BioCryst Pharmaceuticals, Inc. (BCRX) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the BioCryst Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to introduce our host for today, Mr. Robert Bennett, Executive Director of Investor Relations and Communications. Sir, please go ahead.

Thanks, Ben, and good morning, everyone, and welcome to BioCryst's Third Quarter 2012 Corporate Update and Financial Results Conference Call. [Operator Instructions] Today's press release and accompanying slides for this call are available on our website at www.biocryst.com. Joining me on the call today are Jon Stonehouse, Chief Executive Officer of BioCryst; Dr. Bill Sheridan, our Chief Medical Officer; and Tom Staab, Chief Financial Officer. Before we begin, I'll read a portion of formal statements as shown on Slide 2 regarding risk factors associated with today's call. Today's conference call will contain forward-looking statements, including statements regarding future results, unaudited and forward-looking financial information and company performance or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results, performance expressed or implied in this presentation. You should not place undue reliance on the forward-looking statements. For additional information, including important risk factors, please refer to BioCryst's documents filed with the SEC, which can be found on our company website. With that, I will turn the call over to Jon.

Thank you, Rob. Good morning, and thanks to everyone for joining us today. I'll start off today's call with the review of the peramivir interim analysis and then address both the opportunities and challenges that lie ahead for BioCryst. Obviously, we are disappointed with the results of the interim analysis of our peramivir Phase III trial in patients hospitalized with serious influenza. The preplanned interim analysis indicated that the recalculated sample size for the primary efficacy analysis exceeded 320 subjects, the predefined futility boundary for the trial. There was only a small difference in time to clinical resolution between the standard of care plus peramivir treated arm compared to the standard of care plus placebo arm. After we received notice from the Data Monitoring Committee or DMC regarding the result, we promptly shared the outcome with HHS/BARDA. Consistent with that DMC recommendation, BioCryst suspended enrollment in the study. We are now proceeding with the full analysis of the trial. Although we will discuss the findings from the analysis with our partners, the most likely outcome is termination of the program. This Phase III trial in hospitalized influenza patients was unprecedented and challenging, due to the general lack of research in this specific area and the novelty of this endpoint in time to clinical resolution. These factors increased clinical risk for the trial. However, we chose to pursue this program based on the high unmet medical need for IV therapy for hospitalized influenza patients and the interest in funding by HHS/BARDA. While we failed to show a large enough difference in this trial with peramivir, it's important to remember that peramivir was successfully approved in Japan and Korea based on a different indication and primary endpoint in clinical trials that supported approval. In January 2010, Shionogi received approval of peramivir for the treatment of outpatient influenza in Japan and launched peramivir under the commercial name RAPIACTA. Going forward, we need to focus on the rest of our portfolio. We're fortunate to have other promising assets. Our top priorities include advancing BioCryst pipeline and the Presidio merger to create a company with a 2-pronged focus on antivirals and orphan disease drugs, initially for HCV and hereditary angioedema. We also need to carefully manage our cash. To that end, we will evaluate operational changes that would further decrease our cost structure. And we will focus our resources on advancing the pipeline to potential value creating milestones that can put us back on a path to long-term success and sustainability. Here are the things we plan to do in the coming months. First, bring the BCX4161 hereditary angioedema program into Phase I before year end. Upon successful completion of Phase I, we can then move quickly to HAE patient trials with a modest investment. The key at this stage of the program is to demonstrate we have adequate and consistent oral bioavailability to inhibit kallikrein and ultimately prevent HAE attacks. If we are successful, 4161 could revolutionize the treatment of HAE. Second, initiate additional preclinical studies for BCX5191 before the end of 2012. If we are successful in demonstrating meaningful preclinical antiviral activity of 5191 in chimpanzees infected with HCV, we will seek to re-engage the FDA regarding potential pathways to move the program forward to clinical development. Third, secure a partner for ulodesine. We are in discussions with potential partners. While it is difficult to predict when the process will conclude, partnering remains a top priority and we will work to get this done as soon as possible so ulodesine can enter Phase III. While these last 2 weeks have been challenging, we remain committed to honoring our signed merger agreement with Presidio and advancing our assets to the next important milestones between now and the end of next year. With that, I will turn it over to our CFO, Tom Staab, who will discuss our third quarter financial results.

