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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________________ to ______________________

 

Commission File Number 000-23186

 

BIOCRYST PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

62-1413174

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

  

4505 Emperor Blvd., Suite 200

 

Durham, North Carolina

27703

(Address of principal executive offices)

(Zip Code)

 

+1-919-859-1302

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

BCRX

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         Yes          No ☒

 

The number of shares of Common Stock, par value $0.01, of the Registrant outstanding as of October 29, 2021 was 179,936,171.

 

 

 

BIOCRYST PHARMACEUTICALS, INC.

 

INDEX

 

 

Page No.

   

Cautionary Note Regarding Forward-Looking Statements

i

Risk Factor Summary

ii

Part I. Financial Information

1

Item 1. Financial Statements:

1

Consolidated Balance Sheets - September 30, 2021 and December 31, 2020

1

Consolidated Statements of Comprehensive Loss - Three and Nine Months Ended September 30, 2021 and 2020

2

Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2021 and 2020

3

Consolidated Statements of Stockholders’ Equity (Deficit) – Three and Nine Months Ended September 30, 2021 and 2020

4

Notes to Consolidated Financial Statements

5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

33

Item 4. Controls and Procedures

33

Part II. Other Information

34

Item 1A. Risk Factors

34

Item 6. Exhibits

56

Signatures

58

 

EX-10.7

EX-10.8

EX-10.9

EX-10.10

EX-31.1

EX-31.2

EX-32.1

EX-32.2

 

 
 

 

 

When used in this report, unless otherwise indicated, we, our, us, the Company, and BioCryst refer to BioCryst Pharmaceuticals, Inc. and, where appropriate, its subsidiaries.

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “report”) includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created in Section 21E. In particular, statements about our expectations, beliefs, plans, objectives or assumptions of future events or performance are contained or incorporated by reference in this report. All statements other than statements of historical facts contained herein are forward-looking statements. 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 the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this report, as well as any amendments we make to those sections in filings with the Securities and Exchange Commission (“SEC”). These forward-looking statements include, but are not limited to, statements about:

 

 

the preclinical development, clinical development, commercialization, or post-marketing studies of our products and product candidates, including ORLADEYO® (berotralstat), BCX9930, BCX9250, peramivir, galidesivir, and early-stage discovery programs;

 

 

the timing and success of our commercialization of ORLADEYO in the U.S. and elsewhere;

 

 

the potential for government stockpiling orders of our products and product candidates, including the timing or likelihood of entering into any U.S. government stockpile order and our ability to execute any such order;

 

 

the potential funding from our contracts with the Biomedical Advanced Research and Development Authority within the U.S. Department of Health and Human Services (“BARDA/HHS”) and the National Institute of Allergy and Infectious Diseases within the HHS (“NIAID/HHS”) for the development of galidesivir;

 

 

additional regulatory approvals, or milestones, royalties or profit from sales of our products by us or our partners;

 

 

the implementation of our business model, strategic plans for our business, products, product candidates and technology;

 

 

our ability to establish and maintain collaborations or out-license rights to our products and product candidates;

 

 

plans, programs, progress and potential success of our collaborations, including with Torii Pharmaceutical Co., Ltd. (“Torii”) for ORLADEYO in Japan, Shionogi & Co., Ltd. (“Shionogi”) and Green Cross Corporation (“Green Cross”) for peramivir in their territories, and Mundipharma International Corporation Limited (“Mundipharma”) for mundesine;

 

 

our and our subsidiary guarantors’ ability to satisfy obligations under our Credit Agreement and to comply with the covenants as set forth in the agreements governing our debt obligations;

 

 

the ability of our subsidiary, JPR Royalty Sub LLC (“Royalty Sub”), to satisfy its obligations in respect of the PhaRMA Notes (as defined in “Note 2⸻Royalty Monetizations⸻RAPIACTA Royalty Monetization” in the Notes to Consolidated Financial Statements in Part I, Item 1 of this report);

 

 

the scope of protection we are able to establish and maintain for intellectual property rights covering our products, product candidates, and technology;

 

 

our ability to operate our business without infringing the intellectual property rights of others;

 

 

estimates of our expenses, revenues, capital requirements, annual cash utilization, and our needs for additional financing;

 

 

the timing or likelihood of regulatory filings or regulatory agreements, deferrals, and approvals;

 

 

our ability to manage our liquidity needs, including our ability to raise additional capital, to fund our operations or repay our recourse debt obligations;

 

 

our financial performance; and

 

 

competitive companies, technologies, and our industry.

 

 

i

 

We have based any forward-looking statements on our current expectations about future events or performance. While we believe these expectations are reasonable, forward-looking statements are inherently subject to known and unknown risks and uncertainties, many of which are beyond our control. Actual results may differ materially from those suggested or implied by these forward-looking statements for various reasons, including those discussed in this report under the heading “Risk Factors” in Part II, Item 1A, some of which are summarized in the “Risk Factor Summary” below. Any forward-looking statement is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, industry, and future growth. Given these risks and uncertainties, you are cautioned not to place undue reliance on our forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. We do not undertake, and specifically decline, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements to reflect future events or developments, except as may be required by U.S. federal securities laws.

 

Risk Factor Summary

 

An investment in the Company involves risks. You should carefully read this entire report and consider the uncertainties and risks discussed in the “Risk Factors” section in Part II, Item 1A of this report, which may adversely affect our business, financial condition, or results of operations, along with the other information included in our other filings with the Securities and Exchange Commission, before deciding to invest in the Company. A summary of the principal factors that make an investment in the Company speculative or risky is set forth below.

 

 

The ongoing novel coronavirus (“COVID-19”) pandemic could create challenges in all aspects of our business, including, without limitation, delays, stoppages, difficulties, and increased expenses with respect to our and our partners’ development, regulatory processes, and supply chains, negatively impact our ability to access the capital or credit markets to finance our operations, or have the effect of heightening many of the risks described below or in the “Risk Factors” section in Part II, Item 1A of this report.

 

 

We have incurred losses since our inception, expect to continue to incur losses, and may never be profitable.

 

 

We may need to raise additional capital in the future. If we are unable to raise capital when needed, we may need to adjust our operations.

 

 

Our success depends upon our ability to advance our product candidates through the various stages of development, especially through the clinical trial process, to receive and maintain regulatory approval for the commercial sale of our product candidates, and to successfully commercialize any approved products. The development process and related regulatory processes are complex and uncertain, may be lengthy and expensive, and require, among other things, an indication that our products and product candidates are safe and effective. For example, applicable regulatory agencies could refuse to approve, or impose restrictions or warnings on, our product candidates, require us to conduct additional studies or adopt study designs that differ from our planned development strategies, suspend or terminate our clinical trials, or take other actions that could materially impact the cost, timing, and success of our planned development strategies.

 

 

We rely heavily upon third parties, including development partners, contractors, contract research organizations, and third-party suppliers, manufacturers, and distributors, for many important stages of our product candidate development and in the commercialization of certain of our products and product candidates. Our failure to maintain these relationships, the failure of any such third party to perform its obligations under agreements with us, or the failure of such a relationship to meet our expectations could have a material adverse impact on our business, financial condition, and results of operations.

 

 

If we fail to obtain additional financing or acceptable partnership arrangements, we may be unable to complete the development and commercialization of our products and product candidates or continue operations.

 

 

The commercial viability of any approved product could be compromised if the product is less effective than expected, causes undesirable side effects that were not previously identified, or fails to achieve market acceptance by physicians, patients, third-party payors, health authorities, and others.

 

 

There can be no assurance that our or our partners’ commercialization efforts, methods, and strategies for our products or technologies will succeed, and our future revenue generation is uncertain.

 

 

We expect to continue expanding our development and regulatory capabilities and implementing sales, marketing, and distribution capabilities, and as a result, we may encounter difficulties managing our growth, which could disrupt our operations.

 

 

We face intense competition, and if we are unable to compete effectively, the demand for our products may be reduced. In addition, developments by others may render our products, product candidates, or technologies obsolete or noncompetitive.

 

ii

 

 

We are subject to various laws and regulations related to our products and product candidates, and if we or our employees, consultants, or partners do not comply with these laws and regulations, we could face substantial penalties and our reputation could be harmed. In addition, we and our partners may be subject to new legislation, regulatory proposals, and healthcare payor initiatives that may increase our costs of compliance and adversely affect our or our partners’ ability to market our products, obtain collaborators, and raise capital.

 

 

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. Legal proceedings to protect or enforce our patents, the patents of our partners, or our other intellectual property rights could be expensive, time consuming, and unsuccessful.

 

 

We face an inherent risk of liability in the event that the use or misuse of our products or product candidates results in personal injury or death, and our product liability insurance coverage may be insufficient.

 

 

We face risks related to our government-funded programs and are subject to various U.S. Government contract requirements, which typically contain a number of extraordinary provisions that would not typically be found in commercial contracts and which may create a disadvantage and additional risks to us as compared to competitors that do not rely on U.S. Government contracts.

 

 

If we fail to reach milestones or to make annual minimum payments or otherwise breach our obligations under our license agreements, our licensors may terminate our agreements with them and seek additional remedies.

 

 

Our Credit Agreement contains conditions and restrictions that limit our flexibility in drawing on the additional funds thereunder and in operating our business. We may be required to make a prepayment or repay our outstanding indebtedness under the Credit Agreement earlier than we expect if a prepayment event or an event of default occurs, including a material adverse change with respect to us, which could have a material adverse effect on our business.

 

 

International expansion of our business exposes us to business, regulatory, political, operational, financial, and economic risks. For example, our actual or perceived failure to comply with European governmental regulations and other obligations related to privacy, data protection, and information security could harm our business. In addition, the United Kingdom’s withdrawal from the European Union could result in increased regulatory and legal complexity, which may make it more difficult for us to do business in Europe and impose additional challenges in securing regulatory approval of our product candidates in Europe.

 

 

If our facilities incur damage or power is lost for a significant length of time, our business will suffer.

 

 

A significant disruption in our information technology systems or a cybersecurity breach could adversely affect our business.

 

 

Our existing principal stockholders hold a substantial amount of our common stock and may be able to influence significant corporate decisions, which may conflict with the interests of other stockholders.

 

 

Our stock price has been, and is likely to continue to be, highly volatile, which could cause the value of an investment in our common stock to decline significantly.

 

 

Natural disasters, epidemic or pandemic disease outbreaks, trade wars, political unrest, or other events could disrupt our business or operations or those of our development partners, manufacturers, regulators, or third parties with whom we conduct business now or in the future.

 

 

We are subject to legal proceedings, which could harm our reputation or result in other losses or unexpected expenditure of time and resources.

 

 

If we fail to retain our existing key personnel or fail to attract and retain additional key personnel, the development of our product candidates, the commercialization of our products, and the related expansion of our business will be delayed or stopped.

 

iii

 

 

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

BIOCRYST PHARMACEUTICALS, INC.

 

CONSOLIDATED BALANCE SHEETS

 

September 30, 2021 and December 31, 2020

 

(In thousands, except per share data)

 

  

2021

  

2020

 
  

(Unaudited)

  

(Note 1)

 

Assets

        

Cash and cash equivalents

 $199,597  $272,127 

Restricted cash

  4,296   2,221 

Investments

     28,239 

Trade receivables

  26,212   8,646 

Inventories

  13,663   7,039 

Prepaid expenses and other current assets

  8,975   5,528 

Total current assets

  252,743   323,800 

Property and equipment, net

  7,829   7,113 

Other assets

  5,191   3,802 

Total assets

 $265,763  $334,715 
         

Liabilities and Stockholders Equity

        

Accounts payable

 $19,693  $18,713 

Accrued expenses

  56,308   33,942 

Interest payable

  25,553   21,670 

Deferred revenue

  602   150 

Lease financing obligation

  1,452   1,179 

Non-recourse notes payable

  30,000   30,000 

Total current liabilities

  133,608   105,654 

Lease financing obligation

  5,035   3,871 

Royalty financing obligation

  142,114   124,717 

Secured term loan

  132,050   119,735 

Stockholders’ equity:

        

Preferred stock, $0.001 par value; shares authorized - 5,000; no shares issued and outstanding

      

Common stock, $0.01 par value; shares authorized - 450,000; shares issued and outstanding – 179,791 in 2021 and 176,883 in 2020

  1,798   1,769 

Additional paid-in capital

  1,040,769   1,002,408 

Accumulated other comprehensive income

  114   3 

Accumulated deficit

  (1,189,725)  (1,023,442)

Total stockholders’ equity

  (147,044)  (19,262)

Total liabilities and stockholders’ equity

 $265,763  $334,715 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

1

 

 

 

 

BIOCRYST PHARMACEUTICALS, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

Three and Nine Months Ended September 30, 2021 and 2020

 

(In thousands, except per share data-Unaudited)

 

 

  

Three Months

  

Nine Months

 
  

2021

  

2020

  

2021

  

2020

 

Revenues

                

Product sales

 $39,141  $2,478  $90,442  $2,696 

Royalty revenue

  322   254   (447)  2,243 

Milestone revenue

        15,000    

Collaborative and other research and development

  1,531   3,370   5,017   8,857 

Total revenues

  40,994   6,102   110,012   13,796 

Expenses

                

Cost of product sales

  591   1,517   6,811   1,517 

Research and development

  49,971   30,245   145,279   87,610 

Selling, general and administrative

  34,992   17,195   83,431   46,943 

Royalty

  24   9   34   78 

Total operating expenses

  85,578   48,966   235,555   136,148 

Loss from operations

  (44,584

)

  (42,864

)

  (125,543

)

  (122,352

)

Interest and other income (expense)

  9   (312

)

  48   8,892 

Interest expense

  (14,115

)

  (2,927

)

  (40,514

)

  (8,892

)

(Loss) gain on foreign currency

  (111

)

  (12

)

  (274

)

  31 

Net loss

 $(58,801

)

 $(46,115

)

 $(166,283

)

 $(122,321

)

Foreign currency translation adjustment

  28

 

     114

 

   

Unrealized gain (loss) on available for sale investments

  (1)  6   (3)  (30

)

Comprehensive loss

 $(58,774

)

 $(46,109

)

 $(166,172

)

 $(122,351

)

                 

Basic and diluted net loss per common share

 $(0.33

)

 $(0.26

)

 $(0.93

)

 $(0.75

)

Weighted average shares outstanding

  179,106   176,521   178,199   164,127 

 

 

See accompanying notes to consolidated financial statements.

