bcrx20220331_10q.htm
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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 March 31, 2022

 

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 April 29, 2022 was 185,583,896.

 

 
 

 

 

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 - March 31, 2022 and December 31, 2021

1

Consolidated Statements of Comprehensive Loss - Three Months Ended March 31, 2022 and 2021

2

Consolidated Statements of Cash Flows - Three Months Ended March 31, 2022 and 2021

3

Consolidated Statements of Stockholders’ Deficit – Three Months Ended March 31, 2022 and 2021

4

Notes to Consolidated Financial Statements

5

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

24

Item 3. Quantitative and Qualitative Disclosures About Market Risk

35

Item 4. Controls and Procedures

35

Part II. Other Information

36

Item 1A. Risk Factors

36

Item 6. Exhibits

60

Signatures

61

   

EX-10.1

 

EX-10.2

 

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, and our plans regarding the same;

 

 

the timing and success of our commercialization of ORLADEYO in the United States and elsewhere and expectations regarding the commercial market for ORLADEYO;

 

 

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 and Shionogi & Co., Ltd. (“Shionogi”) and Green Cross Corporation (“Green Cross”) for peramivir in their territories;

 

 

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

 

 

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, approvals, and other decisions;

 

 

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 SEC, before making an investment decision 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.

 

 

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.

 

ii

 

 

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 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

 

March 31, 2022 and December 31, 2021

 

(In thousands, except per share data)

 

  

2022

  

2021

 
  

(Unaudited)

  

(Note 1)

 

Assets

        

Cash and cash equivalents

 $395,504  $504,389 

Restricted cash

  3,354   3,345 

Investments

  47,964   3,212 

Trade receivables

  36,415   29,413 

Inventory

  16,144   15,791 

Prepaid expenses and other current assets

  12,333   9,986 

Total current assets

  511,714   566,136 

Property and equipment, net

  8,799   8,714 

Long-term investments

     6,829 

Other assets

  7,207   6,472 

Total assets

 $527,720  $588,151 
         

Liabilities and Stockholders Deficit

        

Accounts payable

 $13,881  $27,808 

Accrued expenses

  63,584   72,670 

Deferred revenue

  1,471   1,421 

Lease financing obligation

  2,081   1,819 

Total current liabilities

  81,017   103,718 

Lease financing obligation

  6,457   5,962 

Royalty financing obligations

  464,225   449,375 

Secured term loan

  140,236   136,082 

Stockholders’ equity:

        

Preferred stock, $0.01 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 – 185,572 as of March 31, 2022 and 184,350 as of December 31, 2021

  1,856   1,843 

Additional paid-in capital

  1,115,443   1,098,498 

Accumulated other comprehensive income

  186   177 

Accumulated deficit

  (1,281,700)  (1,207,504)

Total stockholders’ deficit

  (164,215)  (106,986)

Total liabilities and stockholders’ deficit

 $527,720  $588,151 

 

See accompanying notes to consolidated financial statements.

 

1

 
 

 

BIOCRYST PHARMACEUTICALS, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

Three Months Ended March 31, 2022 and 2021

 

(In thousands, except per share data-Unaudited)

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 

Revenues

        

Product sales, net

 $49,546  $17,871 

Royalty revenue

  347   (897)

Collaborative and other research and development

  30   2,085 

Total revenues

  49,923   19,059 

Expenses

        

Cost of product sales

  236   5,923 

Research and development

  65,360   42,435 

Selling, general and administrative

  34,282   22,114 

Royalty

  2   (36)

Total operating expenses

  99,880   70,436 

Loss from operations

  (49,957

)

  (51,377

)

Interest and other income

  54   26 

Interest expense

  (23,837

)

  (12,904

)

Foreign currency losses, net

  (177

)

  (29

)

Loss before income taxes

  (73,917)  (64,284

)

Income tax expense

  279    

Net loss

 $(74,196

)

 $(64,284

)

Foreign currency translation adjustment

  78   178 

Unrealized (loss) gain on available for sale investments

  (69

)

  1 

Comprehensive loss

 $(74,187

)

 $(64,105

)

         

Basic and diluted net loss per common share

 $(0.40

)

 $(0.36

)

Weighted average shares outstanding

  184,898   177,343 

 

See accompanying notes to consolidated financial statements.

 

2

 

 

 

BIOCRYST PHARMACEUTICALS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Three Months Ended March 31, 2022 and 2021

 

(In thousands-Unaudited)

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 

Cash flows from operating activities:

        

Net loss

 $(74,196

)

 $(64,284

)

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

        

Depreciation and amortization

  317   178 

Stock-based compensation expense

  9,601   5,479 

Non-cash interest expense on royalty financing obligations and secured term loan and amortization of debt issuance costs

  19,003   11,027 

Amortization of premium/discount on investments

  30   14 

Changes in operating assets and liabilities:

        

Receivables

  (7,048

)

  (261

)

Inventory

  (354

)

  1,927 

Prepaid expenses and other assets

  (2,320

)

  (9,850

)

Accounts payable and accrued expenses

  (22,908

)

  (7,373

)

Interest payable

     1,877 

Deferred revenue

  75   255 

Net cash used in operating activities

  (77,800

)

  (61,011

)

         

Cash flows from investing activities:

        

Acquisitions of property and equipment

  (406

)

  (99

)

Purchase of investments

  (38,066

)

   

Sales and maturities of investments

     14,771 

Realized gain on investments

     1 

Net cash (used in) provided by investing activities

  (38,472

)

  14,673 
         

Cash flows from financing activities:

        

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

  7,356   2,900 

Net cash provided by financing activities

  7,356   2,900 

Effect of exchange rate on cash, cash equivalents, and restricted cash

  40    
         

Decrease in cash, cash equivalents and restricted cash

  (108,876

)

  (43,438

)

Cash, cash equivalents and restricted cash at beginning of period

  507,734   274,348 

Cash, cash equivalents and restricted cash at end of period

 $398,858  $230,910 

 

See accompanying notes to consolidated financial statements.

 

3

 

 

BIOCRYST PHARMACEUTICALS, INC.

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT

 

Three Months Ended March 31, 2022 and 2021 

 

(In thousands, except per share amounts-Unaudited)

 

          

Accumulated

         
      

Additional

  

Other

      

Total

 
  

Common

  

Paid-In

  

Comprehensive

  

Accumulated

  

Stockholders

 
  

Stock

  

Capital

  

Income

  

Deficit

  

Deficit

 

Balance at December 31, 2021

 $1,843  $1,098,498  $177  $(1,207,504) $(106,986)

Net loss

           (74,196)  (74,196)

Other comprehensive income

        9      9 

Employee stock purchase plan sales, 115 shares, net

  1   1,503         1,504 

Exercise of stock options, 1,108 shares, net

  12   5,841         5,853 

Stock-based compensation expense

     9,601         9,601 

Balance at March 31, 2022

 $1,856  $1,115,443  $186  $(1,281,700) $(164,215)

 

        Accumulated       
     Additional  Other     Total 
  

Common

  

Paid-In

  

Comprehensive

  

Accumulated

  

Stockholders

 
  

Stock

  

Capital

  

Income

  

Deficit

  

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)

 

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 and Concentrations of Risk

 

The Company

 

BioCryst Pharmaceuticals, Inc. (the “Company”) is a commercial-stage biotechnology company that discovers novel, oral, 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’s marketed products include oral, once-daily ORLADEYO® for the prevention of hereditary angioedema (“HAE”) attacks and RAPIVAB® (peramivir injection) for the treatment of acute uncomplicated influenza in the United States.  ORLADEYO received regulatory approval in the United States in  December 2020.  During 2021, ORLADEYO received regulatory approvals in the European Union, Japan, the United Arab Emirates and the United Kingdom.  The Company is commercializing ORLADEYO in each of these territories directly or through distributors, except in Japan where Torii, the Company’s collaborative partner, has the exclusive right to commercialize ORLADEYO for the prevention of HAE attacks in exchange for certain milestone and royalty payments to the Company.  In addition to its approval in the United States, peramivir injection has received regulatory approvals in Canada, Australia, Japan, Taiwan and Korea. 

 

Based on the Company’s expectations for revenue, operating expenses, and the additional $75 million available to the Company under its existing credit facility, the Company believes its financial resources available at March 31, 2022 will be sufficient to fund its operations for at least the next 12 months. The Company has sustained operating losses for the majority of its corporate history and expects that its 2022 expenses will exceed its 2022 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 research and development and commercial expenses; and key developments 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, 2021 and the notes thereto included in the Company’s 2021 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, 2021 has been derived from the audited consolidated financial statements included in the Company’s most recent Annual Report on Form 10-K.

 

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 and Factor D inhibitors royalty financing obligations 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.

 

5

 

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.

 

Product Sales, Net

 

The Company’s principal sources of product sales are sales of ORLADEYO, which the Company began shipping to patients 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 (“HHS”) under the Company’s procurement contract. In the United States, the Company ships ORLADEYO directly to patients through a single specialty pharmacy, which is considered its customer. In the European Union, United Kingdom and elsewhere, the Company sells ORLADEYO to specialty distributors as well as hospitals and pharmacies, which collectively are considered its customers.

 

The Company recognizes revenue for sales when its customers obtain control of the product, which generally occurs upon delivery. For ORLADEYO, the Company classifies payments to its specialty pharmacy 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.

 

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. 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, and government programs 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.

 

6

 

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.

 

Product returns. The Company does not provide contractual return rights to its customers, 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 HHS (”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.

 

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.

 

7

 

Restricted Cash

 

Restricted cash of $1,924 as of both March 31, 2022 and December 31, 2021 reflects royalty revenue paid by Shionogi designated for interest on the PhaRMA Notes (defined in Note 6). Additionally, restricted cash of $1,430 and $1,421 as of March 31, 2022 and December 31, 2021, respectively, reflects collateral for a letter of credit the Company is required to maintain associated with the lease execution and build-out of its Birmingham research facilities.