Thank you, Jon, and good morning, everyone. I'm pleased to share with you some details regarding our third quarter 2012 financial results. Throughout 2012, we have consistently achieved the financial goals established for the company in the third quarter as further evidence of our accomplishments. We continue to deliver substantially reduced general and administrative expenses in 2012, which are roughly half of 2011 levels. These reductions continue to illustrate our commitment to a key operating principle, which is focusing our cash resources on advancing our development programs while minimizing noncritical and non-project spending. In addition, we are narrowing our development focus and related expenditures to antivirals and hereditary angioedema. Now I'd like to discuss our third quarter financial results for 2012, which are summarized on Slide 3. Revenues for the third quarter of 2012 were $5.8 million compared to $5.2 million in the third quarter of 2011. This revenue increase resulted primarily from the recognition of $2.8 million of deferred RAPIACTA royalty revenue from Shionogi, which was largely offset by a decrease in collaboration revenue from HHS/BARDA. Our revenue situation in the third quarter of 2012 is unique as we recognized 7 quarters of deferred RAPIACTA royalty revenue. This recognition occurred in the third quarter of 2012 as we needed 2 complete and representative flu seasons in Japan to give us reasonable historical experience to record an appropriate amount of RAPIACTA royalty revenue in accordance with Generally Accepted Accounting Principles. As mentioned in the press release, there is no underlying impact to our cash balance as all royalty payments were directed to pay all obligations on our nonrecourse notes payable. Continuing the revenue discussion, the increase in royalty revenue was substantially offset by a decrease in the amount of revenue associated with reimbursement of peramivir development. Peramivir development activity and related reimbursement under the HHS/BARDA contract is below levels in 2011 as 2012 peramivir development activity was predominantly focused on the 301 clinical trial for which there was slower enrollment due to mild flu seasons, whereas in 2011 there was more substantial and broader peramivir development activity. Third quarter 2012 R&D expenses were $12.1 million, down from $15.1 million in last year's quarter. Our R&D program expense mix has changed as lower development costs associated with the ulodesine and peramivir programs was partially offset by higher development costs associated with the BCX5191 and 4161 preclinical programs. We expect our R&D concentration to continue toward our preclinical programs, especially on our BCX4161 drug candidate for hereditary angioedema, as we expected to begin Phase I testing before year end. In addition, the R&D mix will be further impacted by the recent suspension of patient enrollment in our peramivir 301 study and completion of the ulodesine Phase II development program. Third quarter 2012 general and administrative expenses were $1.6 million and reflect a 46% reduction from the $3 million of expense incurred in the third quarter of 2011. This decrease in administrative expenses is even more impressive as 2012 expenses included a portion of Presidio due diligence and merger costs, which when excluded, provide for an over 53% decrease in 2012 administrative expenses. As mentioned earlier, we are extremely pleased with our ability to curtail administrative costs and more fully dedicate resources towards advancing our drug candidate portfolio. Moving down below the operating line. We incurred $1.2 million of non-cash interest expense and mark to market losses of approximately $600,000 in the third quarter of both 2012 and 2011. The interest expense and hedge loss for both periods relates to our nonrecourse debt and our hedge arrangement enacted in conjunction with the RAPIACTA royalty monetization completed in the first quarter of 2011. Our 9-month financial results for 2012 and 2011 are summarized on Slide 4. Revenue for the 9 months ending September 30, 2012, increased to $22.2 million compared to $14.1 million for the 9 months ending September 30, 2011. The increase was primarily due to the recognition of approximately $8 million of previously deferred forodesine-related revenue during the first quarter of 2012, and $2.8 million of RAPIACTA revenue recognized during the third quarter. Revenue from reimbursement on peramivir development for the 9 months of 2012 decreased $1.7 million or 14% compared to the same period of 2011. 9-month 2012 R&D expenses were $40.4 million, down slightly from $43 million in the first 9 months of 2011. Lower ulodesine and peramivir development costs were partially offset by higher development costs in 2012 associated with the BCX5191 and 4161 preclinical programs, and recognition of $1.9 million of previously deferred forodesine expenses associated with the amendment of our Mundipharma agreement. General and administrative costs through September 30, 2012 decreased sharply to $4.9 million from $9.9 million in the 9-month period of 2011. The 51% decrease resulted from a significant reduction of noncritical consulting and other administrative expenses, as well as onetime expenses incurred in the 2011 relocation of our corporate headquarters. In the first 9 months of 2012, we incurred $3.5 million of interest expense compared to $2.6 million in 2011. The difference resulted from 9 months of interest in 2012 versus approximately 7.5 months in 2011. The 2012 period also included the mark to market loss of $1.5 million compared to $2.9 million for the same period of 2011, reflecting changes in the U.S. dollar Japanese yen exchange rate. Now moving to Slide 5. I'd like to discuss our cash usage and our 2012 financial outlook. At September 30, 2012, we had cash and investments of $43.8 million compared to $57.7 million at the end of 2011. Our operating cash usage for the third quarter and 9 months ended September 30, 2012, was $9.7 million and $29.7 million, respectively. As a reminder, operating cash used excludes any impact of our royalty monetization, hedge collateral posted or returned, sales stock in the marketplace and any other nonroutine cash inflows. Considering recent events in our peramivir and BCX5191 programs, we are evaluating operational changes to decrease our cost structure to better position our company to achieve value-creating milestones and to conserve our cash resources to extend further into the future. In regards to our outlook for the remainder of 2012, we are reiterating our prior operating cash utilization guidance of $37 million to $43 million and operating expense guidance of $57 million to $69 million as we announced in August. As a reminder, our outlook depends on peramivir-related operating expenses and excludes any consideration of cash inflows derived from our licensing ulodesine. That concludes my financial review and I'd like to turn the call over to Dr. Bill Sheridan. Bill?

