Vaxart, Inc. - Quarter Report: 2015 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q   

For the quarterly period ended December 31, 2015 

OR

For the transition period from              to             .

Commission File Number: 001-35285 

Biota Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter) 

2500 Northwinds Parkway, Suite 100, Alpharetta, GA 30009

(Address of principal executive offices, including zip code)

(678) 221 3343
(Registrant’s telephone number, including area code) 

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒     No    ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ☒     No    ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of” large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ☐     No    ☒

The number of shares outstanding of the registrant’s common stock, par value $0.10 per share at February 8, 2016 was 38,636,946 shares. 

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Biota Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(unaudited) 

(in millions, except share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Biota Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)
(in millions, except share and per share amounts)

The accompanying notes are an integral part of the condensed consolidated financial statements.

Biota Pharmaceuticals, Inc. 

Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in millions, except for share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Biota Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)
(in millions)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Biota Pharmaceuticals, Inc. 

Notes to the Condensed Consolidated Financial Statements (unaudited)
(for the quarterly period ended December 31, 2015)

ITEM 2:   Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In most cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “forecast,” “potential,” “likely” or “possible”, as well as the negative of such expressions, and similar expressions intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to: 

Various important factors could cause actual results, performance, events or achievements to materially differ from those expressed or implied by forward-looking statements, including the U.S. Food and Drug Administration ("FDA") or a similar regulatory body in another country, a data safety monitoring board, or an institutional review board delaying, limiting, suspending or terminating any of our clinical development programs at any time for a lack of safety, tolerability, anti-viral activity, commercial viability, regulatory or manufacturing issues, or any other reason whatsoever; our ability to secure, manage and retain qualified third-party clinical research, preclinical research, data management and contract manufacturing organizations upon which it relies to assist in the design, development, implementation and execution of the clinical and preclinical development of all its product candidates; and these third-party organizations fulfilling their contractual obligations on a timely and satisfactory basis; the safety or efficacy data from planned or ongoing future preclinical and clinical studies of any of its product candidates not supporting the clinical development of that product candidate; the successful enrollment of the requisite number of study participants on a timely basis; our ability to comply with applicable government regulations in various countries and regions in which we are conducting, or expect to conduct, clinical trials; our ability to retain and recruit sufficient staff, including key executive management and employees, to manage our business; our ability to maintain, protect or defend its proprietary rights from unauthorized use by others, or not infringe on the intellectual property rights of others; our ability to successfully manage our expenses, operating results and financial position in line with our plans and expectations; the condition of the financial equity and debt markets and our ability to raise sufficient funding in such markets; changes in the general economic business or competitive conditions in the industry or with respect to our product candidates; and other cautionary statements contained elsewhere in this Quarterly Report on Form10-Q and in the Company’s Annual Report on Form 10-K for the year ended June 30, 2015, as filed with the U.S. Securities and Exchange Commission on September 11, 2015.

There may be events in the future that we are unable to predict accurately, or over which we have no control. You should completely read this Form 10-Q and the documents that we reference herein that have been filed or incorporated by reference as exhibits and with the understanding that our actual future results may be materially different from what we expect. Our business, financial condition, results of operations, and prospects may change. We may not update these forward-looking statements, even though our situation may change in the future, unless we have an obligation under the federal securities laws to update and disclose material developments related to previously disclosed information. We qualify all of the information presented in this Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.

Biota is a registered trademark of Biota Pharmaceuticals, Inc., Relenza ^® is a registered trademark of GlaxoSmithKline plc, and Inavir ^® is a registered trademark of Daiichi Sankyo Company, Ltd.

References to “we,” “us,” and “our” refer to Biota Pharmaceuticals, Inc. and its subsidiaries.

The following is a discussion and analysis of the major factors contributing to our results of operations for the three months ended December 31, 2015, and our financial condition at that date, and should be read in conjunction with the financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Company Overview

We are focused on the discovery and development of direct-acting antivirals to treat infections that have limited therapeutic options and affect a significant number of patients globally. We have three product candidates in clinical development: vapendavir, which is an oral treatment for human rhinovirus (“HRV”) infections in moderate-to-severe asthmatics, currently being evaluated in our ongoing Phase 2b SPIRITUS trial; BTA074, a topical antiviral in Phase 2 development for the treatment for genital warts caused by human papillomavirus (“HPV”) types 6 & 11; and BTA585, an oral fusion (“F”) protein inhibitor in Phase 1 development for the treatment of respiratory syncytial virus (“RSV”)-A and RSV-B infections. We also have a preclinical RSV non-fusion inhibitor program.

Although several of our influenza product candidates have been successfully developed and commercialized to-date by other larger pharmaceutical companies under license, collaboration or commercialization agreements with us, we have not independently developed or received regulatory approval for any product candidate, and we do not currently have any sales, marketing or commercial capabilities. Therefore, it is possible that we may not derive any significant product revenues from any product candidates that we are developing now, or may develop in the future. We expect to incur losses for the foreseeable future as we intend to support the clinical and preclinical development of our product candidates.

