<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
BIOCRYST PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its Charter)
--------------------------
<TABLE>
<S> <C>
DELAWARE 62-1413174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
2190 PARKWAY LAKE DRIVE, BIRMINGHAM, ALABAMA 35244
(205) 444-4600
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------------------
CHARLES E. BUGG, PH.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BIOCRYST PHARMACEUTICALS, INC.
2190 PARKWAY LAKE DRIVE
BIRMINGHAM, ALABAMA 35244
(205) 444-4600
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD R. PLUMRIDGE, ESQ. JOHN W. WHITE, ESQ.
LUCI STALLER ALTMAN, ESQ. CRAVATH, SWAINE & MOORE
BRUCE E. CUNNINGHAM, ESQ. 825 EIGHTH AVENUE
BROBECK, PHLEGER & HARRISON LLP NEW YORK, NEW YORK 10019-7475
370 INTERLOCKEN BLVD., SUITE 500 (212) 474-1000
BROOMFIELD, COLORADO 80021
(303) 410-2000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after this Registration Statement is declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION FEE
REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) (2)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share............ 2,300,000 $25.00 $57,500,000 $15,985
</TABLE>
(1) Includes 300,000 shares of common stock subject to cover the over-allotment
option granted by the company to the underwriters.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of computing the
registration fee, based on the average high and low trading prices of the
common stock, as reported on the Nasdaq National Market, on September 20,
1999.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY OUR EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1999
P R O S P E C T U S
2,000,000 SHARES
[LOGO]
COMMON STOCK
$ PER SHARE
---------
We are selling 2,000,000 shares of our common stock. The underwriters named
in this prospectus may purchase up to 300,000 additional shares of common stock
from us under certain circumstances.
Our common stock is quoted on the Nasdaq National Market under the symbol
"BCRX." The last reported sale price of our common stock on the Nasdaq National
Market on September 20, 1999 was $24.75 per share.
--------------
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------- --------------
<S> <C> <C>
Public Offering Price $ $
Underwriting Discount $ $
Proceeds to BioCryst (before expenses) $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
1999.
--------------
SALOMON SMITH BARNEY
HAMBRECHT & QUIST
RAYMOND JAMES & ASSOCIATES, INC.
, 1999
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Where You Can Find More Information.............. 2
Prospectus Summary............................... 3
Risk Factors..................................... 7
Information Regarding Forward-Looking
Statements..................................... 19
Use of Proceeds.................................. 20
Market Price of Common Stock..................... 20
Dividend Policy.................................. 20
Capitalization................................... 21
Dilution......................................... 22
Selected Financial Data.......................... 23
<CAPTION>
PAGE
-----
<S> <C>
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 24
Business......................................... 29
Management....................................... 47
Principal Stockholders........................... 49
Relationships and Related Party Transactions..... 51
Underwriting..................................... 52
Legal Matters.................................... 54
Experts.......................................... 54
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or the SEC. You may
read and copy any document we file at the public reference facilities of the SEC
located at 450 Fifth Street, N.W., Washington D.C. 20549. You may obtain
information on the operation of the SEC's public reference facilities by calling
the SEC at 1-800-SEC-0330. You can also access copies of such material
electronically on the SEC's home page on the World Wide Web at
http://www.sec.gov.
This prospectus is part of a registration statement (Registration No.
333- ) we filed with the SEC. The SEC permits us to "incorporate by
reference" the information that we file with them, which means that we can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file with the SEC after the date of this
prospectus will automatically update and supercede this information. We
incorporate by reference the following documents filed by us with the SEC (File
No. 0-27066). We also incorporate by reference any future filings made with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, after the date of this prospectus until the termination of
this offering:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
2. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999
and June 30, 1999.
3. Our Proxy Statement dated April 2, 1999 filed in connection with our
1999 Annual Meeting of Stockholders.
4. The description of our common stock which is contained in our
registration statement on Form 8-A filed under the Exchange Act on
January 8, 1994, including any amendment or reports filed for the purpose
of updating such description.
If you request a copy of any or all of the documents incorporated by
reference, we will send to you the copies requested at no charge. However, we
will not send exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents. You should direct requests for such
copies to: Mr. Ronald E. Gray, Chief Financial Officer, BioCryst
Pharmaceuticals, Inc., 2190 Parkway Lake Drive, Birmingham, Alabama 35244, (205)
444-4600.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS"
SECTION. IN ADDITION, WE INCORPORATE BY REFERENCE IMPORTANT BUSINESS AND
FINANCIAL INFORMATION IN THIS PROSPECTUS.
OUR COMPANY
BioCryst Pharmaceuticals, Inc. is a biotechnology company focused on the
development of small-molecule pharmaceuticals for the treatment of infectious,
T-cell mediated and cardiovascular diseases and disorders. We utilize our
structure-based drug design technologies to develop potent, selective inhibitors
directed at the active sites of target enzymes. Our lead product candidate,
BCX-1812, is a neuraminidase inhibitor designed to treat and prevent viral
influenza. In September 1998, we entered into an exclusive worldwide license
ageement with The R.W. Johnson Pharmaceutical Research Institute, or PRI, and
Ortho-McNeil Pharmaceutical, Inc., both Johnson & Johnson companies. Pursuant to
this agreement, these Johnson & Johnson companies now have sole responsibility
for the development, manufacture and commercialization of BCX-1812. We have been
informed by PRI that the planning of Phase III trials for the 1999/2000 flu
season is underway.
An important element of our business strategy is to control costs and
overhead through outsourcing and partnering. Our strategy of focusing on
discovery and early-stage development of drug candidates and leveraging
pharmaceutical partners' rapid and effective development and commercialization
expertise is designed to control our expenses, minimize risks and allow us to
have a larger number of attractive drug candidates progress to advanced-stage
clinical trials.
OUR INFLUENZA NEURAMINIDASE INHIBITOR
Influenza, commonly known as the flu, is perceived by many people as a
transient, inconvenient viral infection that leaves its sufferers bed-ridden for
a few days. In truth, however, it is a virulent, acute respiratory disease that
is sometimes deadly. In North America, Western Europe and Japan, an estimated 70
million to 150 million individuals suffer from influenza annually. The flu is
particularly dangerous to the elderly, young children and debilitated patients
and accounts for approximately 20,000 deaths in the United States each year. The
flu and associated complications are the sixth leading cause of death in the
United States. The annual cost to the U.S. economy associated with influenza
epidemics was estimated to be in excess of $12 billion, according to a 1994
article in THE NEW ENGLAND JOURNAL OF MEDICINE.
In collaboration with scientists from The University of Alabama at
Birmingham, we used structure-based drug design to develop several novel
inhibitors of influenza neuraminidase. The structure of the active site of
influenza neuraminidase is similar among most strains of influenza.
Consequently, we believe our lead compound, BCX-1812, may be effective in the
treatment and prevention of the flu, regardless of viral mutations.
Our preclinical studies demonstrated that BCX-1812 has the following
benefits:
- excellent safety profile;
- broad spectrum inhibition of influenza A and B;
- good oral efficacy;
- probable once-a-day dosage indicated by a positive pharmacokinetic
profile; and
- stability in liquid, making a liquid formulation possible for pediatric
and elderly applications.
We have entered into an exclusive worldwide license agreement with PRI and
Ortho-McNeil to develop and market our proprietary influenza neuraminidase
inhibitors, including our lead product candidate, BCX-1812. We received an
initial $6.0 million payment from Ortho-McNeil and an additional $6.0 million
common stock equity investment from Johnson & Johnson Development Corporation.
In June 1999, we received a $2.0 million milestone payment from Ortho-McNeil in
connection with the initiation of Phase II clinical testing in the United
States. In addition, we may receive cash
3
<PAGE>
payments upon achievement of specified developmental and regulatory milestones
and royalties on product sales, if any.
Since the collaboration was established, BCX-1812 moved through Phase I
clinical trials and a Phase II clinical study by August 1999. We recently
announced preliminary results from a Phase II placebo-controlled, randomized
study conducted by PRI for the treatment of healthy volunteers infected with a
strain of influenza A. The primary efficacy endpoint was the reduction in viral
titers in infected subjects. PRI advised us that the data from this Phase II
study indicated a statistically significant result for the primary endpoint, and
evaluation of safety showed that the drug was well tolerated at all dosage
levels. We have been informed by PRI that the planning of the Phase III clinical
trials for the 1999/2000 influenza season is underway.
OTHER DRUG DEVELOPMENT PROGRAMS
We are also seeking to develop potent, selective inhibitors for the
treatment of a variety of other diseases and disorders. Two important drug
development programs currently underway include our purine nucleoside
phosphorylase, or PNP, inhibitor program and our complement inhibitor program.
Our lead PNP inhibitor drug candidate, BCX-34, is a novel mechanism for
suppressing T-cell replication. Although T-cells are an essential part of the
body's immune system, there are diseases in which T-cells multiply
uncontrollably or attack normal cells. PNP is believed to play an important role
in T-cell proliferation by facilitating DNA synthesis. Inhibiting PNP suppresses
T-cell replication without significantly affecting other cells. We believe this
could have an impact on several diseases such as psoriasis, cutaneous T-cell
lymphoma and T-cell leukemia.
Complement proteins circulate in the blood in a non-activated form. Upon
activation, these proteins can result in adverse biological effects including
tissue damage. Based on research done in our complement inhibitor program, we
have identified a class of compounds that may have therapeutic applications for
several disorders by limiting the rapid and aggressive damage caused by
complement activation.
OUR BUSINESS STRATEGY
Our business strategy is to use structure-based drug design technologies to
develop innovative, small-molecule pharmaceuticals to treat a variety of
diseases and disorders. The principal elements of our strategy are:
- SELECT AND IN-LICENSE ATTRACTIVE ENZYME TARGETS FOR THE DEVELOPMENT OF
SMALL-MOLECULE PHARMACEUTICALS. We use our technical expertise and
network of academic and industry contacts to evaluate and select promising
enzyme targets to in-license for drug development.
- FOCUS ON HIGH VALUE-ADDED, STRUCTURE-BASED DRUG DESIGN TECHNOLOGIES. We
believe structure-based drug design is a powerful tool for the rapid and
efficient development of small-molecule drug candidates that have the
potential to be safe, effective and relatively inexpensive to manufacture.
We focus on the use of these technologies to design and develop our drug
candidates.
- DEVELOP INHIBITORS THAT ARE PROMISING CANDIDATES FOR
COMMERCIALIZATION. Drug candidates are selected, in part, on the basis of
their potential for relatively efficient Phase I and Phase II clinical
trials. We may consider more complex drug candidates if we believe they
offer promising commercial opportunities in large markets.
- LEVERAGE RELATIONSHIPS WITH ACADEMIC INSTITUTIONS AND BIOTECHNOLOGY
COMPANIES. By leveraging our relationships with academic institutions and
biotechnology companies, we believe we can significantly reduce the time,
cost and risk involved in drug development.
- PARTNER DEVELOPMENT CANDIDATES. Our goal is to advance drug candidates
through preclinical development and early-stage clinical trials, then
license these drug candidates to pharmaceutical partners for final
development and marketing. This strategy should allow us to remain focused
on our core competencies and leverage our pharmaceutical partners'
development and commercialization expertise.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... 2,000,000 shares
Common stock to be outstanding after the
offering................................... 17,229,707 shares
Use of proceeds.............................. For in-licensing drug development candidates,
research and development activities,
preclinical studies and clinical trials,
expanding facilities, hiring additional
personnel, working capital and general
corporate purposes.
Nasdaq National Market symbol................ "BCRX"
</TABLE>
Unless we specifically state otherwise, the information in this prospectus
does not take into account the issuance of up to 300,000 shares of common stock
which the underwriters have the option to purchase solely to cover
over-allotments. If the underwriters exercise their over-allotment option in
full, 17,529,707 shares of common stock will be outstanding after the offering.
The number of shares of common stock to be outstanding immediately after the
offering is based upon shares outstanding as of September 20, 1999 and does not
take into account 2,258,301 shares of common stock issuable upon exercise of
options outstanding at a weighted average exercise price of $7.50 per share and
602,107 shares reserved under our existing stock option plan and employee stock
purchase plan.
------------------------
Our principal offices are located at 2190 Parkway Lake Drive, Birmingham,
Alabama 35244, and our telephone number is (205) 444-4600.
This prospectus contains a description of our exclusive worldwide license
agreement with The R.W. Johnson Pharmaceutical Research Institute, or PRI, and
Ortho-McNeil Pharmaceutical, Inc. Both PRI and Ortho-McNeil are Johnson &
Johnson companies. We have been informed that PRI will be responsible for
research and development of the compounds, including expenses, Ortho-McNeil will
market products approved by the FDA in the United States, if any, and other
Johnson & Johnson companies, including Janssen-Cilag, will market products
cleared for marketing outside the United States.
5
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative and other research and
development........................ $ 269 $ 223 $ 1,558 $ 1,000 $ 6,371 $ -- $ 2,408
Interest and other................... 465 662 1,094 1,692 1,255 671 633
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total revenues..................... 734 885 2,652 2,692 7,626 671 3,041
---------- ---------- ---------- ---------- ---------- ---------- -----------
Expenses:
Research and development............. 5,552 7,107 7,586 10,577 9,291 5,353 4,006
General and administrative........... 1,904 2,210 2,664 2,682 3,105 1,295 1,683
Interest............................. 216 144 100 52 15 10 3
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total expenses..................... 7,672 9,461 10,350 13,311 12,411 6,658 5,692
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net loss............................... $ (6,938) $ (8,576) $ (7,698) $ (10,619) $ (4,785) $ (5,987) $ (2,651)
---------- ---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net loss per share..................... $ (1.02) $ (0.96) $ (0.69) $ (0.77) $ (0.34) $ (0.43) $ (0.18)
---------- ---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- ---------- -----------
Weighted average shares outstanding.... 6,787 8,905 11,171 13,780 14,120 13,926 14,981
</TABLE>
The as-adjusted information that follows gives effect to this offering and
assumes no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities held-to-maturity................................
$ 24,317 $ 70,097
Total assets..........................................................................
26,546 72,326
Accumulated deficit...................................................................
(55,821) (55,821)
Total stockholders' equity............................................................
25,199 70,979
</TABLE>
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES SIGNIFICANT RISKS. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY OUR COMMON
STOCK.
WE HAVE INCURRED SUBSTANTIAL LOSSES SINCE OUR INCEPTION, EXPECT TO CONTINUE TO
INCUR SUCH LOSSES AND MAY NEVER BE PROFITABLE
We have incurred operating losses since our inception in 1986. As of June
30, 1999, our accumulated deficit was approximately $55.8 million. We expect to
incur additional losses for the foreseeable future, and we expect our losses to
increase as our research and development efforts progress. To become profitable,
we must successfully develop drug candidates, enter into profitable agreements
with collaborative partners and our drug candidates must obtain regulatory
approval. The drug candidates must then be successfully manufactured and
marketed by our collaborative partners. It will be several years, if ever,
before we will recognize significant revenues from royalties pursuant to our
existing license agreements and future license agreements, if any. In addition,
we do not expect to ever generate revenue directly from product sales. We may
never generate significant revenue or become profitable.
OUR DEVELOPMENT EFFORTS MAY NOT RESULT IN COMMERCIALLY SUCCESSFUL PRODUCTS
The development of our drug candidates is highly uncertain, costly and
depends on many factors that are beyond our control. There are many reasons that
we may fail in our efforts to develop commercially successful products,
including:
- our drug candidates may be ineffective or toxic;
- our drug candidates may fail to receive necessary regulatory approvals;
- our drug candidates may be too expensive to develop, manufacture or market
effectively;
- our drug candidates may not be accepted by physicians and patients;
- our collaborative partners may not pursue or successfully develop our drug
candidates;
- others may hold or acquire proprietary rights that could prevent us from
developing our products; and
- others may develop equivalent or superior products.
All of our drug candidates are in early stages of development. The
uncertainties inherent in the development of our drug candidates are especially
significant in view of their early-stage nature. Failure to develop our drug
candidates would have a material adverse effect on our business, financial
condition and results of operations.
WE ARE HIGHLY DEPENDENT ON PRI AND ORTHO-MCNEIL FOR SUBSTANTIALLY ALL OF OUR
REVENUE
Approximately 79.2% of our revenues for the six months ended June 30, 1999
and approximately 83.5% of our revenues for the year ended December 31, 1998
resulted from our exclusive worldwide license agreement with PRI and
Ortho-McNeil. These revenues represent approximately 45.0% of our total revenues
since our inception in 1986. The termination of the license agreement with PRI
and Ortho-McNeil, any changes to the existing agreement that are less favorable
to us or the failure of PRI and Ortho-McNeil to fulfill their obligations under
the license agreement would materially and adversely affect our business.
