influenza neuraminidase inhibitor. The trial indicated no statistically significant
difference in the primary efficacy endpoint between groups treated with peramivir and groups treated with placebo. Based on these data, we discontinued
the development of peramivir. During the first nine months of 2002, our cash expenses related to this trial were approximately $4 million. After
terminating the development of peramivir, the Company streamlined its operations, reducing its workforce from 75 employees to 45 employees in order to
conserve its resources and provide a longer timeframe in which to advance its other programs.
Changes in our existing and future research and
development and collaborative relationships will also impact the status of our research and development projects. Although we may, in some cases, be
able to control the timing of development expenses, in part by accelerating or decelerating certain of these costs, many of these costs will be
incurred irrespective of whether we are able to discover drug candidates or obtain collaborative partners for commercialization. As a result, we
believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of
future performance. If we fail to meet the research, clinical and financial expectations of securities analysts and investors, it could have a material
adverse effect on the price of our common stock.
Year Ended December 31, 2003 Compared with the Year Ended December 31,
2002
Collaborative and other research and development
revenues increased in 2003 to $653,000 compared to $0 in the same period last year, primarily due to a payment from 3-Dimensional Pharmaceuticals Inc.
(3DP), a wholly-owned subsidiary of Johnson & Johnson, for certain rights related to complement system inhibitors discovered during the term of our
collaborative research agreement. In addition, our revenues include $153,000 from the National Institutes of Health related to the $300,000 first year
grant received during 2003 for our hepatitis C inhibitor program. Interest income for 2003 was $980,000, a 44.8% decrease compared to $1,775,000 in
2002. This decrease was due to a reduction in cash and a lower interest rate environment in 2003.
Research and development expenses decreased 25.5% to
$11,522,000 for 2003 from $15,473,000 in 2002. The decrease in expenses during 2003 was primarily due to the costs incurred by BioCryst during 2002 to
complete a Phase III clinical trial for peramivir, a drug candidate that was discontinued in June 2002. In addition, personnel costs were 34% lower
during 2003 as a result of the reduction in our staff following the termination of the peramivir program.
General and administrative expenses decreased
slightly to $2,812,000 in 2003 from $2,856,000 in 2002. In addition, as a result of the termination of the peramivir program effective June 25, 2002,
we recorded a non-cash impairment loss of $373,900 in 2002 related to the influenza patents. There were no impairment charges recorded in
2003.
The net loss for the year ended December 31, 2003
was $12,700,000, or $0.72 per share, compared to a net loss of $16,929,000, or $0.96 per share in 2002.
Year Ended December 31, 2002 Compared with the Year Ended December 31,
2001
Collaborative and other research and development
revenue decreased 100.0% to $0 in 2002 from $7,736,976 in 2001, primarily due to a change in accounting estimate following Ortho-McNeil Pharmaceutical,
Inc. (Ortho-McNeil) and The R.W. Johnson Pharmaceutical Research Institutes (RWJPRI) notice of termination of the worldwide license agreement
with us to develop and market products to treat and prevent viral influenza. As a result of this termination, we recognized all remaining deferred
revenues and expenses related to this agreement during the second and third quarters of 2001. Interest and other income decreased 48.1% to $1,774,524
in 2002 from $3,420,658 in 2001, primarily due to a reduction in cash from the funding of operations and a lower interest rate environment in
2002.
Research and development expenses increased 18.2% to
$15,473,491 in 2002 from $13,091,057 in 2001. The increase in expenses is primarily attributable to the clinical trial expenses incurred to complete a
Phase III trial for peramivir, prior to the termination of this program in June 2002, plus animal studies related to peramivir and our other
programs.
General and administrative expenses increased 9.5%
to $2,855,804 in 2002 from $2,608,392 in 2001. The increase is primarily due to an increase in expenses related to the adoption of a stockholder rights
plan, insurance and other professional fees. Royalty expense decreased 100.0% to $0 in 2002 from $443,697 in 2001. This
14
decrease is directly attributable to the change in accounting estimate resulting
from the termination of our worldwide license agreement by Ortho-McNeil and RWJPRI for our neuraminidase inhibitor, peramivir. As a result of the
termination of this program effective June 25, 2002, we also recorded a non-cash impairment loss of $373,900 in 2002 related to the influenza patents.
There were no impairment charges recorded in 2001.
Liquidity and Capital Resources
Cash expenditures have exceeded revenues since the
Companys inception. Our operations have principally been funded through various sources, including the following:
|
|
public offerings and private placements of equity and debt
securities, |
|
|
equipment lease financing, |
|
|
collaborative and other research and development agreements
(including licenses and options for licenses), |
In addition, we have attempted to contain costs and
reduce cash flow requirements by renting scientific equipment and facilities, contracting with other parties to conduct certain research and
development and using consultants. We expect to incur additional expenses, potentially resulting in significant losses, as we continue to pursue our
research and development activities and undertake additional preclinical studies and clinical trials of compounds which have been or may be discovered.
We also expect to incur substantial expenses related to the filing, prosecution, maintenance, defense and enforcement of patent and other intellectual
property claims.
On June 25, 2002, we announced we were discontinuing
the development of peramivir, our investigational oral influenza neuraminidase inhibitor designed to treat and prevent influenza. After terminating the
development of peramivir, the Company streamlined its operations in order to conserve its resources and provide a longer timeframe in which to advance
its other programs.
On August 5, 2002, at the request of Dr. Charles E.
Bugg, our Chairman and Chief Executive Officer and Dr. J. Claude Bennett, our President, Chief Operating Officer and Medical Director, our Compensation
Committee and board of directors approved a 25% reduction in their salaries, effective August 1, 2002. On December 8, 2003, the Compensation Committee
and board of directors restored their salaries to the full amount in effect prior to August 1, 2002. This change became effective on January 1, 2004.
In the event of any change of control of the Company, any cumulative salary reductions during the period from August 1, 2002 through December 31, 2003
would become due and payable to them. The aggregate monthly amount of the reduction was $14,677.
On October 24, 2003, our compensation committee
voted to pay Dr. Charles E. Bugg, our Chairman and Chief Executive Officer, $484,500 as consideration for the cancellation of options held by Dr. Bugg
to purchase 170,000 shares of our common stock. The expiration date of the options was November 18, 2003, and the exercise price of the options was
$6.00 per share.
The Company invests its excess cash principally in
U.S. marketable securities from a diversified portfolio of institutions with strong credit ratings and in U.S. government and agency bills and notes,
and by policy, limits the amount of credit exposure at any one institution. These investments are generally not collateralized and mature within three
years. The Company has not realized any losses from such investments. In addition, at December 31, 2003, approximately $4.4 million was invested in the
Merrill Lynch Premier Institutional Fund, which invests primarily in commercial paper, U.S. government and agency bills and notes, corporate notes,
certificates of deposit and time deposits. The Merrill Lynch Premier Institutional Fund is not insured. At December 31, 2003, our cash, cash
equivalents and securities held-to-maturity were $25.7 million, a decrease of $10.4 million from December 31, 2002, principally due to the funding of
current operations. We raised an additional $21.3 million of capital during February 2004 through a registered offering of our common stock to selected
institutional investors.
15
We have financed some of our equipment purchases
with lease lines of credit. We currently have a $500,000 general line of credit with our bank, secured by a pledge of $600,000 in marketable
securities. There was nothing drawn against this line as of December 31, 2003. In July 2000, we renegotiated our lease for our current facilities,
which will expire on June 30, 2010. We have an option to renew the lease for an additional five years at the current market rate in effect on June 30,
2010 and a one-time option to terminate the lease on June 30, 2008 for a termination fee of approximately $124,000. The lease, as amended effective
July 1, 2001 for an additional 7,200 square feet, requires us to pay monthly rent starting at $33,145 per month in July 2001 and escalating annually to
a minimum of $47,437 per month in the final year, plus our pro rata share of operating expenses and real estate taxes in excess of base year amounts.
As part of the lease, we have deposited a U.S. Treasury security in escrow for the payment of rent and performance of other obligations specified in
the lease. This pledged amount is currently $390,000, which will be decreased by $65,000 annually throughout the term of the lease.
In February 2002, we completed a renovation for
approximately $2.6 million to add two chemistry laboratories and purchase additional equipment. Currently, there are no plans for additional
renovations.
As a result of the reduction in our staff during
July 2002, we have approximately 14,000 square feet of excess space, which is currently being subleased.
At December 31, 2003, we had long-term operating
lease obligations, which provide for aggregate minimum payments of $594,897 in 2004, $605,139 in 2005 and $573,031 in 2006. These obligations include
the future rental of our operating facility.
We plan to finance our needs principally from the
following:
|
|
our existing capital resources and interest earned on that
capital; |
|
|
payments under collaborative and licensing agreements with
corporate partners; and |
|
|
lease or loan financing and future public or private
financing. |
We believe that our available funds will be
sufficient to fund our operations at least through 2004. However, this is a forward looking statement, and there may be changes that would consume
available resources significantly before such time. Our long-term capital requirements and the adequacy of our available funds will depend upon many
factors, including:
|
|
the progress of our research, drug discovery and development
programs; |
|
|
changes in existing collaborative relationships; |
|
|
our ability to establish additional collaborative
relationships; |
|
|
the magnitude of our research and development
programs; |
|
|
the scope and results of preclinical studies and clinical trials
to identify drug candidates; |
|
|
competitive and technological advances; |
|
|
the time and costs involved in obtaining regulatory
approvals; |
|
|
the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims; |
|
|
our dependence on others for development and commercialization
of our product candidates, and |
|
|
successful commercialization of our products consistent with our
licensing strategy. |
In 2003, our operations consumed approximately
$1,000,000 per month, but we expect that our monthly cash used by operations will continue to increase for the next several years. During 2004, we plan
to both expand our existing clinical programs and initiate clinical programs for several new disease indications. These additional trials and the
related manufacturing, personnel resources and testing required to support these studies will consume significant capital resources and significantly
increase our expenses and our net loss. As of December 31, 2003, we had $25.7 million in cash, cash equivalents and securities. We raised an additional
$21.4 million of capital during February 2004 to provide the resources necessary to continue the development of our existing programs, while prudently
maintaining our cash position. We expect our monthly burn rate to
16
increase to approximately $2 million by mid-2004, as we get our Phase II trial
underway for T-cell leukemia patients. This monthly burn rate could increase more as the year progresses and in future years depending on many factors,
including our ability to raise additional capital, the progress of our BCX-1777 clinical trials for both T-cell leukemia and CTCL, our ability to move
BCX-4208 through the preclinical testing required to file an IND and begin clinical trials, and the progression of our discovery programs.
We will be required to raise additional capital to
complete the development and commercialization of our current product candidates. Additional funding, whether through additional sales of securities or
collaborative or other arrangements with corporate partners or from other sources, may not be available when needed or on terms acceptable to us. The
issuance of preferred or common stock or convertible securities, with terms and prices significantly more favorable than those of the currently
outstanding common stock, could have the effect of diluting or adversely affecting the holdings or rights of our existing stockholders. In addition,
collaborative arrangements may require us to transfer certain material rights to such corporate partners. Insufficient funds may require us to delay,
scale-back or eliminate certain of our research and development programs.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not
participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. As of December 31, 2003, we are not involved in any material unconsolidated SPE or
off-balance sheet arrangements.
Contractual Obligations
In the table below, we set forth our enforceable and
legally binding obligations as of December 31, 2003. Some of the figures we include in this table are based on managements estimates and
assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors.
Because these estimates and assumptions are necessarily subjective, the enforceable and legally binding obligations we will actually pay in future
periods may vary from those reflected in the table.
|
|
|
|
Payments due by period
|
|
Contractual Obligations |
|
|
|
Total
|
|
Less than 1 year
|
|
13 years
|
|
35 years
|
|
More than 5 years
|
Operating
Lease Obligations |
|
|
|
$ |
3,692,005 |
|
|
$ |
594,897 |
|
|
$ |
1,706,920 |
|
|
$ |
1,390,188 |
|
|
$ |
0 |
|
Purchase
Obligations |
|
|
|
|
1,687,853 |
|
|
|
487,853 |
|
|
|
600,000 |
|
|
|
600,000 |
|
|
|
0 |
|
Other
Long-Term Liabilities Reflected on the Companys Balance Sheet Under GAAP |
|
|
|
|
300,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
300,000 |
|
Total |
|
|
|
$ |
5,679,858 |
|
|
$ |
1,082,750 |
|
|
$ |
2,306,920 |
|
|
$ |
1,990,188 |
|
|
$ |
300,000 |
|
Critical Accounting Policies
We have established various accounting policies that
govern the application of accounting principles generally accepted in the United States, which were utilized in the preparation of our financial
statements. Certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value
of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used
by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature
of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact
on the carrying values of assets and liabilities and the results of operations.
