regulatory
approval for its products, to enter into agreements for product development,
manufacturing and commercialization, and to develop the capacity to manufacture,
market and sell its products. There can be no assurance that the Company will
ever achieve significant revenues or profitable operations.
ADDITIONAL FINANCING REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company has incurred negative cash flows from operations in each year
since its inception. The Company expects that the funding requirements for its
operating activities will increase substantially in the future due to expanded
research and development activities (including preclinical studies and clinical
trials), the development of manufacturing capabilities and the development of
marketing and distribution capabilities. The Company anticipates that its
capital resources are adequate to satisfy its capital requirements at least
through 1998. However, this is a forward-looking statement, and no assurance can
be given that there will be no change that would consume available resources
significantly before such time. The Company's future capital requirements will
depend on many factors, including continued scientific progress in its research,
drug discovery and development programs, the magnitude of these programs,
progress with preclinical studies and clinical trials, prosecuting and enforcing
patent claims, competing technological and market developments, changes in
existing collaborative research or development relationships, the ability of the
Company to establish additional collaborative relationships, and the cost of
manufacturing scale-up and effective marketing activities and arrangements. The
Company anticipates, based on its current business plan, that it will be
necessary to raise additional funds in 1999 or earlier. Additional funds, if
any, may possibly be raised through financing arrangements or collaborative
relationships and/or the issuance of preferred or common stock or convertible
securities, on terms and prices significantly more favorable than those of the
currently outstanding Common Stock, which could have the effect of diluting or
adversely affecting the holdings or rights of existing stockholders of the
Company. In addition, collaborative arrangements may require the Company to
transfer certain material rights to such corporate partners. If adequate funds
are not available, the Company will be required to delay, scale back or
eliminate one or more of its research, drug discovery or development programs or
attempt to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish some or all of its rights to
certain of its intellectual property, product candidates or products. No
assurance can be given that additional financing will be available to the
Company on acceptable terms, if at all.
COMPETITION
The Company is engaged in the pharmaceutical industry, which is
characterized by extensive research efforts, rapid technological progress and
intense competition. There are many public and private companies, including
well-known pharmaceutical companies, chemical companies, specialized
biotechnology companies and academic institutions, engaged in developing
synthetic pharmaceuticals and biotechnological products for human therapeutic
applications that represent significant competition to the Company. Existing
products and therapies and improvements thereto will compete directly with
products the Company is seeking to develop and market, and the Company is aware
that other companies or institutions
24
are pursuing development of new drugs and technologies directly targeted at
applications for which the Company is developing its drug compounds. Many of the
Company's competitors have substantially greater financial and technical
resources and production and marketing capabilities and experience than does the
Company. The Company has granted Novartis a worldwide exclusive license to
several compounds in the Company's sixth group of PNP inhibitors. Such
arrangements with Ciba does not include BCX-34 or most of the Company's other
compounds. No assurance can be given that Ciba will or will not develop
compounds under such arrangements, will be able to obtain FDA approval for any
licensed compounds, that any such licensed compounds if so approved will be able
to be commercialized successfully, or that the Company will realize any revenues
pursuant to such arrangements. If commercialized, these compounds could compete
directly against other compounds, including BCX-34, being developed by the
Company.
Many of the Company's competitors have significantly greater experience in
conducting preclinical studies and clinical trials of new pharmaceutical
products and in obtaining FDA and other regulatory approvals for health care
products. Accordingly, BioCryst's competitors may succeed in obtaining approvals
for their products more rapidly than the Company and in developing products that
are safer or more effective or less costly than any that may be developed by the
Company and may also be more successful than the Company in the production and
marketing of such products. Many of the Company's competitors also have current
GMP facilities and significantly greater experience in implementing GMP or in
obtaining and maintaining the requisite regulatory standards for manufacturing.
Moreover, other technologies are, or may in the future become, the basis for
competitive products. Competition may increase further as a result of the
potential advances from structure-based drug design and greater availability of
capital for investment in this field. There can be no assurance that the
Company's competitors will not succeed in developing technologies and products
that are more effective than any being developed by the Company or that would
render the Company's technology and product candidates obsolete or
noncompetitive. See "Business--Competition."
DEPENDENCE ON COLLABORATIVE PARTNERS; RELATIONSHIP WITH THE UNIVERSITY OF
ALABAMA AT BIRMINGHAM
The Company's strategy for research, development and commercialization of
certain of its products is to rely in part upon various arrangements with
corporate partners, licensees and others. As a result, the Company's products
are dependent in large part upon the subsequent success of such third parties in
performing preclinical studies and clinical trials, obtaining regulatory
approvals, manufacturing and marketing. The Company has recently entered into an
exclusive license agreement with Torii to develop, manufacture and commercialize
in Japan BCX-34 and certain other PNP inhibitor compounds for three indications.
The Company has also entered into collaborative arrangements with Novartis and
intends to pursue additional collaborations in the future. See "Business
- -Collaborative Arrangements." There can be no assurance that the Company will be
able to negotiate additional acceptable collaborative arrangements or that such
arrangements will be successful. No assurance can be given that the Company's
collaborative partners will be able to obtain FDA approval for any licensed
compounds, that any such licensed compounds, if so approved, will be able to be
commercialized successfully, or that the Company will realize any revenues
pursuant to such arrangements. Although the Company believes that parties to
collaborative arrangements generally have an economic motivation to succeed in
performing their contractual responsibilities, the amount and timing of
resources which they devote to these activities are not within the control of
the Company. There can be no assurance that such parties will perform their
obligations as expected or that current or potential collaborators will not
pursue treatments for other diseases or seek alternative means of developing
treatments for the diseases targeted by collaborative programs with the Company
or that any additional revenues will be derived from such arrangements. If any
of the Company's collaborators breaches or terminates its agreement with the
Company or otherwise fails to conduct its collaborative activities in a timely
manner, the development or commercialization of the product candidate or
research program under such collaboration agreement may be delayed, the Company
may be required to undertake unforeseen additional responsibilities or to devote
unforeseen additional resources to such development or
25
commercialization, or such development or commercialization could be terminated.
The termination or cancellation of collaborative arrangements could also
adversely affect the Company's financial condition, intellectual property
position and operations. In addition, disagreements between collaborators and
the Company have in the past and could in the future lead to delays in the
collaborative research, development or commercialization of certain product
candidates, or could require or result in legal process or arbitration for
resolution. These consequences could be time-consuming, expensive and could have
material adverse effects on the Company.
The successful commercialization of the Company's compounds and product
candidates is also dependent upon the Company's ability to develop collaborative
arrangements with academic institutions and consultants to support research and
development efforts and to conduct clinical trials. The Company's primary
academic collaboration is with UAB. The Company is highly dependent upon its
collaborative arrangements with UAB to support its ongoing research and
development programs and the termination or cessation of such relationship could
have a material adverse effect upon the Company. There can be no assurance that
the Company's current arrangements with UAB will continue or that the Company
will be able to develop successful collaborative arrangements with academic
institutions and consultants in the future. See "Business--Collaborative
Arrangements--UAB Collaborative Arrangements."
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
enforce patent protection for its products, preserve its trade secrets, and
operate without infringing on the proprietary rights of third parties, both in
the United States and in other countries. In the absence of patent protection,
the Company's business may be adversely affected by competitors who develop
substantially equivalent technology. See "Business--Patents and Proprietary
Information." Because of the substantial length of time and expense associated
with bringing new products through development and regulatory approval to the
marketplace, the pharmaceutical and biotechnology industries place considerable
importance on obtaining and maintaining patent and trade secret protection for
new technologies, products and processes. To date, the Company has been issued
six United States patents related to its PNP inhibitor compounds. One of these
compounds is under a patent issued to Warner-Lambert and the Company may require
a license from Warner-Lambert to market a product containing one or both of
these compounds. The Company has the right of first refusal to negotiate a
license from Warner-Lambert for that compound, however, there can be no
assurance that such a license would be available or obtainable on terms
acceptable to the Company. Two patent applications relating to additional PNP
inhibitor compounds are pending at the PTO. A patent has also been issued by the
PTO on a new process to prepare BCX-34 and other PNP inhibitors. In addition,
one patent has issued by the PTO and one patent application has been filed with
the PTO relating to inhibitors of influenza neuraminidase. The Company has filed
certain corresponding foreign patent applications and intends to file additional
foreign patent applications and additional United States patent applications, as
appropriate. There can be no assurance that patents will be issued from such
applications, that the Company will develop additional products that are
patentable or that present or future patents will provide sufficient protection
to the Company's present or future technologies, products and processes. In
addition, there can be no assurance that others will not independently develop
substantially equivalent proprietary information, design around the Company's
patents or obtain access to the Company's know-how or that others will not
successfully challenge the validity of the Company's patents or be issued
patents which may prevent the sale of one or more of the Company's product
candidates, or require licensing and the payment of significant fees or
royalties by the Company to third parties in order to enable the Company to
conduct its business. Legal standards relating to the scope of claims and the
validity of patents in the fields in which the Company is pursuing research and
development are still evolving, are highly uncertain and involve complex legal
and factual issues. No assurance can be given as to the degree of protection or
competitive advantage any patents issued to the Company will afford, the
validity of any such patents or the Company's ability to avoid infringing any
patents issued to others. Further, there can be no guarantee that any patents
issued to or licensed by the
26
Company will not be infringed by the products of others. Litigation and other
proceedings involving the defense and prosecution of patent claims can be
expensive and time consuming, even in those instances in which the outcome is
favorable to the Company, and can result in the diversion of resources from the
Company's other activities. An adverse outcome could subject the Company to
significant liabilities to third parties, require the Company to obtain licenses
from third parties or require the Company to cease any related research and
development activities or sales.
The Company's success is also dependent upon the skills, knowledge and
experience (none of which is patentable) of its scientific and technical
personnel. To help protect its rights, the Company requires all employees,
consultants, advisors and collaborators to enter into confidentiality agreements
which prohibit the disclosure of confidential information to anyone outside the
Company and requires disclosure and assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's 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.
The Company's management and scientific personnel have been recruited
primarily from other pharmaceutical companies and academic institutions. In many
cases, these individuals are continuing research in the same areas with which
they were involved prior to joining BioCryst and may be restricted by agreement
from disclosing to the Company trade secrets they learned elsewhere. As a
result, the Company could be subject to allegations of violation of such
agreements and similar claims and litigation regarding such claims could ensue.
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL
The Company is highly dependent upon the efforts of its senior management
and scientific team. The loss of the services of one or more members of the
senior management and scientific team could significantly impede the achievement
of development objectives. Although the Company maintains, and is the
beneficiary of, a $2.0 million key-man insurance policy on the life of Charles
E. Bugg, Ph.D., Chairman of the Board of Directors and Chief Executive Officer,
the Company does not believe the proceeds would be adequate to compensate for
his loss. Due to the specialized scientific nature of the Company's business,
the Company is also highly dependent upon its ability to attract and retain
qualified scientific, technical and key management personnel. There is intense
competition for qualified personnel in the areas of the Company's activities,
and there can be no assurance that the Company will be able to continue to
attract and retain qualified personnel necessary for the development of its
existing business and its expansion into areas and activities requiring
additional expertise, such as production and marketing. The loss of, or failure
to recruit, scientific, technical and managerial personnel could have a material
adverse effect on the Company. In addition, the Company relies on members of its
Scientific Advisory Board and consultants to assist the Company in formulating
its research and development strategy. All of the members of the Scientific
Advisory Board and all of the Company's consultants are employed by other
employers, and each such member or consultant may have commitments to, or
consulting or advisory contracts with, other entities that may limit their
availability to the Company. See "Business--Human Resources," "--Scientific
Advisory Board and Consultants" and "Management."
LACK OF MANUFACTURING, MARKETING OR SALES CAPABILITY
The Company has not yet manufactured or marketed any products and currently
does not have the facilities to manufacture its product candidates in commercial
quantities under GMP as prescribed and required by the FDA. To be successful,
the Company's products must be manufactured in commercial quantities under GMP
and at acceptable costs. Although the Company is formulating and packaging under
GMP conditions small amounts of certain drug formulations which are the subject
of preclinical studies and clinical trials, the current facilities of the
Company are not adequate for commercial scale production. Therefore, the Company
will need to develop its own GMP manufacturing facility and/or depend on its
27
collaborators, licensees or contract manufacturers for the commercial
manufacture of its products. The Company has no experience in such commercial
manufacturing and no assurance can be given that the Company will be able to
make the transition to commercial production successfully or at an acceptable
cost. In addition, no assurance can be given that the Company will be able to
make arrangements with third parties to manufacture its products on acceptable
terms, if at all. The inability of the Company to manufacture or provide for the
manufacture of any products it may develop on a cost-effective basis would have
a material adverse effect on the Company.