7
<PAGE>
THE DEVELOPMENT, MANUFACTURING AND COMMERCIALIZATION OF OUR INFLUENZA
NEURAMINIDASE INHIBITORS IS HIGHLY DEPENDENT ON PRI AND ORTHO-MCNEIL
We rely on the exclusive license agreement we entered into with PRI and
Ortho-McNeil and PRI in September 1998 for the development, manufacture and
commercialization of our influenza neuraminidase inhibitors, including BCX-1812.
Under this agreement, PRI and Ortho-McNeil have the following rights that could
adversely affect the development of our influenza neuraminidase inhibitors:
- sole discretion on all elements of research and development of BCX-1812,
including timing and design of further clinical trials;
- sole responsibility to initiate and complete clinical trials, interpret
data, prepare and file a new drug application, or NDA, obtain the approval
of the U.S. Food and Drug Administration, or FDA, or foreign regulatory
agencies and commercialize BCX-1812;
- sole control over the amount of resources devoted to the research and
development of BCX-1812;
- the right to terminate or cancel the agreement, which may be done at any
time on four months notice; and
- the right to subject us to penalties, including reducing their royalty
payments or forcing us to assign all of our interest in joint inventions
and patents to be done Ortho-McNeil, if we breach the agreement.
Any revenue we may receive in connection with BCX-1812 is dependent upon PRI
and Ortho-McNeil successfully attaining specified development milestones or
successfully commercializing BCX-1812 and paying us royalties on sales of the
product. We do not know when, if ever, PRI and Ortho-McNeil will receive FDA or
foreign regulatory approval for, or commence commercialization of BCX-1812. We
cannot be certain that our relationship with PRI and Ortho-McNeil will continue
or be successful. If PRI and Ortho-McNeil terminate the license agreement or
fails to aggressively develop or commercialize BCX-1812, our business would be
materially and adversely affected.
WE ARE HIGHLY DEPENDENT UPON THIRD PARTIES FOR MANY OF THE STEPS REQUIRED FOR
DRUG DEVELOPMENT, INCLUDING IDENTIFYING TARGETS, CONDUCTING CLINICAL TRIALS,
OBTAINING REGULATORY APPROVALS, MANUFACTURING AND COMMERCIALIZATION
We generally rely on in-licensing drug targets from academic institutions
and biotechnology companies from which we develop inhibitors that are then
advanced in-house through early stage clinical trials. Our goal is to then
license the inhibitors to pharmaceutical and biotechnology companies for further
clinical development, manufacturing and commercialization. Consequently, our
business is highly dependent upon third parties.
THE SUCCESSFUL IMPLEMENTATION OF OUR BUSINESS STRATEGY DEPENDS UPON OUR
ABILITY TO IN-LICENSE ENZYME TARGETS FROM RESEARCH PARTNERS
Our drug development strategy depends on our ability to in-license enzyme
targets from academic institutions and other biotechnology companies. Initially,
we rely on preliminary research conducted by the scientists at these
organizations to discover attractive enzyme targets for us to in-license. Once
we have entered into an agreement with the organization, we then rely on their
scientists' ability to collaborate with our staff and to further the development
of the drug candidate. To date, we have entered into such collaborative
agreements with only three parties, and the only enzyme target from these
agreements that has successfully been out-licensed for further development is
our influenza neuraminidase inhibitor. We cannot assure you that we will be able
to successfully identify research partners, enter into license agreements on
acceptable terms with any we do identify, or develop any
8
<PAGE>
drug candidates from any in-licensed enzyme targets. If we cannot in-license
enzyme targets to support our drug development strategy, our business will be
materially adversely affected.
WE ARE LARGELY DEPENDENT ON COLLABORATIVE PARTNERS FOR THE DEVELOPMENT OF
OUR COMPOUNDS
A key part of our strategy is to out-license our drug candidates to third
parties for further clinical development and to obtain regulatory approval. We
have entered into only a limited number of such out-licensing arrangements. We
cannot assure you that we will be able to negotiate additional collaborative
arrangements on acceptable terms, maintain the collaborative arrangements we
currently have or that any of our collaborative arrangements will prove
successful. Our reliance on third parties for the continued development of our
compounds, if any, presents several risks, including:
- a contract with a third party may expire or be unilaterally terminated,
as was the case with our contract with Torii Pharmaceutical Co., Ltd.;
- business combinations or significant changes in a collaborative partner's
business strategy may adversely affect a partner's willingness or ability
to complete its obligations under the arrangement;
- our collaborative partners may choose to pursue alternative technologies,
including those of our competitors;
- we may have disputes with a partner, such as disputes regarding ownership
rights of the drug candidate, that could delay research and development
of a compound or require us to devote resources to litigation or
arbitration;
- a partner involved in the development of our drug candidates may not
commit sufficient capital or resources to successfully develop our
compounds; or
- we may be contractually bound to terms that, in the future, are not
commercially favorable to us.
If we are not able to establish further collaborative arrangements or any of
our existing collaborative arrangements are terminated, we would be required to
seek new collaborative arrangements or to undertake further product development
at our own expense. Such an undertaking might:
- limit the number of drug candidates that we will be able to develop and
commercialize;
- reduce the likelihood of successful product introduction;
- significantly increase our capital requirements; and
- place additional strain on management's time.
WE ARE DEPENDENT ON THIRD-PARTY CONTRACT RESEARCH ORGANIZATIONS
We rely heavily on contract research organizations, or CROs, to execute our
initial clinical trials. The failure by the CROs to execute our initial clinical
trials satisfactorily or any breach of their obligations to us could delay or
prevent the commercialization of our drug candidates. Delays by CROs would be
particularly harmful to us, because we typically commence negotiations with
potential collaborative partners for further development and commercialization
of our drug candidates only after receiving the results of the trials conducted
by the CRO. Any such failures by our contract research partners would have a
material adverse effect on our business.
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WE ARE DEPENDENT UPON THIRD PARTIES TO MANUFACTURE OUR PRODUCT CANDIDATES;
IF THEY ARE UNWILLING OR UNABLE TO PRODUCE OUR PRODUCT CANDIDATES OR IF THEY
FAIL TO COMPLY WITH GOVERNMENTAL REGULATIONS, OUR BUSINESS WILL SUFFER
We have no manufacturing facilities for any of our product candidates. We
have no experience in commercial manufacturing and intend to rely on our
collaborative partners for the commercial manufacture of our product candidates.
For example, we are relying solely on Ortho-McNeil for the manufacture of our
influenza neuraminidase inhibitor. We cannot assure you that we will be able to
make arrangements with third parties to manufacture our potential products on
acceptable terms, or at all. Our inability to efficiently manufacture or provide
for the manufacture of any of our product candidates would materially and
adversely affect our business.
We cannot assure you that our present or future suppliers will be able to
comply with applicable good manufacturing practice regulations and other FDA
regulatory requirements. Failure of our third-party manufacturers to comply with
the applicable governmental requirements may result in restrictions on the
marketing of a product, withdrawal of the product from the market, seizures,
injunctions, or criminal sanctions, any of which could materially and adversely
affect our business.
WE INTEND TO RELY ON THE SALES, MARKETING OR DISTRIBUTION CAPABILITIES OF
THIRD PARTIES
We have no experience in sales, marketing or distribution of pharmaceuticals
and currently do not intend to employ personnel in any of these capacities. We
intend to rely on collaborative partners with established distribution systems
and direct sales forces for the sales, marketing and distribution of potential
products. We cannot assure you that we will be able to establish marketing
relationships with others on acceptable terms, if at all. Even if we establish
sales, marketing or distribution arrangements with other parties, they may have
substantial control over the commercialization of our product candidates. We
will be unable to control the resources that any third party may devote to our
product candidates, and our revenues, if any, will largely depend on their
efforts. If we fail to enter into successful third-party sales, marketing or
distribution arrangements, our business will be materially adversely affected.
CLINICAL TRIALS ARE INHERENTLY UNPREDICTABLE AND OUR FAILURE TO SUCCESSFULLY
IMPLEMENT AND COMPLETE THEM WOULD HARM OUR BUSINESS
To obtain the regulatory approvals necessary for the sale of our drug
candidates, it must be demonstrated through preclinical studies and clinical
trials that each drug candidate is safe and effective. The clinical trial
process is complex and uncertain. Positive results from preclinical studies and
early clinical trials do not ensure positive results in pivotal clinical trials.
Many companies in our industry, including us, have suffered significant setbacks
in pivotal clinical trials, even after promising results in earlier clinical
trials. Any of our drug candidates may produce undesirable side effects in
humans. These side effects could cause us or regulatory authorities to
interrupt, delay or halt clinical trials of a drug candidate. These side effects
could also result in the FDA or foreign regulatory authorities refusing to
approve the drug candidate for any targeted indications. We, the FDA or foreign
regulatory authorities may suspend or terminate clinical trials at any time if
we or they believe the trial participants face unacceptable health risks.
Clinical trials may fail to demonstrate that our drug candidates are safe or
effective.
Clinical trials are lengthy and expensive. We incur substantial expense for,
and devote significant time to, preclinical testing and clinical trials, yet
cannot be certain that the tests and trials will ever result in the commercial
sale of a product. For example, clinical trials require adequate supplies of
drug and sufficient patient enrollment. Delays in patient enrollment can result
in increased costs and longer development times. Even if clinical trials are
successfully completed for our product candidates, our
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third-party licensees might not file the required regulatory submissions in a
timely manner and may not receive regulatory approval for the drug candidate.
In 1995 and 1996, the FDA inspected us and certain of our clinical sites
relating to certain clinical trials for the topical version of BCX-34. The FDA
issued to us two Lists of Inspectional Observations on Form FDA 483. These
matters may have a negative impact on our future relationships with the FDA,
which could delay clinical trials or any potential product approvals.
PRI has completed a Phase II trial of BCX-1812, and we have been informed by
PRI that the planning of the Phase III clinical trials of BCX-1812 is underway.
We cannot assure you that the FDA will accept PRI's clinical protocols, that PRI
will commence the Phase III clinical trials in 1999 or at all, or that the Phase
III clinical trials, if initiated, will be successful. Even if PRI does complete
the Phase III trials, we do not know when, if ever, PRI will receive FDA or
foreign regulatory agency approvals for, or Ortho-McNeil will commence
commercialization of, BCX-1812. If we or PRI are unable to commence clinical
trials as planned, complete the clinical trials or demonstrate the safety and
efficacy of our compounds, our business will be harmed. Even if the results of
PRI's trials are positive, products, if any, are not likely to be commercially
available for several years, if at all.
IF OUR DRUG CANDIDATES, INCLUDING OUR INFLUENZA NEURAMINIDASE INHIBITORS, DO NOT
ACHIEVE BROAD MARKET ACCEPTANCE, OUR BUSINESS MAY NEVER BECOME PROFITABLE
Our drug candidates, even if approved for sale by the FDA or foreign
regulatory agencies, may not gain the market acceptance required for us to be
profitable. The degree of market acceptance of any drug candidates that we or
our partners develop will depend on a number of factors, including:
- establishment and demonstration of the clinical efficacy and safety of our
drug candidates;
- cost-effectiveness of our drug candidates;
- their effectiveness relative to alternative treatment methods, such as the
efficacy and ease of use of our influenza neuraminidase inhibitor over
other products, including vaccines, existing drugs such as amantadine and
rimantadine, Hoffmann-La Roche's and Glaxo Wellcome's influenza
neuraminidase inhibitors and over-the-counter products;
- reimbursement policies of government and third-party payors which, for
example, may not cover the costs of treatments that provide symptom
relief; and
- marketing and distribution support for our drug candidates.
Physicians, patients, payors or the medical community in general may not
accept or use our drug candidates, including our influenza neuraminidase
inhibitor, even after regulatory approval has been obtained. If our drug
candidates do not achieve significant market acceptance, our business and
financial condition will be materially adversely affected.
IF WE OR OUR COLLABORATIVE PARTNERS DO NOT OBTAIN AND MAINTAIN GOVERNMENTAL
APPROVALS FOR OUR PRODUCTS UNDER DEVELOPMENT, WE WILL NOT BE ABLE TO SELL THESE
POTENTIAL PRODUCTS, WHICH WOULD SIGNIFICANTLY HARM OUR BUSINESS
All of our products under development will require regulatory approval by
the FDA before we or our collaborative partners are permitted to sell them in
the United States. Clinical trial data can be the subject of differing
interpretation. We cannot assure you that the FDA will interpret our clinical
data the way we or our partners do, or that the FDA will not require additional
clinical data to support approval. The results from earlier-stage studies may
not be predictive of results obtained in later-stage trials.
After we or our partners complete the clinical trials for a potential
product, we or our partners will be required to file an NDA. The requirements
for submission of NDAs and the approval processes
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on the part of the FDA require substantial time, expense and effort, and we
cannot assure you that any approval will be granted on a timely basis, if at
all. The FDA can take years to review NDAs and may take longer if significant
questions are raised during the review process. In addition, delays or
rejections may be encountered during FDA review. Moreover, it is possible that
the current regulatory framework could change or additional regulations could
arise at any stage during our product development, which may affect our ability
to obtain approval of our compounds. We cannot assure you that even after such
time and expenditures, regulatory approval will be obtained. Delays in obtaining
regulatory approvals may:
- adversely affect the successful commercialization of any drug candidates
that we and our collaborative partners develop;
- impose costly procedures on our collaborative partners;
- diminish any competitive advantages that we or our collaborative partners
may attain; and
- adversely affect our receipt of revenues or royalties.
Even if regulatory approval of a potential product is granted, the approval may
limit the indicated uses for which the potential product may be marketed and/or
may require post-marketing studies.
The FDA regulates, among other things, the record-keeping and storage of
data pertaining to potential pharmaceutical products. We currently store all of
our preclinical research data at our facilities and do not store duplicate
copies off-site. We cannot assure you that we would not lose important
preclinical data if our facilities were damaged.
In order to market our potential products in countries outside of the United
States, we and our partners are required to obtain similar approvals from
foreign regulatory bodies. The process of obtaining these approvals is time
consuming and requires the expenditure of substantial resources, and we and our
collaborative partners may encounter similar delays, rejections, requests for
additional data, and other setbacks with regulatory authorities in other
countries as we face in the United States.
If we get approval to market our potential products, whether in the United
States or internationally, we will continue to be subject to extensive
regulatory requirements. These requirements are wide ranging and govern, among
other things:
- adverse drug experience reporting regulations;
- product promotion;
- product manufacturing, including good manufacturing practice requirements;
and
- product changes or modifications.
Loss of or changes to previously obtained approvals or our failure to comply
with existing or future regulatory requirements could have a material adverse
effect on our business.
In June 1995, we notified the FDA that we submitted incorrect efficacy data
for our Phase II dose-ranging studies of topical BCX-34 for CTCL and psoriasis.
The FDA inspected us in November 1995 and issued to us a List of Inspectional
Observations, Form FDA 483, that cited our failure to follow good clinical
practices. In June 1996, the FDA inspected us and two of our 1995 Phase II
dose-ranging studies of topical BCX-34 for the treatment of CTCL and psoriasis.
As a result of the investigation, the FDA issued us a Form FDA 483, which cited
our failure to follow good clinical practices. As a consequence, our ongoing and
future clinical studies may receive increased scrutiny, which may delay the
regulatory review process. Also in June 1996, the FDA investigated one of the
clinical trial sites that participated in our 1995 Phase II dose-ranging studies
of topical BCX-34 for the treatment of CTCL and psoriasis. As a result, the FDA
issued a Form FDA 483 to the principal investigator at the clinical site. In
November 1997, the FDA notified us that they would not accept work performed by
this investigator without further validation. The majority of the work performed
by this investigator was for a topical formulation of BCX-34, which work was
discontinued in 1997. Work performed by this investigator for oral BCX-34,
however, will not be accepted by the FDA in any NDA to support efficacy.
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WE HAVE RECENTLY CHANGED OUR BUSINESS MODEL WHICH, TO DATE, HAS NOT BEEN TESTED
Prior to 1998, our strategy was to discover, develop and commercialize
small-molecule pharmaceutical products using structure-based drug design with
the intention to be a fully-integrated pharmaceutical company. In 1998, we
substantially changed our business model to focus exclusively on drug discovery,
initial product candidate development and the out-licensing of late-stage
products to collaborative partners for clinical testing, regulatory approval and
global commercialization. We cannot assure you that our new out-licensing
strategy will be successful.
IF WE NEED ADDITIONAL FUNDS AND ARE UNABLE TO RAISE THEM, WE WOULD HAVE TO
CURTAIL OR CEASE OUR DEVELOPMENT EFFORTS
We have expended and will continue to expend substantial funds to complete
the research, development and clinical testing of our compounds. Our future
capital requirements will depend on many factors, including:
- the progress of our research, drug discovery and development programs;
- changes in existing collaborative relationships;
- our ability to establish additional collaborative relationships;
- the magnitude of our research and development programs;
- the scope and results of preclinical studies and clinical trials to
identify drug candidates;
- competitive and technological advances;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims;
- our dependence on others, including PRI and Ortho-McNeil, for development
and commercialization of our product candidates, in particular, our
neuraminidase inhibitors; and
- successful commercialization of our products consistent with our
out-licensing strategy.