 

2

 

 

 

 

BIOCRYST PHARMACEUTICALS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Nine Months Ended September 30, 2021 and 2020

 

(In thousands-Unaudited)

 

  

2021

  

2020

 

Cash flows from operating activities

        

Net loss

 $(166,283

)

 $(122,321

)

Adjustments to reconcile net loss to net cash used in operating activities:

        

Depreciation and amortization

  606   568 

Stock-based compensation expense

  26,140   8,907 

Non-cash interest expense on royalty financing obligation

  24,125    

Non-cash paid in-kind interest on secured term loan

  12,871    

Amortization of debt issuance costs

  (556)  1,061 

Amortization of premium/discount on investments

  35   106 

Change in fair value of foreign currency derivative

     630 

Changes in operating assets and liabilities:

        

Receivables

  (17,579)  16,724 

Inventory

  (6,630)  (6,241

)

Prepaid expenses and other assets

  (3,460)  (1,448)

Accounts payable and accrued expenses

  16,692   6,725 

Interest payable

  3,884   4,400 

Deferred revenue

  457   (1,688

)

Net cash used in operating activities

  (109,698

)

  (92,577

)

         

Cash flows from investing activities

        

Acquisitions of property and equipment

  (1,277)  (359

)

Purchases of investments

     (49,818

)

Sales and maturities of investments

  28,201   21,907 

Net cash provided by (used in) investing activities

  26,924   (28,270)
         

Cash flows from financing activities

        

Sale of common stock, net

     92,848 

Sale of pre-funded warrants

     14,817 

Payment of senior credit facility

     (5,000)

Net proceeds from common stock issued under stock-based compensation plans

  12,250   1,164 

Net cash provided by financing activities

  12,250   103,829 

Effect of exchange rate on cash and cash equivalents

  69    
         

Decrease in cash, cash equivalents and restricted cash

  (70,455)  (17,018)

Cash, cash equivalents and restricted cash at beginning of period

  274,348   115,723 
         

Cash, cash equivalents and restricted cash at end of period

 $203,893  $98,705 

 

 

See accompanying notes to consolidated financial statements.

 

3

 

 

BIOCRYST PHARMACEUTICALS, INC.

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

 

Three and Nine Months Ended September 30, 2021 and 2020

 

(In thousands, except per share amounts-Unaudited)

 

          

Accumulated

         
      

Additional

  

Other

      

Total

 
  

Common

  

Paid-In

  

Comprehensive

  

Accumulated

  

Stockholders

 
  

Stock

  

Capital

  

(Loss) Income

  

Deficit

  

Equity (Deficit)

 

Balance at December 31, 2020

 $1,769  $1,002,408  $3  $(1,023,442) $(19,262)

Net loss

           (64,284)  (64,284)

Other comprehensive income

        179      179 

Employee stock purchase plan sales, 193 shares, net

  2   721         723 

Exercise of stock options, 593 shares, net

  6   2,171         2,177 

Stock-based compensation expense

     5,479         5,479 

Balance at March 31, 2021

 $1,777  $1,010,779  $182  $(1,087,726) $(74,988)

Net loss

           (43,198)  (43,198)

Other comprehensive loss

        (95)     (95)

Exercise of stock options, 1,056 shares, net

  10   4,564         4,574 

Stock-based compensation expense

     7,632         7,632 

Balance at June 30, 2021

 $1,787  $1,022,975  $87  $(1,130,924) $(106,075)

Net loss

           (58,801)  (58,801)

Other comprehensive income

        27      27 

Employee stock purchase plan sales, 123 shares, net

  1   1,240         1,241 

Exercise of stock options, 942 shares, net

  10   3,525         3,535 

Stock-based compensation expense

     13,029         13,029 

Balance at September 30, 2021

 $1,798  $1,040,769  $114  $(1,189,725) $(147,044)

 

 

 

          

Accumulated

         
      

Additional

  

Other

      

Total

 
  

Common

  

Paid-In

  

Comprehensive

  

Accumulated

  

Stockholders

 
  

Stock

  

Capital

  

(Loss) Income

  

Deficit

  

Equity (Deficit)

 

Balance at December 31, 2019

 $1,541  $877,300  $39  $(840,628) $38,252 

Net loss

           (37,599)  (37,599)

Other comprehensive loss

        (25)     (25)

Employee stock purchase plan sales, 110 shares, net

  1   265         266 

Stock-based compensation expense

     2,754         2,754 

Balance at March 31, 2020

 $1,542  $880,319  $14  $(878,227) $3,648 

Net loss

           (38,607)  (38,607)

Other comprehensive loss

        (11)     (11)

Exercise of stock options, 193 shares, net

  2   530         532 

Issuance of common stock, 22,044 shares, net

  220   92,628         92,848 

Issuance of pre-funded warrants, 3,511 warrants

     14,817         14,817 

Stock-based compensation expense

     3,280         3,280 

Balance at June 30, 2020

 $1,764  $991,574  $3  $(916,834) $76,507 

Net loss

           (46,115)  (46,115)

Other comprehensive income

        6      6 

Employee stock purchase plan sales, 137 shares, net

  2   364         366 

Stock-based compensation expense

     2,873         2,873 

Balance at September 30, 2020

 $1,766  $994,811  $9  $(962,949) $33,637 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

4

 

BIOCRYST PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

 

 

Note 1 - Significant Accounting Policies

 

The Company

 

BioCryst Pharmaceuticals, Inc. (the “Company”) is a commercial-stage biotechnology company that discovers novel, small-molecule medicines. The Company focuses on the treatment of rare diseases in which significant unmet medical needs exist and an enzyme plays the key role in the biological pathway of the disease. The Company was founded in 1986 and incorporated in Delaware in 1991, and its headquarters is located in Durham, North Carolina. The Company integrates the disciplines of biology, crystallography, medicinal chemistry and computer modeling to discover and develop small molecule pharmaceuticals through the process known as structure-guided drug design. The Company has incurred losses and negative cash flows from operations since inception.

 

Based on the Company’s expectations for revenue, operating expenses, and its option to access an additional $75 million from its existing credit facility, the Company believes its financial resources available at September 30, 2021 will be sufficient to fund its operations into 2023. The Company has sustained operating losses for the majority of its corporate history and expects that its 2021 expenses will exceed its 2021 revenues. The Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoing operations. The Company’s liquidity needs will be largely determined by the success of operations in regard to the successful commercialization of its products and the progression of its product candidates in the future. The Company regularly evaluates other opportunities to fund future operations, including: (1) securing or increasing U.S. Government funding of its programs, including obtaining procurement contracts; (2) out-licensing rights to certain of its products or product candidates, pursuant to which the Company would receive cash milestone payments; (3) raising additional capital through equity or debt financings or from other sources, including royalty or other monetization transactions; (4) obtaining additional product candidate regulatory approvals, which would generate revenue, milestone payments and cash flow; (5) reducing spending on one or more research and development programs, including by discontinuing development; and/or (6) restructuring operations to change its overhead structure. The Company may issue securities, including common stock, preferred stock, depositary shares, purchase contracts, warrants, debt securities and units, through private placement transactions or registered public offerings in the future. The Company’s future liquidity needs, and ability to address those needs, will largely be determined by the success of its products and product candidates, the timing, scope and magnitude of its commercial expenses and key development and regulatory events, and its decisions in the future.

 

Basis of Presentation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances among the consolidated entities have been eliminated from the consolidated financial statements.

 

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Such financial statements reflect all adjustments that are, in management’s opinion, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, and cash flows. There were no adjustments other than normal recurring adjustments.

 

These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2020 and the notes thereto included in the Company’s 2020 Annual Report on Form 10-K. Interim operating results are not necessarily indicative of operating results for the full year. The balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements included in the Company’s most recent Annual Report on Form 10-K.

 

Cash and Cash Equivalents

 

The Company generally considers cash equivalents to be all cash held in commercial checking accounts, certificates of deposit, money market accounts or investments in debt instruments with maturities of three months or less at the time of purchase. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these items.

 

Restricted Cash

 

Restricted cash as of September 30, 2021 and December 31, 2020 reflects $2,872 and $796, respectively, in royalty revenue paid by Shionogi & Co., Ltd. (“Shionogi”) designated for interest on the PhaRMA Notes (defined in Note 2) and $1,424 and $1,425, respectively, the Company is required to maintain as collateral for a letter of credit associated with the lease execution and build-out of its Birmingham research facilities.

 

 

5

 

Investments

 

The Company invests in high credit quality investments in accordance with its investment policy, which is designed to minimize the possibility of loss. The objective of the Company’s investment policy is to ensure the safety and preservation of invested funds, as well as maintaining liquidity sufficient to meet cash flow requirements. The Company places its excess cash with high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of its credit exposure. In accordance with its policy, the Company is able to invest in marketable debt securities that may consist of U.S. Government and government agency securities, money market and mutual fund investments, municipal and corporate notes and bonds, commercial paper and asset or mortgage-backed securities, among others. The Company’s investment policy requires it to purchase high-quality marketable securities with a maximum individual maturity of three years and requires an average portfolio maturity of no more than 18 months. Some of the securities the Company invests in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, the Company schedules its investments with maturities that coincide with expected cash flow needs, thus avoiding the need to redeem an investment prior to its maturity date. Accordingly, the Company does not believe it has a material exposure to interest rate risk arising from its investments. Generally, the Company’s investments are not collateralized. The Company has not realized any significant losses from its investments.

 

The Company classifies all of its investments as available-for-sale. Unrealized gains and losses on investments are recognized in comprehensive loss, unless an unrealized loss is considered to be other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. Realized gains and losses are reflected in interest and other income in the Consolidated Statements of Comprehensive Loss and are determined using the specific identification method with transactions recorded on a settlement date basis. Investments with original maturities at date of purchase beyond three months and which mature at or less than 12 months from the balance sheet date are classified as current. Investments with a maturity beyond 12 months from the balance sheet date are classified as long-term. At September 30, 2021, the Company had no investments.

 

The following table summarizes the fair value of the Company’s investments by type as of December 31, 2020. The estimated fair values of the Company’s fixed income investments are classified as Level 2 in the fair value hierarchy as defined in U.S. GAAP. These valuations are based on observable direct and indirect inputs, primarily quoted prices of similar, but not identical, instruments in active markets or quoted prices for identical or similar instruments in markets that are not active. These fair values are obtained from independent pricing services which utilize Level 2 inputs.

 

  

December 31, 2020

 
          

Gross

  

Gross

     
  

Amortized

  

Accrued

  

Unrealized

  

Unrealized

  

Estimated

 
  

Cost

  

Interest

  

Gains

  

Losses

  

Fair Value

 

Obligations of U.S. Government and its agencies

 $24,986  $14  $3  $(3) $25,000 

Certificates of deposit

  3,225   11   3   -   3,239 

Total investments

 $28,211  $25  $6  $(3) $28,239 

 

The Company’s investments at December 31, 2020 had maturities of one year or less.

 

Trade Receivables

 

Product Sales

 

Receivables from product sales are recorded for amounts due to the Company related to sales of ORLADEYO® and RAPIVAB®. At September 30, 2021 and December 31, 2020, receivables related to sales of ORLADEYO were $22,893 and $149, respectively. At September 30, 2021 and December 31, 2020, receivables related to sales of RAPIVAB were $33 and $254, respectively. Receivables from product sales are evaluated to determine if any reserve or allowance should be recorded based on consideration of the current economic environment, expectations of future economic conditions and the Company’s own historical collection experience. No reserve or allowance amounts were recorded as of September 30, 2021 and December 31, 2020, respectively.

 

Collaborations

 

Receivables from collaborations are recorded for amounts due to the Company related to reimbursable research and development costs from the U.S. Department of Health and Human Services, royalty receivables from Shionogi, Green Cross Corporation (“Green Cross”), Torii Pharmaceutical Co., Ltd. (“Torii”) and Mundipharma International Holdings Limited (“Mundipharma”). These receivables are evaluated to determine if any reserve or allowance should be established at each reporting date based on historical collection experience or specific circumstances, and no amounts were recorded at September 30, 2021 and December 31, 2020.

 

6

 

At September 30, 2021 and December 31, 2020, the Company had the following receivables.

 

  

September 30, 2021

 
  

Billed

  

Unbilled

  

Total

 

U.S. Department of Health and Human Services

 $-  $3,086  $3,086 

Royalty receivables from partners

  200   -   200 

Total receivables

 $200  $3,086  $3,286 

 

  

December 31, 2020

 
  

Billed

  

Unbilled

  

Total

 

U.S. Department of Health and Human Services

 $-  $5,402  $5,402 

Royalty receivables from partners

  2,816   25   2,841 

Total receivables

 $2,816  $5,427  $8,243 

 

Monthly invoices are submitted to the U.S. Department of Health and Human Services related to reimbursable research and development costs. The Company is also entitled to monthly reimbursement of indirect costs based on rates stipulated in the underlying contract. The Company’s calculations of its indirect cost rates are subject to audit by the U.S. Government.

 

Inventory

 

At September 30, 2021 and December 31, 2020, the Company’s inventory related to ORLADEYO and peramivir, which are being manufactured for the Company’s partners and, in the case of peramivir, the U.S. Government. The Company values its inventories at the lower of cost or estimated net realizable value. The Company determines the cost of its inventories, which includes amounts related to materials, labor, manufacturing overhead and shipping and handling costs on a first-in, first-out (FIFO) basis. Raw materials and work-in-process include all inventory costs prior to packaging and labelling, including raw material, active product ingredient, and drug product. Finished goods include packaged and labelled products.

 

The Company’s inventories are subject to expiration dating. The Company regularly evaluates the carrying value of its inventories and provides valuation reserves for any estimated obsolete, short-dated or unmarketable inventories. In addition, the Company may experience spoilage of its raw materials and supplies. The Company’s determination that a valuation reserve might be required, in addition to the quantification of such reserve, requires it to utilize significant judgment.

 

The Company’s inventories as of September 30, 2021 and December 31, 2020 consisted of the following:

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Raw materials

 $6,830  $206 

Work-in-process

  6,619   2,555 

Finished goods

  637   4,548 

Total Inventory

 $14,086  $7,309 

Reserves

  (423)  (270)

Total Inventory, net

 $13,663  $7,039 

 

The Company expenses costs related to the production of inventories as research and development expenses in the period incurred until such time it is believed that future economic benefit is expected to be recognized, which generally is reliant upon receipt of regulatory approval. Upon regulatory approval, the Company capitalizes subsequent costs related to the production of inventories.

 

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Computer equipment is depreciated over a life of three years. Laboratory equipment, office equipment, and software are depreciated over a life of five years. Furniture and fixtures are depreciated over a life of seven years. Leasehold improvements are amortized over their estimated useful lives or the expected lease term, whichever is less.

 

In accordance with U.S. GAAP, the Company periodically reviews its property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Property and equipment to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

 

7

 

Patents and Licenses

 

The Company seeks patent protection on all internally developed processes and products. All patent related costs are expensed to selling, general and administrative expenses when incurred as recoverability of such expenditures is uncertain.