We believe the following critical accounting
policies affect our more significant judgments and estimates used in the preparation of our financial statements.
17
Revenue Recognition
The Company recognizes revenue in accordance with
SEC Staff Accounting Bulletin No. 104, Revenue Recognition (SAB No. 104). Research and development revenue on cost-reimbursement
agreements is recognized as expenses are incurred, up to contractual limits. Research and development fees, license fees and milestone payments are
recognized as revenue when the earnings process is complete, the Company has no further continuing performance obligations and has completed its
performance under the terms of the agreement, in accordance with SAB No. 104. License fees and milestone payments received under licensing agreements
that are related to future performance are deferred and taken into income as earned over the estimated drug development period. Recognized revenues and
profit are subject to revisions as these contracts or agreements progress to completion. Revisions to revenue or profit estimates are charged to income
in the period in which the facts that give rise to the revision become known.
Valuation of Financial Instruments
We carry our held-to-maturity securities at
amortized cost, as adjusted for other-than-temporary declines in market value. In determining if and when a decline in market value below amortized
cost is other-than-temporary, we evaluate the market conditions and other key measures for our held-to-maturity investments. Future adverse changes in
market conditions could result in losses or an inability to recover the carrying value of the held-to-maturity investments that may not be reflected in
an investments current carrying value, thereby possibly requiring an impairment charge in the future.
Deferred Taxes
We have not had taxable income since incorporation
and, therefore, we have not paid any income tax. We have deferred tax assets related to net operating loss carryforwards and research and development
carryforwards, and have recorded a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation
allowance, in the event we were to determine that we would be able to realize the deferred tax assets in the future in excess of the net recorded
amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we
would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to
income in the period such determination was made.
Patents and Licenses
Patents and licenses are recorded at cost and
amortized on a straight-line basis over their estimated useful lives or 20 years, whichever is lesser. These costs are reviewed periodically in
accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement
No. 144) to determine any impairment that needs to be recognized.
Risk Factors
An investment in our stock involves a high degree
of risk. You should consider carefully the following risks, along with all of the other information included in our other filings with the Securities
and Exchange Commission, before deciding to buy our common stock. Additional risks and uncertainties not currently known to us or that we currently
deem to be immaterial may also impair our business operations. If we are unable to prevent events that have a negative effect from occurring, then our
business may suffer. Negative events are likely to decrease our revenue, increase our costs, make our financial results poorer and/or decrease our
financial strength, and may cause our stock price to decline. In that case, you may lose all or a part of your investment in our common
stock.
18
Risks Relating to Our Business
We have incurred substantial losses since our inception in 1986,
expect to continue to incur such losses and may never be profitable
Since our inception in 1986, we have not been
profitable. We expect to incur additional losses for the foreseeable future, and our losses could increase as our research and development efforts
progress. As of December 31, 2003, our accumulated deficit was approximately $104.7 million. To become profitable, we must successfully develop drug
candidates, enter into profitable agreements with other parties and our drug candidates must receive regulatory approval. We or these other parties
must then successfully manufacture and market our drug candidates. It could be several years, if ever, before we receive royalties from any future
license agreements or revenues directly from product sales.
If we fail to obtain additional financing, we may be unable to complete the
development and commercialization of our product candidates or continue our research and development programs.
To date, we have financed our operations primarily
from sale of our equity securities and, to a lesser extent, revenues from collaborations and interest. In 2003, our operations consumed approximately
$1,000,000 per month, but we expect that our monthly cash used by operations will continue to increase for the next several years. During 2004, we plan
to both expand our existing clinical programs and initiate clinical programs for several new disease indications. These additional trials and the
related manufacturing, personnel resources and testing required to support these studies will consume significant capital resources and significantly
increase our expenses and our net loss.
As of December 31, 2003, we had $25.7 million in
cash, cash equivalents and securities. We raised an additional $21.4 million of capital during February 2004 to provide the resources necessary to
continue the development of our existing programs, while prudently maintaining our cash position. We expect our monthly burn rate to increase to
approximately $2 million by mid-2004, as we get our Phase II trial underway for T-cell leukemia patients. This monthly burn rate could increase more as
the year progresses and in future years depending on many factors including, our ability to raise additional capital, the progress of our BCX-1777
clinical trials for both T-cell leukemia and CTCL, our ability to move BCX-4208 through the preclinical testing required to file an IND and begin
clinical trials, and the progression of our discovery programs. Our long-term capital requirements and the adequacy of our available funds will depend
upon many factors, including:
|
|
the progress of our research, drug discovery and development
programs; |
|
|
changes in existing collaborative relationships; |
|
|
our ability to establish additional collaborative
relationships; |
|
|
the magnitude of our research and development
programs; |
|
|
the scope and results of preclinical studies and clinical trials
to identify drug candidates; |
|
|
competitive and technological advances; |
|
|
the time and costs involved in obtaining regulatory
approvals; |
|
|
the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims; |
|
|
our dependence on others for development and commercialization
of our product candidates; and |
|
|
successful commercialization of our products consistent with our
licensing strategy. |
We will be required to raise additional capital to
complete the development and commercialization of our current product candidates. Additional funding, whether through additional sales of securities or
collaborative or other arrangements with corporate partners or from other sources, may not be available when needed or on terms acceptable to us. The
issuance of preferred or common stock or convertible securities, with terms and prices significantly more favorable than those of the currently
outstanding common stock, could have the effect of diluting or adversely affecting the holdings or rights of our existing stockholders. In addition,
collaborative arrangements may require us to transfer certain material rights to such corporate partners.
19
Insufficient funds may require us to delay, scale-back or eliminate certain of our
research and development programs.
We have not commercialized any products or technologies and our future
revenue generation is uncertain
We have not yet commercialized any products or
technologies, and we may never be able to do so. Our revenue from collaborative agreements is dependent upon the status of our preclinical and clinical
programs. If we fail to advance these programs to the point of being able to enter into successful collaborations, we will not receive any future
milestone or other collaborative payments.
Any future revenue directly from product sales would
depend on our ability to successfully complete clinical studies, obtain regulatory approvals, manufacture, market and commercialize any approved
drugs.
If our development collaborations with other parties fail, the development of
our drug candidates will be delayed or stopped
We rely heavily upon other parties for many
important stages of our drug development programs, including:
|
|
discovery of proteins that cause or enable biological reactions
necessary for the progression of the disease or disorder, called enzyme targets; |
|
|
license or design enzyme inhibitors for development as drug
candidates; |
|
|
execution of some preclinical studies and late-stage development
for our compounds and drug candidates; |
|
|
management of our clinical trials, including medical monitoring
and data management; |
|
|
management of our regulatory function; and |
|
|
manufacturing, sales, marketing and distribution of our drug
candidates. |
Our failure to engage in successful collaborations
at any one of these stages would greatly impact our business. If we do not license enzyme targets or inhibitors from academic institutions or from
other biotechnology companies on acceptable terms, our product development efforts would suffer. Similarly, if the contract research organizations that
conduct our initial or late-stage clinical trials or manage our regulatory function breached their obligations to us, this would delay or prevent the
development of our drug candidates.
Even more critical to our success is our ability to
enter into successful collaborations for the late-stage clinical development, regulatory approval, manufacturing, marketing, sales and distribution of
our drug candidates. Our general strategy is to rely upon other parties for all of these steps so that we can focus exclusively on the key areas of our
expertise. For some smaller niche markets, we may perform these steps ourselves and outsource those functions where we do not have the internal
expertise. This heavy reliance upon third parties for these critical functions presents several risks, including:
|
|
these contracts may expire or the other parties to the contract
may terminate them; |
|
|
our partners may choose to pursue alternative technologies,
including those of our competitors; |
|
|
we may have disputes with a partner that could lead to
litigation or arbitration; |
|
|
our partners may not devote sufficient capital or resources
towards our drug candidates; and |
|
|
our partners may not comply with applicable government
regulatory requirements. |
Any problems encountered with our current or future
partners could delay or prevent the development of our compounds, which would severely affect our business, because if our compounds do not reach the
market in a timely manner, or at all, we may never receive any milestone, product or royalty payments.
20
If the clinical trials of our drug candidates fail, our drug candidates will
not be marketed, which would result in a complete absence of product related revenue
To receive the regulatory approvals necessary for
the sale of our drug candidates, we or our licensees must demonstrate through preclinical studies and clinical trials that each drug candidate is safe
and effective. If we or our licensees are unable to demonstrate that our drug candidates are safe and effective, our drug candidates will not receive
regulatory approval and will not be marketed, which would result in a complete absence of product related revenue. The clinical trial process is
complex and uncertain. Because of the cost and duration of clinical trials, we may decide to discontinue development of product candidates that are
either unlikely to show good results in the trials or unlikely to help advance a product to the point of a meaningful collaboration. Positive results
from preclinical studies and early clinical trials do not ensure positive results in clinical trials designed to permit application for regulatory
approval, called pivotal clinical trials. We may suffer significant setbacks in pivotal clinical trials, even after earlier clinical trials show
promising results. Any of our drug candidates may produce undesirable side effects in humans. These side effects could cause us or regulatory
authorities to interrupt, delay or halt clinical trials of a drug candidate. These side effects could also result in the FDA or foreign regulatory
authorities refusing to approve the drug candidate for any targeted indications. We, our licensees, the FDA or foreign regulatory authorities may
suspend or terminate clinical trials at any time if we or they believe the trial participants face unacceptable health risks. Clinical trials may fail
to demonstrate that our drug candidates are safe or effective.
Clinical trials are lengthy and expensive. We or our
licensees incur substantial expense for, and devote significant time to, preclinical testing and clinical trials, yet cannot be certain that the tests
and trials will ever result in the commercial sale of a product. For example, clinical trials require adequate supplies of drug and sufficient patient
enrollment. Delays in patient enrollment can result in increased costs and longer development times. Even if we or our licensees successfully complete
clinical trials for our product candidates, we or our licensees might not file the required regulatory submissions in a timely manner and may not
receive regulatory approval for the drug candidate.
If we or our licensees do not obtain and maintain governmental approvals for
our products under development, we or our partners will not be able to sell these potential products, which would significantly harm our business
because we will receive no revenue
We or our licensees must obtain regulatory approval
before marketing or selling our future drug products. If we or our licensees are unable to receive regulatory approval and do not market or sell our
future drug products, we will never receive any revenue from such product sales. In the United States, we or our partners must obtain FDA approval for
each drug that we intend to commercialize. The FDA approval process is typically lengthy and expensive, and approval is never certain. Products
distributed abroad are also subject to foreign government regulation. The FDA or foreign regulatory agencies have not approved any of our drug
candidates. If we or our licensees fail to obtain regulatory approval we will be unable to market and sell our future drug products. We have several
drug products in various stages of preclinical and clinical development; however, we are unable to determine when, if ever, any of these products will
be commercially available. Because of the risks and uncertainties in biopharmaceutical development, our drug candidates could take a significantly
longer time to gain regulatory approval than we expect or may never gain approval. If the FDA delays regulatory approval of our drug candidates, our
managements credibility, our companys value and our operating results may suffer. Even if the FDA or foreign regulatory agencies approve a
drug candidate, the approval may limit the indicated uses for a drug candidate and/or may require post-marketing studies.
The FDA regulates, among other things, the record
keeping and storage of data pertaining to potential pharmaceutical products. We currently store most of our preclinical research data at our facility.
While we do store duplicate copies of most of our clinical data offsite, we could lose important preclinical data if our facility incurs damage. If we
get approval to market our potential products, whether in the United States or internationally, we will continue to be subject to extensive regulatory
requirements. These requirements are wide ranging and govern, among other things:
|
|
adverse drug experience reporting regulations; |
21
|
|
product manufacturing, including good manufacturing practice
requirements; and |
|
|
product changes or modifications. |
Our failure to comply with existing or future
regulatory requirements, or our loss of, or changes to, previously obtained approvals, could have a material adverse effect on our business because we
will not receive product or royalty revenues if we or our licensees do not receive approval of our products for marketing.