The Company has no experience in marketing, distributing or selling
pharmaceutical products and will have to develop a pharmaceutical sales force
and/or rely on its collaborators, licensees or arrangements with others to
provide for the marketing, distribution and sales of any products it may
develop. There can be no assurance that the Company will be able to establish
marketing, distribution and sales capabilities or make arrangements with
collaborators, licensees or others to perform such activities.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT AND PRODUCT PRICING
Successful commercialization of any pharmaceutical products the Company may
develop will depend in part upon the availability of reimbursement or funding
from third-party health care payors such as government and private insurance
plans. There can be no assurance that third-party reimbursement or funding will
be available for newly approved pharmaceutical products or will permit price
levels sufficient to realize an appropriate return on the Company's investment
in its pharmaceutical product development. The U.S. Congress is considering a
number of legislative and regulatory reforms that may affect companies engaged
in the health care industry in the United States. Although the Company cannot
predict whether these proposals will be adopted or the effects such proposals
may have on its business, the existence and pendency of such proposals could
have a material adverse effect on the Company in general. In addition, the
Company's ability to commercialize potential pharmaceutical products may be
adversely affected to the extent that such proposals have a material adverse
effect on other companies that are prospective collaborators with respect to any
of the Company's pharmaceutical product candidates.
Third-party payors are continuing their efforts to contain or reduce the
cost of health care through various means. For example, third-party payors are
increasingly challenging the prices charged for medical products and services.
Also, the trend toward managed health care in the United States and the
concurrent growth of organizations, such as health maintenance organizations,
which can control or significantly influence the purchase of health care
services and products, as well as legislative proposals to reform health care or
reduce government insurance programs, may result in lower prices for
pharmaceutical products. The cost containment measures that health care
providers are instituting and the effect of any health care reform could
materially adversely affect the Company's ability to sell its products if
successfully developed and approved.
RISK OF PRODUCT LIABILITY; AVAILABILITY OF INSURANCE
The Company's business may be affected by potential product liability risks
which are inherent in the testing, manufacturing and marketing of pharmaceutical
and other products under development by the Company. There can be no assurance
that product liability claims will not be asserted against the Company, its
collaborators or licensees. The use of products developed by the Company in
clinical trials and the subsequent sale of such products is likely to cause
BioCryst to bear all or a portion of those risks. The Company does not have
product liability insurance but does maintain coverage for clinical trials in
the amount of $6.0 million per occurrence and in the aggregate. No assurance can
be given that such insurance will be adequate to cover claims made with respect
to the clinical trials. There can be no assurance that the Company will be able
to obtain or maintain adequate product liability insurance on acceptable terms
or that such insurance will provide adequate coverage against potential
liabilities. Furthermore, there can be no assurance that any collaborators or
licensees of BioCryst will agree to indemnify the Company, be sufficiently
insured or have a net worth sufficient to satisfy any such product liability
claims.
28
HAZARDOUS MATERIALS; COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company's research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although the
Company believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by state and federal regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result and any such liability could exceed the
resources of the Company. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS; EFFECT OF CERTAIN
ANTI-TAKEOVER CONSIDERATIONS
The Company's directors, executive officers and certain principal
stockholders and their affiliates own beneficially approximately 24.8% of the
Common Stock. Accordingly, such holders, if acting together, may have the
ability to exert significant influence over the election of the Company's Board
of Directors and other matters submitted to the Company's stockholders for
approval. The voting power of these holders may discourage or prevent any
proposed takeover of the Company unless the terms thereof are approved by such
holders. Pursuant to the Company's Composite Certificate of Incorporation (the
"Certificate of Incorporation"), shares of Preferred Stock may be issued by the
Company in the future without stockholder approval and upon such terms as the
Board of Directors may determine. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of discouraging a third party from acquiring a
majority of the outstanding Common Stock of the Company and preventing
stockholders from realizing a premium on their shares. The Company's Certificate
of Incorporation also provides for staggered terms for the members of the Board
of Directors. A staggered Board of Directors and certain provisions of the
Company's by-laws and of Delaware law applicable to the Company could delay or
make more difficult a merger, tender offer or proxy contest involving the
Company.
PRICE VOLATILITY
The securities markets have from time to time experienced significant price
and volume fluctuations that have often been unrelated to the operating
performance of particular companies. In addition, the market prices of the
common stock of many publicly traded emerging pharmaceutical and
biopharmaceutical companies have in the past been, and can in the future be
expected to be, especially volatile. Announcements of technological innovations
or new products by the Company or its competitors, developments or disputes
concerning patents or proprietary rights or collaboration partners, achieving or
failing to achieve development milestones, publicity regarding actual or
potential medical results relating to products under development by the Company
or its competitors, regulatory developments in both U.S. and foreign countries,
public concern as to the safety of pharmaceutical products and economic and
other external factors, as well as period-to-period fluctuations in the
Company's financial results, may have a significant impact on the market price
of the Common Stock.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BALANCE SHEETS
DECEMBER 31,
-----------------------------
1996 1995
-------------- -------------
ASSETS
Cash and cash equivalents (Note 3)................................................. $ 3,635,780 $ 6,134,968
Securities held-to-maturity........................................................ 24,229,033 5,279,076
Prepaid expenses and other current assets.......................................... 233,454 279,386
-------------- -------------
Total current assets........................................................... 28,098,267 11,693,430
Securities held-to-maturity........................................................ 7,919,855
Furniture and equipment, net (Note 2).............................................. 1,130,790 1,362,783
-------------- -------------
Total assets................................................................... $ 37,148,912 $ 13,056,213
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................................................... $ 615,433 $ 210,177
Accrued expenses................................................................... 240,878 187,673
Accrued taxes, other than income................................................... 209,954 350,223
Accrued vacation................................................................... 83,277 110,704
Current maturities of long-term debt (Note 4)...................................... 18,560 28,782
Current maturities of capital lease obligations (Note 4)........................... 219,117 241,745
-------------- -------------
Total current liabilities...................................................... 1,387,219 1,129,304
-------------- -------------
Long-term debt (Note 4)............................................................ 18,560
-------------- -------------
Capital lease obligations (Note 4)................................................. 58,472 281,851
-------------- -------------
Deferred license fee (Note 8)...................................................... 300,000 300,000
-------------- -------------
Stockholders' equity (Notes 6 and 7):
Preferred stock, $.01 par value, shares authorized-5,000,000; none issued and
outstanding
Common stock, $.01 par value; shares authorized--45,000,000; shares issued and
outstanding--13,697,734--1996; 9,504,331--1995................................. 136,977 95,043
Additional paid-in capital....................................................... 73,031,864 41,298,848
Accumulated deficit.............................................................. (37,765,620) (30,067,393)
-------------- -------------
Total stockholders' equity..................................................... 35,403,221 11,326,498
-------------- -------------
Commitments and contingency (Notes 4 and 8)........................................
-------------- -------------
Total liabilities and stockholders' equity..................................... $ 37,148,912 $ 13,056,213
-------------- -------------
-------------- -------------
See accompanying notes to financial statements.
30
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
Revenues:
Collaborative and other research and development (Notes 1 and 8)... $ 1,558,543 $ 222,329 $ 269,126
Interest and other................................................. 1,093,617 662,259 464,690
------------- ------------- -------------
Total revenues................................................... 2,652,160 884,588 733,816
------------- ------------- -------------
Expenses:
Research and development........................................... 7,586,159 7,107,249 5,551,660
General and administrative......................................... 2,664,197 2,209,488 1,904,046
Interest........................................................... 100,031 144,115 215,985
------------- ------------- -------------
Total expenses................................................... 10,350,387 9,460,852 7,671,691
------------- ------------- -------------
Net loss............................................................. $ (7,698,227) $ (8,576,264) $ (6,937,875)
------------- ------------- -------------
------------- ------------- -------------
Net loss per share (Note 1).......................................... $(.69) $(.96) $(1.02)
Weighted average shares outstanding (Note 1)......................... 11,171,035 8,905,099 6,787,203
See accompanying notes to financial statements.
31
STATEMENT OF STOCKHOLDERS' EQUITY
PREFERRED ADDITIONAL TOTAL STOCK-
AND OTHER COMMON PAID-IN ACCUMULATED HOLDERS'
CAPITAL* STOCK CAPITAL DEFICIT EQUITY
------------ ---------- ------------- -------------- -------------
BALANCE AT DECEMBER 31, 1993............ $ 9,141,644 $ 33,152 $ 8,255,037 $ (14,553,254) $ 2,876,579
Sale of common stock, 2,825,900
shares................................ 28,259 15,202,250 15,230,509
Conversion of Preferred Stock........... (9,141,644) 17,034 9,124,610
Exercise of stock options, 62,744
shares................................ 627 6,120 6,747
Net loss................................ (6,937,875) (6,937,875)
------------ ---------- ------------- -------------- -------------
BALANCE AT DECEMBER 31, 1994............ 79,072 32,588,017 (21,491,129) 11,175,960
Sale of common stock, 1,570,000
shares................................ 15,700 8,594,550 8,610,250
Exercise of stock options, 13,834
shares................................ 138 50,556 50,694
Employee stock purchase plan sales,
13,331 shares......................... 133 65,725 65,858
Net loss................................ (8,576,264) (8,576,264)
------------ ---------- ------------- -------------- -------------
BALANCE AT DECEMBER 31, 1995............ 95,043 41,298,848 (30,067,393) 11,326,498
Sale of common stock, 3,376,608
shares................................ 33,766 30,495,652 30,529,418
Exercise stock options, 45,255 shares... 453 190,987 191,440
Employee stock purchase plan sales,
18,101 shares......................... 181 147,362 147,543
Exercise of warrants, 753,439 shares.... 7,534 883,266 890,800
Compensation cost....................... 15,749 15,749
Net loss................................ (7,698,227) (7,698,227)
------------ ---------- ------------- -------------- -------------
BALANCE AT DECEMBER 31, 1996............ $ 136,977 $ 73,031,864 $ (37,765,620) $ 35,403,221
------------ ---------- ------------- -------------- -------------
------------ ---------- ------------- -------------- -------------
* Represents Series A and B Preferred Stock at December 31, 1993.
See accompanying notes to financial statements.
32
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
OPERATING ACTIVITIES
Net loss......................................................... $ (7,698,227) $ (8,576,264) $ (6,937,875)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................. 524,367 554,025 607,399
Non-monetary compensation...................................... 15,749
Changes in operating assets and liabilities:
Prepaid expenses and other assets.............................. 45,932 (34,539) 149,638
Accounts payable............................................... 405,256 62,063 80,541
Accrued expenses............................................... 53,205 16,661 (452,038)
Accrued taxes, other than income............................... (140,269) 326,497 (1,461)
Accrued vacation............................................... (27,427) (24,023) 38,439
-------------- -------------- --------------
NET CASH USED IN OPERATING ACTIVITIES............................ (6,821,414) (7,675,580) (6,515,357)
-------------- -------------- --------------
INVESTING ACTIVITIES
Purchases of furniture and equipment............................. (292,374) (231,685) (357,760)
Purchase of marketable securities................................ (36,950,717) (11,397,640) (13,433,567)
Maturities of marketable securities.............................. 10,080,905 14,313,366 5,238,765
-------------- -------------- --------------
NET CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES.............. (27,162,186) 2,684,041 (8,552,562)
-------------- -------------- --------------
FINANCING ACTIVITIES
Principal payments of debt and capital lease obligations......... (274,789) (278,354) (364,542)
Exercise of stock options........................................ 191,440 50,694 6,747
Employee Stock Purchase Plan stock sales......................... 147,543 65,858
Exercise of warrants............................................. 890,800
Sale of common stock, net of issuance costs...................... 30,529,418 8,610,250 15,230,509
-------------- -------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 31,484,412 8,448,448 14,872,714
-------------- -------------- --------------
(Decrease)/increase in cash and cash equivalents................. (2,499,188) 3,456,909 (195,205)
Cash and equivalents at beginning of period...................... 6,134,968 2,678,059 2,873,264
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 3,635,780 $ 6,134,968 $ 2,678,059
-------------- -------------- --------------
-------------- -------------- --------------
See accompanying notes to financial statements.
33
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING POLICIES
BASIS OF PRESENTATION
BioCryst Pharmaceuticals, Inc. (the "Company") is an emerging pharmaceutical
company using structure-based drug design to discover and design novel,
small-molecule pharmaceutical products for the treatment of immunological and
infectious diseases and disorders. The Company has three research projects, of
which only one is in clinical trials. While the prospects for a project may
increase as the project advances to the next stage of development, a project can
be terminated at any stage of development. Until the Company generates revenues
from either a research project or an approved product, its ability to continue
research projects is dependent upon its ability to raise funds. The Company
relies on sole suppliers to manufacture its BCX-34 compound for clinical trials
and is evaluating supply sources for commercial production.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from convertible preferred
stock and unexercised stock options and warrants are excluded from the
computation as their effect is anti-dilutive, except that, pursuant to
requirements of the Securities and Exchange Commission, common and common
equivalent shares issued at a price substantially below the anticipated public
stock offering price during the 12-month period prior to the Company's initial
public offering in March 1994 have been included in the calculation as if they
were outstanding for all periods presented (using the treasury method and the
public offering price).
SECURITIES HELD-TO-MATURITY
The Company is required to classify debt and equity securities as
held-to-maturity, available-for-sale or trading. The appropriateness of each
classification is reassessed at each reporting date. The only dispositions were
maturities of securities held-to-maturity. At December 31, 1996, securities
held-to-maturity consisted of $27,979,500 of U.S. Treasury and Agency securities
and $4,169,388 of high-grade domestic corporate debt carried at amortized cost.
All of the non-current portion of securities held-to-maturity are U.S. Treasury
and Agency securities that mature in 1998. The amortized cost of all these
securities at December 31, 1996 approximated the market value.
