Note

— Significant Accounting Policies

The Company

BioCryst Pharmaceuticals, Inc. (the “Company”) is a biotechnology company that discovers novel, oral, small-molecule medicines. The Company focuses on oral treatments for rare diseases in which significant unmet medical needs exist and an enzyme plays the key role in the biological pathway of the disease. The Company was incorporated in Delaware in

1986

and its headquarters is located in Durham, North Carolina. The Company integrates the disciplines of biology, crystallography, medicinal chemistry and computer modeling to discover and develop small molecule pharmaceuticals through the process known as structure-guided drug design. BioCryst has incurred losses and negative cash flows from operations since inception.

With the funds available at

March 31, 2019

and the Second Amended and Restated Senior Credit Facility (defined in Note

), the Company believes its financial resources will be sufficient to fund its operations into

2020.

The Company has sustained operating losses for the majority of its corporate history and expects that its

2019

expenses will exceed its

2019

revenues. The Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoing operations. Accordingly, its planned operations raise doubt about its ability to continue as a going concern through

2020.

The Company’s liquidity needs will be largely determined by the success of operations in regard to the progression of its product candidates in the future. The Company also

may

consider other plans to fund operations through

2020

including: (

) securing or increasing U.S. Government funding of its programs, including obtaining procurement contracts; (

) out-licensing rights to certain of its products or product candidates, pursuant to which the Company would receive cash milestones; (

) raising additional capital through equity or debt financings or from other sources; (

) obtaining additional product candidate regulatory approvals, which would generate revenue, milestones and cash flow; (

) reducing spending on

one

or more research and development programs, including by discontinuing development; and/or (

) restructuring operations to change its overhead structure. The Company

may

issue securities, including common stock, preferred stock, depositary shares, stock purchase contracts, warrants and units, through private placement transactions or registered public offerings in the future. The Company’s future liquidity needs, and ability to address those needs, will largely be determined by the success of its product candidates and key development and regulatory events and its decisions in the future.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, JPR Royalty Sub LLC (“Royalty Sub”) and MDCP, LLC (“MDCP”). Both subsidiaries were formed to facilitate financing transactions for the Company. Royalty Sub was formed in connection with a

$30,000

financing transaction the Company completed on

March

2011.

See Note

Royalty Monetization, for a further description of this transaction. MDCP was formed in connection with a

$23,000

senior credit facility that the Company closed on

September 23, 2016

and subsequently amended and restated on each of

July 20, 2018

and

February 5, 2019.

See Note

for a further description of these transactions. All intercompany transactions and balances have been eliminated.

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and the instructions to Form

-Q and do

not

include all of the information and footnotes required by U.S. GAAP for complete financial statements. Such financial statements reflect all adjustments that are, in management’s opinion, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, and cash flows. There were

adjustments other than normal recurring adjustments.

These financial statements should be read in conjunction with the financial statements for the year ended

December

31,

2018

and the notes thereto included in the Company’s

2018

Annual Report on Form

-K. Interim operating results are

not

necessarily indicative of operating results for the full year. The balance sheet as of

December

31,

2018

has been derived from the audited consolidated financial statements included in the Company’s most recent Annual Report on Form

-K.

Cash and Cash Equivalents

The Company generally considers cash equivalents to be all cash held in commercial checking accounts, certificates of deposit, money market accounts or investments in debt instruments with maturities of

three

months or less at the time of purchase. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these items.

Restricted Cash

Restricted cash as of

March

31,

2019

reflects

$979

in royalty revenue paid by Shionogi & Co., Ltd. (“Shionogi”) designated for interest on the PhaRMA Notes (defined in Note

) and

$1,415

the Company is required to maintain as collateral for a letter of credit associated with the lease execution and build-out of its Birmingham research facilities.