 

Accrued Expenses

 

The Company generally enters into contractual agreements with third-party vendors who provide research and development, manufacturing, distribution, and other services in the ordinary course of business. Some of these contracts are subject to milestone-based invoicing, and services are completed over an extended period of time. The Company records liabilities under these contractual commitments when it determines an obligation has been incurred, regardless of the timing of the invoice. This process involves reviewing open contracts and purchase orders, communicating with applicable Company personnel to identify services that have been performed on its behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual cost. The majority of service providers invoice the Company monthly in arrears for services performed. The Company makes estimates of accrued expenses as of each balance sheet date in its financial statements based on the facts and circumstances. The Company periodically confirms the accuracy of its estimates with the service providers and makes adjustments if necessary. Examples of estimated accrued expenses include:

 

 

fees paid to clinical research organizations (“CROs”) in connection with preclinical and toxicology studies and clinical trials;

 

 

fees paid to investigative sites in connection with clinical trials;

 

 

fees paid to contract manufacturers in connection with the production of the Company’s raw materials, drug substance, drug products, and product candidates; and

 

 

professional fees.

 

The Company bases its expenses related to clinical trials on its estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on the Company’s behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. As of September 30, 2021 and December 31, 2020, the carrying value of accrued expenses approximates their fair value due to their short-term settlement.

 

Income Taxes

 

The liability method is used in the Company’s accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

 

Accumulated Other Comprehensive Loss

 

Accumulated other comprehensive loss is comprised of cumulative foreign currency translation adjustments and unrealized gains and losses on available-for-sale investments and is disclosed as a separate component of stockholders’ equity. Realized gain and loss amounts on available-for-sale investments are reclassified from accumulated other comprehensive loss and recorded as interest and other income on the Consolidated Statements of Comprehensive Loss.  For the nine months ended September 30, 2021, realized gains of $1 were reclassified out of accumulated other comprehensive loss. For the nine months ended September 30, 2020, realized gains of $1 were reclassified out of accumulated other comprehensive loss.

 

Revenue Recognition

 

Pursuant to Accounting Standards Codification (“ASC”) Topic 606, the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, Topic 606 includes provisions within a five step model that includes i) identifying the contract with a customer, ii) identifying the performance obligations in the contract, iii) determining the transaction price, iv) allocating the transaction price to the performance obligations, and v) recognizing revenue when, or as, an entity satisfies a performance obligation.

 

At contract inception, the Company identifies the goods or services promised within each contract, assesses whether each promised good or service is distinct and determines those that are performance obligations. The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.

 

8

 

The Company recorded the following revenues for the three and nine months ended September 30, 2021 and 2020:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Product sales, net:

                

ORLADEYO

 $36,711  $-  $76,023  $- 

RAPIVAB

  2,430   11   7,165   11 

Peramivir

  -   2,467   7,254   2,685 

Total product sales, net

  39,141   2,478   90,442   2,696 

Royalty revenue

  322   254   (447)  2,243 

Milestone revenue

  -   -   15,000   - 

Collaborative and other research and development revenues:

                

U.S. Department of Health and Human Services

  1,531   3,088   5,017   7,240 

Torii Pharmaceutical Co., Ltd.

  -   282   -   1,617 

Total collaborative and other research and development revenues

  1,531   3,370   5,017   8,857 

Total revenues

 $40,994  $6,102  $110,012  $13,796 

 

Product Sales, Net

 

The Company’s principal sources of product sales are sales of ORLADEYO, which the Company began shipping to customers in December 2020, sales of peramivir to the Company’s licensing partners and sales of RAPIVAB to the U.S. Department of Health and Human Services under the Company’s procurement contract. The Company recognizes revenue for sales when the customer obtains control of the product, which generally occurs upon delivery. For ORLADEYO, the Company classifies payments to its customer for certain services provided by its customer as selling, general and administrative expenses to the extent such services provided are determined to be distinct from the sale of its product.

 

The Company sells ORLADEYO directly to patients through a single specialty pharmacy in the United States. Net revenue from sales of ORLADEYO is recorded at net selling price (transaction price), which includes estimates of variable consideration for which reserves are established for (i) estimated government rebates, such as Medicaid and Medicare Part D reimbursements, and estimated managed care rebates, (ii) estimated chargebacks, (iii) estimated costs of co-payment assistance programs and (iv) product returns. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable or as a current liability. Where appropriate, these estimates take into consideration a range of possible outcomes, which are probability-weighted for relevant factors, such as the Company’s current contractual and statutory requirements and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the applicable contract. The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company's estimates. If actual results in the future vary from estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

 

Government and Managed Care Rebates. The Company contracts with government agencies and managed care organizations or, collectively, third-party payors, so that ORLADEYO will be eligible for purchase by, or partial or full reimbursement from, such third-party payors. The Company estimates the rebates it will provide to third-party payors and deducts these estimated amounts from total gross product revenues at the time the revenues are recognized. These reserves are recorded in the same period in which the revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. The Company estimates the rebates that it will provide to third-party payors based upon (i) the Company's contracts with these third-party payors, (ii) the government mandated discounts applicable to government-funded programs, (iii) a range of possible outcomes that are probability-weighted for the estimated payor mix, and (iv) product distribution information obtained from the Company's specialty pharmacy.

 

Chargebacks. Chargebacks are discounts that occur when certain contracted customers, pharmacy benefit managers, insurance companies, government programs and group purchasing organizations purchase directly from the Company’s specialty pharmacy. These customers purchase the Company’s product under contracts negotiated between them and the Company’s specialty pharmacy. The specialty pharmacy, in turn, charges back to the Company the difference between the price the specialty pharmacy paid and the negotiated price paid by the contracted customers, which may be higher or lower than the specialty pharmacy’s purchase price from the Company. The Company estimates chargebacks and adjusts gross product revenues and accounts receivable based on the estimates at the time revenues are recognized.

 

Co-payment assistance and patient assistance programs. Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. Based upon the terms of the program and co-payment assistance utilization reports received from the specialty pharmacy, the Company is able to estimate the co-payment assistance amounts, which are recorded in the same period in which the related revenue is recognized, resulting in a reduction of product revenue. The Company also offers a patient assistance program that provides free drug product, for a limited period of time, to allow a patient’s insurance coverage to be established. Based on patient assistance program utilization reports provided by the specialty pharmacy, the Company records gross revenue of the product provided and a full reduction of the revenue amount for the free drug discount.

 

9

 

Product returns. The Company does not provide contractual return rights to its customer, except in instances where the product is damaged or defective. Non-acceptance by the patient of shipped drug product by the specialty pharmacy is reflected as a reversal of sales in the period in which the sales were originally recorded. Reserves for estimated non-acceptances by patients are recorded as a reduction of revenue in the period that the related revenue is recognized, as well as a reduction to accounts receivable. Estimates of non-acceptance are based on quantitative information provided by the specialty pharmacy.

 

Collaborative and Other Research and Development Arrangements and Royalties

 

The Company has collaboration and license agreements with a number of third parties, as well as research and development agreements with certain government entities. The Company’s primary sources of revenue from these collaborative and other research and development arrangements are license, service and royalty revenues.

 

Revenue from license fees, royalty payments, milestone payments, and research and development fees are recognized as revenue when the earnings process is complete and the Company has no further continuing performance obligations or the Company has completed the performance obligations under the terms of the agreement.

 

Arrangements that involve the delivery of more than one performance obligation are initially evaluated as to whether the intellectual property licenses granted by the Company represent distinct performance obligations. If they are determined to be distinct, the value of the intellectual property licenses would be recognized up front while the research and development service fees would be recognized as the performance obligations are satisfied. For performance obligations based on services performed, the Company measures progress using an input method based on the effort it expends or costs it incurs toward the satisfaction of the performance obligation in relation to the total estimated effort or costs. Variable consideration is assessed at each reporting period as to whether it is not subject to significant future reversal and, therefore, should be included in the transaction price at the inception of the contract. If a contract includes a fixed or minimum amount of research and development support, this also would be included in the transaction price. Changes to collaborations, such as the extensions of the research term or increasing the number of targets or technology covered under an existing agreement, are assessed for whether they represent a modification or should be accounted for as a new contract. For contracts with multiple performance obligations, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling price using either an adjusted market assessment approach or an expected cost plus margin approach, representing the amount that the Company believes the market is willing to pay for the product or service. Analyzing the arrangement to identify performance obligations requires the use of judgment, and each may be an obligation to deliver services, a right or license to use an asset, or another performance obligation.

 

Milestone payments are recognized as licensing revenue upon the achievement of specified milestones if (i) the milestone is substantive in nature and the achievement of the milestone was not probable at the inception of the agreement; and (ii) the Company has a right to payment. Any milestone payments received prior to satisfying these revenue recognition criteria are recorded as deferred revenue.

 

Reimbursements received for direct out-of-pocket expenses related to research and development costs are recorded as revenue in the Consolidated Statements of Comprehensive Loss rather than as a reduction in expenses. Under the Company’s contracts with the Biomedical Advanced Research and Development Authority within the United States Department of Health and Human Services (”BARDA/HHS”) and the National Institute of Allergy and Infectious Diseases (“NIAID/HHS”), revenue is recognized as reimbursable direct and indirect costs are incurred.

 

Under certain of the Company’s license agreements, the Company receives royalty payments based upon its licensees’ net sales of covered products. Royalties are recognized at the later of when (i) the subsequent sale or usage occurs, or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been satisfied.

 

Cost of Product Sales

 

Cost of product sales includes the cost of producing and distributing inventories that are related to product revenue during the respective period, including freight. In addition, shipping and handling costs for product shipments are recorded as incurred. Finally, cost of product sales may also include costs related to excess or obsolete inventory adjustment charges.

 

Advertising

 

Advertising and promotional costs are expensed in “Selling, general and administrative” as the costs are incurred. Advertising expenses related to ORLADEYO were $1,492 and $4,696 for the three and nine months ended September 30, 2021, respectively. The Company did not incur advertising and product promotion expenses in the corresponding prior year period.

 

10

 

Research and Development Expenses

 

The Company’s research and development costs are charged to expense when incurred. Research and development expenses include all direct and indirect development costs related to the development of the Company’s portfolio of product candidates. Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as expense when the related goods are delivered or the related services are performed. Research and development expenses include, among other items, personnel costs, including salaries and benefits, manufacturing costs, clinical, regulatory, and toxicology services performed by CROs, materials and supplies, and overhead allocations consisting of various administrative and facilities related costs. Most of the Company’s manufacturing and clinical and preclinical studies are performed by third-party CROs. Costs for studies performed by CROs are accrued by the Company over the service periods specified in the contracts, and estimates are adjusted, if required, based upon the Company’s ongoing review of the level of services actually performed.

 

Additionally, the Company has license agreements with third parties, such as Albert Einstein College of Medicine of Yeshiva University (“AECOM”), Industrial Research, Ltd. (“IRL”), and the University of Alabama at Birmingham (“UAB”), which require fees related to sublicense agreements or maintenance fees. The Company expenses sublicense payments as incurred unless they are related to revenues that have been deferred, in which case the expenses are deferred and recognized over the related revenue recognition period. The Company expenses maintenance payments as incurred.

 

Deferred collaboration expenses represent sub-license payments, paid to the Company’s academic partners upon receipt of consideration from various commercial partners, and other consideration paid to the Company’s academic partners for modification to existing license agreements. These deferred expenses would not have been incurred without receipt of such payments or modifications from the Company’s commercial partners and are being expensed in proportion to the related revenue being recognized. The Company believes that this accounting treatment appropriately matches expenses with the associated revenue.

 

Stock-Based Compensation

 

All share-based payments, including grants of stock option awards and restricted stock unit awards, are recognized in the Company’s Consolidated Statements of Comprehensive Loss based on their fair values. The fair value of stock option awards is estimated using the Black-Scholes option pricing model. The fair value of restricted stock unit awards is based on the grant date closing price of the common stock. Stock-based compensation cost is recognized as expense on a straight-line basis over the requisite service period of the award. In addition, we have outstanding performance-based stock options for which no compensation expense is recognized until “performance” is deemed to have occurred.

 

Interest Expense and Deferred Financing Costs

 

Interest expense for the three and nine months ended September 30, 2021 was $14,115 and $40,514, respectively, and primarily relates to the royalty financing obligation (Note 2), the secured term loan borrowing from the Credit Agreement (Note 3) and the PhaRMA Notes (Note 2). Interest expense for the three and nine months ended September 30, 2020 was $2,927 and $8,892, respectively, and primarily relates to the secured term loan borrowing from the PhaRMA Notes (Note 2) and the Senior Credit Facility (Note 4). Costs directly associated with the borrowings have been capitalized and are netted against the corresponding debt liabilities on the Consolidated Balance Sheets. These costs are being amortized to interest expense over the terms of the corresponding borrowings using the effective interest rate method. Amortization of deferred financing costs included in interest expense was $(158) and $(369) for the three and nine months ended September 30, 2021, respectively. Amortization of deferred financing costs and original issue discount included in interest expense was $381 and $1,061 for the three and nine months ended September 30, 2020, respectively.

 

Interest Expense and Royalty Financing Obligation

 

The royalty financing obligation is eligible to be repaid based on royalties from net sales of ORLADEYO. Interest expense is accrued using the effective interest rate method over the estimated period the related liability will be paid. This requires the Company to estimate the total amount of future royalty payments to be generated from product sales over the life of the agreement. The Company imputes interest on the carrying value of the royalty financing obligation and records interest expense using an imputed effective interest rate. The Company will reassess the expected royalty payments each reporting period and account for any changes through an adjustment to the effective interest rate on a prospective basis. The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs require that the Company make estimates that could impact the carrying value of the liability, as well as the period over which associated issuance costs will be amortized. A significant increase or decrease in forecasted net sales could materially impact the liability balance, interest expense and the time period for repayment.

 

Currency Hedge Agreement

 

In connection with the issuance by JPR Royalty Sub LLC of the PhaRMA Notes, the Company entered into a Currency Hedge Agreement to hedge certain risks associated with changes in the value of the Japanese yen relative to the U.S. dollar. The final tranche of the options under the Currency Hedge Agreement expired in November 2020. The Currency Hedge Agreement did not qualify for hedge accounting treatment; therefore mark-to-market adjustments were recognized in the Company’s Consolidated Statements of Comprehensive Loss. For the nine months ended September 30, 2020, cumulative mark-to-market adjustments resulted in a loss of $630. In addition, the Company realized currency exchange gains of $660 during the first nine months of 2020.