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.
Leased laboratory equipment is amortized over the lease lives of three and five
years. Leasehold improvements are amortized over the remaining lease period.
INCOME TAXES
The liability method is used in accounting for income taxes in accordance
with Statement of Financial Accounting Standards No. 109 ("Statement No. 109").
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.
34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Research and development revenue on cost-reimbursement agreements is
recognized as expenses are incurred, up to contractual limits. Research and
development revenues, license fees and option fees are recognized as revenue
when irrevocably due. Payments received which are related to future performance
are deferred and taken into income as earned over a specified future performance
period.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers cash
equivalents to be all cash held in money market accounts or investments in debt
instruments with maturities of three months or less at the time of purchase.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"). Under APB No. 25, the Company's stock option and employee stock purchase
plans qualify as noncompensatory plans. Consequently, no compensation expense is
recognized. Stock issued to non-employees is compensatory and a compensation
expense is recognized commencing in 1996 under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("Statement No.
123").
USE OF ESTIMATES
Management is required to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results could differ from
those estimates.
RECLASSIFICATIONS
The 1995 and 1994 financial statements have been reclassified to conform to
the 1996 financial statements. The changes had no effect on the results of
operations previously reported.
NOTE 2--FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following at December 31:
1996 1995
------------ ------------
Furniture and fixtures............................................ $ 276,057 $ 275,949
Laboratory equipment.............................................. 692,775 765,873
Leased laboratory equipment....................................... 1,220,778 1,220,778
Lease hold improvements........................................... 816,488 802,987
------------ ------------
3,006,098 3,065,587
Less accumulated depreciation and amortization.................... 1,875,308 1,702,804
------------ ------------
Furniture and equipment, net...................................... $ 1,130,790 $ 1,362,783
------------ ------------
------------ ------------
The Company does not have any significant impairment losses under Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--CONCENTRATION OF CREDIT AND MARKET RISK
The Company invests its excess cash principally in marketable securities
from a diversified portfolio of institutions with strong credit ratings and in
U.S. government and agency bills and notes, and by policy, limits the amount of
credit exposure at any one institution. These investments are generally not
collateralized and primarily mature within one year. The Company has not
realized any losses from such investments. The Company has one primary bank in
which it keeps funds, approximately $1,257,802 at December 31, 1996, in excess
of the amounts insured by the Federal Deposit Insurance Corporation. At December
31, 1996, approximately $2,377,778 of the remaining cash is invested in the
Fidelity Institution Cash Portfolio, which invests in treasury notes and
repurchase agreements. The Fidelity Institution Cash Portfolio is not insured.
NOTE 4--LONG-TERM DEBT AND LEASES
Long-term debt consists of an installment loan due in May 1997. The Company
paid $100,031, $144,115 and $215,985 in interest on debt and lease obligations
for the years ended December 31, 1996, 1995 and 1994, respectively. The Company
had an unused line of credit of $500,000 at December 31, 1996.
The Company has the following capital lease obligations and operating leases
at December 31, 1996:
CAPITAL OPERATING
LEASES LEASES
---------- ----------
1997.................................................................. $ 269,903 $ 164,658
1998.................................................................. 61,161 144,072
1999.................................................................. 148,395
2000.................................................................. 37,371
---------- ----------
Total minimum lease payments.......................................... 331,064 $ 494,496
----------
----------
Less amounts representing interest.................................... 53,475
----------
Present value of future minimum lease payments........................ 277,589
Less current portion.................................................. 219,117
----------
Non-current portion................................................... $ 58,472
----------
----------
Rent expense for operating leases was $191,880, $183,522 and $151,914 in 1996,
1995 and 1994, respectively.
NOTE 5--INCOME TAXES
The Company has not had taxable income since incorporation and, therefore,
has not paid any income tax. Deferred tax assets of approximately $14,600,000
and $11,250,000 at December 31, 1996 and 1995, respectively, have been
recognized principally for the net operating loss and research and development
credit carryforwards and have been reduced by a valuation allowance of
$14,600,000 and $11,250,000 at December 31, 1996 and 1995, respectively, which
will remain until it is more likely than not that the related tax benefits will
be realized.
At December 31, 1996, the Company had net operating loss and research and
development credit carryforwards of approximately $33,600,000 and $1,800,000,
respectively, which will expire in 2006 through 2011. Use of the net operating
losses and research and development credits will be subject to a substantial
annual limitation due to the ownership provisions of the Tax Reform Act of 1986.
The annual limitation is expected to result in the expiration of a portion of
net operating losses and credits before utilization, which has been considered
by the Company in its computations under Statement No. 109. Additional sales of
the
36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INCOME TAXES (CONTINUED)
Company's equity securities may result in further annual limitations on the use
of operating loss carryforwards and research and development credit
carryforwards against taxable income in future years.
NOTE 6--STOCKHOLDERS' EQUITY
The Company was incorporated on November 17, 1989 as a Nevada corporation.
On December 29, 1989 it exchanged 384,901 shares of its common stock and 33,350
shares of its 8% Cumulative Convertible Preferred Stock, Series 1989 for the
predecessor partnership interests of the general partner and limited partners.
The partnership was dissolved as of January 15, 1990 and its assets and
liabilities were transferred to the Company in an exchange accounted for in a
manner similar to a pooling of interests. In 1991, the Company formed a
wholly-owned subsidiary, BioCryst Pharmaceuticals, Inc., a Delaware corporation;
thereafter the Company was merged into BioCryst Pharmaceuticals, Inc., the
surviving corporation.
WARRANTS
As part of financing arrangements, the Company has, at certain times, issued
warrants to purchase 1,314,341 shares of the Company's common stock at no less
than its estimated fair value at the date of grant. In return for their
guarantees of an expired line of credit, three directors each received warrants
(included in the 1,314,341 warrants) to purchase 49,400 shares of common stock
at $6.00 per share. All warrants are exercisable at various five-year periods
through 1998. In lieu of a cash exercise, the warrant holder may elect a net
issue exercise. Under a net issue exercise, the shares to be issued are equal to
the product of (a) the number of shares of common stock purchaseable under the
warrant being exercised, and (b) the fair market value of one share of common
stock minus the exercise price divided by (c) the fair market value of one share
of common stock.
At December 31, 1996 and 1995, 311,841 shares and 1,314,341 shares,
respectively, of the Company's common stock were reserved for issuance under
warrant agreements and the weighted average per share exercise price was $6.68
and $4.95, respectively. During 1996, warrants were exercised to purchase
201,800 shares with cash and warrants to exercise 551,639 shares were exercised
via net issue exercise by giving up warrants to purchase 249,061 shares.
OPTIONS
In November 1991, the Board of Directors adopted the 1991 Stock Option Plan
("Plan") for key employees and consultants of the Company and reserved 500,000
shares of common stock for the Plan. The Plan was approved by the stockholders
on December 19, 1991. The term of the Plan is for ten years and includes both
incentive stock options and non-statutory options. The option price for the
incentive stock options shall not be less than the fair market value of common
stock on the grant date. The option price per share for non-statutory stock
options may not be less than 85% of the fair market value of common stock on the
date of grant. The options 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. Options are generally granted to all full-time employees.
There are an aggregate of 2,388,606 shares reserved for future issuance for
the options and warrants discussed above and the Stock Purchase Plan discussed
in Note 7.
The Company follows APB No. 25 in accounting for its Stock Option and Stock
Purchase Plans and accordingly does not recognize a compensation cost. The
Company has adopted the disclosure requirement of Statement No. 123 commencing
in 1996. Since Statement No. 123 is only applied to options granted after 1994,
the pro forma disclosure should not necessarily be considered indicative of
future pro
37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
forma results when the full four-year vesting (the period in which the
compensation cost is recognized) is included in the disclosure in 1999. The fair
value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing method with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: no dividends,
expected volatility of 52.3 and 70.2 percent, risk-free interest rate of 6.1 and
5.7 percent and expected lives of five years. Had the Company adopted Statement
No. 123 and determined its compensation cost based on the fair value at the
grant dates in 1996 and 1995, the Company's net loss and net loss per share
would have been increased to the pro forma amounts shown below:
1996 1995
------------- -------------
Net loss reported............................................... $ (7,698,227) $ (8,576,264)
Net loss pro forma.............................................. (8,279,551) (8,696,497)
Net loss per share reported..................................... (.69) (.96)
Net loss per share pro forma.................................... (.74) (.98)
The stockholders on April 16, 1993 and on March 1, 1994 (approving the Board
of Directors' action of December 1993) authorized an amended and restated 1991
Stock Option Plan and approved an additional 1,000,000 shares of common stock
for issuance ("Amended Plan"). The Amended Plan includes an increase of common
stock reserved for issuance to 1,500,000 shares and establishes an automatic
option grant program. The automatic option grant program grants options to new
non-employee Board members to purchase 25,000 shares of common stock at an
exercise price of the fair market value at the grant date for a maximum of ten
years and is subject to vesting restrictions and early termination upon the
optionee's cessation of Board service. The vesting and exercise provisions of
the options issued under the Amended Plan are subject to acceleration, under
certain circumstances, upon the occurrence of a hostile tender offer for more
than 50% of the outstanding stock of the Company or if the Company is acquired.
On May 29, 1995, the stockholders approved extending the automatic option grant
to cover non-employee Board members not previously eligible for an automatic
grant and approved an additional 500,000 shares of common stock for issuance,
increasing the common stock reserved for issuance to 2,000,000 shares. The
following is an analysis of stock options for the three years ending December
31, 1996:
WEIGHTED-
AVERAGE
OPTIONS OPTIONS EXERCISE
AVAILABLE OUTSTANDING PRICE
---------- ----------- -----------
BALANCE DECEMBER 31, 1993................................ 544,853 946,397 $ 4.24
Options granted.......................................... (515,850) 515,850 4.72
Options exercised........................................ (99,540) 2.01
Options canceled......................................... 58,532 (58,532) 5.79
---------- -----------
BALANCE DECEMBER 31, 1994................................ 87,535 1,304,175 4.53
Option plan amended...................................... 500,000
Options granted.......................................... (384,800) 384,800 8.57
Options exercised........................................ (13,834) 3.66
Options canceled......................................... 45,079 (45,079) 4.63
---------- -----------
BALANCE DECEMBER 31, 1995................................ 247,814 1,630,062 5.49
Option plan amended...................................... 75,576
Options granted.......................................... (302,540) 302,540 14.68
Options exercised........................................ (45,255) 4.23
Options canceled......................................... 45,625 (45,625) 4.19
---------- -----------
BALANCE DECEMBER 31, 1996................................ 66,475 1,841,722 7.06
---------- -----------
---------- -----------
38
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
There were 1,027,416, 773,730 and 509,092 options exercisable at December
31, 1996, 1995 and 1994, respectively. The weighted-average exercise price was
$4.92, $4.35 and $4.34 at December 31, 1996, 1995 and 1994, respectively.
The following table summarizes at December 31, 1996, by price range, (1) for
options outstanding the number of options outstanding, their weighted-average
remaining life and their weighted-average exercise price and (2) for options
exercisable the number of options exercisable and their weighted-average
exercise price:
OUTSTANDING EXERCISABLE
---------------------------------- ---------------------
RANGE NUMBER LIFE PRICE NUMBER PRICE
- --------- ---------- --- --------- ---------- ---------
$2 to $5.. 719,641 6.6 $ 3.75 548,154 $ 3.49
5 to 8... 493,241 7.2 5.95 386,578 5.95
8 to 12.. 342,550 8.9 9.02 92,684 9
12 to
17....... 286,290 9.9 14.97
---------- ----------
2 to 17.. 1,841,722 7.7 7.06 1,027,416 14.92
---------- ----------
---------- ----------
NOTE 7--EMPLOYEE BENEFIT PLAN
On January 1. 1991, the Company adopted an employee retirement plan ("401(k)
Plan") under Section 401(k) of the Internal Revenue Code covering all employees.
Employee contributions may be made to the 401(k) Plan up to limits established
by the Internal Revenue Service. Company matching contributions may be made at
the discretion of the Board of Directors. The Company made a contribution of
$30,000 in 1996. The Company did not make a contribution to the 401(k) Plan
during the years ended December 31, 1995 and 1994.
On May 29, 1995, the stockholders approved an employee stock purchase plan
("Stock Purchase Plan") effective February 1, 1995. The Company has reserved
200,000 shares of common stock under the Stock Purchase Plan. 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 the 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.
There were 18,101 shares and 13,331 shares of common stock purchased under the
Stock Purchase Plan in 1996 and 1995, respectively, at a weighted average price
of $8.15 and $4.94, respectively, per share.
NOTE 8--COLLABORATIVE AND OTHER RESEARCH AND DEVELOPMENT CONTRACTS
The Company granted Novartis an option in 1990 to acquire exclusive licenses
to a class of inhibitors arising from research performed by the Company by
February 1991. The option was exercised and a $500,000 fee was paid to the
Company in 1993. Milestone payments are due upon approval of a new drug
application. The Company will also receive a royalty based upon a percentage of
sales of any resultant products. Up to $300,000 of the initial fee received is
refundable if sales of any resultant products are below specified levels.
