UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the fiscal year ended December 31, 1995
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 of other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
2190 Parkway Lake Drive; Birmingham, Alabama 35244
(Address and zip code of principal executive offices)
(205) 444-4600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $.01 Par Value
Indicate by a 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 X No__.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ].
While it is difficult to determine the number of shares owned by non-affiliates,
the Registrant estimates that the aggregate market value of the Common Stock on
January 31, 1996 (based upon the closing price shown on the Nasdaq National
Market on January 31, 1996) held by non-affiliates was approximately
$65,349,342. For this computation, the Registrant has excluded the market value
of all shares of its Common Stock reported as beneficially owned by officers,
directors and certain significant stockholders of the Registrant. Such exclusion
shall not be deemed to constitute an admission that any such stockholder is an
affiliate of the Registrant.
The number of shares of Common Stock, par value $.01, of the Registrant
outstanding as of January 31, 1996 was 9,512,409 shares.
DOCUMENTS INCORPORATED BY REFEERENCE
None.
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PART I
ITEM 1. BUSINESS
General
BioCryst Pharmaceuticals, Inc. ("BioCryst" or the "Company") is a pioneer in
using structure-based drug design to discover and design novel, small-molecule
pharmaceutical products for the treatment of immunological and infectious
diseases and disorders. The Company is conducting three clinical trials with its
lead drug, BCX-34, including a Phase III trial with a topical formulation for
cutaneous T-cell lymphoma ("CTCL"), a Phase II trial with a topical formulation
for psoriasis and a Phase I/II trial with an oral formulation for CTCL. BioCryst
has additional drug discovery projects underway using its structure-based drug
design technologies to develop inhibitors of influenza neuraminidase and enzymes
and proteins involved in the complement cascade.
BioCryst's lead immunological drug program is targeting T-cell proliferative
disorders, which arise when T-cells, which normally fight infection, attack
normal body cells or multiply uncontrollably. These disorders are varied and
include CTCL, a severe form of cancer, psoriasis, transplant rejection and
certain autoimmune diseases. BioCryst has designed and synthesized several
chemically distinct classes of compounds which inhibit purine nucleoside
phosphorylase ("PNP"), an enzyme believed to be involved in T-cell
proliferation. The Company has performed preclinical studies with BCX-34 and has
completed a series of six Phase I clinical trials, three Phase I/II clinical
trials and two Phase II clinical trials with topical BCX-34 and has completed
one Phase I trial with oral and intravenous formulations of the drug. BCX-34 has
been tested in over 230 subjects, and no significant drug-related side effects
have been observed.
The completed Phase II trials of topical BCX-34 involved the treatment of CTCL
and the treatment of psoriasis. These two dose-ranging clinical trials
did not achieve a statistically significant outcome. A majority of the
patients from the Phase II CTCL trial volunteered to roll over into an
extended, open-label trial which demonstrated clinical improvement in 75% of
the patients. The Company expects to initiate a pilot Phase I/II clinical
trial for atopic dermatitis in the first half of 1996. In addition, the
Company has initiated preclinical studies using an ophthalmic formulation
of BCX-34.
BioCryst's scientists include recognized world leaders in the fields of X-ray
crystallography and medicinal chemistry, two core disciplines associated with
structure-based drug design. The Company has certain collaborative arrangements
with The University of Alabama at Birmingham ("UAB"), which has one of the
leading X-ray crystallography centers in the world and has been successful in
characterizing a significant number of medically relevant protein targets. The
Company believes that based upon its scientific staff and management, the number
of compounds it has designed and its clinical development program, it is a
leader in the practical application of structure-based drug design.
Background
The human immune system employs specialized cells and proteins, including cells
known as T-cells and B-cells, to control infection and recognize and attack
foreign disease-causing viruses, bacteria and parasites. The immune system can
also cause diseases or disorders when it inappropriately identifies the body's
own tissue as foreign and, among other things, produces T-cells that attack
normal body cells. Such diseases are referred to as autoimmune diseases and
include psoriasis, in which the immune system attacks skin tissue; multiple
sclerosis, in which the immune system attacks the protective sheaths of certain
nerve cells; and rheumatoid arthritis, in which the immune system attacks joint
tissue. This immune system response also causes transplant rejection in which
the T-cells of the immune system attack the transplanted organ or tissue. The
immune system may also cause T-cells to multiply uncontrollably. T-cell
proliferation in such cases is associated with cancers such as cutaneous T-cell
lymphoma ("CTCL"). Within the past decade, drugs have been developed that treat
autoimmune and related diseases by selectively suppressing the immune system.
However, most current immunosuppressive drugs have dose-limiting side effects,
including severe toxicity.
PNP Enzyme. The link between T-cell proliferative disorders and the PNP enzyme
was first discovered approximately 20 years ago when a patient, who was
genetically deficient in PNP, exhibited limited T-cell activity, but reasonably
normal activity of other immune functions. Since then, additional patients with
inherited PNP deficiency have been reported. In most patients, the T-cell
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population was less than 20% of normal levels, often as low as 1-3% of normal
levels. However, B-cell function was normal in approximately two-thirds of these
patients. These findings suggested that inhibition of PNP might produce
selective suppression of T-cell function without significantly impairing B-cell
function.
Studies of the immune system have revealed the mechanism by which PNP inhibition
suppresses the proliferation of T-cells. In the absence of PNP, all four
nucleoside substrates (inosine, deoxyinosine, guanosine and deoxyguanosine)
accumulate in plasma and/or urine. It is the intracellular accumulation of
deoxyguanosine that leads to the suppression of T-cell proliferation. This
occurs by the following steps:
(1) T-cells have a high capacity, because of their high concentration of an
enzyme called deoxycytidine kinase, to add a phosphate group to
deoxyguanosine (GdR), forming deoxyguanosine phosphate (dGMP), which is
then converted by other enzymes to deoxyguanosine triphosphate (dGTP).
(2) As the production of dGTP occurs, dGTP accumulates in the T-cell
because of the inability of the T-cell to remove or break down this
nucleotide.
(3) High concentrations of dGTP inhibit the enzyme ribonucleoside
diphosphate reductase.
(4) Since ribonucleoside diphosphate reductase is necessary for DNA
synthesis or cell proliferation, when ribonucleoside diphosphate
reductase is inhibited, DNA synthesis is suppressed and T-cells cannot
proliferate.
The dGTP-mediated suppression of cell proliferation via PNP inhibition is
relatively selective for T-cells because these cells appear to have relatively
high capacity to add phosphate groups to deoxyguanosine and limited ability to
degrade or remove the dGTP so produced.
Products in Development
The following table summarizes BioCryst's development projects:
<TABLE>
<CAPTION>
PROGRAM/ INDICATION/ DELIVERY STAGE OF
COMPOUND APPLICATION FORM DEVELOPMENT (1)
- ----------------------- ----------------------- ---------- -------------------------
<S> <C> <C> <C>
PNP Inhibitors (BCX-34) CTCL Topical Phase III
Oral Phase I/II (2)(3)
Psoriasis Topical Phase II
Oral Pre-IND Safety Assessment
Atopic Dermatitis Topical Phase I/II (2)(4)
Rheumatoid Arthritis Oral Pre-IND Safety Assessment
Transplant Rejection Oral Pre-IND Safety Assessment
Multiple Sclerosis Oral Pre-IND Safety Assessment
Ophthalmic Diseases and Ophthalmic Preclinical
Disorders
Influenza Neuraminidase
Inhibitors Influenza Oral Preclincal
Complement Inhibitors Immunological Diseases and Intravenous/ Drug Discovery
Disorders Oral
</TABLE>
- --------
(1) The development process for the Company's products typically can be
expected to consist of the following stages: (i) drug discovery; (ii)
performance of three phases of preclinical studies to evaluate the safety
and potential activity of the drug as follows: (A) laboratory tests, (B)
pharmacology tests with animal models and (C) safety assessment; (iii)
preparation and submission of an investigational new drug ("IND")
application to the United
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States Food and Drug Administration ("FDA"); (iv) performance of clinical
and other studies to assess safety and parameters of use, if authorized by
the FDA; (v) performance of clinical trials to establish safety and
effectiveness, typically referred to as Phase I, II and III clinical
trials, including one or more adequate and well-controlled Phase III
clinical trials, if authorized by the FDA; (vi) preparation and submission
to the FDA of a new drug application ("NDA"); and (vii) if the new product
is approved by the FDA, commercialization of the product.
(2) These clinical trials combine certain elements of both Phase I and Phase II
clinical trials. See "Business - Government Regulation."
(3) This trial may also include subjects with T-cell leukemia and other T-cell
cancers.
(4) This trial is scheduled to commence in the first half of 1996.
PNP Inhibitors (BCX-34)
BioCryst has designed and synthesized several chemically distinct classes of
small molecule compounds (five of which include compounds patented in the United
States) which inhibit the PNP enzyme. In in vitro preclinical studies, the
Company's PNP inhibitor compounds selectively and potently suppressed human
T-cells associated with certain T-cell proliferative disorders. One member of a
patented class of PNP inhibitor compounds, BCX-34, which was designed and
developed by BioCryst, to date has been the most promising of the Company's
compounds as a potential treatment for a number of T-cell proliferative diseases
and related disorders. The Company is in the clinical stage of development of
topical and oral formulations of BCX-34 and has an intravenous formulation for
future development. A topical formulation may be most suitable for treating
certain dermal indications as a result of being able to directly administer drug
to diseased skin thereby minimizing systemic absorption. An orally deliverable
product may allow systemic application of the drug in diseases that either
cannot be treated topically or can be treated more successfully with an oral
formulation. An intravenous formulation may allow more precise dosage control
and direct systemic application into the bloodstream and may permit usage of
BCX-34 where other methods of delivery may not be suitable.
The Company has completed a series of six Phase I clinical trials, three Phase
I/II clinical trials and two Phase II clinical trials with topical BCX-34 and
has completed one Phase I trial with oral and intravenous formulations of the
drug. BCX-34 has been tested in over 230 subjects, and no significant
drug-related side effects have been observed. The Company is conducting a Phase
III trial with topical BCX-34 for the treatment of CTCL, a Phase II trial with
topical BCX-34 for the treatment of psoriasis and a Phase I/II trial with oral
BCX-34 for the treatment of CTCL. The Company expects to initiate a pilot Phase
I/II clinical trial for the topical treatment of atopic dermatitis in the first
half of 1996. The Company is in the preclinical stage of development of an
ophthalmic formulation of BCX-34 for direct delivery of the drug to the eye for
treating certain T-cell proliferative disorders of the eye. While the Company
has selected BCX-34 as its lead compound, the Company has a number of patented
PNP inhibitor compounds which it believes may be suitable as alternative lead
compounds for the treatment of T-cell proliferative disorders. No assurance can
be given that the topical, oral, intravenous or ophthalmic formulations of
BCX-34 will be successfully developed, will receive FDA approval or will prove
to be commercially successful.
Cutaneous T-Cell Lymphoma. CTCL is a severe form of cancer which is
characterized by the development of scaly patches on the skin, progressing to
ulcers and tumors of the skin, lymph nodes and internal organs. CTCL is a
chronic disease involving the proliferation of certain types of T-cells. CTCL
affects approximately 5,000 to 10,000 people in the United States. There is no
known cure and the median survival time is approximately four years after
systemic progression of the disease. Existing therapies for CTCL are generally
considered inadequate.
The Company is conducting a Phase III trial with topical BCX-34. This trial,
being conducted at eight major medical centers, is a randomized, double-blind,
placebo-controlled trial including 90 patients with early stage CTCL. Patients
in this study apply either BCX-34 (1% concentration) or placebo cream over their
entire body twice daily for six months. Supporting this trial is a two-stage
dose-ranging Phase II trial completed in 1995. The first stage of the Phase II
trial was randomized, double-blinded and placebo-controlled and enrolled 30
patients at UAB and Washington University with CTCL. In this trial, patients
applied one of three concentrations of BCX-34 (0.3%, 1% or 5%) and placebo cream
to different targeted disease lesions twice a day for six weeks. This trial
did not achieve a statistically significant outcome. Twenty-four of the study
patients continued in an open-label trial applying BCX-34 (1%) to all disease
lesions twice daily for six months. The results from the extended trial showed
that seven patients had complete remissions (lesions cleared both clinically
and histologically), two patients were clinically clear and nine patients had
partial clearance. Six patients had stable or progressive disease or dropped
out of the trial. There were no significant drug related adverse events. The
foregoing results are not definitive, as positive Phase III clinical trial
results are required to determine safety and efficacy of BCX-34. The Company
believes the results of the open-label trial suggest that more than six weeks
are required to obtain efficacy in the topical treatment of CTCL.
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The Company completed a Phase I oral and intravenous trial of BCX-34 in May
1995. In this trial, three CTCL patients received a single intravenous dose,
followed a week later by a single oral dose, followed three weeks later by five
day consecutive oral dosing. This pharmacology study suggested that BCX-34 is
well tolerated systemically and that the drug is highly bioavailable in humans.
In late 1995, the Company initiated a Phase I/II dose escalation oral trial in
CTCL and other T-cell cancer patients. This is an open label trial designed to
provide safety and pharmacokinetic data on BCX-34 as well as provide potential
efficacy data.
Psoriasis. Psoriasis is a common chronic and recurrent disease involving T-cells
characterized by red, thick scaling of the skin, which can develop at any time
in life. In the United States, it is estimated that more than four million
people suffer from some form of psoriasis and 150,000 to 260,000 new cases are
diagnosed annually. About 10% of these cases are classified as "severe" and are
most likely to require physician's care and drug intervention. In some cases,
the condition may be accompanied by a form of arthritis which can be
debilitating. Current therapies for psoriasis either are of limited benefit or
have severe side effects.
The Company is conducting a Phase II trial with topical BCX-34 for the treatment
of psoriasis. This trial, being conducted at four clinical research centers, is
a randomized, double-blind, placebo-controlled trial which has enrolled 90
patients with plaque stage psoriasis. Patients in this study apply either BCX-34
(1% concentration) or placebo cream over their disease lesions twice daily for
12 weeks. The Company believes preliminary results will be available in the
second quarter of 1996. Supporting this trial is a Phase II trial completed in
December 1994. This Phase II trial was randomized, double-blinded and
placebo-controlled and enrolled 40 patients at UAB with plaque stage psoriasis.
