BioCryst Pharmaceuticals, Inc. (BCRX) Earnings Call Transcript & Summary

Good day, and welcome to the BioCryst Pharmaceuticals Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Bluth at BioCryst. Please go ahead.

Thanks, Betsy. Good morning, and welcome to our conference call to discuss the sale of our European business. The press release we issued earlier today is available on our website. Participating with me today are CEO, Jon Stonehouse; Chief Commercial Officer, Charlie Gayer; and Chief Business Development Officer, Clayton Fletcher. Following our remarks, we'll answer your questions. Today's conference call will contain forward-looking statements, including statements related to the proposed transaction, including financial estimates and statements as to the expected timing, completion and effects of the transaction. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results or performance expressed or implied in this presentation. You should not place undue reliance on these forward-looking statements. For additional information, including a detailed discussion of our risk factors, please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed on our website. I'd now like to turn the call over to Jon Stonehouse.

Thanks, John. Earlier today, we announced the sale of our European business to Neopharmed Gentili or NG. This transaction is attractive for a number of reasons that support our strategy, most notably what it does for the company financially. As a reminder, our strategy to create greater and greater value at BioCryst has three main drivers. Number one, ORLADEYO becomes the global market leader by making it available to HAE patients around the world and generating growing and sustainable revenue on its way to $1 billion at peak. Number two, launch the next marketed product from our pipeline or sourced externally to create value beyond ORLADEYO and sustainable growth well into the next decade. And number three, build the financial strength to be independent of the capital markets, generate substantial and growing profit and have a balance sheet that allows us to do meaningful BD if and when we find attractive assets. The deal we announced today aligns with and accelerates this strategy and allows us to take a big step forward in building our financial strength. While we were not looking to sell the business, this deal was attractive for several reasons. Upon closing, NG will pay BioCryst $250 million for the European business, which includes the people and ORLADEYO in Europe. BioCryst is eligible to receive up to $14 million in future milestones associated with sales in Central and Eastern Europe. The amount of upfront cash alone is accretive to the value of the company and represents a multiple of between 5x to 6x the trailing 12 months of sales through March. The European business represents less than 10% of the global sales and has much lower margins than most of the other territories where ORLADEYO is available. So we are excited about the impact this transaction has in pulling forward profit and the greater value created compared to the path we were on. Our plan is to use the proceeds from this transaction to pay off all remaining debt -- term debt with Pharmakon. Doing this cleans up our balance sheet and saves us approximately $70 million in interest payments over the life -- the remaining life of the loan. This coupled with improving our profitability by focusing on the higher margin business primarily in the U.S. could put us in a position that by the end of 2027, we have nearly $700 million in cash with no term debt. This is an improvement of approximately $400 million in net cash from our previous projections. While we are selling the business in Europe, coordinating with the team remains an important part for the brand globally and financially important regarding the royalty. Working with the team we built, which has a great track record of success with ORLADEYO is another attractive aspect of this transaction. We have also agreed with our royalty partners that global royalty calculations will include European revenue and that NG will be responsible for royalties from European sales. This is important as it will enable European revenue to count towards the royalty tiers where we paid no royalty over $550 million and will contribute to the cap on the OMERS' royalty, which once reached will significantly reduce future royalty payments even further. For those unfamiliar with NG, they are a leading specialty pharma company primarily focused in Italy with over EUR 300 million in sales and EUR 125 million in EBITDA last year. They have a long history of collaborating with international pharma partners like Merck & Co., Novartis, Sanofi and Bayer to name a few. Founded by the Del Bono family in Italy, they have grown through acquisition with the help and financing of two major private equity shareholders, Ardian and Renaissance. Off this strong foundation, their strategy is to become a pan-European rare disease consolidator, and they chose our team and ORLADEYO to be the launching pad for this strategy. We believe this is a capital-efficient strategy that makes a ton of sense and could develop into a thriving European rare disease business, a business that could be a partner of choice for U.S. rare disease companies, including BioCryst, when we advance additional products to the market. Our current estimate is that the transaction will close fairly quickly, and we are targeting early October. Since we will report Q2 results in early August, prior to the deal closing, you should expect us to provide you with a traditional view of our business performance, including revenue and expenses related to Europe. And then on our Q3 earnings call in November, which will be after the transaction is expected to close, we plan to provide you with updated revenue and expense guidance, reflecting the new dynamics of this transaction. As we described in May, we expect Q2 will be another strong quarter for ORLADEYO, and the transaction we are announcing today provides significant additional financial strength to the company. The value we are receiving is much greater than we could have ever gotten out of the business operating it ourselves. So in summary, this deal puts us in a much stronger financial position with $250 million in upfront cash that we will use to pay off all the remaining term debt, a $70 million savings on future interest expenses, a $50 million reduction in annual operating expenses, the royalty benefits of EU sales alongside a reduction in royalty expenses, a significant increase in ORLADEYO margins and perhaps most importantly a company that will end 2027 with approximately $700 million in cash and no term debt. This concludes our prepared remarks, and we will now open it up for your questions.

