BioCryst Pharmaceuticals Inc.
11/04/2025 | Press release | Distributed by Public on 11/04/2025 15:03
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand our results of operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying notes to the financial statements and other disclosures included in this report (including the "Cautionary Note Regarding Forward-Looking Statements"at the beginning of this report and the "Risk Factors"section in Part II, Item 1A of this report).
Overview
We are a global biotechnology company focused on developing and commercializing medicines for hereditary angioedema ("HAE") and other rare diseases, driven by our deep commitment to improving the lives of people living with these conditions. We have built a robust commercial infrastructure to support the launch and continued success of ORLADEYO, an oral, once-daily therapy discovered and developed internally for the prevention of HAE attacks. Our business strategy includes leveraging this established commercial platform to successfully commercialize a pipeline of potential first-in-class or best-in-class oral small-molecule and injectable protein therapeutics targeting a range of rare diseases. These programs are being pursued through both internal discovery efforts and strategic business development. By utilizing our existing commercial capabilities and focusing on rare disease markets, we believe that we can more effectively optimize our costs and strategically allocate resources to support long-term, sustainable growth.
Products and Product Candidates
ORLADEYO®(berotralstat)
ORLADEYO is an oral capsule, once-daily therapy discovered and developed by us for the prevention of HAE attacks. ORLADEYO is approved in the United States and other global markets for the prevention of HAE attacks in adults and pediatric patients 12 years and older. In addition, the ongoing APeX-P clinical trial, which is complete through the primary endpoint, is continuing to assess an oral granule formulation of ORLADEYO in pediatric patients who are 2 to 11 years of age at enrollment. The Prescription Drug User Fee Act goal date for our new drug application for ORLADEYO granules in children with HAE aged 2 to 11 is December 12, 2025. ORLADEYO would be the first targeted oral prophylactic therapy for children with HAE.
Based on proprietary analyses of HAE prevalence and market research studies with HAE patients, physicians, and payors in the United States and Europe, and nearly five years of commercialization experience with ORLADEYO, we anticipate that the global commercial market for ORLADEYO has the potential to reach a global peak of $1 billion in annual net ORLADEYO revenues. These expectations are subject to numerous risks and uncertainties that may cause our actual results, performance, or achievements to be materially different. There can be no assurance that our commercialization methods and strategies will succeed, or that the market for ORLADEYO will develop in line with our current expectations. See "Risk Factors-Risks Relating to Our Business-Risks Relating to Drug Development and Commercialization-There can be no assurance that our or our partners' commercialization efforts, methods, and strategies for our products or technologies will succeed, and our future revenue generation is uncertain" in Part II, Item 1A of this report for further discussion of these risks.
Revenue from sales of ORLADEYO for the three and nine months ended September 30, 2025 is discussed under "Results of Operations" in this MD&A. Revenue from sales of ORLADEYO in future periods is subject to uncertainties and will depend on several factors, including, but not limited to, the success of our and our partners' commercialization efforts in the United States and elsewhere, the number of new patients switching to ORLADEYO, patient retention and demand, the number of physicians prescribing ORLADEYO, the rate of monthly prescriptions, reimbursement from third-party and government payors, the number of patients receiving free product, our pricing strategy, and market trends. We monitor and analyze this data on an ongoing basis as we continue to commercialize ORLADEYO and adjust our forecasts accordingly.
BCX17725 (Netherton syndrome)
BCX17725 is a potent and selective investigational protein therapeutic KLK5 inhibitor designed to provide best-in-class, potentially disease-modifying, treatment for people with Netherton syndrome. Netherton syndrome is a serious, rare, lifelong genetic disorder causing disruption of the skin barrier with premature separation of the skin layers, chronic inflammation and vulnerability to serious infections, caused by lack of normal function of a natural inhibitor of KLK5. People with Netherton syndrome often have itchy, red, scaly, inflamed skin, fragile hair, and are more likely to develop severe food allergies, asthma and eczema. Netherton syndrome can be life-threatening, especially during infancy when
patients are vulnerable to dehydration and recurrent infections. Currently, there are no approved treatments that target the underlying cause of Netherton syndrome. BCX17725 is designed to replace missing functions of the natural KLK5 inhibitor, which could restore the normal skin barrier and result in improved skin function, including protection from severe inflammatory and infectious complications of the disease.
Avoralstat
Avoralstat, an investigational plasma kallikrein inhibitor, is designed to treat patients with diabetic macular edema ("DME") through delivery of avoralstat to the back of the eye through the suprachoroidal space. DME is an important cause of vision loss in diabetes and is due to leakage of fluid from the blood vessels in the retina. While current treatments focus on vascular endothelial growth factor ("VEGF") inhibition, DME can develop from other mechanisms, such as the kallikrein-bradykinin pathway. This is supported by observations that many DME patients have an incomplete response to intravitreal anti-VEGF therapies that are administered every four to eight weeks. Avoralstat targets the kallikrein-bradykinin system on the retinal vascular endothelial cells and may result in less vascular leakage and less edema. Avoralstat, delivered to the suprachoroidal space, is designed to provide long-lasting exposure to the retinal vessels, which could result in less frequent injections and a reduced burden on patients and the healthcare system.
RAPIVAB®/RAPIACTA®/PERAMIFLU®(peramivir injection)
RAPIVAB (peramivir injection) is approved in the United States for the treatment of acute uncomplicated influenza for patients six months and older. Since the 2009 H1N1 pandemic, RAPIVAB has been an important component of the U.S. Government's influenza preparedness efforts. Peramivir injection is also approved in Canada (RAPIVAB), Australia (RAPIVAB), Japan (RAPIACTA), Taiwan (RAPIACTA), and Korea (PERAMIFLU).
Revenues and Expenses
Our revenues are difficult to predict and depend on several factors, including those discussed in the "Risk Factors" section in Part II, Item 1A of this report. For example, our revenues depend, in part, on regulatory approval decisions for our products and product candidates, the effectiveness of our and our collaborative partners' commercialization efforts, market acceptance of our products, particularly ORLADEYO, and the resources dedicated to our products and product candidates by us and our collaborative partners, as well as entering into or modifying licensing agreements for our product candidates. Furthermore, revenues related to our collaborative development activities are dependent upon the progress toward, and the achievement of, developmental milestones by us or our collaborative partners.