In this trial, patients applied one of four concentrations of BCX-34 (0.1%,
0.3%, 1% or 5%) and placebo cream to different targeted disease lesions twice a
day for six weeks. While there were no significant drug related adverse
events, the trial did not achieve a statistically significant outcome.
Atopic Dermatitis. Atopic dermatitis, sometimes referred to as eczema, is a
chronic skin condition occurring primarily in infants and children and, to a
lesser extent, in adults. The disorder is characterized by severe itching, a
rash with small bumps, redness, thickened skin from repeated scratching, and
sometimes secondary infection of the skin. Between one and two million people in
the United States are affected with atopic dermatitis.
Several biochemical mechanisms of the disease have been studied, including
abnormal T-cell function. It is uncertain whether inhibiting T-cell
proliferation with BCX-34 will be helpful in treating the disease, but other
agents which inhibit T-cells have been successfully used in atopic dermatitis.
These other agents generally cause side effects which can be severe. The Company
plans to initiate a pilot Phase I/II clinical trial with topical BCX-34 for
atopic dermatitis in 1996.
Rheumatoid Arthritis. Rheumatoid arthritis is an autoimmune disease that
involves inflammation of the membranes lining joints, causing joint pain,
swelling, and deformities. It is estimated that approximately four million
people in the United States are afflicted with rheumatoid arthritis. There are
many drugs used to treat the disease, but such drug treatments only alleviate
the symptoms of rheumatoid arthritis. The Company believes T-cell controlling
agents such as PNP inhibitors and specifically an oral formulation of BCX-34
offer promise as a potential drug treatment for rheumatoid arthritis. Among
other potential competitors, Ciba-Geigy ("Ciba") has rights to develop a class
of PNP inhibitors, licensed from BioCryst, with potential application in the
treatment of rheumatoid arthritis.
Transplant Rejection. Risk of rejection is one of the most frequent
complications following transplant surgery. Rejection is caused by the body's
immune response in which T-cells are generated to attack the transplanted organ
or tissue. It is estimated that there are approximately 25,000 organ
transplants, 30,000 corneal transplants and 6,000 bone marrow transplants each
year in the United States. In general for organ and bone marrow transplants,
rejection is an acute risk during the initial hospital stay for the transplant
surgery and thereafter a chronic risk of varying degrees of severity. The
Company believes selective suppression of the immune response may reduce the
risk of rejection. The immunosuppressant drugs which are currently used to
control or prevent rejection often cause significant detrimental side effects. A
number of new drugs are in various stages of development by other researchers
and companies for the control and prevention of transplant rejection. The
Company is at the pre-IND safety assessment stage of development of an oral
formulation of BCX-34 for treatment of transplant rejection.
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Multiple Sclerosis. Multiple sclerosis ("MS") is an autoimmune disease in which
T-cells attack and progressively destroy the myelin sheath that envelops certain
nerve cells in the brain and spinal cord. The disease is characterized by
unpredictable attacks of neurological dysfunction that may include partial
paralysis or tremors, lack of motor coordination, vision problems, and memory
loss. MS afflicts approximately 300,000 people in the United States,
approximately two-thirds of whom are women. The Company believes that T-cell
controlling agents such as PNP inhibitors offer promise as a potential drug
treatment for MS. BioCryst believes that an oral formulation of BCX-34, which is
currently in the clinical stage of development for CTCL, may be useful for the
treatment of MS. The first FDA approved treatment for any form of MS, a beta
interferon, became available in 1993. Beta interferon is a large molecule
protein which requires delivery by injection.
Ophthalmic Diseases and Disorders. There are a number of inflammatory diseases
of the eye that involve T-cells. A leading ophthalmic inflammatory disease is
uveitis which is characterized by eye swelling, ocular accumulation of fatty
deposits and impaired vision. The most severe cases of uveitis, such as Behcet's
syndrome and Vogt-Koyanagi-Harada syndrome, result in blindness. Clinical
studies with currently approved immunosuppressants support the idea that T-cells
participate in the pathogenesis of these diseases and that oral and ophthalmic
formulations of BCX-34 may potentially be efficacious in treating these
diseases. The Company is in the preclinical stage of development of an
ophthalmic formulation of BCX-34 for direct delivery of the drug to the eye.
Influenza Neuraminidase Inhibitors
Influenza is a viral disease which afflicts up to 40 million people in the
United States each year. It is particularly dangerous to the very young, the
elderly and/or debilitated patients and those who have suppressed immune
systems. The current standard for preventing flu is by vaccination, which is of
limited benefit as vaccines are designed to resist a specific flu strain. No
satisfactory treatment currently exists. Since the early 1980's, UAB scientists
have been investigating the active site and function of the enzyme influenza
neuraminidase. Influenza neuraminidase is an enzyme on the surface of the
influenza virus which is associated with the spread of influenza and is believed
to permit the influenza virus to invade human cells. Scientists at UAB and the
Company have characterized the molecular structure of influenza neuraminidase
and have initiated the design and synthesis of specific inhibitors of influenza
neuraminidase. Research at UAB and the Company to date indicates that the active
site for influenza neuraminidase remains substantially unchanged for the major
strains of influenza. Funded in part by a National Institutes of Health ("NIH")
Phase I Small Business Innovation Research ("SBIR") grant and a State of Alabama
grant, the Company has developed lead compounds which in in vitro studies have
indicated inhibition of influenza neuraminidase. The Company is in the
preclinical stage of development of inhibitors of influenza neuraminidase. The
Company believes that a neuraminidase inhibitor may be useful as a treatment for
influenza. At least one major pharmaceutical company is engaged in clinical
studies of an influenza neuraminidase inhibitor compound intended to treat
influenza, and it is believed that several other pharmaceutical companies are
engaged in research to design or discover inhibitors of influenza neuraminidase.
Complement Inhibitors
The human body is equipped with immunological defense mechanisms to respond
aggressively to infection or injury. One of these mechanisms, called complement,
is a system of functionally linked proteins that interact with one another in a
highly regulated manner. The complement system functions as a "cascade." Namely,
once an activator of the system converts an inactive enzyme to an active enzyme,
the activated enzyme then activates more proteins at the next stage which in
turn activate other proteins. This mechanism, if inappropriately activated, can
cause acute medical conditions, including, among other conditions, the
inflammatory reactions that accompany hemodialysis, myocardial infarction,
bypass surgery and post heart attack reperfusion injury. There are two pathways
of complement activations, the classical pathway and the alternative pathway.
The classical pathway is usually initiated by antigen-antibody complexes, while
the alternative pathway is activated by bacterial, viral and parasite cell
surfaces.
BioCryst is focusing its research efforts on designing protein and enzyme
inhibitors to limit the rapid and aggressive damage caused by the complement
cascade. The Company is initially focusing on designing inhibitors for factor D
and factor B, enzymes playing a role in the alternative pathway, and the enzyme
C1s, which plays a role in the classical pathway. Working with UAB scientists
and funded in part by SBIR grants from the NIH, BioCryst has characterized the
three-dimensional structure of factor D and has developed various assay systems
for screening complement inhibitors. Due to the biochemical mechanism of the
complement cascade, BioCryst believes complement inhibitors may have therapeutic
applications in numerous acute and chronic immunological disorders.
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Drug Discovery Methods
Drugs are chemical compounds that interact with target molecules, typically
proteins, within the human body to affect a molecule's normal function. Ideally,
drugs accomplish their intended therapeutic functions while creating as few side
effects as possible. The interaction can be illustrated as follows: the drug
molecule inserts itself in the target protein like a key inserted in a lock, and
either stimulates, or more commonly suppresses, a protein's normal function. The
results vary depending upon the role of the target protein. A drug that is
selective or specific, i.e., that binds to or blocks the target protein without
affecting other proteins or receptors, is generally more effective, less likely
to cause side effects and can be administered in smaller doses.
Traditional Drug Discovery
Historically, most pharmaceutical companies have relied on costly and
time-consuming screening to discover new chemical entities for development.
While screening has been the basis for the discovery of virtually all drugs
currently in use, the cost has been great. On average, it has generally been
necessary to assess hundreds or thousands of chemical compounds to find a lead
compound which successfully completes the development process. If screening
produces a lead compound, the compound's mode of action is likely to be unknown
and the risk of side effects caused by a lack of target specificity is high.
Screening-based research has failed to yield acceptably safe and effective drugs
for many important therapeutic needs.
Most pharmaceutical companies presently use some form of pharmacology-based
rational drug design which primarily utilizes certain receptors or purified
enzyme preparations in assays to identify lead compounds for discovery and to
design molecules to perform specific therapeutic tasks. Development of lead
compounds is conducted by a systematic empirical approach and computer modeling.
While this approach is more refined than random screening, it still represents a
costly and time-consuming effort which is limited by the amount and quality of
information available about the target protein.
Structure-Based Drug Design
BioCryst believes that structure-based drug design further improves the
advancements made by the rational drug design approach over traditional drug
screening techniques. By identifying the target protein in advance and by
discovering the chemical and molecular structure of the protein, scientists
believe it is possible to design a more optimal drug to interact with the
protein.
Structure-based drug design is a drug discovery approach by which synthetic
compounds are designed from detailed structural knowledge of the active sites of
protein targets associated with particular diseases. The Company's
structure-based drug design involves the integrated application of traditional
biology and medicinal chemistry along with an array of advanced technologies,
including X-ray crystallography, computational chemistry, computer modeling of
molecular structures, molecular biology and protein biophysical chemistry, to
focus on the three-dimensional molecular structure and active site
characterization of the proteins that control cellular biology.
The initial targets for structure-based drug design are selected based on their
involvement in the amplification or suppression of cellular biology activities
integral to the course of a disease. Once a target is selected, it is obtained
in purified form, either by isolation and purification from natural sources or
through recombinant molecular biology technology. The purified protein target is
crystallized and the crystals are subjected to X-ray diffraction analysis. The
diffraction data, both of the protein alone and of the protein complexed with
one or more "heavy atom derivatives" are used to determine the three-dimensional
molecular structure of the target. This structure is then used as a blueprint
for the drug design of a lead compound. The design occurs through an interactive
study of the three-dimensional display of the protein target by a team of X-ray
crystallographers, molecular modelers, synthetic chemists and pharmacologists.
The compounds are modeled for their fit in the active site of the target,
considering both steric aspects (i.e., geometric shape) and functional group
interactions, such as hydrogen bonding and hydrophobic interactions.
The initial design phase is followed by the synthesis of the lead compound,
quantitative measurements of its ability to interact with the target protein,
and X-ray crystallographic analysis of the compound-target complex. This
analysis reveals important, empirical information on how the compound actually
binds to the target and the nature and extent of conformational changes induced
in the target by the binding. These data, in turn, suggest ways to refine the
lead
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compounds to improve its interaction with the target protein. The refined
lead compound is then synthesized and complexed with the target and refined
again in an iterative process. At each stage, the structure of the complex of
the lead compound bound to the target protein is determined by X-ray
crystallography, for further analysis and optimization.
Once a sufficiently potent compound has been designed and optimized, its
activity is evaluated in a biological system to establish the compound's ability
to function in a physiological environment. If the compound fails in the
biological system, the design team is able to go back to the structural model
and use the crystallographic data to adjust structural features of the compound
to overcome the difficulty. This process continues until a designed compound
exhibits the desired properties.
The compound is then evaluated in an experimental disease model. If the compound
fails, the reasons for failure (e.g., adverse metabolism, plasma binding,
distribution, etc.) are determined and, again, new or modified compounds are
designed to overcome the deficiencies without interfering with their ability to
interact with the active site of the target protein. The experimental drug is
then ready for conventional drug development (e.g., studies in safety
assessment, formulation, clinical trials, etc.). If problems occur during drug
development, the drug design team may overcome them by further manipulation of
the compound without altering the portion of the compound binding to the active
site of the target protein.
This iterative analysis and compound modification is possible because of the
structural data obtained from X-ray crystallographic analysis at each stage. It
is this capability that holds forth the promise of structure-based drug design
for potential increases in the efficiency of the drug discovery and development
process with reductions in the total cost involved.
BioCryst scientists include recognized world leaders in the fields of X-ray
crystallography and medicinal chemistry who collaborate with the Company's
distinguished Scientific Advisory Board members and consultants from UAB. UAB
has one of the leading X-ray crystallography centers in the world and has been
successful in characterizing a significant number of medically relevant protein
targets. Several UAB scientists are consultants to BioCryst. In 1986, the
Company entered into an agreement with UAB which granted BioCryst exclusive
rights to any discoveries resulting from research relating to PNP and a right of
first negotiation for other UAB discoveries in other areas in which BioCryst has
UAB consultants. The Company believes that based upon its scientific staff and
management, the number of promising compounds it has developed and their stage
of clinical development, it is a leader in the practical application of
structure-based drug design.
Research and Development
General
BioCryst initiated its research and development program in 1986, with drug
synthesis beginning in 1987. The Company has assembled a scientific research
staff with expertise in a broad base of advanced research technologies including
protein biochemistry, X-ray crystallography, chemistry and pharmacology. Of the
Company's 42 employees at January 31, 1996, 34 were employed in its research and
development, preclinical studies and clinical trials programs. The Company's
staff includes 17 persons with Ph.D.s.
The Company's research facilities include protein biochemistry and organic
synthesis laboratories, in vitro and in vivo testing facilities, X-ray
crystallography, computer and graphics equipment and formulation facilities.
In addition to its research programs pursued in-house, BioCryst collaborates
with academic institutions to support research in areas of the Company's product
development interests and to conduct its clinical trials. Usually, research
assistance provided by outside academic institutions is performed in conjunction
with additional in-house research. The faculty member supervising the outside
research effort may also participate as a consultant to the Company's in-house
effort. The Company's primary academic collaboration is with UAB and is
described under "Business - Research and Development - UAB Collaborative
Arrangements."
During the years ended December 31, 1993, 1994 and 1995, the Company spent an
aggregate of $16,854,709 on research and development. Of that amount, $4,195,800
was spent in 1993, $5,551,660 was spent in 1994 and
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$7,107,249 was spent in 1995. Approximately $10,359,000 of that amount was spent
on in-house research and development and $6,496,000 was spent on contract
research and development.