 

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, certificates of deposits, municipal and corporate notes and bonds, and commercial paper, 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 12 months. Some of the securities in which the Company invests 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 March 31, 2022, the Company believes that the cost of its investments is recoverable in all material respects.

 

Trade Receivables

 

The majority of the Company’s trade receivables arise from product sales and primarily represent amounts due from its specialty pharmacy customer in the United States and other third-party distributors, hospitals and pharmacies in the European Union, United Kingdom and elsewhere and have standard payment terms that generally require payment within 30 to 90 days.

 

Receivables from collaborations are recorded for amounts due to the Company related to reimbursable research and development costs from the HHS, and royalty receivables from the Company’s partners, including Shionogi, Green Cross, and Torii.

 

Monthly invoices are submitted to HHS 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.

 

The Company does not adjust its receivables for the effects of a significant financing component at contract inception if it expects to collect the receivables in one year or less from the time of sale.

 

The Company provides reserves against trade receivables for estimated losses that  may result from a customer's inability to pay. Receivables 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, specific circumstances and the Company’s own historical collection experience. Amounts determined to be uncollectible are charged or written-off against the reserve.

 

Inventory

 

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 the drug product. Finished goods include packaged and labelled products.

 

8

 

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 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.

 

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 (i) fees paid to clinical research organizations (“CROs”) in connection with preclinical and toxicology studies and clinical trials; (ii) fees paid to investigative sites in connection with clinical trials; (iii) fees paid to contract manufacturers in connection with the production of the Company’s raw materials, drug substance, drug products, and product candidates; and (iv) 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 March 31, 2022 and December 31, 2021, the carrying value of accrued expenses approximates their fair value due to their short-term settlement.

 

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.

 

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.

 

9

 

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.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expense is primarily comprised of compensation and benefits associated with sales and marketing, finance, human resources, legal, information technology and other administrative personnel. Additionally, selling, general and administrative expenses are comprised of market research, marketing, advertising and legal expenses, including patent costs, licenses and other general and administrative costs.

 

Advertising expenses related to ORLADEYO were $3,984 and $1,404 for the three months ended March 31, 2022 and March 31, 2021, respectively.

 

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.

 

Leases

 

The Company leases certain assets under operating leases, which primarily consisted of real estate leases, laboratory equipment leases and office equipment leases as of March 31, 2022. The Company accounts for lease obligations in accordance with ASU 2016-02: Leases (Topic 842), which requires a lessee to recognize a right-of-use asset and a lease liability on its balance sheet for most operating leases.

 

Certain of the Company’s 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 Sheet 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. 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.

 

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 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.

 

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.

 

10

 

Interest Expense and Deferred Financing Costs

 

Interest expense for the three months ended March 31, 2022 and March 31, 2021 was $23,837 and $12,904, respectively, and primarily relates to the royalty financing obligations (Note 6), the secured term loan borrowing from the Credit Agreement (Note 7) and the PhaRMA Notes (Note 6). 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 $(167) and $(58) for the three months ended March 31, 2022 and March 31, 2021, respectively.

 

In  December 2021, the PhaRMA Notes and associated accrued interest payable was written-off into other income as a debt extinguishment (Refer to “Note 6—Royalty Monetizations—RAPIACTA—Non-Recourse Notes Payable – Debt Extinguishment” for additional information regarding the debt extinguishment).

 

Interest Expense and Royalty Financing Obligations

 

The royalty financing obligations are eligible to be repaid based on royalties from net sales of ORLADEYO, BCX9930, and another earlier stage Factor D inhibitor. Interest expense is accrued using the effective interest rate method over the estimated period each of the related liabilities 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 each of the royalty financing obligations and records interest expense using an imputed effective interest rate. The Company reassesses the expected royalty payments each reporting period and accounts 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 each of the liabilities, as well as the periods over which associated issuance costs will be amortized. A significant increase or decrease in forecasted net sales could materially impact each of the liability balances, interest expense and the time periods for repayment.

 

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.

 

Beginning in fiscal year 2021, the Company began accruing U.S. state income taxes and foreign income taxes as a result of increased sales of ORLADEYO and increased nexus in multiple states and foreign jurisdictions where historically the Company had no presence.

 

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 March 31, 2022 and 2021 does not include 28,699 and 23,741, respectively, of potential common shares, as their impact would be anti-dilutive.

 

Accumulated Other Comprehensive Income

 

Accumulated other comprehensive income 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 income and recorded as interest and other income on the Consolidated Statements of Comprehensive Loss.  For the three months ended March 31, 2021, realized gains of $1 were reclassified out of accumulated other comprehensive income. There were no realized gains or losses reclassified out of accumulated other comprehensive income for the three months ended March 31, 2022.

 

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 HHS.

 

ORLADEYO is distributed through an arrangement with a single specialty pharmacy in the United States. 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.

 

11

 

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 a single specialty pharmacy for distribution of approved drug product in the United States. 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 12 months or less.

 

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

 

There have been no new accounting pronouncements adopted by the Company or new accounting pronouncements issued by the Financial Accounting Standards Board during the three months ended March 31, 2022, as compared to the recent accounting pronouncements described in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, that the Company believes are of significance or potential significance to the Company.

 

Note 2 Revenue

 

The Company recorded the following revenues for the three months ended March 31, 2022 and 2021:

 

  

Three Months Ended

 
  

March 31,

 
  

2022

  

2021

 

Product sales, net:

        

ORLADEYO

 $49,386  $10,938 

RAPIVAB

  160   113 

Peramivir

     6,820 

Total product sales, net

  49,546   17,871 

Royalty revenue

  347   (897)

Collaborative and other research and development revenues:

        

U.S. Department of Health and Human Services

  30   2,085 

Total collaborative and other research and development revenues

  30   2,085 

Total revenues

 $49,923  $19,059 

 

12

 

 

 

Note 3 Investments

 

The following tables summarize the fair value of the Company’s investments by type. 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.

 

  

March 31, 2022

 
          

Gross

  

Gross

     
  

Amortized

  

Accrued

  

Unrealized

  

Unrealized

  

Estimated

 
  

Cost

  

Interest

  

Gains

  

Losses

  

Fair Value

 

Obligations of U.S. Government and its agencies

 $42,005  $98  $1  $(42) $42,062 

Corporate debt securities

  4,272   19      (32)  4,259 

Certificates of deposit

  1,648   3      (8)  1,643 

Total investments

 $47,925  $120  $1  $(82) $47,964 

 

  

December 31, 2021

 
          

Gross

  

Gross

     
  

Amortized

  

Accrued

  

Unrealized

  

Unrealized

  

Estimated

 
  

Cost

  

Interest

  

Gains

  

Losses

  

Fair Value

 

Obligations of U.S. Government and its agencies

 $4,043  $17  $  $(7) $4,053 

Corporate debt securities

  4,294   40      (5)  4,329 

Certificates of deposit

  1,652   8      (1)  1,659 

Total investments

 $9,989  $65  $  $(13) $10,041 

 

The following table summarizes the scheduled maturity for the Company’s investments at March 31, 2022 and December 31, 2021:

 

  

March 31, 2022

  

December 31, 2021

 

Maturing in one year or less

 $47,964  $3,212 

Maturing after one year through two years

     6,829 

Total investments

 $47,964  $10,041 

 

 

Note 4 Trade Receivables

 

Product Sales

 

Receivables from product sales are recorded for amounts due to the Company related to sales of ORLADEYO and RAPIVAB. At March 31, 2022 and December 31, 2021, receivables related to sales of ORLADEYO were $34,405 and $27,384, respectively. At March 31, 2022 and December 31, 2021, receivables related to sales of RAPIVAB were $78 and $49, respectively. No reserve or allowance amounts were recorded as of March 31, 2022 and December 31, 2021, respectively.

 

Collaborations

 

At March 31, 2022 and December 31, 2021, the Company had the following receivables from collaborations:

 

  

March 31, 2022

 
  

Billed

  

Unbilled

  

Total

 

U.S. Department of Health and Human Services

 $5  $1,600  $1,605 

Royalty receivables from partners

  327      327 

Total receivables

 $332  $1,600  $1,932 

 

13

 
  

December 31, 2021

 
  

Billed

  

Unbilled

  

Total

 

U.S. Department of Health and Human Services

 $5  $1,670  $1,675 

Royalty receivables from partners

  305      305 

Total receivables

 $310  $1,670  $1,980 

 

As of both  March 31, 2022 and December 31, 2021, the Company maintained a reserve of $701 related to royalties associated with Green Cross. 

 

 

Note 5 Inventory

 

At  March 31, 2022 and December 31, 2021, the Company’s inventory primarily related to ORLADEYO. Additionally, inventory included RAPIVAB and peramivir, which is manufactured for the Company’s partners.

 

The Company’s inventories consisted of the following:

 

  

March 31,

  

December 31,

 
  

2022

  

2021

 

Raw materials

 $5,269  $5,658 

Work-in-process

  10,434   9,669 

Finished goods

  694   709 

Total Inventory

 $16,397  $16,036 

Reserves

  (253)  (245)

Total Inventory, net

 $16,144  $15,791 

 

 

Note 6 Royalty Monetizations

 

RAPIACTA

 

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.

 

14

 

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. As a result of the event 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, if any, from Shionogi and legal costs associated with retiring the PhaRMA Notes. The PhaRMA Notes had a final legal maturity date of December 1, 2020, at which time the outstanding principal amount of the PhaRMA Notes of $30,000, together with accrued and unpaid interest of $20,614, was due in full.