Our operating expenses are also difficult to predict and depend primarily on research and development activities, including drug manufacturing, clinical research activities, and the ongoing requirements of our development programs, as well as the costs of commercialization, direction from regulatory agencies and the factors discussed in the "Risk Factors" section in Part II, Item 1A of this report. Management may be able to control the timing and level of research and development and selling, general and administrative expenses, but many of these expenditures will occur irrespective of our actions due to contractually committed activities and/or payments.
As a result of these factors, we believe that period-to-period comparisons are not necessarily meaningful, and you should not rely on them as an indication of future performance. Due to the foregoing factors, it is possible that our operating results will be below the expectations of market analysts and investors. In such event, the prevailing market price of our common stock could be materially adversely affected.
Recent Developments
ORLADEYO (berotralstat)
On August 4, 2025, we announced that new real-world data from over 350 patients with HAE with normal C1 inhibitor showed substantial reductions in attack rates with ORLADEYO, which we believe reinforces its value for a historically underserved patient segment and provides strong evidence to close gaps in both treatment and reimbursement.
BCX17725 (Netherton syndrome)
On July 30, 2025, we were notified that the U.S. Food and Drug Administration (the "FDA") granted Fast Track designation for BCX17725 for the treatment of Netherton syndrome. On November 3, 2025, we announced that we expect initial data from Netherton syndrome patients participating in our phase 1 trial of BCX17725 by the end of the first quarter of 2026.
Avoralstat
On August 4, 2025, we announced that we were enrolling patients in the first clinical trial with suprachoroidal delivery of avoralstat in Australia. On November 3, 2025, we reaffirmed that we expect initial data from the avoralstat program by the end of the year and announced that we plan to seek a strategic partner for development beyond phase 1.
Neopharmed Gentili S.p.A. Transaction
As previously disclosed, on June 27, 2025, we entered into a stock purchase agreement (the "Stock Purchase Agreement") with BioCryst Ireland Limited ("BioCryst Ireland"), a private limited company incorporated under the laws of Ireland and a wholly owned subsidiary of the Company, and Neopharmed Gentili S.p.A., a corporation organized under the laws of Italy ("Neopharmed"). On October 1, 2025 (the "Closing"), under the terms of the Stock Purchase Agreement, we sold to Neopharmed all of our equity interests in BioCryst Ireland, which, together with its subsidiaries, holds certain assets, rights, and employees related to our European ORLADEYO business (the "European ORLADEYO Business"). At the Closing, we received cash proceeds of $250.0 million, plus customary purchase price adjustments as set forth in the Stock Purchase Agreement. In addition, Neopharmed has agreed to pay us up to $14.0 millionif certain revenue milestones are achieved prior to December 31, 2032. In connection with the Closing, Neopharmed also paid a $15.0 million royalty release fee to RPI 2019 Intermediate Finance Trust.
Concurrent with the Closing of the transactions contemplated by the Stock Purchase Agreement, on October 1, 2025, we and BioCryst Ireland amended and restated our existing intellectual property licence agreement pursuant to which we will continue to grant to BioCryst Ireland certain rights with respect to ORLADEYO in the territory (the "Amended and Restated IP Licence Agreement"). The terms of the Amended and Restated IP Licence Agreement may also extend to the pediatric line extension of ORLADEYO, subject to certain regulatory approvals.
In connection with the Closing, on October 1, 2025, we entered into a supply agreement with BioCryst Ireland, pursuant to which we will be the exclusive supplier of ORLADEYO products to BioCryst Ireland for commercialization in the territory. Additionally, in connection with the Closing, on October 1, 2025, we entered into a global brand and support agreement with BioCryst Ireland, which provides for coordination of brand and regulatory activities between us and BioCryst Ireland regarding ORLADEYO products. In connection with the Closing, on October 1, 2025, we also entered into a mutual transition services agreement with BioCryst Ireland, pursuant to which we and BioCryst Ireland will provide each other with certain transition services for the periods of time and for the compensation set forth under the agreement, on customary commercial terms.
Lastly, in connection with the Closing, on October 1, 2025, we entered into a trademark license agreement with BioCryst Ireland, pursuant to which we granted to BioCryst Ireland a non-exclusive transitionary license to use the "BioCryst" name, solely to develop, manufacture and commercialize ORLADEYO products in the territory for a limited period of time, and an exclusive license to use the ORLADEYO product name to commercialize ORLADEYO products for such uses for the term of the Amended and Restated IP Licence Agreement, in each case subject to the terms and conditions set forth therein.
Pharmakon Loan Agreement
As previously disclosed,on July 24, 2025, we made a partial prepayment of $50.0 millionof the outstanding principal amount under the Pharmakon Loan Agreement. On October 8, 2025, we used a portion of the proceeds from the sale of the European ORLADEYO Businessto pay off in full the outstanding principal balance of $198.7 million and terminate the Pharmakon Loan Agreement.
Astria Therapeutics, Inc. Agreement and Plan of Merger
On October 14, 2025, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Axel Merger Sub, Inc., a Delaware corporation and our wholly owned subsidiary ("Merger Sub"), and Astria Therapeutics, Inc., a Delaware corporation ("Astria"). Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions specified therein, at the Effective Time (as defined below), Merger Sub will merge with and into Astria, with Astria surviving as our wholly owned subsidiary (the "Merger").
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of Astria common stock, par value $0.001 per share, issued and outstanding immediately prior to the
Effective Time will be, subject to certain exceptions, converted into the right to receive (i) 0.59 of a share of our common stock (and, if applicable, cash in lieu of fractional shares), and (ii) $8.55 in cash, without interest, subject to certain adjustments and applicable withholding taxes. Holders of Astria's Series X Convertible Preferred Stock, warrants, and certain options will also be entitled to certain consideration, as further set forth in the Merger Agreement. The Merger is subject to the approval of Astria's stockholders, as well as customary regulatory approvals. In connection with entering into the Merger Agreement, certain stockholders of Astria entered into voting and support agreements with us, pursuant to which each such stockholder has agreed, among other things, to vote its, his or her shares of Astria common stock in favor of the adoption of the Merger Agreement and approval of the transactions contemplated thereby and, subject to certain exceptions, not to transfer such shares of Astria common stock prior to the earlier of the Effective Time and the termination of the Merger Agreement, without our prior written consent.