On November 7, 1991, the Company entered into a joint research and license
agreement with The University of Alabama at Birmingham ("UAB"). UAB will perform
specific research on factor D for the Company for a period of approximately
three years in return for research and license fees. The agreement
39
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COLLABORATIVE AND OTHER RESEARCH AND DEVELOPMENT CONTRACTS (CONTINUED)
was replaced by a new agreement on July 18, 1995 granting the Company a
worldwide license in exchange for funding UAB research in the amount of $188,000
annually and sharing in any royalties or sublicense fees arising from the joint
research. In 1995 and 1994, the Company expensed $68,638 and $85,456,
respectively, under the original agreement and expensed $188,000 and $47,000 in
1996 and 1995, respectively, under the new agreement. On November 17, 1994, the
Company entered into another agreement for a joint research and license
agreement on influenza neuraminidase granting the Company a worldwide license.
Under this agreement, the Company funds UAB research in the amount of up to
$300,000 annually and UAB shares in any royalties or sublicense fees arising
from the joint research. Under the agreement, $225,000 and $300,000 was expensed
in 1996 and 1995, respectively, and no amounts were expensed in 1994. The
Company is required to expend $6,000,000, of which approximately $2.6 million
was expended through December 31, 1996, on the project over a period to coincide
with funding by the Company to UAB in order to maintain the Company's exclusive
worldwide license.
In May 1996, the Company entered into an exclusive license agreement with
Torii to develop, manufacture and commercialize BCX-34 and certain other PNP
inhibitor compounds in Japan for the treatment of rheumatoid arthritis, T-cell
cancers and atopic dermatitis. Upon entering into the agreement, Torii paid the
Company $1.5 million in license fees and made a $1.5 million equity investment
in the Company, purchasing 76,608 shares of common stock at a purchase price of
$19.58 per share. The agreement further provides for potential milestone
payments of up to $19.0 million and royalties on future sales of licensed
products in Japan. Torii is responsible for all development, regulatory and
commercialization expenses in Japan. The agreement is subject to termination by
Torii at any time and by the Company in certain circumstances. Pursuant to the
agreement, Torii may negotiate a license with the Company to develop BCX-34 and
certain other PNP inhibitor compounds for additional indications.
NOTE 9--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE)
1996 QUARTERS:
Revenues........................................... $ 169 $ 1,741 $ 252 $ 491
Net loss........................................... (1,913) (1,211) (2,512) (2,062)
Net loss per share................................. (.20) (.11) (.23) (.15)
1995 QUARTERS:
Revenues........................................... $ 157 $ 223 $ 265 $ 240
Net loss........................................... (2,908) (1,584) (1,915) (2,169)
Net loss per share................................. (.37) (.18) (.20) (.23)
40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COLLABORATIVE AND OTHER RESEARCH AND DEVELOPMENT CONTRACTS (CONTINUED)
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
BioCryst Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of BioCryst Pharmaceuticals,
Inc. as of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BioCryst Pharmaceuticals,
Inc. at December 31, 1996 and 1995 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
January 17, 1997
41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
NAME AGE POSITION(S) WITH THE COMPANY
- ------------------------------------------------ ----- --------------------------------------------------------
Charles E. Bugg, Ph.D........................... 55 Chairman, Chief Executive Officer and Director
J. Claude Bennett, M.D.......................... 63 President, Chief Operating Officer and Director
John A. Montgomery, Ph.D........................ 72 Executive Vice President, Secretary, Chief Scientific
Officer and Director
Ronald E. Gray.................................. 56 Chief Financial Officer, Assistant Secretary and
Treasurer
John L. Higgins................................. 27 Vice President, Corporate Development
William W. Featheringill (1)(2)................. 54 Director
Edwin A. Gee, Ph.D. (1)(2)...................... 77 Director
Zola P. Horovitz, Ph.D.......................... 62 Director
Lindsay A. Rosenwald, M.D. (1).................. 41 Director
Joseph H. Sherrill, Jr.......................... 55 Director
William M. Spencer, III (1)(2).................. 76 Director
Randolph C. Steer, M.D., Ph.D................... 47 Director
- ------------------------
(1) Member of the Compensation Committee ("Compensation Committee").
(2) Member of the Audit Committee ("Audit Committee").
CHARLES E. BUGG, PH.D. was named Chairman of the Board, Chief Executive
Officer and Director in November 1993, and named President in early 1995. Prior
to joining the Company, Dr. Bugg had served as the Director of the Center for
Macromolecular Crystallography, the Associate Director of the Comprehensive
Cancer Center and a Professor of Biochemistry at UAB since 1975. He was a
Founder of BioCryst and served as the Company's first Chief Executive Officer
from 1987-1988 while on a sabbatical from UAB. Dr. Bugg also served as Chairman
of the Company's Scientific Advisory Board from January 1986 to November 1993.
He continues to hold the position of Professor Emeritus in Biochemistry and
Molecular Genetics at UAB.
J. CLAUDE BENNETT, M.D. was named President and Chief Operating Officer in
December 1996 and elected a Director in January 1997. Prior to joining the
Company, Dr. Bennett was President of UAB from October 1993 to December 1996 and
Professor and Chairman of the Department of Medicine of UAB from January 1982 to
October 1993. Dr. Bennett served on the Company's Scientific Advisory Board from
1989-1996. He also serves on the visiting committee of Harvard Medical School,
is currently President of the Association of American Physicians and is a member
of the Board of Governors of the Magnuson Clinical Center of the National
Institutes of Health. He also continues to hold the position of Distinguished
University Professor Emeritus at UAB.
JOHN A. MONTGOMERY, PH.D. has been a Director since November 1989 and has
been Executive Vice President, Secretary and Chief Scientific Officer since
joining the Company in February 1990.
42
Dr. Montgomery was a Founder of BioCryst. Prior to joining the Company, Dr.
Montgomery served as Senior Vice President of Southern Research Institute
("SRI") of Birmingham from January 1981 to February 1990. Dr. Montgomery has
extensive experience in the area of discovery and development of novel
pharmaceutical products and is widely published. He continues to hold the
position of Distinguished Scientist at SRI, a position he has held since
February 1990.
RONALD E. GRAY joined BioCryst in January 1993 as Chief Financial Officer.
In 1994, Mr. Gray received the additional title of Treasurer and Assistant
Secretary. Prior to joining BioCryst, from June 1992 to September 1992, Mr. Gray
was Chief Financial Officer of The ACB Companies, a collection agency. From July
1988 to March 1992, Mr. Gray was Chief Financial Officer and Secretary of Image
Data Corporation, a medical imaging company. He was Vice President of Finance,
Secretary and Treasurer of CyCare Systems, Inc., a health care information
processing company, from September 1974 to April 1988.
JOHN L. HIGGINS joined BioCryst in August 1994 as Director, Corporate
Development. In July 1995 he was promoted to Vice President, Corporate
Development. From July 1992 to July 1994, Mr. Higgins was a member of the health
care banking team of Dillon, Read & Co. Inc., an investment banking firm. While
at Dillon Read, he focused on financing and advisory assignments for
biotechnology and managed care companies. Mr. Higgins is a member of Colgate
University's Board of Trustees. From August 1988 to May 1992 he attended Colgate
University and graduated with an A.B. in economics in 1992.
WILLIAM W. FEATHERINGILL was elected a Director in May 1995. Mr.
Featheringill is Chairman, since June 1995, of Electronic Healthcare Systems, a
software company, and President, Chief Executive Officer and director, since
1973, of Private Capital Corporation, a venture capital management company. Mr.
Featheringill was Chairman and Chief Executive Officer of MACESS Corporation,
which designs and installs paperless data management systems for the managed
care industry, from 1988 to November 1995. MACESS Corporation merged with
Sungard Data Systems in late 1995. From 1985 to December 1994, Mr. Featheringill
was the developer, Chairman and Chief Executive Officer of Complete Health
Services, Inc., a health maintenance organization which grew, under his
direction, to become one of the largest HMOs in the southeastern United States.
Complete Health Services, Inc. was acquired by United HealthCare Corporation in
June 1994. Mr. Featheringill is a director of Citation Corporation.
EDWIN A. GEE, PH.D. was elected a Director in August 1993. Dr. Gee has been
active as an executive in biotechnology, pharmaceutical and specialty chemical
companies since 1970. He serves as the Chairman of Oncogene Science, one of the
leading biotechnology companies for the diagnosis and treatment of cancer. He
served as President, Chairman of the Board and Chief Executive Officer of
International Paper Company from 1978 until his retirement in 1985. Prior to
1978, Dr. Gee was a Senior Vice President, member of the Executive Committee and
a Director of E.I. du Pont de Nemours and Company.
ZOLA P. HOROVITZ, PH.D. was elected a Director in August 1994. Dr. Horovitz
spent 36 years with the Squibb Institute for Medical Research and Bristol-Myers
Squibb Pharmaceutical Research Institute in Princeton, serving as Vice President
of Business Development and Planning at the time of his retirement in 1994. He
also serves as a member of the Board of Directors of Avigen, Inc., Clinicor
Inc., Diacrin, Inc., Magainin Pharmaceuticals, Inc., Procept Corporation,
Roberts Pharmaceutical Corporation and Synaptic Pharmaceutical Corp.
LINDSAY A. ROSENWALD, M.D. has been a Director of the Company since December
1991. He is a founder of several biopharmaceutical companies, including Neose
Technologies, Inc. and Interneuron Pharmaceuticals, Inc. In August 1991, Dr.
Rosenwald founded the Castle Group, Ltd., a New York-based venture capital and
merchant banking firm, and in March 1993 he founded Paramount Capital, Inc., an
investment bank specializing in the health sciences industry. In June 1994, Dr.
Rosenwald founded Aries Financial Services, Inc., a money management firm,
specializing in the health sciences industry. Dr. Rosenwald served as Managing
Director of Corporate Finance at the investment banking firm of D.H. Blair &
Co., Inc. from June 1987 to February 1992, and as Senior Securities analyst at
the investment banking firm of Ladenburg, Thalmann & Co., Inc. from September
1986 to June 1987. Dr. Rosenwald is
43
also Chairman of the Board of Directors of Interneuron Pharmaceuticals, Inc., a
director of Sparta Pharmaceuticals, Inc., Atlantic Pharmaceuticals, Inc., Ansan,
Inc., Xenometrix, Inc., Neose Technologies, Inc., Titan Pharmaceuticals, Inc.,
Avigan, Inc. and VIMrx Pharmaceuticals, Inc.
JOSEPH H. SHERRILL, JR. was elected a Director in May 1995. Mr. Sherrill
served as President of R.J. Reynolds ("RJR") Asia Pacific, based in Hong Kong,
where he oversaw RJR operations across Asia, including licensing, joint ventures
and a full line of operating companies from August 1989 to retirement in October
1994. Prior management positions with RJR include Senior Vice President of
Marketing for R.J. Reynolds International, President and Chief Operating Officer
of R.J. Reynolds Tabacos de Brasil, and President and General Manager of R.J.
Reynolds Puerto Rico. Mr. Sherrill also serves as a member of the Board of
Directors of Savers Life Insurance Company.
WILLIAM M. SPENCER, III has been a Director of the Company since its
inception. Mr. Spencer is also a private investor in Birmingham, Alabama. He
served as Chairman of the Board of BioCryst from its founding in 1986 until
April 1992. He co-founded and operated Motion Industries from 1946 through its
merger into Genuine Parts Company in 1976. He has founded several businesses and
has served on the Board of Directors of numerous private corporations.
RANDOLPH C. STEER, M.D., PH.D. was elected a Director in February 1993. Dr.
Steer has been active as a consultant to biotechnology and pharmaceutical
companies since 1989. From April 1985 to March 1989, he served as the Chairman,
and from 1988 to 1989, he served as the President and Chief Executive Officer
of, Advanced Therapeutics Communications International, Inc., a drug regulatory
consulting group. Prior to 1985, he had executive-level industry experience at
both Novartis and at Marion Laboratories, Inc. (now a division of Marion Merrell
Dow Inc.) where he served as Medical Director and Associate Director, Medical
Affairs, respectively. Dr. Steer serves on the Board of Directors of Techne
Corporation.
In accordance with the terms of the Company's Composite Certificate of
Incorporation ("Certificate of Incorporation"), the Board of Directors has been
divided into three classes with members of each class holding office for
staggered three-year terms. Dr. Bennett's, Dr. Horovitz's, Mr. Spencer's and Dr.
Steer's terms expire at the 1997 annual meeting, and Dr. Bugg's, Dr.
Montgomery's and Dr. Gee's terms expire at the 1998 annual meeting and Mr.
Featheringill's, Mr. Sherrill's and Dr. Rosenwald's terms expire at the 1999
annual meeting (in all cases subject to the election and qualification of their
successors or to their earlier death, resignation or removal). At each annual
stockholder meeting, the successors to the Directors whose terms expire are
elected to serve from the time of their election and qualification until the
third annual meeting of stockholders following their election and until a
successor has been duly elected and qualified. The provisions of the Company's
Certificate of Incorporation governing the staggered Director election procedure
can be amended only by a shareholder's vote of at least 75% of the eligible
voting securities. There are no family relationships among any of the directors
and executive officers of the Company.