 

Non-Recourse Notes Payable – Debt Extinguishment

 

During 2021, the royalty-bearing patents associated with RAPIACTA in Japan expired.  Accordingly, the Company evaluated the current circumstances of the PhaRMA Notes, including (i) their non-recourse nature relative to the Company, (ii) the current state of default since  September 1, 2014 and the legal maturity on  December 1, 2020 and (iii) the loss of patent protection relative to RAPIACTA in Japan, upon which any significant repayment of the PhaRMA Notes is predicated.  As a result, the Company determined that it was no longer the financial obligor, and as a result, the principal balance of $30,000 and associated accrued interest payable balance of $25,838 were written off, resulting in a gain on extinguishment recorded in other income (expense) for the year ended  December 31, 2021.

 

ORLADEYO and Factor D Inhibitors

 

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

 

Under the 2020 RPI 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.

 

On  November 19, 2021, the Company and RPI entered into (i) a Purchase and Sale Agreement (the “2021 RPI Royalty Purchase Agreement” and together with the 2020 RPI Royalty Purchase Agreement, the “RPI Royalty Purchase Agreements”), pursuant to which the Company sold to RPI the right to receive certain royalty payments from the Company for a purchase price of $150,000 in cash, and (ii) a Purchase and Sale Agreement with OCM IP Healthcare Holdings Limited, an affiliate of OMERS Capital Markets (“OMERS”) (the “OMERS Royalty Purchase Agreement” and collectively with the RPI Royalty Purchase Agreements, the “Royalty Purchase Agreements”), pursuant to which the Company sold to OMERS the right to receive certain royalty payments from the Company for a purchase price of an additional $150,000 in cash.

 

Under the 2021 RPI Royalty Purchase Agreement, RPI is entitled to receive tiered, sales-based royalties on Direct Sales in an amount equal to: (i) 0.75% of aggregate annual net sales of ORLADEYO for annual net sales up to $350,000 and (ii) 1.75% of annual net sales of ORLADEYO for annual net sales between $350,000 and $550,000. No royalty payments are payable on Direct Sales over $550,000. RPI is also entitled to receive a tiered revenue share on ORLADEYO sublicence revenue or net sales by licensees in the Other Markets in an amount equal to 3.0% of proceeds received by the Company on annual net sales of up to $150,000 in the Other Markets, and (iii) 2.0% 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.

 

Under the 2021 RPI Royalty Purchase Agreement, RPI is also entitled to receive tiered, sales-based royalties on net product sales of BCX9930 and another earlier stage Factor D inhibitor in an amount equal to: (i) 3.0% of worldwide aggregate annual net sales up to $1.5 billion and (ii) 2.0% of worldwide aggregate annual net sales between $1.5 billion and $3.0 billion. No royalty payments are payable on annual net sales above $3.0 billion. RPI is also entitled to receive tiered profit share amounts of up to 3.0% from certain other permitted sales in certain other markets.

 

15

 

The royalties payable under the 2021 RPI Royalty Purchase Agreement are in addition to the royalties payable to RPI under the 2020 RPI Royalty Purchase Agreement.

 

Under the OMERS Royalty Purchase Agreement, commencing with the calendar quarter beginning  October 1, 2023, OMERS will be entitled to receive tiered, sales-based royalties on Direct Sales in an amount equal to: (i) 7.5% of aggregate annual net sales of ORLADEYO for annual net sales up to $350,000 and (ii) 6.0% of annual net sales of ORLADEYO for annual net sales between $350,000 and $550,000 (with no royalty payments payable on annual Direct Sales over $550,000) (the “Regime A Royalty Rate”). If annual Direct Sales for calendar year 2023 reach a specified amount set forth in the OMERS Royalty Purchase Agreement, then for each calendar quarter beginning on or after  January 1, 2024, OMERS will be entitled to receive the Regime A Royalty Rate. If annual Direct Sales for calendar year 2023 are less than the specified amount, OMERS will be entitled to receive tiered, sales-based royalties on Direct Sales in an amount equal to: (i) 10.0% of aggregate annual net sales of ORLADEYO for annual net sales up to $350,000 and (ii) 3.0% of annual net sales of ORLADEYO for annual net sales between $350,000 and $550,000 (with no royalty payments payable on annual Direct Sales over $550,000) (the “Regime B Royalty Rate”).

 

Under the OMERS Royalty Purchase Agreement, OMERS is also entitled to receive a tiered revenue share on ORLADEYO sublicense revenue or net sales by licensees in the Other Markets in an amount equal to: (i) 20.0% of the proceeds received by the Company for upfront license fees and development milestones for ORLADEYO in the Other Markets, (ii) 20.0% of proceeds received by the Company on annual net sales of up to $150,000 in the Other Markets, and (iii) 10.0% 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. OMERS is also entitled to receive profit share amounts of up to 10% from certain other permitted sales in certain other markets.

 

Under the 2020 RPI Royalty Purchase Agreement, the Company is 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 2021 RPI Royalty Purchase Agreement, the Company is required to make payments to RPI in respect of net sales or sublicense revenue in each calendar quarter from and after  October 1, 2021. Under the OMERS Royalty Purchase Agreement, the Company will be required to make payments to OMERS is respect of net sales or sublicense revenue in each calendar quarter from and after  October 1, 2023. OMERS will no longer be entitled to receive any payments on the date in which aggregate payments actually received by OMERS equals either 142.5% or 155.0% of the $150,000 purchase price, depending on sales levels in calendar year 2023.

 

The transactions contemplated by each of the Royalty Purchase Agreements are referred to herein as the “Royalty Sales”.

 

Under the Royalty Purchase Agreements, the Company has agreed to specified affirmative and negative covenants, including covenants regarding periodic reporting of information by the Company to RPI and OMERS, third-party audits of royalties paid under the Royalty Purchase Agreements, 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 7 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 Agreements.

 

The cash consideration obtained pursuant to the Royalty Purchase Agreements is recorded in “Royalty financing obligations” on the Company’s consolidated balance sheet. The fair value for the royalty financing obligations at the time of the transactions was based on the Company’s estimates of future royalties expected to be paid to the counterparty over the life of the arrangement. The Company subsequently records the obligations at its carrying value using the effective interest method. In order to amortize the royalty financing obligations, the Company utilizes the prospective method to estimate the future royalties to be paid by the Company to the counterparty over the life of the arrangement. Under the prospective method, a new effective interest rate is determined based on the revised estimate of remaining cash flows. The new rate is the discount rate that equates the present value of the revised estimate of remaining cash flows with the carrying amount of the debt, and it will be used to recognize interest expense for the remaining periods. The Company periodically assesses the amount and timing of expected royalty payments using a combination of internal projections and forecasts from external sources.  The estimates of future net product sales (and resulting royalty payments) are based on key assumptions including population, penetration, probability of success, and sales price, among others. To the extent such payments are greater or less than the Company’s initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the royalty financing obligations and the effective interest rate.

 

 

16

 

 

The following table shows the activity within the Royalty financing obligations account (in thousands) as well as the effective interest rate as of  March 31, 2022:

 

  

2020 RPI
Royalty
Agreement

  

2021 RPI
Royalty
Agreement

  

OMERS
Royalty
Agreement

  

Total

 

Balance as of December 31, 2021

 $147,224  $153,377  $148,774  $449,375 

Deferred financing costs

     (34)     (34)

Non-cash Interest expense on Royalty financing obligations

  10,165   6,327   3,157   19,649 

Royalty revenues paid and payable

  (4,385)  (380)     (4,765)

Balance as of March 31, 2022

 $153,004  $159,290  $151,931  $464,225 
                 

Effective interest rate

  27.3%  16.5%  8.5%    

 

Deferred issuance costs pursuant to the Royalty financing obligations, which consist primarily of advisory and legal fees, totaled $8,531 as of March 31, 2022. The Royalty financing obligations liabilities and the associated deferred issuance costs are amortized using the effective interest method over the term of the arrangement, in accordance with the respective guidance.

 

Concurrent with entering into the 2021 RPI Royalty Purchase Agreement, the Company and RPI entered into a Common Stock Purchase Agreement (the “Common Stock Purchase Agreement”), pursuant to which the Company sold common stock to RPI for a premium of $4,269.  This premium has been deferred and is being amortized through interest expense using the effective interest method over the term of the applicable arrangement. Refer to Note 9 for further details on the common stock sale premium.

 

 

Note 7 Debt

 

Credit Agreement

 

On December 7, 2020, the Company entered into a $200,000 Credit Agreement (the “Credit Agreement”) with Athyrium Opportunities III Co-Invest 1 LP (“Athyrium”), as lender and as administrative agent for the lenders. BioCryst Ireland Limited and BioCryst US Sales Co., LLC, each of which is a wholly-owned subsidiary of the Company, and BioCryst UK Limited, a wholly-owned subsidiary of BioCryst Ireland Limited, are guarantors to the Credit Agreement. The Credit Agreement provides 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 as of March 31, 2022.  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 prior 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.

 

On  November 19, 2021, the Company entered into an amendment to the Credit Agreement (i) to permit the Company to enter into the 2021 RPI Royalty Purchase Agreement, the OMERS Royalty Purchase Agreement, and the other definitive documentation related thereto and to perform its obligations thereunder; (ii) to require the Company to pay to Athyrium, for the account of the lenders, a make-whole premium plus certain fees set forth in the Credit Agreement in the event that the Company does not draw the Term B Loan or the Term C Loan, as applicable, by the end of the applicable period available to draw the Term B Loan or the Term C Loan, subject to certain exceptions set forth in the Credit Agreement; and (iii) to require the Company to pay to Athyrium, for the account of the lenders, a make-whole premium plus certain fees set forth in the Credit Agreement in the event that the Company either (x) terminates the commitments in respect of the Term B Loan or the Term C Loan, as applicable, on or prior to the end of the applicable period available to draw the Term B Loan or the Term C Loan, or (y) prepays or repays, or is required to prepay or repay, voluntarily or pursuant to mandatory prepayment obligation under the Credit Agreement (e.g., with the proceeds of certain asset sales, certain ORLADEYO out-licensing or royalty monetization transactions (excluding the Royalty Sales), extraordinary receipts, debt issuances, or upon a change of control of the Company and specified other events, subject to certain exceptions), all of the then-outstanding Term Loans, in each case, subject to certain exceptions set forth in the Credit Agreement.