Financing Commitments
On October 14, 2025, in connection with the transactions contemplated by the Merger Agreement, we entered into a debt commitment letter (the "Commitment Letter") with certain affiliates of Blackstone, Inc. ("Blackstone") pursuant to which Blackstone agreed to provide a $550.0 million senior secured credit facility consisting of (i) a committed initial term loan in an aggregate principal amount of $350.0 million (the "Initial Term Loan"), (ii) a committed delayed draw term loan facility in an aggregate principal amount not exceeding $50.0 million (the loans thereunder, the "Committed Delayed Draw Term Loans") and (iii) an uncommitted delayed draw term loan facility in an aggregate principal amount not exceeding $150.0 million. The Initial Term Loan and any Committed Delayed Draw Term Loans funded on the closing date of the Merger will be used for the purpose of, among other things, funding the consideration for the transactions contemplated by the Merger Agreement and paying fees and expenses related to the Merger. The commitments with respect to the Initial Term Loan and any Committed Delayed Draw Term Loans funded on the closing date of the Merger are subject to customary conditions for acquisition financings, including the execution and delivery of definitive documentation with respect to the senior secured credit facility in accordance with the terms set forth in the Commitment Letter and the consummation of the Merger.
Results of Operations (three months ended September 30, 2025 compared to the three months ended September 30, 2024)
For the three months ended September 30, 2025, total revenues were $159.4 million compared to $117.1 million for the three months ended September 30, 2024. The increase in total revenues was due to a $42.8 million increase in ORLADEYO net revenue, including royalties, primarily due to an increase in volume of direct sales of ORLADEYO, which was driven by strong patient demand, an increase in price, and an increase in the rate of paid shipments.
Cost of product sales for the three months ended September 30, 2025 and 2024 was $2.2 million and $3.2 million, respectively. The decrease in cost of product sales was primarily due to a decrease in inventory reserves recorded during the three months ended September 30, 2025 compared to the three months ended September 30, 2024.
The following table summarizes our research and development expenses, including program specific costs and shared or indirect operating costs recognized as research and development expenses for the periods indicated (in thousands):
| Three Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Berotralstat | $ | 2,575 | $ | 2,954 | |||||||
| BCX17725 | 7,574 | 1,154 | |||||||||
| Avoralstat | 1,800 | 2,104 | |||||||||
| Factor D Program | 35 | 1,193 | |||||||||
| Research, discovery and preclinical programs | 5,457 | 3,309 | |||||||||
| Compensation and related personnel costs | 13,313 | 14,257 | |||||||||
| Stock-based compensation | 6,520 | 8,530 | |||||||||
| Other non-program specific and indirect costs | 7,329 | 7,580 | |||||||||
| Total research and development expenses | $ | 44,603 | $ | 41,081 | |||||||
We do not maintain or evaluate internal research and development costs on a program-by-program basis. As a result, a significant portion of our research and development expenses are not tracked on a program-by-program basis, as the costs may benefit multiple programs. Beginning the quarter ended September 30, 2025, we no longer allocate non-program specific external costs or internal costs to programs. These costs are separately presented on the respective line items listed above. Research and development expenses have been reclassified for the three months ended September 30, 2024 for comparability. There is no impact on total research and development expenses.
Research and development expenses increased to $44.6 million for the three months ended September 30, 2025 from $41.1 million for the three months ended September 30, 2024. The increase was primarily driven by the following:
•$6.4 million increase in BCX17725 primarily due to an increase in manufacturing and clinical operations as we enroll our phase 1 trial in healthy volunteers and patients;
•$2.1 million increase in research, discovery and preclinical programs primarily due to investigational new drug application-enabling activities related to our early-phase pipeline programs; partially offset by:
•$2.0 million decrease in stock-based compensation expense primarily due to the acceleration of stock-based compensation expense upon adoption of the retirement policy in July 2024, partially offset by an increase in restricted stock unit awards granted;
•$1.2 million decrease in Factor D Program due to the discontinuation and close-out of the program in 2024; and
•$0.9 million decrease in compensation and related personnel costs primarily attributed to a decrease in research and development related headcount.
Research and development expenses include all direct and indirect expenses relating to research and development activities. Direct expenses consist of compensation for research and development personnel and costs of outside parties to conduct laboratory studies, develop manufacturing processes and manufacture the product candidates, and conduct and manage clinical trials, as well as other costs related to our clinical and preclinical studies. Additionally, direct expenses consist of those costs necessary to discontinue and close out a development program, including termination fees and other commitments. Indirect expenses consist of lab supplies and services, facility expenses, depreciation of development equipment and other overhead of our research and development efforts. Research and development expenses vary according to the number of programs in clinical development and the stage of development of our clinical programs. Later stage clinical programs tend to cost more than earlier stage programs due to the longer length of time of the clinical trials and the higher number of patients enrolled in these clinical trials.
Selling, general and administrative expenses for the three months ended September 30, 2025 were $83.0 million compared to $65.1 million for the three months ended September 30, 2024. This increase was driven by an increase in ORLADEYO related regulatory, safety and quality activities as efforts shifted from development to supporting commercial products, reflecting the program's commercial progression, as well as increases in variable costs driven by the increase in ORLADEYO sales and an increase in headcount primarily associated with European growth. This increase was also driven by $3.5 million of transaction-related costs and a $3.4 million increase in stock-based compensation expense as a result of an increase in restricted stock units granted and adjustments for estimated forfeitures.
Interest expense for the three months ended September 30, 2025 was $19.7 million compared to $24.8 million for the three months ended September 30, 2024. Interest expense is primarily comprised of non-cash interest expense due to the amortization of interest associated with the royalty financing obligations and interest expense associated with the borrowings under the Pharmakon Loan Agreement (as defined below), including the amortization of the deferred financing costs, associated with the borrowings under the Pharmakon Loan. The decrease in interest expense was primarily the result of the $75.0 million and $50.0 million partial prepayments on the outstanding principal amount under the Pharmakon Term Loan in April 2025 and July 2025, respectively, and a decrease in the effective interest rate related to the Pharmakon Loan Agreement.
For the three months ended September 30, 2025, interest income was $2.2 million compared to $3.6 million for the three months ended September 30, 2024. The decrease in interest income was primarily the result of an overall decrease in our investment portfolio and a decrease in interest rates. Net foreign currency gains were less than $0.1 million for the three months ended September 30, 2025 and $0.1 million for the three months ended September 30, 2024.