Grants and Technology Agreements
In 1991 and 1992, BioCryst was awarded three $50,000 Phase I SBIR grants by the
NIH. They were used to support the design and synthesis of inhibitors to
influenza neuraminidase, factor D and aldose reductase. In 1992, the Company was
also awarded $47,500 by the Alabama Department of Economic and Community Affairs
which was used in the design and synthesis of inhibitors of influenza
neuraminidase. In February 1994, BioCryst was awarded a two-year $500,000 Phase
II SBIR grant by the NIH. The grant was used to support the design of inhibitors
of factor D. There is no assurance that BioCryst will be awarded any future
grants.
In 1987, the Company entered into a research agreement under which BioCryst
received approximately $960,000 over four years from Ciba to fund its research
of PNP inhibitors and Ciba was granted certain rights to enter into various
option and license agreements for PNP inhibitors. In 1990, Ciba exercised its
right pursuant to which the Company granted Ciba an exclusive option to enter
into a worldwide exclusive license for several compounds in the Company's sixth
class of PNP inhibitors. The license does not include BCX-34. Ciba signed that
license agreement and paid the Company a $500,000 fee (up to $300,000 of which
is refundable in certain circumstances) following patent issuance in 1993. The
terms of the license also call for Ciba to make milestone payments based upon
the estimated annual United States sales of the licensed products plus
royalties. No assurance can be given that any additional revenues will be
realized by the Company pursuant to the license. Ciba's other rights to enter
into various option and license agreements for PNP inhibitors have expired.
UAB Collaborative Arrangements
UAB has one of the leading X-ray crystallography centers in the world with
approximately 99 full-time staff members and approximately $9 million in
research grants and contract funding in 1995. In 1986, the Company entered into
an agreement with UAB which granted the Company exclusive rights to any
discoveries resulting from research relating to PNP, and the right of first
negotiation for UAB discoveries in other areas in which BioCryst has UAB
consultants. In exchange for these rights, BioCryst issued securities to a
foundation associated with UAB and paid research fees of approximately $387,000.
Since 1990, the Company has entered into several other research agreements with
UAB to perform research for the Company. The agreements provide that UAB perform
specific research for the Company in return for research payments and license
fees. In November 1994, the Company entered into an agreement with UAB for the
joint research and development relating to development of an influenza
neuraminidase inhibitor. UAB has granted the Company certain rights to any
discoveries resulting from research previously developed by UAB or jointly
developed with BioCryst. The Company has agreed to fund three UAB research
laboratories, to expend at least $6 million for the project over a three-year
period, to pay certain royalties on sales of any resulting product and to share
in future payments received from other third-party collaborators. In July 1995,
the Company entered into an agreement with UAB for the joint research and
development relating to development of factor D inhibitors. UAB has also granted
the Company certain rights to any discoveries resulting from research previously
developed by UAB or jointly developed with BioCryst. The Company has agreed to
fund two UAB research laboratories, to expend at least $1 million for the
project over a three-year period, to pay certain royalties on sales of any
resulting product and to share in future payments received from other
third-party collaborators. These two agreements have 25-year terms and are
terminable by the Company upon three months' notice. BioCryst believes that due
to the expertise of the faculty at UAB in the various disciplines employed by
BioCryst in its structure-based drug design programs, including X-ray
crystallography, and UAB's past performance in identifying and characterizing
medically relevant protein targets, BioCryst's relationship with UAB is
important to the success of BioCryst. No assurance can be given, however, that
UAB's research will be beneficial to BioCryst or that BioCryst will be able to
maintain its relationship with UAB.
Patents and Proprietary Information
The Company owns or has rights to certain proprietary information, issued
patents and patent applications which relate to compounds it is developing. The
Company actively seeks, when appropriate, protection for its products and
proprietary information by means of United States and foreign patents,
trademarks and contractual arrangements. In addition, the Company plans to rely
upon trade secrets and contractual arrangements to protect certain of its
proprietary information and products.
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The Company has been issued five United States patents which expire between 2009
or 2010 and relate to compounds in classes two through six of its PNP inhibitor
compounds. The Company's current lead compound, BCX-34, is covered by one of the
composition of matter patents. A patent application involving compounds in class
seven of the Company's PNP inhibitors is under examination at the PTO. The
Company's patent application involving compounds in class one of its PNP
inhibitors is in the process of being further examined by the PTO after an
unsuccessful administrative appeal. The compound under a disputed option to
Warner-Lambert is included in this class. See "Business - Legal Proceedings." A
patent application on a new process to prepare BCX-34 and other PNP inhibitors
has also been submitted to the PTO. In addition, a patent application covering
novel inhibitors of influenza neuraminidase is under review by the PTO. There
can be no assurance that any patents will provide the Company with sufficient
protection against competitive products or otherwise be commercially valuable.
The Company depends upon the knowledge, experience and skills (which are not
patentable) of its key scientific and technical personnel. To protect its rights
to its proprietary information, the Company requires all employees, consultants,
advisors and collaborators to enter into confidentiality agreements which
prohibit the disclosure of confidential information to anyone outside the
Company and require disclosure and assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance that these
agreements will effectively prevent the unauthorized use or disclosure of the
Company's confidential information. In the absence of patent protection, the
Company's business may be adversely affected by competitors who develop
substantially equivalent technology.
Marketing, Distribution and Sales
The Company has no experience in marketing, distributing or selling
pharmaceutical products and will have to develop a pharmaceutical sales force
and/or rely on collaborators, licensees or on arrangements with others to
provide for the marketing, distribution and sales of any products it may
develop. There can be no assurance that the Company will be able to establish
marketing, distribution and sales capabilities or make arrangements with
collaborators, licensees or others to perform such activities.
Competition
The pharmaceutical industry is intensely competitive. Many companies, including
biotechnology, chemical and pharmaceutical companies, are actively engaged in
activities similar to those of the Company, including research and development
of drugs for the treatment of immunological and infectious diseases and
disorders. Many of these companies have substantially greater financial and
other resources, larger research and development staffs, and more extensive
marketing and manufacturing organizations than the Company. In addition, some of
them have considerable experience in preclinical testing, clinical trials and
other regulatory approval procedures. There are also academic institutions,
governmental agencies and other research organizations which are conducting
research in areas in which the Company is working; they may also market
commercial products, either on their own or through collaborative efforts.
BioCryst expects to encounter significant competition for the pharmaceutical
products it plans to develop. Companies that complete clinical trials, obtain
required regulatory approvals and commence commercial sales of their products
before their competitors may achieve a significant competitive advantage. In
addition, certain pharmaceutical and biotechnology firms, including major
pharmaceutical companies and specialized structure-based drug design companies
have announced efforts in the field of structure-based drug design and in the
field of PNP inhibitors. The Company expects that the technology for
structure-based drug design will attract significant additional competitors over
time. In order to compete successfully, the Company's goal is to develop
proprietary positions in patented drugs for therapeutic markets which have not
been satisfactorily addressed by conventional research strategies and, in the
process, extend its expertise in structure-based drug design.
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Government Regulation
BioCryst's research and development activities are, and its future business will
be, subject to significant regulation by numerous governmental authorities in
the United States, primarily, but not exclusively, by the FDA, and other
countries. Pharmaceutical products intended for therapeutic or diagnostic use in
humans are governed principally by the Federal Food, Drug and Cosmetic Act and
by FDA regulations in the United States and by comparable laws and regulations
in foreign countries. The process of completing clinical testing and obtaining
FDA approval for a new drug product requires a number of years and the
expenditure of substantial resources.
Following drug discovery, the steps required before a new pharmaceutical product
may be marketed in the United States include (1) preclinical laboratory and
animal tests, (2) the submission to the FDA of an application for an IND, (3)
clinical and other studies to assess safety and parameters of use, (4) adequate
and well-controlled clinical trials to establish the safety and effectiveness of
the drug, (5) the submission of an NDA to the FDA, and (6) FDA approval of the
NDA prior to any commercial sale or shipment of the drug.
Typically, preclinical studies are conducted in the laboratory and in animal
model systems to gain preliminary information on the drug's pharmacology and
toxicology and to identify any potential safety problems that would preclude
testing in humans. The results of these studies are submitted to the FDA as part
of the IND application. Testing in humans may commence 30 days after submission
of the IND by the FDA unless the FDA objects, although companies typically
wait for approval from the FDA before commencing clinical trials. A three
phase clinical trial program is usually required for FDA approval of a
pharmaceutical product. Phase I clinical trials are designed to determine
the metabolism and pharmacologic effects of the drug in humans, the side
effects associated with increasing doses, and, possibly, to obtain early
indications of efficacy. These studies generally involve a small number of
healthy volunteer subjects, but may be conducted in people with the disease
the drug is intended to treat. Phase II studies are conducted in an expanded
population to evaluate the effectiveness of the drug for a particular
indication and thus involve patients with the disease under study. These
studies also provide evidence of the short term side effects and risks
associated with the drug. Phase III studies are generally designed to
provide the substantial evidence of safety and effectiveness of a drug
required to obtain FDA approval. They often involve a substantial number
of patients in multiple study centers and may include chronic administration
of the drug in order to assess the overall benefit-risk relationship of the
drug. A clinical trial may combine the elements of more than one phase and
typically two or more Phase III studies are required. Upon completion of
clinical testing which demonstrates that the product is safe and effective
for a specific indication, an NDA may be submitted to the FDA. This application
includes details of the manufacturing and testing processes, preclinical studies
and clinical trials. The designation of a clinical trial as being of a
particular Phase is not necessarily indicative that such a trial will be
sufficient to satisfy the requirements of a particular Phase. For example, no
assurance can be given that a Phase III clinical trial will be sufficient to
support an NDA without further clinical trials. The FDA monitors the progress
of each of the three phases of clinical testing and may alter, suspend or
terminate the trials based on the data that have been accumulated to that
point and its assessment of the risk/benefit ratio to the patient. Typical
estimates of the total time required for completing such clinical testing vary
between four and ten years. FDA approval of the NDA is required before the
applicant may market the new product in the United States. The clinical
testing and FDA review process for new drugs, which includes confirmation
by the FDA that good laboratory, clinical, and manufacturing practices were
maintained during testing and manufacturing, are likely to require substantial
time, effort and expense. There can be no assurance that any approval will be
granted to the Company on a timely basis, if at all. The FDA may refuse to
approve an NDA if applicable statutory and/or regulatory criteria are not
satisfied, or may require additional testing or information. There can be no
assurance that such additional testing or the provision of such information,
if required, will not have a material adverse effect on the Company. The
regulatory process can be modified by Congress or the FDA in specific
situations.
In 1988, the FDA issued regulations intended to expedite the development,
evaluation, and marketing of new therapeutic products to treat life-threatening
and severely debilitating illnesses for which no satisfactory alternative
therapies exist. These regulations provide for early consultation between the
sponsor and the FDA in the design of both preclinical studies and clinical
trials. Phase I clinical trials may sometimes be carried out in people with the
disease that the drug is intended to treat rather than in healthy volunteers, as
is customary, followed by studies to establish effectiveness in Phase II. If the
results of Phase I and Phase II trials support the safety and effectiveness of
the therapeutic agent, and their design and execution are deemed satisfactory
upon review by the FDA, marketing approval can be sought at the end of Phase II
trials. NDA approval granted under these regulations may be restricted by the
FDA as necessary to ensure safe use of the drug. In addition, post-marketing
clinical studies may be required. If after approval a post-marketing clinical
study establishes that the drug does not perform as expected, or if
post-marketing restrictions are not adhered to or are not adequate to ensure
safe use of the drug, FDA approval may be withdrawn. The
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expedited approval may shorten the traditional drug development process by an
estimated two to three years. There can be no assurance, however, that any
compound the Company may develop will be eligible for evaluation by the FDA
under the 1988 regulations or, if eligible, will be approved for marketing at
all or, if approved for marketing, will be approved for marketing sooner than
would be traditionally expected.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs
intended to treat a "rare disease or condition," which generally is a disease or
condition that affects populations of fewer than 200,000 individuals in the
United States. Orphan drug designation must be requested before submitting an
NDA, and after the FDA grants orphan drug designation, the generic identity of
the therapeutic agent and its potential orphan use are publicized by the FDA.
Under current law, orphan drug designation grants certain U.S. marketing
exclusivity to the first company to receive FDA approval to market such
designated drug, subject to certain limitations. Orphan drug designation does
not convey any advantage in, or shorten the duration of, the regulatory approval
process. In October 1993, the Company obtained from the FDA an orphan drug
designation for BCX-34 to treat CTCL, and may request orphan drug designation
for more of its products and/or additional indications as part of its overall
regulatory strategy in the future. There is no assurance, however, that any of
its products will receive an orphan drug designation or be the first to be
approved by the FDA for the designated indication and, hence, obtain orphan drug
marketing exclusivity. Although obtaining FDA approval to market a product with
an orphan drug designation can be advantageous, there can be no assurance that
the scope of protection or the level of marketing exclusivity that is currently
afforded by orphan drug designation and marketing approval will remain in effect
in the future. There can be no assurance that the Company will receive FDA
approval to market BCX-34 to treat CTCL and thus receive orphan drug
designation for BCX-34 to treat CTCL. In addition, it is possible that other
competitors of the Company could obtain orphan drug designation for product
candidates that are not the same as BCX-34 though they are intended for use to
treat CTCL.
In June 1995, the Company notified the FDA that it had submitted incorrect
efficacy data to the FDA pertaining to its Phase II dose-ranging studies
of BCX-34 for CTCL and psoriasis. Upon learning of the error, the Company
initiated internal and external audits and submitted corrected analyses to
the FDA. In addition, the Company hired a new Vice President of Clinical
Development and outside expert personnel to manage clinical development and
monitor studies, developed additional standard operating procedures, and
contracted with a contract research organization to assist the Company in
monitoring its trial for BCX-34 for CTCL.
In November 1995, the FDA inspected the Company in relation to a February 1995
48-hour skin stripping study involving application of BCX-34. At the
conclusion of the inspection, the FDA issued to the Company a Form FDA 483
including the observation that there was no documentation of any monitoring of
the study or of several other studies. The Company responded to this and the
other observation in the Form FDA 483. Although the FDA has not raised any
additional questions in the matter, the Company does not know whether its
responses were satisfactory to the FDA, and there can be no assurance that even
if the FDA finds the responses to be satisfactory, it will not seek to impose
administrative, civil, or other sanctions in connection with the studies.
