Biocryst Pharmaceuticals: Q3 Earnings May Not Halt This Stock’s Bear Run (NASDAQ:BCRX)

Investment Overview

Biocryst (NASDAQ:BCRX) is a Durham, North Carolina based, commercial stage pharmaceutical company that was founded in 1986, and completed its Initial Public Offering (“IPO”) in 1994.

The company is best known for marketing and selling ORLADEYO (berotralstat), an oral, once daily therapy used for the prevention of hereditary angioedema (“HAE”) attacks. The company discusses HAE as follows in its 2022 annual report / 10K submission:

HAE is a rare, severely debilitating and potentially fatal genetic condition with a prevalence of between 1 in 33,000 to 1 in 67,000 people. HAE symptoms include recurrent episodes of edema in various locations, including the hands, feet, face, genitalia and airway. Airway swelling is particularly dangerous and can lead to death by asphyxiation.

In addition, patients often have bouts of severe abdominal pain, nausea and vomiting caused by swelling in the intestinal wall. By inhibiting plasma kallikrein, ORLADEYO suppresses bradykinin production. Bradykinin is the mediator of acute swelling attacks in HAE patients.

ORLADEYO was first approved by the FDA in December 2020 to prevent attacks of HAE in adults and pediatric patients 12 years and older. In 2021, the drug received approvals in the European Union, Japan, the United Arab Emirates (“UAE”) and the United Kingdom. In Japan, the drug is marketed and sold by Biocryst’s partner Torii, with Biocryst receiving tiered 20-40% royalties on net sales. In 2022, the drug was also approved in Canada, Switzerland, Israel, and Saudi Arabia.

In its first 2 full years on the market, in 2021 and 2022, ORLADEYO earned revenues of $122m, and $250m, showing impressive >100% year-on-year growth. Revenues across the first six months of 2023 were $149m, and $81m in Q2 alone, respective year-on-year gains of 25% and 29%. Announcing Q2 earnings, management commented it was:

On-track to achieve ≥ $320 million in full year 2023 ORLADEYO revenue and $1 billion in peak ORLADEYO revenue

As things stand, Biocryst is not a profitable company, showing a net loss of $(184.1m) in 2021, and $(247.1m) in 2021 and 2022 respectively, and in Q1 and Q2 this year, respectively $(53.3m), and $(75.3m). Earnings per share in 1H23 were $(0.68), versus $(0.72) in the equivalent prior year period.

As of Q2 2023, Biocryst reported a cash plus short term investments position of $411m, total current liabilities of $93.5m, and a long term debt position of $819m, and total liabilities of $919m. Accumulated deficit stood at $1.58bn as of Q2.

In terms of share price performance, remarkably, since its mid-nineties listing Biocryst’s share price has moved just 12%, in a downward direction, and since 2010, the share price has not traded higher than $19, although it has touched lows of >$1.

Biocrysts’ Share Price Woes – Candidates Discarded, Stock Price Loses >50% Year-to-Date

Biocryst stock initially responded very positively to the approval of ORLADEYO, climbing from a pre-approval share price of ~$3.5, to highs of ~$13 by March 2021, $17.5 by August 2021, and then an all-time high of $19 by February 2022, before sliding significantly in March last year albeit for reasons unrelated to the performance of ORLADEYO.

Biocryst’s wider focus as a drug developer is on “on oral treatments for rare diseases in which significant unmet medical needs exist and an enzyme plays the key role in the biological pathway of the disease” (source: Q322 10Q) and the company had been working on the development of candidate BCX9930, a “novel, oral, potent, and selective small molecule inhibitor of Factor D, discovered by us for the treatment of complement-mediated diseases”.

In April 2022, however, Biocryst announced that it was pausing a Phase 2 study of BCX9930, in patients with paroxysmal nocturnal hemoglobinuria (“PNH”), after elevated serum creatinine levels, potentially indicating impaired kidney function were found in some patients. The company’s stock price fell from $17, to $8 overnight.

Unfortunately, in December, Biocryst opted to discontinue development of BCX9930 altogether, apparently after realising that competitor’s data was superior to its own – Apellis Pharma (APLS) secured an approval for its candidate EMPAVELI in May 2021. The company also discontinued development of a rare bone disease therapy, BCX9250, in Q322.

Although the share price quickly recovered from these setbacks, even while ORLADEYO revenues came in lower than the Street’s expectations, presumably based on the long-term appeal of the drug’s revenue potential, 2023 has been a poor year for Biocryst stock – year-to-date shares have lost >50% of their value. Are investor’s running out of patience?