 

11

 

Net Loss Per Share

 

Net loss per share is based upon the weighted average number of common shares outstanding during the period. Diluted loss per share is equivalent to basic net loss per share for all periods presented herein because common equivalent shares from unexercised stock options, warrants and common shares expected to be issued under the Company’s equity compensation plans were anti-dilutive. The calculation of diluted earnings per share for the three months ended September 30, 2021 and 2020 does not include 28,472 and 16,544, respectively, of such potential common shares, as their impact would be anti-dilutive. The calculation of diluted earnings per share for the nine months ended September 30, 2021 and 2020 does not include 26,131 and 14,154, respectively, of such potential common shares, as their impact would be anti-dilutive.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The most significant estimates in the Company’s consolidated financial statements relate to the valuation of stock options, the ORLADEYO royalty financing and the valuation allowance for deferred tax assets resulting from net operating losses. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

 

Significant Customers and Other Risks

 

Significant Customers

 

The Company’s primary sources of revenue and cash flow are the sales of ORLADEYO to a specialty pharmacy, the reimbursement of galidesivir (formerly BCX4430) development expenses earned under cost-plus-fixed-fee contracts with BARDA/HHS and NIAID/HHS and sales of RAPIVAB (peramivir injection) under our procurement contract with the Assistant Secretary for Preparedness and Response within the United States Department of Health and Human Services.

 

ORLADEYO is distributed through an arrangement with a single specialty pharmacy in the U.S. The specialty pharmacy subsequently sells ORLADEYO to its customers (pharmacy benefit managers, insurance companies, government programs and group purchasing organizations) and dispenses product to patients. The specialty pharmacy’s inability or unwillingness to continue these distribution activities could adversely impact the Company’s business, results of operations and financial condition.

 

The Company relies on BARDA/HHS and NIAID/HHS to reimburse predominantly all of the development costs for its galidesivir program and stockpiling sales of RAPIVAB to HHS. Accordingly, reimbursement of these expenses represents a significant portion of the Company’s collaborative and other research and development revenues. Additionally, HHS is the primary customer for RABIVAB. The completion or termination of the NIAID/HHS and BARDA/HHS galidesivir contracts or the reduction or stoppage of purchases of RAPIVAB by HHS could adversely impact the Company’s business, results of operations and financial condition.

 

Further, the Company’s drug development activities are performed by a limited group of third-party vendors. If any of these vendors were unable to perform its services, this could significantly impact the Company’s ability to complete its drug development activities.

 

Risks from Third-Party Manufacturing and Distribution Concentration

 

The Company relies on single source manufacturers for active pharmaceutical ingredient and finished drug product manufacturing of product candidates in development and on single source distributors for distribution of approved drug products. Delays in the manufacture or distribution of any product could adversely impact the commercial revenue and future procurement stockpiling of the Company’s product candidates.

 

Credit Risk

 

Cash equivalents and investments are financial instruments that potentially subject the Company to concentration of risk to the extent recorded on the Consolidated Balance Sheets. The Company deposits excess cash with major financial institutions in the United States. Balances may exceed the amount of insurance provided on such deposits. The Company believes it has established guidelines for investment of its excess cash relative to diversification and maturities that maintain safety and liquidity. To minimize the exposure due to adverse shifts in interest rates, the Company maintains a portfolio of investments with an average maturity of approximately 18 months or less.

 

12

 

The Company’s receivables from sales of ORLADEYO are primarily due from one customer, resulting in a concentration of credit risk. Sales of ORLADEYO from the Company to the specialty pharmacy only occur once an order of product has been received by the specialty pharmacy from one of its customers, which include pharmacy benefit managers, insurance companies, government programs and group purchasing organizations.

 

The majority of the Company’s receivables from collaborations are due from the U.S. Government, for which there is no assumed credit risk.

 

Recently Adopted Accounting Pronouncements

 

In December 2019, the FASB issued ASU No. 2019-12 (ASC Topic 740), Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies accounting for income taxes by removing certain exceptions to the general principles and clarifying existing guidance. This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The adoption of this standard did not have a material impact to the Company’s financial position, results of operations or cash flows.

 

The Company has reviewed other new accounting pronouncements that were issued as of September 30, 2021 and does not believe that these pronouncements are either applicable to the Company, or that they will have a material impact on its financial position or results of operations.

 

 

Note 2Royalty Monetizations

 

RAPIACTA Royalty Monetization

 

Overview

 

On March 9, 2011, the Company completed a $30,000 financing transaction to monetize certain future royalty and milestone payments under the Company’s agreement with Shionogi (the “Shionogi Agreement”), pursuant to which Shionogi licensed from the Company the rights to market RAPIACTA in Japan and Taiwan. The Company received net proceeds of $22,691 from the transaction after transaction costs of $4,309 and the establishment of a $3,000 interest reserve account by JPR Royalty Sub LLC, a wholly-owned subsidiary of the Company (“Royalty Sub”), available to help cover interest shortfalls in the future. All of the interest reserve account has been fully utilized with the September 2012 interest payment.

 

As part of the transaction, the Company entered into a purchase and sale agreement dated as of March 9, 2011 with Royalty Sub, whereby the Company transferred to Royalty Sub, among other things, (i) its rights to receive certain royalty and milestone payments from Shionogi arising under the Shionogi Agreement, and (ii) the right to receive payments under a Japanese yen/US dollar foreign currency hedge arrangement (as further described below, the “Currency Hedge Agreement”) put into place by the Company in connection with the transaction. Royalty payments are paid by Shionogi in Japanese yen, and any milestone payments will be paid in U.S. dollars. The Company’s collaboration with Shionogi was not impacted as a result of this transaction.

 

Non-Recourse Notes Payable

 

On March 9, 2011, Royalty Sub completed a private placement to institutional investors of $30,000 in aggregate principal amount of its PhaRMA Senior Secured 14.0% Notes due on December 1, 2020 (the “PhaRMA Notes”). The PhaRMA Notes were issued by Royalty Sub under an Indenture, dated as of March 9, 2011 (the “Indenture”), by and between Royalty Sub and U.S. Bank National Association, as Trustee. Principal and interest on the PhaRMA Notes are payable from, and are secured by, the rights to royalty and milestone payments under the Shionogi Agreement transferred by the Company to Royalty Sub and payments, if any, made to Royalty Sub under the Currency Hedge Agreement. The PhaRMA Notes bear interest at 14% per annum, payable annually in arrears on September 1st of each year. The Company remains entitled to receive any royalties and milestone payments related to sales of peramivir by Shionogi following repayment of the PhaRMA Notes.

 

Royalty Sub’s obligations to pay principal and interest on the PhaRMA Notes are obligations solely of Royalty Sub and are without recourse to any other person, including the Company, except to the extent of the Company’s pledge of its equity interests in Royalty Sub in support of the PhaRMA Notes. The Company may, but is not obligated to, make capital contributions to a capital account that may be used to redeem, or on up to one occasion pay any interest shortfall on, the PhaRMA Notes.

 

In September 2014, Royalty Sub was unable to pay the accrued interest obligation due September 3, 2013. Under the terms of the Indenture, Royalty Sub’s inability to pay the full amount of interest payable in September 2013 by the next succeeding payment date for the PhaRMA Notes, which was September 1, 2014, constituted an event of default. Accordingly, the PhaRMA Notes and related accrued interest have been classified as current liabilities on the December 31, 2014 balance sheet and thereafter. The PhaRMA Notes had a final legal maturity date of December 1, 2020, at which time the outstanding principal amount of the PhaRMA Notes, together with accrued and unpaid interest, was due in full. As of September 30, 2021, the PhaRMA Notes remained outstanding and in default, and the Company will continue to record the liability and accrued interest owed until the Company is determined to no longer be the financial obligor, which is anticipated during 2021. As a result of the continuing events of default under the PhaRMA Notes, the holders of the PhaRMA Notes may foreclose on the collateral securing the PhaRMA Notes and the equity interest in Royalty Sub and exercise other remedies available to them under the Indenture in respect of the PhaRMA Notes. In such event, the Company may not realize the benefit of future royalty payments that might otherwise accrue to it following repayment of the PhaRMA Notes and it might otherwise be adversely affected. Due to the non-recourse nature of the PhaRMA Notes, in the event of any potential foreclosure, the primary impact to the Company would be the loss of future royalty payments from Shionogi and legal costs associated with retiring the PhaRMA Notes. As the PhaRMA Notes are the obligation of Royalty Sub and non-recourse to the Company, the events of default of the PhaRMA Notes are not expected to have a significant impact on the Company’s future results of operations or cash flows. As of September 30, 2021, the outstanding principal amount of the PhaRMA Notes was $30,000 and accrued and unpaid interest was $25,553.

 

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The Indenture does not contain any financial covenants. The Indenture includes customary representations and warranties of Royalty Sub, affirmative and negative covenants of Royalty Sub, Events of Default and related remedies, and provisions regarding the duties of the Trustee, indemnification of the Trustee, and other matters typical for indentures used in structured financings of this type.

 

As of September 30, 2021, the aggregate fair value of the PhaRMA Notes was estimated to be approximately 3% of its carrying value of $30,000. The estimated fair value of the PhaRMA Notes is classified as Level 3 in the fair value hierarchy as defined in U.S. GAAP.

 

Foreign Currency Hedge

 

In connection with the issuance by Royalty Sub of the PhaRMA Notes, the Company entered into a Currency Hedge Agreement to hedge certain risks associated with changes in the value of the Japanese yen relative to the U.S. dollar. Under the Currency Hedge Agreement, the Company had the right to purchase dollars and sell yen at a rate of 100 yen per dollar. The Currency Hedge Agreement did not qualify for hedge accounting treatment; therefore mark-to-market adjustments were recognized in the Company’s Consolidated Statements of Comprehensive Loss. The final tranche of the options under the Currency Hedge Agreement expired in November 2020.

 

ORLADEYO Royalty Monetization

 

On December 7, 2020, the Company and RPI 2019 Intermediate Finance Trust (“RPI”) entered into a Purchase and Sale Agreement (the “Royalty Purchase Agreement”), pursuant to which the Company sold to RPI the right to receive certain royalty payments from the Company for a purchase price of $125,000 in cash (the “Royalty Sale”).  Under the Royalty Purchase Agreement, RPI is entitled to receive tiered, sales-based royalties on net product sales of ORLADEYO in the United States, certain key European markets, and other markets where the Company sells ORLADEYO directly or through distributors (collectively, the “Key Territories”) in an amount equal to: (i) 8.75% of aggregate annual net sales of ORLADEYO in the Key Territories for annual net sales up to $350,000 and (ii) 2.75% of annual net sales in the Key Territories for annual net sales between $350,000 and $550,000. No royalty payments are payable on annual net sales in the Key Territories over $550,000.  In addition, RPI will be entitled to receive 1.0% of global net sales, if any, of BCX9930.

 

Under the Royalty Purchase Agreement, RPI is also entitled to receive a tiered revenue share on ORLADEYO sublicense revenue or net sales by licensees outside of the Key Territories (the “Other Markets”) equal to: (i) 20% of the proceeds received by the Company for upfront license fees and development milestones for ORLADEYO in the Other Markets; (ii) 20% of proceeds received on annual net sales of up to $150,000 in the Other Markets; and (iii) 10% of proceeds received by the Company on annual net sales between $150,000 and $230,000 in the Other Markets. No royalty payments are payable on annual net sales above $230,000 in the Other Markets. No payment will be due to RPI for any achievement milestone which may be payable under the existing out-license for ORLADEYO.

 

The Company will be required to make royalty payments of amounts owed to RPI each calendar quarter following the first commercial sale of ORLADEYO in any country.

 

Under the Royalty Purchase Agreement, the Company has agreed to specified affirmative and negative covenants, including covenants regarding periodic reporting of information by the Company to RPI, third-party audits of royalties paid under the Royalty Purchase Agreement, and restrictions on the ability of the Company or any of its subsidiaries to incur indebtedness other than certain royalty sales and as is permitted to be incurred under the terms of the Company’s Credit Agreement with Athyrium Opportunities III Co-Invest 1 LP. Refer to Note 3 for further details on the Credit Agreement. The restrictions on the ability of the Company or any of its subsidiaries to incur indebtedness are eliminated after the achievement of certain specified milestones in the Royalty Purchase Agreement.

 

The cash consideration of $125,000 obtained pursuant to the Royalty Purchase Agreement is recorded in “Royalty financing obligation” on the Company’s consolidated balance sheet as of December 31, 2020. The fair value for the royalty financing obligation at the time of the transaction was based on the Company’s estimates of future royalties expected to be paid to RPI over the life of the arrangement. The estimates of future net product sales (and resulting royalty payments) are based on key assumptions including population, penetration and sales price and are determined using forecasts from market data sources, which are considered Level 3 inputs. Deferred issuance costs, which consist primarily of advisory and legal fees, totaled $2,370 as of September 30, 2021. The royalty financing obligation and the deferred issuance costs are amortized using the effective interest method over the term of the arrangement, in accordance with the respective guidance. The effective interest rate as of September 30, 2021 was approximately 24%. For the nine months ended September 30, 2021, accrued interest expense in the amount of $24,125 was added to the balance of the royalty financing obligation. Additionally, as of September 30, 2021, the Company has made royalty payments of $3,459 and had accrued royalties payable to RPI of $3,269, which reduced the royalty financing obligation. The Company will utilize the prospective method to account for subsequent changes in the estimated future payments to be made to RPI.

 

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Note 3 Credit Agreement

 

On December 7, 2020, the Company entered into a $200,000 Credit Agreement with Athyrium Opportunities III Co-Invest 1 LP (“Athyrium”), as lender and as administrative agent for the lenders. BioCryst Ireland Limited, BioCryst US Sales Co., LLC, and BioCryst UK Limited, each of which is a wholly-owned subsidiary of the Company, are guarantors to the Credit Agreement. The Credit Agreement provided for an initial term loan in the principal amount of $125,000 (the “Term A Loan”), which was received by the Company on December 7, 2020 and is recorded in “Secured term loan” on the Company’s balance sheet.  The Company used a portion of the proceeds from the Term A Loan to repay $43,298 of outstanding indebtedness, including accrued interest, under its then-existing credit facility with MidCap Financial Trust. 

 

The Credit Agreement also provides for two additional term loans, at the Company’s option, in the respective principal amounts of $25,000 (the “Term B Loan”) and $50,000 (the “Term C Loan” and collectively with the Term A Loan and the Term B Loan, the “Term Loans”).  The Term B Loan and the Term C Loan may be drawn upon if, among other conditions, the Company reaches defined revenue milestones and, with respect to a draw on the Term C Loan, the Term B Loan has been funded prior to or contemporaneously with the Term C Loan.  The maturity date of the Credit Agreement is December 7, 2025.

 

The Credit Agreement provides for quarterly interest-only payments until the maturity date, with the unpaid principal amount of the outstanding Term Loans due and payable on the maturity date.  For each of the first eight full fiscal quarters following December 7, 2020, the Company has the option to make the applicable interest payment in-kind (a “PIK Interest Payment”) by capitalizing the entire amount of interest accrued during the applicable interest period with the unpaid original principal amount outstanding on the last day of such period. The Term Loans will bear interest at a rate equal to the three-month LIBOR rate, which shall be no less than 1.75% and no more than 3.50% (“LIBOR”), plus 8.25%, or for each interest period in which a PIK Interest Payment is made, LIBOR plus 10.25%.