In July 2025, the Company made a $50.0 million partial prepayment on the outstanding principal amount under the Pharmakon Term Loan resulting in a one-time loss on extinguishment of debt of $2.7 million for the three months ended September 30, 2025.
For the three months ended September 30, 2025, other income was $2.7 million, which was primarily comprised of pre-close transaction services BioCryst performed on behalf of Neopharmed related to the sale of BioCryst Ireland.
For the three months ended September 30, 2025, income tax benefit was $0.8 million compared to income tax expense of $0.6 million for the three months ended September 30, 2024. The increase was primarily driven by the impact of the One Big Beautiful Bill Act ("OBBBA") which was signed into law on July 4, 2025.
Results of Operations (nine months ended September 30, 2025 compared to the nine months ended September 30, 2024)
For the nine months ended September 30, 2025, total revenues were $468.3 million compared to $319.2 million for the nine months ended September 30, 2024. The increase in total revenues was due to a $136.7 million increase in ORLADEYO net revenue, including royalties, primarily due to an increase in volume of direct sales of ORLADEYO, which was driven by strong patient demand, an increase in price, and an increase in the rate of paid shipments. The increase in total revenues was also due to an increase in other revenues of $12.4 million, primarily due to an increase in direct sales of peramivir.
Cost of product sales for the nine months ended September 30, 2025 and 2024 was $9.6 million and $6.2 million, respectively. The increase in cost of product sales was primarily due to the increase in peramivir sales.
The following table summarizes our research and development expenses, including program specific costs and shared or indirect operating costs recognized as research and development expenses for the periods indicated (in thousands):
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Berotralstat | $ | 9,214 | $ | 10,504 | |||||||
| BCX17725 | 13,346 | 6,591 | |||||||||
| Avoralstat | 7,584 | 4,960 | |||||||||
| Factor D Program | 454 | 7,299 | |||||||||
| Research, discovery and preclinical programs | 11,641 | 8,325 | |||||||||
| Compensation and related personnel costs | 38,025 | 42,630 | |||||||||
| Stock-based compensation | 24,374 | 20,923 | |||||||||
| Other non-program specific and indirect costs | 20,621 | 23,965 | |||||||||
| Total research and development expenses | $ | 125,259 | $ | 125,197 | |||||||
We do not maintain or evaluate internal research and development costs on a program-by-program basis. As a result, a significant portion of our research and development expenses are not tracked on a program-by-program basis, as the costs may benefit multiple programs. Beginning with the quarter ended September 30, 2025, we no longer allocate non-program specific external costs or internal costs to programs. These costs are separately presented on the respective line items listed above. Research and development expenses have been reclassified for the nine months ended September 30, 2024 for comparability. There is no impact on total research and development expenses.
Research and development expenses increased to $125.3 million for the nine months ended September 30, 2025 from $125.2 million for the nine months ended September 30, 2024. The increase was primarily driven by the following:
•$6.8 million increase in BCX17725 primarily due to an increase in manufacturing and clinical operations as we enroll our phase 1 trial in healthy volunteers and patients;
•$3.5 million increase in stock-based compensation expense primarily due an increase in restricted stock unit awards granted and the retirement policy adopted in July 2024;
•$3.3 million increase in research, discovery and preclinical programs due to investigational new drug application-enabling activities related to our early-phase pipeline programs; and
•$2.6 million increase in avoralstat due to an increase in manufacturing and clinical startup activities; partially offset by:
•$6.8 million decrease in Factor D Program due to the discontinuation and close-out of the program in 2024;
•$4.6 million decrease in compensation and related personnel costs primarily attributed to a decrease in research and development related headcount;
•$3.3 million decrease in other non-program specific and indirect costs primarily attributed to a decrease in the general and administrative expense allocation due to our commercial progression; and
•$1.3 million decrease in berotralstat primarily attributed to a decrease in costs associated with the APeX-P clinical trial, which is complete through the primary endpoint.
Research and development expenses include all direct and indirect expenses relating to research and development activities. Direct expenses consist of compensation for research and development personnel and costs of outside parties to conduct laboratory studies, develop manufacturing processes and manufacture the product candidates, and conduct and manage clinical trials, as well as other costs related to our clinical and preclinical studies. Additionally, direct expenses consist of those costs necessary to discontinue and close out a development program, including termination fees and other commitments. Indirect expenses consist of lab supplies and services, facility expenses, depreciation of development equipment and other overhead of our research and development efforts. Research and development expenses vary according to the number of programs in clinical development and the stage of development of our clinical programs. Later stage clinical programs tend to cost more than earlier stage programs due to the longer length of time of the clinical trials and the higher number of patients enrolled in these clinical trials.
Selling, general and administrative expenses for the nine months ended September 30, 2025 were $252.9 million compared to $185.8 million for the nine months ended September 30, 2024. The increase was driven by an increase in ORLADEYO related regulatory, safety and quality activities as efforts shifted from development to supporting commercial products, reflecting the program's commercial progression, as well as increases in variable costs driven by the increase in ORLADEYO sales, an increase from a change in general and administrative expense allocations, and an increase in headcount primarily associated with European growth. The increase was also driven by $9.9 million of transaction-related costs and a $13.7 million increase in stock-based compensation expense as a result of the retirement policy adopted in July 2024 and an increase in restricted stock unit awards granted.
Interest expense for the nine months ended September 30, 2025 was $64.7 million compared to $74.1 million for the nine months ended September 30, 2024. Interest expense is primarily comprised of non-cash interest expense due to the amortization of interest associated with the royalty financing obligations and interest expense associated with the borrowings under the Pharmakon Loan Agreement, including the amortization of the deferred financing costs, associated with the borrowings under the Pharmakon Loan. The decrease in interest expense was primarily the result of the $75.0 million and $50.0 million partial prepayments on the outstanding principal amount under the Pharmakon Term Loan in April 2025 and July 2025, respectively, the decrease in the effective interest rate related to the Pharmakon Loan Agreement, and a decrease in non-cash interest expense associated with our royalty financing obligations as a result of a lower outstanding balance.
For the nine months ended September 30, 2025, interest income was $7.8 million compared to $11.2 million for the nine months ended September 30, 2024. The decrease in interest income was primarily the result of an overall decrease in our investment portfolio and a decrease in interest rates. Net foreign currency losses were less than $0.1 million for the nine months ended September 30, 2025 and 2024.