Even after initial FDA approval has been obtained, further studies may be
required to provide additional data on safety or to gain approval for the use of
a product as a treatment in clinical indications other than those for which the
product was initially tested. The FDA may also require post-marketing testing
and surveillance programs to monitor the drug's effects. Side effects resulting
from the use of pharmaceutical products may prevent or limit the further
marketing of products.
Once the sale of a product is approved, the FDA regulates production,
distribution, marketing, advertising and other activities under the Federal
Food, Drug, and Cosmetic Act and the FDA's implementing regulations. A
post-marketing testing, surveillance and reporting program may be required to
continuously monitor the product's usage and effects. Product approvals may
be withdrawn, or other actions may be ordered, or sanctions imposed if
compliance with regulatory requirements is not maintained. Other
countries in which any products developed by the Company or its
licensees may be marketed impose a similar regulatory process.
In addition to regulations enforced by the FDA, the Company also is subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other similar Federal, state and local regulations governing
permissible laboratory activities, waste disposal handling of toxic, dangerous
or radioactive materials and other matters. The Company believes that it is in
compliance with such regulations.
For marketing outside the United States, the Company will be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs and devices. The requirements relating to the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.
Human Resources
As of January 31, 1996, the Company had 42 employees, of whom 34 were engaged in
research and development and eight were in general and administrative functions.
The Company's scientific staff (17 of whom hold Ph.D. degrees) has diversified
experience in biochemistry, pharmacology, X-ray crystallography, synthetic
organic chemistry, computational chemistry, medicinal chemistry and
pharmacology. The Company considers its relations with its employees to be
satisfactory.
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Scientific Advisory Board and Consultants
BioCryst has assembled a Scientific Advisory Board comprised of seven members
(the "Scientific Advisors") who are leaders in certain of the Company's core
disciplines or who otherwise have specific expertise in its therapeutic focus
areas. The Scientific Advisory Board meets as a group at scheduled semi-annual
meetings and the Scientific Advisors meet more frequently, on an individual
basis, with the Company's scientific personnel and management to discuss the
Company's ongoing research and drug discovery and development projects.
The Company also has consulting agreements with a number of other scientists
(the "Consultants") with expertise in the Company's core disciplines or in its
therapeutic focus areas who are consulted from time to time by the Company.
The Scientific Advisors and the Consultants are reimbursed for their expenses
and receive nominal cash compensation in connection with their service and have
been issued options and/or shares of Common Stock. The Scientific Advisors have
been issued a total of 4,975 shares of Common Stock for nominal consideration
and granted stock options to purchase a total of 63,000 shares of Common Stock
at a weighted average exercise price of $5.55 per share. Consultants have also
been granted stock options to purchase a total of 47,000 shares at a weighted
average exercise price of $4.41 per share. The Scientific Advisors and the
Consultants are all employed by or have consulting agreements with entities
other than the Company, some of which may compete with the Company in the
future. The Scientific Advisors and the Consultants are expected to devote only
a small portion of their time to the business of the Company, although no
specific time commitment has been established. They are not expected to
participate actively in the Company's affairs or in the development of the
Company's technology. Certain of the institutions with which the Scientific
Advisors and the Consultants are affiliated may adopt new regulations or
policies that limit the ability of the Scientific Advisors and the Consultants
to consult with the Company. The loss of the services of certain of the
Scientific Advisors and the Consultants could adversely affect the Company to
the extent that the Company is pursuing research or development in areas of such
Scientific Advisors' and Consultants' expertise. To the extent members of the
Company's Scientific Advisory Board or the Consultants have consulting
arrangements with or become employed by any competitor of the Company, the
Company could be materially adversely affected. One member of the Scientific
Advisory Board, Dr. Gordon N. Gill, is a member of the Board of Directors of the
Agouron Institute. The Agouron Institute is a shareholder in, and has had
contractual relationships with, Agouron Pharmaceuticals, Inc., a company
utilizing core technology which is similar to the core technology employed by
BioCryst.
Any inventions or processes independently discovered by the Scientific Advisors
or the Consultants may not become the property of the Company and will probably
remain the property of such persons or of such persons' employers. In addition,
the institutions with which the Scientific Advisors and the Consultants are
affiliated may make available the research services of their personnel,
including the Scientific Advisors and the Consultants, to competitors of the
Company pursuant to sponsored research agreements. The Company requires the
Scientific Advisors and the Consultants to enter into confidentiality agreements
which prohibit the disclosure of confidential information to anyone outside the
Company and require disclosure and assignment to the Company of their ideas,
developments, discoveries or inventions. However, no assurance can be given that
competitors of the Company will not gain access to trade secrets and other
proprietary information developed by the Company and disclosed to the Scientific
Advisors and the Consultants.
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ITEM 2. PROPERTIES
The Company's administrative offices and principal research facility are located
in 22,800 square feet of leased office space in Riverchase Industrial/Research
Park in Birmingham, Alabama. The lease runs through March 31, 2000. The Company
believes that its facilities are adequate for its current operations. Additional
facilities will be necessary to manufacture sufficient quantities under good
manufacturing practices to conduct extensive clinical trials or if the Company
undertakes commercial manufacturing. See Note 6 to the Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
In October 1991, the Company granted an option to Warner-Lambert to license
BioCryst's class one PNP inhibitors on terms and conditions to be negotiated by
the parties. In June 1993, that option was extended at Warner-Lambert's request
until September 1994, or completion of Warner-Lambert's clinical trials
(whichever first occurred), while being restricted to only BCX-5, one PNP
inhibitor compound in BioCryst's class one inhibitors. The Company's patent
application for compounds in this class of PNP inhibitor compounds is in the
process of being further examined by the PTO after an unsuccessful
administrative appeal. Upon exercise of the option, any license negotiated by
the parties would have required an upfront payment, milestone payments and
royalties on agreed-upon terms. In September 1994, Warner-Lambert requested a
further extension of its option, and a dispute has arisen between the parties as
to, among other things, whether or not the option has expired and whether or not
BioCryst is obligated to negotiate further with Warner-Lambert the terms of a
licensing agreement.
On February 6, 1995, the Company filed a complaint for a declaratory judgment
against Warner-Lambert in the Circuit Court of Shelby County, Alabama to resolve
the dispute. Warner-Lambert counter-claimed against the Company, alleging that
the Company breached the option, seeking unspecified compensatory, consequential
and incidental damages and lost profits.
The Company believes that the conditions precedent to the exercise of
Warner-Lambert's option have not been satisfied, that the option has expired,
and that Warner-Lambert's breach of contract allegations lack merit. The Company
believes that it has complied with its obligations under the option agreement,
and intends to continue to vigorously pursue this action. There can be no
assurance, however, that the Company will prevail or that Warner-Lambert will
not prevail in its counter claims.
The Company is not a party to any other litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock MarketSM under the symbol BCRX. Public trading commenced on March
4, 1994. Prior to that date, there was no public market for the Company's stock.
The following table sets forth the low and high prices as reported by Nasdaq for
each quarter in 1995 and 1994:
1995 1994
----- ----
Low High Low High
--- ---- --- ----
First quarter $4.63 $7.00 $5.50 $6.75
Second quarter 5.50 13.75 3.38 5.88
Third quarter 7.75 12.25 3.75 5.88
Fourth quarter 8.50 11.25 4.38 6.13
The last sale price of the common stock on January 31, 1996 as reported by
Nasdaq was $9.63 per share.
As of January 31, 1996, there were approximately 520 holders of record of the
common stock.
The Company has never paid cash dividends and does not anticipate paying cash
dividends.
ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31,
(In thousands, except per share)
---------------------------------------------------
Statement of
Operations Data: 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Total revenues $ 885 $ 734 $ 363 $ 185 $ 112
Research and development
expenses $ 7,107 $ 5,552 $ 4,196 $ 3,019 $ 707
Net loss $(8,576) $(6,938) $(5,196) $(4,051) $(1,282)
Net loss per share $ (.96) $ (1.02) $ (1.55) $ (1.31) $ (1.50)
Weighted average shares
outstanding 8,905 6,787 3,352 3,101 856
December 31,
(In thousands)
---------------------------------------------------
Balance Sheet Data: 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Cash, cash equivalents
and securities $ 11,414 $ 10,873 $ 2,873 $ 1,284 $ 3,164
Total assets 13,056 12,803 5,203 3,555 3,578
Long-term debt and
obligations under
capital leases, excluding
current portion 300 573 855 931 150
Accumulated deficit (30,067) (21,491) (14,553) (9,357) (5,306)
Total stockholders' equity 11,326 11,176 2,877 1,534 2,951
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains certain statements of a forward-looking
nature relating to future events or the future financial performance of the
Company. Such statements are only predictions and the actual events or results
may differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below as well as those discussed in other filings made by the
Company with the Securities and Exchange Commission.
Overview
Since its inception in 1986, the Company has been engaged in research and
development activities (including conducting preclinical studies and clinical
trials) and organizational efforts, including recruiting its scientific and
management personnel, establishing laboratory facilities, engaging its
Scientific Advisory Board and raising capital. The Company has not received any
revenue from the sale of pharmaceutical products and does not expect to receive
such revenues to a significant extent for at least several years, if at all. The
Company has incurred operating losses since its inception.
The Company's future business, financial condition and results of operations are
dependent on the Company's ability to successfully develop, market and
manufacture its pharmaceutical products for the treatment of major immunological
and infectious diseases and disorders. Inherent in this process are a number of
factors that the Company must carefully manage in order to be successful. Some
of these factors are: conducting preclinical studies and clinical trials of its
compounds that demonstrate such compounds' safety and effectiveness; obtaining
additional financing to support the Company's operations; developing
collaborative arrangements with corporate partners, academic institutions and
consultants to support research and development efforts and to conduct such
clinical trials; obtaining regulatory approval for such compounds; entering into
agreements for product development, manufacturing and commercialization;
developing the capacity to manufacture, market and sell its products either
directly or with collaborative partners; competing effectively with other
pharmaceutical and biotechnological products for human therapeutic applications;
obtaining adequate reimbursement from third-party payors for its products;
retaining and attracting key personnel; protecting its proprietary rights; and
avoiding infringement claims by third parties. No assurance can be given that
the Company will be able to manage such factors successfully. The failure to
manage such factors successfully could have a material adverse effect on the
Company's business, financial condition and results of operations.
Year Ended December 31, 1995 Compared with the Year Ended December 31, 1994
Collaborative and other research and development revenue decreased 17.4% to
$222,329 in 1995 from $269,126 in 1994, primarily as a result of 1994 including
$50,000 from non-recurring contract research. Interest and other income
increased 42.5% to $662,259 in 1995 from $464,690 in 1994, primarily due to
higher rates and the investment of funds received from the Company's initial
public offering of common stock in March 1994 and private placements of common
stock in September 1994 and May 1995.
Research and development expenses increased 28.0% to $7,107,249 in 1995 from
$5,551,660 in 1994. The increase was primarily attributable to expenses
associated with conducting clinical trials, preclinical studies and large scale
synthesis of BCX-34 (generic name peldesine) and increased personnel costs and
expenses associated with joint research and development contracts with UAB for
the influenza neuraminidase and complement projects and outside research on PNP
inhibitors.
General and administrative expenses increased 16.0% to $2,209,488 in 1995 from
$1,904,046 in 1994. The increase was primarily the result of increased franchise
taxes, increased stockholder and investor communication expenses associated with
being a public company and higher business insurance costs. These increases were
partially offset by two non-recurring charges in 1994 - payments made pursuant
to a consulting agreement entered into upon the former president's termination
in the second quarter of 1994 and contractual deferred compensation paid to the
former president of the Company upon the initial public offering in the first
quarter of 1994.
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Interest expense decreased 33.3% to $144,115 in 1995 from $215,985 in 1994. The
decrease was primarily due to a decline in capitalized lease obligations, along
with long-term debt, resulting in lesser interest expense. The Company obtained
most of its leases in connection with the move to its new facilities in April
1992.
Year Ended December 31, 1994 Compared with the Year Ended December 31, 1993
Collaborative and other research and development revenue decreased 11.0% to
$269,126 in 1994 from $302,375 in 1993, primarily as a result of the exercise of
an option for a license by Ciba in 1993 compared to $219,126 from a Phase II
SBIR grant and $50,000 from contract research in 1994. Interest and other income
increased 666.4% to $464,690 in 1994 from $60,629 in 1993, primarily due to
higher rates and the investment of funds received from the Company's initial
public offering.
Research and development expenses increased 32.3% to $5,551,660 in 1994 from
$4,195,800 in 1993. The increase was primarily attributable to expenses
associated with conducting clinical trials, preclinical studies and large scale
synthesis of BCX-34 and the effect of additional research and clinical personnel
hired since the first quarter of 1993.
General and administrative expenses increased 73.4% to $1,904,046 in 1994 from
$1,098,206 in 1993. The increase was primarily due to the additional costs
associated with added personnel, additional business insurance, payments made
pursuant to a consulting agreement entered into upon the former president's
termination, costs associated with being a public company, increased legal
expenses and contractual deferred compensation paid to the former president of
the Company upon the initial public offering in the first quarter of 1994 which
were offset in part by the non-recurring effect of writing off costs of a public
offering withdrawn in the second quarter of 1993.
Interest expense decreased 18.5% to $215,985 in 1994 from $264,994 in 1993. The
decrease was primarily due to a decline in capitalized lease obligations, along
with long-term debt, resulting in lesser interest expense. The Company obtained
most of its leases in connection with the move to its new facilities in April
1992.
Liquidity and Capital Resources
Cash expenditures have exceeded revenues since the Company's inception.
Operations have principally been funded through an initial public offering of
common stock, private placements of equity and debt securities, equipment lease
financing, facility leases, collaborative and other research and development
agreements (including a license and options for licenses), research grants and
interest income. In addition, the Company has attempted to contain costs and
reduce cash flow requirements by renting scientific equipment or facilities,
contracting with third parties to conduct certain research and development and
using consultants. The Company expects to incur additional expenses, resulting
in significant losses, as it continues and expands its research and development
activities and undertakes additional preclinical studies and clinical trials of
compounds which have been or may be discovered. The Company also expects to
incur substantial administrative, manufacturing and commercialization
expenditures in the future as it seeks FDA approval for its compounds and
establishes its manufacturing capability under Good Manufacturing Practices, and
substantial expenses related to the filing, prosecution, maintenance, defense
and enforcement of patent and other intellectual property claims.