Thanks, Tom. The medical need for an oral safe prophylactic treatment for hereditary angioedema is high, making HAE a compelling opportunity. Kallikrein inhibition is well validated approach and the development pathway is well understood in this awful disease. Our HAE program consists of 2 kallikrein inhibitor projects. The lead compound, BCX4161 poised into Phase I clinical studies by year end and the next generation research project. The key goal for the 4161 study is to demonstrate oral bioavailability in humans. We need to see consistent PK with adequate exposure levels that suppress kallikrein. Fortunately, the levels of 4161 needed to fully inhibit kallikrein are quite low, less than 100 nanomolar. We've learned about PK and PD quickly and anticipate having results in early 2013. If 4161 passes this test, we should be able to move this project through trials in HAE patients expeditiously. At the same time, our discovery team has been working on new compounds for HAE with a totally different chemical scaffold with the main goal of improving bioavailability. This discovery project is now at the stage of advanced lead optimization and could be ready to move into pre-clinical development during 2013. Our HCV portfolio consists of 2 NS5B new projects, BCX5191 and a next-generation research program. Last week, we outlined the next steps for 5191. The key here is to find out whether 5191 achieved substantial antiviral effects in chimpanzees with HCV infection and at exposure levels equivalent to or below the normal [ph level identified in rats. We are focused on initiating these studies by year end. If we are successful in demonstrating meaningful antiviral activity of 5191 in this animal model, we will seek to re-engage the FDA regarding potential pathways to move the program forward to clinical development. While this work is progressing, we will continue to develop a set of compounds that may have a superior therapeutic index compared to 5191. This research is at the stage of selecting several compounds taken into screening animal safety experiments, and if successful, could provide an optimized lead to advancing to full preclinical development during the first half of 2013. Today, we would like to introduce an additional BioCryst antiviral project, BCX4430, the lead compound in our broad-spectrum antiviral program. It is targeted at pathogens that cause serious life-threatening viral hemorrhagic fevers, or VHFs, disease is characterized by both high morbidity and mortality and lack of any approved therapies. The VHF pathogens include filoviruses, such as Marburg virus and Ebola virus and flaviviruses, such as yellow fever virus. These viruses are categorized by government agencies as high-priority pathogens for development of medical countermeasures in order to protect civilian and military populations. Our lead compound 4430, has shown a very broad spectrum of antiviral activity in cell culture experiments with inhibitory activity against at least 15 viruses from 9 different families and activity in several different animal models. In the next weeks and months, we will be presenting results of testing for 4430 in models of infection for filoviruses and flaviviruses. Next week, studies of 4430 and yellow fever virus infection will be presented at the 2nd Antiviral Congress in Cambridge, Massachusetts, and we look forward to highlighting those results in more detail then. We plan to apply for federal funding to bring this project forward into 4 preclinical development and to submit an IND within 1 year of securing development funding. The path forward for this project is development under the animal rule or one or more high-priority bio traits to enable U.S. governments stockpiling as a medical countermeasure With that, we will now open up the call for your questions.