In April 2025 and July 2025, the Company made $75.0 million and $50.0 million partial prepayments on the outstanding principal amount under the Pharmakon Term Loan, respectively, resulting in a one-time loss on extinguishment of debt of $6.9 million for the nine months ended September 30, 2025.
For the nine months ended September 30, 2025, other income was $2.7 million, which was primarily comprised of pre-close transaction services BioCryst performed on behalf of Neopharmed related to the sale of BioCryst Ireland.
For the nine months ended September 30, 2025, income tax expense was $1.4 million compared to $1.1 million for the nine months ended September 30, 2024. The increase in income tax expense was primarily driven by the increase in foreign and US taxable income for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.
Liquidity and Capital Resources
Sources of Liquidity
Our operations have principally been funded through public offerings and private placements of equity securities; our credit facilities; revenues from ORLADEYO; royalty financing transactions; and cash from collaborative and other research and development agreements, including U.S. Government contracts. In addition to the above, we have received funding from other sources, including government grants, research grants, and interest income on our investments.
On October 14, 2025, in connection with the Merger Agreement, we entered into the Commitment Letter with Blackstone, pursuant to which Blackstone agreed to provide a $550.0 million senior secured credit facility consisting of (i) the Initial Term Loan in an aggregate principal amount of $350.0 million, (ii) the Committed Delayed Draw Term Loans in an aggregate principal amount not exceeding $50.0 million, and (iii) an uncommitted delayed draw term loan facility in an aggregate principal amount not exceeding $150.0 million. The Initial Term Loan and any Committed Delayed Draw Term Loans funded on the closing date of the Merger will be used for the purpose of, among other things, funding the consideration for the transactions contemplated by the Merger Agreement and paying for related fees and expenses. The commitments with respect to the Initial Term Loan and any Committed Delayed Draw Term Loans funded on the closing date of the Merger are subject to customary conditions for acquisition financings, including the execution and delivery of definitive documentation with respect to the senior secured credit facility in accordance with the terms set forth in the Commitment Letter and the consummation of the Merger. See "Note 16-Subsequent Events"in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for additional information about the Merger.
On April 17, 2023, we entered into a $450.0 million Loan Agreement (the "Pharmakon Loan Agreement") with BioPharma Credit Investments V (Master) LP and BPCR Limited Partnership, as lenders, and BioPharma Credit PLC, as collateral agent for the lenders. The Pharmakon Loan Agreement provided for an initial term loan in the principal amount of $300.0 million (the "Tranche A Loan"), which was funded on April 17, 2023. We utilized a portion of the proceeds from the Tranche A Loan to repay the approximate $241.8 million of outstanding indebtedness under the then-existing credit facility with Athyrium Opportunities III Co-Invest 1 LP (the "Athyrium Credit Agreement") and to pay transaction costs and fees, and we used the remaining net proceeds of approximately $25.8 million for other general corporate purposes.
The Pharmakon Loan Agreement also provided for three additional term loan tranches in principal amounts of $50.0 million each, which we could have requested, at our option, on or prior to September 30, 2024. We chose not to request any of the additional term loan tranches. The maturity date of the Pharmakon Loan Agreement was April 17, 2028. On April 18, 2025, we made a partial prepayment of $75.0 million of the outstanding principal amount under the Pharmakon Loan Agreement, and on July 24, 2025, we made an additional partial prepayment of $50.0 millionof the outstanding principal amount under the Pharmakon Loan Agreement. On October 8, 2025, we used a portion of the proceeds from the sale of the European ORLADEYO Businessto pay off in full the outstanding principal balance of $198.7 million and terminate the Pharmakon Loan Agreement. Together, these payoffs of the Pharmakon Loan are expected to save approximately $90.0 million of interest, as of September 30, 2025.
In 2020 and 2021, we entered into the Royalty Purchase Agreements (as defined in "Note 7-Royalty Financing Obligations" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report) with RPI 2019 Intermediate Finance Trust ("RPI") and OCM IP Healthcare Holdings Limited, an affiliate of OMERS Capital Markets ("OMERS"). Under the Royalty Purchase Agreements, RPI and OMERS are entitled to receive tiered, sales-based royalties on net product sales of ORLADEYO in the United States and certain key European markets (collectively, the "Key Territories"), and other markets where we sell ORLADEYO directly or through distributors. In addition, RPI and OMERS are entitled to receive a tiered revenue share on amounts generally received by us on account of ORLADEYO sublicense revenue or net sales by licensees outside of the Key Territories. Our required payments to OMERS commenced with the calendar quarter beginning October 1, 2023. See "Note 7-Royalty Financing Obligations" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for additional information about these financing transactions.
Our principal sources of liquidity at September 30, 2025 were approximately $267.4 million in cash and cash equivalents and available-for-sale investments, of which $14.8 million was considered held for sale as of September 30, 2025.
Cash Flows
The following table summarizes our cash flows for each period presented (in thousands):
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | $ | 55,409 | $ | (46,807) | |||||||
| Investing activities | 69,794 | 34,796 | |||||||||
| Financing activities | (131,971) | (1,740) | |||||||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | 1,342 | 368 | |||||||||
| Decrease in cash, cash equivalents and restricted cash, including cash classified within current assets held for sale | (5,426) | (13,383) | |||||||||
| Less: net increase in cash and cash equivalents classified within current assets held for sale | (14,840) | - | |||||||||
| Net decrease in cash, and cash equivalents, and restricted cash | $ | (20,266) | $ | (13,383) | |||||||
Operating Activities
During the nine months ended September 30, 2025, net cash provided by operating activities of $55.4 million consisted primarily of net income of $18.0 million and $107.7 million of non-cash items. Non-cash items included $61.3 million of stock-based compensation expense, $39.8 million of non-cash interest expense on royalty financing obligations, and a loss on extinguishment of debt of $6.9 million. Net income and non-cash items were partially offset by $61.1 million of changes in operating assets and liabilities, primarily due to a decrease in royalty financing obligations and increases in receivables and accounts payable and accrued expenses, and $9.2 million in payments of Pharmakon PIK interest.