 

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%.

 

17

 

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 Sales), 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.

 

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.

 

As of March 31, 2022, the Company had borrowings of $125,000 under the Credit Agreement. Quarterly interest payments under the Credit Agreement for the three months ended  March 31, 2022 and 2021 totaled $4,321 and $3,549, respectively, and have been designated and accounted for as PIK Interest Payments and added to the outstanding principal balance of the borrowing.  As of  March 31, 2022, borrowings, including the PIK Interest Payments, totaled $146,386.  The principal balance of the borrowing, including PIK amounts, are accruing interest at a rate of 12.17%. 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.

 

As of  March 31, 2022, deferred debt fees and issuance costs totaled $8,651 and are being amortized as interest expense on an effective interest rate method over the term of the Term A Loan. When utilizing the effective interest method, in periods in which PIK interest is designated and those amounts are added to the outstanding principal balance of the borrowing, the amortization of the deferred debt fees and issuance costs is accretive. Deferred financing amortization of $(167) and $(58), was recognized for the three months ended  March 31, 2022 and 2021, respectively.

 

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 8 Lease Obligations

 

The Company leases certain assets under operating leases, which primarily consisted of real estate leases, laboratory equipment leases and office equipment leases as of March 31, 2022. Renewal options for our leases range from 1 to 5 years in length and begin from 2023 through 2026. The weighted average lease term for the Company’s operating leases was 8.0 years. The weighted average discount rate for the Company’s operating leases was 10.36%.

 

18

 

Aggregate lease expense under operating leases was $594 and $452 for the three months ended March 31, 2022 and 2021, respectively.

 

All of the Company’s leases qualify as operating leases. The following table summarizes the presentation in the consolidated balance sheets of the Company’s operating leases:

 

 

Balance Sheet Location

 

As of March 31, 2022

  

As of December 31, 2021

 

Assets:

         

Operating lease assets, net

Other Assets

 $7,207  $6,472 

Liabilities:

         

Current operating lease liabilities

Lease financing obligation current liabilities

 $2,081  $1,819 

Non-current operating lease liabilities

Lease financing obligation long-term liabilities

  6,457   5,962 

Total operating lease liabilities

 $8,538  $7,781 

 

Operating lease assets are recorded net of accumulated amortization of $3,019 and $2,626 as of  March 31, 2022 and December 31, 2021, respectively. Cash paid for amounts included in the measurement of lease liabilities was $574 and $440 for the three months ended March 31, 2022 and 2021, respectively.  

 

Maturities of operating lease liabilities as of March 31, 2022, are as follows (in thousands):

 

2022 (remaining)

 $1,820 

2023

  2,190 

2024

  1,641 

2025

  1,348 

2026

  617 

Thereafter

  6,734 

Total lease payments

  14,350 

Less imputed interest

  (5,812)

Total

 $8,538 

 

 

Note 9 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 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.

 

On  November 19, 2021, concurrent with the Company entering into the 2021 RPI Royalty Purchase Agreement, the Company and RPI entered into the Common Stock Purchase Agreement, pursuant to which the Company issued 3,846,154 shares of the Company’s common stock to RPI for an aggregate purchase price of $50,000, at a price of $13.00 per share, calculated based on the 20-day volume weighted average price. The $13.00 per share price represents a premium of $1.11 over the closing price of $11.89 of the Company’s common stock on  November 17, 2021, the last trading day prior to the execution of the Common Stock Purchase Agreement. The premium of $4,269 paid by RPI on the purchase of the Company’s common stock has been deferred and is being amortized as a component of interest expense of the 2021 RPI royalty financing obligation.

 

19

 

 

 

Note 10 Stock-Based Compensation

 

As of March 31, 2022, 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 on April 1, 2021 and approved by the Company’s stockholders on May 25, 2021.  It was further amended and restated on April 18, 2022 and has been submitted for approval by the Company’s stockholders at the Company’s annual meeting of stockholders to be held on June 7, 2022. The Inducement Plan was most recently amended and restated by the Board of Directors on July 23, 2021. The ESPP was most recently amended and restated on April 1, 2021 and approved by the Company’s stockholders on May 25, 2021.

 

Stock-based compensation expense of $9,601 ($8,078 of expense related to the Incentive Plan, $1,225 of expense related to the Inducement Plan, and $298 of expense related to the ESPP) was recognized during the three months ended March 31, 2022, while $5,479 ($4,554 of expense related to the Incentive Plan, $598 of expense related to the Inducement Plan and $327 of expense related to the ESPP) was recognized during the three months ended March 31, 2021.

 

There was approximately $109,635 of total unrecognized compensation expense related to non-vested stock option and restricted stock unit awards granted by the Company as of March 31, 2022. As of March 31, 2022, the Company expected to recognize that expense as follows: $28,801 during the remainder of 2022, $33,073 in 2023, $30,267 in 2024, $17,094 in 2025 and $400 in 2026. 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.

 

Stock Incentive Plan

 

The Company grants stock option awards, restricted stock and restricted stock units 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. Commencing March 1, 2011, stock option awards and restricted stock units granted to employees generally vest 25% each year until fully vested after four years.

 

In December 2014, the Company issued 1,250 performance-based stock options. These awards vest upon successful completion of specific development milestones. As of March 31, 2022, 85% of these grants have vested.

 

In  January 2022, the Company issued 221 performance-based restricted stock unit awards. Contingent upon successful achievement of specific commercial or operational objectives in 2022, the awards become eligible for vesting at 50% on the first anniversary of the grant date and 25% on each of the second and third anniversaries of the grant date, until fully vested after three years.

 

Stock option awards granted to non-employee directors of the Company generally vest over one year. Stock option awards granted to new non-employee directors when they first join the Company’s Board of Directors generally vest, subject to the terms of the Incentive Plan, in 36 equal monthly installments over a three-year period measured from the grant date. 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, 2021

  3,651   28,685  $7.90 

Restricted stock unit awards granted

  (391)      

Restricted stock unit awards cancelled

  40       

Stock option awards granted

  (109)  109   16.49 

Stock option awards exercised

     (1,033

)

  5.83 

Stock option awards cancelled

  369   (369)  11.22 

Balance March 31, 2022

  3,560   27,392  $7.96 

 

For stock option awards granted under the Incentive Plan during the first three months of 2022 and 2021, the fair value was estimated on the date of grant using a Black-Scholes option pricing model and the assumptions noted in the table below. The weighted average grant date fair value of these awards granted during the first three months of 2022 and 2021 was $11.48 and $6.87, respectively. The fair value of the stock option awards is amortized to expense over the vesting periods using a straight-line expense attribution method. For restricted stock units granted under the Incentive Plan, the fair value of the awards was determined based on the market value of the Company’s shares on the grant date. The weighted average grant date fair value of these awards granted during the first three months of 2022 was $15.49. The fair value of the restricted stock unit awards is amortized to expense over the vesting periods using a straight-line expense attribution method.

 

20

 

Inducement Equity Incentive Plan

 

The Company has the ability to grant stock option and restricted stock unit awards to newly-hired employees as inducements material to each employee entering employment with the Company. Awards granted to newly hired employees generally vest 25% each year until fully vested after four years and are subject to the terms and conditions of the Inducement Plan. Each stock option has a term of 10 years. 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.

 

Related activity under the Inducement Plan is as follows:

 

          

Weighted

 
          

Average

 
  

Awards

  

Options

  

Exercise

 
  

Available

  

Outstanding

  

Price

 

Balance December 31, 2021

  900   4,408  $6.20 

Restricted stock unit awards granted

  (134)      

Stock option awards granted

  (566)  566   16.10 

Stock option awards exercised

     (51)  3.22 

Stock option awards cancelled

  58   (58)  6.29 

Balance March 31, 2022

  258   4,865  $7.42 

 

For stock option awards granted under the Inducement Plan during the first three months of 2022 and 2021, the fair value was estimated on the date of grant using a Black-Scholes option pricing model and the assumptions noted in the table below. The weighted average grant date fair value of these awards granted during the first three months of 2022 and 2021 was $11.14 and $5.86, respectively. The fair value of the stock option awards is amortized to expense over the vesting periods using a straight-line expense attribution method. For restricted stock units granted under the Inducement Plan, the fair value of the awards was determined based on the market value of the Company’s shares on the grant date. The weighted average grant date fair value of these awards granted during the first three months of 2022 was $16.27. The fair value of the restricted stock unit awards is amortized to expense over the vesting periods using a straight-line expense attribution method. No restricted stock unit awards were granted under the Inducement Plan during the first three months of 2021.

 

The following table summarizes the key assumptions used by the Company to value the stock option awards granted under all plans during the first three months of 2022 and 2021, 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

 

 

  2022   

2021

 

Expected Life in Years

  5.5   5.5 

Expected Volatility

  84.1%  84.2%

Expected Dividend Yield

  0.0%  0.0%

Risk-Free Interest Rate

  1.9%  0.8%

 

Employee Stock Purchase Plan

 

The Company has reserved a total of 7,975 shares of common stock to be purchased under the ESPP, of which 5,937 shares remain available for purchase as of March 31, 2022. 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. During the three months ended March 31, 2022, and 2021, the Company issued 115 and 193 shares under the ESPP, respectively. 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.

 

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Note 11 Collaborative and Other Relationships

 

National Institute of Allergy and Infectious Diseases. 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. 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 March 31, 2022, a total of $20,574 has been awarded under exercised options within this contract. The most recent development option was completed as of March 31, 2022.