[Operator Instructions] The first question today comes from Jessica Fye with JPMorgan.

Congrats on what sounds like a smart deal. I guess I was hoping that you could sort of recap the mechanics related to what this means for your royalty obligations. And yes, maybe I'll just stop there.

Yes. No. So think of it as they are a pass-through for BioCryst to pay the royalty. So the revenue that they generate, they will pay a royalty on that, and it will then be consolidated by us in the overall royalty calculation. So that's why I said we benefit from that by not having to pay that royalty, but getting the benefit of adding it into the calculation for the tiers. So remember, above $550 million, we pay nothing, 0. And then on the OMERS' debt, it goes towards the total cap, which is also significant because when that falls off, our royalty rate is reduced dramatically. So it's a pass-through is the way you should think of it.

The next question comes from Brian Abrahams with RBC Capital Markets.

This is Nevin on for Brian. Congrats on the deal. Just wondering on our side, if there's any particular pipeline programs that now you're looking to accelerate development in or if you could speak to any potential sales force expansions or other efforts to drive additional growth in the U.S. Do you see this refocus potentially enabling accelerated growth in the U.S.? And then if I could also ask a quick question as well on what your base case now would be for peak sales for ORLADEYO in the U.S. worldwide and if this deal has changed any of that as well?

Charlie, I'll start with the pipeline, and then you can take the commercial questions that Nevin has. So listen, I think we've been pretty clear that there are two main programs that we're really, really excited about in the pipeline, and that's 17725 for Netherton and avoralstat for DME. Being in a strong financial position, we were in a strong financial position to fund those programs before. We're in an even stronger position now. And if we can accelerate them, we absolutely will. But the key is data later this year for both of those programs.

Nevin, as far as the sales force goes, as we've described previously, we have a team out there of 40 reps. And we think we've got the right team in place, the right size. We're always looking at the margins, what else we can do to keep improving our performance, our already really strong performance. But no, we won't need to expand our sales force. As far as the peak sales, the $1 billion in peak sales, of course, $800 million of that is coming from the U.S. Of the other $200 million, roughly half of it was coming from Europe and then the other half is coming from everywhere else in the world. And then remember that, that peak sales estimate did not include the pediatric indication when we get that. So at some point in the future, both with peds and the overall global peak sales, we'll probably update. But right now, that's -- those are the dynamics.

Yes. And I think the other thing that I really want to stress is that not all sales regionally are worth the same value. The value of a $1 in the U.S. goes a lot farther because of the profit and the profit margin. So always think about that $800 million as the most valuable contribution to cash in the company. And so us selling 10% of the company on something that was -- from a direct basis was about breakeven. It just rapidly improves our financial situation.

Next question comes from Steven Seedhouse with Cantor.

You mentioned a couple of times business development, I think you even said if and when you find external assets, you'd pursue those. Just curious a couple of things. Strategically, what areas -- would this be sort of within allergy or outside of allergy that you'd be looking to expand the pipeline? And then would you be interested in early-stage programs or mid- or late-stage or even commercialized assets if they become -- if and when they become available?

Yes, you're welcome, Steve. So I think the first part of the answer to your question is what are we trying to do? We're trying to bring another ORLADEYO forward, right, so that we have this sustainable growth into the next decade of revenue and profit. And so later stage is better. Of course, we -- one of the beauties of rare disease is we don't have to put it in the bag of the existing sales force. If we find another rare disease where we can put up a 30 or 40-person sales force, we have all the other infrastructure. So the profitability on that could be significant. So what are our criteria? Rare disease, and we've said before, Phase II-ish and later are things that we'd be really interested in. And then the last thing I'll say is this is a market where everybody believes they can bring their own product to market. And it's just crazy that you see all these U.S. biotech companies wanting to bring their products forward on their own. That is not capital efficient. One of the great things I see with Neopharmed is that they're going to be the consolidator in Europe. And honestly, we're looking to be the consolidator in the U.S. and so -- and get the most efficiency. I think Charlie and his team have shown that we are a launch machine, and we can execute on the launch. And so yes, we're going to continue to pursue other products that could be the next ORLADEYO.

The next question comes from Stacy Ku with TD Cowen.

Congrats on the deal. So we have a few follow-ups. First, on business development, you highlighted around or nearly $700 million cash by end of 2027. We are waiting for some interesting updates by year-end. So just kind of curious if you could also comment on maybe the timing and maybe your decision to highlight end of 2027. So that's the first question. And then second, another follow-up on ORLADEYO, a little bit of an aside, but maybe talk about your expectations for peak sales. We had always thought ORLADEYO could achieve about $1 billion in U.S. alone, especially considering the IP durability. So just help us understand how you're thinking about maximizing the opportunity. And I know you've already mentioned the pediatric HAE patients.