 

Subject to certain exceptions, the Company is required to make mandatory prepayments of the Term Loans with the proceeds of certain asset sales, certain ORLADEYO out-licensing or royalty monetization transactions (excluding the Royalty Sale), extraordinary receipts, debt issuances, or upon a change of control of the Company and specified other events, subject to certain exceptions. The Company may make voluntary prepayments in whole or in part. Prepayments are subject to a premium equal to, (i) with respect to any voluntary prepayment and certain mandatory prepayments paid on or prior to the second anniversary of the applicable Term Loan borrowing date, the amount, if any, by which (a) the sum of (1) 102.00% of the principal amount of the Term Loan being prepaid plus (2) the present value of all interest that would have accrued on the principal amount of the Term Loan being prepaid through and including the second anniversary of the date of the borrowing of such Term Loan, plus 0.50%, exceeds (b) the principal amount of the Term Loan being prepaid; (ii) with respect to any prepayment made between the second and third anniversaries of the applicable Term Loan borrowing date, 2.00% of the principal amount of the Term Loan being prepaid; (iii) with respect to any prepayment made between the third and fourth anniversaries of the applicable Term Loan borrowing date, 1.00% of the principal amount of the Term Loan being prepaid; and (iv) with respect to any prepayment made after the fourth anniversary of the applicable Term Loan borrowing date, 0.00% of the principal amount of the Term Loan being prepaid. Upon the prepayment or repayment, including at maturity, of all or any of the Term Loans, the Company is obligated to pay an exit fee in an amount equal to 2.00% of the principal amount of the Term Loans prepaid or repaid. In addition, each Term Loan is subject to a 1.00% commitment fee at its respective borrowing date.

 

The Credit Agreement also contains representations and warranties and affirmative and negative covenants customary for financings of this type, as well as customary events of default.  Certain of the customary negative covenants limit the ability of the Company and certain of its subsidiaries to, among other things, grant liens, make investments, incur additional indebtedness, engage in mergers, acquisitions, and similar transactions, dispose of assets, license certain property, distribute dividends, make certain restricted payments, change the nature of the Company’s business, engage in transactions with affiliates and insiders, prepay other indebtedness, or engage in sale and leaseback transactions, subject to certain exceptions.  Additionally, as of the last day of each fiscal quarter (a “Test Date”), beginning with the first Test Date occurring immediately after the Term C Loan is drawn, if applicable, the Company may not permit consolidated net revenues from ORLADEYO sales in the United States for the four-fiscal quarter period ending on such Test Date to be less than the specified amounts set forth in the Credit Agreement (collectively, the “Revenue Tests”).  If the Company fails to satisfy the Revenue Tests as of any Test Date, it will have a one-time right (the “Cure Right”) to repay in full the entire amount of the Term C Loan outstanding at such time together with all accrued and unpaid interest thereon plus the prepayment premium, exit fee, and any other fees or amounts payable under the Credit Agreement at such time.  In addition, the Credit Agreement contains a minimum liquidity covenant requiring the Company to maintain at all times, as applicable, at least $15,000 of unrestricted cash and cash equivalents if only the Term A Loan has been drawn; at least $20,000 of unrestricted cash and cash equivalents if the Term B Loan has been drawn but the Term C Loan has not been drawn; and at least $15,000 (or, if the Cure Right has been exercised, $20,000) of unrestricted cash and cash equivalents if the Term C Loan has been drawn, subject to certain exceptions.

 

A failure to comply with the covenants in the Credit Agreement could permit the Lenders under the Credit Agreement to declare the outstanding principal as well as accrued interest and fees, to be immediately due and payable.

 

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The Company's obligations under the Credit Agreement are secured by a security interest in, subject to certain exceptions, substantially all of the Company's assets.

 

The Credit Agreement provides for quarterly interest-only payments until the maturity date, with the unpaid principal amount of the outstanding Term Loans due and payable on the maturity date of December 7, 2025. The Term Loan is accruing interest at a rate of 12.17%. The Company has elected each of the quarterly interest payments in 2021 to be PIK Interest Payments. For the nine months ended September 30, 2021, total PIK Interest Payments of $12,871 were added to the outstanding balance of the Term Loan. As of September 30, 2021, debt fees and issuance costs totaled $8,321 and are being amortized as part of interest expense on an effective interest rate method over the term of the Term A Loan. As of September 30, 2021, borrowings, including the PIK Interest Payment, under the Credit Agreement totaled $137,871. The fair value of the debt approximates its carrying value based on prevailing interest rates as of the balance sheet date and is considered as Level 2 in the fair value hierarchy.

 

The Credit Agreement contains two provisions that, if deemed probable, would create the recognition of an embedded feature; however, at this time, the Company does not believe either provision is probable.

 

 

Note 4 Senior Credit Facility

 

On February 5, 2019, the Company entered into a $100,000 Senior Credit Facility with an affiliate of MidCap Financial Services, LLC, as administrative agent (the “Second Amended and Restated Senior Credit Facility”). Borrowings under the Second Amended and Restated Senior Credit Facility were available in three tranches, with (i) the first tranche comprised of $50,000 funded at closing, which included $30,000 of proceeds that were deemed rolled over from the outstanding principal amount under the Company’s prior credit agreement, (ii) the second tranche comprised of $30,000, and (iii) the third tranche comprised of $20,000, with the second and third tranches to have been funded upon the completion of certain contingencies related to the Company’s development activities of its product candidates and the establishment of certain financial covenants.

 

The Second Amended and Restated Senior Credit Facility had a variable interest rate of LIBOR (which was not to be less than 0.5%) plus 8%. The Second Amended and Restated Senior Credit Facility included an interest-only payment period through June 2020 and scheduled monthly principal and interest payments for the subsequent 30 months.

 

For the nine months ended September 30, 2020, the Company recognized $4,064 in interest expense related to the Second Amended and Restated Senior Credit Facility. In December 2020, the Company repaid the outstanding principal of the Second Amended and Restated Senior Credit Facility of $40,000 along with exit fees and accrued interest through the payoff date that totaled $3,298. The unamortized deferred financing cost and original issue discount of $1,211 was expensed as a loss on debt extinguishment.

 

 

Note 5 Lease Obligations and Other Contingencies

 

The Company leases certain assets under operating leases, which primarily consisted of real estate leases, laboratory equipment leases and office equipment leases as of September 30, 2021. The Company accounts for its leases in accordance with ASU 2016-02: Leases (Topic 842).  This ASU requires a lessee to recognize a right-of-use asset and a lease liability on its balance sheet for most operating leases.  Certain operating leases provide for renewal options, which can vary by lease. The right-of-use asset and lease liabilities on the Company’s Consolidated Balance Sheets represent payments over the lease term, which includes renewal options for certain real estate leases that we are likely to exercise. As part of the Company’s assessment of the lease term, the Company elected the hindsight practical expedient, which allows companies to use current knowledge and expectations when determining the likelihood to extend lease options. Renewal options for the Company’s leases range from 1 to 5 years in length and begin from 2024 through 2026. The weighted average lease term for the Company’s operating leases was 11.4 years. The discount rate used in the calculation of the Company’s right-of-use asset and lease liability was determined based on the stated rate within each contract when available, or the Company’s collateralized borrowing rate from lending institutions. The weighted average discount rate for the Company’s operating leases was 12.5%.

 

The Company has not made any residual value guarantees related to its operating leases; therefore, the Company has no corresponding liability recorded on its Consolidated Balance Sheets.

 

Aggregate lease expense under operating leases was $1,306 and $1,321 for the nine months ended September 30, 2021 and 2020, respectively. Certain operating leases include rent escalation provisions, which the Company recognizes as expense on a straight-line basis. Lease expense for leases with an initial term of twelve months or less was not material. Cash paid for amounts included in the measurement of lease liabilities was $1,125 and $1,235 for the nine months ended September 30, 2021 and 2020, respectively.

 

Maturities of operating lease liabilities as of September 30, 2021, are as follows (in thousands):

 

2021 (remaining)

 $485 

2022

  1,574 

2023

  1,418 

2024

  875 

2025

  724 

Thereafter

  7,327 

Total lease payments

  12,403 

Less imputed interest

  (5,916)

Total

 $6,487 

 

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The Company’s current lease liability as of September 30, 2021 and December 31, 2020 was $1,452 and $1,179, respectively. The Company’s long-term lease liability as of September 30, 2021 and December 31, 2020 was $5,035 and $3,871, respectively. The current and long-term portions of the Company’s lease liability are presented within “Lease financing obligations” on the Consolidated Balance Sheets. The Company’s right-of use asset balance associated with operating leases totaled $5,191 and $3,802 at September 30, 2021 and December 31, 2020, respectively. These amounts are presented within “Other assets” on the Consolidated Balance Sheets. Operating right-of-use assets are recorded net of accumulated amortization of $2,328 and $2,641 as of September 30, 2021 and December 31, 2020, respectively.

 

 

Note 6 Stockholders Equity

 

Sales of Common Stock

 

On April 24, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC. This shelf registration statement became effective on May 14, 2020 and allows the Company to sell up to $500,000 in securities, including common stock, preferred stock, depositary shares, purchase contracts, warrants, debt securities, and units, from time to time at prices and on terms to be determined at the time of sale.

 

On June 1, 2020, the Company issued 22,044 shares of common stock to the public at a purchase price of $4.50 per share and pre-funded warrants to purchase 3,511 shares of common stock at a purchase of $4.49 per pre-funded warrant, for total net proceeds to the Company of $108,096 after deducting underwriting discounts and commissions and other offering expenses. Each pre-funded warrant is exercisable, subject to conditions in the warrant agreement, into one share of common stock at an exercise price of $0.01 per share. All warrants issued in this offering remain outstanding at September 30, 2021.

 

On March 1, 2021, the Company filed an automatic shelf registration statement on Form S-3 with the SEC. This shelf registration statement became effective automatically upon filing and allows the Company to sell an indeterminate number of securities, including common stock, preferred stock, depositary shares, purchase contracts, warrants, debt securities, and units, from time to time at prices and on terms to be determined at the time of sale.

 

 

Note 7 Stock-Based Compensation

 

As of September 30, 2021, the Company had three stock-based employee compensation plans: the Amended and Restated Stock Incentive Plan (“Incentive Plan”), the Amended and Restated Inducement Equity Incentive Plan (“Inducement Plan”) and the Amended and Restated Employee Stock Purchase Plan (“ESPP”). The Incentive Plan was amended and restated in April 2021 and approved by the Company’s stockholders on May 25, 2021. The Inducement Plan was adopted by the Board of Directors on April 24, 2019 and amended and restated by the Board of Directors in February 2020, July 2020, and July 2021. The ESPP was amended and restated in April 2021 and approved by the Company’s stockholders on May 25, 2021.

 

Stock-based compensation expense of $26,140 ($19,973 of expense related to the Incentive Plan, $5,025 of expense related to the Inducement Plan, and $1,142 of expense related to the ESPP) was recognized during the nine months ended September 30, 2021, while $8,907 ($7,492 of expense related to the Incentive Plan, $1,053 of expense related to the Inducement Plan and $362 of expense related to the ESPP) was recognized during the nine months ended September 30, 2020. In August 2021, the Company modified outstanding stock option awards held by an executive officer separating from employment with the Company. In connection with this separation of employment, the Company accelerated the vesting of 582,084 unvested stock options held by the executive, making them immediately exercisable.

 

There was approximately $60,420 of total unrecognized compensation expense related to non-vested stock option awards granted by the Company as of September 30, 2021. As of September 30, 2021, the Company expected to recognize that expense as follows: $6,324 during the remainder of 2021, $21,474 in 2022, $16,788 in 2023, $14,020 in 2024 and $1,814 in 2025. In addition, the Company has outstanding performance-based stock options for which no compensation expense is recognized until “performance” has occurred and the award vests.

 

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Stock Incentive Plan

 

The Company grants stock option awards and restricted stock unit awards to its employees, directors, and consultants under the Incentive Plan. Under the Incentive Plan, stock option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock option awards and restricted stock units granted to employees generally vest 25% each year until fully vested after four years.

 

In August 2013, December 2014 and December 2019, the Company issued 1,032, 1,250 and 315 performance-based stock options, respectively. These awards vest upon successful completion of specific development milestones. As of September 30, 2021, 100%, 85% and 100% of the August 2013, December 2014 and December 2019 grants, respectively, have vested. During 2020, the Company recognized $1,768 and $684 of stock compensation expense related to two milestones within the August 2013 and December 2019 grants for which achievement became probable.

 

Stock option awards granted to non-employee directors of the Company generally vest over one year. All stock option awards have contractual terms of 10 years. The vesting and exercise provisions of all awards granted under the Incentive Plan are subject to acceleration in the event of certain stockholder-approved transactions, or upon the occurrence of a change in control as defined in the Incentive Plan.

 

Related activity under the Incentive Plan is as follows:

 

          

Weighted

 
          

Average

 
  

Awards

  

Options

  

Exercise

 
  

Available

  

Outstanding

  

Price

 

Balance December 31, 2020

  4,592   24,885  $6.52 

Plan amendment

  7,500   -   - 

Restricted stock unit awards granted

  (100)  -   - 

Stock option awards granted

  (2,108)  2,108   11.87 

Stock option awards exercised

  -   (2,205)  4.11 

Stock option awards cancelled

  208   (208)  7.47 

Balance September 30, 2021

  10,092   24,580  $7.18 

 

For stock option awards granted under the Incentive Plan during the first nine months of 2021 and 2020, the fair value was estimated on the date of grant using a Black-Scholes option pricing model and the assumptions noted in the table below. The weighted average grant date fair value per share of the awards granted during the first nine months of 2021 and 2020 was $8.11 and $3.35, respectively. The fair value of the stock option awards is amortized to expense over the vesting periods using a straight-line expense attribution method.

 

Inducement Equity Incentive Plan

 

The Company has the ability to grant stock option awards to newly-hired employees as inducements material to each employee entering employment with the Company. Stock option awards granted to newly hired employees are granted with an exercise price equal to the market price of the Company’s stock at the date of grant and generally vest 25% each year until fully vested after four years. Each stock option has a term of 10 years and is subject to the terms and conditions of the Inducement Plan. The vesting and exercise provisions of all awards granted under the Inducement Plan are subject to acceleration in the event of certain stockholder-approved transactions, or upon the occurrence of a change in control as defined in the Inducement Plan.

 

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Related activity under the Inducement Plan is as follows:

 

          

Weighted

 
          

Average

 
  

Awards

  

Options

  

Exercise

 
  

Available

  

Outstanding

  

Price

 

Balance December 31, 2020

  229   4,171  $3.88 

Plan amendment

  1,500   -   - 

Stock option awards granted

  (738)  738   14.23 

Stock option awards exercised

  -   (386)  3.61 

Stock option awards cancelled

  122   (122)  3.86 

Balance September 30, 2021

  1,113   4,401  $5.64 

 

For stock option awards granted under the Inducement Plan during the first nine months of 2021 and 2020, the fair value was estimated on the date of grant using a Black-Scholes option pricing model and the assumptions noted in the table below. The weighted average grant date fair value per share of the awards granted during the first nine months of 2021 and 2020 was $9.74 and $2.41, respectively.