 

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. 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. As of March 31, 2022, the Company has delivered a total of 29,980 RAPIVAB doses of the 50,000 RAPIVAB doses available under the contract with HHS for a total of $20,782.

 

Torii Pharmaceutical Co., Ltd. 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 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 commenced 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 is responsible for supplying Torii with its required amounts of ORLADEYO. The activities of the parties pursuant to the Torii Agreement are overseen by a joint steering committee, 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.

 

Shionogi & Co., Ltd. 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.

 

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Green Cross Corporation. 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 is responsible for all development, regulatory, and commercialization costs in Korea and the Company is entitled to 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.

 

Albert Einstein College of Medicine of Yeshiva University and Industrial Research, Ltd. In June 2000, the Company licensed a series of potent inhibitors of Purine Nucleoside Phosphorylase 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. 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.

 

23

 

 

 

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, oral, 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 United States 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 United States, 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.

 

We built out our U.S. commercial infrastructure in 2020 to support the launch of ORLADEYO in the United States and are continuing to build our commercial infrastructure to support additional launches in Europe and elsewhere.  Based on proprietary analyses of HAE prevalence and market research studies with HAE patients, physicians, and payors in the United States and Europe, and our first full year of experience with the ORLADEYO launch in 2021, we anticipate the commercial market for ORLADEYO has the potential to reach no less than $250 million in net ORLADEYO revenues in 2022 and a global peak of $1 billion in annual net ORLADEYO revenues.  We expect at least 70 to 80 percent of our revenue at peak to come from the United States.  These expectations are subject to numerous risks and uncertainties that may cause our actual results, performance, or achievements to be materially different.  There can be no assurance that our commercialization methods and strategies will succeed, or that the market for ORLADEYO will develop in line with our current expectations.  See “Risk Factors⸻Risks Relating to Our Business⸻Risks Relating to Drug Development and Commercialization⸻There can be no assurance that our commercialization efforts, methods, and strategies for our products or technologies will succeed, and our future revenue generation is uncertain” in Part II, Item 1A of this report for further discussion of these risks.

 

Revenue from sales of ORLADEYO in the first quarter of 2022 is discussed under “Results of Operations” in this MD&A.  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 United States 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 as we continue to commercialize ORLADEYO.

 

BCX9930. BCX9930 is a novel, oral, potent, and selective small molecule inhibitor of Factor D discovered by us and in clinical development for the treatment of complement-mediated diseases.  Based on the safety and proof-of-concept data generated in patients with paroxysmal nocturnal hemoglobinuria (“PNH”), the program advanced to pivotal studies of oral BCX9930 (500 mg twice-daily) in PNH and to a proof-of-concept trial of oral BCX9930 (500 mg twice-daily) in three renal complement-mediated diseases, C3 glomerulopathy (“C3G”), IgA nephropathy (“IgAN”), and primary membranous nephropathy (“PMN”). We are working closely with regulators and key opinion leaders in hematology and nephrology to map the advanced development strategy across a broad set of indications.  The goal of the program is to develop oral BCX9930 as a monotherapy for complement-mediated diseases. As discussed further under “Recent Developments” below, we recently voluntarily paused enrollment of new patients in clinical trials with BCX9930 while we investigate elevated serum creatinine seen in some patients, and the U.S. Food and Drug Administration (“FDA”) subsequently informed the Company that it has placed the clinical program for BCX9930 on a partial clinical hold.

 

Galidesivir. Galidesivir is a broad-spectrum antiviral (“BSAV”) that has been shown to be active against more than 20 RNA viruses in nine different families. The objective of our BSAV program is to develop galidesivir as a broad-spectrum therapeutic for viruses that pose a threat to national health and security. The primary focus of the program is treatment of hemorrhagic fever viruses. 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”).

 

24

 

BCX9250. The goal of our activin receptor-like kinase-2 inhibitor program is to discover and develop orally administered kinase inhibitor drug candidates that are able to slow or prevent the irregular formation of bone outside the normal skeleton, 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 United States 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 and product candidates 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. 

 

Our operating expenses are also difficult to predict and depend on several factors, including 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 costs of commercialization, 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 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 Developments

 

COVID-19

 

The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility in financial markets. To date, our financial condition, results of operations, and liquidity have not been materially impacted by the direct effects of the COVID-19 pandemic. Please refer to “Risk Factors⸻Risks Relating to Our Business⸻Risks Relating 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 continue to be flexible where it is both practical and possible for the business. Business-related travel has increased, and we will continue to monitor developments with respect to COVID-19 going forward. To date, implementation of specific COVID-19 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 continue to monitor the potential impacts of COVID-19 on our operations and those of our partners, suppliers, customers, and regulators.

 

25

 

ORLADEYO® (berotralstat)

 

On January 10, 2022, we announced that ORLADEYO is now covered by all major payors and national and regional pharmacy benefit managers in the United States.

 

On February 24, 2022, we announced new long-term efficacy and safety data from the APeX-2 clinical trial evaluating oral, once-daily ORLADEYO for the prophylactic treatment of HAE showing sustained reductions in attack rates and improvement in quality of life among patients living with HAE, regardless of their baseline attack rates and initial responses to ORLADEYO.

 

Complement-Mediated Diseases

 

On April 8, 2022, we announced that we voluntarily paused enrollment in clinical trials with BCX9930 while we investigate elevated serum creatinine seen in some patients. The BCX9930 clinical trials include both PNH clinical trials and evaluation of BCX9930 in three renal complement-mediated diseases, C3G, IgAN, and PMN. On May 5, 2022, we announced that, subsequent to our voluntary pause in trial enrollment, the FDA informed us that it has placed the clinical program for BCX9930 on a partial clinical hold.  Consistent with our voluntary action, we may not enroll new patients in BCX9930 clinical trials; however, patients already enrolled who are receiving clinical benefit from BCX9930 treatment, and have no other available treatment options, can continue to be dosed and remain in the trials.  Until we complete our investigation and consult our medical experts and appropriate regulatory authorities, we cannot predict the likelihood of any potential outcomes, including, but not limited to, the potential resumption of trial enrollments, or a potential decision not to continue the trials. We are working to complete the investigation as quickly as possible.

 

Fibrodysplasia Ossificans Progressiva

 

On April 27, 2022, we announced that the European Medicines Agency (“EMA”) has granted access to the Priority Medicines (“PRIME”) scheme for BCX9250. PRIME is a program launched by the EMA to enhance support for the development of medicines that target an unmet medical need. This voluntary program is based on enhanced interaction and early dialogue with developers of promising medicines and is designed to optimize development plans and speed up evaluation so these medicines can potentially reach patients earlier. According to the EMA, developers of medicines that are eligible for PRIME can expect additional opportunities for scientific advice and be eligible for accelerated assessment at the time of application for a marketing authorization.

 

Results of Operations (three months ended March 31, 2022 compared to the three months ended March 31, 2021)

 

For the three months ended March 31, 2022, total revenues were $49.9 million as compared to $19.1 million for the three months ended March 31, 2021. The increase was primarily due to ORLADEYO net revenue, including royalties, of $49.7 million, an increase of $38.8 million. Additionally, peramivir royalty revenue increased by $0.9 million. These increases in revenue were partially offset by a reduction in the peramivir product sales to our partners of $6.8 million and a reduction in contract revenue of $2.1 million.

 

Cost of product sales for the three months ended March 31, 2022 and 2021 was $0.2 million and $5.9 million, respectively. The cost of product sales in 2021 was primarily associated with the peramivir product sales to our partners whereas the cost of product sales in 2022 relates primarily to sales of ORLADEYO.

 

Research and development (“R&D”) expenses increased to $65.4 million for the three months ended March 31, 2022 from $42.4 million for the three months ended March 31, 2021, primarily due to increased investment in the development of our Factor D program, including BCX9930, as well as other research, preclinical and development costs.

 

26

 

The following table summarizes our R&D expenses for the periods indicated (amounts are in thousands):

 

   

Three Months Ended March 31,

 
   

2022

   

2021

 

R&D expenses by program:

               

Factor D program

  $ 41,969     $ 25,969  

Berotralstat

    7,443       7,922  

FOP

    2,669       367  

Galidesivir

    530       1,096  

Peramivir

    365       251  

Other research, preclinical and development costs

    12,384       6,830  

Total R&D expenses

  $ 65,360     $ 42,435  

 

R&D expenses include all direct and indirect expenses and are allocated to specific programs at the point of development of a lead product candidate. Direct expenses are charged directly to the program to which they relate, and indirect expenses are allocated based upon internal direct labor hours dedicated to each respective program. Direct expenses consist of compensation for R&D personnel and costs of outside parties to conduct laboratory studies, develop manufacturing processes, manufacture the product candidates, conduct and manage clinical trials, as well as other costs related to our clinical and preclinical studies. Indirect R&D expenses consist of lab supplies and services, facility expenses, depreciation of development equipment and other overhead of our research and development efforts. R&D expenses vary according to the number of programs in clinical development and the stage of development of our clinical programs. Later stage clinical programs tend to cost more than earlier stage programs due to the longer length of time of the clinical trials and the higher number of patients enrolled in these clinical trials.

 

Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2022 were $34.3 million compared to $22.1 million in the three months ended March 31, 2021. The increase was primarily due to increased investment to support the commercial launch of ORLADEYO and our expanded international operations.

 

Interest expense for the three months ended March 31, 2022 was $23.8 million compared to $12.9 million for the three months ended March 31, 2021.  The increase in interest expense was primarily associated with the sale of certain royalty payments under the 2021 RPI Royalty Purchase Agreement and the OMERS Royalty Purchase Agreement, which were entered into in November 2021. The nature of the royalty sales requires that we recognize a liability (the “Royalty Financing Obligations”) for the future sale of royalties under these agreements. These liabilities are amortized using the effective interest rate method, resulting in the recognition of non-cash interest expense over the estimated term of the Royalty Purchase Agreements (as defined in “Note 6—Royalty Monetizations—ORLADEYO and Factor D Inhibitors” in the Notes to Consolidated Financial Statements in Part I, Item 1 of this report).