The Company has an Audit Committee, consisting of Messrs. Featheringill, Gee
and Spencer, which is responsible for the review of internal accounting
controls, financial reporting and related matters. The Audit Committee also
recommends to the Board the independent accountants selected to be the Company's
auditors and reviews the audit plan, financial statements and audit results.
The Company also has a Compensation Committee consisting of Messrs.
Featheringill, Gee, Rosenwald and Spencer. The Compensation Committee is
responsible for the annual review of officer compensation and other incentive
programs and is authorized to award options under the Company's 1991 Stock
Option Plan.
The Company has a Nominating Committee, effective February 1997, comprised
of all outside directors with terms not expiring in the current year for which
the Nominating Committee will be nominating persons for election or re-election
as directors.
44
ITEM 11. EXECUTIVE COMPENSATION
The following table ("Summary Compensation Table") sets forth the annual and
long-term compensation paid by the Company during the 1996, 1995 and 1994 fiscal
years to the Company's Chief Executive Officer and each of the Company's four
other most highly compensated executive officers whose annual salary and bonus
for the 1996 fiscal year exceeded $100,000 (collectively the "Named Executive
Officers"):
ANNUAL COMPENSATION
------------------------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- -------------------------------------------------- ---- ----------------- ------------------- ------------------
Charles E. Bugg, Ph.D............................. 1996 $212,808 $50,000(1) $ 1,959(2)
Chairman and Chief Executive Officer 1995 207,000 $50,000(1) 0
1994 200,000 $50,000(1) 0
J. Claude Bennett, M.D............................ 1996 800(3) 0 0
President and Chief Operating Officer 1995 0 0 0
1994 0 0 0
John A. Montgomery, Ph.D.......................... 1996 133,656 0 0
Executive Vice President, Secretary and Chief 1995 130,008 0 0
Scientific Officer 1994 109,833 0 0
Ronald E. Gray.................................... 1996 109,088 0 1,959(2)
Chief Financial Officer, Treasurer and Assistant 1995 98,520 0 0
Secretary 1994 95,054 0 0
John L. Higgins................................... 1996 136,896 0 1,959(2)
Vice President, Corporate Development 1995 103,728 0 0
1994 22,046(4) 0 1,050(5)
LONG-TERM
COMPENSATION
------------------
AWARDS- SECURITIES
NAME AND PRINCIPAL POSITION UNDERLYING OPTIONS
- -------------------------------------------------- ------------------
Charles E. Bugg, Ph.D............................. 50,000
Chairman and Chief Executive Officer 100,000
100,000
J. Claude Bennett, M.D............................ 103,000
President and Chief Operating Officer 0
8,000
John A. Montgomery, Ph.D.......................... 12,000
Executive Vice President, Secretary and Chief 11,000
Scientific Officer 11,000
Ronald E. Gray.................................... 5,400
Chief Financial Officer, Treasurer and Assistant 11,000
Secretary 11,000
John L. Higgins................................... 28,400
Vice President, Corporate Development 50,000
23,500
- ------------------------
(1) Paid pursuant to an Employment Agreement dated November 19, 1993 between the
Company and Dr. Bugg. See "Executive Compensation--Employment Agreements."
(2) Represents the Company's contribution to the 401(k) Plan.
(3) Paid pursuant to an Employment Agreement dated December 18, 1996 between the
Company and Dr. Bennett, under which his annual salary will be $220,000
commencing in 1997. See "Executive Compensation--Employment Agreements."
(4) Mr. Higgins joined BioCryst in August 1994 and became an executive officer
in July 1995.
(5) Represents reimbursed moving expenses.
EMPLOYMENT AGREEMENTS
Charles E. Bugg, Ph.D. entered into an employment agreement with the Company
on November 19, 1993 (the "Agreement"). Under the terms of the Agreement, Dr.
Bugg will serve as Chairman of the Board of Directors and Chief Executive
Officer of the Company. Dr. Bugg will receive annual compensation of $200,000
and a discretionary bonus of $50,000. The Board may, in its discretion, grant
other cash or stock bonuses to Dr. Bugg as an award or incentive. Dr. Bugg is
also entitled to all employee benefits generally made available to executive
officers. Dr. Bugg may, if he desires, also hold positions at The University of
Alabama at Birmingham, provided that he does not devote more than ten percent of
his time to such activities. The term of the Agreement is for three years unless
terminated (i) by the Company for cause or (ii) upon the permanent disability of
Dr. Bugg. Dr. Bugg entered into a new three-year employment agreement dated
December 17, 1996 under basically the same terms as the previous employment
45
agreement except that his annual salary was raised to $245,000 effective January
1, 1997 and the grant of the initial option to purchase 200,000 shares is not
applicable to the new agreement.
Pursuant to his Agreement, Dr. Bugg received in December 1993 an option to
purchase 200,000 shares of Common Stock of the Company at $6.00 per share under
the Company's 1991 Stock Option Plan, which became exercisable upon the
consummation of the Company's initial public offering in March 1994. Dr. Bugg
will also receive, on the last day of each year during the term of the
Agreement, an additional option to purchase between 25,000 and 100,000 shares of
Common Stock of the Company under the Company's 1991 Stock Option Plan. The
exact number of shares will be determined by the plan administrator based on Dr.
Bugg's performance and the results of operations of the Company during such
year. Dr. Bugg received an option to purchase 100,000 shares of common stock at
the end of each of 1994 and 1995 and 50,000 shares of common stock at the end of
1996 with an additional 50,000 shares to be granted in May 1997 after the 1991
Stock Option Plan is amended.
Dr. Bugg will receive an additional stock option to purchase 100,000 shares
of Common Stock under the Company's 1991 Stock Option Plan upon BioCryst's
submission to the FDA of any new drug application and another additional stock
option to purchase 100,000 shares of Common Stock under the Company's 1991 Stock
Option Plan upon the final approval by the FDA of each such new drug
application. The exercise price shall be the fair market value of the Company's
Common Stock on the date such additional stock option is granted. These
additional stock options will vest 25% one year after the date of issuance and
the remaining 75% will vest at the rate of 1/48 per month thereafter.
The options may be exercised immediately in the event of a merger or
acquisition of the Company. The options may be exercised within 24 months of Dr.
Bugg's death or permanent disability. In the event Dr. Bugg's employment is
terminated for cause he may exercise the options within three months of the date
of such termination to the extent such options were exercisable immediately
prior to such termination. In the event Dr. Bugg's employment is terminated for
a reason other than cause, death or permanent disability, the options then
outstanding shall become immediately exercisable in full.
All options granted to Dr. Bugg pursuant to the Agreement are intended to
qualify as incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, except to the extent the portion of such
options which become exercisable in any year have an aggregate exercise price in
excess of $100,000. All options shall expire no later than ten years from the
date of grant.
J. Claude Bennett, M.D. entered into an employment agreement with the
Company on December 18, 1996 (the "JCB Agreement"). Under the terms of the JCB
Agreement, Dr. Bennett will serve as a member of the Board of Directors and
Chief Operating Officer of the Company. Dr. Bennett will receive annual
compensation of $220,000. Dr. Bennett was also granted an option to purchase
100,000 shares of Common Stock of the Company and the Company will use its best
efforts to provide that Dr. Bennett is elected a Director of BioCryst. The Board
may, in its discretion, grant other cash or stock bonuses to Dr. Bennett as an
award or incentive. Dr. Bennett is also entitled to all employee benefits
generally made available to executive officers. Dr. Bennett may, if he desires,
also hold positions at The University of Alabama at Birmingham, provided that he
does not devote more than ten percent of his time to such activities. The term
of the JCB Agreement is for three years unless terminated (i) by the Company for
cause or (ii) upon the permanent disability of Dr. Bennett.
46
OPTION GRANTS IN 1996
The following table shows, with respect to the Company's Named Executive
Officers, certain information with respect to option grants in 1996. All of the
grants were made under the Company's 1991 Stock Option Plan. No stock
appreciation rights were granted during such year.
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
OF
STOCK PRICE
APPRECIATION
NUMBER OF FOR
SECURITIES % OF OPTION
UNDERLYING TOTAL EXERCISE TERM(1)
OPTIONS OPTIONS PRICE PER EXPIRATION ------------
NAME GRANTED GRANTED SHARE DATE 5%
- ------------------------------------------------------------- ----------- ----------- ----------- ------------ ------------
Charles E. Bugg, Ph.D........................................ 50,000 16.5% $ 14.38 12/10/2006 $ 452,018
J. Claude Bennett, M.D....................................... 3,000 1.0 9.50 03/12/2006 17,923
100,000 33.1 16.38 12/30/2006 1,029,815
John A. Montgomery, Ph.D..................................... 12,000 4.0 14.38 12/10/2006 108,484
Ronald E. Gray............................................... 5,400 1.8 14.38 12/10/2006 48,818
John L. Higgins.............................................. 20,000 6.6 12.63 05/16/2006 158,796
8,400 2.8 14.38 12/10/2006 75,939
NAME 10%
- ------------------------------------------------------------- ------------
Charles E. Bugg, Ph.D........................................ $ 1,145,502
J. Claude Bennett, M.D....................................... 45,422
2,609,753
John A. Montgomery, Ph.D..................................... 274,921
Ronald E. Gray............................................... 123,714
John L. Higgins.............................................. 402,420
192,444
- ------------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the ten-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by rules of the Securities
and Exchange Commission and do not represent the Company's estimate of the
future market price of the Common Stock.
AGGREGATE OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
The following table shows, with respect to the Company's Named Executive
Officers, the number and value of unexercised options held by the Named
Executive Officers as of December 31, 1996. No stock appreciation rights were
exercised during the 1996 fiscal year and no such rights were outstanding at the
end of that year.
NUMBER OF SECURITIES
UNDERLYING VALUES OF UNEXERCISED
UNEXERCISED OPTIONS(1) IN-THE-MONEY OPTIONS(2)
---------------------------- ----------------------------
NAME EXERCISABABLE UNEXERCISABLE EXERCISABABLE UNEXERCISABLE
- ------------------------------------------------------ ------------- ------------- ------------- -------------
Charles E. Bugg, Ph.D................................. 312,500 175,000 $ 3,389,063 $ 1,150,000
J. Claude Bennett, M.D................................ 5,166 105,834 55,535 51,091
John A. Montgomery, Ph.D.............................. 75,750 35,750 935,563 254,250
Ronald E. Gray........................................ 48,250 24,150 550,250 189,175
John L. Higgins....................................... 31,123 70,777 301,232 467,443
- ------------------------
(1) The Named Executive Officers did not exercise any stock options during 1996.
(2) Amounts reflect the net values of outstanding stock options computed as the
difference between $16.38 per share (the fair market value at December 31,
1996) and the exercise price therefor.
DIRECTOR COMPENSATION
Directors do not receive a fee for attending Board or committee meetings.
Outside directors are reimbursed for expenses incurred in attending Board or
committee meetings and while representing the Company in conducting certain
business. Individuals who first become non-employee Board members on or after
March 3, 1994, at the time of commencement of Board service, receive a grant of
options to
47
purchase up to 25,000 shares pursuant to the automatic option grant program
under the Company's 1991 Stock Option Plan, and, under the Company's 1991 Stock
Option Plan each non-employee director, including those persons presently
serving as directors, will receive grants of options to purchase 25,000
additional shares of Common Stock every four years while they continue to serve
as directors. All current outside directors of the Company have received options
to purchase 25,000 shares of Common Stock. Dr. Horovitz and Dr. Steer also serve
as consultants to the Company for a quarterly fee of $4,000 each.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Mr. Featheringill, Dr. Gee, Mr.
Spencer and Dr. Rosenwald. Certain members of the Compensation Committee are
parties to transactions with the Company. See "Item 13. Certain Relationships
and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of
the Company's Common Stock as of March 15, 1997 by (i) each director, (ii) each
of the Named Executive Officers, (iii) all directors and executive officers of
the Company as a group and (iv) each person known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock:
NUMBER OF PERCENTAGE
COMMON SHARES OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OWNED (1) SHARES
- --------------------------------------------------------------- --------------- ---------------
William W. Featheringill....................................... 1,491,978(2) 10.8%
100 Brookwood Place
Birmingham, Alabama 35209
Lindsay A. Rosenwald, M.D. .................................... 583,261(3) 4.2
787 Seventh Avenue, 44th Floor
New York, New York 10019
William M. Spencer, III........................................ 439,213(4) 3.2
Charles E. Bugg, Ph.D.......................................... 396,739(5) 2.8
Joseph H. Sherrill, Jr......................................... 372,978(6) 2.7
John A. Montgomery, Ph.D....................................... 136,460(7) 1.0
Randolph C. Steer, M.D., Ph.D.................................. 50,000(9) *
Ronald E. Gray................................................. 58,106(8) *
Edwin A. Gee, Ph.D............................................. 15,000(9) *
John L. Higgins................................................ 42,418(10) *
Zola P. Horovitz, Ph.D......................................... 16,666(9) *
J. Claude Bennett, M.D......................................... 9,024(11)
All executive officers and directors as a group (13 persons)... 3,611,843(12) 24.8
- ------------------------
(*) Less than one percent.
(1) Gives effect to the shares of Common Stock issuable within 60 days after
March 15, 1997 upon the exercise of all options, warrants and other rights
beneficially held by the indicated stockholder on that date.
(2) Includes 65,000 shares of Common Stock held by his brother of which Mr.