We believe that our cash and anticipated sources of funding, including the
net proceeds of this offering, will be adequate to satisfy our anticipated
capital needs through 2001. If our plans change, we may need to raise additional
funds through new or existing collaborations or through private or public equity
or debt financings. However, additional financing may not be available on
acceptable terms or at all.
COMPETITIVE PRODUCTS FROM OTHER COMPANIES MAY RENDER SOME OR ALL OF OUR PRODUCT
CANDIDATES NONCOMPETITIVE OR OBSOLETE
The biotechnology and pharmaceutical industries are highly competitive and
are subject to rapid and substantial technological change. Other products and
therapies that either currently exist on the market or are under development
could compete directly with some of the compounds that we are seeking to develop
and market. These other products may render some or all of our compounds under
development noncompetitive or obsolete.
If our influenza neuraminidase inhibitor drug candidate, which is partnered
with PRI and Ortho-McNeil, receives FDA or foreign regulatory approval, we
expect it to have substantial competition from a number of existing and future
therapies. Glaxo Wellcome plc's influenza neuraminidase inhibitor has received
approval from the FDA for marketing in the United States and has received
approval for marketing in several other countries. Gilead Sciences, Inc., in
collaboration with Hoffmann-La Roche, Inc., also has an influenza neuraminidase
inhibitor that is under review by the FDA. If approved, our influenza
neuraminidase inhibitor, BCX-1812, will likely be the third neuraminidase
inhibitor to the
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market. We believe that this may provide marketing challenges. In addition,
current therapies available for the treatment or prevention of flu include
vaccines and the drugs amantadine and rimantadine, as well as over-the-counter
products.
There are numerous pharmaceutical and biotechnology companies and academic
institutions throughout the world engaged in research and development efforts
with respect to therapeutic products targeted at diseases or conditions
addressed by us. Many of these competitors may be able to develop products and
processes, in addition to those treatments that already exist, that are
competitive with, or superior to, our own for many reasons, because competitors
may have:
- substantially greater financial, technical and human resources;
- larger production and marketing capabilities;
- greater experience in preclinical testing, clinical trials and other
regulatory matters; and
- entered into arrangements with, or acquired, biotechnology companies or
technologies to enhance their capabilities.
We cannot assure you that these products will not prove to be more effective
than our own or that our products, if any, will offer an economically feasible
or preferable alternative to existing modes of therapy.
WE MAY FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS OR
SECURE RIGHTS TO THIRD PARTY PATENTS
Our success will depend in part on our ability and the abilities of our
licensors to obtain patent protection for our products, methods, processes and
other technologies to preserve our trade secrets, and to operate without
infringing the proprietary rights of third parties. To date, we have been issued
nine U.S. patents for our various inventions. Additional patent applications and
provisional patent applications have been filed with the U.S. Patent and
Trademark Office, or PTO. We have filed certain corresponding foreign patent
applications and intend to file additional foreign and U.S. patent applications,
as appropriate. We cannot assure you as to:
- the degree and range of protection any patents will afford against
competitors with similar products;
- if and when patents will issue;
- whether or not others will obtain patents claiming aspects similar to
those covered by our patent applications;
- whether or not others will design around our patents or obtain access to
our know-how; or
- the extent to which we will be successful in avoiding any patents granted
to others.
If certain patents issued to others are upheld or if certain patent
applications filed by others issue and are upheld, we may be:
- required to obtain licenses or redesign our products or processes to avoid
infringement;
- prevented from practicing the subject matter claimed in those patents; or
- required to pay damages.
For example, one of our compounds not currently under development may be
subject to a patent held by Warner-Lambert, if we market a product containing
this compound. We have obtained a right of first refusal to negotiate a license
from Warner-Lambert, but cannot assure you that this license would be available
on acceptable terms. Moreover, we cannot assure you that any such license, if
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required, will be available on acceptable terms, or at all, or that we would be
successful in any attempt to redesign our products or processes to avoid
infringement.
Litigation or administrative proceedings, including interference proceedings
before the PTO, related to intellectual property rights could be brought against
us or initiated by us. Any judgement adverse to us in any patent application or
patent interference, litigation or other proceeding arising in connection with a
patent application could materially and adversely affect our business, financial
condition and results of operations. In addition, the costs of any such
proceeding may be substantial whether or not we are successful.
Our success is also dependent upon the skills, knowledge and experience,
none of which is patentable, of our scientific and technical personnel. To help
protect our rights, we require all employees, consultants, advisors and
collaborators to enter into confidentiality agreements which prohibit the
disclosure of confidential information to anyone outside of our company and
require disclosure and assignment to us of their ideas, developments,
discoveries and inventions. We cannot assure you, however, that these agreements
will provide adequate protection for our trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure or
the lawful development by others of such information.
WE ARE DEPENDENT ON OUR KEY PERSONNEL AND WILL NEED TO ATTRACT AND RETAIN
ADDITIONAL KEY PERSONNEL IN THE FUTURE
We are highly dependent upon our senior management and scientific team, the
loss of whose services might impede the achievement of our development and
commercial objectives. Although we maintain, and are the beneficiary of, a $2.0
million key-man insurance policy on the life of Charles E. Bugg, Ph.D., Chairman
of the Board of Directors and Chief Executive Officer, we do not believe the
proceeds would be adequate to compensate for his loss. We are actively seeking
additional members for our senior management team. Competition for key personnel
with the experience that we require is intense and is expected to continue to
increase. If we are unable to attract and retain the required number of skilled
and experienced management, operational and scientific personnel, our business
will be harmed.
In addition, we rely on members of our scientific advisory board and
consultants to assist us in formulating our research and development strategy.
All of the members of the scientific advisory board and all of our consultants
are otherwise employed and each such member or consultant may have commitments
to other entities that may limit their availability to us.
THE UNAVAILABILITY OF THIRD-PARTY REIMBURSEMENT MAY LIMIT THE USE OF OUR PRODUCT
CANDIDATES, WHICH WOULD CAUSE OUR REVENUES TO DECLINE
If third-party reimbursement is unavailable for the use of our product
candidates by hospitals, clinics, patients and doctors, our business will be
harmed. We cannot be certain that Medicare, Medicaid, health maintenance
organizations and other third-party payors will authorize or otherwise budget
for the reimbursement of our products. Governmental and third-party payors are
increasingly challenging the prices charged for medical products and services.
We cannot be certain that our product candidates will be viewed as
cost-effective, that reimbursement will be available to consumers or that such
reimbursement will be sufficient to allow our product candidates to be marketed
on a competitive basis. To the extent that changes in reimbursement policies or
health care cost containment initiatives limit or restrict reimbursement for our
product candidates, our business would be materially and adversely affected.
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WE MAY FACE CLINICAL TRIAL LIABILITY CLAIMS RELATED TO THE USE OR MISUSE OF OUR
COMPOUNDS IN CLINICAL TRIALS
We face an inherent business risk of liability claims in the event that the
use or misuse of our compounds results in personal injury or death. We have not
experienced any clinical trial liability claims to date, but we cannot be
certain that we will not in the future or that after commercial introduction of
our products we will not experience losses due to product liability claims. We
currently maintain clinical trial liability insurance coverage in the amount of
$1.0 million per occurrence and in the aggregate, with an additional $5.0
million potentially available under our umbrella policy. We cannot assure you
that the insurance policy will be sufficient to cover claims that may be made
against us. Clinical trial liability insurance is expensive, difficult to obtain
and may not be available in the future on acceptable terms, if at all. Any
claims against us, regardless of their merit, could materially and adversely
affect our financial condition.
WE USE HAZARDOUS MATERIALS IN OUR BUSINESS AND ARE SUBJECT TO ENVIRONMENTAL
CONTROLS AND REGULATIONS
Our research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. We are subject to
federal, state and local laws and regulations governing the use, storage,
handling and disposal of such materials and certain waste products. Accidental
contamination or injury from these materials could occur. In the event of such
an accident, we could be held liable for any damages that result and any such
liability could exceed our resources. We could be required to incur substantial
costs to comply with environmental laws and regulations, and if that were to
happen our business and results of operations could be materially and adversely
affected.
BECAUSE STOCK OWNERSHIP IS CONCENTRATED, YOU AND OTHER INVESTORS WILL HAVE
MINIMAL INFLUENCE ON STOCKHOLDER DECISIONS
Prior to this offering, our directors, executive officers and certain
principal stockholders and their affiliates, including Johnson & Johnson
Development Corporation, own approximately 40.5% of our outstanding common
stock. As a result, these holders, if acting together, are able to significantly
influence matters requiring stockholder approval, including the election of
directors. Such concentration of ownership may have the effect of delaying,
deferring or preventing a change in our control.
WE DEPEND SIGNIFICANTLY ON OUR COMPUTER AND COMMUNICATIONS SYSTEMS
Our drug development activities depend on the security, integrity and
performance of the computer and communications systems supporting them. We
currently store all of our preclinical and clinical data at our facilities, do
not store duplicate copies of all data off-site and cannot assure you that we
would not lose important data if our systems were impaired. Extraordinary volume
or other events could cause our computer systems to operate at an unacceptably
low speed or even fail. Any significant degradation or failure of our computer
systems could cause our data to be inaccurately calculated or lost. Loss of data
could result in delays in our drug development process. We cannot assure you
that our network protections will work.
Our systems may also fail as a result of:
- a tornado, fire or any other natural disaster;
- power or telecommunications failure;
- act of God; or
- war.
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Any computer or communications system failure or decrease in the performance
of our computer systems that causes an interruption in our business or causes us
to lose data could have a material and adverse effect on our business.
WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE CHARTER DOCUMENTS THAT MAY
RESULT IN OUTCOMES WITH WHICH YOU DO NOT AGREE
Our board of directors has the authority to issue up to 5,000,000 shares of
undesignated preferred stock and to determine the rights, preferences,
privileges and restrictions of such shares without further vote or action by our
stockholders. The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock could have the
effect of making it more difficult for third parties to acquire a majority of
our outstanding voting stock.
In addition, our certificate of incorporation provides for staggered terms
for the members of the board of directors and super majority approval of the
removal of any member of the board of directors and prevents our stockholders
from acting by written consent. Our certificate also requires supermajority
approval of any amendment of these provisions. These provisions and certain
provisions of our by-laws and of Delaware law applicable to us could delay or
make more difficult a merger, tender offer or proxy contest involving us.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION
You will incur immediate and substantial dilution in the net tangible book
value per share of the shares you purchase in this offering. To the extent
outstanding options to purchase common stock are exercised, there will be
further dilution.
OUR MANAGEMENT HAS BROAD DISCRETION OVER USE OF PROCEEDS AND MAY FAIL TO USE
THEM EFFECTIVELY TO GROW OUR BUSINESS
As of the date of this prospectus, we cannot specify the particular uses for
the net proceeds we will receive from this offering. If our management does not
apply these funds effectively, our revenue could decrease and our stock price
could decline.
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE
The market prices for securities of biotechnology companies in general have
been highly volatile and may continue to be highly volatile in the future. The
following factors, in addition to other risk factors described in this section,
may have a significant impact on the market price of our common stock:
- announcements of technological innovations or new products by us or our
competitors;
- developments or disputes concerning patents or proprietary rights;
- our collaborative partners achieving or failing to achieve development
milestones;
- publicity regarding actual or potential medical results relating to
products under development by us or our competitors;
- regulatory developments in both the United States and foreign countries;
- public concern as to the safety of pharmaceutical products;
- actual or anticipated fluctuations in our operating results;
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- changes in financial estimates or recommendations by securities analysts;
- economic and other external factors or other disasters or crisis; and
- period-to-period fluctuations in our financial results.
WE MAY INCUR SIGNIFICANT COSTS IF YEAR 2000 COMPLIANCE ISSUES ARE NOT PROPERLY
ADDRESSED
Some of our older computer software programs and equipment are unable to
distinguish between the year 1900 and the year 2000. As a result, time-sensitive
functions of those software programs and equipment may misinterpret dates after
December 31, 1999 to refer to the 1900s rather than the 2000s. This could cause
system equipment shutdowns, failures or miscalculations resulting in
inaccuracies in computer output or disruptions of operations, including, among
other things, inaccurate processing of financial information and/or temporary
inabilities to process transactions or engage in normal business activities. In
addition to risks associated with our own computer systems and equipment, we
have relationships with third parties that provide information, goods and
services to us. These include financial institutions, suppliers, vendors,
utilities, research partners, governmental entities and customers. If
significant numbers of these third parties experience failure in their computer
systems or equipment due to year 2000 non-compliance, it could affect our
ability to process transactions or engage in similar normal business activities.
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The forward-looking
statements are principally contained in the sections on "Prospectus Summary,"
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." These statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performances
or achievements expressed or implied by the forward-looking statements.
Forward-looking statements include, but are not limited to:
- the progress of our product development programs, including PRI's and
Ortho-McNeil's progress with respect to our influenza neuraminidase
inhibitors;
- developments with respect to clinical development of drug candidates,
clinical trials and the regulatory approval process;
- our estimates regarding our capital requirements and our needs for
additional financing;
- developments relating to our selection and in-licensing of targets; and
- our ability to attract development partners with acceptable development,
regulatory and commercialization expertise.
In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "could," "would," "expects," "plans," "anticipates,"
"believes," "estimates," "projects," "predicts," "potential" and similar
expressions intended to identify forward-looking statements. These statements
reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. Given these uncertainties,
you should not place undue reliance on these forward-looking statements. We
discuss many of these risks in greater detail under the heading "Risk Factors."
Also, these forward-looking statements represent our estimates and assumptions
only as of the date of this prospectus.
You should read this prospectus and the documents that we incorporate by
reference in this prospectus completely and with the understanding that our
actual future results may be materially different from what we expect. We may
not update these forward-looking statements, even though our situation may
change in the future. We qualify all of our forward-looking statements by these
cautionary statements.
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USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of 2,000,000
shares of common stock will be approximately $45.8 million, or approximately
$52.8 million if the underwriters fully exercise their over-allotment option,
after deducting the estimated underwriting discounts and offering expenses and
assuming an offering price of $24.75 per share. We expect to use the net
proceeds of this offering as follows:
- to in-license drug development candidates from academic institutions or
from biotechnology companies;
- to fund drug discovery and other research programs;
- to fund preclinical studies and clinical trials of our product candidates;
- to expand our facilities, as needed, and hire additional personnel;
- to provide working capital; and
- for general corporate purposes.
We have not determined the amount of net proceeds to be used for each of the
specific purposes listed. Accordingly, we will have broad discretion to use the
proceeds as we see fit.
Based upon the current status of our product development programs, we
believe that the net proceeds from this offering, together with interest
thereon, and our existing capital resources will satisfy our capital
requirements through 2001.
Pending such uses, we intend to invest the net proceeds in interest-bearing,
investment-grade instruments, certificates of deposit or direct or guaranteed
obligations of the United States or its agencies.
MARKET PRICE OF COMMON STOCK
Our common stock began trading publicly on the Nasdaq National Market under
the symbol "BCRX." We completed the initial public offering of our common stock
on March 4, 1994. The following table sets forth the range of high and low sale
prices per share of our common stock as reported by the Nasdaq National Market
for the periods indicated.
<TABLE>
<CAPTION>
COMMON STOCK PRICE
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Year ended December 31, 1997
First Quarter......................................................................... $ 17.00 $ 11.50
Second Quarter........................................................................ 14.75 10.06
Third Quarter......................................................................... 13.75 4.25
Fourth Quarter........................................................................ 8.38 6.25
Year ended December 31, 1998
First Quarter......................................................................... 9.50 6.88
Second Quarter........................................................................ 9.13 6.00
Third Quarter......................................................................... 8.00 6.00
Fourth Quarter........................................................................ 8.44 4.38
Year ended December 31, 1999
First Quarter......................................................................... 11.00 6.38
Second Quarter........................................................................ 9.50 6.38
Third Quarter (through September 20, 1999)............................................ 35.31 8.38
</TABLE>
On September 20, 1999, the last sale price of our common stock reported by
the Nasdaq National Market was $24.75 per share. As of August 1, 1999, there
were 483 holders of record of our common stock.
DIVIDEND POLICY
We have not declared or paid cash dividends on our common stock in the past
and do not intend to pay dividends on our common stock in the foreseeable
future.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual basis and as adjusted to reflect the sale of 2,000,000 shares of common
stock pursuant to this offering, assuming an offering price of $24.75 per share
and after deducting the estimated underwriting discounts and offering expenses.
This table should be read in conjunction with the financial statements and
related notes incorporated herein by reference and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Capital lease obligations, less current portion.......................................... $ 15 $ 15
---------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued and
outstanding.......................................................................... -- --
Common stock, $0.01 par value; 45,000,000 shares authorized; 14,987,634 issued and
outstanding, and 16,987,634 shares issued and outstanding as adjusted for this
offering............................................................................. 150 170
Additional paid-in capital............................................................. 80,870 126,630
Accumulated deficit.................................................................... (55,821) (55,821)
---------- -----------
Total stockholders' equity........................................................... 25,199 70,979
---------- -----------
Total capitalization............................................................... $ 25,214 $ 70,994
---------- -----------
---------- -----------
</TABLE>
The above data excludes 2,507,501 shares of common stock issuable upon
exercise of options outstanding as of June 30, 1999 at a weighted average
exercise price of $7.37 per share.