 

Interest expense for the three months ended March 31, 2022 included $19.6 million of non-cash interest expense due to the amortization of interest associated with the Royalty Financing Obligations and $4.2 million of interest expense, net of deferred financing amortization, associated with the Term A Loan under the Credit Agreement. Interest expense for the three months ended March 31, 2021 included $7.5 million of non-cash interest expense due to the amortization of interest associated with the Royalty Financing Obligation under the 2020 RPI Royalty Purchase Agreement and $3.8 million of interest expense, net of deferred financing amortization, associated with the Term A Loan under the Credit Agreement. Additionally, we recognized $1.6 million in interest expense on the non-recourse PhaRMA Notes issued in March 2011, which were written-off in December 2021. 

 

For the three months ended March 31, 2022, other expense of $0.1 million was primarily related to foreign currency losses of $0.2 million, partially offset by interest income of $0.1 million.

 

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 Sales and revenues from ORLADEYO.  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 in the process of being closed out; 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.

 

27

 

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. We have committed to draw the two additional term loans available under the Credit Agreement in the respective principal amounts of $25.0 million for the Term B Loan and $50.0 million for the Term C Loan. The maturity date of the Credit Agreement is December 7, 2025. See “Note 7⸻Debt⸻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 March 31, 2022, we had net working capital of $430.7 million, a decrease of approximately $31.7 million from $462.4 million at December 31, 2021. The decrease in working capital was primarily due to normal operating expenses associated with the development of our product candidates and commercialization of ORLADEYO. Our principal sources of liquidity at March 31, 2022 were approximately $395.5 million in cash and cash equivalents and approximately $48.0 million in investments considered available-for-sale.

 

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.

 

We plan to finance our needs in both the short-term and long-term 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 the additional $75 million available to us under the Credit Agreement, we believe our financial resources will be sufficient to fund our operations for at least the next 12 months. However, we have sustained operating losses for the majority of our corporate history and expect that our 2022 expenses will exceed our 2022 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 research and development and commercial expenses; and key developments and regulatory events and our decisions in the future.

 

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Our long-term capital requirements and the adequacy of our available funds in both the short-term and long-term 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 new drug application ("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.

 

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 favorable 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 March 31, 2022, we were in compliance with the covenants under the Credit Agreement.

 

Financial Outlook for 2022

 

Based on the strength of the ORLADEYO launch, and continued steady growth from new patient demand anticipated throughout the year, we expect full year 2022 net ORLADEYO revenue to be no less than $250 million.

 

We had previously expected operating expenses for full year 2022, not including non-cash stock compensation, to be between $440 million to $480 million. Once we complete our investigation into BCX9930 and have clarity on the next step for the program, we expect to provide an updated outlook on full year 2022 operating expenses. If BCX9930 program enrollment resumes, then operating expenses are likely to be at the lower end of the previously provided range. If we discontinue the BCX9930 program, then operating expenses for the year would be lower than that.

 

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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 and Concentrations of Risk” in the Notes to 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.

 

Revenue Recognition

 

Pursuant to Accounting Standards Codification (“ASC”) Topic 606, we recognize 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, we identify the goods or services promised within each contract, assess whether each promised good or service is distinct, and determine those that are performance obligations. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.

 

Product Sales, Net

 

Our principal sources of product sales are sales of ORLADEYO, which we began shipping to patients in December 2020, sales of peramivir to our licensing partners and sales of RAPIVAB to HHS under our procurement contract. In the United States, we ship ORLADEYO directly to patients through a single specialty pharmacy, which is considered our customer. In the European Union, United Kingdom and elsewhere, we sell ORLADEYO to specialty distributors as well as hospitals and pharmacies, which collectively are considered our customers.

 

We recognize revenue for sales when our customers obtain control of the product, which generally occurs upon delivery. For ORLADEYO, we classify payments to our specialty pharmacy customer for certain services provided by our customer as selling, general and administrative expenses to the extent such services provided are determined to be distinct from the sale of our product.

 

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. Overall, these reserves reflect our 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 our estimates. If actual results in the future vary from estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

 

Government and Managed Care Rebates. We contract 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. We estimate the rebates we will provide to third-party payors and deduct these estimated amounts from total gross product revenues at the time the revenues are recognized. We estimate the rebates that we will provide to third-party payors based upon (i) our 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 our specialty pharmacy.

 

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Chargebacks. Chargebacks are discounts that occur when certain contracted customers, pharmacy benefit managers, insurance companies, and government programs purchase directly from our specialty pharmacy. These customers purchase our products under contracts negotiated between them and our specialty pharmacy. The specialty pharmacy, in turn, charges back to us 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 purchase price with us. We estimate chargebacks and adjust 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, we are 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. We also offer 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, we record gross revenue of the product provided and a full reduction of the revenue amount for the free drug discount.

 

Product returns. We do not provide contractual return rights to our customers, 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

 

We recognize revenue when we satisfy a performance obligation by transferring promised goods or services to a customer. Revenue is measured at the transaction price that is based on the amount of consideration that we expect to receive in exchange for transferring the promised goods or services to the customer. The transaction price includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur.

 

We have collaboration and license agreements with a number of third parties as well as research and development agreements with certain government entities.

 

Our 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 we have no further continuing performance obligations or we have 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 us 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, we measure progress using an input method based on the effort we expend or costs we incur 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 we separately sell the products or services. If a standalone selling price is not directly observable, then we estimate the standalone selling price using either an adjusted market assessment approach or an expected cost plus margin approach, representing the amount that we believe 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) we have 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 our contracts with BARDA/HHS and NIAID/HHS, revenue is recognized as reimbursable direct and indirect costs are incurred.

 

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Under certain of our license agreements, we receive royalty payments based upon our 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.

 

Inventory

 

Our inventories primarily relate to ORLADEYO. Additionally, our inventory includes RAPIVAB and peramivir.

 

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.

 

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 of our accrued expenses as of each balance sheet date based on the facts and circumstances known to us. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include (i) fees paid to clinical research organizations (“CROs”) in connection with preclinical and toxicology studies and clinical trials; (ii) fees paid to investigative sites in connection with clinical trials; (iii) fees paid to contract manufacturers in connection with the production of our raw materials, drug substance, drug products, and product candidates; and (iv) professional fees.

 

We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our 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, we estimate 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 our estimate, we will adjust the accrual accordingly. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of these costs, our actual expenses could differ from our estimates.

Contract Balances

 

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and deferred revenue and billings in excess of revenue recognized (contract liabilities) on the Consolidated Balance Sheets.

 

Contract assets. Our long-term contracts are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. Often this results in billing occurring subsequent to revenue recognition, resulting in contract assets. Contract assets are generally classified as current assets in the Consolidated Balance Sheets.

 

Contract liabilities. We often receive cash payments from customers in advance of our performance, resulting in contract liabilities. These contract liabilities are classified as either current or long-term in the Consolidated Balance Sheets based on the timing of when we expect to recognize the revenue.

 

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Contract Costs

 

We may incur direct and indirect costs associated with obtaining a contract. Incremental contract costs that we expect to recover are capitalized and amortized over the expected term of the contract. Non-incremental contract costs and costs that we expect to recover are expensed as incurred.

 

Research and Development Expenses

 

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

 

Additionally, we have 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 (“UAB”), which require fees related to sublicense agreements or maintenance fees. We expense sublicense payments as incurred unless they are related to revenues that have been deferred, in which case the expenses are deferred and recognized over the related revenue recognition period. We expense maintenance payments as incurred.

 

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

 

We group our R&D expenses into two major categories: direct external expenses and indirect expenses. Direct expenses consist of compensation for R&D personnel and costs of outside parties to conduct laboratory studies, develop manufacturing processes and manufacture the product candidate, conduct and manage clinical trials, as well as other costs related to our clinical and preclinical studies. These costs are accumulated and tracked by active program. Indirect expenses consist of lab supplies and services, facility expenses, depreciation of development equipment and other overhead of our research and development efforts. These costs apply to work on non-active product candidates and our discovery research efforts.

 

Stock-Based Compensation

 

All share-based payments, including grants of stock option awards and restricted stock unit awards, are recognized in our Consolidated Statements of Comprehensive Loss based on their fair values. Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period of the award. Determining the appropriate fair value model and the related assumptions for the model requires judgment, including estimating the life of an award, the stock price volatility, and the expected term. We utilize the Black-Scholes option-pricing model to value our awards and recognize compensation expense on a straight-line basis over the vesting periods. The estimation of share-based payment awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. In addition, we have outstanding performance-based stock options for which no compensation expense is recognized until “performance” has occurred. Significant management judgment is also required in determining estimates of future stock price volatility and forfeitures to be used in the valuation of the options. Actual results, and future changes in estimates, may differ substantially from our current estimates.

 

Interest Expense and Royalty Financing Obligations

 

The royalty financing obligations are eligible to be repaid based on royalties from net sales of ORLADEYO, BCX9930, and another earlier stage Factor D inhibitor. Interest expense is accrued using the effective interest rate method over the estimated period each of the related liabilities will be paid. This requires us to estimate the total amount of future royalty payments to be generated from product sales over the life of the agreement. We impute interest on the carrying value of each of the royalty financing obligations and record interest expense using an imputed effective interest rate. We 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 requires that we make estimates that could impact the carrying value of each of the liabilities, as well as the periods over which associated issuance costs will be amortized. A significant increase or decrease in forecasted net sales could materially impact each of the liability balances, interest expense and the time periods for repayment.

 

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Tax

 

We account for uncertain tax positions in accordance with U.S. GAAP. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. We have recorded a valuation allowance against substantially all potential tax assets, due to uncertainties in our ability to utilize deferred tax assets, primarily consisting of certain net operating losses carried forward, before they expire. The valuation allowance is based on estimates of taxable income in each of the jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable.