In June 1995, we notified the FDA that we submitted
incorrect data for our Phase II studies of BCX-34 applied to the skin for cutaneous T-cell lymphoma and psoriasis. The FDA inspected us in November
1995 and issued us a List of Inspectional Observations, Form FDA 483, which cited our failure to follow good clinical practices. The FDA also inspected
us in June 1996. The focus was on the two 1995 Phase II dose-ranging studies of topical BCX-34 for the treatment of cutaneous T-cell lymphoma and
psoriasis. As a result of the investigation, the FDA issued us a Form FDA 483, which cited our failure to follow good clinical practices. BioCryst is
no longer developing BCX-34; however, as a consequence of these two investigations, our ongoing and future clinical studies may receive increased
scrutiny, which may delay the regulatory review process.
We may be unable to establish sales, marketing and distribution capabilities
necessary to successfully commercialize products we may successfully develop
We currently have no marketing capability and no
direct or third-party sales or distribution capabilities. If we successfully develop a drug candidate and decide to commercialize it ourselves rather
than relying on third parties, as we currently intend to do in the United States for BCX-1777, we may be unable to establish marketing, sales and
distribution capabilities necessary to commercialize and gain market acceptance for that product.
If our drug candidates do not achieve broad market acceptance, our business
may never become profitable
Our drug candidates may not gain the market
acceptance required for us to be profitable even if they successfully complete initial and final clinical trials and receive approval for sale by the
FDA or foreign regulatory agencies. The degree of market acceptance of any drug candidates that we or our partners develop will depend on a number of
factors, including:
|
|
cost-effectiveness of our drug candidates; |
|
|
their safety and effectiveness relative to alternative
treatments; |
|
|
reimbursement policies of government and third-party payers;
and |
|
|
marketing and distribution support for our drug
candidates. |
Physicians, patients, payers or the medical
community in general may not accept or use our drug candidates even after the FDA or foreign regulatory agencies approve the drug candidates. If our
drug candidates do not achieve significant market acceptance, we will not have enough revenues to become profitable.
We face intense competition, and if we are unable to compete effectively, the
demand for our products, if any, may be reduced
The biotechnology and pharmaceutical industries are
highly competitive and subject to rapid and substantial technological change. We face, and will continue to face, competition in the licensing of
desirable disease targets, licensing of desirable drug candidates, and development and marketing of our product candidates from academic institutions,
government agencies, research institutions and biotechnology and pharmaceutical companies. Competition may also arise from, among other
things:
|
|
other drug development technologies; |
|
|
methods of preventing or reducing the incidence of disease,
including vaccines; and |
|
|
new small molecule or other classes of therapeutic
agents. |
Developments by others may render our product
candidates or technologies obsolete or noncompetitive.
22
We are performing research on or developing products
for the treatment of several disorders including T-cell mediated disorders (T-cell cancers, psoriasis, and rheumatoid arthritis), cardiovascular,
oncology, and hepatitis C, and there are a number of competitors to products in our research pipeline. If one or more of our competitors products
or programs are successful, the market for our products may be reduced or eliminated.
Compared to us, many of our competitors and
potential competitors have substantially greater:
|
|
research and development resources, including personnel and
technology; |
|
|
preclinical study and clinical testing experience; |
|
|
manufacturing and marketing experience; and |
Any of these competitive factors could reduce demand
for our products.
If we fail to adequately protect or enforce our intellectual property rights
or secure rights to patents of others, the value of those rights would diminish
Our success will depend in part on our ability and
the abilities of our licensors to obtain patent protection for our products, methods, processes and other technologies to preserve our trade secrets,
and to operate without infringing the proprietary rights of third parties. If we or our partners are unable to adequately protect or enforce our
intellectual property rights for our products, methods, processes and other technologies, the value of the drug candidates that we license to derive
revenue would diminish. Additionally, if our products, methods, processes and other technologies infringe the proprietary rights of other parties, we
could incur substantial costs. The U.S. Patent and Trademark Office has issued to us a number of U.S. patents for our various inventions and we have
in-licensed several patents from various institutions. We have filed additional patent applications and provisional patent applications with the U.S.
Patent and Trademark Office. We have filed a number of corresponding foreign patent applications and intend to file additional foreign and U.S. patent
applications, as appropriate. We cannot assure you as to:
|
|
the degree and range of protection any patents will afford
against competitors with similar products; |
|
|
if and when patents will issue; or |
|
|
whether or not others will obtain patents claiming aspects
similar to those covered by our patent applications. |
If the U.S. Patent and Trademark Office upholds
patents issued to others or if the U.S. Patent and Trademark Office grants patent applications filed by others, we may have to:
|
|
obtain licenses or redesign our products or processes to avoid
infringement; |
|
|
stop using the subject matter claimed in those patents;
or |
We may initiate, or others may bring against us,
litigation or administrative proceedings related to intellectual property rights, including proceedings before the U.S. Patent and Trademark Office.
Any judgment adverse to us in any litigation or other proceeding arising in connection with a patent or patent application could materially and
adversely affect our business, financial condition and results of operations. In addition, the costs of any such proceeding may be substantial whether
or not we are successful.
Our success is also dependent upon the skills,
knowledge and experience, none of which is patentable, of our scientific and technical personnel. To help protect our rights, we require all employees,
consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to anyone
outside of our company and require disclosure and assignment to us of their ideas, developments, discoveries and inventions. These agreements may not
provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or
the
23
lawful development by others of such information, and if any of our proprietary
information is disclosed, our business will suffer because our revenues depend upon our ability to license our technology and any such events would
significantly impair the value of such a license.
If we fail to retain our existing key personnel or fail to attract and retain
additional key personnel, the development of our drug candidates and the expansion of our business will be delayed or stopped
We are highly dependent upon our senior management
and scientific team, the loss of whose services might impede the achievement of our development and commercial objectives. Competition for key
personnel with the experience that we require is intense and is expected to continue to increase. Our inability to attract and retain the required
number of skilled and experienced management, operational and scientific personnel, will harm our business because we rely upon these personnel for
many critical functions of our business. In addition, we rely on members of our scientific advisory board and consultants to assist us in formulating
our research and development strategy. All of the members of the scientific advisory board and all of our consultants are otherwise employed and each
such member or consultant may have commitments to other entities that may limit their availability to us.
If users of our drug products are not reimbursed for use, future sales of our
drug products will decline
The lack of reimbursement for the use of our product
candidates by hospitals, clinics, patients or doctors will harm our business. Medicare, Medicaid, health maintenance organizations and other
third-party payers may not authorize or otherwise budget for the reimbursement of our products. Governmental and third-party payers are increasingly
challenging the prices charged for medical products and services. We cannot be sure that third-party payers would view our product candidates as
cost-effective, that reimbursement will be available to consumers or that reimbursement will be sufficient to allow our product candidates to be
marketed on a competitive basis. Changes in reimbursement policies, or attempts to contain costs in the health care industry could limit or restrict
reimbursement for our product candidates and would materially and adversely affect our business, because future product sales would decline and we
would receive less product or royalty revenue.
If we face clinical trial liability claims related to the use or misuse of
our compounds in clinical trials, our managements time will be diverted and we will incur litigation costs
We face an inherent business risk of liability
claims in the event that the use or misuse of our compounds results in personal injury or death. We have not experienced any clinical trial liability
claims to date, but we may experience these claims in the future. After commercial introduction of our products we may experience losses due to product
liability claims. We currently maintain clinical trial liability insurance coverage in the amount of $5.0 million per occurrence and $5.0 million in
the aggregate, with an additional $2.0 million potentially available under our umbrella policy. The insurance policy may not be sufficient to cover
claims that may be made against us. Clinical trial liability insurance may not be available in the future on acceptable terms, if at all. Any claims
against us, regardless of their merit, could materially and adversely affect our financial condition, because litigation related to these claims would
strain our financial resources in addition to consuming the time and attention of our management.
If our computer systems fail, our business will suffer
Our drug development activities depend on the
security, integrity and performance of the computer systems supporting them, and the failure of our computer systems could delay our drug development
efforts. We currently store most of our preclinical and clinical data at our facility. Duplicate copies of all critical data are stored off-site in a
bank vault. Any significant degradation or failure of our computer systems could cause us to inaccurately calculate or lose our data. Loss of data
could result in significant delays in our drug development process and any system failure could harm our business and operations.
24
If, because of our use of hazardous materials, we violate any environmental
controls or regulations that apply to such materials, we may incur substantial costs and expenses in our remediation efforts
Our research and development involves the controlled
use of hazardous materials, chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations governing the
use, storage, handling and disposal of these materials and some waste products. Accidental contamination or injury from these materials could occur. In
the event of an accident, we could be liable for any damages that result and any liabilities could exceed our resources. Compliance with environmental
laws and regulations could require us to incur substantial unexpected costs, which would materially and adversely affect our results of
operations.
Risks Relating to Our Common Stock
Our stock price is likely to be highly volatile and the value of your
investment could decline significantly
The market prices for securities of biotechnology
companies in general have been highly volatile and may continue to be highly volatile in the future. Moreover, our stock price has fluctuated
frequently, and these fluctuations are often not related to our financial results. For the twelve months ended December 31, 2003, the 52-week range of
the market price of our stock was from $0.82 to $9.41 per share. The following factors, in addition to other risk factors described in this section,
may have a significant impact on the market price of our common stock:
|
|
announcements of technological innovations or new products by us
or our competitors; |
|
|
developments or disputes concerning patents or proprietary
rights; |
|
|
status of new or existing licensing or collaborative
agreements; |
|
|
we or our licensees achieving or failing to achieve development
milestones; |
|
|
publicity regarding actual or potential medical results relating
to products under development by us or our competitors; |
|
|
regulatory developments in both the United States and foreign
countries; |
|
|
public concern as to the safety of pharmaceutical
products; |
|
|
actual or anticipated fluctuations in our operating
results; |
|
|
changes in financial estimates or recommendations by securities
analysts; |
|
|
economic and other external factors or other disasters or
crises; and |
|
|
period-to-period fluctuations in our financial
results. |
Because stock ownership is concentrated, you and other investors will have
minimal influence on stockholder decisions
As of February 27, 2004, our directors, executive
officers and some principal stockholders and their affiliates beneficially owned approximately 42.7% (directors and officers owned 23.8%) of our
outstanding common stock and common stock equivalents. As a result, these holders, if acting together, are able to significantly influence matters
requiring stockholder approval, including the election of directors. This concentration of ownership may delay, defer or prevent a change in our
control.
We have anti-takeover provisions in our corporate charter documents that may
result in outcomes with which you do not agree
Our board of directors has the authority to issue up
to 3,178,500 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions of those shares without
further vote or action by our stockholders. The rights of the holders of any preferred stock that may be issued in the future may
25
adversely affect the rights of the holders of common stock. The issuance of
preferred stock could make it more difficult for third parties to acquire a majority of our outstanding voting stock.
In addition, our certificate of incorporation
provides for staggered terms for the members of the board of directors and supermajority approval of the removal of any member of the board of
directors and prevents our stockholders from acting by written consent. Our certificate also requires supermajority approval of any amendment of these
provisions. These provisions and other provisions of our by-laws and of Delaware law applicable to us could delay or make more difficult a merger,
tender offer or proxy contest involving us.
In June 2002, our board of directors adopted a
stockholder rights plan and, pursuant thereto, issued preferred stock purchase rights (Rights) to the holders of our common stock. The
Rights have certain anti-takeover effects. If triggered, the Rights would cause substantial dilution to a person or group of persons who acquires more
than 15% (19.9% for William W. Featheringill, a Director who currently owns more than 13%, but owned more than 15% at the time the Rights were put in
place) of our common stock on terms not approved by the board of directors.
We have never paid dividends on our common stock and do not anticipate doing
so in the foreseeable future
We have never paid cash dividends on our stock. We
currently intend to retain all future earnings, if any, for use in the operation of our business. Accordingly, we do not anticipate paying cash
dividends on our common stock in the foreseeable future.
Information Regarding Forward-Looking Statements
This discussion contains forward-looking statements,
which are subject to risks and uncertainties. These forward-looking statements can generally be identified by the use of words such as may,
will, intends, plans, believes, anticipates, expects, estimates,
predicts, potential, the negative of these words or similar expressions. Statements that describe our future plans, strategies,
intentions, expectations, objectives, goals or prospects are also forward-looking statements. Discussions containing these forward-looking statements
are principally contained in Business and Managements Discussion and Analysis of Financial Condition and Results of
Operations above, as well as any amendments we make to those sections in filings with the SEC.
These statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and uncertainties which may cause our actual results, performance or
achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in greater detail in
Risk Factors. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this
document.
You should read this discussion completely and with
the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements,
even though our situation may change in the future. We qualify all of our forward-looking statements by these cautionary statements.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET
RISK.
The primary objective of our investment activities
is to preserve principal while maximizing the income we receive from our investments without significantly increasing our risk. We invest excess cash
principally in U.S. marketable securities from a diversified portfolio of institutions with strong credit ratings and in U.S. government and agency
bills and notes, and by policy, limit the amount of credit exposure at any one institution. Some of the securities we invest in may have market risk.
This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we schedule
our investments to have maturities that coincide with our expected cash flow needs, thus avoiding the need to redeem an investment prior to its
maturity date. Accordingly, we believe we have no material exposure to interest rate risk arising from our investments. Therefore, no quantitative
tabular disclosure is provided.
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BALANCE SHEETS
|
|
|
|
December 31,
|
|
|
|
|
|
2003
|
|
2002
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
|
$ |
11,940,958 |
|
|
$ |
13,824,289 |
|
Securities
held-to-maturity |
|
|
|
|
8,087,124 |
|
|
|
10,624,518 |
|
Prepaid
expenses and other current assets |
|
|
|
|
675,907 |
|
|
|
482,620 |
|
Total current
assets |
|
|
|
|
20,703,989 |
|
|
|
24,931,427 |
|
Securities
held-to-maturity |
|
|
|
|
5,704,399 |
|
|
|
11,714,151 |
|
Furniture and
equipment, net |
|
|
|
|
3,507,705 |
|
|
|
4,557,287 |
|
Patents and
licenses, less accumulated amortization of $202 in 2003 and $201 in 2002 |
|
|
|
|
179,461 |
|
|
|
97,523 |
|
Total
assets |
|
|
|
$ |
30,095,554 |
|
|
$ |
41,300,388 |
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
|
$ |
640,349 |
|
|
$ |
256,038 |
|
Accrued
expenses |
|
|
|
|
467,690 |
|
|
|
443,524 |
|
Accrued
vacation |
|
|
|
|
240,372 |
|
|
|
173,015 |
|
Total current
liabilities |
|
|
|
|
1,348,411 |
|
|
|
872,577 |
|
Deferred
revenue |
|
|
|
|
300,000 |
|
|
|
300,000 |
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock: shares authorized 5,000,000 Series A Convertible Preferred stock, $.01 par value; shares authorized 1,800,000; shares
issued and outstanding none Series B Junior Participating Preferred stock, $.001 par value; shares authorized 21,500; shares
issued and outstanding none
|
|
|
|
|
|
|
|
|
|
|
Common stock,
$.01 par value; shares authorized 45,000,000; shares issued and outstanding 17,871,289 2003; 17,657,097
2002 |
|
|
|
|
178,713 |
|
|
|
176,571 |
|
Additional
paid-in capital |
|
|
|
|
132,928,208 |
|
|
|
131,910,935 |
|
Accumulated
deficit |
|
|
|
|
(104,659,778 |
) |
|
|
(91,959,695 |
) |
Total
stockholders equity |
|
|
|
|
28,447,143 |
|
|
|
40,127,811 |
|
Total
liabilities and stockholders equity |
|
|
|
$ |
30,095,554 |
|
|
$ |
41,300,388 |
|
See accompanying notes to financial statements.
28
STATEMENTS OF OPERATIONS
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaborative
and other research and development |
|
|
|
$ |
653,255 |
|
|
$ |
0 |
|
|
$ |
7,736,976 |
|
Interest and
other |
|
|
|
|
980,249 |
|
|
|
1,774,524 |
|
|
|
3,420,658 |
|
Total
revenues |
|
|
|
|
1,633,504 |
|
|
|
1,774,524 |
|
|
|
11,157,634 |
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development |
|
|
|
|
11,521,982 |
|
|
|
15,473,491 |
|
|
|
13,091,057 |
|
General and
administrative |
|
|
|
|
2,811,605 |
|
|
|
2,855,804 |
|
|
|
2,608,392 |
|
Impairment of
patents and licenses |
|
|
|
|
0 |
|
|
|
373,900 |
|
|
|
0 |
|
Royalty
expense |
|
|
|
|
0 |
|
|
|
0 |
|
|
|
443,697 |
|
Interest |
|
|
|
|
0 |
|
|
|
0 |
|
|
|
464 |
|
Total
expenses |
|
|
|
|
14,333,587 |
|
|
|
18,703,195 |
|
|
|
16,143,610 |
|
Net
loss |
|
|
|
$ |
(12,700,083 |
) |
|
$ |
(16,928,671 |
) |
|
$ |
(4,985,976 |
) |
|
Net loss per
common share |
|
|
|
$ |
(.72 |
) |
|
$ |
(.96 |
) |
|
$ |
(.28 |
) |
|
Weighted
average shares outstanding |
|
|
|
|
17,703,441 |
|
|
|
17,642,746 |
|
|
|
17,560,143 |
|
See accompanying notes to financial statements.
29
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Deficit
|
|
Total Stock- Holders Equity
|
Balance at
December 31, 2000 |
|
|
|
$ |
175,368 |
|
|
$ |
131,350,338 |
|
|
$ |
(70,045,048 |
) |
|
$ |
61,480,658 |
|
Exercise of
stock options, 46,027 shares, net |
|
|
|
|
461 |
|
|
|
101,907 |
|
|
|
|
|
|
|
102,368 |
|
Employee
stock purchase plan sales, 24,122 shares |
|
|
|
|
241 |
|
|
|
93,131 |
|
|
|
|
|
|
|
93,372 |
|
Compensation
cost |
|
|
|
|
|
|
|
|
123,289 |
|
|
|
|
|
|
|
123,289 |
|
Net
loss |
|
|
|
|
|
|
|
|
|
|
|
|
(4,985,976 |
) |
|
|
(4,985,976 |
) |
Balance at
December 31, 2001 |
|
|
|
|
176,070 |
|
|
|
131,668,665 |
|
|
|
(75,031,024 |
) |
|
|
56,813,711 |
|
Employee
stock purchase plan sales, 50,127 shares |
|
|
|
|
501 |
|
|
|
122,080 |
|
|
|
|
|
|
|
122,581 |
|
Compensation
cost |
|
|
|
|
|
|
|
|
120,190 |
|
|
|
|
|
|
|
120,190 |
|
Net
loss |
|
|
|
|
|
|
|
|
|
|
|
|
(16,928,671 |
) |
|
|
(16,928,671 |
) |
Balance at
December 31, 2002 |
|
|
|
|
176,571 |
|
|
|
131,910,935 |
|
|
|
(91,959,695 |
) |
|
|
40,127,811 |
|
Exercise of
stock options, 186,228 shares, net |
|
|
|
|
1,862 |
|
|
|
877,198 |
|
|
|
|
|
|
|
879,060 |
|
Employee
stock purchase plan sales, 27,964 shares |
|
|
|
|
280 |
|
|
|
20,399 |
|
|
|
|
|
|
|
20,679 |
|
Compensation
cost |
|
|
|
|
|
|
|
|
119,676 |
|
|
|
|
|
|
|
119,676 |
|
Net
loss |
|
|
|
|
|
|
|
|
|
|
|
|
(12,700,083 |
) |
|
|
(12,700,083 |
) |
Balance at
December 31, 2003 |
|
|
|
$ |
178,713 |
|
|
$ |
132,928,208 |
|
|
$ |
(104,659,778 |
) |
|
$ |
28,447,143 |
|
See accompanying notes to financial statements.
30
STATEMENTS OF CASH FLOWS
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
|
$ |
(12,700,083 |
) |
|
$ |
(16,928,671 |
) |
|
$ |
(4,985,976 |
) |
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
|
|
1,101,311 |
|
|
|
1,246,417 |
|
|
|
1,046,037 |
|
Impairment of
patents and licenses |
|
|
|
|
0 |
|
|
|
373,900 |
|
|
|
0 |
|
Amortization
of patents and licenses |
|
|
|
|
202 |
|
|
|
201 |
|
|
|
3,398 |
|
Non-monetary
compensation cost |
|
|
|
|
119,676 |
|
|
|
120,190 |
|
|
|
123,289 |
|
Deferred
expense |
|
|
|
|
0 |
|
|
|
0 |
|
|
|
443,698 |
|
Deferred
revenue |
|
|
|
|
0 |
|
|
|
0 |
|
|
|
(7,736,976 |
) |
Changes in
operating assets and liabilities: Prepaid expenses and other current assets |
|
|
|
|
(193,287 |
) |
|
|
(66,065 |
) |
|
|
264,077 |
|
Accounts
payable |
|
|
|
|
384,311 |
|
|
|
(361,548 |
) |
|
|
(186,513 |
) |
Accrued
expenses |
|
|
|
|
24,166 |
|
|
|
(688,769 |
) |
|
|
803,200 |
|
Accrued
vacation |
|
|
|
|
67,357 |
|
|
|
(59,710 |
) |
|
|
67,280 |
|
Net cash
used in operating activities |
|
|
|
|
(11,196,347 |
) |
|
|
(16,364,055 |
) |
|
|
(10,158,486 |
) |
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
furniture and equipment |
|
|
|
|
(51,729 |
) |
|
|
(407,880 |
) |
|
|
(2,604,379 |
) |
Purchases of
patents and licenses |
|
|
|
|
(82,140 |
) |
|
|
(128,599 |
) |
|
|
(65,438 |
) |
Purchase of
marketable securities |
|
|
|
|
(11,573,960 |
) |
|
|
(8,085,173 |
) |
|
|
(26,433,622 |
) |
Maturities of
marketable securities |
|
|
|
|
20,121,106 |
|
|
|
19,822,089 |
|
|
|
49,485,497 |
|
Net cash
provided by investing activities |
|
|
|
|
8,413,277 |
|
|
|
11,200,437 |
|
|
|
20,382,058 |
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments of debt and capital lease obligations |
|
|
|
|
0 |
|
|
|
0 |
|
|
|
(9,788 |
) |
Exercise of
stock options |
|
|
|
|
879,060 |
|
|
|
0 |
|
|
|
102,368 |
|
Employee
stock purchase plan stock sales |
|
|
|
|
20,679 |
|
|
|
122,581 |
|
|
|
93,372 |
|
Net cash
provided by financing activities |
|
|
|
|
899,739 |
|
|
|
122,581 |
|
|
|
185,952 |
|
|
(Decrease)
increase in cash and cash equivalents |
|
|
|
|
(1,883,331 |
) |
|
|
(5,041,037 |
) |
|
|
10,409,524 |
|
Cash and
equivalents at beginning of year |
|
|
|
|
13,824,289 |
|
|
|
18,865,326 |
|
|
|
8,455,802 |
|
Cash and
cash equivalents at end of year |
|
|
|
$ |
11,940,958 |
|
|
$ |
13,824,289 |
|
|
$ |
18,865,326 |
|
See accompanying notes to financial statements.
31
NOTES TO FINANCIAL STATEMENTS
Note 1 Accounting Policies
The Company
BioCryst Pharmaceuticals, Inc., a Delaware
corporation (the Company), is a biotechnology company focused on designing, optimizing and developing novel small molecule drugs that block
key enzymes essential for cancer, cardiovascular and autoimmune diseases and viral infections. The Company has four research projects in different
stages of development from early discovery to an ongoing Phase I trial of the Companys most advanced drug candidate, BCX-1777. 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.
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. As of
December 31, 2003 and 2002, the Company classified all debt and equity securities as held-to-maturity. The only dispositions of securities classified
as held-to-maturity related to actual maturities or securities called prior to their maturity. At December 31, 2003 and 2002, respectively, securities
held-to-maturity consisted of $13,791,523 and $22,338,669 of U.S. Treasury and Agency securities carried at amortized cost. All of the non-current
portions of securities held-to-maturity are U.S. Agency securities that mature in 2004-2006. The estimated fair value of all held-to-maturity
securities at December 31, 2003 and 2002, respectively, was approximately $13,879,086 and $22,640,061. The Company has pledged $600,000 in securities
to cover any future draw against its line of credit (see Note 5) and has deposited a U.S. Treasury security of $390,000 in escrow for the payment of
rent and performance of other obligations specified in its lease dated July 12, 2000 (see Note 5). The amount deposited in escrow for the lease
decreases $65,000 annually throughout the term of the lease.
Furniture and Equipment
Furniture and equipment are recorded at cost.