Investments

The Company invests in high credit quality investments in accordance with its investment policy, which is designed to minimize the possibility of loss. The objective of the Company’s investment policy is to ensure the safety and preservation of invested funds, as well as maintaining liquidity sufficient to meet cash flow requirements. The Company places its excess cash with high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of its credit exposure. In accordance with its policy, the Company is able to invest in marketable debt securities that

may

consist of U.S. Government and government agency securities, money market and mutual fund investments, municipal and corporate notes and bonds, commercial paper and asset or mortgage-backed securities, among others. The Company’s investment policy requires it to purchase high-quality marketable securities with a maximum individual maturity of

three

years and requires an average portfolio maturity of

more than

months. Some of the securities the Company invests in

may

have market risk. This means that a change in prevailing interest rates

may

cause the principal amount of the investment to fluctuate. To minimize this risk, the Company schedules its investments with maturities that coincide with expected cash flow needs, thus avoiding the need to redeem an investment prior to its maturity date. Accordingly, the Company does

not

believe it has a material exposure to interest rate risk arising from its investments. Generally, the Company’s investments are

not

collateralized. The Company has

not

realized any significant losses from its investments.

The Company classifies all of its investments as available-for-sale. Unrealized gains and losses on investments are recognized in comprehensive loss, unless an unrealized loss is considered to be other than temporary, in which case the unrealized loss is charged to operations. The Company periodically reviews its investments for other than temporary declines in fair value below cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. The Company believes the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. Realized gains and losses are reflected in interest and other income in the Consolidated Statements of Comprehensive Loss and are determined using the specific identification method with transactions recorded on a settlement date basis. Investments with original maturities at date of purchase beyond

three

months and which mature at or less than

months from the balance sheet date are classified as current. Investments with a maturity beyond

months from the balance sheet date are classified as long-term. At

March 31, 2019,

the Company believes that the cost of its investments is recoverable in all material respects.

The following tables summarize the fair value of the Company’s investments by type. The estimated fair values of the Company’s fixed income investments are classified as Level

in the fair value hierarchy as defined in U.S. GAAP. These valuations are based on observable direct and indirect inputs, primarily quoted prices of similar, but

not

identical, instruments in active markets or quoted prices for identical or similar instruments in markets that are

not

active. These fair values are obtained from independent pricing services which utilize Level

inputs.

	March 31, 2019
	Amortized Cost		Accrued Interest		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Obligations of the U.S. Government and its agencies	$	46,201	$	183	$	31	$	(55	)	$	46,360
Corporate debt securities		34,316		226		15		(81	)		34,476
Certificates of deposit		3,559		12		6		(5	)		3,572
Total investments	$	84,076	$	421	$	52	$	(141	)	$	84,408

	December 31, 2018
	Amortized Cost		Accrued Interest		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Obligations of U.S. Government and its agencies	$	50,613	$	176	$	15	$	(131	)	$	50,673
Corporate debt securities		45,793		254		4		(171	)		45,880
Certificates of deposit		3,559		14		—		(14	)		3,559
Total investments	$	99,965	$	444	$	19	$	(316	)	$	100,112

The following table summarizes the scheduled maturity for the Company’s investments at

March

31,

2019

and

December

31,

2018.

	March 31, 2019		December 31, 2018
Maturing in one year or less	$	72,753	$	77,736
Maturing after one year through two years		11,655		22,376
Total investments	$	84,408	$	100,112

Receivables from Collaborations

Receivables from collaborations are recorded for amounts due to the Company related to reimbursable research and development costs from the U.S. Department of Health and Human Services, royalty receivables from Shionogi, Green Cross Corporation (“Green Cross”), Mundipharma International Holdings Limited (“Mundipharma”) and Seqirus UK Limited (“SUL”), and product sales to SUL, Shionogi, and Green Cross. These receivables are evaluated to determine if any reserve or allowance should be established at each reporting date.

March 31, 2019

and

December

31,

2018,

the Company had the following receivables.

	March 31, 2019
	Billed		Unbilled		Total
U.S. Department of Health and Human Services	$	673		1,014		1,687
Shionogi & Co. Ltd.		1,451		—		1,451
Green Cross Corporation		642		—		642
Mundipharma International Holdings Limited		21		—		21
Seqirus UK Limited		1,175		26		1,201
Total receivables	$	3,962	$	1,040	$	5,002

	December 31, 2018
	Billed		Unbilled		Total
U.S. Department of Health and Human Services	$	—	$	1,525	$	1,525
Shionogi & Co. Ltd.		854		—		854
Green Cross Corporation		876		28		904
Mundipharma International Holdings Limited		44		—		44
Seqirus UK Limited		940		26		966
Total receivables	$	2,714	$	1,579	$	4,293

Monthly invoices are submitted to the U.S. Department of Health and Human Services related to reimbursable research and development costs. The Company is also entitled to monthly reimbursement of indirect costs based on rates stipulated in the underlying contract. The Company’s calculations of its indirect cost rates are subject to audit by the U.S. Government.

