PHVS - Analyzing BioCryst's Position Amid Pharvaris' HAE Breakthrough

2023-12-11 15:41:33 ET

Summary

• BioCryst faces heightened competition in the HAE market due to Pharvaris' positive CHAPTER-1 study of deucrictibant.
• Despite strong Q3 2023 revenues, BioCryst's long-term debts cast a shadow over its financial stability.
• The market reacted to Pharvaris' potential, with BioCryst stock dropping 10%; BCRX does have high institutional engagement, but there is significant short interest.
• Recommendation: Sell BioCryst due to looming financial, competitive challenges, and unbalanced SG&A expense growth.

At a Glance

In my last analysis of BioCryst Pharmaceuticals ( BCRX ), I expressed concerns about their financial stability. These concerns are now magnified with Pharvaris' ( PHVS ) positive outcomes in the CHAPTER-1 study of deucrictibant, setting the stage for intense competition in the hereditary angioedema ((HAE)) treatment field. This is crucial for BioCryst, as deucrictibant, an oral therapy, directly challenges their drug Orladeyo. The immediate 10% drop in BioCryst's stock following Pharvaris' announcement is a clear indicator of the evolving market dynamics.

This article aims to delve deeper into Pharvaris' progress, especially focusing on deucrictibant's oral administration and its efficacy. Despite a strong revenue report for the third quarter of 2023, BioCryst's financials are still shadowed by substantial long-term debts and rising expenses. This analysis aims to offer a comprehensive perspective on BioCryst's future, signaling a possibly tougher road ahead than initially anticipated.

Pharvaris Shakes Up HAE Arena: Orladeyo's New Challenger

Pharvaris, a clinical-stage biotech, recently shared exciting news: their CHAPTER-1 study of deucrictibant for preventing HAE attacks showed promising results . In the CHAPTER-1 study, patients took either 20mg or 40mg of deucrictibant or a placebo for 12 weeks. The results were impressive - those on the 40mg dose had an 84.5% drop in monthly HAE attacks compared to the placebo group. Deucrictibant also lessened attack severity and the need for emergency medication. Plus, patients tolerated both doses well.

This is a pivotal moment for BioCryst, the creators of Orladeyo, the first oral HAE treatment approved by the FDA in 2020 for patients over 12. After Pharvaris announced their results, BioCryst's stock dropped 10%, a clear sign that the market sees deucrictibant as a strong competitor.

In the competitive landscape dominated by Takeda Pharmaceutical ( TAK ) and CSL Behring , Pharvaris carves out its niche with deucrictibant, positioning itself alongside oral treatments like Orladeyo. While Takeda and CSL Behring's injectable therapies are effective and established, Pharvaris leverages the growing patient preference for oral medications, offering deucrictibant as a convenient, non-injectable alternative and a potential alternative to Orladeyo.

As for Orladeyo's most recent market performance, Q3 2023 was solid. Sales hit $85.7M, up nearly 30% from last year, showing strong demand. This figure, especially with 12.2% of Orladeyo's revenues coming from international markets, underlines its growing global footprint. BioCryst is aiming high, expecting at least $320M in Orladeyo revenue for 2023 and eyeing $1B at its peak.

Operationally, more patients are choosing Orladeyo, and BioCryst is investing heavily in marketing to keep that trend going. Their selling, general, and administrative expenses (SG&A) rose to $50.7M, a 37.1% increase from last year, mainly to promote Orladeyo.

In summary, Pharvaris' CHAPTER-1 study results are a game-changer in the HAE market. They not only strengthen Pharvaris' standing but also pose a serious challenge to BioCryst's Orladeyo. The market has already reacted, indicating the potential impact of deucrictibant. As Pharvaris continues its clinical journey, it will be interesting to see how they position themselves against established players like BioCryst.

Financial Health

Turning to BioCryst's balance sheet , their liquid assets, combining 'cash and cash equivalents' ($150.9M) and 'investments' ($246.7M), total approximately $397.6M. The current ratio, comparing total current assets ($502.5M) to total current liabilities ($90.8M), is approximately 5.5, indicating a strong short-term liquidity position. However, the company's total assets of $522.9M are overshadowed by significant liabilities, including 'accrued expenses' ($77.4M), 'lease financing obligations' ($12.2M combined), 'royalty financing obligations' ($535.2M), and 'secured term loans' ($298.0M), summing up to more than $923.2M, raising concerns about long-term solvency.