We plan to continue to finance our operations with (i) our existing cash, cash equivalents, and investments (ii) proceeds from existing or potential future royalty-bearing licenses, collaborative research and development arrangements, (iii) future equity and/or forms of asset and debt financing or (iv) other financing arrangements. Our ability to continue to support our operations is dependent, in the near-term, upon our successful management of our cash resources, our continuing to receive royalty revenue under our existing licenses, our ability to enter into future collaboration, license or commercialization agreements, the successful development of our product candidates, our ability to execute future financings, if needed, and ultimately, upon the approval of our products for sale and achievement of positive cash flows from operations on a consistent basis. There can be no assurance that additional capital or funds will be available on terms acceptable to us, if at all, or that we will be able to enter into collaboration, license or commercialization agreements in the future, or that we will ever generate significant product revenue and become operationally profitable on a consistent basis.

Recent Corporate Developments

On February 5, 2016, we reported the following:

Announced positive Phase 1 data for BTA585. The top-line results were from a blinded, placebo-controlled single ascending dose study, which tested doses of up to 800 mg of BTA585, an oral fusion inhibitor in development for the treatment and prevention of RSV infections. Findings included:

Commenced dosing in Phase 1 MAD study of BTA585. This study will evaluate the safety and PK of BTA585 in healthy volunteers following seven days of oral dosing. Top-line data is anticipated to be available in the first quarter of 2016.

Enrollment on track for Phase 2b SPIRITUS trial for vapendavir. Top-line data are expected in the second half of 2016 from the multi-center, randomized, double-blind, placebo-controlled dose-ranging study in moderate-to-severe adult asthmatics with symptomatic HRV and a history of asthma exacerbation from colds.

Corporate Updates

Appointed Mark P. Colonnese as Executive Vice President and Chief Financial Officer on November 2, 2015. We announced the appointment of Mark Colonnese as Executive Vice President and Chief Financial Officer. Mr. Colonnese has held a number of senior executive positions in the pharmaceutical industry and, most recently, was Chief Financial Officer of Stealth BioTherapeutics, Inc.

On February 8, 2016, we reported the following:

Commenced dosing in Phase 2 trial of antiviral therapy BTA074 for topical treatment of condyloma. The first patient has been dosed in a Phase 2 double-blind, randomized, placebo-controlled trial to evaluate the safety, tolerability and efficacy of BTA074 5% gel in male and female patients with condyloma, or anogenital warts, caused by HPV types 6 & 11. BTA074 is a potent and selective inhibitor of the interaction between two viral proteins from HPV6 and HPV11, and is designed to prevent HPV DNA replication. The Phase 2 trial is expected to enroll approximately 210 patients with anogenital warts and will have a 2-to-1 randomization of BTA074 5% gel to placebo gel. The patients will be dosed twice daily for up to 16 weeks. The primary efficacy objective is to determine the complete clearance rate for baseline anogenital warts from the commencement of therapy to the end of the treatment period. Secondary efficacy endpoints include various assessments of clearance and wart area reduction for both baseline warts and post-baseline emergent warts.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Results of Operations discusses our financial results, which (except to the extent described in the Notes thereto) have been presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

We base our estimates and judgments on historical experience, current economic and industry conditions, and various other factors that we believe to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies require significant judgment and estimates:

In August 2014, the Financial Accounting Standards Board issued authoritative accounting guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. This guidance is effective for public and non-public entities for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. We are currently assessing the expected impact that this Accounting Standards Update will have on the consolidated financial statements.

In May 2014, the Financial Accounting Standards Board issued authoritative accounting guidance related to revenue from contracts with customers. This guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. We will adopt this guidance on July 1, 2017. We may use either a full retrospective or a modified retrospective approach to adopt this guidance. We are evaluating which transition approach to use and its impact, if any, on our consolidated financial statements. 

In November 2015, the Financial Accounting Standards Board issued guidance on the balance sheet classification of deferred taxes which eliminates the current requirement to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet and now requires entities to classify all deferred tax assets and liabilities as noncurrent. This guidance is effective for our fiscal year ended September 2018. Early adoption is permitted. We adopted the guidance immediately which resulted in the offset of $0.5 million deferred tax assets and liabilities from the condensed consolidated balance sheet at December 31, 2015.

There have been no material changes to our critical accounting policies and estimates during the first six months of fiscal 2016. 