Depreciation is computed using the straight-line method with estimated useful lives of five and seven years. Laboratory equipment, office equipment,
leased equipment and software are depreciated over a life of five years. Furniture and fixtures are depreciated over a life of seven years. Leasehold
improvements are amortized over the remaining lease period.
Patents and Licenses
Patents and licenses are recorded at cost and
amortized on a straight-line basis over their estimated useful lives or 20 years, whichever is lesser. The Company periodically reviews its patents and
licenses for impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (Statement No. 144) to determine any impairment that needs to be recognized. During the quarter ended June 30, 2002,
the Company abandoned the development of peramivir, its influenza neuraminidase inhibitor. As a result, the Company recognized an expense of $373,900
during the quarter ended June 30, 2002 related to the patents for the neuraminidase inhibitors, as they no longer have any readily determinable value
to the Company.
Income Taxes
The liability method is used in accounting for
income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (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.
32
NOTES TO FINANCIAL STATEMENTS (Continued)
Revenue Recognition
The Company recognizes revenue in accordance with
SEC Staff Accounting Bulletin No. 104, Revenue Recognition (SAB No. 104). Research and development revenue on cost-reimbursement
agreements is recognized as expenses are incurred, up to contractual limits. Research and development fees, license fees and milestone payments are
recognized as revenue when the earnings process is complete, the Company has no further continuing performance obligations and has completed its
performance under the terms of the agreement, in accordance with SAB No. 104. License fees and milestone payments received under licensing agreements
that are related to future performance are deferred and taken into income as earned over the estimated drug development period. Recognized revenues and
profit are subject to revisions as these contracts or agreements progress to completion. Revisions to revenue or profit estimates are charged to income
in the period in which the facts that give rise to the revision became known. The Company has not received any royalties from the sale of licensed
pharmaceutical products.
Net Loss Per Share
The Company computes net loss per share in
accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share. Net loss per share is based upon the weighted average
number of common shares outstanding during the period. Diluted loss per share includes common equivalent shares from unexercised stock options and
shares expected to be issued under the Companys employee stock purchase plan. For all periods presented, diluted loss per share does not include
the impact of potential common shares outstanding, as the impact of those shares is anti-dilutive.
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 No. 25). Under APB No. 25, the
Companys stock option and employee stock purchase plans qualify as noncompensatory plans. Under Financial Accounting Standards Board
Interpretation 44, Accounting for Certain Transactions involving Stock Compensation, an Interpretation of APB No. 25, outside directors are
considered employees for purposes of applying APB No. 25, if they are elected by the shareholders. Consequently, no compensation expense for employees
and directors is recognized. Stock issued to non-employees is compensatory and compensation expense is recognized under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (Statement No. 123) as amended by Statement of Financial
Accounting Standards No. 148 Accounting for Stock-Based CompensationTransition and Disclosure (Statement No. 148).
The following table illustrates the pro forma effect
on net loss and net loss per share had the Company applied the fair value recognition provisions of Statement No. 123 for the years ended December 31,
2003, 2002 and 2001. See Note 7 for the assumptions used to compute the pro forma amounts.
|
|
|
|
2003
|
|
2002
|
|
2001
|
Net loss as
reported |
|
|
|
$ |
(12,700,083 |
) |
|
$ |
(16,928,671 |
) |
|
$ |
(4,985,976 |
) |
Deduct total
stock-based employee compensation expense determined under Statement No. 123 |
|
|
|
|
(624,699 |
) |
|
|
(1,730,496 |
) |
|
|
(2,671,127 |
) |
Pro forma net
loss |
|
|
|
$ |
(13,324,782 |
) |
|
$ |
(18,659,167 |
) |
|
$ |
(7,657,103 |
) |
33
NOTES TO FINANCIAL STATEMENTS (Continued)
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
Amounts per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
share, as reported |
|
|
|
$ |
(.72 |
) |
|
$ |
(.96 |
) |
|
$ |
(.28 |
) |
Pro forma net
loss per share |
|
|
|
$ |
(.75 |
) |
|
$ |
(1.06 |
) |
|
$ |
(.44 |
) |
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results could differ from those estimates.
Note 2 Furniture and Equipment
Furniture and equipment consisted of the following
at December 31:
|
|
|
|
2003
|
|
2002
|
Furniture and
fixtures |
|
|
|
$ |
330,677 |
|
|
$ |
330,677 |
|
Office
equipment |
|
|
|
|
567,141 |
|
|
|
561,011 |
|
Software |
|
|
|
|
490,037 |
|
|
|
490,037 |
|
Laboratory
equipment |
|
|
|
|
3,368,185 |
|
|
|
3,335,835 |
|
Leased
equipment |
|
|
|
|
62,712 |
|
|
|
62,712 |
|
Leasehold
improvements |
|
|
|
|
4,646,900 |
|
|
|
4,633,651 |
|
|
|
|
|
|
9,465,652 |
|
|
|
9,413,923 |
|
Less
accumulated depreciation and amortization |
|
|
|
|
(5,957,947 |
) |
|
|
(4,856,636 |
) |
Furniture and
equipment, net |
|
|
|
$ |
3,507,705 |
|
|
$ |
4,557,287 |
|
Long-lived assets and certain identifiable
intangible assets to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the
asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets,
the assets are written down to their estimated fair values. Long-lived assets and certain identifiable intangible assets to be disposed of are reported
at the lower of carrying amount or fair value less cost to sell.
Note 3 Concentration of Credit and Market Risk
The Company invests its excess cash principally in
U.S. marketable securities from a diversified portfolio of institutions with strong credit ratings and in U.S. government and agency bills and notes
and, by policy, limits the amount of credit exposure at any one institution. These investments are generally not collateralized and mature within less
than three years. The Company has not realized any losses from such investments. At December 31, 2003, $4,375,949 was invested in the Merrill Lynch
Premier Institutional Fund, which invests primarily in commercial paper, U.S. government and agency bills and notes, corporate notes, certificates of
deposit and time deposits. The Merrill Lynch Premier Institutional Fund is not insured.
Note 4 Accrued Expenses
Accrued expenses were comprised of the following at
December 31:
|
|
|
|
2003
|
|
2002
|
Accrued
clinical trials |
|
|
|
$ |
355,957 |
|
|
$ |
300,525 |
|
Stock
purchase plan withholdings |
|
|
|
|
49,195 |
|
|
|
28,023 |
|
Accrued
other |
|
|
|
|
62,538 |
|
|
|
114,976 |
|
Accrued
expenses |
|
|
|
$ |
467,690 |
|
|
$ |
443,524 |
|
34
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 5 Lease Obligations and Other Contingencies
The Company had an unused line of credit of $500,000
at December 31, 2003.
The Company has the following lease obligations at
December 31, 2003:
|
|
|
|
Operating Leases
|
2004 |
|
|
|
$ |
594,897 |
|
2005 |
|
|
|
|
605,139 |
|
2006 |
|
|
|
|
573,031 |
|
2007 |
|
|
|
|
528,750 |
|
2008 |
|
|
|
|
544,614 |
|
Thereafter |
|
|
|
|
845,574 |
|
Total minimum
payments |
|
|
|
$ |
3,692,005 |
|
Rent expense for operating leases was $603,996,
$651,506 and $484,227 in 2003, 2002 and 2001, respectively. The commitment for operating leases is primarily related to the building lease, which
expires in June 2010. The lease, as amended effective July 1, 2001 for additional space, requires monthly rents of $33,145 beginning in July 2001 and
escalating annually to a minimum of $47,437 per month in the final year. The Company has an option to renew the lease for an additional five years at
the current market rate on the date of termination and a one-time option to terminate the lease on June 30, 2008, subject to a reasonable termination
fee.
On August 5, 2002, at the request of the
compensation committee, our Board of Directors approved a reduction in salary of 25% for both Dr. Charles E. Bugg, Chairman and Chief Executive Officer
and Dr. J. Claude Bennett, President, Chief Operating Officer and Medical Director, effective August 1, 2002. In the event of any change of control of
the Company, any cumulative salary reductions up to the date of the change of control would become due and payable. The monthly amount of the reduction
was $14,677 combined. On December 8, 2003, the Board of Directors approved the recommendation of the compensation committee to restore their salaries
to their previous amounts effective January 1, 2004, leaving the cumulative reduction of $249,509 outstanding in the event of a change in
control.
Note 6 Income Taxes
The Company has not had taxable income since
incorporation and, therefore, has not paid any income tax. Deferred tax assets of approximately $46,600,000 and $45,750,000 at December 31, 2003 and
2002, 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 $51,800,000 and $45,750,000 at December 31, 2003 and 2002, respectively. The valuation allowance will remain at the
full amount of the deferred tax asset until it is more likely than not that the related tax benefits will be realized.
At December 31, 2003, the Company had net operating
loss and research and development credit carryforwards (Carryforward Tax Benefits) of approximately $95,300,000 and $9,900,000,
respectively, which will expire at various dates beginning in 2005 and continuing through 2023. Use of the Carryforward Tax Benefits will be subject to
a substantial annual limitation due to the change of ownership provisions of the Tax Reform Act of 1986. The annual limitation is expected to result in
the expiration of a portion of Carryforward Tax Benefits before utilization, which has been considered by the Company in its computations under
Statement No. 109. Additional sales of the Companys equity securities may result in further annual limitations on the use of the Carryforward Tax
Benefits against taxable income in future years.
Note 7 Stockholders Equity
In June 2002, the Board of Directors adopted a
stockholder rights plan and, pursuant thereto, issued preferred stock purchase rights (Rights) to the holders of our common stock. The
Rights have certain anti-takeover effects. If triggered, the Rights would cause substantial dilution to a person or group of persons
who
35
NOTES TO FINANCIAL STATEMENTS (Continued)
acquires more than 15% (19.9% for William W. Featheringill, a Director who
currently owns more than 13%, but owned more than 15% at the time the Rights were put in place) of the Companys common stock on terms not
approved by the Board of Directors. The rights are not exercisable until the distribution date, as defined in the Rights Agreement by and between the
Company and American Stock Transfer & Trust Company, as Rights Agent. The Rights will expire at the close of business on June 24, 2012, unless that
final expiration date is extended or unless the rights are earlier redeemed or exchanged by the Company.
Each Right entitles the registered holder to
purchase from the Company one one-thousandth of a share of Series B Junior Participating Preferred Stock (Series B), par value $0.001 per
share, at a purchase price of $26.00, subject to adjustment. Shares of Series B purchasable upon exercise of the Rights will not be redeemable. Each
share of Series B will be entitled to a dividend of 1,000 times the dividend declared per share of common stock. In the event of liquidation, each
share of Series B will be entitled to a payment of 1,000 times the payment made per share of common stock. Each share of Series B will have 1,000
votes, voting together with the common stock. Finally, in the event of any merger, consolidation, or other transaction in which shares of common stock
are exchanged, each share of Series B will be entitled to receive 1,000 times the amount received per share of common stock.
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 issuance
under the Plan. The Plan was approved by the stockholders on December 19, 1991. The original term of the Plan was for ten years and included provisions
for issuance of both incentive stock options and non-statutory options. The exercise price of options granted under the Plan shall not be less than the
fair market value of common stock on the grant date. Options granted under the Plan 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 and expire ten years after the grant date. Options are generally granted to
all full-time employees.
The Plan was amended and restated in February 1993
to effect the following changes: (i) divide the Plan into two separate incentive programs: the Discretionary Option Grant Program and the Automatic
Option Grant Program, (ii) increase the number of shares of the Companys common stock available for issuance under the Plan by 500,000 shares and
(iii) expand the level of benefits available under the Plan. The Board amended the Plan on December 23, 1993 to increase the number of shares issuable
under the Plan by 500,000 shares and subsequently amended and restated the Plan in its entirety on February 8, 1994. On March 16, 1995, the Board
authorized another 500,000 shares for issuance under the Plan. The Plan was subsequently amended and restated effective March 3, 1997, which amendment
and restatement included an increase of 1,000,000 shares. The Plan (as so amended and restated) was further amended March 1, 1999 to increase the share
reserve by 400,000 shares. The Board amended and restated the Plan in its entirety on March 6, 2000, which increased the reserved shares by 1,200,000
and extended the term of the Plan for ten years from the date of the amendment. This restatement was approved by the Companys stockholders on May
17, 2000. The automatic option grant program grants options to purchase 10,000 shares to new non-employee Board members and an additional 10,000 shares
annually over such period of continued service. The vesting and exercise provisions of options granted under the Plan are subject to acceleration in
the event of certain stockholder-approved transactions, or upon the occurrence of a Change in Control as defined by the Plan.