Receivables from Product Sales

Receivables from product sales are recorded for amounts due to the Company related to sales of RAPIVAB. These receivables are evaluated to determine if any reserve or allowance should be established at each reporting date.

Inventory

March 31, 2019

and

December 31, 2018,

the Company’s inventory consisted primarily of peramivir work in process and is being manufactured for the Company’s partners. Inventory is stated at the lower of cost and net realizable value, determined under the

first

-in,

first

-out (“FIFO”) method, or market. The Company expenses costs related to the production of inventories as research and development expenses in the period incurred until such time it is believed that future economic benefit is expected to be recognized, which generally is reliant upon receipt of regulatory approval. Upon regulatory approval, the Company will capitalize subsequent costs related to the production of inventories.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Computer equipment is depreciated over a life of

three

years. Laboratory equipment, office equipment, and software are depreciated over a life of

five

years. Furniture and fixtures are depreciated over a life of

seven

years. Leasehold improvements are amortized over their estimated useful lives or the expected lease term, whichever is less. At

December 31, 2018,

property consisted of a leased building which did

not

meet the sale-leaseback criteria and is recorded at its fair value, less depreciation. Upon adoption of Accounting Standards Update

No.

2016

02:

Leases (Topic

842

)

January 1, 2019,

the building was derecognized and a right-of-use asset was recorded. For additional detail, see Note

Leases.

In accordance with U.S. GAAP, the Company periodically reviews its property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of such assets

may

not

be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are

not

expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Property and equipment to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

Patents and Licenses

The Company seeks patent protection on all internally developed processes and products. All patent related costs are expensed to general and administrative expenses when incurred as recoverability of such expenditures is uncertain.

Accrued Expenses

The Company generally enters into contractual agreements with

third

-party vendors who provide research and development, manufacturing, and other services in the ordinary course of business. Some of these contracts are subject to milestone-based invoicing and services are completed over an extended period of time. The Company records liabilities under these contractual commitments when it determines an obligation has been incurred, regardless of the timing of the invoice. 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 level of service performed 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 service providers invoice the Company monthly in arrears for services performed. The Company makes estimates of accrued expenses as of each balance sheet date in its financial statements based on the facts and circumstances. The Company periodically confirms the accuracy of its estimates with the service providers and makes adjustments if necessary. Examples of estimated accrued expenses include:

	•	fees paid to Clinical Research Organizations (“CROs”) in connection with preclinical and toxicology studies and clinical trials;
	•	fees paid to investigative sites in connection with clinical trials;
	•	fees paid to contract manufacturers in connection with the production of the Company’s raw materials, drug substance and drug products; and
	•	professional fees.

The Company bases its expenses related to clinical trials on its estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on the Company’s behalf. The financial terms of these 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 clinical trial milestones. In accruing service fees, the Company estimates 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 the estimate, the Company will adjust the accrual accordingly. As of

March 31, 2019

and

December 31, 2018,

the carrying value of accrued expenses approximates their fair value due to their short-term settlement.

Income Taxes

The liability method is used in the Company’s 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.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is comprised of unrealized gains and losses on available-for-sale investments and is disclosed as a separate component of stockholders’ equity. Amounts reclassified from accumulated other comprehensive loss are recorded as interest and other income on the Consolidated Statements of Comprehensive Loss.

reclassifications out of accumulated other comprehensive loss were recorded during the

three

months ended

March 31, 2019

March 31, 2018.

Revenue Recognition

Collaborative and Other Research and Development Arrangements and Royalties

The Company recognizes revenue when it satisfies a performance obligation by transferring promised goods or services to a customer. Revenue is measured at the transaction price that is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised goods or services to the customer. The transaction price includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will

not

occur.

The Company has collaboration and license agreements with a number of

third

parties as well as research and development agreements with certain government entities. The Company’s primary sources of revenue are license, service, royalty and product sale revenues from these collaborative and other research and development arrangements.