Results of Operations for the Three months ended December 31, 2015 and December 31, 2014

Summary. For the three months ended December 31, 2015, we reported a net loss of $6.5 million, as compared to a net income of $6.5 million in the same period of the prior fiscal year. Basic and diluted net loss per share was $0.17 for the three month period ended December 31, 2015, as compared to a basic and diluted net income per share of $0.19 in the same period of 2014. The following commentary provides details underlying changes from last year in the major line items of our Statement of Operations:

Revenue. Revenue decreased to $1.7 million for the three months ended December 31, 2015 from $13.9 million for the same period in 2014. The following table summarizes the key components of our revenue for the three months ended December 31, 2015 and 2014:  

Revenue from services decreased due to a reduction in contract service revenue related to the cancellation of our contract with BARDA in May 2014. Royalty revenue decreased primarily due to a larger Relenza^® government stock pile order received last year in 2014 and lower seasonal sales of Relenza^® and Inavir^® in 2015 as compared to last year, reflecting an earlier than normal flu season in 2014.

Cost of Revenue. Cost of revenue decreased to zero for the three months ended December 31, 2015 from $1.6 million for the same period in 2014. Direct preclinical, clinical and product development expense in 2014 were incurred for the development of LANI under the BARDA contract, which has since been terminated. 

Research and Development Expense. Research and development expense increased to $6.3 million for the three months ended December 31, 2015 from $4.8 million for the same period in 2014. The following table summarizes the components of our research and development expense for the three months ended December 31, 2015 and 2014.

Direct preclinical, clinical and product development expense increased largely due to ongoing clinical costs associated with the Phase 2b SPIRITUS clinical trial for vapendavir, the Phase 1 single ascending dose (“SAD”) and MAD clinical trial for BTA585 and startup expenses for the Phase 2 clinical trial for BTA074 that initiated in February 2016. Salaries, benefits and share-based compensation, as well as depreciation and facility related expenses decreased primarily due to the closure of our early-stage research facility in March 2015. 

General and Administrative Expense. General and administrative expense decreased to $2.1 million for the three months ended December 31, 2015 from $2.6 million for the same period in 2014. The following table summarizes the components of our general and administrative expense for the three months ended December 31, 2015 and 2014.

Salaries, benefits and share-based compensation decreased primarily due to a reduction in administrative personnel related to our early-stage research facility closure in March 2015

Foreign Exchange Loss (Gain), net. Foreign exchange gain decreased to $0.2 million from $1.6 million gain last year. The positive impact on foreign exchange on our Statement of Operations in both periods was due to fluctuations in foreign currency exchange rates versus the U.S. dollar, largely related to the Australian dollar. We translate all of our foreign assets and liabilities at the period-end exchange rate and the net effect of these translation adjustments is shown as a foreign currency loss or gain.

Results of Operations for the Six months ended December 31, 2015 and December 31, 2014

Summary. For the six months ended December 31, 2015, we reported a net loss of $13.2 million, as compared to a net loss of $0.4 million in the same period of the prior fiscal year. Basic and diluted net loss per share was $0.34 for the three month period ended December 31, 2015, as compared to a basic and diluted net income per share of $0.01 in the same period of 2014. The following commentary provides details underlying changes from last year in the major line items of our Statement of Operations:

Revenue. Revenue decreased to $3.4 million for the six months ended December 31, 2015 from $14.6 million for the same period in 2014. The following table summarizes the key components of our revenue for the six months ended December 31, 2015 and 2014:  

Revenue from services decreased due to a reduction in contract service revenue related to the cancellation of our contract with BARDA in May 2014. Royalty revenue decreased primarily due to a non-recurring Relenza^® government stock pile order received last year in 2014 and lower seasonal sales of Relenza^® and Inavir^® in 2015 as compared to last year, reflecting an earlier than normal flu season in 2014.

Cost of Revenue. Cost of revenue decreased to zero for the six months ended December 31, 2015 from $3.3 million for the same period in 2014. Cost of revenue in 2014 was incurred for the development of LANI under the BARDA contract, which has since been terminated.

Research and Development Expense. Research and development expense increased to $11.8 million for the six months ended December 31, 2015 from $9.7 million for the same period in 2014. The following table summarizes the components of our research and development expense for the six months ended December 31, 2015 and 2014.

Direct preclinical, clinical and product development expense increased largely due to ongoing clinical costs associated with the Phase 2b SPIRITUS clinical trial for vapendavir, the Phase 1 SAD and MAD clinical trial for BTA585 and startup expenses for the Phase 2 clinical trial for BTA074 that initiated in February 2016. Salaries, benefits and share-based compensation, as well as depreciation and facility related expenses decreased primarily due to the closure of our early-stage research facility in March 2015.

General and Administrative Expense. General and administrative expense decreased to $4.4 million for the six months ended December 31, 2015 from $5.0 million for the same period in 2014. The following table summarizes the components of our general and administrative expense for the six months ended December 31, 2015 and 2014.

Salaries, benefits and share-based compensation decreased primarily due to a reduction in administrative personnel related to our early-stage research facility closure in March 2015.