Sure. So why 2027, we've actually referenced it before. Remember, Stacy, we gave you the compound annual growth rates, I think, over a year ago around revenue and OpEx. And so that got us to the -- I think it was around $600 million in cash and $250 million in debt after we paid down some of the debt. And so I just wanted to give you a benchmark that now it's $700 million in cash and no term debt. And a lot of that is driven by reducing expenses and continuing to grow and improving profitability. So that's one component. Cash is one component. I think the other piece is the ability to access more debt. If we find something attractive at a lower cost is another mechanism for us. So just the strength that we're in and the financial position that we're in opens up a ton of different options for us.

And Stacy, as far as the $1 billion peak and your comment about the U.S., I think you know us well. You've heard us talk about how we want to be accurate, and we have a lot of information on the market and how we see it. And so at some point in the future, I think we will update our view on global sales. We will also update, as I said earlier, our view on pediatrics. We want to wait until that gets launched and we see what the trajectory is. But whether it's $1 billion, whether it's something else, at some point in the future, we will update it. But even if it's $800 million in the U.S., as John said, a really profitable $800 million, that is a great business.

Okay. Understood. So it sounds like timing is really in terms of business development, you're just kind of looking for the right asset at the right time and it's not…

Yes, that's why I say if and when. Absolutely. If and when and when we find something that's attractive, we can act on it in a much better way, not using our shares, by the way.

The next question comes from Serge Belanger with Needham & Company.

Apologies if you already covered this, I joined late. But I guess, why now? Is this something you were shopping and/or there was an inbound interest from Neo-Med that came in? And then secondly, can you comment on the regulatory delay for the pediatric ORLADEYO NDA that was announced earlier this week?

Sure. Sure, Serge. So we weren't shopping. We were very comfortable with the business that we had. And NG came to us. And honestly, with the value of the deal that they proposed and then having our team continuing to sell ORLADEYO, it was just an offer that was incredibly attractive to us at the end of the day. And I've talked about the financial benefit that the company gets as a result. On the peds, this is a very standard thing, right? We have an NDA under review. We gave some final reports after we had done the original filing. The FDA interpreted that as a major amendment, and they have the right to add 3 months to the PDUFA date, and that's exactly what happened. So our PDUFA date is December 12. And we remain very confident and excited about bringing the granules to pediatric patients with HAE.

The next question comes from Maurice Raycroft with Jefferies.

Congrats on the update. As a follow-up to some of the earlier BD questions, just wondering how the new balance sheet strength and potential for additional debt, how that translates to what a BD deal size could look like?

Yes, I don't think we're in a position today. We haven't paid off the debt. We don't have the proceeds. But I don't think we're in a position yet. But I can tell you, it's a lot bigger than it was at a lot lower cost of capital. And then at the same time, we're generating cash. I think that's the thing you got to keep remembering is we're building the cash position while at the same time being in a stronger position to take on reasonable cost debt if and when we decide that there's something to invest further on.

Got it. Makes sense. And for -- can you talk more about the plan to pay off current debt, including how you're thinking about time lines and size of installment payments for that?

Yes. So with this deal, we can pay it all off, and that's the intent. So at closing, we'll get access to the capital and shortly after that, we'll be paying off the debt.

[Operator Instructions] The next question comes from Jon Wolleben with Citizens.

Two for me. Wondering how we should think about the realization of the $50 million in OpEx savings, if that's going to be immediate or coming in over time. And then I know you guys have brought back Japan under your wing. How do you think about the Japan opportunity? Is that something else you'd look to partner again or sell off and just focus on the U.S.? Or how do you think about the other geographies?

Yes. So the $50 million is kind of the general direct expense associated with the business in Europe. And so on an annual basis, that expense will be removed after we close the transaction. So you'll see that over -- the big impact you'll see is in 2026, number one. But there's other expenses. There's the royalty expense that we no longer pay and there's headquarters costs in supporting the organization that we didn't put in here as well. And we're still working through what all that looks like. But later in the year, you'll get a better sense of that. So $50 million is kind of the minimum savings that we're going to get from this. And then on Japan, no. I guess I could always change my mind if we got another offer from somebody like NG in Japan, but the answer is no. We deliberately went into a situation where we felt that we could change the relationship with [ Tori ], which we were successful at. And the pricing in Japan is such that the profitability is way better in Japan. And so it's the second highest price after the U.S. And so no.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Stonehouse for any closing remarks.

Thank you. Thanks again. Again, I think this just puts us in a really strong position as a company. And so thank you for joining our call today. I want to do a few thank yous quickly first to the NG team and Alessandro Del Bono for his diligence in helping get this deal done, and we look forward to being your partner going forward. I want to thank the transaction team, your tireless pursuit to make our company more valuable is just incredibly appreciated. And then lastly, to the European team and the tremendous value that you've created for our company. Thank you. So that's it for the call. Have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.