At December 31, 1995, the Company's cash, cash equivalents and securities
held-to-maturity were $11,414,044.
The Company received $500,000 in June 1993 as a license fee from Ciba. The
Company is required to refund up to $300,000 of the fee if sales of any
resultant products are below specified levels (see Note 10).
The Company has financed its equipment purchases primarily with lease lines of
credit. The Company currently has a $500,000 line of credit with its bank to
finance capital equipment. In January 1992, the Company entered into an
operating lease for its current facilities which, based on an extension signed
in December 1994, expires on March 31, 2000, with an option to lease for an
additional three years at current market rates. The operating lease requires the
Company to pay monthly rent (ranging from $10,241 and escalating annually to a
minimum of $12,457 per month in the final year), and a pro rata share of
operating expenses and real estate taxes in excess of base year amounts.
At December 31, 1995, the Company had long-term capital lease and operating
lease obligations which provide for aggregate minimum payments of $531,747 in
1996, $502,077 in 1997 and $306,714 in 1998. The Company is required
16
<PAGE>
to expend $6 million over the three-year period ending December 31, 1997 on its
influenza neuraminidase project and $1 million over the three-year period ending
July 18, 1998 on its Complement project in order to maintain a worldwide license
from UAB. In addition, the Company has committed to conducting certain clinical
trials and animal studies in 1996 for an aggregate amount of approximately $1.2
million at December 31, 1995.
The Company plans to finance its needs principally from its existing capital
resources and interest thereon, from payments under collaborative and licensing
agreements with corporate partners, through research grants, and to the extent
available, through lease or loan financing and future public or private
financings. The Company believes that its available funds will be sufficient to
fund the Company's operations through the end of 1996. The Company's long-term
capital requirements and the adequacy of its available funds will depend upon
many factors, including results of research and development, results of product
testing, relationships with strategic partners, changes in the focus and
direction of the Company's research and development programs, competitive and
technological advances and the FDA regulatory process. Additional funding,
whether through additional sales of securities or collaborative or other
arrangements with corporate partners or from other sources, may not be available
when needed or on terms acceptable to the Company. Insufficient funds may
require the Company to delay, scale-back or eliminate certain of its research
and development programs or to license third parties to commercialize products
or technologies that the Company would otherwise undertake itself.
The Company believes that inflation has not had a material impact on its
operations.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BALANCE SHEETS
December 31,
----------------------------
Assets 1995 1994
------------ -----------
Cash and cash equivalents (Note 4) $ 6,134,968 $ 2,678,059
Securities held-to-maturity 5,279,076 8,194,802
Prepaid expenses and other current assets 279,386 244,847
------------ -----------
Total current assets 11,693,430 11,117,708
Furniture and equipment, net (Note 2) 1,362,783 1,685,123
------------ -----------
Total assets $ 13,056,213 $12,802,831
============ ===========
Liabilities and Stockholders' Equity
Accounts payable $ 210,177 $ 148,114
Accrued expenses 187,673 171,012
Accrued taxes, other than income 350,223 23,726
Accrued vacation 110,704 134,727
Current maturities of long-term debt (Note 5) 28,782 25,416
Current maturities of capital lease
obligations (Note 6) 241,745 250,383
------------ -----------
Total current liabilities 1,129,304 753,378
------------ -----------
Long-term debt (Note 5) 18,560 47,342
------------ -----------
Capital lease obligations (Note 6) 281,851 526,151
------------ -----------
Deferred license fee (Note 10) 300,000 300,000
------------ -----------
Stockholders' equity (Notes 8 and 9):
Preferred stock, $.01 par value, shares
authorized - 5,000,000; none issued and
outstanding
Common stock, $.01 par value;
shares authorized - 45,000,000; shares
issued and outstanding - 9,504,331 - 1995;
7,907,166 - 1994 95,043 79,072
Additional paid-in capital 41,298,848 32,588,017
Accumulated deficit (30,067,393) (21,491,129)
------------ -----------
Total stockholders' equity 11,326,498 11,175,960
------------ -----------
Commitments and contingency (Notes 6 and 10)
------------ -----------
Total liabilities and stockholders' equity $ 13,056,213 $12,802,831
============ ===========
See accompanying notes to financial statements.
18
<PAGE>
STATEMENTS OF OPERATIONS
Years Ended December 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
Revenues:
Collaborative and other research
and development (Notes 1 and 10) $ 222,329 $ 269,126 $ 302,375
Interest and other 662,259 464,690 60,629
----------- ----------- -----------
Total revenues 884,588 733,816 363,004
----------- ----------- -----------
Expenses:
Research and development 7,107,249 5,551,660 4,195,800
General and administrative 2,209,488 1,904,046 1,098,206
Interest 144,115 215,985 264,994
----------- ----------- -----------
Total expenses 9,460,852 7,671,691 5,559,000
----------- ----------- -----------
Net loss $(8,576,264) $(6,937,875) $(5,195,996)
=========== =========== ===========
Net loss per share (Note 1) $ (.96) $ (1.02) $ (1.55)
Weighted average shares
outstanding (Note 1) 8,905,099 6,787,203 3,352,364
See accompanying notes to financial statements.
19
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Preferred Additional Stock-
and Other Common Paid-in Accumulated holders'
Capital* Stock Capital Deficit Equity
------------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 2,620,629 $ 33,065 $ 8,237,624 $ (9,357,258) $ 1,534,060
Exercise of 8,750 shares of common
stock under the stock option plan 87 17,413 17,500
Sale of 436,667 shares of Series A
Preferred Stock at $3.00 per share,
less issuance cost 1,165,856 1,165,856
Sale of 994,165 shares of Series B
Preferred Stock at $6.00 per share,
less issuance cost 5,355,159 5,355,159
Net loss (5,195,996) (5,195,996)
------------- ----------- ----------- ------------- ------------
Balance at December 31, 1993 9,141,644 33,152 8,255,037 (14,553,254) 2,876,579
Sale of 2,310,900 shares of common stock
at $6.50 per share, less issuance cost 23,109 13,229,538 13,252,647
Conversion of Series A Preferred Stock
into 709,160 shares of common stock
upon the Company's IPO (3,786,485) 7,092 3,779,393
Conversion of Series B Preferred Stock
into 994,165 shares of common stock
upon the Company's IPO (5,355,159) 9,942 5,345,217
Sale of 515,000 shares of common stock
at $3.88 per share, less issuance cost 5,150 1,972,712 1,977,862
Exercise of 99,540 shares of common
stock under the stock option plan,
less 36,796 shares exchanged 627 6,120 6,747
Net loss (6,937,875) (6,937,875)
------------- ----------- ----------- ------------- ------------
Balance at December 31, 1994 79,072 32,588,017 (21,491,129) 11,175,960
Sale of 1,570,000 shares of common stock
at $5.50 per share, less issuance cost 15,700 8,594,550 8,610,250
Exercise of 13,834 shares of common
stock under the stock option plan 138 50,556 50,694
Sale of 13,331 shares of common stock
under the employee stock purchase plan at
$4.94 per share 133 65,725 65,858
Net loss (8,576,264) (8,576,264)
------------- ----------- ----------- ------------- ------------
Balance at December 31, 1995 $ 95,043 $41,298,848 $ (30,067,393) $ 11,326,498
============= =========== =========== ============= ============
</TABLE>
* Represents Series A Preferred Stock at December 31, 1992 and
Series A and B Preferred Stock at December 31, 1993.
See accompanying notes to financial statements.
20
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Operating activities
Net loss $ (8,576,264) $ (6,937,875) $(5,195,996)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 554,025 607,399 603,532
Changes in operating assets and liabilities:
Prepaid expenses and other assets (34,539) 149,638 (230,813)
Accounts payable 62,063 80,541 (232,266)
Accrued expenses 16,661 (452,038) 204,263
Accrued taxes, other than income 326,497 (1,461) (24,813)
Accrued vacation (24,023) 38,439 78,774
------------ ------------ -----------
Net cash used in operating activities (7,675,580) (6,515,357) (4,797,319)
------------ ------------ -----------
Investing activities
Purchases of furniture and equipment (231,685) (357,760) (327,216)
Purchase of marketable securities (11,397,640) (13,433,567)
Maturities of marketable securities 14,313,366 5,238,765
------------ ------------ -----------
Net cash provided by/(used in) investing activities 2,684,041 (8,552,562) (327,216)
------------ ------------ -----------
Financing activities
Issuance of short-term notes payable 1,741,000
Sale and leaseback of furniture and equipment 242,828
Principal payments of debt and capital lease obligations (278,354) (364,542) (2,108,225)
Deferred license 300,000
Sale of preferred stock, net of issuance costs 6,521,015
Exercise of stock options 50,694 6,747 17,500
Sale of common stock under the Employee Stock Purchase
Plan 65,858
Sale of common stock, net of issuance costs 8,610,250 15,230,509
------------ ------------ -----------
Net cash provided by financing activities 8,448,448 14,872,714 6,714,118
------------ ------------ -----------
Increase (decrease) in cash and cash equivalents 3,456,909 (195,205) 1,589,583
Cash and equivalents at beginning of period 2,678,059 2,873,264 1,283,681
------------ ------------ -----------
Cash and cash equivalents at end of period $ 6,134,968 $ 2,678,059 $ 2,873,264
============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1 - Accounting Policies
Basis of Presentation
BioCryst Pharmaceuticals, Inc. (the "Company") is a pharmaceutical company using
structure-based drug design to discover and design novel, small-molecule
pharmaceutical products for the treatment of immunological and infectious
diseases and disorders. The Company has three research projects, of which only
one is in clinical trials. While the prospects for a project may increase as the
project advances to the next stage of development, a project can be terminated
at any stage of development. Until the Company generates revenues from either a
research project or an approved product, its ability to continue research and
development is dependent upon its ability to raise funds. The Company relies on
sole suppliers to manufacture its BCX-34 compound for clinical trials and is
evaluating supply sources for commercial production.
Net Loss Per Share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from convertible subordinated
debt, convertible preferred stock, unused stock awards and unexercised stock
options and warrants are excluded from the computation as their effect is
anti-dilutive, except that, pursuant to requirements of the Securities and
Exchange Commission, common and common equivalent shares issued at a price
substantially below the anticipated public stock offering price during the
12-month period prior to the Company's initial public offering in March 1994
have been included in the calculation as if they were outstanding for all
periods presented (using the treasury method and the public offering price).
Securities Held-to-Maturity
The Company is required to classify debt and equity securities as
held-to-maturity, available-for-sale or trading. The appropriateness of each
classification is reassessed at each reporting date. The only dispositions were
maturities of securities held to maturity. At December 31, 1995, securities
held-to-maturity, all current, consisted of $2,714,385 of U.S. Treasury and
Agency securities and $2,564,691 of high-grade domestic corporate debt carried
at amortized cost. The amortized cost of these securities at December 31, 1995
approximated market value.
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is computed using the
straight-line method with estimated useful lives of five and seven years. Leased
laboratory equipment is amortized over the lease lives of three and five years.
Leasehold improvements are amortized over the remaining lease period.
Income Taxes
The liability method is used in accounting for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 ("Statement No. 109"). Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Revenue Recognition
Research and development revenue on cost-reimbursement agreements is recognized
as expenses are incurred, up to contractual limits. Research and development and
option payments are recognized as revenue when irrevocably received, and
payments received which are related to future performance are deferred and taken
into income as earned over a specified future performance period.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers cash
equivalents to be all cash held in money market accounts or investments in debt
instruments with maturities of three months or less at the time of purchase.
22
<PAGE>
Stock-Based Compensation
The Company accounts for stock-based compensation under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB Opinion No.
25). Under APB No. 25, the Company's stock option and employee stock purchase
plans qualify as noncompensatory plans. Consequently, no compensation expense is
recognized.
Use of Estimates
Management is required to make estimates and assumptions that affect the amounts
reported in the financial statements. Actual results could differ from those
estimates.
Reclassifications
The 1994 financial statements have been reclassified to conform to the 1995
financial statements. The changes had no effect on the results of operations
previously reported.
Note 2 - Furniture and Equipment
Furniture and equipment consisted of the following at December 31:
1995 1994
---------- ----------
Furniture and fixtures $ $
Office equipment 78,560 61,845
Laboratory equipment 197,389 128,936
Leased laboratory equipment 765,873 639,225
Leasehold improvements 1,220,778 1,670,651
802,987 783,122
---------- ----------
3,065,587 3,283,779
Less accumulated depreciation and amortization 1,702,804 1,598,656
---------- ----------
Furniture and equipment, net $1,362,783 $1,685,123
========== ==========
Statement of Financial Accounting Standards No. 121 ("Statement No. 121"),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, was issued in March 1995 effective for fiscal years beginning
after December 15, 1995. The Company does not anticipate having to recognize any
significant impairment losses when Statement No. 121 is adopted in 1996.
Note 3 - Line of Credit
The Company had an unused line of credit of $500,000 at December 31, 1995.
Note 4 - Concentration of Credit and Market Risk
The Company invests its excess cash principally in marketable securities from a
diversified portfolio of institutions with strong credit ratings and in U.S.
government and agency bills and notes, and by policy, limits the amount of
credit exposure at any one institution. These investments are generally not
collateralized and primarily mature within one year. The Company has not
realized any losses from such investments. The Company has one primary bank in
which it keeps funds in excess of the amounts insured by the Federal Deposit
Insurance Corporation. Approximately $4,868,045 of the cash is invested in the
Fidelity Institution Cash Portfolio, which invests in treasury notes and
repurchase agreements. The Fidelity Institution Cash Portfolio is not insured.
23
<PAGE>
Note 5 - Long-term Debt
Long-term debt consisted of the following at December 31:
1995 1994
------- -------
Installment note, payable $2,757 monthly,
including interest at 12.9%
through May 1997 $47,342 $72,758
Less current maturities 28,782 25,416
------- -------
Long-term debt, non-current portion $18,560 $47,342
======= =======
The installment note is secured by equipment with an original value of $171,200
and a carrying value of $14,300 at December 31, 1995. Annual maturities of
long-term debt are $28,782 in 1996 and $18,560 in 1997. The Company paid
$144,115, $215,985 and $132,484 in interest on debt and lease obligations for
the years ended December 31, 1995, 1994 and 1993, respectively.