21
<PAGE>
DILUTION
Our net tangible book value as of June 30, 1999 was approximately $25.0
million, or $1.67 per share. Net tangible book value per share represents the
amount of our total tangible assets less total liabilities, divided by the total
number of shares of common stock outstanding. After giving effect to the sale by
us of 2,000,000 shares of common stock offered by this prospectus at an assumed
offering price of $24.75 per share and after deducting estimated underwriting
discounts and offering expenses, our net tangible book value at June 30, 1999
would have been approximately $70.8 million, or $4.17 per share. This represents
an immediate increase in net tangible book value of $2.50 per share to existing
stockholders and an immediate dilution of $20.58 per share to new investors in
this offering, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.............................. $ 24.75
Net tangible book value per share before the offering............ $ 1.67
Increase per share attributable to new investors................. 2.50
---------
Net tangible book value per share after the offering................. 4.17
---------
Net tangible book value dilution per share to new investors.......... $ 20.58
---------
---------
</TABLE>
22
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and related notes, incorporated by reference in this
prospectus, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this prospectus. The selected
historical financial data below as of and for each of the five years ended
December 31, 1998 have been derived from our audited financial statements. Our
selected historical financial data as of and for each of the six months ended
June 30, 1998 and 1999 were derived from our unaudited condensed financial
statements. We believe that the unaudited financial data fairly reflects our
results of operations and financial condition for the respective periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative and other research and
development........................ $ 269 $ 223 $ 1,558 $ 1,000 $ 6,371 $ -- $ 2,408
Interest and other................... 465 662 1,094 1,692 1,255 671 633
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total revenues..................... 734 885 2,652 2,692 7,626 671 3,041
---------- ---------- ---------- ---------- ---------- ---------- -----------
Expenses:
Research and development............. 5,552 7,107 7,586 10,577 9,291 5,353 4,006
General and administrative........... 1,904 2,210 2,664 2,682 3,105 1,295 1,683
Interest............................. 216 144 100 52 15 10 3
---------- ---------- ---------- ---------- ---------- ---------- -----------
Total expenses..................... 7,672 9,461 10,350 13,311 12,411 6,658 5,692
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net loss............................... $ (6,938) $ (8,576) $ (7,698) $ (10,619) $ (4,785) $ (5,987) $ (2,651)
---------- ---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net loss per share..................... $ (1.02) $ (0.96) $ (0.69) $ (0.77) $ (0.34) $ (0.43) $ (0.18)
---------- ---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- ---------- -----------
Weighted average shares outstanding.... 6,787 8,905 11,171 13,780 14,120 13,926 14,981
---------- ---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities
held-to-maturity................................. $ 10,873 $ 11,414 $ 35,785 $ 24,643 $ 27,012 $ 24,317
Total assets....................................... 12,803 13,056 37,149 26,485 29,100 26,546
Accumulated deficit................................ (21,491) (30,067) (37,766) (48,384) (53,170) (55,821)
Total stockholders' equity......................... 11,176 11,326 35,403 25,285 27,682 25,199
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR FINANCIAL STATEMENTS AND RELATED NOTES INCORPORATED HEREIN BY REFERENCE.
OVERVIEW
Since our inception in 1986, we have been engaged in research and
development activities and organizational efforts, including:
- identification and in-licensing of drug targets;
- drug discovery;
- structure-based design of drug candidates;
- small-scale synthesis of compounds;
- conducting preclinical studies and clinical trials;
- recruiting our scientific and management personnel;
- establishing laboratory facilities;
- engaging our scientific advisory board; and
- raising capital.
Our revenues have generally been limited to license fees, milestone
payments, interest income, collaboration research, development and option fees.
Research and development revenue on cost-
reimbursing agreements is recognized as expenses are incurred up to contractual
limits. Research and development revenues, license fees, milestone payments and
option fees are recognized as revenue when irrevocably due. Payments received,
which are related to future performance, are deferred and taken into income as
earned over a specified future performance period. We have not received any
revenue from the sale of pharmaceutical products. It will be several years, if
ever, before we will recognize significant revenues from royalties received
pursuant to our license agreements, and we do not expect to ever generate
revenues directly from product sales. Future revenues, if any, are likely to
fluctuate substantially from quarter to quarter.
We have incurred operating losses since our inception. Our accumulated
deficit at June 30, 1999 was $55.8 million. We will require substantial
expenditures relating to the development of our current and future drug
candidates. During the three years ended December 31, 1998, we spent 44.7% of
our research and development expenses on contract research and development,
including:
- payments to consultants;
- analytical tests that we are unable to perform;
- funding of research at academic institutions;
- large scale synthesis of compounds;
- preclinical studies;
- engaging investigators to conduct clinical trials;
- hiring CROs to monitor and gather data on clinical trials; and
- using statisticians to evaluate the results of clinical trials.
The above expenditures for contract research and development for our current
and future drug candidates will vary from quarter to quarter depending on the
status of our research and development projects. Changes in our existing and
future research and development and collaborative relationships will also impact
the status of our research and development projects. While we may, in some
cases, be able to control the timing of development expenses, in part by
accelerating or decelerating certain of
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<PAGE>
these costs, many of these costs will be incurred irrespective of whether or not
we are able to discover drug candidates or obtain collaborative partners for
commercialization. As a result, we believe that quarter-to-quarter comparisons
of our financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance. If we fail to meet the clinical and
financial expectations of securities analysts and investors, it could have a
material adverse effect on the price of our common stock.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Collaborative and other research and development revenue increased to $2.4
million in the first six months of 1999. This increase is attributable to the
$2.0 million milestone payment received from Ortho-McNeil in June 1999 and
approximately $0.4 million of research and development work performed for PRI.
There was no such revenue in the first six months of 1998. Interest and other
income declined 5.7% to $633,000 in the first six months of 1999 from $671,000
in the first six months of 1998. The decline in interest and other income is
primarily due to a decline in interest rates.
Research and development expenses decreased 25.2% to $4.0 million in the
first six months of 1999 from $5.4 million in the first six months of 1998. The
decrease is primarily attributable to a decrease in costs associated with
conducting clinical trials and a reduction in contracted research costs at UAB.
These costs tend to fluctuate from period to period depending upon the status of
our research projects and collaborative efforts.
General and administrative expenses increased 30.0% to $1.7 million in the
first six months of 1999 from $1.3 million in the first six months of 1998. The
increase is primarily the result of a royalty payment to UAB in connection with
the milestone payment received from Ortho-McNeil and increased legal expenses.
Interest expense decreased to $2,776 in the first six months of 1999 from
$9,914 in the first six months of 1998. The decrease was primarily due to a
decline in capitalized lease obligations resulting in lesser interest expense.
We obtained most of our leases in connection with the move to our facilities in
April 1992.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Collaborative and other research and development revenue increased to $6.4
million in 1998 from $1.0 million in 1997, primarily due to the $6.0 million in
up-front fees received from Ortho-McNeil in 1998 for a license agreement for our
influenza neuraminidase inhibitors compared to the $1.0 million milestone
payment received from Torii in 1997. Interest and other income decreased 25.9%
to $1.3 million in 1998 from $1.7 million in 1997, primarily due to a decline in
the weighted average investment for 1998.
Research and development expenses decreased 12.2% to $9.3 million in 1998
from $10.6 million in 1997. Such expenses vary from period to period based on
the status of our projects. We completed two Phase III clinical trials in 1997.
In 1998, we commenced two Phase I clinical trials for our serine protease
inhibitor, continued our two Phase I/II clinical trials for an oral formulation
of our PNP inhibitor and initiated preclinical studies for our influenza
neuraminidase and complement inhibitors. Overall, the decline in costs
associated with our PNP inhibitor project were partially offset by the increases
in our serine protease and influenza neuraminidase projects. As a result, there
was a slight decrease in 1998 in the outside research and development efforts
associated with our three primary research and development projects. We reduced
some of our other discretionary costs, which were offset by one-time costs
associated with signing an exclusive worldwide license agreement for our
proprietary influenza neuraminidase inhibitors and certain related agreements in
September 1998.
General and administrative expenses increased 15.8% to $3.1 million in 1998
from $2.7 million in 1997. The increase was primarily due to the fees and
expenses incurred in connection with the license
25
<PAGE>
agreement and related agreements for our influenza neuraminidase inhibitors
signed in September 1998.
Interest expense decreased 71.1% to $14,986 in 1998 from $51,880 in 1997.
The decrease was primarily due to a decline in capitalized lease obligations
resulting in lesser interest expense. We obtained most of our leases in
connection with the move to our facilities in April 1992.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Collaborative and other research and development revenue decreased 35.8% to
$1.0 million in 1997 from $1.6 million in 1996, primarily due to a $1.0 million
milestone payment received from Torii in 1997 compared to the $1.5 million
license fee received from Torii and a Factor D grant in 1996. Interest and other
income increased 54.8% to $1.7 million in 1997 from $1.1 million in 1996,
primarily due to interest earned on funds invested from our public offering in
September 1996.
Research and development expenses increased 39.4% to $10.6 million in 1997
from $7.6 million in 1996. The increase was primarily attributable to costs
associated with manufacturing compounds, clinical trials and preclinical studies
and expenses associated with increased personnel. These costs tend to fluctuate
from period to period depending upon the stage of development and the conduct of
clinical trials.
General and administrative expenses increased 0.7% to $2.7 million in 1997
from $2.7 million in 1996. The increase was primarily attributable to increased
personnel costs and the fact that 1996 expenses were reduced by the reversal of
a liability recorded in 1995 for use taxes assessed that we successfully
contested in 1996, and was partially offset by decreased fees and taxes on the
Torii milestone in 1997 as compared to the fees and taxes on the Torii license
in 1996 and decreased legal expenses in 1997.
Interest expense decreased 48.1% to $51,880 in 1997 from $100,031 in 1996.
The decrease was primarily due to a decline in capitalized lease obligations and
the current portion of long-term debt, resulting in lesser interest expense. We
obtained most of our leases in connection with the move to our facilities in
April 1992.
LIQUIDITY AND CAPITAL RESOURCES
Cash expenditures have exceeded revenues since our inception. Our operations
have principally been funded through public offerings and private placements of
equity and debt securities, equipment lease financing, facility leases,
collaborative and other research and development agreements, licenses and
options for licenses, research grants and interest income. In addition, we have
attempted to contain costs and reduce cash flow requirements by renting
scientific equipment and facilities, contracting with third parties to conduct
certain research and development and using consultants. We expect to incur
additional expenses, resulting in significant losses, as we continue and expand
our research and development activities and undertake additional preclinical
studies and clinical trials of compounds which have been or may be discovered.
We also expect to incur substantial expenses related to the filing, prosecution,
maintenance, defense and enforcement of patent and other intellectual property
claims.
At December 31, 1998, our cash, cash equivalents and securities
held-to-maturity were $27.0 million, an increase of $2.4 million from December
31, 1997, principally due to the $6.0 million equity investment in us in
connection with the influenza neuraminidase license which offset the cash used
in operations. At June 30, 1999, our cash, cash equivalents and securities
held-to-maturity were $24.3 million, a decrease of approximately $2.7 million
from December 31, 1998, principally due to the cash used by operations for the
six months ended June 30, 1999.
We have financed some of our equipment purchases with lease lines of credit.
We currently have a $500,000 line of credit with our bank to finance capital
equipment. In January 1992, we entered into an operating lease for our current
facilities which expires on June 30, 2003. We have an option to renew the lease
for an additional three years at current market rates. The operating lease
requires us to pay
26
<PAGE>
monthly rent ranging from $21,405 and escalating annually to a minimum of
$24,814 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, 1998, we had long-term capital lease and operating lease
obligations which provide for aggregate minimum payments of $280,254 in 1999,
$288,128 in 2000 and $285,816 in 2001. In 1999, we increased the amount of
office space we lease by approximately 1,700 square feet. This additional space
should increase our annual lease obligations by less than $15,000 annually.
Pursuant to our license agreement with PRI and Ortho-McNeil for the
development and commercialization of our influenza neuraminidase inhibitors, we
received an initial $6.0 million payment from Ortho-McNeil and an additional
$6.0 million common stock equity investment from Johnson & Johnson Development
Corporation. In June 1999, we received a $2.0 million milestone payment from
Ortho-McNeil in connection with the initiation of Phase II clinical testing in
the United States. In addition, we may receive cash payments upon achievement of
specified developmental and regulatory milestones and royalties on product
sales, if any. We cannot assure you that PRI or Ortho-McNeil will continue to
develop the product or, if they do so, that such development will result in
receiving milestone payments, obtaining regulatory approval or achieving future
sales of licensed products.
We previously entered into an exclusive license agreement with Torii under
which Torii paid us $1.5 million in initial license fees and made a $1.5 million
equity investment in us in 1996. The first milestone payment of $1.0 million was
received in 1997. This exclusive license agreement was terminated by Torii in
July 1999.
We plan to finance our needs principally from the following:
- our existing capital resources and interest thereon;
- payments under collaborative and licensing agreements with corporate
partners; and
- to the extent available, through lease or loan financing and future public
or private financings.
We believe that our available funds, including the net proceeds from this
offering, will be sufficient to fund our operations at least through 2001.
However, this is a forward-looking statement, and no assurance can be given that
there will be no change that would consume available resources significantly
before such time. Our long-term capital requirements and the adequacy of our
available funds will depend upon many factors, including, but not limited to:
- the progress of our research, drug discovery and development programs;
- changes in existing collaborative relationships;
- our ability to establish additional collaborative relationships;
- the magnitude of our research and development programs;
- the scope and results of preclinical studies and clinical trials to
identify drug candidates;
- competitive and technological advances;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims;
- our dependence on others, including PRI and Ortho-McNeil, for development
and commercialization of our product candidates, in particular, our
neuraminidase inhibitors; and
- successful commercialization of our products consistent with our
out-licensing strategy.
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 us. The
issuance of preferred or common stock or convertible securities, on terms and
prices significantly more favorable than those of the currently outstanding
common stock, could
27
<PAGE>
have the effect of diluting or adversely affecting the holdings or rights of our
existing stockholders. In addition, collaborative arrangements may require us to
transfer certain material rights to such corporate partners. Insufficient funds
may require us to delay, scale-back or eliminate certain of our research and
development programs.
RISKS ASSOCIATED WITH THE YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four digits to represent the year. Thus, computer
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations, including among others, a temporary inability to
process certain data or engage in similar normal business activities.
PLAN AND STATUS. Our plan to resolve the year 2000 issue involves four
phases: assessment, remediation, testing and implementation. We have completed
our assessment of our systems. In 1997, we installed a computer network,
upgraded our desktop computers and upgraded our information technology software
to a common standard. As a consequence, most of our information technology
systems are identified by the manufacturer as year 2000 compliant. Major vendors
and suppliers have been contacted with regard to their year 2000 compliance and
we will continue to monitor their compliance. Systems identified as not being
year 2000 compliant will be brought into compliance by upgrading either the
software or hardware. We have begun remediation and testing and expect to be
fully implemented by the end of 1999.
While we have queried our significant suppliers, vendors and other outside
parties and will continue to monitor their year 2000 compliance status, we have
no means of ensuring that suppliers, vendors and other outside parties will be
year 2000 ready. The inability of suppliers, vendors and other outside parties,
including the government, to complete their year 2000 compliance process in a
timely fashion could materially impact us. The effect of non-compliance by
suppliers, vendors and outside parties is not determinable.
COSTS. Our costs incurred to date for year 2000 compliance have not been
material and are not expected to be material when completed. We anticipate that
we will be able to fund our costs from current funds available for operations.
If, however, the costs are higher than anticipated, this could have a material
adverse effect on our business, results of operations and financial condition.
RISKS. While we believe we have an effective program in place to resolve
the year 2000 issue in a timely manner, as noted above, we have not completed
all necessary phases of the year 2000 program for compliance. In the event that
we, or third parties we depend upon, are not fully compliant by the year's end,
we may not be able to complete the testing of our compounds and advance our
projects into clinical trials as required to support the filings with the FDA
which are necessary to our business. In addition, disruptions in the economy
generally resulting from year 2000 issues could also materially adversely effect
us. We are unable to estimate any potential liability or potential lost revenue
at this time. We cannot assure you that we will not discover year 2000
compliance issues that will have a material adverse effect on our business,
results of operations and financial condition.
CONTINGENCY. We have contingency plans for certain critical applications
and are working on such plans for others. These contingency plans involve, among
other actions, manual workarounds, increasing inventories and adjusting staffing
strategies. We cannot assure you that these contingency plans will be adequate.