During the nine months ended September 30, 2024, net cash used in operating activities of $46.8 million consisted primarily of a net loss of $62.1 million and $76.0 million of changes in operating assets and liabilities, primarily due to a decrease in royalty financing obligations, a decrease in accounts payable and accrued expenses, and an increase in accounts receivable, partially offset by $91.2 million of non-cash items, including $44.1 million of stock-based compensation expense, $42.5 million in non-cash interest expense on royalty financing obligations, and $11.1 million of non-cash interest expense on secured term loan and amortization of debt issuance costs.
Investing Activities
During the nine months ended September 30, 2025, net cash provided by investing activities of $69.8 million primarily related to sales and maturities of investment securities, partially offset by purchases of investment securities.
During the nine months ended September 30, 2024, net cash provided by investing activities of $34.8 million primarily related to maturities of investment securities, partially offset by purchases of investment securities.
Financing Activities
During the nine months ended September 30, 2025, net cash used in financing activities of $132.0 million primarily consisted of repayment of Pharmakon term loan principal and related prepayment premium and fees totaling $119.6 million, and $16.4 million in principal payments on royalty financing obligations, partially offset by net proceeds from common stock issued under stock-based compensation plans.
During the nine months ended September 30, 2024, net cash used in financing activities of $1.7 million primarily consisted of withholding taxes paid on stock-based awards and principal payments on finance lease liabilities, partially offset by net proceeds from common stock issued under stock-based compensation plans.
Plan of Operation and Future Funding Requirements
We intend to contain costs and cash flow requirements by closely managing our third-party costs and headcount, leasing scientific equipment and facilities, and contracting with other parties to conduct certain research and development projects. We may incur additional expenses, potentially resulting in significant losses, as we continue to pursue our
research and development activities, commercialize ORLADEYO, and engage in strategic business development. We may incur additional expenses related to the filing, prosecution, maintenance, defense, and enforcement of patent and other intellectual property claims and additional regulatory costs as our clinical programs advance through later stages of development or as regulatory exclusivity for our products expires. The objective of our investment policy is to ensure the safety and preservation of invested funds, as well as to maintain liquidity sufficient to meet cash flow requirements. We place our excess cash with high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of our credit exposure. We have not realized any significant losses on our investments.
In the future, we may finance our needs principally from the following:
•our existing capital resources and interest earned on that capital;
•revenues from product sales;
•payments under current or future collaborative and licensing agreements with corporate partners;
•lease, royalty, or loan financing; and
•public or private equity and/or debt financing.
Our current and planned clinical trials, plus the related development, manufacturing, regulatory approval process requirements, and additional resources required for the continuing development of our product candidates and the commercialization of our products will consume significant capital resources and could increase our expenses.
Our expenses, revenues and cash utilization rate could vary significantly depending on many factors, including the progress and results of our current and proposed clinical trials for our most advanced product candidates; the progress made in the manufacturing of our lead product candidates; the success of our commercialization efforts for, and market acceptance of, our products; the overall progression of our other programs; our business development activities; the amount of funding or assistance, if any, we receive from new partnerships with third parties for the development and/or commercialization of our products and product candidates; the development progress of any collaborative agreements for our product candidates; and the amount and timing of funding we receive, if any, from U.S. Government contracts.
Based on our expectations for revenue and operating expenses, we believe our financial resources will be sufficient to fund our operations for at least the next 12 months. We did not draw down the additional debt available to us under the Pharmakon Loan Agreement, and, on October 8, 2025, we prepaid the remaining outstanding principal amount on the Pharmakon Loan Agreement. In connection with the Merger Agreement, we entered into the Commitment Letter with Blackstone, pursuant to which Blackstone agreed to provide a $550.0 million senior secured credit facility, subject to customary conditions for acquisition financings, including the execution and delivery of definitive documentation with respect to the senior secured credit facility in accordance with the terms set forth in the Commitment Letter and the consummation of the Merger.
Our liquidity needs will be largely determined by the success of operations in regard to the successful commercialization of our products and the future progression of our product candidates. From time to time, we evaluate other opportunities to fund future operations, including: (1) out-licensing rights to certain of our products or product candidates, pursuant to which we would receive cash milestone payments; (2) royalty or other monetization transactions; (3) obtaining additional product candidate regulatory approvals, which would generate revenue, milestone payments and cash flow; (4) reducing spending on one or more research and development programs, including by discontinuing development; (5) restructuring operations to change our overhead structure; and/or (6) securing U.S. Government funding of our programs, including obtaining procurement contracts. We may, in the future, issue securities, including common stock, preferred stock, depositary shares, purchase contracts, warrants, debt securities, and units, through private placement transactions or registered public offerings. Our future liquidity needs, and our ability to address those needs, will largely be determined by the success of our products and product candidates; the timing, scope, and magnitude of our research and development and commercial expenses; and key developments and regulatory events and our decisions in the future.
Our long-term capital requirements and the adequacy of our available funds will depend upon many factors, including:
•sustained market acceptance of approved products and successful commercialization of such products by either us or our partners;
•our ability to perform under any government contracts and to receive reimbursement and stockpiling procurement contracts;
•the progress and magnitude of our research, drug discovery and development programs;
•changes in existing collaborative relationships;
•our ability to establish additional collaborative relationships with academic institutions, biotechnology or pharmaceutical companies, and governmental agencies or other third parties;
•the extent to which our partners will share in the costs associated with the development of our programs or run the development programs themselves;
•our ability to negotiate favorable development and marketing strategic alliances for certain products and product candidates;
•any decision to build or expand internal development and commercial capabilities;
•the scope and results of preclinical studies and clinical trials to identify and develop product candidates;
•our ability to engage sites and enroll subjects in our clinical trials;
•the scope of manufacturing of our products to support our commercial operations and of our product candidates to support our preclinical research and clinical trials;
•increases in personnel and related costs to support the development and commercialization of our products and product candidates;
•the scope of manufacturing of our drug substance and product candidates required for future new drug application ("NDA") filings;
•competitive and technological advances;
•the time and costs involved in obtaining regulatory approvals;
•post-approval commitments for any products that receive regulatory approval;
•our business development activities; and
•the costs involved in all aspects of intellectual property strategy and protection, including the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims.