Note 6 - Leases
The Company entered into several capital lease obligations totaling $1,324,653
in 1992 and $345,998 in 1993 under agreements to obtain laboratory and office
equipment. The leases have terms ranging from 36 to 60 months and contain
renewal options. Assets under capital leases are capitalized using interest
rates appropriate at the inception of each lease.
Certain capital lease obligations noted above were sale leaseback transactions.
Equipment having a book value of $826,720 and $267,497 in 1992 and 1993,
respectively, were sold for $776,720 and $242,828 in 1992 and 1993,
respectively. The losses, principally representing sales taxes, have been
deferred and are being amortized over the 60-month lease term.
Capital Operating
Leases Leases
-------- --------
1996 $341,679 $190,068
1997 337,419 164,658
1998 162,642 144,072
1999 148,395
2000 37,371
-------- --------
Total minimum lease payments 841,740 $684,564
========
Less amounts representing interest 318,144
--------
Present value of future minimum lease payments
(including current portion of $241,745) $523,596
========
Rent expense for operating leases was $183,522, $151,914 and $95,343 in 1995,
1994 and 1993, respectively.
Note 7 - Income Taxes
The Company has not had taxable income since incorporation and, therefore, has
not paid any income tax. Deferred tax assets of approximately $11,250,000 and
$7,100,000 at December 31, 1995 and 1994, respectively, have been recognized
principally for the net operating loss and research and development credit
carryforwards and have been reduced by a valuation allowance of $11,250,000 and
$7,100,000 at December 31, 1995 and 1994, respectively, which will remain until
it is more likely than not that the related tax benefits will be realized.
24
<PAGE>
At December 31, 1995, the Company had net operating loss and research and
development credit carryforwards of approximately $25,600,000 and $1,400,000,
respectively, which will expire in 2005 through 2010. Use of the net operating
losses and research and development credits will be subject to a substantial
annual limitation due to the ownership provisions of the Tax Reform Act of 1986.
The annual limitation is expected to result in the expiration of a portion of
net operating losses and credits before utilization, which has been considered
by the Company in its computations under Statement No. 109. Additional sales of
the Company's equity securities may result in further annual limitations on the
use of operating loss carryforwards and research and development credit
carryforwards against taxable income in future years.
Note 8 - Stockholders' Equity
The Company was incorporated on November 17, 1989 as a Nevada corporation. On
December 29, 1989 it exchanged 384,901 shares of its common stock and 33,350
shares of its 8% Cumulative Convertible Preferred Stock, Series 1989 for the
predecessor partnership interests of the general partner and limited partners.
The partnership was dissolved as of January 15, 1990 and its assets and
liabilities were transferred to the Company in an exchange accounted for in a
manner similar to a pooling of interests. In 1991, the Company formed a
wholly-owned subsidiary, BioCryst Pharmaceuticals, Inc., a Delaware corporation;
thereafter the Company was merged into BioCryst Pharmaceuticals, Inc., the
surviving corporation.
Warrants
As part of financing arrangements, the Company has, at certain times, issued
warrants to purchase 1,314,341 shares of the Company's common stock at no less
than its estimated fair value at the date of grant. In return for their
guarantees of an expired line of credit, three directors each received warrants
(included in the 1,314,341 warrants) to purchase 49,400 shares of common stock
at $6.00 per share. All warrants are exercisable at various five-year periods
through 1998. In lieu of a cash exercise, the warrant holder may elect a net
issue exercise. Under a net issue exercise, the shares to be issued are equal
to the product of (a) the number of shares of common stock purchasable under
the warrant being exercised, and (b) the fair market value of one share of
common stock minus the exercise price divided by (c) the fair market value
of one share of common stock. At December 31, 1995 and 1994, 1,314,341
shares of the Company's common stock were reserved for issuance under warrant
agreements and the weighted average per share exercise price was $4.95 on
those dates. Nowarrants have been exercised as of December 31, 1995.
Options
In November 1991, the Board of Directors adopted the 1991 Stock Option Plan (the
"Plan") for key employees and consultants of the Company and reserved 500,000
shares of common stock for the Plan. The Plan was approved by the stockholders
on December 19, 1991. The term of the Plan is for ten years and includes both
incentive stock options and non-statutory options. The option price for the
incentive stock options shall not be less than the fair market value of common
stock on the grant date. The option price per share for non-statutory stock
options may not be less than 85% of the fair market value of common stock on the
date of grant. The options generally vest 25% after one year and monthly
thereafter on a pro rata basis over the next three years until fully vested
after four years.
There are 3,378,886 shares reserved for future issuance for the options and
warrants discussed above and the Stock Purchase Plan discussed in Note 9.
The stockholders on April 16, 1993 and on March 1, 1994 (approving the Board of
Directors' action of December 1993) authorized an amended and restated 1991
Stock Option Plan and approved an additional 1,000,000 shares of common stock
for issuance (the "Amended Plan"). The Amended Plan includes an increase of
common stock reserved for issuance to 1,500,000 shares and establishes an
automatic option grant program. The automatic option grant program grants
options to new non-employee Board members to purchase 25,000 shares of common
stock at an exercise price of the fair market value at the grant date for a
maximum of ten years and is subject to vesting restrictions and early
termination upon the optionee's cessation of Board service. The vesting and
exercise provisions of the options issued under the Amended Plan are subject to
acceleration, under certain circumstances, upon the occurrence of a hostile
tender offer for more than 50% of the outstanding stock of the Company or if the
Company is acquired. On May 29,
25
<PAGE>
1995, the stockholders approved extending the automatic option grant to cover
non-employee Board members not previously eligible for an automatic grant and
approved an additional 500,000 shares of common stock for issuance, increasing
the common stock reserved for issuance to 2,000,000 shares. The following is an
analysis of stock options for the three years ending December 31, 1995:
Average
Options Options Exercise
Available Outstanding Price
--------- ----------- --------
Balance December 31, 1992 148,862 351,138 $2.19
Option plan amended 1,000,000
Options granted (610,915) 610,915 5.37
Options exercised (8,750) 2.00
Options canceled 6,906 (6,906) 2.39
------- ---------
Balance December 31, 1993 544,853 946,397 4.24
Options granted (515,850) 515,850 4.72
Options exercised (99,540) 2.01
Options canceled 58,532 (58,532) 5.79
------- ---------
Balance December 31, 1994 87,535 1,304,175 4.53
Option plan amended 500,000
Options granted (384,800) 384,800 8.57
Options exercised (13,834) 3.66
Options canceled 45,079 (45,079) 4.63
------- ---------
Balance December 31, 1995 247,814 1,630,062 5.49
======= =========
Note 9 - Employee Benefit Plan
On January 1, 1991, the Company adopted an employee retirement plan (the "401(k)
Plan") under Section 401(k) of the Internal Revenue Code covering all employees.
Employee contributions may be made to the 401(k) Plan up to limits established
by the Internal Revenue Service. Company matching contributions may be made at
the discretion of the Board of Directors. The Company did not make a
contribution to the 401(k) Plan during the years ended December 31, 1995 and
1994. The Company made a contribution of $10,000 in 1993.
On May 29, 1995, the stockholders approved an employee stock purchase plan (the
"Stock Purchase Plan") effective February 1, 1995. The Company has reserved
200,000 shares of common stock under the Stock Purchase Plan. Eligible employees
may authorize up to 15% of their salary to purchase common stock at the lower of
85% of the beginning or 85% of the ending price during the six-month purchase
intervals. No more than 3,000 shares may be purchased by any one employee at the
six-month purchase dates and no employee may purchase stock having a fair market
value at the commencement date of $25,000 or more in any one calendar year. On
July 31, 1995, 13,331 shares of common stock were purchased under the Stock
Purchase Plan at a price of $4.94 per share.
Note 10 - Collaborative and Other Research and Development Contracts
The Company granted Ciba-Geigy ("Ciba") an option for $100,000 in February 1990
to acquire exclusive licenses to a class of inhibitors arising from research
performed by the Company by February 1991. The option was exercised on April 15,
1993 and a $500,000 fee was paid to the Company in June 1993. Milestone payments
are due upon approval of a new drug application. The Company will also receive a
royalty based upon a percentage of sales of any resultant products. Up to
$300,000 of the initial fee received is refundable if sales of any resultant
products are below specified levels.
Prior to 1994, the Company received funding for three Phase I Small Business
Innovation Research Program (the "SBIR") grants with the National Institutes of
Health (the "NIH") for $50,000 each. The Company was awarded a Phase II SBIR
grant for factor D from the NIH in February 1994. The Phase II SBIR grant is for
$500,000 over a two-year period.
26
<PAGE>
In 1990, the Company entered into several contracts with The University of
Alabama at Birmingham ("UAB") to perform research for the Company for an
aggregate amount of approximately $188,000, which has been paid as of December
31, 1993. On November 7, 1991, the Company entered into a joint research and
license agreement with UAB. UAB will perform specific research on factor D for
the Company for a period of approximately three years in return for research and
license fees. The agreement was replaced by a new agreement on July 18, 1995
granting the Company a worldwide license in exchange for funding UAB research in
the amount of $188,000 annually and sharing any royalties or sublicense fees
arising from the joint research. In 1995, 1994 and 1993, the Company expensed
$68,638, $85,456 and $85,456 respectively, under the original agreement and
expensed $47,000 in 1995 under the new agreement. The Company is required to
expend $1,000,000 on the project under the new agreement over a three-year
period in order to maintain its exclusive worldwide license. On November 17,
1994, the Company entered into another agreement for a joint research and
license agreement on influenza neuraminidase granting the Company a worldwide
license. Under this agreement, the Company funds UAB research in the amount of
$300,000 annually and UAB shares any royalties or sublicense fees arising from
the joint research. Under the agreement, $300,000 was expensed in 1995 and no
amounts were expensed in 1994. The Company is required to expend $6,000,000 on
the project over a three-year period in order to maintain its exclusive
worldwide license.
Note 11 - Quarterly Financial Information (Unaudited)
(In thousands, except per share)
First Second Third Fourth
------- ------- ------- -------
1995 Quarters:
Revenues $ 157 $ 223 $ 265 $ 240
Net loss (2,908) (1,584) (1,915) (2,169)
Net loss per share (.37) (.18) (.20) (.23)
1994 Quarters:
Revenues $ 93 $ 188 $ 245 208
Net loss (1,564) (1,866) (1,633) (1,875)
Net loss per share (.35) (.25) (.22) (.24)
Note 12 - Litigation
The Company previously granted an option to license one PNP inhibitor to
Warner-Lambert on terms and conditions to be negotiated. That option is in
dispute and the Company filed a complaint for a declaratory judgment to resolve
the dispute on February 6, 1995. Warner-Lambert has counter-claimed, alleging
breach of the option and seeking unspecified compensatory, consequential and
incidental damages and lost profits. The Company believes that the conditions
precedent to the exercise of Warner-Lambert's option have not been satisfied,
that the option has expired, and that Warner-Lambert's breach of contract
allegations lack merit. The Company believes that it has complied with its
obligations and intends to continue to vigorously pursue this action. While
there can be no assurances as to the outcome, the Company believes that the
ultimate outcome will not have an adverse impact on the Company's financial
position.
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
BioCryst Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of BioCryst Pharmaceuticals,
Inc. as of December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BioCryst Pharmaceuticals, Inc.
at December 31, 1995 and 1994 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
January 24, 1996
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Name Age Position(s) with the Company
- ---------------------------------- --- -------------------------------------
Charles E. Bugg, Ph.D. 54 Chairman, President, Chief Executive
Officer and Director
John A. Montgomery, Ph.D. 71 Executive Vice President, Secretary,
Chief Scientific Officer and Director
Ronald E. Gray 55 Chief Financial Officer, Assistant
Secretary and Treasurer
John L. Higgins 25 Vice President, Corporate Development
William W. Featheringill (1)(2) 53 Director
Edwin A. Gee, Ph.D. (1)(2) 76 Director
Zola P. Horovitz, Ph.D. 61 Director
John Pappajohn (1) 67 Director
Lindsay A. Rosenwald, M.D. 40 Director
Joseph H. Sherrill, Jr. 54 Director
William M. Spencer, III (1)(2) 75 Director
Randolph C. Steer, M.D., Ph.D. (2) 46 Director
- ----------
(1) Member of the Compensation Committee ("Compensation Committee").
(2) Member of the Audit Committee ("Audit Committee").
Charles E. Bugg, Ph.D. was named Chairman of the Board, Chief Executive Officer
and Director in November 1993, and named President in early 1995. Prior to
joining the Company, Dr. Bugg had served as the Director of the Center for
Macromolecular Crystallography, the Associate Director of the Comprehensive
Cancer Center and a Professor of Biochemistry at UAB since 1975. He was a
Founder of BioCryst and served as the Company's first Chief Executive Officer
from 1987-1988 while on a sabbatical from UAB. Dr. Bugg also served as Chairman
of the Company's Scientific Advisory Board from January 1986 to November 1993.
He is Chairman of the U.S. National Committee for Crystallography under the
National Research Council; past president of the American Crystallographic
Association; and Editor-in-Chief of Acta Crystallographica, a set of journals
published by the International Union of Crystallography. He also continues to
hold the position of Professor Emeritus in Biochemistry and Molecular Genetics
at UAB.
John A. Montgomery, Ph.D. has been a Director since November 1989 and has been
Executive Vice President, Secretary and Chief Scientific Officer since joining
the Company in February 1990. Dr. Montgomery was a Founder of BioCryst. Prior to
joining the Company, Dr. Montgomery served as Senior Vice President of Southern
Research Institute ("SRI") of Birmingham from January 1981 to February 1990. Dr.
Montgomery has extensive experience in the area of discovery and development of
novel pharmaceutical products and is widely published. He continues to hold the
position of Distinguished Scientist at SRI, a position he has held since
February 1990.
Ronald E. Gray joined BioCryst in January 1993 as Chief Financial Officer. In
1994, Mr. Gray received the additional title of Treasurer and Assistant
Secretary. Prior to joining BioCryst, from June 1992 to September 1992, Mr. Gray
was Chief Financial Officer of The ACB Companies, a collection agency. From July
1988 to March 1992, Mr. Gray was Chief Financial Officer and Secretary of Image
Data Corporation, a medical imaging company. He was Vice President of Finance,
Secretary and Treasurer of CyCare Systems, Inc., a health care information
processing company, from September 1974 to April 1988.