Foreign Exchange Loss (Gain), net. The impact of foreign exchange changed from a gain of $2.8 million in 2014 to a loss of $0.5 million due to fluctuations in foreign currency exchange rates versus the U.S. dollar, largely related to the Australian dollar. The vast majority of our cash holdings are held in the U.S. dollar. We translate all of our foreign assets and liabilities at the period-end exchange rate and the net effect of these translation adjustments is shown as a foreign currency loss or gain.

 LIQUIDITY AND CAPITAL RESOURCES

For the six months ended December 31, 2015, cash and cash equivalents decreased by $5.7 million. This decrease was primarily the result of our operating activities, offset in part by the receipt of a significant amount of accounts receivable during the period and cash provided by our investing activities.

Net cash used by operating activities was $8.2 million for the six months ended December 31, 2015, which reflected our net loss during the period of $13.2 million and a decrease in operating liabilities of $2.8 million, partially offset by a net decrease in operating assets of $6.6 million and non-cash charges for share-based compensation of $1.2 million.

Our net loss resulted largely from our funding of research and development activities including conducting clinical and preclinical studies, manufacturing and formulation of our product candidates, as well as ongoing general and administrative expenses and a foreign exchange loss, offset in part by our royalty revenues and interest income. The net changes in operating assets and liabilities reflects a $7.5 million decrease in accounts receivable, offset in part by a $2.8 million decrease in accounts payable and accrued expenses and a $0.9 million increase in prepaid expenses.

Net cash provided by investing activities during the six months ended December 31, 2015 consisted of the maturity of $9.0 million of investments, offset in part by the purchase of $6.4 investments.

Net cash used in financing activities during the six months ended December 31, 2015 consisted of $0.1 million for payment on a note payable.

At December 31, 2015, our cash and cash equivalents totaled $39.0 million, not including our short and long-term investments of $18.2 million. Our cash and cash equivalents are currently held in the form of short-term deposits with large U.S. banks. Our short-term and long-term investments consist primarily of U.S. treasury securities, U.S. government agency securities, certificates of deposit and corporate securities.

Our future funding requirements are difficult to determine and will depend on a number of factors, including:

Based on our current strategy and operating plan, and considering the potential costs associated with advancing the clinical and preclinical development of our product candidates, we believe that our existing cash and cash equivalents of $39.0 million, plus our liquid investments of $18.2 million as of December 31, 2015, along with the anticipated proceeds from existing royalty-bearing licenses will enable us to operate for a period of at least 12 months from December 31, 2015.

We currently do not have any commitments for future funding, nor do we anticipate that we will generate significant revenue, aside from existing revenue from royalty-bearing arrangements. Therefore, in order to meet our anticipated liquidity needs beyond 12 months to support the development of our product candidates and operations, or possibly sooner in the event we enter into other transactions or revise our strategy or development plans, we may need to raise or secure additional capital. We would expect to do so primarily through the sale of additional common stock or other equity securities, as well as through proceeds from future licensing agreements, strategic collaborations, forms of asset and debt financing, or any other financing vehicle. On October 2, 2015, the Company entered into a sale agreement with MLV & Co. LLC and FBR Capital Markets & Co, (the “Sales Agents”) to offer shares of the Company’s common stock from time to time through the Sales Agents, as the Company’s Sales Agents for the offer and sale of the shares, in an “at the market” offering. The Company may offer and sells shares of common stock for an aggregate offering price of up to $25,000,000. Funds from these sources may not be available to us on acceptable terms, if at all, and our failure to raise such funds could have a material adverse impact on our future business strategy and plans, financial condition and results of operations. If adequate funds are not available to us on acceptable terms in the future, we may be required to delay, reduce the scope of, or eliminate one or more of our research and development programs, or delay or curtail our preclinical studies and clinical trials, or reduce our internal cost structure. If additional capital is not available to us on acceptable terms, we may need to obtain funds through license agreements, or collaborative or partner arrangements pursuant to which we will likely relinquish rights to certain product candidates that we might otherwise choose to develop or commercialize independently, or be forced to enter into such arrangements earlier than we would prefer, which would likely result in less favorable transaction terms. Additional equity financings may be dilutive to holders of our common stock, and debt financing, if available, may involve significant payment obligations and covenants that restrict how we operate our business.

Contractual and Commercial Commitments

There have been no material changes from the information included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4) (ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

ITEM 3:  Quantitative and Qualitative Disclosures about Market Risk

There has been no material change in our assessment of sensitivity to market risk since our presentation set forth in Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in the our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

ITEM 4:  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings that are incidental to the conduct of its business. The Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on its financial condition or results of operations.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6.  EXHIBITS

The exhibits to this report are listed in the Exhibit Index, which is incorporated into this Item 6 by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX

*      This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of Biota Pharmaceuticals, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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