 

The following table summarizes the key assumptions used by the Company to value the stock option awards granted under the Incentive Plan and the Inducement Plan during the first nine months of 2021 and 2020, respectively. The expected life is based on the average of the assumption that all outstanding stock option awards will be exercised at full vesting and the assumption that all outstanding stock option awards will be exercised at the midpoint of the current date (if already vested) or at full vesting (if not yet vested) and the full contractual term. The expected volatility represents the historical volatility on the Company’s publicly traded common stock. The Company has assumed no expected dividend yield, as dividends have never been paid to stock or option holders and will not be paid for the foreseeable future. The weighted average risk-free interest rate is the implied yield currently available on zero-coupon government issues with a remaining term equal to the expected term.

 

Weighted Average Assumptions for Stock Option Awards Granted to

Employees and Directors under the Plans

 

  2021  

2020

 

Expected Life in Years

  5.5   5.5 

Expected Volatility

  84.2%  83.8%

Expected Dividend Yield

  0.0%  0.0%

Risk-Free Interest Rate

  0.8%  0.4%

 

Employee Stock Purchase Plan (ESPP)

 

The Company has reserved a total of 7,975 shares of common stock to be purchased under the ESPP, of which 6,056 shares remain available for purchase as of September 30, 2021. Eligible employees may authorize up to 15% of their salary to purchase common stock at the lower of 85% of the beginning or 85% of the ending price during six-month purchase intervals. No more than 3 shares may be purchased by any one employee at the six-month purchase dates, and no employee may purchase stock having a fair market value at the commencement date of $25 or more in any one calendar year. The Company issued 316 shares during the first nine months of 2021 under the ESPP. Compensation expense for shares purchased under the ESPP related to the purchase discount and the “look-back” option were determined using a Black-Scholes option pricing model.

 

 

Note 8 Collaborative and Other Research and Development Contracts

 

National Institute of Allergy and Infectious Diseases (NIAID/HHS). In September 2013, NIAID/HHS contracted with the Company for the development of galidesivir as a treatment for Marburg virus disease and subsequently, Yellow Fever and Ebola virus disease. On September 15, 2021, the Company entered into an amendment to pay for certain additional costs, including additional manufacturing development costs and overhead, and to change the total value of the contract, as amended, to $47,315 from $45,931. This is the commencement of closing out the contract. All options under the contract have been awarded.

 

In August 2020, NIAID/HHS awarded the Company a new contract, with potential aggregate funding up of to $43,908 if all contract options are exercised, to manufacture and evaluate the safety, efficacy and tolerability of galidesivir. NIAID/HHS made an initial award of $6,326 to the Company under this contract.

 

Biomedical Advanced Research and Development Authority (BARDA/HHS). In March 2015, BARDA/HHS awarded the Company a contract for the continued development of galidesivir as a potential treatment for diseases caused by RNA pathogens, including filoviruses. This BARDA/HHS contract includes a base contract of $16,265 to support galidesivir drug manufacturing, as well as $22,855 in additional development options that can be exercised by the government, bringing the potential value of the contract to $39,120. As of September 30, 2021, a total of $20,574 has been awarded under exercised options within this contract. The most recent development option was completed as of September 30, 2021.

 

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The contracts with NIAID/HHS and BARDA/HHS are cost-plus-fixed-fee contracts. That is, the Company is entitled to receive reimbursement for all costs incurred in accordance with the contract provisions that are related to the development of galidesivir plus a fixed fee, or profit. BARDA/HHS and NIAID/HHS will make periodic assessments of progress, and the continuation of the contracts is based on the Company’s performance, the timeliness and quality of deliverables, and other factors. The government has rights under certain contract clauses to terminate these contracts. These contracts are terminable by the government at any time for breach or without cause.

 

U.S. Department of Health and Human Services (HHS). In September 2018, HHS awarded the Company a $34,660 contract for the procurement of up to 50,000 doses of RAPIVAB (peramivir injection) over a five-year period, including an initial base order of 10,000 doses. On September 3, 2020, the Company announced that HHS had exercised an option under this contract to purchase an additional 10,000 doses of RAPIVAB for $6,932, which the Company delivered in June and July of 2021.  For the nine months ended September 30, 2021, the Company delivered a total of 9,980 doses for $6,918.  On September 1, 2021, the Company announced that HHS has exercised its option to purchase an additional 10,000 doses of RAPIVAB.  As of September 30, 2021, the Company has delivered a total of 29,980 RAPIVAB doses of the 50,000 RAPIVAB doses available under the contract with HHS.

 

Torii Pharmaceutical Co., Ltd. (Torii). On November 5, 2019, the Company entered into a Commercialization and License Agreement with Torii (the “Torii Agreement”), granting Torii the exclusive right to commercialize ORLADEYO for the prevention of hereditary angioedema (“HAE”) attacks in Japan.

 

Under the Torii Agreement, the Company received an upfront, non-refundable payment of $22,000. The Japanese National Health Insurance System’s (“NHI”) approval of the addition of ORLADEYO to the NHI drug price list in April 2021 triggered a $15,000 milestone payment from Torii to the Company, which was received in May 2021.

 

In addition, under the Torii Agreement, the Company is entitled to receive tiered royalty payments, ranging from 20% to 40% of annual net sales of ORLADEYO in Japan during each calendar year. Torii’s royalty payment obligations are subject to customary reductions in certain circumstances, but may not be reduced by more than 50% of the amount that otherwise would have been payable to the Company in the applicable calendar quarter. Torii’s royalty payment obligations commence upon the first commercial sale of ORLADEYO in Japan and expire upon the later of (i) the tenth anniversary of the date of first commercial sale of ORLADEYO in Japan, (ii) the expiration of the Company’s patents covering ORLADEYO, and (iii) the expiration of regulatory exclusivity for ORLADEYO in Japan. The Company will be responsible for supplying Torii with its required amounts of ORLADEYO. The activities of the parties pursuant to the Torii Agreement will be overseen by a joint steering committee, to be composed of an equal number of representatives from each party to coordinate the development and commercialization of ORLADEYO in Japan. Torii launched ORLADEYO in Japan on April 23, 2021.

 

The Company identified performance obligations related to (i) the license to develop and commercialize ORLADEYO, (ii) regulatory approval support and (iii) reimbursement pricing approval support. These were each determined to be distinct from the other performance obligations. The Company allocated the $22,000 upfront consideration to the identified performance obligations using estimation approaches to determine the standalone selling prices under ASC Topic 606. Specifically, in determining the value related to the license, a valuation approach utilizing risk adjusted discounted cash flow projections was used, and an expected cost plus margin approach was utilized for the other performance obligations. For the nine months ended September 30, 2020, $1,617 of the $22,000 upfront payment was recognized as revenue as the services were delivered.  Prior to 2020, the Company had recognized as revenue $20,101 of the $22,000 upfront payment.

 

Seqirus UK Limited (SUL). On June 16, 2015, the Company and SUL, a limited company organized under the laws of the United Kingdom and a subsidiary of CSL Limited, a company organized under the laws of Australia, entered into a License Agreement (the “SUL Agreement”) granting SUL and its affiliates worldwide rights to develop, manufacture and commercialize RAPIVAB (peramivir injection) for the treatment of influenza except for the rights to conduct such activities in Israel, Japan, Korea and Taiwan (the permitted geographies together constituting the “Territory”). Under the terms of the SUL Agreement, the Company received an upfront payment of $33,740 and has achieved all development milestones under the contract totaling $12,000.

 

On March 4, 2020, the International Court of Arbitration of the International Chamber of Commerce (“ICC Tribunal”) delivered a Partial Arbitration Award (the “Partial Arbitration Award”) in an arbitration matter between the Company and SUL with respect to the SUL Agreement. In the Partial Arbitration Award, the ICC Tribunal found that, during the term, SUL materially breached and abandoned its core duties to the Company under the Diligent Efforts (as defined in the SUL Agreement) requirements of the SUL Agreement as applicable in the U.S. The ICC Tribunal granted a declaratory judgment in favor of the Company terminating the SUL Agreement and restoring all rights to peramivir to the Company. The parties agreed on a transition process for the product, with a full transition of commercialization of the product in the U.S. and Australia returned to the Company as of August 1, 2020 and November 1, 2020, respectively. The ICC Tribunal also awarded the Company its attorneys’ fees and expenses incurred in securing the declaratory judgment as well as the costs incurred by the Company in the arbitration. Finally, the ICC Tribunal found that SUL breached the SUL Agreement by failing to pay the milestone payment due to the Company within 30 days of the approval of peramivir for adult use in the European Union and awarded the Company $5,000 (plus interest) for this claim. The ICC Tribunal retained jurisdiction for further proceedings relating to the award of attorneys’ fees and for any dispute relating to the return to the Company of all rights to peramivir in the Territory. The Company recognized a settlement gain of $8,893 in other income and legal fees and other expenses of $5,026 in selling, general and administrative expenses for the nine months ended September 30, 2020.

 

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Shionogi & Co., Ltd. (Shionogi). In February 2007, the Company entered into an exclusive license agreement with Shionogi to develop and commercialize peramivir in Japan for the treatment of seasonal and potentially life-threatening human influenza. Under the terms of the agreement, Shionogi obtained rights to injectable formulations of peramivir in Japan. The Company developed peramivir under a license from UAB and will owe sublicense payments to UAB on any future milestone payments and/or royalties received by the Company from Shionogi. In October 2008, the Company and Shionogi amended the license agreement to expand the territory covered by the agreement to include Taiwan. Shionogi has commercially launched peramivir under the commercial name RAPIACTA in Japan and Taiwan.

 

In December 2017, the Company, on behalf of Royalty Sub, instituted arbitration proceedings against Shionogi in order to resolve a dispute with Shionogi under the Shionogi Agreement regarding the achievement of sales milestones and escalating royalties. The arbitration proceedings have concluded, with the decision that no sale milestones had been achieved and that royalties would remain the same. The costs associated with the arbitration proceedings are recoverable from the assets of Royalty Sub in accordance with the terms of the indenture and servicing agreement relating to the PhaRMA Notes.

 

Green Cross Corporation (Green Cross). In June 2006, the Company entered into an agreement with Green Cross to develop and commercialize peramivir in Korea. Under the terms of the agreement, Green Cross will be responsible for all development, regulatory, and commercialization costs in Korea. The Company received a one-time license fee of $250. The license also provides that the Company will share in profits resulting from the sale of peramivir in Korea, including the sale of peramivir to the Korean government for stockpiling purposes. Furthermore, Green Cross will pay the Company a premium over its cost to supply peramivir for development and any future marketing of peramivir products in Korea.

 

Mundipharma International Holdings Limited (Mundipharma). In February 2006, the Company entered into an exclusive, royalty bearing right and license agreement with Mundipharma for the development and commercialization of Mundesine, a Purine Nucleoside Phosphorylase (“PNP”) inhibitor, for use in oncology. The agreement, as amended and restated, provides for the possibility of future event payments totaling $15,000 for achieving specified regulatory events for certain indications and tiered royalties ranging from mid to high single-digit percentages of net product sales in each country where Mundesine is sold by Mundipharma. The Company licensed forodesine and other PNP inhibitors from AECOM/IRL (as defined below) and will owe sublicense payments to AECOM/IRL on all milestone payments and royalties received from Mundipharma.

 

Albert Einstein College of Medicine of Yeshiva University and Industrial Research, Ltd. (AECOM and IRL, respectively). In June 2000, the Company licensed a series of potent inhibitors of PNP from AECOM and IRL, (together, the “Licensors”). The lead product candidate from this collaboration is forodesine. The Company has obtained worldwide exclusive rights to develop and ultimately distribute this, or any other, product candidates that might arise from research on these inhibitors. The Company has the option to expand the agreement to include other inventions in the field made by the investigators or employees of the Licensors. Under this agreement, as amended and restated, the Company has agreed to use commercially reasonable efforts to develop these drugs and to pay certain milestone payments for each licensed product (which range in the aggregate from $1,400 to almost $4,000 per indication) for future development, single digit royalties on net sales of any resulting product made by the Company, and to share a portion of future payments received from other third-party partners, if any. In addition, the Company has agreed to pay annual license fees, which can range from $150 to $500, that are creditable against actual royalties and other payments due to the Licensors. The Licensors have also granted the Company an exclusive worldwide license of galidesivir for any antiviral use.

 

The University of Alabama at Birmingham (UAB). The Company currently has agreements with UAB for influenza neuraminidase and complement inhibitors. Under the terms of these agreements, UAB performed specific research for the Company in return for research payments and license fees. UAB has granted the Company certain rights to any discoveries in these areas resulting from research developed by UAB or jointly developed by UAB with the Company. The Company has agreed to pay single digit royalties on sales of any resulting product and to share in future payments received from other third-party partners. The Company has completed the research under the UAB agreements. These two agreements each have an initial 25-year term, are automatically renewable for five-year terms throughout the life of the last patent and are terminable by the Company upon three months’ notice and by UAB under certain circumstances. Upon termination, both parties shall cease using the other parties’ proprietary and confidential information and materials, the parties shall jointly own joint inventions and UAB shall resume full ownership of all UAB licensed products. There is currently no activity between the Company and UAB on these agreements, but when the Company licenses this technology, such as in the case of the Shionogi and Green Cross collaborations, or commercializes products related to these programs, the Company will owe sublicense fees or royalties on amounts received.

 

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

The following Managements Discussion and Analysis (MD&A) is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and the accompanying notes to the financial statements and other disclosures included in this report (including the Cautionary Note Regarding Forward-Looking Statements at the beginning of this report and the Risk Factors section in Part II, Item 1A of this report).

 

Overview

 

We are a commercial-stage biotechnology company that discovers novel, small-molecule medicines. We focus on oral treatments for rare diseases in which significant unmet medical needs exist and an enzyme plays the key role in the biological pathway of the disease. We integrate the disciplines of biology, crystallography, medicinal chemistry, and computer modeling to discover and develop small molecule pharmaceuticals through the process known as structure-guided drug design. In addition to these discovery and development efforts, our business strategy includes the efficient commercialization of these drugs in the U.S. and certain other regions upon regulatory approval. By focusing on rare disease markets, we believe that we can more effectively control the costs of, and our strategic allocation of financial resources toward, post-approval commercialization.

 

Products and Product Candidates

 

ORLADEYO® (berotralstat). ORLADEYO is an oral, once-daily therapy discovered and developed by us for the prevention of hereditary angioedema (“HAE”) attacks. ORLADEYO is approved in the U.S., the European Union, Japan, the United Kingdom, and the United Arab Emirates for the prevention of HAE attacks in adults and pediatric patients 12 years and older.