Featheringill is a beneficial owner, 180,000 shares held by the
Featheringill Family Trust of which he is a beneficial owner and 11,978
shares issuable upon exercise of stock options.
48
(3) Includes 120,239 shares of Common Stock issuable upon exercise of certain
common stock warrants, 16,666 shares issuable upon exercise of stock options
and 3,125 shares which Dr. Rosenwald holds jointly with his spouse. Also
includes 77,539 shares of Common Stock held by Dr. Rosenwald's spouse
individually and as custodian for their minor children, as to which Dr.
Rosenwald disclaims beneficial ownership. Dr. Rosenwald has granted options
to seven individuals to purchase an aggregate of 21,100 shares of Common
Stock held by him at purchase prices ranging from $0.60 to $7.20 per share.
(4) Includes 49,400 shares of Common Stock issuable upon exercise of certain
common stock warrants, 16,666 shares issuable upon exercise of stock options
and 10,000 shares held by Mr. Spencer's spouse. Mr. Spencer disclaims
beneficial ownership of the 10,000 shares held by his spouse.
(5) Includes 331,247 shares issuable upon exercise of stock options.
(6) Includes 11,978 shares issuable upon exercise of stock options and 10,000
shares held by Mr. Sherrill's spouse. Mr. Sherrill disclaims beneficial
ownership of the 10,000 shares held by his spouse.
(7) Includes 81,979 shares issuable upon exercise of stock options and 26,400
shares held by Dr. Montgomery's spouse. Dr. Montgomery disclaims beneficial
ownership of the 26,400 shares held by his spouse.
(8) Includes 1,500 shares held by the retirement accounts of Mr. Gray and his
spouse and 52,396 shares issuable upon exercise of stock options.
(9) Includes shares issuable upon exercise of stock options.
(10) Includes 37,800 shares issuable upon exercise of stock options and 1,000
shares held jointly with his spouse.
(11) Includes 6,708 shares issuable upon exercise of stock options.
(12) See Notes (1) through (11).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1996, the Company sold an aggregate of 1,000,000 shares of Common
Stock at a purchase price of $8.00 per share to a group of investors including
William W. Featheringill (235,000 shares), William M. Spencer, III (80,000
shares) and Joseph H. Sherrill, Jr. (25,000 shares), Directors of the Company,
and John P.K. Featheringill (77,500 shares), the brother of William W.
Featheringill. William W. Featheringill is the beneficial owner of 65,000 of the
shares purchased by John P.K. Featheringill.
Dr. Bugg, an executive officer and Director of the Company, is a Professor
Emeritus of UAB and is paid an annual stipend of 8,040 by UAB. The Company paid
approximately 610,000 to UAB in 1996 for conducting certain clinical trials,
research and data analysis.
Dr. Bennett, an executive officer and Director of the Company, is a
consultant to and a Distinguished University Professor of UAB and is paid an
annual stipend of $12,500 by UAB Education Foundation. The Company paid
approximately $610,000 to UAB in 1996 for conducting certain clinical trials,
research and data analysis.
Dr. Montgomery, an executive officer and Director of the Company, is a
former executive officer of SRI. The Company paid approximately $353,000 to SRI
in 1996 for certain research, laboratory rental and supplies. Dr. Montgomery is
currently a Distinguished Scientist at SRI and was paid approximately $17,143 by
SRI in 1996 for various consulting services unrelated to the services performed
by SRI for the Company.
49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS
PAGE IN
FORM 10-K
-----------
The following financial statements appear in Item 8 of this Form 10-K:
Balance Sheets at December 31, 1996 and 1995........................................... 30
Statements of Operations for the years ended December 31, 1996, 1995 and 1994.......... 31
Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and
1994................................................................................. 32
Statements of Cash Flows for the three years ended December 31, 1996, 1995 and 1994.... 33
Notes to Financial Statements.......................................................... 34 to 40
Report of Independent Auditors......................................................... 41
No financial statement schedules are included because the information is
either provided in the financial statements or is not required under the related
instructions or is inapplicable and such schedules therefore have been omitted.
(B) REPORTS ON FORM 8-K
None
(C) EXHIBITS
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
3.1 Composite Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 to the
Company's Form 10-Q for the second quarter ending June 30, 1995 dated August 11, 1995.
3.2 Bylaws of Registrant. Incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the second
quarter ending June 30, 1995 dated August 11, 1995.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Composite Certificate of Incorporation and Bylaws of the
Registrant defining rights of holders of Common Stock of the Registrant.
10.1 1991 Stock Option Plan, as amended and restated. Incorporated by reference to Exhibit 99.1 to the
Company's Form S-8 Registration Statement (Registration No. 33-95062).
10.2 Form of Notice of Stock Option Grant and Stock Option Agreement. Incorporated by reference to Exhibit
99.2 and 99.3 to the Company's Form S-8 Registration Statement (Registration No. 33-95062).
10.3 Warehouse Lease dated January 17, 1992 between Principal Mutual Life Insurance Company and the
Registrant. Incorporated by reference to Exhibit 10.21 to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).
50
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
10.4 Equipment Leases dated July 25, 1992, February 25, 1993, August 25, 1993, and November 25, 1993 between
Ventana Leasing, Inc. and the Registrant. Incorporated by reference to Exhibit 10.23 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.5 Common Stock Purchase Warrants issued in connection with the issuance of Series A Convertible Preferred
Stock. Incorporated by reference to Exhibit 10.32 to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).
10.6 Private Placement Agency Agreement dated July 1, 1993 between the Registrant and Paramount Capital,
Inc., as amended. Incorporated by reference to Exhibit 10.33 to the Company's Form S-1 Registration
Statement (Registration No. 33-73868).
10.7 Subscription and Preferred Stock Agreement and Confidential Investor Questionnaire among the Registrant
and the purchasers of Series B Convertible Preferred Stock. Incorporated by reference to Exhibit 10.34
to the Company's Form S-1 Registration Statement (Registration No. 33-73868).
10.8 Fourth Amended and Restated Registration Rights Agreement among the Registrant and certain
securityholders. Incorporated by reference to Exhibit 10.35 to the Company's Form S-1 Registration
Statement (Registration No. 33-73868).
10.9 Common Stock Purchase Warrants issued in connection with the issuance of Series B Convertible Preferred
Stock. Incorporated by reference to Exhibit 10.36 to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).
10.10 Common Stock Purchase Warrants dated December 7, 1993 to purchase 49,400 shares of Common Stock issued
to each of John Pappajohn, Lindsay A. Rosenwald and William M. Spencer. Incorporated by reference to
Exhibit 10.37 to the Company's Form S-1 Registration Statement (Registration No. 33-73868).
10.11 Employment Agreement dated December 17 1996 between the Registrant and Charles E. Bugg, Ph.D.
10.12 Employment Agreement dated December 18, 1996 J. Claude Bennett.
10.13# License Agreement dated April 15, 1993 between Ciba-Geigy Corporation (now merged into Novartis) and the
Registrant. Incorporated by reference to Exhibit 10.40 to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).
10.14 Stock Purchase Agreement dated September 21, 1994 between Registrant and Bernard B. Levine to purchase
515,000 shares of common stock. Incorporated by reference Exhibit 10.2 to the Company's Form 10-Q for
the third quarter ending September 30, 1994 dated November 10, 1994.
10.15 Registration Rights Agreement dated September 21, 1994 between Registrant and Bernard B. Levine.
Incorporated by reference Exhibit 10.3 to the Company's Form 10-Q for the third quarter ending September
30, 1994 dated November 10, 1994.
10.16 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.4 to the Company's Form S-8
Registration Statement (Registration No. 33-95062).
10.17 First Amendment to Lease Agreement between Registrant and Principal Mutual Life Insurance Company, Inc.
for office/warehouse space. Incorporated by reference to Exhibit 10.21 to the Company's Form 10-K for
the year ending December 31, 1994 dated March 28, 1995.
51
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
10.18 Form of Stock Purchase Agreement dated May 1995 between Registrant and various parties to purchase
1,570,000 shares of common stock. Incorporated by reference to Exhibit 10.22 to the Company's Form 10-Q
for the second quarter ending June 30, 1995 dated August 11, 1995.
10.19 Form of Registration Rights Agreement dated May 1995 between Registrant and various parties.
Incorporated by reference to Exhibit 10.23 to the Company's Form 10-Q for the second quarter ending June
30, 1995 dated August 11, 1995.
10.20 Form of Stock Purchase Agreement dated March 22, 1996 among Registrant and certain investors to purchase
1,000,000 shares of common stock. Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K
dated March 22, 1996.
10.21 Form of Registration Rights Agreement dated March 22, 1996 among Registrant and certain investors.
Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K dated March 22, 1996.
10.22# License Agreement, dated May 31, 1996, between Registrant and Torii Pharmaceutical Co., Ltd. ("Torii").
Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K/A dated May 3, 1996 and filed August
2, 1996.
10.23# Stock Purchase Agreement, dated May 31, 1996, between Registrant and Torii. Incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K/A dated May 3, 1996 and filed August 2, 1996.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule.
- ------------------------
# Confidential treatment granted.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of
Birmingham, State of Alabama, on this 28th day of March, 1997.
BIOCRYST PHARMACEUTICALS, INC.
BY: /S/ CHARLES E. BUGG
-----------------------------------------
Charles E. Bugg, Ph.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed by the following persons in the capacities indicated on
March 28th, 1997:
SIGNATURE TITLE(S)
- ------------------------------ ---------------------------
/s/ CHARLES E. BUGG Chairman, Chief Executive
- ------------------------------ Officer and Director
(Charles E. Bugg, Ph.D.)
/s/ J. CLAUDE BENNETT President, Chief Operating
- ------------------------------ Officer and Director
(J. Claude Bennett, M.D.)
Executive Vice President,
/s/ JOHN A. MONTGOMERY Secretary, Chief
- ------------------------------ Scientific Officer and
(John A. Montgomery, Ph.D.) Director
/s/ RONALD E. GRAY Chief Financial Officer
- ------------------------------ (Principal Financial and
(Ronald E. Gray) Accounting Officer)
/s/ WILLIAM W. FEATHERINGILL Director
- ------------------------------
(William W. Featheringill)
/s/ EDWIN A. GEE Director
- ------------------------------
(Edwin A. Gee, Ph.D.)
/s/ ZOLA P. HOROVITZ Director
- ------------------------------
(Zola P. Horovitz, Ph.D.)
53
SIGNATURE TITLE(S)
- ------------------------------ ---------------------------
/s/ LINDSAY A. ROSENWALD Director
- ------------------------------
(Lindsay A. Rosenwald, M.D.)
/s/ WILLIAM M. SPENCER, III Director
- ------------------------------
(William M. Spencer, III)
/s/ JOSEPH H. SHERRILL, JR. Director
- ------------------------------
(Joseph H. Sherrill, Jr.)
/s/ RANDOLPH C. STEER Director
- ------------------------------
(Randolph C. Steer, M.D.,
Ph.D.)
54
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------ ---------------
3.1 Composite Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit
3.1 to the Company's Form 10-Q for the second quarter ending June 30, 1995 dated August
11, 1995.
3.2 Bylaws of Registrant. Incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q
for the second quarter ending June 30, 1995 dated August 11, 1995.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Composite Certificate of Incorporation and
Bylaws of the Registrant defining rights of holders of Common Stock of the Registrant.
10.1 1991 Stock Option Plan, as amended and restated. Incorporated by reference to Exhibit 99.1
to the Company's Form S-8 Registration Statement (Registration No. 33-95062).
10.2 Form of Notice of Stock Option Grant and Stock Option Agreement. Incorporated by reference
to Exhibit 99.2 and 99.3 to the Company's Form S-8 Registration Statement (Registration
No. 33-95062).
10.3 Warehouse Lease dated January 17, 1992 between Principal Mutual Life Insurance Company and
the Registrant. Incorporated by reference to Exhibit 10.21 to the Company's Form S-1
Registration Statement (Registration No. 33-73868).
10.4 Equipment Leases dated July 25, 1992, February 25, 1993, August 25, 1993, and November 25,
1993 between Ventana Leasing, Inc. and the Registrant. Incorporated by reference to
Exhibit 10.23 to the Company's Form S-1 Registration Statement (Registration No.
33-73868).
10.5 Common Stock Purchase Warrants issued in connection with the issuance of Series A
Convertible Preferred Stock. Incorporated by reference to Exhibit 10.32 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.6 Private Placement Agency Agreement dated July 1, 1993 between the Registrant and Paramount
Capital, Inc., as amended. Incorporated by reference to Exhibit 10.33 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.7 Subscription and Preferred Stock Agreement and Confidential Investor Questionnaire among
the Registrant and the purchasers of Series B Convertible Preferred Stock. Incorporated by
reference to Exhibit 10.34 to the Company's Form S-1 Registration Statement (Registration
No. 33-73868).
10.8 Fourth Amended and Restated Registration Rights Agreement among the Registrant and certain
securityholders. Incorporated by reference to Exhibit 10.35 to the Company's Form S-1
Registration Statement (Registration No. 33-73868).
10.9 Common Stock Purchase Warrants issued in connection with the issuance of Series B
Convertible Preferred Stock. Incorporated by reference to Exhibit 10.36 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.10 Common Stock Purchase Warrants dated December 7, 1993 to purchase 49,400 shares of Common
Stock issued to each of John Pappajohn, Lindsay A. Rosenwald and William M. Spencer.