28
<PAGE>
BUSINESS
OVERVIEW
BioCryst Pharmaceuticals, Inc. is a biotechnology company focused on the
development of small-molecule pharmaceuticals for the treatment of infectious,
T-cell mediated and cardiovascular diseases and disorders. We utilize our
structure-based drug design technologies to develop potent, selective inhibitors
directed at the active sites of target enzymes. Our lead product candidate,
BCX-1812, is a neuraminidase inhibitor designed to treat and prevent viral
influenza. In September 1998, we entered into an exclusive worldwide license
agreement with The R.W. Johnson Pharmaceutical Research Institute, or PRI, and
Ortho-McNeil Phamaceutical, Inc., both Johnson & Johnson companies. Pursuant to
this agreement, these Johnson & Johnson companies now have sole responsibility
for the development, manufacture and commercialization of BCX-1812. We have been
informed by PRI that the planning of Phase III trials for the 1999/2000 flu
season is underway.
OUR BUSINESS STRATEGY
Our business strategy is to use structure-based drug design technologies to
develop innovative, small-molecule pharmaceuticals to treat a variety of
diseases and disorders. Our drug development efforts are primarily focused on
the development of potent, selective enzyme inhibitors for the treatment of
infectious, T-cell mediated and cardiovascular diseases and disorders. The
principal elements of our strategy are:
- SELECT AND IN-LICENSE ATTRACTIVE ENZYME TARGETS FOR THE DEVELOPMENT OF
SMALL-MOLECULE PHARMACEUTICALS. We use our technical expertise and network
of academic and industry contacts to evaluate and select promising enzyme
targets to in-license for drug development. We choose enzyme targets that
meet as many of the following criteria as possible:
- mediate biochemical processes along disease pathways;
- have well-defined active sites;
- have relevant preclinical test models; and
- have the potential for short duration clinical trials.
We focus on enzyme targets because they are often relatively easy to
crystallize and because functional assays of potential inhibitors can be
obtained relatively easily. In the case of infectious diseases, one
inhibitor of an enzyme can often be effective against multiple strains of
the organism. For instance, preclinical data indicates that our inhibitor
of influenza neuraminidase is effective against both influenza A and B.
- FOCUS ON HIGH VALUE-ADDED, STRUCTURE-BASED DRUG DESIGN TECHNOLOGIES. We
focus our drug-discovery activities and expenditures on applications of
structure-based drug design technologies to design, develop and optimize
drug candidates. We believe that structure-based drug design is a powerful
tool for rapid and efficient development of small-molecule drug candidates
that have the potential to be safe, effective and relatively inexpensive
to manufacture. Our structure-based drug design technologies typically
allow us to design and synthesize multiple compounds that effectively
inhibit the enzyme target. We believe this strategy can lead to broad
patent protection and enhance the competitive advantages of our compounds.
- DEVELOP INHIBITORS THAT ARE PROMISING CANDIDATES FOR
COMMERCIALIZATION. We test our multiple compounds to identify those that
are most promising for clinical development. Our selection of promising
development candidates is based on product characteristics including
bioavailability, formulation, IN VITRO and IN VIVO activity, toxicology
and pharmacokinetics. We believe that this
29
<PAGE>
focused strategy allows us to eliminate unpromising candidates from
consideration sooner without incurring substantial clinical costs. In
addition, drug candidates are selected on the basis of their potential for
relatively efficient Phase I and Phase II clinical trials that require
fewer patients to initially indicate safety and efficacy. We will
consider, however, more complex candidates with longer development cycles
if we believe that they offer promising commercial opportunities.
An important element of our business strategy is to control fixed costs and
overhead through outsourcing and partnering. With only 56 employees, we maintain
a streamlined corporate infrastructure that focuses exclusively on our core
areas of expertise. By outsourcing the non-core aspects of our business, we
believe that we can control costs, accelerate commercialization of our products
and reduce our business risk. Key elements of our outsourcing and partnering
strategy include:
- LEVERAGE RELATIONSHIPS WITH ACADEMIC INSTITUTIONS AND BIOTECHNOLOGY
COMPANIES. Many academic institutions and biotechnology companies perform
extensive research on the molecular and structural biology of potential
drug development targets. By leveraging our relationships with these
institutions, we believe we can significantly reduce the time, cost and
risks involved in target development. Our collaborative relationships with
such organizations may lead to the in-licensing of one or more drug
targets. Upon in-licensing a drug target, the scientists from these
institutions typically become working partners as members of our
structure-based drug design teams. We believe this makes us a more
attractive development partner to these scientists. In addition, we
collaborate with outside experts in a number of areas, including
crystallography, molecular modeling, combinatorial chemistry, biology,
pharmacology, oncology, immunology and infectious diseases. These
collaborations enable us to complement our internal capabilities without
adding costly overhead. We believe this strategy allows us to save
valuable time and expense, complement our technology platform, and further
diversify and strengthen our discovery portfolio. An example of such a
collaborative relationship is the arrangement that we have with The
University of Alabama at Birmingham, or UAB. Our strong relationship with
UAB has resulted in the initiation of most of our early programs,
including influenza neuraminidase, PNP and Factor D research.
- PARTNER DEVELOPMENT CANDIDATES. We plan to advance drug candidates
through preclinical development and early-stage clinical trials, then
license to pharmaceutical or biotechnology partners for final development
and global marketing. This strategy allows us to remain focused internally
on our core competencies, leverage the expertise of others and minimize
development risks. Partnerships may be a good source of development
payments, license fees, milestone payments and royalties. They also reduce
the costs and risks of late-stage product development, regulatory
approval, manufacturing and marketing. We believe that focusing on
discovery and early-stage development while leveraging pharmaceutical
partners' proven development and commercialization expertise will reduce
our internal expenses and allow us to have a larger number of attractive
drug candidates progress to advanced stage clinical trials. For example,
following our preclinical development of our influenza neuraminidase
inhibitors, we entered into an exclusive worldwide license agreement with
PRI and Ortho-McNeil in September 1998 to develop and market our
proprietary neuraminidase inhibitors. By August 1999, PRI had successfully
completed Phase I clinical trials and a Phase II clinical study, and they
recently informed us that the planning of Phase III clinical trials is
underway for the 1999/2000 flu season.
STRUCTURE-BASED DRUG DESIGN
Structure-based drug design is a drug discovery approach by which synthetic
compounds are designed from detailed structural knowledge of the active sites of
enzyme targets associated with particular diseases. Enzymes are proteins that
act as catalysts for many vital biological reactions. Our goal generally is to
design a compound that will fit in the active site of an enzyme (the active site
of an
30
<PAGE>
enzyme is the area into which a chemical or biological molecule fits to initiate
a biochemical reaction) and thereby interfere with the progression of disease.
Our structure-based drug design involves the integrated application of
traditional biology and medicinal chemistry along with an array of advanced
technologies. We use X-ray crystallography, combinatorial chemistry, computer
modeling of molecular structures and protein biophysical chemistry to focus on
the three-dimensional molecular structure and active site characterization of
the enzymes that control cellular biology. The following diagram outlines the
structure-based drug design process:
[DESCRIPTION OF FLOWCHART]
[Diagram showing steps of the structure-based dry design process, from
selection of the enzyme target through commercialization of the drug.]
The initial enzyme targets for structure-based drug design are selected
based on their involvement in the biological pathways integral to the course of
a disease. Once an enzyme target is selected, its structure is determined by
X-ray crystallography, a method used in determining the precise three-
dimensional molecular structures of enzymes. This structure is then used as a
blueprint for the drug design of a lead compound. The compounds are modeled for
their fit in the active sites of the enzyme target, considering both steric
aspects (geometric shape) and functional group interactions, such as hydrogen
bonding and hydrophobic interactions.
The initial design phase is followed by the synthesis of a lead compound,
quantitative measurements of its ability to interact with the enzyme target and
X-ray crystallographic analysis of the compound-target complex. This analysis
reveals important, empirical information on how the compound actually binds to
the enzyme target and the nature and extent of changes induced in the enzyme
target by the binding. These data, in turn, suggest ways to refine the lead
compound in order to improve its binding to the enzyme target. The refined lead
compound is then synthesized and bound to the enzyme target, and further refined
in an iterative process.
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 at any stage
of the biological evaluation, the design team reviews the structural model and
uses crystallographic data to guide adjustments to the structural features of
the compound. 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 new modified compounds are
designed to overcome the deficiencies without interfering with their ability to
interact with the active site of the target enzyme. The experimental drug is
then ready for conventional drug development (E.G., studies in safety
assessment, formulation, clinical trials, etc.).
We believe that structure-based drug design is superior to drug screening
techniques. By identifying the target enzyme in advance and by discovering the
chemical and molecular structure of the enzyme, we believe it is possible to
design a more optimal drug to interact with the enzyme. In addition, the
structural data obtained by X-ray crystallographic analysis allows iterative
analysis and compound modification at each stage of the biological evaluation.
This capability renders structure-based drug design a powerful tool for rapid
and efficient development of drugs that are highly specific for particular
enzyme target sites.
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PRODUCTS UNDER DEVELOPMENT
The following table summarizes our development projects as of September 20,
1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PROGRAM AND DELIVERY DEVELOPMENT WORLDWIDE
INDICATION FORM STAGE RIGHTS
NEURAMINIDASE INHIBITOR (BCX-1812)
Influenza Oral A Phase II--Completed PRI/
Ortho-
McNeil(1)
PNP INHIBITOR (BCX-34)
Cutaneous T-Cell Lymphoma Oral Phase I/II--Underway BioCryst
Other T-Cell Cancers Intravenous Phase I/II--Planned BioCryst
Psoriasis Oral Phase I/II--Completed BioCryst
HIV Oral Phase I--Completed BioCryst
COMPLEMENT INHIBITORS
Cardiopulmonary Bypass Surgery Intravenous Preclinical--Ongoing BioCryst
</TABLE>
(1) Our neuraminidase inhibitor, BCX-1812, has been licensed to PRI and
Ortho-McNeil, both Johnson & Johnson companies.
NEURAMINIDASE INHIBITOR (BCX-1812)
INFLUENZA BACKGROUND
OVERVIEW. Influenza, commonly known as the flu, is perceived by many people
as a transient, inconvenient viral infection that leaves its sufferers
bed-ridden for a few days. In truth, however, it is a virulent, acute
respiratory disease that is sometimes deadly. In North America, Western Europe
and Japan, an estimated 70 million to 150 million individuals suffer from
influenza annually. The flu is particularly dangerous to the elderly, young
children and debilitated patients accounting for approximately 20,000 deaths in
the United States each year. The flu and associated complications are the sixth
leading cause of death in the United States. The annual cost to the U.S. economy
associated with influenza epidemics was estimated to be in excess of $12
billion, according to a 1994 article in THE NEW ENGLAND JOURNAL OF MEDICINE.
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Flu epidemics are regional outbreaks that cause an average of 40,000
flu-related deaths. Flu pandemics, however, are much more severe. Pandemics are
worldwide outbreaks of a particular strain of the virus that occur relatively
infrequently but can be disastrous, with deaths ranging from 9 million to 70
million in a single such pandemic. The Spanish flu pandemic of 1918-19 killed
more than 20 million people worldwide. In the United States alone, the Asian flu
of 1957-58 resulted in 70,000 deaths, and the Hong Kong flu of 1968-69 caused
34,000 deaths. The worldwide deaths caused by the Asian and Hong Kong pandemics
topped 1.5 million, with an estimated impact to the world economy of $32
billion. Due to increases in the world population and international air travel,
a particularly virulent mutation of the flu virus could spread rapidly,
resulting in widespread morbidity and mortality. The Center for Disease Control
and Prevention estimates that, in the United States alone, an influenza pandemic
would cause between 88,000 and 227,000 deaths, and the economic impact would
range between $71 billion and $166 billion.
SYMPTOMS AND TREATMENT OF INFLUENZA. Although influenza is considered a
respiratory disease, flu sufferers usually become acutely ill with high fever,
chills, headache, weakness, loss of appetite and aching joints. The flu sufferer
may also have a sore throat, dry cough and burning eyes.
For most healthy children and adults, influenza is typically a moderately
severe illness. However, for people with pre-existing medical conditions,
influenza can be very severe and, in many cases, fatal. In these patients,
bacterial infections may occur because the body's immune system is so weakened
by influenza that its defenses against bacteria are low. Bacterial pneumonia is
the most common complication of influenza.
The development of effective therapeutics has challenged medical researchers
due to the seasonal variation in viral strains and the highly infectious nature
of influenza. Patients, therefore, have limited treatment options. Amantadine
and rimantadine, which are both ion channel blockers, are used for treatment of
influenza A but are ineffective against influenza B, cause some adverse side
effects and are subject to rapid development of viral resistance.
Vaccines are available against the disease but have limitations: people
require advance vaccination; vaccines are limited by their specificity to
particular strains of the virus; and also offer little protection if the antigen
matching of the vaccine is inaccurate. In addition, many people decline the
required injections because of fear and/or discomfort. The ability of the virus
to change its antigenic structure is a serious obstacle to developing an
effective vaccine against influenza. Different strains can arise when surface
antigens on the virus (the portion of the virus that causes an immune reaction
in humans) undergo minor genetic mutations each year as the virus replicates.
Because of this mutation ability, the immunity acquired in response to infection
by a particular strain does not provide adequate protection against viruses that
subsequently arise. The production of a new vaccine each year is not only
complex and expensive, but also an inefficient method of global disease control.
INHIBITING INFLUENZA NEURAMINIDASE. Research during the past two decades
has seen dramatic advances in understanding the molecular structure and function
of the influenza virus. There are two major surface glycoproteins, hemagglutinin
(HA) and neuraminidase (NA), that are involved in the spread of influenza.
Considerable attention has been focused on the enzyme neuraminidase, located on
the viral surface. Neuraminidase assists in the release and spread of the flu
virus by cleaving the sticky sialic acid strands that hold the new virions to
the cell surface, allowing the replicated virus to spread and infect other
cells. This process progresses until the host's immune response can produce
enough antibodies to bring the infection under control. The following diagram
illustrates this process:
[DESCRIPTION OF CELL STRUCTURE/VIRUS GRAPHICS]
[Graphic showing the process by which the influenza virus replicates in a
host cell and the role of neuraminidase in the process.]
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Research suggests that if the neuraminidase enzyme were inhibited, the new
virions would adhere to the cell surface, thereby preventing further infection
of other cells. Subsequent viral load in the bloodstream would not be enough to
cause disease but would be sufficient to induce the body to mount an immune
response.
Neuraminidase inhibitors present a promising alternative to patients
suffering from the flu. In addition to our neuraminidase inhibitor, both
Hoffmann-La Roche, in collaboration with Gilead Sciences, and Glaxo Wellcome are
developing neuraminidase inhibitors. Hoffmann-La Roche has developed an orally
active neuraminidase inhibitor. Hoffmann-La Roche has filed a new drug
application, or NDA, with the FDA for this twice-a-day treatment. Similarly,
Glaxo Wellcome's neuraminidase inhibitor, which is administered by dry powder
inhaler, received FDA approval and has recently been launched in the United
States and other countries.
OUR INFLUENZA NEURAMINIDASE INHIBITOR
BACKGROUND. In 1987, scientists at UAB, in collaboration with our
scientists, began determining the molecular structure of influenza neuraminidase
from several different strains of influenza, using X-ray crystallography.
Subsequently, our scientists and UAB scientists developed numerous novel
inhibitors of these enzymes using structure-based drug design. We licensed the
influenza neuraminidase program from UAB in 1994 and proceeded to complete the
crystallographic structural studies needed to advance the development of
neuraminidase inhibitors. The structure of the active site of influenza
neuraminidase is similar among different viral strains. Consequently, we believe
that our neuraminidase inhibitors may be effective in the treatment and
prevention of influenza, regardless of viral mutations.
Four of the patented compounds from our development efforts emerged as
viable product development candidates. We called them BCX-1812, 1827, 1898 and
1923. Preclinical studies demonstrated that our drug candidates have the
following benefits:
- excellent safety profile;
- broad spectrum inhibition of influenza A and B;
- good oral efficacy;
- probable once-a-day dosage indicated by a positive pharmacokinetic
profile; and
- stability in liquid, making a liquid formulation possible for pediatric
and elderly applications.
CLINICAL DEVELOPMENT. In September 1998, we entered into an exclusive
worldwide license agreement with PRI and Ortho-McNeil to develop and market our
proprietary influenza neuraminidase inhibitors to treat and prevent viral
influenza. We received an initial $6.0 million payment from Ortho-McNeil and an
additional $6.0 million common stock equity investment from Johnson & Johnson
Development Corporation. In June 1999, we received a $2.0 million milestone
payment from Ortho-McNeil in connection with the initiation of Phase II clinical
testing in the United States. In addition, we may receive cash payments upon
achievement of specified developmental and regulatory milestones and royalties
on product sales, if any. Since the collaboration was established, PRI selected
BCX-1812 for clinical development and moved through Phase I clinical trials and
a Phase II clinical study by August 1999.