29
<PAGE>
John L. Higgins joined BioCryst in August 1994 as Director, Corporate
Development. In July 1995 he was promoted to Vice President, Corporate
Development. From July 1992 to July 1994, Mr. Higgins was a member of the health
care banking team of Dillon, Read & Co. Inc., an investment banking firm. While
at Dillon Read, he focused on financing and advisory assignments for
biotechnology and managed care companies. Mr. Higgins is a member of Colgate
University's Board of Trustees. From August 1988 to May 1992 he attended Colgate
University and graduated with an A.B. in economics in 1992.
William W. Featheringill was elected a Director in May 1995. Mr. Featheringill
was Chairman and Chief Executive Officer of MACESS Corporation, which designs
and installs paperless data management systems for the managed care industry,
from 1988 to November 1995. MACESS Corporation merged with Sungard Data Systems
in late 1995. From 1985 to June 1994, Mr. Featheringill was the developer,
Chairman and Chief Executive Officer of Complete Health Services, Inc., a health
maintenance organization which grew, under his direction, to become one of the
largest HMOs in the southeastern United States. Complete Health Services, Inc.
was acquired by United HealthCare Corporation in June 1994. Mr. Featheringill
also serves as President and Director of Private Capital Corporation, a venture
capital management company, since 1975 and serves as a member of the Board of
Directors of Citation Corporation.
Edwin A. Gee, Ph.D. was elected a Director in August 1993. Dr. Gee has been
active as an executive in biotechnology, pharmaceutical and specialty chemical
companies since 1970. He serves as the Chairman of Oncogene Science, one of the
leading biotechnology companies for the diagnosis and treatment of cancer. He
served as President, Chairman of the Board and Chief Executive Officer of
International Paper Company from 1978 until his retirement in 1985. Prior to
1978, Dr. Gee was a Senior Vice President, member of the Executive Committee and
a Director of E.I. du Pont de Nemours and Company.
Zola P. Horovitz, Ph.D. was elected a Director in August 1994. Dr. Horovitz
spent 36 years with the Squibb Institute for Medical Research and Bristol-Myers
Squibb Pharmaceutical Research Institute in Princeton, serving as Vice President
of Business Development and Planning at the time of his retirement in 1994. He
also serves as a member of the Board of Directors of InfoMed Holdings, Inc.,
Procept Corporation, Diacrin, Inc., Magainin Pharmaceuticals, Inc. and Synaptic
Pharmaceutical Corp.
John Pappajohn has been a Director of the Company since December 1991. Since
1969, Mr. Pappajohn has been the sole owner of Pappajohn Capital Resources, a
venture capital fund, and President of Equity Dynamics, Inc., a financial
consulting firm in Des Moines, Iowa. Mr. Pappajohn also serves as a Director of
Core, Inc., Drug Screening Systems, Inc., Fuisz Technologies, Inc., OncorMed,
Inc., PACE Health Systems, Inc., and United Systems Technologies, Inc.
Lindsay A. Rosenwald, M.D. has been a Director of the Company since December
1991. He is a founder of several biopharmaceutical companies, including Neose
Technologies, Inc. and Interneuron Pharmaceuticals, Inc. In August 1991, Dr.
Rosenwald founded the Castle Group, Ltd., a New York-based venture capital and
merchant banking firm, and in March 1993 he founded Paramount Capital, Inc., an
investment bank specializing in the health sciences industry. In June 1994, Dr.
Rosenwald founded Aries Financial Services, Inc., a money management firm,
specializing in the health sciences industry. Dr. Rosenwald served as Managing
Director of Corporate Finance at the investment banking firm of D.H. Blair &
Co., Inc. from June 1987 to February 1992, and as Senior Securities analyst at
the investment banking firm of Ladenburg, Thalmann & Co., Inc. from September
1986 to June 1987. Dr. Rosenwald is also Chairman of the Board of Directors of
Interneuron Pharmaceuticals, Inc., a director of Sparta Pharmaceuticals, Inc.,
Atlantic Pharmaceuticals, Inc., Ansan, Inc., Xenometrix, Inc., Neose
Technologies, Inc., Titan Pharmaceuticals, Inc. and Boston Life Sciences, Inc.
Joseph H. Sherrill, Jr. was elected a Director in May 1995. Mr. Sherrill served
as President of R.J. Reynolds ("RJR") Asia Pacific, based in Hong Kong, where he
oversaw RJR operations across Asia, including licensing, joint ventures and a
full line of operating companies from August 1989 to retirement in October 1994.
Prior management positions with RJR include Senior Vice President of Marketing
for R.J. Reynolds International, President and Chief Operating Officer of R.J.
Reynolds Tabacos de Brasil, and President and General Manager of R.J. Reynolds
Puerto Rico. Mr. Sherrill also serves as a member of the Board of Directors of
Savers Life Insurance Company.
William M. Spencer, III has been a Director of the Company since its inception.
Mr. Spencer is also a private investor in Birmingham, Alabama. He served as
Chairman of the Board of BioCryst from its founding in 1986 until April 1992. He
30
<PAGE>
co-founded and operated Motion Industries from 1946 through its merger into
Genuine Parts Company in 1976. He has founded several businesses and serves on
the Board of Directors of numerous private corporations.
Randolph C. Steer, M.D., Ph.D. was elected a Director in February 1993. Dr.
Steer has been active as a consultant to biotechnology and pharmaceutical
companies since 1989. From April 1985 to March 1989, he served as the Chairman,
and from 1988 to 1989, he served as the President and Chief Executive Officer
of, Advanced Therapeutics Communications International, Inc., a drug regulatory
consulting group. Prior to 1985, he had executive-level industry experience at
both Ciba and at Marion Laboratories, Inc. (now a division of Marion Merrell Dow
Inc.) where he served as Medical Director and Associate Director, Medical
Affairs, respectively. Dr. Steer serves on the Board of Directors of Techne
Corporation.
In accordance with the terms of the Company's Composite Certificate of
Incorporation ("Certificate of Incorporation"), the Board of Directors has been
divided into three classes with members of each class holding office for
staggered three-year terms. Mr. Pappajohn's and Dr. Rosenwald's terms expire at
the 1996 annual meeting of stockholders, Dr. Horovitz's, Mr. Spencer's and Dr.
Steer's terms expire at the 1997 annual meeting, and Dr. Bugg's, Dr.
Montgomery's and Dr. Gee's terms expire at the 1998 annual meeting (in all cases
subject to the election and qualification of their successors or to their
earlier death, resignation or removal). Mr. Featheringill and Mr. Sherrill were
named Directors in May 1995 and have been nominated for election at the 1996
annual meeting of stockholders for terms expiring in 1999. At each annual
stockholder meeting commencing with the 1996 annual meeting, the successors to
the Directors whose terms expire are elected to serve from the time of their
election and qualification until the third annual meeting of stockholders
following their election and until a successor has been duly elected and
qualified. The provisions of the Company's Certificate of Incorporation
governing the staggered Director election procedure can be amended only by a
shareholder's vote of at least 75% of the eligible voting securities. There are
no family relationships among any of the directors and executive officers of the
Company.
The Company has an Audit Committee, consisting of Messrs. Featheringill, Gee,
Pappajohn and Spencer, which is responsible for the review of internal
accounting controls, financial reporting and related matters. The Audit
Committee also recommends to the Board the independent accountants selected to
be the Company's auditors and reviews the audit plan, financial statements and
audit results.
The Company also has a Compensation Committee consisting of Messrs.
Featheringill, Gee, Spencer and Steer. The Compensation Committee is responsible
for the annual review of officer compensation and other incentive programs and
is authorized to award options under the Company's 1991 Stock Option Plan.
31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table ("Summary Compensation Table") sets forth the annual and
long-term compensation paid by the Company during the 1995, 1994 and 1993 fiscal
years to the Company's Chief Executive Officer and each of the Company's four
other most highly compensated executive officers whose annual salary and bonus
for the 1995 fiscal year exceeded $100,000 (collectively the "Named Executive
Officers"):
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
--------------------------------------- ------------------
Other Annual Awards-Securities
Name and Principal Position Year Salary Bonus Compensation Underlying Options
- ------------------------------------- ---- ------ ----- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Charles E. Bugg, Ph.D. 1995 $207,000 $50,000(1) 0 100,000
Chairman, President and 1994 200,000 50,000(1) 0 100,000
Chief Executive Officer 1993 22,500(2) 0 0 200,000
John A. Montgomery, Ph.D. 1995 130,008 0 0 11,000
Executive Vice President, Secretary 1994 109,833 0 0 11,000
and Chief Scientific Officer 1993 86,268 0 0 40,000
William J. Cook, M.D., Ph.D. 1995 179,032 0 0 0
Senior Vice President, Research & 1994 58,333(3) 0 0 72,500
Development and Medical Director 1993 0 0 0 0
John L. Higgins 1995 103,728 0 0 50,000
Vice President, Corporate Development 1994 22,046(4) 0 1,050(5) 23,500
1993 0 0 0 0
</TABLE>
- ----------
(1) Paid pursuant to an Employment Agreement dated November 19, 1993 between the
Company and Dr. Bugg. See "Executive Compensation - Employment Agreement."
(2) Paid pursuant to a Consulting Agreement dated May 1, 1988, as amended,
between the Company and Dr. Bugg.
(3) Dr. Cook joined BioCryst in September 1994 and resigned January 1, 1996.
(4) Mr. Higgins joined BioCryst in August 1994 and became an executive officer
in July 1995.
(5) The other annual compensation represents reimbursed moving expenses.
Employment Agreement
Charles E. Bugg, Ph.D. entered into an employment agreement with the Company on
November 19, 1993 (the "Agreement"). Under the terms of the Agreement, Dr. Bugg
will serve as Chairman of the Board of Directors and Chief Executive Officer of
the Company. Dr. Bugg will receive annual compensation of $200,000 and a
discretionary bonus of $50,000. The Board may, in its discretion, grant other
cash or stock bonuses to Dr. Bugg as an award or incentive. Dr. Bugg is also
entitled to all employee benefits generally made available to executive
officers. Dr. Bugg may, if he desires, also hold positions at The University of
Alabama at Birmingham, provided that he does not devote more than ten percent
of his time to such activities. The term of the Agreement is for three years
unless terminated (i) by the Company for cause or (ii) upon the permanent
disability of Dr. Bugg.
Pursuant to the Agreement, Dr. Bugg received in December 1993 an option to
purchase 200,000 shares of Common Stock of the Company at $6.00 per share under
the Company's 1991 Stock Option Plan, which became exercisable
32
<PAGE>
upon the consummation of the Company's initial public offering in March 1994.
Dr. Bugg will also receive, on the last day of each year during the term of the
Agreement, an additional option to purchase between 25,000 and 100,000 shares of
Common Stock of the Company under the Company's 1991 Stock Option Plan. The
exact number of shares will be determined by the plan administrator based on Dr.
Bugg's performance and the results of operations of the Company during such
year. Dr. Bugg received an option to purchase 100,000 shares of common stock at
the end of each of 1994 and 1995.
Dr. Bugg will receive an additional stock option to purchase 100,000 shares of
Common Stock under the Company's 1991 Stock Option Plan upon BioCryst's
submission to the FDA of any new drug application and another additional stock
option to purchase 100,000 shares of Common Stock under the Company's 1991 Stock
Option Plan upon the final approval by the FDA of each such new drug
application. The exercise price shall be the fair market value of the Company's
Common Stock on the date such additional stock option is granted. These
additional stock options will vest 25% one year after the date of issuance and
the remaining 75% will vest at the rate of 1/48 per month thereafter.
The options may be exercised immediately in the event of a merger or acquisition
of the Company. The options may be exercised within 24 months of Dr. Bugg's
death or permanent disability. In the event Dr. Bugg's employment is terminated
for cause he may exercise the options within three months of the date of such
termination to the extent such options were exercisable immediately prior to
such termination. In the event Dr. Bugg's employment is terminated for a reason
other than cause, death or permanent disability, the options then outstanding
shall become immediately exercisable in full.
All options granted to Dr. Bugg pursuant to the Agreement are intended to
qualify as incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, except to the extent the portion of such
options which become exercisable in any year have an aggregate exercise price in
excess of $100,000. All options shall expire no later than ten years from the
date of grant.
Option Grants in 1995
The following table shows, with respect to the Company's Named Executive
Officers, certain information with respect to option grants in 1995. All of the
grants were made under the Company's 1991 Stock Option Plan. No stock
appreciation rights were granted during such year.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of Stock Price
Securities % of Appreciation for
Underlying Total Exercise Option Term(1)
Options Options Price Per Expiration ---------------------
Name Granted Granted Share Date 5% 10%
- ---------------------------- ---------- ------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles E. Bugg, Ph.D. 100,000 26.0% $ 8.88 12/18/2005 $558,144 $1,414,446
John A. Montgomery, Ph.D. 11,000 2.9 8.88 12/18/2005 61,396 155,589
William J. Cook, M.D., Ph.D. 0 0
John L. Higgins 5,000 1.3 6.38 04/04/2005 20,046 50,801
26,000 6.8 8.00 06/20/2005 130,810 331,498
14,000 3.6 10.13 07/04/2005 89,146 225,913
5,000 1.3 8.88 12/18/2005 27,907 70,722
</TABLE>
- ----------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the ten-year option term. The assumed 5% and
10% rates of stock appreciation are mandated by rules of the Securities and
Exchange Commission and do not represent the Company's estimate of the future
market price of the Common Stock.
33
<PAGE>
Aggregate Option Exercises in 1995 and Year-end Option Values
The following table shows, with respect to the Company's Named Executive
Officers, the number and value of unexercised options held by the Named
Executive Officers as of December 31, 1995. No stock appreciation rights were
exercised during the 1995 fiscal year and no such rights were outstanding at the
end of that year.
<TABLE>
<CAPTION>
Number of Securities Underlying Values of Unexercised
Unexercised Options(1) In-the-Money Options(2)
------------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles E. Bugg, Ph.D. 262,500 175,000 $ 1,037,500 $ 384,375
John A. Montgomery, Ph.D. 60,250 39,250 349,594 107,281
William J. Cook, M.D., Ph.D. 23,854 48,646 118,346 241,967
John L. Higgins 6,875 66,625 34,297 131,141
</TABLE>
- ----------
(1) The Named Executive Officers did not exercise any stock options during 1995.