 

Beginning in fiscal year 2021, we began accruing U.S. state income taxes and foreign income taxes as a result of increased sales of ORLADEYO and increased nexus in multiple states and foreign jurisdictions where historically we had no presence.

 

Recent Accounting Pronouncements

 

“Note 1⸻Significant Accounting Policies and Concentrations of Risk” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report discusses accounting pronouncements recently issued or proposed but not yet required to be adopted.

 

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Item 3.         Quantitative and Qualitative Disclosures about Market Risk

 

Interest Rate Risk

 

We are subject to interest rate risk on our investment portfolio and borrowings under our Credit Agreement. The Term A Loan under the Credit Agreement bears interest each quarter at a rate equal to the three-month LIBOR rate, which is capped to be no less than 1.75% and no more than 3.50% (“LIBOR”), plus 8.25% or, for each quarterly interest period in which a PIK Interest Payment is made, LIBOR plus 10.25%. Accordingly, increases in interest rates could increase the associated interest payments that we are required to make on the Term Loans. As of March 31, 2022 interest was accrued at 12.17% on the $125.0 million Term A Loan under the Credit Agreement.

 

We invest in marketable securities in accordance with our investment policy. The primary objectives of our investment policy are to preserve capital, maintain proper liquidity to meet operating needs and maximize yields. Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment. We place our excess cash with high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of credit exposure. Some of the securities we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate.

 

Our investment exposure to market risk for changes in interest rates relates to the increase or decrease in the amount of interest income we can earn on our portfolio, changes in the market value due to changes in interest rates and other market factors as well as the increase or decrease in any realized gains and losses. Our investment portfolio includes only marketable securities and instruments with active secondary or resale markets to help ensure portfolio liquidity. A hypothetical 100 basis point increase or decrease in interest rates along the entire interest rate yield curve would not significantly affect the fair value of our interest sensitive financial instruments, including our borrowings, but may affect our future earnings and cash flows. We generally have the ability to hold our fixed-income investments to maturity and, therefore, do not expect that our operating results, financial position or cash flows will be materially impacted due to a sudden change in interest rates. However, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates or other factors, such as changes in credit risk related to the securities’ issuers. To minimize this risk, we schedule our investments to have maturities that coincide with our expected cash flow needs, thus avoiding the need to redeem an investment prior to its maturity date. Accordingly, we do not believe that we have material exposure to interest rate risk arising from our investments. Generally, our investments are not collateralized. We have not realized any significant losses from our investments.

 

We do not use interest rate derivative instruments to manage exposure to interest rate changes. We ensure the safety and preservation of invested principal funds by limiting default risk, market risk and reinvestment risk. We reduce default risk by investing in investment grade securities.

 

Foreign Currency Risk

 

Most of our revenues and expenses are denominated in U.S. dollars, and as a result, we have not experienced significant foreign currency transaction gains and losses to date. Our commercial sales in Europe are primarily denominated in Euros and the British Pound. We also had other transactions denominated in foreign currencies during the three months ended March 31, 2022, primarily related to operations in Europe, contract manufacturing and ex-U.S. clinical trial activities, and we expect to continue to do so. Our royalties from Torii are derived from Torii’s sales of ORLADEYO in Japan. Those sales are denominated in Japanese yen and converted into U.S. dollars for purposes of determining the royalty owed to us. Our limited foreign currency exposure relative to our European operations is to fluctuations in the Euro, British Pound, Swiss Franc, Danish Krone, and Swedish Krona. We do not anticipate that foreign currency transaction gains or losses will be significant at our current level of operations. However, transaction gains or losses may become significant in the future as we continue to expand our operations internationally. We have not engaged in foreign currency hedging during the three months ended March 31, 2022; however, we may do so in the future.

 

Item 4.         Controls and Procedures

 

We maintain a set of disclosure controls and procedures that are designed to ensure that information relating to the Company required to be disclosed in our periodic filings under the Exchange Act is recorded, processed, summarized and reported in a timely manner under the Exchange Act. We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.

 

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1A.         RISK FACTORS

 

An investment in our stock involves risks. You should carefully read this entire report and consider the following uncertainties and risks, which may adversely affect our business, financial condition or results of operations, along with all of the other information included in our other filings with the SEC, before making an investment decision regarding our common stock.

 

Risks Relating to Our Business

 

Risks Relating to COVID-19

 

Our business, operations, clinical development or commercialization plans and timelines, and access to capital could be adversely affected by the effects of the ongoing COVID-19 pandemic on us or on third parties with whom we conduct business, including without limitation our development partners, manufacturers, CROs, and others, as well as on the regulatory and government agencies with whom we work.

 

The global COVID-19 pandemic continues to affect the United States and global economies, and could cause disruptions to our business, operations, and clinical development or commercialization plans and timelines, as well as the business and operations of third parties with whom we conduct business. For example, government orders and evolving business policies and procedures have impacted and may continue to impact, among other things: (1) our personnel and those of third parties on whom we rely, including our development partners (such as Torii), manufacturers, CROs, and others; (2) the conduct of our current and future clinical trials and commercial interactions; and (3) the operations of the FDA, EMA, Japanese Pharmaceuticals and Medical Devices Agency (“PMDA”), and other health and governmental authorities, which could result in delays of reviews and approvals.

 

If our operations or those of third parties with whom we conduct business are impaired or curtailed as a result of these events, the development and commercialization of our products and product candidates could be stopped or delayed, or the costs of such development and commercialization activities could increase, any of which could have a material adverse impact on our business. For example, our suppliers or other vendors may be unable to meet their obligations to us or perform their services as expected as a result of the COVID-19 pandemic or other health epidemics. In such circumstances, we may not be able to enter into arrangements with alternative suppliers or vendors or do so on commercially reasonable terms or in a timely manner. Such delays could adversely impact our ability to meet our desired clinical development and any commercialization timelines. Although we carefully manage our relationships with our suppliers and vendors, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have an adverse impact on our business, financial condition and prospects.

 

In addition, our clinical trials have been and may continue to be affected by the COVID-19 pandemic. For example, the acceleration of COVID-19 slowed startup of the inadequate C5 responder cohorts in our complement oral Factor D inhibitor program and, as a result, delayed the reporting of related data in 2020. Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic or concerns among patients about participating in clinical trials during a pandemic. Some patients may have difficulty following certain aspects of clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, our inability to successfully recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 or experience additional restrictions by their institutions, city, or state could adversely impact our clinical trial operations.

 

If global health concerns prevent the FDA, EMA, PMDA or other regulatory authorities from conducting their inspections, reviews, or other regulatory activities, it could significantly impact the ability of such authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business and clinical development and commercialization plans and timelines.

 

Although our business operations under the ongoing COVID-19 pandemic continue to evolve, where possible and practical, we continue to provide work-from-home flexibility for our employees, which could negatively impact productivity, disrupt our business and delay our clinical programs and timelines. In addition, we are a government contractor, and as such, we are subject to the federal COVID-19 safety protocols, including the vaccine mandate.  We cannot accurately predict the impact on operations of our return-to-the-office plan, nor of the federal COVID-19 safety protocols on our business or on third parties with whom we conduct business.  Our business may be negatively impacted in the event that large numbers of employees or key employees do not comply with these protocols.  These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

 

The spread of COVID-19, which has caused a broad impact globally, could also materially affect our access to capital. While the future economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, the pandemic could result in significant disruption of global financial markets, reducing our ability to access the equity or debt capital markets or obtain other sources of capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 and related responses could materially affect our business and the value of our common stock.

 

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The global pandemic of COVID-19 continues to evolve, with the ultimate impact of the COVID-19 pandemic or a similar health epidemic being uncertain and subject to change. These effects could be material, and we will continue to monitor the COVID-19 situation closely. We do not yet know the full extent and magnitude of the impacts that COVID-19 has had or will have on our business, on the healthcare system, or on the global economy. In addition, the COVID-19 pandemic could have the effect of heightening many of the other risks described below.

 

Financial and Liquidity Risks

 

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

 

Since our inception, we have not achieved sustained profitability. We expect to incur additional losses for the foreseeable future, and our losses could increase as our research and development efforts and commercial activities progress. We expect that such losses will fluctuate from quarter to quarter and that losses and fluctuations may be substantial. To become profitable, we, or our collaborative partners, must successfully manufacture and develop products and product candidates, receive regulatory approval, and successfully commercialize our products and/or enter into profitable commercialization arrangements with other parties. It could take longer than expected before we receive, or we may never receive, significant revenue from any current or future license agreements or significant revenues directly from product sales. Even if we are able to successfully commercialize our existing products, or to develop new commercially viable products, certain obligations we have to third parties, including, without limitation, our obligation to pay RPI and OMERS, as applicable, royalties on certain revenues from ORLADEYO, BCX9930, and another earlier stage Factor D inhibitor under the Royalty Purchase Agreements, may reduce the profitability of such products.

 

Because of the numerous risks and uncertainties associated with developing our product candidates, launching new products, and their potential for commercialization, we are unable to predict the extent of any future losses. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we are unable to achieve and sustain profitability, the market value of our common stock will likely decline.

 

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.

 

We have sustained operating losses for the majority of our corporate history and expect that our 2022 expenses will exceed our 2022 revenues. We expect to continue to incur operating losses and negative cash flows unless and 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 commercialization of our products and the progression of our product candidates in the future. Our plans for managing our liquidity needs primarily include controlling the timing and spending on our research and development programs, raising additional funds through equity and/or debt financings, and commercializing our approved products. We regularly evaluate other opportunities to fund operations including: (1) securing or increasing U.S. Government funding of our programs, including obtaining additional and delivering on procurement contracts; (2) out-licensing rights to certain of our products or product candidates, pursuant to which we would receive cash milestone payments and/or royalties; (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 research and development programs, including by discontinuing and suspending development; and/or (6) restructuring operations to change our overhead structure.