We recently announced preliminary results from a Phase II
placebo-controlled, randomized study conducted by PRI for the treatment of
healthy volunteers infected with a strain of influenza A. The primary efficacy
endpoint was the reduction in viral titers in infected subjects. PRI advised us
that the data from this Phase II study indicated a statistically significant
result for the primary endpoint, and evaluation of safety showed that the drug
was well tolerated at all dosage levels. We have been informed by PRI that the
planning of the Phase III clinical trials for the 1999/2000 influenza season is
underway. We cannot assure you that the FDA will accept the Phase III clinical
protocols, that PRI will
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commence the Phase III clinical trials in 1999 or at all, or that the Phase III
clinical trials, if initiated, will be successful.
PNP INHIBITOR (BCX-34)
T-CELL MEDIATED DISEASES
OVERVIEW. The human immune system employs specialized cells, including
T-cells and B-cells, to control infection by recognizing and attacking
disease-causing viruses, bacteria and parasites. T-cells are an essential part
of the body's immune system that serve a dual purpose--orchestrate the body's
immune response and participate in host defense response. For the most part,
this system works flawlessly to protect the body. However, there are diseases in
which T-cells multiply uncontrollably (T-cell proliferative diseases) or attack
normal cells (autoimmune diseases). Proliferating T-cells have been implicated
in cutaneous T-cell lymphoma, or CTCL, and in T-cell leukemias. Autoimmune
diseases such as psoriasis, rheumatoid arthritis and Crohn's disease are also
T-cell mediated. Under these circumstances, pharmacologic control of the immune
system is desirable.
Purine nucleoside phosphorylase, or PNP, is an enzyme that is believed to
play an important role in T-cell proliferation by facilitating synthesis of DNA.
PNP is necessary to maintain normal DNA synthesis in T-cells. 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. These findings suggested that inhibition of PNP might produce
selective suppression of T-cell function without significantly impairing B-cell
function.
PNP INHIBITION. In the absence of PNP activity, deoxyguanosine, or dGuo,
accumulates in T-cells. T-cells have an unusually high capacity to add phosphate
groups to dGuo; therefore, dGuo is ultimately converted by other enzymes to form
deoxyguanosine triphosphate, or dGTP. This nucleotide accumulates in T-cells
because the T-cells have a limited ability to remove or metabolize it.
High concentrations of intracellular dGTP inhibit the enzyme ribonucleotide
reductase, an enzyme necessary for DNA synthesis. The unique accumulation of
dGTP in human T-cells prevents their proliferation. Hence, inhibiting PNP is a
novel mechanism for suppressing T-cell replication without significantly
affecting other cells, and we believe this may prove to have an impact on
several diseases.
OUR PNP INHIBITOR CANDIDATE (BCX-34)
BACKGROUND. Our lead PNP inhibitor drug candidate, BCX-34, is designed to
suppress T-cell replication without significantly affecting other cells. BCX-34
has been in clinical trials since 1992. Our initial approach was to develop a
topical cream formulation of BCX-34, which if effective could have led to a
rapid, cost-effective regulatory approval. We conducted two Phase III,
double-blinded placebo controlled clinical trials in 1996 and 1997 to determine
the effects of topical BCX-34 on two diseases: psoriasis and CTCL. These trials,
however, did not show statistically significant results between the treated and
placebo groups. Therefore, we discontinued the topical program.
CURRENT DEVELOPMENT STRATEGY. We believe that in order for BCX-34 to
demonstrate sufficient activity against certain diseases, such as psoriasis,
CTCL and HIV infections, we must obtain adequate blood levels of BCX-34 to
elevate plasma dGuo. In the clinical trials we have completed, the dosage levels
of BCX-34 were insufficient to generate adequate levels of dGuo. In several
clinical trials with an oral formulation of BCX-34, however, we have
established:
- safety of BCX-34 at various dose levels;
- the pharmacokinetic parameters of drug administration;
- the optimal oral dose for maximum bioavailability; and
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<PAGE>
- the correlation between BCX-34 and dGuo levels in plasma.
These studies have enabled us to design two new Phase I/II clinical trials.
The first trial is for treatment of CTCL at the maximum bioabsorbable oral dose
of BCX-34 for 12 weeks. We expect that this trial will allow us to determine the
maximum attainable levels of plasma dGuo with the currently available oral
formulation and to evaluate its long-term clinical effect. This trial is
expected to be completed in early 2000. The second trial is for treatment of
T-cell cancers such as T-lymphoblastic leukemias and lymphomas. This trial is
designed to evaluate higher blood levels of BCX-34, which can only be obtained
with intravenous therapy. Continuous intravenous infusion for 72 hours will be
done at increasing dose levels to measure safety and efficacy.
These two Phase I/II clinical trials should provide us with the baseline
information to begin other studies in T-cell mediated diseases. Hence, our
future clinical evaluation of BCX-34 will be determined by the outcome of these
two studies in T-cell malignant diseases. If we are unable to demonstrate the
clinical efficacy of BCX-34 at these higher dose levels, we will likely
discontinue the PNP inhibitor program.
CUTANEOUS T-CELL LYMPHOMA. CTCL is a severe chronic form of cancer that
primarily involves the skin, but can invade other organs as well and affects an
estimated 1,000 new patients annually. Several clinical trials in this disease
have been completed and have served as our model for developing our current
clinical development strategy.
OTHER T-CELL CANCERS. Assessing an intravenous formulation of BCX-34 in
patients with T-cell cancers, such as T-lymphoblastic leukemias and lymphomas,
is an opportunity to address a patient population that is suffering from a
serious unmet medical need. Most of these patients have failed numerous standard
forms of therapy and have a generally unfavorable clinical outlook. We expect to
initiate a Phase I/II clinical trial, described above, using increasing
intravenous doses of BCX-34. We expect this trial to be complete next year and
may outline the optimal regimen for inhibition of T-cell proliferation.
HUMAN IMMUNODEFICIENCY VIRUS. Current evidence suggests that HIV
replication in CD4 T-cells occurs only during T-cell proliferation. Because PNP
inhibition can shut down T-cell activation and proliferation, it could be
possible to slow HIV replication by treating patients with BCX-34. Because one
of the major drawbacks in the current therapy for HIV disease is the tendency
for development of drug resistance, and since the development of drug resistance
is caused by rapid turnover of virus, any drug that slows down the virus
proliferation should help prevent development of resistant mutants.
We have completed a Phase I feasibility study with BCX-34 in HIV patients.
Future clinical development plans in this area will be made after the oral and
intravenous Phase I/II trials in T-cell cancer patients are complete.
PSORIASIS. Psoriasis is a chronic skin disorder that affects approximately
6.4 million people in the United States. Psoriasis is an autoimmune disease in
which T-cells attack the body's own tissues and most commonly appears on the
scalp, knees, hands, feet and elbows. The most common forms of psoriasis are
characterized by lesions, scaling and inflammation of the skin.
We have completed two Phase I/II studies using low dosages of oral BCX-34
for treatment of patients with psoriasis. Further development of BCX-34 for
psoriasis will depend on the outcomes of the Phase I/II clinical trials in CTCL
and other T-cell cancers.
OTHER POTENTIAL APPLICATIONS. Effective inhibition of PNP increases blood
levels of dGuo and, therefore, we believe provides the desired biological effect
on proliferation of activated T-cells. Assuming our current approach is
favorable, then BCX-34 can be tested in clinical trials of T-cell mediated
diseases, including rheumatoid arthritis, Crohn's disease and multiple
sclerosis.
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COMPLEMENT INHIBITORS
COMPLEMENT CASCADE
OVERVIEW. The human body is equipped with defense mechanisms that respond
aggressively to infection or injury. The immune system is a complex array in
which all of the components act in concert to protect us. This response is
uniquely designed for each challenge whether caused by viruses, bacteria, or
other foreign pathogens or materials. Once the immune system recognizes a
"foreign invader," complement is activated to destroy or remove it. One part of
this system, the complement cascade, is a system of functionally linked proteins
that assists in the removal of bacteria or destruction of cells which the body
does not recognize as its own.
Complement proteins circulate in the blood in a non-activated form. Upon
activation, complement can result in adverse biological effects including tissue
damage. This occurs in an unregulated way in certain medical situations such as
cardiopulmonary bypass surgery, reperfusion injury following heart attacks and
hemodialysis.
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OUR COMPLEMENT INHIBITOR
BACKGROUND. Working closely with UAB scientists, we characterized the
three-dimensional structure of Factor D, a component of the complement cascade.
In 1997, we made progress using X-ray crystallographic and molecular modeling
techniques to design and synthesize a class of small molecule compounds that are
highly potent inhibitors of both complement and certain other blood enzymes.
These compounds may have therapeutic applications for several acute
immunological disorders by limiting the rapid and aggressive damage caused by
the complement cascade. In addition, preclinical studies to examine the safety,
efficacy and bioavailability of several of these compounds are currently in
progress.
Initially, BCX-1470 was selected as the lead compound in our complement
program based on its ability to inhibit the enzymes Factor D, C1s, kallikrein
and plasmin. This broad reactivity made BCX-1470 a candidate for intervention in
acute inflammatory disorders that require control of both coagulation and
complement activation.
CLINICAL DEVELOPMENT. Developed as an intravenous formulation, BCX-1470 was
the subject of an Investigational New Drug, or IND, application approved by the
FDA in February 1998 for evaluation in patients during cardiopulmonary bypass
surgery. We completed two Phase I studies of the safety and pharmacokinetics of
BCX-1470 in healthy volunteers. These studies showed that the effective dose for
blocking complement activation was too close to toxicologic limits to be used in
the operating room. Hence, other compounds in this series are now being
evaluated for clinical development.
PRECLINICAL DEVELOPMENT. Through our partnership with 3-Dimensional
Pharmaceuticals, Inc., we are also developing orally-active inhibitors of the
enzyme C1s of the complement system for treatment of lupus, rheumatoid arthritis
and Alzheimer's disease. The pathogenesis of each of these diseases is believed
to involve the activation of C1s.
TISSUE FACTOR/VIIA
Blood coagulation proceeds by a cascade of reactions leading to the
formation of a blood clot. The cascade is initiated by the Tissue Factor/VIIa
complex. Animal models show that blood clot formation can be treated by
inhibiting the Tissue Factor/VIIa complex. Tissue Factor/VIIa inhibitors may
potentially be useful in coronary thrombosis, disseminated intravascular
coagulation, stroke and ischemia-reperfusion injury. We are at the research
stage of development of intravenous and oral formulations for inhibition of
Tissue Factor/VIIa. We have an agreement with Sunol Molecular Corp. to expedite
the discovery of new drug candidates designed to inhibit Tissue Factor/VIIa for
our cardiovascular program. Under the terms of this agreement, Sunol conducts
research and supplies us with tissue factor for our drug design program.
RESEARCH AND DEVELOPMENT
We initiated our research and development program in 1986, with drug
synthesis beginning in 1987. We have assembled a scientific research staff with
expertise in a broad base of advanced research technologies including protein
biochemistry, X-ray crystallography, chemistry and pharmacology. Our 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.
During the years ended December 31, 1996, 1997 and 1998, we spent an
aggregate of $27.5 million on research and development. Approximately $15.2
million of that amount was spent on in-house research and development, and $12.3
million was spent on contract research and development.
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COLLABORATIVE RELATIONSHIPS
CORPORATE ALLIANCES
3-DIMENSIONAL PHARMACEUTICALS, INC.
In October 1996, we signed a research collaboration agreement with
3-Dimensional Pharmaceuticals under which we will share resources and technology
to develop inhibitors of complement enzymes. The agreement combines our
capabilities in structure-based drug design with the selection power of
3-Dimensional Pharmaceuticals' Directed Diversity-Registered Trademark-
technology, a proprietary method of directing combinatorial chemistry and high
throughput screening toward specific molecular targets. In June 1999, we updated
and renewed our original agreement to concentrate on selected complement enzymes
as targets for the design of inhibitors. Under the terms of the agreement, the
companies are responsible for their own research costs. If a drug candidate
emerges as a result of the joint research, the companies will negotiate the
product development and commercialization rights and responsibilities.
THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE AND ORTHO-MCNEIL
PHARMACEUTICAL, INC.
We have entered into an exclusive worldwide license agreement with PRI and
Ortho-McNeil to develop and market our proprietary influenza neuraminidase
inhibitors to treat and prevent viral influenza. We received an initial $6.0
million payment from Ortho-McNeil and an additional $6.0 million common stock
equity investment from Johnson & Johnson Development Corporation. In June 1999,
we received a $2.0 million milestone payment from Ortho-McNeil in connection
with the initiation of Phase II clinical testing in the United States. In
addition, we may receive cash payments upon achievement of specified
developmental and regulatory milestones and royalties on product sales, if any.
PRI will be responsible for research and development of the compounds,
including expenses. Ortho-McNeil will market products approved by the FDA for
marketing in the United States. Other Johnson & Johnson companies, including
Janssen-Cilag, will market products approved for marketing outside the United
States.
NOVARTIS AG
In 1990, we entered into an exclusive worldwide license agreement with
Novartis AG, formerly Ciba-Geigy, for use of certain of our PNP inhibitors, not
including BCX-34. We received an initial $500,000 payment from Novartis, up to
$300,000 of which is refundable in circumstances specified in the agreement. The
agreement also provides for Novartis to pay us royalties on sales, if any, of
the PNP inhibitors. We cannot assure you that we will receive any additional
revenue pursuant to this license agreement or that the initial payment will not
be refunded.
SUNOL MOLECULAR CORP.
In April 1999, we entered into an agreement with Sunol. This agreement
requires Sunol to conduct research and supply us with protein targets for drug
design to expedite the discovery of new drug candidates designed to inhibit
Tissue Factor/VIIa for our cardiovascular program.
The initial focus of the agreement will be on identifying compounds that
work to inhibit the coagulation cascade of Tissue Factor/VIIa. Tissue
Factor/VIIa is a promising target for the development of anticoagulants for
cardiopulmonary bypass surgery, angioplasty and other cardiovascular disorders.
Sunol will produce Tissue Factor and provide us with quantities of the protein
to assist in the identification of inhibitors specific to the activity of Tissue
Factor/VIIa.
TORII PHARMACEUTICAL CO., LTD.
In 1996, we granted Torii an exclusive license, with the right to
sublicense, develop, manufacture and commercialize BCX-34 and certain other PNP
inhibitor compounds in Japan for the treatment of
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rheumatoid arthritis, T-cell cancers and atopic dermatitis. The exclusive
license agreement was terminated by Torii and the rights to develop, manufacture
and commercialize BCX-34 and certain other PNP inhibitor compounds in Japan
reverted to us. Torii paid us an aggregate of $4.0 million for license fees,
milestone payments and an equity investment.
ACADEMIC ALLIANCES
THE UNIVERSITY OF ALABAMA AT BIRMINGHAM
We have had a close relationship with UAB since our formation. Our Chairman
and Chief Executive Officer, Dr. Bugg, was the previous Director of the UAB
Center for Macromolecular Crystallography, and our President and Chief Operating
Officer, Dr. Bennett, was the former President of UAB, the former Chairman of
the Department of Medicine at UAB and a former Chairman of the Department of
Microbiology at UAB. Several of our consultants are employed by UAB. UAB has one
of the largest X-ray crystallography centers in the world with approximately 124
full-time staff members and approximately $20.7 million in research grants and
contract funding in 1998. Three of our early programs, PNP, influenza and Factor
D, originated at UAB. When we were founded in 1986, we entered into an agreement
with UAB which granted us exclusive rights to discoveries resulting from
research relating to PNP. We also entered into an agreement with UAB that gives
us the first option to obtain a non-exclusive license to patents and copyrights
of UAB not developed in collaboration with us or an exclusive license, in some
cases worldwide, to patents, copyrights or intellectual property arising from
research of UAB collaborators or investigators under contract to us.
Subsequently, we entered into agreements with UAB for influenza
neuraminidase and Factor D. Under the influenza neuraminidase and Factor D
agreements, UAB performs specific research for us in return for research
payments and license fees. The Factor D agreement was later expanded to include
other enzyme targets of the complement system. UAB has granted us certain rights
to any discoveries in these areas resulting from research developed by UAB or
jointly developed with us. We have agreed to pay certain royalties on sales of
any resulting product and to share in future payments received from other
third-party collaborators. UAB has received and will continue to receive a
portion of any license fees, milestone payments and royalties we receive from
PRI and Ortho-McNeil for the influenza collaboration. We have completed the
research under the UAB influenza agreement. We are continuing to fund the
research program under the Factor D agreement, which entitles us to an
assignment of, or a right to an exclusive license for, any inhibitors of
specified complement enzymes developed by UAB scientists during the period of
support or for a one-year period thereafter. These two agreements have initial
25-year terms, are automatically renewable for five-year terms throughout the
life of the last patent or any extension thereof and are terminable by us upon
three-month's notice and by UAB under certain circumstances.