36
NOTES TO FINANCIAL STATEMENTS (Continued)
The following is an analysis of stock options for
the three years ended December 31, 2003:
|
|
|
|
Options Available
|
|
Options Outstanding
|
|
Weighted Average Exercise Price
|
Balance
December 31, 2000 |
|
|
|
|
1,045,314 |
|
|
|
2,620,992 |
|
|
$ |
10.30 |
|
Options
granted |
|
|
|
|
(522,600 |
) |
|
|
522,600 |
|
|
|
4.55 |
|
Options
exercised |
|
|
|
|
|
|
|
|
(61,327 |
) |
|
|
2.82 |
|
Options
canceled |
|
|
|
|
60,992 |
|
|
|
(60,992 |
) |
|
|
11.55 |
|
Balance
December 31, 2001 |
|
|
|
|
583,706 |
|
|
|
3,021,273 |
|
|
|
9.43 |
|
Options
granted |
|
|
|
|
(443,735 |
) |
|
|
443,735 |
|
|
|
1.44 |
|
Options
canceled |
|
|
|
|
466,523 |
|
|
|
(466,523 |
) |
|
|
8.14 |
|
Balance
December 31, 2002 |
|
|
|
|
606,494 |
|
|
|
2,998,485 |
|
|
|
8.45 |
|
Options
granted |
|
|
|
|
(546,000 |
) |
|
|
546,000 |
|
|
|
1.27 |
|
Options
exercised |
|
|
|
|
|
|
|
|
(186,228 |
) |
|
|
4.72 |
|
Options
canceled |
|
|
|
|
440,325 |
|
|
|
(440,325 |
) |
|
|
8.83 |
|
Balance
December 31, 2003 |
|
|
|
|
500,819 |
|
|
|
2,917,932 |
|
|
|
7.29 |
|
There were 1,979,152, 2,214,954 and 1,986,560
options exercisable at December 31, 2003, 2002 and 2001, respectively. The weighted-average exercise price for options exercisable was $9.71, $9.67 and
$9.69 at December 31, 2003, 2002 and 2001, respectively.
The following table summarizes, at December 31,
2003, 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
|
$ 0 to
$ 3 |
|
|
|
|
809,166 |
|
|
|
9.0 |
|
|
$ |
1.10 |
|
|
|
83,536 |
|
|
$ |
1.14 |
|
3 to
6 |
|
|
|
|
468,390 |
|
|
|
5.1 |
|
|
|
4.08 |
|
|
|
357,839 |
|
|
|
4.22 |
|
6 to
9 |
|
|
|
|
1,026,968 |
|
|
|
4.9 |
|
|
|
7.39 |
|
|
|
927,710 |
|
|
|
7.35 |
|
9 to
12 |
|
|
|
|
12,189 |
|
|
|
3.8 |
|
|
|
9.67 |
|
|
|
11,243 |
|
|
|
9.64 |
|
12 to
15 |
|
|
|
|
280,685 |
|
|
|
3.3 |
|
|
|
14.14 |
|
|
|
280,685 |
|
|
|
14.14 |
|
15 to
18 |
|
|
|
|
93,894 |
|
|
|
3.0 |
|
|
|
16.38 |
|
|
|
93,894 |
|
|
|
16.38 |
|
21 to
24 |
|
|
|
|
207,020 |
|
|
|
6.0 |
|
|
|
22.84 |
|
|
|
206,602 |
|
|
|
22.83 |
|
24 to
30 |
|
|
|
|
19,620 |
|
|
|
6.4 |
|
|
|
26.83 |
|
|
|
17,643 |
|
|
|
26.82 |
|
0 to
30 |
|
|
|
|
2,917,932 |
|
|
|
5.9 |
|
|
|
7.29 |
|
|
|
1,979,152 |
|
|
|
9.71 |
|
As of December 31, 2003, there were an aggregate of
3,601,747 shares reserved for future issuance under both the Plan and the Employee Stock Purchase Plan (ESPP) discussed in Note
8.
The Company follows APB No. 25 in accounting for
both the Plan and the ESPP and, accordingly, does not recognize any compensation cost related to options granted to employees or non-employee
Directors. The Company has adopted the disclosure requirements of Statement No. 123, as amended by Statement No. 148. 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 forma results when the
full four-year vesting (the period in which the compensation cost is recognized) is included in the disclosure in 2002. The fair value of each option
is estimated on the grant date using the Black-Scholes option-pricing method with the following weighted-average assumptions used for grants in 2003,
2002 and 2001, respectively: no dividends; expected volatility of 104.4, 104.4 and 92.5 percent; risk-free interest rate of 3.0, 3.6 and 4.6 percent;
and expected lives of five years. The weighted-average grant-date fair values of options granted during 2003 under the Plan and ESPP were $2.12 and
$0.39, respectively. The compensation cost recorded for options issued to non-employee consultants was $119,676, $120,190 and $123,289 for the years
ended December 31, 2003, 2002 and 2001, respectively.
37
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 8 Employee Benefit Plans
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 matching contributions of $158,425, $217,097 and $216,897 in 2003, 2002 and 2001, respectively.
On May 29, 1995, the stockholders approved an
employee stock purchase plan (ESPP) effective February 1, 1995. On May 15, 2002, the stockholders approved an amendment to the ESPP to
reserve an additional 200,000 shares and eliminate the January 2005 termination date. The Company has reserved a total of 400,000 shares of common
stock under the ESPP, of which 182,996 shares remain available for purchase at December 31, 2003. 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 27,964, 50,127 and 24,122 shares of common stock purchased under the ESPP in
2003, 2002 and 2001, respectively, at a weighted average price per share of $0.74, $2.45 and $3.87, respectively.
Note 9 Collaborative and Other Research and Development
Contracts
The Company granted Novartis Corporation, formerly
Ciba-Geigy Corporation (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 royalties 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 and has been recorded as deferred revenue. This
agreement has been inactive for several years.
On November 7, 1991, the Company entered into a
joint research and license agreement with The University of Alabama at Birmingham (UAB). UAB performed specific research on Complement
Factors for the Company for a period of approximately three years in return for research and license fees. The agreement was replaced by a new
agreement on July 18, 1995 granting the Company a worldwide license in exchange for funding certain UAB research and sharing in any royalties or
sublicense fees arising from the joint research. 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 funded certain UAB research and UAB
shares in any royalties or sublicense fees arising from the joint research. The Company completed its research funding required by the agreements for
both projects in 1998, but is still required to pay minimal annual license fees and share any future royalties with UAB.
On December 23, 2003, the Company transferred to
3-Dimensional Pharmaceuticals, Inc. (3DP), a wholly owned subsidiary of Johnson & Johnson, certain rights related to complement system inhibitors
discovered during our collaborative research agreement with 3DP, which was terminated by BioCryst on October 18, 2003. BioCryst received an initial
payment from 3DP, and will receive royalties on any future sales of complement inhibitors covered under the assignment.
In April 1999, the Company entered into an agreement
with Sunol Molecular Corporation. This agreement requires Sunol to conduct research and supply the Company with protein targets for drug design to
expedite the discovery of new drug candidates designed to inhibit tissue factor/factor VIIa for the Companys cardiovascular
program.
In June 2000, the Company licensed a series of
potent inhibitors of purine nucleoside phosphorylase, or PNP, from Albert Einstein College of Medicine of Yeshiva University and Industrial Research,
Ltd, New Zealand. The lead drug candidate from this collaboration is BCX-1777. The Company has the rights to develop and ultimately distribute this, or
any other, drug candidate that might arise from research on these inhibitors.
38
NOTES TO FINANCIAL STATEMENTS (Continued)
The Company has agreed to pay certain milestone payments for future development of
these inhibitors, pay certain royalties on sales of any resulting product, and to share in future payments received from other third-party
collaborators, if any.
In June 2000, the Company licensed intellectual
property from Emory University related to the hepatitis C polymerase target associated with hepatitis C viral infections. Under the terms of the
agreement, the research investigators from Emory provide the Company with materials and technical insight into the target. The Company has agreed to
pay Emory royalties on sales of any resulting product and to share in future payments received from other third party collaborators, if
any.
Note 10 Subsequent Events
On February 4, 2004, Registrant entered into a
Placement Agency Agreement with Leerink Swann & Company in connection with a registered direct offering of 3,571,667 shares of its common stock at
an offering price of $6.00 per share. The common stock was issued pursuant to a prospectus supplement filed with the Securities and Exchange Commission
pursuant to Rule 424(b)(2) of the Securities Act of 1933, as amended, the Securities Act, in connection with a shelf takedown from the Companys
registration statement on Form S-3 (333-111226), filed on December 16, 2003 and which became effective on January 5, 2004.
On February 17, 2004, Registrant entered into a
Stock Purchase Agreement with Caduceus Private Investments II, LP, Caduceus Private Investments II (QP), LP and UBS Juniper Crossover Fund, L.L.C. As
part of this agreement, Registrant has granted these investors the right to appoint a member to its board of directors effective as of the closing of
the offering. On February 18, 2004, the Company announced it had completed a $21.4 million registered direct offering of 3,571,667 shares of its common
stock to a group of institutional investors.
Note 11 Recent Accounting Pronouncements
In December 2003, the FASB revised SFAS No. 132,
Employers Disclosures about Pensions and Other Postretirement Benefitsan Amendment of FASB Statements No. 87, 88, and 106. This
statement revises employers disclosures about pension plans and other postretirement benefit plans to provide more information about pension plan
assets, obligations, benefit payments, contributions and net benefit cost. This statement retains the disclosures required by the originally issued
Statement 132 and requires further disclosures, including information describing the types of plan assets, investment strategy, measurement date(s),
plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. SFAS No. 132 (revised 2003) is effective
for financial statements with fiscal years ending after December 15, 2003, except for disclosure of information about foreign plans and disclosure of
estimated future benefit payments, which are effective for fiscal years ending after June 15, 2004. The adoption of this statement had no impact on the
Companys financial statement disclosures.
On May 15, 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which establishes standards for
classifying and measuring as liabilities certain freestanding financial instruments that embody obligations of the issuer and have characteristics of
both liabilities and equity. The statement defines an obligation as a conditional or unconditional duty or responsibility on the part of the
issuer to transfer assets or to issue its equity shares. SFAS No. 150 is effective for all financial instruments created or modified after May
31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement did not
have a significant impact on the Companys results of operations or financial position.
On April 30, 2003, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, in
order to provide for more consistent reporting of contracts as either freestanding derivative instruments subject to SFAS No. 133 in its entirety, or
as hybrid instruments with debt host contracts and embedded derivative features. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of this statement did not have a significant impact on the
Companys results of operations or financial position.
39
NOTES TO FINANCIAL STATEMENTS (Continued)
In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities, (revised December 2003), an interpretation of Accounting Research Bulletin 51,
Consolidation of Financial Statements, which addresses consolidation of variable interest entities (VIE) by business
enterprises. This statement is required in financial statements of public entities that have interests in VIEs or potential VIEs commonly referred to
as special-purpose entities for periods ending after December 15, 2003. For all other types of entities, application is required in financial
statements for periods ending after March 15, 2004. The Company believes that the adoption of FIN No. 46 has no impact on the results of operations or
financial position.
In December 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation Transition and
Disclosure (Statement No. 148). This statement addresses transition methodologies for companies who intend to adopt the fair valuation
methodology of Statement No. 123 for their employee stock-based compensation, as well as additional annual and quarterly disclosure requirements for
stock-based compensation. The new disclosure rules are effective for interim or annual periods ending after December 15, 2002 and are provided in Notes
1 and 7. The Company does not expect there to be a material impact on its financial position, results of operations or cash flows as a result of
adopting this accounting standard.
In November 2002, the FASB issued Interpretation No.
45, Guarantor Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No.
45). This interpretation modifies the accounting treatment for certain guarantees and is effective for all guarantees issued or modified after
December 31, 2002. The new disclosure rules are effective for interim or annual periods ending after December 15, 2002. The Company did not experience
a material impact on its financial position, results of operations or cash flows as a result of adopting this accounting standard.
In June 2002, the FASB issued Statement of Financial
Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which is effective for
exit or disposal activities that are initiated after December 31, 2002. The Company adopted this statement on July 1, 2002. On July 10, 2002, the
Company streamlined its operations, reducing its workforce from 75 employees to 45 employees in order to conserve its resources and provide a longer
timeframe in which to advance its other programs. As a result of early implementation of SFAS 146, the Company recognized all expenses related to this
reduction in staff as compensation expense during the third quarter of 2002. The total compensation paid in 2002, plus benefits, related to this staff
reduction was approximately $325,000.