 

BCX9930. BCX9930 is a novel, oral, potent, and selective small molecule inhibitor of Factor D currently in clinical development for the treatment of complement-mediated diseases. Based on the safety and proof-of-concept data generated to date in patients with paroxysmal nocturnal hemoglobinuria (“PNH”), the program has advanced to pivotal studies of oral BCX9930 (500 mg bid) in PNH and to a proof-of-concept trial of oral BCX9930 (500 mg bid) in renal complement-mediated diseases. The proof-of-concept trial will be a basket study to evaluate BCX9930 for the potential to treat patients with C3 glomerulopathy, IgA nephropathy, and primary membranous nephropathy. We are working closely with key opinion leaders in hematology and nephrology to map the development strategy across a broad set of indications. Our goal is to develop BCX9930 as an oral monotherapy for complement-mediated diseases.

 

Galidesivir. Galidesivir, a broad-spectrum antiviral drug, is an adenosine nucleoside analog that acts to block viral RNA polymerase. It is in advanced development for the treatment of Marburg virus disease. Phase 1 clinical safety and pharmacokinetics trials of galidesivir by both intravenous and intramuscular routes of administration in healthy subjects have been conducted. We are developing galidesivir in collaboration with U.S. government agencies and other institutions.

 

The galidesivir program has been substantially funded with federal funds from the National Institute of Allergy and Infectious Diseases within the U.S. Department of Health and Human Services (“NIAID/HHS”) and by the Biomedical Advanced Research and Development Authority within the HHS (“BARDA/HHS”).

 

BCX9250. The goal of our activin receptor-like kinase-2 (“ALK2”) inhibitor program is to discover and develop orally administered kinase inhibitor drug candidates that are able to slow or prevent the progressive formation of bone in soft tissues, also known as heterotopic ossification (“HO”), that affects patients with fibrodysplasia ossificans progressiva (“FOP”). In a phase 1 clinical trial in healthy volunteers, BCX9250 was safe and well tolerated at all doses studied, with linear and dose-proportional exposure supporting once-daily dosing.

 

RAPIVAB®/RAPIACTA/PERAMIFLU (peramivir injection). RAPIVAB (peramivir injection) is approved in the U.S. for the treatment of acute uncomplicated influenza for patients six months and older. Peramivir injection is also approved in Canada (RAPIVAB), Australia (RAPIVAB), Japan (RAPIACTA), Taiwan (RAPIACTA), and Korea (PERAMIFLU).

 

Revenues and Expenses

 

Our revenues are difficult to predict and depend on several factors, including those discussed in the “Risk Factors” section in Part II, Item 1A of this report. For example, our revenues depend, in part, on regulatory approval decisions for our products and product candidates, the effectiveness of our and our collaborative partners’ commercialization efforts, market acceptance of our products, particularly ORLADEYO, the resources dedicated to our products by us and our collaborative partners, and ongoing discussions with government agencies regarding contract awards for development and procurement, as well as entering into or modifying licensing agreements for our product candidates. Furthermore, revenues related to our collaborative development activities are dependent upon the progress toward, and the achievement of, developmental milestones by us or our collaborative partners.

 

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Our operating expenses are also difficult to predict and depend on several factors, including commercialization expenses, research and development expenses (and whether these expenses are reimbursable under government contracts), drug manufacturing, and clinical research activities, the ongoing requirements of our development programs, the availability of capital and direction from regulatory agencies, which are difficult to predict, and the factors discussed in the “Risk Factors” section in Part II, Item 1A of this report. Management may be able to control the timing and level of research and development and selling, general and administrative expenses, but many of these expenditures will occur irrespective of our actions due to contractually committed activities and/or payments.

 

As a result of these factors, we believe that period-to-period comparisons are not necessarily meaningful, and you should not rely on them as an indication of future performance. Due to all of the foregoing factors, it is possible that our operating results will be below the expectations of market analysts and investors. In such event, the prevailing market price of our common stock could be materially adversely affected.

 

Critical Accounting Policies and Estimates

 

The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, judgments and the policies underlying these estimates on a periodic basis, as situations change, and regularly discuss financial events, policies, and issues with members of our audit committee and our independent registered public accounting firm. In particular, we routinely evaluate our estimates and policies regarding revenue recognition, administration, inventory and manufacturing, taxes, stock-based compensation, research and development, consulting and other expenses and any associated liabilities. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results of our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. See “Critical Accounting Policies” at the end of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a description of accounting policies that we believe are the most critical to aid you in fully understanding and evaluating our reported financial results and that affect the more significant judgments and estimates that we use in the preparation of our financial statements.

 

Recent Corporate Highlights

 

COVID-19

 

The ongoing COVID-19 pandemic has severely impacted global economic activity and caused significant volatility in financial markets. While our financial condition, results of operations, and liquidity have not been materially impacted by the direct effects of the COVID-19 pandemic, the COVID-19 pandemic continues to evolve. Please refer to “Risk Factors⸻Risks Related to Our Business⸻Risks Related to COVID-19” in Part II, Item 1A of this report for a discussion of COVID-19 risks as they relate to our business. We are continuing to monitor developments with respect to the COVID-19 pandemic and to make adjustments as needed to assist in protecting the safety of our employees and communities while continuing our business activities. Our remote working arrangements are ongoing where possible, and we continue to limit business-related travel. To date, implementation of these measures has not required material expenditures or significantly impacted our ability to operate our business or our internal control over financial reporting and disclosure controls and procedures. We are continuing to monitor the potential impacts of COVID-19 on our operations and those of our partners, suppliers, customers, and regulators.

 

ORLADEYO® (berotralstat)

 

ORLADEYO is an oral, once-daily therapy discovered and developed by BioCryst for the prevention of HAE attacks. ORLADEYO has been approved by the U.S. Food and Drug Administration (“FDA”), the Ministry of Health, Labor and Welfare (“MHLW”) in Japan in January 2021, the European Commission (“EC”), the Medicines and Healthcare products Regulatory Agency (“MHRA”) in the United Kingdom, and the Ministry of Health and Prevention (“MOHAP”) in the United Arab Emirates (“UAE”) for prophylaxis to prevent attacks of HAE in adults and pediatric patients 12 years and older.

 

On July 10, 2021, we announced data presented at the European Academy of Allergy and Clinical Immunology (“EAACI”) Hybrid Congress 2021. HAE patients who were randomized to receive 150 mg of ORLADEYO at the start of the APeX-2 trial had an 80 percent average reduction in their mean attack rate per month during weeks 25-96 of the trial, compared to baseline. Median attack rates also decreased from 2.7 attacks per month at baseline to 0.0 attacks per month in 16 of 17 months through the same period. ORLADEYO was generally well-tolerated during the treatment period with fewer drug-related adverse events reported in part 3 (weeks 49-96) as compared to part 1 (weeks 0-24) and part 2 (weeks 25-48). Eighty-one percent of the patients who entered part 3 completed the trial.

 

On August 25, 2021, we announced that the new drug submission for ORLADEYO was accepted for review by Health Canada for the prevention of recurrent attacks in patients with HAE 12 years and older. We also announced that Swissmedic accepted the Company’s marketing authorization application for ORLADEYO for review.

 

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On September 9, 2021, we announced that the MOHAP in the UAE granted marketing authorization for ORLADEYO for the prevention of recurrent attacks in patients with HAE 12 years and older. To support commercialization efforts in the UAE, we entered into a supply and distribution agreement with NewBridge Pharmaceuticals, which also covers the Gulf Cooperation Council and Iraq.

 

On September 15, 2021, we announced that the United Kingdom’s National Institute for Health and Care Excellence (“NICE”) recommended ORLADEYO for preventing recurrent attacks of HAE in eligible patients 12 years and older if they have at least two attacks per month. With this recommendation, HAE patients in England, Wales, and Northern Ireland will have access to the first oral, once-daily therapy for routine prevention of recurrent HAE attacks.

 

On November 3, 2021, we announced that ORLADEYO has received reimbursement approval in Norway and is expected to launch in Norway in early December 2021.

 

Revenue from sales of ORLADEYO in the third quarter of 2021, which was our third full quarter of ORLADEYO sales, is discussed under “Results of Operations.” Revenue from sales of ORLADEYO in future periods is subject to uncertainties and will depend on several factors, including the success of our and our partners’ commercialization efforts in the U.S. and elsewhere, the number of new patients switching to ORLADEYO, patient retention and demand, the number of physicians prescribing ORLADEYO, the rate of monthly prescriptions, reimbursement from third-party and government payors, the conversion of patients from our clinical trials and early access programs to commercial customers, and market trends. We are continuing to monitor and analyze this data during the initial launch period.

 

Complement-Mediated Diseases

 

Paroxysmal Nocturnal Hemoglobinuria (PNH)

 

On July 15, 2021, we announced the designs for REDEEM-1 and REDEEM-2, two pivotal trials with BCX9930 in patients with PNH. REDEEM-1 is a randomized, open-label, active, comparator-controlled comparison of the efficacy and safety of BCX9930 (500 mg twice-daily) monotherapy in approximately 81 PNH patients with an inadequate response to a C5 inhibitor. REDEEM-2 is a randomized, placebo-controlled trial to evaluate the efficacy and safety of BCX9930 (500 mg twice-daily) as monotherapy versus placebo in approximately 57 PNH patients not currently receiving complement inhibitor therapy. The primary endpoint for both trials is the change from baseline in hemoglobin, assessed at weeks 12 to 24 in REDEEM-1 and at week 12 in REDEEM-2. Trial site startup activities are underway at sites around the world, and patient enrollment is expected to begin in the fourth quarter of 2021.

 

We have completed a proof-of-concept trial in patients with PNH, including both treatment-naïve and those patients with an inadequate response to C5 inhibitors.  Patients on BCX9930 have been allowed to roll over with continued follow-up into a long-term safety trial.  We continue to monitor the patients who continue in the long-term safety trial.  Those patients who have discontinued from the long-term safety trial have done so for reasons unrelated to BCX9930.

 

BCX9930 has continued to be safe and generally well-tolerated with increased duration of dosing in the trial.  No serious drug-related adverse events were reported.

 

Renal Complement-Mediated Diseases

 

In the fourth quarter of 2021, we are preparing to initiate a proof-of-concept trial of oral BCX9930 (500 mg twice-daily) in renal complement-mediated diseases.  The trial will be a basket study to evaluate BCX9930 for the potential to treat patients with C3 glomerulopathy, IgA nephropathy, and primary membranous nephropathy.

 

Galidesivir

 

On September 15, 2021, we entered into an amendment to our September 2013 contract with NIAID/HHS to pay for certain additional costs, including additional manufacturing development costs and overhead, and to change the total value of the contract, as amended, to $47.3 million from $45.9 million. This is the commencement of closing out the contract. All options under the contract have been awarded. The contract we entered into with NIAID/HHS in August 2020, with potential aggregate funding of up to $43.9 million if all contract options are exercised, remains ongoing. NIAID/HHS made an initial award of $6.3 million under this contract in 2020.

 

RAPIVAB (peramivir injection)

 

On September 1, 2021, we announced that the U.S. Department of Health and Human Services has exercised its option to purchase an additional 10,000 doses of RAPIVAB for $6.9 million. The order is part of a $34.7 million contract the Centers for Disease Control and Prevention awarded in 2018 for the procurement of up to 50,000 doses of RAPIVAB over a five-year period for the Strategic National Stockpile.

 

Results of Operations (three months ended September 30, 2021 compared to the three months ended September 30, 2020)

 

For the three months ended September 30, 2021, total revenues were $41.0 million as compared to $6.1 million for the three months ended September 30, 2020. The increase was primarily due to $37.0 million of ORLADEYO net revenue following our commercial launch in December 2020. This increase in revenue was partially offset by a reduction in contract revenue of $1.5 million and the recognition of $0.3 million of deferred revenue in the prior year period compared to none in the current year period.

 

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Cost of product sales for the three months ended September 30, 2021 and 2020 was $0.6 million and $1.5 million, respectively, and was primarily associated with the peramivir product sales to our partners.

 

Research and development (“R&D”) expenses increased to $50.0 million for the three months ended September 30, 2021 from $30.2 million for the three months ended September 30, 2020, primarily due to increased investment in the development of BCX9930, as well as other research, preclinical and development costs, which were partially offset by a reduction in spend on the ORLADEYO program following our commercial launch in December 2020.

 

Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2021 were $35.0 million compared to $17.2 million in the three months ended September 30, 2020. The increase was primarily due to increased investment to support the U.S. commercial launch of ORLADEYO and our expanded international operations. Additionally, SG&A expenses for the three months ended September 30, 2021 includes severance costs of $0.7 million and a related one-time non-cash stock compensation charge of $7.0 million in connection with the accelerated vesting of certain outstanding stock options.

 

Interest expense for the three months ended September 30, 2021 was $14.1 million as compared to $2.9 million for the three months ended September 30, 2020. The increase in interest expense was primarily associated with the sale of certain royalty payments to RPI 2019 Intermediate Finance Trust (“RPI”) in December 2020 (the “Royalty Sale”) and the $125.0 million Term A Loan under the Credit Agreement that we entered into with Athyrium Opportunities III Co-Invest 1 LP (“Athyrium”) in December 2020 (the “Credit Agreement”). The nature of the Royalty Sale requires that we recognize a liability (the “Royalty Financing Obligation”) for the future sale of royalties under the agreement. This liability is amortized using the effective interest rate method, resulting in the recognition of non-cash interest expense over the estimated term of the Royalty Purchase Agreement (as defined in “Note 2⸻Royalty Monetizations⸻ORLADEYO Royalty Monetization” in the Notes to Consolidated Financial Statements in Part I, Item 1 of this report). Interest expense for the three months ended September 30, 2021 included $8.5 million of non-cash interest expense due to the amortization of interest associated with the Royalty Financing Obligation and $3.9 million of interest expense, net of deferred financing amortization, associated with the Term A Loan under the Credit Agreement. Additionally, we recognized $1.7 million in interest expense on the non-recourse PhaRMA Notes issued in March 2011. Interest expense for the three months ended September 30, 2020 consisted of $1.6 million associated with the non-recourse PhaRMA Notes and $1.3 million associated with the borrowings under our secured credit facility with MidCap, which terminated in December 2020 when we repaid the outstanding indebtedness under the facility.

 

For the three months ended September 30, 2021 and September 30, 2020, other expense of $0.1 million and $0.3 million, respectively, was primarily related to foreign currency losses.