PATENTS AND PROPRIETARY INFORMATION
Our success will depend in part on our ability to obtain and enforce patent
protection for our products, methods, processes and other proprietary
technologies, preserve our trade secrets, and operate without infringing on the
proprietary rights of third parties, both in the United States and in other
countries. We own or have rights to certain proprietary information, proprietary
technology, issued and allowed patents and patent applications which relate to
compounds we are developing. We actively seek, when appropriate, protection for
our products, proprietary technology and proprietary information by means of
U.S. and foreign patents, trademarks and contractual arrangements. In addition,
we rely upon trade secrets and contractual arrangements to protect certain of
our proprietary information, proprietary technology and products.
To date, we have been issued seven U.S. patents which expire between 2009
and 2015 and relate to our PNP inhibitor compounds. We have also been issued a
U.S. patent covering a manufacturing process for our PNP inhibitors, which
expires in 2015, and have filed a patent application for new
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processes to prepare BCX-34 and other PNP inhibitors. The U.S. Patent and
Trademark Office, or PTO, has also issued to us a U.S. patent relating to
inhibitors of influenza neuraminidase, which expires in 2015. We have also
sought to protect our technology through the following patent applications which
are still pending: three U.S. patent applications, two of which are provisional
applications and one of which is a Patent Cooperation Treaty, or PCT,
application, related to the preparation of certain neuraminidase inhibitors; two
provisional applications related to compounds and methods for detecting
influenza virus; a PCT application related to complement inhibitors; and a
provisional application relating to inhibiting T-cell proliferation. We cannot
assure you, however, that any of our pending applications will result in issued
patents, nor that any of our patents will provide us with sufficient protection
against competitive products or otherwise be commercially available.
Our success is also dependent upon the skills, knowledge and experience of
our scientific and technical personnel, none of which is patentable. To help
protect our rights, we require all employees, consultants, advisors and
collaborators to enter into confidentiality agreements which prohibit the
disclosure of confidential information to anyone outside of our company and
requires disclosure and assignment to us of their ideas, developments,
discoveries and inventions. We cannot assure you, however, that these agreements
will provide adequate protection for our trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure or
the lawful development by others of such information.
MARKETING AND SALES
We lack experience in marketing, distributing or selling pharmaceutical
products. Our strategy is to rely on collaborators, licensees or arrangements
with others to provide for the marketing, distribution and sales of any products
we may develop. We cannot assure that we will be able to establish and maintain
acceptable commercial arrangements with collaborators, licensees or others to
perform such activities.
If approved, BCX-1812 will likely be the third influenza neuraminidase
inhibitor to the market behind the influenza neuraminidase inhibitors currently
marketed by Glaxo Wellcome and in development by Hoffmann-LaRoche, in
collaboration with Gilead Sciences. We believe this may provide marketing
challenges. However, we believe that there may be some advantages to not being
first to market. We expect that both Glaxo Wellcome and Hoffmann-La Roche will
play a major role in establishing the influenza treatment market and creating a
demand for neuraminidase inhibitors on which Ortho-McNeil will be able to
capitalize if our neuraminidase inhibitor is approved for marketing. Because
neuraminidase inhibitors represent a new class of drugs that could impact a
large number of people, a major education effort will be required to promote
acceptance by both the treating physicians and the target patient population.
COMPETITION
The pharmaceutical and biotechnology industries are intensely competitive.
Many companies, including biotechnology, chemical and pharmaceutical companies,
are actively engaged in activities similar to ours, including research and
development of drugs for the treatment of infectious, T-cell mediated and
cardiovascular 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 we do. 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 we are working.
They may also market commercial products, either on their own or through
collaborative efforts.
We expect to encounter significant competition for any of the pharmaceutical
products we plan to develop. Companies that complete clinical trials, obtain
required regulatory approvals and commence
41
<PAGE>
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 fields of PNP and complement inhibitors.
In addition, we are aware that other companies or institutions are pursuing
development of new drugs and technologies directly targeted at applications for
which we are developing our drug compounds. For example, Glaxo Wellcome's
influenza neuraminidase inhibitor has received approval from the FDA, and they
recently received approval to market their inhibitor in the United States and
other countries. This product is administered in the form of a dry-powder
inhaler, which could be difficult to use and may cause patient discomfort.
Hoffmann-La Roche, in collaboration with Gilead Sciences, also has an influenza
neuraminidase inhibitor which is under review by the FDA. If approved, our
influenza neuraminidase inhibitor, BCX-1812, will likely be the third
neuraminidase inhibitor to the market. We believe this may provide marketing
challenges. In addition, other therapies for the treatment or prevention of flu
include vaccines and the drugs amantadine and rimantadine, as well as
over-the-counter products.
We expect structure-based drug design to attract significant additional
competitors over time. In order to compete successfully, we must develop
proprietary positions in patented drugs for therapeutic markets that have not
been satisfactorily addressed by conventional research strategies and, in the
process, expand our expertise in structure-based drug design. We cannot assure
you that our products, even if successfully tested and developed, will be
adopted by physicians over such other products, or that our products will offer
economically feasible alternatives to other therapies.
GOVERNMENT REGULATION
The FDA regulates the pharmaceutical and biotechnology industries in the
United States, and our drug candidates are subject to extensive and rigorous
domestic government regulations prior to commercialization. The FDA regulates,
among other things, the development, testing, manufacture, safety, efficacy,
record-keeping, labeling, storage, approval, advertising, promotion, sale and
distribution of pharmaceutical products. In foreign countries, our products are
also subject to extensive regulation by foreign governments. These government
regulations will be a significant factor in the production and marketing of any
pharmaceutical products that we develop. Failure to comply with applicable FDA
and other regulatory requirements at any stage during the regulatory process may
subject us to sanctions, including:
- delays;
- warning letters;
- fines;
- product recalls or seizures;
- injunctions;
- penalties;
- refusal of the FDA to review pending market approval applications or
supplements to approval applications;
- total or partial suspension of production;
- civil penalties;
- withdrawals of previously approved marketing applications; and
- criminal prosecutions.
42
<PAGE>
The regulatory review and approval process is lengthy, expensive and
uncertain. Before obtaining regulatory approvals for the commercial sale of any
products, our product candidates must be demonstrated to be safe and effective
for use in humans. The approval process takes many years, substantial expenses
may be incurred and significant time may be devoted to clinical development.
Before testing potential candidates in humans, laboratory and animal studies
are carried out to determine safety and biological activity. After completing
preclinical trials, an IND, including a proposal to begin clinical trials, must
be filed with the FDA. We have filed eight IND's to date and plan to file
additional IND's, or rely on certain collaborative partners to file IND's, in
the future. Thirty days after filing an IND, a Phase I human clinical trial can
start unless the FDA places a hold on the study.
Phase I trials to determine safety are conducted in a small group of
patients or healthy volunteers. Tolerances and the metabolic and pharmacologic
actions of our drug candidates at different doses are also assessed. After
completion of the initial trial, a Phase II trial is conducted to assess safety
and efficacy and establish the optimal dose in patients. If Phase II is
successful, a Phase III trial is conducted to verify the results in a larger
patient population. A Phase III trial is required for FDA approval to market a
drug. A Phase III trial may require hundreds or even thousands of patients and
is the most expensive to conduct. The goal in Phase III is to collect enough
safety and efficacy data to obtain FDA approval for treatment of a particular
disease.
Initiation and completion of the clinical trial phases is dependent on
several factors including things that are beyond our control. For example, the
clinical trials are dependent on patient enrollment, but the rate at which
patients enroll in the study depends on:
- size of the patient population we intend to treat;
- the availability and proximity of patients to clinical sites where the
trial is underway;
- the willingness and formal consent of patients to participate in our
clinical trials; and
- the patient meeting the eligibility criteria.
Delays in planned patient enrollment may result in increased expense.
After completion of the clinical trials of a product, a new drug
application, or NDA, is submitted to the FDA for marketing approval before
commercialization of the product. We cannot assure you that any approval will be
granted on a timely basis, if at all. The FDA, as a result of the Food and Drug
Administration Modernization Act of 1997, has six months to review and act upon
license applications for priority therapeutics that are for a life-threatening
or unmet medical need. Standard reviews can take between one and two years, and
can even take longer if significant questions arise during the review process.
Any required approvals, once obtained, may be withdrawn.
In addition to clinical development regulations, we and our contract
manufacturers and collaborators also are required to comply with the applicable
FDA current good manufacturing practice regulations. Good manufacturing practice
regulations include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records and documentation.
Manufacturing facilities are subject to inspection by the FDA. Such facilities
must be approved before we can use them in commercial manufacturing of our
potential products. We or our contract manufacturers may not be able to comply
with the applicable good manufacturing practice requirements and other FDA
regulatory requirements. If we or our contract manufacturers fail to comply, our
business, financial condition and results of operations will be materially
adversely affected.
In June 1995, we notified the FDA that we submitted incorrect efficacy data
for our Phase II dose-ranging studies of topical BCX-34 for CTCL and psoriasis.
The FDA inspected us in November 1995 and issued us a List of Inspectional
Observations, Form FDA 483, that cited our failure to follow good clinical
practices. The FDA also inspected us in June 1996, the focus was on the two 1995
Phase II dose-ranging studies of topical BCX-34 for the treatment of CTCL and
psoriasis. As a result
43
<PAGE>
of the investigation, the FDA issued us a Form FDA 483, which cited our failure
to follow good clinical practices. As a consequence, our ongoing and future
clinical studies may receive increased scrutiny, which may delay the regulatory
review process.
Also in June 1996, the FDA investigated one of the clinical trial sites that
participated in our 1995 Phase II dose-ranging studies of topical BCX-34 for the
treatment of CTCL and psoriasis. As a result, the FDA issued a Form FDA 483 to
the principal investigator at a clinical site which cited a number of
deficiencies, including:
- improper delegations of authority by the principal investigator;
- failures to follow the protocols;
- institutional review board deviations; and
- discrepancies or deficiencies in documentation and reporting.
Following the failure of topical BCX-34 in 1997, we discontinued the
development of the topical formulations of BCX-34. In November 1997, the FDA
notified us that they would not accept work performed by the deficient
investigator without further validation. The majority of the work performed by
this investigator was for a topical formulation of BCX-34, which was
discontinued in 1997. However, work performed by this investigator for oral
BCX-34 will not be accepted by the FDA to support efficacy in any NDA.
SCIENTIFIC ADVISORY BOARD AND CONSULTANTS
We have assembled a scientific advisory board comprised of five scientific
advisors who are leaders in certain of our core disciplines or who otherwise
have specific expertise in our therapeutic focus areas. We also have consulting
agreements with a number of other scientists with expertise in our core
disciplines or in our therapeutic focus areas who are consulted from time to
time by us. The scientific advisory board meets as a group at scheduled meetings
and the consultants meet more frequently, on an individual basis, with our
scientific personnel and management to discuss our ongoing research and drug
discovery and development projects.
44
<PAGE>
The scientific advisory board consists of the following individuals:
<TABLE>
<CAPTION>
NAME POSITION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Albert F. LoBuglio, M.D. (Chairman)..................... Professor of Medicine and the Director of The University
of Alabama at Birmingham Comprehensive Cancer Center.
Gordon N. Gill, M.D. ................................... Professor of Medicine and Chair of the Faculty of Basic
Biomedical Sciences at the University of California, San
Diego School of Medicine.
Herbert A. Hauptman, Ph.D. ............................. President of the Hauptman-Woodward Medical Research
Institute, Inc. (formerly the Medical Foundation
(Buffalo), Inc.), and Research Professor in Biophysical
Sciences at the State University of New York (Buffalo),
recipient of the Nobel Prize in Chemistry (1985).
Yuichi Iwaki, M.D., Ph.D. .............................. Professor of Urology and Pathology, University of
Southern California School of Medicine.
Hamilton O. Smith, M.D. ................................ Professor, Molecular Biology and Genetics Department at
The Johns Hopkins University School of Medicine,
retired, Director of DNA Resources at Celera Genomics
Corporation, recipient of the Nobel Prize in Medicine
(1978).
</TABLE>
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 and the consultants are all employed by or have consulting agreements
with entities other than us, some of which may compete with us in the future.
The scientific advisors and the consultants are expected to devote only a small
portion of their time to our business, although no specific time commitment has
been established. They are not expected to participate actively in our affairs
or in the development of our 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 us. The loss of the services of certain of the
scientific advisors and the consultants could adversely affect us to the extent
that we are pursuing research or development in areas relevant to the scientific
advisors' and consultants' expertise. To the extent members of our scientific
advisory board or the consultants have consulting arrangements with or become
employed by any of our competitors, we 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 subsidiary of Warner-Lambert, that uses a core
technology which is similar to the core technology employed by us.
Any inventions or processes independently discovered by the scientific
advisors or the consultants may not become our property 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 our competitors
pursuant to sponsored research agreements. We require the scientific advisors
and the consultants to enter into confidentiality agreements which prohibit the
disclosure of confidential information to anyone outside of our company and
require disclosure and assignment to us of their ideas, developments,
discoveries or inventions. However, no assurance can be
45
<PAGE>
given that our competitors will not gain access to trade secrets and other
proprietary information developed by us and disclosed to the scientific advisors
and the consultants.
HUMAN RESOURCES
As of September 20, 1999, we had 56 employees, of whom 43 were engaged in
research and development and 13 were in general and administrative functions.
Our scientific staff, 19 of whom hold Ph.D. or M.D. degrees, has diversified
experience in biochemistry, pharmacology, X-ray crystallography, synthetic
organic chemistry, computational chemistry, medicinal chemistry and
pharmacology. We consider our relations with our employees to be satisfactory.
PROPERTIES
Our administrative offices and principal research facility are located in
42,950 square feet of leased office space in Riverchase Industrial/Research Park
in Birmingham, Alabama. The lease runs through June 30, 2003 with an option to
lease for an additional three years at current market rates. We believe that our
facilities are adequate for our current operations.
LEGAL PROCEEDINGS
We are not currently a party in any material legal proceedings.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information about our executive officers and
directors as of June 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Charles E. Bugg, Ph.D................................ 58 Chairman, Chief Executive Officer and Director
J. Claude Bennett, M.D............................... 65 President, Chief Operating Officer, Medical Director
and Director
John A. Montgomery, Ph.D. ........................... 75 Senior Vice President, Secretary, Chief Scientific
Officer and Director
Ronald E. Gray....................................... 58 Chief Financial Officer, Assistant Secretary and
Treasurer
John R. Uhrin........................................ 46 Vice President, Corporate Development
William W. Featheringill............................. 56 Director
Edwin A. Gee, Ph.D................................... 79 Director
Zola P. Horovitz, Ph.D............................... 64 Director
Joseph H. Sherrill, Jr............................... 58 Director
William M. Spencer, III.............................. 78 Director
Randolph C. Steer, M.D., Ph.D........................ 49 Director
</TABLE>
Messrs. Featheringill and Spencer and Dr. Gee are members of our
Compensation and Audit Committees.
CHARLES E. BUGG, PH.D. was named Chairman of the Board, Chief Executive
Officer and Director in November 1993 and President in January 1995. Dr. Bugg
relinquished the position of President in December 1996 when Dr. Bennett joined
BioCryst in that position. Prior to joining BioCryst, Dr. Bugg had served as the
Director of the Center for Macromolecular Crystallography, Associate Director of
the Comprehensive Cancer Center and Professor of Biochemistry at UAB since 1975.
He was a Founder of BioCryst and served as BioCryst's first Chief Executive
Officer from 1987 to 1988 while on a sabbatical from UAB. Dr. Bugg also served
as Chairman of our scientific advisory board from January 1986 to November 1993.
He continues to hold the position of Professor Emeritus in Biochemistry and
Molecular Genetics at UAB, a position he has held since January 1994.
J. CLAUDE BENNETT, M.D. was named President and Chief Operating Officer in
December 1996 and elected a Director in January 1997. He was appointed our
Medical Director in August 1999. Prior to joining BioCryst, Dr. Bennett was
President of UAB from October 1993 to December 1996, Professor and Chairman of
the Department of Medicine of UAB from January 1982 to October 1993, and
Professor and Chairman of the Department of Microbiology from January 1970 to
December 1982. Dr. Bennett served on BioCryst's scientific advisory board from
1989 to 1996. He continues to hold the position of Distinguished University
Professor Emeritus at UAB, a position he has held since January 1997.
JOHN A. MONTGOMERY, PH.D. has been a Director since November 1989 and has
been Secretary and Chief Scientific Officer since joining BioCryst in February
1990. He was Executive Vice President from February 1990 until May 1997, at
which time he was named Senior Vice President. Dr. Montgomery was a Founder of
BioCryst. Prior to joining BioCryst, Dr. Montgomery served as Senior Vice
President of Southern Research Institute of Birmingham from January 1981 to
February 1990. He continues to hold the position of Distinguished Scientist at
Southern Research Institute, 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
47
<PAGE>
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 previously Vice President of Finance, Secretary and Treasurer of
CyCare Systems, Inc., a health care information processing company.