Revenue from license fees, royalty payments, milestone payments, and research and development fees are recognized as revenue when the earnings process is complete and the Company has

further continuing performance obligations or the Company has 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 the Company 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. 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 the Company separately sells the products or services. If a standalone selling price is

not

directly observable, then the Company estimates the standalone selling price considering market conditions and entity-specific factors. 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.

Milestone payments are recognized as licensing revenue upon the achievement of specified milestones if (i) the milestone is substantive in nature and the achievement of the milestone was

not

probable at the inception of the agreement; and (ii) the Company has a right to payment. Any milestone payments received prior to satisfying these revenue recognition criteria are recorded as deferred revenue.

Reimbursements received for direct out-of-pocket expenses related to research and development costs are recorded as revenue in the Consolidated Statements of Comprehensive Loss rather than as a reduction in expenses. Under the Company’s contracts with the Biomedical Advanced Research and Development Authority within the United States Department of Health and Human Services (”BARDA/HHS”) and the National Institute of Allergy and Infectious Diseases (“NIAID/HHS”), revenue is recognized as reimbursable direct and indirect costs are incurred.

Under certain of the Company’s license agreements, the Company receives royalty payments based upon its 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.

Product Sales

The Company recognizes revenue for sales of RAPIVAB when the customer obtains control of the product, which generally occurs on the date of shipment to the Company’s specialty distributors, utilizing the Sell-In revenue recognition methodology. Product sales are recognized net of estimated allowances, discounts, sales returns, chargebacks and rebates. In the United States, prior to the SUL agreement, the Company sold RAPIVAB to specialty distributors, who in turn, sell to physician offices, hospitals and federal, state and commercial health care organizations. With the completion of the SUL worldwide license of RAPIVAB, SUL will be responsible for sales of RAPIVAB, other than U.S. Government stockpiling sales. With the completion of the SUL collaboration, all

third

party peramivir sales (i.e., RAPIVAB, ALPIVAB

, RAPIACTA

, and PERAMIFLU

) will be made by the Company’s partners, except for U.S. Government stockpiling sales and sales to collaborative partners, and the Company will be reliant on these partners to generate sales.

Sales deductions consist of statutory rebates to state Medicaid, Medicare and other government agencies and sales discounts (including trade discounts and distribution service fees). These deductions are recorded as reductions from revenue from RAPIVAB in the same period as the related sales with estimates of future utilization derived from historical experience adjusted to reflect known changes in the factors that impact such reserves.

The Company recorded the following revenues for the

three

months ended

March

31,

2019

and

2018:

	2019		2018
Product sales	$	1,679	$	—
Royalty revenues		2,322		3,661
Collaborative and other research and development revenues:
U.S. Department of Health and Human Services		1,886		315
Total collaborative and other research and development revenues		1,886		315

Total revenues	$	5,887	$	3,976

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and deferred revenue and billings in excess of revenue recognized (contract liabilities) on the Consolidated Balance Sheets.

Contract assets

- The Company’s long-term contracts, typically the government research and development contracts, are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. Often this results in billing occurring subsequent to revenue recognition resulting in contract assets. Contract assets are generally classified as current assets in the Consolidated Balance Sheet.

Contract liabilities

- The Company often receives cash payments from customers in advance of the Company’s performance resulting in contract liabilities. These contract liabilities are classified as either current or long-term in the Consolidated Balance Sheet based on the timing of when the Company expects to recognize the revenue.

Contract Costs

The Company

may

incur direct and indirect costs associated with obtaining a contract. Incremental contract costs that the Company expects to recover are capitalized and amortized over the expected term of the contract. Non-incremental contract costs and costs that the Company does expect to recover are expensed as incurred.

Advertising

The Company engages in very limited distribution and direct-response advertising when promoting RAPIVAB. Advertising and promotional costs are expensed as the costs are incurred.

Research and Development Expenses

The Company’s 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 the Company’s portfolio of product candidates. Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as expense when the related goods are delivered or the related services are performed. Research and development expenses include, among other items, personnel costs, including salaries and benefits, manufacturing costs, clinical, regulatory, and toxicology services performed by CROs, materials and supplies, and overhead allocations consisting of various administrative and facilities related costs. Most of the Company’s manufacturing and clinical and preclinical studies are performed by

third

-party CROs. Costs for studies performed by CROs are accrued by the Company over the service periods specified in the contracts and estimates are adjusted, if required, based upon the Company’s on-going review of the level of services actually performed.