Over the last nine months, the net cash used in operating activities was $86.2M, leading to a monthly cash burn of approximately $9.6M. With liquid assets of $397.6M, the monthly cash burn suggests a cash runway of about 41 months. It's crucial to note that these figures are based on past performance and may not reflect future trends.

Given the existing cash reserves and the current cash burn rate, the odds of BioCryst requiring additional financing within the next twelve months seem low. However, the company's heavy debt burden could necessitate future capital raising to manage long-term obligations.

In summary, BioCryst's short-term financial health is 'adequate' due to its sufficient liquid assets and current ratio, while its long-term financial health appears 'fragile' due to its significant debt load.

Market Sentiment

According to Seeking Alpha data, BioCryst has a market capitalization of $1.17B, indicating moderate market confidence, considering its growth prospects and a competitive biotech landscape. Analysts project revenue growth from $327.36M in 2023 to $502.73M by 2025, suggesting strong growth potential. The stock's performance, with a -45.91% change over the last year compared to SPY's +16.17%, reflects negative momentum.

The high short interest of 16.88% (percentage of float) with 29.47M shares short and a days-to-cover ratio of 9.06 points to significant market skepticism or speculation on the stock decline. Institutional ownership is strong at 88.86%, with notable changes in positions: new positions include 5,606,507 shares, while sold-out positions total 1,318,632 shares, highlighting active institutional engagement. Leading institutions are the usual players, including BlackRock, Vanguard, Baker Bros., and State Street. Insider trades show a positive net activity with 312,353 more shares bought than sold over the past twelve months, signaling insider confidence.

Evaluating these metrics, BioCryst's market sentiment can be qualified as "Adequate."

My Analysis & Recommendation

To wrap things up, the HAE treatment scene is set for major changes, especially with Pharvaris' impressive study results for deucrictibant. This is a challenge for BioCryst, as they face upcoming oral rivals that could shake up Orladeyo's market hold soon. Despite BioCryst showing good growth in Q3 2023, their overall financial health looks shaky. They've got a lot of long-term debt, and when you stack this against their assets, it's a worrying picture - one that could worsen with increasing competition.

In my view, the rosy revenue forecasts for BioCryst, both from analysts and the company itself, might be overlooking the dynamic nature of the HAE treatment market, especially with the entry of new competitors like Pharvaris' deucrictibant. This oversight could lead to an overestimation of their market share and revenue potential. A critical observation is the discrepancy between the growth rates of BioCryst's SG&A expenses, increasing by 37.1% Y/Y, and the revenue from Orladeyo, which is growing at a slower pace of 29.8%. This subtly suggests that the market penetration of Orladeyo is facing challenges, likely intensified by the competition from established treatments like Takeda's Takhzyro, a leading HAE injectable.

In summary, BioCryst's recent performance, despite being commendable, is overshadowed by looming financial and competitive challenges. The combination of their significant debt, the rapid growth in SG&A expenses outpacing revenue increases, and the intensifying competition, particularly from new entrants like Pharvaris with deucrictibant, signals potential difficulties ahead. These factors collectively weaken BioCryst's investment appeal in the current scenario, leading to a recommendation of maintaining a "Sell" rating on the company at this time.

Risks to Thesis

In my analysis recommending a "Sell" on BioCryst, I may have not fully considered certain aspects. The focus on Pharvaris' positive Phase 2 data for deucrictibant could have led to an overestimation of its immediate threat. It's critical to remember that Phase 2 success does not guarantee market approval, and many compounds fail in later stages of clinical development.

I might have placed too much emphasis on the stock market's immediate reaction to the Pharvaris' announcement. A 10% decline in BioCryst's stock could be more reflective of short-term sentiment than long-term fundamentals. The market's volatility, especially in biotech stocks, often reacts sharply to news but doesn't always align with a company's intrinsic value.

The analysis perhaps underappreciated BioCryst's Q3 2023 financial performance. Robust revenues indicate a strong market presence and could help mitigate financial risks, especially the significant long-term liabilities highlighted. This resilience in revenue generation is a critical factor in assessing the company's financial health.

Additionally, I might have understated BioCryst's potential strategic moves in response to competition. The company could have pipeline advancements or strategies to enhance Orladeyo's market position, which weren't adequately considered in my initial evaluation.

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