2023-08-14 09:31:04 ET
Summary
- BioCryst's Q2 2023 earnings report showed a 25.9% YOY revenue rise, mainly from Orladeyo, with a net loss of $75.3M.
- Concerns arise due to declining liquidity, significant debt, and competition; however, Orladeyo shows promising growth potential.
- While earlier recommending "Sell", I advise against shorting now due to a recent valuation drop; investors should proceed cautiously.
Introduction
BioCryst Pharmaceuticals ( BCRX ) develops treatments for rare diseases. Their main product, Orladeyo, approved in December 2020, treats hereditary angioedema by reducing attack frequency and severity. The company also has Rapivab and BCX10013 in its portfolio.
In my previous analysis , I expressed concerns about BioCryst's unchanged revenue guidance for Q1 '23 and YoY '23 growth. Their widening net losses, lack of profitability, and uncertainties around BCX10013 further troubled me. I shifted my recommendation from "Hold" in February to "Sell" due to recent unfavorable developments and declining investor sentiment. I predicted a decline in BioCryst's stock value, suggesting that shorting the stock could be profitable.
Recent developments: BioCryst reported its Q2 financial results . The Non-GAAP EPS was -$0.24, falling short by $0.03. However, the company witnessed revenue growth of 25.9% year-over-year, reaching $82.49M and surpassing expectations by $1.06M.
The following article discusses BioCryst Pharmaceuticals' financial performance in Q2, emphasizing concerns about its liquidity, significant debt, and market competition, while also highlighting the potential of its product, Orladeyo.
Q2 2023 Earnings
Looking at BioCryst's most recent earnings report, for Q2 2023, revenues rose by 25.9% YOY to $82.5M, mainly from a 24.2% increase in Orladeyo net revenue, which amounted to $81M. R&D expenses decreased by 17.3% to $51.2M, attributed to reduced investments in the BCX9250 and complement programs, though there was a rise in early-stage pipeline investments. Selling, general and administrative expenses climbed by 34.1% to $51M due to the Orladeyo launch and expanded global operations. Interest expenses grew by 20.4% to $28.9M, mainly from the Pharmakon debt secured in April 2023. The net loss for the quarter stood at $75.3M, influenced by a one-time $29M debt extinguishment fee. Cash and its equivalents were $415.7M, slightly down from the previous year's $418.9M, and the operating cash used was $13.5M.
Liquidity & Cash Runway
BioCryst's financial position as of June 30, 2023, is defined by assets totaling $414.22M, of which $146.215M is in cash and cash equivalents and $264.455M resides in investments. Over the past six months, they reported an operating loss of $49.118M. If this trend continues, their estimated annual cash burn would reach about $98.236M. Given this burn rate, their cash runway, which signifies the duration the company can operate without additional capital, extends to approximately 4.22 years.
Delving into BioCryst's debt profile, they are committed to significant financial obligations. These include royalty financing responsibilities of $526.121M and secured term loans totaling $293.176M. A substantial part of this debt comes from the Pharmakon Loan Agreement they entered on April 17, 2023, with an initial loan amount of $300M. By June 30, 2023, after accounting for interest, their obligation increased to $303.824M. An important aspect of this loan is BioCryst's strategy of interest payment: for the Q2 2023, they opted to pay only half of the $7.648M interest due in cash, capitalizing the remaining half, which then added to the principal.
The Pharmakon Loan, which offers further borrowing options, is expected to be settled in full by 2028. While there's flexibility for early repayments, penalties based on the timing of these payments might apply.
Given the combination of their projected cash runway and mounting liabilities, BioCryst may need to seek additional financing avenues, particularly if they don't pivot to profitability within the anticipated timeframe or face unanticipated financial challenges.
Valuation, Growth, & Momentum
According to Seeking Alpha data: BioCryst's capital structure reveals a significant amount of debt relative to its market capitalization, with cash holdings being moderate in relation to the same. The enterprise value stands at $1.74B. The company's valuation is somewhat challenging to gauge with several traditional metrics such as P/E and Price/Book being non-applicable, though its EV/Sales ratio is 5.67. In terms of growth, BioCryst is showing promise with earnings estimates indicating a positive trajectory, transitioning from a negative EPS in 2023 to a positive one by 2025. Sales are also projected to increase each year. However, stock momentum presents concerns, with a notable downward trend over the past year, underperforming the S&P 500 significantly.
Orladeyo's Success and the Company's Expanding R&D Vision
In a recent earnings call , the company highlighted the successful trajectory of their drug, Orladeyo, and its steady adoption rate. This positions them to potentially hit their revenue projection of no less than $320 million for the year. Per management, despite multiple treatment options in the market, Orladeyo remains a preferred choice for many.
The team's participation in a major patient summit allowed them to connect with the patient community, emphasizing its significance. They're also keenly focused on expanding their research and development portfolio, hinting at new upcoming assets.
The company noted consistent growth in Orladeyo's patient base and revenue. Efforts are underway to transition more patients from free trials to paid therapy, which they figure will significantly boost revenues. The growth trends observed in the U.S. make them optimistic about reaching their annual revenue goal.
They also mentioned promising progress in Europe and their expansion efforts globally. The company remains dedicated to offering Orladeyo to HAE patients worldwide, recognizing its transformative potential.
My Analysis & Recommendation
In conclusion, BioCryst Pharmaceuticals has made notable strides, especially with the growth trajectory of Orladeyo and its consistent patient adoption. The company's direct efforts to connect with the patient community and its focus on expanding its R&D pipeline are commendable. Their recent financial reports, though revealing increased revenues, also shine a light on the company's financial health. There's an apparent liquidity concern amid sustained net losses and significant debt obligations. This could compel the company to seek additional financing, especially if they can't turn a profit in the foreseeable future.
For those investing, it's crucial to keep a keen eye on BioCryst's financial strategies in the upcoming months. This is particularly important as they strive to increase Orladeyo's market presence, contending with tough rivals like Takhzyro. The success of their marketing strategies will be pivotal in ascertaining their financial stability. Even though Orladeyo has gained some traction, the expansive market potential is overshadowed by rigorous competition. As I highlighted in a previous analysis, I had advised a "Sell" stance due to these challenging prospects. Given that the stock value has dipped by 13% since my "Short" suggestion, I'd advise against further shorting at this stage. Nonetheless, my recommendation remains a "Sell". BioCryst has yet to see profits, grappling with substantial debt. I believe Orladeyo might soon reach its zenith in the HAE market, given the competitive environment. The upcoming months are crucial for BioCryst, and I'd advise investors to proceed carefully.
Risks to Thesis
When the facts change, I change my mind.
There are always inherent risks when making stock recommendations, even for well-researched positions. Reflecting on my "Sell" recommendation for BioCryst Pharmaceuticals, a few potential risks come to mind:
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Unexpected Positive News or Breakthroughs: BioCryst could announce significant positive news related to its pipeline, a sudden surge in Orladeyo adoption, or unexpected positive clinical trial results. Any of these could lead to a sharp rise in the stock's price.
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Improved Financials: While I've noted concerns about their financial health, they might outperform expectations, either through more efficient cost management or higher-than-anticipated revenues. This could stabilize or even increase the stock value.
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Strategic Partnerships or Mergers: BioCryst might enter into strategic partnerships or be eyed for acquisition, which can lead to a stock price surge.
- Shift in Investor Sentiment: The stock market is influenced by a myriad of factors, many of which are psychological. A change in sentiment or a renewed investor interest in rare disease treatments could lead to increased demand for BioCryst shares.
For further details see:
Analyzing BioCryst's Orladeyo Q2 Growth Amidst Competition And Liquidity Hurdles