We may, in the future, be required to raise additional capital to complete the development and commercialization of our products and product candidates, and we may seek to raise capital in the future, including to take advantage of favorable opportunities in the capital markets. Additional funding may not be available when needed or in the form or on terms acceptable to us. Our future working capital requirements, including the need for additional working capital, will largely be determined by the advancement of our portfolio of product candidates and the commercialization of ORLADEYO. More specifically, our working capital requirements will be dependent on the number, magnitude, scope and timing of our development programs; regulatory approval of our product candidates; the cost, timing and outcome of regulatory reviews, regulatory investigations, and changes in regulatory requirements; the costs of obtaining patent protection for our product candidates; the timing and terms of business development activities; the rate of technological advances relevant to our operations; the efficiency of manufacturing processes developed on our behalf by third parties; the timing, scope and magnitude of commercial spending; and the level of required administrative support for our daily operations. See "Risk Factors-Risks Relating to Our Business-Financial and Liquidity Risks" and "Risk Factors-Risks Relating to Our Business-Risks Relating to Drug Development and Commercialization-If we fail to obtain additional financing or acceptable partnership arrangements if and when needed, we may be unable to complete the development and commercialization of our products and product candidates or continue operations" in Part II, Item 1A of this report for further discussion of the risks related to obtaining additional capital.
Critical Accounting Estimates
We have established various accounting policies that govern the application of U.S. GAAP, which were utilized in the preparation of our condensed consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by management that have or are reasonably likely to have a material impact on the carrying value of certain assets and liabilities. Management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of operations.
While our significant accounting policies are more fully described in "Note 1-Significant Accounting Policies and Concentrations of Risk" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements.
Revenue Recognition
Pursuant to Accounting Standards Codification ("ASC") Topic 606, we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, Topic 606 includes provisions within a five-step model that includes (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations, and (v) recognizing revenue when, or as, an entity satisfies a performance obligation.
At contract inception, we identify the goods or services promised within each contract, assess whether each promised good or service is distinct, and determine those that are performance obligations. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.
Product Sales, Net
Our principal sources of product sales are sales of ORLADEYO, which we began shipping to patients in December 2020, and sales of peramivir. In the United States, we generally ship ORLADEYO directly to patients through a single specialty pharmacy, which is considered our customer. Outside the United States, we sell ORLADEYO to specialty distributors and to hospitals and pharmacies, which collectively are considered our customers.
We recognize revenue for sales when the customer obtains control of the product, which generally occurs upon delivery.
Net revenue from sales of ORLADEYO is recorded at net selling price (transaction price), which includes reserves for variable consideration such as (i) estimated government rebates, such as Medicaid and Medicare Part D reimbursements, and estimated managed care rebates, (ii) estimated chargebacks, (iii) estimated costs of co-payment assistance programs, and (iv) product returns. These reserves, representing our best estimates of the amount of consideration to which we are entitled based on the terms of the applicable contracts and statutory requirements, are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable if no payments are required of us or a current liability if a payment is required of us. Actual amounts of consideration may differ from our estimates. If actual results vary from estimates, these estimates are adjusted, which would affect net product revenue and earnings in the period such variances become known.
Government and Managed Care Rebates. We contract with government agencies and managed care organizations or, collectively, third-party payors, so that ORLADEYO will be eligible for purchase by, or partial or full reimbursement from, such third-party payors. We estimate the rebates we will provide to third-party payors and deduct these estimated amounts from total gross product revenues at the time the revenues are recognized, resulting in a reduction of product revenue and the establishment of a current liability. We estimate the rebates that we will provide to third-party payors based upon (i) our contracts with these third-party payors, (ii) the government mandated discounts applicable to government-funded programs, and (iii) product distribution information obtained from our specialty pharmacy regarding payor mix.
Chargebacks. Chargebacks are discounts that occur when certain contracted customers, pharmacy benefit managers, insurance companies, and government programs purchase directly from our specialty pharmacy. These customers purchase our product under contracts negotiated between them and our specialty pharmacy. The specialty pharmacy, in turn, charges back to us the difference between the price that the specialty pharmacy paid and the negotiated price paid by the contracted customers, which may be higher or lower than the specialty pharmacy's purchase price with us. We estimate chargebacks and adjust gross product revenues and establish a current liability at the time revenues are recognized.
Co-payment assistance and patient assistance programs. Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. Based upon the terms of the program and co-payment assistance utilization reports received from the specialty pharmacy, we estimate the co-payment assistance amounts, which are recorded in the same period in which the related revenue is recognized, resulting in a reduction of product revenue and establishment of a current liability. We also offer a patient assistance program that provides free drug product, for a limited period of time, to allow a patient's insurance coverage to be established. Based on patient assistance program utilization reports provided by the specialty pharmacy, we record gross revenue of the product provided and a full reduction of the revenue amount for the free drug discount.
Product returns. We do not provide contractual return rights to our customers, except in instances where the product is damaged or defective. Non-acceptance by the patient of shipped drug product by the specialty pharmacy is reflected as a reversal of sales in the period in which the sales were originally recorded. Reserves for estimated non-acceptances by patients are recorded as a reduction of revenue in the period that the related revenue is recognized, as well as a reduction to accounts receivable. Estimates of non-acceptance are based on quantitative information provided by the specialty pharmacy.
Collaborative and Other Revenues
We have collaboration and license agreements with a number of third parties. Our primary sources of revenue from these collaborative and other research and development arrangements are license, service and royalty revenues.
Revenue from license fees, royalty payments, milestone payments, and research and development fees are recognized as revenue when the earnings process is complete and we have no further continuing performance obligations or we have completed the performance obligations under the terms of the agreement.
Arrangements that involve the delivery of more than one performance obligation are initially evaluated as to whether the intellectual property licenses granted by us represent distinct performance obligations. If they are determined to be distinct, the value of the intellectual property licenses would be recognized up front while the research and development service fees would be recognized as the performance obligations are satisfied. For performance obligations based on services performed, we measure progress using an input method based on the effort we expend or costs we incur toward the satisfaction of the performance obligation in relation to the total estimated effort or costs. Variable consideration is assessed at each reporting period as to whether it is not subject to significant future reversal and, therefore, should be included in the transaction price at the inception of the contract. If a contract includes a fixed or minimum amount of research and development support, this also would be included in the transaction price. Changes to collaborations, such as the extensions of the research term or increasing the number of targets or technology covered under an existing agreement, are assessed for whether they represent a modification or should be accounted for as a new contract. For contracts with multiple performance obligations, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which we separately sell the products or services. If a standalone selling price is not directly observable, then we estimate the standalone selling price using either an adjusted market assessment approach or an expected cost plus margin approach, representing the amount that we believe the market is willing to pay for the product or service. Analyzing the arrangement to identify performance obligations requires the use of judgment, and each may be an obligation to deliver services, a right or license to use an asset, or another performance obligation.