Additionally, the Company has license agreements with

third

parties, such as Albert Einstein College of Medicine of Yeshiva University (“AECOM”), Industrial Research, Ltd. (“IRL”), and the University of Alabama at Birmingham (“UAB”), which require fees related to sublicense agreements or maintenance fees. The Company expenses sublicense payments as incurred unless they are related to revenues that have been deferred, in which case the expenses are deferred and recognized over the related revenue recognition period. The Company expenses maintenance payments as incurred.

Deferred collaboration expenses represent sub-license payments, paid to the Company’s academic partners upon receipt of consideration from various commercial partners, and other consideration paid to the Company’s academic partners for modification to existing license agreements. These deferred expenses would

not

have been incurred without receipt of such payments or modifications from the Company’s commercial partners and are being expensed in proportion to the related revenue being recognized. The Company believes that this accounting treatment appropriately matches expenses with the associated revenue.

Stock-Based Compensation

All share-based payments, including grants of stock option awards and restricted stock unit awards, are recognized in the Company’s Consolidated Statements of Comprehensive Loss based on their fair values. The fair value of stock option awards is estimated using the Black-Scholes option pricing model. The fair value of restricted stock unit awards is based on the grant date closing price of the common stock. Stock-based compensation cost is recognized as expense on a straight-line basis over the requisite service period of the award. In addition, we have outstanding performance-based stock options for which

compensation expense is recognized until “performance” is deemed to have occurred.

Interest Expense and Deferred Financing Costs

Interest expense for the

three

months ended

March

31,

2019

and

2018

includes

$2,725

and

$2,136,

respectively, related to the issuance of the PhaRMA Notes (defined in Note

) and the Second Amended and Restated Senior Credit Facility (defined in Note

). Costs directly associated with the issuance of the PhaRMA Notes and the Senior Credit Facility have been capitalized and are netted against the non-recourse notes payable and senior credit facility on the Consolidated Balance Sheets. These costs are being amortized to interest expense over the terms of the PhaRMA Notes and the Second Amended and Restated Senior Credit Facility using the effective interest rate method. Amortization of deferred financing costs and original issue discount included in interest expense was

$255

and

$232

for each of the

three

months ended

March

31,

2019

and

2018,

respectively.

Currency Hedge Agreement

In connection with the issuance by Royalty Sub of the PhaRMA Notes, the Company entered into a Currency Hedge Agreement to hedge certain risks associated with changes in the value of the Japanese yen relative to the U.S. dollar. The Currency Hedge Agreement does

not

qualify for hedge accounting treatment; therefore mark to market adjustments are recognized in the Company’s Consolidated Statements of Comprehensive Loss. Cumulative mark to market adjustments for the

three

months ended

March

31,

2019

and

2018

resulted in a gain of

$406

and a loss of

$1,804,

respectively. Mark to market adjustments are determined by a

third

party pricing model that uses quoted prices in markets that are

not

actively traded and for which significant inputs are observable directly or indirectly, representing Level

in the fair value hierarchy as defined by U.S. GAAP. The Company is also required to post collateral in connection with the mark to market adjustments based on thresholds defined in the Currency Hedge Agreement. As of

March

31,

2019

and

December 31, 2018,

hedge collateral was posted under the agreement.

Net Loss Per Share

Net loss per share is based upon the weighted average number of common shares outstanding during the period. Diluted loss per share is equivalent to basic net loss per share for all periods presented herein because common equivalent shares from unexercised stock options and common shares expected to be issued under the Company’s employee stock purchase plan were anti-dilutive. The calculation of diluted earnings per share for the

three

months ended

March

31,

2019

and

2018

does

not

include

3,406

and

1,775,

respectively, of such potential common shares, as their impact would be anti-dilutive.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The most significant estimates in the Company’s consolidated financial statements relate to the valuation of stock options, and the valuation allowance for deferred tax assets resulting from net operating losses. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are

not

readily apparent from other sources. Actual results could differ from those estimates.

