INOVIO PHARMACEUTICALS, INC. quarterly report, Q2 FY2023

Business context and reporting period

INOVIO Pharmaceuticals, Inc. is a clinical-stage biotechnology company developing DNA medicines delivered using its investigational CELLECTRA devices. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023. The company had no approved products and reported no product sales; revenue came from collaborations and other contracts.

Financial performance and liquidity

Revenue declined primarily because the Department of Defense device contract was completed in 2022. Lower operating expenses reflected reduced COVID-19 program activity, workforce reductions, and lower legal and other costs; Q2 2022 G&A included settlement-related expense. Higher interest income and favorable changes in investment values also helped reduce the year-over-year net loss. The company remained loss-making, so a product gross margin was not reported.

At June 30, 2023, cash and cash equivalents were $52.7 million and short-term investments were $142.2 million, totaling $194.9 million, versus $253.0 million at December 31, 2022. Working capital was $151.4 million, down from $218.4 million. Total assets were $233.0 million and total liabilities were $63.7 million. The company reported $16.7 million of current convertible notes; the 6.5% notes mature March 1, 2024. Contractual payments, including interest, were estimated at $17.5 million.

Cash from investing activities was $72.9 million for the first half, mainly reflecting investment maturities and sales; financing provided $2.5 million, including $2.9 million of net ATM equity proceeds. Operating cash use was lower than in the prior-year period, partly due to working-capital timing. The company recorded $3.9 million of realized investment losses and a $4.1 million net unrealized gain on available-for-sale equity securities for the first half. A $2.0 million impairment charge was recorded for Bioject-related intangible assets.

Material changes and business developments

• R&D expense fell 52% for the first half year over year, primarily as internally funded INO-4800 COVID-19 development was discontinued and related activity and device spending declined. Spending increased on INO-3107 and immuno-oncology programs.
• INOVIO reported positive Phase 1/2 INO-3107 results in recurrent respiratory papillomatosis (RRP), including a statistically significant reduction in median surgical interventions during the first year after treatment. It was preparing a randomized, placebo-controlled pivotal Phase 3 trial.
• The company issued 9.1 million shares in Q1 to complete the securities class-action settlement. It also sold 5.1 million shares under its ATM program in the first half, raising $2.9 million net; $164.4 million of ATM capacity remained at June 30.
• Short-term investments declined from $206.7 million at year-end 2022 to $142.2 million at June 30, 2023. The company attributed unrealized losses on debt securities primarily to interest-rate changes, not credit concerns.

Outlook, risks and contingencies

Management stated that cash and short-term investments were sufficient for planned operations for at least 12 months from issuance of the financial statements and expected cost-reduction actions to extend the cash runway into the third quarter of 2025, excluding additional capital raising. The company also said current resources would not fund completion of clinical development and commercialization of a product candidate; further financing or collaborations will be needed, and financing could dilute shareholders or be unavailable on acceptable terms. These runway statements are management estimates, not a guarantee.

Subject to regulatory clearance, management targeted dosing the first patient in the INO-3107 Phase 3 trial in Q1 2024. On July 31, 2023, the company announced a further reduction in force of 58 employees, approximately 30% of full-time staff. It expected a $2.1 million one-time Q3 2023 charge and approximately $9.9 million in annual savings. In August 2023, it announced it would cease U.S. clinical development of VGX-3100 for cervical HSIL; ApolloBio continued a Phase 3 trial in China.

Key risks include continued operating losses and reliance on external funding; uncertain clinical, regulatory and manufacturing outcomes; dependence on collaborators and government grants; competition; and potential dilution. Litigation remained ongoing with VGXI and GeneOne. A shareholder derivative settlement had preliminary court approval, with a hearing scheduled for October 11, 2023; the company reported a $1.2 million payment to plaintiffs’ counsel subject to final approval. INOVIO also disclosed Nasdaq’s minimum-bid-price notice, with an October 31, 2023 deadline to regain compliance and possible delisting if unsuccessful. Management reported disclosure controls were effective as of June 30, 2023.

Important facts for investors to verify

• Whether the INO-3107 Phase 3 trial received regulatory clearance and began on the targeted timetable, and whether its results support further development.
• Whether the projected cash runway through Q3 2025 and $9.9 million annual savings are achieved, and what financing will be required to advance the pipeline.
• The company’s ability to meet or refinance the March 2024 convertible-note maturity and the effects of any further ATM share sales.
• Whether the derivative settlement received final approval, and the outcomes and potential costs of the VGXI and GeneOne disputes.
• Whether INOVIO regained Nasdaq’s minimum bid-price compliance by the deadline and whether a reverse stock split or other action was required.