[Operator Instructions] Our first question comes from Rahul Jasuja from Noble Financial.

A couple of questions, I want to start with the peramivir program. So Jon, just looking at -- so how do I square this, how do we square this regarding the fact that you've got an approved intravenous version of this approved in Japan, I guess it's outpatient as opposed to hospitalized. And then we've got a stockpile orders of about 23 million a few years ago that had patient exposure. There seems to be a need for this, there seems to be efficacy and safety, albeit not in a registration path. How does the government or how does BioCryst look at this asset going forward given what happened today?

Thanks for your question Raul. So you probably touched on the most frustrating part of this, which is we had the experience with the EUA, our partner Shionogi has gotten the product approved in Japan, clearly in a different indication doing different trials and using a different endpoint. But as I described in my prepared comments, we took a different path for the reasons that I listed, the high unmet medical need and the interest in the funding from HHS/BARDA. And unfortunately, with the end point that we were pursuing, we were unable to show a difference. So it's very frustrating. But I think what I would say to investors is put peramivir in its proper context in the portfolio of BioCryst. It's been funded by the government and we had always said that what we had hoped for, if we were successful with the stockpiling order and if it was a source of non-dilutive capital, and unfortunately, it appears that, that's not going to happen as a result of this Phase III result. But in the scheme of the overall portfolio, I think there are a number of attractive assets that we can continue to pursue that have meaningful value creating potential.

And Jon, just a theoretical question, in the event that a flu outbreak happens that is akin to the one in the past, is it still possible that the NIH or the federal agencies could do a stockpiling, akin to last time and they could be compensated for BioCryst or that doesn't hold anymore?

Well, so remember that the original EUA was done before we had even started the Phase III. So the federal government always has the ability in an emergency to issue an emergency use authorization. We've demonstrated that we can manufacture the drug safe but that's the decision that the government makes.

Okay. So I want to move on to 5191 if I could, and some of these questions probably are -- I guess, this is directed to Bill, maybe. So looking at 5191, one of the trends that I noticed, and do correct me if I'm wrong here, is that you've got the issue with these uridine-based nukes and not the pyrimidine-based nukes, methyl guanosine equally was the sugar in the case of BMS indo techs [ph] , methyl guanosine in the case of Idenix, and then I think Alio is 2158, the one that was halted, was also an adenosine-based purine nuke. While the urisol-based, the pyrimidine-based nukes, 7977, the VX-135, the Vertex compound and even R-718 the cytidine based, had sort of had a path. Bill, could you add some color on am I sort of harping in the wrong direction here, is there an issue with purine?

Thanks for the question. I think each of these molecules has to be independently assessed, they're all different structurally, and I think it's too early to come to conclusions on the basis of purine or pyridine or specific based and whether or not the base is modified and so on. Each of them is different. There was a paper published in the last year or so that reviewed the nucleosides that are already on the market for HIV and hepatitis C pointing out that -- and also hematological conditions pointing out that it's very difficult to predict the safety profile of these compounds. There are some things that you can't be confident in assuming class effects of a particular type of structure.

Okay. Going forward, if you're developing sort of a better version of 5191 or rather nucleosides of any kind, would an adenosine-based one be the preferable one or would it not be the preferable one going forward? Again, a theoretical question.

I think that's also rather difficult to answer. The immediate task for us is to get the team study done, that we've discussed. The perspective we have is that safe doses of 5191 will be adequate to treat HCV infection and that's what we need to show. So that's an important study. And as I mentioned in the remarks, we also have a research program that is attempting to improve the therapeutic index that we'll have to see how that goes, and the next step there is to do streaming safety studies in animals. This is a field we have been working on for some time and we have a portfolio of research molecules that I think it's premature to get into the details of what they are.

And Rahul, I would just add to those comments, to start from scratch now is probably a bit challenging given that the speed in which you need to get these things to market. So we've been working on a set of backups for a while and so those are the ones that we'll focus on in addition to 5191.

Okay. And then one final question. Jon, a little more color on the gout space for ulodesine, obviously investors are waiting for that and the pharmacy was going to take awhile, but could you just add some more on this?

Sure. As I said in my prepared comments, we are in discussions. I've been doing deals for a long time, the completion of these are always difficult to predict but we want to get this Phase III started, we've completed the Phase II program. We are doing some of the work to get ready for the Phase III and so the quicker we can get this done the better. So that's a top priority for us.

And then you said that you've done some of the work for the Phase III, that is with no intention of ever pursuing a Phase III it's just routed up, is that right?

Yes. It's to be able to hand it over to a partner that can then hit the ground running. It's not to start it up on our own. I think the cost of the trial and a strategic view that we've always had is it's important to get this in the hands of somebody that has the capability and knowledge in the space and that kind of thing to develop this and market this product much more effectively than we could on our own.

Our next question comes from the line of Heather Behanna from JMP Securities.

Most of my questions were answered. So when we think about the backups, your next generation, are these also from the nucleoside class and are you looking for more targeted liver exposure or is your goal still to have something that is readily available in the plasma sort of in the similar profile as 5191?

In general, to answer your question, yes, they're in the nucleoside class in BioCryst research program. Obviously, with the pending merger, there are other things that we can work on as well, when we talked about that in a previous call, but specifically with what might be the goal, I think that the likely type of drug there is something that we would be able to measure in the plasma, but we have specific targets that I don't want to get into today about liver exposure and the like.

Okay, great. For the chimp study, is there any more color you could give us on timing? You have said, I believe, that this will be a 7-day study. So should we expect some sort of readout in the first quarter?

No. I think that we are moving forward quickly to get that study up and running, as is always the case, you have to go through contracting and the other step is to get a study moving, but we're confident that we can do that by the end of the year and this is not a huge undertaking so we anticipate, as I've said in my prepared remarks, that we should be able to do that, and get results pretty quickly. I don't want to put a definitive timeline on it.

[Operator Instructions] Our next question comes from the line of Ed Arce from MLV & Co. Ed Arce - McNicoll, Lewis & Vlak LLC, Research Division: I just wanted to start off with a question about the Presidio acquisition. I realize that you've got a portfolio of next-generation research projects following up behind 5191, but in the event that the 5191 development is terminated, the remaining projects are clearly very early stage. So I'm just wondering, I realize that you've signed a definitive merger agreement but are there clauses or avenues for Presidio to decide to exit from the deal?

Ed, we believe the rationale for the deal still makes sense for the reasons that I listed before when we talked about 5191. So the first one is HCV is a very attractive area. Second, Presidio has high quality assets and capability. We always said when we announced the merger that we weren't going to be limited to any one combination that we pursue all types of combinations, both internal molecules and external, and that we still think that, that makes sense. So whether it's 5191 or other combinations, we think that that's still a good strategic rationale. Then, if you look at the balance of the portfolio, right, the HCV compounds and HAE, I think both companies need more assets. And so that, I think, makes sense from a strategic perspective. And then lastly, as you said we have a signed merger agreement in place and we intend to honor it. So we still, like I said before, we still believe that the strategic rationale for this deal makes sense. Ed Arce - McNicoll, Lewis & Vlak LLC, Research Division: Okay. And then moving over to -- well, I guess it's just still 5191. I just was curious on the posters that you will be presenting later this week and in the weekends at AASLD, could you give us a little bit more clarity on what the focus of those posters will be?

The poster is about the preclinical bench characterization of the compound. Ed Arce - McNicoll, Lewis & Vlak LLC, Research Division: Okay. So that discusses some of the toxicity?

There will be some, yes, it's a bench experiment type focus.

Thank you. And I'm showing no further questions. Ladies and gentlemen, this does conclude our program. Thank you for your attendance and have a great rest of the day. You may all now disconnect.