Significant Customers and Other Risks

Significant Customers

Prior to the SUL Agreement, the Company relied primarily on

three

specialty distributors to purchase and supply the majority of RAPIVAB. These

three

pharmaceutical specialty distributors accounted for greater than

90%

of all RAPIVAB product sales and accounted for predominantly all of the Company’s outstanding receivables from product sales. The loss of

one

or more of these specialty distributors as a customer could have negatively impacted the commercialization of RAPIVAB. However, the Company will utilize these specialty distributors on a limited basis subsequent to the SUL collaboration, as SUL and other peramivir collaboration partners will be responsible for commercial sales on a worldwide basis. In addition, in connection with the SUL collaboration, all

third

party peramivir sales (i.e., RAPIVAB, ALPIVAB, RAPIACTA, and PERAMIFLU) will be made by the Company’s partners and the Company will be reliant on these partners to generate sales and remit cash to satisfy receivables.

Other than royalty revenues, the Company’s primary source of revenue that has an underlying cash flow stream is the reimbursement of galidesivir (formerly

BCX4430

) development expenses earned under cost-plus-fixed-fee contracts with BARDA/HHS and NIAID/HHS. The Company relies on BARDA/HHS and NIAID/HHS to reimburse predominantly all of the development costs for its galidesivir program. Accordingly, reimbursement of these expenses represents a significant portion of the Company’s collaborative and other research and development revenues. The completion or termination of the NIAID/HHS and BARDA/HHS galidesivir contracts could negatively impact the Company’s future Consolidated Statements of Comprehensive Loss and Cash Flows. The Company recognizes royalty revenue from the net sales of RAPIACTA by Shionogi; however, the underlying cash flow from these royalty payments, except for Japanese government stockpiling sales, goes directly to pay the interest, and then the principal, on the Company’s non-recourse notes payable. Payment of the interest and the ultimate repayment of principal of these notes will be entirely funded by future royalty payments derived from net sales of RAPIACTA. Further, the Company’s drug development activities are performed by a limited group of

third

party vendors. If any of these vendors were unable to perform their services, this could significantly impact the Company’s ability to complete its drug development activities.

Risks from Third Party Manufacturing and Distribution Concentration

The Company relies on single source manufacturers for active pharmaceutical ingredient and finished drug product manufacturing of product candidates in development. Delays in the manufacture or distribution of any product could adversely impact the commercial revenue and future procurement stockpiling of the Company’s product candidates in development.

Credit Risk

Cash equivalents and investments are financial instruments which potentially subject the Company to concentration of risk to the extent recorded on the Consolidated Balance Sheets. The Company deposits excess cash with major financial institutions in the United States. Balances

may

exceed the amount of insurance provided on such deposits. The Company believes it has established guidelines for investment of its excess cash relative to diversification and maturities that maintain safety and liquidity. To minimize the exposure due to adverse shifts in interest rates, the Company maintains a portfolio of investments with an average maturity of approximately

months or less. Other than product sale and collaborative partner receivables discussed above, the majority of the Company’s receivables from collaborations are due from the U.S. Government, for which there is

assumed credit risk.

Recent Accounting Pronouncements

February 2016,

the FASB issued Accounting Standards Update

No.

2016

02:

Leases (Topic

842

)

(“ASU

2016

02”

). The amendments in this update require lessees, among other things, to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms greater than

months. This update also introduces new disclosure requirements for leasing arrangements. In

July 2018,

the FASB issued Accounting Standards Update

No.

2018

11:

Targeted Improvements to Leases

(“ASU

2018

11”

), which provides companies with an additional transition method that allows the effects of the adoption of the new standard to be recognized as a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted ASU

2016

as of

January 1, 2019

using the optional transition method set forth in ASU

2018

11.

ASU

2016

provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits it to

not

reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the short-term lease recognition exemption for all leases that qualify. For those leases that qualify, the Company will

not

recognize right of use assets or lease liabilities, and this includes

not

recognizing right of use assets or lease liabilities for existing short-term leases of those assets in transition.

The most significant effects of adoption relate to (

) the recognition of new right of use assets and lease liabilities on its balance sheet for real estate operating leases; and (

) providing significant new disclosures about its leasing activities. For additional detail, see Note

Leases.