 

Results of Operations (nine months ended September 30, 2021 compared to the nine months ended September 30, 2020)

 

For the nine months ended September 30, 2021, total revenues were $110.0 million as compared to $13.8 million for the nine months ended September 30, 2020. The increase was primarily due to $76.4 million of ORLADEYO net revenue following our commercial launch in December 2020.  Additionally, RAPIVAB revenues, primarily from sales to HHS, increased by $7.1 million and peramivir product revenue from inventory sales to our partners increased by $4.6 million. The Company also recognized a $15.0 million milestone payment related to the NHI approval of ORLADEYO in Japan.  These increases in revenue were partially offset by a reduction in royalty revenue of $2.3 million, a reduction in contract revenue of $2.2 million and the recognition of $1.6 million of deferred revenue in the prior year period compared to none in the current year period.  The decrease in royalty revenue was due to peramivir product replacement under Green Cross’s supply agreement with the Korean government.

 

Cost of product sales for the nine months ended September 30, 2021, and 2020 was $6.8 million and $1.5 million, respectively, and was primarily associated with the peramivir product sales to our partners.

 

R&D expenses increased to $145.3 million for the nine months ended September 30, 2021 from $87.6 million for the nine months ended September 30, 2020, primarily due to increased investment in the development of BCX9930, as well as other research, preclinical and development costs, which were partially offset by a reduction in spend on the ORLADEYO program following our commercial launch in December 2020.

 

The following table summarizes our R&D expenses for the periods indicated (amounts are in thousands). Certain prior period amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the total R&D expenses.

 

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2021

   

2020

   

2021

   

2020

 

R&D expenses by program:

                               

BCX9930

  $ 26,885     $ 10,332     $ 77,233     $ 21,226  

Berotralstat

    6,821       9,947       24,472       36,337  

Galidesivir

    390       3,035       4,309       7,395  

BCX9250

    557       142       1,436       2,189  

Peramivir

    191       296       745       1,433  

Other research, preclinical and development costs

    15,127       6,493       37,084       19,030  

Total R&D expenses

  $ 49,971     $ 30,245     $ 145,279     $ 87,610  

 

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SG&A expenses for the nine months ended September 30, 2021 were $83.4 million compared to $46.9 million in the nine months ended September 30, 2020. The increase was primarily due to increased investment to support the U.S. commercial launch of ORLADEYO and our expanded international operations. Additionally, SG&A expenses for the nine months ended September 30, 2021 includes severance costs of $0.7 million and a related one-time non-cash stock compensation charge of $7.0 million in connection with the accelerated vesting of certain outstanding stock options.

 

Interest expense for the nine months ended September 30, 2021 was $40.5 million as compared to $8.9 million for the nine months ended September 30, 2020. The increase in interest expense was primarily associated with the Royalty Sale and the $125.0 million Term A Loan under the Credit Agreement. Interest expense for the nine months ended September 30, 2021 included $24.1 million of non-cash interest expense due to the amortization of interest associated with the Royalty Financing Obligation and $11.4 million of interest expense, net of deferred financing amortization, associated with the Term A Loan under the Credit Agreement. Additionally, we recognized $4.9 million in interest expense on the non-recourse PhaRMA Notes issued in March 2011. Interest expense for the nine months ended September 30, 2020 consisted of $4.8 million associated with the non-recourse PhaRMA Notes and $4.1 million associated with the borrowings under our secured credit facility with MidCap, which terminated in in December 2020 when we repaid the outstanding indebtedness under the facility.

 

For the nine months ended September 30, 2021, other expense of $0.2 million was primarily related to foreign currency losses as compared to interest and other income of $8.9 million for the nine months ended September 30, 2020, which primarily consisted of $8.9 million related to recognition of income from the partial arbitration award related to our Seqirus arbitration proceedings.

 

Liquidity and Capital Resources

 

Our operations have principally been funded through public offerings and private placements of equity securities; cash from collaborative and other research and development agreements, including U.S. Government contracts for RAPIVAB and galidesivir; to a lesser extent, the PhaRMA Notes financing and our credit facilities; and more recently, the Royalty Sale.  To date, we have been awarded a BARDA/HHS RAPIVAB development contract totaling $234.8 million, which expired on June 30, 2014; a NIAID/HHS galidesivir development contract totaling $47.3 million, which is ongoing; a second NIAID/HHS galidesivir development contract with a potential value totaling $43.9 million, which is ongoing; and a BARDA/HHS galidesivir development contract with a potential value totaling $39.1 million, which is also ongoing. The total amount of funding obligated under awarded options under the active NIAID/HHS and BARDA/HHS galidesivir contracts is $53.6 million and $20.6 million, respectively.  In addition to the above, we have previously received funding from other sources, including other collaborative and other research and development agreements, government grants, equipment lease financing, facility leases, research grants, and interest income on our investments.

 

Our Credit Agreement with Athyrium provides for three term loans. We received the proceeds from the $125.0 million Term A Loan in December 2020. The two additional term loans are available, at our option, in the respective principal amounts of $25.0 million for the Term B Loan and $50.0 million for the Term C Loan. The Term B Loan and the Term C Loan may be drawn upon if, among other conditions, we reach defined revenue milestones and, with respect to a draw on the Term C Loan, the Term B Loan has been funded prior to or contemporaneously with the Term C Loan. The maturity date of the Credit Agreement is December 7, 2025. See “Note 3⸻Credit Agreement” in the Notes to Consolidated Financial Statements in Part I, Item 1 of this report for additional information about the Credit Agreement.

 

As of September 30, 2021, we had net working capital of $119.1 million, a decrease of approximately $99.0 million from $218.1 million at December 31, 2020. The decrease in working capital was primarily due to normal operating expenses associated with the development of our product candidates and expenses incurred as a result of the launch and commercialization of ORLADEYO. Our principal sources of liquidity at September 30, 2021 were approximately $199.6 million in cash and cash equivalents.

 

We intend to contain costs and cash flow requirements by closely managing our third-party costs and headcount, leasing scientific equipment and facilities, contracting with other parties to conduct certain research and development projects, and using consultants. We expect to incur additional expenses, potentially resulting in significant losses, as we continue to pursue our research and development activities, commercialize ORLADEYO, and hire additional personnel. We may incur additional expenses related to the filing, prosecution, maintenance, defense, and enforcement of patent and other intellectual property claims and additional regulatory costs as our clinical programs advance through later stages of development. The objective of our investment policy is to ensure the safety and preservation of invested funds, as well as to maintain liquidity sufficient to meet cash flow requirements. We place our excess cash with high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of our credit exposure. We have not realized any significant losses on our investments.

 

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We plan to finance our needs principally from the following:

 

 

lease, royalty, or loan financing and future public or private equity and/or debt financing;

 

our existing capital resources and interest earned on that capital;

 

revenues from product sales;

 

payments under existing, and executing new, contracts with the U.S. Government; and

 

payments under current or future collaborative and licensing agreements with corporate partners.

 

As our commercialization activities and research and development programs continue to advance, our costs will increase. Our current and planned clinical trials, plus the related development, manufacturing, regulatory approval process requirements, and additional personnel resources and testing required for the continuing development of our product candidates and the commercialization of our products will consume significant capital resources and will increase our expenses. Our expenses, revenues and cash utilization rate could vary significantly depending on many factors, including our ability to raise additional capital, the development progress of our collaborative agreements for our product candidates, the amount and timing of funding we receive from existing U.S. Government contracts for galidesivir, the amount of funding or assistance, if any, we receive from new U.S. Government contracts or other new partnerships with third parties for the development and/or commercialization of our products and product candidates, the progress and results of our current and proposed clinical trials for our most advanced product candidates, the progress made in the manufacturing of our lead product candidates, the success of our commercialization efforts for, and market acceptance of, our products, and the overall progression of our other programs. The impact of the ongoing COVID-19 pandemic on one or more of the foregoing factors could negatively affect our expenses, revenues, and cash utilization rate.

 

Based on our expectations for revenue, operating expenses, and our option to access an additional $75 million under the Credit Agreement, we believe our financial resources will be sufficient to fund our operations into 2023. However, we have sustained operating losses for the majority of our corporate history and expect that our 2021 expenses will exceed our 2021 revenues. We expect to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoing operations. Our liquidity needs will be largely determined by the success of operations in regard to the successful commercialization of our products and the future progression of our product candidates. We regularly evaluate other opportunities to fund future operations, including: (1) securing or increasing U.S. Government funding of our programs, including obtaining procurement contracts; (2) out-licensing rights to certain of our products or product candidates, pursuant to which we would receive cash milestone payments; (3) raising additional capital through equity or debt financings or from other sources, including royalty or other monetization transactions; (4) obtaining additional product candidate regulatory approvals, which would generate revenue, milestone payments and cash flow; (5) reducing spending on one or more research and development programs, including by discontinuing development; and/or (6) restructuring operations to change our overhead structure. We may issue securities, including common stock, preferred stock, depositary shares, purchase contracts, warrants, debt securities, and units, through private placement transactions or registered public offerings. Our future liquidity needs, and our ability to address those needs, will largely be determined by the success of our products and product candidates; the timing, scope, and magnitude of our commercial expenses; and key development and regulatory events and our decisions in the future.

 

Our long-term capital requirements and the adequacy of our available funds will depend upon many factors, including:

 

 

market acceptance of approved products and successful commercialization of such products by either us or our partners;

 

our ability to perform under our government contracts and to receive reimbursement and stockpiling procurement contracts;

 

the magnitude of work under our government contracts;

 

the progress and magnitude of our research, drug discovery and development programs;

 

changes in existing collaborative relationships or government contracts;

 

our ability to establish additional collaborative relationships with academic institutions, biotechnology or pharmaceutical companies and governmental agencies or other third parties;

 

the extent to which our partners, including governmental agencies, will share in the costs associated with the development of our programs or run the development programs themselves;

 

our ability to negotiate favorable development and marketing strategic alliances for certain products and product candidates;

 

any decision to build or expand internal development and commercial capabilities;

 

the scope and results of preclinical studies and clinical trials to identify and develop product candidates;

 

our ability to engage sites and enroll subjects in our clinical trials;

 

the scope of manufacturing of our products to support our commercial operations and of our product candidates to support our preclinical research and clinical trials;

 

increases in personnel and related costs to support the development and commercialization of our products and product candidates;

 

the scope of manufacturing of our drug substance and product candidates required for future NDA filings;

 

competitive and technological advances;

 

the time and costs involved in obtaining regulatory approvals;

 

post-approval commitments for ORLADEYO, RAPIVAB, and other products that receive regulatory approval; and

 

the costs involved in all aspects of intellectual property strategy and protection, including the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims.

 

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We expect that we will be required to raise additional capital to complete the development and commercialization of our current products and product candidates, and we may seek to raise capital in the future, including to take advantage of attractive opportunities in the capital markets. Additional funding, whether through additional sales of equity or debt securities, collaborative or other arrangements with corporate partners or from other sources, including governmental agencies in general and existing government contracts specifically, may not be available when needed or on terms acceptable to us. The issuance of preferred or common stock or convertible securities, with terms and prices significantly more favorable than those of the currently outstanding common stock, could have the effect of diluting or adversely affecting the holdings or rights of our existing stockholders. In addition, collaborative arrangements may require us to transfer certain material rights to such corporate partners. Insufficient funds may require us to delay, scale back or eliminate certain of our research and development programs. Our future working capital requirements, including the need for additional working capital, will be largely determined by the advancement of our portfolio of product candidates and the commercialization of ORLADEYO, as well as the rate of reimbursement by U.S. Government agencies of our galidesivir expenses and any future decisions regarding the future of the RAPIVAB and galidesivir programs, including those relating to stockpiling procurement. More specifically, our working capital requirements will be dependent on the number, magnitude, scope and timing of our development programs; regulatory approval of our product candidates; obtaining funding from collaborative partners; the cost, timing and outcome of regulatory reviews, regulatory investigations, and changes in regulatory requirements; the costs of obtaining patent protection for our product candidates; the timing and terms of business development activities; the rate of technological advances relevant to our operations; the efficiency of manufacturing processes developed on our behalf by third parties; the timing, scope and magnitude of commercial spending, and the level of required administrative support for our daily operations.

 

The restrictive covenants contained in our Credit Agreement could cause us to be unable to pursue business opportunities that we or our stockholders may consider beneficial without the lender’s permission or without repaying all obligations outstanding under the Credit Agreement. These covenants limit our ability to, among other things, grant certain types of liens on our assets; make certain investments; incur or assume certain debt, including accessing additional tranches of debt under the Credit Agreement; engage in certain mergers, acquisitions, and similar transactions; dispose of assets; license certain property; distribute dividends; make certain restricted payments; change the nature of our business; engage in transactions with affiliates and insiders; prepay other indebtedness; or engage in sale and leaseback transactions. A breach of any of these covenants could result in an event of default under the Credit Agreement. As of September 30, 2021, we were in compliance with the covenants under the Credit Agreement.

 

Financial Outlook for 2021

 

Based on the strength of the ORLADEYO launch, and continued growth from new patient demand expected in the fourth quarter, we expect full year 2021 net ORLADEYO revenue to be between $115 million and $120 million. Based on our expectations for revenue, operating expenses, and our option to access an additional $75 million from our existing credit facility, we believe our current cash runway takes us into 2023. 

 

Off-Balance Sheet Arrangements

 

As of September 30, 2021, we do not have any unconsolidated entities or off–balance sheet arrangements.

 

Critical Accounting Policies

 

We have established various accounting policies that govern the application of U.S. GAAP, which were utilized in the preparation of our consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities. Management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of operations.

 

While our significant accounting policies are more fully described in “Note 1−Significant Accounting Policies” to the Consolidated Financial Statements in Part I, Item 1 of this report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements.

 

Inventory

 

Our inventories relate to ORLADEYO and peramivir, which are being manufactured for the Company’s partners and, in the case of peramivir, the U.S. Government. We value our inventories at the lower of cost or estimated net realizable value. We determine the cost of our inventories, which includes amounts related to materials, labor, manufacturing overhead and shipping and handling costs on a first-in, first-out (FIFO) basis. Raw materials and work-in-process includes all inventory costs prior to packaging and labeling, including raw material, active product ingredient, and drug product. Finished goods include packaged and labeled products.

 

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Our inventories are subject to expiration dating. We regularly evaluate the carrying value of our inventories and provide valuation reserves for any estimated obsolete, short-dated or unmarketable inventories. In addition, we may experience spoilage of our raw materials and supplies. Our determination that a valuation reserve might be required, in addition to the quantification of such reserve, requires us to utilize significant judgment.

 

We expense costs related to the production of inventories as research and development expenses in the period incurred until such time it is believed that future economic benefit is expected to be recognized, which generally is upon receipt of regulatory approval. Upon regulatory approval, we capitalize subsequent costs related to the production of inventories.

 

Accrued Expenses

 

We enter into contractual agreements with third-party vendors who provide research and development, manufacturing, distribution, and other services in the ordinary course of business. Some of these contracts are subject to milestone-based invoicing, and services are completed over an extended period of time. We record liabilities under these contractual commitments when we determine an obligation has been incurred. This accrual process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed and estimating the level of service performed and the associated cost when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates o