BioCryst Pharmaceuticals, Inc. (BCRX) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the BioCryst Fourth Quarter 2015 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today’s conference is being recorded. I’d now like to introduce your host for today’s conference Mr. Rob Bennett, Vice President-Investor Relations. Sir, please go ahead.

Thank you, Liz. Good morning and welcome to BioCryst fourth quarter 2015 corporate update and financial results conference call. Today’s press release and accompanying slides for the call are available on our website, www.biocryst.com. At this time, all participants are in a listen-only mode. Later, we will open up the call for your questions and instructions for queuing will be provided at that time. Joining me on the call today are Jon Stonehouse, Chief Executive Officer; Tom Staab, Chief Financial Officer; and Bill Sheridan, Chief Medical Officer. Before we begin, I’ll read a formal statement 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 of the 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’ll turn the call over to Jon.

Thank you, Rob, good morning and thanks for joining us today. In 2016, we gain more clarity on our HAE programs and we’re able to bring additional capital through a license agreement for RAPIVAB. Two week ago, when we reported results from the OPuS-2 clinical trial, we outlined our revised HAE strategy to pursue two programs to achieve one goal, bring forward a conveniently dosed highly effective oral drug for HAE patients. Those two programs are the solid dosage form of avoralstat and our second-generation kallikrein inhibitors, BCX7353. Since then, we have adjusted our program plan based on the revised strategy and adjusted our capital allocation to implement the plan. The result as we have sufficient cash to get to the next milestones for both programs without needing to raise more capital in advance of these results. That’s it for my introduction. I will now turn it over to our CFO, Tom Staab, who will review our financial results.

Thank you, Jon, and good morning everyone. Today, I’m pleased to report the details of our fourth quarter and full-year 2015 results. We closed 2015 with approximately $101 million in cash and investments and the primary focus of obtaining data from two near-term decision points in our HAE programs. We have a history of deploying our cash in a disciplined and stage-gate manner and are conserving our resources to achieve these – these near-term value creating milestones. In regards to our 2015 results, we utilized $13 million of cash in our operations as we successfully offset most of our operating burn with non-dilutive capital through our RAPIVAB out-licensing transaction. In addition, we incurred actual 2015 operating expenses in the lower-end of our forecasted range. On Slide 4, our revenue for the fourth quarter of 2015 decreased to $4.6 million from $5.4 million recorded in the fourth quarter of 2014. The decrease resulted primarily from lower 2015 royalty revenue as well as lower collaborative revenue associated with BCX4430 development under our BARDA and NIAID contract. Fourth quarter 2015 R&D expenses of $19 million were in line with the $18.5 million incurred in the fourth quarter of 2014. 2015 R&D expenses were focused on the development of our HAE portfolio of product candidates including avoralstat, BCX7353, other second-generation kallikrein inhibitors, and to a lesser extent BCX4430. Selling, general, and administrative expenses for the fourth quarter of 2015 increased to $2.7 million, compared to $2 million for the fourth quarter of 2014. The increase was largely due to the initiation of activities in preparation for the commercialization of the company’s HAE product candidates. Moving below the operating line, we incurred $1.3 million of interest expense in the fourth quarters of both 2015 and 2014. We also recorded a mark-to-market foreign currency gain of $229,000 in the fourth quarter of 2015 as compared to a foreign currency gain of $4.8 million in the fourth quarter of 2014. These gains result from periodic changes in the U.S. dollar/Japanese yen exchange rate and the related mark-to-market valuation of our hedge arrangement. Both interest expense and the foreign currency gain related to our non-recourse notes and hedge arrangements in active in conjunction with the RAPIACTA royalty monetization. Our net loss in the fourth quarter of 2015 was $18.1 million, or $0.25 per share, as compared to $11.7 million of net loss, or $0.16 per share, in the fourth quarter of 2014. Slide 5 summarizes our full-year 2015 financial results. Total revenue for 2015 was $48.3 million compared to $13.6 million in 2014. The increase in 2015 was primarily due to the recognition of $21.8 million of revenue associated with the upfront payment in our RAPIVAB out-licensing transaction, $6.3 million of RAPIVAB product revenue, and increased government collaboration revenue associated with BCX4430 development. 2015 R&D expense increased to $72.8 million from $51.8 million in 2014. The increase was primarily due to more R&D spending associated with our HAE programs into a lesser extent slightly higher RAPIVAB and BCX4430 development expenses as compared to 2014. Selling, general, and administrative expenses for 2015 increased to $13 million compared to $7.5 million in 2014. The increase was primarily associated with the initiation of a commercial organization in preparation for commercializing our HAE product candidates as well as unrestricted grants awarded to the U.S. and international HAE patient advocacy groups. Moving below the operating line; we incurred $5.2 million of non-cash interest expense in 2015 and $5 million of non-cash interest expense in 2014. We also recorded a foreign currency gain of $1.1 million in 2015 as compared to a gain of $5.5 million in 2014. Moving on to Slide 6, I would like to discuss our cash balance and cash usage. We ended the fourth quarter with cash and investments of $101 million, down a net $13 million from the $114 million at the end of 2014 as discussed earlier or $42.2 million utilization on a gross cash outflow basis. We are pleased to have a strong balance sheet as it affords us sufficient cash runway to fund our operations well passed our two HAE data events in 2016 without the need to seek additional capital. In regards to financial guidance for 2016, we are forecasting operating cash usage to be in the $55 million to $75 million range and thereby expect our existing cash and investments to provide us liquidity through at least mid-2017. In addition, we expect our 2016 operating expenses to be in the $78 million to $98 million range. As a reminder, equity-based compensation expense is excluded from our operating expense guidance. Now, I’d like to turn the call back over to Jon for some closing remarks.

Thank you, Tom. In 2016, BioCryst is focused on advancing our HAE programs to get closer to our goal of bringing forward a conveniently dosed highly effective oral drug for HAE patients. In closing, you can see on Slide 7 that we expect to report results from the solid dose PK study of avoralstat by mid-year and APeX-1 results by the end of the year. That concludes our prepared remarks. We will now open it up for your questions.

[Operator Instructions] Our first question comes from the line of Jessica Fye with JP Morgan. Your line is now open.

Hey, guys. Good morning. Thanks for taking my questions. I’ve got two if that’s all right.

Sure.

The first one is have you been able to correlate in OPuS-2, the patients who, you saw, did have better drug exposure with any efficacy trends, i.e., do we know at this point, if the patients who do get more exposure had better results. And then the second question is on the solid dose form. Can you elaborate on if this is a single formulation or whether there are multiple solid dose forms that you are looking at? And I believe you’ve given a range of monkey exposure that you said was two to four-fold that for avoralstat. Should we expect that data to be presented or somehow provided to The Street prior to the human PK results this summer? Thanks.

Yes, hi, Jessica. This is Bill. I’ll address those questions. I think, OPuS-2, as a reminder, we did not see a benefit in the primary end-point. Under those circumstances it’s fairly difficult to pullout associations of exposure we benefit. We certainly looked at it. I think, you know, the message from the study is that the exposure was insufficient. And that’s what we’re focused on trying to fix with regard to the experiments that you asked about with regards to the solid dosage form.

And then on the – these are more than one solid dosage forms. So, there were several different mixes of the solid dosage form. We ended up bringing two into the human PK study. We’re continuing to do research to look at ways to make it better. And like we said, we will have the data from the human study by the middle of this year. The monkey data I think that’s the question that you asked, will we be showing that before the human data. I think one reason we haven’t shown the monkey data to this point is that we’ve been working to bolster our IP estate with this data. And so, we want to make sure that we take care of that first. And given that we’re getting relatively close to the middle of the year. What matters here is the human data really. So it’s likely that we’ll wait until we have the human data available.

Got it. Thank you.

You’re welcome.

Our next question comes from the line of Liisa Bayko with JMP Securities. Your line is now open.

Hi, there. Can you please just triangulate and just to remind everyone where you are with exposure, where you hope to go and why you’re confident about that based on the data you’ve seen so far. And then, when you present the data, will you presenting it side by side with the old formulation in terms of exposure, how are we to sort of calibrate? Thanks.

Yes, hi, Liisa. This is Bill. I tell you the comparator is the all formulation for sure. The data will be presented in such a way that you can make a reference to the old formulation. And as Jon said, what matters is, can we improve on that in humans.

The other part of your question, Liisa, was [indiscernible] how well we know if we’re in the right range. I think the point there, Liisa, is based on our assay. We believe that in order to restore the normal phenotype, you need four to five times the EC50. So, if we’re in or above that range through the dosing interval including variability – inter-patient variability and our chances of being able to have them really impressive efficacy outcome is higher. And so that hasn’t changed. I think, you know, what we saw in OPuS-1 was that we had very big variability based on variability in absorption, and then secondly, based on the timing of taking three doses. And what happened is that people fell below the target range and therefore it didn’t have kallikrein inhibition coverage that they needed during the course of the day. And so, our goal whether it’s a solid dosage form or 7353, which we know we have human PK data. We know that with a number of doses, we can get above that target range for full 24-hours after a single dose. That should be your reference point is that lobar target range of four to eight times of EC50.

And when – what are the next steps from there and just give us a sense of timing when would we have some sense of how much – how many events you can surprise or what have you – what’s the next step?

Well, obviously, we’ll take them one at a time. So, with the solid dosage form, it would be get data in patients. And so, running some sort of HAE trial. We’re still in the process of taking through what that would be, but obviously we need the human PK data first to know if we got into the target range or not. The second with 7353, of course, if we’ve got success with APeX-1, I think we moved as quickly as possible to a much longer study that we would hope would be a pivotal study. And so that’s basically the past. And so, these two programs, as I said in the last call, are competing against each other, right. Unlikely, we’re going to bring both the market; the fastest and the one that has the best profile wins. And that’s – both on roughly the same timeline, which I think I said in the last call was an NDA filing in 2019-ish timeframe.

And so, how much does these kind of hypersensitivity rashes that you’ve seen, how much of that weigh into your decision making process? And can you maybe give us an update if you’ve seen any additional cases thus far in maybe your studies. Thanks.

Yes. So there is no update – update to give the data we talked about before stands. With APeX-1, win that stuff, we put out a – as mentioned in the last call, we’re going overall the data from OPuS-2 to see if there is any changes that will be useful to incorporate into the APeX-1 design. So that process is going to wrap up and then we’ll make whatever changes we need to make. And once the study has started, we can discuss the details of that and I look forward to doing that. So with regard to how do we think about it? Basically, we had two subjects with red itchy rashes, which were resolved. And in neither case was this is a serious problem and we need to pay attention to understanding, what is the frequency of that event, first thing. And the second thing is that – what is that event – clinical nature of that event is that going to be what we see if we see other cases. If the latter is the case and frequency is lower, this is a drug that has the potential for exceedingly high efficacy based on what we know about it right now and the efficacy safety balance in our mind, it would be very favorable if we didn’t believe that then we wouldn’t be pursuing APeX-1. There’s a very solid basis of pursuing the drug with regard to efficacy, the remainder of the adverse event profile was completely blend in reality, but there is really nothing much else to worry about here. And that drug can be given as a once a day simple tablet formulation. So, there are a lot of characteristics of this drug that are very favorable. And once we finished APeX-1, we’ll have a big enumerator or denominator or [Audio Dip] will be the same. And we’ll understand more precisely what the incidence of rash is.

Yes. I think Bill said repeatedly that it’s an efficacy safety balance, right, or tolerability balance. And so it’s hard to say, what’s the exact rate that’s acceptable until we know what the efficacy is. We have pretty high expectations around the efficacy. So, let’s get APeX-1 done and then we’ll have a better idea of what it really is.

Thank you.

You’re welcome.

Our next question comes from the line of Serge Belanger with Needham and Company. Your line is now open.

Good morning. I have a couple questions. I guess the first one for Jon. Clearly, the focus remains on the two HAE programs. But I wanted to know if you could provide an update on the non-HAE programs. Do you expect anything out of 4430 for this year? And I know in the past you’ve talked about government’s stockpiling contracts. I know there is not a whole lot of visibility there, but if you can, I guess, talk about recent developments or any expectations for this year?

Sure, so let me tackle these one at a time. So, let’s start with kallikrein inhibitors, you know, I can’t remember if it was the last caller or a caller before that that I have mentioned that we’re starting to look at other indications. We have a whole suite of backup kallikrein inhibitors and there’re at least some initial attractive indications that that we’re considering. And so, I think our last comment on the backups was that we were advancing some towards scale up to get to preclinical tox and that remains to be the case, so that that program continues forward. And as we make decisions around other indications, we will make that known to investors and others. We have a discovery research program on two other targets that we haven’t identified yet. In January, I had mentioned that you know we’re making good progress on optimizing the leads of both these targets. And so that continues to move forward. And our expectation is that we will give an update maybe towards the end of this year, beginning in the next, and that’s at least our goal on that program. 4430 continues to move through Phase I development. We’re also working that move forward the IV formulation of the Phase Is in IM version, but we’re working to move forward in IV version as well. There is a lot of attention right now on Zika virus. I think that answers your question about stockpiling with RAPIVAB because the government’s sole attention is on a crisis at hand. And so, I wouldn’t put any expectations around RAPIVAB stockpiling at this point in time. And obviously, we’re continuing to pursue it, but to the election year, budgets are tight. So I think from an investor perspective, expectations should be extremely low on that front. But you know we have a broad spectrum antiviral that we have extremely impressive data in Marburg virus and we think has broad spectrum applicability. And the government still is interested the program continues to move yet, slower than other. But at least from our perspective, the interest in this program remains, I would say, reasonably high.

Okay. Thanks for the update. I guess one question for Tom. Just wanted to I guess get a little more clarity on the assumptions behind the 2016 guidance. It seems to be in the same range as what we saw in 2015 despite the fact that you kind of pulling back on R&D at least for the start of the year. And then I just wanted to know the assumptions behind the I guess the $20 million delta between the low and high-end of the range.

Yes. So obviously with OPuS-2 results, we reevaluated our 2016 budget. And with the elimination of the soft gel formulation, any activities associated directly with that formulation have been discontinued. There are some wrap up costs, but for all intensive purposes that's pretty low spend. And then we reevaluated every single ongoing program that we had and figured out what we needed to spend to get to value creating points and went through that. So we've actually done the 2016 budget process two times now, and we’re very comfortable not only with our cash and investments, but that we’re able to resource our programs to the next value creation point and hopefully when we create – when we achieve those will make those known. But in I guess a holistic view, we are aggressively funding both avoralstat and solid dose formulation and 7353 through APeX-1 because those two milestones are the most significant to investors. And we certainly want to get those data points as soon as possible. And then continue both of those programs or at least those programs after we have the data going forward to Jon's point and eventually NDA filing.

Thank you.

Our next question comes from the line of Brian Abrahams with Jefferies. Your line is now open.

Hey, guys. This is Greg on for Brian. Thanks for taking my question. Question that relates to the timing of APeX-1 [indiscernible] that you’re passing and regrouping post results. Could you just confirm if or if not any regulatory feedback is an input into the specific timelines at all?

Yes, I can concern that. This is a BioCryst vision to look at the OPuS-2 results and make sure that every detail of APeX-1 is what we wanted to be.

So, Greg I'm trying to understand your question. I mean, as I said to Brian in the last call, we were ready to go. Remember our original guidance was that we were going to start APeX-1 either the tail-end of last year beginning the next and then we’d data out by the middle of the year. We were ready to go, but with the OPuS-2 results, we made a decision to evaluate everything to make sure that APeX-1 had its best shot at success. If we make meaningful changes in the protocol and obviously we’ll need to go back to regulators to get their approval on that. And that's why we built-in timing, so that the results will come by the end of the year. Is that what you're asking?

Absolutely, it makes sense. Thank you and just one quick follow-up. With respect to spend this year, what can we expect around the pace of this spend? Would any lumpiness there? We expect it to be smooth over 2016.

Yes, so I think that the most significant spend as I’ve mentioned to Serge’s question is associated with our two lead HAE programs, which would be avoralstat and solid dosage formulation in 7353. So if you bifurcate that into activity, obviously, the 107 trial is closer to the present and we’re spending a decent chunk of money on that. And then the APeX-1 as we digest the results, we make the protocol changes, submit that to regulatory authorities and go through that process that may lag a little bit. So, I think that roughly you're going to have more of your spend towards the last six months of the year. However, there will be a decent chunk of avoralstat spend in the first six months.

Great, thanks guys.

You’re welcome.

[Operator Instructions] Our next question comes from line of Rahul Jasuja with Noble Life Science. Your line is now open.

Hi, guys. Thanks for taking my question. So, I’ve got a couple questions that that help me I guess clarify the dosing formulation here. So the reason, the soft gel was attractive initially was – was that because commercially one kind of dosing, which is the soft gel being more, more attractive on the commercial basis, is that thinking correct?

So, let’s kind of rewind history because I think that's important. The reason though the liquid gel was interesting because it was the only formulation that gave us a shot at getting drug exposure in human. I remember this was a formulation that had less than 5% bioavailability. And before we started doing the formulation work with the liquid gel had massive variability in animal to the point where it never would have flown and we were – what we were able to do and as you saw in Phase I was get more consistent exposures – and an exposure up to the doses of 400 milligrams in the Phase I. It was never ideal, right. It was given three times a day, but it was the best we had. And so we continued to work on formulation research all along the way and we worked on new molecules, right. And so that caused us to come up with our second generation program, which BCX7353 is a part of. And the goal there was to come up with a once a day drug with really high drug levels and our team was successful, much better bioavailability north of 50%. And then we continue to work on different formulation research to see if we could improve on avoralstat. The whole reason we're doing all of this is because we believe that conveniently dose highly effective oral drug can be the market leader. And so, we wanted to have as many shots at that as we could because we know stuff happens and drug development. And so, today, we're in a situation where we’re working towards a PK study to see if we can get the exposures that we need with the solid dosage form of avoralstat and we’re moving forward with BCX7353 and it’s first in PD patient study, where like I said before, our expectation on efficacy is very high. And we’re hopeful that we need one of these to come out as a winner to be successful in the market. That’s the goal.

I mean, the links not on the call, but I’ll step into issues for a second. Any powerful oral formulation would be fine, commercially. So there’s nothing to choose between a soft gel or tablet or whatever…

Yes.

It’s effective, safe, well-tolerated, and conveniently-dosed, it’s fine. [Indiscernible]

That’s helpful. Thanks.

Yes, that’s why – when we first presented twice a day versus once a day to physicians, it was overwhelming that the difference between three times a day and twice a day is huge, the difference between twice a day and once a day is not that big.

Okay, that’s helpful. So then sort of sticking to the same topic, I have in my notes here that we talked about the solid dose, the duration of absorption being longer over the solid dose versus the liquid dose and that could be one reason why we sell the OPuS-2 results turning out to be different. But do we expect any differences in GI tract tolerability that either the solid dose versus – with the solid dose versus the liquid dose?

The answer to the last question is yes because the excipients sort of part of the liquid formulation in the soft gel. We showed in toxicology studies and in the clinic in the equally treated animals and the placebo treated healthy subjects and placebo-treated patients with hereditary angioedema with that formulation. The right – the lower GI symptoms, loose stools, and flatulence in the like was similar. So it’s related to its components in the vehicle. The solid dosage forms are different. We would expect and not to have that issue with solid dosage form.

Okay, great. And then one final question, as I said, I’ll wrap my postmortem of the OPuS-2. We spoke at length about the 30% placebo rate, could you explain that, I mean, I think it's being redundant, but for my purposes, could you explain why that was so in that study and how that can be taken care of going forward?

It’s a definite difference looking at the OPuS-1 study and the OPuS-2 study. And we went back and looked at the qualifying attack rates if you like all the historical information that we have had either from clinic records in both studies or from 30 out of the 110 subjects in OPuS-2 from the running period that those subjects went into because they didn’t have any records to orders. And then looked at the difference in attack rates from that data compared to what we saw on our study. In OPuS-1 there was hardly any difference. And in OPuS-2, there was a 30% reduction. And the literature on in other fields of medicine where there are repeated acute attacks of an illness and you know industry has tried to develop prophylactic medicines, for example migraine dosage is that something called expectation bias is different when potential trial subject is presented with a crossover design versus a parallel cohort design. And in short, I mean, the parallel cohort design, the expectation that people have is one of benefit. And with a crossover design, the expectation that people have going to the study is a less benefit or no benefit. And so there is – sorry for the technical response, but there is some evidence from the migraine literature that expectation bias is different in different designs. How to cope with it is a different matter. And so, first of all, it’s the placebo response that we saw on – in OPuS-2 is not a sufficient reason for why we did not hit a primary endpoint. You should be able to see a treatment effect over and above a placebo response if it’s there and it comes down to if the study adequately powered. We did some [indiscernible] of what we would have been able to detect and we would have been to detect a 30% reduction in attack rate or above the 30% reduction in attack rate that we saw comparing the qualification attack rate with the on-study attack rate. So the short answer to the question is that provided you a build that into your power calculation when you can work with the placebo response, some interesting time, many times in different drug development programs for different indications for example rheumatoid arthritis.

And Bill isn’t safe to say that if you got a huge treatment effect that you’ll be able to show a difference. And I think that’s really important piece here. When I say conveniently-dosed highly effective, highly effective is drug levels above that – at or above that target range to eliminate as many attacks as we can, right. So this is in a small incremental change in HAE patients’ lives. This is a dramatic shift. And so, if you got a highly effective drug, you should see a different, even if you have the big placebo effect.

Right – so that call conversation of that placebo effect is obviously one of the items that we are looking at with regard to should we make any alterations to the intended design of APeX-1 – obviously, we need to take into account.

Great, that’s been very helpful. I look forward to data in the middle of the year. Thanks.

Thanks.

Our next question comes from the line of Christopher James with FBR and Company. Your line is now open.

Hi, good morning guys. Thanks for taking my questions. Most of my questions have been answered and maybe this one has been answered sort of indirectly. But since both HAE drugs are competing sort of directly, what are your decision parameters and timelines to make a go – no go decision on avoralstat versus 7353? Thanks.

I think – comes down to which drug has the best shot as it in the profile, all right. And so like I said, we have PK data with 7353 that shows that it’s well above the range at doses that we think could be well-tolerated. And so that’s what we’re studying in APeX-1 with the solid dosage form we have monkey data that’s encouraging compared to the soft gel, but what matters is what we see in humans and the bar is high, right. It’s that target range in or above and variability that if you see big arrow bars, the arrow bar is still have to be in or above the target range, right. And so we’re fortunate enough to have both programs that achieve that then we’ll continue to advance them further, both of them. If one falls out then we’ll continue to advance one. The good news is we’ve got two shots at.

And Chris from a budgeting and from a forecasted guidance perspective, both programs are aggressively funded through 2016. So, there is no expectation to decide in 2016 about one versus the other program.

Got it. Thank you guys.

I’m showing no further questions in queue at this time. I’d like to turn the call back to Mr. Jon Stonehouse for closing remarks.

So nothing further to say, as always we appreciate your interest in BioCryst and have a great day. Thank you.