Under certain of our license agreements, we receive royalty payments based upon our licensees' net sales of covered products. Royalties are recognized at the later of when (i) the subsequent sale or usage occurs, or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been satisfied.
Inventory
Our inventory primarily relates to ORLADEYO. Our inventory also includes peramivir.
We value our inventory at the lower of cost or estimated net realizable value. We determine the cost of our inventory on a first-in, first-out (FIFO) basis. Raw materials and work-in-process include all inventory costs prior to packaging and labeling, including raw material, active product ingredient, and the drug product. Finished goods include packaged and labeled products. We classify inventory as long-term when consumption or sale of the inventory is not expected to occur within 12 months from the balance sheet date.
Our inventory is subject to expiration dating. At each reporting date, we evaluate the carrying value of our inventory and provide valuation reserves for any estimated excess, obsolete, short-dated or unmarketable inventory. In addition, we may experience spoilage of our raw materials and supplies. Our determination that a valuation reserve might be required, in addition to the quantification of such reserve, requires us to utilize significant judgment. Additionally, our inventory is subject to strict quality control and monitoring that is performed throughout the manufacturing process, including release of work-in-process to finished goods. In the event that certain batches or units of product do not meet quality specifications, we will record a write-down of any potential unmarketable inventory to its estimated net realizable value and record the expense as cost of product in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Prior to obtaining initial regulatory approval for an investigational product candidate, we expense costs relating to production of pre-launch inventory as research and development expense in our Condensed Consolidated Statements of
Comprehensive Income (Loss) in the period incurred. After regulatory approval has been received, we capitalize inventory costs.
Research and Development Expenses and Related Accruals
Research and development expenses include, among other items, personnel costs, including salaries and benefits, manufacturing costs, clinical, regulatory, and toxicology services performed by clinical research organizations ("CROs"), materials and supplies, and overhead allocations consisting of various administrative and facilities related costs, as well as termination fees and other commitments associated with discontinued programs. Most of our manufacturing and clinical and preclinical studies are performed by third-party CROs. Our research and development costs are charged to expense when incurred. Research and development expenses include all direct and indirect development costs related to the development of our portfolio of product candidates.
Research and development expenses consist of costs associated with research activities as well as those associated with our product development efforts, conducting pre-clinical trials, clinical trials and manufacturing activities. Direct expenses consist of compensation for research and development personnel and costs of outside parties to conduct laboratory studies, develop manufacturing processes and manufacture the product candidate, conduct and manage clinical trials, as well as other costs related to our clinical and preclinical studies. Additionally, direct expenses consist of those costs necessary to discontinue and close out a development program, including termination fees and other commitments. Indirect expenses consist of lab supplies and services, facility expenses, depreciation of development equipment and other overhead of our research and development efforts. These costs apply to our discovery research efforts.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with applicable Company personnel to identify services that have been performed on its behalf and estimating the actual work completed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. When evaluating the adequacy of accrued expenses, we consider facts and circumstances known to us at the time, which can include assumptions such as expected patient enrollment, site activation and estimated project duration. Examples of estimated accrued research and development expenses include (i) fees paid to CROs in connection with preclinical and toxicology studies and clinical trials, (ii) fees paid to investigative sites in connection with clinical trials, (iii) fees paid to contract manufacturers in connection with the production of our raw materials, drug substance, drug products, and product candidates, and (iv) professional fees.
The financial terms of our agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of milestones. We record liabilities under these contractual commitments when we determine an obligation has been incurred, regardless of the timing of the invoice. In expensing service fees, we estimate the time period over which services will be performed and the level of effort expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we will adjust the accrual accordingly. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of these costs, our actual expenses could differ from our estimates.
Stock-Based Compensation
All share-based payments, including grants of stock option awards and restricted stock unit awards, are recognized in our Condensed Consolidated Statements of Comprehensive Income (Loss) based on their fair values. Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period of the award. Determining the appropriate fair value model and the related assumptions for the model requires judgment, including estimating the stock price volatility, and the expected term. We utilize the Black-Scholes option-pricing model to value our stock option awards and recognize compensation expense on a straight-line basis over the requisite service period. We reduce stock-based compensation expense for estimated forfeitures. The estimation of share-based payment awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. Actual results, and future changes in estimates, may differ substantially from our current estimates.
Interest Expense and Royalty Financing Obligations
The royalty financing obligations are eligible to be repaid based on royalties from net sales of ORLADEYO. Interest expense is accrued using the effective interest rate method over the estimated period each of the related liabilities will be paid. This requires us to estimate the total amount of future royalty payments to be generated from product sales over the life of the agreement. We impute interest on the carrying value of each of the royalty financing obligations and record interest expense using an imputed effective interest rate. We reassess the expected royalty payments each reporting period and account for any changes through an adjustment to the effective interest rate on a prospective basis. The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs requires that we make estimates that could impact the carrying value of each of the liabilities, as well as the periods over which associated issuance costs will be amortized. A significant increase or decrease in forecasted net sales could materially impact each of the liability balances, interest expense and the time periods for repayment.
Income Taxes
The liability method is used in our accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. We have recorded a valuation allowance against substantially all potential tax assets, due to uncertainties in our ability to utilize deferred tax assets, primarily consisting of certain net operating losses carried forward, before they expire. The valuation allowance is based on estimates of future earnings in each of the jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable.
We account for uncertain tax positions in accordance with U.S. GAAP. Uncertain tax positions are recorded based upon certain recognition and measurement criteria. We re-evaluate uncertain tax positions and consider various factors, including, but not limited to, changes in tax law and the measurement of tax positions taken or expected to be taken in tax returns. We adjust the amount of the liability to reflect any subsequent changes in the relevant facts and circumstances surrounding the uncertain tax positions. We recognize interest and penalties related to income tax matters in income tax expense.
Recent Accounting Pronouncements
"Note 1-Significant Accounting Policies and Concentrations of Risk" in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report discusses accounting pronouncements recently issued or proposed but not yet required to be adopted.
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