Note 12 Quarterly Financial Information (Unaudited) (In thousands, except
per share)
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
2003
Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
$ |
308 |
|
|
$ |
266 |
|
|
$ |
222 |
|
|
$ |
838 |
|
Net
loss |
|
|
|
|
(2,788 |
) |
|
|
(3,252 |
) |
|
|
(3,409 |
) |
|
|
(3,250 |
) |
Net loss per
share |
|
|
|
|
(.16 |
) |
|
|
(.18 |
) |
|
|
(.19 |
) |
|
|
(.18 |
) |
2002
Quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
$ |
539 |
|
|
$ |
461 |
|
|
$ |
412 |
|
|
$ |
363 |
|
Net
loss |
|
|
|
|
(5,616 |
) |
|
|
(5,161 |
) |
|
|
(3,415 |
) |
|
|
(2,736 |
) |
Net loss per
share |
|
|
|
|
(.32 |
) |
|
|
(.29 |
) |
|
|
(.19 |
) |
|
|
(.15 |
) |
Net loss and net loss per share for the years 2003
and 2002 differed from the total of the individual quarters due to rounding.
40
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors
BioCryst Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of
BioCryst Pharmaceuticals, Inc. as of December 31, 2003 and 2002, and the related statements of operations, stockholders equity and cash flows for
each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial position of BioCryst Pharmaceuticals, Inc. at December 31, 2003 and 2002, and the results
of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG
Birmingham, Alabama
January 23, 2004, except for Note 10, as to which
the date is
February 18, 2004
41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
We maintain a set of disclosure controls and
procedures that are designed to ensure that information relating to BioCryst Pharmaceuticals, Inc. required to be disclosed in our periodic filings
under the Securities Exchange Act is recorded, processed, summarized and reported in a timely manner under the Securities Exchange Act of 1934. We
carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of December 31, 2003, the Companys disclosure controls and procedures are effective to
ensure that information required to be disclosed by BioCryst in the reports filed or submitted by it under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and include controls and
procedures designed to ensure that information required to be disclosed by BioCryst in such reports is accumulated and communicated to the
Companys management, including the Chairman and Chief Executive Officer and Chief Financial Officer of BioCryst, as appropriate to allow timely
decisions regarding required disclosure.
There have been no changes in our internal control
over financial reporting that occurred during the quarter ended December 31, 2003 that have materially affected, or are reasonably likely to materially
affect, BioCrysts internal control over financial reporting.
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. |
|
|
|
|
62 |
|
|
Chairman, Chief Executive Officer and Director |
J. Claude
Bennett, M.D. |
|
|
|
|
70 |
|
|
President, Chief Operating Officer, Medical Director and Director |
Michael A.
Darwin |
|
|
|
|
42 |
|
|
Chief Financial Officer, Secretary and Treasurer |
William W.
Featheringill (1)(2) |
|
|
|
|
61 |
|
|
Director |
Edwin A. Gee,
Ph.D. (1)(2) |
|
|
|
|
84 |
|
|
Director |
Carl L. Gordon,
CFA, Ph.D. (4) |
|
|
|
|
39 |
|
|
Director |
Zola P.
Horovitz, Ph.D. |
|
|
|
|
69 |
|
|
Director |
John A.
Montgomery, Ph.D. (3) |
|
|
|
|
79 |
|
|
Director |
Joseph H.
Sherrill, Jr. |
|
|
|
|
63 |
|
|
Director |
William M.
Spencer, III (1)(2) |
|
|
|
|
83 |
|
|
Director |
Randolph C.
Steer, M.D., Ph.D. |
|
|
|
|
54 |
|
|
Director |
(1) |
|
Member of the Compensation Committee (Compensation
Committee). |
(2) |
|
Member of the
Audit Committee (Audit Committee). |
(3) |
|
John A.
Montgomery held the positions of Senior Vice President, Secretary and Chief Scientific Officer until his retirement effective January 31, 2002. He will
continue to serve as a Director until the 2004 Annual Meeting. |
(4) |
|
Carl L. Gordon was elected to the Board on March 8, 2004,
effective as of February 18, 2004 in connection with the Stock Purchase Agreement with OrbiMed Advisors, LLC. |
Charles E. Bugg, Ph.D., was named Chairman of
the Board, Chief Executive Officer and Director in November 1993 and President in January 1995. Dr. Bugg relinquished the position of President in
December 1996 when Dr. Bennett joined the Company in that position. Prior to joining the Company, Dr. Bugg had served
42
as the Director of the Center for Macromolecular Crystallography, Associate
Director of the Comprehensive Cancer Center and Professor of Biochemistry at The University of Alabama at Birmingham (UAB) since 1975. He
was a Founder of the Company and served as the Companys first Chief Executive Officer from 1987-1988 while on a sabbatical from UAB. Dr. Bugg
also served as Chairman of the Companys 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, a position he has held since January 1994.
J. Claude Bennett, M.D., was named President
and Chief Operating Officer in December 1996 and elected a Director in January 1997. Since 2001, Dr. Bennett has also served as the Medical Director.
Prior to joining the Company, Dr. Bennett was President of The University of Alabama at Birmingham (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 Companys Scientific
Advisory Board from 1989-96. He is a former co-editor of the Cecil Textbook of Medicine and former President of the Association of American
Physicians. He is the immediate past chair of the Scientific Advisory Committee of the Massachusetts General Hospital, a member of the Scientific
Advisory Boards of Zycogen, LLC and Aptamera, Inc., and continues to hold the position of Distinguished University Professor Emeritus at UAB, a
position he has held since January 1997.
Michael A. Darwin joined BioCryst in June
2000 as Controller. Effective November 1, 2002, Mr. Darwin was appointed Chief Financial Officer, Secretary and Treasurer. Prior to joining BioCryst,
from June 1990 to June 2000, Mr. Darwin was Chief Financial Officer of a privately held company in the food services industry. He began his career at
Ernst & Young and spent six years in public accounting practice.
William W. Featheringill was elected a
Director in May 1995. Mr. Featheringill is Chairman of the Board, 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 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 President 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.
Edwin A. Gee, Ph.D., was elected a Director
in August 1993. Dr. Gee, who retired in 1985 as Chairman of the Board and Chief Executive Officer of International Paper Company, has been active as an
executive in biotechnology, pharmaceutical and specialty chemical companies since 1970. He is Chairman Emeritus and a director of OSI Pharmaceuticals,
Inc., one of the leading biotechnology companies for the diagnosis and treatment of cancer.
Carl L. Gordon, CFA, Ph.D., was elected a
Director in March 2004. Dr. Gordon is a founding General Partner of OrbiMed Advisors LLC, an asset management firm focused on the global healthcare
industry, since 1998, and was previously a senior biotechnology analyst at Mehta and Isaly, the predecessor firm to OrbiMed, from 1995-1997. Dr. Gordon
received a Bachelors degree from Harvard College, a Ph.D. in molecular biology from the Massachusetts Institute of Technology, and was a Fellow
at the Rockefeller University.
Zola P. Horovitz, Ph.D., was elected a
Director in August 1994. Dr. Horovitz was Vice President of Business Development and Planning at Bristol-Myers Squibb from 1991 until his retirement in
April 1994 and previously was Vice President of Licensing at the same company from 1990 to 1991. Prior to that he spent over 30 years with The Squibb
Institute for Medical Research, most recently as Vice President Research, Planning, & Scientific Liaison. He has been an independent consultant in
pharmaceutical sciences and business development since his retirement from Bristol-Myers Squibb in April 1994. He serves on the Boards of Directors of
Avigen, Inc., Genaera Pharmaceuticals, Inc., Palatin Technologies, Inc., DOV Pharmaceuticals, GenVec, Inc., and NitroMed, Inc.
John A. Montgomery, Ph.D., was a Founder of
BioCryst and has been a Director since November 1989. He was the Secretary and Chief Scientific Officer since joining the Company in February 1990. He
was Executive Vice President from February 1990 until May 1997, at which time he was named Senior Vice President. Dr. Montgomery retired as an officer
of the Company effective January 31, 2002, but remains on
43
the Board of Directors. 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. He continues to hold the
position of Distinguished Scientist at SRI, a position he has held since February 1990.
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 his retirement in October 1994.
Prior management positions with RJR include Senior Vice President of Marketing for R.J. Reynolds International, President and Chief Executive Officer
of R.J. Reynolds Tabacos de Brazil, and President and General Manager of R.J. Reynolds Puerto Rico.
William M. Spencer, III, has been a Director
of the Company since its inception. Mr. Spencer, who is retired, is also a private investor in Birmingham, Alabama. Mr. Spencer is a Founder of the
Company, and served as Chairman of the Board of the Company 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
public and private corporations.
Randolph C. Steer, M.D., Ph.D., was elected a
Director in February 1993. Dr. Steer has been an independent pharmaceutical and biotechnology consultant since 1989, having a broad background in
business development, medical marketing and regulatory affairs. He was formerly Chairman, President and CEO of Advanced Therapeutics Communications
International, a leading drug regulatory group, and served as associate director of medical affairs at Marion Laboratories, and medical director at
Ciba Consumer Pharmaceuticals. Dr. Steer serves on the Board of Directors of Techne Corporation and several privately held companies.
In accordance with the terms of the Companys
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. Buggs, Dr. Montgomerys, Dr. Gordons and Dr. Gees terms expire at the 2004 annual meeting, at which time
Dr. Montgomery and Dr. Gee will not be eligible for re-election due to age limits established by the Board of Directors. Mr. Featheringills, Mr.
Spencers and Mr. Sherrills terms expire at the 2005 annual meeting, and Dr. Bennetts, Dr. Horovitzs, and Dr. Steers terms
expire at the 2006 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.
However, the number of directors may be decreased at any time either by the stockholders or by a majority of the directors then in office, but only to
eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more directors. No person shall be
elected as a director who has reached his or her 70th birthday. Persons who are serving as directors on the date they reach their
70th birthday may complete the current term of office of director for which they have been elected but shall not be elected to serve another
term as director. The provisions of the Companys Certificate of Incorporation governing the staggered Director election procedure can be amended
only by a shareholders 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 Board has by resolution established the number of directors of the Company at ten (10) commencing March 8, 2004.
Currently, seven of our directors (Messrs. Featheringill, Gee, Gordon, Horovitz, Sherrill, Spencer and Steer) are independent as defined by the current
Nasdaq rules.
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 Companys auditors and reviews the audit plan,
financial statements and audit results. The Board has adopted an Amended and Restated Audit Committee Charter that meets all the applicable rules of
the Nasdaq National Market and the Securities and Exchange Commission. The Audit Committee Charter can be found on the Companys website at
www.biocryst.com. The Audit Committee members are independent directors as defined by the Nasdaq National Market listing standards in
effect as of the date hereof and meet Nasdaqs financial literacy requirements for audit committee members. The Board of Directors has determined
that Mr. Featheringill qualifies as the audit committee financial expert. Upon the expiration of Dr. Gees term at the 2004 Annual
Meeting, the Board has made a determination to recruit another outside Board member who would also meet
44
the requirements of a financial expert. After this additional Board
member has been recruited and adequately understands the Companys financial records, Mr. Featheringill has determined that he will step down from
the Audit Committee.
The Company also has a Compensation Committee
consisting of Messrs. Featheringill, Gee 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 Companys Stock Option Plan. The Board has adopted a Compensation Committee
Charter that meets all the applicable rules of the Nasdaq National Market and the Securities and Exchange Commission. The Charter can be found on the
Companys website at www.biocryst.com. The Compensation Committee members are independent directors as defined by the Nasdaq National
listing standards in effect as of the date hereof.
The Company has a Nominating Committee comprised of
all independent directors with terms not expiring in the current year. The current members of the committee are Messrs. Featheringill, Horovitz,
Sherrill, Spencer, and Steer. The Nominating Committee nominates persons for election or re-election as directors. The Board has adopted a Nominating
Committee Charter that meets all the applicable rules of the Nasdaq National Market and the Securities and Exchange Commission. The Nominating
Committee has established procedures/qualifications for selecting nominees and will consider nominees recommended in writing, including biographical
information and personal references, by stockholders. All submissions by shareholders should be sent directly to the Chairman of the Board, Dr. Bugg at
the corporate address.