(2) Amounts reflect the net values of outstanding stock options computed as the
difference between $9.25 per share (the fair market value at December 31, 1995)
and the exercise price therefor.
Director Compensation
Directors do not receive a fee for attending Board or committee meetings.
Outside directors are reimbursed for expenses incurred in attending Board or
committee meetings and while representing the Company in conducting certain
business. Individuals who first become non-employee Board members on or after
March 3, 1994, at the time of commencement of Board service, receive a grant of
options to purchase up to 25,000 shares pursuant to the automatic option grant
program under the Company's 1991 Stock Option Plan, and, under the Company's
1991 Stock Option Plan each non-employee director, including those persons
presently serving as directors, will receive grants of options to purchase
25,000 additional shares of Common Stock every four years while they continue to
serve as directors. All current outside directors of the Company have received
options to purchase 25,000 shares of Common Stock. Dr. Horovitz and Dr. Steer
also serve as consultants to the Company for a quarterly fee of $4,000 each.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Mr. Featheringill, Dr. Gee, Mr. Spencer
and Dr. Steer. Certain members of the Compensation Committee are parties to
transactions with the Company. See "Item 13. Certain Relationships and Related
Transactions."
34
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of the
Company's Common Stock as of January 31, 1996 by (i) each director, (ii) each of
the Named Executive Officers, (iii) all directors and executive officers of the
Company as a group and (iv) each person known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock:
Number of Percentage
Common Shares of
Beneficially Outstanding
Name and Address Owned(1) Shares
- --------------------------------- --------------- -----------
William W. Featheringill 1,000,000 10.5%
402 Office Park Drive
Birmingham, Alabama 35223
Lindsay A. Rosenwald, M.D. 740,934(2) 7.4
375 Park Avenue, 15th Floor
New York, New York 10152
John Pappajohn 735,295(3) 7.3
2116 Financial Center
Des Moines, Iowa 50309
Bernard B. Levine, M.D. 515,000 5.4
210 Riverside Drive
New York, New York 10025
William M. Spencer, III 362,788(4) 3.8
Charles E. Bugg, Ph.D. 334,241(5) 3.4
Joseph H. Sherrill, Jr. 311,000(6) 3.3
John A. Montgomery, Ph.D. 124,936(7) 1.3
Randolph C. Steer, M.D., Ph.D. 38,542(8) *
William J. Cook, M.D., Ph.D. 26,267(9) *
Edwin A. Gee, Ph.D. 25,000(8) *
John L. Higgins 11,480(10) *
Zola P. Horovitz, Ph.D. 9,895(8) *
All executive officers and
directors as a group (13 persons) 3,758,263(11) 34.1
- ----------
(*) Less than one percent.
(1) Gives effect to the shares of Common Stock issuable within 60 days after
January 31, 1996 upon the exercise of all options, warrants and other rights
beneficially held by the indicated stockholder on that date.
(2) Includes 400,819 shares of Common Stock issuable upon exercise of certain
common stock warrants, 9,895 shares issuable upon exercise of stock options and
3,125 shares which Dr. Rosenwald holds jointly with his spouse. Also includes
44,345 shares of Common Stock and warrants to purchase 49,000 shares held by Dr.
Rosenwald's spouse individually and as custodian for their minor children, as to
which Dr. Rosenwald disclaims beneficial ownership. Dr. Rosenwald has granted
options to 10 individuals to purchase an aggregate of 60,293 shares of Common
Stock held by him at purchase prices ranging from $0.60 to $7.20 per share.
35
<PAGE>
(3) Includes 549,400 shares of Common Stock issuable upon exercise of common
stock warrants and 9,895 shares issuable upon exercise of stock options. Also
includes 100,000 shares of Common Stock held by Mr. Pappajohn's spouse. Mr.
Pappajohn disclaims beneficial ownership of the 100,000 shares held by his
spouse.
(4) Includes 49,400 shares of Common Stock issuable upon exercise of certain
common stock warrants, 9,895 shares issuable upon exercise of stock options and
10,000 shares held by Mr. Spencer's spouse. Mr. Spencer disclaims beneficial
ownership of the 10,000 shares held by his spouse.
(5) Includes 268,749 shares issuable upon exercise of stock options.
(6) Includes 5,000 shares held by Mr. Sherrill's spouse. Mr. Sherrill disclaims
beneficial ownership of the 5,000 shares held by his spouse.
(7) Includes 63,437 shares issuable upon exercise of stock options.
(8) Includes shares issuable upon exercise of stock options.
(9) Includes 24,270 shares issuable upon exercise of stock options and 100
shares held by Dr. Cook's daughter. Dr. Cook resigned January 1, 1996.
(10) Includes 8,344 shares issuable upon exercise of stock options and 1,000
shares held jointly with his spouse.
(11) See Notes (1) through (10).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1995, the Company sold an aggregate of 1,570,000 shares of Common Stock
at a purchase price of $5.50 per share to a group of investors including William
W. Featheringill (1,000,000 shares) and Joseph H. Sherrill, Jr. (100,000
shares), Directors of the Company who were not Directors at the time of
purchase, and Charles E. Bugg, Ph.D.(5,000 shares), William M. Spencer, III
(100,000 shares) and John Pappajohn (20,000 shares), Directors of the Company.
Dr. Bugg, an executive officer and Director of the Company, is a Professor
Emeritus of UAB and is paid an annual stipend of $8,040 by UAB. The Company
paid approximately $808,000 to UAB in 1995 for conducting certain clinical
trials, research and data analysis.
Dr. Montgomery, an executive officer and Director of the Company, is a former
executive officer of the SRI. The Company paid approximately $250,000 to SRI in
1995 for certain research, laboratory rental and supplies. Dr. Montgomery is
currently a Distinguished Scientist at SRI and was paid approximately $18,922 by
SRI in 1995 for various consulting services unrelated to the services performed
by SRI for the Company.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Financial Statements
Page in
The following financial statements appear in Item 8 Form 10-K
of this Form 10-K:
Balance Sheets at December 31, 1995 and 1994 18
Statements of Operations for the years ended December
31, 1995, 1994 and 1993 19
Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993 20
Statements of Cash Flows for the three ended December
31, 1995, 1994 and 1993 21
Notes to Financial Statements 22 to 27
Report of Independent Auditors 28
No financial statement schedules are included because the information
is either provided in the financial statements or is not required under
the related instructions or is inapplicable and such schedules
therefore have been omitted.
(b) Reports on Form 8-K
None
(c) Exhibits
Number Description
3.1 Composite Certificate of Incorporation of Registrant.
Incorporated by reference to Exhibit 3.1 to the Company's
Form 10-Q for the second quarter ending June 30, 1995 dated
August 11, 1995.
3.2 Bylaws of Registrant. Incorporated by reference to Exhibit
3.1 to the Company's Form 10-Q for the second quarter ending
June 30, 1995 dated August 11, 1995.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Composite
Certificate of Incorporation and Bylaws of the Registrant
defining rights of holders of Common Stock of the
Registrant.
10.1 Common Stock Purchase Warrant dated October 15, 1991 to
purchase 500,000 shares of Common Stock issued to John
Pappajohn. Incorporated by reference to Exhibit 10.6 to the
Company's Form S-1 Registration Statement (Registration No.
33-73868).
10.2 Common Stock Purchase Warrant dated October 15, 1991 to
purchase 500,000 shares of Common Stock issued to Lindsay
Rosenwald. Incorporated by reference to Exhibit 10.7 to the
Company's Form S-1 Registration Statement (Registration No.
33-73868).
10.3 1991 Stock Option Plan, as amended and restated.
Incorporated by reference to Exhibit 99.1 to the Company's
Form S-8 Registration Statement (Registration No. 33-95062).
10.4 Form of Notice of Stock Option Grant and Stock Option
Agreement. Incorporated by reference to Exhibit 99.2 and
99.3 to the Company's Form S-8 Registration Statement
(Registration No. 33-95062).
37
<PAGE>
Number Description
10.5 Warehouse Lease dated January 17, 1992 between Principal
Mutual Life Insurance Company and the Registrant.
Incorporated by reference to Exhibit 10.21 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.6 Master Equipment Lease dated January 22, 1992 between Boston
Financial & Equity Corporation and the Registrant.
Incorporated by reference to Exhibit 10.22 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.7 Equipment Leases dated July 25, 1992, February 25, 1993,
August 25, 1993, and November 25, 1993 between Ventana
Leasing, Inc. and the Registrant. Incorporated by reference
to Exhibit 10.23 to the Company's Form S-1 Registration
Statement (Registration No. 33-73868).
10.8 Common Stock Purchase Warrants issued in connection with the
issuance of Series A Convertible Preferred Stock.
Incorporated by reference to Exhibit 10.32 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.9 Private Placement Agency Agreement dated July 1, 1993
between the Registrant and Paramount Capital, Inc., as
amended. Incorporated by reference to Exhibit 10.33 to the
Company's Form S-1 Registration Statement (Registration No.
33-73868).
10.10 Subscription and Preferred Stock Agreement and Confidential
Investor Questionnaire among the Registrant and the
purchasers of Series B Convertible Preferred Stock.
Incorporated by reference to Exhibit 10.34 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.11 Fourth Amended and Restated Registration Rights Agreement
among the Registrant and certain securityholders.
Incorporated by reference to Exhibit 10.35 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.12 Common Stock Purchase Warrants issued in connection with the
issuance of Series B Convertible Preferred Stock.
Incorporated by reference to Exhibit 10.36 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.13 Common Stock Purchase Warrants dated December 7, 1993 to
purchase 49,400 shares of Common Stock issued to each of
John Pappajohn, Lindsay A. Rosenwald and William M. Spencer.
Incorporated by reference to Exhibit 10.37 to the Company's
Form S-1 Registration Statement (Registration No. 33-73868).
10.14 Employment Agreement dated November 19, 1993 between the
Registrant and Charles E. Bugg, Ph.D. Incorporated by
reference to Exhibit 10.38 to the Company's Form S-1
Registration Statement (Registration No. 33-73868).
10.15# ` License Agreement dated April 15, 1993 between Ciba-Geigy
Corporation and the Registrant. Incorporated by reference to
Exhibit 10.40 to the Company's Form S-1 Registration
Statement (Registration No. 33-73868).
10.16 Stock Purchase Agreement dated September 21, 1994 between
Registrant and Bernard B. Levine to purchase 515,000 shares
of common stock. Incorporated by reference Exhibit 10.2 to
the Company's Form 10-Q for the third quarter ending
September 30, 1994 dated November 10, 1994.
10.17 Registration Rights Agreement dated September 21, 1994
between Registrant and Bernard B. Levine. Incorporated by
reference Exhibit 10.3 to the Company's Form 10-Q for the
third quarter ending September 30, 1994 dated November 10,
1994.
10.18 Employee Stock Purchase Plan. Incorporated by reference to
Exhibit 99.4 to the Company's Form S-8 Registration
Statement (Registration No. 33-95062).
38
<PAGE>
Number Description
10.19 First Amendment to Lease Agreement between Registrant and
Principal Mutual Life Insurance Company, Inc. for
office/warehouse space. Incorporated by reference to Exhibit
10.21 to the Company's Form 10-K for the year ending
December 31, 1994 dated March 28, 1995.
10.20 Form of Stock Purchase Agreement dated May 1995 between
Registrant and various parties to purchase 1,570,000 shares
of common stock. Incorporated by reference to Exhibit 10.22
to the Company's Form 10-Q for the second quarter ending
June 30, 1995 dated August 11, 1995.
10.21 Form of Registration Rights Agreement dated May 1995 between
Registrant and various parties. Incorporated by reference to
Exhibit 10.23 to the Company's Form 10-Q for the second
quarter ending June 30, 1995 dated August 11, 1995.
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
- ----------
# Confidential treatment granted.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Birmingham,
State of Alabama, on this 24th day of September, 1996.
BIOCRYST PHARMACEUTICALS, INC.
By: /s/Charles E. Bugg
-------------------
Charles E. Bugg, Ph.D.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934 this report
has been signed by the following persons in the capacities indicated on
September 24th, 1996:
Signature Title(s)
/s/Charles E. Bugg Chairman, President, Chief Executive
- ----------------------------------- Officer and Director
(Charles E. Bugg, Ph.D.)
/s/John A. Montgomery Executive Vice President, Secretary,
- ----------------------------------- Chief Scientific Officer and Director
(John A. Montgomery, Ph.D.)
/s/Ronald E.Gray Chief Financial Officer (Principal
- ----------------------------------- Financial and Accounting Officer)
(Ronald E. Gray)
/s/William W. Featheringill Director
- -----------------------------------
(William W. Featheringill)
/s/Edwin A. Gee Director
- -----------------------------------
(Edwin A. Gee, Ph.D.)
/s/Zola P. Horovitz Director
- -----------------------------------
(Zola P. Horovitz, Ph.D.)
___________________________________ Director
(Lindsay A. Rosenwald, M.D.)
/s/William M. Spencer, III Director
- -----------------------------------
(William M. Spencer, III)
/s/Joseph H. Sherrill, Jr. Director
- -----------------------------------
(Joseph H. Sherrill, Jr.)
/s/Randolph C. Steer Director
- -----------------------------------
(Randolph C. Steer, M.D., Ph.D.)
40
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-81110 and 33-95062) pertaining to the BioCryst Pharmaceuticals,
Inc. 1991 Stock Option Plan of our report dated January 24, 1996, with respect
to the financial statements of BioCryst Pharmaceuticals, Inc. included in the
Annual Report (Form 10-K/A) for the year ended December 31, 1995.
/s/ Ernst & Young LLP
Birmingham, Alabama
September 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the BioCryst
Pharmaceuticals, Inc. Financial Statements, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JAN-01-1995
<CASH> 6,134,968
<SECURITIES> 5,279,076
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,693,430
<PP&E> 3,065,587
<DEPRECIATION> 1,702,804
<TOTAL-ASSETS> 13,056,213
<CURRENT-LIABILITIES> 1,129,304
<BONDS> 0
0
0
<COMMON> 95,043
<OTHER-SE> 11,231,455
<TOTAL-LIABILITY-AND-EQUITY> 13,056,213
<SALES> 0
<TOTAL-REVENUES> 222,329
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,115
<INCOME-PRETAX> (8,576,264)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,576,264)
<EPS-PRIMARY> (0.96)
<EPS-DILUTED> (0.96)
</TABLE>