 

There can be no assurance that any of our plans will be successful or that additional capital will be available to us on reasonable terms, or at all, when needed. If we are unable to obtain sufficient additional capital, we may be forced to adjust or curtail our operations; delay, reduce, or stop ongoing clinical trials or commercialization efforts; cease operations altogether; or file for bankruptcy.

 

Risks Relating to Drug Development and Commercialization

 

Our success depends upon our ability to advance our product candidates through the various stages of development, especially through the clinical trial process, and to receive regulatory approval for the commercial sale of our product candidates.

 

To receive the regulatory approvals necessary for the commercial sale of our product candidates, we or our partners must demonstrate through preclinical studies and clinical trials that each product candidate is safe and effective. The development process and related regulatory process are complex and uncertain. The preclinical and clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of drug development, including failure to demonstrate efficacy and safety, the occurrence of adverse events that are severe or medically or commercially unacceptable, our or our partners’ failure to comply with trial protocols, applicable regulatory requirements, and industry standards, or a determination by the FDA or any comparable foreign regulatory authority that a product candidate may not continue development or be approved in accordance with our development plans or at all. We cannot guarantee that any preclinical studies and clinical trials will be conducted as planned or completed on schedule, if at all, or that the results of such trials will be sufficient to support regulatory approval for our product candidates.

 

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Progression of our product candidates through the clinical development process is dependent upon our trials indicating that our product candidates have adequate safety and efficacy in the patients being treated by achieving pre-determined safety and efficacy endpoints according to the clinical trial protocols. Failure to achieve any of these endpoints in any of our programs, including our Factor D program (inclusive of BCX9930), BCX9250, galidesivir, and our other rare disease product candidates could result in delays in or modifications to our trials or require the performance of additional unplanned trials. If any of our product candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, we may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Product candidates that initially show promise in clinical or preclinical testing could later be found to be associated with or to cause undesirable or unexpected side effects that could result in delays in the development of our product candidates, significant unexpected costs, or the termination of programs. For example, we recently voluntarily paused enrollment in clinical trials with BCX9930 while we investigate elevated serum creatinine seen in some patients, and the FDA subsequently informed us that it has placed the clinical program for BCX9930 on a partial clinical hold. Under the partial clinical hold, we may not enroll new patients in BCX9930 clinical trials.  Until we complete our investigation and consult our medical experts and appropriate regulatory authorities, we cannot predict the likelihood of any potential outcomes, including, but not limited to, the potential resumption of trial enrollments, or a potential decision not to continue the trials. In addition, the development plans for our product candidates, including our clinical trials, may not be adequately designed or executed, which could negatively affect the outcome and analysis of study results. Because of the cost and duration of clinical trials, we may decide to discontinue development of product candidates for various reasons, including, but not limited to, they are unlikely to show favorable results in clinical trials, unlikely to help advance a product to the point of a meaningful collaboration, or unlikely to have reasonable commercial potential.

 

Undesirable or inconclusive data in our pre-clinical studies and clinical trials or side effects in humans could result in the FDA or foreign regulatory authorities (including, e.g., the EMA, the Ministry of Health, Labor and Welfare (“MHLW”) in Japan or the United Kingdom’s Medicines and Healthcare Regulatory Agency (“MHRA”)) refusing to approve a product candidate for any targeted indications or imposing restrictions or warnings that could impact development or the ultimate commercial viability of a product candidate. In addition, the FDA or foreign regulatory authorities may determine that study data from our product candidates necessitates additional studies or study designs which differ from our planned development strategy, and such regulatory authorities may also require patient monitoring and testing or may implement restrictions or other conditions on our development activities, any of which could materially impact the cost and timing of our planned development strategy. We, our partners, the FDA, or foreign regulatory authorities have previously, and may again in the future, pause enrollment in, suspend or terminate clinical trials at any time if we or they believe the trial participants face unacceptable health risks.

 

Our ability to successfully complete the clinical development process is dependent upon many factors, including but not limited to:

 

 

our or our partners’ ability to secure suitable clinical sites and investigators and to enroll and maintain an adequate number of patients on a timely basis or at all;

 

patients that enroll in a clinical trial may not comply with the clinical trial protocol or maintain contact with investigators to provide complete data during and after treatment;

 

our product candidates may not prove to be either safe or effective or may produce unfavorable or inconclusive results;

 

we or our partners may decide, or be required by regulatory authorities, to pause enrollment in, suspend or terminate clinical research for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate, noncompliance with regulatory requirements or their standards of conduct, or findings of undesirable effects caused by a chemically or mechanistically similar product or product candidate;

 

regulatory authorities may disagree with our or our partners’ clinical trial protocols or our or their interpretation of data from preclinical studies and clinical trials;

 

clinical protocols or study procedures may not be adequately designed or followed by the investigators;

 

formulation improvements may not work as expected, which could negatively impact commercial demand for our product candidates;

 

regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we or our partners enter into agreements for clinical and commercial supplies;

 

the supply or quantity of raw materials or manufactured product candidates or other materials necessary to conduct development activities may be insufficient, inadequate, or unavailable at an acceptable cost, and we or our partners may experience interruptions in supply;

 

our or our partners’ development plans may be delayed or changed as a result of changes in development strategy, the impact of new or different regulations, requirements, and guidelines, or other unexpected events or conditions;

 

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the cost of pre-clinical studies and clinical trials may be greater than we anticipate;

 

we or our third-party contractors, including those manufacturing our product candidates or components or ingredients thereof, or conducting clinical trials or laboratory testing on our or our partners’ behalf, may fail to comply with regulatory requirements and industry standards or meet contractual obligations in a timely manner or at all; and

 

the impact of the ongoing COVID-19 pandemic on one or more of the foregoing factors.

 

Clinical trials are lengthy and expensive. Many of the factors listed above could result in increased clinical development costs or longer clinical development times for any of our programs. We or our partners incur substantial expense for, and devote significant time to, preclinical testing and clinical trials, yet we cannot be certain that the tests and trials will ever result in the commercial sale of a product. Even if we or our partners successfully complete clinical trials for our product candidates, we or our partners might not file the required regulatory submissions in a timely manner, may not receive regulatory approval for the product candidates, in which case we would be unable to generate any revenues from product sales or licensing arrangements, or any product candidate, if approved, may be subject to restrictions on labeling, marketing, distribution, prescribing, and use, which could adversely impact the sales of such product.

 

If our development collaborations with third parties, such as our development partners, contractors and contract research organizations, fail, the development of our product candidates will be delayed or stopped.

 

We rely heavily upon third parties for many important stages of our product candidate development, including but not limited to:

 

 

discovery of natural proteins that cause or enable biological reactions necessary for the progression of the disease or disorder, called enzyme targets;

 

execution of certain pharmacology preclinical studies and late-stage development for our compounds and product candidates;

 

management of our phase 1, 2 and 3 clinical trials, including medical monitoring, laboratory testing, and data management;

 

execution of toxicology studies that may be required to obtain approval for our product candidates;

 

formulation improvement strategies and methods;

 

manufacturing the starting materials and drug substance required to formulate our products and the product candidates to be used in our clinical trials, toxicology studies and any potential commercial product; and

 

management of certain regulatory interactions outside of the United States.

 

Our failure to engage in successful collaborations at any one of these stages would greatly impact our business. If we do not license enzyme targets or inhibitors from academic institutions or from other biotechnology companies on acceptable terms, our drug development efforts would suffer. Similarly, if the contract research organizations or third-party contractors that conduct our initial or late-stage clinical trials, conduct our toxicology or other studies, manufacture our starting materials, drug substance and product candidates, provide laboratory testing or other services in connection with our clinical trials, or assist with our regulatory function breach their obligations to us, perform their services inconsistent with industry standards, or fail to comply with regulatory requirements, this would delay or prevent both the development of our product candidates and the availability of any potential commercial product.

 

If we lose our relationship with any one or more of these parties, we could experience a significant delay in both identifying another comparable provider and then contracting for its services. We may be unable to retain an alternative provider on reasonable terms, if at all. Even if we locate an alternative provider, it is likely that this provider may need additional time to respond to our needs and may not provide the same type or level of service as the original provider. In addition, any provider that we retain will be subject to applicable FDA current Good Laboratory Practices, current Good Manufacturing Practices (“cGMP”) and current Good Clinical Practices, and comparable foreign standards. We do not have control over compliance with these regulations by these providers. Consequently, if these practices and standards are not adhered to by these providers, the development and commercialization of our product candidates could be delayed. If any of the foregoing risks are realized, our business, financial condition and results of operations could be materially adversely affected.

 

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.

 

As our programs advance, our costs are likely to increase. Our current and planned discovery, development, approval, and commercialization efforts will require significant capital. Our expenses, revenues and cash utilization rate could vary significantly depending on many factors, including: our ability to obtain regulatory approval for our product candidates, including BCX9930, BCX9250, and galidesivir; our ability to maintain regulatory approval for, successfully commercialize, and achieve market acceptance of our products, including ORLADEYO; our ability to raise additional capital; the amount of funding we receive from partnerships with third parties for the development and commercialization of our products and product candidates (including our collaborations with Torii, BARDA/HHS, and NIAID/HHS); the commercial success of our products achieved by our partners; the amount or profitability of any orders for peramivir or galidesivir by any government agency or other party; the progress and results of our current and proposed clinical trials for our product candidates; and the progress made in the manufacture of our lead products and the progression of our other programs.

 

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In order to continue future operations, progress our drug development programs, and commercialize our current products and product candidates, we will be required to raise additional capital. In addition to seeking strategic partnerships, transactions and government funding, we may access the equity or debt markets, incur additional borrowings, or seek other sources of funding to meet