The Company has adopted a Code of Business Conduct
(the Code) applicable to all employees, including executive officers, and all Board members. The Code is publicly available on the
Companys website at www.biocryst.com. Any waivers of the Code will be disclosed through an Form 8-K filing with the Securities and Exchange
Commission.
Section 16(a) Beneficial Ownership Reporting Compliance
Incorporated by reference from our definitive Proxy
Statement to be filed in connection with the solicitation of proxies for our 2004 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from our definitive Proxy
Statement to be filed in connection with the solicitation of proxies for our 2004 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND
MANAGEMENT
Incorporated by reference from our definitive Proxy
Statement to be filed in connection with the solicitation of proxies for our 2004 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Incorporated by reference from our definitive Proxy
Statement to be filed in connection with the solicitation of proxies for our 2004 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference from our definitive Proxy
Statement to be filed in connection with the solicitation of proxies for our 2004 Annual Meeting of Stockholders.
45
PART IV
ITEM 15. 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, 2003 and 2002 |
|
|
|
28 |
Statements of
Operations for the years ended December 31, 2003, 2002 and 2001 |
|
|
|
29 |
Statements of
Stockholders Equity for the years ended December 31, 2003, 2002 and 2001 |
|
|
|
30 |
Statements of
Cash Flows for the years ended December 31, 2003, 2002 and 2001 |
|
|
|
31 |
Notes to
Financial Statements |
|
|
|
32 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
On October 20, 2003, we furnished a Current Report
on Form 8-K to the Securities and Exchange Commission reporting the Companys financial results for the quarter ended September 30,
2003.
On December 16, 2003, we filed a Current Report on
Form 8-K with the Securities and Exchange Commission providing an updated description of the Companys business, risk factors and
managements discussion and analysis of financial condition and results of operations.
(c) Exhibits
Number
|
|
|
Description
|
3.1 |
|
|
|
Composite Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 to the Companys 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 Companys Form 10-Q for the second quarter ending June 30, 1995
dated August 11, 1995. |
4.1 |
|
|
|
Rights Agreement, dated as of June 17, 2002, by and between the Company and American Stock Transfer & Trust Company, as Rights Agent,
which includes the Certificate of Designation for the Series B Junior Participating Preferred Stock as Exhibit A and the form of Rights Certificate as
Exhibit B. Incorporated by reference to Exhibit 4.1 to the Companys Form 8-A dated June 17, 2002. |
10.1 |
|
|
|
1991 Stock Option Plan, as amended and restated as of March 6, 2000. Incorporated by reference to Exhibit 99.1 to the Companys Form S-8
Registration Statement dated June 16, 2000 (Registration No. 333-39484). |
10.2 |
# |
|
|
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 Companys Form S-1 Registration Statement (Registration No. 33-73868). |
10.3 |
|
|
|
Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.1 to the Companys Form S-8 Registration Statement dated June 14,
2002 (Registration No. 333-90582). |
10.4 |
# |
|
|
Stock Purchase Agreement dated as of September 14, 1998 between Registrant and Johnson & Johnson Development Corporation. Incorporated by
reference to Exhibit 10.24 to the Companys Form 10-Q for the third quarter ending September 30, 1998 dated November 10, 1998. |
46
Number
|
|
|
Description
|
10.5 |
# |
|
|
Stockholders Agreement dated as of September 14, 1998 between Registrant and Johnson & Johnson Development Corporation. Incorporated
by reference to Exhibit 10.25 to the Companys Form 10-Q for the third quarter ending September 30, 1998 dated November 10,
1998. |
10.6 |
|
|
|
Warehouse Lease dated July 12, 2000 between RBP, LLC an Alabama Limited Liability Company and the Registrant for office/warehouse space.
Incorporated by reference to Exhibit 10.8 to the Companys Form 10-Q for the second quarter ending June 30, 2000 dated August 8,
2000. |
10.7 |
|
|
|
Termination Agreement dated as of September 21, 2001 between Registrant and The R.W. Johnson Pharmaceutical Research Institute and
Ortho-McNeil Pharmaceutical, Inc. Incorporated by reference to Exhibit 10.9 to the Companys Form 10-Q for the second quarter ending June 30, 2002
dated August 7, 2002. |
10.8 |
|
|
|
Stock Purchase Agreement, dated as of February 17, 2004, by and among BioCryst Pharmaceuticals, Inc., Caduceus Private Investments II, LP,
Caduceus Private Investments II (QP), LP and UBS Juniper Crossover Fund, L.L.C. Incorporated by reference to Exhibit 10.1 to the Companys Form
8-K dated February 17, 2004 |
23 |
|
|
|
Consent of Ernst & Young, Independent Auditors. |
31.1 |
|
|
|
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 |
|
|
|
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 |
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 |
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
# Confidential treatment
granted.
47
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 19th day of March, 2004.
|
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 on behalf of the registrant and in the capacities indicated on March 19, 2004:
Signature
|
|
|
|
Title(s)
|
/s/ Charles E.
Bugg (Charles E. Bugg, Ph.D.) |
|
|
|
Chairman, Chief Executive Officer and Director |
|
|
|
|
|
/s/ J. Claude
Bennett (J. Claude Bennett, M.D.) |
|
|
|
President, Chief Operating Officer, Medical Director and Director |
|
|
|
|
|
/s/ Michael A.
Darwin (Michael A. Darwin) |
|
|
|
Chief
Financial Officer (Principal Financial and Accounting Officer), Secretary and Treasurer |
|
|
|
|
|
/s/ William W.
Featheringill (William W. Featheringill) |
|
|
|
Director |
|
|
|
|
|
/s/ Edwin A.
Gee (Edwin A. Gee, Ph.D.) |
|
|
|
Director |
|
|
|
|
|
/s/ Carl L.
Gordon (Carl L. Gordon, CFA, Ph.D.) |
|
|
|
Director |
|
|
|
|
|
/s/ Zola P.
Horovitz (Zola P. Horovitz, Ph.D.) |
|
|
|
Director |
|
|
|
|
|
/s/ John A.
Montgomery (John A. Montgomery, Ph.D.) |
|
|
|
Director |
|
|
|
|
|
/s/ William M.
Spencer (William M. Spencer, III) |
|
|
|
Director |
|
|
|
|
|
/s/ Joseph H.
Sherrill, Jr. (Joseph H. Sherrill, Jr.) |
|
|
|
Director |
|
|
|
|
|
/s/Randolph C.
Steer (Randolph C. Steer, M.D., Ph.D.) |
|
|
|
Director |
48
INDEX TO EXHIBITS
Number
|
|
|
Description
|
|
Sequentially Numbered Page
|
3.1 |
|
|
|
Composite Certificate of Incorporation of Registrant. Incorporated by reference to Exhibit 3.1 to the Companys 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 Companys Form 10-Q for the second quarter ending June 30, 1995
dated August 11, 1995. |
|
|
|
|
4.1 |
|
|
|
Rights Agreement, dated as of June 17, 2002, by and between the Company and American Stock Transfer & Trust Company, as Rights Agent,
which includes the Certificate of Designation for the Series B Junior Participating Preferred Stock as Exhibit A and the form of Rights Certificate as
Exhibit B. Incorporated by reference to Exhibit 4.1 to the Companys Form 8-A dated June 17, 2002. |
|
|
|
|
10.1 |
|
|
|
1991
Stock Option Plan, as amended and restated as of March 6, 2000. Incorporated by reference to Exhibit 99.1 to the Companys Form S-8 Registration
Statement dated June 16, 2000 (Registration No. 333-39484). |
|
|
|
|
10.2 |
# |
|
|
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 Companys Form S-1 Registration Statement (Registration No. 33-73868). |
|
|
|
|
10.3 |
|
|
|
Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.1 to the Companys Form S-8 Registration Statement dated June 14,
2002 (Registration No. 333-90582). |
|
|
|
|
10.4 |
# |
|
|
Stock
Purchase Agreement dated as of September 14, 1998 between Registrant and Johnson & Johnson Development Corporation. Incorporated by reference to
Exhibit 10.24 to the Companys Form 10-Q for the third quarter ending September 30, 1998 dated November 10, 1998. |
|
|
|
|
10.5 |
# |
|
|
Stockholders Agreement dated as of September 14, 1998 between Registrant and Johnson & Johnson Development Corporation. Incorporated
by reference to Exhibit 10.25 to the Companys Form 10-Q for the third quarter ending September 30, 1998 dated November 10,
1998. |
|
|
|
|
10.6 |
|
|
|
Warehouse Lease dated July 12, 2000 between RBP, LLC an Alabama Limited Liability Company and the Registrant for office/warehouse space.
Incorporated by reference to Exhibit 10.8 to the Companys Form 10-Q for the second quarter ending June 30, 2000 dated August 8,
2000. |
|
|
|
|
10.7 |
|
|
|
Termination Agreement dated as of September 21, 2001 between Registrant and The R.W. Johnson Pharmaceutical Research Institute and
Ortho-McNeil Pharmaceutical, Inc. Incorporated by reference to Exhibit 10.9 to the Companys Form 10-Q for the second quarter ending June 30, 2002
dated August 7, 2002. |
|
|
|
|
10.8 |
|
|
|
Stock
Purchase Agreement, dated as of February 17, 2004, by and among BioCryst Pharmaceuticals, Inc., Caduceus Private Investments II, LP, Caduceus Private
Investments II (QP), LP and UBS Juniper Crossover Fund, L.L.C. Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K dated February
17, 2004 |
|
|
|
|
23 |
|
|
|
Consent of Ernst & Young, Independent Auditors. |
|
|
51 |
|
31.1 |
|
|
|
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
52 |
|
49
Number
|
|
|
|
Description
|
|
Sequentially Numbered Page
|
31.2 |
|
|
|
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
53 |
|
32.1 |
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
54
|
32.2 |
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
55
|
# Confidential treatment granted.
50
Exhibit 23
Consent of Ernst & Young, Independent Auditors
We consent to the incorporation by reference in the
Registration Statement (Form S-8 Nos. 333-39484, 333-30751 and 33-95062) pertaining to the BioCryst Pharmaceuticals, Inc. 1991 Stock Option Plan, as
amended and restated as of March 6, 2000, the Registration Statement (Form S-8 Nos. 333-90582 and 33-95062) pertaining to the BioCryst Pharmaceuticals,
Inc. Employee Stock Purchase Plan and the Registration Statement (Form S-3 No. 333-111226) pertaining to the shelf registration of up to $60,000,000 of
BioCryst Pharmaceuticals, Inc. common stock, of our report dated January 23, 2004, except for Note 10 as to which the date is February 18, 2004, with
respect to the financial statements of BioCryst Pharmaceuticals, Inc. included in the Annual Report (Form 10-K) for the year ended December 31,
2003.
/s/ ERNST & YOUNG
Birmingham, Alabama
March 15, 2004
51
Exhibit 31.1
CERTIFICATIONS
I, Charles E. Bugg, certify that:
1. |
|
I have reviewed this annual report on Form 10-K of BioCryst
Pharmaceuticals, Inc.; |
2. |
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report; |
4. |
|
The registrants other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have: |
a) |
|
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
b) |
|
evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
c) |
|
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent functions): |
a) |
|
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
b) |
|
any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control over financial reporting. |
Date: March 19, 2004
/s/ CHARLES E. BUGG
Charles E. Bugg
Chairman and Chief Executive Officer
52
Exhibit 31.2
CERTIFICATIONS
I, Michael A. Darwin, certify that:
1. |
|
I have reviewed this annual report on Form 10-K of BioCryst
Pharmaceuticals, Inc.; |
2. |
|
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report; |
4. |
|
The registrants other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have: |
a) |
|
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
b) |
|
evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
c) |
|
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent functions): |
a) |
|
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
(b) |
|
any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control over financial reporting. |
Date: March 19, 2004
/s/ MICHAEL A. DARWIN
Michael A. Darwin
Chief Financial Officer and
Chief Accounting Officer
53
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of BioCryst Pharmaceuticals, Inc. (the
Company) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, Charles E. Bugg, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) |
|
The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
|
The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the Company. |
/s/ Charles E. Bugg
Charles E. Bugg
Chief Executive Officer
March 19, 2004
54
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Annual Report of BioCryst
Pharmaceuticals, Inc. (the Company) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Michael A. Darwin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
§ 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) |
|
The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
|
The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the Company. |
/s/ Michael A. Darwin
Michael A. Darwin
Chief Financial Officer
March 19, 2004
55