Incorporated by reference to Exhibit 10.37 to the Company's Form S-1 Registration
Statement (Registration No. 33-73868).
55
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------ ---------------
10.11 Employment Agreement dated December 17, 1996 between the Registrant and Charles E. Bugg,
Ph.D.
10.12 Employment Agreement dated December 18, 1996 between the Registrant and J. Claude Bennett.
10.13# License Agreement dated April 15, 1993 between Ciba-Geigy Corporation (now merged into
Novartis) and the Registrant. Incorporated by reference to Exhibit 10.40 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.14 Stock Purchase Agreement dated September 21, 1994 between Registrant and Bernard B. Levine
to purchase 515,000 shares of common stock. Incorporated by reference Exhibit 10.2 to the
Company's Form 10-Q for the third quarter ending September 30, 1994 filed November 10,
1994.
10.15 Registration Rights Agreement dated September 21, 1994 between Registrant and Bernard B.
Levine. Incorporated by reference Exhibit 10.3 to the Company's Form 10-Q for the third
quarter ending September 30, 1994 filed November 10, 1994.
10.16 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.4 to the Company's
Form S-8 Registration Statement (Registration No. 33-95062).
10.17 First Amendment to Lease Agreement between Registrant and Principal Mutual Life Insurance
Company, Inc. for office/warehouse space. Incorporated by reference to Exhibit 10.21 to
the Company's Form 10-K for the year ending December 31, 1994 dated March 28, 1995.
10.18 Form of Stock Purchase Agreement dated May 1995 between Registrant and various parties to
purchase 1,570,000 shares of common stock. Incorporated by reference to Exhibit 10.22 to
the Company's Form 10-Q for the second quarter ending June 30, 1995 dated August 11, 1995.
10.19 Form of Registration Rights Agreement dated May 1995 between Registrant and various
parties. Incorporated by reference to Exhibit 10.23 to the Company's Form 10-Q for the
second quarter ending June 30, 1995 dated August 11, 1995.
10.20 Form of Stock Purchase Agreement dated March 22, 1996 among Registrant and certain
investors to purchase 1,000,000 shares of common stock. Incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K dated March 22, 1996.
10.21 Form of Registration Rights Agreement dated March 22, 1996 among Registrant and certain
investors. Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K dated March
22, 1996.
10.224# License Agreement, dated May 31, 1996, between Registrant and Torii Pharmaceutical Co.,
Ltd. ("Torii"). Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K/A
dated May 3, 1996 and filed August 2, 1996.
10.23# Stock Purchase Agreement, dated May 31, 1996, between Registrant and Torii. Incorporated
by reference to Exhibit 10.2 to the Company's Form 8-K/A dated May 3, 1996 and filed
August 2, 1996.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule.
- ------------------------
# Confidential treatment granted.
56
EXHIBIT 10.11
BIOCRYST PHARMACEUTICALS, INC.
2190 Parkway Lake Drive
Birmingham, Alabama 35244
December 17, l996
Dr. Charles E. Bugg
Chairman and CEO
BioCryst Pharmaceuticals, Inc.
2190 Parkway Drive
Birmingham, Alabama 35244
Dear Dr. Bugg:
This letter agreement (the "Agreement") will serve to confirm our agreement
win respect to the terms and corrections of the employment of Dr. Charles E.
Bugg (the "Employee") by BioCryst Pharmaceuticals, Inc., a Delaware corporation
("BioCryst"), after December 31, 1996.
The terms and conditions of such employment are as follows:
1. Term of Employment. Subject to the terms and conditions of this
Agreement, BioCryst hereby employs Employee, effective January 1, 1997, as
Chairman of the Board and Chief Executive Officer of BioCryst, and Employee
hereby accepts such employment. In addition, during the terms of this Agreement,
BioCryst shall use its best efforts to provide that the Employee shall be
elected as a member of the Board of Directors of BioCryst each year. BioCryst
acknowledges and agrees that after December 31, l996 Employee may also hold
positions at the University of Alabama at Birmingham as Professor Emeritus of
Biochemistry, Adjunct Senior Scientist in the Comprehensive Cancer Center,
Adjunct Senior Scientist in the Center for Macromolecular Crystallography, and
such other appointments that might be offered to the Employee from time to time,
and the Employee will be permitted to devote up to ten percent (10%) of his time
to such activities and to research and other activities at the University of
Alabama at Birmingham, if the Employee desires to participate in such
activities. Otherwise, after December 31, l996 the Employee shall devote his
full business time and energies to BioCryst. Except as provided in this
paragraph 1, the Employee shall not during the term of his employment, engage in
any other business activity that would interfere with, or prevent him from
carrying out, his duties and responsibilities under this Agreement. BioCryst
hereby agrees and acknowledges that any compensation which the Employee receives
from participation in such allowable activities shall be outside the scope of
this Agreement and in addition to any compensation received hereunder. The term
of employment of Employee under this Agreement shall commence as January 1, l997
and shall terminate on December 31, 1999, unless earlier terminated in
accordance with the provisions of paragraph 3 hereof.
2. Basic Full-Tine Compensation and Benefits.
(a) As basic yearly compensation for services rendered under this Agreement
for services rendered under paragraph 1 of this Agreement, Employee shall be
entitled to receive from BioCryst, for the term of his full-time employment
under this Agreement, an aggregate salary of $245,000 per year which
remuneration shall be payable in equal monthly installments of $20,416.67 on the
first business day of each month during the term of this Agreement, beginning on
January 1, 1997. This salary will be reviewed annually by the Board of Directors
and may be raised at the discretion of the Board.
(b) In addition to the basic Compensation set forth in (a) above, Employee
shall be entitled to receive such other benefits and perquisites provided to
other executive officers of BioCryst which benefits may include, without
limitation, reasonable vacation, sick leave, medical benefits, life insurance,
and participation in profit sharing or retirement plans.
53
Dr. Charles E. Bugg
December 17, 1996
Page 2
(c) In addition to the basic compensation set forth in paragraphs 2(a) and
(b) above, the Employee shall receive a bonus of $50,000.00 payable on the last
day of each calendar year during the term of this Agreement, commencing with the
calendar year 1997, unless the Board of Directors of BioCryst; determine that on
the basis of the financial condition of BioCryst payment of such bonus would be
imprudent and not in the best interest of BioCryst. The Board of Directors of
BioCryst may from time to time, in its discretion, also grant such other cash or
stock bonuses to the Employee either as an award or as an incentive as it shall
deem desirable or appropriate.
3. Stock Options. BioCryst hereby agrees that it will grant a stock option
to the Employee on December 31 of each year during the term of this Agreement.
beginning with the year 1997, to purchase at least 25,000 shares of Common Stock
of BioCryst, par value $0.01 per share (the "Common Stock"), from the authorized
and unissued stock or treasury stock of BioCryst, based on the performance of
the Employee. The Board of Directors of BioCryst shall determine, in its sole
discretion, based upon the performance of the Employee and the results of
operations of BioCryst for the immediately preceding twelve (12) months, the
number of shares which may be purchased pursuant to each such option, provided
the number of shares shall not in any case be less than 25,000 In addition,
BioCryst shall also grant to the Employee an option to purchase 100,000 shares
of BioCryst Common Stock upon the occurrence of each of the following:
(a) submission by BioCryst to the Food and Drug Administration (the "FDA")
of any new drug application;
(b) final approval of each such new drug application by the FDA.
The exercise price per share for each share of BioCryst Common Stock subject
to each such option shall be the fair market value thereof on the date such
additional option is granted.
The parties intend for the options granted pursuant to this Agreement (the
"Options") to qualify as "incentive stock options," as that term is defined in
Section 422 of the Internal Revenue Code of 1986, as amended ("Section 422").
The parties understand that the portion of any Option, together with the portion
of any other incentive stock option granted by BioCryst and its parent and
subsidiary corporations, if any, which may become exercisable in any year in
excess of an aggregate of $100,000 fair market value, determined as of the date
such Option or other option, as the case may be, was granted, may not be treated
as an incentive stock option under Section 422. The Options may be exercised and
the Common Stock may be purchased by the Employee as a result of such exercise
only within the periods and to the extent hereinafter set forth:
(c) Each Option shall be 25% exercisable one year after the date it was
granted, and the remaining seventy-five percent (75%) shall vest and become
exercisable at the rate of 1/48th per month, commencing with the thirteenth
(13th) month after the date such Option was granted, and continuing to vest for
the succeeding months until fully vested and exercisable. Notwithstanding the
foregoing, in the event of a Change in Control or Structure, as defined below,
or as set forth in subparagraphs (d) or (e) below, the entire amount of each
Option shall become immediately exercisable.
(d) If the Employee suffers a period of permanent disability, as defined in
paragraph 4(b) below, the entire amount of the Option may be exercised at any
time after termination for such disability and before the earlier of twenty-four
(24) months or the expiration date of the Option.
(e) In the event of the death of the Employee, the executor or administrator
of the estate of the Employee, or other reliable transferee, shall have the
right to exercise each Option, in its entirety, within the earlier of
twenty-four (24) months after the Employee's death or before the original
expiration of the Option. Except as provided in this subparagraph (e), the
Employee shall not have the right to transfer any Option.
54
Dr. Charles E. Bugg
December 17, 1996
Page 3
(f) Subject to paragraphs 3c), d), and e) above, each Option may, in the
Employees sole discretion, be exercised in full at one time as to the total
number of shares of Common Stock then exercisable, or in part from time to
time as to a specific number of shares of Common Stock then exercisable. A
partial exercise of an Option will not affect the exercisability of the
remainder of the Option.
(g) In no event shall the period for exercising the Option exceed ten (10)
years from the date such Option is granted.
(h) For purposes of this Agreement, the term "Change of Control or
Structure" shall mean:
(i) The acquisition by any person, entity or "group," within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of the
then outstanding shares of Common Stock at the time of such event or the
combined voting power of BioCryst's then outstanding voting securities
generally entitled to vote in the election of directors, or
(ii) any merger, consolidation or business combination of BioCryst with or
into any other entity, or
(iii) any transaction effected by a sale of substantially all the assets
of BioCryst.
(i) In the event the employment of the Employee is terminated for any reason
other than as set forth in subparagraph (d) or (e) above, the Employee may,
within three (3) months following the date of such termination, exercise each
Option to the full extent that they were exercisable immediately prior to the
date of such termination, subject, however, to the limitation set forth in
subparagraph (g) above.
(j) All numbers of shares subject to any Option or Additional Options and
all option prices, shall be subject to appropriate anti-dilution adjustment to
take account of stock splits, stock dividends, merger, consolidation,
reclassification or the like.
4. Termination. Notwithstanding the provisions of paragraph 1 hereof, the
employment of the Employee under this Agreement may be terminated in the
following circumstances:
(a) BioCryst may terminate the employment of Employee hereunder immediately
for "Cause" and without payment. "Cause" for termination of Employee's
employment hereunder shall exist if Employee
(i) shall confess to committing or shall be convicted of any felony or
any crime involving moral turpitude, or
(ii) shall have engaged in gross and willful misconduct which is
materially injurious to the business of BioCryst.
(b) BioCryst may terminate the employment of the Employee hereunder upon
thirty (30) days written notice if the Employee shall have suffered a period of
permanent disability, which shall for purposes of this Agreement be defined as
the inability of Employee to perform his duties hereunder by reason of physical
or mental incapacity for ninety (90) days, whether consecutive or not, during
any consecutive twelve (12) month period.
55
Dr. Charles E. Bugg
December 17, 1996
Page 4
Upon such termination of employment, all rights of Employee to receive any
future payments under paragraph 2 above shall cease.
5. Non-Competition.
(a) Non-Competition Agreement. The Employee agrees that for one (1) year
-------------------------
following the termination of this Employment Agreement by reason of the
voluntary termination by the Employee, without cause on the part of BioCryst,
the Employee shall not become the Chief Executive Officer or become a key
executive of another for-profit business enterprise whose activities are at such
time directly competitive with BioCryst.
(b) Equitable Remedies. Employee acknowledges and recognizes that a
------------------
violation of this paragraph by Employee may cause irreparable and substantial
damage and harm to BioCryst or its affiliates, could constitute a failure of
consideration, and that money damages will not provide a full remedy for
BioCryst for such violations. Employee agrees that in the event of his breach of
this paragraph, BioCryst will be entitled, if it so elects, to institute and
prosecute proceedings at law or in equity to obtain damages with respect to such
breach, to enforce the specific performance of this paragraph by Employee, and
to enjoin Employee from engaging in any activity in violation hereof.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, including the exhibits hereto,
----------------
constitutes the entire agreement between the parties relating to the
employment of the Employee by BioCryst and there are no terms relating to
such employment other than those contained in this Agreement. No modification
or variation hereof shall be deemed valid unless in writing and signed by the
parties hereto. No waiver by either party of any provision or condition of
this Agreement shall be deemed a waiver of similar or dissimilar provisions
or conditions at any time.
(b) Assignability. This Agreement may not be assigned without prior written
-------------
consent of the parties hereto. To the extent allowable pursuant to this
Agreement, this Agreement shall be binding upon and shall inure to the benefit
of each of the parties hereto and their respective executors, administrators,
personal representatives, heirs, successors and assigns.
(c) Notices. Any notice or other communication given or rendered hereunder
-------
by any party hereto shall be in writing and delivered personally or sent by
registered or certified mail, postage prepaid, at the respective addresses of
the parties hereto as set forth below.
(d) Captions. The section headings contained herein are inserted only as a
--------
matter of convenience and reference and in no way define, limit or describe the
scope of this Agreement or the intent of any provision hereof.
(e) Taxes. All amounts to be paid to Employee hereunder are in the nature of
-----
compensation for Employee's employment by BioCryst, and shall be subject to
withholding, income, occupation and payroll taxes and other charges applicable
to such compensation.
(f) Governing Law. This Agreement is made and shall be governed by and
-------------
construed in accordance with the laws of the State of Alabama without respect to
its conflicts of law principles.
(g) Date. This Agreement is dated as of December 17, 1996.
----
If the foregoing correctly sets forth our understanding, please signify your
acceptance of such terms by executing this Agreement, thereby signifying your
assent, as indicated below.
56
Dr. Charles E. Bugg
December 17, 1996
Page 5
YOURS VERY TRULY,
BIOCRYST PHARMACEUTICALS, INC.
By: /s/William W. Featheringill
---------------------------
Its:Chairman of the Compensation Committee
--------------------------------------
Address:
2190 Parkway Lake Drive
-----------------------
Birmingham, Alabama 35244
-------------------------
AGREED AND ACCEPTED, as of this 20th day of December, 1996.
---- --------
/s/Charles E. Bugg
------------------
Address:
4370 Cliff Road
---------------
Birmingham, Alabama 35222
-------------------------
57
EXHIBIT 10.12
BIOCRYST PHARMACEUTICALS, INC.
2190 Parkway Lake Drive
Birmingham, Alabama 35244
December 18, 1996
J. Claude Bennett, M.D.
President
The University of Alabama at Birmingham
1070 Administration Building
701 20th Street South
Birmingham, Alabama 35294-0110
Dear Dr. Bennett:
This letter agreement (the "Agreement") will serve to confirm our
agreement with respect to the terms and conditions of the employment of Dr.
J. Claude Bennett (the "Employee") by BioCryst Pharmaceuticals, Inc., a
Delaware corporation ("BioCryst"), on and after December 31, 1996.
The terms and conditions of such employment are as follows:
1. Term of Employment. Subject to the terms and conditions of this
Agreement, BioCryst hereby employs Employee, effective the commencement of
business on December 31, 1996, as President and Chief Operating Officer of
BioCryst, and Employee hereby accepts such employment. Employee shall report
to the Chief Executive Officer and the Board of Directors, and shall be
responsible for the research of BioCryst and such other operations as the
Chief Executive Officer or the Board of Directors may from time to time
determine. In addition, during the terms of this Agreement, BioCryst shall
use its best efforts to provide that the Employee shall be elected as a
member of the Board of Directors of BioCryst each year. BioCryst acknowledges
and agrees that after December 30, 1996 Employee may also hold positions at
the University of Alabama at Birmingham as Distinguished University Professor
Emeritus, and such other appointments that might be offered to the Employee
from time to time, and the Employee will be permitted to devote up to ten
percent (10%) of his time to such activities and to research and other
activities at the University of Alabama at Birmingham, if the Employee
desires to participate in such activities. Further, Employee may continue his
editorship of Cecil's Textbook of Medicine and other scholarly journals.
Otherwise, after December 30, 1996 the Employee shall devote his full
business time and energies to BioCryst. Except as provided in this paragraph
1, the Employee shall not, during the term of his employment, engage in any
other business activity that would interfere with, or prevent him from
carrying out, his duties and responsibilities under this Agreement. BioCryst
hereby agrees and acknowledges that any compensation which the Employee
receives from participation in such allowable activities shall be outside the
scope of this Agreement and in addition to any compensation received
hereunder.
The term of employment of Employee under this Agreement shall commence as of
the commencement of business on December 31, 1996 and shall terminate on the
close of business on December 31, 1999, unless earlier terminated in
accordance with the provisions of paragraph 3 hereof.
2. Basic Full-Time Compensation and Benefits.
(a) As basic yearly compensation for services rendered under this
Agreement for services rendered under paragraph 1 of this Agreement, Employee
shall be entitled to receive from BioCryst, for the term of his full-time
employment under this Agreement, an aggregate salary of $800 for December 31,
1996, and thereafter $220,000 per year which remuneration shall be payable in
equal monthly installments of $18,333.33 on the first business day of each
month beginning on January 1, 1997. This salary will be reviewed annually by
the Board of Directors and may be raised at the discretion of the Board.
58
(b) In addition to the basic compensation set forth in (a) above,
Employee shall be entitled to receive such other benefits and perquisites
provided to other executive officers of BioCryst which benefits may include,
without limitation, reasonable vacation, sick leave, medical benefits, life
insurance, and participation in profit sharing or retirement plans.
3. Stock Options. BioCryst hereby agrees that it will grant a stock
option to the Employee on December 31, 1996, to purchase 100,000 shares of
Common Stock of BioCryst, par value $0.01 per share (the "Common Stock"),
from the authorized and unissued stock or treasury stock of BioCryst.
The exercise price per share for each share of BioCryst Common Stock
subject to such option shall be the fair market value thereof on December 31,
1996.
The parties intend for the option granted pursuant to this Agreement (the
"Option") to qualify, to the extent possible, as "incentive stock options,"
as that term is defined in Section 422 of the Internal Revenue Code of 1986,
as amended ("Section 422"). Employee understands that at this time BioCryst
has less than 100,000 shares available in its incentive stock option pool,
but BioCryst agrees to use its best efforts, if need be to assure incentive
stock option treatments to increase such pool as may be reasonably practical.
The parties understand that the portion of any Option, together with the
portion of any other incentive stock option granted by BioCryst and its
parent and subsidiary corporations, if any, which may become exercisable in
any year in excess of an aggregate of $100,000 fair market value, determined
as of the date such Option or other option, as the case may be, was granted,
may not be treated as an incentive stock option under Section 422. The Option
may be exercised and the Common Stock may be purchased by the Employee as a
result of such exercise only within the periods and to the extent hereinafter
set forth:
(a) The Option shall be 25% exercisable December 31, 1997, and the
remaining seventy-five percent (75%) shall vest and become exercisable at the
rate of 1/48th per month, commencing with the month of January, 1998 and
continuing to vest for the succeeding months until fully vested and
exercisable. Notwithstanding the foregoing, in the event of a Change in
Control or Structure, as defined below, or as set forth in subparagraphs (c)
or (d) below, the entire amount of the Option shall become immediately
exercisable.
(b) If the Employee suffers a period of permanent disability, as defined
in paragraph 4(b) below, the entire amount of the Option may be exercised at
any time after termination for such disability and before the earlier of
twenty-four (24) months or the expiration date of the Option.
(c) In the event of the death of the Employee, the executor or
administrator of the estate of the Employee, or other reliable transferee,
shall have the right to exercise the Option, in its entirety, within the
earlier of twenty-four (24) months after the Employee's death or before the
original expiration of the Option. Except as provided in this subparagraph
(c), the Employee shall not have the right to transfer any Option.
(d) Subject to paragraphs 3(b) and (c) above, the Option may, in the
Employee's sole discretion, be exercised in full at one time as to the total
number of shares of Common Stock then exercisable, or in part from time to
time as to a specific number of shares of Common Stock then exercisable. A
partial exercise of the Option will not affect the exercisability of the
remainder of the Option.
(e) In no event shall the period for exercising the Option exceed ten
(10) years from the date such Option is granted.
(f) For purposes of this Agreement, the term "Change of Control or
Structure" shall mean:
59
(i) The acquisition by any person, entity or "group," within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent
(50%) of the then outstanding shares of Common Stock at the time of such
event or the combined voting power of BioCryst's then outstanding voting
securities generally entitled to vote in the election of directors, or
(ii) any merger, consolidation or business combination of BioCryst
with or into any other entity, or
(iii) any transaction effected by a sale of substantially all the
assets of BioCryst.
(g) In the event the employment of the Employee is terminated for any
reason other than as set forth in subparagraph (b) or (c) above, the Employee
may, within three (3) months following the date of such termination, exercise
the Option to the full extent that it was exercisable immediately prior to
the date of such termination, subject, however, to the limitation set forth
in subparagraph (e) above.
(h) All numbers of shares subject to any Option or Additional Options and
all option prices, shall be subject to appropriate anti-dilution adjustment
to take account of stock splits, stock dividends, merger, consolidation,
reclassification or the like.
4. Termination. Notwithstanding the provisions of paragraph 1 hereof, the
employment of the Employee under this Agreement may be terminated in the
following circumstances:
(a) BioCryst may terminate the employment of Employee hereunder
immediately for "Cause" and without payment. "Cause" for termination of
Employee's employment hereunder shall exist if Employee
(i) shall confess to committing or shall be convicted of any felony
or any crime involving moral turpitude, or
(ii) shall have engaged in gross and willful misconduct which is
materially injurious to the business of BioCryst.
(b) BioCryst may terminate the employment of the Employee hereunder upon
thirty (30) days written notice if the Employee shall have suffered a period of
permanent disability, which shall for purposes of this Agreement be defined as
the inability of Employee to perform his duties hereunder by reason of physical
or mental incapacity for ninety (90) days, whether consecutive or not, during
any consecutive twelve (12) month period.
Upon such termination of employment, all rights of Employee to receive any
future payments under paragraph 2 above shall cease.
5. Non-Competition.
(a) Non-Competition Agreement. The Employee agrees that for one (1) year
following the termination of this Employment Agreement by reason of the
voluntary termination by the Employee, without cause on the part of BioCryst,
the Employee shall not become the Chief Executive Officer or Chief Operating
Officer or become a key executive of another for-profit business enterprise
whose activities are at such time directly competitive with BioCryst.
60
(b) Equitable Remedies. Employee acknowledges and recognizes that a
violation of this paragraph by Employee may cause irreparable and substantial
damage and harm to BioCryst or its affiliates, could Dr. constitute a failure
of consideration, and that money damages will not provide a full remedy for
BioCryst for such violations. Employee agrees that in the event of his breach
of this paragraph, BioCryst will be entitled, if it so elects, to institute
and prosecute proceedings at law or in equity to obtain damages with respect
to such breach, to enforce the specific performance of this paragraph by
Employee, and to enjoin Employee from engaging in any activity in violation
hereof.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, including the exhibits hereto,
constitutes the entire agreement between the parties relating to the
employment of the Employee by BioCryst and there are no terms relating to
such employment other than those contained in this Agreement. No modification
or variation hereof shall be deemed valid unless in writing and signed by the
parties hereto. No waiver by either party of any provision or condition of
this Agreement shall be deemed a waiver of similar or dissimilar provisions
or conditions at any time.
(b) Assignability. This Agreement may not be assigned without prior
written consent of the parties hereto. To the extent allowable pursuant to
this Agreement, this Agreement shall be binding upon and shall inure to the
benefit of each of the parties hereto and their respective executors,
administrators, personal representatives, heirs, successors and assigns.
(c) Notices. Any notice or other communication given or rendered
hereunder by any party hereto shall be in writing and delivered personally or
sent by registered or certified mail, postage prepaid, at the respective
addresses of the parties hereto as set forth below.
(d) Captions. The section headings contained herein are inserted only as
a matter of convenience and reference and in no way define, limit or describe
the scope of this Agreement or the intent of any provision hereof.
(e) Taxes. All amounts to be paid to Employee hereunder are in the nature
of compensation for Employee's employment by BioCryst, and shall be subject
to withholding, income, occupation and payroll taxes and other charges
applicable to such compensation.
(f) Governing Law. This Agreement is made and shall be governed by and
construed in accordance with the laws of the State of Alabama without respect
to its conflicts of law principles.
(g) Date. This Agreement is dated as of December 18, 1996.
If the foregoing correctly sets forth our understanding, please signify
your acceptance of such terms by executing this Agreement, thereby signifying
your assent, as indicated below.
Yours very truly,
BIOCRYST PHARMACEUTICALS, INC.
By: /s/Charles E. Bugg
Its: Chairman & CEO
Address:
2190 Parkway Lake Drive
Birmingham. Alabama 35244
61
AGREED AND ACCEPTED, as of this 18th day of December, 1996.
/s/ J. Claude Bennett
Address:
The University of Alabama at Birmingham
1070 Administration Building
701 20th Street South
Birmingham, Alabama 35294-0110
62
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-81110 and 33-95062) pertaining to the BioCryst
Pharmaceuticals, Inc. 1991 Stock Option Plan of our report dated January 17,
1997, with respect to the financial statements of BioCryst Pharmaceuticals,
Inc. included in the Annual Report (Form 10-K) for the year ended December
31, 1996.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 21, 1997
63
5
YEAR
DEC-31-1996
JAN-01-1995
3,635,780
32,149,888
0
0
0
28,098,267
3,006,098
1,875,308
37,148,912
1,387,219
0
0
0
136,977
35,266,244
37,148,912
0
2,652,160
0
0
0
0
100,031
(7,698,227)
0
0
0
0
0
(7,698,227)
(.69)
(.69)