Shares of BioCryst Pop on Merger Termination, But Gains Temporary

BioCryst Pharmaceuticals (BCRX) gapped up 80% to $2.88 on Friday’s open, only to retrace to more conservative gains – albeit considerable – of 25%, or $2.04, by late morning. The move followed an announcement from BioCryst that its pending merger with Presidio Pharmaceuticals would be terminated, mutually agreed to by the companies. This is the third major piece of news from BioCryst in the last month, after the FDA communicated unease over toxicity issues with its experimental hepatitis C candidate BCX5191, and researchers recommended halting BCRX’s Phase 3 peramivir trial for futility. Considering that the merger with Presidio was highly reliant on a potential Hepatitis regimen combining drugs from both companies, the termination today makes sense. The stock reacted positively Friday because the terms of the merger called for 25.4M new shares of BCRX to be issued as payment for Presidio, which would have resulted in considerable dilution for shareholders. Nevertheless, the impressive gains aren’t likely to last.

The merger agreement also hinged on some financing arrangements, most notably, BioCryst was required to secure an additional $60M in financing, $25M of which existing Presidio shareholders had agreed to contribute. That cash was no doubt destined for use in the planned HCV regimen, but the company may still be in need of capital moving into 2013, and a number of factors will affect the company’s changing expenses. The Department of Health and Human Services Biomedical Advanced Research and Development Authority (HHS/BARDA) won’t have much interest in contributing to peramivir’s development as an influenza treatment, and BCRX has most likely seen the last of that potential $234.8M ($175M used as of Dec. 31) revenue source. Of course, that program won’t continue to generate expenses, and the company’s future has fallen to its pre-Phase III gout treatment, ulodesine, and the preclinical hereditary angioedema treatment, BCX4161. BioCryst has been looking for a partner for ulodesine since last year, and won’t advance the product into a Phase III trial without one. Top priority, says management, are: a ulodesine partnership, moving BCX4161 out of preclinical studies and into a Phase I, and demonstrating that BCX5191 has safe, antiviral capabilities in animal models before approaching the FDA with an Investigational New Drug application.

Where does that leave investors? The company reported cash and equivalents of roughly $43M at the end of the third quarter, and expects cash use this year to range between $37 and $43 million. BioCryst is looking at a $10M quarterly burn, which should decrease if the company officially terminates peramivir development. Considering the planned financing arrangement with Presidio, we wouldn’t be surprised to see a financing one way or another, although BCRX will likely hold out for funding through a partnership if possible. Despite Friday’s strength, we expect BCRX to retrace most of those gains in the near-term as trading momentum slackens and investor confidence falters in the face of a stalled pipeline. The initiation of a Phase I trial for BCX4161 or a partnership for ulodesine are the most notable near-term events for BioCryst.