It seems that the market is responding to several unpalatable aspects to Biocrysts’ business model – sales of its key commercialised asset ORLADEYO growing more slowly than expected (are peak sales of >$1bn entirely realistic?), a lack of promising pipeline assets, as development of once promising candidates are jettisoned, and financial woes, including heavy quarterly losses, a dwindling cash pile, and substantial debt.

Looking Ahead – Reasons To Be Cheerful Versus Reasons To Be Fearful

The key question for prospective Biocryst to answer is whether there is a case for a sharp reversal in fortunes, and a growing share price, and for existing Biocryst shareholders the key question is whether to cut losses today, or hold on in hopes of a turnaround.

There will not be a long wait for a new set of company updates, as Biocryst will announce its Q3 earnings this Thursday, 1st November. What would a successful quarter look like for the company?

After missing analysts forecasts on normalised and GAAP EPS last quarter, whilst beating on revenue by ~$1m (source: SeekingAlpha), this quarter, the market expects to see normalised EPS of $(0.19), GAAP EPS of $(0.24), and revenues of $86m.

A miss on revenues would be troubling for the company, in my view, as ORLADEYO is clearly the shining light for the company, with RAPIVAB, an injection for the treatment of acute uncomplicated influenza in the US, the only other commercial stage asset in the company’s portfolio, earning <$2m in Q2.

It’s interesting to note that Biocryst’s SG&A expenses increased significantly in 1H23 relative to 1H22, from $72m, to $99m, whilst R&D expenses fell from $127m in 1H22, to $99.6m in 1H23. That seems to imply that the company is spending more money on marketing ORLADEYO, and less on developing new candidates. That could be a worry, as it may suggest Biocryst is having to invest more to grow sales of its lead asset and keep up with the market’s expectations.

A potential highlight to look out across the longer term could be the clinical development of BCX10013, an oral factor D inhibitor. A first patient was enrolled in a proof-of-concept study in late October – according to a press release:

If the results in patients living with paroxysmal nocturnal hemoglobinuria (“PNH”) confirm its potential for a best-in-class profile, the company plans to advance into a pivotal program in patients living with renal complement-mediated diseases, including IgA nephropathy (IgAN).

The downside here is that this is an early stage project, and as we can see below, the number of rival companies developing complement pathway based drug products is significant.

Looking further ahead, challengers to ORLADEYO in clinical development are also numerous, as we can see below:

Ionis’ donidalorsen reported Phase 3 data in June, which showed the therapy achieved “overall sustained mean reduction in HAE attack rates of 96% from baseline through two years across dosing groups”, which may be a competitive bar that ORLADEYO struggles to reach.

Concluding Thoughts – Hard To See How Biocryst Wows Market In Q3 – There May Be More Downside Ahead

At present, Biocryst’s market cap valuation stands at just over $1bn, with shares trading at a value of $5.5. When we consider that ORLADEYO is still pegged for “blockbuster” revenues, at least by management, arguably, given a “rule of thumb” that commercial stage Pharmas trade at 3-5x sales, Biocryst stock looks substantially undervalued.

Unfortunately, I suspect that may not be the case. Sales must eventually be accompanied by profits for the market to get truly excited about a commercial stage product, and at present there is scant evidence that Biocryst is close to breaking even, let alone turning a profit. In fact, the company’s cash reserves may not last another 2 years given the current rate of quarterly losses the it is experiencing.

When your lead asset is significantly loss making, and you are spending more on marketing than R&D, having dropped development of 2 promising pipeline candidates, and when your most valuable pipeline asset has only recently entered a proof-of-concept study, then in most cases, the red flags begin waving for investors, and that seems to be what has been happening with Biocryst, as its stock stubbornly trends downward, by >60% across the past 12 months.

Hopes of a recovery rest on essentially 2 things – ORLADEYO hitting management’s $1bn revenue target as quickly as possible, and BCX10013 acing its clinical study with data suggesting a best-in-class portfolio.

Are either of these targets realistic? I would say at this stage that neither is likely enough to happen to justify giving Biocryst a “buy” recommendation. Unfortunately, the opposite may be true.

This year’s forecast for $320m of revenues from ORLADEYO is a long way off the hoped-for blockbuster figure, and after 3 full years of commercialisation, investors are entitled to wonder if $500m peak sales is a more realistic target than $1bn – and how much more may Biocryst have to spend on marketing to reach that figure?

Meanwhile, the intense competition in the field of complement inhibition, Biocryst’s poor record developing pipeline candidates, and shrinking R&D spend all count against the company, as do its issues with debt repayment.

With the prevailing economic uncertainty, high interest rates, and rising inflation, sadly, promising biotech companies struggle to fit many investors criteria for inclusion in a balanced risk portfolio at this time, and as impressive as Biocryst’s work developing and securing approval for ORLADEYO has been, it is difficult to make the case at this time that this company can buck that trend.