JOHN R. UHRIN joined BioCryst in March 1998 as Vice President, Corporate
Development with 21 years of sales and marketing experience in the
pharmaceutical, biotechnology, medical and managed care industries. He joined
BioCryst following 11 years at Genentech, Inc. From 1987 to 1998, he held
various management positions at Genentech, most recently as Director of Special
Markets/Managed Care. Prior to working for Genentech, he held various sales and
management positions with Eli Lilly from 1977 to 1987.
WILLIAM W. FEATHERINGILL was elected a Director in May 1995. Since June
1995, Mr. Featheringill has been Chairman and Chief Executive Officer of
Electronic Healthcare Systems, a software company, and President, Chief
Executive Officer and director, since 1973, of Private Capital Corporation, a
venture capital management company. From 1988 to 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. MACESS
Corporation merged with Sungard Data Systems in late 1995. From 1985 to December
1994, Mr. Featheringill was the developer, Chairman and President of Complete
Health Services, Inc., a health maintenance organization. Complete Health
Services, Inc. was acquired by United HealthCare Corporation in June 1994. Mr.
Featheringill is a director of Citation Corporation.
EDWIN A. GEE, PH.D. was elected a Director in August 1993. Dr. Gee, who
retired in 1985 as Chairman of the Board and Chief Executive Officer of
International Paper Company, has been active as an executive in biotechnology,
pharmaceutical and specialty chemical companies since 1970. He is Chairman
Emeritus and a director of OSI Pharmaceuticals, Inc., one of the leading
biotechnology companies for the diagnosis and treatment of cancer.
ZOLA P. HOROVITZ, PH.D. was elected a Director in August 1994. Dr. Horovitz
was Vice President of Business Development and Planning at Bristol-Myers Squibb
from 1991 until his retirement in April 1994 and previously was Vice President
of Licensing at the same company from 1990 to 1991. Prior to 1990, he spent over
30 years with The Squibb Institute for Medical Research, most recently as Vice
President Research, Planning, & Scientific Liaison. He has been an independent
consultant in pharmaceutical sciences and business development since his
retirement from Bristol-Myers Squibb in April 1994. He serves on the Board of
Directors of Avigen, Inc., Clinicor Inc., Diacrin, Inc., Magainin
Pharmaceuticals, Inc., Procept Corporation, Roberts Pharmaceutical Corporation
and Synaptic Pharmaceutical Corp. Dr. Horovitz is also Chairman of Magainin
Pharmaceuticals, Inc.
JOSEPH H. SHERRILL, JR. was elected a Director in May 1995. Mr. Sherrill
served as President of R.J. Reynolds Asia Pacific, based in Hong Kong, where he
oversaw R.J. Reynolds' operations across Asia, including licensing, joint
ventures and a full line of operating companies from August 1989 to his
retirement in October 1994. Prior management positions with R.J. Reynolds
include Senior Vice President of Marketing for R.J. Reynolds International,
President and Chief Executive Officer of R.J. Reynolds Tabacos de Brazil, and
President and General Manager of R.J. Reynolds Puerto Rico.
WILLIAM M. SPENCER, III was a Founder and has been a Director of BioCryst
since its inception. Mr. Spencer, who is retired, 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 co-founded and operated Motion Industries
from 1946 through its merger into Genuine Parts Company in 1976. He has founded
several businesses and has served 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. Dr. Steer serves on the Board of Directors of Techne
Corporation.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of September 20, 1999 by:
- each of our directors and executive officers;
- all directors and executive officers as a group; and
- each person known by us to be the beneficial owner of more than five
percent of our common stock.
<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK
NUMBER OF BENEFICIALLY OWNED
SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------------------------------------------ ---------- ----------- -----------
<S> <C> <C> <C>
William W. Featheringill................................................ 2,699,872(2) 17.7% 15.6%
100 Brookwood Place #410
Birmingham, Alabama 35209
Johnson & Johnson Development Corporation............................... 918,836(3) 6.0 5.3
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Max Cooper.............................................................. 780,100(4) 5.1 4.5
121 Summit Parkway
Birmingham, Alabama 35209
Charles E. Bugg, Ph.D................................................... 609,127(5) 3.9 3.4
William M. Spencer, III................................................. 539,858(6) 3.5 3.1
Joseph H. Sherrill, Jr.................................................. 421,500(7) 2.8 2.4
John A. Montgomery, Ph.D. .............................................. 160,620(8) 1.0 0.9
J. Claude Bennett, M.D. ................................................ 107,460(9) * *
Ronald E. Gray.......................................................... 88,672 10) * *
Randolph C. Steer, M.D., Ph.D. ......................................... 74,999 11) * *
Zola P. Horovitz, Ph.D.................................................. 43,749 11) * *
Edwin A. Gee, Ph.D. .................................................... 39,999 11) * *
John R. Uhrin........................................................... 26,246 12) * *
All executive officers and directors as a group (11 persons)............ 4,812,102 13) 29.4 26.2
</TABLE>
- ------------------------
* Less than one percent.
(1) Gives effect to the shares of common stock issuable within 60 days after
September 20, 1999 upon the exercise of all options and other rights
beneficially held by the indicated stockholder on that date.
(2) Includes 364,900 shares of common stock held by the Featheringill Family
Trust of which he is a beneficial owner and 32,500 shares of common stock
issuable upon exercise of stock options.
(3) Johnson & Johnson Development Corporation is a wholly owned subsidiary of
Johnson & Johnson and shares investment and voting power with Johnson &
Johnson.
(4) Based on filings made by Mr. Cooper with the SEC.
49
<PAGE>
(5) Includes 539,084 shares of common stock issuable upon exercise of stock
options.
(6) Includes 43,749 shares of common stock issuable upon exercise of stock
options and 10,000 shares of common stock held by Mr. Spencer's spouse. Mr.
Spencer disclaims beneficial ownership of the 10,000 shares of common stock
held by his spouse.
(7) Includes 32,500 shares of common stock issuable upon exercise of stock
options, 10,000 shares of common stock which Mr. Sherrill holds jointly with
his spouse, 1,000 shares of common stock held by Mr. Sherrill's son and
10,000 shares of common stock held by Mr. Sherrill's spouse. Mr. Sherrill
disclaims beneficial ownership of the 11,000 shares of common stock held by
his spouse and son.
(8) Includes 127,498 shares of common stock issuable upon exercise of stock
options and 12,600 shares of common stock held by Dr. Montgomery's spouse.
Dr. Montgomery disclaims beneficial ownership of the 12,600 shares of common
stock held by his spouse.
(9) Includes 102,725 shares of common stock issuable upon exercise of stock
options.
(10) Includes 1,500 shares of common stock held by the retirement accounts of
Mr. Gray and his spouse and 78,394 shares of common stock issuable upon
exercise of stock options.
(11) Represents shares of common stock issuable upon exercise of stock options.
(12) Includes 21,666 shares of common stock issuable upon exercise of stock
options.
(13) See Notes (2) through (11).
50
<PAGE>
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Dr. Bugg, an executive officer and Director of BioCryst, is a Professor
Emeritus of UAB and is paid an annual stipend of $9,040 by UAB. Dr. Bennett, an
executive officer and Director of BioCryst, is a consultant to and a
Distinguished University Professor of UAB and is paid an annual stipend of
$12,500 by the UAB Education Foundation. We paid approximately $877,000 to UAB
in 1998 and approximately $281,000 to UAB in 1999 through August 31 for
conducting certain clinical trials, research and data analysis.
Dr. Montgomery, an executive officer and Director of BioCryst, is a former
executive officer of Southern Research Institute. He is currently a
Distinguished Scientist at Southern Research Institute and was paid
approximately $6,482 by Southern Research Institute in 1998 for various
consulting services unrelated to the services performed by Southern Research
Institute for us. We paid approximately $209,000 to Southern Research Institute
in 1998 and approximately $28,000 to Southern Research Institute in 1999 through
August 31 for certain research, library use and supplies.
In September 1998, we entered into an exclusive worldwide license agreement
with PRI and Ortho-McNeil to develop and market our proprietary influenza
neuraminidase inhibitors. We received an initial $6.0 million payment from
Ortho-McNeil and an additional $6.0 million common stock equity investment from
Johnson & Johnson Development Corporation. In June 1999, we received a $2.0
million milestone payment from Ortho-McNeil in connection with the initiation of
Phase II clinical testing in the United States. In addition, we may receive cash
payments upon achievement of specified developmental and regulatory milestones
and royalties on product sales, if any. PRI and Ortho-McNeil are responsible for
all development, regulatory and commercialization expenses. The agreement is
subject to termination by PRI and Ortho-McNeil at any time and by us in certain
circumstances.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and BioCryst has agreed to sell to such underwriter, the number of
shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Salomon Smith Barney Inc. .......................................................
Hambrecht & Quist LLC............................................................
Raymond James & Associates, Inc..................................................
----------
Total.......................................................................... 2,000,000
----------
----------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per
share on sales to certain other dealers. If all of the shares are not sold at
the initial offering price, the representatives may change the public offering
price and the other selling terms.
BioCryst has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to 300,000 additional shares of
common stock at the public stock at the public offering price less the
underwriting discount. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent such option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares
approximately proportionate to such underwriter's initial purchase commitment.
BioCryst, its officers and directors, and certain other stockholders of
BioCryst have agreed that, for a period of 90 days from the date of this
prospectus, they will not, without the prior written consent of Salomon Smith
Barney Inc., dispose of or hedge any shares of common stock of BioCryst or any
securities convertible into or exchangeable for common stock. Salomon Smith
Barney Inc. in its sole discretion may release any of the securities subject to
these lock-up agreements at any time without notice.
The common stock is quoted on the Nasdaq National Market under the symbol
"BCRX."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by BioCryst and the selling stockholders in connection
with this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.
<TABLE>
<CAPTION>
PAID TO BIOCRYST
-------------------------
<S> <C> <C>
FULL
NO EXERCISE EXERCISE
----------- ------------
Per share.......................................................... $ $
Total.............................................................. $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may purchase and sell shares of common stock in the open market.
These transactions may include
52
<PAGE>
over-allotment, syndicate covering transactions and stabilizing transactions.
Over-allotment involves syndicate sales of common stock in excess of the number
of shares to be purchased by the underwriters in the offering, which creates a
syndicate short position. Syndicate covering transactions involve purchases of
the common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Stabilizing transactions consist of
certain bids or purchases of common stock made for the purpose of preventing or
retarding a decline in the market of price of the common stock while the
offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be higher
than the price that otherwise would exist in the open market in the absence of
such transactions. These transactions may be effected on the Nasdaq National
Market or in the over-the-counter market, or otherwise and, if commenced, may be
discontinued at any time.
In addition, in connection with this offering, certain of the underwriters
(and selling group members) may engage in passive market making transactions in
the common stock on the Nasdaq National Market, prior to the pricing and
completion of the offering. Passive market making consists of displaying bids on
the Nasdaq National Market no higher than the bid prices of independent market
makers and making purchases at prices no higher than those independent bids and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the common stock during a specified period and
must be discontinued when such limit is reached. Passive market making may cause
the price of the common stock to be higher than the price that otherwise would
exist in the open market in the absence of such transactions. If passive market
making is commenced, it may be discontinued at any time.
BioCryst estimates that the total expenses of this offering will be
$750,000.
BioCryst has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the underwriters may be required to make in respect of
any of those liabilities.
53
<PAGE>
LEGAL MATTERS
The validity of the common stock offered in this prospectus will be passed
upon for BioCryst by Brobeck, Phleger & Harrison LLP, Broomfield, Colorado. As
of September 20, 1999, a member of Brobeck, Phleger and Harrison LLP
beneficially owned a total of 5,000 shares of our common stock. Other legal
matters in connection with this offering will be passed upon for the
underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in this registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
The statements in this prospectus under the sections "Risk Factors--We may
fail to adequately protect or enforce our intellectual property rights or secure
rights to third-party patents" and "Business--Patents and Proprietary
Information" and other references in this prospectus to U.S. patent matters have
been reviewed and approved by Pollock, Vande Sande & Amernick, R.L.L.P., our
patent counsel, as experts on such matters and are included in this prospectus
in reliance upon that review and approval.
54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO]
COMMON STOCK
------
P R O S P E C T U S
, 1999
---------
SALOMON SMITH BARNEY
HAMBRECHT & QUIST
RAYMOND JAMES & ASSOCIATES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions, payable by the company in connection
with the sale of common stock being registered hereby. All of the amounts shown
are estimates except the SEC registration fee and the Nasdaq National Market
additional listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee.............................................................. $ 15,985
NASD filing fee................................................................... 6,250
Nasdaq additional listing of shares fee........................................... 17,500
Accounting fees and expenses...................................................... 40,000
Legal fees and expenses........................................................... 500,000
Printing and engraving expenses................................................... 150,000
Transfer Agent and registrar fees................................................. 5,000
Miscellaneous..................................................................... 15,265
----------
Total............................................................................. $ 750,000
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). Article Eight of the Registrant's Composite Certificate
of Incorporation provides for indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant has liability
insurance for its Directors and Officers.
II-1
<PAGE>
ITEM 16. EXHIBITS
The following is a list of Exhibits filed as part of the Registration
Statement:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
4.1 Specimen certificate for shares of the Registrant's Common Stock, incorporated herein
by reference to Exhibit 4.1 the Registrant's Registration Statement No. 33-73868.
4.2 Provisions of the Composite Certificate of Incorporation and By-Laws of the Registrant
defining rights of holders of Common Stock of the Registrant, incorporated herein by
reference to Exhibits 3.1 and 3.2 to the Company's Form 10-Q for the second quarter
ending June 30, 1995 dated August 11, 1995
5.1 Opinion of Brobeck, Phleger & Harrison LLP*
23.1 Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed as Exhibit
5.1).
23.2 Consent of Ernst & Young LLP, independent accountants
24.1 Power of Attorney (included with signature page)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of our
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities offered hereby, a post-effective amendment to this
Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering
II-2
<PAGE>
price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on our behalf by the undersigned, thereunto duly
authorized, in the City of Birmingham, State of Alabama, on September 23, 1999.
<TABLE>
<S> <C> <C>
BIOCRYST PHARMACEUTICALS, INC.
By: /s/ CHARLES E. BUGG
----------------------------------------
Charles E. Bugg, Ph.D. Chairman and Chief
Executive Officer
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person or entity whose signature
appears below constitutes and appoints Charles E. Bugg, Ph.D. and Ronald E.
Gray, and each of them, our true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for it and in our name, place and
stead, in any and all capacities, to sign any and all amendments, including any
post-effective amendments, to this Registration Statement on Form S-3, or any
registration statement relating to the offering to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as it might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on September 23, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<C> <S>
/s/ CHARLES E. BUGG Chairman, Chief Executive Officer and Director
-------------------------------------------- (principal executive officer)
Charles E. Bugg, Ph.D.
/s/ J. CLAUDE BENNETT President, Chief Operating Officer and Director
--------------------------------------------
Claude Bennett, M.D.
/s/ JOHN A. MONTGOMERY Senior 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.
/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.
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
4.1 Specimen certificate for shares of the Registrant's Common Stock, incorporated herein
by reference to Exhibit 4.1 the Registrants Registration Statement No. 33-73868.
4.2 Provisions of the Composite Certificate of Incorporation and By-Laws of the Registrant
defining rights of holders of Common Stock of the Registrant, incorporated herein by
reference to Exhibits 3.1 and 3.2 to the Company's Form 10-Q for the second quarter
ending June 30, 1995 dated August 11, 1995
5.1 Opinion of Brobeck, Phleger & Harrison LLP.*
23.1 Consent of Brobeck, Phleger & Harrison LLP (included in the opinion filed as Exhibit
5.1).
23.2 Consent of Ernst & Young LLP, independent accountants.
24.1 Power of Attorney (included with signature page).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3, No. 333- ) and the related Prospectus of
BioCryst Pharmaceuticals, Inc. for the registration of 2,300,000 shares of its
common stock and to the incorporation by reference therein of our report dated
January 15, 1999, with respect to the financial statements of BioCryst
Pharmaceuticals, Inc. included in its Annual Report (Form 10-K) for the year
ended December 31, 1998, filed with the Securities and Exchange Commission.
Birmingham, Alabama
September 20, 1999
<TABLE> <S> <C>
<PAGE>
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,335,967
<SECURITIES> 18,980,886
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,167,183
<PP&E> 3,476,033
<DEPRECIATION> 1,963,008
<TOTAL-ASSETS> 26,545,685
<CURRENT-LIABILITIES> 1,032,175
<BONDS> 0
0
0
<COMMON> 149,876
<OTHER-SE> 25,048,930
<TOTAL-LIABILITY-AND-EQUITY> 26,545,685
<SALES> 0
<TOTAL-REVENUES> 3,040,597
<CGS> 0
<TOTAL-COSTS> 5,688,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,777
<INCOME-PRETAX> (2,651,017)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,651,017)
<EPS-BASIC> (.18)
<EPS-DILUTED> (.18)
</TABLE>
